PROSPECTUS
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
8,029,994 SHARES COMMON STOCK, PAR VALUE $.08
193,400 COMMON STOCK PURCHASE WARRANTS
This Prospectus has been prepared by American International Petroleum
Corporation, a Nevada corporation (the "Company"), to cover the sale of
5,957,347 shares of Common Stock (the "Shares"), issuable upon exercise of
5,957,347 outstanding redeemable Common Stock Purchase Warrants ("Class A
Warrants"). Each Class A Warrant is exercisable to purchase one Share until
March 1, 1998 at $4.00 per Share. As of July 24, 1997, there were 5,957,347
Class A Warrants issued and outstanding. The Board of Directors has the right to
extend the exercise periods and/or reduce the exercise prices. Each Class A
Warrant is subject to redemption on 30 days prior written notice, for $.01 per
Class A Warrant in the event the market for the Shares is at least $8.00 per
share for 20 consecutive trading days. The Company has the right to designate
standby purchasers of all unexercised Class A Warrants at the close of business
on redemption. This Prospectus also covers 400,000 outstanding Shares and
1,285,847 Shares issuable upon exercise of outstanding warrants exercisable at
prices between $.41 and $6.25 a Share which are being registered only for resale
by certain selling shareholders. This Prospectus also covers 386,800 shares of
Common Stock issuable upon exercise of certain outstanding warrants issued to an
underwriter, as well as 193,400 Class A Warrants issuable upon exercise of such
warrants and the 193,400 shares of Common Stock issuable upon exercise of such
Class A Warrants. See "Description of Securities - Warrants" and "Selling
Shareholders" for a description of the outstanding Shares being offered hereby.
The maximum number of Shares which may be offered or sold hereunder is subject
to adjustment in the event of stock splits or dividends, recapitalization and
other similar changes affecting the Shares. The Shares are listed on the Nasdaq
National Market, and it is anticipated that the Selling Shareholders will offer
the Shares for sale at prevailing prices on the Nasdaq National Market (or other
market, if the Shares are then trading thereon) on the date of sale. See "Plan
of Distribution."
The Company will receive only the exercise price of the Class A
Warrants and other Warrants, if exercised, but will not receive the proceeds of
the sale of the Class A Warrants or the Shares issued upon such exercise
thereof. The Company will not receive any proceeds from the sale of the
outstanding Shares offered hereby. All selling and other expenses incurred by
individual Selling Shareholders will be borne by such Selling Shareholders.
The Shares are traded on the Nasdaq National Market under the symbol
"AIPN" and the Class A Warrants under the symbol "AIPNW". On January 15, 1998,
the closing price of the Shares and the Class A Warrants as reported on the
Nasdaq National Market were $4.94 per share and $1.625 per warrant,
respectively.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports and other information with the Securities and Exchange Commission (the
"Commission). Reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Offices of the Commission at Seven
World Trade Center, New York, New York 10048 and at 500 West Madison Street,
Chicago, Illinois 60611. Copies can be obtained from the Commission at
prescribed rates by writing to the Commission at 450 Fifth Street N.W.,
Washington, D.C. 20549. The Commission maintains an internet site on the
Worldwide Web at www.sec.gov. that contains reports, proxy and information
statements and other information regarding the Company and other registrants
that file electronically with the Commission.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN RISKS OF AN
INVESTMENT IN THE COMMON STOCK. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION; NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus Is January 15, 1998
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
Bankers Trust Company ("BTCO") will act as Information Agent and Warrant
Depository Agent for the Company for which it will receive customary
compensation. Holders desiring to exercise their purchase rights under the Class
A Warrants should contact BTCO at 1-800- 206-0254.
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DOCUMENTS INCORPORATED BY REFERENCE
The Company hereby incorporates by reference the documents listed
below:
(a) The Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as amended ("Form
10-K");
(b) The Company's Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1997 as amended, June
30, 1997 as amended, and September 30, 1997 as
amended ("Form 10-Q");
(c) The Company's Current Reports on Form 8-K for January
10, 1997, January 28, 1997, and February 25, 1997 as
amended.
d) The description of the Common Stock contained in the
Company's Registration Statement on Form 8-A (File
No. 0-14905) filed pursuant to Section 12(g) of the
Exchange Act, including any amendment or report filed
for the purpose of updating such information.
