<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20449
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission File number No. 0-14905
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 13-3130236
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
444 MADISON AVENUE, SUITE 3203, NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(Zip Code)
(212) 688-3333
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No________
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the registrants classes of common
stock, $.08 par value, as of May 13, 1996, the latest practicable date is
26,767,464 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 430,725 $ 162,218
Cash - restricted -- 226,223
Accounts receivable 826,597 1,073,553
Inventory 489,503 504,953
Prepaid expenses 691,352 547,509
------------ ------------
Total current assets 2,438,177 2,514,456
------------ ------------
Property, plant and equipment:
Unevaluated property not subject
to amortization 5,244,664 4,998,824
Oil and gas properties pursuant
to the full cost method 32,069,711 31,566,297
Refinery property and equipment 15,521,995 15,521,995
Other 506,329 506,445
------------ ------------
53,342,699 52,593,561
Less: Accumulated depreciation,
depletion and amortization (22,826,973) (22,502,472)
------------ ------------
Total property, plant and equipment 30,515,726 30,091,089
------------ ------------
Other long-term assets, net 280,930 34,817
------------ ------------
Total Assets $ 33,234,833 $ 32,640,362
============ ============
</TABLE>
See notes to consolidated financial statements
-2-
<PAGE> 3
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 43,248 $ 66,759
Current installments of long-term debt 1,232,500 1,870,000
Accounts payable 2,005,196 2,363,562
Accrued expenses and other liabilities 1,166,721 1,616,678
------------ ------------
Total current liabilities 4,447,665 5,916,999
Long term debt 6,829,564 5,432,671
------------ ------------
Total Liabilities 11,277,229 11,349,670
Stockholders' equity:
Preferred stock, par value $3.00,
authorized 7,000,000 shares, none issued -- --
Common stock, par value $.08, 50,000,000 shares authorized,
26,767,464 shares issued and outstanding at March 31, 1995 and
24,705,926 shares issued and outstanding at
December 31, 1995 2,139,141 1,976,474
Additional paid-in capital 75,584,694 74,768,272
Stock purchase warrants 1,297,754 1,297,754
Accumulated Deficit (57,063,985) (56,751,808)
------------ ------------
Total Stockholders' Equity 21,957,604 21,290,692
------------ ------------
Commitments and Contingencies (Note 3) -- --
------------ ------------
Total Liabilities and
Stockholders' Equity $ 33,234,833 $ 32,640,362
============ ============
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE> 4
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Oil and gas sales $ 304,192 $ 305,285
Refinery lease fees 568,596 19,064
Interest Income 2,674 12,941
Other 48,144 10,411
------------ ------------
Total revenues 923,606 347,701
------------ ------------
Expenses:
Operating 112,098 90,789
GeneraGeneralmandsAdministrative 598,505 900,472
Depreciation, depletion and amortization 324,545 353,690
Interest 200,635 276,686
------------ ------------
Total expenses 1,235,783 1,621,637
------------ ------------
Net Loss $ (312,177) $ (1,273,936)
============ ============
Loss per share of common stock $ (0.01) $ (0.06)
============ ============
Weighted average number of shares
outstanding 25,961,481 20,896,521
============ ============
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE> 5
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (312,177) $(1,273,936)
----------- -----------
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Depreciation and depletion 324,545 353,690
Amortization of bond/loan costs 17,606 34,404
Changes in current assets & liabilities:
(Increase) decrease in accounts receivable 246,956 184,849
Decrease in inventory 15,450 142,911
(Increase) decrease in prepaid expenses 6,157 (211,073)
Increase (decrease) in accounts payable
and accrued expense (708,323) 61,583
----------- -----------
Total adjustments (97,609) 566,364
----------- -----------
Net cash used by operating activities (409,786) (707,572)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (649,254) (905,116)
Additions to refinery property and equipment -- --
(Additions) retirements to other assets (263,647) 4,353
----------- -----------
Net cash used in investing activities (912,901) (900,763)
----------- -----------
Cash flows from financing activities:
Cash - restricted 226,223 (3,286)
Increase (decrease) in notes payable (23,511) --
Payments on long-term debt (740,607) (467,500)
Proceeds from issuance of debentures, net 1,350,000 --
Proceeds from issuance of common stock, net of
offering expenses 779,089 2,233,668
Proceeds from exercise of stock warrants -- 32
----------- -----------
Net cash provided by financing activities 1,591,194 1,762,914
----------- -----------
Net (decrease) increase in cash
and cash equivalents 268,507 154,579
Cash and cash equivalents at beginning of period 162,218 943,371
----------- -----------
Cash and cash equivalents at end of period $ 430,725 $ 1,097,950
=========== ===========
</TABLE>
See notes to consolidated financial statements
-5-
<PAGE> 6
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Additional Stock
Common Stock paid-in purchase
Shares Amount capital warrants Deficit Total
------ ------ ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 24,705,926 $ 1,976,474 $ 74,768,272 $ 1,297,754 ($56,751,808) $ 21,290,692
Stock issued in lieu of accounts payable 128,205 8,000 92,000 -- -- 100,000
Stock issued for services 100,000 8,000 92,000 -- -- 100,000
Sale of common stock - net 1,833,333 146,667 632,422 -- -- 779,089
Net loss for the period -- -- -- -- (312,177) (312,177)
---------- ------------ ------------ ------------ ------------ ------------
Balance, March 31, 1996 26,767,464 $ 2,139,141 $ 75,584,694 $ 1,297,754 ($57,063,985) $ 21,957,604
========== ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
-6-
<PAGE> 7
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements of American
International Petroleum Corporation and Subsidiaries (the "Company") have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of March 31,
1996 and the results of operations and the cash flows for the three months ended
March 31, 1996 and 1995. These results have been determined on the basis of
generally accepted accounting principles and practices applied consistently with
those used in the preparation of the Company's 1995 Annual Report on Form 10-K.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
1995 Annual Report on Form 10-K.
2. Regulation S Offerings
During the first quarter of 1996, the Company received cash and settled certain
liabilities totaling approximately $991,000 from the sale and issuance of shares
of its common stock in accordance with the safe harbor provided by Regulation S
as promulgated by the Securities and Exchange Commission. Also, on March 21,
1996, the Company received net proceeds of $1,350,000 from the sale of 10%
Convertible Redeemable Subordinated Debentures, issued in accordance with
Regulation S. (See Item 2 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations".) The proceeds are being utilized to repay
debt and for working capital purposes. (See Note 4 below.)
3. Contingencies
IRS Excise Tax Claim
In May 1992, 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
7
<PAGE> 8
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 Appeals 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. Subsequent to the issuance of the TAM, the IRS Appeals officer
indicated to AIRI that the IRS still wants to negotiate a settlement. As a
result, AIRI had a meeting with the IRS Appeals Office on April 30, 1996 to
discuss the situation. During the meeting, the Company, at the request of the
IRS, made a settlement offer to the IRS, which is now under their consideration.
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 provided an allowance in accrued
expenses during 1995 of $250,000 for estimated costs, whether in the form of
legal expenses or payments to the IRS, or some combination of both.
Legal Proceedings
The Company and its subsidiaries are party to various legal proceedings,
including environmental matters. Although the ultimate disposition of these
proceedings is not presently determinable, in the opinion of the Company, any
liability that might ensue would not be material in relation to the consolidated
financial position or results of operations of the Company.
