-----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, UKBy7QysK9HHotwwhAxubFVoEexI2KJTqIT6/MI+f7wAZbOFxlFFs/oHiZPBQbRq GpRyMnlvJ6tjVS2KCTTNjQ== 0001005477-97-002481.txt : 19971111 0001005477-97-002481.hdr.sgml : 19971111 ACCESSION NUMBER: 0001005477-97-002481 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971110 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INTERNATIONAL PETROLEUM CORP /NV/ CENTRAL INDEX KEY: 0000799119 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 133130236 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14905 FILM NUMBER: 97711773 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 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20449 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 Commission File number No. 0-14905 AMERICAN INTERNATIONAL PETROLEUM CORPORATION -------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 13-3130236 - --------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 444 MADISON AVENUE, SUITE 3203, NEW YORK, NEW YORK 10022 -------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 688-3333 -------------- (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| The number of shares outstanding of the registrant's Common Stock, $.08 par value, as of November 5, 1997 is 48,286,137 shares. PART I. FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30 December 31, 1997 1996 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 3,209,388 $ 11,058 Cash - restricted -- 161,022 Marketable Securities 2,565,246 -- Accounts and notes receivable, net 1,594,667 1,073,140 Inventory -- 459,961 Prepaid expenses 399,073 838,104 ------------ ------------ Total current assets 7,768,374 2,543,285 ------------ ------------ Property, plant and equipment: Unevaluated oil and gas property 6,305,691 5,648,630 Oil and gas properties -- 32,506,656 Refinery property and equipment 19,993,977 17,235,183 Other 212,970 499,971 ------------ ------------ 26,512,638 55,890,440 Less - accumulated depreciation, depletion, amortization and impairments (4,150,005) (23,959,191) ------------ ------------ Total property, plant and equipment 22,362,633 31,931,249 ------------ ------------ Other long-term assets, net 2,657,101 17,897 ------------ ------------ Total assets $ 32,788,108 $ 34,492,431 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Notes payable $ -- $ 237,162 Current portion of long-term debt 2,399,993 5,968,393 Accounts payable 1,164,343 3,636,765 Accrued liabilities 2,122,384 2,524,194 ------------ ------------ Total current liabilities 5,686,720 12,366,514 Long-term debt 6,208,333 798,199 ------------ ------------ Total liabilities 11,895,053 13,164,713 ------------ ------------ Stockholders' equity: Preferred stock, par value $0.01, 7,000,000 shares authorized, none issued -- -- Common stock, par value $.08, 100,000,000 shares authorized, 43,877,092 shares issued and outstanding at September 30, 1997 and 34,458,921 shares at December 31, 1996 3,510,167 2,756,714 Additional paid-in capital 90,195,834 78,677,265 Stock purchase warrants 1,297,754 1,297,754 Accumulated deficit (74,110,700) (61,404,015) ------------ ------------ Total stockholders' equity 20,893,055 21,327,718 ------------ ------------ Commitments and contingent liabilities -- -- ------------ ------------ Total liabilities and stockholders' equity $ 32,788,108 $ 34,492,431 ============ ============
2 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, (Unaudited) 1997 1996 ------------ ------------ Restated Revenues: Oil and gas production and pipeline fees $ -- $ 300,514 Refinery lease fees -- 662,962 Other 103,738 36,498 ------------ ------------ Total revenues 103,738 999,974 ------------ ------------ Expenses: Operating -- 176,220 General and administrative 553,073 923,270 Depreciation, depletion and amortization 183,410 284,251 Interest 3,583,757 439,420 Unrealized loss on marketable securities 405,038 -- ------------ ------------ Total expenses 4,725,278 1,823,161 ------------ ------------ Net loss $ (4,621,540) $ (823,187) ============ ============ Net loss per share of common stock $ (0.11) $ (0.03) ============ ============ Weighted-average number of shares of common stock outstanding 42,252,140 32,884,064 ============ ============ 3 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Unaudited) 1997 1996 ------------ ------------ Restated Revenues: Oil and gas production and pipeline fees $ 260,579 $ 941,760 Refinery lease fees 442,714 1,780,280 Other 192,080 167,873 ------------ ------------ Total revenues 895,373 2,889,913 ------------ ------------ Expenses: Operating 98,765 392,885 General and administrative 3,128,085 2,210,298 Depreciation, depletion and amortization 565,776 931,704 Interest 4,999,168 1,934,958 Unrealized loss on marketable securities 3,798,765 -- Provision for bad debts 447,832 -- Loss on sale of subsidiaries 563,667 -- ------------ ------------ Total expenses 13,602,058 5,469,845 ------------ ------------ Net loss $(12,706,685) $ (2,579,932) ============ ============ Net loss per share of common stock $ (0.32) $ (0.08) ============ ============ Weighted-average number of shares of common stock outstanding 39,140,084 30,406,476 ============ ============ 4 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Unaudited)
1997 1996 ------------ ----------- Cash flows from operating activities: Net loss $(12,706,685) $(2,579,932) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation, depletion and amortization 3,918,639 2,038,894 Unrealized loss on marketable securities 3,798,765 -- Provision for bad debts 447,832 -- Loss on sale of subsidiaries 563,667 -- Non-cash provision for services 174,219 421,875 Changes in assets and liabilities: Accounts and notes receivable (153,656) (273,932) Inventory 56,974 258,521 Prepaid and other (63,431) 48,430 Accounts payable and accrued liabilities (157,577) 486,557 ------------ ----------- Net cash provided by (used in) operating activities (4,121,253) 400,413 ------------ ----------- Cash flows from investing activities: Additions to oil and gas properties (939,805) (1,122,400) Additions to refinery property and equipment (2,758,794) (1,056,909) Proceeds from sale of marketable securities 2,404,739 -- Proceeds from sale of subsidiaries 1,729,287 -- ----------- Other (605,791) (200,023) ------------ ----------- Net cash used in investing activities (170,364) (2,379,332) ------------ ----------- Cash flows from financing activities: Cash - restricted, loan collateral 35,261 97,253 Net increase (decrease) in notes payable (237,162) 34,593 Proceeds from long-term debt 10,536,600 1,810,000 Repayments of long-term debt (3,675,657) (714,675) Proceeds from issuance of common stock and warrants, net 442,270 762,802 Proceeds from exercise of stock warrants and options 388,635 -- ------------ ----------- Net cash provided by financing activities 7,489,947 1,989,973 ------------ ----------- Net increase (decrease) in cash and cash equivalents 3,198,330 11,054 Cash and cash equivalents at beginning of year 11,058 162,218 ------------ ----------- Cash and cash equivalents at end of year $ 3,209,388 $ 173,272 ============ ===========
5 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Additional Stock Common stock paid-in purchase Accumulated Shares Amount capital warrants deficit Total ---------- ---------- ----------- ---------- ------------ ------------ Balance, December 31, 1996 34,458,921 $2,756,714 $78,677,265 $1,297,754 $(61,404,015) $ 21,327,718 Conversions of Debentures 4,674,311 373,943 2,379,279 -- -- 2,753,222 Issuance of stock for interest in oil & gas properties 1,750,000 140,000 4,955,313 -- -- 5,095,313 Issuance of stock for services 250,000 20,000 116,719 -- -- 136,719 Issuance of stock for compensation 100,000 8,000 32,000 -- -- 40,000 Issuance of stock in lieu of accounts payable 224,046 17,924 97,909 -- -- 115,833 Issuance of stock purchase warrants with debentures -- -- 1,539,071 -- -- 1,539,071 Exercise of warrants 784,221 62,739 325,896 -- -- 388,635 Issuance of common stock 1,635,593 130,847 308,923 -- -- 439,770 Imputed interest on debentures convertible at a discount to market -- -- 1,763,459 -- -- 1,763,459 Net loss for the period -- -- -- -- (12,706,685) (12,706,685) ---------- ---------- ----------- ---------- ------------ ------------ Balance, September 30, 1997 43,877,092 $3,510,167 $90,195,834 $1,297,754 $(74,110,700) $ 20,893,055 ========== ========== =========== ========== ============ ============
The accompanying notes are an integral part of this statement. 6 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 1. Statement of Information Furnished The accompanying unaudited consolidated financial statements of American International Petroleum Corporation and Subsidiaries (the "Company") have been prepared in accordance with Form 10-Q instructions and in the opinion of management contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 1997, the results of operations for the three and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996. These results have been determined on the basis of generally accepted accounting principles and practices applied consistently with those used in the preparation of the Company's 1996 Annual Report on Form 10-K. The unaudited results of operations for the three and nine months ended September 30, 1996 have been restated to reflect accounting for the imputed interest of various convertible debentures issued during those periods, which were convertible at a discount to market, as reflected in Note 7 of the Company's Form 10-K for the fiscal year ended December 31,1996. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that the accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's 1996 Annual Report on Form 10-K. 2. Marketable Securities Marketable securities held by the Company are available-for-sale securities carried at lower of cost or market value. Marketable securities acquired by the Company at a basis of $2.00 per share had a market value of $1.60, $1.10, and $.95 per share at March 31, 1997, June 30, 1997, and September 30, 1997 respectively, resulting in an aggregate unrealized loss during 1997 of $3,799,000. 3. Other Long Term Assets Notes totaling $4,400,000 acquired by the Company have been discounted and recorded as $3,600,000, less current portion of $1,500,000. 4. Long-Term Debt The effective interest rate as stated for each of the debt instruments below does not necessarily reflect the actual cash cost to the Company for that specific debt instrument. The effective interest rate reflects the presumed 7 incremental yield the holder of the debt instrument may derive from the discounted conversion rate of such instrument issued by the Company. September 30, 1997 ------------------ 8% - $291,600 Subordinated Debentures - due from September 24 to December 6, 1997, effective interest rate - 28.7% $ 291,600 8% - $75,000 Convertible Debenture - due May 19, 1999, effective interest rate - 63.6% $ 75,000 8% - $6,400,000 Convertible Debenture - due August 6, 1999, effective interest rate - 25.7% $ 6,133,333 Note payable to MG Trade Finance Corporation $ 2,108,393 ------------ $ 8,608,326 Less Current portion $ 2,399,993 ------------ Long-Term Debt $ 6,208,333 ============ As of November 5, 1997 all of the above current and long-term debt had been retired. In October 1997, the Company issued an aggregate $10 million in 14% Convertible Notes. (See Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.) 5. Contingencies In May 1992, the Company's wholly-owned subsidiary, American International Refinery, Inc. ("AIRI") was notified by the Internal Revenue Service ("IRS") that the IRS was considering an assessment of excise taxes, penalties and interest of approximately $3,500,000 related to the sale of fuel products during 1989. The IRS claims that AIRI failed to comply with an administrative procedure that required sellers, and buyers in tax-free transactions, to obtain certification from the IRS. The Company believes that AIRI complied with the substance of the existing requirements and such sales were either tax-free or such excise taxes were paid by the end-users of such products. AIRI has offered to negotiate a settlement of this matter with IRS Appeals since early 1993. Such negotiations included face-to-face meetings, numerous phone calls and written transmittals and several offers of settlement by both the Company and the IRS. During these negotiations, the IRS Appeals officers offered to waive all of the penalties and 75% of the amount of the proposed tax liability. However, AIRI rejected this offer and requested the IRS' National Office provide technical advice to its Appeal officers. After numerous conferences and discussions with the National Office in 1995, the National Office issued an adverse Technical Advice Memorandum ("TAM") to the effect that AIRI should be liable for the tax on the sale of diesel fuel for the first three quarters of 1989. However, subsequent to the issuance of the TAM, the IRS Appeals officer indicated to AIRI that the IRS still wants to negotiate a settlement. Recent meetings with the IRS indicate that a settlement should be in place by the end of this year, although there can be 8 no assurance at this time that such a settlement will be reached, nor of the resultant amount of such settlement, if any. The Company accrues an estimated loss from a loss contingency when a liability has been incurred and the amount of such loss can be reasonably estimated. Such accruals are based on developments to date and the Company's estimate of the liability. In this instance, the Company has provided an aggregate allowance during 1996 and 1995 of $1,250,000 and $250,000, respectively. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources During the last three years, the Company has had difficulty generating sufficient cash flow to fund its operations, capital expenditures and required principal payments. As a result, the Company has from time to time operated with limited liquidity or negative working capital. In order to continue operations under such circumstances, the Company has historically relied on outside sources of capital. On February 25, 1997, the Company sold all of the issued and outstanding shares of Common Stock of two of its wholly-owned subsidiaries, American International Petroleum Corporation of Colombia ("AIPCC") and Pan American International Petroleum Corporation ("PAIPC") (the "Purchased Shares") in an arms length transaction (the "MIP Transaction") to Mercantile International Petroleum, Inc. ("MIP") in exchange for cash, approximately 4.4 million shares of MIP Common Stock, valued in the MIP Transaction at $2.00 per share (the "MIP Shares"), debt in the form of a $3 million exchangeable debenture (the "Exchangeable Debenture), and deferred compensation. However, the market value of the MIP Shares has declined since the closing of the MIP Transaction to $.95 on September 30, 1997. The Company recorded the MIP Shares at lower of cost or market, which resulted in a cumulative unrealized loss during 1997 of $3,799,000. In October 1997, the Company issued an aggregate $10 million of one-year 14% convertible notes (the "Notes") to two foreign entities pursuant to Regulation S, for net proceeds of approximately $9,579,000. The Company may prepay all, but not less than all of, the Notes six months after closing (the "Call Date") at the greater of (x) 100% of the principal amount of the Notes and (y) the number of shares into which the Notes are convertible on the Call Date plus accrued interest, minus one-third of the difference between (x) and (y). Although the Holders of the Notes may convert the outstanding principal of the Notes at any time after November 27, 1997 into the Company's Common Stock at $6.25 per share (approximately 112% of the average closing bid price for the five trading days preceding the closing), no conversions may take place before February 12, 1998 (120 days after close) unless the market price of the Company's Common Stock exceeds approximately $8.33 per share (145% of the Closing Price). After six months, the Notes may be converted at the lesser of (i) $6.25 per share, (ii) 85% of the Market price at conversion and (iii) the daily weighted-average sales price reported for the lowest five consecutive trading days during any 40-day period following the Call Date. The proceeds will be used for start-up capital for the refinery and for other Company projects and general corporate purposes. 9 Also in October 1997, in lieu of cash, the Company issued 11,754 restricted shares of its common stock, pursuant to Regulation S, to a foreign individual as full payment of an aggregate of $67,659 in principal and interest owed by the Company to this individual. During the nine months ended September 30, 1997, the Company incurred a net loss of $12,707,000, which reflects approximately $8,903,000 in non-cash provisions, including depreciation, depletion and amortization of $3,919,000, unrealized loss on write-down of marketable securities acquired in the MIP Transaction of $3,799,000, provision for bad debts of $448,000, stock issuances for services and compensation of $174,000, and loss on sale of subsidiaries of $564,000. Approximately $160,000 was used during the period to increase current assets other than cash, and $158,000 was used to decrease accounts payable and accrued liabilities. Cash for operations was provided, in part, by the sale and distribution of marketable securities of $2,405,000, the issuance of Common Stock and a net increase in long-term debt in an aggregate amount of $7,689,000, and from the sale of subsidiaries of $1,729,000. In the past, the Company has borrowed funds from MG Trade Finance Corp. ("MGTF"). As part of the MIP Transaction, the Company agreed to change the maturity date for payment of the unpaid balance due to MGTF (currently $2,108,000) to September 30, 1997 from March 31, 1998. The Company pledged 1,000,000 shares of the MIP Shares to further secure the Loan Agreement with MGTF. On October 1, 1997 the Company paid the remaining principal and interest due on the Loan Agreement with some of the proceeds it received from the sale of debentures during the third quarter of 1997. The MIP Shares, as well as all of the outstanding shares of its wholly-owned subsidiary, American International Refinery, Inc., also pledged to MGTF as collateral, have been returned to the Company by MGTF and the liens and mortgages related thereto are in the process of being released. Because of non-payment of lease fees and other items of default under the terms of its lease agreement with the Company (the "Lease Agreement"), Gold Line was evicted from the Refinery premises on March 20, 1997. The Company filed suit against Gold Line to recover unpaid lease fees and other items totaling approximately $1.8 million and received a judgment related thereto of approximately $1.5 million. All past amounts due from Gold Line have been previously reserved, including a charge to the reserve for bad debts during the first quarter of 1997 for $443,000 representing the unpaid processing fees for that period. On August 8, 1997, Gold Line filed for protection under Chapter 11 of the U.S. Bankruptcy Code; therefore no assurance can be given that the Company will be able to collect on this judgment. In April 1997, the Company signed an agreement with a German-based company, MED Shipping & Trading S.A. ("MED") for the purchase of a 70% working interest in a 4.7 million acre oil and gas concession (the "License") in the Usturt Basin of Western Kazakstan. The License has been transferred by the Kazakstan government to MED Shipping Usturt Petroleum Company Limited ("MSUP"), a joint venture limited liability company, which has been formed to manage the License operations. The Company owns 70% of MSUP through its newly-formed and wholly-owned subsidiary American International Petroleum Kazakstan ("AIPK"), which will handle all of the Company's operations in Kazakstan. As previously reported, the Company paid $100,000 in cash and 300,000 shares of its Common Stock, issued pursuant to Regulation S, to MED in return for the option to acquire a 40% working interest in the License. Further negotiations 10 resulted in an increase in the working interest to 70%. As consideration for its 70% interest in MSUP, the Company issued an additional 2,950,000 shares of its Common Stock and warrants to purchase an aggregate of 500,000 shares of its Common Stock, at an exercise price of $2.00 per share, pursuant to Regulation S. MED receives a monthly consulting fee of $23,000 to be used to establish contacts for the development and marketing of production, administrative and other activities related to the enhancement of the License, and for AIPK operations in Kazakstan. The License area is located in western Kazakstan approximately 125 kilometers southeast of Chevron's multi-billion barrel Tengiz Oil Field and the Caspian Sea. The area is bordered to the south by Elf Acquitain's license and to the west by both Oryx/Exxon and Amoco licenses. Evaluation by the Company's independent petroleum engineers indicates that preliminary estimates of potential recoverable reserves on seven structures, located in the western half of the License near major pipeline systems, could be up to 1.1 billion barrels of oil equivalent. Additional structures have been identified in the License area, but have not been evaluated. Regional seismic data on the eastern half of the License area indicates additional structures, the largest of which, the "Chikuduk", measures approximately 50 kilometers in length. This structure, whose reserves are not yet estimated, could provide the largest potential deposits in the License area. The Company plans to continue its evaluation of the area and expects to expand its evaluation program as additional data is released to the Company by the government. The License area provides various commercial options for oil or gas production, since there are several oil and gas pipelines which cross the area. The existing infrastructure permits rapid development and marketing of production and flexibility in securing acceptable markets for same. Production can be sold north to Russia, Finland and the Atyrau Refinery, and/or south through the Caspian Sea at Aktau for export abroad. Development of the License database has begun and the initial seismic lines are being reprocessed for orientation of the seismic program and selection of possible drilling sites. The Company has requested bids for survey crews to begin work to lay out the initial 1,250 kilometer seismic program, which is expected to begin by year end. Preliminary discussions have been held with potential drilling contractors and work on the first well is planned for the second quarter of 1998, depending on rig availability. The Company will be responsible for managing the License operations and funding all obligations therefor. Such obligations could amount to $13.5 million during the next five years, approximately one-half of which must be expended during the next three years for seismic and drilling. The Company is currently having discussions with various oil companies who have expressed a preliminary interest in participating in the exploitation of the License area. The Company has sufficient capital, or access thereto, to complete the expansion of the Refinery to enable the implementation of its asphalt operations and to make any preliminary oil and gas related expenditures in Kazakstan. The first phase of construction of the Refinery expansion, necessary to implement operations, has been completed and the Company plans to commence asphalt terminalling in November 1997. The final phase is expected to be completed by year-end 1997, at which point the Company can implement the manufacturing of its asphalt, vacuum gas oil, and other products. Although the Refinery will be capable of processing up to 30,000 barrels per day of feedstock, the Company currently expects to process an average of 11 approximately 10,000 barrels per day during 1998, however it may process at higher rates if the market dictates. The asphalt and other operations at the Refinery are expected to provide the Company with the future capital necessary to fund its oil and gas operations, or place the Company in a position where it is able to access conventional financing for such projects. The Company is also having discussions with various financing entities regarding non-equity financing arrangements to provide funding for upcoming operations, and other capital it may require. However, there is no assurance of success of any financing efforts the Company may pursue or the timing or success of its Refinery projects and/or its other potential projects. In the event that the Company is not able to fund its projects on its own in a timely manner, management believes it will be able to obtain partners for certain projects, however, such projects could be delayed or curtailed. At November 4, 1997, the Company had approximately $11 million of cash and marketable securities. However, as a result of the MIP Transaction and the cancellation of the Lease Agreement, the Company has no current operating cash flows. Therefore, until the implementation of new operations at its Refinery, or elsewhere, and absent any new financing it may obtain, the Company will rely on its existing working capital and principal and interest payments from the Exchangeable Debenture to sustain its business operations. 12 Results of Operations For the Three Months Ended September 30, 1997 as compared to the Three Months Ended September 30, 1996 The following table highlights the Company's results of operations for the three months ended September 30, 1997 and 1996. For The Three Months Ended September 30, 1997 1996 ---- ---- Exploration and Production Activity: Colombia Properties: Revenues - Oil Sales (000's) (1) $301 Lease Operating Expenses (000's) (1) $180 Production Volume - Bbls (1) 25,971 Average Price per Bbl (1) $11.57 Production Cost per Bbl (1) $6.92 DD&A per Bbl (1) $3.77 Peru Properties: (1) (2) Refinery Operations: Refinery Lease Fees (000') (3) $663 Average Daily Throughput (3) 14,112 Average Throughput Fee (3) $0.50 - ---------- (1) Colombia and Peru properties were sold as of February 25, 1997 (2) Information for 1996 is not available due to a dispute with the Company's partner. (3) The refinery's tenant was evicted as of March 20, 1997. Oil and Gas Operations: The date of the sale of the Colombia and Peru subsidiaries was February 25, 1997, therefore there were no operations for the three months ended September 30, 1997 compared to three full months of operations reflected in 1996. Refinery Operations: The Company evicted it's lessee on March 20, 1997, therefore there were no operations for the three months ended September 30, 1997 compared to three full months of operations reflected in 1996. Other Revenue: Other revenues increased approximately $67,000 during the current quarter compared to the same quarter of 1996. The increase is primarily due to an increase in interest income on long term interest bearing notes receivable and 13 an increase in cash during the current period compared to the same period in 1996. General and Administrative: General and Administrative ("G&A") expenses decreased approximately $370,000 compared to the same period during 1996 due to the following reasons: a net decrease of $248,000 as a result of a $174,000 charge during current quarter for non-cash charges related to the issuance of stock for services and compensation compared to a non-cash charge of $422,000 during the third quarter of 1996, related to an issuance of stock to a Company officer in exchange for certain Company obligations under the officer's employment contract; a gain of approximately $122,000 on the sale and disposition of certain marketable securities held by the Company; office rents, supplies, and telephone expenses decreased by an aggregate of $40,000 during the current period, primarily as a result of the MIP Transaction, as previously discussed above. Depreciation, Depletion, and Amortization decreased approximately $101,000 during the current period compared to the same period last year due to the lack of any oil production from Colombia during the current quarter as a result of the sale of this subsidiary as previously discussed. Interest expense increased by approximately $3,114,000 to $3,584,000 for the current quarter compared to the third quarter of 1996. Approximately $1,598,000 of this increase is due primarily to an imputed interest calculated on the Company's issued convertible debt instruments (see related discussions above). Approximately $197,000 in additional interest expense was incurred during the current period to redeem approximately $765,000 of the Company's outstanding convertible debentures that were otherwise convertible into the Company's stock. Approximately $1,610,000 of amortized bond and discount costs were charged as interest expense during the current period compared to $38,000 charged in the same period last year, which is attributable to Company's outstanding and retired debentures during the current quarter. Unrealized Loss on Marketable Securities Marketable securities held by the Company at September 30, 1997, and carried at a lower of cost or market value of $1.10 since June 30, 1997, had a market price at September 30, 1997 of $0.95 per share, resulting in a net unrealized loss of $405,000 during the current quarter. 14 Results of Operations For the Nine Months Ended September 30, 1997 as compared to the Nine Months Ended September 30, 1996 The following table highlights the Company's results of operations for the nine months ended September 30, 1997 and 1996. For The Nine Months Ended September 30, 1997 1996 ---- ---- Exploration and Production Activity: Colombia Properties: (1) Revenues - Oil Sales (000's) $261 $942 Lease Operating Expenses (000's) $ 99 $391 Production Volume - Bbls 18,625 99,069 Average Price per Bbl $14.01 $9.51 Production Cost per Bbl $5.31 $3.95 DD&A per Bbl $3.77 $3.77 Peru Properties: (2) (2) Refinery Operations: (3) Refinery Lease Fees (000') $443 $1,780 Average Daily Throughput 9,838 12,531 Average Throughput Fee $0.50 $0.50 - ---------- (1) Reflects activity through February 25, 1997 (2) Information for 1997 and 1996 is not available due to a dispute with the Company's partner. (3) Reflects refinery activities through March 20, 1997. Oil and Gas Operations: The results of operations for Colombia and Peru for 1997 reflect results for the period through February 25, 1997, the date of the sale of the Colombia and Peru subsidiaries to Mercantile International Petroleum Inc. ("MIP") (the "MIP Transaction"), compared to nine full months of operations reflected in 1996. Refinery Operations: The results of operations for the Company's Lake Charles, Louisiana refinery (the "Refinery") for 1997 reflect results for the period through March 20, 1997, the date the Company terminated its lease agreement with Gold Line Refining Ltd. ("Gold Line"), the lessee of the Refinery, compared to nine full months of operations reflected in 1996. The first phase of construction of the Refinery expansion, necessary to implement operations, has been completed and the Company plans to commence asphalt processing in November 1997. The 15 second phase of construction is expected to be complete in December 1997 which should enable the Company to manufacture its own asphalt with the beginning of the asphalt season in April 1998. Other Revenue: Other revenues increased approximately $24,000, or 14%, during the current period compared to the same period in 1996. The increase is primarily due to increased interest income on other long term interest bearing notes receivable and an increase in cash balances during the current period compared to the same period last year. General and Administrative: General and Administrative ("G&A") expenses increased approximately $918,000 compared to the same period during 1996 primarily due to approximately $230,000 in non-recurring expenses related to the legal proceedings against Gold Line, a loss of approximately $112,000 on the sale and disposition of a portion of the MIP Shares, a non-cash charge of $134,000 related to the issuance of the Company's common stock for services, and a one-time $695,000 compensation adjustment. The Company realized a decrease in other G&A costs during the current period compared to the same period last year in the following areas: professional consulting fees decreased approximately $132,000, payroll expenses decreased $122,000, and office rents, supplies and telephone expenses have decreased approximately $61,000. Depreciation, Depletion, and Amortization decreased approximately $366,000 during the current period compared to the same period last year due primarily to the decrease in oil production from Colombia during the current period. Interest expense increased to approximately $4,999,000 during the first nine months of 1997 from approximately $1,935,000 in the same period last year, of which approximately $878,000 is due primarily to an increase in imputed interest calculated on the Company's convertible debt instruments. Approximately $235,000 in additional interest expense was incurred during the current period to redeem approximately $915,000 of the Company's outstanding convertible debentures that were otherwise convertible into the Company's stock. Approximately $2,585,000 of amortized bond costs and discounts were charged during the current period as interest expense, which is attributable to Company's outstanding and retired debentures during the current period. Unrealized Loss on Marketable Securities As partial proceeds from the MIP Transaction, the Company received approximately $4.4 million shares of MIP common stock valued at $2.00 per share. However, since the closing, the market value of MIP's shares have declined to $0.95/share at September 30, 1997, resulting in an aggregate net unrealized loss of $3,799,000 during this period. Loss on Sale of Assets The Company recorded an aggregate $564,000 to reflect the current discounted fair value of the Exchangeable Debenture and the $1.4 million performance earn-out received in the MIP Transaction. 16 PART II. OTHER INFORMATION Item 5. Other Information See Part I, Item 2, above, with the respect to the sale of an aggregate $10 million of 14% convertible notes, the issuance of restricted shares of common stock as consideration for the acquisition of a 70% ownership interest in an oil and gas concession in Kazakstan, and the issuance of restricted shares of common stock in exchange for debt, all pursuant to Regulation S. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.1 Form of 14% Convertible Notes due October 15, 1999. 4.2 Form of Subscription Agreement used in connection with the offering of the Registrants' debentures, the form of which is attached hereto as Exhibit 4.1. 4.3 Form of Warrant to purchase shares of the Registrants' Common Stock issued in connection with the offering of the Registrants' debentures, the form of which is attached hereto as Exhibit 4.1. 4.4 Form of Registration Rights Agreement used in connection with the offering of the Registrants' debentures, the form of which is attached hereto as Exhibit 4.1. 4.5 Form of Subscription Agreement used in connection with the repayment of debt to a foreign individual. 4.6 Form of Subscription Agreement used in connection with the Registrant's purchase of a 70% interest of MED Shipping Usturt Petroleum Company Ltd. 4.7 Form of Warrant to purchase shares of the Registrant's Common Stock issued in connection with the purchase referenced in Exhibit 4.6. 10.1 Agreement dated April 22, 1997 between the Registrant and MED Shipping and Trading S.A. used in connection with the Registrant's purchase of a 70% interest of MED Shipping Usturt Petroleum Company Ltd. 10.2 Amendment dated May 9, 1997 to the Agreement attached hereto as Exhibit 10.1. 27.1 Financial Data Schedule. (b) Reports on Form 8-K. None. 17 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 5, 1997 AMERICAN INTERNATIONAL PETROLEUM CORPORATION By /s/ Denis J. Fitzpatrick ------------------------------------------ Denis J. Fitzpatrick Chief Financial Officer (principal financial and accounting officer) 18 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- 4.1 Form of 14% Convertible Notes due October 15, 1998. 4.2 Form of Subscription Agreement used in connection with the offering of the Registrants' debentures, the form of which is attached hereto as Exhibit 4.1. 4.3 Form of Warrant to purchase shares of the Registrants' Common Stock issued in connection with the offering of the Registrants' debentures, the form of which is attached hereto as Exhibit 4.1. 4.4 Form of Registration Rights Agreement used in connection with the offering of the Registrants' debentures, the form of which is attached hereto as Exhibit 4.1. 