<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20449
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File number No. 0-14905
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 13-3130236
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
444 MADISON AVENUE, SUITE 3203, NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(Zip Code)
(212) 688-3333
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No________
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's common stock, $.08 par
value, as of August 12, 1996, is 31,565,014 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 115,091 $ 162,218
Cash - restricted 25,000 226,223
Accounts receivable 1,101,090 1,073,553
Inventory 452,428 504,953
Prepaid expenses 714,414 547,509
------------ ------------
Total current assets 2,408,023 2,514,456
------------ ------------
Property, plant and equipment:
Unevaluated property not subject
to amortization 6,989,403 4,998,824
Oil and gas properties pursuant
to the full cost method 30,455,382 31,566,297
Refinery property and equipment 15,542,426 15,521,995
Other 508,972 506,445
------------ ------------
53,496,183 52,593,561
Less - accumulated depreciation,
depletion and amortization (23,149,810) (22,502,472)
------------ ------------
Total property, plant and equipment 30,346,373 30,091,089
------------ ------------
Other long-term assets, net 167,019 34,817
------------ ------------
TOTAL ASSETS $ 32,921,415 $ 32,640,362
============ ============
</TABLE>
See notes to consolidated financial statements
-2-
<PAGE> 3
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 21,226 $ 66,759
Current installments of long-term debt 1,232,500 1,870,000
Accounts payable 1,863,150 2,363,562
Accrued expenses and other liabilities 1,289,931 1,616,678
------------ ------------
TOTAL CURRENT LIABILITIES 4,406,807 5,916,999
Long term debt 6,174,993 5,432,671
------------ ------------
Total Liabilities 10,581,800 11,349,670
STOCKHOLDERS' EQUITY:
Preferred stock, par value $3.00,
authorized 7,000,000 shares, none
issued (Note 6) -- --
Common stock, par value $.08, 50,000,000
shares authorized, 29,449,121 shares issued
and outstanding at June 30, 1996 and
24,705,926 shares issued and outstanding at
December 31, 1995 (Note 6) 2,355,930 1,976,474
Additional paid-in capital 76,220,126 74,768,272
Stock purchase warrants 1,297,754 1,297,754
Accumulated Deficit (57,534,195) (56,751,808)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 22,339,615 21,290,692
------------ ------------
Commitments and Contingencies (Note 5) -- --
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 32,921,415 $ 32,640,362
============ ============
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE> 4
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 337,054 $ 319,644
Refinery lease fees 548,722 360,863
Interest Income 799 23,261
Other 79,758 25,561
------------ ------------
Total revenues 966,333 729,329
------------ ------------
EXPENSES:
Operating 104,567 117,232
General and Administrative 688,523 847,900
Depreciation, depletion and amortization 322,908 274,763
Interest 320,545 243,761
------------ ------------
Total expenses 1,436,543 1,483,656
------------ ------------
NET LOSS $ (470,210) $ (754,327)
============ ============
Loss per share of common stock $ (0.02) $ (0.03)
============ ============
Weighted average number of shares
outstanding 26,767,464 22,140,591
============ ============
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE> 5
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 641,246 $ 624,929
Refinery lease fees 1,117,318 379,927
Interest Income 3,473 36,202
Other 127,902 35,972
------------ ------------
TOTAL REVENUES 1,889,939 1,077,030
------------ ------------
EXPENSES:
Operating 216,665 208,021
General and Administrative 1,287,028 1,748,372
Depreciation, depletion and amortization 647,453 628,453
Interest 521,180 520,447
------------ ------------
Total expenses 2,672,326 3,105,293
------------ ------------
NET LOSS $ (782,387) $ (2,028,263)
============ ============
Loss per share of common stock $ (0.03) $ (0.10)
============ ============
Weighted average number of shares
outstanding 26,364,473 20,619,826
============ ============
</TABLE>
See notes to consolidated financial statements
-5-
<PAGE> 6
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (782,387) $(1,273,936)
----------- -----------
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and depletion 647,453 353,690
Amortization of bond/loan costs 35,213 34,404
Changes in current assets & liabilities:
(Increase) decrease in accounts receivable (27,537) 184,849
Decrease in inventory 52,525 142,911
(Increase) decrease in prepaid expenses 22,699 (211,073)
Increase (decrease) in accounts payable
and accrued expense (718,652) 61,583
----------- -----------
Total adjustments 11,701 566,364
----------- -----------
Net cash used by operating activities (770,686) (707,572)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (779,664) (905,116)
Additions to refinery property and equipment (20,431) --
(Additions) retirements to other assets (169,661) 4,353
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (969,756) (900,763)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash - restricted 201,223 (3,286)
Increase (decrease) in notes payable (45,533) --
Payments on long-term debt (1,035,178) (467,500)
Proceeds from issuance of debentures, net 1,810,000 --
Proceeds from issuance of common stock, net of
offering expenses 762,803 2,233,668
Proceeds from exercise of stock warrants -- 32
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,693,315 1,762,914
----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (47,127) 154,579
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 162,218 943,371
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 115,091 $ 1,097,950
=========== ===========
</TABLE>
See notes to consolidated financial statements
-6-
<PAGE> 7
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Additional Stock
Common Stock paid-in purchase
Shares Amount capital warrants Deficit Total
---------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 24,705,926 $1,976,474 $74,768,272 $1,297,754 ($56,751,808) $ 21,290,692
Stock issued in lieu of accounts payable 154,057 12,325 96,182 -- -- 108,507
Conversion of debentures 2,655,805 212,464 647,536 -- -- 860,000
Stock issued for services 100,000 8,000 92,000 -- -- 100,000
Sale of common stock - net 1,833,333 146,667 616,136 -- -- 762,803
Net loss for the period -- -- -- -- (722,387) (722,387)
---------- ---------- ----------- ---------- ------------ ------------
BALANCE, June 30, 1996 29,449,121 $2,355,930 $76,220,126 $1,297,754 ($57,474,195) $ 22,399,615
========== ========== =========== ========== ============ ============
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE> 8
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements of American
International Petroleum Corporation and Subsidiaries (the "Company") have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30, 1996
the results of operations for the three and six month periods ended June 30,
1996 and 1995 and cash flows for the six months ended June 30, 1996 and 1995.
These results have been determined on the basis of generally accepted accounting
principles and practices applied consistently with those used in the preparation
of the Company's 1995 Annual Report on Form 10-K.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
1995 Annual Report on Form 10-K.
2. Regulation S Offerings
During the first quarter of 1996, the Company received cash and settled certain
liabilities totaling approximately $991,000 from the sale and issuance of shares
of its common stock in accordance with the safe harbor provided by Regulation S
as promulgated by the Securities and Exchange Commission.
3. Note Receivable
In order to enhance the financial strength of the Refinery's lessee, Gold Line
Refining, Ltd. ("Gold Line"), thus assisting Gold Line in securing a new
government contract, the Company agreed in February 1996 to reduce the fully
reserved principal balance of its note receivable from Gold Line to $900,732
from $1,801,464. Gold Line was awarded a new one-year $45 million contract to
provide fuels to the Defense Fuel Supply Center ("DFSC") effective April 1,
1996.
8
<PAGE> 9
4. Sale of Debentures
During the first six months of 1996, the Company received net proceeds of
$1,810,000 from the sale of Convertible Redeemable Subordinated Debentures,
issued in accordance with Regulation S.
5. Contingencies
IRS Excise Tax Dispute
In May 1992, a Company subsidiary, American International Refinery, Inc.
