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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1995
Commission file number 0-14905
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 13-3130236
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
444 Madison Avenue, New York, NY 10022
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Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 688-3333
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.08 per share
Class A Warrants
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(Title of Each Class)
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ].
The aggregate market value of the voting stock of the Registrant held by
non-affiliates as of April 5, 1996 was approximately $15,230,000 (assuming
solely for purposes of this calculation that all directors and officers of the
Registrant are "affiliates").
The number of shares of Common Stock of the Registrant outstanding as of
April 12, 1996 was 26,767,464
Documents Incorporated by Reference: None
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PART I
ITEM 1. BUSINESS
GENERAL
American International Petroleum Corporation ("AIPC" or the "Company"),
was organized on April 1, 1929 under the laws of the State of Nevada under the
name Pioneer Mines Operating Company. The Company's name was changed to its
current name pursuant to an agreement and plan of reorganization and merger in
April 1982. The Company and its wholly-owned subsidiaries, American
International Petroleum Corporation of Colombia ("AIPC-Colombia") and Pan
American International Petroleum Corporation ("PAIPC") is engaged in petroleum
exploration, drilling, production and marketing operations in Colombia and
Peru, South America and in Indonesia. The Company's wholly-owned subsidiary,
American International Refinery, Inc. ("AIRI") is the owner of a refinery in
Lake Charles, Louisiana, which is currently leased through March 31, 1998 to
Gold Line Refining, Ltd. ("Gold Line"), an independent refiner. The term the
"Company" or "AIPC" includes AIPC, AIPC-Colombia, PAIPC, and AIRI unless the
context otherwise requires.
The Company's principal oil and gas properties consist of (i) between 40%
and 80% of the working interest in all oil and/or gas wells drilled on
approximately 36,000 acres in the Puli Anticline and the Toqui-Toqui
Field,located in the Middle Magdalena Region of Colombia, South America, which
are part of the Puli Association Contract and (ii) 65% of the working interest
in approximately 77,000 acres of exploratory and development contract rights in
the Talara Basin in Peru. In December 1995, the Company entered into a Farmout
Agreement in Indonesia, whereby the company would to earn a 49% working
interest in a Technical Assistance Contract ("TAC") with the Indonesian
government oil company ("Pertamina") for the Pamanukan Selatan area of West
Java Province, Indonesia. The TAC is subject to government approval.
INTERNATIONAL EXPLORATION AND PRODUCTION
COLOMBIA, SOUTH AMERICA
In 1987, the Company acquired the rights to 45% of the Puli Association
Contract Area in the Middle Magdalena Region, from the previous operator. In
December 1991, it purchased an additional 35% interest, bringing its total
working interest to 80%. Petroleros Del Norte, a Colombian company
("Petroleros"), owns the remaining 20% of the working interest. The Company
acts as operator of its Association Contract in Colombia, which is subject to a
20% royalty payable to the Colombian government national oil company
("Ecopetrol") and to certain Colombian taxes.
PULI AREA
The Puli Association Contract originally covered approximately 92,000
gross acres in the Middle Magdalena Valley. In 1991, the acreage was reduced
to approximately 33,000 gross acres under the terms of the Association
Contract. Twenty-one productive wells have been drilled on a prospect of
approximately 1,900 acres in the Puli Area, all of which were completed as of
December 31, 1995. These wells produced an average of 868 gross barrels of oil
per day during March 1996. All of the producing wells are located in the
Toqui-Toqui Field.
In April 1992, Ecopetrol declared the Toqui-Toqui field commercial. As a
consequence of declaring the field commercial, Ecopetrol will participate in
50% of the costs of developing the field and must reimburse the Company for 50%
of its previous successful drilling costs to date. Production from the field
is subject to a 20% royalty payable to the Colombian government.
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In December 1995, the Company completed the drilling of its TT-34 well in
the Toqui-Toqui Field. The TT-34 well was drilled to a total depth of 4,069
feet and encountered 120 feet of net pay, or productive region, in the Doima
Sands which is the normal productive sand in the Toqui-Toqui Field. In
addition, the well encountered 161 feet of net pay in a newly-discovered zone
in the Chicoral Formation (the "Chicoral"). The Company and its independent
petroleum engineers ("Huddleston & Co., Inc.") believe the well should have
been drilled deeper, and the net pay could have been more than 161 feet.
However, further drilling was constrained by the rig's capacity. Huddleston &
Co. estimates the potential oil in place in the Chicoral to be approximately
133 million barrels, of which approximately 13%, or 17.1 million barrels, is
recoverable. Some of these reserves are included in the Company's proved
reserve base at December 31, 1995. Huddleston further estimates that the
Chicoral extends over an area of 1,673 acres with an oil reservoir of an
average thickness of 113 feet. The drilling of additional wells will be
required to adequately define the commercial extension of the Chicoral. The
TT-34 well was drilled on a "sole risk" basis, which allows the Company to
recover 200% of its costs before its partner, Petroleros, may convert its 20%
working interest. The other partner, Ecopetrol, may choose to participate in
50% of the future net profits generated by this discovery by reimbursing the
Company 50% of past costs and participating in 50% of future costs associated
with this discovery. Presently, the Company maintains a 100% working interest
until each of the other parties decide whether or not to participate. If both
Petroleros and Ecopetrol decides, to participate, the new discovery will then
be owned as follows: 40% AIPC, 50% Ecopetrol and 10% Petroleros.
Four wells have been drilled in a separate area of the Puli Association
Contract known as the Puli Anticline. The first well was drilled by a third
party operator and was not productive. The second well was drilled by the
Company to 5,400 feet and completed as a gas discovery. The third well was
completed in 1992 as an oil well and is currently shut-in. In August 1993, the
Company drilled a fourth well to a target depth of approximately 7,600 feet.
This well was not commercially productive. The Company re-entered the second
well in mid-1994 and deepened the well without encountering further productive
intervals. Further evaluation of the Puli Area's potential is still in
progress.
LAGUNILLAS
In December 1991, the Company signed an Association Contract with Ecopetrol
to explore approximately 190,000 acres in the Lagunillas area of the Middle
Magdalena Valley. In October 1994, the Company farmed-out a 50% working
interest in Lagunillas to a non-affiliated company. In September 1995, the
Company entered into a farmout agreement with a separate non-affiliated oil and
gas company (the "Farmee"), whereby the Company will transfer all of its
remaining interest and obligations at Lagunillas. The Company will remain as
operator and 50% working interest owner of this block until the Farmee has been
qualified as a petroleum company by the Colombian Ministry of Mines, which is
expected in mid-1996.
RELINQUISHED BLOCKS
During 1995, after completing its technical evaluations of the Viani,
Tabacales and Aguablanca Blocks in Colombia (where the Company had previously
signed Association Contracts with Ecopetrol), the Company relinquished all of
its rights in these Blocks to Ecopetrol. As compensation for the early
relinquishment and cancellation of all its obligations in these blocks, the
Company paid Ecopetrol approximately $500,000, which was substantially less
than the $3.1 million the Company was previously required to invest under the
related contractual work programs.
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Also during 1995, the Company relinquished all of its rights and
obligations in the Rio Planas Area of Colombia to a non-affiliated company.
PERU, SOUTH AMERICA
In October 1993, PAIPC entered into a joint venture agreement with Rio
Bravo, a Peruvian corporation ("Rio Bravo"), to participate in the exploration
and development of a 77,000 acre block in the Talara Basin under which PAIPC
receives a 65% interest in production from exploration and development after
recovery of 150% of all drilling costs invested by PAIPC on behalf of Rio
Bravo. The agreement also provides PAIPC with an option to participate in the
rehabilitation and further development of a producing oil field on the block on
a 50/50 basis.
In late 1994 and early 1995, PAIPC drilled one exploratory well and two new
step-out development wells. However, full evaluation of the potential of those
oil reservoirs has been delayed, primarily due to a dispute with Rio Bravo (See
"Item 3 - Legal Proceedings"), so the timing or amount, if any, of oil reserves
that the Company may add to its reserve base as a result of its drilling in
Peru is not presently determinable. In spite of these problems, during 1995,
the minimum work program required under the license contract in Peru was
completed and certified as complete by the government.
Rio Bravo has continuously refused to cooperate in the development program
in the block and to honor PAIPC's right to oil production from the Block.
Consequently, PAIPC has not received its share of revenues since the unilateral
lockout by Rio Bravo in October 1995 (See "Item 3 - Legal Proceedings"). As
all relations with the government are joint with PAIPC and its partner, the
government cannot act unilaterally to resolve a dispute between the parties.
However, the Company continues its efforts to negotiate an amicable settlement
to this situation.
MANAGEMENT PLANS
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.
The Company plans to pursue 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 has received an offer from an oil company and inquiries from
various others 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 could provide the Company
with the necessary capital to repay a portion of its recently-issued 10%
Debenture, while establishing a plan for the full exploitation of its Chicoral
discovery with little or no cost to the Company. Although a farmout would
result in a lower overall Company ownership interest of its Colombian reserves,
the net result to the Company could be an increase in its oil and gas reserve
base, a stronger balance sheet and greater potential for earnings and
cash-flow growth.
The Company is also engaged in negotiations with Far Eastern Hydrocarbons
Ltd., a Hong Kong Corporation ("FEH"), to exchange shares of the Company's
common stock in return for 100% of the outstanding common stock of a
wholly-owned subsidiary of FEH (See "Indonesian Agreements" below). FEH has
indicated a desire to provide the necessary financing, or guarantees for same,
to enable the Company to actively participate in the international energy
community. In addition, the oil fields owned by FEH are producing significant
amounts of cash
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flow, which could also be utilized to fund the Company's operations, if
necessary. However, the Company is not able, as of this writing, to determine
if the current negotiations will be successful and, consequently, there can be
no assurance when, or if, the share exchange agreement will be consummated.
INDONESIAN AGREEMENTS
USTRAINDO
In January 1995, the Company signed an agreement with P.T. Ustraindo
Petrogas ("Ustraindo"), a private Indonesian energy company, whereby the
Company agreed to assist Ustraindo in operating all of the concession areas now
held by Ustraindo in Indonesia, namely 22 oil and gas fields, including 2,000
wells.
In return for providing its technical assistance to Ustraindo, the Company
was to receive a reimbursement of all of its related costs, plus a 3% net
profits interest in the 22 fields. In addition, the Company received a
one-year option to purchase a minimum of 25% working interest in the
concessions for $17 million in cash.
During the fourth quarter of 1995, the closing of the Ustraindo agreement
was suspended due to certain issues of controversy between Ustraindo and
Pertamina, which issues are primarily related to Ustraindo's alleged
non-performance under their TACs with Pertamina. The Company elected to wait
for a resolution of these issues before taking any further action regarding its
agreement with Ustraindo. However, at this point, it is very unlikely that any
agreement between the Company and Ustraindo will be consummated in the form to
which the parties originally agreed.
MALACCA STRAIT
In November 1995, the Company reached a preliminary agreement with FEH to
purchase a portion of the issued and outstanding common stock of Resource
Holdings, Inc. ("RHI"), a private Delaware corporation and a wholly-owned
subsidiary of FEH, in exchange for common stock of the Company. The Company
was also to receive a six-month option to acquire the remainder of RHI's common
stock payable with shares of the Company's common stock.
In January 1996, the Company and FEH modified the structure of the proposed
transaction. Under the new structure, 100% of RHI's shares would be exchanged
for an as yet unspecified number of the Company's shares, subject to the
signing of a definitive agreement. Because of the large number of shares of
common stock required, the transaction is also subject to approval by the
Company's shareholders. As of April 5, 1996, the parties were continuing their
due diligence processes and, as stated above, no assurance can be given as to
when, or if, an agreement will be consummated.
RHI's assets consist of its wholly-owned Panamanian corporation, Kondur
Petroleum S.A. ("Kondur"), which owns 34.46% of the Malacca Strait PSC Contract
("Malacca") in Sumatra, Indonesia. Kondur is the largest Indonesian-owned
domestic operator in Indonesia. The remaining interests in Malacca are owned
by China National Offshore Oil Corporation and Novus Petroleum Ltd. Malacca
covers an area of 2.7 million acres and contains 16 oil fields operated by
Kondur, which are currently producing an aggregate of approximately 20,000
barrels of oil per day. Malacca has an estimated 58 million barrels of proven
recoverable oil reserves and 47 billion cubic feet of proven recoverable gas
reserves. It also includes an additional 133 million barrels of probable oil
reserves. Kondur intends to increase the daily average production rates of
Malacca through future development and exploration, which is scheduled to
commence during the third quarter of 1996.
PAMANUKAN SELATAN
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In December 1995, the Company entered into a Farmout Agreement with P.T.
Pelangi Niaga Mitra Internasional, an Indonesian company ("PNMI"), whereby the
Company is expected to earn a 49% working interest in a Technical Assistance
Contract ("TAC") with Pertamina for the Pamanukan Selatan area of West Java
Province, Indonesia by providing 100% of the funding for the exploration,
development and operation of the TAC. Full exploration and development of the
TAC is expected to cost between $2 and $3 million over the next three years, of
which approximately $700,000 will be required during 1996. As a portion of its
obligations under the Farmout Agreement, the Company issued, pursuant to
Regulation S of the Securities Act of 1933, 100,000 shares of its common stock
to PNMI. The Company will be the operator of the joint operations and the TAC
and is to be reimbursed for 175% of all expenditures, pursuant to the cost
recovery provisions in the TAC, before any distribution of profits to PNMI can
occur. The Company will also be entitled to recoup Indirect Overhead charges
up to five percent of total expenditures, which amount will be part of the cost
recovery.
All monetary obligations the Company may have under the Farmout Agreement
are subject to PNMI receiving governmental certification and Pertamina's
approval to conduct operations under this TAC, which PNMI expects to occur in
May of 1996. In the event the negotiations with FEH, discussed above, are not
successful, the Company may reconsider its participation with PNMI.
Pamanukan Selatan includes an estimated 16 billion cubic feet of gas
reserves. The field's initial well tested at 5.7 million cubic feet of gas per
day and is temporarily shut-in pending construction of a 1.3 mile delivery
pipeline.
In October 1995, the Company signed a Memorandum of Understanding with
PNMI, which entitles the Company to a two-year right of first refusal to
farm-in to a 49% working interest in any future contracts obtained by PNMI from
Pertamina. The Company will have three months to exercise its rights, after
receipt of each notification from PNMI, at a cost to be negotiated on a
deal-by-deal basis.
DOMESTIC OPERATIONS - REFINERY
GENERAL
In July 1988, AIRI acquired an inactive oil refinery located on a site
bordering the Calcasieu River near Lake Charles, Louisiana (the "Refinery").
The Refinery is situated on 30 acres of land. The Company also owns 22 acres
of vacant waterfront property adjacent to the Refinery and another 45 acres of
vacant land across the highway from the Refinery. The river connects with the
Port of Lake Charles, the Lake Charles Ship Channel and the Intracoastal
Waterway. Most of the Refinery's feedstock and products are handled through
the Refinery's barge dock at the river.
After the Company acquired the Refinery, it was recommissioned and then
extensively tested during operations between February and July 1989. During
that time it processed over a million barrels of Louisiana, North African and
West African crude oils and operated at rates of up to 24,000 barrels per day.
Numerous modifications were designed to bring the Refinery into compliance with
new and existing environmental regulations and to facilitate production of
higher value products. Construction commenced during the fourth quarter of
1989, resulting in completion of most environmental compliance projects and a
military specification jet fuel ("JP-4") upgrade project in 1990. The Company
has continuously leased the Refinery to Gold Line Refining, Ltd. ("Gold Line")
since October 1990. (See "Refinery Lease" below).
DESCRIPTION OF REFINERY
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The main unit of the Refinery is a 30,000 barrels per day crude
distillation tower suitable for adaption to process sour crude oil. The
fractionator is capable of producing light naphtha overhead, and the following
side cuts: heavy naphtha, kerosene (for jet fuel), #2 diesel, atmospheric gas
oil, and reduced crude oil sold as special #5 fuel oil.
In 1989, the Company purchased a 16,500 barrel per day vacuum distillation
unit ("VDU") which was dismantled and moved to Lake Charles. Construction of
the VDU on the Refinery site was completed in 1993 and, for various economic
reasons, the VDU has been idle since then. However, the Company is currently
in the process of studying the viability of utilizing the VDU to produce
asphalt and vacuum gas oil which can be sold to other refineries as a feedstock
to manufacture high octane gasoline. The main portion of the plant has the
capacity to process 30,000 barrels per day of crude oil. (See "Management
Plans" below).
Total petroleum storage capacity is 645,000 barrels. Storage tanks on the
Refinery's land include 220,000 barrels of crude storage, 345,000 barrels of
storage for finished products sales and 80,000 barrels of product rundown
storage. The Refinery also has 20,000 barrels of waste water storage.
REFINERY LEASE
Under its lease, Gold Line is responsible for substantially all costs
associated with operating the Refinery. One-half of all lease rental payments
to the Company under this or any other lease of the Refinery are to be paid to
MG Trade Finance ("MGTF") to retire principal and interest on Refinery debt.
(See "Business - Refinery Financing Activities" below. Prior to such lease
becoming effective April 1, 1991, the Company arranged certain financing,
referred to below, and completed construction of substantially all of certain
environmental compliance projects and jet fuel upgrade projects required to
produce military jet fuel. As consideration for concessions made in the
agreement, Gold Line released the VDU from the property subject to the lease.
The VDU has the capacity to utilize the residue fractions remaining after
completion of refining operations in the main refinery, or utilize similar
product obtained elsewhere, to produce asphalt and vacuum gas oil.
All amounts owed to AIRI by Gold Line on October 1, 1992 were restructured
and evidenced by a promissory note in the principal amount of $1,244,192 and
bearing interest at prime plus 2%, due on September 30, 1995. The note was to
be retired in monthly installments equal to 10% of Gold Line's monthly
operating cash flow, if such operating cash flow was positive. From December
31, 1992 until March 22, 1995, the note remained unpaid. During 1994 AIRI
established a $1,244,192 reserve for potentially uncollectible receivables from
Gold Line. In 1994, the lease expired and was not renewed. However, by mutual
consent, Gold Line continued to operate the Refinery through mid-December 1994,
when Gold Line shut down its operations pending receipt of new financing from
its banks.
On March 22, 1995 Gold Line obtained a line of credit with NationsBank to
finance its obligations at the Refinery, and the Company entered into an
amended Lease Agreement with Gold Line, extending the lease term through March
31, 1998. The rental fees, payable monthly, were $.40 for each barrel of
feedstock processed through the Refinery by Gold Line through December 31,
1995, and increased to $.50 per barrel from January 1, 1996 through the end of
the lease. Also on March 22, 1995, the Company again restructured all past due
amounts owed to AIRI by Gold Line and executed a promissory note (to replace
the old note) in the principal amount of $1,801,464 (the "Note"), which is
subject to a Subordination and Standby Agreement between the Company, Gold Line
and NationsBank (the "Subordination Agreement"). Gold Line agreed to amortize
the Note by making quarterly payments to AIRI during the term of the lease of
approximately $144,000, plus accrued interest at a rate of prime plus 1%. The
remainder is to be paid by (i) a series of additional payments during the last
6 months of the lease or (ii) Gold Line will fund and construct a vacuum
recovery unit on the Refinery, at which time the Company will reduce the
balance due on Gold Line's note by $650,000. Gold Line may not make payments
on the Note to
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AIRI unless it is in compliance with certain covenants included in the
Subordination Agreement. Because of the problems mentioned below, and pursuant
to the Subordination Agreement, to date, Gold Line has not been permitted to
make any payments of principal and interest on the Note to AIRI.
During 1995, Gold Line encountered problems in obtaining the financing
necessary for it to secure sufficient levels of feedstock to keep the Refinery
operating at full capacity. As a result, the lease fees the Company received
during 1995 of $1,185,000 were substantially lower than expected. In addition,
these problems put Gold Line in a difficult position in obtaining new fuel
supply contracts with the United States Defense Fuel Supply Center ("DFSC").
With the objective of assisting Gold Line in securing the necessary
financing to ensure renewal of its supply contracts, in February 1996, the
Company agreed to reduce the amount of the Note from $1,801,464 to $900,732.
All other terms of the Note remain unchanged. In March 1996, Gold Line was
successful in obtaining the necessary financing to secure a $45 million fuel
supply contract with the DFSC. As a result, Gold Line expects to process
higher volumes of feedstock, which should permit it to make payments to AIRI as
called for in the Note.
REFINERY FINANCING ACTIVITIES
Subsequent to the purchase of the Refinery, the Company entered into a
series of transactions with MGTF to finance the upgrade and operations of the
Refinery.
In 1990, AIRI entered into a loan and security agreement (the "Loan
Agreement") with MGTF whereby MGTF loaned AIRI $9,855,000 to (i) repay all of
AIRI's obligations under a 1988 supply agreement of $6,505,000; (ii) repay
AIRI's prior loan obligation with MGTF; (iii) fund certain improvements related
to environmental regulations and production of J-4 jet fuel; and (iv) provide
working capital.
In order to secure AIRI's obligations under the Loan Agreement, AIRI
granted MGTF a first priority security interest in the Refinery and in
substantially all of the remainder of AIRI's assets. The Company also
guaranteed AIRI's obligations under the Loan Agreement and pledged to MGTF all
of the capital stock of AIRI. AIRI may not, during the term of the Loan
Agreement, make a dividend distribution to the Company or repay amounts
advanced to it by the Company, and AIRI is limited in the amount of
indebtedness it can incur.
In the Loan Agreement, the Company granted MGTF warrants to purchase
516,667 shares (as adjusted) of the Company's common stock at an exercise price
of $7.50 per share, exercisable at any time prior to June 30, 1994 (the "MGTF
Warrants"). The expiration dates of 246,667 of the MGTF Warrants were extended
to June 30, 1997 and the exercise price was adjusted to $15.63 per share of
common stock. In addition, MGTF's parent company, MG Corp., is entitled to one
seat on the Company's Board of Directors without the consent of the Company and
a second seat upon the consent of the Company's Board, which consent is not to
be unreasonably withheld. One of such Directors is also eligible to be
appointed to the Executive Committee, also upon consent of the Company's Board,
which consent is not to be unreasonably withheld. MGTF has not nominated any
directors to the Board.
In April 1993, the Company negotiated an amendment to the Loan Agreement
whereby MGTF reduced the balance of the loan by $750,000 through the exercise
of 100,000 warrants to purchase common stock of the Company. In addition, MGTF
retained the right to lease the Refinery in the event the existing lease with
Gold Line is terminated prior to its expiration. Also, in consideration for
rescheduling the loan, MGTF received a fee of $100,000 and a warrant to acquire
100,000 shares of the Company's common stock at $16.88 per share. Such warrant
was exercisable at any time prior to June 30, 1997. In July 1995 MGTF released
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all of its then-existing warrants for cancellation and received new warrants to
purchase 150,000 shares of the Company's common stock at $2.00 per share. The
expiration date of June 30, 1997 remained unchanged.
In March 1995, the Company further amended the Loan Agreement whereby MGTF
extended the unpaid balance due by the Company of $2,845,000 to March 31, 1998.
Fifty percent of the monthly lease fee proceeds from Gold Line are to be
applied to amortize the MGTF loan. To the extent the portion of such lease
rental payments is not sufficient to meet accrued interest due on the loan, the
Company must advance funds to AIRI to satisfy such obligation. The related
interest rate was also reduced to the prime rate plus 1%.
OTHER FINANCINGS
In January 1993, the Company issued $5.6 million of 12% Secured Debentures,
due December 31, 1997, which are secured by all of the issued and outstanding
capital stock of its wholly-owned subsidiary AIPC-Colombia. The Company used
the proceeds to fund its Colombian drilling, production and marketing
operations and to repay certain debt. The Company has $3.6 million of principal
payments remaining on its 12% Secured Debentures. (See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".)
In March 1994, the Company completed an offering of rights to its
shareholders. Each right was exercised for $3.00, and the holder received two
shares of common stock and one redeemable warrant to acquire an additional
share of common stock at any time prior to March 1, 1996 at an exercise price
of $4.00 per share. In March 1996, the expiration date of these warrants was
extended to March 1, 1997, however the exercise price remains at $4.00 per
share. The rights offering resulted in the exercise of 5,957,390 rights for
gross proceeds of $17,872,170.
Gross proceeds consisted of the surrender of $950,000 of the Company's 12%
Secured Debentures, receipt of $16,521,000 cash and issuance of a $400,000 note
receivable bearing interest at 10% per annum to an officer of the Company. The
Company paid commissions of $1,181,757 from gross proceeds to various placement
agents. Additionally, the Company incurred approximately $484,000 of expenses
related to the offering.
Proceeds from the offering were utilized for general corporate purposes
including exploration and development of the Company's prospects in Colombia
and Peru, repayment of debt and for working capital.
During 1995 and the first quarter of 1996, the Company issued an aggregate
of 7,668,318 shares of its common stock in exchange for cash and services
rendered to the Company valued at an aggregate of approximately $4,714,000
through various private placements and agreements, most of which were placed in
accordance with the safe harbor provided by Regulation S as promulgated by the
Securities and Exchange Commission (the "SEC").
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
prior to conversion by paying to the holder in cash 135% of the then
outstanding principal balance of the 10% 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 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 immediate preceding the
date of Subscription by the holders.
-9-
<PAGE> 10
The Company is utilizing the proceeds from the 10% Debenture to repay debts and
for working capital purposes.
COMPETITION
The oil and gas industry, including oil refining, is highly competitive.
In South America and Indonesia, the Company is in competition with numerous
major oil and gas companies and large independent companies for prospects,
skilled labor, drilling contracts and equipment. Many of the companies
operating in South America and Indonesia have greater resources than the
Company's. The Company believes, however that despite this intense
competition, it will be able to sell all of its production at prevailing market
rates.
Due to highly volatile crude oil prices and environmental regulation, many
oil refineries have ceased or curtailed production. The Company believes,
although no assurance can be given, that the high costs of constructing new
refineries, as well as the cost of updating and modifying inactive existing
refineries will discourage competition in the refining business. However,
since the Company has leased a portion of the Refinery to Gold Line and, unless
it implements its contemplated VDU operations (See "Business - Management
Plans", below) it does not stand to benefit or suffer directly from competitive
factors in the refinery business (provided such competitive factors do not
result in a default by Gold Line under the lease) so long as the Refinery
remains under lease. There is no assurance that the Refinery will remain under
lease, or that after the termination of the lease, the Company will be able to
compete successfully in the refining business should it operate the Refinery
itself.
RISKS ASSOCIATED WITH THE COMPANY'S FOREIGN OPERATIONS
The following are some of the risks that the Company encounters in its
foreign operations:
Political Risks in Colombia, Peru and Indonesia. The Company's operations
could be adversely affected by the occurrence of political instability and
civil unrest in Colombia, Peru and Indonesia. Political instability could also
change the current operating environment for the Company in these countries
through the imposition of restrictions on foreign ownership, repatriation of
funds, adverse environmental laws and regulations, adverse labor laws, and the
like. Any such changes could significantly affect the ability of the Company
to conduct business in these countries, which could (particularly in Colombia)
have a material adverse effect on the Company.
Risk of Capital Losses Due to Speculative Nature of Oil and Gas Industry.
Oil and gas exploration is extremely speculative, involving a high degree of
risk. Even if reserves are found as a result of drilling, profitable
production from reserves cannot be assured.
Energy Market Subject to Fluctuation. Revenues generated by the Company's
oil and gas operations and the carrying value of its oil and gas properties are
highly dependent on the prices for oil and natural gas. The price which the
Company receives for its oil is dependent upon numerous factors beyond the
control of the Company's management, the exact effect of which cannot be
predicted. These factors include, but are not limited to, (i) the quantity and
quality of the oil or gas produced, (ii) the overall supply of domestic and
foreign oil or gas from currently producing and subsequently discovered fields,
(iii) the extent of importation of foreign oil or gas, (iv) the marketing and
competitive position of other fuels, including alternative fuels, as well as
other sources of energy, (v) the proximity, capacity and cost of oil or gas
pipelines and other facilities for the transportation of oil or gas, (vi) the
regulation of allowable production by governmental authorities, (vii) the
regulations of the Federal Energy Regulatory Commission governing the
transportation and marketing of oil and gas, and (viii) international political
developments, including nationalization of oil wells and political unrest or
upheaval in South America, Iraq, Kuwait, Iran and other areas. All of the
aforementioned factors, coupled with the Company's ability or inability to
engage
-10-
<PAGE> 11
in effective marketing strategies, may affect the supply or demand for the
Company's oil or gas and, thus, the price attainable therefore.
FINANCIAL INFORMATION RELATING TO FOREIGN AND
DOMESTIC OPERATIONS AND EXPORT SALES
The table below sets forth, for each of the last three fiscal years, the
amounts of revenue, operating profit or loss and assets attributable to each of
the Company's geographical areas, and the amount of its export sales.
<TABLE>
<CAPTION>
Sales to unaffiliated customers: 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
United States $ 1,403,668 $ 2,094,235 $ 1,783,792
Colombia 1,214,213 1,169,323 2,107,801
Peru 166,069 122,068 -
Sales or transfers between
geographic areas:
United States - - -
Colombia - - -
Peru - - -
Operating profit or loss:
United States (518,462) 717,824 478,495
Colombia (299,188) (8,309,950) (10,441,991)
Peru 100,928 81,044 -
Identifiable assets:
United States 13,565,280 14,481,904 15,097,120
Colombia 14,136,257 13,580,190 18,589,440
Peru 4,247,975 2,717,167 -
Export sales: - - -
</TABLE>
INSURANCE; ENVIRONMENTAL REGULATIONS
The Company's operations are subject to all risks normally incident to (i)
oil and gas exploratory and drilling activities, including, but not limited to,
blowouts, extreme weather conditions, pollution and fires; and (ii) the
refining of petroleum products. Any of these occurrences could result in
damage to or destruction of oil and gas wells, related equipment, production
facilities, and may otherwise inflict damage to persons and property. The
Company maintains comprehensive and general liability coverage, as is customary
in the oil and gas industry and coverage against most risks, although no
assurance can be given that such coverage will be sufficient to cover all
risks, be adequate in amount, or that any damages suffered will not be governed
by exclusionary clauses, thereby rendering such coverage incomplete or
non-existent to protect the Company's interest in specific property. The
Company is not fully covered for damages incurred as a consequence of
environmental mishaps. The Company believes it is presently in compliance with
government regulations and follows safety procedures which meet or exceed
industry standards. Because the Company's oil and gas operations are carried
out in countries where the cost of environmental compliance is relatively low,
such compliance is not expected to have a material effect upon the capital
expenditures, earnings or competitive position of the Company.
MARKETING
During 1993 and for the four months ended April 30, 1994, the Company sold
all of its oil production from its Colombian properties to Ecopetrol.
Effective May 1, 1994, the Company entered into an agreement with Carbopetrol
S.A. to sell all of its crude oil currently produced in Colombia. This
contract is a 6-month renewable fixed-price sales contract for all crude oil
produced by the Company from the Toqui-Toqui field. Payments are made in
Colombian Pesos adjusted for expected exchange fluctuation. Prices are based
on the price of local fuel oil
-11-
<PAGE> 12
and, effective March 1996, are equivalent to a net price to the Company of
approximately $8.40 per barrel of oil. (See "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Exploration and
Production Activity.") In Peru, a contract with PetroPeru provides for a
flexible royalty rate based on the amount of production and world basket price
for this contract area providing a net sales price to the operator of
approximately 65% of the world basket price for the field, which, based on a
gross price of $16.53 per barrel in January 1996, provided a net price to the
Company of approximately $10.75 per barrel of oil.
Sales of the Company's crude oil to Carbopetrol S.A. in Colombia accounted
for 39% and 18% of the Company's 1995 and 1994 revenues, respectively. Sales
to Ecopetrol accounted for approximately 10% and 47% of the Company's 1994 and
1993 revenues, respectively. Lease fees from Gold Line accounted for
approximately 42%, 59% and 43% of the Company's 1995, 1994 and 1993 revenues,
respectively. There is no assurance that Gold Line will be able to meet its
obligations under the lease, however, if Gold Line could not complete its
obligations under the Refinery lease, the Company believes it could obtain
another lessee on substantially the same terms as Gold Line's lease or operate
the Refinery itself. (See "Management Plans"above.)
Management does not believe that the loss of Carbopetrol S.A. or PetroPeru
as customers would materially adversely effect the Company's operations. In
the past, the Company has been approached by other purchasers of oil willing to
purchase the Company's production on terms similar to those in effect with its
current purchasers. While no assurance can be given, Management believes that
it would be able to sell its oil and gas to other persons on terms similar to
that being offered from time to time by the Company's present purchasers.
In addition, continuing market for the Company's oil and gas will depend
upon numerous factors, many beyond the control of the Company, and most of
which are not predictable. These factors include regulation of oil production,
price controls on petroleum and petroleum products, the amount of oil and gas
available for sale, the availability of adequate pipeline and other
transportation facilities, the marketing of competitive fuels, and other
matters affecting the availability of a ready market, such as fluctuating
supply and demand.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company purchases all raw materials needed for its operations from
major suppliers and manufacturers located throughout the United States,
Colombia and Peru. The Company believes that these materials are in good
supply and are available from multiple sources.
EMPLOYEES
As of April 6, 1996, the Company employed 33 persons on a full-time basis:
13 persons who are engaged in management, accounting and administrative
functions in the United States, 19 in management, technical and administrative
functions in the Company's offices in Bogota, Colombia, and 1 technical person
in Lima, Peru. The Company frequently engages the services of consultants that
are experts in various phases of the oil and gas industry, such as petroleum
engineers, refinery engineers, geologists and geophysicists. The Company
believes that relations with its employees are satisfactory.
ITEM 2. PROPERTIES
OFFICE FACILITIES
The Company leases approximately 2,900 square feet of office space at 444
Madison Avenue, New York, N.Y. 10022. This space comprises the Company's
principal executive office. The space was leased effective November 1, 1994
for a period of four years at a monthly rental rate of $6,546. In addition,
the
-12-
<PAGE> 13
Company leases approximately 3,400 square feet of office space in Houston,
Texas. The lease expires in November 1997 and provides for a monthly rental of
$3,570.
The Company leases approximately 15,000 square feet of office space in
Bogota, Colombia under an annually renewable lease. The Company renewed the
lease for one year on March 1, 1996; however it now occupies approximately
3,400 square feet, for which it pays $3,000 per month in rent. The remainder
is being sublet at approximately the same rate as the Company's obligation.
The Company also owns 87 acres of land in Lake Charles, Louisiana where its
oil Refinery is located. In addition to the structure and equipment comprising
the Refinery facility, the Refinery assets include an approximately 4,000
square foot office building and three metal building structures serving as work
shops, maintenance and storage facilities with an aggregate square footage of
approximately 3,800 square feet.
OIL AND GAS ACREAGE AND WELLS
Gross acreage presented below represents the total acreage in which the
Company owns a working interest and net acreage represents the sum of the
fractional working interests owned by the Company in such acreage.
The table below indicates the Company's developed and undeveloped acreage
as of December 31, 1995.
<TABLE>
<CAPTION>
Gross Gross Net Net
Developed Undeveloped Developed Undeveloped
Acreage Acreage Acreage Acreage
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Colombia 19,379 13,474 6,201 4,312
Peru - 76,788 - 49,912
</TABLE>
The table below indicates the Company's gross and net oil and gas
wells as of December 31, 1995. Gross wells represents the total wells in which
the Company owns a working interest and net wells represents the sum of the
fractional working interests owned by the Company in such wells.
