Exhibit 4.2
REGULATION S SECURITIES SUBSCRIPTION AGREEMENT
By and between
AMERICAN INTERNATIONAL PETROLEUM CORPORATION.
and
---------------------------
as Subscribers
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE"ACT"), OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE
SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED UNDER THE ACT. THE
SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED
STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR
SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AVAILABLE EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
THIS REGULATION S SECURITIES SUBSCRIPTION AGREEMENT (the "Agreement" or
the "Subscription Agreement") is executed by each of the undersigned (each a
"Subscriber" and collectively, the "Subscribers") in connection with the
subscription by the Subscribers for Convertible Debentures of AMERICAN
INTERNATIONAL PETROLEUM CORPORATION a Nevada corporation (the "Company").
WHEREAS, the Company is offering for sale (the "Offering") pursuant to
Regulation S ("Regulation S") under the United States Securities Act of 1933, as
amended (the "Act") an aggregate principal amount of $_________ of Convertible
Debentures, at an aggregate purchase price of $_________ (the "Purchase Price"),
in the form attached hereto as Exhibit A (the "Convertible Debentures");
WHEREAS, each Subscriber wishes to subscribe for the Convertible
Debentures set forth opposite such Subscriber's name on Schedule 1 hereto, in
accordance with the terms and conditions of this Agreement; and
WHEREAS, in connection with the Offering, the Company shall grant to the
Subscribers a warrant to acquire shares of common stock of the Company, as
described in Section 9.1 hereof (the "Warrant").
AIPN Subscription Agreement August 6, 1997
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Subscription and Closing; Escrow
A Subscription. Subject to the terms and conditions of this Agreement,
each Subscriber hereby subscribes for, and the Company hereby agrees to issue
and sell to each such Subscriber, Convertible Debentures in the principal amount
and at the aggregate price set forth opposite each Subscriber's name as
indicated on Schedule 1 to this Agreement.
B Closing. On August 6, 1997 (the "Closing Date"), the parties shall
exchange countersignatures to this Agreement and the Company shall deliver to
the Escrow Agent (as defined in the Convertible Debenture Escrow Agreement
attached hereto as Exhibit B) the Convertible Debentures and the Warrant, each
dated August 6, 1997, and the Subscriber shall wire transfer the Purchase Price
to the Escrow Agent.
C Multiple Subscribers. This Agreement may be executed by one or more
Subscribers. In the event that this Agreement pertains to a subscription by a
single Subscriber only, all references to the "Subscribers" or "each Subscriber"
shall be deemed to refer to such single Subscriber.
2. Representations with Respect to the Company
The Company represents and warrants to and covenants with the Subscribers
as follows:
A Organization, Good Standing, and Qualification.
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada and has all
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted. The Company is duly qualified
to transact business and is in good standing in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the
business or properties of the Company and its subsidiaries taken as a
whole.
(ii) Each subsidiary of the Company is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to carry
on its business as now conducted and as proposed to be conducted. Each
such subsidiary is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would
have a material adverse effect on the business or properties of such
subsidiary.
B. Authorization. All corporate action on the part of the Company, its
officers,
AIPN Subscription Agreement August 6, 1997
2
directors and shareholders have been taken necessary for the (i) authorization,
execution and delivery of this Agreement, the Convertible Debentures, the Escrow
Agent Agreement (as hereafter defined) and the Warrant (the Agreement, together
with each of such documents, being referred to collectively as the "Transaction
Documents"), (ii) performance of all obligations of the Company under each
Transaction Document and (iii) authorization, issuance and delivery of shares of
the common stock, par value $.008 per share (the "Common Stock") of the Company
issuable upon (x) conversion of the Convertible Debentures (such shares of
Common Stock are hereinafter referred to as the "Debenture Shares"), and (y)
exercise of the rights of the Subscribers (the "Warrant Rights") under the
Warrant (such shares of Common Stock are hereinafter referred to as the "Warrant
Shares"). The Debenture Shares and Warrant Shares are hereinafter referred to as
the "Shares", and the Shares, together with the Convertible Debentures and
Warrant are hereinafter referred to as the "Securities".
C. Agreement. Each Transaction Document has been (or will be as of the
Closing) duly executed and delivered by the Company and, assuming due
authorization, execution and delivery thereof by each Subscriber, is (or will be
as of the Closing) a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
D. Capital Stock. The Company has an authorized and outstanding
capitalization as set forth on Schedule 2.4. All outstanding shares of capital
stock of the Company have been duly authorized and are fully paid and
non-assessable. Other than as set forth in Section 2.4 or as disclosed in the
SEC Reports (as such term is defined in Section 2.6 below), there are no
outstanding options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements of any character providing for the
purchase, issuance or sale of any shares of capital stock of the Company.