In October 1995, Rio Bravo S.A., the operator of the Company's Lot IV Block in
Peru, locked-out PAIPC personnel from access thereto and filed a legal action in
Peru against PAIPC claiming damages of $11,695,000 and alleging that PAIPC's
License Contract with the government to explore Block IV (the "License
Contract") was cancelled by the government due to the fact PAIPC did not
complete the minimum work program required under the License Contract. However,
because the minimum work program was completed and was certified as complete by
the government (the performance bond placed by PAIPC to assure its compliance
with the minimum work program has, in fact, been released by the government)
and, since the License Contract with the government is still in effect and has
not been cancelled, the Company expects the legal action by Rio Bravo will be
decided in PAIPC's favor. PAIPC has also filed
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<PAGE> 9
counterclaims and is in the process of filing liens against Rio Bravo to defend
its interests in the Block and License Contract and continues to participate in
meetings with the government related to the activities in the Block and in all
matters of administration and execution of the obligations in the License
Contract. At this time, the Company is unable to determine what liability may
arise from this action.
4. Subsequent Events
9% Debentures
On April 16, 1996, the Company received net proceeds of $460,000 from the sale
of 9% Convertible Subordinated Redeemable Debentures (the "9% Debentures") in a
private placement to a foreign buyer under Regulation S. At its option, the
Company may redeem any or all of the 9% Debentures prior to conversion by paying
to the holder in cash 125% of the then outstanding principal balance of the 9%
Debenture plus accrued interest to date. Such payment may also be made by the
Company within 15 days of receipt of a conversion notice by the Company from the
holder(s). In addition, the Company, at its sole option, may force conversion at
any time on and after 120 days from the date of issuance of the 9% Debentures if
the average closing bid price for the Company's common stock for five
consecutive trading days shall be in excess of $1.40. The holders of the 9%
Debentures may convert all or any amount over $25,000 of the original principal
amount, commencing May 31, 1996, into shares of the Company's common stock at a
conversion price per share equal to the lower of (i) 75% of the average closing
bid price of the Common Stock for the five business days immediately preceding
the date of receipt by the Company of notice of conversion or (ii) 75% of the
average of the closing bid price of the Common Stock for the five business days
immediately preceding the date of Subscription by the holders. The Company is
utilizing the proceeds from the 9% Debentures to repay debts and for working
capital purposes.
Indonesian Agreement
On April 18, 1996, the Company announced that due to continued delays by Far
Eastern Hydrocarbons, Ltd. ("FEH"), in reaching a final decision regarding the
merger discussions between the Company and FEH, it is unable to determine if, or
when, the previously announced Share Exchange Agreement will be consummated on
terms acceptable to the Company. Consequently, the Company has temporarily
tabled its active pursuit of the negotiations. FEH management continues to
express a commitment to proceed with the negotiations, therefore, the Company
will consider resuming negotiations with FEH upon receipt of a definitive
response from the FEH Board to the outstanding merger proposal, based on the
amended letter of intent dated January 24, 1996.
9
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the quarter ended March 31, 1996, the Company utilized approximately
$410,000 for operations. Net loss for the period totalled $312,000, including
non-cash provisions for depreciation, depletion, and amortization of $342,000.
Approximately $269,000 was provided during the quarter by the reduction of
current assets other than cash and approximately $708,000 was used to decrease
accounts payable.
The Company's 12% Secured Debentures (the "12% Debentures") require certain
principal payments and contain certain restrictive covenants and conditions with
which the Company must comply. During the next twelve months approximately
$1,229,000 and $421,000 in principal and interest, respectively, are due for
payment, of which all of the principal is payable in December 1996 and one-half
of the interest is payable in each of June and December 1996. In the event that
the Company is unable to meet its obligations pursuant to the 12% Debentures in
a timely manner, the Company's oil and gas reserves and its operations may be
adversely affected.
The Company has an outstanding Loan Agreement (the "MGTF Note") with MG Trade
Finance Corp. ("MGTF"), which is secured by its Lake Charles, Louisiana refinery
(the "Refinery"). As of May 1, 1996, the outstanding principal balance of the
MGTF Note was approximately $2.5 million, which is due in full on March 31,
1998. 50% of the lease fee proceeds the Company receives from the lessee of the
Refinery, Gold Line Refining Ltd. ("Gold Line"), is utilized to pay interest and
amortize the principal on the MGTF Note. If lease fees are not sufficient to
satisfy all accrued interest when due, the Company is obligated to satisfy any
shortfall. The Company may be required to fund future working capital
requirements that arise from Refinery operations, including any liability that
may arise from any claims or settlements related to the Refinery.
During 1995, Gold Line incurred various financial and purchasing problems which
resulted in diminished throughput volumes and lower lease fees to the Company
and also prevented Gold Line from making its note payments to the Company as
scheduled in September and December 1995 and in March 1996. These problems
resulted in lower cash flow to the Company of up to $1.6 million, which required
it to utilize other methods to acquire funds necessary to satisfy its monetary
and contractual obligations, including the issuance of equity. During the first
quarter of 1996, the Company issued shares of its common stock in exchange for
cash and services rendered to the Company totalling an aggregate of
approximately $991,000 placed in accordance with the safe harbor provided by
Regulation S as promulgated by the SEC.
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In March 1996, Gold Line was successful in solving its financial and purchasing
problems, and secured a new one-year $45 million fuel supply contract with the
United States Defense Fuel Supply Center ("DFSC"). As a result, Gold Line
expects to process higher volumes of feedstock through the Refinery, which
should enable it to make its scheduled quarterly principal and interest note
payments to the Company beginning in June 1996. In addition, Gold Line's lease
fees increased to $.50 per barrel of feedstock in 1996 from $.40 per barrel in
1995. During March 1996, Gold Line processed a high of approximately 18,000
daily barrels of feedstock and was processing an average of 15,500 barrels of
feedstock per day. It expects to average 15,000 barrels per day during the
remainder of the lease, a level it needs to maintain in order to meet its
obligations under its DFSC contracts. The combination of Gold Line's note
payments and increased lease fees could provide the Company with approximately
$1.7 million more cash flow during the next twelve months than during the last.
Also in March 1996, the Company received net proceeds of $1,350,000 from the
sale of 10% Convertible Subordinated Redeemable Debentures (the "10%
Debentures") in a private placement to various foreign buyers under Regulation
S. At its option, the Company may redeem any or all of the 10% Debentures after
issue and prior to conversion by paying to the holder in cash 135% of the then
outstanding principal balance of the 10% Debentures plus accrued interest to
date. Such payment may also be made at the Company's option within 15 days of
receipt of a conversion notice by the Company from the holder(s). In addition,
the Company, at its sole option, may force conversion at any time on and after
120 days from the date of issuance of the 10% Debentures if the average closing
bid price for the Company's common stock for five consecutive trading days shall
be in excess of $1.50. The holders of the 10% Debentures may convert all or any
amount over $25,000 of the original principal amount commencing May 11, 1996
into shares of the Company's common stock at a conversion price per share equal
to the lower of (i) 65% of the average closing bid price of the Common Stock for
the five business days immediately preceding the date of receipt by the Company
of notice of conversion or (ii) 65% of the average of the closing bid price of
the Common Stock for the five business days immediately preceding the date of
Subscription by the holders. The Company is utilizing the proceeds from the 10%
Debenture to repay debts and for working capital purposes. In April 1996, the
Company received net proceeds of $460,000 from the sale of 9% Debentures. (See
Note 4 to "Notes to Consolidated Financial Statements March 31, 1996 -
Subsequent Events, 9% Debentures".)