("AIRI"), was notified by the Internal Revenue Service ("IRS") that the IRS was
considering an assessment of excise taxes, penalties and interest of
approximately $3,500,000 related to the sale of fuel products during 1989. The
IRS claims that AIRI failed to comply with an administrative procedure that
required sellers, and buyers in tax-free transactions, to obtain certification
from the IRS. The Company believes that AIRI complied with the substance of the
existing requirements and such sales were either tax-free or such excise taxes
were paid by the end-users of such products. The Company has submitted a formal
response, and has negotiated with the IRS regarding a settlement since 1993.
Since this time, the IRS has indicated a willingness to waive all of the
penalties and 75% of the proposed tax liability. At the request of the IRS, the
Company recently met with the IRS to attempt to finalize a settlement. It now
appears that this dispute may be resolved by year-end, although settlement
discussions are continuing and, at this time, the Company is unable to determine
what liability may arise from this assessment. 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, however, it
is possible this allowance may not be sufficient in amount to settle the
dispute.
Legal Proceedings
The Company and its subsidiaries are party to various legal proceedings,
including environmental matters. Although the ultimate disposition of these
proceedings is not presently determinable, in the opinion of the Company, any
liability that might ensue would not be material in relation to the consolidated
financial position or results of operations of the Company.
In October 1995, Rio Bravo S.A., the operator of the Company's Lot IV Block in
Peru, locked-out the personnel of Pan American International Petroleum
Corporation ("PAIPC"), a wholly-owned Company subsidiary, from access thereto
and filed a legal action in Peru against PAIPC claiming damages of $11,695,000
and alleging that PAIPC's License Contract with the government to explore Block
IV (the "License Contract") was cancelled by the government due to the fact
PAIPC did not complete the minimum work program required
9
<PAGE> 10
under the License Contract. However, because the minimum work program was
completed and was certified as complete by the government (the performance bond
placed by PAIPC to assure its compliance with the minimum work program has, in
fact, been released by the government) and, since the License Contract with the
government is still in effect and has not been cancelled, the Company expects
the legal action by Rio Bravo will be decided in PAIPC's favor. PAIPC has also
filed counterclaims and liens against Rio Bravo to defend its interests in the
Block and License Contract and continues to participate in meetings with the
government related to the activities in the Block and in all matters of
administration of the License Contract. The Company hopes to attain a favorable
resolution of this problem, however, at this time, the Company is unable to
determine what liability, if any, may arise from this action.
6. Changes in Securities
At the Company's Annual Meeting of Shareholders on July 11, 1996, the
Shareholders approved an amendment to the Company's Articles of Incorporation to
increase the authorized capital stock of the Company to 107 million shares,
including 100 million shares of Common Stock, par value $.08, and 7 million
shares of "blank check" preferred stock, par value $.01.
7. Subsequent Events
In March and April 1996, the Company sold $2 million worth of 10% and 9%
Convertible Redeemable Subordinated Debentures issued in accordance with
Regulation S. As of August 12, 1996, $1.325 million of these debentures had been
converted into approximately 4 million shares of the Company's common stock, of
which 1.7 million shares were issued subsequent to June 30, 1996.
10
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The statements discussed in this report include forward-looking statements that
involve risks and uncertainties, including the timely development and acceptance
of new services and products, the impact of competitive services, products, and
pricing, and other risks detailed from time to time in the Company's SEC
reports.
During the six months ended June 30, 1996, the Company issued shares of its
common stock and convertible debentures for aggregate net cash proceeds of
$2,573,000, respectively and significantly increased its revenues and reduced
its general and administrative expenses. As a result, the Company reduced its
working capital deficit by $1,404,000 to approximately $1,999,000 at June 30,
1996. The proceeds from the sale of its stock and debentures and increased cash
flow from operations were utilized to pay approximately $890,000 of current
portions of debt and related interest, and approximately $649,000 was utilized
by the Company in investing activities during this period, primarily for oil and
gas exploration in Colombia and Peru. The Company also utilized approximately
$771,000 for operations. Net loss for the period totalled $782,000 including
non-cash provisions for depreciation, depletion, and amortization of $683,000.
Approximately $48,000 was provided during the quarter by the reduction of
current assets other than cash and approximately $719,000 was used to decrease
accounts payable.
The Company's 12% Secured Debentures (the "12% Debentures") require certain
principal payments and contain certain restrictive covenants and conditions with
which the Company must comply. During the next twelve months approximately
$1,229,000 and $358,000 in principal and interest, respectively, are due for
payment, of which all of the principal is payable on December 31, 1996 and
one-half of the interest is payable in each of December 1996 and June 1997. In
the event that the Company is unable to meet its obligations pursuant to the 12%
Debentures in a timely manner, the Company's oil and gas reserves and its
operations may be severely affected.
The Company has an outstanding Loan Agreement (the "MGTF Note") with MG Trade
Finance Corp. ("MGTF"), which is secured by its Lake Charles, Louisiana refinery
(the "Refinery"). As of August 12, 1996, the outstanding principal balance of
the MGTF Note was approximately $2.3 million, which is due in full on March 31,
1998. 50% of the lease fee proceeds the Company receives from the lessee of the
Refinery, Gold Line Refining, Ltd. ("Gold Line") is utilized to pay interest and
amortize the principal on the MGTF Note. If lease fees are not sufficient to
satisfy all accrued interest when
11
<PAGE> 12
due, the Company is obligated to satisfy any shortfall. The Company may be
required to fund future working capital requirements that arise from Refinery
operations, including any liability that may arise from any claims or
settlements related to the Refinery.
During April and May 1996, Gold Line's processing rates were lower than normal
because the refinery was closed during a portion of each of these months for
annual refurbishment and repair. However, during each of June and July 1996,
Gold Line processed an average in excess of 16,000 barrels of feedstock per day,
which increased the Company's lease fees in each month to approximately
$240,000. Should Gold Line continue to maintain this level of operation, the
combination of the increased lease fees and payment of its scheduled quarterly
principal and interest note payments to the Company could provide the Company
with approximately $1.7 million more cash flow during the next twelve months
than during the last year.
In March and April 1996 the Company received net proceeds of $1.81 million from
the sale of Convertible Redeemable Subordinated Debentures, issued in accordance
with Regulation S. The proceeds are being utilized to repay debt and for working
capital purposes. As of August 12, 1996 approximately two-thirds of these
debentures had been converted into common stock of the Company.
The Company is negotiating an agreement with Carbopetrol S.A., one of the
purchasers of its crude oil production in Colombia, wherein Carbopetrol would
pay the Company an "up-front" payment of $200,000 for a 1% override of the
Company's interest in its new Chicoral discovery and any formation below the
Company's currently-producing Doima formation in the Toqui-Toqui field in
Colombia. Carbopetrol has an option to purchase up to 5% of the Company's
interest in the Chicoral for $1,000,000, which option must be exercised by June,
1997. Since the Chicoral is not yet producing oil, the initial $200,000 payment
would be considered an advance royalty for which the Company would pay 14%
annual interest, payable in crude oil from the Company's current production. In
the event the Chicoral does not attain certain levels of future production, the
advance royalty paid to date would be repaid by the Company in the form of crude
oil at a minimum rate of 200 barrels per day from its then-existing production.
The proceeds from the override sale would be utilized by the Company to develop
the Chicoral discovery.