E. Valid Issuance of Securities. When issued and delivered in accordance
with the terms of this Agreement, the Convertible Debentures and Warrant will
constitute legal, valid and binding obligations of the Company, enforceable in
accordance with their terms, and will have been issued in compliance, based upon
reliance on Subscriber's representations set forth herein, with all applicable
federal and state securities laws of the United States. The Company makes no
representations as to whether such issuance and delivery shall comply with the
laws of any foreign country. Assuming the representations and warranties of each
Subscriber are accurate in all material respects, the Debenture Shares, when
issued upon conversion in accordance with the terms of the Convertible
Debentures, and the Warrant Shares, when issued upon exercise of the Warrant
Rights (assuming payment of the exercise price set forth in the Warrant), shall
be duly and validly issued and outstanding, fully paid and nonassessable free
and clear of any claims or preemptive rights, and will have been issued in
compliance with all applicable U.S. federal and state securities laws.
F. SEC Reports; Financial Statements. The Company has filed all forms,
reports and documents with the Securities and Exchange Commission (the
"Commission") since May 15, 1997, required to be filed by it under the
Securities Exchange Act of 1934, as amended (the "1934 Act") through the date
hereof. None of the SEC Reports, including without limitation any financial
AIPN Subscription Agreement August 6, 1997
3
statements or schedules included therein, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading. There have been no material adverse changes in the Company's
business, properties, results of operations or condition (financial or
otherwise) since May 15, 1997. The audited consolidated balance sheets of the
Company and its subsidiaries contained in the 1996 10-K, and the related
consolidated statements of income, changes in stockholders' equity and changes
in cash flows for the periods then ended (the consolidated balance sheet of the
Company and its subsidiaries as of May 15, 1997 is hereinafter referred to as
the "Balance Sheet"), including the footnotes thereto, except as indicated
therein, have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods indicated. The Balance
Sheet fairly presents the financial condition of the Company and its
subsidiaries at the date thereof and, except as indicated therein, reflects all
claims against and all debts and liabilities of the Company and its
subsidiaries, fixed or contingent, as at the date thereof and the related
statements of income, stockholders' equity and changes in cash flows fairly
present the results of the operations of the Company and its subsidiaries and
the changes in their financial position for the period indicated. Since May 15,
1997 (the "Balance Sheet Date"), except as contemplated by this transaction,
there has been (x) no material adverse change in the assets or liabilities, or
in the business or condition, financial or otherwise, or in the results of
operations of the Company and its subsidiaries, whether as a result of any
legislative or regulatory change, revocation of any license or rights to do
business, fire, explosion, accident, casualty, labor trouble, flood, drought,
riot, storm, condemnation, act of God, public force or otherwise and (y) no
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations of the Company and its
subsidiaries except in the ordinary course of business; and no fact or condition
exists or is contemplated or threatened which might cause such a change in the
future. Except as disclosed in the SEC Reports, neither the Company nor any of
its subsidiaries has any material debts, guarantees, liabilities or obligations
required by generally accepted accounting principles to be provided for in the
Balance Sheet, whether accrued or absolute, contingent or otherwise, and whether
due or to become due, and there is no basis for the assertion against the
Company or any of its subsidiaries of any such debt, guarantee, liability or
obligation, that were not accrued or reserved against in the financial
statements included as part of the SEC Reports.
G. Current Public Information. Subject to the disclosures set forth in
Section 11 hereof, the Company is a "reporting issuer" as defined in Rule 902(l)
of Regulation S and it has a class of securities registered under Section 12(b)
or 12(g) of the 1934 Act. The Company has delivered to the Subscribers copies of
the Company's Form 10-K Annual Report for the most recent fiscal year ended,
Form 10-Q for the most recent fiscal quarter ended, most recent proxy statement
for its Annual Meeting of Shareholders, and each interim report on Form 8-K
filed by the Company since the date of its most recent Annual Report on Form
10-K.
H. No Directed Selling Efforts in Regard to this Transaction; Compliance
with Regulation S. The Company has not, and to the best of the Company's
knowledge no Subscriber nor any distributor, if any, participating in the
offering of the Securities nor any person acting for the Company or any such
distributor has conducted any "directed selling efforts" as that term is
AIPN Subscription Agreement August 6, 1997
4
defined in Rule 902 of Regulation S. The Company has not offered the Securities
to the Subscribers in the U.S. or to any person in the United States or any U.S.
person. The Company represents and warrants that the Offering by the Company of
the Securities to the Subscribers as contemplated in this Agreement is not part
of a plan or scheme to evade the registration provisions of the Act.
J. No Conflicts and Consents.
(i) The execution and delivery of each Transaction Document and the
consummation of the transactions contemplated by each Transaction Document
do not and will not conflict with or result in a material breach by the
Company of any of the terms or provisions of, or constitute a material
default under, the Certificate of Incorporation or Bylaws of the Company,
or any indenture, mortgage, deed of trust or other agreement or instrument
to which the Company is a party or by which it or any of its properties or
assets are bound, or any existing applicable decree, judgment or order of
any court, Federal or State regulatory body, administrative agency or
other governmental body having jurisdiction over the Company or any of its
properties or assets.