(e) A Registration Statement and Post-Effective
Amendments thereto covering the Class A Warrants and
the Shares issuable upon exercise thereof effective
on January 13, 1994 (File No. 33- 70676).
All documents subsequently filed by the Company after the date of this
Prospectus pursuant to Sections 13(a), 13(c), 14, and 15(d) of the Exchange Act
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing of such documents. Any statement contained in a
previously filed document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement herein modifies or supersedes such statement; and any statement
contained herein shall be deemed to be modified or superseded to the extent that
a statement in any document subsequently filed, which is incorporated by
reference herein, modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the information that has
been incorporated by reference in this Prospectus (not including exhibits to
such information, unless such exhibits are specifically incorporated by
reference into the information which this Prospectus incorporates). Requests for
copies of such information should be directed to the Company at 444 Madison
Avenue, Suite 3203, New York, New York 10022; Attention: Corporate Secretary.
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SUMMARY INFORMATION
American International Petroleum Corporation (the "Company"), was
organized on April 1, 1929 under the laws of the State of Nevada under the name
Pioneer Mines Operating Company. The Company's name was changed to its current
name in 1982. The Company plans to implement the production of asphalt, vacuum
gas oil and other products from its Lake Charles, Louisiana refinery in late
1997 by using low-cost, low gravity, high sulphur crudes from Venezuela or
Mexico and has recently entered into an agreement to purchase a 70% working
interest in a 20,000 square kilometer exploration block in Kazakstan.
RECENT DEVELOPMENTS
OIL AND GAS EXPLORATION AND PRODUCTION
KAZAKSTAN AGREEMENT
On May 12, 1997, the Company, through its newly organized subsidiary,
American International Petroleum Kazakstan ("AIPK"), entered into an agreement
with MED Shipping and Trading S.A. ("MED"), a Liberian corporation with offices
in Frankfurt, Germany, to buy from MED, in exchange for a combination of cash
and stock, 70% of the stock of MED Shipping Usturt Petroleum Ltd ("MSUP"), a
Kazakstan corporation which owns 100% of the working interest in a Kazakstan
Concession. The Concession is located about 125 miles from Chevron's
multi-billion-barrel Tengiz Oil field near the Caspian Sea, and is bordered to
the west by both Oryx/Exxon and Amoco licenses and to the south by an ELF
Acquitane license. Preliminary, independent, evaluation indicates potential
recoverable reserves from 7 structures in the Concession area from Jurassic Age
sandstones. Nine additional structures have been identified but have not been
evaluated.
The Company paid $100,000 in cash and 300,000 shares of its Common
Stock to MED in return for the option to acquire a 40% working interest in the
License. Further negotiations resulted in an increase in the working interest to
70%. As consideration for its 70% interest in MSUP, the Company issued an
additional 2,950,000 shares of its Common Stock, and warrants to purchase an
aggregate of 500,000 shares of its Common Stock at an exercise price of $2.00
per share.
The five-year minimum work program required by the License calls for
the Company to acquire and process 3,000 kilometers of new seismic data,
reprocess 500 kilometers of existing seismic data, drill 6,000 linear meters,
and also requires an aggregate minimum expenditure of $14.7 million over the
initial five-year exploration period. In addition, the Company assumed an
obligation to pay the Kazakstan government three annual payments of $200,000
each beginning July 1998 for the purchase of existing seismic and geological
data on the License Area.
The Company's operating subsidiary in Kazakstan signed the definitive
agreement under which it is to manage the exploration and evaluation of
hydrocarbon reserves in the license area. The contract provides for the payment
of a commercial bonus of 0.5% of reserve value, a subscription
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bonus of $975,000, and grants the subsidiary the exclusive right to a production
license upon commercial discovery. The exploration license is for five years and
may be extended for an additional 4 years. Initial production up to 650,000
barrels is exempt from royalty, which otherwise ranges between 6% and 26% to be
negotiated in conjunction with a production agreement with the government.