Negotiations are continuing with various other oil companies regarding a
possible farmout of the Company's Chicoral discovery and its other Colombian
properties in return for cash and drilling obligations in the Company's
Toqui-Toqui field. Such a transaction, if timely consummated, could provide the
Company with capital to repay the remaining portion of its recently-issued
Debentures, while ensuring that its Chicoral discovery would be fully exploited
in the shortest time practicable with little or no cost to the Company. Although
a farmout would result in a lower
12
<PAGE> 13
overall Company ownership interest of its Colombian reserves, the net result to
the Company could be an increase in its oil and gas reserve base, a stronger
balance sheet and greater potential for earnings and cash-flow growth.
The Company has no remaining drilling or work obligations in Colombia or Peru.
Depending upon available funds, or whether the Company is successful with its
farmout plans, the Company estimates it could utilize up to $4,000,000 for
exploration and development of its properties and prospects in South America
during the next twelve months.
In December 1995, the Company entered into a Farmout Agreement with P.T. Pelangi
Niaga Mitra Internasional, an Indonesian company ("PNMI"), wherein the Company
would earn a 49% working interest in a Technical Assistance Contract ("TAC")
with Pertamina for the Pamanukan Selatan area of West Java Province, Indonesia.
The Farmout Agreement was subject to PNMI receiving governmental certification
and Pertamina's approval to conduct operations under this TAC. However, recent
changes now required by the government in the language and structure of these
types of agreements have caused the Company to withdraw from the project. The
100,000 shares of the Company's common stock, previously issued to PNMI as a
portion of the Company's obligations under the Farmout Agreement, have been
returned to the Company and subsequently cancelled.
The Company recently had an independent engineering firm perform an analysis to
determine the viability of operating its 16,500 barrel per day Vacuum
Distillation Unit ("VDU") to produce asphalt, vacuum gas oil, and diesel fuel in
addition to, but separate from, the operations currently being performed by Gold
Line. Preliminary studies utilizing actual pricing scenarios from 1994 and 1995
indicated that such a project could provide the Company with significant amounts
of revenues and profits, if appropriate feedstock and end-product contracts and
adequate financing could be secured. After considerable study and discussion,
the Company decided to move forward with the project and obtained a $6 million
12.5% interim loan commitment (the "Commitment") for the project from Venture
Guarantee Group in London, England. The total capital required to prepare the
VDU for operation is estimated at $4.0 to $4.5 million, which includes
construction of additional storage tanks, a polymerization unit, a laboratory, a
truck-rack facility, a barge dock, and other miscellaneous items. It is expected
that the Commitment funds could be utilized when needed during the VDU project
construction period. In July, the Company utilized some internally-generated
cash flow and a small amount of borrowed funds to commence with the project.
Some of the storage tanks were recently delivered and are currently being
installed. The majority of the funding for the VDU project is expected to be
needed in September and October 1996 and should be supplied by the Commitment,
although other forms of financing could be used.
13
<PAGE> 14
In June 1996, the Company entered into two renewable agreements with Coastal
Refining & Marketing, Inc. ("Coastal"), a subsidiary of The Coastal Corporation.
The first agreement with Coastal is an asphalt terminalling agreement, whereby
the Company will store, heat, blend, and polymerize Coastal's asphalt. The
second agreement is an asphalt purchase agreement whereby the Company is to sell
all of its truck-rack asphalt to Coastal. The terminalling operation is
scheduled to begin in November 1996, and will continue during the asphalt-off
season until mid-April 1997, when the Company plans to commence the production
and sale of its own asphalt, in addition to vacuum gas oil ("VGO") and diesel
fuel.
Depending upon the volume of Coastal's asphalt handled by the Company, the
Terminalling operation should provide the Company with approximately $100,000 to
$200,000 per month in additional net cash flows.
Depending upon the daily rate of processing, the type of feedstock used, and if
only conventional asphalt is produced with the VGO and diesel, the Company's
annual revenues from the sales of various products from the VDU could eventually
be in excess of $70 million. However, the Company plans to initially operate the
VDU at 7,000 to 10,000 barrels per day to produce primarily conventional paving
asphalt, VGO, and diesel. At these levels, the Company expects its annual
revenues from the sale of the various products to range between $40 million and
$50 million. As polymerized asphalt manufacturing levels increase, revenues
should be substantially higher, as should the Company's margins which, in any
event, are expected to be favorable. The new facility will include a state of
the art polymerizing unit capable of processing in excess of 7,500 barrels/day
of polymerized asphalt. Because of recently revised state and federal government
highway specifications requiring some form of polymer modification, the demand
for the longer lasting, more-expensive, polymerized asphalt is expected to
increase.
The favorable margins are anticipated mainly because the Company's facility has
the flexibility to utilize lower-cost heavy crudes as feedstock and the ability
to provide polymerized, as well as conventional, asphalt. In addition, the
closest established asphalt manufacturer is located over 100 miles from the
Company's facility. Most of the Company's competition in its asphalt
manufacturing business will come from refiners who do not have processing
flexibility such as the Company's.
The favorable margins from the VDU operation should be sufficient to provide the
Company with the capital necessary to repay its debts and to provide funding for
future development and exploration of its existing oil and gas properties.
However, the Company is currently having discussions with various entities which
have expressed an interest in providing the Company with financing (the
"Replacement Financing") to prepay loans from the Commitment, as well as its
other existing long-term liabilities, and provide other
14
<PAGE> 15
working capital needs until the Company's internally-generated cash flows are
sufficient to support all of its operations. If the Company is unable to secure
the Replacement Financing, management believes loan proceeds from the
Commitment, in addition to the anticipated cash flows from the VDU operations,
will be sufficient to satisfy these requirements. At this time, however, there
is no certainty that the Company's VDU project will be successful or that the
Company will obtain all of the Commitment or the Replacement Financing.
The Company intends to meet its capital and operating funds requirements in the
near term from revenues generated from operations, and from additional financing
as necessary. However, there is no assurance of success of any farmout or
financing efforts the Company may pursue or the timing or success of the
exploitation of its discoveries in South America. 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.
15
<PAGE> 16
Results of Operations
For the Three Months Ended June 30, 1996 as compared to the Three Months Ended
June 30, 1995
The following table highlights the Company's results of operations for the three
months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
For The Three Months
Ended June 30,
1996 1995
---- ----
<S> <C> <C>
Exploration and Production Activity:
Colombia Properties:
Revenues - Oil Sales (000's) $ 337 $ 282
Lease Operating Expenses (000's) $ 101 $ 77
Production Volume - Bbls 36,332 35,248
Average Price per Bbl $ 9.28 $ 7.99
Production Cost per Bbl $ 2.78 $ 2.18
DD&A per Bbl $ 3.77 $ 3.86
Peru Properties:
Revenues - Oil Sales (000's) (1) $ 38
Lease Operating Expenses (000's (1) $ 39
Production Volume - Bbls (1) 5,118
Average Price per Bbl (1) $ 7.43
Production Cost per Bbl (1) $ 7.68
DD&A per Bbl (2) -- --
Refinery Operations:
Refinery Lease Fees (000's) $ 479 $ 361
Average Daily Throughput(Bbls) 10,641 10,024
Average Throughput Fee $ 0.50 $ 0.40
</TABLE>
- ------------------------
(1) Information for 1996 is not available. See Note 5 to "Notes to Consolidated
Financial Statements June 30, 1996 - Legal Proceedings".
(2) Excludes Peruvian activity since all related properties are currently
considered "unevaluated".