(ii) Neither the Company nor any subsidiary is required to obtain
any material consent, waiver, authorization or order of, or make any
filing or registration with, any court or other federal, state, local or
other governmental authority or other person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, except for (i) the filing (if any) of the registration
statements contemplated by the Registration Rights Agreement with the
Commission, (ii) the applications for the listing of the Warrant Shares
and the Debenture Shares with NASDAQ (and with any other national
securities exchange or market on which the Common Stock is then listed),
and (iii) the filing (if applicable), following the Closing, of a report
on Form 8-K summarizing the terms of this Agreement (which report shall,
to the extent permitted by applicable law, refer to the Subscribers by
classification as "accredited investors" and without designation by name).
K. No Action. The Company has not taken and will not take any action that
will affect in any way the running of the Restricted Period or Warrant
Restricted Period (each as hereafter defined) or the ability of any Subscriber
to resell freely the Securities in accordance with applicable securities laws
and this Agreement.
L. Compliance with Laws. As of the date hereof, the conduct of the
business of the Company and each of its subsidiaries complies in all material
respects with all statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees applicable thereto, except for non compliance which would not
have a material adverse effect on the business, properties, condition (financial
or otherwise), results of operations or prospects of the Company and each of its
subsidiaries taken as a whole (a "Material Adverse Effect"). Neither the Company
nor any subsidiary has received notice of any alleged violation of any statute,
law, regulation, ordinance, rule, judgement, order or decree from any
governmental authority, which would have a Material Adverse Effect.
AIPN Subscription Agreement August 6, 1997
5
M. Litigation. Except as disclosed in the SEC Reports, there is no action,
suit or proceeding before or by any court or governmental agency or body,
domestic or foreign, now pending or, to the knowledge of the Company,
threatened, against or affecting the Company or its subsidiaries, or any of
their properties, which could reasonably be expected to have a Material Adverse
Effect.
N. Disclosures. There is no fact known to the Company (other than general
economic conditions known to the public generally) that has not been disclosed
in writing to the Subscribers that (a) could reasonably be expected to have a
Material Adverse Effect or (b) could reasonably be expected to materially and
adversely affect the ability of the Company to perform its obligations pursuant
to this Agreement (and the issuance of the Securities hereunder).
O. Prior Issuances under Regulation S; Private Placements. Except as set
forth in the SEC Reports or for prior issuances reflected in the capitalization
of the Company described on Schedule 2.4, the Company has not issued any shares
of its Common Stock (or securities convertible into or exercisable for shares of
Common Stock) (i) under Regulation S ("Regulation S Securities"), except for
shares of Common Stock issued as an adjustment to, or in connection with a
conversion or exercise of, Regulation S Securities or (ii) pursuant to any other
exemption from registration under the Act. Assuming that the representations of
the Subscribers are true and correct in all material respects, the offer and
sale of the Convertible Debentures and Warrant are exempt from registration
under Section 5 of the Act. Neither the Company nor any person acting on its
behalf has taken or will take any action (including, without limitation, any
offering of any securities of the Company under circumstances which would
require the integration of such offering with the offering of the Warrant and
Debentures or the shares of Common Stock issuable upon conversion or exercise
respectively thereof) which subject the offering or issuance or sale of the
Debentures and Warrant (or the shares of Common Stock issuable upon conversion
or exercise respectively thereof) to the registration requirements of Section 5
of the Act.
P. Commissions. Except for the LKB Fee of US$256,000.00, no person, firm
or corporation will be entitled to receive any brokerage fee, commission or
other similar payment from the Company in connection with the consummation of
the transactions contemplated hereby and the Company shall not make any such
payment to any person, firm or corporation.
3. Representations and Warranties of Subscriber; Access to Information;
Independent Information; Independent Investigation
Each Subscriber represents and warrants to the Company as follows:
A. Offshore Transaction.
(i) no Subscriber is a "U.S. person" as that term is defined in Rule
902(o) of Regulation S (a copy of which definition is attached as Exhibit
C), and no Subscriber is an entity organized or incorporated under the
laws of any foreign jurisdiction by any "U.S.
