SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the
Commission only (Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-ll(c) or Rule 14a-12
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
(Name of Registrant as Specified In Its Charter)
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated, and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-ll(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
444 Madison Avenue, Suite 3203
New York, New York 10022
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of American International Petroleum Corporation:
Notice is hereby given that the Annual Meeting of Shareholders of American
International Petroleum Corporation, a Nevada corporation (the "Company"), will
be held on July 10, 1997, at The Holiday Inn Lake Charles, 505 North Lakeshore
Drive, Lake Charles, Louisiana 70601 at 10:00 a.m. Central Time, to consider and
act upon the following proposals:
1. To elect four (4) Directors to serve for a term of one year and until their
successors are duly elected and qualified;
2. To ratify the appointment of Hein + Associates LLP as independent public
accountants of the Company for 1997; and
3. To transact such other business as may properly come before the meeting and
any adjournment(s) thereof.
Shareholders of record at the close of business on May 21, 1997 will be
entitled to vote at the meeting or any adjournment thereof.
By order of the Board of Directors,
George N. Faris, Chairman of the Board
Dated: June 18, 1997
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. THE PROXY
MAY BE REVOKED IN WRITING PRIOR TO THE MEETING, OR IF YOU ATTEND THE MEETING,
YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
PROXY STATEMENT
This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of American International Petroleum
Corporation, a Nevada corporation (the "Company"), of proxies for the Annual
Meeting of Shareholders to be held at 10:00 a.m. Central Time, on July 10, 1997,
and any adjournment or adjournments thereof (the "Meeting"). The Meeting will be
held at the Holiday Inn Lake Charles, 505 North Lakeshore Drive, Lake Charles,
Louisiana 70601. The purposes for which the Meeting is to be held are set forth
in the Notice of Meeting on the preceding page. All expenses of this
solicitation will be paid for by the Company, which solicitation will be made by
use of the mails and by personal contacts by the officers of the Company. The
approximate date of mailing of this Proxy Statement and the accompanying form of
proxy to shareholders is June 18, 1997.
Shareholders of record at the close of business on May 21, 1997 (the
"Record Date") are entitled to notice of and to vote at the Meeting. Any
shareholder present at the Meeting may revoke his or her proxy by informing the
Secretary of such revocation and vote in person on each matter brought before
the Meeting. The accompanying proxy is also subject to revocation at any time
before it is exercised by filing with the Secretary of the Company an instrument
revoking the proxy or a duly executed proxy bearing a later date. All shares
represented by each properly signed and returned proxy in the accompanying form,
unless revoked, will be voted at the Meeting, or at any adjournment thereof, in
accordance with the instructions thereon. If no instructions are specified, the
shares will be voted in favor of the election of the nominees for Directors and
in favor of the ratification of the auditors. If any other matters are properly
presented at the Meeting, or any adjournment thereof, the persons voting the
proxies will vote them in accordance with their best judgment.
As of the Record Date, 38,596,691 shares of the common stock of the
Company, par value $.08 ("Common Stock"), were outstanding. Each share of Common
Stock is entitled to one vote. The affirmative vote of the plurality of the
votes cast in person or by proxy at the Meeting and entitled to vote will
determine the election of Directors. The affirmative vote of the majority of the
voting power present in person or by proxy at the Meeting and entitled to vote
is required to ratify the selection of the auditors.
Votes cast by proxy or in person at the Meeting will be counted by the
persons appointed by the Company to act as election inspectors for the Meeting.
The election inspectors will treat shares represented by proxies that reflect
abstentions as shares that are present and entitled to vote, for purposes of
determining the presence of a quorum. Abstentions, however, do not constitute a
vote "for" or "against" any matter and thus will be disregarded in the
calculation of votes cast. In addition, where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not provided
voting instructions (commonly referred to as "broker non-votes"), those shares
will not be included in the vote totals.
A list of the shareholders entitled to vote at the Meeting will be
available at the Company's Lake Charles refinery, at AIRI, 4646 Highway 3059,
Lake Charles, Louisiana 70601, for a period of 10 days prior to the Meeting for
examination by any shareholder.