<TABLE>
<CAPTION>
Productive Wells
----------------
Total Oil Gas
----- --- ---
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Colombia 20 8.4 20 8.4 - -
Peru* 4 2.6 4 2.6 - -
- --------------------------
</TABLE>
*Still under evaluation
-13-
<PAGE> 14
OIL AND GAS PRODUCTION
The table below indicates the Company's net oil and gas production, by
country, for each of the five years in the period ended December 31, 1995,
1994, 1993, 1992, and 1991, along with the average sales prices for such
production during these periods.
<TABLE>
<CAPTION>
PRODUCTION
----------
Oil (in Average Net Sales Gas Sales Price
Barrels) Price (per Barrel) (in mcf) (per mcf)
-------- ------------------ -------- ---------
<S> <C> <C> <C> <C>
1995-Colombia 137,821 $ 8.01 - -
-Peru 17,794 9.29 - -
1994-Colombia 121,643 $ 8.91 - -
-Peru 17,534 6.94 - -
1993-Colombia 132,756 $14.12 - -
1992-United States 3,570 $20.17 225,247 $1.55
-Colombia 71,236 14.91 - -
1991-United States 5,963 $17.16 345,131 $1.30
-Colombia 82,574 12.55 - -
</TABLE>
Average foreign lifting costs in 1995, 1994, 1993, 1992 and 1991
were approximately $2.75, $4.64, $9.02, $9.11, and $4.84 per equivalent barrel
of oil, respectively. The Company's average domestic lifting costs for 1992
and 1991 were approximately $10.26 and $8.35 per equivalent barrel of oil,
respectively.
RESERVES
Huddleston & Co., Inc., petroleum and geological engineers, performed
an evaluation to estimate proved reserves and future net revenues from oil and
gas interests owned by the Company as of January 1, 1996. As of January 1,
1996, all of the Company's proved reserves were located in Colombia. The
report, dated March 22, 1996, is summarized below. Future net revenues were
calculated after deducting applicable taxes and after deducting capital costs,
transportation costs and operating expenses, but before consideration of
Federal income tax. Future net revenues were discounted at a rate of ten
percent to determine the "present worth". The present worth was shown to
indicate the effect of time on the value of money and should not be construed
as being the fair market value for the Company's properties. Estimates of
future revenues did not include any salvage value for lease and well equipment
or the cost of abandoning any properties.
<TABLE>
<CAPTION>
COLOMBIAN RESERVES
Future Net
Future Revenues
Net Oil Net Discounted
(Barrels) Net Gas (mmcf) Revenues at 10%
---------- -------------- -------- --------
<S> <C> <C> <C> <C>
Proved Developed
Producing 844,000 724 $5,452,000 $ 3,311,000
Proved Developed
Non-Producing 169,000 4,376 5,464,000 3,134,000
Proved Undeveloped 3,093,000 6,281 16,317,000 6,379,000
--------- ------ ----------- -----------
TOTAL 4,106,000 11,381 $27,233,000 $12,824,000
========= ====== =========== ===========
</TABLE>
-14-
<PAGE> 15
Huddleston & Co., Inc. used the net market price, exclusive of
transportation cost, of $8.72 per average barrel of oil and $1.00 per MCF of
gas in their report. The oil prices utilized were the prices received by the
Company as of December 31, 1995 for oil produced from the Company's leaseholds.
The gas prices utilized were based on the Ecopetrol spot price at December 31,
1995. The prices were held constant throughout the report except for where
contracts provide for increases.
Operating costs for the Company's leaseholds include direct
leasehold expenses only. Capital expenditures were included as required for
new development wells, developed non-producing wells and current wells
requiring restoration to operational status on the basis of prices supplied by
the Company.
The report indicates that the reserves were estimates only and
should not be construed as being exact quantities. These reserves may or may
not be actually recovered, and, if recovered, the revenues therefrom and the
actual costs related thereto could be more or less than the estimated amounts.
Because of governmental policies and uncertainties of supply and demand, the
actual sales rates and prices actually received for the reserves along with the
cost incurred in recovering such reserves, may vary from those assumptions
included in the report. The report further states that estimates of reserves
may increase or decrease as a result of future operations.
In evaluating the information at their disposal concerning the
report, Huddleston & Co. excluded from consideration all matters as to which
legal or accounting interpretation may be controlling. As in all aspects of
oil and gas evaluation, there are uncertainties inherent in the interpretation
of engineering data and such conclusions necessarily represent only informed
professional judgments.
The data used in the Huddleston & Co. estimates were obtained
from the Company and were assumed to be accurate by Huddleston & Co. Basic
geologic, engineering and field performance data are maintained on file by the
Company.
DRILLING
The following table sets forth the gross and net exploratory and
development wells which were completed, capped or abandoned in which the
Company participated during the years indicated.
<TABLE>
<CAPTION>
1995 1994 1993
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
South America
Oil - - 2.00 1.15 - -
Gas - - - - - -
Dry - - - - 3.00 2.80
---- ---- ---- ---- ---- ----
TOTAL - - 2.00 1.15 3.00 2.80
Development Wells:
South America
Oil 2.00 1.30 2.00 1.30 6.00 2.40
Gas - - - - -
Dry - - - - -
---- ---- ---- ---- ---- ----
TOTAL 2.00 1.30 2.00 1.30 6.00 2.40
---- ---- ---- ---- ---- ----
TOTAL 2.00 1.30 4.00 2.45 9.00 5.20
==== ==== ==== ==== ==== ====
</TABLE>
-15-
<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
Except as described below, there is no litigation pending to which the
Company is a party or to which any of its properties is subject. Further,
except as described below, there are no proceedings known to be contemplated by
United States or foreign governmental authorities relating to either the
Company or its properties.
In May 1992, AIRI was advised by the Internal Revenue Service ("IRS")
that the IRS was considering an assessment of excise taxes, penalties and
interest of approximately $3,500,000 related to the sale of fuel products
during 1989. The IRS claims that AIRI failed to comply with an administrative
procedure that required sellers and buyers in tax-free transactions to obtain
certification from the IRS. The Company believes that AIRI complied with the
substance of the existing requirements and such sales were either tax-free or
such excise taxes were paid by the end-users of such products. AIRI has
offered to negotiate a settlement of this matter with IRS Appeals since early
1993. Such negotiations included face-to-face meetings, numerous phone calls
and written transmittals and several offers of settlement by both the Company
and the IRS. During these negotiations, the IRS Appeals officers offered to
waive all of the penalties and 75% of the amount of the proposed tax liability.
However, AIRI rejected this offer and requested the IRS' National Office to
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 its Appeals Office in Dallas,
Texas, to the effect that AIRI should be liable for the tax on the sale of
diesel fuel for the first three quarters of 1989. However, even in light of
the findings of the TAM, the IRS Appeals officer has indicated to AIRI that the
IRS still wants to negotiate a settlement. As a result, AIRI has scheduled a
meeting for April 30, 1996 with the IRS Appeals Office to discuss the
situation. Depending upon the results of this meeting, the Company will decide
whether to litigate or settle this situation. Regardless of whether the
Company decides to litigate or settle, it believes it will incur some form of
liability, either in legal expenses or payments to the IRS, or some combination
of both. Consequently, it has provided an allowance during 1995 of $250,000
for this potential incurrence of expenditures, although at this time, the
Company is unable to determine exactly what liability may arise from this
assessment.
On January 25, 1994, a lawsuit captioned Paul R. Thibodeaux, et al. v.
Gold Line Refinery Ltd. (a limited partnership), Earl Thomas, individually and
d/b/a Gold Line Refinery Ltd., American International Petroleum Corporation,
American International Refinery, Inc., Joseph Chamberlain individually (Docket
No. 94-396), was filed in the 14th Judicial District Court for the Parish of
Calcasieu, State of Louisiana. Subsequently, several parties were joined as
plaintiffs or defendants in the lawsuit. Responsive pleadings have been filed by
AIRI to this action and to the three amendments which added plaintiffs,
defendants and restructured the plaintiff's claims (deleting some claims and
adding new claims). The lawsuit alleges, among other things, that the
defendants, including AIRI, caused or permitted the discharge of hazardous and
toxic substances from the Lake Charles Refinery into the Calcasieu River. The
plaintiffs seek an unspecified amount of damages, including special and
exemplary damages. AIRI continues to vigorously defend such action. In March
1996, the Company and AIRI filed an Exception of Prescription which is expected
to eliminate most of the plaintiffs claims. At this time, the Company is unable
to determine what, if any, liability may arise from this action.
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
-16-
<PAGE> 17
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 counter-claims 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, if any, liability or
benefits may arise from this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
-17-
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock and its Class A Warrants are traded on
NASDAQ/NMS under the symbols "AIPN" and "AIPNW", respectively. The following
table sets forth, for the periods indicated, the range of closing high and low
bid prices of the Common Stock and the Class A Warrants as reported by NASDAQ.
These quotations represent prices between dealers, do not include retail
markups, markdowns or commissions and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Common Stock Class A Warrants
------------ ----------------
High Bid Low Bid High Bid Low Bid
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1994 First Quarter $2.12 $1.22 $0.40 $0.31
Second Quarter 1.40 0.94 0.25 0.09
Third Quarter 1.44 0.94 0.28 0.12
Fourth Quarter 1.40 1.00 0.25 0.12
1995 First Quarter $1.89 $0.84 $0.34 $0.13
Second Quarter 1.00 0.63 0.16 0.06
Third Quarter 1.28 0.56 0.22 0.09
Fourth Quarter 1.22 0.53 0.22 0.09
</TABLE>
At April 1, 1996, the Company had approximately 1,280 shareholders of
record of its Common Stock and 79 holders of record of its Class A Warrants.
The Company estimates that an additional 10,000 shareholders hold Common Stock
in street name.
DIVIDEND POLICY
Certain covenants set forth in the indentures governing certain
outstanding Debentures of the Company prohibit payment of cash dividends. The
present policy of the Board of Directors is to retain earnings to finance the
operations and development of the Company's business. Accordingly, the Company
has never paid cash dividends on its Common Stock, and no cash dividends are
contemplated to be paid in the foreseeable future. (See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations".)
ITEM 6. SELECTED FINANCIAL INFORMATION
The following selected financial data for each of the five years in the
period ended December 31, 1995 have been derived from the audited consolidated
financial statements for those respective years. (See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations".) The
selected financial data should be read in conjunction with the consolidated
financial statements of the Company and the related notes included elsewhere
herein.
-18-
<PAGE> 19
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Condensed consolidated
statement of operations:
Revenues $ 2,811,308 $ 3,508,514 $ 3,990,156 $ 3,381,453 $ 2,491,527
Net loss(1) (4,338,322) (10,966,914) (14,139,737) (4,987,144) (3,651,540)
Net loss per share(2 ) (0.20) (0.65) (2.23) (0.90) (0.99)
</TABLE>
<TABLE>
<CAPTION>
At December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Condensed consolidated
balance sheet:
Working capital deficit $(3,402,541) $ (28,462) $(7,507,056) $(6,476,996) $ (742,157)
Total assets 32,640,362 32,229,713 34,996,925 45,391,666 32,938,318
Total liabilities 11,349,670 10,255,687 18,878,148 15,685,931 6,296,958
Long-term debt 5,432,671 6,601,421 7,812,500 5,250,000 10,451,320
Stockholders' equity 21,290,692 21,974,626 16,118,777 29,705,731 16,641,360
Cash Dividends declared 0 0 0 0 0
- --------------------------------
</TABLE>
1) Net loss in 1994 and 1993 included a provision for the write down of the
carrying costs of oil and gas properties of $6,904,000 and $9,975,000,
respectively.
2) Adjusted, as applicable, to give effect to the one-for-10 reverse stock
split effectuated by the Company on October 28, 1993. (See Note 1 to the
Consolidated Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the last three years, the Company has had difficulty generating
sufficient cash flow to fund its operations, capital expenditures and required
principal payments. As a result, the Company has from time to time operated
with limited liquidity or negative working capital. In order to continue
operations under such circumstances, the Company has historically relied on
outside sources of capital.
At December 31, 1995 the Company had an unrestricted cash balance of
$162,218 compared to $943,000 at December 31, 1994. During the year ended
December 31, 1995, the Company utilized approximately $274,000 for operations.
Net loss for the period totalled $4,338,000, including non-cash provisions for
depreciation, depletion and amortization of $1,502,000, non-cash provisions for
bad debts and a contingent excise tax liability (or for legal expenses related
thereto, or both) of $711,000 and $250,000, respectively, and a non-cash charge
of $56,000 related to initial employment signing bonuses, and for forgiveness
of amounts receivable from an employee stock purchase. Approximately $189,000
was used during the period to increase current assets other than cash, and
approximately $1,985,000 was provided by an increase in accounts payable and
accrued liabilities. Cash for operations during 1995 was provided, in part, by
the issuance of Common Stock in an aggregate amount of approximately
$3,723,000.
During the years ended December 31, 1994 and December 31, 1993, the
Company generated net losses of $10,967,000 and $14,140,000 respectively.
There were non-cash charges in 1994 and 1993 of $6,904,000 and $9,975,000,
respectively, for reductions in the carrying costs of oil and gas properties
due primarily to prior-period reductions in the estimated volume of proven oil
and gas reserves for these periods. There was also a non-cash provision of
$211,000 in 1994 for an adjustment to the exercise price of certain outstanding
warrants. Cash flow provided from operations in 1994 and 1993 totalled
$5,110,000 and $3,648,000, respectively. Cash flow from operations was
adjusted for depreciation, depletion and amortization of $1,699,000 and
$1,136,000 in 1994 and 1993, respectively.
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<PAGE> 20
Additionally, $277,000 and $228,000 in 1994 and 1993, respectively, were
invested in current assets other than cash. Accounts payable increased by
$3,234,000 and $847,000 in 1994 and 1993 respectively. Additional uses of
funds during the periods included investments in oil and gas properties during
1994 and 1993 of $5,557,000 and $5,680,000, respectively, net of certain
recoverable costs, and investment in the Refinery of $289,000 in 1993. Total
cash used in operations and investment activity during the years ended December
31, 1994 and 1993 was $10,341,000 and $8,610,000, respectively.
Cash was provided primarily from outside sources, including $14,978,000
and $2,646,000 from the issuance of common stock during 1994 and 1993,
respectively; $770,000 from the exercise of common stock warrants and options
in 1993, and $60,000 and $5,237,000 in 1994 and 1993, respectively, in proceeds
from the issuance of long term debt.
The Company's 12% Secured Debentures (the "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. The
Company is currently having discussions with the principal holder of the
Debentures regarding the possibility of prepaying them at a discount from face
value. In the event the Company is not successful in accomplishing a
prepayment to MGTF, it believes it will be capable of fulfilling its normal
payment obligations under the respective Debenture and Note agreements with
MGTF. However, in the event the Company is unable to meet its obligations
pursuant to the Debentures in a timely manner, the Company's oil and gas
reserves and its operations may be adversely affected.
As of March 22, 1995, the Company amended certain terms of its Loan
Agreement with MG Trade Finance Corp. ("MGTF"), extending the due date for the
unpaid balance from May 31, 1995 to March 31, 1998. In addition, payments on
the loan have been reduced from 100% to 50% of the monthly lease fee proceeds
the Company receives from Gold Line (See "Item 1 - Business - Refinery
Financing Activities"). If lease fees are not sufficient to satisfy all
accrued interest and principal 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. (See "Item 3
- - Legal Proceedings"). The Loan Agreement contains certain restrictive
covenants and requirements. The Company and MGTF have from time to time
amended the Loan Agreement or waived certain events of technical default.
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 (See "Item 1 - Business -
Refinery Lease"). These problems resulted in lower cash flow to the Company of
up to $1.4 million, which required it to utilize other methods to acquire funds
necessary to satisfy its monetary and contractual obligations, including the
issuance of equity, as described above. 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.
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 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
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<PAGE> 21
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 16,000 barrels per day during the remainder of the lease, a level it
needs to maintain in order to meet its obligations under its two DFSC
contracts. The combination of Gold Line's note payments and increased lease
fees could provide the Company with approximately $1.8 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.
The Company has received an offer from an oil company and inquiries from
various others 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 could provide the Company
with capital to repay a major portion of its recently-issued 10% Debenture,
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"), whereby the
Company is expected to earn a 49% working interest in a Technical Assistance
Contract ("TAC") with Pertamina for the Pamanukan Selatan area of West Java
Province, Indonesia by providing 100% of the funding for the exploration,
development and operation of the TAC. Full exploration and development of the
TAC is expected to cost between $2 and $3 million over the next three years, of
which approximately $700,000 will be required during 1996. As a portion of its
obligations under the Farmout Agreement ($100,000), the Company issued,
pursuant to Regulation S of the Securities Act of 1933, 100,000 shares of its
common stock to PNMI. The Company will be the operator of the joint operations
and the TAC and is to be reimbursed for 175% of all expenditures, pursuant to
the cost recovery provisions in the TAC, before any distribution of profits to
PNMI can occur. The Company will also be entitled to recoup Indirect Overhead
charges up
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<PAGE> 22
to five percent of total expenditures, which amount will be part of the cost
recovery. All monetary obligations the Company may have under the Farmout
Agreement are subject to PNMI receiving governmental certification and
Pertamina's approval to conduct operations under this TAC, which PNMI expects
to occur in May of 1996. Under certain circumstances however, the Company
could decide not to proceed with the project.
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. In the event the Company is not
able to fund its exploration and development projects on its own in a timely
manner, Management believes it will be able to obtain partners for certain
projects.
The Company does not engage in hedging transactions to reduce the risk of
foreign currency exchange rate fluctuations and has not experienced significant
gains or losses related to such events. The Company receives proceeds from
sales of oil and gas in Colombia and Peru in local currency and utilizes these
receipts for local operations. Periodically funds are transferred from U.S.
accounts to Colombia and Peru and converted into pesos and soles, respectively,
when the local currency is insufficient to meet obligations payable in local
currency.
IMPACT OF CHANGING PRICES
The Company's revenues, its ability to repay indebtedness and the
carrying value of its oil and gas properties are affected by changes in oil and
gas prices. Oil and natural gas prices are subject to substantial seasonal,
political and other fluctuations that are beyond the ability of the Company to
control. Since crude oil prices are an important determining factor in the
carrying value of oil and gas assets, significant reductions in the price of
crude oil could require non-cash write-downs of the carrying value of those
assets. This occurred in 1993, when the prices the Company received for its
crude oil declined significantly. As a consequence, a reduction in the
carrying value of the Company's oil and gas properties of $9,975,000 was
recorded during the fourth quarter 1993. In 1994 however, prices increased,
thereby reducing the impact of a reduction of previous estimates of proven
reserve quantities by the Company's independent reservoir engineers, whose
estimate for that period resulted in a further reduction of the carrying value
of the Company's oil and gas assets of $6,904,000 during the fourth quarter of
1994.
No reduction in the carrying value of the Company's oil and gas assets
was necessary at December 31, 1995.
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<PAGE> 23
RESULTS OF OPERATIONS
The following table highlights the results of operations for the years
ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Exploration and Production Activity:
Colombia Properties:
Revenue - Oil Sales (000's) $ 1,104 $ 1,083 $ 1,874
Lease Operating Expenses (000's) 364 564 1,197
Production Volume - 137,821 121,643 132,756
Average Price per Bbl 8.01 8.91 14.12
Production Cost per Bb 2.65 4.64 9.02
DD&A per Bbl (1) 3.86 5.51 3.82
Peru Properties:
Revenue - Oil Sales (000's) $ 166 $ 122 -
Lease Operating Expenses (000's) 65 41 -
Production Volume - Bbls 17,794 17,534 -
Average Price per Bbl 9.29 6.96 -
Production Cost per Bbl 3.66 2.34 -
DD&A per Bbl(1) - - -
Refinery Operations:
Refinery Lease Fees (000's) $ 1,185 $ 2,065 $ 1,735
Average Daily Throughput (Bbls) 8,116 14,518 13,874
Average Throughput Fee 0.40 0.39 0.34
- -----------------------------
</TABLE>
(1) DD&A does not include provision for reduction of oil and gas properties
of $6,904,000 and $9,975,000 in 1994 and 1993, respectively. Also
excludes Peruvian activity since all related properties are currently
considered "unevaluated".
PRODUCTION ACTIVITY
For the Year ended December 31, 1995 compared
to the Year ended December 1994.
Oil production in 1995 increased to 155,615 barrels, a 12% increase over
1994. Average oil prices declined however, by 6% or $.50 per barrel, to $8.16
in 1995 as compared to $8.66 in 1994. The net effect of these occurrences
resulted in a $65,000 (5%) increase in the Company's oil revenues in 1995
compared to 1994.
Production cost declined by $184,000 (30%) in 1995 compared to 1994,
primarily due to transportation costs incurred during the first four months of
1994, which were not incurred after that time. Effective May 1, 1994 the
Company sells all of its crude oil directly to an end-user at the well head,
eliminating transportation costs.
For the Year ended December 31, 1994 compared
to the Year ended December 31, 1993.
Oil and gas revenues decreased by $791,000, or 42%, in 1994 compared to
1993. Approximately 60% of the decrease resulted from the Company's new crude
oil sales contract, which became effective May 1, 1994. Under the terms of the
new contract, the Company sells its crude oil directly to an end user at the
well
- 23 -
<PAGE> 24
head. Therefore, the transportation cost, which was included in the
selling price during 1993, was excluded from the price under the new agreement.
Approximately 30% of the decline was related to a 20% decrease in the average
price of the Company's crude oil in 1994 as compared to 1993, reflecting the
overall weakness in the world oil market during much of 1994. The remaining
portion of the decline was due to an 8% decrease in the total oil produced in
1994 as compared to the previous year.
Production costs decreased by $593,000, or 54%, in 1994 as compared to
1993. Approximately half of the decline was due to the elimination of
transportation costs, mentioned above. The remainder was due to decreased
workover and well maintenance activity in 1994 as compared to 1993.
REFINERY OPERATIONS
For the Year Ended December 31, 1995 compared
to the Year Ended December 31, 1994
The Company leases its refinery to Gold Line Refinery Ltd. As lessee,
Gold Line is responsible for all operating costs of the refinery. The Company
charges Gold Line a fee for each barrel of feedstock processed at the refinery.
The fee during 1995 was $.40 per barrel of throughput, which increased to $.50
per barrel on January 1, 1996. This rate continues until the Lease expires on
March 31, 1998.
Refinery lease fees declined by approximately 43% in 1995 to $1,185,000
as compared to 1994. The decline relates primarily to financing and purchasing
problems encountered by Gold Line during 1995 (See "Item 1 - Business -
Refinery Lease"). As a result, Gold Line experienced a 44% decline in its
annual throughput in 1995 compared to 1994. However, Gold Line, as previously
discussed, has apparently resolved these problems and in March 1996 secured a
one-year $45 million fuel supply contract with the DFSC which, when combined
with its other contract with the DFSC, is expected to result in Gold Line
processing 16,000 barrels of feedstock per day. This increased activity should
provide the Company with minimum annual lease fees of approximately $2.9
million. Gold Line has also indicated to the Company that it is attempting to
obtain supplemental fuel supply contracts, which would call for an additional
4,000 barrels per day of throughput volume to be processed in the Refinery.
There can be no assurance at this time, however, that Gold Line will continue
to process an average of 16,000 barrels of feedstock per day or be successful
in securing supplemental contracts.
For the Year Ended December 31, 1994 compared
to the Year Ended December 31, 1993.
Refinery lease fees increased approximately 19% to $2,065,000 in 1994 as
compared to 1993. The increase was due primarily to a 15% increase in the
per-barrel throughput fees charged to Gold Line in the last half of 1994 and a
5% increase in the average daily throughput compared to the previous year.
OTHER INCOME
Other income increased by $118,000 (50%) during 1995 to $356,000 as
compared to 1994. A 60% increase in interest income in 1995 related to the
Gold Line note was partially offset by a 10% decrease in 1995 compared to 1994
of foreign exchange gains, primarily due to narrower fluctuations in the
currency exchange rates between the United States and Colombia.
Other income declined by 38% during the year ended December 31, 1994 as
compared to the same period in 1993, primarily due to narrower fluctuations in
the currency exchange rates between the United States and Colombia during 1994
as compared to 1993.
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<PAGE> 25
GENERAL AND ADMINISTRATIVE
Total General and Administrative Expenses ("G&A") during 1995 decreased
by $564,000, or 14%, compared to 1994. Payroll expenses declined by $255,000
(6%) during 1995 compared to 1994. Decreases also occurred in the following
categories during 1995 versus 1994: professional fees, $73,000; travel,
$69,000; office rents, $60,000; public relations, $60,000; insurance, $33,000;
and office operating expenses, $54,000. Further declines are expected during
1996 as the Company continues its efforts to reduce overhead costs.
Total G&A declined by only 1% in the year ended December 31, 1994 as
compared to 1993. However, excluding capitalized G&A and G&A reimbursements
related to exploration and development projects, which decreased by
approximately $420,000, or 46%, in 1994 as compared to 1993, and other non-cash
items, the Company's overall G&A declined by approximately $541,000, or 11%, in
1994 as compared to the same period in the previous year. A 21% decrease in
payroll of $467,000 and a 30% decrease in investor relations of $120,000 were
partially offset by a 76% increase in legal expenses of $130,000, related
primarily to an environmental lawsuit and excise tax dispute with the Internal
Revenue Service. The reductions in the capitalization and reimbursements of
G&A during 1994 as compared to 1993 resulted primarily from reduced exploration
and development during 1994 as compared to 1993.
INTEREST
Interest expense decreased 20% by $262,000 during the year ended December
31, 1995 as compared to 1994. Excluding a decrease in non-cash amortized bond
costs of $95,000, which are included in the interest expense category, interest
expense decreased by $167,000 during 1995 versus 1994, primarily due to reduced
debt balances.
Interest expense decreased by $224,000, or 15%, during the year ended
December 31, 1994 as compared to 1993, primarily due to reduced debt balances
in 1994.
ADOPTION OF ACCOUNTING STANDARD
On March 31, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". SFAS No. 121 addresses the accounting for the impairment of long-lived
assets, identified intangibles and goodwill related to those assets and
requires that the carrying amount of impaired assets be reduced to fair value.
SFAS No. 121 has been adopted by the Company and had no effect on its financial
statements for the year ended December 31, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 follows Item 14 of this
Report and is hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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<PAGE> 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the Company's
executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
George N. Faris 55 Chairman of the
Board of Directors and
Chief Executive Officer
Denis J. Fitzpatrick 51 Vice President, Secretary and
Chief Financial Officer
William L. Tracy 48 Treasurer and Controller
Daniel Y. Kim 71 Director
Donald G. Rynne 73 Director
William R. Smart 75 Director
</TABLE>
BIOGRAPHICAL INFORMATION
Dr. George N. Faris has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since 1981. Dr. Faris was the founder
of ICAT, an international engineering and construction company, and served as
its President from ICAT's inception in 1972 until October 1985. Prior to 1972,
Dr. Faris was the President and Chairman of the Board of Directors of Donbar
Development Corporation, a company engaged in the patent development of rotary
heat exchangers, devices which exchange heat from medium to medium and on which
Dr. Faris has received a number of patents. Dr. Faris received a Ph.D. in
Mechanical Engineering from Purdue University in 1968.
Mr. Denis J. Fitzpatrick joined the Company in August 1994 as Vice
President, Secretary and Chief Financial Officer. During the previous five
years, Mr. Fitzpatrick was the Chief Financial Officer of Nahama & Weagant
Energy Company, a publicly traded independent exploration and production
company. Mr. Fitzpatrick received a B.S. degree in Accounting from the
University of Southern California in 1974.
Mr. William L. Tracy has been employed by the Company since February
1992 and was named Treasurer and Controller of the Company in August 1993.
From May 1989 until February 1992, Mr. Tracy was self-employed as an energy
consultant with the Commonwealth of Kentucky. From June 1985 until May 1989,
Mr. Tracy served as President of City Gas and Transmission Corp., a public oil
and gas production and refining company. He received his BBA from Bellarmine
College in Louisville, Kentucky in 1974.
Dr. Daniel Y. Kim has served as a member of the Company's Board of
Directors since July 1987. Dr. Kim is a Registered Professional Geophysicist
in California and Colorado. From 1981 until 1984, Dr. Kim was President and
Chief Executive Officer of Kim Tech, Inc., a research and development company.
In 1984, Kim Tech, Inc. was merged into Bolt Industries, a public company
engaged in the manufacture of air guns and auxiliary equipment used to generate
shock waves in seismic exploration for oil, gas and minerals. Dr. Kim has been
a director of Bolt Industries since 1984. Dr. Kim received a B.S. degree in
Geophysics and a Ph.D. degree in Geophysics from the University of Utah in 1951
and 1955, respectively.
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<PAGE> 27
Mr. Donald G. Rynne was elected to the Company's Board of Directors
in September 1992. Mr. Rynne has been Chairman of the Board of Directors of
Donald G. Rynne & Co., Inc., a privately owned company engaged in international
consulting and trading, since founding that company in 1956. Mr. Rynne is also
Chairman of the Board of Directors of Dynamax Maritime & Resources Ltd., a
company engaged in the trading and shipping business, and has served in such
capacity since August 1984, and Chairman of the Board of Directors of Centurion
Maritime Ltd., a company engaged in the shipping business, and has served in
such capacity since August 1984. Mr. Rynne is involved in international
maritime trading and consulting, dealing primarily in the Middle East in
hydrocarbon products and capital equipment. Mr. Rynne received a B.A. degree
from Columbia University in 1949.
Mr. William R. Smart has served as a member of the Company's Board
of Directors since June 1987. Mr. Smart is currently a director of Executone
Information Systems, Inc., an electronics manufacturer, and has served in such
capacity since September 1992. Mr. Smart was Chairman of the Board of
Directors of Electronic Associates, Inc., a manufacturer of electronic
equipment, from May 1984 until May 1992. Since November 1, 1983, Mr. Smart has
been Senior Vice President of Cambridge Strategic Management Group, a
management consulting firm. Mr. Smart is also a director of National
Datacomputer Company and Hollingsworth and Voss Company. Mr. Smart received a
B.S. degree in Electrical Engineering from Princeton University in 1941.
The Company's directors and executive officers are elected annually
to serve until their respective successors are duly elected and qualified.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10 percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Such reporting persons are required by regulation to furnish the Company with
copies of all Section 16(a) reports that they file.
Based solely on its review of the copies of such reports received by
it, or written representations from certain reporting persons that no Form 5
was required for those persons, the Company believes that, during the period
from January 1, 1995 through December 31, 1995, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with, except that one report covering one transaction was
filed late by Mr. Kenneth Durham, a former director of the Company.
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<PAGE> 28
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table discloses compensation for services rendered by
the Company's Chief Executive Officer and all other executive officers of the
Company whose compensation exceeded $100,000 in 1995.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------- ------------------------------
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation Options(#) Compensation
- ------------------ ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
George N. Faris 1995 $240,000 - $45,103(1) 202,500(2) (3)
Chairman of the 1994 246,923 - - $16,250(4)
Board and Chief 1993 311,539 $25,134 - - 27,504(4)
Executive Officer
Kenneth N. Durham 1995 $144,726(5) - - - -
President and Chief 1994 169,173 - - - -
Operating Officer 1993 21,923(6) - - 30,000(7) -
Denis J. Fitzpatrick 1995 $105,000 - 18,497(8)(9) 20,000(2) -
Secretary, Vice 1994 38,462(10) - 6,250(9) 20,000(11) -
President and Chief 1993 - - - - -
Financial Officer
---------------------------------------
</TABLE>
(1) $35,503 of this amount constituted forgiveness of interest on a note
owed to the Company, the principle of which was repaid to the Company,
and $9,600 was paid as a vehicle allowance for Dr. Faris pursuant to his
contract.
(2) Options issued in substitution for outstanding options. The exercise
price was reduced to $1.00 per share.
(3) On October 13, 1995, the Company and Dr. Faris executed an amendment to
Dr. Faris' employment agreement, pursuant to which Dr. Faris
relinquished certain rights in exchange for 900,000 shares of Common
Stock. (See "Employment Contract" below). The amendment to the
employment agreement is subject to shareholder ratification. If the
shareholders do not ratify the amendment at the next annual meeting of
shareholders, the Company and Dr. Faris have agreed that the amendment
will not be effective.
(4) Includes split dollar life insurance premiums of $16,250 in 1994 and
$22,960 in 1993 and term life insurance premiums of $4,544 in 1993 paid
by the Company on behalf of Dr. Faris.
(5) Mr. Durham resigned from employment with the Company effective on
November 3, 1995.
(6) Mr. Durham joined the Company in November 1993 at an annual salary level
of $190,000.
(7) Options awarded upon hiring. All such options expired 90 days after Mr.
Durham's resignation.
(8) Mr. Fitzpatrick was awarded 5,000 restricted shares of Common Stock as a
signing bonus, which shares were issued in 1995.
(9) Cost of living allowance payable while Mr. Fitzpatrick is based in New
York is $15,000 annually.
(10) Mr. Fitzpatrick joined the Company on August 15, 1994 at an annual
salary level of $105,000.
(11) Options awarded upon hiring, 50% of which are exercisable one-year after
issuance, the remainder of which are exercisable after two years.
STOCK OPTION PLANS
The Company has established three employee stock option plans. The
three plans provide for the grant of options to qualified employees (including
officers and directors) of the Company, independent contractors, consultants
and other persons to purchase an aggregate of 3,650,000 shares of Common Stock.
The exercise price of the options granted under each plan cannot be less than
the fair market value of the shares of Common Stock on the date the option is
granted. If an option granted under any of the plans terminates or expires
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<PAGE> 29
without having been exercised in full, the unexercised shares subject to that
option will be available for a further grant of options under such plan.
Options may not be transferred other than by will or the laws of descent and
distribution and, during the lifetime of the optionee, may be exercised only by
the optionee.
The 1988 Incentive Stock Option Plan (the "Incentive Stock Option Plan")
is to be administered by the Board of Directors of the Company or a Committee
designated by them. Under the Incentive Stock Option Plan, only full-time
employees, including officers and managerial or supervising personnel, are
eligible to receive Incentive Stock Options, as defined in Section 422(b) of
the Internal Revenue Code of 1986, as amended ("ISO's"). ISO's may not be
granted under the Incentive Stock Option Plan after July 1998. ISO's granted to
Shareholders owning 10% or more of the outstanding voting power of the Company
must be exercised at a price equal to 110% of the fair market value of the
shares of Common Stock on the date of grant. The maximum number of shares of
Common Stock reserved for issuance pursuant to the Incentive Stock Option Plan
is 100,000. As of April 10, 1996, no options were outstanding pursuant to this
plan.
The 1988 Non-Qualified Stock Option Plan (the "Non Qualified Stock
Option Plan") provides for the grant from time to time to key employees of the
Company (including officers and directors of the Company) of options to
purchase Common Stock at an exercise price determined by disinterested members
of the Company's Board of Directors or by a Stock Option Committee which may be
appointed. Options are granted for a five-year period and become exercisable
on a pro-rata basis over three years at the end of each month subsequent to the
date of grant, provided the optionee is employed by the Company at the end of
such month. The maximum number of shares of Common Stock reserved for issuance
pursuant to the Non-Qualified Stock Option Plan is 50,000. As of April 10,
1996, no options were outstanding pursuant to this plan.
The Company's 1995 Stock Option Plan (the "1995 Plan") was approved by
the Board of Directors on November 8, 1995, and it is subject to shareholder
approval. If the shareholders do not approve the 1995 Plan, all options issued
under the 1995 Plan will be non-qualified stock options. The 1995 Plan is to
be administered by the Board of Directors of the Company or a Committee
designated by them. Under the 1995 Plan employees, including officers and
managerial or supervising personnel, are eligible to receive ISO's or ISO's in
tandem with stock appreciation rights ("SAR's"), and employees, directors,
contractors and consultants are eligible to receive non-qualified stock options
("NQSO's") or NQSO's in tandem with SAR's.