AIPN Subscription Agreement August 6, 1997
6
person" principally for the purpose of investing in securities not
registered under the Act, unless the Subscriber is or was organized or
incorporated by "U.S. persons" who are accredited investors (as defined in
Rule 501(a) under the Act) and who are not natural persons, estates or
trusts;
(ii) the Convertible Debentures and Warrant were not offered to any
Subscriber in the United States and at the time of execution of this
Subscription Agreement and the time the buy order was originated, and of
any offer to such Subscriber to purchase the Convertible Debentures and
Warrant hereunder, such Subscriber was outside the United States;
(iii) each Subscriber is purchasing the Securities for its own
account and not on behalf of or for the benefit of any U.S. person and the
resale of the Securities has not been prearranged with any buyer in the
United States;
(iv) each Subscriber agrees that all offers and sales of the
Convertible Debentures and Debenture Shares prior to the expiration of a
period (the "Restricted Period") commencing on the Closing of this
Offering and ending forty (40) days after the Closing Date shall not be
made to U.S. persons or for the account or benefit of U.S. persons or
within the United States and shall otherwise be made in compliance with
the provisions of Regulation S. No Subscriber has been engaged or acted as
or on behalf of a distributor or dealer (and is not an affiliate of a
distributor or dealer) with respect to this transaction;
(v) each Subscriber agrees that all offers and sales of the Warrant
Shares prior to the expiration of a period commencing on the date of
issuance of the Warrant Shares under the Warrant following the exercise of
the Warrant Rights and ending forty (40) days thereafter (the "Warrant
Restricted Period") shall not be made to U.S. persons or for the account
or benefit of U.S. persons and shall otherwise be made in compliance with
provisions of Regulation S; and
(vi) each Subscriber shall take all reasonable steps to ensure its
compliance with Regulation S and shall promptly send to each purchaser who
acts as a distributor, dealer or a person receiving a selling concession,
fee or other remuneration in respect of any of the Securities, who
purchases prior to the expiration of the Restricted Period or Warrant
Restricted Period, as applicable, a confirmation or other notice to the
purchaser stating that the purchaser is subject to the same restrictions
on offers and sales as the Subscriber pursuant to Section 901(c)(2)(iv) of
Regulation S.
B. Independent Investigation. Each Subscriber, in offering to subscribe
for the Securities hereunder, has, prior to the date hereof, been given access
to and the opportunity to examine all books and records of the Company, and all
material contracts and documents of the Company. In making its investment
decision to purchase the Securities, no Subscriber is relying on any oral or
written representations or assurances from the Company or any other person or
any
AIPN Subscription Agreement August 6, 1997
7
representation of the Company or any other person other than as set forth in
this Agreement, the 1996 10-K or in a document executed by a duly authorized
representative of the Company making reference to this Agreement. Each
Subscriber has such experience in business and financial matters that it is
capable of evaluating the risk of its investment and determining the suitability
of its investment. Each Subscriber is a sophisticated investor, as defined in
Rule 506(b)(2)(ii) of Regulation D under the Act, and an "accredited investor"
as defined in Rule 501 of Regulation D under the Act, a copy of which definition
is attached hereto as Exhibit D. Each Subscriber is qualified to purchase the
Convertible Debentures and Warrants under the laws of the jurisdiction of its
residence. To the best of its knowledge, no Subscriber is an affiliate of the
Company and no Subscriber is a "10 percent shareholder" (as defined in Section
871(h)(3)(B) of the U.S. Internal Revenue Code) of the Company. The Subscriber
acknowledges that the Company is not eligible to use Form S-3 under the Act.
C. Economic Risk. Each Subscriber understands and acknowledges that an
investment in the Securities involves a high degree of risk, including a
possible total loss of investment. Each Subscriber represents that it is able to
bear the economic risk of an investment in the Securities. Each Subscriber has
read and understands the risk factor disclosure attached hereto as Schedule 2.C.
D. No Government Recommendation or Approval. Each Subscriber understands
that no United States federal or state agency or similar agency of any other
country has passed upon or made any recommendation or endorsement of the
Company, this transaction or the subscription of the Securities.
E. No Directed Selling Efforts in Regard to this Transaction. No
Subscriber has conducted any "directed selling efforts" as that term is defined
in Rule 902 of Regulation S. Such activity includes, without limitation, the
mailing of printed material to investors residing in the United States, the
holding of promotional seminars in the United States, the placement of
advertisements with radio or television stations broadcasting in the United
States or in publications with a general circulation in the United States, which
discuss the offering of the Securities.
F. No Registration. Each Subscriber understands that the Securities have
not been registered under the Act and are being offered and sold pursuant to an
exemption from registration contained in the Act based in part upon the
representations of such Subscriber contained herein. The Shares do, however,
carry certain registration rights as set forth in the Registration Rights
Agreement executed by the parties hereto in the form attached hereto as Exhibit
E (the "Registration Rights Agreement").
G. No Public Solicitation. Without conducting any independent
investigation, no Subscriber knows of any public solicitation or advertisement
of an offer in connection with the proposed issuance and sale of the Securities.