1
<PAGE>
ACTIONS TO BE TAKEN AT THE ANNUAL MEETING
Proposal 1. Election of Four (4) Nominees As Directors
At the Meeting, 4 Directors are to be elected for the ensuing year and
until their successors are duly elected and qualified. If, at the time of
election, any of the nominees should be unavailable for election, a circumstance
which is not expected by the Company, it is intended that the proxies will be
voted for such substitute nominee as may be selected by the Company. The number
of Directors authorized in the Articles of Incorporation is not less than 3 nor
more than 10, but the Board has determined to leave a vacancy on the Board, in
part to satisfy its obligation to MGTF (as defined and discussed below), and
until such time as qualified additional persons are chosen to serve. The proxies
cannot be voted for more than 4 Directors at the Meeting. Proxies not marked to
the contrary will be voted for the election of the following 4 persons, all of
whom are standing for re-election.
<TABLE>
<CAPTION>
Year First Became
Name Age Position(s) a Director
- ------- --- ------------ -----------------
<S> <C>
George N. Faris 56 Chairman of the Board and 1981
Chief Executive Officer
Daniel Y. Kim 72 Director 1987
Donald G. Rynne 74 Director 1992
William R. Smart 76 Director 1987
</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 was granted a number of patents. Dr. Faris received a Ph.D. in
Mechanical Engineering from Purdue University in 1968.
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. From 1977 to 1980, Dr. Kim was Chief
Consulting Geophysicist for Standard Oil Company of Indiana. 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.
2
<PAGE>
Mr. Donald G. Rynne has served as a member of the Company's Board of
Directors since 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. Since November 1, 1983, Mr. Smart has been Senior
Vice President of Cambridge Strategic Management Group, a management consulting
firm. 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. 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 business background of each executive officer of the Company, to the
extent not set forth above, is described below.
Mr. Denis J. Fitzpatrick, 52, 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 and has held various accounting and
financial management positions in the oil and gas industry since that date. In
the past he has served as a Director or Officer of the Council of Petroleum
Accountants Society; served on the Tax Committee of the American Petroleum
Institute and as a member of the American Management Association.
Mr. William L. Tracy, 49, has been employed by the Company since
February 1992 and has been Treasurer and Controller of the Company since 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.
The Company's executive officers are appointed annually by the Board to
serve until their successors are duly elected and qualified.
Certain Information Concerning the Board of Directors
Pursuant to a loan agreement with MG Trade Finance ("MGTF"), the Company
has agreed to make available 2 vacancies on the Board of Directors to persons
designated by MGTF, one of whom must be reasonably acceptable to the Company,
and
3
<PAGE>
to nominate such individuals as Directors. MG may also designate one such
individual, if reasonably acceptable, to be a member of the Executive Committee
of the Board. Furthermore, if during such period, MGTF does not designate
Directors, it shall be entitled to attendance rights at all meetings or actions
of the Board or the Executive Committee of the Board. If MGTF designates 2
Directors under such loan agreement, it will control approximately 33% of the
Board.
The Company has 3 standing committees, the Executive Committee, to
oversee the day to day operations of the Company; the Compensation Committee, to
review and set the compensation to be received by various officers and other
employees and consultants of the Company; and the Audit Committee, to review the
financial reporting and internal controls of the Company. The Executive
Committee is composed of Messrs. Smart (Chairman), Rynne and Faris, the
Compensation Committee is composed of Messrs. Kim (Chairman), Smart and Rynne,
and the Audit Committee is composed of Messrs. Smart (Chairman) and Kim.
The Board of Directors held 11 meetings during the year ended December
31, 1996. The Compensation Committee held 1 meeting and the Audit Committee held
2 meeting during 1996. Each incumbent Director attended at least 75% of such
Board meetings and of the meetings of Committees on which such Director served.
During 1996, the Company reimbursed outside 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 for participation in 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. In addition, each outside Director
received an option to purchase up to 100,000 shares of Common Stock, 25% of
which is not exercisable until October 1997.
SECURITIES OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of the Record
Date, regarding the beneficial ownership of Common Stock of (i) each person
known by the Company to be the beneficial owner of more than 5% of the Common
Stock; (ii) each Director; (iii) each executive officer named in the Summary
Compensation Table below; and (iv) all Directors and executive officers as a
group.
Name and Address Amount and Nature of Percent
of Beneficial Holder (1) Beneficial Ownership of Class
- ------------------------ -------------------- --------
George N. Faris 3,515,525(2) 8.8%
Daniel Y. Kim 88,500(3) *
Donald G. Rynne 681,122(4) 1.8%
William R. Smart 192,944(5) *
Denis J. Fitzpatrick 125,000(6) *
Kenneth N. Durham 5,000(7) *
4
<PAGE>
All officers and Directors
as a group (consisting of
6 persons) 4,666,591(8) 11.5%
- ----------------------
* Less than 1% of class
(1) All officers and Directors have an address c/o the Company, 444 Madison
Avenue, Suite 3203, New York, NY 10022.