The Company has received inquiries from various oil companies regarding a
possible farmout of its new Chicoral discovery and its other Colombian
properties in return for cash and drilling obligations in the Company's
Toqui-Toqui field. Such a transaction, if timely consummated, could provide the
Company with
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capital to repay a portion of its recently-issued Debentures, while ensuring
that its Chicoral discovery would be fully exploited in the shortest time
practicable with little or no cost to the Company. Although a farmout would
result in a lower overall Company ownership interest of its Colombian reserves,
the net result to the Company could be an increase in its oil and gas reserve
base, a stronger balance sheet and greater potential for earnings and cash-flow
growth.
The Company has no remaining drilling or work obligations in Colombia or Peru.
Depending upon available funds, or whether the Company is successful with its
farmout plans, the Company estimates it could utilize up to $4,000,000 for
exploration and development of its properties and prospects in South America
during the next twelve months.
In December 1995, the Company entered into a Farmout Agreement with P.T. Pelangi
Niaga Mitra Internasional, an Indonesian company ("PNMI"), wherein the Company
would earn a 49% working interest in a Technical Assistance Contract ("TAC")
with Pertamina for the Pamanukan Selatan area of West Java Province, Indonesia.
The Farmout Agreement is subject to PNMI receiving governmental certification
and Pertamina's approval to conduct operations under this TAC. However, recent
changes now required by the government in the language and structure of these
types of agreements have caused the Company to reconsider its involvement in
this project and, at this time, it is likely the Company could decide not to
proceed with the project.
The Company recently performed an analysis to determine the viability of
operating its 16,500 barrel per day Vacuum Distillation Unit to produce vacuum
gas oil and asphalt in addition to, but separate from, the operations currently
being performed by Gold Line. Preliminary studies utilizing actual pricing
scenarios from 1994 and 1995 indicate that such a project could provide the
Company with significant amounts of revenues and profits, if appropriate
feedstock and end-product contracts, and adequate financing, could be secured.
Should the Company decide to pursue its VDU operation, it estimates
approximately $3.5 to $4 million of capital would be required for additional
tankage and equipment. Additional capital would also be requried for working
capial purposes, which amounts are dependent upon the daily processing rate of
the VDU. The Company is currently considering the pursuit of a program of this
nature in order to maximize the capability of its Refinery assets, however, the
timing for the implementation of such an operation, if any, is indeterminable at
this time.
The Company is currently having discussions with various entities which have
expressed an interest in providing the Company with financing to implement its
VDU operations, repay certain current and long term liabilities, and for other
working capital needs; however, at this time there is no certainty the Company
will be successful in obtaining this financing.
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The Company intends to meet its capital and operating funds requirements in the
near term from revenues generated from operations, and from additional financing
as necessary. However, there is no assurance of success of any farmout or
financing efforts the Company may pursue or the timing or success of the
exploitation of its discoveries in Colombia and Peru, its potential projects in
Indonesia, and/or its VDU project.
Results of Operations
For the Three Months Ended March 31, 1996 as compared
to the Three Months Ended March 31, 1995
The following table highlights the Company's results of operations for the three
months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
1996 1995
---- ----
<S> <C> <C>
Exploration and Production Activity:
Colombia Properties:
Revenues - Oil Sales (000's) $ 304 $ 259
Lease Operating Expenses (000's) $ 111 $ 66
Production Volume - Bbls 36,766 31,918
Average Price per Bbl $ 8.27 $ 8.12
Production Cost per Bbl $ 3.01 $ 2.06
DD&A per Bbl $ 3.77 $ 3.86
Peru Properties:
Revenues - Oil Sales (000's) (1) $ 46
Lease Operating Expenses (000's) (1) $ 24
Production Volume - Bbls (1) 6,431
Average Price per Bbl (1) $ 7.16
Production Cost per Bbl (1) $ 3.75
DD&A per Bbl (2) -- --
Refinery Operations:
Refinery Lease Fees (000's) $ 569 $ 19
Average Daily Throughput(Bbls) 12,635 11,900
Average Throughput Fee $ 0.50 $ 0.40
- --------------------------------------------------------------------------------
</TABLE>
(1) Information for 1996 is not available. See discussion below.
(2) Excludes Peruvian activity since all related properties are currently
considered "unevaluated".
Oil and Gas Operations:
Colombian oil and gas sales increased 17% compared to the same period in the
prior year. The increase is attributable to new production from two wells put in
service during the third quarter of 1995.
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<PAGE> 14
As mentioned above (See Note 3 to "Notes to Consolidated Financial Statements
March 31, 1996 - Contingencies, Legal Proceedings"), in October 1995, Rio Bravo
S.A., the operator of the Company's Lot IV Block in Peru, locked-out the
Company's personnel from access to the Block and to any records and books
related thereto. Consequently, the Company has not recorded any income or
expense from the Block since the lock-out began. The last recordings of revenue
and expense on the block occurred during the third quarter of 1995 and are
reflected in the Company's financial statements for that period. While the
Company believes the third quarter 1995 production rates (approximately 47
barrels of oil per day) have been maintained by Rio Bravo, there can be no
assurance of this fact until the Company can gain access to the Block. When, or
if, this will occur is also in question at this time.
Production costs increased approximately $45,000 or 68% compared to the same
period in the prior year, primarily due to a $28,000 increase in the Company's
allocation of certain general and administrative expenses to the operating
properties. These costs are all reimbursed to the Company by its joint venture
partners. Additionally, an increase in well maintenance projects during the
current period compared to the same period in 1995 accounted for $8,000 of the
increase.
Refinery Operations:
Refinery lease fees increased by 158% in the current quarter compared to the
first quarter 1995, primarily due to Gold Line being fully operational during
the current quarter compared to operating only a few days during the same period
of 1995. On January 1, 1996, the throughput fees increased 25%, from $0.40 a
barrel to $0.50 a barrel over the same period last year. During March 1996, Gold
Line processed a daily high of approximately 18,000 barrels of throughput and
was processing an average of 15,500 barrels per day before shutting down the
Refinery for its annual two-week refurbishing in April 1996. The Company expects
Gold Line to process around 15,000 barrels per day during the remainder of the
lease, a level it needs to maintain in order to meet its obligation under its
DFSC contracts.
Other Revenue:
Other revenues increased approximately $38,000 during the current quarter due
primarily to the decrease in foreign exchange gains in this period compared to
the first quarter 1995.
General and Administrative:
General and Administrative expenses decreased approximately $302,000, or 34%
compared to the same period during 1995. An increase in capitalized and
reimbursed general and administrative expenses of $54,000 for the three months
ended March 31, 1996, compared to the to the same period last year, was due
primarily to an increase of $28,000 in recoverable overhead expenses from joint
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<PAGE> 15
venture partners. Actual decreases totalling $248,000 realized in this period
compared to the same period last year were in the following areas: payroll &
payroll related expenses decreased approximately $78,000 and certain other
employee costs decreased approximately $34,000, rent expense decreased $12,000
and legal fees decreased in the current period compared to the first quarter
1995 by approximately $35,000. Travel expenses and investor/public relations
costs decreased during the current quarter compared to same quarter last year by
approximately $14,000 and $20,000, respectively. Corporate franchise tax
decreased by $20,000 over the same period last year. Interest expense decreased
$76,000, or 27%, for the three months ended March 31, 1996 compared to the same
period in 1995 due to a principal decrease of $467,500 in the 12% Secured
Debentures outstanding as of March 31, 1995 compared to March 31, 1994. Also,
during the first quarter of 1995, the interest rate on the MGTF Note was at
prime plus 2%, and as of March 22, 1995, under the revised MGTF Note, the
interest rate was reduced to prime plus 1%.