H. Investment Intent. Each Subscriber is acquiring the Convertible
Debentures
AIPN Subscription Agreement August 6, 1997
8
and Warrant for such Subscriber's own account, for investment and not with a
view to the distribution thereof. Each Subscriber understands that, except as
set forth in the Registration Rights Agreement, the Company has no present
intention of registering any such sale of the Shares. Each Subscriber represents
and warrants to the Company that it has no present plan or intention of selling
the Securities in the United States, has made no predetermined arrangements to
sell the Securities (other than the registration provisions contained in the
Registration Rights Agreement, which pertain only to a potential method of
disposing of the Shares) and that the Offering, together with any subsequent
resale by any Subscriber of the Securities, is not part of a plan or scheme to
evade the registration provisions of the Act. No Subscriber currently has a
short position in the Company's Common Stock, including any short call position
or any long put position or any contract or arrangement that has the effect of
eliminating or substantially diminishing the risk of ownership of the
Securities, nor has any Subscriber engaged in any hedging transaction with
respect to the Securities.
J. Incorporation and Authority. Each Subscriber has the full power and
authority to execute, deliver and perform each Transaction Document to which it
is a party and to perform its obligations hereunder and thereunder. This
Agreement, and each other Transaction Document to which it is a party, has been
duly approved by all necessary action of each Subscriber, including any
necessary shareholder approval, has been executed by persons duly authorized by
each Subscriber, and constitutes a valid and legally binding obligation of each
Subscriber, enforceable in accordance with its terms.
K. No Reliance on Tax Advice. Each Subscriber has reviewed with his, her
or its own tax advisors the foreign, federal, state and local tax consequences
of this investment, where applicable, and the transactions contemplated by this
Agreement. Each Subscriber is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that such Subscriber (and not the Company) shall be responsible for
the Subscriber's own income tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
L. Independent Legal Advice. Each Subscriber acknowledges that it has had
the opportunity to review each Transaction Document and the transactions
contemplated by this Agreement with his, her or its own legal counsel. Each
Subscriber is relying solely on such counsel and not on any statements or
representations of the Company or any of its agents for legal advice with
respect to this investment or the transactions contemplated by this Agreement,
except for the representations, warranties and covenants set forth herein and on
the opinion provided for in Section 5.G hereof.
4. Legends; Subsequent Transfer of Securities
A. Legends.
(i) The Convertible Debentures shall bear a legend substantially as
set
AIPN Subscription Agreement August 6, 1997
9
forth below and any other legend, if such legend or legends are reasonably
required to comply with state, federal or foreign law. Assuming that there
are no changes in the material facts represented in Section 3 of this
Agreement or applicable law from the date hereof until the date of
conversion, all certificates representing the Debenture Shares into which
the Convertible Debentures are converted after the Restricted Period shall
not bear a legend.
"The Convertible Debentures of American International Petroleum
Corporation. ("Issuer") represented hereby have been issued pursuant to
Regulation S, promulgated under the United States Securities Act of 1933,
as amended (the "Act"), and have not been registered under the Act or any
applicable state securities laws. These Securities may not be offered or
sold within the United States or to or for the account of a "U.S. Person"
(as that term is defined in Regulation S) during the period commencing on
the sale of these securities and ending on the fortieth (40th) day
following completion of the Regulation S offering of the Issuer pursuant
to which these securities have been issued (the "Restricted Period"). The
Securities represented by this certificate may first be converted into
common stock of the issuer on [60th day after Closing]. The Issuer will
notify the transfer agent of the date of completion of such offering and
of the expiration of such Restricted Period."
(ii) The Warrant Shares, when issued, shall bear a legend
substantially as set forth below and any other legend, if such legend or
legends are reasonably required to comply with state, federal or foreign
law (provided, if as a result of any change in the applicable laws
governing Regulation S transactions, the Warrant Restricted Period is
changed, the Company may alter the legend set forth above for certificates
representing Warrant Shares issued after the effective date of such change
such that the Warrant Restricted Period conforms therewith).
"The shares of Common Stock of American International Petroleum
Corporation represented hereby have been issued pursuant to Regulation S,
promulgated under the United States Securities Act of 1933, as amended
(the "Act"), and have not been registered under the Act or any applicable
state securities laws. These shares may not be offered or sold within the
United States or to or for the account of a "U.S. Person" (as that term is
defined in Regulation S) during the period commencing on the date of
issuance hereof and ending forty (40) days thereafter."
B. Transfers.
(i) The Company agrees, and shall instruct its agents, that the
Convertible Debentures may be transferred to any person or entity who is
not an affiliate of the Company if such transfer occurs after the
Restricted Period, without (a) any further restriction on transfer
(provided the transfer is made in compliance with the Act) or (b) the
entry of a "stop transfer" order against such Convertible Debentures, and
the Convertible Debentures and Debenture Shares issued upon conversion
thereof, delivered to the transferee after the
AIPN Subscription Agreement August 6, 1997
10
Restricted Period shall not bear a legend. The Company may place a stop
transfer order on any Convertible Debentures or Debenture Shares during
the Restricted Period for the duration of the Restricted Period. Upon
election by a Subscriber to convert all or a portion of the Convertible
Debentures into Debenture Shares, such Subscriber shall deliver to the
Company the original Debenture, a duly completed and executed Notice of
Conversion (which shall include a statement by the Subscriber of the
continued accuracy of the material representations and warranties set
forth herein; provided, the Subscriber shall not be required to make any
representation concerning its investment intent with respect to the
Debenture Shares) substantially in the form attached hereto as Exhibit F
(a "Notice of Conversion").