(2) Excludes 37,400 shares of Common Stock beneficially owned by Mrs. Claudette
Faris, Dr. Faris' wife, as to which shares Dr. Faris disclaims beneficial
ownership, and 250,000 unexercisable options. Includes 1,238,169 shares of
Common Stock issuable upon exercise of stock options and warrants held by
Dr. Faris.
(3) Includes 80,500 shares of Common Stock issuable upon exercise of a like
number of options owned by Dr. Kim. Excludes 25,000 unexercisable options.
(4) Includes 174,260 shares of Common Stock issuable upon exercise of a like
number of options and warrants owned by Mr. Rynne. Excludes 25,000
unexercisable options.
(5) Includes 136,986 shares of Common Stock issuable upon exercise of a like
number of options and warrants owned by Mr. Smart. Excludes 25,000
unexercisable options.
(6) Includes 95,000 shares of Common Stock issuable upon exercise of options
owned by Mr. Fitzpatrick. Excludes 25,000 unexercisable options.
(7) Mr. Durham resigned as an executive officer of the Company effective
November 3, 1995.
(8) Includes all of the shares of Common Stock issuable upon exercise of vested
options and warrants described in Notes (2) through (6) above, plus 38,500
shares of Common Stock issuable upon exercise of options owned by another
officer of the Company. Excludes 12,500 unexercisable options owned by such
officer.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1996 through December 31, 1996, all filing requirements applicable to
its officers, Directors and greater than 10 percent beneficial owners were
complied with, except that each of Messrs. Fitzpatrick, Rynne, Smart and Tracy,
5
<PAGE>
and Drs. Kim and Faris, filed one late report on Form 4, in each case relating
to two transactions.
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 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------------ -----------------------------
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation 0ptions(#) Compensation
- ------------------ ---- ------ ----- ------------ ------------- ------------
<S> <C>
George N. Faris 1996 $ 292,000 $15,000 $ 9,600(1) 1,202,500(2) $422,000(3)
Chairman of the 1995 240,000 - 45,000(1) 202,500(2) -
Board and Chief 1994 248,000 - 16,250(4) - -
Executive Officer
Denis J. Fitzpatrick 1996 $105,000 $5,000 $15,500(5) 120,000(2) -
Secretary, Vice 1995 105,000 - 18,494(5)(6) 20,000(2) -
President and Chief 1994 38,462(7) - 6,250(5) 20,000(8) -
Financial Officer
Kenneth N. Durham 1996 - (9) - - - -
President and Chief 1995 $144,726(9) - - - -
Operating Officer 1994 169,173 - - - -
</TABLE>
- -----------------------------
(1) $35,503 of this amount constituted forgiveness of interest on a debt owed
to the Company, the principal of which was repaid to the Company, and
$9,600 was paid as a vehicle allowance for Dr. Faris pursuant to his
employment contract in each of 1996 and 1995.
(2) The number of options shown for 1995 was issued in substitution for
previously outstanding options and re-issued in 1996. The exercise price is
now $.50 per share. See Ten Year Option Repricings table below.
(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.
(4) Includes split dollar life insurance premiums of $16,250 paid by the
Company on behalf of Dr. Faris in 1994.
(5) Mr. Fitzpatrick is reimbursed up to $15,000 per year in living expenses
incurred while working in the New York office.
(6) Mr. Fitzpatrick was awarded 5,000 restricted shares of Common Stock as a
signing bonus, which shares were issued in 1995.
(7) Mr. Fitzpatrick joined the Company on August 15, 1994 at an annual salary
level of $105,000.
(8) Options awarded upon hiring. These were later repriced. See footnote 3
above.
6
<PAGE>
(9) Mr. Durham resigned from employment with the Company effective on November
3, 1995.
STOCK OPTION PLAN
The Company has established a 1995 Stock Option Plan (the "Plan"). The
Plan was approved by the Board of Directors on November 8, 1995 and by the
Company's shareholders on July 11, 1996. The Plan is administered by the Board
of Directors of the Company or a Committee designated by them. Under the Plan
employees, including officers and managerial or supervising personnel, are
eligible to receive Incentive Stock Options ("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 be granted under the Plan to purchase
an aggregate of 3,500,000 shares of Common Stock. If an option granted under the
Plan terminates or expires without having been exercised in full, the
unexercised shares subject to that option will be available for a further grant
of options under the 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.