Income tax has been set at 30% and social programs payments at $100,000 annually
during exploration. The Company will be required to expend a minimum of $14.75
million over five years, of which $6.3 million is required in the initial three
years. The subsidiary recently contracted with two geophysical companies to
acquire 2D seismic data on the license area. One company is to concentrate on
the Chikuduk, a 60 kilometer structure previously identified in the eastern
section of the license area, and the other near the Bengesh structure in the
southwest portion of the license area. The seismic is intended to assist in a
determination of the feasibility of further exploration and potential siting of
future exploratory drilling.
SALE OF SOUTH AMERICAN OIL AND GAS OPERATIONS
On February 25, 1997, the Company sold all of the issued and
outstanding shares of common stock of its wholly-owned oil exploration and
production subsidiaries, American International Petroleum Corporation of
Colombia and Pan American International Petroleum Corporation, in an arms length
transaction (the "MIP Transaction") to Mercantile International Petroleum Inc.
("MIP").
REFINERY OPERATIONS
The Company's wholly-owned subsidiary, American International Refinery,
Inc. ("AIRI") is the owner of a refinery in Lake Charles, Louisiana (the
"Refinery"). A certain portion of the Refinery, a 30,000 barrel-per-day crude
distillation tower (the "Crude Unit") was leased by AIRI to Gold Line Refining
Ltd. ("Gold Line"), an independent refiner, from 1990 to March 20, 1997 under a
lease agreement (the "Lease Agreement") between AIRI and Gold Line. However, the
Lease Agreement has recently been terminated because the Lessee was in default
under the terms of the Lease Agreement. The Company filed suit for damages and
received a judgment in its favor of $1.5 million. However, since Gold Line has
filed for protection under Chapter 11 of the Bankruptcy Code and there are
certain secured creditors who have made significant claims against Gold Line,
the total of which claims may exceed the total value of Gold Line's assets, the
collectability of this judgment by the Company is uncertain. With the recent
termination of the Lease Agreement on March 20, 1997, the Company now intends to
staff and operate the Refinery with its own employees and all operations are to
be under the direct control of its management to produce conventional and
polymerized asphalt, vacuum gal oil ("VGO"), diesel, and other products. In
December, 1997, the Refinery hired Gene E. Chew as its president to manage day
to day operations. Mr. Chew has more than 35 years experience in the refining
field including the production of asphalt. Although the Company's primary focus
at the Refinery will be the production of asphalt and VGO, it will also produce
smaller quantities of light-end products such as naphtha, diesel and jet
kerosene.
In addition to the manufacturing and sale of asphalt, VGO, diesel, and
other products, the Company anticipates utilizing its facility as a toll
processing terminal to provide a service to blend
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and polymerize asphalt for other companies. The Company's VGO can be sold to
major gasoline refining companies and other refiners, which are prevalent in the
Gulf Coast area and use VGO as a feedstock for their catalytic cracking units.
Although the Company has not signed any agreements to sell VGO, there is a
continuous demand for VGO, as to which the Company has received and continues to
receive numerous inquiries from local and out-of-state refiners interested in
purchasing VGO from the Refinery. Marketing of VGO and other non-asphalt
products produced in the Refinery (constituting approximately 40% of the
Refinery's production) is to be handled directly by the three executive officers
of the Refinery. There are no assurances that agreements to sell VGO will be
negotiated in the future.
The Company's anticipated asphalt terminating and marketing operations
for conventional and polymerized asphalt will initially be applicable only to
the local truck rack paving market within an approximate 100 mile radius of the
Refinery. This market segment represents approximately 20% of the total capacity
of the VDU. All other asphalt manufacturing and marketing opportunities in
wholesale barge and rail car paving, or retail truck for roofing asphalts,
industrial grade asphalts and all other conventional and polymerized asphalt
products will be developed by the Company beginning in 1998. The Company has
engaged Materials Resources, Inc. ("MRI") as exclusive sales representative to
market the Refinery's truck rack asphalt. MRI is an established supplier of
asphalt emulsions and aggregates in Louisiana, Mississippi and east Texas.