Depreciation, Depletion, and Amortization decreased approximately $28,000, or
8%, compared to the same period last year. Depletion expense increased 12%
during the current period due to increased production levels compared to the
same period last year. The net decrease for the current period compared to the
same period last year is due primarily to an adjustment to depreciation expense
related to idle equipment taken in the first quarter of 1995.
15
<PAGE> 16
PART II: OTHER INFORMATION
Item 2. Changes in Securities
Sale of Debentures
In March and April 1996, the Company sold $2 million principal amount
of convertible subordinated redeemable debentures in private
placements to foreign buyers (See Notes 2 and 3 to "Notes to
Consolidated Financial Statements March 31, 1996"). The Company has
the right to redeem these debentures in part or in full prior to
conversion, although there can be no assurance that the Company will
do so. Upon conversion, the number of shares to be issued varies
inversely with the market price of the Company's Common Stock. (See
Part I. Item 2 "Managements Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources"). Although there is also no assurance that all of these
debentures will be converted, at the current market price of the
Common Stock, if all the debentures were converted the Company would
issue approximately 5.3 million shares, or just under 20% of its
currently issued and outstanding shares. Depending upon the
circumstances, issuance of additional shares of Common Stock could
affect the existing holders of shares by diluting the voting power of
the outstanding shares.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Form of Debenture and Subscription Agreement
dated April 16, 1996 between the Registrant and
Universal Finanz Holding AG.
27.1 Financial Data Schedule
(b) Reports on Form 8-K. None
------------------------------------
16
<PAGE> 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: May 14, 1996
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: /s/ Denis J. Fitzpatrick
------------------------
Denis J. Fitzpatrick
Chief Financial Officer
By: /s/ William L. Tracy
------------------------
William L. Tracy
Treasurer/Controller
17
<PAGE> 18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.1 Form of Debenture and Subscription
Agreement dated April 16, 1996 between
the Registrant and Universal Finanz
Holding AG.
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
FORM OF DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S
UNDER THE ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS
DEFINED IN REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO REGISTRATION
UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND APPLICABLE STATE SECURITIES LAWS.
No. ______________ US $500,000
AMERICAN INTERNATIONAL PETROLEUM CORP.
9% SERIES B CONVERTIBLE SUBORDINATED REDEEMABLE DEBENTURE
DUE APRIL 1, 2000
THIS DEBENTURE is one of a duly authorized issue of Debentures of
American International Petroleum Corp., a corporation duly organized and
existing under the laws of the State of Nevada (the "Company") designated as its
9% Series B Convertible Subordinated Redeemable Debentures Due April 1, 2000, in
an aggregate principal amount not exceeding Five Hundred Thousand Dollars (U.S.
$500,000).
FOR VALUE RECEIVED, the Company promises to pay to Universal Finanz
Holding AG, the registered holder hereof and its successors and assigns (the
"Holder"), the principal sum of Five Hundred Thousand Dollars (US $500,000) on
April 1, 2000 (the "Maturity Date"), and to pay interest on the principal sum
outstanding, at the rate of 9% per annum due and payable quarterly in arrears
commencing July 1, 1996. Accrual of interest shall commence on the date hereof
and shall continue until payment in full of the outstanding principal sum has
been made or duly provided for. The interest so payable will be paid to the
person in whose name this Debenture (or one or more predecessor Debentures) is
registered on the records of the Company regarding registration and transfers of
the Debentures (the "Debenture Register"); provided, however, that the Company's
obligation to a transferee of this Debenture arises only if such transfer, sale
or other disposition is made in accordance with the terms and conditions of the
Offshore Securities Subscription Agreement dated as of April 16, 1996 between
the Company and Universal Finanz Holding AG (the "Subscription Agreement"). The
principal of, and interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing on
the Debenture Register of the Company as designated in writing by the Holder
hereof from time to time. The Company will pay the outstanding principal of and
all accrued and unpaid interest due upon this Debenture on the Maturity Date,
less any amounts required by law to
<PAGE> 2
be deducted or withheld, to the Holder of this Debenture as of the tenth (10th)
day prior to the Maturity Date by check or on the Maturity Date by wire transfer
and addressed to such Holder at the last address appearing on the Debenture
Register. The forwarding of such check shall constitute a payment of outstanding
principal and interest hereunder and shall satisfy and discharge the liability
for principal and interest on this Debenture to the extent of the sum
represented by such check plus any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of One Hundred Thousand
Dollars (US$100,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same but
not less than U.S. $25,000. No service charge will be made for such registration
or transfer or exchange, except that transferee shall pay any tax or other
governmental charges payable in connection therewith.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment represntations
of the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933, as amended (the "Act") and
applicable state securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected or bound by notice to the
contrary. Any holder of this Debenture, electing to exercise the right of
conversion set forth in Section 4(a) hereof, in addition to the requirements set
forth in Section 4(a), and any prospective transferee of this Debenture, is also
required to give the Company (i) written confirmation that it is not a U.S.
Person and the Debenture is not being converted on behalf of a U.S. Person
("Notice of Conversion") or (ii) an opinion of U.S. counsel to the effect that
the Debenture and shares of common stock issuable upon conversion or transfer
thereof have been registered under the 1933 Act or are exempt from such
registration. In the event a Notice of Conversion or opinion of counsel is not
provided the Holder hereof will not be entitled to exercise the right to convert
or transfer the Debentures.
<PAGE> 3
4. (a) The Holder of this Debenture is entitled, at its option, at any
time commencing 45 days after closing of the Offering hereof on 15 days prior
written notice by delivery of the notice of conversion to convert up to 50% and
after 75 days to convert all or any amount remaining of the original principal
amount of this Debenture into shares of common stock, $0.08 par value per share,
of the Company (the "Common Stock"), at a conversion price for each share or
Common Stock equal to the lower of (x) 75% of the average closing bid price of
the Common Stock for the five (5) business days immediately preceding the date
of receipt by the Company of notice of conversion or (y) 75% of the average of
the closing bid price of the Common Stock for the five (5) business days
immediately preceding the date of Subscription by the Holder accepted by the
Company ("Initial Conversion Shares") as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") (the "Conversion
Price"). The number of Shares issued under (y) above shall be referred to as
(the "Initial Conversion Shares") To the extent that the calculation in (x)
above requires the Company to issue more shares than the calculation in (y)
above the number of excess shares shall be referred to herein as (the
"Additional Conversion Shares"). Such conversion shall be effectuated by
surrendering the Debentures to be converted (with a copy, by facsimile or
courier, to the Company) to the Escrow Agent with the form of conversion notice
attached hereto as Exhibit I, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof, and accompanied by proper assignment hereof
in blank. Accrued but unpaid interest shall be subject to conversion. No
fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The transferee or issuee shall execute such investment
representations or other documents as are respectively required by counsel in
order to ascertain the available registration exemption. The date on which
notice of conversion is given shall be deemed to be the date on which the Holder
has delivered this Debenture, with the assignment and conversion notice duly
executed, to the Escrow Agent or, if earlier, the date set forth in such notice
of conversion if the Debenture is received by the Company and Escrow Agent
within five (5) business days thereafter. The transferee or issuee shall execute
such investment representations or other documents as are reasonably required by
counsel in order to ascertain the available registration exemption.