Options may not be granted under the Plan after November 7, 2005. The
exercise price of the options granted under the Plan cannot be less than the
fair market value of the shares of Common Stock on the date the option is
granted. 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 at least 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 $100,000. Any additional
Common Stock as to which options become exercisable for the first time during
any such year are treated as NQSO's. The total number of options granted under
the Plan, as of the Record Date was 1,902,500, which included 302,500 repriced
options granted in substitution for options previously held.
OPTION GRANTS IN LAST FISCAL YEAR
The table below includes the number of stock options granted to certain
executive officers during the year ended December 31, 1996, exercise information
and potential realizable value. The second amount under each person's name
represents repriced options granted in substitution for options previously held
by such officers.
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
----------------- Annual Rates of Stock
Number of Percent of Price Appreciation
Securities Total Options for Option Term
Underlying Granted to ------------------
Options Employees in Exercise Expiration
Name Granted(#) Fiscal Year Price($/sh) Date 5%($) 10%($)
---- ---------- ----------- ----------- ----------- ----- -------
<S> <C>
George Faris 1,000,000 53% $.50 10/21/99 -0- $20,000
202,500 11% $.50 12/31/97 -0- $ 4,050
Denis Fitzpatrick 100,000 5% $.50 10/22/99 -0- $ 2,000
20,000 1% $.50 08/03/98 -0- $ 400
</TABLE>
7
<PAGE>
AGGREGATE OPTION EXERCISES IN 1996 AND OPTION VALUES AT DECEMBER 31, 1996
The table below includes the number of shares covered by both
exercisable and non-exercisable stock options owned by certain executive
officers as of December 31, 1996. Also reported are the values for
"in-the-money" options which represent the positive spread between exercise
price of any such existing 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>
George N. Faris -- -- 452,500 750,000 -- --
Denis J. Fitzpatrick -- -- 45,000(1) 75,000 -- --
- ---------------------
(1) The closing price of the Common Stock on the last day of the year ended
December 31, 1996 was $.39. Therefore, all options listed were "out of the
money" as of that date.
EMPLOYMENT CONTRACT
Effective May 1, 1989, the Company entered into an employment agreement
with George N. Faris at an annual salary of $200,000, which agreement is renewed
annually. In 1992, the Board increased Dr. Faris' salary to $300,000 per year 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 of a change in
control of the Company which Dr. Faris and a majority of the Company's Board of
Directors approve, Dr. Faris was 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 opposed a change in control,
but the majority of the Board of Directors voted in favor of such change, then
Dr. Faris could have terminated his employment and received 2.5 times his fixed
compensation. In the event that Dr. Faris' employment was 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 was to pay
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.
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 subsequently ratified by the Company's shareholders.
Pursuant to the amendment, the rights of Dr. Faris described in the previous
paragraph terminated, and Dr. Faris received, in exchange, 900,000 shares of
restricted Common Stock.
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,
8
<PAGE>
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 competitive position in the industry
regarding the continuity of the employment of its officers. During the past
three fiscal years, Management has significantly reduced general and
administrative and operating costs.
REPORT ON REPRICING OF OPTIONS
On October 22, 1996, the Compensation Committee approved, and the Board
of Directors authorized, the granting of repriced options to all executive
officers of the Company and other employees who previously held options of the
Company. The Compensation Committee and the Board so acted because the exercise
price of such outstanding options was in each case so far in excess of the
market price of the Common Stock that such options no longer constituted an
incentive to such persons' performance. The closing market price of the Common
Stock on the Nasdaq National Market on October 22, 1996 was $.41 per share. The
exercise price of the options was lowered to $.50. This price was still in
excess of the market price on the date of grant, but it was closer to the market
price and fulfilled the original intention of the Compensation Committee and the
Board to provide performance incentives to the officers and employees.
Ten-year Option Repricings
The table below provides information regarding each instance in which
the options of executive officers named in the Summary Compensation Table were
repriced during the last 10 fiscal years of the Company.
</TABLE>
<TABLE>
<CAPTION>
Market Price Exercise Price New Length of Original
Options of Stock at Time at Time of Exercise Option Term Remaining
Name Date Repriced(#) Repricing($) Repricing($) Price at Date of Repricing
- ---- -------- ----------- ------------ ------------ -------- --------------------
<S> <C>
George Faris 11/08/95 202,500 $.78 $4.00 $1.00 2 years, 2 months
Chief Executive 10/22/96 202,500 $.41 $1.00 $ .50 1 year, 3 months
Officer
Kenneth Durham 11/8/95 20,000(1) $.78 $4.00 $1.00 (1)
President
Denis Fitzpatrick 11/8/95 20,000 $.78 $1.50 $1.00 2 years, 10 months
Chief Financial 10/22/96 20,000 $.41 $1.00 $ .50 1 year, 11 months
Officer
</TABLE>
- ---------------------
(1) Mr. Durham left the Company on November 3, 1995, and his options expired on
February 1, 1996.