(ii) The Company agrees, and shall instruct its agents, that the
Warrant Shares issued upon exercise of the Warrant Rights under the
Warrant may be transferred to any person or entity who is not an affiliate
of the Company if such transfer occurs after the Warrant Restricted
Period, without (i) any further restriction on transfer (provided the
transfer is made in compliance with the Act), or (ii) the entry of a "stop
transfer" order against the Warrant Shares, and the Warrant Shares
delivered to a transferee after the Warrant Restricted Period shall not
bear a legend. At the request of a Subscriber, the Company shall promptly
exchange following the Warrant Restricted Period certificates representing
the Warrant Shares issued with the legend described in Section 4.1(b)
above for certificates representing the Warrant Shares issued without a
legend. The Company may place a stop transfer order on the Warrant Shares
during the Warrant Restricted Period for the duration of the Warrant
Restricted Period. Upon election by a Subscriber to exercise any portion
of the Warrant, such Subscriber shall deliver to the Company a duly
completed Notice of Exercise (which shall include a statement by the
Subscriber of the continued accuracy of the material representations and
warranties set forth herein and that the Subscriber shall not transfer the
Warrant Shares to a U.S. Person during the Warrant Restricted Period)
substantially in the form attached hereto as Exhibit I (a "Notice of
Exercise").
5.. Covenants of the Company
A. Accountants. For as long as any Convertible Debentures and Warrant
remain outstanding, the Company shall maintain as its independent auditors an
accounting firm that is authorized to practice before the Commission.
B. Corporate Existence and Taxes. For as long as any Convertible
Debentures and Warrant remain outstanding, the Company shall maintain its
corporate existence in good standing, and shall pay all its taxes when due
except for taxes which the Company disputes in good faith and for which adequate
reserves are established on the Company's books and records.
C. Reserved Shares and Listings. For so long as any Convertible Debentures
and Warrant remain outstanding:
AIPN Subscription Agreement August 6, 1997
11
(i) the Company will reserve from its authorized but unissued shares
of Common Stock a sufficient number of shares of Common Stock to permit
the conversion in full of the then outstanding Convertible Debentures and
exercise in full the Warrant Rights under the Warrant;
(ii) the Company will use its best efforts to maintain the listing
of its Common Stock on the NASDAQ Stock Market;
(iii) the Company will not repurchase or otherwise enter into any
other transaction (including stock split, recapitalization or other
transaction), which would cause a decrease in the number of its shares of
Common Stock issued and outstanding (other than transactions that
similarly decrease the number of shares of Common Stock into which the
Convertible Debentures are convertible and Warrant is exercisable); and
D. Issuance of Common Shares. Upon conversion of the Convertible
Debentures in accordance with their terms, and/or exercise of the Warrant
Rights, the Company will, and will use its best lawful efforts to cause the
Transfer Agent to, issue one or more certificates representing shares of Common
Stock in such name or names and in such denominations specified by a Subscriber
in a Notice of Conversion or Notice of Exercise, as applicable. The Shares of
Common Stock to be issued upon conversion of the Convertible Debentures or
exercise of the Warrant Rights shall not bear any restrictive legends (other
than the legend set forth in Section 4.A(ii) for the Warrant Shares) and shall
be freely tradeable upon expiration of the Restricted Period or Warrant
Restricted Period, as applicable,, subject to compliance with Federal and state
securities laws and the terms of the Convertible Debentures and Warrant. The
Company further warrants that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the Restricted Period or
Warrant Restricted Period, as applicable, have been or will be given to the
Transfer Agent and also warrants that the Shares shall otherwise be freely
transferable by Subscriber on the books and records of the Company subject to
compliance with Federal and State securities laws and the terms of the
Convertible Debentures and Warrant. The Company will notify the Transfer Agent
of the date of Closing Date of this Offering and of the date of expiration of
the Restricted Period and of the Warrant Restricted Period upon exercise of any
Warrant Rights. Nothing in this section shall affect in any way a Subscriber's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities.
E. Copies of Information. The Company undertakes to furnish each
Subscriber with copies of such other information as may be reasonably requested
by such Subscriber prior to consummation of this Offering. The Company will
provide the Subscribers with copies of all future filings under the 1934 Act for
so long as any Convertible Debentures and Warrant are outstanding.
AIPN Subscription Agreement August 6, 1997
12
F. Compliance with Laws. The Company shall comply with all applicable
Federal and state securities laws with respect to the sale of the Securities,
including but not limited to the filing of all reports required to be filed in
connection therewith with the SEC or any stock exchange or the NASDAQ or any
other regulatory authority.
G. Opinion of Counsel. The Company will cause its council to render an
opinion to the Holder in the form attached hereto as Exhibit G.