Options may not be granted under the 1995 Plan after November 7, 2005.
ISO's granted to Shareholders owning 10% or more of the outstanding voting
power of the Company must be exercised at a price equal to 110% of the fair
market value of the shares of Common Stock on the date of grant. The aggregate
fair market value of Common Stock, as determined at the time of the grant with
respect to which ISO's are exercisable for the first time by any employee
during any calendar year, shall not exceed $100,000. Any additional Common
Stock as to which options become exercisable for the first time during any such
year are treated as NQSO's. The maximum number of shares of Common Stock
reserved for issuance pursuant to the 1995 Plan is 3,500,000. The total number
of options granted under the 1995 Plan, as of April 10, 1996 was 302,500, which
were merely repriced options granted in substitution for options previously
held.
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<PAGE> 30
OPTION GRANTS IN LAST FISCAL YEAR
The table below includes the number of stock options granted to certain
executive officers during the year ended December 31, 1995, exercise
information and potential realizable value. All of the options granted in 1995
were repriced options granted in substitution for options previously held by
such officers.
<TABLE>
<CAPTION>
Individual Grants
----------------- Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Annual Rates of Stock
Underlying Granted to Price Appreciation
Options Employees Exercise Expiration for Option Term
Name Granted(#) in Fiscal Year Price($/sh) Date 5%($) 10%($)
- ---- ---------- -------------- ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
George N. Faris 202,500 82.7% $1.00 12/31/97 -0- -0-
Denis J. Fitzpatrick 20,000 8.2% $1.00 8/15/98 -0- -0-
</TABLE>
AGGREGATE OPTION EXERCISES IN 1995 AND OPTION VALUES AT DECEMBER 31, 1995
The table below includes the number of shares covered by both
exercisable and unvested stock options owned by certain executive officers as
of December 31, 1995. Also reported are the values for "in-the-money" options
which represent the positive spread between exercise price of any such stock
options and the year-end price.
<TABLE>
<CAPTION>
Shares
Acquired or Value Number of Unexercised Value of Unexercised
Name Exercised Realized Options at Year End (#) In-the-money Options(1)
- ---- ----------- -------- ----------------------- -----------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George N. Faris - - 202,500 - - -
Kenneth N. Durham - - 20,000(2) 10,000 - -
Denis J. Fitzpatrick - - 10,000 10,000 - -
</TABLE>
- -------------------------------
(1) The closing price of the Common Stock on the last day of the year ended
December 31, 1995 was $.63.
(2) Mr. Durham left the Company on November 3, 1995, and his options expired
on February 1, 1996.
EMPLOYMENT CONTRACT
Effective May 1, 1989, the Company entered into a five-year employment
agreement with George N. Faris at an annual salary of $200,000, which agreement
was extended, in November 1990, for an additional two years. In November 1991,
Dr. Faris' salary was increased to $250,000 effective retroactively to January
1, 1990. Additionally, in February 1992, the Board increased Dr. Faris' salary
to $300,000 per year effective January 1, 1992. In April 1994, Dr. Faris
voluntarily reduced his salary to $240,000 per year. In February 1996, Dr.
Faris' salary was reinstated to $300,000 per year effective February 1, 1996.
Pursuant to the employment agreement, In the event that there is a
change in control of the Company which Dr. Faris and a majority of the
Company's Board of Directors approve, Dr. Faris will be entitled, upon such
change of control, to terminate his employment and receive 2.9 times his fixed
compensation as defined in the employment agreement. However, if Dr. Faris
opposes a change in control, but the majority of the Board of Directors votes
in favor of such change, then Dr. Faris may terminate his employment and
receive 2.5 times his fixed compensation. In the event Dr. Faris' employment
is terminated prior to the expiration of his contract for reasons other than
cause or death, or if such employment agreement is not renewed at termination,
the Company must pay
-30-
<PAGE> 31
severance to Dr. Faris in an amount equal to the product of his number of years
of service, beginning with the calendar year 1981, multiplied by $50,000. Such
payments are to be made in annual installments of $250,000 beginning on the
tenth day after termination or non-renewal.
On September 7, 1995, the Board of Directors approved an amendment to
Dr. Faris' employment agreement, which was signed by Dr. Faris and the Company
on October 13, 1995, and which is subject to shareholder ratification. If the
shareholders ratify the amendment, the rights of Dr. Faris described in the
previous paragraph would terminate, and Dr. Faris would receive, in exchange,
900,000 shares of restricted stock of the Company. Otherwise, the amendment
will not be effective.
SALARY REINSTATEMENTS
In April 1994, officers of the Company voluntarily reduced their
salaries (the Chief Executive Officer by 20% and other officers by 15%) until,
in February 1996, the Compensation Committee recommended, and the Board of
Directors approved, a reinstatement of these officers' salaries to their
previous levels, effective February 1, 1996. The reinstatement was made to
provide the necessary incentives to management to continue their efforts under
very difficult circumstances and to ensure that the Company maintains a
competititive position in the industry regarding the contuity of the employment
of its officers. During the past two fiscal years, Management has
significantly reduced general and administrative and operating costs (See "Item
7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations"). In addition, in 1995, the volume and
discounted value of the Company's equivalent oil reserves increased by 44% and
23%, respectively.
COMPENSATION OF DIRECTORS
During 1995, the Company reimbursed directors for their actual
Company-related expenses, including the costs of attending directors' meetings.
The Company accrued, for each outside director, $500 per month for serving in
such capacity; $500 per each Committee meeting, if such director served on a
Standing Committee of the Board of Directors; and $500 for each Board meeting
attended in person. A former director, Robert Stobaugh, received 19,000 shares
of restricted stock of the Company in payment of director fees accrued but not
paid to him.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee was an officer or employee of
the Company or of any of its subsidiaries during the prior year or was formerly
an officer of the Company or any of its subsidiaries. During the last fiscal
year, none of the executive officers of the Company has served on the Board or
Compensation Committee of any other entity whose officers served either on the
Board of Directors of the Company or on the Compensation Committee of the
Company.
-31-
<PAGE> 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 10,
1996, regarding (i) each person known by the Company to be the owner of more
than 5% of the outstanding Common Stock, (ii) each director, (iii) each
executive officer named in the Summary Compensation Table above, and (iv) all
directors and executive officers as a group. The number of shares beneficially
owned by each director or executive officer is determined by the rules of the
Securities and Exchange Commission, and the information is not necessarily
indicative of beneficial ownership for any other purpose.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Holder Beneficial Ownership of Class
- -------------------- -------------------- --------
<S> <C> <C>
George N. Faris 1,082,576(1)(2) 4.0%(2)
Daniel Y. Kim 13,500(3) *
Donald G. Rynne 307,780(4) 1.1%
William R. Smart 117,944(5) *
Denis J. Fitzpatrick 25,000(6) *
All officers and directors
as a group (consisting of
6 persons) 1,547,800 (7) 5.6%
</TABLE>
- -----------------------------
* Less than 1% of class
(1) Includes 29,800 shares of Common Stock owned by Mrs. Claudette Faris,
Dr. Faris' wife, and 488,169 shares of Common Stock issuable upon
exercise of stock options and warrants held by Dr. Faris. Also includes
7,600 shares of Common Stock issuable upon exercise of warrants held by
Mrs. Faris.
(2) Dr. Faris has agreed to accept 900,000 shares of Common Stock, subject
to shareholder ratification, in exchange for certain rights under his
employment agreement. (See "Item 11--Executive Compensation--Employment
Contract.") If shareholders ratify the amendment to Dr. Faris'
employment agreement, Dr. Faris would be deemed to beneficially own 7.0%
of the Common Stock.
(3) Includes 5,500 shares of Common Stock issuable upon exercise of a like
number of options owned by Dr. Kim.
(4) Includes 99,260 shares of Common Stock issuable upon exercise of a like
number of options and warrants owned by Mr. Rynne.
(5) Includes 61,986 shares of Common Stock issuable upon exercise of a like
number of options and warrants owned by Mr. Smart.
(6) Includes 20,000 shares of Common Stock issuable upon exercise of options
owned by Mr. Fitzpatrick.
(7) Includes all of the shares of Common Stock issuable upon exercise of
options and warrants described in Notes (1) through (6) above, plus
1,000 shares of Common Stock issuable upon exercise of options owned by
another officer of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Item 11 - Executive Compensation - Employment Contract".
-32-
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(A)DOCUMENTS FILED AS PART OF THE REPORT
<TABLE>
<CAPTION>
(1) FINANCIAL STATEMENTS.
PAGE NO.
--------
<S> <C>
Reports of Independent Accountants F-1
Consolidated Balance Sheet - F-6
December 31, 1995 and 1994
Consolidated Statement of Operations -
Years Ended December 31, 1995, 1994 and 1993 F-7
Consolidated Statement of Cash Flows
Years Ended December 31, 1995, 1994 and 1993 F-8
Consolidated Statement of Changes in
Stockholders' Equity - Years Ended
December 31, 1995, 1994 and 1993 F-9
Notes to Consolidated Financial Statements F-12
Supplementary Oil and Gas Information F-34
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES.
None.
(3) EXHIBITS.
3.1 Certificate of Incorporation of the Registrant, as amended. (1)
3.2 Certificate of Amendment to Articles of Incorporation, dated June 29,
1988.(2)
3.3 Certificate of Amendment to Articles of Incorporation, dated August
10, 1988. (2)
3.4 Certificate of Amendment to Articles of Incorporation, dated November
18, 1993. (7)
3.5 By-Laws of the Registrant, as amended.
4.1 Indenture dated January 20, 1993, governing the Registrant's 12%
Secured Debentures Due 1997.(6)
4.2 Form of Class A Warrant. (8)
4.3 1995 Stock Option Plan and Form of Option Agreements of the
Registrant.
4.4 Form of Debenture and Subscription Agreements dated March 21, 1996
between the Company and purchasers listed on Schedule A attached
thereto.
10.1 Employment Agreement, dated May 1, 1989 by and between George N. Faris
and the Registrant.(3)
10.2 Loan and Security Agreement ("Loan Agreement") dated December 4, 1990
by and between MG Trade Finance Corp. ("MGTF") and AIRI. (4)
10.3 Schedule of construction and Other Loan Uses attached to the Loan
Agreement. (4)
10.4 Schedule of JP-4 Construction Permitted After December 15, 1990
attached to the Loan Agreement.(4)
-33-
<PAGE> 34
10.5 Corporate Continuing Guarantee of the Registrant to MGTF, dated
December 4, 1990. (4)
10.6 Pledge Agreement, dated as of the 4th day of December 1990, by and
among the Registrant, AIRI and MGTF. (4)
10.7 Shareholder Distribution Agreement dated as of the 4th day of December
1990, by and between the Registrant, AIRI and MGTF. (4)
10.8 Form of Sale of Indebtedness and Assignment of Collateral Mortgage
Notes and Security Documents. (4)
10.9 Form of Collateral Mortgage Note drawn by AIRI. (4)
10.10 Form of Amended and Restated Collateral Pledge Agreement drawn by AIRI
(Inventory). (4)
10.11 Form of Amended and Restated Collateral Pledge Agreement drawn by AIRI
(Fixed Assets). (4)
10.12 Environment Indemnity Agreement dated December 4, 1990 by and between
AIRI, the Registrant and MG. (4)
10.13 Amendment to Loan and Security Agreement, dated as of September 26,
1991. (5)
10.14 Pledge and Security Agreement, dated January 20, 1993, by and between
American International Petroleum Corporation and Society National Bank
as Trustee. (6)
10.15 Letter Agreement, dated January 4, 1995, by and between American
International Petroleum Corporation and P.T. Ustraindo Petrogas.(9)
10.16 Promissory Note, dated March 15, 1995 from Gold Line Refining, Ltd. to
American International Petroleum Corporation.(9)
10.17 Amended and Restated Lease Agreement between Gold Line and AIRI dated
March 22, 1995.(9)
10.18 Letter Agreement dated March 22, 1995 amending Loan and Security
Agreement(9)
10.19 Subordination and Standby Agreement dated March 22, 1995 between
NationsBank, Gold Line Refining, Ltd., Citizens Bank and AIRI.
10.20 Intercreditor Letter Agreements dated March 22, 1995 between MGTF,
Citizens Bank and AIRI.
10.21 Amendment #1 to Employment Agreement, dated October 13, 1995, between
George N. Faris and the Registrant(10).
10.22 Letter dated February 9, 1996 amending Promissory Note between AIRI
and Gold Line Refining Ltd.
21.1 Subsidiaries of the Registrant.(9)
27.1 Financial Data Schedule.
- -------------------------
(1) Incorporated herein by reference to the Registration Statement on Form
S-1, declared effective on February 16, 1988 (File No. 33-17543).
(2) Incorporated herein by reference to the Registration Statement on Form
S-1 File No. 33-23584 declared effective on January 27, 1989.
-34-
<PAGE> 35
(3) Incorporated herein by reference to the Registration Statement on Form
S-1 declared effective on February 13, 1990.
(4) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K, dated December 4, 1990.
(5) Incorporated herein by reference to the Registration Statement on ForM
S-1, declared effective November 9, 1992.
(6) Incorporated herein by reference to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992.
(7) Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
(8) Incorporated herein by reference to the Registration Statement on Form
S-2, declared effective January 13, 1994.
(9) Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
(10) Incorporated herein by reference to Amendment #19 to Schedule 13D of
George N. Faris for October 13, 1995.
(B) REPORTS ON FORM 8-K
None.
-35-
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
American International Petroleum Corporation
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the index appearing under Item
14(a)(1) on page 33 present fairly, in all material respects, the financial
position of American International Petroleum Corporation and its subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements for the year ended
December 31, 1995 of American International Petroleum Corporation of Colombia
(AIPC-Colombia), a wholly-owned subsidiary, which statements reflect total
assets of $14,136,257 at December 31, 1995 and total revenues of $1,214,213 for
the year ended December 31, 1995. Those statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for
AIPC-Colombia, is based solely on the report of the other auditors. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 2 and 11 to
the financial statements, the Company has suffered recurring losses from
operations, has a working capital deficiency and is in the process of trying to
resolve certain contingencies, all of which raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
Houston, Texas
April 9, 1996
F-1
<PAGE> 37
TRANSLATION OF AUDITOR'S REPORT
Bogota, March 15, 1996
To the Members of the Board of Directors
American International Petroleum Corporation of Colombia
I have audited the balance sheet of the Colombian Branch of American
International Petroleum Corporation of Colombia as of December 31, 1995 and the
corresponding statements of income, changes in the net worth of the Branch,
changes in the financial position and cash flows for the year 1995. The
presentation of those financial statements and their corresponding notes is the
responsibility of the Branch's administration and they reflect its performance.
It is among my functions to audit them and to render an opinion about them.
The financial statements of the Company for the year 1994 were audited by a
different Auditor, who expressed his opinion in his Report.
I obtained the necessary information to comply with my functions as Auditor and
conducted my work in accordance with generally accepted auditing standards
which require that the audit be planned and carried out to make sure that the
financial statements reasonably reflect the financial condition of the Company
and the results of its operations. An audit of financial statements implies,
among other things, to conduct an examination based on selective tests of the
evidence that support the figures and disclosures of the financial statements,
as well as to evaluate the accounting principles used, the accounting estimates
made by the administration and the presentation of the financial reports as a
whole. I consider that my audit provides a reasonable basis for the opinion
regarding the financial reports as expressed below.
In its accounting and in the presentation of the financial statements, the
Branch follows accounting principles generally accepted for oil companies,
established by the Superintendency of Companies and the Colombian law. In my
opinion, the financial statements previously mentioned, which were faithfully
taken from the books, present fairly the financial position of the Colombian
Branch of American International Petroleum Corporation of Colombia at December
31, 1995, the results of its operations, changes in its financial position and
its cash flows for the year then ended, in accordance with and based on
accounting principles generally accepted in Colombia.
Furthermore, it is also my opinion that the Branch's accounting for the year
ended on December 31, 1995 was kept in compliance with the legal norms and
accounting practices; the operations registered in the books and the
administrator's actions
F-2
<PAGE> 38
Bogota, March 15, 1996
To the Members of the Board of Directors
Page 2
complied with the statutes and the decisions of the Board of Directors of its
Home Office; the correspondence and vouchers of the accounts were duly carried
out and kept; and adequate measures of internal control and maintenance and
custody of the Branch's and third parties' assets in its possession were
observed.
BERNARDO VILLEGAS PEREZ
Auditor
Professional Card No. 4962-A
F-3
<PAGE> 39
INFORME DEL REVISOR FISCAL
Santafe de Bogota, D.C. Marzo 15 de 1996
A los senores Miembros de la Junta Directiva de
American International Petroleum Corporation Colombia
He auditado el balance general de la Sucursal en Colombia de American
International Petroleum Corporation of Colombia al 31 de Diciembre de 1995 y
los correspondientes Estados de Resultados, de cambios en el patrimonio, de
cambios en la situacion financiera y del flujo de efectivo del ano 1995. La
presentacion de dichos estados financieros y sus correspondientes notas son
responsabilidad de la administracion y estos reflejan su gestion. Entre mis
funciones se encuentra la de auditarlos y expresar una opinion funciones se
encuentra la de auditarlos y expresar una opinion sobre ellos. Los estados
financieros de la Compania correspondientes al ano 1994 fueron auditados por
otro Revisor Fiscal, quien en su informe expreso su opinion.
Obtuva la informacion necesaria para cumplir mi funcion de Revisor Fiscal y
lleve a cabo mi trabajo de acuerdo con normas de auditoria generalmente
aceptadas en Colombia; las cuales requieren que la auditoria sea planeada y
efectuada para cerciorarse de que los estados financieros reflejan
razonablemente la situacion financiera y las operaciones del ejercicio. Una
auditoria de estados financieros implica, entre otras cosas, hacer un examen
con base en pruebas selectivas de la evidencia que respaldan las cifras y las
revelaciones en los estados financieros; ademas evaluar los principios de
contabilidad utilizados, las estimaciones contables hechas por la
administracion y la presentacion de los estados financieros en conjunto.
Considero que mi auditoria provee una base razonable para la opinion que sobre
los estados financieros expreso mas adelante.
En su contabilidad y en la presentacion de los estados financieros la sucursal
observa normas contables de general aceptacion para Companias Petroleras
establecidas por la Superintendencia de Sociedades y las leyes colombianas. En
mi opinion los estados financieros antes mencionados, que fueron tomados
fielment ede los libros, presentan razonablemente la situacion financiera de
American International Petroleum Corporation of Colombia al 31 de Diciembre de
1995, los resultados de sus operaciones, los cambios en el patrimonio, en su
situacion financiera y en los flujos efectivos del ano terminados en esa fecha
de conformidad y con base en los principios de contabilidad generalmente
aceptados en Colombia.
F-4
<PAGE> 40
Santafe de Bogota, D.C. Marzo 15 de 1996
A los se#ores Miembros de la Junta Directiva
Pagina 2
Ademas conceptuo que durante el ano terminado en 31 de Diciembre de 1995 la
contabilidad de American International Petroleum Corporation of Colombia se
llevo de conformidad con las normas legales y la tecnica contable; las
operaciones en los libros y los actos de los administradores se ajustaron a los
estatutos y a las decisiones de la Junta Directiva de su Casa Matriz; la
correspondencia, los comprobantes de las cuentas se llevaron y conservan
debidamente; se observaron medidas adecuadas de control interno y conservacion
y custodia de los bienes de American Internatioal Petroleum Corporation of
Colombia y de terceros en su poder.
BERNARDO VILLEGAS PERES
Revisor Fiscal
Tarjeta Profesional 4962-A
F-5
<PAGE> 41
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1995 1994
---- ----
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 162,218 $ 943,371
Cash - restricted 226,223 214,630
Accounts receivable, net 1,073,553 1,031,206
Inventory 504,953 951,472
Prepaid expenses 547,509 484,525
--------------- --------------
Total current assets 2,514,456 3,625,204
--------------- --------------
Property, plant and equipment:
Unevaluated property 4,998,824 4,467,147
Oil and gas properties 31,566,297 28,903,520
Refinery property and equipment 15,521,995 15,536,279
Other 506,445 540,753
--------------- --------------
52,593,561 49,447,699
Less - accumulated depreciation, depletion
and amortization (22,502,472) (21,167,110)
--------------- --------------
Total property, plant and equipment 30,091,089 28,280,589
--------------- --------------
Other long-term assets, net 34,817 323,920
--------------- --------------
Total assets $ 32,640,362 $ 32,229,713
=============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable $ 66,759 $ -
Current portion of long-term debt 1,870,000 1,168,750
Accounts payable 2,363,562 1,383,082
Accrued liabilities 1,616,678 1,101,834
--------------- --------------
Total current liabilities 5,916,999 3,653,666
Long-term debt 5,432,671 6,601,421
--------------- --------------
Total liabilities 11,349,670 10,255,087
--------------- --------------
Stockholders' equity:
Preferred stock, par value $3.00, 7,000,000 shares
authorized, none issued
Common stock, par value $.08, 50,000,000 shares
authorized, 24,705,926 shares issued and outstanding
at December 31, 1995 and 19,099,048 shares at
December 31, 1994 1,976,474 1,527,924
Additional paid-in capital 74,768,272 71,562,434
Stock purchase warrants 1,297,754 1,297,754
Accumulated deficit (56,751,808) (52,413,486)
--------------- --------------
Total stockholders' equity 21,290,692 21,974,626
--------------- --------------
Commitments and contingent liabilities (Note 11) - -
--------------- --------------
Total liabilities and stockholders' equity $ 32,640,362 $ 32,229,713
=============== ==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 42
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Oil and gas production and
pipeline fees $ 1,270,164 $ 1,205,424 $ 1,874,020
Refinery lease fees 1,184,864 2,065,437 1,734,605
Other 356,280 237,653 381,531
--------------- --------------- ---------------
Total revenues 2,811,308 3,508,514 3,990,156
--------------- --------------- ---------------
Expenses:
Operating 432,440 615,934 1,303,936
General and administrative 3,572,337 4,136,276 4,073,379
Depreciation, depletion and
amortization 1,396,423 1,500,558 1,135,862
Interest 1,037,308 1,299,778 1,429,608
Write-down of oil and gas properties - 6,904,016 9,975,000
Provision for bad debts 711,122 18,866 64,861
Provision for net unrealized loss on
noncurrent marketable securities - - 147,247
--------------- --------------- ---------------
Total expenses 7,149,630 14,475,428 18,129,893
--------------- --------------- ---------------
Net loss $ (4,338,322) $ (10,966,914) $ (14,139,737)
=============== =============== ===============
Net loss per share of common stock $ (0.20) $ (0.65) $ (2.23)
=============== =============== ===============
Weighted-average number of shares
of common stock outstanding* 21,746,719 16,780,865 6,344,026
=============== =============== ===============
</TABLE>
* Reflects the one-for-ten reverse stock split as described in Note 1.
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 43
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:-
Net loss $ (4,338,322) $ (10,966,914) $ (14,139,737)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 1,502,435 1,698,532 1,135,862
Write-down of oil and gas properties - 6,904,016 9,975,000
Provision for bad debts 711,122 18,866 64,861
Warrant price adjustment - 210,588 -
Provision for net unrealized loss on
noncurrent marketable securities - - 147,247
Compensation expense 55,814 - -
Changes in assets and liabilities:
Accounts and notes receivable (537,569) 286,491 311,357
Inventory 446,519 (55,864) (174,295)
Prepaid and other (98,359) 27,586 (120,837)
Accounts payable and accrued liabilities 1,984,574 (3,233,610) (847,300)
--------------- --------------- ----------------
Net cash used in operating activities (273,786) (5,110,309) (3,647,842)
--------------- --------------- ----------------
Cash flows from investing activities:
Additions to oil and gas properties (3,194,454) (5,556,593) (5,680,447)
Additions to refinery property and equipment 14,284 - (289,003)
Proceeds from sales of marketable securities - 301,201 -
Proceeds from sale of interest in well - - 1,000,000
Other (26,753) 25,037 6,998
------- --------------- ----------------
Net cash used in investing activities (3,206,923) (5,230,355) (4,962,452)
---------- --------------- ----------------
Cash flows from financing activities:
Cash - restricted, loan collateral (11,593) (214,630) 539,866
Net increase (decrease) in notes payable 66,759 (535,078) (104,020)
Increase (decrease) in notes payable -
officers and directors - (50,000) 50,000
Proceeds from long-term debt - 60,000 -
Repayments of long-term debt (467,500) (3,374,520) (906,610)
Proceeds from issuance of common stock and
warrants, net 3,111,858 14,977,922 2,646,449
Proceeds from exercise of stock warrants
and options 32 140 769,970
Proceeds from notes receivable for issuance
of common stock - 367,064 -
Proceeds from issuance of debentures, net - - 5,236,737
--------------- --------------- ----------------
Net cash provided by financing activities 2,699,556 11,230,898 8,232,392
--------------- --------------- ----------------
Net increase (decrease) in cash and
cash equivalents (781,153) 890,234 (377,902)
Cash and cash equivalents at beginning of year 943,371 53,137 431,039
--------------- --------------- ----------------
Cash and cash equivalents at end of year $ 162,218 $ 943,371 $ 53,137
=============== =============== ================
</TABLE>
The accompanying notes are an integral part of this statement.
F-8
<PAGE> 44
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
Common stock Additional Stock Notes
-------------------- paid-in purchase receivable Accumulated
Shares Amount capital warrants for issuance deficit Total
------- ------ ---------- -------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 19,099,048 $ 1,527,924 $ 71,595,370 $ 1,297,754 $ (32,936) $ (52,413,486) $ 21,974,626
Warrants exercised 8 1 31 - - - 32
Issuance of stock in lieu of
current liabilities 728,205 58,256 430,994 - - - 489,250
Issuance of stock for
compensation 10,000 800 19,512 - 32,936 - 53,248
Issuance of common stock 4,868,665 389,493 2,722,365 - - - 3,111,858
Net loss for the year - - - - - (4,338,322) (4,338,322)
----------- ----------- ------------ ----------- --------- ------------- ------------
Balance, December 31, 1995 24,705,926 $ 1,976,474 $ 74,768,272 $ 1,297,754 $ - $ (56,751,808) $ 21,290,692
=========== =========== ============ =========== ========= ============= ============
</TABLE>
Reflects the one-for-ten reverse stock split as described in Note 1.
The accompanying notes are an integral part of this statement.
F-9
<PAGE> 45
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
Common stock Additional Stock
------------ paid-in purchase
Shares Amount capital warrants
------- ------ ------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 7,064,233 $ 565,139 $ 57,000,210 $ -
Issuance of stock and warrants 11,382,548 910,603 13,169,565 1,297,754
Conversion of debentures 633,334 50,667 899,333 -
Issuance of stock for payment of
notes payable 8,525 682 12,105 -
Issuance of stock in lieu of current
liabilities 10,373 830 14,729 -
Issuance of stock for note receivable - - - -
Payment received on note receivable - - - -
Exercise of warrants 35 3 137 -
Adjustment to exercise price of warrants - - 210,588 -
Expired stock dividends - Aztec - - 288,703 -
Net loss for the year - - - -
----------- ------------ ------------- ------------
Balance, December 31, 1994 19,099,048 $ 1,527,924 $ 71,595,370 $ 1,297,754
=========== ============ ============= ============
<CAPTION>
Notes
receivable
for issuance Accumulated
of stock deficit Total
-------- ------- -----
<S> <C> <C> <C>
Balance, January 1, 1994 $ - $ (41,446,572) $ 16,118,777
Issuance of stock and warrants - - 15,377,922
Conversion of debentures - - 950,000
Issuance of stock for payment of
notes payable - - 12,787
Issuance of stock in lieu of current
liabilities - - 15,559
Issuance of stock for note receivable (400,000) - (400,000)
Payment received on note receivable 367,064 - 367,064
Exercise of warrants - - 140
Adjustment to exercise price of warrants - - 210,588
Expired stock dividends - Aztec - - 288,703
Net loss for the year - (10,966,914) (10,966,914)
---------- ------------- -------------
Balance, December 31, 1994 $ (32,936) $ (52,413,486) $ 21,974,626
========== ============= =============
</TABLE>
Reflects the one-for-ten reverse stock split as described in Note 1.
The accompanying notes are an integral part of this statement.
F-10
<PAGE> 46
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Additional
------------ paid-in Accumulated
Shares Amount capital deficit Total
------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 5,945,474 $ 475,638 $ 56,536,928 $ (27,306,835) $ 29,705,731
Stock dividend - Aztec - - (4,956,126) - (4,956,126)
Issuance of stock 851,636 68,131 2,578,318 - 2,646,449
Conversion of debt 5,000 400 49,600 - 50,000
Exercise of warrants and options 127,591 10,207 1,759,763 - 1,769,970
Issuance of stock in lieu of
current liabilities 28,737 2,299 232,244 - 234,543
Issuance of stock for payment
of notes payable 105,795 8,464 799,483 - 807,947
Net loss for the year - - - (14,139,737) (14,139,737)
------------ ------------ ---------------- ---------------- ----------------
Balance, December 31, 1993 7,064,233 $ 565,139 $ 57,000,210 $ (41,446,572) $ 16,118,777
============ ============ ================ ================ ================
</TABLE>
Reflects the one-for-ten reverse stock split as described in Note 1.
The accompanying notes are an integral part of this statement.
F-11
<PAGE> 47
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
American International Petroleum Corporation (the "Company") is incorporated in
the State of Nevada and, through its wholly-owned subsidiaries, is engaged in
petroleum exploration, drilling, production and marketing operations in
Colombia, Peru and Indonesia, and is the owner of a refinery in Lake Charles,
Louisiana.
Principles of consolidation
The consolidated financial statements of the Company include the accounts of
the Company and its wholly-owned subsidiaries, American International Refinery,
Inc. ("AIRI"), American International Petroleum Corporation of Colombia and Pan
American International Petroleum Corporation ("PAIPC").
Intercompany balances and transactions are eliminated in consolidation.
Cash and cash equivalents
All liquid short-term instruments purchased with original maturity dates of
three months or less are considered cash equivalents. Restricted cash
represents cash utilized as collateral for the Company's drilling commitments
in Peru. Subsequent to December 31, 1995, the Company fulfilled its drilling
requirements and the cash was released.
Inventory
Inventory consists of oil and gas equipment and is stated at the lower of
average cost or market.
Property, plant and equipment
Oil and gas properties
The Company follows the full cost method of accounting for exploration and
development of oil and gas reserves, whereby all costs incurred in acquiring,
exploring and developing properties are capitalized including estimates of
abandonment costs net of estimated equipment salvage costs. Individual
countries are designated as separate cost centers. All capitalized costs plus
the undiscounted future development costs of proved reserves are depleted using
the unit-of-production method based on total proved reserves applicable to each
country. Under the full cost method of accounting, unevaluated
F-12
<PAGE> 48
property costs are not amortized. A gain or loss is recognized on sales of oil
and gas properties only when the sale involves significant reserves. Costs
related to acquisition, holding and initial exploration of concessions in
countries with no proved reserves are initially capitalized and periodically
evaluated for impairment.
Certain geological and general administrative costs are capitalized into the
cost pools of the country cost centers. Such costs include certain salaries
and benefits, office facilities, equipment and insurance. Capitalized general
and administrative costs are directly related to the Company's exploration and
development activity in Colombia and Peru and totaled $472,606, $383,004 and
$485,494 for the years ended December 31, 1995, 1994 and 1993, respectively.
The net capitalized costs of oil and gas properties for each cost center, less
related deferred income taxes, are expensed to the extent they exceed the sum
of (i) the estimated future net revenues from the properties, discounted at
10%, (ii) unevaluated costs not being amortized; and (iii) the lower of cost or
estimated fair value of unproved properties being amortized; less (iv) income
tax effects related to differences between the financial statement basis and
tax basis of oil and gas properties. As a result of applying this policy, the
Company charged $6,904,016 and $9,975,000 to expense in 1994 and 1993,
respectively, for the reduction of carrying costs of oil and gas assets. No
such charge was required in 1995.
On March 31, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS No.
121 addresses the accounting for the impairment of long-lived assets,
identified intangibles and goodwill related to those assets and requires that
the carrying amount of impaired assets be reduced to fair value. The Company
adopted SFAS No. 121 in the fourth quarter of 1995 and determined that it has
no effect on the financial statements for the year ended December 31, 1995.
Property and equipment - other than oil and gas properties
Property and equipment are carried at cost. Depreciation and amortization are
calculated under the straight-line method over the anticipated useful lives of
the assets which range from 5 to 25 years. Major additions are capitalized.
Expenditures for repairs and maintenance are charged against earnings.
Earnings per share
Earnings per share of common stock are based on the weighted-average number of
shares outstanding. Fully diluted earnings per share amounts are not presented
because they are anti-dilutive.
On October 6, 1993, the Company's Board of Directors approved a one-for-ten
reverse split of its common stock. Accordingly, the financial statements and
related footnotes have been restated to reflect this reverse stock split where
applicable.
F-13
<PAGE> 49
Foreign currency
The U.S. dollar is the functional currency of the Company. Foreign currency
transaction gains and losses are included in the consolidated statement of
operations. The Company does not engage in hedging transactions to reduce the
risk of foreign currency exchange rate fluctuations and has not experienced
significant gains or losses related to such events. The Company collects sales
of oil and gas in Colombia and Peru in local currency and utilizes receipts for
local operations. Periodically, funds are transferred from U.S. accounts to
Colombia or Peru and converted into pesos or soles, respectively, when local
currency is insufficient to meet obligations payable in local currency.
Foreign exchange gains were $12,544, $34,300 and $230,156 in 1995, 1994 and
1993, respectively.
Deferred charges
The Company capitalizes certain costs associated with the offering and sale of
debentures. Such costs are amortized as interest expense over the life of the
related debt instrument.
Stock-based compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" defines a fair value
based method of accounting for an employee stock option or similar equity
instrument or plan. However, SFAS No. 123 allows an entity to continue to
measure compensation costs for these plans using the current method of
accounting. AIPC has elected to continue to use the current method of
accounting for employee stock compensation plans and, beginning in 1996, will
disclose the fair value as defined in SFAS No. 123, which may be materially
different from the recorded amount.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of certain assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Management believes that the estimates are reasonable.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE 2 - MANAGEMENT'S PLANS:
The Company has incurred losses of $4,338,322, $10,966,914 and $14,139,737 for
the years ended December 31, 1995, 1994 and 1993, respectively. The Company
also had negative working capital of $3,403,000 at December 31, 1995, which
included approximately $2,122,000 of principal and interest due on its 12%
Secured Debentures. During 1995, the lessee of the Company's refinery (Gold
Line Refining Inc. ("Gold Line") incurred various financial and purchasing
problems which resulted
F-14
<PAGE> 50
in diminished throughput volumes and lower lease fees to the Company. These
events prevented Gold Line from making its scheduled note payments to the
Company. This situation, coupled with other operating losses and the negative
working capital required the Company to find other sources with which to fund
its operations and meet its financial obligations. As a result, the Company
issued 5,606,870 shares of its common stock for cash and services rendered to
the Company of approximately $3,723,000 during 1995.
During the first quarter of 1996, the Company received cash and settled certain
liabilities totaling approximately $991,000 from the sales and issuance of its
common stock (Note 18). Further, in March 1996, the Company received
$1,350,000 in net proceeds from the private placement of 10% Convertible
Debentures to certain foreign buyers. Funds from these transactions enabled
the Company to make payments of principal and interest on its 12% Secured
Debentures and settle certain other obligations outstanding at December 31,
1995 totaling approximately $1,800,000.