When the first phase of its expansion program was completed in
November, 1997, the Company implemented its terminating operations. The sale of
asphalt produced by the Company is expected to be implemented in March or April
of 1998. The Company has not completed negotiations of any crude oil supply
agreements, but it is in the preliminary stages of separate supply agreement
negotiations with the Venezuelan government and a major oil company for the
upcoming processing season. The term "Company" or "AIPC" includes AIPC, AIRI and
AIPK, unless the context otherwise requires.
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THE OFFERING
Securities Offered: - 5,957,347 Shares issuable upon exercise of
outstanding Class A Warrants. The Class A Warrants
are exercisable through March 1, 1998 at $4.00 a
Share.
- 1,304,759 Shares issuable upon exercise of other
warrants at various prices between $.41 and $6.25 a
Share to be sold by the Selling Shareholders.
- 400,000 outstanding Shares to be sold by the Selling
Shareholders.
- 193,400 Class A Warrants.
Offering Price: The outstanding Class A Warrants are exercisable at $4.00
per share. The Shares to be sold by Selling Shareholders
are expected to be sold from time to time on the Nasdaq
National Market at then prevailing prices.
Use of Proceeds: The proceeds of the Offering estimated at approximately
$26,000,000 will be added to working capital and used for
general corporate purposes.*
Common Stock
Outstanding:
Prior to Offering: 48,286,137
After the Offering:* 51,077,626
Class A Warrants
Outstanding:
Prior to Offering: 5,957,347
After the Offering:* -0-
* Assuming all of the Warrants are exercised.
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RISK FACTORS
In addition to considering the other information set forth in, or incorporated
by reference into, this Prospectus, prospective investors should carefully
consider the following factors in evaluating an investment in the Company.
Statements in this Prospectus include forward looking statements that involve a
number of risks and uncertainties. These include the Company's lack of
profitability, lack of liquidity, need for additional financing, large amount of
outstanding debt, the speculative nature of the oil and gas industry and the
other risks detailed from time to time in the Company's SEC Reports.
GENERAL RISKS ASSOCIATED WITH THE OFFERING:
Possible Volatility of Securities Prices. The market price for the Company's
securities following the date hereof may be highly volatile. Factors such as the
Company's financial results, financing efforts and various factors affecting the
oil and gas industry generally may have a significant impact on the market price
of the Company's securities. Additionally, in the last several years, the stock
market has experienced a high level of price and volume volatility, and market
prices for many companies, particularly small and emerging growth companies, the
common stock of which trade in the over-the-counter market, have experienced
wide price fluctuations and volatility which have not necessarily been related
to the operating performance of such companies themselves. Any such
fluctuations, or general economic and market trends, could adversely affect the
price of the Company's securities. Due to all of the foregoing factors, it is
likely that in some future quarter the Company's operating results will be below
the expectations of public market analysts and investors. In that event, the
price of the Company's securities would likely be materially adversely affected.
Inability to Sell Stock or Exercise Warrants. The Company intends to qualify the
sale of the shares offered hereby under the securities ("blue sky") laws of a
limited number of states. The Company may decide not to seek or may not be able
to obtain qualifications of the sale of such shares of Common Stock in all of
the states in which the holders of the Warrants and underlying Common Stock
reside. Further, a current prospectus covering the shares of Common Stock
issuable upon exercise of the Warrants must be in effect at all times that the
Company may accept exercises and before Selling Shareholders may sell any Common
Stock.
No Expected Dividend Payment. To date, the Company has not paid any cash
dividends on its Common Stock and does not expect to declare or pay any cash
dividends in the foreseeable future. The Company expects to invest earnings, if
any, to finance the Company's operations and to the development of its
businesses.