H. Consultation with Legal Counsel. The Company shall consult with its
legal counsel regarding its 1934 Act filing requirements including, but not
limited to, the possible obligation of the Company to file Form 8-K in
connection with the Offering, and will timely make any and all such filings
deemed necessary by such counsel; provided, if permitted by applicable law, any
such filing shall refer to the Subscribers merely as "accredited investors"
without designation by name.
J. Registration Rights. The Company will grant the Subscribers the
registration rights covering the Shares on the terms of the Registration Rights
Agreement.
6.. Covenants of the Subscribers.
A. Dealings in Common Shares. Each Subscriber covenants that neither it
nor any of its affiliates nor any person acting on its or their behalf has the
intention of entering, or will enter from the Closing through the end of the
Restricted Period applicable to the Convertible Debentures, into any put option,
short position or any hedging transaction or other similar instrument or
position with respect to the Company's Common Stock and neither it nor any of
its affiliates nor any person acting on its or their behalf will use at any time
the Company's Common Stock to settle any put option, short position or other
similar instrument or position that may have been entered into prior to the
execution of this Agreement.
B. No Sale in Violation of the Act. Each Subscriber further covenants that
it will not make any sale, transfer or other disposition of the Securities in
violation of the Act (including Regulation S) or the rules and regulations of
the Commission promulgated thereunder. Each Subscriber acknowledges and agrees
that the Securities may and will only be resold (a) in compliance with
Regulation S; (b) pursuant to a Registration Statement under the Act; or (c)
pursuant to an exemption from registration under the Act.
7. Issuance of Further Securities
A Restriction on Issuance. For so long as at least 20% of the principal
balance of the Convertible Debentures remain outstanding, the Company agrees not
to engage in or enter into any agreement to engage in any transaction to secure
additional capital through the use of discounted securities under Regulation S
or Regulation D of the Act, without the prior written consent of the
AIPN Subscription Agreement August 6, 1997
13
Subscriber.
8.. Liquidated Damages for Late Conversion.
A. Liquidated Damages. As set forth in the Convertible Debentures and
Warrant, the Company shall issue and deliver, and use its best efforts to cause
the Transfer Agent to issue and deliver, within five (5) New York Stock Exchange
trading days after a Subscriber has fulfilled all conditions, a Notice of
Conversion or Notice of Exercise, as applicable (the "Deadline"), to such
Subscriber or any party receiving the Convertible Debentures or Warrant by
transfer from such Subscriber (together with such Subscriber, a "Holder"), at
the address of the Holder set forth in the Notice of Conversion or Notice of
Exercise, as applicable, a certificate or certificates for the number of shares
of Common Stock to which the Holder shall be entitled. The Company understands
that a delay in the issuance of the shares of Common Stock after the Deadline
could result in economic loss to the Holder. If for any reason other than (x) a
failure of any material representation or warranty of any Subscriber herein to
be true and correct or (y) a change in law or administrative rules governing
Regulation S that would prevent the Company from issuing Debenture Shares
following the Restricted Period, without restrictive legend, or Warrant Shares
solely with the legend specified in Section 4.A(ii), as applicable, the Company
fails to issue the shares of Common Stock, then as compensation to the Holder
for such loss, and not as a penalty, the Company agrees to pay liquidated
damages to the Holder for late issuance of shares of Common Stock upon
conversion $2,500 for each day for which the delivery occurs past the Deadline.
The Company shall pay the Holder any liquidated damages incurred under this
Section by wire transfer of immediately available funds to an account designated
by Holder upon the earlier to occur of (i) issuance of the shares of Common
Stock to the Holder of the required shares of Common Stock that were not issued,
or (ii) each monthly anniversary of the receipt by the Company of such Holder's
Notice of Conversion or Notice of Exercise, as applicable. Nothing herein shall
waive the Company's obligations to deliver shares of Common Stock upon a
conversion of the Convertible Debentures or exercise of the Warrant Rights or
limit any Subscriber's right to pursue actual damages for the Company's failure
to issue and deliver shares of Common Stock to such Subscriber in accordance
with the terms of the Convertible Debentures and Warrant.
B. Conversion Notice. The Company agrees that, in addition to any other
remedies which may be available to the Subscribers, including, but not limited
to the remedies available under Section 8.A, in the event the Company fails for
any reason to effect delivery to a Subscriber of certificates representing
Common Stock on or prior to the Deadline, such Subscriber will be entitled to
revoke the Notice of Conversion or Notice of Exercise, as applicable, by
delivering a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to delivery of such Notice of Conversion or Notice of Exercise, as
applicable.