Oil and Gas Operations:
Overall oil and gas revenues increased 5% compared to the same period in the
prior year. Colombia oil and gas revenues increased by approximately $55,000, or
20%, compared to the same period last year. Three-fourths of this increase was
attributable to increased oil sales and one-fourth was due to the increase in
the price the Company received for its oil. The increase in the oil price
16
<PAGE> 17
received is related to the increase in the world market price of oil over the
same period last year. The 20% increase on Colombia oil sales is offset by the
decreased oil production and sales from the Peru operations as previously
discussed. (See Note to "Notes to Consolidated Financial Statements June 30,
1996 - Legal Proceedings").
Colombia's production costs increased by approximately $24,000. Joint venture
production overhead allocations increased by $28,000 compared to the same period
in 1995 due primarily due to the increased capital expenditures for testing and
completion of new wells in Colombia. This increase is partially offset by an
increase in reimbursed general and administrative costs. A decrease in
production costs of approximately $39,000 over the same period last year is
attributable to the non-producing Peru properties as discussed above. This
decrease in production cost in Peru, partially offset by the increase in
Colombia, resulted in a decrease in overall production costs of approximately
$15,000 or 13%, compared to the same period last year.
Refinery Operations:
Refinery lease fees increased by 33% in the second quarter of 1996 compared to
the second quarter 1995. The increase is due to Gold Line processing at a higher
capacity to fulfill obligations under newly obtained government contracts. Gold
Line has increased it's actual production rate, based on actual days processed,
to an approximate average of 15,445 barrels per day, compared to 13,467 barrels
per day for the same period last year, a 15% increase. During June 1996, Gold
Line averaged 16,250 barrels per day while operating everyday during the month
and must continue to produce at this approximate daily level in order to comply
with the obligations under its government contracts. On January 1, 1996, the
throughput fees increased 25%, from $0.40 a barrel to $0.50 a barrel over the
same period last year.
Other Revenue:
Other revenues increased approximately $54,000 during the current quarter due
primarily to the decrease in foreign exchange gains in this period compared to
the second quarter 1995.
General and Administrative:
General and Administrative expenses ("G&A") decreased approximately $159,000, or
19% compared to the same period during 1995. An increase in capitalized and
reimbursed G&A of $32,000 for the three months ended June 30, 1996, compared to
the same period last year, accounted for 20% of the decrease and was related to
the increased capital expenditures for the current period compared to the same
period last year. Actual decreases in G&A totalling $248,000 realized in this
period compared to the same period last year were
17
<PAGE> 18
in the following areas: payroll & payroll-related expenses decreased
approximately $79,000 and certain other employee costs decreased approximately
$21,000. Investor/public relations costs decreased during the current quarter,
compared to same quarter last year, by approximately $18,000. Interest expense
increased $77,000, or 32%, for the three months ended June 30, 1996, compared to
the same period in 1995, due to an increase in outstanding debenture principal
of $2,000,000 related to the March and April 1996 sale of the 10% & 9%
Debentures discussed above. As of August 12, 1996, two-thirds of these
Debentures had been converted into common stock of the Company. Consequently,
interest expense related to existing debt on June 30, 1996 is expected to
decline in future periods.
Depreciation, Depletion, and Amortization increased approximately $48,000, or
18%, compared to the same period last year. The increase was primarily due to a
non-recurring prior period adjustment reducing depreciation expense during the
second quarter of 1995.
18
<PAGE> 19
Results of Operations
For the Six Months Ended June 30, 1996 as compared to the Six Months Ended June
30, 1995
The following table highlights the Company's results of operations for the six
months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
For The Six Months
Ended June 30,
1996 1995
---- ----
<S> <C> <C>
Exploration and Production Activity:
Colombia Properties:
Revenues - Oil Sales (000's) $ 641 $ 541
Lease Operating Expenses (000's) $ 212 $ 143
Production Volume - Bbls 73,098 67,166
Average Price per Bbl $ 8.77 $ 8.05
Production Cost per Bbl $ 2.90 $ 2.12
DD&A per Bbl $ 3.77 $ 3.86
Peru Properties:
Revenues - Oil Sales (000's) (1) $ 84
Lease Operating Expenses (000's (1) $ 63
Production Volume - Bbls (1) 11,549
Average Price per Bbl (1) $ 7.28
Production Cost per Bbl (1) $ 5.49
DD&A per Bbl (2) -- --
Refinery Operations:
Refinery Lease Fees (000's) $ 1,047 $ 380
Average Daily Throughput(Bbls) 11,574 9,948
Average Throughput Fee $ 0.50 $ 0.40
</TABLE>
- -----------------
(1) Information for 1996 is not available. See Note 5 to "Notes to
Consolidated Financial Statements June 30, 1996 - Legal Proceedings".
(2) Excludes Peruvian activity since all related properties are currently
considered "unevaluated".
Oil and Gas Operations:
Overall oil revenues increased 3% during the current period compared to the same
period in the prior year. Colombia's oil and gas revenues increased 18% compared
to the same period in the prior year. Actual Colombian oil production has
increased 17% over the same period last year due to an increase in production of
26% from two new wells put in service during the third quarter of 1995. An
19
<PAGE> 20
increase of 9% is attributable to an increased price of oil realized over the
same period last year, which is directly related to the increased price of oil
on the world market. The increase in Colombian oil revenues is offset by the
decrease in oil production and sales from the Peru operations as previously
discussed herein.
Production costs increased approximately $8,600, or 4% compared to the same
period in the prior year. The increase was due primarily to Joint Venture
production overhead allocations in Colombia increasing by $54,000 compared to
the same period in 1995, resulting from increased capital expenditures for
testing and completion of new wells in Colombia during the current period. This
increase is offset by an increase in reimbursed general and administrative
costs. A decrease in production costs of approximately $63,000 over the same
period last year is attributable to the non-producing Peru properties as
previously discussed herein.
Refinery Operations:
Refinery lease fees increased by 176% during the current period of 1996 compared
to the same period in 1995. The increase is due to several factors involving the
Company's Lessee, Gold Line Refining, Ltd ("Gold Line"). During the first six
months of 1995, Gold Line was operational for only 74 days compared to being
operational for 135 days during the same period in 1996. During the first
quarter of 1995, Gold Line had been negotiating feedstock contracts and
performing start-up maintenance, operating only seven days during the first
quarter of 1995 and 67 days during the second quarter of 1995. During the first
six months of 1996, Gold Line was operational 135 days out of 182 days of this
period. The increase is also due to Gold Line processing at a higher capacity to
fulfill its Defense Fuel Supply Center contracts. During the second quarter of
this year, Gold Line processed a daily high of approximately 19,000 barrels of
throughput and has been processing an average of 15,837 barrels per day for 61
days for the months of June and July, 1996. On January 1, 1996 the throughput
fees increased 25%, from $0.40 a barrel to $0.50 a barrel over the same period
last year.
Other Revenue:
Other Revenue increased approximately $92,000 during the current quarter due
primarily to the decrease in foreign exchange gains in this period compared to
the same period in 1995.
General and Administrative:
G&A decreased approximately $461,000, or 26% compared to the same period during
1995. An increase in capitalized and reimbursed G&A of $115,000 for the six
months ended June 30, 1996, compared to the to the same period last year,
accounted for 15% of the decrease and was directly related primarily to the
increased capital expenditures for the current period compared to the same
period last year. Actual decreases in G&A totalling $248,000 realized in
20
<PAGE> 21
this period compared to the same period last year were in the following areas:
payroll & payroll related expenses decreased approximately $157,000 and certain
other employee costs decreased approximately $52,000. Investor/public relations
costs decreased during the current quarter compared to same quarter last year by
approximately $38,000. Legal expenses and accounting & consulting expenses
declined by $34,000 and $72,000, respectively. Interest expense remained
approximately the same for the first six months this year compared to the same
period last year.