4.5 Form of Subscription Agreement used in connection with the repayment of debt to a foreign individual. 4.6 Form of Subscription Agreement used in connection with the Registrant's purchase of a 70% interest of MED Shipping Usturt Petroleum Company Ltd. 4.7 Form of Warrant to purchase shares of the Registrant's Common Stock issued in connection with the purchase referenced in Exhibit 4.6. 10.1 Agreement dated April 22, 1997 between the Registrant and MED Shipping and Trading S.A. used in connection with the Registrant's purchase of a 70% interest of MED Shipping Usturt Petroleum Company Ltd. 10.2 Amendment dated May 9, 1997 to the Agreement attached hereto as Exhibit 10.1. 27.1 Financial Data Schedule. 19 EX-4.1 2 14% CONVERTIBLE NOTE DUE OCTOBER 15, 1998 Exhibit 4.1 THIS CONVERTIBLE NOTE HAS BEEN ISSUED PURSUANT TO REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND HAS NOT BEEN REGISTERED UNDER THE 1933 ACT OR ANY APPLICABLE STATE SECURITIES LAWS. THIS CONVERTIBLE NOTE MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OF A "U.S. PERSON" AS THAT TERM IS DEFINED IN REGULATION S DURING THE PERIOD COMMENCING ON THE SALE OF THIS CONVERTIBLE NOTE AND ENDING ON THE 40TH DAY FOLLOWING COMPLETION OF THE REGULATION S OFFERING PURSUANT TO WHICH THIS NOTE HAS BEEN ISSUED (THE "RESTRICTED PERIOD"). IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIHTS OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED. $_________ AMERICAN INTERNATIONAL PETROLEUM CORPORATION 14% Convertible Note due October 15, 1998 AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation (together with its successors, the "Company"), for value received hereby promises to pay to: ---------------------------------------------------------- (the "Holder") and registered assigns, the principal sum of __________ Dollars ($__________) or, if less, the principal amount of this Note then outstanding, on the Maturity Date by wire transfer of immediately available funds to the Holder in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually in arrears, on (i) the last day of June and December of each year until the Maturity Date, commencing December 31, 1997 (unless such day is not a Business Day, in which event on the next succeeding Business Day) (each an "Interest Payment Date"), (ii) the Maturity Date, (iii) each Conversion Date, as hereafter defined, - ------------------------------------------------------------------------------ 14% CONVERTIBLE NOTE - Page 1 85427.3 (American International Petroleum Corporation - No. 1) and (iv) the date the principal amount of the Convertible Notes shall be declared to be or shall automatically become due and payable, on the principal sum hereof outstanding in like coin or currency, at the rates per annum set forth below, from the most recent Interest Payment Date to which interest has been paid on this Convertible Note, or if no interest has been paid on this Convertible Note, from the date of this Convertible Note until payment in full of the principal sum hereof has been made. The interest rate shall be fourteen percent (14%) per annum (the "Interest Rate") or, if less, the maximum rate permitted by applicable law. Past due amounts (including interest, to the extent permitted by law) will also accrue interest at the Interest Rate plus 2% per annum or, if less, the maximum rate permitted by applicable law, and will be payable on demand ("Default Interest"). Interest on this Convertible Note will be calculated on the basis of a 360-day year of twelve 30 day months. All payments of principal and interest hereunder shall be made for the benefit of the Holder pursuant to the terms of the Agreement (hereafter defined). At the option of the Company, interest may be paid in cash or in shares of Common Stock. If the Company determines to pay interest in shares of Common Stock, it shall be required to notify the Holder of such election at least five (5) Business Days prior to the applicable Interest Payment Date. The number of shares of Common Stock issued as interest shall be determined by dividing the dollar amount of interest due on the applicable Interest Payment Date by the Conversion Price then in effect. This Convertible Note is one of a duly authorized issuance of $10,000,000 aggregate principal amount of Convertible Notes of the Company (the "Convertible Note") referred to in that certain Securities Purchase Agreement dated as of the date hereof between the Company and the Purchasers named therein (the "Agreement"). The Agreement contains certain additional agreements among the parties with respect to the terms of this Convertible Note, including, without limitation, provisions which (A) limit the conversion rights of the Holder, (B) specify voluntary and mandatory repayment, prepayment and redemption rights and obligations and (C) specify Events of Default following which the remaining balance due and owing hereunder may be accelerated. All such provisions are an integral part of this Convertible Note and are incorporated herein by reference. This Convertible Note is transferable and assignable to one or more purchasers (in minimum denominations of $100,000 or larger multiples of $1,000), in accordance with the limitations set forth in the Agreement. The Company shall keep a register (the "Register") in which shall be entered the names and addresses of the registered holder of this Convertible Note and particulars of this Convertible Note held by such holder and of all transfers of this Convertible Note. References to the Holder or "Holders" shall mean the Person listed in the Register as the registered holder of such Convertible Notes. The ownership of this Convertible Note shall be proven by the Register. 1. Certain Terms Defined. All terms defined in the Agreement and not otherwise defined herein shall have for purposes hereof the meanings provided for therein. - ------------------------------------------------------------------------------ 14% CONVERTIBLE NOTE - Page 2 85427.3 (American International Petroleum Corporation - No. 1) 2. Covenants. Unless the Majority Holders otherwise consent in writing, the Company covenants and agrees to observe and perform each of its obligations and undertakings contained in the Agreement, which obligations and undertakings are expressly assumed herein by the Company and made for the benefit of the holder hereof. 3. Payment of Principal. The Company shall repay the remaining unpaid balance on this Convertible Note on the Maturity Date. The Company may, and shall be obligated to, prepay all or a portion of this Convertible Note on the terms specified in the Agreement. 4.1 Conversion of Convertible Note. (a) The Holder shall have the right, at its option, at any time, and from time to time, after the Restricted Period to convert the principal amount of this Convertible Note, or any portion of such principal amount, into that number of fully paid and nonassessable shares of Common Stock (as such shares shall then be constituted) determined pursuant to this Section 4.1. The number of shares of Common Stock to be issued upon each conversion of this Convertible Note shall be determined by dividing the Conversion Amount (as defined below) by the Conversion Price in effect on the date (the "Conversion Date") a Notice of Conversion is delivered to the Company by the Holder by facsimile or other reasonable means of communication dispatched prior to 5:00 p.m., New York City Time. The term "Conversion Amount" means, with respect to any conversion of this Convertible Note, the sum of (1) the principal amount of this Convertible Note to be converted in such conversion plus (2) accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Convertible Note to the Conversion Date plus (3) Default Interest, if any, on the interest referred to in the immediately preceding clause (2) plus (4) at the Holder's option, any amounts owed to the Holder pursuant to Section 4.3 hereof, Section 10.1 of the Agreement or Section 10.4 of the Agreement. (b) Notwithstanding the foregoing, during the first 120 days following the date hereof, the Holder shall not be entitled to convert the principal amount of this Convertible Note unless the highest Trading Price (as hereafter defined) for any Trading Day during such 120 day period exceeds the product of 133-1/3% multiplied by the Initial Conversion Price. As used herein, Trading Price means the price at which the Common Stock has been traded, as reported by Bloomberg, L.P. ("Bloomberg") on the Nasdaq Market or, if not reported by Bloomberg on the Nasdaq Market, as reported by such other exchange or market where the Common Stock is then traded. 4.2 Conversion Price. The Conversion Price of this Convertible Note (the "Conversion Price") shall be $_______ per share (the "Initial Conversion Price") provided that, if (x) the Company shall have declined to repay in full this Convertible Note on the Call Date or (y) if an Event of Default (including, without limitation, the failure to pay interest or principal when due) shall have occurred, then following each such event the Conversion Price shall be the lesser of (i) the Initial Conversion Price, (ii) 0.85 times the Market Price and (iii) the 40-Day - ------------------------------------------------------------------------------ 14% CONVERTIBLE NOTE - Page 3 85427.3 (American International Petroleum Corporation - No. 1) DWASP (as hereafter defined) (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The term "40-Day DWASP" means, for any security as of any date, the daily-weighted average sales price on the Nasdaq Market as reported by Bloomberg or, if the Nasdaq Market is not the principal trading market for such security, the daily-weighted average sales price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the daily-weighted average sales price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no daily-weighted average sales price is reported for such security by Bloomberg, then the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each case for the lowest five (5) consecutive Trading Day period during such 40-day period. If the 40-Day DWASP cannot be calculated for such security on such date on any of the foregoing bases, the 40-Day DWASP of such security on such date shall be the fair market value as mutually determined by the Company and the Holders of a majority in interest of Convertible Notes being converted for which the calculation of the closing bid price is required in order to determine the Conversion Price of such Convertible Notes. 4.3 Authorized Shares. (a) Consistent with Section 9.2 of the Agreement, the Company (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Convertible Note and (ii) agrees that its issuance of this Convertible Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Convertible Note. (b) If at any time a Holder of this Convertible Note submits a Notice of Conversion (x) the Company does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in full in accordance with the provisions of this Article 4 or (y) the Company is prohibited by the applicable rules of the Nasdaq Market to effect such conversion in full as provided in subsection (d) below, without stockholder approval (each, a "Conversion Default"), the Company shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion. The portion of this Convertible Note which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the "Excess Amount") shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder's option at any time after) the date additional shares of Common Stock are authorized by the Company, or its stockholders, as applicable, at which time the Conversion Price in respect thereof shall be the lower of (i) the - ------------------------------------------------------------------------------ 14% CONVERTIBLE NOTE - Page 4 85427.3 (American International Petroleum Corporation - No. 1) Conversion Price on the Conversion Default Date (as defined below) and (ii) the Conversion Price on the Conversion Date thereafter elected by the Holder in respect thereof. The Company shall pay to the Holder payments ("Conversion Default Payments") for a Conversion Default in the amount of (N/365) x .24 x the Excess Amount on the Conversion Date in respect of the Conversion Default (the "Conversion Default Date"), where N = the number of days from the Conversion Default Date to the date (the "Authorization Date") that the Company, or its stockholders, as applicable, authorizes a sufficient number of shares of Common Stock to effect conversion of the full outstanding principal balance of this Convertible Note. The Company shall use its best efforts to authorize, or cause its stockholders to authorize within 90 days of the occurrence of a Conversion Default, as applicable, a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Company or that the Company otherwise becomes aware that there are or likely will be insufficient shares to allow full conversion thereof and (ii) a Conversion Default. The Company shall send notice to the Holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of Holder's accrued Conversion Default Payments. The accrued Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible into Common Stock (at such time as there are sufficient authorized shares of Common Stock) at the Market Price, at the Holder's option, as follows: (i) In the event the Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth day of the month following the month in which it has accrued; and (ii) In the event the Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at the Conversion Price (as in effect at the time of conversion) at any time after the fifth day of the month following the month in which it has accrued (at such time as there are sufficient authorized shares of Common Stock) in accordance with the terms of this Article 4. (c) The Holder's election pursuant to this Section 4.3 shall be made in writing to the Company at any time prior to 5:00 p.m., New York City Time, on the third day of the month following the month in which Conversion Default payments have accrued. If no election is made, the Holder shall be deemed to have elected to receive cash. Nothing herein shall limit the Holders right to pursue actual damages (to the extent in excess of the Conversion Default Payments) due to the Company's failure to maintain a sufficient number of authorized shares of Common Stock. (d) In no event shall the Company issue more than the Maximum Number of Shares upon conversion of this Convertible Note, unless the Company shall have obtained Stockholder Approval (as defined below) or a waiver of such requirement by the Nasdaq Market. As used herein, Stockholder Approval means approval by the - ------------------------------------------------------------------------------ 14% CONVERTIBLE NOTE - Page 5 85427.3 (American International Petroleum Corporation - No. 1) stockholders of the Company in accordance with Rule 4460(i) of the rules of the Nasdaq Market. Once the Maximum Number of Shares has been issued (the date of which is hereinafter referred to as the "Maximum Conversion Date"), unless the Company shall have obtained Stockholder Approval or a waiver of such requirement by the Nasdaq Market within 90 days of the Maximum Conversion Date, the Company shall pay to the Holder within five (5) Business Days of the Maximum Conversion Date (or, if the Company is, in good faith, using its best efforts to obtain Stockholder Approval, then the earlier of (x) 90 days following the Maximum Conversion Date, and (y) such date that it becomes reasonably apparent that Stockholder Approval will not be obtained within such 90 day period), the greater of (x) the Formula Amount plus accrued and unpaid Default Interest, if any, and (y) the Par Value Redemption Amount plus accrued and unpaid Default Interest, if any. The Maximum Number of Shares shall be subject to adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof as contemplated by Article XI of the Agreement. With respect to each Holder of Convertible Notes, the Maximum Number of Shares shall refer to such Holder's pro rata share thereof based upon the aggregate principal balance of the convertible Notes then outstanding. In the event that the Company obtains Stockholder Approval, the approval of the Nasdaq Market or otherwise is able to increase the number of shares to be issued above the Maximum Number of Shares (such increased number being the "New Maximum Number of Shares"), the references to Maximum Number of Shares above shall be deemed to be, instead, references to the New Maximum Number of Shares. 4.4 Method of Conversion (a) Notwithstanding anything to the contrary set forth herein, upon conversion of this Convertible Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Convertible Note to the Company unless the entire unpaid principal amount of this Convertible Note is so converted. The Company and the Holder shall maintain records showing the principal amount so converted and the date of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Convertible Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Company shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Convertible Note is converted as aforesaid, the Company may not transfer this Convertible Note unless the Holder first physically surrenders this Convertible Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes), may request, representing in the aggregate the remaining unpaid principal amount of this Convertible Note. The Holder and any assignee, by acceptance of this Convertible Note, acknowledge and agree that, by - ------------------------------------------------------------------------------ 14% CONVERTIBLE NOTE - Page 6 85427.3 (American International Petroleum Corporation - No. 1) reason of the provisions of this paragraph, following conversion of a portion of this Convertible Note, the unpaid and unconverted principal amount of this Convertible Note represented by this Convertible Note may be less than the amount stated on the face hereof. (b) The Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock or other securities or property on conversion of this Convertible Note in a name other than that of the Holder (or in street name), and the Company shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Company the amount of any such tax or shall have established to the satisfaction of the Company that such tax has been paid. (c) Upon receipt by the Company of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Convertible Note shall be reduced to reflect such conversion, and, unless the Company defaults on its obligations under this Article 4, all rights with respect to the portion of this Convertible Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Company's obligation to issue and deliver the certificates for shares of Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action by the Holder to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the Holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Company, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such conversion. The date of receipt (including receipt via telecopy) of such Notice of Conversion shall be the Conversion Date so long as it is received before 5:00 p.m., New York City Time, on such date. (d) Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the expiration of the Deadline with respect to a conversion of any portion of this Convertible Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Company), the Holder shall regain the rights of a Holder of this Convertible Note with respect to such unconverted portions of - ------------------------------------------------------------------------------ 14% CONVERTIBLE NOTE - Page 7 85427.3 (American International Petroleum Corporation - No. 1) this Convertible Note and the Company shall, as soon as practicable, return such unconverted Convertible Note to the holder or, if the Convertible Note has not been surrendered, adjust its records to reflect that such portion of this Convertible Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 4.3 for the Company's failure to convert this Convertible Note. (e) In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the Holder and its compliance with the provisions contained in Section 4.1 and in this Section 4.4, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. 5. Miscellaneous. This Convertible Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of said State. The parties hereto, including all guarantors or endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Convertible Note, except as specifically provided herein, and assent to extensions of the time of payment, or forbearance or other indulgence without notice. The Company hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Convertible Note. The Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Company hereby irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or relating to this Convertible Note. The Holder of this Convertible Note by acceptance of this Convertible Note agrees to be bound by the provisions of this Convertible Note which are expressly binding on such Holder. - ------------------------------------------------------------------------------ 14% CONVERTIBLE NOTE - Page 8 85427.3 (American International Petroleum Corporation - No. 1) IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: October __, 1997 AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: _____________________________________ Name: ___________________________________ Title: __________________________________ - ------------------------------------------------------------------------------ 14% CONVERTIBLE NOTE - Page 9 85427.3 (American International Petroleum Corporation - No. 1 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: October __, 1997 AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: _____________________________________ Name: ___________________________________ Title: __________________________________ - ------------------------------------------------------------------------------ 14% CONVERTIBLE NOTE - Page 9 85427.3 (American International Petroleum Corporation - No. 1 EX-4.2 3 SECURITIES PURCHASE AGREEMENT Exhibit 4.2 SECURITIES PURCHASE AGREEMENT dated as of October 15, 1997 by and among AMERICAN INTERNATIONAL PETROLEUM CORPORATION, as the Issuer, and THE PURCHASERS LISTED ON SCHEDULE I ATTACHED HERETO SECURITIES PURCHASE AGREEMENT AGREEMENT, dated as of October 15, 1997, among American International Petroleum Corporation (the "Company") and the Purchasers listed on Schedule I attached hereto (each a "Purchaser" and collectively, the "Purchasers"). R E C I T A L S: WHEREAS, the Company is currently contemplating raising up to $10,000,000 in a private placement of debt securities pursuant to Regulation S ("Regulation S") promulgated under the Securities Act of 1933, as amended (the "Securities Act") (the "Offering"); and WHEREAS, the Company desires to sell and issue to the Purchasers, and the Purchasers wish to purchase from the Company, $10,000,000 aggregate principal amount of the Company's 14% Convertible Notes due October 15, 1998 (the "Convertible Notes"), with terms and conditions as set forth in the form of Convertible Note attached hereto as Exhibit A (with such changes and modifications as may be approved by the Purchasers) as a part of the Offering; and WHEREAS, the Convertible Notes will be convertible into shares of the Company's common stock, par value $.08 per share (the "Common Stock"); and WHERAS, the Purchasers will have certain registration rights with respect to such shares of Common Stock issuable upon conversion of the Convertible Notes (the "Conversion Shares"); and WHEREAS, in order to induce the Purchasers to enter into the transactions described in this Agreement, the Company desires to issue to the Purchasers an aggregate of 1,500,000 warrants to purchase shares of Common Stock on the terms and conditions described in the form of the common stock purchase warrant attached hereto as Exhibit B (with such changes and modifications as may be approved by the Purchasers) (the "Warrants"); and WHEREAS, the Purchasers and other holders of Warrants will have certain registration rights with respect to the shares of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares"); NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 1 (American International Petroleum Corporation) 85478.4 I. DEFINITIONS SECTION 1.1. Definitions. The following terms, as used herein, have the following meanings: "Affiliate" means, with respect to any Person (the "Subject Person"), (i) any other Person (a "Controlling Person") that directly, or indirectly through one or more intermediaries, Controls the Subject Person or (ii) any other Person (other than the Subject Person or a Consolidated Subsidiary of the Subject Person) which is Controlled by or is under common Control with a Controlling Person. "Agreement" means this Securities Purchase Agreement, as amended, supplemented or otherwise modified from time to time in accordance with its terms. "Asset Sale" has the meaning set forth in Section 8.5. "Balance Sheet Date" has the meaning set forth in Section 4.7. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by the Company. "Benefit Plans" has the meaning set forth in Section 4.9(b). "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to close. "Call Date" means the date with is six (6) months following the Closing Date; specifically April 10, 1998. "Capital Reorganization" has the meaning set forth in Section 11.5. "Closing Bid Price" shall mean the closing bid price of the Company's Common Stock as reported by Bloomberg L.P. on the Nasdaq Market or, if not reported by Bloomberg, L.P. on the Nasdaq Market, as reported by such other exchange or market where the Common Stock is then traded. "Closing Date" means the date on which all of the conditions set forth in Sections 6.1 and 6.2 shall have been satisfied and the Securities have been issued by the Company and the Purchase Price paid by the Purchasers. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 2 (American International Petroleum Corporation) 85478.4 "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission or any entity succeeding to all of its material functions. "Common Stock" means the common stock, $.08 par value per share, of the Company. "Company" means American International Petroleum Corporation, a Nevada corporation, and its successors. "Company Corporate Documents" means the certificate of incorporation and by-laws of the Company. "Consolidated Net Worth" means at any date the total shareholder's equity which would appear on a consolidated balance sheet of the Company prepared as of such date. "Consolidated Subsidiary" means at any date with respect to any Person any Subsidiary or other entity, the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and under "common Control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise . "Conversion Date" shall mean the date of delivery (including delivery via telecopy) of a Notice of Conversion for all or a portion of a Convertible Note by the holder thereof to the Company as specified in each Convertible Note. "Conversion Price" has the meaning set forth in the Convertible Notes. "Conversion Shares" has the meaning set forth in the Recitals. "Convertible Notes" means the Company's 14% Convertible Notes substantially in the form set forth as Exhibit A hereto. "Deadline" has the meaning set forth in Section 10.1. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments issued by such Person, (iii) all obligations of such Person as lessee which (y) are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 3 (American International Petroleum Corporation) 85478.4 transactions, (iv) all reimbursement obligations of such Person in respect of letters of credit or other similar instruments, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person and (vi) all Debt of others Guaranteed by such Person. "Default" means any event or condition which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Default Fee" has the meaning set forth in the Section 10.4. "Derivative Securities" has the meaning set forth in Section 10.5. "Discounted Equity Offerings" has the meaning set forth in Section 10.5. "Directors" means the individuals then serving on the Board of Directors or similar such management council of the Company. "Disposition" has the meaning set forth in Section 7.13. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the cleanup or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "Event of Default" has the meaning set forth in Article XII hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expense Reimbursement Fee" shall mean $25,000 to be paid by the Company to the Purchasers as reimbursement for the fees and expenses incurred by the Purchasers in connection with the preparation, negotiation and delivery of the Transaction Agreements. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 4 (American International Petroleum Corporation) 85478.4 "Financing" means a public or private financing consummated (meaning closing and funding) through the issuance of debt or equity securities (or securities convertible into or exchangeable for debt or equity securities) of the Company, other than Permitted Financings. "Fixed Price(s)" has the meaning set forth in Section 11.1. "Formula Price" shall mean a dollar amount equal to the greater of (i) the aggregate principal amount of the Convertible Notes then outstanding, together with all accrued and unpaid interest thereon, and (ii) the sum of (A) the product of (x) the number of shares of Common Stock into which the Convertible Notes being redeemed are then convertible at the then current Conversion Price and (y) the Market Price as reported by Bloomberg, L.P. on the applicable date the Convertible Notes are redeemed, plus (B) accrued and unpaid interest on the Convertible Notes through the date of repayment. "GAAP" has the meaning set forth in Section 1.2. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing (whether by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain a minimum net worth, financial ratio or similar requirements, or otherwise) any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning. "Hazardous Materials" means any hazardous materials, hazardous wastes, hazardous constituents, hazardous or toxic substances or petroleum products (including crude oil or any derivative or fraction thereof), defined or regulated as such in or under any Environmental Laws. "Initial Conversion Price" has the meaning set forth in the Convertible Notes. "Intellectual Property" has the meaning set forth in Section 4.20. "Investment" means any investment in any Person, whether by means of share purchase, partnership interest, capital contribution, loan, time deposit or otherwise. "Lien" means, any lien, mechanic's lien, materialmen's lien, lease, easement, charge, encumbrance, mortgage, conditional sale agreement, title retention agreement, agreement to sell or convey, option, claim, title imperfection, encroachment or other survey defect, pledge, restriction, security interest or other adverse claim, whether arising by contract or under law or - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 5 (American International Petroleum Corporation) 85478.4 otherwise (including, without limitation, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Liquidity Event" has the meaning set forth in Section 10.4(b). "Listing Applications" has the meaning set forth in Section 4.4. "Majority Holders" means (i) as of the Closing Date, the Purchasers and (ii) at any time thereafter, the holders of more than 50% in aggregate principal amount of the Convertible Notes outstanding at such time. "Market Price" shall mean the Closing Bid Price of the Common Stock preceding the date of determination. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $500,000. "Maturity Date" shall mean the date of maturity of the Convertible Notes; specifically, October 15, 1998. "Maximum Number of Shares" shall mean 19.9% of the then issued and outstanding shares of Common Stock of the Company as of the applicable date of determination, which, as of the date hereof, is 9,397,477 shares of Common Stock, or such greater number of shares as the stockholders of the Company may have previously approved pursuant to Section 4.3 of each Convertible Note. "Nasdaq Market" means the Nasdaq Stock Market's National Market System. "Nasdaq Redemption Event" has the meaning set forth in Section 3.3. "Net Cash Proceeds" means, with respect to any transaction, the total amount of cash proceeds received by the Company or any Subsidiary less (i) reasonable underwriters' fees, brokerage commissions, reasonable professional fees and other customary out-of-pocket expenses payable in connection with such transaction, and (ii) in the case of dispositions of assets, (A) actual transfer taxes (but not income taxes) payable with respect to such dispositions, and (B) the amount of Debt, if any, secured by a Lien on the asset or assets disposed of and required to be, and actually repaid by the Company or any Subsidiary in connection therewith, and any trade payables specifically relating to such asset or assets sold by the Company or any Subsidiary that are not assumed by the purchaser of such asset or assets. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 6 (American International Petroleum Corporation) 85478.4 "Notice of Conversion" means the form to be delivered by a holder of a Convertible Note upon conversion of all or a portion thereof to the Company substantially in the form of Exhibit B attached hereto. "Notice of Exercise" means the form to be delivered by a holder of a Warrant upon exercise of all or a portion thereof to the Company substantially in the form of Exhibit C attached hereto. "Offering" has the meaning set forth in the Recitals. "Officer's Certificate" shall mean a certificate executed by the President, chief executive officer or chief financial officer of the Company in the form of Exhibit G attached hereto. "Other Taxes" has the meaning set forth in Section 3.5(b). "Par Value Redemption Price" means a price equal to 100% of the aggregate principal amount of the Convertible Notes then outstanding, together with all accrued and unpaid interest thereon through and including the date of receipt of payment. "Permits" means all domestic and foreign licenses, franchises, grants, authorizations, permits, easements, variances, exemptions, consents, certificates, orders and approvals necessary to own, lease and operate the properties of, and to carry n the business of the Company and the Subsidiaries. "Permitted Debt" has the meaning set forth in Section 8.1. "Permitted Financings" shall mean (i) Permitted Debt, (ii) any Financing (other than Discounted Equity Offerings) incurred after the Closing Date not to exceed $20,000,000 in the aggregate, (iii) the issuance of equity securities in connection with (I) the acquisition (including by merger) of a business or of assets otherwise permitted under this Agreement or (II) stock options or other compensatory plans, and (iv) any Financing or Debt associated with the acquisition and/or operation of the ________________. "Person" means an individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or any agency or political subdivision thereof) or other entity of any kind. "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under the Code and either (i) is maintained, or contributed to, by any member of the ERISA group for employees of any member of the ERISA group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA group. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 7 (American International Petroleum Corporation) 85478.4 "Purchase Price" means the purchase price for the Securities set forth in Section 2.2 hereof. "Purchasers" means, collectively, those entities listed on the signature page hereto and their successors and assigns, including holders from time to time of the Convertible Notes. "Registrable Securities" has the meaning set forth in Section 10.4(a). "Registration Default" has the meaning set forth in Section 10.4(e). "Registration Maintenance Period" has the meaning set forth in Section 10.4(c). "Registration Statement" has the meaning set forth in Section 10.4(b). "Registration Rights Agreement" means the agreement between the Company and the Purchasers dated the date hereof substantially in the form set forth in Exhibit D attached hereto. "Required Effectiveness Date" has the meaning set forth in Section 10.4(b). "Restricted Payment" means, with respect to any Person, (i) any dividend or other distribution on any shares of capital stock of such Person (except dividends payable solely in shares of capital stock of the same or junior class of such Person and dividends from a wholly-owned direct or indirect Subsidiary of the Company to its parent corporation), (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of such Person's capital stock or (b) any option, warrant or other right to acquire shares of such Person's capital stock or (iii) any loan, or advance or capital contribution to any Person (a "Stockholder") owning any capital stock of such Person other than relocation, travel or like advances to officers and employees in the ordinary course of business, and other than reasonable compensation. "Restricted Period" means the period from the Closing Date through and including the fortieth (40th) day after the Closing Date. "Rights Offering" has the meaning set forth in Section 11.3. "SEC Reports" shall have the meaning set forth in Section 4.7. "Securities" means the Convertible Notes, the Warrants and, as applicable, the Conversion Shares and the Warrant Shares. "Securities Act" means the Securities Act of 1933, as amended. "Share Reorganization" has the meaning set forth Section 11.2. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 8 (American International Petroleum Corporation) 85478.4 "Solvency Certificate" shall mean a certificate executed by the chief financial officer of the Company as to the solvency of the Company, the adequacy of its capital and its ability to pay its debts, all after giving effect to the issuance and sale of the Convertible Notes and the completion of the offering (including without limitation the payment of any fees or expenses in connection therewith), which such Solvency Certificate shall be in the form of Exhibit F attached hereto. "Special Distribution" has the meaning set forth in Section 11.4. "Subsidiary" means, with respect to any Person, any corporation or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. Unless specified to the contrary, "Subsidiary" means a Subsidiary of the Company. "Subsidiary Corporate Documents" means the certificates of incorporation and by-laws of each Subsidiary. "Taxes" has the meaning set forth in Section 3.5. "Trading Day" shall mean any Business Day in which the Nasdaq Market or other automated quotation system or exchange on which the Common Stock is then traded is open for trading for at least four (4) hours. "Transaction Agreements" means this Agreement, the Warrants, the Registration Rights Agreement, and the Convertible Notes. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Warrants" means the Common Stock Purchase Warrants issued to the Purchasers for 1,500,000 shares of Common Stock in the aggregate on the Closing Date in the form of Exhibit I hereto. "Warrant Restricted Period" has the meaning set forth in Section 5.1(f). "Warrant Shares" has the meaning set forth in Section 4.5. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 9 (American International Petroleum Corporation) 85478.4 SECTION 1.2. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect from time to time, applied on a consistent basis (except for changes concurred in by the Company's independent public accountants) ("GAAP"); provided that if the Company notifies each of the Purchasers that it wishes to amend any covenant in Article VII to eliminate the effect of any change in GAAP on the operation of such covenant (or if any of the Purchasers notify the Company that the Majority Holders wish to amend Article VII for such purpose), then the Company's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Company and the Majority Holders. All references to "dollars," "Dollars" or "$" are to United States dollars unless otherwise indicated. ARTICLE II PURCHASE AND SALE OF SECURITIES SECTION 2.1. Purchase and Sale of Convertible Notes. Subject to the terms and conditions set forth herein, the Company agrees to issue and sell to each Purchaser, and each Purchaser severally agrees to purchase from the Company, such principal amount of Convertible Notes as is set forth opposite each Purchaser's name on Schedule 2.1 attached hereto. SECTION 2.2. Purchase Price. The purchase price for the Convertible Notes shall be 99% of the principal amount thereof. No part of the purchase price of the Notes shall be allocated to the Warrants. Therefore, the aggregate consideration payable by the Purchasers to the Company for the Convertible Notes and the Warrants shall be $____________________ (the "Purchase Price"). SECTION 2.3. Closing and Mechanics of Payment. (a) On the Closing Date, subject to the satisfaction of all terms and conditions set forth herein, each of the Purchasers shall deliver by wire transfer to the Company immediately available funds in an amount equal to the portion of the Purchase Price of the Convertible Notes to be purchased by such Purchaser on the Closing Date, in the proportions as set forth on Schedule 2.1 attached hereto, less such Purchaser's ratable share of Expense Reimbursement Fee. (b) On the Closing Date, against payment as set forth in subsection 2.3(a) above, the Company shall deliver to each Purchaser (i) a single Convertible Note for each Purchaser representing the principal amount of such Convertible Note issued to such - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 10 (American International Petroleum Corporation) 85478.4 Purchaser as of the Closing Date, and (ii) a single Warrant for each Purchaser representing the aggregate Warrants issued to such Purchaser as of the Closing Date. (c) The Company and the Purchasers hereby agree to consummation of the closing and deliveries set forth herein in accordance with the terms of the Escrow Agreement attached hereto as Exhibit G, with Sutherland, Asbill & Brennan as escrow agent. ARTICLE III PAYMENT TERMS OF CONVERTIBLE NOTE SECTION 3.1. Payment of Principal and Interest; Payment Mechanics. The Company will pay all sums becoming due on each Convertible Note by the method and at the address specified for such purpose as the applicable Purchaser shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of any Convertible Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of this Convertible Note, the holder shall surrender the Convertible Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office. Prior to any sale or other disposition of any Convertible Note, the holder thereof will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender the Convertible Note to the Company in exchange for a new Convertible Note or Convertible Notes. The Company will afford the benefits of this Section 3.1 to any direct or indirect transferee of the Convertible Note purchased under this Agreement and that has made the same agreement relating to this Convertible Note as the Purchaser has in this Section 3.1; provided that such transferee is an "accredited investor" under Rule 501 of the Securities Act. SECTION 3.2. Voluntary Prepayment. The Company shall have the one time right, exercisable by delivery of written notice to the Purchaser on the Call Date, to redeem the remaining unpaid balance of each Convertible Note in its entirety at the Par Value Redemption Price. Except as provided in this Section 3.2, the Company shall not have the unilateral right to voluntarily repay the Convertible Notes. SECTION 3.3. Mandatory Prepayments. (a) Upon (i) the occurrence of a Change of Control of the Company, (ii) a transfer of all or substantially all of the assets of the Company to any Person in a single transaction or series of related transactions, (iii) a consolidation or merger of the Company with or into another Person in which the Company is not the surviving entity (other than a merger (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock or (y) which is effected solely to change the jurisdiction of incorporation of the Company and results in a - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 11 (American International Petroleum Corporation) 85478.4 reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock), or (iv) the occurrence of a Registration Default which continues uncured for a period of thirty (30) days, then, in each case, the Company shall redeem this Convertible Note in cash for the Par Value Redemption Price. (b) Upon the consummation of one or more Financings other than Permitted Financings, the Company shall use 100% of the Net Cash Proceeds therefrom (unless such Net Cash Proceeds from each such Financing is less than $250,000) to redeem the Convertible Notes. The redemption price payable upon any such redemption shall be the Formula Price. (c) Upon the issuance of the Maximum Number of Shares and the failure within 90 days of such issuance to obtain shareholder approval to issue additional shares of Common Stock (the "Nasdaq Redemption Event"), the Company shall redeem each Convertible Note as set forth in Section 4.3 of the Convertible Notes. SECTION 3.4. Prepayment Procedures. (a) Any prepayment or redemption of the Convertible Notes pursuant to Sections 3.2 or 3.3 above shall be deemed to be effective and consummated (for purposes of determining the Formula Price and the time at which the Purchasers shall thereafter not be entitled to deliver a Notice of Conversion for the Convertible Notes) as follows: (I) A redemption pursuant to Section 3.2, on the tenth (10th) Trading Day after the Call Date; (II) A redemption pursuant to Section 3.3(a), the date of consummation of the applicable Change of Control, merger, asset sale, or the Registration Default; and (III) A redemption pursuant to Section 3.3(b), three (3) Business Days following the date of consummation of the applicable Financing (meaning closing and funding). (b) On the Maturity Date and on the effective date of a repayment or redemption of the Convertible Notes as specified in Section 3.4(a) above, the Company shall deliver by wire transfer of funds the repayment/redemption price to each Purchaser of the Convertible Notes subject to redemption. Should any Purchaser not receive payment of any amounts due on redemption of its Convertible Notes by reason of the Company's failure to make payment at the times prescribed above for any reason, the Company shall pay to the applicable holder on demand (x) interest on the sums not paid when due at an annual rate equal to the lesser of (I) the maximum lawful rate and (II) the - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 12 (American International Petroleum Corporation) 85478.4 then applicable interest rate on the Convertible Notes being redeemed plus four percent (4%) compounded at the end of each thirty (30) days, until the applicable holder is paid in full and (y) all costs of collection, including, but not limited to, reasonable attorneys' fees and costs, whether or not suit or other formal proceedings are instituted. (c) The Company shall select the Convertible Notes to be redeemed in any redemption in which not all of the Convertible Notes are to be redeemed so that the ratio of the Convertible Notes of each holder selected for redemption to the total Convertible Notes owned by that holder shall be the same as the ratio of all such Convertible Notes selected for redemption bears to the total of all then outstanding Convertible Notes. Should any Convertible Notes required to be redeemed under the terms hereof not be redeemed solely by reason of limitations imposed by law, the applicable Convertible Notes shall be redeemed on the earliest possible dates thereafter to the maximum extent permitted by law. (d) Any Notice of Conversion delivered by any Purchaser (including delivery via telecopy) to the Company prior to the (x) Maturity Date or (y) effective date of a redemption specified in Section 3.4(a) above, shall be honored by the Company and the conversion of the Convertible Notes shall be deemed effected on the Conversion Date. In addition, between the effective date of redemption specified in Section 3.4(a) above and the date the Company is required to deliver the redemption proceeds to the Purchasers, the Purchasers may deliver a Notice of Conversion to the Company. Such notice will be (x) of no force or effect if the Company timely pays the redemption proceeds to the Purchasers when due or (y) honored on or as of the date the Notice of Conversion if the Company fails to timely pay the redemption proceeds to the Purchasers when due. SECTION 3.5 Payment of Additional Amounts. (a) Any and all payments by the Company hereunder or under the Convertible Notes to any Purchaser and each "qualified assignee" thereof shall be made free and clear of and without deduction or withholding for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (all such taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes") unless such Taxes are required by law or the administration thereof to be deducted or withheld. If the Company shall be required by law or the administration thereof to deduct or withhold any Taxes from or in respect of any sum payable under the Convertible Notes (i) the holders of convertible Notes subject to such Taxes shall have the right, but not the obligation, following the Restricted Period, and for a period of thirty (30) days commencing upon the day it shall have received written notice form the Company that it is required to withhold Taxes to transfer all or any portion of the Convertible Notes to a qualified assignee to the extent such transfer can be effected in accordance with the other provisions of this Agreement and applicable law; (ii) the Company shall make such deductions or withholdings; (iii) the sum payable - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 13 (American International Petroleum Corporation) 85478.4 shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to additional amounts paid under this Section 3.5) such Purchaser receives an amount equal to the sum it would have received if no such deduction or withholding had been made; and (iv) the Company shall forthwith pay the full amount deducted or withheld to the relevant taxation or other authority in accordance with applicable law. A "qualified assignee" of a Purchaser is a Person that is organized under the laws of (I) the United States or (II) any jurisdiction other than the United States or any political subdivision thereof and that (y) represents and warrants to each of the Company that payments of the company to such assignee under the laws in existence on the date of this Agreement would not be subject to any Taxes and (z) from time to time, as and when requested by the company, executes and delivers to the Company and the Internal Revenue Service forms, and provides the Company with any information necessary to establish such assignee's continued exemption from Taxes under applicable law. (b) The Company shall forthwith pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (all such taxes, charges and levies hereinafter referred to as "Other Taxes") which arise from any payment made under any of the Transaction Agreements or from the execution, delivery or registration of, or otherwise with respect to, this Agreement other than Taxes payable solely as a result of the transfer from the Purchasers to a Person of any Security. (c) The Company shall indemnify each Purchaser, or qualified assignee, for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.5) paid by each Purchaser, or qualified assignee, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days from the date such Purchaser or assignee makes written demand therefor. A certificate as to the amount of such Taxes or Other Taxes submitted to the Company by such Purchaser or assignee shall be conclusive evidence of the amount due from the Company to such party. (d) Within 30 days after the date of any payment of Taxes, the Company will furnish to each Purchaser the original or a certified copy of a receipt evidencing payment thereof. (e) Each Purchaser shall provide to the Company a Form W-8, stating that it is a non-U.S. person, together with any additional tax forms which may be required under the Code, as amended after the date hereof, to allow interest payments to be made to it without deduction. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 14 (American International Petroleum Corporation) 85478.4 SECTION 3.6 Ranking. (a) The Convertible Notes will rank as unsecured obligations of the Company senior in right of payment to all indebtedness of the Company except as hereafter provided. (b) The rights of any Purchaser to receive the principal sum or any part thereof, and to receive the interest due, on each Convertible Note, other than by conversion into Common Stock or receipt of Common Stock as interest, is and shall remain subordinate in priority to the payment of the principal and interest on (i) all future obligations and guarantees of the Company for money borrowed from any bank, trust company, insurance company or other financial institution engaged in the business of lending money, for which the Company is at the time of determination responsible or liable as obligor or guarantor; (ii) all existing or future obligations of the Company secured by a lien, mortgage, pledge or other encumbrance against real or personal property (including Common Stock of the Company or any of its Subsidiaries) of the Company; (iii) any modifications, renewals, extensions or refunding of the foregoing, except for any of such obligations of the Company the payment of which is made expressly subordinate and junior to the Convertible Notes; (iv) Debt incurred in connection with the acquisition and/or operation of the ________________; or (v) other Debt of the Company existing on the Closing Date. Notwithstanding the foregoing, the subordination provisions of this Section 3.6(b) shall be of no force or effect so long as none of the Company's obligations described above have been accelerated by their terms. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchasers, and each of them, as of the Closing Date the following: SECTION 4.1. Organization and Qualification. The Company and each Subsidiary is a corporation (or other legal entity) duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full power and authority to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. Schedule 4.1 sets forth a list of all Subsidiaries and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified to conduct business as a foreign corporation and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except where such failure would not have a Material Adverse Effect. A "Material Adverse Effect" means any material adverse effect on the operations, results of operations, properties, assets, condition (financial or otherwise) or prospects of the Company or the - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 15 (American International Petroleum Corporation) 85478.4 Company and its Subsidiaries, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. SECTION 4.2. Authorization and Execution. (a) The Company has all requisite corporate power and authority to enter into and perform each Transaction Agreement and to consummate the transactions contemplated hereby and thereby and to issue the Securities in accordance with the terms hereof and thereof. (b) The execution, delivery and performance by the Company of each Transaction Agreement and the issuance by the Company of the Securities have been duly and validly authorized and no further consent or authorization of the Company, its Board of Directors or its shareholders is required. (c) This Agreement has been duly executed and delivered by the Company. (d) This Agreement constitutes, and upon execution and delivery thereof by the Company, each of the other Transaction Agreements will constitute, a valid and binding agreement of the Company, in each case enforceable against the Company in accordance with its respective terms. SECTION 4.3. Capitalization. As of the date hereof, the authorized, issued and outstanding capital stock of the Company is as set forth on Schedule 4.3 hereto and no other shares of capital stock of the Company will be outstanding as of the Closing Date. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights or similar rights of the stockholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Other than as set forth on Schedule 4.3 hereto, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, and (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries are obligated to register the sale of any of its or their securities under the Securities Act (except pursuant to the Registration Rights Agreement) and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Convertible Notes, Conversion Shares, Warrants or Warrant Shares. The Company has furnished to Purchasers true and correct copies of the Company's Corporate Documents, and the - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 16 (American International Petroleum Corporation) 85478.4 terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. SECTION 4.4. Governmental Authorization. The execution and delivery by the Company of the Transaction Agreements does not and will not, the issuance and sale by the Company of the Securities does not and will not, and the consummation of the transactions contemplated hereby and by the other Transaction Agreements will not, require any action by or in respect of, or filing with, any governmental body, agency or governmental official except (a) such actions or filings that have been undertaken or made prior to the date hereof and that will be in full force and effect (or as to which all applicable waiting periods have expired) on and as of the date hereof or which are not required to be filed on or prior to the Closing Date, (b) such actions or filings that, if not obtained, would not result in a Material Adverse Effect and (c) listing applications ("Listing Applications") to be filed relating to the Conversion Shares and Warrant Shares of Common Stock issuable upon conversion of the Convertible Notes and exercise of the Warrants. SECTION 4.5. Issuance of Shares. Upon conversion in accordance with the terms of the Convertible Notes, or upon exercise in accordance with the terms of the Warrants (assuming the payment of the exercise price set forth in the Warrants), the Conversion Shares and Warrant Shares shall be duly and validly issued and outstanding, fully paid and nonassessable, free and clear of any Taxes, Liens and charges with respect to issuance and shall not be subject to preemptive rights or similar rights of any other stockholders of the Company. Assuming the representations and warranties of the Purchasers herein are true and correct in all material respects, each of the Securities will have been issued in material compliance with all applicable U.S. federal and state securities laws. The Company understands and acknowledges that, in certain circumstances, the issuance of Conversion Shares and Warrant Shares could dilute the ownership interests of other stockholders of the Company. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Convertible Notes, and Warrant Shares upon exercise of the Warrants, is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. SECTION 4.6. No Conflicts. The execution and delivery by the Company of the Transaction Agreements to which it is a party did not and will not, the issuance and sale by the Company of the Securities did not and will not and the consummation of the transactions contemplated hereby and by the other Transaction Agreements will not, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation, (ii) the Company Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or any Subsidiary or any of their respective assets, or result in the creation or imposition of any Lien on any asset of the Company or any Subsidiary. The Company and each Subsidiary is in compliance with and conforms to all statutes, laws, ordinances, rules, regulations, orders, restrictions and all other legal requirements of any domestic or foreign government or any instrumentality thereof having jurisdiction over the - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 17 (American International Petroleum Corporation) 85478.4 conduct of its businesses or the ownership of its properties, except where such failure would not have a Material Adverse Effect. SECTION 4.7. Financial Information and SEC Reports. Since January 1, 1996, the Company has timely filed all forms, reports and documents with the Commission required to be filed by it under the Exchange Act through the date hereof (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits) incorporated by reference therein, being referred to herein collectively as the "SEC Reports"). The Company has delivered to each Purchaser true and complete copies of the SEC Reports, except for such exhibits and incorporated documents. Such SEC Reports, at the time filed, complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder applicable to such SEC Reports. None of the SEC Reports, including without limitation, any financial statements or schedules included therein, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. There have been no material adverse changes in the Company's business, properties, results of operations, condition (financial or otherwise) or prospects since the date of the Company's most recent Report on Form 10-K for the year ended December 31, 1996 which have not been disclosed to the Purchasers in writing. The audited and unaudited consolidated balance sheets of the Company and its Subsidiaries contained in the SEC Reports, and the related consolidated statements of income, changes in stockholders' equity and changes in cash flows for the periods then ended, including the footnotes thereto, except as indicated therein, (i) complied in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto and (ii) have been prepared in accordance with GAAP consistently applied throughout the periods indicated, except that the unaudited financial statements do not contain notes and may be subject to normal audit adjustments and normal annual adjustments. Such financial statements fairly present the financial condition of the Company and its Subsidiaries at the dates indicated and the consolidated results of their operations and cash flows for the periods then ended and, except as indicated therein, reflect all claims against and all Debts and liabilities of the Company and its Subsidiaries, fixed or contingent. Since June 30, 1997 (the "Balance Sheet Date"), except as disclosed in the SEC Reports, there has been (x) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects, of the Company and its Subsidiaries, whether as a result of any legislative or regulatory change, revocation of any license or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God, public force or otherwise and (y) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects, of the Company and its Subsidiaries except in the ordinary course of business; and no fact or condition exists or is contemplated or threatened which might cause such a change in the future. SECTION 4.8. Litigation. Except as set forth in the SEC Reports, there is no action, suit or proceeding pending or, to the knowledge of the Company, threatened against the - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 18 (American International Petroleum Corporation) 85478.4 Company or any Subsidiary, before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or which challenges the validity of any Transaction Agreements. SECTION 4.9. Plans. The Company and the Subsidiaries do not have any Plans. SECTION 4.10. Environmental Matters. The costs and liabilities associated with Environmental Laws (including the cost of compliance therewith) are unlikely to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or any Subsidiary. Each of the Company and the Subsidiaries conducts its businesses in compliance in all material respects with all applicable Environmental Laws. SECTION 4.11. Taxes. All United States federal, state, county, municipality local or foreign income tax returns and all other material tax returns (including foreign tax returns) which are required to be filed by or on behalf of the Company and each Subsidiary have been filed and all material taxes due pursuant to such returns or pursuant to any assessment received by the Company and each Subsidiary have been paid except those being disputed in good faith and for which adequate reserves have been established. The charges, accruals and reserves on the books of the Company and each Subsidiary in respect of taxes or other governmental charges have been established in accordance with GAAP. SECTION 4.12. Investments, Joint Ventures. Other than Med Shipping Usturt Petroleum Limited, in which the Company owns 70% of the equity interests, the Company has no Subsidiaries or other direct or indirect Investment in any Person, and the Company is not a party to any partnership, management, shareholders' or joint venture or similar agreement. SECTION 4.13. Not an Investment Company. Neither the Company nor any Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.14. Full Disclosure. The information heretofore furnished by the Company to the Purchasers for purposes of or in connection with this Agreement or any transaction contemplated hereby does not, and all such information hereafter furnished by the Company or any Subsidiary to the Purchasers will not (in each case taken together and on the date as of which such information is furnished), contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they are made, not misleading. SECTION 4.15. No Solicitation; No Integration with Other Offerings. No form of general solicitation or general advertising was used by the Company or, to the best of its actual - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 19 (American International Petroleum Corporation) 85478.4 knowledge, any other Person acting on behalf of the Company, in connection with the offer and sale of the Securities. Neither the Company, nor, to its knowledge, any Person acting on behalf of the Company, has, either directly or indirectly, sold or offered for sale to any Person (other than the Purchasers) any of the Securities or, within the six months prior to the date hereof, any other similar security of the Company except as contemplated by this Agreement, and the Company represents that neither itself nor any Person authorized to act on its behalf (except that the Company makes no representation as to the Purchasers and their Affiliates) will sell or offer for sale any such security to, or solicit any offers to buy any such security from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to cause the issuance or sale of any of the Securities to be in violation of any of the provisions of Section 5 of the Securities Act. The issuance of the Securities to the Purchasers will not be integrated with any other issuance of the Company's securities (past, current or future) which requires stockholder approval under the rules of the Nasdaq Market. SECTION 4.16. Permits. (a) Each of the Company and its Subsidiaries has all material Permits; (b) all such Permits are in full force and effect, and each of the Company and its Subsidiaries has fulfilled and performed all material obligations with respect to such Permits; (c) no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination by the issuer thereof or which results in any other material impairment of the rights of the holder of any such Permit; and (d) the Company has no reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such Permit. SECTION 4.17. Leases. Except as disclosed on Schedule 4.17 hereto, neither the Company nor any Subsidiary is a party to any capital lease obligation with a value greater than $100,000 or to any operating lease with an aggregate annual rental greater than $100,000 during the life of such lease. SECTION 4.18. Absence of Any Undisclosed Liabilities or Capital Calls. There are no liabilities of the Company or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which could reasonably be expected to result in such a liability, other than (i) those liabilities provided for in the financial statements delivered pursuant to Section 4.7 hereof and (ii) other undisclosed liabilities which, individually or in the aggregate, would not have a Material Adverse Effect. SECTION 4.19. Public Utility Holding Company. Neither the Company nor any Subsidiary is, or will be upon the issuance and sale of the Securities and the use of the proceeds described herein, subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act or to any federal or state statute or regulation limiting its ability to issue and perform its obligations under any Transaction Agreement. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 20 (American International Petroleum Corporation) 85478.4 SECTION 4.20. Intellectual Property Rights. Each of the Company and its Subsidiaries owns, or is licensed under, and has the rights to use, all material patents, trademarks, trade names, copyrights, technology, know-how and processes (collectively, "Intellectual Property") used in, or necessary for the conduct of its business; no claims have been asserted by any Person to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement related thereto. To the best of the Company's and its Subsidiaries' knowledge, there is no valid basis for any such claim and the use of such Intellectual Property by the Company and its Subsidiaries will not infringe upon the rights of any Person. SECTION 4.21. Insurance. The Company and its Subsidiaries maintain, with financially sound and reputable insurance companies, insurance in at least such amounts and against such risks such that any uninsured loss would not have a Material Adverse Effect. All insurance coverages of the Company and its Subsidiaries are in full force and effect and there are no past due premiums in respect of any such insurance. SECTION 4.22. Title to Properties. The Company and its Subsidiaries have good and marketable title to all their respective properties reflected on the financial statements referred to in Section 4.7. SECTION 4.23. Current Public Information. The Company is a "reporting issuer" as defined in Rule 902(l) of Regulation S and it has a class of securities registered under Section 12(b) or 12(g) of the Exchange Act. SECTION 4.24. No Directed Selling Efforts in Regard to this Transaction; Compliance with Regulation S. The Company has not, and to the best of the Company's knowledge no Purchaser nor any distributor, if any, participating in the Offering of the Securities nor any Person acting for the Company or any such distributor has conducted any "directed selling efforts" in connection wit the Offering as that term is defined in Rule 902 of Regulation S. The Company has not offered the Securities to the Purchaser in the United States or to any Person in the United States or any U.S. person (as defined in Regulation S). The Company represents and warrants that the Offering by the Company of the Securities to the Purchaser as contemplated in this Agreement is not part of a plan or scheme to evade the registration provisions of the Securities Act. SECTION 4.25. No Action. The Company has not taken and will not take any action that will affect in any way the running of the Restricted Period or Warrant Restricted Period (each as hereafter defined) or the ability of any Subscriber to resell freely the Securities in accordance with applicable securities laws and this Agreement. SECTION 4.26. Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company's Board of Directors, to provide reasonable assurance that (i) transactions are executed - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 21 (American International Petroleum Corporation) 85478.4 in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS SECTION 5.1. Purchase for Investment; Authority; Binding Agreement. Each Purchaser severally (and not jointly) hereby represents and warrants to the Company solely as to such Purchaser that: (a) the Purchaser is not a "U.S. person" as that term is defined in Rule 902(o) of Regulation S, and no Purchaser is an entity organized or incorporated under the laws of any foreign jurisdiction by any U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless the Purchaser is or was organized or incorporated by "U.S. persons" who are accredited investors (as defined in Rule 501(a) under the Securities Act) and who are not natural persons, estates or trusts; (b) the Convertible Notes and Warrants were not offered to the Purchaser in the United States and at the time of execution of this Agreement and at the time the buy order was originated, and of any offer to such Purchaser to purchase the Convertible Notes and Warrants hereunder, such Purchaser was outside the United States; (c) the Purchaser is purchasing the Convertible Notes and Warrants for its own account and not on behalf of or for the benefit of any U.S. person and the resale of the Convertible Notes and Warrants has not been prearranged with any buyer in the United States; (d) the Purchaser agrees that all offers and sales of the Convertible Notes and Conversion Shares prior to the expiration of the Restricted Period shall not be made to U.S. persons or for the account or benefit of U.S. persons or within the United States and shall otherwise be made in compliance with the provisions of Regulation S; (e) Purchaser has been engaged or acted as or on behalf of a distributor or dealer (and is not an affiliate of a distributor or dealer) with respect to the Offering; (f) the Purchaser agrees that all offers and sales of the Warrant Shares prior to the expiration of a period commencing on the date of issuance of the Warrant Shares following the exercise of the Warrant and payment to the Company of the exercise price - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 22 (American International Petroleum Corporation) 85478.4 associated therewith and ending forty (40) days thereafter (the "Warrant Restricted Period") shall not be made to U.S. persons or for the account or benefit of U.S. persons and shall otherwise be made in compliance with provisions of Regulation S; (g) the Purchaser shall take all reasonable steps to ensure its compliance with Regulation S and shall promptly send to each Person who acts as a distributor, dealer or a Person receiving a selling concession, fee or other remuneration in respect of any of the Convertible Notes and Warrants, who purchases prior to the expiration of the Restricted Period or Warrant Restricted Period, as applicable, a confirmation or other notice to the Person stating that the Person is subject to the same restrictions on offers and sales as the Person pursuant to Section 901(c)(2)(iv) of Regulation S; (h) the Purchaser has no present plan or intention of selling the Securities in the United States, has made no predetermined arrangements to sell the Securities (other than the registration provisions contained in the Registration Rights Agreement, which pertain only to a potential method of disposing of the shares of Common Stock) and that the Offering, together with any subsequent resale by any Purchaser of the Securities, is not part of a plan or scheme on the part of Purchaser to evade the registration provisions of the Securities Act; (i) the Purchaser currently does not have a short position in the Company's Common Stock, including any short call position or any long put position or any contract or arrangement that has the effect of eliminating or substantially diminishing the risk of ownership of the Securities, nor has any Purchaser engaged in any hedging transaction with respect to the Securities; (j) the Purchaser is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act; (k) the execution, delivery and performance of this Agreement and the purchase of the Securities pursuant hereto are within the Purchaser's corporate or partnership powers, as applicable, and have been duly and validly authorized by all requisite corporate or partnership action; (l) this Agreement and the remaining Transaction Agreement have been duly executed and delivered in London, England by the Purchaser. (m) the execution and delivery by the Purchaser of the Transaction Agreements to which it is a party does not, and the consummation of the transactions contemplated hereby and thereby will not, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation, or (ii) any agreement, judgment, injunction, order, decree or other instrument binding upon such Purchaser; - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 23 (American International Petroleum Corporation) 85478.4 (n) the Purchaser understands that the Securities have not been registered under the Securities Act and may not be transferred or sold except as specified in this Agreement; (o) this Agreement constitutes a valid and binding agreement of the Purchaser enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency or similar laws affecting the enforceability of creditors rights generally and (ii) equitable principles of general applicability; (p) the Purchaser has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Securities and the Purchaser is capable of bearing the economic risks of such investment; and (q) the Purchaser is knowledgeable, sophisticated and experienced in business and financial matters; the Purchaser has previously invested in securities similar to the Securities and fully understands the limitations on transfer described herein; the Purchaser has been afforded access to information about the Company and the financial condition, results of operations, property, management and prospects of the Company sufficient to enable it to evaluate its investment in the Securities; the Purchaser has been afforded the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and the risks of investing in the Securities; and the Purchaser has been afforded the opportunity to obtain such additional information which the Company possesses or can acquire that is necessary to verify the accuracy and completeness of the information given to the Purchaser concerning the Company. The foregoing does not in any way relieve the Company of its representations and other undertakings hereunder, and shall not limit any Purchaser's ability to rely thereon. ARTICLE VI CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES SECTION 6.1. Conditions Precedent to the Purchasers' Obligation to Purchase. The obligation of each Purchaser hereunder to purchase the Convertible Notes at the Closing is subject to the satisfaction, on or before the Closing Date of each of the following conditions, provided that these conditions are for such Purchaser's sole benefit and may be waived by such Purchaser at any time in its sole discretion: (a) The Company shall have executed this Agreement and the Registration Rights Agreement and delivered the same to the Purchasers; - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 24 (American International Petroleum Corporation) 85478.4 (b) The Company shall have delivered to the Purchasers duly executed certificates representing the Convertible Notes and the Warrants in accordance with Section 2.3 hereof; (c) The Company shall have delivered the Solvency Certificate; (d) The representations and warranties of the Company contained in each Transaction Agreement shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specified date) and the Company shall have performed, satisfied and complied with all covenants, agreements and conditions required by such Transaction Agreements to be performed, satisfied or complied with by it at or prior to the Closing Date. The Purchasers shall have received a certificate, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Purchasers, including but not limited to certificates with respect to the Company Corporate Documents, resolutions relating to the transactions contemplated hereby and the incumbencies of certain officers and Directors of the Company. The form of such certificate is attached hereto as Exhibit G; (e) The Company shall have received all governmental, Board of Directors, shareholders and third party consents and approvals necessary or desirable in connection with the issuance and sale of the Securities; (f) All applicable waiting periods in respect to the issuance and sale of the Securities shall have expired without any action having been taken by any competent authority that could restrain, prevent or impose any materially adverse conditions thereon or that could seek or threaten any of the foregoing; (g) No law or regulation shall have been imposed or enacted that, in the judgment of the Purchasers, could adversely affect the transactions set forth herein or in the other Transaction Agreements, and no law or regulation shall have been proposed that in the reasonable judgment of Purchasers could reasonably have any such effect; (h) Each of the Purchasers shall have received an opinion, dated the Closing Date, of counsel to the Company, substantially in the form attached as Exhibit J hereto; (i) All fees and expenses due and payable by the Company on or prior to the Closing Date shall have been paid; (j) The Company Corporate Documents and the Subsidiary Corporate Documents, if any, shall be in full force and effect and no term or condition thereof shall - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 25 (American International Petroleum Corporation) 85478.4 have been amended, waived or otherwise modified without the prior written consent of the Purchasers; (k) There shall have occurred no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or any Subsidiary since June 30, 1997; (l) There shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that challenges the validity of or purports to affect this Agreement or any other Transaction Agreement, or other transaction contemplated hereby or thereby or that could reasonably be expected to have a Material Adverse Effect, or any material adverse effect on the enforceability of the Transaction Agreements or the Securities or the rights of the holders of the Securities or the Purchasers hereunder; (m) The Purchasers shall have confirmed receipt of the Convertible Notes and the Warrants to be issued, duly executed by the Company in the denominations and registered in the names of the Purchasers specified in or pursuant to Schedule 2.1; (n) There shall not have occurred any disruption or adverse change in the financial or capital markets generally, or in the market for the Common Stock (including but not limited to any suspension or delisting), which the Purchasers reasonably deem material in connection with the purchase of the Securities; (o) Immediately before and after the Closing Date, no Default or Event of Default shall have occurred and be continuing; and (p) The Purchasers shall have received all other opinions, resolutions, certificates, instruments, agreements or other documents as they shall reasonably request. SECTION 6.2. Conditions to the Company's Obligations. The obligations of the Company to issue and sell the Securities to the Purchasers pursuant to this Agreement are subject to the satisfaction, at or prior to the Closing Date, of the following conditions: (a) The representations and warranties of the Purchasers contained herein shall be true and correct in all material respects on the Closing Date and the Purchasers shall have performed and complied in all material respects with all agreements required by this Agreement to be performed or complied with by the Purchasers at or prior to the Closing Date; (b) The issue and sale of the Securities by the Company shall not be prohibited by any applicable law, court order or governmental regulation; - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 26 (American International Petroleum Corporation) 85478.4 (c) Receipt by the Company of duly executed counterparts of this Agreement and the Registration Rights Agreement signed by the Purchasers; and (d) The Company shall have received payment of the Purchase Price, less the Expense Reimbursement Fee. ARTICLE VII AFFIRMATIVE COVENANTS The Company hereby agrees that, from and after the date hereof for so long as any Convertible Notes remain outstanding (except for Sections 7.1(a) and (d), 7.11 and 7.12, which shall apply for so long as any Convertible Notes or Warrants remain outstanding) and for the benefit of the Purchasers: SECTION 7.1. Information. The Company will deliver to each holder of the Convertible Notes: (a) promptly upon the filing thereof, copies of (i) all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent), (ii) all reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Company or any Subsidiary has filed with the Commission and (iii) any material press releases issued by the Company or any Subsidiary; (b) simultaneously with the delivery of each item referred to in clause (a) above, a certificate from the chief financial officer of the Company stating that no Default or Event of Default has occurred and is continuing, or, if as of the date of such delivery a Default shall have occurred and be continuing, a certificate from the Company setting forth the details of such Default or Event of Default and the action which the Company is taking or proposes to take with respect thereto; (c) within two (2) days after any officer of the Company obtains knowledge of a Default or Event of Default , a certificate of the chief financial officer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (d) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed and any other document generally distributed to shareholders; (e) at least two (2) Business Days prior to the consummation of any Financing or other event requiring a repayment of the Convertible Notes under Section 3.3, notice - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 27 (American International Petroleum Corporation) 85478.4 thereof together with a summary of all material terms thereof and copies of all documents and instruments associated therewith; and (f) promptly following the commencement thereof, notice and a description in reasonable detail of any litigation or proceeding to which the Company or any Subsidiary is a party in which the amount involved is $250,000 or more and not covered by insurance or in which injunctive or similar relief is sought. SECTION 7.2. Payment of Obligations. The Company and its Subsidiaries will pay and discharge, at or before maturity, all their respective material obligations, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. SECTION 7.3. Maintenance of Property; Insurance. The Company and each Subsidiary will keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. In addition, the Company and each Subsidiary will maintain insurance in at least such amounts and against such risks as it has insured against as of the Closing Date. SECTION 7.4. Maintenance of Existence. The Company will continue, and each Subsidiary will continue, to engage in business of the same general type as now conducted by the Company and such Subsidiaries, and will preserve, renew and keep in full force and effect its respective corporate existence and their respective material rights, privileges and franchises necessary or desirable in the normal conduct of business. SECTION 7.5. Compliance with Laws. The Company and each Subsidiary will comply, in all material respects, with all federal, state, municipal, local or foreign applicable laws, ordinances, rules, regulations, municipal by-laws, codes and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except (i) where compliance therewith is contested in good faith by appropriate proceedings or (ii) where non-compliance therewith could not reasonably be expected, in the aggregate, to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or such Subsidiary. SECTION 7.6. Inspection of Property, Books and Records. The Company and each Subsidiary will keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to their respective businesses and activities; and will permit, during normal business hours, the Purchasers' Representative or an affiliate thereof, as representatives of the Purchasers, to visit and inspect any of their respective properties, upon reasonable prior notice, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 28 (American International Petroleum Corporation) 85478.4 their respective executive officers and independent public accountants, all at such reasonable times. SECTION 7.7. Investment Company Act. The Company will not be or become an open-end investment trust, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended. SECTION 7.8. Supplemental Information. If at any time the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish at its expense, upon request, for the benefit of the holders from time to time of Securities, and prospective purchasers of Securities, information satisfying the information requirements of Rule 144 under the Securities Act. SECTION 7.9. Use of Proceeds. The proceeds from the issuance and sale of the Securities by the Company shall be used to provide start-up capital for the Company's existing oil refinery in Lake Charles, Louisiana and for general corporate purposes. None of the proceeds from the issuance and sale of Securities by the Company pursuant to this Agreement will be used directly or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" within the meaning of Regulation G of the Board of Governors of the Federal Reserve System. SECTION 7.10. Compliance with Terms and Conditions of Material Contracts. The Company will comply, in all material respects, with all terms and conditions of all material contracts to which it is subject. SECTION 7.11. Reserved Shares and Listings (a) The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Convertible Notes and issuance of the Conversion Shares (based on the conversion price of the Convertible Notes in effect from time to time), and the exercise in full of the Warrants and the issuance of the Warrant Shares (based on the exercise price of the Warrants). The Company shall not reduce the number of shares of Common Stock reserved for issuance upon conversion of the Convertible Notes and exercise of the Warrants without the prior written consent of each Purchaser. The Company shall use its best efforts at all times to maintain the number of shares of Common Stock so reserved for issuance at no less than two (2) times the number that is then actually issuable upon full conversion of the outstanding Convertible Notes and issuance of the Conversion Shares (based on the conversion price of the Convertible Notes in effect from time to time) and full exercise of the Warrants and the issuance of the Warrant Shares (based on the exercise price of the Warrants). If at any time the number of shares of Common Stock authorized and reserved for issuance is below the number of Conversion Shares issued and issuable upon conversion of the Convertible - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 29 (American International Petroleum Corporation) 85478.4 Notes and exercise of the Warrants, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, either (x) calling a special meeting of shareholders to authorize additional shares, in the case of an insufficient number of authorized shares, and using its best efforts to obtain shareholder approval within 90 days of an increase in such authorized number of shares or (y) in lieu thereof, consummating the immediate repurchase of the Convertible Notes and Warrants contemplated Section 4.3 of each Convertible Note and Section 10.3 hereof, respectively. (b) The Company shall promptly file the Listing Applications and secure the listing of the Conversion Shares and Warrant Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares and Warrant Shares from time to time issuable upon conversion or exercise of the Convertible Notes and Warrants. The Company will obtain and maintain the listing and trading of its Common Stock on the Nasdaq Market, the Nasdaq SmallCap Market, the New York Stock Exchange, Inc., or the American Stock Exchange Inc., and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers and such exchanges, as applicable. The Company shall promptly provide to each Purchaser copies of any notices it receives regarding the continued eligibility of the Common Stock for listing on the Nasdaq Market SECTION 7.12. Irrevocable Instructions. Upon receipt of a Notice of Conversion or Notice of Exercise, as applicable, the Company shall immediately issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of each Purchaser or its nominee, for the Conversion Shares or Warrant Shares, as applicable, in such amounts as specified from time to time by each Purchaser to the Company upon proper conversion of the Convertible Notes or exercise of the Warrants. Upon conversion of any Convertible Notes in accordance with their terms, and/or exercise of any Warrants in accordance with their terms, the Company will, and will use its best lawful efforts to cause its transfer agent to, issue one or more certificates representing shares of Common Stock in such name or names and in such denominations specified by a Purchaser in a Notice of Conversion or Notice of Exercise, as the case may be. All such shares shall be issued with or without restrictive legend as provided in Article IX below. ARTICLE VIII NEGATIVE COVENANTS The Company hereby agrees that, from and after the date hereof for so long as any Convertible Notes remain outstanding and for the benefit of the Purchasers: - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 30 (American International Petroleum Corporation) 85478.4 SECTION 8.1. Limitation on Debt or Other Liabilities. Neither the Company nor any Subsidiary will create, incur, assume or suffer to exist (at any time after the Closing Date, after giving effect to the application of the proceeds of the issuance of the Securities) any Debt if, following the incurrence thereof, the ratio of the Company's Debt to its Consolidated Net worth is greater than 1.5 to 1.0; provided, the following items of Debt shall be excluded from such calculation(such Debt being referred to as "Permitted Debt"): (i) Debt incurred in connection with equipment leases to which the Company or its Subsidiaries are a party incurred in the ordinary course of business; and (ii) Debt incurred in connection with trade accounts payable, imbalances and refunds arising in the ordinary course of business. (iii) Debt associated with the acquisition and/or operation of the ________________. SECTION 8.2. Restricted Payments. Neither the Company nor any Subsidiary will declare or make Restricted Payments in excess of $50,000 during any calendar year. SECTION 8.3. Transactions with Affiliates. The Company and each Subsidiary will not, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant to those agreements specifically identified on Schedule 8.3 attached hereto (with a copy of such agreements annexed to such Schedule 8.3) and (2) on terms to the Company or such Subsidiary no less favorable than terms that could be obtained by the Company or such Subsidiary from a Person that is not an Affiliate of the Company upon negotiation at arms' length, as determined in good faith by the Board of Directors of the Company; provided that no determination of the Board of Directors shall be required with respect to any such transactions entered into in the ordinary course of business. SECTION 8.4. Merger or Consolidation. The Company will not, in a single transaction or a series of related transactions, (i) consolidate with or merge with or into any other Person, or (ii) permit any other Person to consolidate with or merge into it, unless the Company shall be the survivor of such merger or consolidation. SECTION 8.5. Limitation on Asset Sales. Neither the Company nor any Subsidiary will consummate an Asset Sale of material assets of the Company or any Subsidiary without the prior written consent of the Purchasers, which consent shall not be unreasonably withheld; provided, no consent of the Purchasers will be required for the disposition or farm-out of the Company's interest in Kazakstan. As used herein, "Asset Sale" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) of shares - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 31 (American International Petroleum Corporation) 85478.4 of capital stock of a Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition"), including any disposition by means of a merger, consolidation or similar transaction other than a disposition of property or assets at fair market value in the ordinary course of business. SECTION 8.6. Limitation on Stock Repurchases. The Company shall not, without the written consent of the Majority Holders, redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) any shares of capital stock of the Company or any warrants, rights or options to purchase or acquire any such shares. SECTION 8.7. Pension Plans. The Company shall not, without the written consent of the Majority Holders, which shall not be unreasonably withheld, create any Plan. SECTION 8.8. Consolidated Net Worth. Beginning with the fiscal quarter ending September 30, 1997, the Company will not permit its Consolidated Net Worth at the end of any of its fiscal quarters to be less than $15 million. ARTICLE IX RESTRICTIVE LEGENDS SECTION 9.1. Restrictive Legends. (a) The Convertible Notes shall bear a legend substantially as set forth below and any other legend, if such legend or legends are reasonably required to comply with state, federal or foreign law. Assuming that there are no changes in the material facts represented by the Purchasers in Section 5.1 of this Agreement or applicable law from the date hereof until the date of conversion, all certificates representing the Conversion Shares into which the Convertible Notes are converted after the Restricted Period shall be issued without any restrictive legend. "The Convertible Note of American International Petroleum Corporation represented hereby has been issued pursuant to Regulation S, promulgated under the United States Securities Act of 1933, as amended (the "Act"), and has not been registered under the Act or any applicable state securities laws. This Convertible Note may not be offered or sold within the United States or to or for the account of a "U.S. Person" (as that term is defined in Regulation S) during the period commencing on the date of sale of this Convertible Note and ending on the fortieth (40th) day following completion of the Regulation S offering pursuant to which this Convertible Note has been issued (the "Restricted Period"). This Convertible Note may first be converted into common stock on [41st day after Closing]." - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 32 (American International Petroleum Corporation) 85478.4 (b) The Warrant Shares, when issued, shall bear a legend substantially as set forth below and any other legend, if such legend or legends are reasonably required to comply with state, federal or foreign law (provided, if as a result of any change in the applicable laws governing Regulation S transactions, the Warrant Restricted Period is changed, the Company may alter the legend set forth below for certificates representing Warrant Shares issued after the effective date of such change such that the Warrant Restricted Period conforms therewith). "The shares of Common Stock of American International Petroleum Corporation. represented hereby have been issued pursuant to Regulation S, promulgated under the United States Securities Act of 1933, as amended (the "Act"), and have not been registered under the Act or any applicable state securities laws. These shares may not be offered or sold within the United States or to or for the account of a "U.S. Person" (as that term is defined in Regulation S) during the period commencing on the date of issuance hereof and ending forty (40) days thereafter." (c) At the request of a Purchaser, the Company shall promptly exchange following the Warrant Restricted Period certificates representing the Warrant Shares issued with the legend described in Section 9.1(b) above for certificates representing the Warrant Shares issued without a legend. The Company may place a stop transfer order on the Warrant Shares during the Warrant Restricted Period for the duration of the Warrant Restricted Period. SECTION 9.2. Issuance of Common Shares; Transfers. Upon conversion of the Convertible Debentures and/or exercise of the Warrants, the Company will, and will use its best lawful efforts to cause its transfer agent to, issue one or more certificates representing shares of Common Stock in such name or names and in such denominations specified by a Purchaser in a Notice of Conversion or Notice of Exercise, as applicable. The shares of Common Stock to be issued upon conversion of the Convertible Notes or exercise of the Warrants shall not bear any restrictive legends (other than the legend set forth in Section 9.1(b) for the Warrant Shares) and shall be freely transferable upon expiration of the Restricted Period or Warrant Restricted Period, as applicable, subject to compliance with Federal and state securities laws and the terms of the Convertible Notes and Warrants. The Company agrees that no instructions other than these instructions, and instructions for a "stop transfer" until the end of the Restricted Period or Warrant Restricted Period, as applicable, have been or will be given to its transfer agent and also agrees that the Convertible Notes, Warrants, Conversion Shares and/or Warrant Shares, as applicable, shall otherwise be freely transferable by Purchaser on the books and records of the Company subject to compliance with Federal and state securities laws and the terms of the Convertible Notes and Warrants. The Company will notify its transfer agent of the date of Closing of this Offering and of the date of expiration of the Restricted Period and of the Warrant Restricted Period upon exercise of any Warrants. Nothing in this section shall affect in any way a Purchaser's obligations and agreement to comply with all applicable securities laws upon resale of the Securities. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 33 (American International Petroleum Corporation) 85478.4 ARTICLE X ADDITIONAL AGREEMENTS AMONG THE PARTIES SECTION 10.1. Liquidated Damages. (a) The Company shall, and shall use its best efforts to cause its transfer agent to, issue and deliver shares of Common Stock consistent with Article IX hereof within five (5) New York Stock Exchange Trading Days of delivery of a Notice of Conversion or Notice of Exercise, as applicable (the "Deadline") to the Purchaser (or any party receiving Securities by transfer from such Purchaser) at the address of the Purchaser set forth in the Notice of Conversion or Notice of Exercise, as the case may be. The Company understands that a delay in the issuance of such certificates after the Deadline could result in economic loss to the Purchaser. (b) Without in any way limiting the Purchaser's right to pursue other remedies, including actual damages and/or equitable relief, the Company agrees that if delivery of the Conversion Shares or Warrant Shares is more than one (1) Business Day after the Deadline (other than a failure due to the circumstances described in Section 4.3 of the Convertible Notes, which failure shall be governed by such Section) the Company shall pay to each Purchaser, as liquidated damages and not as a penalty, the greater of (x) $100 for each $100,000 of Convertible Notes then outstanding per day in cash, for each of the first ten (10) days beyond the Deadline, and $200 for each $100,000 of Convertible Notes then outstanding per day in cash for each day thereafter that the Company fails to deliver such Common Stock and (y) $500 per day in cash, for each of the first ten (10) days beyond the Deadline, and $1,000 per day in cash for each day thereafter that the Company fails to deliver such Common Stock. Such cash amount shall be paid to each Purchaser by the fifth day of the month following the month in which it has accrued or, at the option of the Purchaser (by written notice to the Company by the first day of the month following the month in which it has accrued), shall be added to the principal amount of the Convertible Note (if then outstanding) payable to such Purchaser, in which event interest shall accrue thereon in accordance with the terms of the Convertible Notes and such additional principal amount shall be convertible into Common Stock in accordance with the terms of the Convertible Notes. SECTION 10.2. Conversion Notice. The Company agrees that, in addition to any other remedies which may be available to the Purchasers, including, but not limited to, the remedies available under Section 10.1, in the event the Company fails for any reason (other than as a result of actions taken by a Purchaser in breach of this Agreement) to effect delivery to a Purchaser of certificates with or without restrictive legends as contemplated by Article IX representing the shares of Common Stock on or prior to the Deadline after conversion of any Convertible Notes or exercise of any Warrant, such Purchaser will be entitled, if prior to the delivery of such certificates, to revoke the Notice of Conversion or Notice of Exercise, as applicable, by delivering a notice to - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 34 (American International Petroleum Corporation) 85478.4 such effect to the Company whereupon the Company and the Purchaser shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion or Notice of Exercise. SECTION 10.3 Conversion Limit. (a) Notwithstanding the conversion rights under the Convertible Notes and exercise rights under the Warrants, unless the Purchaser delivers a waiver in accordance with the immediately following sentence, in no event shall the Purchaser be entitled to convert any portion of the Convertible Notes (or exercise any portion of the Warrants) in excess of that portion of the Convertible Notes or Warrants upon conversion and exercise, as applicable, of which the sum of (i) the number of shares of Common Stock beneficially owned by the Purchaser and its Affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Convertible Note and exercised portion of the Warrants) and (ii) the number of shares of Common Stock issuable upon the conversion of the portion of the Convertible Note (or issuable upon exercise the portion of the Warrants) with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Purchaser and its Affiliates of more than 4.9% of the outstanding shares of Common Stock. For purposes of the first proviso to the immediately preceding sentence, (i) beneficial ownership shall be determined in accordance with Section 13(d)-3 of the Exchange Act and Regulation 13 D-G thereunder, except as otherwise provided in clause (1) of such proviso and (ii) the Holder may waive the limitations set forth therein by written notice to the Company upon not less than sixty-one (61) days prior notice (with such waiver taking effect only upon the expiration of such 61 day notice period). The foregoing limitation shall not apply and shall be of no further force or effect (i) upon the occurrence of any voluntary or mandatory redemption transaction described herein or in the Convertible Notes, (ii) on the Maturity Date or (iii) following the occurrence of any Event of Default which is not cured within the greater of the applicable time period specified in either (A) such written notice of Purchaser or (B) Section 12.1 hereof. (b) Upon the occurrence of a Nasdaq Redemption Event, if the Company is obligated to repay the Convertible Notes as described in Section 4.3 thereof, the Company shall, in addition thereto, redeem the Warrants contemporaneous with the repayment of the Convertible Notes at the Warrant Redemption Price. The term "Warrant Redemption Price" shall mean the greater of (x) the appraised value of the Warrants on the date they are called for redemption (determined with reference to the "Black Scholes" or similar option pricing model) and (y) the product of the excess of (i) the Market Value of the Common Stock on the date that the Warrants are redeemed over (ii) the exercise price of the Warrants. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 35 (American International Petroleum Corporation) 85478.4 SECTION 10.4 Registration Rights. (a) The Company shall grant the Purchasers registration rights covering the Conversion Shares and Warrant Shares (the "Registrable Securities") on the terms set forth in the Registration Rights Agreement and herein. In the event that Regulation S is amended or modified (x) to increase the number of days contained in the Restricted Period or Warrant Restricted Period or (y) so that the Conversion Shares or Warrant Shares would be deemed "restricted securities" pursuant to the Securities Act (a "Liquidity Event"), the Purchasers will be entitled to demand registration rights in respect of the Registerable Securities. (b) The Company shall prepare and file within 30 days of the occurrence of a Liquidity Event a registration statement (the "Registration Statement") on Form S-3 (or such other form as is then available for registration) covering the sale of the Registrable Securities. The Company shall use its best efforts to cause the Registration Statement to be declared effective by the Commission no later than 90 days following the Liquidity Event (the "Required Effectiveness Date"). The Company shall pay all expenses of registration (other than underwriting fees and discounts, if any, in respect of Registrable Securities offered and sold under such Registration Statement by the Purchasers). (c) If the Registration Statement is (x) not declared effective by the Commission by the Required Effectiveness Date, or (y) such effectiveness is not maintained for a period of three (3) years after the Closing, which period shall be reduced to two (2) years if the Convertible Notes have been repaid in full (subject to the right of the Company to suspend the effectiveness thereof for not more than 10 consecutive days or an aggregate of 30 days during such three year period) (the "Registration Maintenance Period"), the Company shall pay to each Purchaser monthly, as liquidated damages and not as a penalty, the greater of (x) its pro rata portion of an amount equal to 0.5% of the aggregate outstanding principal amount of the Convertible Notes, which monthly amount will be increased to 1% in the event that the Registration Statement is not declared effective by the Commission the Required Effectiveness Date, or (y) $500 for each day the Registration Statement (i) is not declared effective by the Commission by the Required Effectiveness Date or such effectiveness is not maintained for the Required Maintenance Period (the "Default Fee"). (d) Any such Default Fee shall be paid in cash by the Company to the Purchasers by wire transfer in immediately available funds on the last day of each calendar week following the event requiring its payment. (e) If, for any reason (including but not limited to the issuance of all shares of Common Stock covered by the prospectus included in the Registration Statement), the Default Fee is incurred for a period of thirty (30) days (a "Registration Default"), the holders of a majority of the Convertible Notes then outstanding may elect to cause the Company to repay the Convertible Notes in full at the Formula Price. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 36 (American International Petroleum Corporation) 85478.4 SECTION 10.5 Prohibition on Discounted Equity Offerings. (a) Until such time as all of the Convertible Notes have been repaid or converted in full, the Company agrees that it will not issue (or, unless such issuance would, upon the closing thereof, result in the repayment in full of the Convertible Notes, agree to issue) any of its equity securities (or securities convertible into or exchangeable or exercisable for equity securities (the "Derivative Securities"), on terms that allow a holder thereof to acquire such equity securities (or Derivative Securities) at a discount to the Market Price of the Common Stock at the time of issuance or, in the case of Derivative Securities (other than the Convertible Notes), at a conversion price based on any formula (other than standard anti-dilution provisions) based on the Market Price on a date later than the date of issuance (each such event, a "Discounted Equity Offering"). As used herein, "discount" shall include, but not be limited to, (1) any warrant, right or other security granted or offered in connection with such issuance which, on the applicable date of grant, is offered with an exercise or conversion price, as the case may be, at less than the then current Market Price of the Common Stock or, if such security has an exercise or conversion price based on any formula (other than standard anti-dilution provisions) based on the Market Price on a date later than the date of issuance, then at a price below the Market Price on such date of exercise or conversion, as the case may be, or (2) any commissions, fees or other allowances paid in connection with such issuances (other than customary underwriter or placement agent commissions, fees or allowances). For the purposes of determining the Market Price at which Common Stock is acquired under this Section, normal underwriting commissions and placement fees (including underwriters' warrants) shall be excluded. (b) Until such time as all of the Convertible Notes have been repaid or converted in full, the Company agrees it will not issue (or, unless such issuance would, upon the closing thereof, result in the repayment in full of the Convertible Notes, agree to issue) any of its equity securities (or Derivative Securities), unless any shares of Common Stock issued or issuable in connection therewith are "restricted securities". As used herein "restricted securities" shall mean securities which may not be sold by virtue of contractual restrictions imposed by the Company either pursuant to an exemption from registration under the Securities Act or pursuant to a registration statement filed by the Company with the Commission, in each case prior to twelve (12) months following the date of issuance of such securities. (c) The restrictions contained in this Section 10.5 shall not apply to the issuance by the Company of (or the agreement to issue) Common Stock or Derivative Securities in connection with (x) the acquisition (including by merger) of a business or of assets otherwise permitted under this Agreement, (y) stock option or other compensatory plans, or (z) up to 1,500,000 shares of Common Stock issued in connection with the acquisition of the ________________. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 37 (American International Petroleum Corporation) 85478.4 SECTION 10.6. Covenants of the Purchasers. (a) Each Purchaser covenants that neither it nor any of its Affiliates nor any Person acting on its or their behalf has the intention of entering, or will enter from the Closing through the end of the Restricted Period applicable to the Convertible Notes, into any put option, short position or any hedging transaction or other similar instrument or position with respect to the Company's Common Stock and neither it nor any of its Affiliates nor any Person acting on its or their behalf will use at any time the Company's Common Stock to settle any put option, short position or other similar instrument or position that may have been entered into prior to the execution of this Agreement. (b) Each Purchaser further covenants that it will not make any sale, transfer or other disposition of the Securities in violation of the Securities Act (including Regulation S) or the rules and regulations of the Commission promulgated thereunder. Each Purchaser acknowledges and agrees that the Securities may and will only be resold (i) in compliance with Regulation S; (ii) pursuant to a Registration Statement under the Securities Act; or (iii) pursuant to an exemption from registration under the Securities Act. ARTICLE XI ADJUSTMENT OF FIXED PRICE SECTION 11.1. Reorganization. The exercise price of the Warrants set forth therein and the Initial Conversion Price (collectively, the "Fixed Prices") shall be adjusted as hereafter provided. SECTION 11.2. Share Reorganization. If and whenever the Company shall: (i) subdivide the outstanding shares of Common Stock into a greater number of shares; (ii) consolidate the outstanding shares of Common Stock into a smaller number of shares; (iii) issue Common Stock or securities convertible into or exchangeable for shares of Common Stock as a stock dividend to all or substantially all the holders of Common Stock; or (iv) make a distribution on the outstanding Common Stock to all or substantially all the holders of Common Stock payable in Common Stock or securities convertible into or exchangeable for Common Stock; - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 38 (American International Petroleum Corporation) 85478.4 any of such events being herein called a "Share Reorganization", then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which the holders of Common Stock are determined for the purposes of the Share Reorganization or, if no record date is fixed, the effective date of the Share Reorganization, by multiplying the applicable Fixed Price in effect on such record or effective date, as the case may be, by a fraction of which: (I) the numerator shall be the number of shares of Common Stock outstanding on such record or effective date (without giving effect to the transaction); and (II) the denominator shall be the number of shares of Common Stock outstanding after giving effect to such Share Reorganization, including, in the case of a distribution of securities convertible into or exchangeable for shares of Common Stock, the number of shares of Common Stock that would have been outstanding if such securities had been converted into or exchanged for Common Stock on such record or effective date. SECTION 11.3. Rights Offering. If and whenever the Company shall issue to all or substantially all the holders of Common Stock, rights, options or warrants under which such holders are entitled, during a period expiring not more than 45 days after the record date of such issue, to subscribe for or purchase Common Stock (or Derivative Securities), at a price per share (or, in the case of securities convertible into or exchangeable for Common Stock, at an exchange or conversion price per share at the date of issue of such securities) of less than 95% of the Market Price of the Common Stock on such record date (any such event being herein called a "Rights Offering"), then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which holders of Common Stock are determined for the purposes of the Rights Offering, by multiplying the applicable Fixed Price in effect on such record date by a fraction of which: (i) the numerator shall be the sum of: (I) the number of shares of Common Stock outstanding on such record date; and (II) a number obtained by dividing: (A) either, (x) the product of the total number of shares of Common Stock so offered for subscription or purchase and the price at which such shares are so offered, or (y) the product of the maximum number of shares of Common Stock into or for which the convertible or exchangeable securities so offered for subscription or - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 39 (American International Petroleum Corporation) 85478.4 purchase may be converted or exchanged and the conversion or exchange price of such securities, or, as the case may be, by (B) the Market Price of the Common Stock on such record date; and (ii) the denominator shall be the sum of: (I) the number of shares of Common Stock outstanding on such record date; and (II) the number of shares of Common Stock so offered for subscription or purchase (or, in the case of Derivative Securities, the maximum number of shares of Common Stock for or into which the securities so offered for subscription or purchase may be converted or exchanged). To the extent that such rights, options or warrants are not exercised prior to the expiry time thereof, the applicable Fixed Price shall be readjusted effective immediately after such expiry time to the applicable Fixed Price which would then have been in effect upon the number of shares of Common Stock (or Derivative Securities) actually delivered upon the exercise of such rights, options or warrants. SECTION 11.4. Special Distribution. If and whenever the Company shall issue or distribute to all or substantially all the holders of Common Stock: (i) shares of the Company of any class, other than Common Stock; (ii) rights, options or warrants; or (iii) any other assets (excluding cash dividends and equivalent dividends in shares paid in lieu of cash dividends in the ordinary course); and if such issuance or distribution does not constitute a Share Reorganization or a Rights Offering (any such event being herein called a "Special Distribution"), then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which the holders of Common Stock are determined for purposes of the Special Distribution, by multiplying the applicable Fixed Price in effect on such record date by a fraction of which: (i) the numerator shall be the difference between: (A) the product of the number of shares of Common Stock outstanding on such record date and the Market Price of the Common Stock on such date; and - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 40 (American International Petroleum Corporation) 85478.4 (B) the fair market value, as determined by the Directors (whose determination shall be conclusive), to the holders of Common Stock of the shares, rights, options, warrants, evidences of indebtedness or other assets issued or distributed in the Special Distribution (net of any consideration paid therefor by the holders of Common Stock), and (ii) the denominator shall be the product of the number of shares of Common Stock outstanding on such record date and the Market Price of the Common Stock on such date. SECTION 11.5. Capital Reorganization. If and whenever there shall occur: (i) a reclassification or redesignation of the shares of Common Stock or any change of the shares of Common Stock into other shares, other than in a Share Reorganization; (ii) a consolidation, merger or amalgamation of the Company with, or into another body corporate; or (iii) the transfer of all or substantially all of the assets of the Company to another body corporate; (any such event being herein called a "Capital Reorganization"), then in each such case the holder who exercises the right to convert Convertible Notes or exercise the Warrants after the effective date of such Capital Reorganization shall be entitled to receive and shall accept, upon the exercise of such right, in lieu of the number of shares of Common Stock to which such holder was theretofore entitled upon the exercise of the conversion privilege, the aggregate number of shares or other securities or property of the Company or of the body corporate resulting from such Capital Reorganization that such holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, such holders had been the holder of the number of shares of Common Stock to which such holder was theretofore entitled upon conversion; provided, however, that no such Capital Reorganization shall be consummated in effect unless all necessary steps shall have been taken so that such holders shall thereafter be entitled to receive such number of shares or other securities of the Company or of the body corporate resulting from such Capital Reorganization, subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained above. SECTION 11.6. Adjustment Rules. The following rules and procedures shall be applicable to adjustments made in this Article XI: (a) no adjustment in the applicable Fixed Price shall be required unless such adjustment would result in a change of at least 1% in the applicable Fixed Price then in - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 41 (American International Petroleum Corporation) 85478.4 effect, provided, however, that any adjustments which, but for the provisions of this clause would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment; (b) no adjustment in the applicable Fixed Price shall be made pursuant to this Article XI in respect of the issue from time to time of Common Stock to holders of Common Stock who exercise an option to receive substantially equivalent dividends in Common Stock in lieu of receiving cash dividends in the ordinary course; and (c) if a dispute shall at any time arise with respect to any adjustment of the applicable Fixed Price, such dispute shall be conclusively determined by the auditors of the Company or, if they are unable or unwilling to act, by a firm of independent chartered accountants selected by the Directors and any such determination shall be binding upon the Company and Purchasers. SECTION 11.7. Certificate as to Adjustment. The Company shall from time to time promptly after the occurrence of any event which requires an adjustment in the applicable Fixed Price deliver to the Purchasers a certificate specifying the nature of the event requiring the adjustment, the amount of the adjustment necessitated thereby, the applicable Fixed Price after giving effect to such adjustment and setting forth, in reasonable detail, the method of calculation and the facts upon which such calculation is based. SECTION 11.8. Notice to Noteholders. If the Company shall fix a record date for: (a) any Share Reorganization (other than the subdivision of outstanding Common Stock into a greater number of shares or the consolidation of outstanding Common Stock into a smaller number of shares), (b) any Rights Offering., (c) any Special Distribution, (d) any Capital Reorganization (other than a reclassification or redesignation of the Common Stock into other shares), or (e) any cash dividend, the Company shall, not less than 10 days prior to such record date or, if no record date is fixed, prior to the effective date of such event, give to the Purchasers notice of the particulars of the proposed event or the extent that such particulars have been determined at the time of giving the notice. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 42 (American International Petroleum Corporation) 85478.4 ARTICLE XII EVENTS OF DEFAULT SECTION 12.1. Events of Default. If one or more of the following events (each an "Event of Default") shall have occurred and be continuing: (a) failure by the Company to pay or prepay when due, all or any part of the principal or on any of the Convertible Notes (whether by virtue of the agreements specified in this Agreement or the Convertible Notes); (b) failure by the Company to pay (i) within five (5) Business Days of the due date thereof any interest on any Convertible Notes or (ii) within five (5) Business Days following the delivery of notice to the Company of any fees or any other amount payable (not otherwise referred to in (a) above or this clause (b)) by the Company under this Agreement; (c) failure by the Company to timely comply with the requirements of Section 9.2 or 10.1 hereof, which failure is not cured within five (5) Business Days of such failure; (d) an event of default shall have occurred and is continuing under any Transaction Agreement; (e) failure on the part of the Company to observe or perform any covenant contained in Sections 7.11 or 7.12 or Article VIII of this Agreement; (f) failure on the part of the Company to observe or perform any covenant contained in any Transaction Agreement (other than those covered by clauses (a), (b), (c), (d) or (e) above) for 30 days from the date of such occurrence; (g) the trading in the Common Stock shall have been suspended by the Commission or by the Nasdaq Market (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company and except if, at the time there is any suspension on the Nasdaq Market, the Common Stock is then listed and approved for trading on either the New York Stock Exchange, the American Stock Exchange, the Nasdaq Stock market's Small Cap Market, or the Nasdaq National Market within ten (10) Trading Days thereof); (h) failure of the Company to file the Listing Applications within twenty (20) Business Days of the Closing Date, which failure is not cured within five (5) Business Days of such failure; - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 43 (American International Petroleum Corporation) 85478.4 (i) the Company shall have its Common Stock delisted from the Nasdaq Market for at least ten (10) consecutive Trading Days and is unable to obtain a listing on either the New York Stock Exchange, the American Stock Exchange, the Nasdaq Stock market's Small Cap Market or the Nasdaq Stock Market's National Market within such ten (10) Trading Days; (j) the Registration Statement shall not have been declared effective by the Commission by the Required Effectiveness Date, with such effectiveness maintained for the Registration Maintenance Period, which results in the Company incurring the Default Fee for a period in excess of thirty (30) days; (k) the Company or has commenced a voluntary case or other proceeding seeking liquidation, winding-up, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or has consented to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or has made a general assignment for the benefit of creditors, or has failed generally to pay its debts as they become due, or has taken any corporate action to authorize any of the foregoing; (l) an involuntary case or other proceeding has been commenced against the Company seeking liquidation, winding-up, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days, or an order for relief has been entered against the Company under the federal bankruptcy laws as now or hereafter in effect; (m) default in respect of any Debt in excess of $1,000,000 of the Company or any Subsidiary, or the Company or any Subsidiary has failed to pay at maturity or within any applicable period of grace any such Debt; (n) judgments or orders for the payment of money which in the aggregate at any one time exceed $1,000,000 and are not covered by insurance have been rendered against the Company or any Subsidiary by a court of competent jurisdiction and such judgments or orders shall continue unsatisfied and unstayed for a period of 60 days; or (o) any representation, warranty, certification or statement made by the Company in any Transaction Agreement or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 44 (American International Petroleum Corporation) 85478.4 with any Transaction Agreement shall prove to have been untrue in any material respect when made. then, and in every such occurrence, any Purchaser may, with respect to an Event of Default specified in paragraphs (a) or (b), and the Majority Holders may, with respect to any other Event of Default, by notice to the Company, declare the Convertible Notes to be, and the Convertible Notes shall thereon become immediately due and payable; provided that in the case of any of the Events of Default specified in paragraph (k) or (l) above with respect the Company or any Subsidiary, then, without any notice to the Company or any other act by any Purchaser, the entire amount of the Convertible Notes shall become immediately due and payable, provided further, if any Event of Default has occurred and is continuing, and irrespective of whether any Convertible Note has been declared immediately due and payable hereunder, any Purchaser of Convertible Notes may proceed to protect and enforce the rights of such Purchaser by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Convertible Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise, and provided further, in the case of any Event of Default, the amount declared due and payable on the Convertible Notes shall be the Formula Price thereof. SECTION 12.2. Powers and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Purchasers is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Every power and remedy given by the Convertible Notes or by law may be exercised from time to time, and as often as shall be deemed expedient, by the Purchasers. ARTICLE XIII MISCELLANEOUS SECTION 13.1. Notices. All notices, demands and other communications to any party hereunder shall be in writing (including telecopier or similar writing) and shall be given to such party at its address set forth on the signature pages hereof, or such other address as such party may hereafter specify for the purpose to the other parties. Each such notice, demand or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified on the signature page hereof, (ii) if given by mail, four days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in or pursuant to this Section. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 45 (American International Petroleum Corporation) 85478.4 SECTION 13.2. No Waivers; Amendments. (a) No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. (b) Any provision of this Agreement may be amended, supplemented or waived if, but only if, such amendment, supplement or waiver is in writing and is signed by the Company and the Majority Holders; provided, that without the consent of each holder of any Convertible Note affected thereby, an amendment or waiver may not (a) reduce the aggregate principal amount of Convertible Notes whose holders must consent to an amendment or waiver, (b) reduce the rate or extend the time for payment of interest on any Convertible Note, (c) reduce the principal amount of or extend the stated maturity of any Convertible Note or (d) make any Convertible Note payable in money or property other than as stated in such Convertible Note. In determining whether the holders of the requisite principal amount of Convertible Notes have concurred in any direction, consent, or waiver as provided in any Transaction Agreement, Convertible Notes which are owned by the Company or any other obligor on or guarantor of the Convertible Notes, or by any Person Controlling, Controlled by, or under Common Control with any of the foregoing, shall be disregarded and deemed not to be outstanding for the purpose of any such determination; and provided further that no such amendment, supplement or waiver which affects the rights of the Purchasers and their affiliates otherwise than solely in their capacities as holders of Convertible Notes shall be effective with respect to them without their prior written consent. SECTION 13.3. Indemnification. (a) The Company agrees to indemnify and hold harmless each Purchaser, its Affiliates, and each Person, if any, who controls such Purchaser, or any of its Affiliates, within the meaning of the Securities Act or the Exchange Act (each, a "Controlling Person"), and the respective partners, agents, employees, officers and Directors of each Purchaser, their Affiliates and any such Controlling Person (each an "Indemnified Party" and collectively, the "Indemnified Parties"), from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation and as incurred, reasonable costs of investigating, preparing or defending any such claim or action, whether or not such Indemnified Party is a party thereto, provided that the Company shall not be obligated to advance such costs to any Indemnified Party other than the Purchasers unless it has received from such Indemnified Party an undertaking to repay to the Company the costs so advanced if it should be determined by final judgment of a court of competent jurisdiction that such Indemnified Party was not entitled to indemnification hereunder with respect to such costs) which may be incurred by such Indemnified Party in connection with any investigative, administrative or judicial proceeding brought or - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 46 (American International Petroleum Corporation) 85478.4 threatened that relates to or arises out of, or is in connection with any activities contemplated by any Transaction Agreement or any other services rendered in connection herewith; provided that the Company will not be responsible for any claims, liabilities losses, damages or expenses that are determined by final judgment of a court of competent jurisdiction to result from such Indemnified Party's gross negligence, willful misconduct or bad faith. (b) If any action shall be brought against an Indemnified Party with respect to which indemnity may be sought against the Company under this Agreement, such Indemnified Party shall promptly notify the Company in writing and the Company, at its option, may, assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all reasonable fees and expenses. The failure to so notify the Company shall not affect any obligations the Company may have to such Indemnified Party under this Agreement or otherwise unless the Company is materially adversely affected by such failure. Such Indemnified Party shall have the right to employ separate counsel in such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party, unless: (i) the Company has failed to assume the defense and employ counsel or (ii) the named parties to any such action (including any impleaded parties) include such Indemnified Party and the Company, and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company, in which case, if such Indemnified Party notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the Company shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party, provided, however, that the Company shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be responsible hereunder for the reasonable fees and expenses of more than one such firm of separate counsel, in addition to any local counsel, which counsel shall be designated by the Purchasers. The Company shall not be liable for any settlement of any such action effected without the written consent of the Company (which shall not be unreasonably withheld) and the Company agrees to indemnify and hold harmless each Indemnified Party from and against any loss or liability by reason of settlement of any action effected with the consent of the Company. In addition, the Company will not, without the prior written consent of the Purchasers, settle or compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action, claim, suit or proceeding in respect to which indemnification or contribution may be sought hereunder (whether or not any Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination includes an express unconditional release of the Purchasers and the other Indemnified Parties, satisfactory in form and substance to the Purchasers, from all liability arising out of such action, claim, suit or proceeding. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 47 (American International Petroleum Corporation) 85478.4 (c) If for any reason the foregoing indemnity is unavailable (otherwise than pursuant to the express terms of such indemnity) to an Indemnified Party or insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying such Indemnified Party, the Company shall contribute to the amount paid or payable by such Indemnified Party as a result of such claims, liabilities, losses, damages, or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by the Purchasers on the other from the transactions contemplated by this Agreement or (ii) if the allocation provided by clause (i) is not permitted under applicable law, in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and the Purchasers on the other, but also the relative fault of the Company and the Purchasers as well as any other relevant equitable considerations. Notwithstanding the provisions of this Section 13.3, the aggregate contribution of all Indemnified Parties shall not exceed the amount of interest and fees actually received by the Purchasers pursuant to this Agreement. It is hereby further agreed that the relative benefits to the Company on the one hand and the Purchasers on the other with respect to the transactions contemplated hereby shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact related to information supplied by the Company or by the Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation (d) The indemnification, contribution and expense reimbursement obligations set forth in this Section 13.3 (i) shall be in addition to any liability the Company may have to any Indemnified Party at common law or otherwise, (ii) shall survive the termination of this Agreement and the other Transaction Agreements and the payment in full of the Convertible Notes and (iii) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Purchasers or any other Indemnified Party. SECTION 13.4. Expenses: Documentary Taxes. The Company agrees to pay (i) (i) the Expense Reimbursement Fee, (ii) all reasonable out-of-pocket expenses of the Purchasers, including fees and disbursements of counsel, in connection with any waiver or consent hereunder or under any other Transaction Agreement or any amendment hereof or thereof and (iii) all reasonable out-of-pocket expenses of the Purchasers and each holder of Securities, including fees and disbursements of counsel, in connection with any collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. In addition, the Company agrees to pay any and all stamp, transfer and other similar taxes, assessments or charges payable in connection with the execution and delivery of any Transaction Agreement or the issuance of the Securities to the Purchasers, excluding their assigns. - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 48 (American International Petroleum Corporation) 85478.4 SECTION 13.5. Payment. The Company agrees that, so long as a Purchaser shall own any Convertible Notes purchased by it from the Company hereunder, the Company will make payments to such Purchaser of all amounts due thereon by wire transfer by 4:00 P.M. (New York City time). SECTION 13.6. Successors and Assigns. This Agreement shall be binding upon the Company and upon the Purchasers and their respective successors and assigns; provided that the Company shall not assign or otherwise transfer its rights or obligations under this Agreement to any other Person without the prior written consent of the Majority Holders. All provisions hereunder purporting to give rights to Purchasers and their affiliates or to holders of Securities are for the express benefit of such Persons and their successors and assigns. SECTION 13.7. Brokers. Except for a cash fee of 3% of the aggregate principal amount of the Convertible Notes (and Warrants equal to 2% of the funded amount of the Convertible Notes) payable to LKB Financial, LLC, the Company represents and warrants that it has not employed any broker, finder, financial advisor or investment banker who would be entitled to any brokerage, finder's or other fee or commission payable by the Company or the Purchasers in connection with the sale of the Securities. Each Purchaser hereby warrants that it has not employed any broker, finder, financial advisor or investment banker who would be entitled to any brokerage, finder's or other fee or commission payable by the Company in connection with the sale of the Securities. SECTION 13.8. New York Law; Submission to Jurisdiction; Waiver of Jury Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 13.9. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 49 (American International Petroleum Corporation) 85478.4 full force and effect and shall in no way be affected, impaired or invalidated unless a failure of consideration would result thereby. SECTION 13.10 Survival. All provisions contained in this Agreement (unless specifically noted to the contrary) shall survive the payment in full of the Convertible Notes and shall remain operative and in full force and effect. SECTION 13.11. Counterparts. This Agreement may be executed by telecopy signature and in any number of counterparts each of which shall be an original with the same effect as if the signatures there to and hereto were upon the same instrument. [Signature Pages Follow] - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 50 (American International Petroleum Corporation) 85478.4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers, as of the date first above written. AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: --------------------------------- Name: ________________________________ Title: _______________________________ Address: 444 Madison Avenue New York, New York 10022 Fax: (212) 688-6657 Attn: George Faris By: --------------------------------- Name: ________________________________ Title: _______________________________ Address: Fax: Attn: With copy to: - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 51 (American International Petroleum Corporation) 85478.4 SCHEDULES 2.1 Allocation of Securities Among Purchasers 4.1 List of Subsidiaries 4.3 Capitalization 4.17 Leases 8.3 Affiliates Agreements EXHIBITS Exhibit A - Form of Convertible Note Exhibit B - Form of Notice of Conversion Exhibit C - Form of Notice of Exercise Exhibit D - Form of Registration Rights Agreement Exhibit E - Form of Solvency Certificate Exhibit F - Form of Officer's Certificate Exhibit G - Form of Escrow Agreement Exhibit H - Form of Warrant Exhibit I - Form of Company Counsel's Opinion - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT - Page 52 (American International Petroleum Corporation) 85478.4 SCHEDULE 2.1 SECURITIES - -------------------------------------------------------------------------------- Aggregate Principal Number of Name/Address Amount of Notes Purchase Price Warrant Shares - -------------------------------------------------------------------------------- $ $(1) - -------------------------------------------------------------------------------- $ $ - -------------------------------------------------------------------------------- TOTAL $ $(1) - -------------------------------------------------------------------------------- (1). Includes deduction of $25,000 as the Expense Reimbursement Fee EX-4.3 4 COMMON STOCK PURCHASE WARRANT EXHIBIT 4.3 THIS WARRANT HAS BEEN OFFERED AND SOLD OUTSIDE OF THE UNITED STATES IN A TRANSACTION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT. THIS WARRANT MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE WARRANT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO THE AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. IN ADDITION, A SECURITITES PURCHASE AGREEMENT, DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION OBLIGATIONS OF THE COMPANY (THE "PURCHASE AGREEMENT"). AMERICAN INTERNATIONAL PETROLEUM CORPORATION COMMON STOCK PURCHASE WARRANT - -------------------------------------------------------------------------------- Number of Shares: Holder: Purchase Price: Expiration Date: October 15, 2002 For identification only. The governing terms of this Warrant are set forth below. - -------------------------------------------------------------------------------- AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation (the "Company"), hereby certifies that, for value received, ________________________________________ or assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time after the date hereof and prior to the fifth anniversary hereof (the "Exercise Period"), at the Purchase Price hereinafter set forth, 1,350,000 shares of the fully paid and nonassessable Common Stock of the Company. The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. The purchase price per share of Common Stock issuable upon exercise of this Warrant (the "Purchase Price") shall initially be $_______; provided, however, that the Purchase Price shall be adjusted from time to time as provided in Section 5, below. - -------------------------------------------------------------------------------- COMMON STOCK PURCHASE WARRANT - Page 1 (American International Petroleum Corporation - No. 1) As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include American International Petroleum Corporation and any corporation that shall succeed or assume the obligations of the Company hereunder. (b) The term "Common Stock" includes (a) the Company's common stock, par value $.08 per share, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) that the holder of this Warrant at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. 