In March 1996, Gold Line secured the necessary financing to enable it to be
awarded a one-year fuel supply contract from the Defense Fuel Supply Center
("DFSC"), valued at approximately $45 million. This contract, when coupled
with its other DFSC contract, brings the total of Gold Line's annual contracts
to approximately $69 million. These contracts are expected to require Gold
Line to process a minimum of 16,000 barrels of feedstock per day through the
refinery, which would result in monthly lease fees to the Company of
approximately $245,000 and could enable Gold Line to repay its debt to the
Company as originally scheduled, approximately $160,000 of principal and
interest per quarter.
The Company has received one offer and inquiries from various companies
regarding a farmout of its new Chicoral discovery and its other Colombian
properties in return for cash and drilling on the Company's behalf in the
Toqui-Toqui Field. Such a transaction could provide the Company with the
necessary capital to repay the recently-issued 10% Debenture, while
establishing a plan for full exploitation of the Chicoral discovery over an
aggressive timeline with little or no cost to the Company.
The Company is currently having discussions with the principal holder of its
12% Secured Debentures, MG Trade Finance Corporation ("MGTF"), regarding the
possibility of prepaying the total balance of MGTF's Debentures and Note, which
together total approximately $5.5 million as of April 9, 1996. MGTF has been in
the process over the past few months of closing its business affairs in the
United States and has indicated a desire to negotiate a prepayment of the
Company's debts to MGTF at a discount from face value. Concurrent with these
discussions, the Company has been meeting with various financial institutions
and industry participants who may provide the Company with the capital
necessary to allow it to prepay its debts to MGTF and develop its oilfields in
South America.
The Company is also engaged in negotiations with Far Eastern Hydrocarbons Ltd.
("FEH"), a Hong Kong corporation, to exchange shares of the Company's common
stock in return for 100% of the outstanding common stock of a wholly-owned
subsidiary of FEH. FEH has indicated a desire to provide the necessary
financing, or guarantees for same, to enable the Company to actively participate
in the international energy community. In addition, the oil fields owned by FEH
are producing significant amounts of cash flow, which could also be utilized to
fund the Company's operations, if necessary.
F-15
<PAGE> 51
Management believes the proceeds generated from its internal operations should
be significantly enhanced by the increased operations at its refinery resulting
from Gold Line's new contract. This increase in cash flow, combined with the
development of its new discovery in Colombia and net borrowings from external
sources, should provide the Company with the funds necessary to meet its
working capital obligations and operating commitments during the ensuing fiscal
year.
The Company is also currently having discussions with various banking
institutions in the United States and abroad regarding financing for the
contemplated operation of the vacuum distillation unit at its refinery to
produce asphalt and vacuum gas oil. In addition, the Company has alternative
methods of obtaining funds, including private or public equity and debenture or
mezzanine financing, some of which it has utilized successfully in the past.
In the event the Company is unable to raise sufficient proceeds from debt
financing, the exercise of outstanding options and warrants, farmout proceeds,
or from the consummation of additional equity financing, of which there is no
assurance, the Company may be required to postpone and/or curtail its planned
development activities at the refinery and in Colombia, Peru and/or Indonesia
(Note 11).
NOTE 3 - STOCKHOLDER RIGHTS OFFERING:
In March 1994, the Company completed an offering of rights to its stockholders.
Each right was exercisable for $3.00 and entitled the holder to two shares of
common stock and one redeemable warrant to acquire an additional share of
common stock at any time prior to March 1, 1997 at an exercise price of $4.00.
The Rights Offering resulted in the exercise of 5,957,390 rights for gross
proceeds of $17,872,170.
Gross proceeds consisted of the surrender of $950,000 of the Company's 12%
secured debentures, receipt of $16,521,000 cash and issuance of a $400,000 note
receivable bearing interest at 10% per annum to an officer of the Company,
$367,064 of which was repaid in 1994. The Company paid commissions of
$1,181,757 from gross proceeds to various placement agents. Additionally, the
Company incurred approximately $484,000 of expenses related to the offering.
Proceeds from the offering were utilized for general corporate purposes
including exploration and development of the Company's prospects in Colombia
and Peru, repayment of debt and for working capital.
F-16
<PAGE> 52
NOTE 4 - ACCOUNTS AND SHORT-TERM NOTES RECEIVABLE:
Accounts receivable are shown below:
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Accounts receivable - trade $ 939,958 $ 778,274
Note receivable - Gold Line 1,058,971 287,866
Other 139,082 29,927
----------- ----------
2,138,011 1,096,067
Less - allowance for doubtful accounts (1,064,458) (64,861)
----------- ----------
$ 1,073,553 $1,031,206
=========== ==========
</TABLE>
NOTE 5 - OTHER LONG-TERM ASSETS:
Other long-term assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Note receivable - Gold Line $ 974,583 $ 1,481,524
Unamortized bond issue cost 34,817 105,454
---------- -----------
1,009,400 1,586,978
Less - allowance for doubtful accounts (974,583) (1,263,058)
---------- -----------
$ 34,817 $ 323,920
========== ============
</TABLE>
NOTE 6 - ACCOUNTS PAYABLE:
Accounts payable at December 31, 1995 and 1994 included $500,000 payable to an
individual subcontractor for oil and gas operational services which was paid
subsequent to December 31, 1995.
F-17
<PAGE> 53
NOTE 7 - ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Accrued payroll $ 366,499 $ 173,611
Accrued interest 347,247 404,113
Corporate taxes 275,206 148,798
Excise taxes 250,000 -
Property taxes 228,756 299,825
Other 148,970 75,487
---------- ----------
$1,616,678 $1,101,834
========== ==========
</TABLE>
NOTE 8 - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Note payable to MG Trade Finance Corporation $2,845,171 $2,845,171
12% secured debentures due December 31, 1997 - 25% of original
principal due on December 31, 1996 4,207,500 4,675,000
Senior convertible subordinated debentures - due February 1,
1997, interest ranges from 8.5-10.5% per annum, payable
quarterly, convertible into common shares at $50.00 per share. 250,000 250,000
---------- ----------
7,302,671 7,770,171
Less - current portion 1,870,000 1,168,750
---------- ----------
$5,432,671 $6,601,421
========== ==========
</TABLE>
Long-term debt of $1,870,000, $2,587,500 and $2,845,171 matures during 1996,
1997 and 1998, respectively.
Note payable to MG Trade Finance Corporation
On December 4, 1990, AIRI entered into a loan and security agreement (the "Loan
Agreement") with MGTF. Pursuant to the Loan Agreement, MGTF loaned AIRI
$9,855,392. As collateral for the borrowings, substantially all of the assets
of AIRI were pledged, payment was guaranteed by the
F-18
<PAGE> 54
Company and the Company pledged 100% of the common stock of AIRI. In the event
of a default, whereby AIRI common stock may be sold, MGTF will retain, after
satisfying all indebtedness due MGTF, an amount equal to 50% of the amount due
MGTF on the date of the default.
In order to induce MGTF to enter into the Loan Agreement, the Company granted
MGTF warrants to purchase 516,667 shares of the Company's $0.08 par value
common stock at $7.50 per share exercisable at any time prior to June 30, 1994.
Such warrants outstanding at December 31, 1993 were adjusted to an exercise
price of $1.25 based on an anti-dilutive provision in the warrant agreements.
In addition, MGTF's parent company, MG Corp., is entitled to one seat on the
Company's Board of Directors without the consent of the Company and a second
seat upon the consent of the Company's Board, which consent is not to be
unreasonably withheld. One of these seats would then be eligible to be
appointed to the Executive Committee, also upon consent of the Company's Board,
which consent is not to be unreasonably withheld. MGTF has not made such a
request. As long as the Company has any obligations to MGTF, the Company has
agreed not to undertake any financial commitments, or acquire or dispose of
assets in excess of $250,000 without the unanimous consent of the Executive
Committee. MGTF has not nominated any persons to be on the Board.
In November 1992, MGTF agreed to modify the Loan Agreement and extend the
maturity of a portion of the principal due on May 31, 1993. Under the modified
agreement, principal payments of $3,374,520 were made during 1994 and the
remaining principal of $2,845,171 was due May 31, 1995. In consideration for
the extension, the Company agreed to extend the expiration date of all warrants
held by MGTF and its affiliate, Metallegesllschaft, that remain outstanding on
December 31, 1993 or June 30, 1994, to June 30, 1997. The exercise price of
any warrants subject to the extension was increased to $15.63 per share of
common stock. All warrants previously held by MGTF were returned to the
Company and canceled and 150,000 new warrants were issued at an exercise price
of $2.00 per share of common stock.
In March 1995, MGTF agreed to further modify the Loan Agreement and extend the
maturity of the $2,845,171 principal originally due from the Company on May 31,
1995. Under the modified agreement, the balance of principal is now due on
March 31, 1998. Previously, all monthly lease fees received pursuant to the
terms of any lease of the refinery were required to be remitted to MGTF in
repayment of the loan principal and interest. Under the modified Loan
Agreement, one-half of the monthly lease fees are required to be remitted to
MGTF and the related interest rate was reduced from prime plus 2.0% to prime
plus 1.0%. Pursuant to the Loan Agreement, AIRI granted MGTF an option to
lease the refinery for a period of 13 months commencing after the expiration of
the current lease (Note 9). Any such lease will call for a rental, net of all
operating expenses, of $.45 per barrel for a minimum throughput of 18,000 bbls
per day, and $.48 per barrel for any amounts in excess of 18,000 bbls per day.
The Loan Agreement with MGTF contains various events of default including, but
not limited to, failure to make principal or interest payments in a timely
manner, transfers of funds by dividend or other means from AIRI to the Company,
age of accounts payable amounts and refurbishment and maintaining adequate
insurance coverage. An event of default, if declared and not cured within the
allowed time,
F-19
<PAGE> 55
would permit MGTF to accelerate the loan and demand immediate payment. At
various times during 1995, 1994 and 1993, the Company has been in technical
default with respect to certain monetary covenants. The Company believes it
will continue to be successful in negotiating the resolution of such compliance
issues with MGTF.
NOTE 9 - REFINERY LEASE:
In October 1990, the Company leased its refinery to Gold Line. All amounts
owed to AIRI by Gold Line on October 1, 1992 were restructured to a note
totaling $1,244,192, due on September 30, 1995 bearing interest at prime plus
2%. The note was to be retired in monthly instalments equal to 10% of Gold
Line's monthly operating cash flow, if such operating cash flow was positive.
No amounts were collected pursuant to this provision and the note was fully
reserved for during 1992. No interest was accrued with respect to this note.
On March 22, 1995, the term of the lease was extended through March 31, 1998.
In consideration for extending the lease, Gold Line executed a $1,801,464
promissory note (which amount includes the $1,244,192 note referred to above
and certain trade receivables owed the Company by Gold Line of $506,332 at
December 31, 1994) payable in instalments of principal and interest through
June 15, 1997. The promissory note bears interest at prime plus 1%. The
Company established a reserve for doubtful accounts of $2,039,041 and
$1,327,919 at December 31, 1995 and 1994, respectively.
In the event Gold Line funds and constructs a vapor recovery unit (the "VRU")
at the Refinery, the Company will reduce the principal by $650,000. If Gold
Line does not build the VRU, it will pay the Company additional monthly
payments of $108,333 during the final six months of the lease term. Lease fees
are based on refinery throughput. Terms of the lease called for rental fees of
$.40 per barrel of throughput during 1995 and $.50 per barrel from January 1,
1996 through March 31, 1998. The lease also calls for a monthly minimum
throughput of 10,000 barrels per day.
Fifty percent of the payments to the Company under this lease of the refinery
are to be paid to MGTF to retire principal and interest on the note payable to
MGTF (Note 8). In the event Gold Line defaults under the lease agreement, such
default would adversely affect the Company's ability to satisfy its obligations
to MGTF. This situation could then result in a default by the Company
thereunder if the Company is unable to pay interest on the MGTF note.
NOTE 10 - STOCK OPTIONS AND WARRANTS:
Outstanding warrants and options
At December 31, 1995, 1994 and 1993, the following warrants and options for the
purchase of common stock of the Company were outstanding, which are exercisable
upon demand any time prior to the expiration date. All amounts have been
restated to reflect the one-for-ten reverse stock split as described in Note 1.
F-20
<PAGE> 56
<TABLE>
<CAPTION>
Number of Shares Under
Options and Warrants
at December 31,
--------------------------------------------------------- Exercise Expiration
1995 1994 1993 Price Date
---- ---- ---- ----- ----
<S> <C> <C> <C> <C>
1,500 1,500 1,500 $ 36.2500 April 1, 1996
66,715 66,715 66,715 $ 32.5000 February 26, 1996
5,957,347 5,957,355 - $ 4.0000 March 1, 1996
7,988 7,988 7,988 $ 15.0000 March 10, 1996
3,000 3,000 3,000 $ 30.0000 August 28, 1996
20,000 20,000 20,000 $ 30.6250 July 14, 1997
282,500 - - $ 1.000 December 31, 1997 (2)
150,000 - - $ 2.000 March 31, 1998
20,000 - - $ 1.000 August 3, 1998 (2)
- 56,250 56,250 $ 20.0000 December 31, 1995
296,667 50,000 $ 15.6300 June 30, 1997
100,000 100,000 $ 16.8800 June 30, 1997
- 337,500 339,500 $ 4.0000 December 31, 1997 (2)
- 20,000 - $ 1.5000 August 3, 1998
- - 9,750 $ 11.0000 April 1, 1994
- - 10,000 $ 20.0000 April 1, 1994
- - 8,500 $ 12.5000 April 1, 1994
- - 3,830 $ 10.0000 April 1, 1994
- - 336,940 $ 1.2500 June 30, 1994 (1)
- - 500 $ 34.3000 January 1, 1995
- - 5,000 $ 36.2500 April 1, 1995
- - 5,000 $ 31.8500 December 31, 1995
- - 15,000 $ 35.0000 April 22, 1996
--------------- --------------- ---------------
6,509,050 6,866,975 1,039,473
=============== =============== ===============
</TABLE>
(1) The exercise price for the 336,940 warrants was adjusted to $1.25 per
share based on an anti-dilutive provision in the respective warrant
agreements.
(2) Represents options held by employees and directors of the Company. The
exercise price and expiration date of such options reflect the adjustments
approved by the Company's Board of Directors.
Options and warrants to purchase 8, 35 and 238,385 shares were exercised in
1995, 1994 and 1993, respectively, at prices of $4.00, $4.00 and ranging from
$6.00 to $25.00, respectively.
F-21
<PAGE> 57
Stock option plans
1995 Plan
Under the Company's 1995 Stock Option Plan (the "1995 Plan"), the Company's
employees, Directors, independent contractors, and consultants are eligible to
receive options to purchase shares of the Company's common stock. The Plan
allows the Company to grant incentive stock options ("ISOs"), nonqualified
stock options ("NQSOs"), and ISOs and NQSOs in tandem with stock appreciation
rights ("SARs"; collectively "Options"). A maximum of 3,500,000 shares may be
issued and no Options may be granted after ten years from the date the 1995
Plan is adopted, or the date the Plan is approved by the stockholders of the
Company, whichever is earlier. The exercise price of the Options cannot be
less than the fair market value of the shares of common stock on the date the
Option is granted. Options granted to individuals owning 10% or more of the
outstanding voting power of the Company must be exercisable at a price equal to
110% of the fair market value on the date of the grant.
At December 31, 1995, 302,500 Options were granted or outstanding under the
1995 Plan. The 1995 Plan will be submitted for approval to the Company's
stockholders at its annual meeting in 1996. If the Plan is not approved, the
302,500 options will be treated as NQSOs.
1988 Plans
Under the Company's 1988 Incentive Stock Option Plan, only full-time employees,
including officers, are eligible to receive options. A maximum of 100,000
shares may be issued and no options may be granted after July 1998. The
exercise price of the options cannot be less than the fair market value of the
shares of common stock on the date the option is granted. Options granted to
stockholders owning 10% or more of the outstanding voting power of the Company
must be exercisable at a price equal to 110% of the fair market value on the
date of the grant. There were no options granted under the Incentive Stock
Option Plan as of December 31, 1995. No options have been exercised under this
plan.
The Company's Nonqualified Stock Option Plan provides for the granting to key
employees of options to purchase the Company's common stock at a price
determined by the Board of Directors. Options are granted for a five-year
period. The maximum number of shares reserved for issuance pursuant to the
plan is 50,000. There were no options granted under the Nonqualified Option
Plan as of December 31, 1995. No options have been exercised under this plan.
NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES:
Drilling commitments
The Company has completed all its contractual work commitments in Colombia and
Peru.
F-22
<PAGE> 58
Indonesian agreements
Pamanukan Selatan -
In December 1995, the Company entered into a Farmout Agreement with P.T.
Pelangi Niaga Mitra Internasional ("PNMI"), an Indonesian privately-held
limited liability company, whereby the Company is expected to earn a 49%
working interest in a Technical Assistance Contract ("TAC") with Pertamina for
the Pamanukan Selatan area of West Java Province, Indonesia by providing 100%
of the funding for the exploration, development and operation of the TAC. Full
exploration and development of the TAC is expected to cost between $2 and $3
million over the next three years, of which approximately $700,000 will be
required during 1996. As a portion of its obligations under the farmout
agreement, the Company issued, pursuant to Regulation S of the Securities Act
of 1933, 100,000 shares of its common stock to PNMI. The Company will be the
operator of the joint operations and the TAC and is to be reimbursed for 175%
of all expenditures, pursuant to the cost recovery provisions in the TAC,
before any distribution of profits to PNMI can occur. The Company will also be
entitled to recoup indirect overhead charges up to five percent of total
expenditures, which amount will be part of the cost recovery.
All monetary obligations the Company may have under the farmout agreement are
subject to PNMI receiving governmental certification and Pertamina's approval
to conduct operations under this TAC, which are expected to occur by May of
1996.
Pamanukan Selatan includes an estimated 16 billion cubic feet of gas reserves.
The field's initial well tested at 5.7 million cubic feet of gas per day and is
temporarily shut-in pending construction of a 1.3 mile delivery pipeline
(unaudited).
In October 1995, the Company signed a memorandum of understanding with PNMI,
which entitles the Company to a two-year right of first refusal to farm-in to a
49% working interest in any future contracts obtained by PNMI from Pertamina.
The Company will have three months to exercise its rights, after receipt of
each notification from PNMI, at a cost to be negotiated on a case-by-case
basis.
Malacca Strait -
In November 1995, the Company reached a preliminary agreement with FEH to
purchase a portion of the issued and outstanding common stock of Resource
Holdings, Inc. ("RHI"), a private Delaware corporation and a wholly-owned
subsidiary of FEH, in exchange for shares of the Company's common stock. This
agreement also gave the Company a six-month option to acquire the remainder of
RHI's common stock, payable with shares of the Company's common stock. In
January 1996, the Company and FEH modified the structure of the proposed
transaction. Under the new structure, 100% of RHI's shares would be exchanged
for an as yet unspecified number of the Company's shares, subject to the
signing of a definitive agreement and approval by the Company's shareholders.
As of April 9, 1996, the parties were continuing their due diligence processes.
F-23
<PAGE> 59
RHI's assets consist of its wholly-owned Panamanian corporation, Kondur
Petroleum S.A. ("Kondur"), which owns 34.46% of the Malacca Strait PSC Contract
("Malacca") in Sumatra, Indonesia. Kondur is the largest Indonesian-owned
domestic operator in Indonesia. The remaining interests in Malacca are owned
by China National Offshore Oil Corporation and Novus Petroleum Ltd. Malacca
covers an area of 2.7 million acres and contains 16 oil fields operated by
Kondur, which are currently producing an aggregate of approximately 20,000
barrels of oil per day. Malacca has an estimated 58 million barrels of proven
recoverable oil reserves and 47 billion cubic feet of proven recoverable gas
reserves. Kondur intends to increase the daily average production rates of
Malacca through development and exploration, which is scheduled to commence
during the third quarter of 1996 (unaudited).
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 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 has scheduled a meeting with the IRS Appeals Office on April
30, 1996 to discuss the situation. Depending upon the results of this meeting,
the Company will decide whether to litigate or settle this matter.
The Company accrues an estimated loss from a loss contingency when a liability
has been incurred and the amount of such loss can be reasonably estimated.
Such accruals are based on developments to date and the Company's estimate of
the liability. In this instance, the Company has provided an allowance during
1995 of $250,000 for estimated costs, either in the form of legal expenses or
payments to the IRS, or some combination of both. As the liability becomes
better defined there will be changes in the estimated costs which could have a
material effect on the Company's future results of operations and financial
condition or liquidity.
F-24
<PAGE> 60
Environmental lawsuit
On January 25, 1994, a lawsuit captioned Paul R. Thibodeaux, et al. v. Gold Line
Refinery Ltd. (a limited partnership), Earl Thomas, individually and d/b/a/ Gold
Line Refinery Ltd., American International Petroleum Corporation, American
International Refinery, Inc., Joseph Chamberlain individually (Docket No.
94-396) was filed in the 14th Judicial District Court for the Parish of
Calcasieu, State of Louisiana. Subsequently, several parties were joined as
plaintiffs or defendants in the lawsuit. Responsive pleadings have been filed by
AIRI to this action and to the three amendments which added plaintiffs,
defendants and restructured the plaintiff's claims (deleting some claims and
adding new claims). The lawsuit alleges, among other things, that the
defendants, including the Company's wholly-owned subsidiary, AIRI, caused or
permitted the discharge of hazardous and toxic substances from the Lake Charles
refinery into the Calcasieu River. The plaintiffs seek an unspecified amount of
damages, including special and exemplary damages. AIRI continues to vigorously
defend such action. In March 1996, the Company and AIRI filed an Exception of
Prescription which is expected to eliminate most of the plaintiffs' claims. At
this time, the Company is unable to determine what, if any, liability may arise
from this action.
Contract claims
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 canceled 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 canceled, the Company expects the legal action by Rio
Bravo will be decided in PAIPC's favor. PAIPC has also filed counter-claims
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, if any, liability or
benefits may arise from this action.
Employment agreements
The Company has entered into an employment agreement with its chief executive
officer. Total salaries payable under this contract for 1996 are $300,000.
In September 1995, the Company's Board of Directors authorized the issuance,
subject to shareholder approval, of 900,000 restricted shares (the "Shares") of
the Company's common stock to its Chairman and Chief Executive Officer, Dr.
George Faris. The Shares were granted to Dr. Faris in consideration for Dr.
Faris waiving certain rights under his employment contract, thereby relieving
the Company of its obligation to make cash payments to Dr. Faris upon a change
of control or involuntary termination. If shareholder approval is obtained,
the Company will record the issuance of the shares and the related expense at
that time.
F-25
<PAGE> 61
Lease commitments
The Company leases office space under various operating leases expiring in 1997
and 1998. Additional office space is rented on a month-to-month basis. Future
minimum payments under operating leases with remaining terms of one year or
more consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
1996 $ 294,759
1997 149,759
1998 104,150
1999 -
2000 -
-----------
Total minimum lease payments $ 548,668
============
</TABLE>
Minimum lease payments have not been reduced by minimum sublease rentals due in
the future under noncancelable subleases. The composition of total rental
expense for all operating leases was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Minimum rentals $ 297,502 $ 243,324 $ 252,837
Less - sublease rentals 114,213 - -
------------ ------------ ------------
Total $ 183,289 $ 243,325 $ 252,837
============ ============ ============
</TABLE>
Contingencies
In addition to certain matters described above, 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.
NOTE 12 - INCOME TAXES:
Income taxes
The Company uses the asset and liability approach for financial accounting and
reporting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities. Valuation allowances are recorded to
reduce deferred tax assets when it is more likely than not that a tax benefit
will not be realized.
F-26
<PAGE> 62
The Company reported a loss from operations during 1995 and has a net operating
loss carryforward from prior years' operations. Accordingly, no income tax
provision has been provided in the accompanying statement of operations. As a
result of previous years' operations, the Company has available unused tax
carryforwards of approximately $15,000,000 which expire in years 1996 through
2009. The Company's utilizable tax operating loss carryforwards to offset
future income have been restricted in accordance with Section 382 of the
Internal Revenue Code. These restrictions will limit the Company's future use
of its loss carryforwards due to stock ownership changes that have occurred.
The Company's operations in Colombia are subject to taxes on net income levied
by the Government of Colombia which may not be offset by net operating losses
incurred in other countries. The Company has not generated taxable income in
Colombia since it began operations in that country. The net operating loss
carryforward from prior years is approximately $641,000.
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 9,674,000 $ 6,656,000
Reserve for note receivable 877,000 435,000
Depreciation - 481,000
Accrued liabilities 88,000 -
Deferred tax liability:
Depreciation 461,000 -
-------------- --------------
Net deferred tax asset 10,178,000 7,572,000
Valuation allowance (10,178,000) (7,572,000)
-------------- --------------
$ - $ -
============== ==============
</TABLE>
The valuation allowance relates to the uncertainty as to the future utilization
of net operating loss carryforwards.
NOTE 13 - CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially expose the Company to concentrations of
credit risk consist primarily of trade accounts receivable. The Company's
production of oil and gas in Colombia is sold to one customer. Related trade
accounts receivable were $291,043 at December 31, 1995. Although the Company
is directly affected by the well-being of the oil and gas industry and the
stability of the business environment in Colombia, management believes that a
ready market exists for its oil and gas production in the event its current
customer does not perform under the existing agreement. Refinery processing
fees are earned through lease of the Company's refinery to Gold Line. Trade
accounts receivable and notes receivable from Gold Line aggregated $2,537,858
at December 31, 1995, net of
F-27
<PAGE> 63
reserves for uncollectible amounts of $2,033,554. The Company's ability to
collect outstanding amounts from Gold Line and restrictions thereon are subject
to agreements between MGTF, Gold Line, NationsBank (a Gold Line creditor), and
the Company (Notes 2, 8 and 9).
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of the Company's financial instruments is as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------- ---------------------------------
Carrying Fair Carrying Fair
value value value value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Long-term debt $ 7,302,671 $ 7,352,671 $ 7,770,171 $ 8,290,107
</TABLE>
For investments, fair value equals quoted market price. Fair value of
fixed-rate long-term debt is determined by reference to rates currently
available for debt with similar terms and remaining maturities. The reported
amounts of financial instruments such as cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair value because of
their short-term maturities.
NOTE 15 - GEOGRAPHICAL SEGMENT INFORMATION:
The Company's operations involve a single industry segment, the exploration,
development, production, transportation, refining and marketing of oil and
natural gas. Its principal oil and gas properties are located in South
America. Operating in foreign countries subjects the Company to inherent risks
such as a loss of revenues, property and equipment from such hazards as
exploration, nationalization, war and other political risks, risks of increases
of taxes and governmental royalties, renegotiation of contracts with government
entities and changes in laws and policies governing operations of foreign-based
companies.
The Company's oil and gas business is subject to operating risks associated
with the exploration, production and refining of oil and gas, including
blowouts, pollution and acts of nature that could result in damage to oil and
gas wells, production facilities or formations. In addition, oil and gas
prices have fluctuated substantially in recent years as a result of events
which were outside of the Company's control.
F-28
<PAGE> 64
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
Geographic Segment
-----------------------------------------------------
Consolidated
1995 United States Colombia Peru total
- ---- ------------- -------- ---- -----
<S> <C> <C> <C> <C>
Sales and other
operating revenue $ 1,403,668 $ 1,214,213 $ 166,069 $ 2,783,950
Interest income and other
corporate revenues 27,358
---------------
Total revenue 2,811,308
Costs and operating
expenses 1,922,130 1,513,401 65,141 3,500,672
-------------- ---------------- -------------- ---------------
Operating profit (loss) $ (518,462) $ (299,188) $ 100,928 (689,364)
============== ================ ==============
General corporate expenses 2,611,650
Interest expense 1,037,308
---------------
Net loss $ (4,338,322)
===============
Identifiable assets
at December 31, 1995 $ 13,565,280 $ 14,136,257 $ 4,247,975 $ 31,949,512
============== ================ ============== ===============
Corporate assets 690,850
---------------
Total assets at
December 31, 1995 $ 32,640,362
===============
Depreciation, depletion
and amortization rate
per equivalent barrel
of oil $ - $ 3.86 $ - $ 3.86
============== ================ ============== ===============
Capital expenditures,
net of cost recoveries $ 400,368 $ 1,265,989 $ 1,528,095 $ 3,194,452
============== ================ ============== ===============
</TABLE>
F-29
<PAGE> 65
<TABLE>
<CAPTION>
Geographic Segment
-----------------------------------------------------
Consolidated
1994 United States Colombia Peru total
- ---- ------------- -------- ---- -----
<S> <C> <C> <C> <C>
Sales and other
operating revenue $ 2,094,235 $ 1,169,323 $ 122,068 $ 3,385,626
Interest income and other
corporate revenues 122,888
---------------
Total revenue 3,508,514
Costs and operating
expenses 1,376,411 9,479,273 41,024 10,896,708
-------------- ---------------- -------------- ---------------
Operating profit (loss) $ 717,824 $ (8,309,950) $ 81,044 (7,388,194)
============== ================ ==============
General corporate expense 2,278,942
Interest expenses 1,299,778
---------------
Net loss $ (10,966,914)
===============
Identifiable assets
at December 31, 1994 $ 14,481,904 $ 13,580,190 $ 2,717,167 $ 30,779,261
============== ================ ==============
Corporate assets 1,450,452
---------------
Total assets at
December 31, 1994 $ 32,229,713
===============
Depreciation, depletion
and amortization rate
per equivalent barrel
of oil* $ - $ 5.51 $ - $ 5.51
============== ================ ============== ===============
Capital expenditures,
net of cost recoveries $ - $ 3,200,281 $ 2,307,855 $ 5,508,136
============== ================ ============== ===============
</TABLE>
F-30
<PAGE> 66
<TABLE>
<CAPTION>
Geographic Segment
-----------------------------------------------------
Consolidated
1993 United States Colombia Peru total
- ---- ------------- -------- ---- -----
<S> <C> <C> <C> <C>
Sales and other
operating revenue $ 1,783,792 $ 2,107,801 $ - $ 3,891,593
Interest income and other
corporate revenues 98,563
---------------
Total revenue 3,990,156
Costs and operating
expenses 1,305,297 12,549,792 - 13,855,089
-------------- ---------------- -------------- ---------------
Operating profit (loss) $ 478,495 $ (10,441,991) $ - (9,864,933)
============== ================ ==============
General corporate expenses 2,751,045
Interest expense 1,523,759
---------------
Net loss $ (14,139,737)
===============
Identifiable assets
at December 31, 1993 $ 15,097,120 $ 18,589,440 $ - $ 33,686,560
============== ================ ==============
Corporate assets 1,310,365
---------------
Total assets at
December 31, 1993 $ 34,996,925
===============
Depreciation, depletion
and amortization rate
per equivalent barrel
of oil* $ - $ 3.82 $ - $ 3.82
============== ================ ============== ===============
Capital expenditures,
net of cost recoveries $ 289,003 $ 5,683,729 $ - $ 5,972,732
============== ================ ============== ===============
</TABLE>
* Excludes provisions for write-down of oil and gas properties.
Transactions with the Company's major customers (greater than 10% of revenue)
accounted for 49% and 39% in 1995, 63%, 23% and 13% in 1994 and 43% and 47% of
revenue in 1993.
F-31
<PAGE> 67
NOTE 16 - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
AND DISCLOSURES OF CASH FLOW INFORMATION:
The Company has issued shares of common stock in the acquisitions and
conversions of the following noncash transactions:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Conversion of debentures $ - $ 950,000 $ 50,000
Conversion of notes payable - 12,787 807,947
Stock issued in lieu of current liabilities 489,250 15,559 234,543
Conversion of interest in well - - 1,000,000
Issuance of stock for notes receivable,
net of amounts collected - 32,936 -
Issuance of stock - unearned compensation 20,312 - -
</TABLE>
Cash paid for interest, net of amounts capitalized, was $963,609, $647,439 and
$1,135,187 during 1995, 1994 and 1993, respectively. Cash paid for corporate
franchise taxes was $52,050, $36,001 and $67,677 during 1995, 1994 and 1993,
respectively.
NOTE 17 - RELATED PARTY TRANSACTIONS:
See disclosure regarding transactions with directors of the Company in Notes 3
and 11.
NOTE 18 - SUBSEQUENT EVENTS:
Regulation S offering
During the first quarter of 1996, the Company received cash and settled certain
liabilities totaling approximately $991,000 from the sales 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. The
proceeds were used for working capital purposes.
Note receivable
In order to enhance the business strength of the lessee of its Refinery and to
assist it in securing a new government contract, in February 1996, the Company
agreed to reduce the fully reserved principal balance of its note receivable
from the lessee to $900,732 from $1,801,464. The lessee was awarded a new
one-year contract to provide fuels to the DFSC effective April 1, 1996.
Sale of debentures
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. The proceeds are being utilized to repay debt
and for working capital purposes.
F-32
<PAGE> 68
Indonesian agreements
In January and February 1996, respectively, the Company and FEH announced their
intent to combine into one phase the two phases originally specified in their
Memorandum of Understanding dated November 1, 1995, and extended the closing
date of the previously-announced share exchange agreement between the Company
and FEH to an unspecified future date to allow both companies more time to
complete their due diligence procedures. Such procedures were still in
progress as of the date of filing of the Company's Form 10-K for the fiscal
year ended December 31, 1995.
F-33
<PAGE> 69
AMERICAN INTERNATIONAL PETROLEUM AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(UNAUDITED)
The accompanying unaudited oil and gas disclosures are presented as
supplementary information in accordance with Statement No. 69 of the Financial
Accounting Standards Board.