Depreciation, Depletion, and Amortization increased approximately $19,000, or
3%, compared to the same period last year primarily due to the increase in oil
production over the same period last year.
21
<PAGE> 22
PART II: OTHER INFORMATION
Item 2. Changes in Securities
Prior to the Company's Annual Meeting of Shareholders (the "Meeting") on July
11, 1996, the Company's authorized capital stock was 57 million shares,
consisting of 50 million shares of common stock, par value $.08 per share
("Common Stock"), and 7 million shares of 8% cumulative convertible preferred
stock, par value $3.00. At the Meeting, the shareholders approved an amendment
to Article IV of the Company's Articles of Incorporation (the "Articles") to
increase the authorized capital stock of the Company to 107 million shares,
including 100 million shares of Common Stock and 7 million shares of "blank
check" preferred stock, par value $.01.
Increase in the Authorized Common Stock
As of May 22, 1996, the Company's Record Date, 26,767,464 shares of Common Stock
were issued and outstanding. An additional 6,417,855 shares are reserved for
issuance upon exercise of outstanding options and warrants and, depending upon
market price, up to 5,300,000 shares were reserved for issuance upon conversion
of convertible debentures. Accordingly, on a fully diluted basis, if all
outstanding convertible securities were converted and all outstanding options
and warrants were exercised, an aggregate of 38,485,319 shares of Common Stock
would be issued and outstanding.
The additional authorized shares of Common Stock are, in the opinion of
management, desirable in order to assure the Company's flexibility of action in
the future. The authorized but unissued and unreserved shares of Common Stock
may be issued at such times, to such persons and for such consideration as the
Board may determine to be in the Company's best interests without further
shareholder approval, except as otherwise required by statute or stock exchange
rules. Depending on the circumstances, issuance of additional shares of Common
Stock could affect the existing holders of shares by diluting the voting power
of the outstanding shares. The shareholders do not have preemptive rights under
the Articles.
"Blank Check" Preferred Stock
The amendment contains provisions which permit the Board to designate one or
more series of preferred stock ("Preferred Stock"). Such provisions are often
referred to as "blank check" provisions, as they give the Board of Directors the
flexibility, at any time or from time to time, without further shareholder
approval, to create one or more series of Preferred Stock and to determine the
designations, preferences and limitations of each such series, including but not
limited to (i) the number of shares, (ii) dividend rights, (iii) voting rights,
(iv) conversion
22
<PAGE> 23
privileges, (v) redemption provisions, (vi) sinking fund provisions, (vii)
rights upon liquidation, dissolution or winding up of the Company and (viii)
other relative rights, preferences and limitations of such series. In addition,
the amendment designates the par value of the Preferred Stock as $.01.
The Board of Directors believes that authorizing the issuance of up to 7 million
shares of "blank check" Preferred Stock provided the Company with the
flexibility to address potential future financing needs by creating a series of
Preferred Stock customized to meet the needs of any particular transaction and
to market conditions. The Company also could issue Preferred Stock for other
corporate purposes, such as to implement joint ventures or to make acquisitions.
The Company is not currently considering the issuance of Preferred Stock for
such financing or transactional purposes and has no present intention to issue
any series of Preferred Stock.
If any series of Preferred Stock authorized by the Board provides for dividends,
such dividends, when and as declared by the Board of Directors out of any funds
legally available therefor, may be cumulative and may have a preference over the
Common Stock as to the payment of such dividends. In addition, if any series of
Preferred Stock authorized by the Board so provides, in the event of any
dissolution, liquidation or winding up of the Company, whether voluntary or
involuntary, the holders of each such series of the then outstanding Preferred
Stock may be entitled to receive, prior to the distribution of any assets or
funds to the holders of Common Stock, a liquidation preference established by
the Board of Directors, together with all accumulated and unpaid dividends.
Depending upon the consideration paid for Preferred Stock, the liquidation
preference of Preferred Stock and other matters, the issuance of Preferred Stock
could therefore result in a reduction in the assets available for distribution
to the holders of Common Stock in the event of liquidation of the Company.
Holders of Common Stock do not have any preemptive rights to acquire Preferred
Stock or any other securities of the Company.
Unissued Stock; Change of Control
The amendment to increase the number of authorized shares of Common Stock and to
authorize "blank check" Preferred Stock was not designed to deter or to prevent
a change in control; however, under certain circumstances, the Company could use
the additional shares or Preferred Stock to create voting impediments or to
frustrate persons seeking to effect a takeover or otherwise gain control of the
Company and thereby to protect the continuity of the Company's management. The
Company could also privately place such shares with purchasers who might favor
the Board of Directors in opposing a hostile takeover bid, although the Company
has no present intention to do so. The Company does not currently have any
plans, agreements, commitments or understandings with respect to the
23
<PAGE> 24
issuance of additional shares of Common Stock or Preferred Stock, except for
outstanding options and warrants and under existing employee incentive and
benefit plans and outstanding convertible debentures. Neither the Board nor
management is considering the use of Preferred Stock for such purposes, and
neither is aware of any present effort to accumulate the Company's securities
for the purpose of gaining control of the Company.
24
<PAGE> 25
Item 4. Submission of Matters to a Vote of Security Holders
At the meeting, the following proposals were submitted for vote to the Company's
Security Holders of record as of May 22, 1996:
1. Election of the following Directors to serve during the ensuing year and
until their successors are duly elected and qualified:
<TABLE>
<S> <C>
George N. Faris
Votes For..................... 21,990,746
Withhold Authority............ 2,234,609
Daniel Y. Kim
Votes For..................... 22,091,343
Withhold Authority............ 2,134,012
Donald G. Rynne
Votes For..................... 22,114,073
Withhold Authority............ 2,111,282
William R. Smart
Votes For..................... 22,073,543
Withhold Authority............ 2,151,812
</TABLE>
2. To amend the Company's Articles of Incorporation (the "Articles") to
provide for a Board of Directors consisting of not less than three (3) nor
more than ten (10) Directors, as specified from time to time by the Board
of Directors:
<TABLE>
<S> <C>
Votes For...................... 22,632,624
Votes Against.................. 1,060,278
Abstentions/Broker Non-Votes... 532,453
</TABLE>
3. To amend the Articles to increase the number of authorized shares of common
stock of the Company, $.08 par value ("Common Stock"), from 50,000,000 to
100,000,000 and to change the previously authorized 7,000,000 shares of 8%
percent cumulative convertible preferred stock, par value $3.00 per share,
to 7,000,000 shares of "blank check" preferred stock, par value $.01 per
share:
<TABLE>
<S> <C>
Votes For....................... 7,286,580
Votes Against................... 3,148,567
Abstentions/Broker Non-Votes.... 13,790,208
</TABLE>
4. To amend and restate the Articles so that they conform to the current law
of the State of Nevada, to eliminate certain provisions no longer
applicable and to consolidate all previous amendments thereto:
25
<PAGE> 26
<TABLE>
<S> <C>
Votes For....................... 5,787,278
Votes Against................... 685,824
Abstentions/Broker Non-Votes.... 17,752,253
</TABLE>
5. To amend the By-laws of the Company to provide for a Board of
Directors consisting of not less than 3 nor more than 10
members as the Board shall specify from time to time, and to
ratify certain other amendments to the By-laws as follows: (i)
to decrease the required notice of special meetings of
shareholders to 10 days; (ii) to eliminate the right of
shareholders to overrule the Chairman's ruling on procedural
matters at a shareholders' meeting; and (iii) to eliminate the
application of the provisions of the Nevada law that would
otherwise require a majority of the shareholders to approve an
acquisition by the Company of a "controlling interest" in
another entity:
<TABLE>
<S> <C>
Votes For....................... 7,778,476
Votes Against................... 1,560,070
Abstentions/Broker Non-Votes.... 14,886,809
</TABLE>
6. To ratify the adoption of the Company's 1995 Stock Option Plan:
<TABLE>
<S> <C>
Votes For....................... 6,091,513
Votes Against................... 3,094,275
Abstentions/Broker Non-Votes.... 14,943,533
</TABLE>
7. To ratify the issuance to the Company's Chairman, George N. Faris, of
900,000 shares of restricted Common Stock in connection with the amendment
of his Employment Agreement:
<TABLE>
<S> <C>
Votes For....................... 6,091,513
Votes Against................... 3,464,229
Abstentions/Broker Non-Votes.... 14,669,613
</TABLE>
8. To ratify the appointment of Price Waterhouse LLP as
independent public accountants of the Company for 1996:
<TABLE>
<S> <C>
Votes For....................... 23,201,434
Votes Against................... 827,618
Abstentions/Broker Non-Votes.... 196,303
</TABLE>
All of these proposals passed by the required vote, except for the first part of
Proposal 5, which required a two-thirds supermajority of all outstanding shares.