1. Exercise of Warrant. 1.1. Method of Exercise. This Warrant may be exercised in whole or in part (but not as to a fractional share of Common Stock), at any time and from time to time during the Exercise Period, by the holder hereof by surrender of this Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Company at its principal office, accompanied by payment of the Purchase Price multiplied by the number of shares of Common Stock for which this Warrant is being exercised (the "Exercise Price"). Payment of the Exercise Price shall be made by check or bank draft payable to the order of the Company or by wire transfer to the account of the Company. If the amount of the payment received by the Company is less than the Exercise Price, the holder will be notified of the deficiency and shall make payment in that amount within five (5) business days. In the event the payment exceeds the Exercise Price, the Company will refund the excess to the holder within five (5) Business Days of receipt. Upon exercise, the holder shall be entitled to receive, promptly after payment in full, one or more certificates, issued in the holder's name or in such name or names as the holder may - -------------------------------------------------------------------------------- COMMON STOCK PURCHASE WARRANT - Page 2 (American International Petroleum Corporation - No. 1) direct, subject to the limitations on transfer contained herein, for the number of shares of Common Stock so purchased. The shares so purchased shall be deemed to be issued as of the close of business on the date on which this Warrant shall have been exercised and the Purchaser Price therefor has been paid to the Company (the "Exercise Date"). 1.2. Regulation S Restrictions. (a) Exercise of this Warrant and acceptance of shares of Common Stock upon such exercise shall constitute a representation by the holder (on which the Company shall have the right to rely in issuing the Common Stock upon such exercise) that the holder is not a U.S. Person (as such term is defined in Regulation S promulgated under the Securities Act of 1933, as amended ("Regulation S")) and an agreement by the holder not to offer or sell such shares in the United States to a U.S. Person or for the account or benefit of a U.S. Person during the period commencing on the date on which it exercises the Warrant and ending on the day following any applicable restrictive period under Regulation S. All certificates for the shares of Common Stock issuable upon exercise of this Warrant shall bear a legend stating as follows: "The shares of Common Stock represented hereby have been issued pursuant to Regulation S, promulgated under the United States Securities Act of 1933, as amended (the "Act") and have not been registered under the Act or any applicable state securities laws. These shares may not be offered or sold within the United States or to or for the account of a "U.S. Person" as that term is defined Regulation S during the period commencing on the date of issuance hereof and ending [complete as applicable restricted period]. (b) The Company covenants that upon the expiration of the applicable restrictive period relating to the shares of Common Stock underlying this Warrant, if any, it will use its best lawful efforts to issue or cause the transfer agent of the Company to issue one or more certificates representing such shares of Common Stock (or Other Securities) without any restrictive legend such that such shares shall be freely tradable, subject only to compliance with Federal and state securities laws. The Company acknowledges that "best lawful efforts" as used herein shall, among other things, require the Company obtain an opinion of counsel of the Company reasonably satisfactory to the holder regarding certain Federal securities law implications in connection with removing the restrictive legend on the shares of Common Stock issuable upon exercise of this Warrant. 1.3. Company Acknowledgment. The Company will, at the time of the exercise of this Warrant, upon the request of the holder hereof, acknowledge in writing its continuing obligation to afford to such holder the registration rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of a Registration Rights Agreement dated the date hereof. If the holder shall fail to make any such request, such failure - -------------------------------------------------------------------------------- COMMON STOCK PURCHASE WARRANT - Page 3 (American International Petroleum Corporation - No. 1) shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.4. Limitation on Exercise. Notwithstanding the rights of the holder to exercise all or a portion of this Warrant as described herein, such exercise rights shall be limited, solely to the extent set forth in the Purchase Agreement as if such provisions were specifically set forth herein. 2. Delivery of Stock Certificates, etc., on Exercise. As soon as practicable after the exercise of this Warrant, and in any event within five (5) business days thereafter, the Company at its expense (including the payment by it of any applicable issue, stamp or transfer taxes) will cause to be issued in the name of and delivered to the holder thereof, or, to the extent permissible hereunder, to such other person as such holder may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then applicable Purchase Price, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3. Adjustment for Extraordinary Events. The Purchase Price to be paid by the Holder upon exercise of this Warrant shall be adjusted in case at any time or from time to time the Company should (i) subdivide the outstanding shares of Common Stock into a greater number of shares, (ii) consolidate the outstanding shares of Common Stock into a smaller number of shares, (iii) issue shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock as a dividend to all or substantially all holders of shares of Common Stock or (iv) issue by reclassification of shares of Common Stock, any shares of capital stock of the Company, in each event pursuant to Article XI of the Purchase Agreement as if such provisions were specifically set forth herein. 4. No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of this Warrant, and (c) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company - -------------------------------------------------------------------------------- COMMON STOCK PURCHASE WARRANT - Page 4 (American International Petroleum Corporation - No. 1) (if the Company is not the surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of this Warrant. 5. Accountants' Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the Company at its expense will promptly cause independent certified public accountants of national standing selected by the Company to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder of this Warrant, and will, on the written request at any time of the holder of this Warrant, furnish to such holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. 6. Notices of Record Date, etc. In the event of (a) any taking by the Company of a record of the holders of any class or securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then and in each such event the Company will mail or cause to be mailed to the holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, - -------------------------------------------------------------------------------- COMMON STOCK PURCHASE WARRANT - Page 5 (American International Petroleum Corporation - No. 1) transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date specified in such notice on which any action is to be taken. 7. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of this Warrant. 8. Exchange of Warrant. On surrender for exchange of this Warrant, properly endorsed and in compliance with the restrictions on transfer set forth in the legend on the face of this Warrant, to the Company, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant of like tenor, in the name of such holder or as such holder (on payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered. 9. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Remedies. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 11. Negotiability, etc. This Warrant is issued upon the following terms, to all of which each holder or owner hereof by the taking hereof consents and agrees: (a) title to this Warrant may be transferred by endorsement (by the holder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery. (b) Any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser, - -------------------------------------------------------------------------------- COMMON STOCK PURCHASE WARRANT - Page 6 (American International Petroleum Corporation - No. 1) and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary; and (d) notwithstanding the foregoing, this Warrant may not be sold, transferred or assigned except pursuant to an effective registration statement under the Securities Act of 1933, as amended or, pursuant to an applicable exemption therefrom or in accordance with Regulation S promulgated under such Act. 12. Registration Rights. The Company is obligated to register the shares of Common Stock issuable upon exercise of this Warrant in accordance with the terms of a Registration Rights Statement dated the date hereof. 13. Notices, etc. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 14. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of Delaware. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. This Warrant is being executed as an instrument under seal. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. [Signature Page Follows] - -------------------------------------------------------------------------------- COMMON STOCK PURCHASE WARRANT - Page 7 (American International Petroleum Corporation - No. 1) DATED as of October 15, 1997. AMERICAN INTERNATIONAL PETROLEUM CORPORATION By:______________________________________ Name:____________________________________ Title:___________________________________ [Corporate Seal] Attest: By:___________________________ Secretary - -------------------------------------------------------------------------------- COMMON STOCK PURCHASE WARRANT - Page 8 (American International Petroleum Corporation - No. 1) - -------------------------------------------------------------------------------- DATED as of October __, 1997. - -------------------------------------------------------------------------------- AMERICAN INTERNATIONAL PETROLEUM CORPORATION By:______________________________________ Name:____________________________________ Title:___________________________________ [Corporate Seal] Attest: By:_________________________ Secretary - -------------------------------------------------------------------------------- COMMON STOCK PURCHASE WARRANT - Page 8 (American International Petroleum Corporation - No. 1) EX-4.4 5 REGISTRATION RIGHTS AGREEMENT Exhibit 4.4 Exhibit D to Security Purchase Agreement REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of October 15, 1997, among AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation (the "Company"), and the other undersigned parties hereto (collectively, the "Funds"). 1. Introduction. The Company and the Funds have today executed that certain Securities Purchase Agreement (the "Note Purchase Agreement"), pursuant to which the Company has agreed, among other things, to issue an aggregate of $10,000,000 (U.S.) principal amount of 14% Convertible Notes of the Company (the "Notes") to the Funds or their successors, assigns or transferees (collectively, the "Holders"). The Notes are convertible into an indeterminable number of shares (the "Note Conversion Shares") of the Company's common stock, par value $.01 per share (the "Common Stock"), pursuant to the terms of the Notes. In addition, pursuant to the terms of the Note Purchase Agreement and the transactions contemplated thereby, the Company has issued to the Funds Common Stock Purchase Warrants exercisable for an aggregate 1,500,000 shares of Common Stock (the "Warrant Shares"). The number of Note Conversion Shares and Warrant Shares (collectively, the "Securities") is subject to adjustment upon the occurrence of stock splits, recapitalizations and similar events occurring after the date hereof. The Company represents and warrants that the Company's Common Stock is currently eligible for trading on the Nasdaq Stock Market's National Market ("National Market") under the symbol "AIPN". Certain capitalized terms used in this Agreement are defined in Section 3 hereof; references to sections shall be to sections of this Agreement. 2. Registration under Securities Act, etc. 2.1 Registration on Liquidity Event. (a) Registration of Registrable Securities. As soon as is practicable after the occurrence of a Liquidity Event (as defined in the Note Purchase Agreement), but in no event later than thirty (30) days thereafter, the Company shall prepare and file a registration statement to effect the registration under the Securities Act of all, but not less than all, of the Registrable Securities which relate (or, because of the indeterminable number thereof, which could reasonably be deemed to relate) to the Securities; all to the extent requisite to permit the public disposition of such Registrable Securities so to be registered. The Company shall use its best efforts to cause the Registration Statement which is the subject of this Section 2.1(a) (the "Registration Statement") to be declared effective by the Commission upon the earlier to occur of (i) 90 days after the occurrence of a Liquidity Event or (ii) five (5) business days after receipt of a "no review" or similar letter from the Commission (the "Required Effectiveness Date"). - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 1 (American International Petroleum Corporation) Nothing contained herein shall be deemed to limit the number of Registrable Securities to be registered by the Company hereunder. As a result, should the Registration Statement not relate to the maximum number of Registrable Securities acquired by (or potentially acquirable by) the holders thereof upon conversion of the Notes, or exercise of the Warrants, the Company shall be required to file a separate registration statement (utilizing Rule 462 promulgated under the Exchange Act, where applicable) relating to such Registrable Securities which then remain unregistered. The provisions of this Agreement shall relate to such separate registration statement as if it were an amendment to the Registration Statement. (b) Registration Statement Form. Registrations under this Section 2.1 shall be on Form S-3 or such other appropriate registration form of the Commission as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified by the Funds; provided, however, such intended method of disposition shall not include an underwritten offering of the Registrable Securities. (d) Expenses. The Company will pay all Registration Expenses in connection with any registration required by this Section 2.1. (e) Effective Registration Statement. A registration requested pursuant to this Section 2.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective within the time period specified herein, provided that a registration which does not become effective after the Company has filed a registration statement with respect thereto solely by reason of the refusal to proceed of any holder of Registrable Securities (other than a refusal to proceed based upon the advice of counsel in the form of a letter signed by such counsel and provided to the Company relating to a disclosure matter unrelated to such holder) shall be deemed to have been effected by the Company unless the holders of the Registrable Securities shall have elected to pay all Registration Expenses in connection with such registration, (ii) if, after it has become effective, such registration becomes subject to any stop order, injunction or other order or extraordinary requirement of the Commission or other governmental agency or court for any reason or (iii) if, after it has become effective, such registration ceases to be effective for more than an aggregate of ninety (90) days. (f) [Intentionally Left Blank] (g) [Intentionally Left Blank] (h) Plan of Distribution. The Company hereby agrees that the Registration Statement shall include a plan of distribution section reasonably acceptable to the Funds and substantially in the form annexed hereto; provided, however, such plan of distribution section shall be modified by the Company so as to not provide for the disposition of the Registrable Securities on the basis of an underwritten offering. - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 2 (American International Petroleum Corporation) 2.2 Incidental Registration. (a) Right to Include Registrable Securities. Following the occurrence of a Liquidity Event, if (1) any principal or interest shall be outstanding under the Notes (whether or not then due and owing) and (2) the Company proposes to register any of its securities under the Securities Act (other than by a registration in connection with an acquisition in a manner which would not permit registration of Registrable Securities for sale to the public, on Form S-8, or any successor form thereto, on Form S-4, or any successor form thereto and other than pursuant to Section 2.1), on an underwritten basis (either best-efforts or firm-commitment), then, the Company will each such time give prompt written notice to all Holders of its intention to do so and of such Holders' rights under this Section 2.2. Upon the written request of any such Holder made within twenty (20) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), the Company will, subject to the terms of this Agreement, effect the registration under the Securities Act of up to that number of Registrable Securities equal to that number of Note Conversion Shares acquirable upon conversion of up to 75% of the original principal amount of the Notes which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of such Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under Section 2.1, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 2.2 shall relieve the Company of its obligation to effect any registration upon request under Section 2.1, nor shall any such registration hereunder be deemed to have been effected pursuant to Section 2.1. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2. The right provided the Holders of the Registrable Securities pursuant to this Section shall be exercisable at their sole discretion and will in no way limit any of the Company's obligations to pay the Securities according to their terms. (b) Priority in Incidental Registrations. If the managing underwriter of the underwritten offering contemplated by this Section 2.2 shall inform the Company and holders of the Registrable Securities requesting such registration by letter of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 3 (American International Petroleum Corporation) such offering, then the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (i) first securities proposed by the Company to be sold for its own account, and (ii) second Registrable Securities and securities of other selling security holders requested to be included in such registration pro rata on the basis of the number of shares of such securities so proposed to be sold and so requested to be included; provided, however, the holders of Registrable Securities shall have priority to all shares sought to be included by officers and directors of the Company as well as holders of ten percent (10%) or more of the Company's Common Stock. 2.3 Registration Procedures. If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2.1 and, as applicable, 2.2, the Company shall, as expeditiously as possible: (i) prepare and file with the Commission the Registration Statement to effect such registration (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) and thereafter use its best efforts to cause such registration statement to be declared effective by the Commission, as soon as practicable, but in any event no later than the Required Effectiveness Date; provided, however, that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the holders of Registrable Securities which are to be included in such registration, copies of all such documents proposed to be filed; (ii) with respect to any Registration Statement pursuant to Section 2.1, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement until the earlier to occur of three (3) years after the date of this Agreement (subject to the right of the Company to suspend the effectiveness thereof for not more than 10 consecutive days or an aggregate of 30 days in such three (3) years period) or such time as all of the securities which are the subject of such registration statement cease to be Registrable Securities (such period, in each case, the "Registration Maintenance Period"); provided, however, that if the Common Stock Purchase Warrants have been exercised in full, the Registration Maintenance Period shall be reduced to two (2) years; (iii) furnish to each seller of Registrable Securities covered by such registration statement such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller and underwriter, if any, may - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 4 (American International Petroleum Corporation) reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller; (iv) use its reasonable efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities laws or blue sky laws as any seller thereof shall reasonably request, to keep such registrations or qualifications in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (v) [Intentionally Left Blank] (vi) [Intentionally Left Blank] (vii) notify the Sellers' Representative and its counsel promptly and confirm such advice in writing promptly after the Company has knowledge thereof: (v) when the registration statement, the prospectus or any prospectus supplement related thereto or post-effective amendment to the registration statement has been filed, and, with respect to the registration statement or any post-effective amendment thereto, when the same has become effective; (w) of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information; (x) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings by any Person for that purpose; and (y) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose; (viii) notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 5 (American International Petroleum Corporation) the circumstances then existing, and at the request of any such seller promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (ix) use its reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (x) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (xi) enter into such agreements and take such other actions as the Sellers' Representative shall reasonably request in writing (at the expense of the requesting or benefiting sellers) in order to expedite or facilitate the disposition of such Registrable Securities; and (xii) use its best efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the Registrable Securities are then listed. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing. The Company will not file any registration statement pursuant to Section 2.1, or amendment thereto or any prospectus or any supplement thereto (including such documents incorporated by reference and proposed to be filed after the initial filing of the registration statement) to which the Sellers' Representative shall reasonably object, provided that the Company may file such document in a form required by law or upon the advice of its counsel. The Company represents and warrants to each holder of Registrable Securities that it has obtained all necessary waivers, consents and authorizations necessary to execute this Agreement and consummate the transactions contemplated hereby other than such waivers, consents and/or authorizations specifically contemplated by the Note Purchase Agreement. Each Fund agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in subdivision (viii) of this Section 2.3, such Fund will forthwith - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 6 (American International Petroleum Corporation) discontinue such Fund's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such Fund's receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (viii) of this Section 2.3 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Fund's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. If any such registration statement refers to any Holder of Registrable Securities by name or otherwise as the holder of any securities of the Company, then such holder shall have the right to require (a) the insertion therein of language, in form and substance reasonably satisfactory to such holder, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such holder will assist in meeting any future financial requirements of the Company, or (b) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such holder. 2.4 Underwritten Offerings. (a) [Intentionally Left Blank] (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by Section 2.2 and such securities are to be distributed by or through one or more underwriters, the Company will, if requested by any holder of Registrable Securities as provided in Section 2.2 and subject to the provisions of Section 2.2(b), use its reasonable efforts to arrange for such underwriters to include all the Registrable Securities to be offered and sold by such holder among the securities to be distributed by such underwriters, provided that if the managing underwriter of such underwritten offering shall inform the holders of the Registrable Securities requesting such registration, in respect of such underwritten offering, by letter of its belief that inclusion in such underwritten distribution of all or a specified number of such Registrable Securities to requested to be included would interfere with the successful marketing of the securities (other than such Registrable Securities and other securities so requested to be included which may be included in such underwritten offering without such effect) then, the Company may, upon written notice to all holders of such Registrable Securities (and of such other shares so requested to be included) exclude pro rata from such underwritten offering (if and to the extent stated by such managing underwriter to be necessary to eliminate such effect) the number of such Registrable Securities and shares of such other securities so requested to be included in the registration of which shall have been requested by each holder of Registrable Securities and by the holders of such other securities so that the resultant aggregate number of such Registrable Securities and of such other shares or securities to requested to be included which are included in such underwritten offering shall be equal to the approximate number of shares stated in such managing underwriter's letter. The holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 7 (American International Petroleum Corporation) require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such other underwriters shall also be made to and for the benefit of such holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such holders of Registrable Securities. Any such holder of Registrable Securities shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder, such holder's Registrable Securities and such holder's intended method of distribution and any other representations required by law. (c) Holdback Agreements. Subject to such other reasonable requirements as may be imposed by the underwriter as a condition of inclusion of a Fund's Registrable Securities in the registration statement, each Fund agrees by acquisition of Registrable Securities, if so required by the managing underwriter, not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of, except as part of such underwritten registration, any equity securities of the Company, during such reasonable period of time requested by the underwriter; provided however, such period shall not exceed the 120 day period commencing 30 days prior to the commencement of such underwritten offering and ending 90 days following the completion of such underwritten offering. (d) Participation in Underwritten Offerings. No holder of Registrable Securities may participate in any underwritten offering under Section 2.2 unless such holder of Registrable Securities (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved, subject to the terms and conditions hereof, by the holders of a majority of Registrable Securities to be included in such underwritten offering and (ii) completes and executes all questionnaires, indemnities, underwriting agreements and other documents (other than powers of attorney) required under the terms of such underwriting arrangements. Notwithstanding the foregoing, no underwriting agreement (or other agreement in connection with such offering) shall require any holder of Registrable Securities to make any representations or warranties to or agreements with the Company or the underwriters other than representations and warranties contained in a writing furnished by such holder expressly for use in the related registration statement or representations, warranties or agreements regarding such holder, such holder's Registrable Securities and such holder's intended method of distribution and any other representation required by law. 2.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the holders of Registrable Securities registered under such registration statement, and their respective counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the reasonable opinion of such holders' and such - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 8 (American International Petroleum Corporation) underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.6 Registration Default Fee. If the Registration Statement contemplated in Section 2.1 is (x) not declared effective by the Required Effectiveness Date or (y) such effectiveness is not maintained for the Registration Maintenance Period, then the Company shall pay to the fund the Default Fee specified in Section 10.2 of the Note Purchase Agreement. 2.7 Indemnification. (a) Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act, the Company will, and hereby does agree to, indemnify and hold harmless the holder of any Registrable Securities covered by such registration statement, its directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such holder or any such underwriter within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such holder and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such holder or underwriter stating that it is for use in the preparation thereof and, provided further that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or to any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, within the time required by the Securities Act to the Person asserting the existence of an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such final prospectus or an amendment or supplement thereto. Such indemnity shall remain in full force and effect regardless of any - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 9 (American International Petroleum Corporation) investigation made by or on behalf of such holder or any such director, officer, underwriter or controlling person and shall survive the transfer of such securities by such holder. (b) Indemnification by the Sellers. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to this Agreement, that the Company shall have received an undertaking satisfactory to it from the prospective seller of such Registrable Securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subdivision (a) of this Section 2.7) the Company, each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Any such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. (c) Notices of Claims. etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 2.7, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 2.7, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement of any such action which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability, or a covenant not to sue, in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party. - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 10 (American International Petroleum Corporation) (d) Other Indemnification. Indemnification similar to that specified in the preceding subdivisions of this Section 2.7 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities (but only if and to the extent required pursuant to the terms of 2.7(b)) with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act. (e) Indemnification Payments. The indemnification required by this Section 2.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (f) Contribution. If the indemnification provided for in the preceding subdivisions of this Section 2.7 is unavailable to an indemnified party in respect of any expense, loss, claim, damage or liability referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage or liability (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the holder or underwriter, as the case may be, on the other from the distribution of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the holder or underwriter, as the case may be, on the other in connection with the statements or omissions which resulted in such expense, loss, damage or liability, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the holder or underwriter, as the case may be, on the other in connection with the distribution of the Registrable Securities shall be deemed to be in the same proportion as the total net proceeds received by the Company from the initial sale of the Registrable Securities by the Company to the purchasers pursuant to the Note Purchase Agreement and the Warrants bear to the gain, if any, realized by all selling holders participating in such offering or the underwriting discounts and commissions received by the underwriter, as the case may be. The relative fault of the Company on the one hand and of the holder or underwriter, as the case may be, on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to information supplied by the Company, by the holder or by the underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, provided that the foregoing contribution agreement shall not inure to the benefit of any indemnified party if indemnification would be unavailable to such indemnified party by reason of the provisions contained in the first sentence of subdivision (a) of this Section 2.7, and in no event shall the obligation of any indemnifying party to contribute under this subdivision (f) exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under subdivisions (b) of this Section 2.7 had been available under the circumstances. - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 11 (American International Petroleum Corporation) The Company and the holders of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this subdivision (f) were determined by pro rata allocation (even if the holders and any underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth in the preceding sentence and subdivision (c) of this Section 2.7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subdivision (f), no holder of Registrable Securities or underwriter shall be required to contribute any amount in excess of the amount by which (i) in the case of any such holder, the net proceeds received by such holder from the sale of Registrable Securities or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that such holder or underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 3. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: 'Commission": The Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. "Common Stock": As defined in Section 1. "Company": As defined in the introductory paragraph of this Agreement. "Conversion Shares": As defined in Section 1. "Exchange Act": The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "Notes": As defined in Section 1, such term to include any securities issued in substitution of or in addition to such Notes. "Note Purchase Agreement": As defined in Section 1. "Person": A corporation, association, partnership, organization, business, individual, governmental or political subdivision thereof or a governmental agency. - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 12 (American International Petroleum Corporation) "Preferred Stock": As defined in Section 1, such term to include any securities issued in substitution of or in addition to such Preferred Stock. "Registrable Securities": The Securities and any securities issued or issuable with respect to such Securities by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. Once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (c) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, (d) they shall have ceased to be outstanding, (e) on the second or third anniversary of this Agreement as specified in Section 2.3(iii)or (f) any and all legends restricting transfer thereof have been removed in accordance with the provisions of Rule 144(k) (or any successor provision) under the Securities Act. "Registration Expenses": All expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all registration, filing and NASD fees, all stock exchange and SmallCap Market listing fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, the reasonable fees and disbursements of not more than one law firm (not to exceed $25,000) retained by the holder or holders of more than 50% of the Registrable Securities, premiums and other costs of policies of insurance of the Company against liabilities arising out of the public offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, provided that, in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by underwriters of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. "Registration Maintenance Period": As defined in Section 2.3. "Required Effectiveness Date": As defined in Section 2.1. - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 14 (American International Petroleum Corporation) "Securities Act": The Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder. "Sellers' Representative": Infinity Investors Limited, as long as one or more of the Funds shall be a Holder or such Person designated by Infinity Investors Limited (or subsequent Sellers' Representative) at the time of disposition of the last of the Notes held by one or more of the Funds (or subsequent Sellers' Representative). 4. Rule 144. The Company shall timely file the reports required to be filed by it under the Securities Act and the Exchange Act (including but not limited to the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, will, upon the request of any holder of Registrable Securities, make publicly available other information) and will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with the requirements of this Section 4. 5. Amendments and Waivers. This Agreement may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the holder or holders of the sum of the 51% or more of the shares of (i) Registrable Securities issued at such time, plus (ii) Registrable Securities issuable upon exercise or conversion of the Securities then constituting derivative securities (if such Securities were not fully exchanged or converted in full as of the date such consent is sought). Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any consent authorized by this Section 5, whether or not such Registrable Securities shall have been marked to indicate such consent. 6. Nominees for Beneficial Owners. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election, be treated as the holder of such Registrable Securities for purposes of any request or other action by any holder or holders of Registrable Securities pursuant to this Agreement or any determination of any number or percentage of shares of Registrable Securities held by any holder or holders of Registrable Securities contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Securities. 7. Notices. Except as otherwise provided in this Agreement, all notices, requests and other communications to any Person provided for hereunder shall be in writing and shall be - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 14 (American International Petroleum Corporation) given to such Person (a) in the case of a party hereto other than the Company, addressed to such party in the manner set forth in the Note Purchase Agreement or at such other address as such party shall have furnished to the Company in writing, or (b) in the case of any other holder of Registrable Securities, at the address that such holder shall have furnished to the Company in writing, or, until any such other holder so furnishes to the Company an address, then to and at the address of the last holder of such Registrable Securities who has furnished an address to the Company, or (c) in the case of the Company, at the address set forth on the signature page hereto, to the attention of its President, or at such other address, or to the attention of such other officer, as the Company shall have furnished to each holder of Registrable Securities at the time outstanding. Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means (including, without limitation, by fax or air courier), when delivered at the address specified above, provided that any such notice, request or communication shall not be effective until received. 8. Assignment. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the parties hereto other than the Company shall also be for the benefit of and enforceable by any subsequent holder of any Registrable Securities, subject to the provisions respecting the minimum numbers or percentages of shares of Registrable Securities required in order to be entitled to certain rights, or take certain actions. contained herein. Each of the Holders of the Registrable Securities agrees, by accepting any portion of the Registrable Securities after the date hereof, to the provisions of this Agreement including, without limitation, appointment of the Sellers' Representative to act on behalf of such Holder pursuant to the terms hereof which such actions shall be made in the good faith discretion of the Sellers' Representative and be binding on all persons for all purposes. 9. Descriptive Headings. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS. 11. Counterparts. This Agreement may be executed by facsimile and may be signed simultaneously in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 12. Entire Agreement. This Agreement embodies the entire agreement and understanding between the Company and each other party hereto relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 15 (American International Petroleum Corporation) 13. Severability. If any provision of this Agreement, or the application of such provisions to any Person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. [Signature Page Follows] - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT - Page 16 (American International Petroleum Corporation) IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. AMERICAN INTERNATIONAL PETROLEUM CORPORATION By:______________________________________ Name:____________________________________ Title:___________________________________ Address: 444 Madison Avenue New York, New York 10022 Telephone:______________________________ Fax: (212)688-6657 Attn: George Faris _________________________________________ By:______________________________________ Name:____________________________________ Title:___________________________________ Address: With copy to: _________________________________________ _________________________________________ _________________________________________ EX-4.5 6 REGULATION S SUBSCRIPTION AGREEMENT Exhibit 4.5 ================================================================================ AMERICAN INTERNATIONAL PETROLEUM CORPORATION REGULATION S 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. REGULATION S SUBSCRIPTION AGREEMENT THIS AGREEMENT has been executed by the undersigned, ___________________, whose address is _______________________________________________ (the "Subscriber"), in connection with the purchase of _____ shares (the "Shares") of common stock, $.08 par value (the "Common Stock") of AMERICAN INTERNATIONAL PETROLEUM CORPORATION (the "Company") located at 444 Madison Avenue, Suite 3203, New York, New York 10022, a corporation organized under the laws of Nevada, United States of America. WHEREAS, the Company proposes to issue _____ Shares pursuant to Regulation S, ("Regulation S") promulgated under the Securities Act of the 1933, as amended (the "Act") as payment in ful1 for $_________ of principal and interest due from the Company to the Subscriber ("Payment") effective on the acceptance of this subscription by the Company, and WHEREAS, the Shares will be offered and issued pursuant to an exemption from registration provided by Regulation S, and WHEREAS, upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Act, the Share Certificates shall bear the following legend: THE SECURITY EVIDENCED HEREBY WAS ORIGINALLY ISSUED PURSUANT TO REGULATION S ("REGULATION S") UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT, AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN REGULATION S) IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM AND IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION. 2 NOW THEREFORE, the Subscriber agrees with the Company as follows: 1. Subscription. Subject to its terms and conditions and further subject to acceptance of this Agreement by the Company, the Subscriber agrees to purchase from the Company _____ Shares for an aggregate purchase price of U.S. $_________, in an offering of _____ Shares ending at the close of business on _________, 1997 (the "Payment Date"). 2. Delivery and Payment. Delivery of and payment for the Shares shall be made at such time and place as the Company and the Subscriber shall agree. Shares shall be registered in the Subscriber's name and issued not later than three full business days after the acceptance of this Agreement by the Company. Shares shall be registered in the Subscriber's name and not in nominee or other names. 3. Representations and Warranties of the Subscriber. The Subscriber hereby represents and warrants to the Company as follows: (a) The Subscriber acknowledges that he has received a copy of the Company's Annual Report on Form 10-K for the year ended December 31, 1996, the Company's Form 10-Q for the quarterly period ended June 30, 1997, and a Proxy Statement of the Company dated July 18, 1997 and is acquainted with the business and financial condition of the Company. The Subscriber further acknowledges that he has had an opportunity to ask questions of and receive answers from the Company's executive officers concerning the Company and the terms and conditions of this investment and all such questions have been answered to the full satisfaction of the Subscriber. The Subscriber hereby further represents and warrants that it is aware that there are substantial risks incident to an investment in the Company and that no Federal or State agency has passed upon the Shares or made any finding or determination as to the fairness of an investment in the Company. (b) The Subscriber has the full right, power and authority to enter into this Agreement and to carry out and consummate the transactions contemplated herein. This Agreement constitutes the legal, valid and binding obligation of the Subscriber enforceable in accordance with its terms. (c) The Subscriber is acquiring Shares for its own account and risk and not as part of any plan or scheme to evade the registration requirements of the Act, and no other person has or will have at the Payment Date any interest in or participation in the Subscriber's Shares or any right, option, security interest, pledge or other interest in or to such Shares. The Subscriber understands and agrees that it must bear the economic risk of its investment in the Shares for an indefinite period of time. The Shares have not been registered under the Act. The Shares may not be offered or sold, directly or indirectly, in the United States or to any natural person who is a resident of the United States 3 or to any U.S. person, as defined in Regulation S, or for the account or benefit of any U.S. person unless registered or exempt from registration under the Act and any applicable state securities or blue sky laws (the "State Acts"). The Subscriber also understands that the Company is under no obligation to register any Shares on behalf of the Subscriber or to assist it in complying with any exemption from registration. (d) The Subscriber is not a U.S. person, and is not acquiring the Shares, directly or indirectly, for the account or benefit of any U.S. person in violation of Regulation S pursuant to which regulation the Shares are being sold. (e) The Subscriber agrees to dispose of or encumber its Shares only if (i) such Shares are duly registered under the Act and all applicable State Acts, or (ii) an exemption from registration under the Act, including any exemption from the registration requirements of the Act pursuant to Regulation S, and all applicable State Acts, is available. (f) This Agreement has not been executed or delivered by the Subscriber in the United States, and neither the Subscriber nor any person acting on behalf of the Subscriber engaged directly or indirectly in any negotiations with respect to this Agreement in the United States or was located in the United States at the time of the buy order or offer to purchase the securities. (g) Neither the Subscriber, nor any officer, director or 5% or more shareholder thereof, has been: (i) Convicted within the preceding ten years of any felony or misdemeanor in connection with the offer, purchase or sale of any security or commodity involving the making of a false filing with the Commission. (ii) Subject to any order, judgment or decree of any court of competent jurisdiction temporarily or preliminary enjoining or restraining, or subject to any order, judgment or decree of any court of competent jurisdiction, entered within the preceding five years, permanently enjoining or restraining the investor from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or commodity or involving the making or a false filing with the Commission or any state, or arising out of the conduct of the business of any underwriter, broker, dealer, municipal securities dealer or investment advisor. (iii) Subject to an order of the Commission entered pursuant to Section 15(b), 15B(a) or 15B(c) of the Securities Exchange Act of l934, as amended (the "Exchange Act"); or subject to an order or the 4 Commission entered pursuant to Section 203(e) or (f) of the Investment Advisers Act of l940. (iv) Suspended or expelled from membership in, or suspended or barred from association with a member of, an exchange registered as a national securities exchange pursuant to Section 6 of the Exchange Act, an association registered as a national securities association under Section 15A of the Exchange Act or a Canadian securities exchange or association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade. (v) Filed a registration statement which is the subject of a registration stop order entered pursuant to the Act or any State Act within the preceding five years. (vi) Subject to any state's administrative enforcement order or judgment which prohibits, denies or revokes the use of any exemption from registration in connection with the offer, purchase or sale of securities. (h) The offer leading to the sale evidenced hereby was made in an "offshore transaction", for purposes of Regulation S. Subscriber is familiar with the provision of Regulation S. (i) Neither the Subscriber nor any affiliate of the Subscriber or any person acting on their behalf, has made or is aware of any "directed selling efforts" in the United States, which is defined in Regulation S to be any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the securities being purchased hereby. (j) The Subscriber understands that the Company is the issuer of the securities which are the subject of this Agreement. The Subscriber shall not, during the 40-day restricted period set forth under Rule 903(c)(2) of Regulation S, act as a distributor, either directly or through any affiliate, nor shall he sell, transfer, hypothecate or otherwise convey the securities offered hereby or any interest therein, other than to a non U.S. person, or in any other manner offer or sell securities of the Company in violation of Regulation S or the Act. Such 40-day restricted period shall not begin until the closing of the Offering at the end of business on the Payment Date and, otherwise, as provided in Regulation S. (k) If the Subscriber is a corporation or trust or other entity, the officer or trustee or other person executing this Agreement represents and warrants that he is 5 authorized to so sign and that the entity is authorized by the governing documents of the entity, to make this investment; (l) The Subscriber understands that the offer and sale of the Shares is being made only by means of this Agreement. In deciding to subscribe for the Shares, the Subscriber has not considered any information other than that contained in this Agreement and all documents provided to the Subscriber by the Company. The Subscriber acknowledges that each of such documents contain on the cover thereof a legend as to the absence of registration of the Shares under the Act and the restrictions arising under the Act. The Subscriber acknowledges and agrees that the purchase of the Shares involves a high degree of risk and that the Subscriber may sustain, and has the financial ability to sustain, the loss of its entire investment. 4. Representations and Warranties of the Company. The Company represents and warrants to the Subscriber, that: (a) This Agreement has been duly authorized by the Company. (b) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Nevada. The Company has the corporate power and authority necessary to enter into and perform its obligations under this Agreement, and to issue, sell and deliver the Shares. (c) There is no statute, rule, regulation or order that has been enacted, adopted or issued by any governmental agency or that has been proposed by any governmental body which might prevent the issuance of the Shares. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction has been issued that would prevent the issuance of the Shares. (d) No form of general solicitation or general advertising was used by the Company or any of its representatives in connection with the offer and sale of the Shares, including, but not limited to, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, and no seminar or meeting whose attendees have been invited by any general advertising was used by the Company or any of its representatives in connection with the offer and sale of the Shares. (e) Reporting Company Status. The Company is a "Reporting Company" as ]defined by Rule 902 of Regulation S. The Company is in full compliance, to the extent applicable, with applicable reporting obligations under either Section 12(b), 12(g) or 15(d) of the Securities and Exchange Act of 1934, as amended. 5. Reliance on Representations. The Subscriber understands that the Company is relying on the Subscriber's representations concering the Subscriber's compliance with the rules governing 6 offers and sales made outside the United States pursuant to Regulation S. 6. Conditions of the Subscriber's Obligations. The Subscriber's obligation to purchase the Shares subject to the satisfaction of each and every one of the following conditions as of the Payment Date: (a) No order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. No stop order suspending the sale of the Shares shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. (b) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency that would prevent the issuance of the Shares. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued that would prevent the issuance of the Shares. 7. Conditions of the Company's Obligations. The Company's obligations to sell the Shares under this Agreement on the Payment Date, is subject to the satisfaction of each and every one of the following conditions as of the Payment Date: (a) All of the representations and warranties of the Subscriber contained in this Agreement shall be true and correct on the Payment Date with the same force and effect as if made on and as of the Payment Date. The Subscriber shall have performed or complied with all agreements and satisfied all conditions on its part to be performed, complied with or satisfied at or prior to the Payment Date. (b) No order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. No stop order suspending the sale of the Shares shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. (c) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency that would prevent the issuance of the Shares. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued that would prevent the issuance of the Shares. 8. Subsequent Transfers of the Securities. The Subscriber further agrees that, in connection with the resale of the Shares it will offer to sell the Shares only after 41 days from the date of the closing of the last purchase under the Offering, and only to, and will solicit offers to buy the Shares only from, persons who in purchasing such Shares will have represented and agreed that (1) they are 7 purchasing the Shares for their own account, (2) all requirements of Regulation S have been satisfied, (3) if sold outside the United States, the sale shall be to a foreign person in a transaction meeting the requirements of Rule 904 of Regulation S under the Act, and (4) the holder will, and each subsequent holder is required to, notify any purchaser from it of the security evidenced thereby of the resale restrictions set forth in Regulation S. 9. Notice. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Company, to American International Petroleum Corporation, 444 Madison Avenue, Suite 3203, New York, New York 10022, Attention: Denis J. Fitzpatrick, with a copy to Snow Becker Krauss P.C., 605 Third Avenue, New York, New York 10158, (ii) if to the Subscriber at the address set forth at the signature page of this Agreement, or in any case to such other address as the person to be notified may have requested in writing. 10. Miscellaneous. Except as otherwise provided, this Agreement has been and is made solely for the benefit of the Company and shall be binding upon the Subscriber and its successors and assigns, all as and to the extent provided in this Agreement, and no other persons shall acquire or have any right under or by virtue of this Agreement. Subscriber shall not assign this Agreement. A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto. This Agreement may be signed in various counterparts, which together shall constitute one and the same instrument. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, AND EACH PARTY HEREBY AGREES THAT ALL PERFORMANCE DUE WITH RESPECT TO TRANSACTIONS UNDERTAKEN PURSUANT TO THIS AGREEMENT SHALL BE DEEMED TO BE DUE OR TO HAVE OCCURRED IN NEW YORK. THE EXCLUSIVE VENUE AND PLACE OF JURISDICATION FOR ANY LITIGATION ARISING FROM OR RELATED TO THIS AGREEMENT SHALL BE THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE NEW YORK STATE SUPREME COURT LOCATED IN THE COUNTY OF NEW YORK. THE PARTIES HERETO WAIVE TRIAL BY JURY OF ANY DISPUTES BETWEEN THEM. 8 IN WITNESS WHEREOF, the parties have executed this Agreement, the _____ day of ______, 1997. Number of Shares subscribed for: _______ ________________________________________ Name of Subbscriber Address:______________________________________________________ _________________________________________________________ Country in which this Agreement is executed by Subscriber:_______________ Telephone Number:_____________________ Telecopier Number:____________________ Social Security No. or Tax I.D. No. (if applicable): N/A AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: ____________________________________ Denis J. Fitzpatrick, Vice President ACCEPTED this ______ day of _________, 1997 9 EX-4.6 7 REGULATION S SUBSCRIPTION AGREEMENT Exhibit 4.6 ================================================================================ AMERICAN INTERNATIONAL PETROELUM CORPORATION REGULATION S 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. REGULATION S SUBSCRIPTION AGREEMENT THIS AGREEMENT has been executed by the undersigned, for ___________________ whose address is _____________________________, (the "Subscriber"), in connection with the purchase of up to ___________ shares (the "Shares") of common stock, $.08 par value (the "Common Stock") of AMERICAN INTERNATIONAL PETROLEUM CORPORATION (the "Company") located at 444 Madison Avenue, Suite 3203, New York, New York 10022, a corporation organized under the laws of Nevada, United States of America. WHEREAS, the Company proposes to issue _________________ Shares pursuant to Regulation S, ("Regulation S") promulgated under the Securities Act of the 1933, as amended (the "Act") as consideration for a ____________________ partial prospect fee (the "Fee") effective on the acceptance of this subscription by the Company, and WHEREAS, the Shares will be offered and issued pursuant to an exemption from registration provided by Regulation S, and WHEREAS, upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Act, the Share Certificates shall bear the following legend: THE SECURITY EVIDENCED HEREBY WAS ORIGINALLY ISSUED PURSUANT TO REGULATION S ("REGULATION S") UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT, AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN REGULATION S) IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM AND IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION. 2 NOW THEREFORE, the Subscriber agrees with the Company as follows: 1. Subscription. Subject to its terms and conditions and further subject to acceptance of this Agreement by the Company, the Subscriber agrees to purchase from the Company _________________ Shares for an aggregate purchase price of U.S. $______________, in an offering of up to _________________ Shares ending at the close of business on ___________________ (the "Payment Date"). 2. Delivery and Payment. Delivery of and payment for the Shares shall be made at such time and place as the Company and the Subscriber shall agree. Shares shall be registered in the Subscriber's name and issued not later than three full business days after the acceptance of this Agreement by the Company. Shares shall be registered in the Subscriber's name and not in nominee or other names. 3. Representations and Warranties of the Subscriber. The Subscriber hereby represents and warrants to the Company as follows: (a) The Subscriber acknowledges that he has received a copy of the Company's Annual Report on Form 10-K for the year ended December 31, 1996, the Company's Form 10-Q for the quarterly period ended June 30, 1997, and a Proxy Statement of the Company dated June 18, 1997 and is acquainted with the business and financial condition of the Company. The Subscriber further acknowledges that he has had an opportunity to ask questions of and receive answers from the Company's executive officers concerning the Company and the terms and conditions of this investment and all such questions have been answered to the full satisfaction of the Subscriber. The Subscriber hereby further represents and warrants that it is aware that there are substantial risks incident to an investment in the Company and that no Federal or State agency has passed upon the Shares or made any finding or determination as to the fairness of an investment in the Company. (b) The Subscriber has the full right, power and authority to enter into this Agreement and to carry out and consummate the transactions contemplated herein. This Agreement constitutes the legal, valid and binding obligation of the Subscriber enforceable in accordance with its terms. 3 (c) The Subscriber is acquiring Shares for its own account and risk and not as part of any plan or scheme to evade the registration requirements of the Act, and no other person has or will have at the Payment Date any interest in or participation in the Subscriber's Shares or any right, option, security interest, pledge or other interest in or to such Shares. The Subscriber understands and agrees that it must bear the economic risk of its investment in the Shares for an indefinite period of time. The Shares have not been registered under the Act. The Shares may not be offered or sold, directly or indirectly, in the United States or to any natural person who is a resident of the United States or to any U.S. person, as defined in Regulation S, or for the account or benefit of any U.S. person unless registered or exempt from registration under the Act and any applicable state securities or blue sky laws (the "State Acts"). The Subscriber also understands that the Company is under no obligation to register any Shares on behalf of the Subscriber or to assist it in complying with any exemption from registration. (d) The Subscriber is not a U.S. person, and is not acquiring the Shares, directly or indirectly, for the account or benefit of any U.S. person in violation of Regulation S pursuant to which regulation the Shares are being sold. (e) The Subscriber agrees to dispose of or encumber its Shares only if (i) such Shares are duly registered under the Act and all applicable State Acts, or (ii) an exemption from registration under the Act, including any exemption from the registration requirements of the Act pursuant to Regulation S, and all applicable State Acts, is available. (f) This Agreement has not been executed or delivered by the Subscriber in the United States, and neither the Subscriber nor any person acting on behalf of the Subscriber engaged directly or indirectly in any negotiations with respect to this Agreement in the United States or was located in the United States at the time of the buy order or offer to purchase the securities. (g) Neither the Subscriber, nor any officer, director or 5% or more shareholder thereof, has been: 4 (i) Convicted within the preceding ten years of any felony or misdemeanor in connection with the offer, purchase or sale of any security or commodity involving the making of a false filing with the Commission. (ii) Subject to any order, judgment or decree of any court of competent jurisdiction temporarily or preliminary enjoining or restraining, or subject to any order, judgment or decree of any court of competent jurisdiction, entered within the preceding five years, permanently enjoining or restraining the investor from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or commodity or involving the making or a false filing with the Commission or any state, or arising out of the conduct of the business of any underwriter, broker, dealer, municipal securities dealer or investment advisor. (iii) Subject to an order of the Commission entered pursuant to Section 15(b), 15B(a) or 15B(c) of the Securities Exchange Act of l934, as amended (the "Exchange Act"); or subject to an order or the Commission entered pursuant to Section 203(e) or (f) of the Investment Advisers Act of l940. (iv) Suspended or expelled from membership in, or suspended or barred from association with a member of, an exchange registered as a national securities exchange pursuant to Section 6 of the Exchange Act, an association registered as a national securities association under Section 15A of the Exchange Act or a Canadian securities exchange or association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade. (v) Filed a registration statement which is the subject of a registration stop order entered pursuant to the Act or any State Act within the preceding five years. (vi) Subject to any state's administrative enforcement order or judgment which prohibits, denies or revokes the use of any exemption from registration 5 in connection with the offer, purchase or sale of securities. (h) The offer leading to the sale evidenced hereby was made in an "offshore transaction", for purposes of Regulation S. Subscriber is familiar with the provision of Regulation S. (i) Neither the Subscriber nor any affiliate of the Subscriber or any person acting on their behalf, has made or is aware of any "directed selling efforts" in the United States, which is defined in Regulation S to be any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the securities being purchased hereby. (j) The Subscriber understands that the Company is the issuer of the securities which are the subject of this Agreement. The Subscriber shall not, during the 40-day restricted period set forth under Rule 903(c)(2) of Regulation S, act as a distributor, either directly or through any affiliate, nor shall he sell, transfer, hypothecate or otherwise convey the securities offered hereby or any interest therein, other than to a non U.S. person, or in any other manner offer or sell securities of the Company in violation of Regulation S or the Act. Such 40-day restricted period shall not begin until the closing of the Offering at the end of business on the Payment Date and, otherwise, as provided in Regulation S. (k) If the Subscriber is a corporation or trust or other entity, the officer or trustee or other person executing this Agreement represents and warrants that he is authorized to so sign and that the entity is authorized by the governing documents of the entity, to make this investment; (l) The Subscriber understands that the offer and sale of the Shares is being made only by means of this Agreement. In deciding to subscribe for the Shares, the Subscriber has not considered any information other than that contained in this Agreement and all documents provided to the Subscriber by the Company. The Subscriber acknowledges that each of such documents contain on the cover thereof a legend as to the absence of registration of the Shares under the Act and the 6 restrictions arising under the Act. The Subscriber acknowledges and agrees that the purchase of the Shares involves a high degree of risk and that the Subscriber may sustain, and has the financial ability to sustain, the loss of its entire investment. 4. Representations and Warranties of the Company. The Company represents and warrants to the Subscriber, that: (a) This Agreement has been duly authorized by the Company. (b) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Nevada. The Company has the corporate power and authority necessary to enter into and perform its obligations under this Agreement, and to issue, sell and deliver the Shares. (c) There is no statute, rule, regulation or order that has been enacted, adopted or issued by any governmental agency or that has been proposed by any governmental body which might prevent the issuance of the Shares. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction has been issued that would prevent the issuance of the Shares. (d) No form of general solicitation or general advertising was used by the Company or any of its representatives in connection with the offer and sale of the Shares, including, but not limited to, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, and no seminar or meeting whose attendees have been invited by any general advertising was used by the Company or any of its representatives in connection with the offer and sale of the Shares. (e) Reporting Company Status. The Company is a "Reporting Company" as ]defined by Rule 902 of Regulation S. The Company is in full compliance, to the extent applicable, with applicable reporting obligations under either Section 12(b), 12(g) or 15(d) of the Securities and Exchange Act of 1934, as amended. 