Members of the Compensation Committee:
Daniel Y. Kim, Chairman
William R. Smart
Donald G. Rynne
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
9
<PAGE>
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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
It is the responsibility of the Compensation Committee of the Board of
Directors to administer the Company's incentive plans and to review the
compensation levels and performance of Management.
The Compensation Committee believes that maximizing shareholder value is
the most important measure of success, and achieving this depends on the
coordinated efforts of individual employees working as a team toward defined
common performance goals. The objectives of the Company's compensation program
are to align executive compensation with shareholder value, to reward individual
and team effort and performance furthering the Company's business goals, and to
attract, retain and reward employees who will contribute to the long-term
success of the Company with competitive salary and incentive compensation.
The total direct compensation package for the Company's executives,
including the Chief Executive Officer (the "CEO"), is made up of 3 elements:
base salary, a short-term incentive program in the form of a performance-based
bonus, and a long-term incentive program in the form of stock options. The total
compensation level for each executive is established by individual levels of
responsibility and reference to competitive compensation levels for executives
performing similar functions and having equivalent levels of responsibility. In
addition, the Compensation Committee factors into the total compensation of all
executives an incentive element that is dependent upon overall Company
performance and increases in shareholder value measured against objectives
established at the beginning of the fiscal year.
Salary
Recommendations for merit increases in base salary are reviewed on an
individual basis, and increases are dependent upon a favorable evaluation of
individual performance relative to individual goals, the functioning of the
executive's team within the corporate structure, success in furthering the
corporate strategy and goals, and individual management skills, responsibilities
and anticipated workload. The Compensation Committee also considers demonstrated
loyalty and commitment to the Company and the competitive salaries offered by
similar companies to attract executives. Merit increases for executives are
subject to the same budgetary guidelines as apply to all other employees. In
those cases where an executive has entered into an employment agreement, the
base salary is determined pursuant to the terms thereof.
As part of the Company's overall cost-reduction plan, in April 1994, all
officers and management of the Company voluntarily reduced their base salary
15%, and the CEO voluntarily reduced his salary 20%. This action was applied
during all of 1994 and 1995 and in January 1996. The Compensation Committee is
performing a review of comparable Companies' executive salary data, which was
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last performed in 1993. The Compensation Committee granted no increases in base
salaries for management in 1996. In February 1996, however, in order to maintain
the Company's ability to attract and retain qualified management, to retain
employees who contribute to the long-term success of the Company, and to
recognize their contributions in meeting and exceeding the goal of the cost-
reduction program to reduce the Company's general and administrative and
operating expenses by an aggregate of 25%, the Board of Directors reinstated
these employees' salaries to their previous levels.
Bonuses
Bonus incentives are structured so that, if the Company achieves its
target goals, the incentive bonus for the CEO will be 50% of base salary and for
other executives will be 25% of base salary. Regardless of performance, total
bonus would not exceed base salary. This policy is designed to further motivate
individuals to improve performance. No material bonuses were awarded during
1996.
Stock Options
Executives are eligible for annual stock option grants under the
employee stock option plans applicable, from time to time, to employees
generally. The number of options granted to any individual depends on individual
performance, salary level and competitive data. In addition, in determining the
number of stock options granted to each executive, the Compensation Committee
reviews the unvested options of each executive to determine the future benefits
potentially available to the executive. The number of options granted will
depend in part on the total number of unvested options deemed necessary to
provide a long-term incentive and encourage executives to remain with, and exert
their utmost efforts on behalf of, the Company. By giving to executives an
equity interest in the Company, the value of which depends upon stock
performance, the policy seeks to further align management and shareholder
interests.
In 1996, all officers and certain other management employees of the
Company received incentive stock options and also new options to replace all of
their existing options, with the only differences being that all exercise prices
of the options were reduced to $.50 and that the options are to be subject to
the Plan. This change was made because the exercise prices of the old options
were too far above the current stock price to provide incentives to these
employees. The new exercise price should better serve this goal.