9. Additional Agreements.
A. Warrants. The Company hereby grants the Subscriber warrants to purchase
AIPN Subscription Agreement August 6, 1997
14
in the aggregate 800,000 shares of Common Stock for a Two (2) year period at an
exercise price equal to the five day average Closing Bid Price (as defined in
the Convertible Debenture) of the Company's Common Stock immediately preceding
the Closing Date, pursuant to the form of Warrant attached hereto as Exhibit H
(collectively, the "Warrant"). The shares of Common Stock issued upon exercise
of the Warrant (the "Warrant Shares") shall be issued pursuant to Regulation S,
and shall contain a legend upon issuance solely in the form set forth in Section
4.A(ii). Each Subscriber shall be entitled to exercise the Warrant Rights for
the Warrant Shares in accordance with the proportionate amount of Convertible
Debentures purchased by Subscribers as set forth on Schedule 1 hereto.
10. Conditions to Closing; Deliveries at Closing.
A. Conditions to Subscribers' Obligations to Close. The obligations of the
Subscribers to effect the Closing are conditioned on the fulfillment or waiver
of the following:
(i) the execution and delivery of each Transaction Document by the
Company;
(ii) the execution and delivery of the Escrow Agent Agreement by the
Escrow Agent; and
(iii) all the representations and warranties of the Company in this
Agreement as of the date hereof shall be true and correct at the Closing of this
Offering as if made on such date, and the Company shall have performed all
actions required hereunder.
B. Conditions to the Company's Obligation to Close. The obligation of the
Company to effect the Closing is conditioned on the fulfillment or waiver of the
following:
(i) the execution and delivery of this Agreement, the Registration Rights
Agreement and the Escrow Agent Agreement by the Subscribers;
(ii) the execution and delivery of the Escrow Agreement by the Escrow
Agent; and
(iii) all the representations and warranties of each Subscriber made in
this Agreement as of the date hereof shall be true and correct at the Closing of
the Offering as if made on such date, and each Subscriber shall have performed
all actions required hereunder.
AIPN Subscription Agreement August 6, 1997
15
11. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Nevada, U.S.A., applicable to agreements made in and wholly
to be performed in that jurisdiction without regards to the choice of law rules
of such state, except for matters arising under the Act or the 1934 Act which
matters shall be construed and interpreted in accordance with such laws. Any
action brought to enforce, or otherwise arising out of, this Agreement shall be
heard and determined in either a Federal or state court sitting in the County of
Dallas, State of Texas, U.S.A.
12. Entire Agreement; Amendment
This Agreement, the Convertible Debentures, the Registration Rights
Agreement, the Escrow Agent Agreement, the Warrant and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
13. Notices, Etc.
Any notice, demand or request required or permitted to be given by either
the Company or any Subscriber pursuant to the terms of this Agreement shall be
in writing and shall be deemed given when delivered personally or by facsimile
to the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
14. Confidentiality.
The Subscribers will keep confidential all non-public information
regarding the Company that they receive from the Company unless disclosure of
such information is compelled by a court or other administrative body or
otherwise necessary, in the opinion of Subscribers' counsel, to comply with
applicable law. Neither party shall disclose any information regarding any of
the transactions contemplated hereby without the prior consent of the other
party, unless such disclosure is required by applicable law and consistent with
Sections 2.J(ii) and 5.H hereof.
15. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument. A
facsimile transmission of a signature hereto shall be valid as if an original
and binding on all parties.
AIPN Subscription Agreement August 6, 1997
16
16. Severability
In the event that any provision of this Agreement becomes or is declared
by a court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that no such severability shall be effective if it materially changes
the economic benefit of this Agreement to any party.
17. Titles and Subtitles
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
18. Parties in Interest Cited
This Agreement may not be transferred, assigned, pledged or hypothecated
by any party hereto, other than by operation of law. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective heirs, executors, administrators, successors and permitted assigns.
All representations, warranties, covenants and agreements of each party hereto
shall survive the closing contemplated herein and pursuant to the Exhibits
hereto.
[Signature page follows]
AIPN Subscription Agreement August 6, 1997
17
The undersigned Subscribers acknowledge that this subscription shall not
be effective unless accepted by the Company as indicated below.
Dated this 6th day of AUGUST, 1997.
Signature Signature
----------------------------- -----------------------------
Place of Execution: Place of Execution:
Signature
-----------------------------
Place of Execution:
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE ___TH DAY OF
_____________, 1997.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION.
444 Madison Ave. Ste 3203
New York, NY 10022
Telefax: 212/688-6657
By:
---------------------------
Print Name:___________________
Title:________________________
AIPN Subscription Agreement August 6, 1997
18
SCHEDULE 1
SUBSCRIBERS
Name Principal Balance of Convertible Debentures Aggregate Purchase Price
AIPN Subscription Agreement August 6, 1997
19
SCHEDULE 2.4A
Capitalization (as of August 4, 1997)
Shares of Common Stock:
Authorized:
----------
Issued/Outstanding:
----------
Held in Treasury:
----------
Shares of Preferred Stock:
Authorized:
----------
Issued:
----------
Outstanding:
----------
Convertible Securities:
Options:
----------
Warrants:
----------
AIPN Subscription Agreement August 6, 1997
20