(b) Notwithstanding the provisions of paragraph 4(a) hereof,
the Company may redeem any or all of the Debentures after issue hereof and prior
to conversion by paying to the Holder in cash 135% of the then outstanding
principal balance of the Debenture plus accrued interest to such date, and shall
be less any amounts required by law to be deducted or withheld. Such payment
shall be made by delivering immediately available funds in United States Dollars
by wire transfer to the Holder, or if no wiring instructions have been provided
to the company, by cashier's or
<PAGE> 4
certified check to the last address of Holder appearing on the Debenture
Register. The wiring of such funds or the forwarding of such check shall
constitute payment of principal and interest hereunder and shall satisfy and
discharge the liability for principal and interest on this Debenture to the
extent of the sum represented by such wire or check plus any amount so deducted.
Such payment also to be made by the Company within 15 days of receipt of a
conversion notice by the Company from the Investor.
(c) Notwithstanding the provisions of paragraph 4(a) hereof,
at any time on and after 120 days from the date of the issuance of the
Debentures, if the average of the closing bid price for the Company's common
shares for 5 consecutive trading days shall be in excess of US $1.40 as reported
on NASDAQ, the Company may, at its sole option, exercised by five days prior
written notice thereof to the holder require the Holders of the Debentures to
convert that portion of the principal amount of the Debentures, not previously
converted in accordance with the procedures set forth in Section 4(a) hereof,
except that for purposes of Section 4(a)(i) the conversion date shall be the
date specified in the Company's notice to Holder.
I. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
and interest on, this Debenture at the time, place, and rate, and in the coin
currency, herein prescribed.
II. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, bringing of suit and diligence
in taking any action to collect amounts called for hereunder and shall be
directly and primarily liable for the payment of all sums owing and to be owing
hereon, regardless of and without any notice, diligence, act or omission as or
with respect to the collection of any amount called for hereunder.
7. The Company agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in collecting
any amount due under this Debenture.
8. If one or more of the following described "Events of
Default" shall occur and continue for 30 days:
(a) The Company shall default in the payment of
principal or interest on this Debenture; or
(b) Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in
any certificate or financial or other written
statements heretofore or hereafter furnished by or on
behalf of the Company in connection with the
execution and delivery of this Debenture or the
Subscription Agreement shall be false or misleading
<PAGE> 5
in any material respect at the time made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of the
Company under this Debenture [and such failure shall
continue uncured for a period of thirty (30) days
after notice from the Holder of such failure]; or
(d) The Company shall (1) become insolvent; (2) admit
in writing its liability to pay its debts generally
as they mature; (3) make an assignment for the
benefit of creditors or commence proceedings for
its dissolution; or (4) apply for or consent to the
appointment of a trustee, liquidator or receiver
for its or for a substantial part of its property
or business; or
(e) A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within thirty (30) days after such
appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within thirty (30) days thereafter; or
(g) Any money judgment, writ or warrant of attachment,
or similar process in excess of One Hundred
Thousand ($100,000) Dollars in the aggregate shall
be entered or filed against the Company or any of
its properties or other assets and shall remain
unpaid, unvacated, unbonded or unstayed for a
period of fifteen (15) days or in any event later
than five (5) days prior to the date of any
proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against
the Company and, if instituted against the Company,
shall not be dismissed within thirty (30) days
after such instruction of the Company shall by any
action or answer approve of, consent to, or
acquiesce in any such proceedings or admit the
material allegations of, or default in answering a
petition filed in any such proceeding; or
<PAGE> 6
(i) The Company shall have its Common Stock delisted
from the over-the-counter market.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration), all of which
are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies provided herein or any other rights or remedies afforded by
law.
9. (a) This Debenture represents a general unsecured
obligation of the Company. No recourse shall be
had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based
hereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or
any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or
otherwise, all such liability being, by the
acceptance hereof and as part of the consideration
for the issue hereof, expressly waived and
released.
(b) The rights of any Holder to receive the principal
sum or any part thereof, and to receive the
interest due on this Debenture is and shall remain
subordinate in priority to the payment of the
principal of and interest on (i) all future
obligations and guarantees of the Issuer for money
borrowed from any bank, trust company, insurance
company or other financial institution engaged in
the business of lending money, for which the Issuer
is at the time of determination responsible or
liable as obligor or guarantor; (ii) all existing
or future obligations of the Corporation secured by
a lien, mortgage, pledge or other encumbrance
against real or personal property (including common
stock of the Corporation or any of its
subsidiaries) of the Corporation; (iii) any
modifications, renewals, extensions or refunding of
the foregoing, except for any of such obligations
of the Corporation the payment of which is made
expressly subordinate and junior to this Debenture;
(iv) indebtedness under the MG Trade Finance Corp.
("MGTF") loan agreement (the "Loan Agreement") or
any indebtedness incurred to refinance such
<PAGE> 7
obligations; (v) other indebtedness of the
Corporation existing on the date of this Debenture;
and (vi) trade payables incurred in the ordinary
course of business of the Corporation or its
subsidiaries.
10. The Holder of this Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon exercise thereof except under circumstances which will not result
in a violation of the Act or any applicable state Blue Sky law or similar laws
relating to the sale of securities.
11. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
12. This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Company
and the Holder with respect to the subject hereof. Neither this Debenture nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
13. This Debenture shall be governed by and construed in accordance
with the laws of New York. Holder hereby waives trial by jury and consents to
exclusive jurisdiction and venue in the State of New York.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: April 16, 1996
AMERICAN INTERNATIONAL PETROLEUM CORP.
By:/s/ Denis J. Fitzpatrick
Title:Chief Financial Officer
<PAGE> 8
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debenture)
The undersigned hereby irrevocably elects to convert $______________ of the
above Debenture No. ___ into Shares of Common Stock of American International
Petroleum Corp. (the "Company") according to the conditions set forth in such
Debenture, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, as amended, and is
not converting the Debenture on behalf of any U.S. Person and the
representations contained in the Subscription Agreement are true. If Shares are
to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Date of Conversion*
------------------------------------------------------------
- --------------------------------------------------------------------------------
Applicable Conversion Price
----------------------------------------------------
- --------------------------------------------------------------------------------
Signature
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
[Print Name of Holder and Title of Signer]
Address:
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Medallion Signature Guaranty
* This original Debenture and Notice of Conversion must be received by the
Company by the fifth business date following the Date of Conversion.
<PAGE> 9
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of April 16,
1996 (the "Agreement"), is executed in reliance upon the exemption from
registration afforded by Regulation S ("Regulation S") as promulgated by the
Securities and Exchange Commission ("SEC"), under the Securities Act of 1933, as
amended. Capitalized terms used herein and not defined shall have the meanings
given to them in Regulation S.
This Agreement has been executed by the undersigned "Buyer" in
connection with the private placement of 9% Series B Convertible Subordinated
Redeemable Debentures of American International Petroleum Corp., a corporation
organized under the laws of the State of Nevada, with its principal executive
offices located at 444 Madison Avenue, Suite 3203, New York, New York 10022
(hereinafter referred to as "Seller"). Buyer hereby represents and warrants to,
and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN
REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
1. Agreement To Subscribe; Purchase Price.
(a) Subscription. The undersigned Buyer hereby subscribes for
and agrees to purchase the Seller's 9% Series B Convertible Subordinated
Redeemable Debentures substantially in the form of the Debentures attached as
Exhibit A hereto and having an aggregate original principal amount of up to U.S.