F-34
<PAGE> 70
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION
(UNAUDITED)
Capitalized costs relating to oil and gas activities and costs incurred in oil
and gas property acquisition, exploration and development activities for each
year are shown below:
Capitalized costs
<TABLE>
<CAPTION>
Colombia Peru
-------------------------------------- ------------------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Unevaluated property not
subject to amortization $ 1,101,277 $ 2,163,201 $ 2,954,000 $3,832,041 $2,303,946 $ -
Proved and unproved
properties 31,215,040 28,903,520 24,860,074 - - -
Accumulated deprecia-
tion, depletion and
amortization 19,364,606 18,832,617 11,257,744 - - -
----------- ----------- ----------- ---------- ---------- --------
Net capitalized costs $12,951,711 $12,234,104 $16,556,330 $3,832,041 $2,303,946 $ -
=========== =========== =========== ========== ========== ========
Costs incurred in oil and gas property acquisition, exploration and development
activities
Property acquisition
costs - proved and
unproved properties $ - $ - $ - $ - $ - $ -
Exploration costs 744,549 3,016,741 3,813,319 - - -
Development costs 527,595 683,532 2,399,993 - - -
Results of operations for oil and gas producing activities
Oil and gas sales $ 1,104,095 $ 1,083,406 $ 1,874,020 $ 166,069 $ 122,018 $ -
----------- ----------- ----------- ---------- ---------- --------
Lease operating costs 363,600 564,061 1,197,434 65,141 41,022 -
Depreciation, depletion
and amortization 531,989 670,857 507,129 - - -
Provision for reduction
of oil and gas properties - 6,904,016 9,975,000 - - -
----------- ----------- ----------- ---------- ---------- --------
895,589 8,138,934 11,679,563 65,141 41,022 -
----------- ----------- ----------- ---------- ---------- --------
Income (loss) before
tax provision 208,506 (7,055,528) (9,805,543) 100,928 80,996 -
Provision (benefit) for
income tax - - - - - -
----------- ----------- ----------- ---------- ---------- --------
Results of operations $ 208,506 $(7,055,528) $(9,805,543) $ 100,928 $ 80,996 $ -
=========== =========== =========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
Other Total
------------------------------------- ------------------------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Unevaluated property not
subject to amortization $ 65,506 $ - $ - $ 4,998,824 $ 4,467,147 $ 2,954,000
Proved and unproved
properties 351,257 - - 31,566,297 28,903,520 24,860,074
Accumulated deprecia-
tion, depletion and
amortization 351,257 - - 19,715,863 18,832,617 11,257,744
--------- --------- --------- ----------- ------------ -----------
Net capitalized costs $ 65,506 $ - $ - $16,849,258 $ 14,538,050 $16,556,330
========= ========= ========= =========== ============ ===========
Costs incurred in oil and gas property acquisition, exploration and development
activities
Property acquisition
costs - proved and
unproved properties $ - $ - $ - $ - $ - $ -
Exploration costs - - - 744,549 3,016,741 3,813,319
Development costs - - - 527,595 683,532 2,399,993
Results of operations for oil and gas producing activities
Oil and gas sales $ - $ - $ - $ 1,270,164 $ 1,205,424 $ 1,874,020
--------- --------- --------- ----------- ------------ -----------
Lease operating costs - - - 428,741 605,083 1,197,434
Depreciation, depletion
and amortization 351,257 - - 883,246 670,857 507,129
Provision for reduction
of oil and gas properties - - - - 6,904,016 9,975,000
--------- --------- --------- ----------- ------------ -----------
351,257 - - 1,311,987 8,179,956 11,679,563
--------- --------- --------- ----------- ------------ -----------
Income (loss) before
tax provision (351,257) - - (41,823) (6,974,532) (9,805,543)
Provision (benefit) for
income tax - - - - - -
--------- --------- --------- ----------- ------------ -----------
Results of operations $(351,257) $ - $ - $ (41,823) $ (6,974,532) $(9,805,543)
========= ========= ========= =========== ============ ===========
</TABLE>
F-35
<PAGE> 71
COSTS NOT SUBJECT TO AMORTIZATION:
The following table summarizes the categories of cost which comprise the amount
of unproved properties not subject to amortization.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Columbia:
Acquisition costs $ 1,101,277 $ 1,101,277 $ 1,101,277
Exploration costs - 1,061,924 1,775,873
Capitalized interest - - 76,850
---------------- --------------- ---------------
1,101,277 2,163,201 2,954,000
Peru:
Exploration costs 3,832,041 2,303,946 -
---------------- --------------- ---------------
Other:
Acquisition costs 65,506 - -
---------------- --------------- ---------------
$ 4,998,824 $ 4,467,147 $ 2,954,000
================ =============== ===============
</TABLE>
Acquisition costs of unproved properties not subject to amortization at
December 31, 1995, 1994 and 1993, respectively, consists mainly of lease
acquisition costs related to unproved areas. The Company will continue to
evaluate these properties over the lease terms; however, the timing of the
ultimate evaluation and disposition of a significant portion of the properties
has not been determined. Exploration costs on unproved properties at December
31, 1995, consist mainly of exploration costs of the Peru properties. The
Company anticipates completing its evaluation of these properties during 1996.
Approximately 32%, 46% and 0% of the balance in unproved properties at December
31, 1995, related to additions made in 1995, 1994 and 1993, respectively.
F-36
<PAGE> 72
OIL AND GAS RESERVES:
Oil and gas proved reserves cannot be measured exactly. Reserve estimates are
based on many factors related to reservoir performance which require evaluation
by the engineers interpreting the available data, as well as price and other
economic factors. The reliability of these estimates at any point in time
depends on both the quality and quantity of the technical and economic data,
the production performance of the reservoirs as well as extensive engineering
judgment. Consequently, reserve estimates are subject to revision as
additional data become available during the producing life of a reservoir.
When a commercial reservoir is discovered, proved reserves are initially
determined based on limited data from the first well or wells. Subsequent data
may better define the extent of the reservoir and additional production
performance, well tests and engineering studies will likely improve the
reliability of the reserve estimate. The evolution of technology may also
result in the application of improved recovery techniques such as supplemental
or enhanced recovery projects, or both, which have the potential to increase
reserves beyond those envisioned during the early years of a reservoir's
producing life.
The following table represents the Company's net interest in estimated
quantities of proved developed and undeveloped reserves of crude oil,
condensate, natural gas liquids and natural gas and changes in such quantities
at December 31, 1995, 1994 and 1993. Net proved reserves are the estimated
quantities of crude oil and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are proved reserve volumes that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Proved undeveloped reserves are proved reserve volumes that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
significant expenditure is required for recompletion.
<TABLE>
<CAPTION>
United States Colombia Total
------------------------- --------------------------- ----------------------------
Oil Gas Oil Gas Oil Gas
BBLS MCF BBLS MCF BBLS MCF
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
January 1, 1993 - - 6,500,747 5,247,000 6,500,747 5,247,000
Revisions of
previous estimates - - (2,278,716) 6,317,300 (2,278,716) 6,317,300
Extensions, discoveries
and other additions - - - - - -
Production - - (132,756) - (132,756) -
----- -------- ---------- ----------- ---------- -----------
December 31, 1993 - - 4,089,275 11,564,300 4,089,275 11,564,300
Revisions of
previous estimates - - (1,192,425) (3,244,100) (1,192,425) (3,244,100)
Extensions, discoveries
and other additions - - - - - -
Production - - (121,643) - (121,643) -
----- -------- ---------- ----------- ---------- -----------
December 31, 1994 - - 2,775,207 8,320,200 2,775,207 8,320,200
Revisions of
previous estimates - - 1,166,258 - 1,166,258 -
Extensions, discoveries
and other additions - - 302,836 3,061,200 302,836 3,061,200
Sale of reserves
in place - - - - - -
Production - - (137,821) - (137,821) -
----- -------- ---------- ----------- ---------- -----------
December 31, 1995 - - 4,106,480 11,381,400 4,106,480 11,381,400
===== ======== ========== =========== ========== ===========
</TABLE>
F-37
<PAGE> 73
<TABLE>
<CAPTION>
United States Colombia Total
------------------------- --------------------------- ----------------------------
Oil Gas Oil Gas Oil Gas
BBLS MCF BBLS MCF BBLS MCF
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C>
Net proved developed reserves
January 1, 1993 - - 1,712,188 5,247,000 1,712,188 5,247,000
December 31, 1993 - - 992,166 5,155,900 992,166 5,155,900
December 31, 1994 - - 899,971 4,160,200 899,971 4,160,200
December 31, 1995 - - 1,012,896 5,100,000 1,012,896 5,100,000
</TABLE>
Revisions to crude oil reserves in 1995 reflect the increased working interest
participation of the Company in the proved undeveloped reserves due to
nonparticipation of the other joint venture partners.
Revisions to crude oil and gas reserves in 1994 reflect the elimination of the
Puli No. 3 K4 formation reserves, which were found to be incapable of
production due to formation damage. Recoverable reserves could be included in
future estimates in the event this problem can be solved or a new well can be
drilled. These revisions were partially offset by an increase in the Toqui
reserves due to the lower decline rate demonstrated during 1994 as compared to
the 1993 estimate.
Revisions to crude oil reserves in 1993 reflect a decrease in proved reserves
resulting from unanticipated production declines experienced during 1993 and
from the abandonment in 1993 of the eastern most producing oil well in the
Toqui field due to water encroaching in that area of the field.
Gas reserves were revised upward as a result of the development of a viable gas
market for associated gas currently being flared in the Toqui-Toqui field and
new seismic data acquired in the Puli Anticline in 1993 that expanded the
boundaries of the gas producing reservoir.
F-38
<PAGE> 74
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS:
The standardized measure of discounted future net cash flows relating to the
Company's proved oil and gas reserves is calculated and presented in accordance
with Statement of Financial Accounting Standards No. 69. Accordingly, future
cash inflows were determined by applying year-end oil and gas prices to the
Company's estimated share of future production from proved oil and gas
reserves. Future production and development costs were computed by applying
year-end costs to future years. Future income taxes were derived by applying
year-end statutory tax rates to the estimated net future cash flows. A
prescribed 10% discount factor was applied to the future net cash flows.
In the Company's opinion, this standardized measure is not a representative
measure of fair market value, and the standardized measure presented for the
Company's proved oil and gas reserves is not representative of the reserve
value. The standardized measure is intended only to assist financial statement
users in making comparisons between companies.
<TABLE>
<CAPTION>
Colombia
--------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Future cash inflows $ 46,433,879 $ 33,896,403 $ 63,507,980
Future development costs (10,780,000) (5,977,600) (9,182,847)
Future production costs (9,409,442) (7,154,014) (27,989,941)
Future income tax expenses - - -
---------------- --------------- ---------------
Future net cash flows 26,244,437 20,764,789 26,335,192
Annual discount 10% rate (13,885,290) (10,693,885) (12,732,169)
---------------- --------------- ---------------
Standardized measure discounted future
net cash flows $ 12,359,147 $ 10,070,904 $ 13,603,023
================ =============== ===============
</TABLE>
Future cash flows in 1995 increased as a result of the upward revision in
estimated future recoverable equivalent barrels of oil by approximately
1,166,258 BOE and also to the addition of recoverable equivalent barrels of oil
of 813,000 BOE from newly discovered oil reserves and commercial gas in 1995.
Estimated future income taxes were eliminated in 1993, 1994 and 1995 because
estimated future tax deductions related to oil and gas properties exceeded
estimated future net revenues based on oil and gas prices and related costs at
December 31, 1993, 1994 and 1995.
F-39
<PAGE> 75
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS:
The aggregate change in the standardized measure of discounted future net cash
flows was an increase of $2,288,243 in 1995 and a decrease of $3,532,119 and
$13,624,693 in 1994 and 1993. The principal sources of change were as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Beginning of year $ 10,070,904 $ 13,603,023 $ 27,227,716
Sales and transfer of oil and gas produced,
net of production costs (740,495) (519,345) (677,000)
Net changes in prices and production costs 135,987 1,660,800 (14,201,150)
Extensions, discoveries, additions and
improved recovery, less related costs 660,594 - -
Previously estimated development costs
incurred during the year 527,595 683,532 1,250,611
Changes in estimated future
development costs (2,032,144) 1,302,552 (1,436,709)
Revisions of previous reserve
quantity estimates 3,783,148 (5,751,795) (7,695,873)
Purchase of reserves in place - - -
Sale of reserves in place - - -
Net change in future income taxes - - 9,517,622
Changes in timing and other (1,053,532) (2,268,165) (3,104,966)
Accretion of discount 1,007,090 1,360,302 2,722,772
--------------- -------------- --------------
End of year $ 12,359,147 $ 10,070,904 $ 13,603,023
=============== ============== ==============
</TABLE>
F-40
<PAGE> 76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
Dated: April 12, 1996 By: /s/ Denis J. Fitzpatrick
---------------------------
Denis J. Fitzpatrick
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated:
By: /s/ George N. Faris Date: April 12, 1996
---------------------------------------
George N. Faris, Chairman
of the Board of Directors
and Chief Executive Officer
By: /s/ Denis J. Fitzpatrick Date: April 12, 1996
---------------------------------------
Denis J. Fitzpatrick
Vice President, Secretary,
Principal Financial and
Accounting Officer
By: /s/ Donald G. Rynne Date: April 12, 1996
---------------------------------------
Donald G. Rynne, Director
By: /s/ Daniel Y. Kim Date: April 12, 1996
---------------------------------------
Daniel Y. Kim, Director
By: /s/ William R. Smart Date: April 12, 1996
---------------------------------------
William R. Smart, Director
<PAGE> 77
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation
of the Registrant, as amended. (1)
3.2 Certificate of Amendment to Articles
of Incorporation, dated June 29, 1988. (2)
3.3 Certificate of Amendment to Articles of
Incorporation, dated August 10, 1988. (2)
3.4 Certificate of Amendment to Articles of
Incorporation, dated November 18, 1993. (7)
3.5 By-Laws of the Registrant, as amended.
4.1 Indenture dated January 20, 1993,
governing the Registrant's 12% Secured Debentures
Due 1997.(6)
4.2 Form of Class A Warrant. (8)
4.3 1995 Stock Option Plan and Form of Option
Agreements of the Registrant.
4.4 Form of Debenture and Subscription Agreements
dated March 21, 1996 between the Company and
purchasers listed on Schedule A attached thereto.
10.1 Employment Agreement, dated May 1, 1989 by
and between George N. Faris and the Registrant.(3)
10.2 Loan and Security Agreement ("Loan Agreement")
dated December 4, 1990 by and between MG Trade
Finance Corp. ("MGTF") and AIRI. (4)
10.3 Schedule of construction and Other Loan Uses
attached to the Loan Agreement. (4)
10.4 Schedule of JP-4 Construction Permitted After
December 15, 1990 attached to the Loan Agreement.(4)
10.5 Corporate Continuing Guarantee of the Registrant
to MGTF, dated December 4, 1990. (4)
10.6 Pledge Agreement, dated as of the 4th day of
December 1990, by and among the Registrant,
AIRI and MGTF. (4)
10.7 Shareholder Distribution Agreement dated as of
the 4th day of December 1990, by and between
the Registrant, AIRI and MGTF. (4)
10.8 Form of Sale of Indebtedness and Assignment
of Collateral Mortgage Notes and Security Documents. (4)
10.9 Form of Collateral Mortgage Note drawn by AIRI. (4)
10.10 Form of Amended and Restated Collateral Pledge
Agreement drawn by AIRI (Inventory). (4)
10.11 Form of Amended and Restated Collateral Pledge
Agreement drawn by AIRI (Fixed Assets). (4)
10.12 Environment Indemnity Agreement dated
December 4, 1990 by and between AIRI, the
Registrant and MG. (4)
<PAGE> 78
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.13 Amendment to Loan and Security Agreement,
dated as of September 26, 1991. (5)
10.14 Pledge and Security Agreement, dated
January 20, 1993, by and between
American International Petroleum Corporation
and Society National Bank as Trustee. (6)
10.15 Letter Agreement, dated January 4, 1995, by
and between American International Petroleum
Corporation and P.T. Ustraindo Petrogas.(9)
10.16 Promissory Note, dated March 15, 1995
from Gold Line Refining, Ltd. to American
International Petroleum Corporation.(9)
10.17 Amended and Restated Lease Agreement
between Gold Line and AIRI dated March 22, 1995.(9)
10.18 Letter Agreement dated March 22, 1995
amending Loan and Security
Agreement.(9)
10.19 Subordination and Standby Agreement dated
March 22, 1995 between NationsBank,
Gold Line Refining Ltd., Citizens Bank
and AIRI.
10.20 Intercreditor Letter Agreements dated
March 22, 1995 between MGTF, Citizens
Bank and AIRI.
10.21 Amendment #1 to Employment Agreement,
dated October 13, 1995, between George N. Faris
and the Registrant(10).
10.22 Letter dated February 9, 1996 amending
Promissory Note between AIRI and
Gold Line Refining Ltd.
21.1 Subsidiaries of the Registrant.(9)
27.1 Financial Data Schedule.
- ----------------
(1) Incorporated herein by reference to the Registration Statement on Form
S-1, declared effective on February 16, 1988 (File No. 33-17543).
(2) Incorporated herein by reference to the Registration Statement on Form
S-1 File No. 33-23584 declared effective on January 27, 1989.
(3) Incorporated herein by reference to the Registration Statement on Form
S-1 declared effective on February 13, 1990.
(4) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K, dated December 4, 1990.
<PAGE> 79
(5) Incorporated herein by reference to the Registration Statement on ForM
S-1, declared effective November 9, 1992.
(6) Incorporated herein by reference to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992.
(7) Incorporated herein by reference to the Registration Statement on Form
S-2, declared effective January 13, 1994.
(8) Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
(9) Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
(10) Incorporated herein by reference to Amendment #19 to Schedule 13D of
George N. Faris for October 13,1995.
<PAGE> 1
EXHIBIT 3.5
BYLAWS
OF
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
ARTICLE I - OFFICES
Section l. Principal Executive Office. The Corporation shall have a
registered office located in the State of Nevada and a principal executive
office located at such place within The City of New York, State of New York as
may be fixed, from time to time, by the Board of Directors.
Section 2. Other Offices. Branch or subordinate offices may be
established by the Board of Directors at such other places as may be desirable.
ARTICLE II - SHAREHOLDERS
Section l. Place of Meeting. Meetings of shareholders shall be held
either at the principal executive office of the Corporation or at any other
location within or without the State of Nevada which may be designated by
written consent of all persons entitled to vote thereat.
Section 2. Annual Meetings. The annual meeting of shareholders shall
be held at such time and place as the Board of Directors shall designate from
time to time. At such meetings, Directors shall be elected by plurality vote,
and any other proper business may be transacted.
Section 3. Special Meetings. Special meetings of the shareholders
may be called for any purpose or purposes permitted under Chapter 78 of Nevada
Revised Statutes at any time by the Board, the Chairman of the Board, the
President, or by shareholders holding not less than twenty-five percent (25%)
of the votes of the shareholders entitled to vote at a meeting. Upon request
in writing to the Chairman of the Board, the President or the Secretary, by any
person or persons entitled to call a special meeting of shareholders, the
Secretary shall cause notice to be given to the shareholders entitled to vote
that a special meeting will be held not less than ten (10) nor more than sixty
(60) days after the date of the notice.
Section 4. Notice of Annual or Special Meeting. Written notice of
each annual meeting of shareholders shall be given not less than ten (10) nor
more than sixty (60) days before the date of the meeting to each shareholder
entitled to vote thereat. Such notice shall state the place, date, and hour of
the meeting and (l) in the case of a special meeting the general nature of the
business to be transacted, or (2) in the case of the annual meeting, those
matters which the Board, at the time of the mailing
<PAGE> 2
of the notice, intends to present for action by the shareholders, but, any
proper matter may be presented at the meeting for such action. The notice of
any meeting at which Directors are to be elected shall include the names of the
nominees intended, at the time of the notice, to be presented by management for
election.
Notice of a shareholders' meeting shall be given either personally or
by mail or, addressed to the shareholder at the address of such shareholder
appearing on the books of the Corporation. An affidavit of mailing of any
notice, executed by the Secretary, Assistant Secretary, or any agent authorized
by the Board of Directors shall be prima facie evidence of the giving of the
notice.
Section 5. Quorum. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders. If a quorum is present, the affirmative vote of the majority of
shareholders represented and voting at the meeting on any matter, except as
otherwise specifically provided in these Bylaws, shall be the act of the
shareholders. The shareholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding withdrawal of enough shareholders to leave less than a quorum,
if any action taken (other than adjournment) is approved by at least a majority
of the number of shares required as noted above to constitute a quorum.
Notwithstanding the foregoing, (l) the sale, transfer and other disposition of
substantially all of the Corporation's properties and (2) a merger or
consolidation of the Corporation shall require the approval by an affirmative
vote of not less than two-thirds (2/3) of the Corporation's issued and
outstanding shares.
Section 6. Adjourned Meeting and Notice Thereof. Any shareholders'
meeting, whether or not a quorum is present, may be adjourned from time to
time. In the absence of a quorum (except as provided in Section 5 of this
Article), no other business may be transacted at such meeting.
It shall not be necessary to give any notice of the time and place of
the adjourned meeting or of the business to be transacted thereat, other than
by announcement at the meeting at which such adjournment is taken; provided,
however, when a shareholders' meeting is adjourned for more than forty five
(45) days or, if after adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given as in the case of an
original meeting.
Section 7. Voting. The shareholders entitled to notice of any
meeting or to vote at such meeting shall be only persons in whose name shares
stand on the stock records of the Corporation on the record date determined in
accordance with Section 8 of this Article.
-2-
<PAGE> 3
Each shareholder shall be entitled to one vote for each share of stock
in his own name on the books of the Company, whether represented in person or
by proxy.
Section 8. Record Date. The Board may fix, in advance, a record date
for the determination of the shareholders entitled to notice of a meeting or to
vote or entitled to receive payment of any dividend or other distribution, or
any allotment of rights, or to exercise rights in respect to any other lawful
action. The record date so fixed shall be not more than sixty (60) nor less
than ten (10) days prior to the date of the meeting nor more than sixty (60)
days prior to any other action. When a record date is so fixed, only
shareholders of record on that date are entitled to notice of and to vote at
the meeting or to receive the dividend, distribution, or allotment of rights,
or to exercise of the rights, as the case may be, notwithstanding any transfer
of shares on the books of the Corporation after the record date. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting unless
the Board fixes a new record date for the adjourned meeting. The Board shall
fix a new record date if the meeting is adjourned for more than forty five (45)
days.
If no record date is fixed by the Board, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be the close of business on the business day next preceding
the day on which notice is given or, if notice is waived, at the close of
business on the business day next preceding the day on which the meeting is
held. The record date for determining shareholders for any purpose other than
as set forth in Section 8 or Section 10 of this Article shall be at the close
of business on the day on which the Board adopts the resolution relating
thereto, or the sixtieth day prior to the date of such other action, whichever
is later.
Section 9. Consent of Absentees. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 10. Action Without Meeting. Any action which, under any
provision of law, may be taken at any annual or special meeting of
shareholders, may be taken without a meeting and without prior notice if a
consent in writing, setting forth the actions so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares
-3-
<PAGE> 4
entitled to vote thereon were present and voted. Unless a record date for
voting purposes be fixed as provided in Section 8 of this Article, the record
date for determining shareholders entitled to give consent pursuant to this
Section 10, when no prior action by the Board has been taken, shall be the day
on which the first written consent is given.
Section 11. Proxies. Every person entitled to vote shares has the
right to do so either in person or by one or more persons authorized by a
written proxy executed by such shareholder and filed with the Secretary not
less than five (5) days prior to the meeting.
Section 12. Conduct of Meeting. The Chief Executive Officer, if one
shall be elected, otherwise the President, shall preside as Chairman at all
meetings of the shareholders, unless another Chairman is selected. The
Chairman shall conduct each such meeting in a businesslike and fair manner, but
shall not be obligated to follow any technical, formal or parliamentary rules
of procedure. The Chairman's ruling on procedural matters shall be conclusive
and binding on all shareholders. Without limiting the generality of the
foregoing, the Chairman shall have all of the powers usually vested in the
Chairman of a meeting of shareholders.
ARTICLE III - DIRECTORS
Section l. Powers. Subject to limitation of the Articles of
Incorporation, of these Bylaws, and of actions required to be approved by the
shareholders, the business and affairs of the Corporation shall be managed and
all corporate powers shall be exercised by or under the direction of the Board.
The Board may, as permitted by law, delegate the management of the day-to-day
operation of the business of the Corporation to a management company or other
persons or officers of the Corporation provided that the business and affairs
of the Corporation shall be managed and all corporate powers shall be exercised
under the ultimate direction of the Board. Without prejudice to such general
powers, it is hereby expressly declared that the Board shall have the following
Powers:
(a) to select and remove all of the officers, agents and employees
of the Corporation, prescribe the powers and duties for them as may not be
inconsistent with law, or with the Articles of Incorporation or these Bylaws,
fix their compensation, and require from them, if necessary, security for
faithful services;
(b) to conduct, manage, and control the affairs and business of
the Corporation and to make such rules and regulations therefor not
inconsistent with law, with the Articles of Incorporation or these Bylaws, as
they may deem best.
-4-
<PAGE> 5
(c) to adopt, make and use a corporate seal, and to prescribe the
forms of certificates of stock and to alter the form of such seal and of such
certificates from time to time as in their judgment they may deem best;
(d) to authorize the issuance of shares of stock of the
Corporation from time to time, upon such terms and for such consideration as
may be lawful;
(e) to borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecation or other evidence of debt and securities therefor.
Section 2. Number and Qualification of Directors. Maximum
authorized number of Directors shall be ten (10) until changed by amendment of
the Articles or by a bylaw duly adopted by approval of the outstanding shares
amending this Section 2; provided however, that whenever all the shares of the
Corporation are owned beneficially and of record by either one or two
stockholders, the number of Directors may be less than three, but not less than
the number of shareholders.
Section 3. Election and Term of Office. The Directors shall be
elected at each annual meeting of shareholders but if any such annual meeting
is not held or the Directors are not elected thereat, the Directors may be
elected at any special meeting of shareholders held for that purpose. Each
Director shall hold office until the next annual meeting and until a successor
has been elected.
Section 4. Chairman of the Board. At the regular meeting of the
Board, the first order of business will be to select, from its members, a
Chairman of the Board whose duties will be to preside at all Board meetings
until the next annual meeting and until a successor has been chosen.
Section 5. Vacancies. Any vacancy on the Board of Directors occurring
by reason of the death, resignation or disqualification of any Director, the
removal of any Director from office for cause or without cause, an increase in
the number of Directors, or otherwise, may be filled by the vote of a majority
of the Directors then in office, through less than quorum, or the sole remaining
Director. If no Director is then in office, the Secretary shall promptly call a
Special Meeting of Shareholders to elect Directors to fill such vacancies.
Unless elected by the Shareholders, each Director elected to fill a vacancy
shall hold office until the next meeting of Shareholders at which the election
of Directors is in the regular order of business and until his successor is
elected and has qualified or until his earlier displacement from office by
resignation, removal or otherwise. Each Director elected by the Shareholders to
fill a vacancy shall
-5-
<PAGE> 6
hold office until the next Annual Meeting of Shareholders and until his
successor is elected and has qualified or until his earlier displacement from
office by resignation, removal or otherwise.
Section 6. Place of Meeting. Any meeting of the Board shall be held
at any place within or without the State of Nevada which has been designated
from time to time by the Board. In the absence of such designation, meetings
shall be held at the principal executive office of the Corporation.
Section 7. Regular Meetings. Immediately following each annual
meeting of shareholders the Board shall hold a regular meeting for the purpose
of organization, selection of a Chairman of the Board, election of officers,
and the transaction of other business. Call and notice of such regular meeting
is hereby dispensed with.
Section 8. Special Meetings. Special meetings of the Board for any
purposes may be called at any time by the Chairman of the Board, the President,
or the Secretary or by any three Directors. Special meetings of the Board
shall be held upon at least two (2) days' written notice or twenty-four (24)
hours notice given personally or by telephone, telegraph, telex, facsimile
transmission or other similar means of communication. Any such notice shall be
addressed or delivered to each Director at such Director's address as it is
shown upon the records of the Corporation or as may have been given to the
Corporation by the Director for purposes of notice.
Section 9. Quorum. A majority of the authorized number of Directors
constitutes a quorum of the Board for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the Directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board, unless a greater number be
required by law or by the Articles of Incorporation. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of Directors, if any action taken is approved by at least a
majority of the number of Directors required as noted above to constitute a
quorum for such meeting.
Section 10. Participation in Meetings by Conference Telephone.
Members of the Board may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another.
Section 11. Waiver of Notice. The transactions of any meeting of the
Board, however called and noticed or wherever held, are as valid as though had
at a meeting duly held after regular call and notice if a quorum be present and
if, either before or after the meeting, each of the Directors not present signs
a written waiver of notice, a consent to holding such meeting or an
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<PAGE> 7
approval of the minutes thereof. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Section 12. Adjournment. A majority of the Directors present,
whether or not a quorum is present, may adjourn any Directors' meeting to
another time and place. Notice of the time and place of holding an adjourned
meeting need not be given to absent Directors if the time and place be fixed at
the meeting adjourned. If the meeting is adjourned for more than ten (10)
days, notice of any adjournment to another time or place shall be given prior
to the time of the adjourned meeting to the Directors who were not present at
the time of adjournment.
Section 13. Fees and Compensation. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board.
Section 14. Action Without Meeting. Any action required or permitted
to be taken by the Board may be taken without a meeting if all members of the
Board shall individually or collectively consent in writing to such action.
Such consent or consents shall have the same effect as a unanimous vote of the
Board and shall be filed with the minutes of the proceedings of the Board.
Section 15. Committees. The Board may appoint one or more
committees, each consisting of two or more Directors, and delegate to such
committees any of the authority of the Board except with respect to:
(a) the approval of any action which requires shareholders'
approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board or on any committees;
(c) the fixing of compensation of the Directors for serving on the
Board or on any committee;
(d) the amendment or repeal of Bylaws or the adoption of new
Bylaws;
(e) the amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable by a committee of the
Board;
(f) a distribution to the shareholders of the Corporation; and
(g) the appointment of other committees of the Board or the
members thereof.
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Any such committee must be appointed by resolution adopted by a
majority of the authorized number of Directors and may be designated an
Executive Committee or by such other name as the Board shall specify. The Board
shall have the power to prescribe the manner in which proceedings of any such
committee shall be conducted. Unless the Board or such committee shall
otherwise provide, the regular or special meetings and other actions of any
such committee shall be governed by the provisions of this Article applicable
to meetings and actions of the Board. Minutes shall be kept of each meeting of
each committee.
ARTICLE IV - OFFICERS
Section 1. Officers. The officers of the Corporation shall be a
President, a Secretary and a Treasurer. The Corporation may also have, at the
discretion of the Board, a Chairman of the Board, one or more Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers and such
other officers as may be elected or appointed in accordance with the provisions
of Section 3 of this Article.
Section 2. Election. The officers of the Corporation, except such
officers as may be elected or appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen annually by, and shall
serve at the pleasure of, the Board, and shall hold their respective offices
until their resignation, removal or other disqualification from service, or
until their respective successors shall be elected.
Section 3. Subordinate Officers. The Board may elect, and may
empower the President to appoint, such other officers as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board, or the President may from time to time direct.
Section 4. Removal and Resignation. Any officer may be removed,
either with or without cause, by the Board of Directors at any time, or, except
in the case of an officer chosen by the Board, by any officer upon whom such
power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein. The acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy of any office because of death,
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed by these Bylaws for the regular election or appointment
to such office.
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Section 6. President; Chief Executive Officer. The President, or the
Chief Executive Officer, if one shall be appointed, or their designee shall
preside at all meetings of the shareholders. The Chief Executive Officer, if
one shall be appointed, or otherwise the President, has the general powers and
duties of management usually vested in the chief executive officer, and the
President shall be the general manager of the Corporation unless otherwise
prescribed by the Board.
Section 7. Vice Presidents. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board or,
if not ranked, the Vice President designated by the Board, shall perform all
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions that are upon the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the President or the
Board.
Section 8. Secretary. The Secretary shall keep or cause to be kept,
at the principal executive office and such other place as the Board may order,
a book of minutes of all meetings of shareholders, the Board, and its
committees, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at Board and committee meetings, the number of shares present or
represented at shareholders' meetings and the proceedings thereof. The
Secretary shall keep, or cause to be kept, a copy of the Bylaws of the
Corporation at the principal executive office of the Corporation.
The Secretary shall keep, or cause to be kept, at the principal
executive office, a share register, or a duplicate share register, showing the
names of the shareholders and their addresses, the number and classes of shares
held by each, the number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the Board and of any committees thereof
required by these Bylaws or by law to be given, shall keep the seal of the
Corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
Section 9. Treasurer. The Treasurer shall keep and maintain, or
cause to be kept and maintained, adequate and correct accounts of the
properties and financial transactions of the Corporation and shall send or
cause to be sent to the shareholders of the Corporation such financial
statements and reports as are by law or these Bylaws required to be sent to
them.
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The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the Corporation with such depositories as may be
designated by the Board. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board, shall render to the President and
Directors, whenever they request it, an account of all transactions as
Treasurer and of the financial condition of the Corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board.
Section 10. Agents. The President, any Vice President, the Secretary
or Treasurer may appoint agents with power and authority, as defined or limited
in their appointment, for and on behalf of the Corporation to execute and
deliver, and affix the seal of the Corporation thereto, to bonds, undertakings,
recognizances, consents of surety or other written obligations in the nature
thereof and any of said officers may remove any such agent and revoke the power
and authority given to him.
ARTICLE V - OTHER PROVISIONS
Section 1. Dividends. The Board may, from time to time, declare, and
the Corporation may pay, dividends on its outstanding shares in the manner and
on the terms and conditions provided by law, subject to any contractual
restrictions to which the Corporation is then subject.
Section 2. Inspection of Bylaws. The Corporation shall keep in its
principal executive office the original or a copy of these Bylaws as amended to
date which shall be open to inspection by shareholders at all reasonable times
during office hours. If the principal executive office of the Corporation is
outside the State of Nevada and the Corporation has no principal business
office in such State, it shall upon the written notice of any shareholder
furnish to such share holder a copy of these Bylaws as amended to date.
Section 3. Acquisition of Controlling Interest. The provisions of
Section 78.378 through 78.3793, inclusive, of Chapter 78 of the Nevada Revised
Statutes do not apply to the Corporation.
ARTICLE VI - AMENDMENTS
These Bylaws may be altered, amended or repealed either by approval of
a majority of the outstanding shares entitled to vote or by the approval of the
Board; provided, however, that after the issuance of shares, a Bylaw specifying
or changing a fixed number of Directors or the maximum or minimum number or
changing from a fixed to a flexible Board or vice versa may only be adopted by
the approval by an affirmative vote of not less than two-thirds
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(2/3) of the Corporation's issued and outstanding shares entitled to vote.
ARTICLE VII - INDEMNIFICATION
On the terms, to the extent, and subject to the condition prescribed
by statute and by such rules and regulations, not inconsistent with statute, as
the Board of Directors may in its discretion impose in general or particular
cases or classes of cases, (a) the Corporation shall indemnify any person made,
or threatened to be made, a party to an action or proceeding, civil or
criminal, including an action by or in the right of any other corporation of
any type or kind, domestic or foreign, or any partnership, joint venture,
trust, employee benefit plan or other enterprise which any director or officer
of the Corporation served in any capacity at the request of the Corporation, by
reason of the fact that he, his testator or intestate, was a director or
officer of the joint venture, trust, employee benefit plan or other enterprise
in any capacity, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees of any such action or
proceeding, or any appeal therein, and (b) the Corporation may pay, in advance
of final disposition of any such action or proceeding, expenses incurred by
such person in defending such action or proceeding.
On the terms, to the extent, and subject to the conditions prescribed
by statute and by such rules and regulations, not inconsistent with statute, as
the Board of Directors may in its discretion impose in general or particular
cases or classes of cases, (a) the Corporation shall indemnify any person made
a party to an action by or in the right of the Corporation to procure a
judgment in its favor, by reason of the fact that he, his testator or
intestate, is or was a director or officer of the Corporation, against the
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense of such action, or in connection
with an appeal therein, and (b) the Corporation may pay, in advance of final
disposition of any such action, expenses incurred by such person in defending
such action or proceeding.
ARTICLE VIII - FISCAL YEAR
The Fiscal Year of this Corporation shall begin on January l and end
on December 31.
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Exhibit 4.3
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
1995 STOCK OPTION PLAN
1. Purposes.
The AMERICAN INTERNATIONAL PETROLEUM CORPORATION 1995 STOCK OPTION
PLAN (the "Plan") is intended to provide the employees, directors, independent
contractors and consultants of American International Petroleum Corporation
(the "Company") with an added incentive to commence employment with the
Company, to continue their services to the Company and to exert their maximum
efforts toward the Company's success. By thus encouraging employees,
directors, independent contractors and consultants, promoting their continued
association with the Company and aligning their interests more closely with
those of the stockholders of the Company through stock ownership, the Plan may
be expected to benefit stock the Company and its stockholders. The Plan allows
the Company to grant Incentive Stock Options ("ISOs"), as defined in Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
Non-Qualified Stock Options ("NQSOs") not intended to qualify under Section
422(b) of the Code and ISOs or NQSOs in tandem with Stock Appreciation Rights
("SARs"; collectively, "Options").
2. Shares Subject to the Plan.
The total number of shares of common stock of the Company, $.08 par
value per share ("Common Stock"), that may be subject to Options granted under
the Plan shall be 3,500,000, subject to adjustment as provided in Paragraph 8
of the Plan; however, the grant of an ISO or NQSO to an employee together with
a tandem SAR shall only require one share of Common Stock available subject to
the Plan to satisfy such joint Option. The Company shall at all times, while
the Plan is in force, reserve at least such number of shares of Common Stock as
will be sufficient to permit the exercise of all outstanding Options granted
under the Plan. In the event any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the unpurchased shares
subject thereto shall again be available for granting of Options under the
Plan.