Therefore, the Bylaws currently provide for a board of directors of ten members.
The Board, however, has no current plans to fill the vacancies.
Item 5. Other Events
See Part 1, Item 2. "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" regarding the
commitment from Venture Guaranty Group for financing of the Vacuum Distillation
Unit project.
26
<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation
10.1 Registration Rights Agreement dated July 11, 1996
between Dr. George N. Faris and the Registrant
27.1 Financial Data Schedule
(b) Reports on Form 8-K. None
------------------------------------
27
<PAGE> 28
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 12, 1996
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:/s/ Denis J. Fitzpatrick
--------------------------------------
Denis J. Fitzpatrick
Chief Financial Officer
By: /s/ William L. Tracy
--------------------------------------
William L. Tracy
Treasurer/Controller
28
<PAGE> 29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporation.
10.1 Registration Rights Agreement dated July 11, 1996
between Dr. George N. Faris and the Registrant.
27.1 Financial Data Schedule.
29
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
Pursuant to the provisions of Section 78.403 of the Nevada Revised
Statutes (the "NRS"), the undersigned corporation adopts the following Amended
and Restated Articles of Incorporation:
FIRST: The name of the Corporation is American International
Petroleum Corporation.
SECOND: The Corporation's Articles of Incorporation were filed by the
Secretary of State on April 1, 1929. The name of the Corporation at the time of
such filing was Pioneer Mines Operating Company.
THIRD: The names and addresses of the original incorporators were as
follows:
Name Post Office Address
---- -------------------
James D. Finch 401 Clay Peters Bldg., Reno, Nevada
M.L. Finch 533 St. Lawrence Ave., Reno, Nevada
J.C. Finch 533 St. Lawrence Ave., Reno, Nevada.
FOURTH: The Board of Directors of the Corporation at a meeting duly
convened and held on April 9, 1996, adopted the following resolutions to amend
the Articles of Incorporation as follows:
RESOLVED, that the Board of Directors hereby adopts an amendment to the
Articles of Incorporation of the Corporation to eliminate Article II
thereof in its entirety and to modernize the provision so that it conforms
to the NRS as in effect on the date hereof by inserting in its stead a new
Article II to be and read as follows:
Article II
The name of the Corporation's registered agent is United Corporate
Services, Inc. The address of the Corporation's registered agent is 3579 Hwy.
50 East, Ste. C Carson City, NV 09701.
FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment
to the Articles of Incorporation of the Corporation to eliminate Article
III thereof in its entirety and to modernize the provision so that it
conforms to the NRS as in effect on the date hereof by inserting in its
stead a new Article III to be and read as follows:
Article III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under Chapter 78 of the Nevada Revised
Statutes (the "NRS").
FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment
to Article IV of the Articles of Incorporation of the Corporation to
increase the number of authorized shares of Common Stock from 50,000,000
to 100,000,000 shares, $.08 par value, and to change the eight (8%)
percent cumulative voting convertible preferred shares, par value $3.00
per share of the Corporation, to "blank check" preferred stock, par value
$.01 per share; and that Article IV be and read as follows:
<PAGE> 2
Article IV
The maximum number of shares of Common Stock that this Corporation is
authorized to have outstanding at any time is one hundred million (100,000,000)
shares, par value $.08 per share. The maximum number of preferred shares that
this Corporation is authorized to have outstanding at any time is seven million
(7,000,000) shares, par value $.01 per share ("Preferred Stock"). The holders of
shares of the Corporation shall not have a preemptive right to acquire the
Corporation's unissued shares.
The following is a statement of the designations, preferences, voting
powers, qualifications, special or relative rights and privileges in respect of
the Preferred Stock.
The Preferred Stock may be issued from time to time in one or more classes
or series. The Board of Directors of the Corporation shall have authority to the
fullest extent permitted under the NRS to adopt by resolution from time to time
one or more Certificates of Designation providing for the designation of one or
more classes or series of Preferred Stock and the voting powers, whether full or
limited or no voting powers, and such designations, preferences and relative,
participating, limitations or restrictions thereof, and to fix or alter the
number of shares comprising any such class or series, subject to any
requirements of the NRS and this Restated Certificate of Incorporation, as
amended from time to time.
The authority of the Board of Directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix the following preferences and powers, which may vary as
between different classes or series of Preferred Stock:
(a) the distinctive designation of such class or series and the
number of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or
series shall be declared and paid, or set aside for payment, whether dividends
at the rate so determined shall be cumulative or accruing, and whether the
shares of such class or series shall be entitled to any participating or other
dividends in addition to dividends at the rate so determined, and if so, on what
terms;
(c) the right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(e) the terms and conditions, if any, upon which shares of such
class or series shall be convertible into, or exchangeable for, shares of
capital stock of any other class or series, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the Corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, including special voting rights with
respect to the election of directors and matters adversely affecting any class
or series of Preferred Stock;
(h) limitations, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock; and
<PAGE> 3
(i) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the Board of Directors of the
Corporation, by the vote of the members of the Board of Directors then in office
acting in accordance with this Restated Certificate of Incorporation, or any
Preferred Stock, may deem advisable and are not inconsistent with law, the
provisions of this Restated Certificate of Incorporation or the provisions of
any such Certificate of Designation.
FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment
to the Articles of Incorporation of the Corporation to eliminate Article V
thereof in its entirety and to renumber the following articles
appropriately.
FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment
to Article VI of the Articles of Incorporation of the Corporation to
change the size of the board of directors to not less than three (3) nor
more than ten (10); and that Article VI (renumbered as Article V) be and
read as follows:
Article V
The members of the governing board shall be styled directors, and the
number thereof shall be not less than three (3) nor more than ten (10). The
names and post office addresses of the first Board of Directors were as follows:
Names Post Office Addresses
----- ---------------------
James D. Finch 401 Clay Peters Bldg., Reno, Nevada
M.L. Finch 533 St. Lawrence Ave., Reno, Nevada
Stanley B. Finch 728 Nixon Ave., Reno, Nevada
V.F. Finch 728 Nixon Ave., Reno, Nevada
J.C. Finch 533 St. Lawrence Ave., Reno, Nevada.
FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment
to the Articles of Incorporation of the Corporation to eliminate Article
VII thereof in its entirety and to renumber the following articles
appropriately.
FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment
to Article VIII of the Articles of Incorporation of the Corporation to
modernize the provision so that it conforms to the NRS as in effect on the
date hereof by inserting in its stead a new Article VIII (renumbered as
Article VI) to be and read as follows:
Article VI
The name and post office address of each incorporator executing this
certificate are as follows:
Name Post Office Address
---- -------------------
James D. Finch 401 Clay Peters Bldg., Reno, Nevada
M.L. Finch 533 St. Lawrence Ave., Reno, Nevada
J.C. Finch 533 St. Lawrence Ave., Reno, Nevada.
FURTHER RESOLVED, that to effectuate the amendments discussed in the
foregoing resolutions and to consolidate all previous amendments to the
Articles of Incorporation, the Board of Directors hereby adopts a proposal
that the Articles of Incorporation shall be restated and amended; and
3
<PAGE> 4
FURTHER RESOLVED, that a proposal be presented to the stockholders
to consider approving all of the foregoing amendments and changes to
the Articles of Incorporation, and that the Chief Executive Officer and
Secretary of the Corporation are hereby authorized to file such
certificates and take such other steps as may be necessary to accomplish
the purposes of the foregoing resolutions.
FIFTH: the number of shares of the Corporation outstanding and
entitled to vote on an amendment to the Articles of Incorporation is 26,767,464;
and the above changes and amendments have been consented to and approved by the
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
SIXTH: The Articles of Incorporation, as amended to the date of this
certificate, are hereby restated as follows:
4
<PAGE> 5
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
ARTICLE I
The name of the Corporation is American International Petroleum
Corporation.
ARTICLE II
The name of the Corporation's registered agent is United Corporate
Services, Inc. The address of the Corporation's registered agent is 3579 Hwy.
50 East, Ste. C, Carson City, NV 09701.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under Chapter 78 of the Nevada Revised
Statutes (the "NRS").
ARTICLE IV
The maximum number of shares of Common Stock that this Corporation is
authorized to have outstanding at any time is one hundred million (100,000,000)
shares, par value $.08 per share. The maximum number of preferred shares that
this Corporation is authorized to have outstanding at any time is seven million
(7,000,000) shares, par value $.01 per share ("Preferred Stock"). The holders of
shares of the Corporation shall not have a preemptive right to acquire the
Corporation's unissued shares.
The following is a statement of the designations, preferences, voting
powers, qualifications, special or relative rights and privileges in respect of
the Preferred Stock.
The Preferred Stock may be issued from time to time in one or more classes
or series. The Board of Directors of the Corporation shall have authority to the
fullest extent permitted under the NRS to adopt by resolution from time to time
one or more Certificates of Designation providing for the designation of one or
more classes or series of Preferred Stock and the voting powers, whether full or
limited or no voting powers, and such designations, preferences and relative,
participating, limitations or restrictions thereof, and to fix or alter the
number of shares comprising any such class or series, subject to any
requirements of the NRS and this Restated Certificate of Incorporation, as
amended from time to time.
The authority of the Board of Directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix the following preferences and powers, which may vary as
between different classes or series of Preferred Stock:
(a) the distinctive designation of such class or series and the
number of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or
series shall be declared and paid, or set aside for payment, whether dividends
at the rate so determined shall be cumulative or accruing, and whether the
shares
5
<PAGE> 6
of such class or series shall be entitled to any participating or other
dividends in addition to dividends at the rate so determined, and if so, on what
terms;
(c) the right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(e) the terms and conditions, if any, upon which shares of such
class or series shall be convertible into, or exchangeable for, shares of
capital stock of any other class or series, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the Corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, including special voting rights with
respect to the election of directors and matters adversely affecting any class
or series of Preferred Stock;
(h) limitations, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock; and
(i) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the Board of Directors of the
Corporation, by the vote of the members of the Board of Directors then in office
acting in accordance with this Restated Certificate of Incorporation, or any
Preferred Stock, may deem advisable and are not inconsistent with law, the
provisions of this Restated Certificate of Incorporation or the provisions of
any such Certificate of Designation.
ARTICLE V
The members of the governing board shall be styled directors, and the
number thereof shall be not less than three (3) nor more than ten (10). The
names and post office addresses of the first Board of Directors were as follows:
Names Post Office Addresses
----- ---------------------
James D. Finch 401 Clay Peters Bldg., Reno, Nevada
M.L. Finch 533 St. Lawrence Ave., Reno, Nevada
Stanley B. Finch 728 Nixon Ave., Reno, Nevada
V.F. Finch 728 Nixon Ave., Reno, Nevada
J.C. Finch 533 St. Lawrence Ave., Reno, Nevada.
ARTICLE VI
The name and post office address of each incorporator executing this
certificate were as follows:
Name Post Office Address
---- -------------------
James D. Finch 401 Clay Peters Bldg., Reno, Nevada
6
<PAGE> 7
M.L. Finch 533 St. Lawrence Ave., Reno, Nevada
J.C. Finch 533 St. Lawrence Ave., Reno, Nevada.
ARTICLE VII
The Corporation is to have perpetual existence.
ARTICLE VIII
Except as hereinafter provided, the officers and directors of the
Corporation shall not be personally liable to the Corporation or its
shareholders for damages for breach of fiduciary duty as a director or officer.
This limitation on personal liability shall not apply to acts or omissions which
involve intentional misconduct, fraud, knowing violation of the law, or unlawful
payments of dividends prohibited by the NRS.
IN WITNESS WHEREOF, George N. Faris, the Chief Executive Officer of the
Corporation, and Denis J. Fitzpatrick, the Secretary of the Corporation have
been authorized to execute the foregoing certificate by resolution of the board
of directors, adopted at a meeting of the directors duly called and held on
April 9, 1996, and the foregoing certificate sets forth the text of the Articles
of Incorporation as amended to the date hereof.
Dated: July 11, 1996 AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: /s/ George N. Faris
----------------------------
George N. Faris, its
Chief Executive Officer
and: /s/ Denis J.Fitzpatrick
----------------------------
Denis J. Fitzpatrick,
its Secretary
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On July 11, 1996, personally appeared before me, a Notary Public, for the
State and County aforesaid, George N. Faris and Denis J. Fitzpatrick, as Chief
Executive Officer and Secretary, respectively, of American International
Petroleum Corporation, who acknowledged that they executed the above instrument.
/s/
-------------------------------
Notary Public
7
<PAGE> 1
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of July 11, 1996, between
Dr. George N. Faris ("Holder"), and AMERICAN INTERNATIONAL PETROLEUM
CORPORATION, a Nevada corporation (the "Issuer").
W I T N E S S E T H:
WHEREAS, in connection with Amendment No. 1, dated October 13, 1995,
to the employment agreement between the Issuer and Holder, (the "Amendment"),
Holder has acquired from the Issuer 900,000 shares of Common Stock (the
"Shares"); and
WHEREAS, the shareholders of the Company have approved the Amendment
and Holder and the Issuer wish to enter into this Agreement, pursuant to which,
and upon the terms and subject to the conditions of which, Holder shall have
certain registration rights for shares of Common Stock issued as aforesaid;
NOW THEREFORE, in consideration of the premises and the mutual
agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Registration Rights for Shares.