$500,000 (singly, a "Debenture," and collectively, the "Debentures"), at an
aggregate purchase price as set forth in subsection (b) herein.
(b) Payment. The aggregate Purchase Price for the Debentures
shall be Five Hundred Thousand United States Dollars (U.S. $500,000) (the
"Purchase Price"), which shall be payable pursuant to paragraph C herein by
delivering immediately available funds in United States Dollars by wire transfer
to the designated depository Barry B. Globerman, Esq., as Escrow Agent ("Escrow
Agent") for closing by delivery of securities versus payment.
(c) Closing. Subject to the satisfaction of the conditions set
forth in Sections 7 and 8 hereof, payments of the Purchase Price may be made
from time to time in denominations of not less than $100,000 but all payments
hereunder, in any event must be completed on or before April 17, 1996, or such
earlier or later date as is mutually agreed to in writing by Buyer and Seller.
<PAGE> 10
2. Buyer Representations and Covenants; Access to Information.
Offshore Transaction. In connection with the purchase
and sale of the Debentures, Buyer represents and warrants to, and
covenants and agrees with Seller as follows:
(i) Buyer is not a natural person and is not
organized under the laws of any jurisdiction within the
United States, was not formed by a U.S. Person (as
defined in Section 902(o) of Regulation S) for the
purpose of investing in Regulation S securities and is
not otherwise a U.S. Person. Buyer is not, and on the
closing date will not be, an affiliate of Seller;
(ii) At the time the buy order was originated, Buyer
was outside the United States and is outside of the United
States as of the date of the execution and delivery of this
Agreement;
(iii) No offer to purchase the Debentures or the
common stock of Seller issuable upon conversion of the
Debentures (collectively, the "Securities"), was made by Buyer
in the United States;
(iv) Buyer is purchasing the Securities for its own
account and Buyer is qualified to purchase the Securities
under the laws of its jurisdiction of residence, and the offer
and sale of the Securities will not violate the securities or
other laws of such jurisdiction;
(v) All offers and sales of any of the Securities by
Buyer prior to the end of the Restricted Period (as
hereinafter defined) shall be made in compliance with any
applicable securities laws of any applicable jurisdiction and
in accordance with Rule 903 and 904, as applicable, of
Regulation S or pursuant to registration of securities under
the 1933 Act or pursuant to an exemption from registration. In
any case, none of the Securities have been or will be
encumbered, offered, sold or otherwise transferred by Buyer
to, or for the account or benefit of, a U.S. Person or within
the United States until after the end of the forty (40) day
period commencing on the later of (x) the date of closing of
the offering of the Securities or (y) the date of the first
offer of the Securities to persons other than distributors
(the "Restricted Period"), as calculated pursuant to
Regulation S and certified by Buyer to Seller and thereafter
only pursuant to a Registration Statement or an applicable
exemption from the registration provision of the 1933 Act;
(vi) The transactions contemplated by this Agreement
<PAGE> 11
(a) have not been and will not be pre-arranged by Buyer
with a purchaser located in the United States or a
purchaser which is a U.S. Person, and (b) are not and
will not be part of a plan or scheme by Buyer, to evade
the registration provisions of the 1933 Act;
(vii) Buyer understands that the Securities are not
registered under the 1933 Act and are being offered and sold
to it in reliance on specific exclusions from the registration
requirements of Federal and State securities laws, and that
Seller is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of Buyer set forth herein in order to determine
the applicability of such exclusions and the suitability of
Buyer and any purchaser from Buyer to acquire the Securities;
(viii) Buyer shall take all reasonable steps to
ensure its compliance with Regulation S and shall promptly
send to each purchaser who acts as a distributor, dealer or a
person receiving a selling concession, fee or other
remuneration in respect of any of the Securities, who
purchases prior to the expiration of the Restricted Period
referred to in subparagraph (v) above, a confirmation or other
notice to the purchaser stating that the purchaser is subject
to the same restrictions on offers and sales as Buyer pursuant
to Section 109(c)(2)(iv) of Regulation S;
(ix) Buyer has not conducted or permitted and shall
not conduct or permit on its behalf any "directed selling
efforts" as that term is defined in Rule 902(b) of Regulation
S; nor has Buyer conducted any general solicitation relating
to the offer and sale of any of the Securities in the United
States or elsewhere;
(x) Buyer has the full right, power and authority to
enter into this Agreement and to consummate the transaction
contemplated herein. This Agreement has been duly authorized,
validly executed and delivered on behalf of Buyer and is a
valid and binding agreement in accordance with its terms,
subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights
generally;
(xi) The execution and delivery of this Agreement and
the consummation of the purchase of the Securities, and the
transactions contemplated by this Agreement do not and will
not conflict with or result in a breach by Buyer of any of the
terms of provisions of, or constitute a default under, the
articles of incorporation or by-laws (or similar constitutive
documents) of Buyer or any indenture, mortgage, deed of trust,
or other material agreement or instrument to which Buyer is a
party or by
<PAGE> 12
which it or any of its properties or assets are bound, or
any existing applicable law, rule or regulation of the United
States or any State thereof or any applicable decree, judgment
or order of any Federal or State court, Federal or State
regulatory body, administrative agency or other United States
governmental body having jurisdiction over Buyer or any of its
properties or assets;
(xii) All invitation, offers and sales of or in
respect of, any of the Securities, by Buyer and any
distribution by Buyer of any documents relating to any offer
by it of any of the Securities will be in compliance with
applicable laws and regulations and will be made in such a
manner that no prospectus need be filed and no other filing
need be made by Seller with any regulatory authority or stock
exchange in any country or any political sub-division of any
country;
(xiii) Buyer will not make any offer or sale of the
Securities by any means which would not comply with the laws
and regulations of the territory in which such offer or sale
takes place or to which such offer or sale is subject or which
would in connection with any such offer or sale impose upon
Seller any obligation to satisfy any public filing or
registration requirement or provide or publish any information
of any kind whatsoever or otherwise undertake or become
obligated to do any act; and
(xiv) Neither the Buyer nor any of its affiliates has
entered, has the intention of entering, or will during the
Restricted Period enter into any put option, short position or
other similar instrument or position with respect to any of
the Securities or securities of the same class as the
Securities.
(xv) the Buyer (or others for whom it is contracting
hereunder) has been advised to consult its own legal and tax
advisors with respect to applicable resale restrictions and
applicable tax considerations and it (or others for whom it is
contracting hereunder) is solely responsible (and the Company
is not in any way responsible) for compliance with applicable
resale restrictions and applicable tax legislation.
(xvi) No Government Recommendation or Approval.
Buyer understands that no Federal or State or foreign
government agency has passed on or made any
recommendation or endorsement of the Securities.
(xvii) Current Public Information. Buyer
acknowledges that it and its advisors, if any, have been
furnished with all materials relating to the business,
<PAGE> 13
finances and operations of Seller and all materials
relating to the offer and sale of the Securities which have
been requested by Buyer, all of which contain a legend as
required under Section 10 hereof. Buyer further acknowledges
that it and its advisors, if any, have received complete and
satisfactory answers to such inquiries.