3. Eligibility.
ISOs or ISOs in tandem with SARs (provided the SAR meets the
requirements set forth in Temp. Reg. Section 14a.422A-1, A-39, (a) through (e)
inclusive, under the Code) may be granted from time to time under the Plan to
one or more employees of the Company or of a "subsidiary" or "parent" of the
Company, as the quoted terms are defined within Section 424 of the Code. An
officer is an employee for the above purposes. However, a director of the
Company who is not otherwise an employee is not deemed an employee
<PAGE> 2
for such purposes. NQSOs and NQSOs in tandem with SARs may be granted from
time to time under the Plan to one or more employees of the Company, officers,
members of the Board of Directors, independent contractors, consultants and
other individuals who are not employees of, but are involved in the continuing
development and success of the Company and/or of a subsidiary of the Company,
including persons who have previously been granted Options under the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of
the Company as such Board of Directors may be composed from time to time and/or
by a Stock Option Committee (the "Committee") which shall be comprised of at
least two disinterested persons (the term "disinterested" having the meaning
ascribed to it by Rule 16b-3 of the Securities Exchange Act of 1934 (the "1934
Act") appointed by the Board of Directors of the Company. As and to the extent
authorized by the Plan, the Committee may exercise the power and authority
vested in the Board of Directors under the Plan. Within the limits of the
express provisions of the Plan, the Board of Directors or Committee shall have
the authority, in its discretion, to determine the individuals to whom, and the
time or times at which, Options shall be granted, the character of such Options
(whether ISO, NQSO and/or SARs in tandem with ISOs or NQSOs) and the number of
shares of Common Stock to be subject to each Option, the manner and form in
which the optionee can tender payment upon the exercise of his Option, and to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of Option
agreements that may be entered into in connection with Options (which need not
be identical), subject to the limitation that agreements granting ISOs must be
consistent with the requirements for the ISOs being qualified as "incentive
stock options" as provided in Section 422 of the Code, and to make all other
determinations and take all other actions necessary or advisable for the
administration of the Plan. In making such determinations, from time to time,
the Board of Directors or the Committee may take into account the nature of the
services rendered by such individuals, their present and potential
contributions to the Company's success, and such other factors as the Board of
Directors or the Committee, in its discretion, shall deem relevant. The Board
of Directors' or the Committee's determinations on the matters referred to in
this Paragraph shall be conclusive.
(b) Notwithstanding anything contained herein to the contrary, at
any time during the period that the Company's Common Stock is registered
pursuant to Section 12(b) or 12(g) of the 1934 Act, the Committee, if one has
been appointed to administer the Plan with respect to grants to all persons or
solely with respect to persons subject to Section 16
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<PAGE> 3
of the 1934 Act, shall have the exclusive right to grant Options to persons
subject to Section 16 of the 1934 Act and to set forth the terms and conditions
thereof. With respect to persons subject to Section 16 of the 1934 Act,
transactions under the Plan are intended, to the extent possible, to comply
with all applicable conditions of Rule 16b-3, as amended from time to time (and
its successor provisions, if any), under the 1934 Act. To the extent any
provision of the Plan or action by the Board of Directors or Committee fails to
so comply, it shall be deemed null and void to the extent permitted by law and
deemed advisable by the Board of Directors.
5. Terms of Options.
Within the limits of the express provisions of the Plan, the Board of
Directors or the Committee may grant either ISOs or NQSOs and/or SARs in tandem
with ISOs or NQSOs. An ISO or an NQSO enables the optionee to purchase from
the Company, at any time during a specified exercise period, a specified number
of shares of Common Stock at a specified price (the "Option Price"). The
optionee, if granted a SAR in tandem with a NQSO or ISO, may receive from the
Company, in lieu of exercising his option to purchase shares pursuant to his
NQSO or ISO, during the exercise period of the NQSO or ISO or at any specified
time or times fixed for that purpose by the Board of Directors or the
Committee, the excess of the fair market value upon such exercise (as
determined in accordance with subparagraph (b) of this Paragraph 5) of one
share of Common Stock over the Option Price per share specified upon grant of
the Option multiplied by the number of shares of Common Stock covered by the
SAR so exercised. The character and terms of each Option granted under the
Plan shall be determined by the Board of Directors and/or the Committee
consistent with the provisions of the Plan, including the following:
(a) An Option granted under the Plan must be granted within 10 years
from the date the Plan is adopted, or the date the Plan is approved by the
stockholders of the Company, whichever is earlier.
(b) The Option Price of the shares of Common Stock subject to each
ISO and each SAR issued in tandem with an ISO shall not be less than the fair
market value of such shares of Common Stock at the time such ISO is granted.
Such fair market value shall be determined by the Board of Directors and, if
the shares of Common Stock are listed on a national securities exchange or
traded on the over-the-counter market, the fair market value shall be the
closing price on such exchange, or the mean of the
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closing bid and asked prices of the shares of Common Stock on the
over-the-counter market, as reported by the National Association of Securities
Dealers Automated Quotation System (NASDAQ), the National Association of
Securities Dealers OTC Bulletin Board or the National Quotation Bureau, Inc.,
as the case may be, on the day on which the Option is granted or, if there is
no closing price or bid or asked price on that day, the closing price or mean
of the closing bid and asked prices on the most recent day preceding the day on
which the Option is granted for which such prices are available. If an ISO or
SAR in tandem with an ISO is granted to any individual who, immediately before
the ISO is to be granted, owns (directly or through attribution) more than 10%
of the total combined voting power of all classes of capital stock of the
Company or a subsidiary or parent of the Company, the Option Price of the
shares of Common Stock subject to such ISO shall not be less than 110% of the
fair market value per share of the shares of Common Stock at the time such ISO
is granted.
(c) The Option Price of the shares of Common Stock subject to an NQSO
or a SAR in tandem with a NQSO granted pursuant to the Plan shall be determined
by the Board of Directors or the Committee, in its sole discretion.
(d) In no event shall any Option granted under the Plan have an
expiration date later than 10 years from the date of its grant, and all Options
granted under the Plan shall be subject to earlier termination as expressly
provided in Paragraph 6 hereof. If an ISO or a SAR in tandem with an ISO is
granted to any individual who, immediately before the ISO is granted, owns
(directly or through attribution) more than 10% of the total combined voting
power of all classes of capital stock of the Company or of a subsidiary or
parent of the Company, such ISO shall by its terms expire and shall not be
exercisable after the expiration of five (5) years from the date of its grant.
(e) With respect to the grant of SARs to Officers and Directors of
the Company, an SAR may be exercised at any time after six months from the date
of the grant thereof during the exercise period of the ISO or NQSO with which
it is granted in tandem and prior to the exercise of such ISO or NQSO, but only
within the specified 10 business day period referred to in subsection (e)(3) of
Rule 16b-3 of the 1934 Act (generally, the 10 business days immediately
following the publication of the Company's quarterly financial information) if
the Company's Common Stock is registered pursuant to Section 12(b) or 12(g) of
the 1934 Act. Notwithstanding the foregoing, the Board of Directors and/or the
Committee shall in their discretion determine from time to time the terms and
conditions of SAR's to be granted, which terms may vary from the
above-described conditions, and which terms shall be set forth in a written
stock option agreement evidencing the SAR granted in tandem with the ISO or
NQSO. The exercise of an SAR granted in tandem with an ISO or NQSO shall be
deemed to cancel such number of shares subject to the unexercised Option as
were subject to the exercised SAR. The Board of Directors or the Committee
also has the discretion to alter the terms of the SARs if necessary to comply
with Federal or state securities law. Amounts to be paid by the Company in
connection with a SAR may, in the Board of Director's or the Committee's
discretion, be made in cash, Common Stock or a combination thereof.
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<PAGE> 5
(f) Unless otherwise provided in any Option agreement under the
Plan, an Option granted under the Plan shall become exercisable, in whole at
any time or in part from time to time, but in no case may an Option (i) be
exercised as to less than one hundred (100) shares of Common Stock at any one
time, or the remaining shares of Common Stock covered by the Option if less
than one hundred (100), and (ii) become fully exercisable more than five years
from the date of its grant nor shall less than 20% of the Option become
exercisable in any of the first five years of the Option. The Board of
Directors or the Committee, in its sole discretion, may at such time or times
as it deems appropriate, if ever, accelerate all or part of the vesting
provisions with respect to one or more outstanding options. The acceleration
of one Option shall not infer that any other Option is or is to be accelerated.
(g) An Option granted under the Plan shall be exercised by the
delivery by the holder thereof to the Company at its principal office (to the
attention of the Secretary) of written notice of the number of full shares of
Common Stock with respect to which the Option is being exercised, accompanied
by payment of the Option Price for such shares in full, which payment at the
option of the holder of the Option shall be in the form of (i) cash or
certified or bank check payable to the order of the Company or, (ii) if
permitted by the Committee or the Board of Directors, as determined by the
Committee or the Board of Directors in its sole discretion at the time of the
grant of the Option with respect to an ISO and at or prior to the time of
exercise with respect to a NQSO, by the delivery of shares of Common Stock
having a fair market value equal to the Option Price or the delivery of an
interest-bearing promissory note having an original principal balance equal to
the Option Price and an interest rate not below the rate which would result in
imputed interest under the Code (provided, in order to qualify as an ISO, more
than two years shall have passed since the date of grant and one year from the
date of exercise), or (iii) at the option of the Committee or the Board of
Directors, determined in its sole discretion at the time of the grant of the
Option with respect to an ISO and at or prior to the time of exercise with
respect to a NQSO, by any combination of cash, promissory note and shares of
Common Stock (subject to the restriction above) that have a fair market value
together with such cash and principal amount of any promissory note that shall
equal the Option Price, and, in the case of a NQSO, at the discretion of the
Committee or Board of Directors, by having the Company withhold from the shares
of Common Stock to be issued upon exercise of the Option that number of shares
having a fair market value equal to the exercise price and the tax withholding
amount due, or otherwise provide for withholding as set forth in Paragraph 9(c)
hereof, or in the event an employee is granted an ISO or NQSO in tandem with a
SAR and desires to exercise such SAR, such written notice shall so state such
intention. The Option Price may also be paid in full by a broker-dealer to
whom the holder of the Option has submitted an exercise notice consisting of a
fully endorsed Option, or
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<PAGE> 6
through any other medium of payment as the Board of Directors and/or the
Committee, in its discretion, shall authorize.
(h) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares of Common Stock covered by such holder's
Option until such shares of Common Stock shall be issued to such holder upon
the exercise of the Option.
(i) Options shall not be transferable otherwise than by will or
the laws of descent and distribution, and any ISO or SAR in tandem with an ISO
granted under the Plan may be exercised during the lifetime of the holder
thereof only by the holder. No Option shall be subject to execution,
attachment or other process.
(j) For any holder, the aggregate fair market value, determined
as of the time any ISO or SAR in tandem with an ISO is granted and in the
manner provided for by Subparagraph (b) of this Paragraph 5, of the shares of
Common Stock with respect to which ISOs granted under the Plan (and any other
stock option plan of the Company or its parent or subsidiaries) are exercisable
for the first time during any calendar year shall not exceed $100,000. Any
grant of Options in excess of such amount shall be deemed a grant of a NQSO.
(k) Notwithstanding anything contained herein to the
contrary, a SAR which was granted in tandem with an ISO shall (i) expire no
later than the expiration of the underlying ISO; (ii) be for no more than 100%
of the spread at the time the SAR is exercised; (iii) only be transferable when
the underlying ISO is transferable; (iv) only be exercised when the underlying
ISO is eligible to be exercised; and (v) only be exercisable when there is a
positive spread.
6. Death or Termination of Employment.
(a) Subject to the provisions of subparagraph (d) of this
Paragraph 6, and except as otherwise determined by the Board of Directors or
the Committee in its sole discretion, if the employment of a holder of an ISO
or ISO in tandem with an SAR under the Plan shall be terminated for any reason
other than cause or the death or disability of the holder or a holder's
voluntary termination of his employment with the Company, such holder's ISO or
ISO in tandem with an SAR shall expire three (3) months after such termination.
Except as otherwise determined by the Board of Directors or the Committee in
its sole discretion, if the employment of a holder of an ISO or ISO in tandem
with an SAR shall terminate for cause or if a holder shall voluntarily
terminate his employment by the Company, then any unexercised Option granted
to the holder shall expire at the time of termination. If the employment of a
holder of an Option (exclusive of his ISOs) shall be terminated for any reason
other than cause or the death or the disability of the holder, such holder's
Options, other than his
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ISOs or ISO in tandem with an SAR, may be exercised during the earlier of (i)
the respective terms thereof, or (ii) the subsequent death or disability of the
respective holder, subject to the provisions of subparagraphs (b) and (d) of
this Paragraph 6, unless the Board of Directors or the Committee shall in its
sole discretion shall set forth an earlier termination provision in the
holder's Option Agreement.
(b) If the holder of an Option granted under the Plan dies
(i) while employed by the Company or a subsidiary or parent corporation or (ii)
within three (3) months after the termination of such holder's employment, such
Options may, subject to the provisions of subparagraph (d) of this Paragraph 6,
be exercised by a legatee or legatees of such Option under such individual's
last will or by such individual's personal representatives or distributees at
any time within such period as determined by the Board of Directors or the
Committee in its sole discretion, but in no event for less than six months
after the individual's death, to the extent such Options were exercisable as of
the date of death or date of termination of employment, whichever date is
earlier.
(c) If the holder of an Option under the Plan becomes
disabled within the definition of section 22(e)(3) of the Code while employed
by the Company or a subsidiary or parent corporation, such Option may, subject
to the provisions of subparagraph (d) of this Paragraph 6, be exercised at any
time within six months after such holder's termination of employment due to the
disability.
(d) Except as otherwise determined by the Board of
Directors or the Committee in its sole discretion, an Option may not be
exercised pursuant to this Paragraph 6 except to the extent that the holder was
entitled to exercise the Option at the time of termination of employment or
death, and in any event may not be exercised after the original expiration date
of the Option.
7. Leave of Absence.
For the purposes of the Plan, an individual who is on military
or sick leave or other bona fide leave of absence (such as temporary employment
by the Government) shall be considered as remaining in the employ of the
Company or of a subsidiary or parent corporation for ninety (90) days or such
longer period as such individual's right to reemployment is guaranteed either
by statute or by contract.
8. Adjustment Upon Changes in Capitalization.
(a) In the event that the outstanding shares of Common
Stock are hereafter changed by reason of recapitalization, reclassification,
stock split, combination or exchange of shares of Common Stock or the like, or
by the issuance of dividends payable
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<PAGE> 8
in shares of Common Stock, an appropriate adjustment shall be made by the Board
of Directors, as determined by the Board of Directors and/or the Committee, in
the aggregate number of shares of Common Stock available under the Plan, in the
number of shares of Common Stock issuable upon exercise of outstanding Options
and in the Option Price per share. In the event of any consolidation or merger
of the Company with or into another company, or the conveyance of all or
substantially all of the assets of the Company to another company, each then
outstanding Option shall upon exercise thereafter entitle the holder thereof to
such number of shares of Common Stock or other securities or property to which
a holder of shares of Common Stock of the Company would have been entitled upon
such consolidation, merger or conveyance; and in any such case appropriate
adjustment, as determined by the Board of Directors of the Company (or
successor entity) shall be made as set forth above with respect to any future
changes in the capitalization of the Company or its successor entity. In the
event that the dissolution or liquidation of the Company is approved by the
Board of Directors, all outstanding Options under the Plan will automatically
terminate, unless otherwise provided by the Board of Directors of the Company
or any authorized committee thereof.
(b) Any Option granted under the Plan, unless waived by the
Board of Directors or the Committee, may, at the discretion of the Board of
Directors of the Company and said other corporation, be exchanged for options
to purchase shares of capital stock of another corporation with which the
Company or a subsidiary thereof is merged, reorganized or consolidated, or to
which the Company sells all or a substantial portion of its property or stock.
The terms, provisions and benefits to the optionee of such substitute option(s)
shall in all respects be identical to the terms, provisions and benefits of
optionee under his Option(s) prior to said substitution. To the extent the
above may be inconsistent with Sections 424(a)(1) and (2) of the Code, the
above shall be deemed interpreted so as to comply therewith.
(c) Any adjustment in the number of shares of Common Stock
shall apply proportionately to only the unexercised portion of the Options
granted hereunder. If fractions of shares of Common Stock would result from
any such adjustment, the adjustment shall be revised to the next higher whole
number of shares of Common Stock.
9. Further Conditions of Exercise.
(a) Unless the shares of Common Stock issuable upon the
exercise of an Option have been registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, prior to the
exercise of the Option, an optionee must represent in writing to the Company
that such shares of Common Stock are being acquired his own account for
investment purposes
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<PAGE> 9
only and not with a view towards the further resale or distribution thereof,
and must supply to the Company such other documentation as may be required by
the Company, unless in the opinion of counsel to the Company such
representation, agreement or documentation is not necessary to comply with said
Act.
(b) The Company shall not be obligated to deliver any
shares of Common Stock until they have been listed on each securities exchange
and trading association on which the Common Stock shall then be listed or until
there has been qualification under or compliance with such state or federal
laws, rules or regulations as the Company may deem applicable.
(c) The Board of Directors or Committee may make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of any taxes that the Company is required by any law or regulation
of any governmental authority, whether federal, state or local, domestic or
foreign, to withhold in connection with the exercise of any Option, including,
but not limited to, (i) the withholding of payment of all or any portion of
such Option until the holder reimburses the Company for the amount the Company
is required to withhold with respect to such taxes, or (ii) the cancelling of
any number of shares of Common Stock issuable upon exercise of such Option in
an amount sufficient to reimburse the Company for the amount it is required to
so withhold (iii) the selling of any property contingently credited by the
Company for the purpose of exercising such Option, in order to withhold or
reimburse the Company for the amount it is required to so withhold or (iv)
withholding the amount due from such employee's wages if the employee is
employed by the Company or any subsidiary thereof.
10. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the
Plan) shall terminate ten (10) years from the earlier of the date of its
adoption by the Board of Directors or the date the Plan is approved by the
stockholders of the Company, or shall terminate as hereinafter provided, and no
Option shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified
or amended by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote thereon.
(c) The Board of Directors of the Company may at any time
terminate the Plan or from time to time make such modifications or amendments
of the Plan as it may deem advisable; provided, however, that the Board of
Directors shall not, without approval by the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the Company entitled
to vote thereon,
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<PAGE> 10
increase (except as provided by Paragraph 8) the maximum number of shares of
Common Stock as to which Options or shares may be granted under the Plan,
materially change the standards of eligibility under the Plan or amend any
provision hereof which requires stockholder approval in order to preserve the
status of the Plan as a plan qualifying under Rule 16b-3 of the 1934 Act if the
Plan would otherwise qualify thereunder. Any amendment to the Plan which, in
the opinion of counsel to the Company, will be deemed to result in the adoption
of a new Plan, will not be effective until approved by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock of the
Company entitled to vote thereon.
(d) No termination, modification or amendment of the Plan
may adversely affect the rights under any outstanding Option without the
consent of the individual to whom such Option shall have been previously
granted.
11. Effective Date of the Plan.
The Plan shall become effective upon adoption by the Board of
Directors of the Company. The Plan shall be subject to approval by the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company entitled to vote thereon within one year before or
after adoption of the Plan by the Board of Directors.
12. Not a Contract of Employment.
Nothing contained in the Plan or in any option agreement
executed pursuant hereto shall be deemed to confer upon any individual to whom
an Option is or may be granted hereunder any right to remain in the employ of
the Company or of a subsidiary or parent of the Company or in any way limit the
right of the Company, or of any parent or subsidiary thereof, to terminate the
employment of any employee.
13. Other Compensation Plans.
The adoption of the Plan shall not affect any other stock option
plan, incentive plan or any other compensation plan in effect for the Company,
nor shall the Plan preclude the Company from establishing any other form of
stock option plan, incentive plan or any other compensation plan.
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<PAGE> 11
NON-QUALIFIED STOCK OPTION AGREEMENT
AGREEMENT, made as of the ___ day of _________, 1996, by and
between AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation
having its principal executive offices at 444 Madison Avenue, New York, New
York 10022 (the "Grantor"), and ___________, with an address at
_________________________6 (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is presently performing services for the Grantor; and
WHEREAS, the Grantor is desirous of increasing the incentive of
the Optionee to exert his utmost efforts in improving the business of the
Grantor.
NOW, THEREFORE, in consideration of the Optionee's continued
service to the Grantor, and for other good and valuable consideration, the
Grantor hereby grants to the Optionee options to purchase common stock of the
Grantor, $.08 par value ("Common Stock"), on the following terms and
conditions:
1. Option.
Pursuant to its 1995 Stock Option Plan (the "Plan"), the Grantor
hereby grants to the Optionee a non-qualified stock option (not qualified as
described in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") to purchase, prior to 5:00 p.m. on February 14, 1999, as set forth in
Paragraph 3 hereof, up to an aggregate of 100,000 fully paid and non-assessable
shares of Common Stock (the "Shares"), subject to the terms and conditions set
forth below.
2. Purchase Price.
The purchase price shall be $1.00 per Share. The Grantor shall
pay all original issue or transfer taxes on the exercise of this option and all
other fees and expenses necessarily incurred by the Grantor in connection
herewith.
3. Exercise of Option.
The options granted hereby are fifty (50%) percent vested, and
the other fifty (50%) percent shall vest on the first anniversary of the date
hereof. The Optionee shall notify the Grantor in writing in person, by
overnight courier or by registered or certified mail, return receipt requested,
addressed to its principal office, as to the number of Shares which Optionee
desires to purchase under the option herein granted, which notice shall be
accompanied by payment (by cash or certified check) of the exercise price
therefor as specified in Paragraph 2 above. As soon as
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<PAGE> 12
practicable thereafter, the Grantor shall cause to be delivered to the Optionee
certificates issued in the Optionee's name evidencing the Shares purchased by
the Optionee.
4. Option Conditioned On Continued Service.
(a) If the Optionee shall be removed as a director for
cause, or if the Optionee resigns voluntarily, the option granted to the
Optionee hereunder shall expire immediately upon such termination. If the
Optionee shall be removed as a director without cause, the option granted to
the Optionee hereunder shall immediately vest in full, and such option shall be
exercisable until the end of the term hereof.
(b) If the Optionee dies (i) while performing services for
the Grantor or a subsidiary or parent corporation, or (ii) within three (3)
months after the termination of Optionee's service other than voluntarily by
the Optionee or for cause, such option may be exercised by a legatee or
legatees of such option under such individual's last will or by his personal
representatives or distributees at any time within one year after his death,
subject to the provisions of subparagraph (d) of this Paragraph 4.
(c) If the Optionee becomes disabled within the definition
of Section 22(e)(2) of the Internal Revenue Code of 1986, as amended, while
performing services for the Grantor or a subsidiary or parent corporation, such
option may, subject to the provisions of subparagraph (d) of this Paragraph 4,
be exercised at any time within one year after Optionee's termination of
service due to the disability.
(d) An option may not be exercised pursuant to this
Paragraph 4 except to the extent that the Optionee was entitled to exercise the
option at the time of termination of service or death, and in any event may not
be exercised after the original expiration date of the option.
5. Divisibility and Non-Assignability of the Option.
(a) The Optionee may exercise the option herein granted
from time to time subject to the provisions of Section 3 above with respect to
any whole number of Shares included therein, but in no event may an option be
exercised as to less than one thousand (1,000) Shares at any one time, except
for the remaining Shares covered by the option if less than one thousand
(1,000).
(b) The Optionee may not give, grant, sell, exchange,
transfer legal title, pledge, assign or otherwise encumber or dispose of the
options herein granted or any interest therein, otherwise than by will or the
laws of descent and distribution, and the options herein granted, or any of
them, shall be exercisable during the Optionee's lifetime only by the Optionee.
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<PAGE> 13
6. Stock as Investment.
By accepting this option, the Optionee agrees for himself, his
heirs and legatees that any and all Shares purchased hereunder shall be
acquired for investment purposes only and not for sale or distribution, and
upon the issuance of any or all of the Shares issuable under the option granted
hereunder, the Optionee, or his heirs or legatees receiving such Shares, shall
deliver to the Grantor a representation in writing, that such Shares are being
acquired in good faith for investment purposes only and not for sale or
distribution. Grantor may place a "stop transfer" order with respect to such
Shares with its transfer agent and place an appropriate restrictive legend on
the stock certificate(s) evidencing such Shares.
7. Restriction on Issuance of Shares.
The Grantor shall not be required to issue or deliver any
certificate for Shares purchased upon the exercise of any option granted
hereunder unless (a) the issuance of such Shares has been registered with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, or counsel to the Grantor shall have given an opinion that such
registration is not required; (b) approval, to the extent required, shall have
been obtained from any state regulatory body having jurisdiction thereof; and
(c) permission for the listing of such Shares, if required, shall have been
given by any national securities exchange on which the Common Stock of the
Grantor are at the time of issuance listed.
8. Registration Rights
(a) If, at any time during the exercise period hereof, the
Grantor proposes to file a registration statement with respect to any class of
securities (other than pursuant to a registration statement on Forms S-4 or S-8
or any successor form) under the Securities Act, the Grantor shall notify the
Optionee at least twenty (20) days prior to the filing of such registration
statement and will offer to include in such registration statement all or any
portion of the Shares. At the written request of the Optionee, delivered to
the Grantor within twenty (20) days after receipt of the Grantor's notice, the
Optionee shall state the number of Shares that it wishes to sell or distribute
publicly under the proposed registration statement. The Grantor will use its
best efforts, through its officers, directors, auditors and counsel in all
matters necessary or advisable, to cause such registration statement to become
effective as promptly as practicable. In that regard, the Grantor makes no
representations or warranties as to its ability to have the registration
statement declared effective. All registrations requested pursuant to this
Paragraph 8 are referred to herein as "Piggyback Registrations." In the event
the Grantor is advised by the staff of the SEC, NASDAQ or any self-regulatory
or state securities agency that the inclusion of
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<PAGE> 14
the Shares will prevent, preclude or materially delay the effectiveness of a
registration statement filed, the Grantor, in good faith, may amend such
registration statement to exclude the Shares without otherwise affecting the
Optionee's rights to any other registration statement herein.
(i) Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Grantor,
and if the underwriter thereof advises the Grantor in writing that in its
opinion the number of Shares requested to be included in such registration
statement exceeds the number that can be sold in such offering without
materially adversely affecting the distribution of such securities by the
Grantor, then the Grantor will include in such registration statement first,
the securities that the Grantor proposes to sell and second, the securities
requested to be included in such registration statement, any sales of which
shall apportioned pro rata among the Optionee and the holders of any other
securities requesting registration according to the amounts of Shares and other
securities requested to be registered.
Notwithstanding the above, if any such underwriter shall advise
the Grantor in writing that the distribution of the Shares requested to be
included in the registration statement concurrently with the securities being
registered by the Grantor would materially adversely affect the distribution of
such securities by the Grantor, then the Optionee shall delay his offering and
sale for such period ending on the earliest of (a) 180 days following the
effective date of the Grantor's registration statement or (b) such date as the
Grantor, managing underwriter and Optionee shall otherwise agree. In the event
of such delay, the Grantor shall file such supplements, post-effective
amendments and take any such other steps as may be necessary to permit such
Optionee to make its proposed offering and sale for a period of ninety (90)
days immediately following the end of such period of delay. If any party
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Grantor, the underwriter and the Optionee.
Notwithstanding the foregoing, the Grantor shall not be required to file a
registration statement to include the Shares pursuant to this Paragraph 8(a)(i)
if, in the opinion of counsel for the Grantor, all of the Shares proposed to be
disposed of may be transferred pursuant to the provisions of Rule 144 under the
Securities Act.
(ii) Priority on Secondary Registrations. If a
Piggyback Registration is an underwritten secondary registration on behalf of
holders of securities of the Grantor, and the underwriter thereof advises the
Grantor in writing that in its opinion the number of Shares requested to be
included in such registration statement exceeds the number which can be sold in
such offering without materially adversely affecting the distribution of such
securities, then the Grantor will include in such registration
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<PAGE> 15
statement the securities requested to be included in such registration
statement, any sales of which shall be apportioned pro rata among the Optionee
and the holders of any other securities requesting registration according to the
amounts of Shares and other securities requested to be registered.
(b) In the event of any registration of a security pursuant
to this Section 8, the Grantor shall indemnify the Optionee and its officers
and directors against all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus (and as amended or supplemented)
relating to such registration, or caused by any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they are made unless such statement or omission was made in reliance upon and
in conformity with information furnished to the Grantor by the Optionee
expressly for use therein. The Optionee shall also indemnify the Grantor, its
officers and directors and each underwriter of the Shares so registered with
respect to losses, claims, damages and liabilities caused by any untrue
statement or omission made in reliance upon and in conformity with information
furnished by the Optionee to the Grantor expressly for use in such registration
statement or prospectus.
(c) All expenses of any registration referred to in this
Section 8, except the fees and disbursements of counsel to the Optionee,
underwriting commissions or discounts, filing fees and any transfer or other
taxes applicable to the Options and/or Shares, shall be borne by the Grantor.
9. Adjustments Upon Changes in Capitalization.
(a) In the event of changes in the outstanding Common Stock
of the Grantor by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations, or exchanges of shares, separations,
reorganizations, or liquidations, the number and class of Shares as to which the
option may be exercised shall be correspondingly adjusted by the Grantor. No
adjustment shall be made with respect to stock dividends or splits which do not
exceed 10% in any fiscal year, cash dividends or the issuance to shareholders of
the Grantor of rights to subscribe for additional Common Stock or other
securities.
(b) Any adjustment in the number of Shares shall apply
proportionately to only the unexercised portion of the option granted
hereunder. If fractions of a Share would result from any such adjustment, the
adjustment shall be revised to the next higher whole number of Shares so long
as such increase does not result in the holder of the option being deemed to
own more than 5% of the
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<PAGE> 16
total combined voting power or value of all classes of stock of the Grantor or
its subsidiaries.
10. Effect of Mergers, Consolidations or Sales of Assets.
Anything contained herein to the contrary, a merger or
consolidation in which the Grantor is not the surviving corporation, or a sale
of substantially all of the Grantor's assets or capital stock shall cause the
unexercised options to terminate automatically, unless otherwise provided by
the Board of Directors.
Furthermore, this option may, at the discretion of the Board of
Directors of the Grantor and said other corporation, be exchanged for options
to purchase shares of capital stock of another corporation which the Grantor,
and/or a subsidiary thereof is merged into, consolidated with, or all or a
substantial portion of the property or stock of which is acquired by said other
corporation or separated or reorganized into. The terms, provisions and
benefits to the Optionee of such substitute option(s) shall in all respects be
identical to the terms, provisions and benefits of Optionee under his Option(s)
prior to said substitution. To the extent the above may be inconsistent with
Sections 424(a)(1) and (2) of the Code, the above shall be deemed interpreted
so as to comply therewith.
11. No Rights in Option Stock.
Optionee shall have no rights as a shareholder in respect of
Shares as to which the option granted hereunder shall not have been exercised
and payment made as herein provided.
12. Effect Upon Employment.
This Agreement does not give the Optionee any right to
employment by, or any other relationship with, the Grantor.
13. Binding Effect.
Except as herein otherwise expressly provided, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, their
successors, legal representatives and assigns.
14. Agreement Subject to Plan.
Notwithstanding anything contained herein to the contrary, and
unless the Plan is not adopted by the shareholders of the Company, this
Agreement is subject to, and shall be construed in accordance with, the terms
of the Plan, and in the event of any inconsistency between the terms hereof and
the terms of the Plan, the terms of the Plan shall govern. If the Plan is not
adopted by the shareholders of the Company, this Agreement shall be terminated
and of no force or effect.
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<PAGE> 17
15. Miscellaneous.
This Agreement shall be construed under the laws of the State of
New York applied to agreements made and to be performed entirely within such
State. Headings have been included herein for convenience of reference only,
and shall not be deemed a part of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By:_____________________________
George N. Faris,
Chief Executive Officer
ACCEPTED AND AGREED TO:
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<PAGE> 18
STOCK OPTION AGREEMENT
AGREEMENT made as of this ____ day of ___________, 1996 by and
between AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation
having its principal executive offices at 444 Madison Avenue, New York, New
York 10022 (the "Grantor"), and ___________, with an address at 444 Madison
Avenue, New York, New York 10022 (the "Optionee").
W I T N E S S E T H:
WHEREAS, Optionee is presently employed by Grantor; and
WHEREAS, Grantor is desirous of increasing the incentive of
Optionee to exert his utmost efforts to improve the business of the Grantor.
NOW, THEREFORE, in consideration of the Optionee's continued
service to the Grantor, and for other good and valuable consideration, the
Grantor hereby grants the Optionee options to purchase common stock of the
Grantor, $.08 par value ("Common Stock"), on the following terms and
conditions:
1. Option.
Pursuant to its 1995 Stock Option Plan (the "Plan"), the Grantor
hereby grants to the Optionee an Incentive Stock Option, as such term is
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), to purchase, prior to 5:00 p.m. on February 14, 1999, as set forth in
Paragraph 3 hereof, up to 1,000,000 fully paid and non-assessable shares of the
Common Stock of the Grantor, par value $.08 per share (the "Shares"), subject
to the terms and conditions set forth below.
2. Purchase Price.
The purchase price shall be $1.00 per Share. The Grantor shall
pay all original issue or transfer taxes on the exercise of this option and all
other fees and expenses necessarily incurred by the Grantor in connection
therewith.
3. Exercise of Option.
(a) The options granted hereby are fully vested and may be
exercised at any time prior to expiration as described herein.
(b) The Optionee shall notify the Grantor in writing in
person, by overnight courier or registered or certified mail, return receipt
requested, addressed to its principal office, as to the number of Shares which
he desires to purchase under the options herein granted, which notice shall be
accompanied by payment (by cash or certified check) of the exercise price
therefor, as specified in
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<PAGE> 19
Paragraph 2 above. As soon as practicable thereafter, the Grantor shall, at
its principal office, tender to Optionee certificates issued in the Optionee's
name evidencing the Shares purchased by the Optionee.
(c) If the aggregate fair market value of all the stock
with respect to which Incentive Stock Options are exercisable for the first
time by the Optionee during any calendar year under the Plan and all Incentive
Stock Option plans of the Grantor or its affiliates exceeds $100,000.00, the
grant of the Incentive Stock Option hereunder shall not, to the extent of such
excess, be deemed a grant of an Incentive Stock Option but will instead be
deemed the grant of a Non-Qualified Stock Option under the Plan. For purposes
hereof, the fair market value of the stock with respect to which an Incentive
Stock Option is exercisable shall be the value of such stock at the time that
specific option is granted as provided for in Section 422(b)(7) of the Code.
4. Option Conditioned On Continued Employment.
(a) If the employment of the Optionee shall be terminated
for cause, or if the Optionee leaves such employment voluntarily, the option
granted to the Optionee hereunder shall expire immediately upon such
termination. If such employment shall be terminated by the Corporation without
cause, the option granted to the Optionee hereunder shall immediately vest in
full, and such option shall be exercisable until the end of the term hereof.
(b) If the Optionee dies (i) while employed by the Grantor
or a subsidiary or parent corporation, or (ii) within three (3) months after
the termination of his employment other than voluntarily by the Optionee or for
cause, such option, subject to the provisions of subparagraph (d) of this
Paragraph 4, may be exercised by a legatee or legatees of such option under the
Optionee's last will or by his personal representatives or distributees at any
time within one (1) year after his death.
(c) If the Optionee becomes disabled within the definition
of Section 22(e)(3) of the Code while employed by the Grantor or a subsidiary
or parent corporation, such option, subject to the provisions of subparagraph
(d) of this Paragraph 4, may be exercised at any time within one (1) year after
they termination of employment due to disability.