Members of the Compensation Committee:
Daniel Y. Kim, Chairman
William R. Smart
Donald G. Rynne
PERFORMANCE GRAPH
The graph below compares the cumulative shareholder return of the
Company with the cumulative return on the S&P 500 Stock Index and the S&P
Exploration and Production Index assuming a $100 investment made on December 31,
1991. Cumulative return data presented assumes reinvestment of dividends. The
stock
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performance shown on the graph below is not necessarily indicative of future
price performance.
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Comparison of Five-Year Cumulative Total Return
Among American International Petroleum Corporation,
the S&P 500 Index and the S&P Exploration and Production Index
[GRAPH OMITTED]
<TABLE>
<CAPTION>
Indexed Returns
Company/Index Years Ending Dec91 Dec92 Dec93 Dec94 Dec95 Dec96
<S> <C>
AMER INTL PETROLEUM CORP. 100 54.46 5.80 4.24 1.97 1.23
S&P 500 INDEX 100 93.89 91.28 72.56 85.27 112.92
OIL (EXPLORATION/PRODUCTION) 100 107.62 118.46 120.03 165.13 203.05
</TABLE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
See "Employment Contract" above.
In April 1997, Dr. Faris and Mr. Rynne purchased certain convertible
debentures (the "Debentures") of the Company, originally issued in August 1996,
for their face values of $225,000 and $75,000, respectively, from two foreign
investors and subsequently converted the Debentures, pursuant to the original
terms thereof, at a 35% discount from market price, for 895,349 shares and
298,342 shares of Common Stock, respectively.
The Board of Directors recommends that you vote "FOR" the election of
the Nominees named above (Proposal 1).
Proposal 2. Ratification of Independent Public Accountants
Hein + Associates LLP was the Company's independent public accountants
for the year ended December 31, 1996. The Board has appointed these accountants
to be the Company's auditors for 1997 and is seeking shareholder ratification of
such appointment.
The Company has been apprised that Hein + Associates LLP has no
financial interest, either direct or indirect, in the Company. A representative
of Hein + Associates LLP is expected to attend the Meeting and to have an
opportunity to make a statement and/or respond to appropriate questions from
shareholders.
Price Waterhouse LLP ("PW") was the Company's independent public
accountants for the year ended December 31, 1995. PW resigned on August 13,
1996.
The reports of PW on the financial statements for the past two years
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle, except that
PW's Report of Independent Accountants on the Registrant's financial statements
included in its form 10-K for the fiscal year ended December 31, 1995 was
modified as to uncertainty relating to the Company's recurring losses from
operations, working capital deficiency and certain unresolved contingencies.
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In connection with its audits for the 1995 and 1994 fiscal years and
through August 13, 1996, there were no disagreements with PW on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
PW would have caused them to make reference thereto in their report on the
financial statements of such year.
During the previous two fiscal years and through August 13, 1996, the
Registrant did not consult with Hein + Associates LLP on items which (1)
involved the application of accounting principles or (2) concerned the subject
matter of a disagreement or reportable event with the former auditor. The
Registrant's Audit Committee and Board of Directors participated in and approved
the decision to retain the new independent accountants.
The Board of Directors recommends that you vote "FOR" Proposal 2.
SHAREHOLDER PROPOSALS
No person who intends to present a proposal for action at a forthcoming
shareholders' meeting of the Company may seek to have the proposal included in
the proxy statement or form of proxy for such meeting unless that person (a) is
a record beneficial owner of at least $1,000 in market value of shares of Common
Stock, has held such shares for at least one year at the time the proposal is
submitted, and such person shall continue to own such shares through the date on
which the meeting is held, (b) provides the Company in writing with his name,
address, the number of shares held by him and the dates upon which he acquired
such shares, with documentary support for a claim of beneficial ownership, (c)
notifies the Company of his intention to appear personally at the meeting or by
a qualified representative under Nevada law to present his proposal for action
and (d) submits his proposal timely. A shareholder may submit only one proposal
with a supporting statement of not more than 500 words, if requested, for
inclusion in the proxy materials. Under certain circumstances enumerated in the
Securities and Exchange Commission's rules relating to the solicitation of
proxies, the Company may be entitled to omit the proposal and any statement in
support thereof from its proxy statement and form of proxy.
Proposals of shareholders of the Company which are intended to be
presented at the Company's next annual meeting must be received by the Company
no later than February 18, 1998 in order that they may be included in the proxy
statement and form of proxy relating to that Meeting.
By Order of the Board of Directors,
George N. Faris
Chairman of the Board of Directors
Dated: June 18, 1997
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