(a) Piggyback Rights. If, at any time during which Holder owns any
of the Shares, the Issuer proposes to file a registration statement with respect
to any class of securities (other than pursuant to a registration statement on
Forms S-4 or S-8 or any successor form) under the Securities Act of 1933, as
amended (the "Securities Act") the Issuer shall notify the Holder at least
twenty (20) days prior to the filing of such registration statement and will
offer to include in such registration statement all or any portion of the
Shares. At the written request of the Holder, delivered to the Issuer within ten
(10) days after receipt of the Issuer's notice, the Holder shall state the
number of Shares that it wishes to sell or distribute publicly under the
proposed registration statement. The Issuer 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 Issuer makes no representations or
warranties as to its ability to have the registration statement declared
effective. In the event the Issuer 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 by the Issuer with respect to any securities other than the
Shares, the Issuer, in good faith, may amend such registration statement to
exclude the Shares without otherwise affecting the Holder's rights herein with
respect to any other registration statement.
(b) Demand Rights. Upon the request of Holder made by notice in
writing to the Issuer on any one occasion at any time after the employment of
Holder with the Issuer is terminated and prior to December 31, 1999, the Issuer
will use its best efforts to register the Shares under the Securities Act on any
form available to the Issuer which would permit the sale of the Shares as
contemplated herein. The Issuer shall file the registration statement with
respect to the Shares as promptly as practicable after receipt of the notice
from Holder, and the Issuer shall use its best efforts to keep such registration
statement in effect and maintain compliance with each federal and state
securities law or regulation and to list the Shares on the Issuer's principal
market for the period necessary for Holder to effect a sale or other disposition
of such Shares (but in no event for a period greater than two years). If
Holder's notice requests the Issuer to register less than all of the Shares, the
Issuer shall include in such Registration Statement only such number as Holder
requests, and Holder shall have no other right to seek registration of the
<PAGE> 2
balance of the Shares, except pursuant to the "piggyback" rights described
above.
(c) Underwriter's Restrictions. If a registration statement is filed
with respect to an underwritten registration on behalf of the Issuer, and if the
underwriter thereof advises the Issuer in writing that, in its opinion, the
number of Shares requested or demanded to be included in such registration
statement exceeds the number that can be sold in such offering without
materially adversely affecting the distribution of securities by the
underwriter, then the Holder shall delay his offering and sale for such period
ending on the earliest of (a) 90 days following the effective date of the
Issuer's registration statement or (b) such date as the Issuer, managing
underwriter and Holder shall otherwise agree. In the event of such delay, the
Issuer shall file such supplements, post-effective amendments and take any such
other steps as may be necessary to permit such Holder to make his proposed
offering and sale for a minimum period of ninety (90) days immediately following
the end of such period of delay.
(d) Rule 144 Exception. Notwithstanding anything herein, the Issuer
shall not be required to file a registration statement to include the Shares
pursuant to this Agreement if, in the opinion of counsel for the Issuer, all of
the Shares proposed to be disposed of may be transferred pursuant to the
provisions of Rule 144(k) under the Securities Act.
(e) Buy-out of Registration Rights. In lieu of carrying out its
obligations to effect a registration of any Shares pursuant to this Agreement,
the Issuer may carry out such obligation by offering to purchase and purchasing
such Registrable Securities requested to be registered at an amount in cash
equal to the last reported sale price of the Common Stock on the principal
market on which it is traded on the day the request for Registration is made.
(f) Registration Procedures. Except as otherwise provided in this
Agreement, the Issuer shall have sole control in connection with the
preparation, filing, withdrawal, amendment or supplementing of each registration
statement, and the distribution of any preliminary prospectus included in the
registration statement, and may include within the coverage thereof additional
shares of Common Stock or other securities for its own account or for the
account of one or more of its other securityholders. The Issuer may require
Holder to furnish to the Issuer such information regarding the distribution of
such securities and such other information as may otherwise be required by the
Securities Act or by any state securities law or by the National Association of
Securities Dealers, Inc. to be included in such registration statement or which
may otherwise be necessary to comply with the requirements of any thereof. The
Issuer shall pay all reasonable and customary expenses in connection with the
exercise of the rights contained in this Section , other than brokerage and
selling commissions incurred by Holder.
2. Indemnification.
(a) Indemnification by Parties. In the event of any registration of
a security pursuant to this Agreement, the Issuer shall indemnify the Holder
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 Issuer by the Holder expressly for use
therein. The Holder shall also indemnify the Issuer, 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 Holder to the
Issuer for use in such registration statement or prospectus.
<PAGE> 3
(b) Conduct of Indemnification Procedure. Any party that proposes to
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or parties
under this Section , notify each such indemnifying party of the commencement of
such action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for herein shall be available to any party who shall
fail to give notice as provided herein if the party to whom notice was not given
was unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party otherwise than
under this Agreement. In case any such action, suit or proceeding shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein, to the extent that it shall wish, jointly with the Issuer
and/or any other indemnifying party similarly notified, with counsel
satisfactory to such indemnified party, at its own expense. If, upon request of
the indemnified party, the indemnifying party agrees, which agreement may be
withheld absolutely, that the indemnified party may assume the defense of any
such action, suit or proceeding, and the indemnifying party approves of counsel
selected by the indemnified party, the indemnified party may assume such
defense, and the indemnifying party shall not be liable to the indemnified party
for any legal or other expenses, except as provided below. The indemnified party
shall have the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless the indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the commencement
thereof, in each of which cases the fees and expenses of one counsel or one law
firm shall be at the expense of the indemnifying parties. An indemnifying party
shall not be liable for any settlement of any action, suit, proceeding or claim
effected without its written consent.
3. Specific Performance. The Issuer and Holder acknowledge that
remedies at law for the enforcement of this Agreement may be inadequate and
intend that this Agreement shall be specifically enforceable.
4. Section Headings. The Section headings contained herein are for the
purpose of convenience only and are not intended to define or limit the contents
of said Sections .
5. Notices. All notices and other communications hereunder shall be in
writing and shall be personally delivered, sent by overnight courier or mailed
by registered or certified mail to the parties at such address as either shall
have furnished to the other in writing. Notices hereunder shall be deemed to
have been duly given when delivered personally or by courier or five (5) days
after mailing, when mailed to the party entitled to receive the same.
6. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: /s/ Denis J. Fitzpatrick
-------------------------
Denis J. Fitzpatrick,
Vice President
/s/ George N. Faris
----------------------------
George N. Faris
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 140,091
<SECURITIES> 0
<RECEIVABLES> 1,101,090
<ALLOWANCES> 0
<INVENTORY> 452,428
<CURRENT-ASSETS> 2,408,023
<PP&E> 53,496,183
<DEPRECIATION> (23,149,810)
<TOTAL-ASSETS> 32,921,415
<CURRENT-LIABILITIES> 4,406,807
<BONDS> 6,174,993
0
0
<COMMON> 2,355,930
<OTHER-SE> 19,983,685
<TOTAL-LIABILITY-AND-EQUITY> 32,921,415
<SALES> 885,776
<TOTAL-REVENUES> 966,333
<CGS> 0
<TOTAL-COSTS> 104,567
<OTHER-EXPENSES> 1,331,976
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320,545
<INCOME-PRETAX> (470,210)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (470,210)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