(d) Except as specifically provided above, an option may
not be exercised pursuant to this Paragraph 4 except to the extent that the
Optionee was entitled to exercise the option, or any part thereof, at the time
of termination of employment or death, and in any event may not be exercised
after the original expiration date of the option.
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<PAGE> 20
5. Divisibility and Non-Assignability of the Options.
(a) The Optionee may exercise the options herein granted
from time to time during the periods of their respective effectiveness with
respect to any whole number of Shares included therein, but in no event may an
option be exercised as to less than one thousand (1,000) Shares at any one
time, except for the remaining Shares covered by the option if less than one
thousand (1,000).
(b) The Optionee may not give, grant, sell, exchange,
transfer legal title, pledge, assign or otherwise encumber or dispose of the
options herein granted or any interest therein, otherwise than by will or the
laws of descent and distribution, and these options, or any of them, shall be
exercisable during his lifetime only by the Optionee.
6. Stock as Investment.
By accepting this option, the Optionee agrees for himself, his
heirs and legatees that any and all Shares purchased hereunder shall be
acquired for investment and not for distribution, and upon the issuance of any
or all of the Shares the Optionee, or his heirs or legatees receiving such
Shares, shall deliver to the Grantor a representation in writing, that such
Shares are being acquired in good faith for investment and not for
distribution. Grantor may place a "stop transfer" order with respect to such
Shares with its transfer agent and place an appropriate restrictive legend on
the stock certificate(s) evidencing such Shares.
7. Restriction on Issuance of Shares.
The Grantor shall not be required to issue or deliver any
certificate for shares of its Common Stock purchased upon the exercise of any
option unless (a) the issuance of such shares has been registered with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, or counsel to the Grantor shall have given an opinion that such
registration is not required; (b) approval, to the extent required, shall have
been obtained from any state regulatory body having jurisdiction thereof, and
(c) permission for the listing of such shares, if required, shall have been
given by NASDAQ and each national securities exchange on which the Common Stock
of the Grantor is at the time of issuance listed.
8. Registration Rights
(a) If, at any time during the exercise period hereof, the
Grantor proposes to file a registration statement with respect to any class of
securities (other than pursuant to a registration statement on Forms S-4 or S-8
or any successor form) under the Securities Act, the Grantor shall notify the
Optionee at least twenty (20) days prior to the filing of such registration
statement and will offer to include in such registration statement all or any
portion of the
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<PAGE> 21
Shares. At the written request of the Optionee, delivered to the Grantor
within twenty (20) days after receipt of the Grantor's notice, the Optionee
shall state the number of Shares that it wishes to sell or distribute publicly
under the proposed registration statement. The Grantor will use its best
efforts, through its officers, directors, auditors and counsel in all matters
necessary or advisable, to cause such registration statement to become
effective as promptly as practicable. In that regard, the Grantor makes no
representations or warranties as to its ability to have the registration
statement declared effective. All registrations requested pursuant to this
Paragraph 8 are referred to herein as "Piggyback Registrations." In the event
the Grantor is advised by the staff of the SEC, NASDAQ or any self-regulatory
or state securities agency that the inclusion of the Shares will prevent,
preclude or materially delay the effectiveness of a registration statement
filed, the Grantor, in good faith, may amend such registration statement to
exclude the Shares without otherwise affecting the Optionee's rights to any
other registration statement herein.
(i) Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Grantor,
and if the underwriter thereof advises the Grantor in writing that in its
opinion the number of Shares requested to be included in such registration
statement exceeds the number that can be sold in such offering without
materially adversely affecting the distribution of such securities by the
Grantor, then the Grantor will include in such registration statement first,
the securities that the Grantor proposes to sell and second, the securities
requested to be included in such registration statement, any sales of which
shall apportioned pro rata among the Optionee and the holders of any other
securities requesting registration according to the amounts of Shares and other
securities requested to be registered.
Notwithstanding the above, if any such underwriter shall advise
the Grantor in writing that the distribution of the Shares requested to be
included in the registration statement concurrently with the securities being
registered by the Grantor would materially adversely affect the distribution of
such securities by the Grantor, then the Optionee shall delay his offering and
sale for such period ending on the earliest of (a) 180 days following the
effective date of the Grantor's registration statement or (b) such date as the
Grantor, managing underwriter and Optionee shall otherwise agree. In the event
of such delay, the Grantor shall file such supplements, post-effective
amendments and take any such other steps as may be necessary to permit such
Optionee to make its proposed offering and sale for a period of ninety (90)
days immediately following the end of such period of delay. If any party
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Grantor, the underwriter and the Optionee.
Notwithstanding the foregoing, the Grantor shall not be required to file a
registration statement to include the Shares pursuant to this
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<PAGE> 22
Paragraph 8(a)(i) if, in the opinion of counsel for the Grantor, all of the
Shares proposed to be disposed of may be transferred pursuant to the provisions
of Rule 144 under the Securities Act.
(ii) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
securities of the Grantor, and the underwriter thereof advises the Grantor in
writing that in its opinion the number of Shares requested to be included in
such registration statement exceeds the number which can be sold in such
offering without materially adversely affecting the distribution of such
securities, then the Grantor will include in such registration statement the
securities requested to be included in such registration statement, any sales of
which shall be apportioned pro rata among the Optionee and the holders of any
other securities requesting registration according to the amounts of Shares and
other securities requested to be registered.
(b) In the event of any registration of a security pursuant
to this Paragraph 8, the Grantor shall indemnify the Optionee and its officers
and directors against all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus (and as amended or supplemented)
relating to such registration, or caused by any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they are made unless such statement or omission was made in reliance upon and
in conformity with information furnished to the Grantor by the Optionee
expressly for use therein. The Optionee shall also indemnify the Grantor, its
officers and directors and each underwriter of the Shares so registered with
respect to losses, claims, damages and liabilities caused by any untrue
statement or omission made in reliance upon and in conformity with information
furnished by the Optionee to the Grantor expressly for use in such registration
statement or prospectus.
(c) All expenses of any registration referred to in this
Section 8, except the fees and disbursements of counsel to the Optionee,
underwriting commissions or discounts, filing fees and any transfer or other
taxes applicable to the Options and/or Shares, shall be borne by the Grantor.
9. Adjustments Upon Changes in Capitalization.
(a) In the event of changes in the outstanding Common Stock
of the Grantor by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations, or exchanges of shares, separations,
reorganizations, or liquidations, the number and class of shares as to which the
options may be exercised shall be correspondingly adjusted by the Grantor. No
adjustment shall be made with respect to stock dividends or splits
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<PAGE> 23
which do not exceed 10% in any fiscal year, cash dividends or the issuance to
stockholders of the Grantor of rights to subscribe for additional shares of
Common Stock or other securities. Anything to the contrary contained herein
notwithstanding, the Board of Directors of the Grantor shall have the
discretionary authority to take any action necessary or appropriate to prevent
these options from being disqualified as "Incentive Stock Options" under the
United States income tax laws then in effect.
(b) Any adjustment in the number of Shares shall apply
proportionately to only the unexercised portion of an option granted hereunder.
If fractions of a share would result from any such adjustment, the adjustment
shall be revised to the next higher whole number of Shares so long as such
increase does not result in the holder of the option being deemed to own more
than 5% of the total combined voting power or value of all classes of stock of
the Grantor or its subsidiaries.
10. Effect of Mergers, Consolidations or Sales of Assets.
Anything contained herein to the contrary, a merger or
consolidation in which the Grantor is not the surviving corporation, or a sale
of substantially all of the Grantor's assets or capital stock shall cause the
unexercised options to terminate automatically, unless otherwise provided by
the Board of Directors.
Furthermore, this option may, at the discretion of the Board of
Directors of the Grantor and said other corporation, be exchanged for options
to purchase shares of capital stock of another corporation which the Grantor,
and/or a subsidiary thereof is merged into, consolidated with, or all or a
substantial portion of the property or stock of which is acquired by said other
corporation or separated or reorganized into. The terms, provisions and
benefits to the Optionee of such substitute option(s) shall in all respects be
identical to the terms, provisions and benefits of Optionee under his Option(s)
prior to said substitution. To the extent the above may be inconsistent with
Sections 424(a)(1) and (2) of the Code, the above shall be deemed interpreted
so as to comply therewith.
11. No Rights in Option Stock.
Optionee shall have no rights as a shareholder in respect of
Shares as to which the option granted hereunder shall not have been exercised
and payment made as herein provided.
12. Effect Upon Employment.
This Agreement does not give the Optionee any right to continued
employment by the Grantor.
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<PAGE> 24
13. Binding Effect.
Except as herein otherwise expressly provided, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, their
successors legal representatives and assigns.
14. Agreement Subject to Plan.
Notwithstanding anything contained herein to the contrary, and
unless the Plan is not adopted by the shareholders of the Company, this
Agreement is subject to, and shall be construed in accordance with, the terms
of the Plan, and in the event of any inconsistency between the terms hereof and
the terms of the Plan, the terms of the Plan shall govern. If the Plan is not
adopted by the shareholders of the Company, this Agreement shall be terminated
and of no force or effect.
15. Miscellaneous.
This Agreement shall be construed under the laws of the State of
New York applied to agreements made and to be performed entirely within such
State. Headings have been included herein for convenience of reference only
and shall not be deemed a part of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By:_____________________________
Denis J. Fitzpatrick
Vice President
ACCEPTED AND AGREED TO:
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<PAGE> 1
EXHIBIT 4.4
FORM OF DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION
S UNDER THE ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS
(AS DEFINED IN REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO
REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS.
No. _______
US $__________
AMERICAN INTERNATIONAL PETROLEUM CORP.
10% CONVERTIBLE SUBORDINATED (REDEEMABLE) DEBENTURE
DUE APRIL 1, 1998
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 10% Convertible Subordinated Redeemable Debentures Due April 1, 1998, in an
aggregate principal amount not exceeding One Million Five Hundred Thousand
Dollars (U.S. $1,500,000).
FOR VALUE RECEIVED, the Company promises to pay to
______________________ the registered holder hereof and its successors and
assigns (the "Holder"), the principal sum of ______________________ Dollars (US
$_________) on April 1, 1998 (the "Maturity Date"), and to pay interest on the
principal sum outstanding, at the rate of 10% per annum due and payable
quarterly 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 __________________ between the Company and
________________________________ (the "Subscription Agreement"). The principal
of, and interest on, this Debenture are payable in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder hereof from time
<PAGE> 2
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 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:
I. 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.
I. 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.
II. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the U.S. only in compliance with the Securities Act of 1933, as
amended (the "Act") and applicable state securities laws. Prior to due
presentment for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered on
the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected or bound by notice to the contrary. Any holder of this Debenture,
electing to exercise the right of conversion set forth in Section 4(a) hereof,
in addition to the requirements set forth in Section 4(a), and any prospective
transferee of this Debenture, is also required to give the Company (i) written
confirmation that it is not a U.S. Person and the Debenture is not being
converted on behalf of a U.S. Person ("Notice of Conversion") or (ii) an
opinion of U.S. counsel to the effect that the Debenture and shares of common
stock issuable upon conversion or transfer thereof have been registered under
the 1933 Act or are exempt from such registration. In the event a Notice of
Conversion or opinion of counsel is not provided the Holder hereof
2
<PAGE> 3
will not be entitled to exercise the right to convert or transfer the
Debentures.
III. (a) The Holder of this Debenture is entitled, at its
option, at any time commencing 45 days after closing of the Offering hereof to
convert all or any amount over $25,000 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) 65% of the average closing bid price of the
Common Stock for the five (5) business days immediately preceding the date of
receipt by the Company of notice of conversion or (y) 65% 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
3
<PAGE> 4
instructions have been provided to the company, by cashier's or 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 $1.50 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.
IV. 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.
V. 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
4
<PAGE> 5
Subscription Agreement shall be false or misleading
in any material respect at the time made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of the
Company under this Debenture [and such failure shall
continue uncured for a period of thirty (30) days
after notice from the Holder of such failure]; or
(d) The Company shall (1) become insolvent; (2) admit in
writing its liability to pay its debts generally as
they mature; (3) make an assignment for 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
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<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
6
<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.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated:__________________________________________________
AMERICAN INTERNATIONAL PETROLEUM CORP.
By:________________________________________________________________
Title:___________________________
8
<PAGE> 9
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $______________
of the above Debenture No. ___ into Shares of Common Stock of American
International Petroleum 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.
9
<PAGE> 10
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of
___________, 1996 (the "Agreement"), is executed in reliance upon the exemption
from registration afforded by Regulation S ("Regulation S") as promulgated by
the Securities and Exchange Commission ("SEC"), under the Securities Act of
1933, as amended. Capitalized terms used herein and not defined shall have the
meanings given to them in Regulation S.
This Agreement has been executed by the undersigned "Buyer" in
connection with the private placement of 10% Convertible 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.
VI. Agreement To Subscribe; Purchase Price.
(a) Subscription. The undersigned Buyer hereby
subscribes for and agrees to purchase the Seller's 10% Convertible 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. $1,500,000 (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 __________________________ United States Dollars (U.S.
$___________) (the "Purchase Price"), which shall be payable pursuant to
paragraph C herein by delivering immediately available funds in United States
Dollars by wire transfer to the designated depository Barry B. Globerman, Esq.,
as Escrow Agent ("Escrow Agent") for closing by delivery of securities versus
payment.
(c) Closing. Subject to the satisfaction of the
conditions set forth in Sections 7 and 8 hereof, payments of the Purchase Price
may be made from time to time in denominations of not less than $100,000 but
all payments hereunder, in any event must be completed on or before
___________, 1996, or such earlier or later date as is mutually agreed to in
writing by Buyer and Seller.
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<PAGE> 11
VII. 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;
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<PAGE> 12
(vi) The transactions contemplated by this
Agreement (a) have not been and will not be pre-arranged by
Buyer with a purchaser located in the United States or a
purchaser which is a U.S. Person, and (b) are not and will not
be part of a plan or scheme by Buyer, to evade the
registration provisions of the 1933 Act;
(vii) Buyer understands that the Securities are not
registered under the 1933 Act and are being offered and sold
to it in reliance on specific exclusions from the registration
requirements of Federal and State securities laws, and that
Seller is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of Buyer set forth herein in order to determine
the applicability of such exclusions and the suitability of
Buyer and any purchaser from Buyer to acquire the Securities;
(viii) Buyer shall take all reasonable steps to
ensure its compliance with Regulation S and shall promptly
send to each purchaser who acts as a distributor, dealer or a
person receiving a selling concession, fee or other
remuneration in respect of any of the Securities, who
purchases prior to the expiration of the Restricted Period
referred to in subparagraph (v) above, a confirmation or other
notice to the purchaser stating that the purchaser is subject
to the same restrictions on offers and sales as Buyer pursuant
to Section 109(c)(2)(iv) of Regulation S;
(ix) Buyer has not conducted or permitted and
shall not conduct or permit on its behalf any "directed
selling efforts" as that term is defined in Rule 902(b) of
Regulation S; nor has Buyer conducted any general solicitation
relating to the offer and sale of any of the Securities in the
United States or elsewhere;
(x) Buyer has the full right, power and authority
to enter into this Agreement and to consummate the transaction
contemplated herein. This Agreement has been duly authorized,
validly executed and delivered on behalf of Buyer and is a
valid and binding agreement in accordance with its terms,
subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights
generally;
(xi) The execution and delivery of this Agreement
and the consummation of the purchase of the Securities, and
the transactions contemplated by this Agreement do not and
will not conflict with or result in a breach by Buyer of any
of the terms of provisions of, or constitute a default under,
the articles of incorporation or by-laws (or similar
constitutive documents) of Buyer or any indenture, mortgage,
deed of trust, or other material
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<PAGE> 13
agreement or instrument to which Buyer is a party or by which
it or any of its properties or assets are bound, or any
existing applicable law, rule or regulation of the United
States or any State thereof or any applicable decree, judgment
or order of any Federal or State court, Federal or State
regulatory body, administrative agency or other United States
governmental body having jurisdiction over Buyer or any of its
properties or assets;
(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
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<PAGE> 14
furnished with all materials relating to the business,
finances and operations of Seller and all materials relating
to the offer and sale of the Securities which have been
requested by Buyer, all of which contain a legend as required
under Section 10 hereof. Buyer further acknowledges that it
and its advisors, if any, have received complete and
satisfactory answers to such inquiries.
(xviii) Buyer's Sophistication. Buyer acknowledges
that the purchase of the Securities involves a high degree of
risk, including the total loss of Buyer's investment. Buyer
has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks
of purchasing the Securities. Buyer understands that the
Securities are not being registered under the 1933 Act, and
therefore Buyer must bear the economic risk of this investment
for an indefinite period of time.
(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.
VIII. 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.
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<PAGE> 15
(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
15
<PAGE> 16
any of the terms or provisions of, or constitute a default under, the articles
of incorporation or by-laws of Seller, or any indenture, mortgage, deed of
trust, or other material agreement or instrument to which Seller is a party or
by which it or any of its properties or assets are bound, or any existing
applicable law, rule or regulation of the United States or any State thereof or
any applicable decree, judgment or order of any Federal or State court, Federal
or State regulatory body, administrative agency or other United States
governmental body having jurisdiction over Seller or any of its properties or
assets.
(h) Approvals. Seller is not aware of any authorization,
approval or consent of any U.S. governmental body which is legally required for
the issuance and sale of the Debentures and the Common Stock issuable upon
conversion thereof to persons who are non-U.S. Persons, as contemplated by
this Agreement. Seller is relying entirely upon Buyer and Distributor with
respect to foreign consents and approvals.
IX. 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.
X. 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
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<PAGE> 17
Certificates up to the total of the "Initial Conversion Amount" (as 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.
XI. 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
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<PAGE> 18
all Underlying Shares registered or (ii) 120 days after the effective date of
such registration statement. In the event the Company undertakes to file a
Registration Statement on Form S-3 in connection with the Common Stock, upon
the effectiveness of such Registration, Buyer shall have the option to sell the
Common Stock pursuant thereto. The foregoing shall not in any way limit
Buyer's rights in connection with the Common Stock pursuant to Regulation S.
XII. 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.
XIII. 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.
XIV. 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.
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<PAGE> 19
(b) Delivery of the Debentures to the Escrow Agent.
XV. 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.
XVI. 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.
XVII. 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
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<PAGE> 20
otherwise. Buyer will advise each purchaser, if any, and potential purchaser of
the Securities, of the foregoing sentence, and that such purchaser is relying
on its own investigation with respect to all such matters, and that such
purchaser will be given access to any and all documents and Seller personnel as
it may reasonably request for such investigation.
(d) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the transactions
contemplated by this Agreement.
(e) This Agreement shall be construed in accordance with
the laws of New York applicable to contracts made and wholly to be performed
within the State of New York and shall be binding upon the successors and
assigns of each party hereto. Buyer hereby waives trial by jury and consents
to exclusive jurisdiction and venue in the State of New York. This Agreement
may be executed in counterparts, and the facsimile transmission of an executed
counterpart to this Agreement shall be effective as an original.
(f) Buyer agrees to indemnify and hold Seller harmless
from any and all claims, damages and liabilities arising from Buyer's breach of
its representations and/or covenants set forth herein.
AMOUNT SUBSCRIBED FOR
$_______________________________________________
[The remainder of this page is intentionally left blank.]
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<PAGE> 21
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:___________________________________________________________________________
Title:________________________________________________________________________
Accepted this ____ day of March, 1996
Official Signatory of Buyer:
__________________________________________
By:_________________________________________________
Title:______________________________________________
Address of Buyer:
____________________________________________________
____________________________________________________
____________________________________________________
Fax No.:____________________________________________
Tel No.:____________________________________________
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EXHIBIT 4.4 - SCHEDULE A
SCHEDULE OF HOLDERS
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
10% CONVERTIBLE SUBORDINATED REDEEMABLE DEBENTURES
<TABLE>
<CAPTION>
HOLDER COUNTRY AMOUNT
- ------ ------- ------
<S> <C>
Rachel Shtern Israel $ 250,000
Madison Trading Switzerland $ 100,000
Pokaras, Inc. Switzerland $ 300,000
Shalom Steinberg Israel $ 200,000
RBB Bank AG Austria $ 650,000
</TABLE>
22
<PAGE> 1
EXHIBIT 10.19
SUBORDINATION AND STANDBY AGREEMENT
This Subordination and Standby Agreement ("Agreement") is executed by
and among NATIONSBANK OF TEXAS, N.A. ("NationsBank"), GOLD LINE REFINING, LTD.,
a Texas limited partnership ("Debtor") and CITIZENS BANK AND TRUST COMPANY, a
Missouri bank ("Citizens Bank"), effective as of the effective date specified
hereinbelow, as follows:
Definitions
"Citizens Bank" means Citizens Bank and Trust Company, a Missouri bank
with its principal place of business located in Chillicothe, Missouri.
"Citizens Bank Letter of Credit" means the certain Letter of Credit
dated on or about even date herewith issued by Citizens Bank for the
account of Debtor and for the benefit of NationsBank in the face amount
of $1,700,000.00, and any and all renewals, extensions, amendments,
modifications, supplements or replacements thereof.
"Citizens Bank Obligations" means all obligations and indebtedness,
including without limitation reimbursement obligations, accrued
interest, fees, costs, expenses and other amounts now or hereafter owing
by Debtor to Citizens Bank under the Citizens Bank Reimbursement
Agreement, or otherwise in connection with the Citizens Bank Letter of
Credit, and any and all renewals, amendments, modifications or
extensions thereof.
"Citizens Bank Reimbursement Agreement" means, collectively, the certain
Loan and Reimbursement Agreement dated as of November 2, 1990 by and
among Debtor, Citizens Bank and Guarantors, as amended by (i) the
certain First Amendment and Supplement to Loan and Reimbursement
Agreement dated as of November 14, 1990 among the same parties, (ii) the
certain Second Amendment and Supplement to Loan and Reimbursement
Agreement dated as of April 15, 1991 among the same parties, and (iii)
the certain letter dated November 7, 1991 from Citizens Bank to Debtor
and Guarantors (excluding Gold Line Services, Inc.), and (iv) the
certain Third Amendment and Supplement to Loan and Reimbursement
Agreement dated as of March 22, 1995, among the same parties (excluding
Gold Line Services, Inc.), and any and all other agreements or
instruments between Borrower and Citizens Bank in respect of the
Citizens Bank Letter of Credit, and any and all renewals, amendments,
modifications, extensions or replacements thereof, respectively,
provided, that "Citizens Bank Reimbursement Agreement" does not include
any guaranty, pledge agreement, security agreement or other agreement
between Citizens Bank and any Guarantor (other than Earl L. Thomas) to
which Debtor is not a party and under which neither Debtor nor any of
its property are bound.
"Debtor" means Gold Line Refining, Ltd., a Texas limited partnership
with its principal place of business located at 7324 Southwest Freeway,
Suite 600, Houston, Texas 77074,
"Guarantor" means any of Gold Line Services, Inc., a Texas corporation,
JWP Capital, Inc., a Texas corporation, Marceline Investors, Inc., a
Missouri corporation, Earl L. Thomas (in his capacity as a party to any
agreements with Citizens Bank) and wife Rosiland H. Thomas, Jerry W.
Porter and wife Mary A. Porter, Don O. Walsworth and wife Audrey
Walsworth, and "Guarantors" collectively means all of such parties.
"NationsBank" means NationsBank of Texas, N.A., a national bank with its
principal place of business located at NationsBank Plaza, 901 Main
Street, Dallas, Texas 75202.
"NationsBank Collateral" means all "Collateral" defined in the
NationsBank Credit Agreements (which definition hereby is incorporated
herein by references, including without limitation all of Debtor's
accounts, chattel paper, general intangibles, inventory, equipment,
documents and instruments, now owned and hereafter acquired, and all
proceeds of any of the foregoing (provided, that notwithstanding the
terms of the NationsBank Credit Agreements, as the same may be amended
from time to time, for purposes of this Agreement "NationsBank
Collateral" does not include any property owned by any Guarantor other
than Earl L. Thomas and in which Debtor has no interest).
"NationsBank Credit Agreements" means the certain Financing and Security
Agreement dated on or about even date herewith between NationsBank and
Debtor and all "Loan Documents" as defined therein, as the same may be
amended, supplemented or extended from time to time.
"NationsBank Obligations" means all "Obligations" defined in the
NationsBank Credit Agreements (which definition hereby is incorporated
herein by reference, including without limitation all obligations and
indebtedness for loans, accrued interest, fees, costs and expenses
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<PAGE> 2
under the NationsBank Credit Agreements, as the same may be renewed,
modified, or extended (provided, that notwithstanding the terms of the
NationsBank Credit Agreements, as the same may be amended from time to
time, for purposes of this Agreement "NationsBank Obligations" is limited
to NationsBank Obligations owing by Debtor).
Recitals
It is proposed that Debtor and NationsBank enter into the NationsBank
Credit Agreements to establish a credit facility for loans by
NationsBank to Debtor, subject to the terms thereof, reference to which
is hereby made. The NationsBank Obligations will be secured by
continuing security interests granted by Debtor to NationsBank in the
NationsBank Collateral.
In connection with the NationsBank Credit Agreements, NationsBank has
required Debtor to deliver to NationsBank the Citizens Bank Letter of
Credit, in form satisfactory to NationsBank, as additional credit in
support of the credit facilities available to Debtor under the
NationsBank Credit Agreement, provided, that all reimbursement and
repayment obligations in connection therewith now or hereafter owing by
Debtor to the issuer of such letter of credit be subordinated in right
of payment and claim to the prior payment and performance in full of the
NationsBank Obligations.
Debtor proposes to deliver to NationsBank the Citizens Bank Letter of
Credit.
As a condition to entering into the NationsBank Credit Agreements,
NationsBank has required that the Citizens Bank Obligations be
subordinated as provided hereinbelow. Citizens Bank acknowledges that
it will benefit from its issuance of the Citizens Bank Letter of Credit
and the credit accommodations available to Debtor under the NationsBank
Credit Agreements, and has determined that execution of this Agreement
is in its best interest.
NOW THEREFORE, for value consideration, the receipt of which hereby is
acknowledged, and in consideration of the mutual benefits and agreements
provided herein, Citizens Bank, Debtor and NationsBank hereby agree as follows:
Agreement
1. Citizens Bank and Debtor each agrees that the Citizens Bank
Obligations shall be and hereby are deemed to be fully subordinated in right of
payment and claim in favor of the NationsBank Obligations. Until termination of
this Agreement, Citizens Bank agrees that it will not request, demand, accept or
receive from Debtor, and Debtor agrees that it will not pay or deliver to
Citizens Bank, whether by payment, prepayment, setoff or otherwise, any payment,
amount, credit or reduction of all or any part of the Citizens Bank Obligations,
of any security therefor, except as specifically allowed pursuant to paragraph 2
below.
2. Notwithstanding any other provision of this Agreement, Debtor may
pay to Citizens Bank and Citizens Bank may receive and retain from Debtor
Citizens Bank's customary letter of credit fees in consideration of, and
reimbursement of reasonable attorneys fees and reimbursable disbursements
incurred in connection with, Citizens Bank's issuance of the Citizens Bank
Letter of Credit as specifically provided in the Citizens Bank Reimbursement
Agreement and provided further, that, subject to paragraph 13, Citizens Bank may
accept and receive from any Guarantor (other than Earl L. Thomas) and any
Guarantor (other than Earl L. Thomas) may pay and deliver to Citizens Bank, by
way of payment, prepayment, set off or otherwise, any payment amount, credit or
reduction of any and all Citizens Bank Obligations guaranteed by any such
Guarantor, and Citizens Bank may foreclose upon and may pursue any other
remedies it may have, at law or in equity, against any Guarantor (other than
Earl L. Thomas) and any and all assets and collateral pledged by any such
Guarantor to Citizens Bank to secure such Guarantor's guarantee: and Citizens
Bank shall have no obligation to pay to NationsBank, or otherwise account to
NationsBank, for any such amount.
3. Until termination of this Agreement, Citizens Bank and Debtor
each agrees with NationsBank as follows:
a. In the event of any liquidation or dissolution of Debtor,
whether partial of complete, voluntary or involuntary, by operation of
law or otherwise, or in the event of any receivership, insolvency or
bankruptcy proceedings by or against Debtor under any bankruptcy or
insolvency laws, any and all payments or distributions of any kind or
character made by or on behalf of Debtor or its estate, whether in cash,
securities, or other property, which thereafter shall be payable or
deliverable to Citizens Bank upon or with respect to any portion of the
Citizens Bank Obligations shall immediately be paid or delivered directly
to NationsBank for application (as liquidated) in reduction of the
NationsBank Obligations, whether or not then due or mature, in such
manner as NationsBank shall determine in its sole discretion;
2
<PAGE> 3
b. In the event of any bankruptcy or insolvency
proceedings or any assignment to or for the benefit of creditors
respecting Debtor, or in the event a receiver is appointed for Debtor
or its property, NationsBank shall have the right to file a claim in
such proceedings respecting it rights under this Agreement, and to
collect and receive all distributions that may be declared or become
payable under the Citizens Bank Obligations (up until full payment of
the NationsBank Obligations).
c. Citizens Bank shall not assign or transfer the
Citizens Bank Obligations or the Citizens Bank Reimbursement
Agreement, or any claim thereunder, unless such assignment or transfer
is made by Citizens Bank and accepted by the assignee or transferee
expressly in writing expressly subject to this Agreement after prior
written notice thereof to NationsBank; and
d. Citizens Bank shall not make demand on Debtor under
the Citizens Bank Reimbursement Agreement, or file suit to enforce or
collect same, without the prior written consent of NationsBank.
4. Notwithstanding anything to the contrary (if any) as may be
provided in the Citizens Bank Reimbursement Agreement, until termination of
this Agreement no payment of any Citizens Bank Obligations shall be demanded by
Citizens Bank or made by Debtor, except as expressly allowed by paragraph 2 of
this Agreement. Any payment of the Citizens Bank Obligations except as
expressly allowed by paragraph 2 of this Agreement are expressly prohibited
without the prior written consent of NationsBank. Citizens Bank and Debtor
agree, and represent to NationsBank, that there are no Citizens Bank
Obligations except as evidenced by the Citizens Bank Reimbursement Agreement.
5. The Citizens Bank Reimbursement Agreement hereby is deemed to
be subject to all of the terms and provisions of this Agreement. The execution
and delivery by Citizens Bank of this Agreement shall be deemed to amend and
supplement the Citizens Bank Reimbursement Agreement to the extent provided
herein, provided, that such amendment and supplement shall not inure to the
benefit of or be enforceable by any Guarantor. Debtor and Citizens Bank agree
that they will not modify, amend, restructure, renew, or otherwise change the
Citizens Bank Reimbursement Agreement, or any of the terms thereof, or the
obligations evidenced thereby, without the prior written consent of
NationsBank, other than amendments that do not change the terms of payment or
increase the amount of Debtor's obligations or the extent of Citizens Bank's
interests thereunder, it being understood that all of such amended or changed
terms shall remain subject to the terms of this Agreement.
6. Citizens Bank and Debtor each agrees that NationsBank's
continuing rights in and to the NationsBank Collateral are and shall be first,
senior and prior to any rights now or hereafter claimed by Citizens Bank with
respect to any property included therein. Any and all security interests,
liens, mortgages, or other rights now or hereafter claimed by Citizens Bank
with respect to any of such property shall be and hereby are expressly
subordinated and made junior to any and all security interests, liens,
mortgages, or rights now or hereafter claimed by NationsBank with respect to
the NationsBank Collateral. Citizens Bank represents that it has no interest
in the NationsBank Collateral other than as provided by the Citizens Bank
Reimbursement Agreement as the same exists as of the effective date of this
Agreement, and Debtor and Citizens Bank each agrees that Debtor hereafter shall
not grant to Citizens Bank any additional security interest, lien or other
interest in any property included within the NationsBank Collateral without the
prior written consent of NationsBank.
7. Until termination of this Agreement Citizens Bank agrees that
it will not (i) take any action to foreclose, repossess, marshal, control, or
exercise remedies with respect to any property included within the NationsBank
Collateral, or take any other action with respect to Debtor or any of its
property which could reasonably be expected to interfere with the daily
operation of Debtor's business or (ii) make any contact or communications,
directly or indirectly (including but not limited to notification or
confirmation) with any account debtor or obligor on any accounts, chattel
paper, instruments, general intangibles or other property included within the
NationsBank Collateral, without the prior written consent of NationsBank.
Citizens Bank agrees that if it from time to time comes into possession of any
payments, distributions, property, security, or proceeds in respect of
obligations owing by any such account debtors, all of such amount shall be held
in trust for the benefit of NationsBank and shall be paid forthwith to
NationsBank for the account of Debtor.
8. In the event any payment, prepayment, distribution,
instruments, checks or other items, property or security, or proceeds thereof,
at any time is received by Citizens Bank from Debtor, or in respect of any
property of Debtor, in respect of the Citizens Bank Obligations other than as
expressly allowed pursuant to paragraph 2 above, Citizens Bank agrees forthwith
to deliver same to NationsBank in the form received, with any necessary
endorsement or assignment by Citizens Bank (without recourse, which Citizens
Bank agrees to provide upon request by NationsBank), for application in
reduction of the NationsBank Obligations, whether or not due or mature, and
until so delivered, the same shall be held in trust by Citizens Bank for the
benefit of NationsBank as the property of NationsBank, for the account of
Debtor. In the absence of any necessary endorsement or assignment
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<PAGE> 4
by Citizens Bank, NationsBank is irrevocably appointed as attorney-in-fact with
full power of substitution, coupled with an interest, with full authority for
the limited purpose to make any such endorsement or assignment on behalf of
Citizens Bank as may be necessary to collect or enforce same (provided, that it
is agreed that any such endorsement or assignment shall be deemed to be without
recourse against, or warranty by, Citizens Bank).
9. It is understood and agreed that NationsBank may release any
person or entity now or hereafter liable upon any of the NationsBank
Obligations, or permit substitutions, withdrawals or release of any of the
NationsBank Collateral or any other security or collateral at any time securing
same, or renew, extend or accept partial payments upon any of the NationsBank
Obligations, or amend or modify the terms of any instrument or agreement
evidencing or securing same, or any part thereof, in such manner and at such
times from time to time, as NationsBank may determine in its sole discretion,
without notice to or consent from Citizens Bank and without in any manner
impairing the rights and obligations under this Agreement. NationsBank shall
not at any time be required to institute suit or exercise or exhaust remedies
against any person or entity obligated to pay any of the NationsBank
Obligations, or against the NationsBank Collateral, the Citizens Bank Letter of
Credit or any other security or credit support for the NationsBank Obligations,
prior to exercising its rights or receiving the benefits of this Agreement.
NationsBank shall be entitled to exercise and pursue rights and remedies, or
defer or refrain from exercising same, from time to time, in such order and in
such manner as NationsBank may determine in its sole discretion.
10. The subordinations and priorities specified in this Agreement
are applicable irrespective of the validity or the time or order of attachment
or perfection of the security interests referred to herein, the time or order of
filing of financing statements, the acquisition of purchase money or other
security interests, or the time of giving or failure to give notice with
respect to any purchase money or other security interests. Without limiting
the foregoing, Citizens Bank agrees that, contemporaneously upon execution
hereof, Citizens Bank shall deliver to NationsBank for filing an executed UCC-3
statement of amendment relative to each presently effective financing statement
maintained by Citizens Bank covering any property included within the
NationsBank Collateral, therein expressly stating as follows:
"Secured Party's rights under the above referenced financing statement,
and all interests claimed by Secured Party in the collateral described
therein, are subordinate to the interests of NationsBank of Texas, N.A.
as provided by the certain Subordination and Standby Agreement dated
March 22, 1995 among Debtor, Secured Party NationsBank of Texas, N.A.