5. Reliance on Representations. The Subscriber understands that the Company is relying on the Subscriber's representations concering the Subscriber's compliance with the rules governing offers and sales made outside the United States pursuant to Regulation S. 6. Conditions of the Subscriber's Obligations. The Subscriber's obligation to purchase the Shares subject to the satisfaction of each and every one of the following conditions as of the Payment Date: 7 (a) No order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. No stop order suspending the sale of the Shares shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. (b) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency that would prevent the issuance of the Shares. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued that would prevent the issuance of the Shares. 7. Conditions of the Company's Obligations. The Company's obligations to sell the Shares under this Agreement on the Payment Date, is subject to the satisfaction of each and every one of the following conditions as of the Payment Date: (a) All of the representations and warranties of the Subscriber contained in this Agreement shall be true and correct on the Payment Date with the same force and effect as if made on and as of the Payment Date. The Subscriber shall have performed or complied with all agreements and satisfied all conditions on its part to be performed, complied with or satisfied at or prior to the Payment Date. (b) No order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. No stop order suspending the sale of the Shares shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. (c) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency that would prevent the issuance of the Shares. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued that would prevent the issuance of the Shares. 8. Subsequent Transfers of the Securities. The Subscriber further agrees that, in connection with the resale of the Shares it will offer to sell the Shares only after 41 days from the date of the closing of the last purchase under the Offering, and only to, and will solicit offers 8 to buy the Shares only from, persons who in purchasing such Shares will have represented and agreed that (1) they are purchasing the Shares for their own account, (2) all requirements of Regulation S have been satisfied, (3) if sold outside the United States, the sale shall be to a foreign person in a transaction meeting the requirements of Rule 904 of Regulation S under the Act, and (4) the holder will, and each subsequent holder is required to, notify any purchaser from it of the security evidenced thereby of the resale restrictions set forth in Regulation S. 9. Notice. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Company, to American International Petroleum Corporation, 444 Madison Avenue, Suite 3203, New York, New York 10022, Attention: Denis J. Fitzpatrick, with a copy to Snow Becker Krauss P.C., 605 Third Avenue, New York, New York 10158, (ii) if to the Subscriber at the address set forth at the signature page of this Agreement, or in any case to such other address as the person to be notified may have requested in writing. 10. Miscellaneous. Except as otherwise provided, this Agreement has been and is made solely for the benefit of the Company and shall be binding upon the Subscriber and its successors and assigns, all as and to the extent provided in this Agreement, and no other persons shall acquire or have any right under or by virtue of this Agreement. Subscriber shall not assign this Agreement. A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto. This Agreement may be signed in various counterparts, which together shall constitute one and the same instrument. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, AND EACH PARTY HEREBY AGREES THAT ALL PERFORMANCE DUE WITH RESPECT TO TRANSACTIONS UNDERTAKEN PURSUANT TO THIS AGREEMENT SHALL BE DEEMED TO BE DUE OR TO HAVE OCCURRED IN NEW YORK. THE EXCLUSIVE VENUE AND PLACE OF JURISDICATION FOR ANY LITIGATION ARISING FROM OR RELATED TO THIS AGREEMENT SHALL BE THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE NEW YORK STATE SUPREME COURT LOCATED IN THE COUNTY OF NEW YORK. THE PARTIES HERETO WAIVE TRIAL BY JURY OF ANY DISPUTES BETWEEN THEM. 9 IN WITNESS WHEREOF, the parties have executed this Agreement, the ________day of __________, ______. Number of Shares subscribed for: ______________ ________________________________________ Name of Subbscriber By: ___________________________________ Name: Title: Address:______________________________________________________ _________________________________________________________ Country in which this Agreement is executed by Subscriber:_______________ Telephone Number:_____________________ Telecopier Number:____________________ Social Security No. or Tax I.D. No. (if applicable): N/A AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: _____________________________ Denis J. Fitzpatrick Vice President ACCEPTED this ______ day of _________, ______ 10 EX-4.7 8 STOCK PURCHASE WARRANT Exhibit 4.7 ******************************************************************************** - --------------------------------------- No. WT-__________ (WARRANT GROUP _____) - --------------------------------------- Warrant to Purchase ___________ Shares STOCK PURCHASE WARRANT To Purchase Common Stock of AMERICAN INTERNATIONAL PETROLEUM CORPORATION Expires_________________, unless extended pursuant to the terms hereof. ******************************************************************************** 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 adjustment multiplied 3 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 and the Warrant Shares unless the Company first receives an opinion of counsel satisfactory to the Company that the Warrant and/or the Warrant Shares may be transferred to the proposed transferee in compliance with an exemption under the Securities Act or a safe harbor provision of Regulation S under the Securities Act. The Holder, by acceptance hereof, represents and warrants that (a) it is acquiring this Warrant for its own account for investment purposes only and not with a view to its resale or distribution and (b) it has no present intention to resell or otherwise dispose of all or part of this Warrant. The Company may condition the exercise hereof and the issuance or transfer of Warrant Shares on the receipt of such representations and agreements as may be requested by the Company in order to permit such issuance or transfer to be made pursuant to exemptions from registration under federal and applicable state securities laws. Each certificate representing this Warrant (or any part thereof) and any Warrant Shares shall bear appropriate legends setting forth these restrictions on transferability. (h) NOTICES. All notices and other communications which are required or may be given under this Warrant shall be in writing and shall be deemed to have been duly given when delivered in person or transmitted by fax, one (1) day after being sent by overnight courier service or three (3) days after being mailed, first-class postage prepaid, in the case of the Company to 444 Madison Avenue, 32nd Floor, New York, New York 10022, and in the case of the Holder to the address previously given to the Company by the Holder, or to such address as either party shall have specified by notice to the other party hereto. If notice is given by registered or certified first class mail, postage prepaid, return receipt requested, the return receipt shall be conclusive evidence of the notice having been mailed on the date set forth. (i) MISCELLANEOUS. This Warrant contains the entire agreement and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. This Warrant may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement is sought; provided however, that this Warrant may be amended or modified without the consent of the Holder if such amendment or modification does not adversely affect the rights of the Holder hereunder. This Warrant will not 5 be assigned by either party hereto and shall be interpreted under the laws of the State of New York without application to the principles of conflicts of laws. AMERICAN INTERNATIONAL PETROLEUM CORPORATION By:______________________________________ Denis J. Fitzpatrick Vice President and Chief Financial Officer Dated: ___________________ 6 PURCHASE FORM The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing ________________________ shares of Common Stock and hereby makes payment of _______________________ in payment of the actual exercise price thereof. INSTRUCTIONS FOR REGISTRATION OF STOCK Name _________________________________________________________________ (Please typewrite or print in block letters) Address_______________________________________________________________ Signature___________________________________________________ ASSIGNMENT FORM FOR VALUED RECEIVED, __________________________________________________ hereby sells, assigns and transfers unto Name__________________________________________________________________ (Please typewrite or print in block letters) Address________________________________________________________________ the right to purchase Common Stock represented by this Warrant to the extent of ____________ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint _____________________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Date_________________, 19_______ Signature______________________________________________________ 7 EX-10.1 9 AGREEMENT EXHIBIT 10.1 AGREEMENT This Agreement is entered into and made between: MED SHIPPING AND TRADING S.A. (MED), a Corporation under the Laws of the Republic of Liberia with office at Kaiserstrasse 12. c/o Grossmann & Partner, 60311 Frankfurt am Main Germany; represented by its Chairman Spyridon Armenis and AMERICAN INTERNATIONAL PETROLEUM CORPORATION (AIPC), a Nevada Corporation with office at 444 Madison Avenue, New York, NY 10022, represented by its Chairman Dr. George N. Faris. MED represents that it holds and controls a ninety (90) percent interest in the undivided interests of Exploration License, dated November 15, 1996 signed by the Prime Minister of Kazakstan, Serles MG, No. 953 (Oil), issued to Scientific Industrial Firm DANK TOO (DANK). License and translation attached to Exhibit "A" (hereforth License). MED also represents that it has the authorization to transfer or assign all or part of its interest in the License to AIPC in accordance with its Agreements with the license holder DANK. AIPC represents that it will accept an equity interest to participate in the License and guarantee the execution and completion of the minimum work program, and all expenditures related thereto, as specified in Section "B" of the License, on the following basis. 1. MED will have the License transferred to MSUP in accordance with the requirements of the Kazakstan government to the Joint Venture Company. MSUP MED SHIPPING USTURT PETROLEUM Company Limited (MSUP). MED will provide Financial Statements of MSUP as of March 31, 1997 which have been signed by the authorized officers of MSUP. The Financial Statements of MSUP will be prepared by AIPC's accounting representative with representations from the management that there are no liabilities or contingent liabilities subsequent to the statement date. The statements will be made part of this Agreement and will be attached as Exhibit "B". MED represents that MSUP has no liabilities as of this date, except for a contingent liability of the annual payments of approximately USD $190,000 each beginning July 1998 for the procurements of the date upon the transfer of the License to MSUP. 2. The Charter Documents and/or Articles of Incorporation of MSUP will be modified to reflect the following conditions. a). Percent of Ownership: - AIPC 70% - MED 20% - DANK 10% b). Board of Directors. The existing directors will resign and seven new directors will be appointed to reflect the following distribution: - AIPC 4 - MED 2 - DANK 1 c). Authorized Capital: 1,000,000 (US DOLLARS EQUIVALENT) - AIPC 700,000 - MED 200,000 - DANK 100,00 d). The value of the License No. 953 when assigned to MSUP will be equal to the respective capital contributions of MED (USD $200,000) and DANK (USD $100,000) and recorded in the MSUP records as their respective initial capital contributions. Thereafter all further valuations will be proportionate to the ownership of MSUP. e). Revenue: All revenue will first be dedicated tot he liquidation of all operating and capital expenditures and provisions for appropriate taxes and required provisions. Eighty-five percent (85%) of all remaining revenues are to be dedicated to the retirement of principal and interest on financial loans related to MSUP and the License Operations. 3. In consideration of the above and purchase of seventy percent (70%) interest in MSUP from MED, AIPC will issue 700,000 common shares under the regulation "S" provisions of the U.S. Securities Exchange Commission to MED. The 700,000 shares will be issued and placed in trust with Stefan Grossmann. The shares will be issued to the Trustee to coincide with the effective date of transfer of the seventy percent interest to AIPC in the joint venture company MSUP, and the above listed modifications to the company charter are made. The said 700,000 shares will be held in trust by Stefen Grossmann until the License No. 953 is officially transferred to MSUP. The modifications to the MSUP charter will be done by AIPC's legal representative and execution of this Agreement hereby authorizes AIPC's legal representative to implement the claimer modifications immediately, limited only to the terms mentioned above. AIPC commits to meet all reasonable criteria of a "going concern" including demonstration of financial capability to facilitate the transfer of the License to MSUP. 4. AIPC will make additional payments to MED when the License is transferred to MSUP. These payments will be made in the following forms within fifteen (15) days of the official written approval of the transfer of the License to MSUP by the appropriate government entity; and the money, warrants and shares mentioned below at a), b) and c) will be sent to Stefan Grossmann, Trustee: a) payment of USD 150,000 b) Issuance of five (5) year warrants to purchase 500,000 common shares of AIPC stock at USD $2/share. c) Issuance of 500,000 common shares of AIPC stock with a restrictive legend that prohibits sale unless the five day average bid price of AIPC stock is quoted on the NASDAQ National Marketing System is equal to or greater than $2/share. 5. A special bonus will be paid to MED when an Execution License (Production License), with royalties and bonuses acceptable to AIPC becomes effective. This bonus will be paid with the Issuance of 1,500,000 shares of AIPC common stock to be placed to trust with Grossmann & Partner. The Trustee, Stefan Grossmann understands and agrees NOT to sell or dispose of the 1,500,000 shares unless the five day average bid price of AIPC stock as quoted on the NASDAQ National Marketing System is equal to or greater than USD $5/share. A legend to that effect will be placed on the stock certificate. 6. AIPC warrants that it will be responsible for the planning execution and evaluation required by the License minimum work programs. This program will be funded by way of direct interest bearing loans to MSUP in addition in the formation capital of the joint venture company. These loans will be made either from AIPC corporate offices directly to MSUP or through the wholly-owned subsidiary of AIPC established for operations in Kazakstan. The interest rate will not exceed 3.5 times the U.S. prime interest rate quoted by Chase Manhattan Bank New York. 7. All MSUP Co., Ltd. operations related to the License Series MG 953, both in the Exploration and Extraction phases, will be executed and managed by the wholly-owned subsidiary of AIPC established for operations in Kazakstan. A standard International Joint Operating Agreement will be executed between MSUP Co., Ltd. and the subsidiary to govern and control all aspects of the joint operations related to the License. A draft of this standard form has been presented to MED and is included herein as Annex A. 8. The AIPC wholly-owned subsidiary for Kazakstan operations will develop a Technical Service Contract with DANK to provide the required local technical support, governmental contracts, and the required interphase with ministerial and regulatory entities. This Technical Services Contract will be executed on an "arms length" basis and all fees will be supported by appropriate documentation of completed work. Contract fee amounts will not exceed normal local rates for similar services. 9. As additional consideration, AIPC will enter into a separate consulting agreement with MED, simultaneously with the execution of this Agreement, for the services of Mr. Spyridon Armenis. A draft of this consulting agreement is included herein as Annex B. This agreement will provide for the direct support of Mr. Armenis in the transition of establishing the local APIC subsidiary's operation in Kazakstan establishment of contracts for crude sales and marketing, development of production properties, and other activities related to the enhancement of the License and AIPC's Kazakstan operations. In addition, Mr. Armenis will be available to prepare reports and presentations on the project which may be required for presentation to industry analysts, potential investors and/or business partners. MED will be pre-paid USD $23,000,000 per month for these services starting with the execution of this Agreement, which includes all international travel and related expenses. It is anticipated that Mr. Armenis will be required to make at least four trips a year to Kazakstan in execution of these functions reasonable travel expenses for additional trips by Mr. Armenis will be reimbursed upon submittal of appropriate documentation of expenditures. AIPC will reimburse Mr. Armenis for all reasonable travel expenses ____ for trips requested by AIPC in relation to reports on presentations to the investor community. Said expenses will be supported by adequate documentation and receipts in accordance with normal company practices. This Consulting Agreement will continue for a term not to exceed three years, and will terminate automatically with: a). the sale, transfer or assignment of any portion of MED or of AIPC's increase in the License in and/or MSUP Co., Ltd. to an unrelated entity, subject to the provisions of section 10.a) and 10.b), or b). Initiation of a production program with the sustained production rates of 3,000 bbls/day or gas equivalent, and the corresponding actual distribution of revenue is made to MED in replacement of the consulting fee. In the event that the distribution is less than the stated consulting fee, AIPC shall make up the difference in cash, or c). involuntary removal of AIPC as Operator of the License; or d). Mr. Armenis is not able to comply with the terms of the Consulting Agreement due to his involvement in other projects, physical incapability or separation from MED. 10. Each of the shareholders of MSUP Co. Ltd., will have a preferential right to purchase shares offered by any of the original shareholders or any proposed sale of transfer of any shares in the company as stipulated in article 10 of the Charter of MSUP Co., Ltd. The Charter should be revised to state that any partial sale or transfer of interest will be made in proportion to the original interest of the parties of AIPC, MED and DANK, and at each party's option. It is agreed that MED's representative, Mr. Spyridon Armenis, is appointed as the President of the Executive Operating Committee as provided in the Join Operating Agreement governing operations of the License No. 953. a). In the event that AIPC transfers all of its interest in MSUP, the receiving party will assume all of the obligations of AIPC related to the consulting agreement with MED. It will be AIPC's responsibility to make such arrangements. b). If AIPC transfers part of its interest in MSUP, the new party will participate proportionally in the obligations of AIPC related in the consulting agreement with MED. It will be AIPC's responsibility to make such arrangements. 11. MED will provide, simultaneously with the execution of this Agreement, satisfactory disclosure to AIPC on all agreements for payments it has made with third parties or shareholders of MED in relation to the execution of the License that could commit AIPC for future payments to maintain the License. MED represents that it has not made any commitments on AIPC's behalf, financial or otherwise, as of this date. 12. If MED and DANK are not able to have the License No. 953 transferred to MSUP within three months from the execution date of this Agreement, AIPC will receive a 10% interest in the License for the consideration it has paid MED to date, through a Joint Venture Agreement with MED and DANK. In this event, AIPC will be responsible only for its proportionate share of costs related to the development of the Joint Venture and the obligations under the License No. 953; in addition no payments under sections, 3, 4, 5, 8 and 9 will be due. This date can only be extended at AIPC's option by evidence in writing of said extension from AIPC reasonable extensions will be granted if the delay in transfer of the License is due to non-performance by AIPC or the government's reluctance to transfer the License to MSUP without a completed Contract as specified under clause 8.1 of the License. 13. The parties assure one another of their good faith. Any disputes shall be resolved by amicable discussions and negotiations. Any remaining dispute controversy or claim arising out of or in relation to or in connection with this Agreement or operations carried out under this Agreement, including without limitation any dispute as to the contribution, validity, interpretation, enforceability or breach of this Agreement shall be exclusively and finally settled by arbitration, and any party may submit such a dispute, controversy or claim to arbitration; and English law shall apply. The arbitration shall take place in London, England in the English language under the rules of the London Court of International Arbitration, which are herewith referred to and declared part of this present Agreement; and the decision of the arbitration will be binding and final on the parties. The losing party will pay for the reasonable costs and legal fees of the other side incurred in reference to the arbitration. 14. No amendments, changes or modifications to this Agreement shall be valid except if the same are in writing or telefax and signed by a duly authorized representative of each of the parties. At any time the parties may unanimously agree to amend this Agreement. This Agreement may be executed in one or more counterparts, all which when taken together shall constitute one and the same document. This Agreement may be executed by facsimile, and such execution shall have the same force and effect as if executed in the original. 15. This Agreement comprises the full and complete agreement of the parties hereto with respect to the transfer of interest in the License No. 953 and related operations, and contracts with MED, and supersedes and cancel all prior understandings and agreements between the parties hereto, whether written, oral expressed or implied. In the event of any conflicts between the provisions of this Agreement and provisions in any other related documents, the provisions of this Agreement shall control. 16. This Agreement shall inure to the benefit of and be binding upon the successors, assignees and transferees of the parties; provided, however, this section shall not be deemed to authorize successions, assignments or transfers not otherwise expressly permitted herein. 17. During the term of this Agreement, no party shall in respect of its participation interest create any royalty interest, overriding royalty interest, net profits interest, or other similar interest, out of its participating interest hereunder which would in any way effect the participating interests of any of the other parties. Both parties represent that their respective Boards have been informed of this Agreement and approve execution. The parties agree to supply written documentation of the respective board resolutions authorizing execution of this Agreement. Agreed to at Frankfurt and New York, this 22nd day of April 1997. - ----------------------------- ---------------------------- Spyridon Armenis Dr. George N. Faris Chairman and President of MED Chairman and CEO of AIPC - ---------------------------- Stefan Grossmann, Trustee ANNEX B CONSULTING SERVICES AGREEMENT 1. This CONSULTING SERVICES AGREEMENT ("AGREEMENT") is effective this 22nd day of April 1997 between American International Petroleum Corporation ("AIPC") with office at 444 Madison Avenue, New York, NY represented by its President, Dr. George N. Faris, and MED Shipping and Trading S.A. ("MED"), with office c/o Grossmann & Partner, Kaiserstrasse 12, 60311 Frankfurt am Main, Germany, represented by its President Spyridon Armenis. 2. Both parties agree that this AGREEMENT does not form any employer-employee relationship between them, MED is an independent Consultant for oil and gas with Spyridon Armenis ("Armenis") as its President. MED represents that it is not controlled by U.S. citizens as defined in the SEC regulations. MED herewith waives all benefits that normally are paid or granted only to an employee in the sense of labor law (for instance, social security, termination protection, pension rights, etc.). 3. In connection with his Presidency for MED Shipping and Trading S.A., MED herewith offers his services as an independent non-employed Consultant for all business questions and problems related to the License dated 16th of November 1996, signed by the Prime Minister of the Republic of Kazakstan. Series MG No. 953 (Oil) ("License") and related to the Agreement between AIPC and MED as shown in Exhibit "A" to this AGREEMENT. 4. AIPC herewith accepts MED's foregoing offer. 5. Both parties agree that ARMENIS shall use his personal contacts with business people and government officials and government advisors in Kazakstan, USA and Europe in order to further the profitable development and exploitation of the License. Specifically: a). ARMENIS will provide all help and support reasonably at his disposition for the transition of establishing the local AIPC subsidiary's operations in Kazakstan, establishment of contacts for crude sales and marketing, development of production properties, and other activities related to the enhancement of the License and AIPC's Kazakstan operations. (Agreement between AIPC and MED , Sect. 9). In addition, ARMENIS will be available to prepare reports and presentations on the project which may be required for presentation to industry analysts, potential investors, and/or business partners. b). In relation to development of production properties, it is understood that ARMENIS will offer all and any opportunities first to AIPC and nothing will be interpreted as conflict of interest for ARMENIS to secure an appropriate interest for MED's benefit. However, if AIPC decides that it does not wish to pursue any of these opportunities, ARMENIS will be deemed free to pursue those opportunities for the full benefit of MED without any obligations or reimbursements to AIPC. c). In compensation for ARMENIS's consultant services, MED (c/o Grossmann & Partners trust account), will be paid US$23,000 (twenty three thousand US dollars) per month prepaid, which is to start with the Execution of the Agreement between MED and AIPC and which includes all international travel and related expenses. It is anticipated that ARMENIS will be required to make at least four trips a year to Kazakstan in execution of those functions. Reasonable travel expenses for additional trips by ARMENIS will be reimbursed upon submittal of appropriate documentation of expenditures (Kazak invoices will be in Russian and Tenge currency). AIPC will reimburse MED for all reasonable travel expenses incurred for the trips requested by AIPC in relation to reports or presentations to the investor community. Said expenses will be supported by adequate documentation and receipts in accordance with normal company practices. d). This AGREEMENT will become effective upon the execution of the Agreement between MED and AIPC. It will continue for a term not to exceed three (3) years, and will terminate automatically under the provisions of sect.8a.), 8b), 8c) and 8d) of the Agreement between MED and AIPC, which are further repeated and expanded as follows: (i) the sale, transfer, or assignment of any portion of MED's interest in the License and/or in MSUP MED Shipping Usturt Petroleum Co., Ltd. to an unrelated entity or (ii) Initiation of a production program with sustained production rates of 3,000 barrels per day or gas equivalent, and the corresponding actual distribution of revenues flowing to MED is at least equivalent to the consulting fee, AIPC shall have the right to make up the difference in cash, or (iii) ARMENIS is unable to comply with the terms of this Agreement due to separation from MED, physical incapacity, or involvement in other projects; however, this clause is not arbitrary and does not give permission to AIPC to make unreasonable requests. AIPC shall notify ARMENIS at least seven (7) days before any travel requests. 6. MED's consultant shall not be construed as an agency of AIPC or its subsidiaries. Neither MED nor ARMENIS shall have power of attorney to create legal obligations on behalf of AIPC. 7. Election of law and Arbitration agreements shall be identical with the respective passages in the Agreement between AIPC and MED (there, sect. 73). Date: _________ - --------------------------------------- Dr. George N. Faris President American International Petroleum Corporation - --------------------------------------- Spyridon Armenis as President of MED Shipping and Trading S.A. and as Consultant Additional, Clause per the handwritten "Note" above: Consultant and MED expressly agrees to indemnify and hold harmless AIPC and its agents, directors, officers and employees from and against all losses, expenses (including, but not limited to, attorney's fees), claims, demands, liabilities or causes of action arising in connection with the performance of this Agreement which are the result of illness, injury or loss of life. EX-10.2 10 FIRST AMENDMENT TO THE AGREEMENT Exhibit 10.2 FIRST AMENDMENT To the AGREEMENT Between MED and AIPC dated April 22, 1997 This AMENDMENT is entered into and made between: MED SHIPPING AND TRADING S.A. (MED), a Corporation under the Laws of the Republic of Liberia with office at Kaiserstrasse 12, c/o Grossmann & Partner, 60311 Frankfurt am Main, Germany, represented by its chairman Spyridon Armenis, and AMERICAN INTERNATIONAL PETROLEUM CORPORATION (AIPC), a Nevada Corporation with office at 444 Madison Avenue, New York, NY 10022, represented by its Chairman Dr. George N. Faris. Additional parties will be AIPK (see below) and Stefan Grossmann as Trustee. This AMENDMENT is to be added to and become an integral part of the Agreement between MED and AIPC dated April 22, 1997 that refers to the License signed by the Prime Minister of Kazakstan dated November 15, 1996, Series MG. No. 953 (Oil) (henceforth: AGREEMENT). AIPC represents that, without delay, it is in the process of forming a new company under the laws of the Republic of Kazakstan, the names of which shall be AMERICAN INTERNATIONAL PETROLEUM KAZAKSTAN (AIPK). Regardless of whether this new company has formally been registered or the registration of said company is yet to take place, the parties agree to the following: 1. AIPC hereby assigns, transfers and cedes all its rights acquired in the above stated AGREEMENT and likewise assigns, transfers and cedes all its obligations and commitments included therein to its wholly owned subsidiary AIPK. AIPK will be the designated Operator in the Joint Operation Agreement as provided in section "7" of the AGREEMENT and will perform all other such tasks specified in the AGREEMENT as the wholly owned subsidiary of AIPC for Kazakstan operations, including but not limited to sections 8.9 and 10 of the AGREEMENT dated April 22, 1997. 2. It is hereby expressly stated and understood by the parties, without prejudice to this assignment, transfer and cession of interest in this AGREEMENT, that AIPC hereby provides a Corporate Guarantee to MED for all the obligations and commitments assumed by AIPK, and its Kazakstan branch to be duly registered and established under the laws of the Republic of Kazakstan. Thus, MED shall not come into the situation to loose the protection of its rights under the AGREEMENT by the AIPC parent company; and the AIPC parent company shall likewise at all times be able to claim all of its rights agreed under the AGREEMENT against MED either directly (through AIPC) or through AIPK. 3. MED and AIPC herewith agree on the following changes of their AGREEMENT dated April 22, 1997: 2 a) In section 2.e), third line, the figure "Eighty-five percent (85%)" is herewith changed to "One hundred percent (100%)"; b) Section 5. is deleted and replaced by a new section 5. that reads as follows: "A special bonus of 1,500,000 (one point five million) common shares of AIPC will immediately be issued and transmitted by AIPC to MED (the hands of Trustee for MED Stefan Grossmann) pursuant to regulation "S" as soon as the average bid price of AIPC stock (as measured by the five previous trade days average bid price) as quoted on the NASDAQ National Marketing System reaches or exceeds US$5 per share. All reference to the issuance of a Production License is herewith canceled and removed from section 5." c) In section 12., third line, the words and figure "will receive a 10% interest" are herewith changed into "will receive a 20% (twenty percent) interest"; d) In consideration for the above and as an incentive to accelerate the transfer of the License to MSUP, AIPC will issue to MED to the hands of Stefan Grossmann, Trustee for Med (ledger: "In Trust for Med Shipping and Trading S.A.") pursuant to regulation "S" 200,000 (two hundred thousand) common shares of AIPC immediately when the following conditions have been met: aa) Scientific-Industrial Firm DANK TOO will sign a Release and Waiver Statement in which DANK waives its right of first refusal pursuant to sect. 10.7 of the MSUP Charter document; and a copy of this letter will be given by MED to AIPC. bb) Scientific-Industrial Firm DANK TOO will sign a letter (in English) to the competent Kazakstan Ministry requesting that the License Series MG, No. 953 be transferred to MSUP as the new License owner; and a copy of this letter will be given by MED to AIPC; and the License will have been transferred to MSUP. Receipt of Ministry Notification of such transfer shall be deemed to fulfill all of the above conditions. 4. Further, in the event that within ninety (90) days from the date of this AMENDMENT, MED, through its efforts and its attorney Wayne S. Bishop/Linkage Group, is able to induce ORYX Energy Company or subsidiary of ORYX to sign an agreement or binding letter of intent with MSUP acceptable to AIPC, AIPC will issue immediately in TRUST to MED (to the hand of Stefan Grossmann, Trustee for MED) 350,000 (three hundred and fifty thousand) regulation "S" common shares of AIPC upon the execution of such agreement or binding letter of intent. 5. Further, AIPC agrees to share with MED proportionately to the interests under the AGREEMENT dated April 22, 1997 the 10% (ten percent) fee promised to Wayne S. Bishop, Esq./Linkage Group if such agreement with ORYX/ORYX subsidiary referred to above materializes. 6. Upon execution of the AMENDMENT, MED will implement a meeting with ORYX and include AIPC's representative(s). 3 7. This AMENDMENT is agreed to and executed this 9th day of May 1997 and is approved as evidenced by the signatures of the authorized representatives of the parties below. The signatures of the officers below is an indication of the approvals of their respective Boards of this Amendment. - -------------------------------- -------------------------------- Spyridon Armenis Dr. George N. Faris Chairman and President of MED Chairman and CEO of AIPC - -------------------------------- Stefan Grossmann Trustee EX-27 11 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 3,209,388 2,565,246 1,594,667 0 0 7,768,374 26,512,638 4,150,005 32,788,108 5,686,720 0 0 0 3,510,167 20,893,055 32,788,108 103,738 103,738 0 0 1,141,521 0 3,583,757 (4,621,540) 0 0 0 0 0 (4,621,540) (0.11) 0
EX-27 12 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 3,209,388 2,565,246 1,594,667 0 0 7,768,374 26,512,638 4,150,005 32,788,108 5,686,720 0 0 0 3,510,167 20,893,055 32,788,108 260,579 895,373 98,765 0 8,504,125 0 4,999,168 (12,706,685) 0 0 0 0 0 (12,706,685) (0.32) 0
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