(xviii) Buyer's Sophistication. Buyer acknowledges
that the purchase of the Securities involves a high degree of
risk, including the total loss of Buyer's investment. Buyer
has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks
of purchasing the Securities. Buyer understands that the
Securities are not being registered under the 1933 Act, and
therefore Buyer must bear the economic risk of this investment
for an indefinite period of time.
(xix) Tax Status. Buyer is not a "10-percent
Shareholder" (as defined in Section 871(h)(3)(B) of the
U.S. Internal Revenue Code) of Seller.
3. Seller Representations and Covenants.
(a) Reporting Company Status. Seller is a "Reporting Issuer"
as defined by Rule 902 of Regulation S. Seller has registered its Common Stock,
$.08 par value per share (the "Common Stock"), pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Common
Stock is listed and trades on NASDAQ. Seller has filed all material required to
be filed pursuant to all reporting obligations under either Section 13(a) or
15(d) of the Exchange Act for a period of at least twelve (12) months
immediately preceding the offer or sale of the Securities (or for such shorter
period that Seller has been required to file such material).
(b) Current Public Information. Seller has furnished Buyer
with copies of its most recent reports, as amended, filed under the Exchange Act
referred to in Section 2(xvii) above, and other publicly available documents
requested by Buyer.
(c) Offshore Transaction. Seller has not offered any of
the Securities to any person in the United States, any identifiable
groups of U.S. citizens abroad, or to any U.S. Person, as such terms are used in
Regulation S.
(i) At the time the buy order was originated,
Seller and/or its agents reasonably believe the Buyer was
outside of the United States and was not a U.S. person,
based on the representations of Buyer.
<PAGE> 14
(ii) Seller and/or its agents reasonably believe that
the transaction has not been pre-arranged with a buyer in the
United States, based on the representations of Buyer.
(iii) No offer to buy or sell the Securities was
or will be made by Seller to any person in the United
States.
(iv) The sale of the Securities by Seller pursuant to
this Agreement will be made in accordance with the provisions
and requirements of Regulation S provided that the
representations and warranties of Buyer in Section 2 hereof
are true and correct.
(v) The transactions contemplated by this Agreement
(a) have not been and will not be pre-arranged by Seller with
a purchaser located in the United States or a purchaser which
is a U.S. Person, and (b) are not and will not be part of a
plan or scheme by Seller to evade the registration provisions
of the 1933 Act.
(d) No Directed Selling Efforts. In regard to this
transaction, Seller has not conducted any "directed selling efforts" as that
term is defined in Rule 902 of Regulation S nor has Seller conducted any general
solicitation relating to the offer and sale of any of the Securities in the
United States or elsewhere.
(e) Concerning the Securities. The issuance, sale and delivery
of the Debentures have been duly authorized by all required corporate action on
the part of Seller, and when issued, sold and delivered in accordance with the
terms hereof and thereof for the consideration expressed herein and therein,
will be duly and validly issued, fully paid and non-assessable. The Common Stock
issuable upon conversion of the Debenture has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Debentures,
shall be duly and validly issued, fully paid, and non-assessable and will not
subject the holders thereof, if such persons are non-U.S. persons, to personal
liability by reason of being such holders. There are no pre-emptive rights of
any shareholder of Seller.
(f) Subscription Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(g) Non-contravention. The execution and delivery of this
Agreement and the consummation of the issuance of the Securities and the
transactions contemplated by this Agreement do not and will not conflict with or
result in a breach by Seller of any of the terms or provisions of, or constitute
a default under,
<PAGE> 15
the articles of incorporation or by-laws of Seller, or any indenture, mortgage,
deed of trust, or other material agreement or instrument to which Seller is a
party or by which it or any of its properties or assets are bound, or any
existing applicable law, rule or regulation of the United States or any State
thereof or any applicable decree, judgment or order of any Federal or State
court, Federal or State regulatory body, administrative agency or other United
States governmental body having jurisdiction over Seller or any of its
properties or assets.
(h) Approvals. Seller is not aware of any authorization,
approval or consent of any U.S. governmental body which is legally required for
the issuance and sale of the Debentures and the Common Stock issuable upon
conversion thereof to persons who are non-U.S. Persons, as contemplated by this
Agreement. Seller is relying entirely upon Buyer and Distributor with respect to
foreign consents and approvals.
4. Exemption; Reliance on Representations. Buyer
understands that the offer and sale of the Securities are not being
registered under the 1933 Act. Seller and Buyer are relying on the
rules governing offers and sales made outside the United States
pursuant to Regulation S.
5. Irrevocable Treasury Orders and Transfer Agent Instructions.
(a) Irrevocable Treasury Orders. Upon issuance of the
Debentures, the Company will issue to the Escrow Agent Irrevocable Treasury
Orders in the form of Exhibit B hereto which shall be submitted to the Company's
transfer agent upon conversion of the Debentures pursuant to the Escrow
Agreement attached hereto as Exhibit C. The Common Stock to be issued upon
conversion shall not have any restrictive legend other than any Additional
Conversion Shares.
(b) Debentures. Upon the conversion of the Debentures, the
holder thereof shall submit such Debenture together with a notice of conversion
to the Escrow Agent, and Seller and the Escrow Agent shall instruct Seller's
transfer agent to issue one or more Certificates representing that number of
shares of Common Stock into which the Debenture or Debentures are convertible in
accordance with the provisions regarding conversion set forth in Exhibit A
hereto. The Seller shall act as Debenture Registrar and shall maintain an
appropriate ledger containing the necessary information with respect to each
Debenture.
(c) Common Stock to be Issued Without Restrictive Legend. Upon
the conversion of any Debenture up to the total of the "Initial Conversion
Amount" (as defined in the Debenture) and 40 days after the issuance of any
"Additional Conversion Amount" (as defined in the Debenture) by a person who is
a non-U.S. Person, Seller shall instruct Seller's transfer agent to issue Stock
Certificates up to the total of the "Initial Conversion Amount" (as
<PAGE> 16
defined in the Debenture) and 40 days after the "Additional Conversion Amount"
(as defined in the Debenture) without restrictive legend in the name of Buyer
upon receipt of an opinion of Buyer's Counsel to remove such legend (or its
nominee (being a non-U.S. Person) or such non-U.S. Persons as may be designated
by Buyer prior to the closing) and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon such
conversion, as applicable. Seller warrants that no instructions other than these
instructions and instructions to impose a "stop transfer" instruction with
respect to the certificates until the end of the respective Restricted Period of
the Initial Conversion Shares and Additional Conversion Shares, if any, have
been given or will be given to the transfer agent and that the Common Stock
shall otherwise be freely transferable on the books and records of Seller.
Nothing in this Section 5, however, shall affect in any way Buyer's or such
nominee's obligations and agreements to comply with all applicable securities
laws upon resale of the Securities.