(as may be amended from time to time), reference to which hereby is
made."
11. This Agreement is an irrevocable and continuing agreement of
subordination, and NationsBank may continue to rely upon same in lending
money, extending credit, and making other financial accommodations to or for
the account of Debtor, without notice to Citizens Bank, pursuant to the terms
of any agreements now or hereafter existing between NationsBank and Debtor.
12. Debtor and NationsBank agree that, to the extent allowed by
law, Citizens Bank shall be subrogated to all rights of NationsBank in respect
of the NationsBank Obligations and the NationsBank Collateral to the extent of
payments, if any, recovered by NationsBank from claims owing by Debtor to
Citizens Bank as provided by paragraph 3(a) and paragraph 3(b), provided that
Citizens Bank shall have no right to pursue or enforce any such subrogation
rights, or demand or receive any payments in respect thereof, until termination
of this Agreement, subject to the provisions of paragraph 15, and provided
further, that NationsBank makes no representations or warranties in respect of
the NationsBank Obligations, the NationsBank Collateral, Citizens Bank's
subrogation rights, if any, or the priority thereof, in respect of any person.
13. Citizens Bank and Debtor each agrees that all obligations and
indebtedness now or hereafter owing to Citizens Bank by Earl L. Thomas (Earl
Thomas) or any other person or entity serving as general partner of Debtor
shall be and hereby are deemed to be fully subordinated in right of payment and
claim in favor of the NationsBank Obligations. Until termination of this
Agreement, Citizens Bank agrees that it will not request, demand, accept or
receive from Earl Thomas or any such other person or entity serving as general
partner of Debtor, whether by payment, prepayment, suit, setoff or otherwise,
any payment, amount, credit or reduction of, or in respect of, all or any part
of such obligations and indebtedness owing to Citizens Bank, or the Citizens
Bank Obligations, or any security therefor. Until termination of this
Agreement Citizens Bank agrees that it will not take any action to foreclose,
repossess, marshal, control, or exercise remedies with respect to any property
(including without limitation the general partner interest) now or hereafter
owned by Earl Thomas or any other person or entity serving as general partner
of Debtor, or take any other action with respect to Earl Thomas or such other
person or entity which could reasonably be expected to interfere with the daily
operation of Debtor's business. Subject to the foregoing, however, nothing in
this Agreement shall restrict the rights and remedies of Citizens Bank against
any Guarantor other than Earl Thomas who is not now or hereafter a general
partner of Debtor.
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<PAGE> 5
14. Any notice or demand by one party to another under this
Agreement shall be in writing and shall be deemed made and received upon
delivery (via personal delivery, courier, telecopy or other electronic
transmission) to the address specified below, or on the third day following
deposit in the United States mail, postage prepaid, addressed as specified
below:
Citizens Bank:
Citizens Bank and Trust Company
700 Jackson
Chillicothe, Missouri 64601-0050
Attention: Mr. Edward Douglas, President
Debtor:
Gold Line Refining, Ltd.
7324 Southwest Freeway
Suite 600, Houston, Texas 77074
Attention: Mr. Earl Thomas, General Partner
NationsBank:
NATIONSBANK OF TEXAS, N.A.
P.O. Box 830732
Dallas, TX 75283-0732
Attn: Business Credit/Regional Manager--URGENT
Address for hand delivery:
NATIONSBANK OF TEXAS, N.A.
NationsBank Plaza, 6th Floor
901 Main Street
Dallas, TX
Attn: Business Credit/Regional Manager--URGENT
15. This Agreement shall terminate upon payment in full of the
NationsBank Obligations and termination of the NationsBank Credit Agreements;
provided however, that in the event, following any such termination, any amount
previously applied in reduction of the NationsBank Obligations is subsequently
set aside, avoided, declared invalid or recovered by Borrower or any trustee or
in bankruptcy, or in the event NationsBank is otherwise required to refund or
repay any such amount pursuant to any applicable law, then the NationsBank
Obligations, and all rights of NationsBank under the NationsBank Credit
Agreements, shall automatically be deemed to be reinstated to the extent of
such amount and the same shall continue to be secured by the NationsBank
Collateral as if such amount had not been so applied; and in such event, all
rights and obligations under this Agreement shall likewise be reinstated and,
until such amount has been recovered by NationsBank, all amounts, if any,
received by Citizens Bank in respect of the Citizens Bank Obligations after
such termination likewise shall be governed by the provisions of this Agreement
as if the same had not been terminated.
16. No waiver shall be deemed to have been made by NationsBank of
any of its rights hereunder unless such waiver is in writing and signed by
NationsBank, and any such written waiver shall be limited to the specific
instance specified therein. The rights of NationsBank hereunder are cumulative
of all other rights of NationsBank under any other agreement with Debtor and
Citizens Bank, respectively, or as otherwise provided by law,
17. If any provision of this Agreement is for any reason held
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability will not affect any other provision of this Agreement.
18. This Agreement is binding upon and inures to the benefit of
the parties hereto and their respective assignees, transferees, and successors.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS.
19. This Agreement may be executed in counterparts, each of which
shall be an original, but all of which, taken together, shall constitute one
and the same instrument. A telecopy of any such executed counterpart shall be
deemed valid as an original.
20. This Agreement is binding upon, and is solely for the benefit
of, NationsBank, Citizens Bank and Debtor, and their respective successors and
assigns and no other person shall have any rights or benefits under this
Agreement.
5
<PAGE> 6
Signed effective as of the 22nd day of March, 1995.
NATIONSBANK OF TEXAS, N.A.
By: /s/Dan Lane
------------------------------------
Dan Lane
Vice President
CITIZENS BANK AND TRUST COMPANY
By: /s/Edward D. Douglas
------------------------------------
Edward D. Douglas
President
GOLD LINE REFINING, LTD.
By: /s/Earl Thomas
------------------------------------
Earl Thomas, General Partner
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Dan Lane, known to me to be the person and officer whose name is subscribed to
the foregoing instrument, and acknowledged to me that the same was the act of
said NATIONSBANK OF TEXAS, N.A. and that he executed the same for the purposes
and considerations therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 22nd day of March, 1995.
/s/Sherri D. Bender
------------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
My Commission Expires:
- ------------------------------------
/s/Sherri D. Bender
[STAMP]
Notary Public, State of Texas,
My Commission Expires 03/14/96
------------------------------------
Printed Name
THE STATE OF MISSOURI )
)
COUNTY OF LIVINGSTON )
BEFORE ME, the undersigned authority, on this day personally appeared
Edward D. Douglas, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of said Citizens Bank and Trust Company and that he executed the
same for the purposes and considerations therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 20th day of March,
1995.
/s/Rosemary Beck
------------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF MISSOURI
My Commission Expires:
May 10, 1996
- -------------------------
Rosemary Beck
------------------------------------
(Printed Name of Notary)
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<PAGE> 7
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared
Earl Thomas, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that the same was the act of said
Gold Line Refining, Ltd. and that he executed the same for the purposes and
considerations therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 22 day of March, 1995.
/s/Sherri D. Bender
-------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
My Commission Expires:
- -------------------------
[STAMP]
Notary Public, State of Texas,
My Commission Expires 03/14/96
------------------------------------
Printed Name
<PAGE> 8
THIRD AMENDMENT AND SUPPLEMENT
TO THE
LOAN AND REIMBURSEMENT AGREEMENT
THIS THIRD AMENDMENT AND SUPPLEMENT TO THE LOAN AND
REIMBURSEMENT AGREEMENT (this "Third Amendment"), dated as of March 22, 1995,
is made by and among Gold Line Refining, Ltd., a Texas limited partnership (the
"Borrower"), JWP Capital, Inc., a Texas corporation ("JWP"), Marceline
Investors, Inc., a Missouri corporation ("Marceline"), Earl L. and Rosiland H.
Thomas, husband and wife (both singularly and collectively, "Thomas"), Jerry W.
and Mary A. Porter, husband and wife (both singularly and collectively,
"Porter"), Don O. and Audrey H. Walsworth, husband and wife (both singularly
and collectively, "Walsworth") (JWP, Marceline, Thomas, Porter and Walsworth
are collectively referred to herein as the "Guarantors"), and Citizens Bank and
Trust Company, a Missouri bank (the "Bank").
RECITALS:
A. The Borrower, the Guarantors, Gold Line Services,
Inc., a Texas corporation ("Gold Line Services"), and the Bank are parties to
the Loan and Reimbursement Agreement, dated as of November 2, 1990 (the
"Original Agreement"), as amended and supplemented by (i) the First Amendment
and Supplement to Loan and Reimbursement Agreement, dated November 14, 1990 (the
"First Amendment"), by and among the Borrower, the Guarantors, Gold Line
Services and the Bank, (ii) the Second Amendment and Supplement to the Loan and
Reimbursement Agreement, dated as of April 15, 1991 (the "Second Amendment"),
by and among the Borrower, the Guarantors, Gold Line Services and the Bank, and
(iii) that certain letter, dated November 7, 1991 (the "Letter Supplement"),
from the Bank to the Borrower and the Guarantors.
B. The Borrower, the Guarantors and the Bank now desire
to enter into this Third Amendment to amend and supplement the Original
Agreement, as previously amended and supplemented to date (the Original
Agreement, as amended by the First Amendment, the Second Amendment, the Letter
Supplement and this Third Amendment, is referred to herein as the "Agreement").
C. The Borrower has entered or is about to enter into
with NationsBank of Texas, N.A., a national bank ("NationsBank"), a Financing
and Security Agreement, dated on or about even date herewith (collectively,
including all "Loan Documents" as defined therein, the "NationsBank Credit
Agreements"), pursuant to which the Borrower will obtain up to $15 million in
new financing from NationsBank.
<PAGE> 9
D. The Borrower has entered or is about to enter into
with MG Trade Finance Corp. ("MG") certain amended instruments and agreements
evidencing existing loans to the Borrower, each dated on or about even date
herewith (collectively, the "Amended MG Agreements"), to facilitate the
execution and delivery of the NationsBank Credit Agreements.
E. The Borrower, the Guarantors and the Bank now desire
to amend and supplement (i) the Original Agreement, as previously amended and
supplemented to date, (ii) the Security Agreement, as previously amended and
supplemented to date, and (iii) the Thomas Security Agreement, as previously
amended and supplemented to date, to facilitate the execution and delivery of
the NationsBank Credit Agreements, on the terms and subject to the conditions
set forth herein.
F. The Borrower desires to have the Bank issue, and the
Bank is willing to issue, an irrevocable standby letter of credit, in the
principal amount of $1,700,000, in favor of NationsBank, for the account of the
Borrower, substantially in the form attached hereto as Exhibit A (the
"NationsBank Additional Letter of Credit"), on the terms and subject to the
conditions set forth herein.
G. The Borrower desires to have the Bank enter into, and
the Bank is willing to enter into, a Subordination and Standby Agreement with
NationsBank, substantially in the form attached hereto as Exhibit B (the
"NationsBank Subordination Agreement"), on the terms and subject to the
conditions set forth herein.
H. The Borrower desires to have the Bank enter into, and
the Bank is willing to enter into, a third letter agreement with MG and
American International Refinery, Inc. ("AIRI"), substantially in the form
attached hereto as Exhibit C (the "Third MG Letter Agreement"), on the terms
and subject to the conditions set forth herein.
AGREEMENT
ACCORDINGLY, in consideration of the premises set forth above,
the mutual covenants and agreements set forth herein and for other good and
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized terms used herein and
not otherwise defined herein shall have the meaning given to each such term in
the Original Agreement, as previously amended and supplemented to date.
2
<PAGE> 10
2. NationsBank Additional Letter of Credit.
(a) Upon satisfaction of the conditions set forth in
paragraph 13 of this Third Amendment, the Bank will (i) execute and issue the
NationsBank Additional Letter of Credit in favor of NationsBank for the account
of the Borrower and (ii) deliver the NationsBank Additional Letter of Credit to
NationsBank.
(b) The Borrower and the Guarantors hereby acknowledge
and agree that the NationsBank Additional Letter of Credit is an "Additional
Letter of Credit," as contemplated by Section 3.1(b) of the Agreement, and
as such is subject to all of the terms and conditions of the Agreement.
3. NationsBank Subordination Agreement. Upon
satisfaction of the conditions set forth in paragraph 13 of this Third
Amendment, the Bank shall execute and deliver to NationsBank the NationsBank
Subordination Agreement.
4. Third MG Letter Agreement. Upon satisfaction of the
conditions set forth in paragraph 13 of this Third Amendment, the Bank shall
execute and deliver to MG the Third MG Letter Agreement.
5. Amendment of the Agreement. Upon satisfaction of the
conditions set forth in paragraph 13 of this Third Amendment, the Borrower, the
Guarantor and the Bank hereby amend and supplement the Original Agreement, as
previously amended and supplemented to date, to provide that notwithstanding
the terms and provisions of any representation, warranty, covenant, Default or
Event of Default, condition or other term or provision in the Agreement:
(a) the execution and delivery by the Borrower of the
NationsBank Credit Agreements and the Amended MG Agreements, and the
performance by the Borrower of its obligations under the NationsBank Credit
Agreements and the Amended MG Agreements, shall not be, or result in, a breach
of any representation, warranty or covenant, or any Default or Event of
Default, under the Agreement, and this paragraph 5 shall supersede and take
precedence over any representation, warranty, covenant, Default or Event of
Default, condition or other term or provision in the Agreement otherwise
inconsistent herewith, and
(b) the Bank expressly consents to, and irrevocably
waives any Default or Event of Default which, but for this paragraph 5, might
have resulted from, the execution and delivery of the NationsBank Credit
Agreements or the Amended MG Agreements, or the performance by the Borrower of
its obligations under the NationsBank Credit Agreements or the Amended MG
Agreements, or both.
3
<PAGE> 11
6. Additional Amendments to the Agreement. Upon
satisfaction of the conditions set forth in paragraph 13 of this Third
Amendment, the Borrower, the Guarantors and the Bank further agree to amend and
supplement the Original Agreement, as previously amended and supplemented to
date, as follows:
(a) Section 1.1 is hereby amended by deleting the
definition of the term "Letter of Credit" the first time it appears in such
section (but retaining the definition of such term the second time it appears
in such section).
(b) Section 6.10 is hereby deleted in its entirety.
(c) Section 7.4 is hereby amended by deleting said
Section 7.4 in its entirety and replacing it with the following:
Section 7.4. Distributions to Partners.
(a) The Borrower shall not make any distributions
with respect to, or redeem or otherwise acquire, any general
or limited partnership interest (i) except as expressly set
forth in Section 7.4(b), without the prior written consent of
the Bank or (ii) which would be in violation of the Borrower's
covenant (the "NationsBank Capital and Surplus Retention
Covenant") with NationsBank set forth in Section 6.23 of the
NationsBank Credit Agreements.
(b) Without the prior written consent of the
Bank, during any fiscal year the Borrower may make periodic
cash distributions to the partners in an amount not greater in
the aggregate than 40% of the Borrower's year to date net
income to be used by the partners solely for the payment of
federal and state income taxes.
(d) Section 8.1 is amended by adding the word "or" at the
end of subsection 8.1(m), and inserting after such subsection (m) and prior
to the flush language immediately following such subsection (m) the following
new subsection:
(n) An Event of Default (as defined in the
NationsBank Credit Agreements) shall be declared by
NationsBank under the NationsBank Credit Agreements.
7. Amendment of the Security Agreement. Upon
satisfaction of the conditions set forth in paragraph 13 of this Third
Amendment, the Bank and the Borrower hereby amend and supplement the Security
Agreement, as previously amended and supplemented to date, to provide that,
notwithstanding the terms and provisions of any representation, warranty,
covenant, default
4
<PAGE> 12
or event of default, condition or other term or provision in the Security
Agreement:
(a) the execution and delivery by the Borrower of the
NationsBank Credit Agreements and the Amended MG Agreements, and the
performance by the Borrower of its obligations under the NationsBank Credit
Agreements and the Amended MG Agreements, shall not be, or result in, a breach
of any representation, warranty, covenant, or any default or event of default,
under the Security Agreement, and this paragraph 7 shall supersede and take
precedence over any representation, warranty, covenant, default or event of
default, condition or other term or provision in the Security Agreement
otherwise inconsistent herewith; and
(b) the Bank expressly consents to, and irrevocably
waives any default or event of default under the Security Agreement which, but
for this paragraph 7, might have resulted from, the execution and delivery of
the NationsBank Credit Agreements or the Amended MG Agreements, or the
performance by the Borrower of its obligations under the NationsBank Credit
Agreements or the Amended MG Agreements, or both.
8. Amendment of the Thomas Security Agreement. Upon
satisfaction of the conditions set forth in paragraph 13 of this Third
Amendment, the Bank and Thomas hereby amend and supplement the Thomas Security
Agreement, as previously amended and supplemented to date, to provide that,
notwithstanding the terms and provisions of any representation, warranty,
covenant, default or event of default, condition or other term or provision in
the Thomas Security Agreement:
(a) the execution and delivery by Thomas of the
NationsBank Credit Agreements and the Amended MG Agreements, and the
performance by Thomas of his obligations under the NationsBank Credit
Agreements and the Amended MG Agreements, shall not be, or result in, a breach
of any representation, warranty, covenant, or any default or event of default,
under the Security Agreement, and this paragraph 8 shall supersede and take
precedence over any representation, warranty, covenant, default or event of
default, condition or other term or provision in the Thomas Security Agreement
otherwise inconsistent herewith, and
(b) the Bank expressly consents to, and irrevocably
waives any default or event of default under the Thomas Security Agreement
which, but for this paragraph 8, might have resulted from, the execution and
delivery of such NationsBank Credit Agreements or the Amended MG Agreements, or
the performance by Thomas of his obligations under such NationsBank Credit
Agreements or the Amended MG Agreements, or both.
5
<PAGE> 13
9. Waiver of Defaults. Upon satisfaction of the
conditions set forth in paragraph 13 of this Third Amendment, the Bank hereby
waives any and all Defaults and Events of Default which may exist on the date
hereof; provided, however, that the Bank does not waive any Default or Event of
Default which would also be (or with the giving of notice or the passage of
time, or both, would become) an Event of Default (as defined in the NationsBank
Credit Agreements) under the NationsBank Credit Agreements.
10. Certain Representations and warranties. The Borrower
hereby makes to the Bank each and every representation and warranty made by the
Borrower to NationsBank in the NationsBank Credit Agreements (the "NationsBank
Representations and warranties"), and acknowledges and confirms that the
NationsBank Representations and Warranties are representations and warranties
made in the Agreement and are subject to Section 8.1(g) of the Agreement.
11. Affirmations by the Borrower and the Guarantors.
(a) The Borrower hereby expressly represents, warrants,
covenants and agrees that the Agreement and each of the Security Documents, in
each case as previously amended and supplemented to date, is and remains a
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms; subject, however, to the provisions of
this Third Amendment and the agreements contemplated hereby.
(b) Each of the Guarantors hereby expressly represents,
warrants, covenants and agrees that the Agreement and each Guaranty Document to
which such Guarantor is a party, in each case as previously amended and as
supplemented to date, is and remains a legal, valid and binding obligation of
the Guarantor, enforceable against the Guarantor in accordance with its terms;
subject, however, to the provisions of this Third Amendment and the agreements
contemplated hereby.
12. Consents of the Borrower and the Guarantors. The
Borrower and each of the Guarantors hereby expressly consents and agrees to:
(a) the execution and delivery by the Borrower of the
NationsBank Credit Agreements;
(b) the execution and delivery by the Borrower of the
Amended MG Agreements; and
(c) the execution and delivery by the Bank of:
(1) the NationsBank Additional Letter of Credit;
6
<PAGE> 14
(2) the NationsBank Subordination Agreement; and
(3) the Third MG Letter Agreement.
13. Conditions Precedent. The Bank shall have no
obligations under this Third Amendment unless and until the following
conditions have been met:
(a) the Bank shall have received copies of this Third
Amendment executed by the Borrower and each of the Guarantors;
(b) the Bank shall have received a copy of the
NationsBank Subordination Agreement duly executed by NationsBank;
(c) the Bank shall have received a copy of the Third MG
Letter Agreement duly executed by MG and AIRI;
(d) the NationsBank Credit Agreements shall have been
duly executed and delivered by all parties thereto;
(e) the Borrower shall have paid or caused to be paid to
the Bank the Bank's customary letter of credit fees, as provided in Section 3.2
of this Agreement, and all attorneys' fees and other expenses reasonably
incurred by the Bank in connection with the negotiation, drafting, execution
and delivery of this Third Amendment and the transaction documents completed
hereby;
(f) the Borrower shall have physically delivered and
surrendered, or caused MG to have physically delivered and surrendered, to the
Bank, the original Letter of Credit (Number 005056), originally dated November
18, 1990, issued by Commerce Bank of Kansas City, N.A. ("Commerce Bank"), for
the joint account of the Borrower and the Bank and for the benefit of MG, in
the original face amount of $2,500,000 (the "Commerce Letter of Credit"), with
a remaining undrawn balance of $1,700,000, together with such releases and
other documentation as Commerce Bank may reasonably request in order to effect
the cancellation of the Commerce Letter of Credit; and
(g) the Borrower shall have executed and delivered to
this Bank such additional documents and instruments as the Bank may reasonably
request to evidence and consummate the transactions contemplated by this Third
Amendment.
14. Governing Law. This Third Amendment and all rights
hereunder shall be governed by and construed in accordance with the laws of the
State of Missouri.
15. Counterparts. This Third Amendment may be executed
in any number of counterparts, all of which taken
7
<PAGE> 15
together shall constitute one agreement, and any party hereto may execute this
Third Amendment by signing any such counterpart.
16. Execution and Delivery Via Facsimile. The parties
hereto agree that the Borrower and each Guarantor may execute and deliver this
Third Amendment by executing an original or a facsimile copy of this Third
Amendment and transmitting such executed copy via facsimile to the Bank at
816-646-5594, Attn: Edward D. Douglas. Each party that transmits an executed
copy of this Third Amendment to the Bank via facsimile agrees (i) to be bound
by the terms of this Third Amendment upon the Bank's receipt of such facsimile
and (ii) to promptly deliver a hard copy of the executed copy of this Third
Amendment to the Bank via courier for next day delivery.
8
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Third Amendment as of the date first above written.
GOLD LINE REFINING, LTD.
By: /s/ Earl L. Thomas
------------------------------------
Name: Earl L. Thomas
Title: General Partner
JWP CAPITAL, INC.
By: /s/ Jerry W. Porter
------------------------------------
Name: Jerry W. Porter
Title: President
MARCELINE INVESTORS, INC.
By:
------------------------------------
Name: Don O. Walsworth
Title: President
/s/ Frank L. Thomas
------------------------------------------
Earl L. Thomas
/s/ Rosiland H. Thomas
------------------------------------------
Rosiland H. Thomas
/s/ Jerry W. Porter
------------------------------------------
Jerry W. Porter
/s/ Mary A. Porter
------------------------------------------
Mary A. Porter
/s/ Don O. Walsworth
------------------------------------------
Don O. Walsworth
/s/ Audrey H. Walsworth
------------------------------------------
Audrey H. Walsworth
CITIZENS BANK AND TRUST COMPANY
By: /s/ Edward D. Douglas
------------------------------------
Name: Edward D. Douglas
Title: President
<PAGE> 1
EXHIBIT 10.20
LETTER AGREEMENT
THIS AGREEMENT is made this 22nd day of March, 1995 by and
among MG TRADE FINANCE CORP., a Delaware corporation ("MGTF"), CITIZENS BANK
AND TRUST COMPANY, a Missouri bank ("CBTC") and AMERICAN INTERNATIONAL
REFINERY, INC., a Louisiana corporation ("AIRI").
WITNESSETH:
WHEREAS, MGTF is entering into a Subordination and Standby
Agreement (the "MGTF Agreement") dated the date hereof, with Gold Line
Refining, Ltd., a Texas limited partnership ("Gold Line") and NationsBank of
Texas, N.A., a national bank ("NationsBank"), whereby the MGTF Obligations (as
defined in the MGTF Agreement) shall be fully subordinated in right of payment
and claim in favor of the NationsBank Obligations (as defined in the MGTF
Agreement) and
WHEREAS, CBTC is entering into a Subordination and Standby
Agreement (the "CBTC Agreement") dated the date hereof, with Gold Line and
NationsBank, whereby the CBTC Obligations (as defined in the CBTC Agreement)
shall be fully subordinated in right of payment and claim in favor of the
NationsBank Obligations (as defined in the CBTC Agreement); and
WHEREAS, AIRI is entering into a Subordination and Standby
Agreement (the "AIRI Agreement") dated the date hereof, with Gold Line and
NationsBank, whereby the AIRI Obligations (as defined in the AIRI Agreement)
shall be fully subordinated in right of payment and claim in favor of the
NationsBank Obligations (as defined in the AIRI Agreement); and
WHEREAS, CBTC is issuing an irrevocable standby letter of
credit, dated on or about the date hereof, in favor of NationsBank as
beneficiary (the "Letter of Credit") in the amount of $1,700,000 pursuant to
the CBTC Agreement; and
WHEREAS, MGTF, CBTC and AIRI each desire to make the
agreements set forth herein;
NOW, THEREFORE, in consideration of the mutual agreements
herein contained and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. CBTC agrees that it will not take any action to amend or in any way
alter, nor will it allow Gold Line or NationsBank to amend or in any
way alter, the terms of the CBTC Agreement without the prior written
consent of MGTF and AIRI.
<PAGE> 2
2. AIRI agrees that it will not take any action to amend or in any way
alter, nor will it allow Gold Line or NationsBank to amend or in any
way alter, the terms of the AIRI Agreement without the prior written
consent of MGTF and CBTC.
3. MGTF agrees that it will not take any action to amend or in any way
alter, nor will it allow Gold Line or NationsBank to amend or in any
way alter, the terms of the MGTF Agreement without the prior written
consent of AIRI and CBTC.
4. CBTC agrees that it will not take any action to amend or in any way
alter, nor will it allow NationsBank to amend or in any way alter, the
terms of the Letter of Credit, except to provide extensions thereto,
without the prior written consent of MGTF.
5. CBTC agrees that in the event that the Letter of Credit is about to
expire without NationsBank having transferred the Letter of Credit to
MGTF, then, to the extent that any of the MGTF Obligations existing on
the date hereof are still outstanding, (i) CBTC will use its beat
efforts to extend the term of the Letter of credit or (ii) immediately
upon the expiration of the Letter of Credit will issue to MGTF a
letter of credit for any undrawn portion under the Letter of Credit.
6. Each of CBTC and MGTF acknowledges and affirms the subordination
provisions set forth in the terms of the letter agreement, dated on or
about November 15, 1990, from CBTC to MGTF, as amended by the letter
agreement, dated on or about April 15, 1991, from CBTC to MGTF.
7. The term of this Agreement shall terminate upon the termination of the
MGTF Agreement, the CBTC Agreement and the AIRI Agreement.
8. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
9. This Agreement is binding upon and inures to the benefit of the
parties hereto and their respective assignees, transferees, and
successors.
10. This Agreement may be executed in counterparts, each of which shall be
an original, but all of which, taken together, shall constitute the
one and the same instrument.
-2-
<PAGE> 3
IN WITNESS WHEREOF, each of MGTF, CBTC and AIRI have executed
this Agreement by their duly authorized officers as of the date first above
written.
MG TRADE FINANCE CORP.
By: /s/ William D. Rutherford
------------------------------------------
Name: William D. Rutherford
Title: Director of Special Projects
By: /s/ Tommy L. Byrd
------------------------------------------
Name: Tommy L. Byrd
Title: Vice President
CITIZENS BANK AND TRUST COMPANY
By: /s/ Edward D. Douglas
------------------------------------------
Name: Edward D. Douglas
Title: President
AMERICAN INTERNATIONAL REFINERY, INC.
By: /s/ George N. Faris
------------------------------------------
Name: George N. Faris
Title: CEO
-3-
<PAGE> 4
LETTER AGREEMENT
THIS AGREEMENT is made this 22nd day of March, 1995 by and
among MG TRADE FINANCE CORP., a Delaware corporation ("Lender"), and AMERICAN
INTERNATIONAL REFINERY, Inc., a Louisiana corporation ("Borrower").
WITNESSETH:
WHEREAS, Lender and Borrower have entered into a Loan and
Security Agreement dated as of December 4, 1990 (such agreement, as amended,
the "Loan Agreement") ; and
WHEREAS, Borrower is entering into a Subordination and Standby
Agreement (the "AIRI Agreement"), dated the date hereof, with Gold Line
Refining, Ltd., a Texas limited partnership ("Gold Line") and NationsBank of
Texas, N.A., a national bank; and
WHEREAS, Lender is entering into a Subordination and Standby
Agreement (the "MGTF Agreement"), dated the date hereof, with Gold Line and
NationsBank; and
WHEREAS, capitalised terms used herein but not defined shall
have the meanings assigned to such terms in the Loan Agreement; and
WHEREAS, Lender and Borrower each desire to make the
agreements set forth herein;
NOW, THEREFORE, in consideration of the mutual agreements
herein contained and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Notwithstanding anything to the contrary contained in the Loan
Agreement, Lender and Borrower hereby agree that the Termination Date
of the Loan shall be March 31, 1998;
2. Notwithstanding anything to the contrary contained in the Loan
Agreement, Lender and Borrower hereby agree that Borrower will pay to
Lender fifty percent (50%) of all lease rental payments received by
Borrower pursuant to the Gold Line Lease. Any lease rental payments
received by Borrower pursuant to this paragraph 2 shall be applied
first to accrued interest on the Loan and then to outstanding
principal; provided, however, that Borrower will pay to Lender on the
last day of each month accrued but unpaid interest due for such month.
<PAGE> 5
3. Notwithstanding anything to the contrary contained in the Loan
Agreement, Lender and Borrower hereby agree that Borrower will pay to
Lender fifty percent (50%) of all payments received by Borrower
pursuant to the AIRI Agreement. Any payments received by Borrower
pursuant to this paragraph 3 shall be applied towards repayment of the
outstanding principal of the Loan.
4. Lender and Borrower hereby agree that to the extent that payments made
by Gold Line pursuant to the AIRI Agreement and the MGTF Agreement are
insufficient to cover the amounts due to AIRI and MGTF on the AIRI
Note (as defined in the AIRI Agreement) and the MGTF Note (as defined
in the MGTF Agreement), respectively, any such payments made shall be
shared pro rata by AIRI and MGTF in proportion to the amounts due
under the AIRI Note and the MGTF Note, respectively.
5. Notwithstanding anything to the contrary contained in the Loan
Agreement, Lender and Borrower hereby agree that Borrower will pay to
Lender interest on the Loan at a fluctuating rate which is equal to
one percent (1%) per annum above Prime Rate.
6. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
7. This Agreement is binding upon and inures to the benefit of the
parties hereto and their respective assignees, transferees, and
successors.
8. This Agreement may be executed in counterparts, each of which shall be
an original, but all of which, taken together, shall constitute the
one and the same instrument.
-2-
<PAGE> 6
IN WITNESS WHEREOF, Lender and Borrower have executed this
Agreement by their duly authorized officers as of the date first above written.
MG TRADE FINANCE CORP.
By: /s/ William D. Rutherford
------------------------------------------
Name: William D. Rutherford
Title: Director of Special Projects
By: /s/ Tommy L. Byrd
------------------------------------------
Name: Tommy L. Byrd
Title: Vice President
AMERICAN INTERNATIONAL REFINERY, INC.
By: /s/ George N. Faris
------------------------------------------
Name: George N. Faris
Title: CEO
-3-
<PAGE> 1
EXHIBIT 10.22
February 9, 1996
Mr. Earl Thomas, Managing General Partner
Gold Line Refining, Ltd.
7324 Southwest Freeway, Suite 600
Houston, Texas 77074
Re: Proposed Modification of Promissory
Note dated as of March 15, 1996
Dear Earl:
Reference is made to your letter dated February 6, 1996 and to our
recent discussions relating to the proposed modification to the promissory note
(the "Promissory Note") dated as of March 15, 1995 drawn by Gold Line Refining,
Ltd. ("Gold Line") to the order of American International Refinery, Inc.
("AIRI") in the principal amount of One Million Eight Hundred One Thousand Four
Hundred Sixty-Four and 13/100 ($1,801,464.13). AIRI is willing to modify the
Promissory Note and the Promissory Note shall be deemed modified to read as set
forth in Exhibit "A" hereto ("Modified Note") upon the satisfaction by the
respective times set forth therein of the conditions set forth below:
1. Payment by February 29, 1996 pursuant to the terms of the
Amended and Restated Lease Agreement effective the 15th day of March 1995 by
and between AIRI and Gold Line (the "Lease") of $214,004, representing 1995
property taxes.
2. Payment of the rental due pursuant to Sections 3.2 and 3.6 of
the Lease for the month of January of $125,582 as soon as possible, but in no
event later than the end of business on February 20, 1996.
3. Receipt by Gold Line of April 1996 contract from the DFSC
("DFSC Contract") by no later than March 31, 1996.
4. Gold Line's execution and delivery of the Modified Note
simultaneously with its acknowledgement to this letter.
<PAGE> 2
Mr. Earl Thomas
February 9, 1996
Page 2
In partial consideration of the foregoing, Gold Line covenants
to process at AIRI's Lake Charles Louisiana refinery all feedstock necessary to
satisfy any DFSC contract obtained by it during the term of the Lease, in
accordance with the provisions thereof (the "Processing Covenant").
Snow Becker Krauss, P.C. (the "Escrow Agent") shall hold the
Promissory Note and the Modified Note in escrow. Upon satisfaction of the
conditions set forth in (1) through (4) above, the Escrow Agent shall release
the Promissory Note to Gold Line marked cancelled and the Modified Note to
AIRI. If AIRI notifies the Escrow Agent that the conditions set forth above
are not satisfied, Escrow Agent shall release the Promissory Note to AIRI and
return the Modified Note to Gold Line marked NULL AND VOID. The release of the
Promissory Note does not modify, waive or release Gold Line's obligation under
its Processing Convenant.
The execution of this letter agreement does not modify the Lease or
any other agreement to which both Gold Line and AIRI, and if applicable,
additional persons, are parties.
If the above accurately sets forth our understanding, pleas
acknowledge in the space provided below, at which time this letter agreement
shall be binding upon the parties.
Very truly yours,
AMERICAN INTERNATIONAL REFINERY, INC.
By: /s/ George N. Faris
-------------------------------
Dr. George N. Faris
President
Agreed and Accepted:
Gold Line Refining, Ltd.
By: /s/ Earl Thomas
------------------------------------
Earl Thomas
Managing General Partner
With respect to Acting as Escrow Agent:
Snow Becker Krauss, P.C.
By:
--------------------------------------
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 388,441
<SECURITIES> 0
<RECEIVABLES> 3,112,594
<ALLOWANCES> 2,039,041
<INVENTORY> 504,953
<CURRENT-ASSETS> 2,514,456
<PP&E> 52,593,561
<DEPRECIATION> 22,502,472
<TOTAL-ASSETS> 32,640,362
<CURRENT-LIABILITIES> 5,916,999
<BONDS> 5,432,671
0
0
<COMMON> 1,976,474
<OTHER-SE> 19,314,218
<TOTAL-LIABILITY-AND-EQUITY> 32,640,362
<SALES> 1,270,164
<TOTAL-REVENUES> 2,811,308
<CGS> 432,440
<TOTAL-COSTS> 432,440
<OTHER-EXPENSES> 4,968,760
<LOSS-PROVISION> 711,122
<INTEREST-EXPENSE> 1,037,308
<INCOME-PRETAX> (4,338,322)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,338,322)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