6. Registration. If upon conversion of Debentures effected by the
Buyer pursuant to the terms of this Agreement the Company fails to issue
certificates for shares of Common Stock issuable upon such conversion (the
"Underlying Shares") to the Buyer bearing no restrictive legend (after the
applicable Restrictive Period of the Initial Conversion Shares or Additional
Conversion Shares, if any) for any reason other than the Company's reasonable
good faith belief that the representations and warranties made by the Buyer in
this Agreement or the Notice of Conversion were untrue when made, or if the
restricted period under Regulation S is extended, or if Additional Conversion
Amount Shares are required to be issued, then the Company shall be required, at
the request of the Buyer and at the Company's expense, to effect the
registration of the Underlying Shares and/or Additional Conversion Shares
issuable upon conversion of the Debentures under the Act and relevant Blue Sky
laws as promptly as is practicable. The Company and the Buyer shall cooperate in
good faith in connection with the furnishing of information required for such
registration and the taking of such other actions as may be legally or
commercially necessary in order to effect such registration. The Company shall
file such a registration statement within 30 days of Buyer's demand therefor and
shall use its best efforts to cause such registration statement to become
effective as soon as practicable thereafter. Such best efforts shall include,
but not be limited to, promptly responding to all comments received from the
staff of the Securities and Exchange Commission, providing Buyer's counsel with
a contemporaneous copy of all written communications from and to the staff of
the Securities and Exchange Commission with respect to such registration
statement and promptly preparing and filing amendments to such registration
statement which are responsive to the comments received from the staff of the
Securities and Exchange Commission. Once declared effective by the Securities
and Exchange Commission, the Company shall cause such registration statement to
remain effective until the earlier of (i) the sale by the Buyer of all
Underlying Shares registered or (ii) 120 days after the
<PAGE> 17
effective date of such registration statement. In the event the Company
undertakes to file a Registration Statement on Form S-3 in connection with the
Common Stock, upon the effectiveness of such Registration, Buyer shall have the
option to sell the Common Stock pursuant thereto. The foregoing shall not in any
way limit Buyer's rights in connection with the Common Stock pursuant to
Regulation S.
7. Delivery Instructions. The Debentures being purchased hereunder
shall be delivered to the Escrow Agent at such time and place as shall be
mutually agreed by Seller and Buyer.
8. Conditions To Seller's Obligation To Sell. Seller's obligation to
sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement as
executed by Buyer.
(b) Delivery into the closing depository of good funds by
Buyer as payment in full of the purchase price of the Debentures.
(c) All of the representations and warranties of the
Subscriber contained in this Agreement shall be true and correct on the Payment
Date with the same force and effect as if made on and as of the Payment Date.
The Subscriber shall have performed or complied with all agreements and
satisfied all conditions on its part to be performed, complied with or satisfied
at or prior to the Payment Date.
(d) No order asserting that the transactions contemplated by
this Agreement are subject to the registration requirements of the Act shall
have been issued, and no proceedings for that purpose shall have been commenced
or shall be pending or, to the knowledge of the Company, be contemplated. No
stop order suspending the sale of the Debentures shall have been issued, and no
proceedings for that purpose shall have been commenced or shall be pending or,
to the knowledge of the Company, be contemplated.
(e) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency that would prevent the issuance of the Debentures. No
injunction, restraining order or order of any nature by a federal or state court
of competent jurisdiction shall have been issued that would prevent the issuance
of the Debentures.
9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation to
purchase the Debentures is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller of
this Agreement as evidenced by execution of this Agreement by the duly
authorized officer of Seller.
<PAGE> 18
(b) Delivery of the Debentures to the Escrow Agent.
10. Offering Materials. All offering materials and documents used in
connection with offers and sales of the Securities prior to the expiration of
the Restricted Period referred to in Section 2(a)(v) hereof shall include
statements to the effect that the Securities have not been registered under the
1933 Act or applicable state securities laws, and that neither Buyer, nor any
direct or indirect purchaser of the Securities from Buyer, may directly or
indirectly offer or sell the Securities in the United States or to U.S. Persons
(other than distributors) unless that Securities are registered under the 1933
Act any applicable state securities laws, or any exemption from the registration
requirements of the 1933 Act or such state securities laws is available. Such
statements shall appear (1) on the cover of any prospectus or offering circular
used in connection with the offer or sale of the Securities, (2) in the
underwriting section of any prospectus or offering circular used in connection
with the offer or sale of the Securities, and (3) in any advertisement made or
issued by Seller, Buyer, any other distributor, any of their respective
affiliates, or any person acting on behalf of any of the foregoing.
11. No Shareholder Approval. Seller hereby agrees that from the Closing
Date until the issuance of Common Stock upon the conversion of the Debentures,
Seller will not take any action which would require Seller to seek shareholder
approval of such issuance unless such shareholder approval is required by law or
regulatory body (including but not limited to the NASDAQ Stock Market, Inc.) as
a result of the issuance of the Securities hereunder.
12. Miscellaneous.
(a) Except as specifically referenced herein or in the
Distribution Agreement, this Agreement constitutes the entire contract between
the parties, and neither party shall be liable or bound to the other in any
manner by any warranties, representations or covenants except as specifically
set forth herein. Any previous agreement among the parties related to the
transactions described herein is superseded hereby. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto. Nothing in this Agreement, express
or impled, is intended to confer upon any party, other than the parties hereto,
and their respective successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
(b) Buyer is an independent contractor, and is not the agent
of Seller. Buyer is not authorized to bind Seller, or to make any
representations or warranties on behalf of Seller.
(c) Seller makes no representations or warranty with respect
to Seller, its finances, assets, business prospects or
<PAGE> 19
otherwise. Buyer will advise each purchaser, if any, and potential purchaser of
the Securities, of the foregoing sentence, and that such purchaser is relying on
its own investigation with respect to all such matters, and that such purchaser
will be given access to any and all documents and Seller personnel as it may
reasonably request for such investigation.
(d) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the
transactions contemplated by this Agreement.
(e) This Agreement shall be construed in accordance with the
laws of New York applicable to contracts made and wholly to be performed within
the State of New York and shall be binding upon the successors and assigns of
each party hereto. Buyer hereby waives trial by jury and consents to exclusive
jurisdiction and venue in the State of New York. This Agreement may be executed
in counterparts, and the facsimile transmission of an executed counterpart to
this Agreement shall be effective as an original.
(f) Buyer agrees to indemnify and hold Seller harmless from
any and all claims, damages and liabilities arising from Buyer's breach of its
representations and/or covenants set forth herein.
AMOUNT SUBSCRIBED FOR
$500,000
[The remainder of this page is intentionally left blank.]
<PAGE> 20
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the date first set forth above.
Official Signatory of Seller:
American International Petroleum Corp.
By: Denis J. Fitzpatrick
Title: Chief Financial Officer
Accepted this 16th day of April, 1996
Official Signatory of Buyer:
Universal Finanz Holdings AG
By:
-------------------------------------------------
Title:
----------------------------------------------
Address of Buyer:
-----------------------------------------------------
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-----------------------------------------------------
Fax No.:
---------------------------------------------
Tel No.:
---------------------------------------------
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 430,725
<SECURITIES> 0
<RECEIVABLES> 826,597
<ALLOWANCES> 0
<INVENTORY> 489,503
<CURRENT-ASSETS> 2,438,177
<PP&E> 53,342,699
<DEPRECIATION> 22,826,973
<TOTAL-ASSETS> 33,234,833
<CURRENT-LIABILITIES> 4,447,665
<BONDS> 6,829,564
0
0
<COMMON> 19,818,463
<OTHER-SE> 19,818,463
<TOTAL-LIABILITY-AND-EQUITY> 33,413
<SALES> 304,192
<TOTAL-REVENUES> 923,606
<CGS> 0
<TOTAL-COSTS> 112,098
<OTHER-EXPENSES> 923,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200,635
<INCOME-PRETAX> (312,177)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (312,177)
<EPS-PRIMARY> (.01)
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