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RISKS ASSOCIATED WITH THE COMPANY:
Historical Continuing Losses and Lack of Liquidity; Going Concern Opinion; No
Revenues in Last Two Quarters; Negative Cash Flow of Approximately $4.1 Million
for Nine Months Ended September 30, 1997. The Company has not generated a net
profit during its last five fiscal years, and no assurance can be given that the
Company will generate a profit for any subsequent fiscal year. No assurance can
be given that the Company will generate sufficient net profits, if any, to repay
outstanding indebtedness. In connection with the audit of the Company's
financial statements as of December 31, 1995, the Company received a report from
Price Waterhouse LLP, certified public accountants, which included a "going
concern" comment in its opinion, however, no such comment was included in the
opinion of Hein + Associates, Certified Public Accountants, for the financial
statements as of December 31, 1996. Due to the sale of the Columbian properties
and the termination of the Refinery lease in the first quarter of 1997, the
Company's revenues were only $895,373 for the nine months ended September 30,
1997, and it incurred a loss of $12,706,685 during such period. The Company has
had no revenues from operations for the last two quarters and has had negative
cash flow of approximately $4.1 million for the nine months ended September 30,
1997. The Company will continue to incur losses unless it is successful in its
efforts to develop the License Area in Kazakstan or the Refinery operations,
which are in the initial stage of business, prove successful.
Dependence on Warrants, Loans, Revenues from Asphalt Operations and Potential
Joint Venture Partners for Capital Needs of the Company. During the next 12
months, the Company expects to expend approximately $22 million, of which
approximately $2 million will fund the capital equipment expansion and startup
costs of its refinery; approximately $8 million is expected to be spent on costs
associated with its Kazakstan project; and approximately $12 million for debt
payment and other corporate uses. However, in the event the Company obtains a
joint venture partner in Kazakstan, its capital requirements there should be
significantly less than $8 million during the next 12 months. As of November 10,
1997, the Company had an aggregate of approximately $11 million in cash and
marketable securities. In addition, within the next four months, the Company
anticipates that some or all of its Class A Warrants and some of its other
outstanding warrants will be exercised. Exercise of all of the Company's
outstanding warrants would provide it with approximately $38 million to fund its
capital requirements. However, there can be no assurance that a sufficient
number of warrants will be exercised to provide the Company with all of the
capital it requires to complete its goals. The Company plans to utilize its
existing working capital and proceeds from the exercise of warrants until the
cash flows anticipated from its asphalt operations in 1998 are sufficient in
nature to satisfy its needs. The Company is also having discussions with various
financial entities which have expressed an interest in providing the Company
with the necessary capital to accomplish its goals. In the event a sufficient
number of warrants are not exercised, or if the Company is unable to obtain
sufficient financing, or if its asphalt operations are less successful than
anticipated, certain projects may be delayed or cancelled. However, the Company
is also having discussions with various companies who have expressed an interest
in participating with the Company in its endeavors in Kazakstan and in
Louisiana, and believes it can obtain partners, if need be, to contribute
funding for the implementation and/or
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continuation of its ongoing projects. There is no assurance, however, that these
expectations will be realized.
Political Risks in Kazakstan. Although the current political situation in
Kazakstan appears to be stable, the Company's operations could be adversely
affected by political instability and civil unrest there. Political instability
could also change the current operating environment for the Company in Kazakstan
through the imposition of restriction of funds, adverse environmental laws and
regulations, adverse labor laws, and the like. Any such changes could adversely
impact the ability of the Company to conduct business in Kazakstan.
Currency and Exchange Risk in Kazakstan. The Company does not engage in hedging
transactions to reduce the risks of foreign currency exchange rate fluctuations
and has not experienced significant gains or losses related to those events,
either in Kazakstan, or elsewhere. The Company anticipates little, if any,
currency and exchange risk during the initial three to five years of its
operations in Kazakstan. Any revenues generated from Kazakstan during this
period are planned to be reinvested in the Company's projects in Kazakstan.
Subsequently, the Company will be exposed to the currency and exchange risks
which typically present themselves in CIS countries.
Outstanding Senior Debt. The Company's only senior debt outstanding as of
November , 1997 consists of $10 million worth of one-year 14% convertible notes
(the "Notes"), which were issued for net proceeds of approximately $9,579,000.
The Company may prepay all, but not less than all of, the Notes six months after
closing (the "Call Date") at the greater of (x) 100% of the principal amount of
the Notes and (y) the number of shares into which the Notes are convertible on
the Call Date plus accrued interest, minus one-third of the difference between
(x) and (y). Although the Holders of the Notes may convert the outstanding
principal of the Notes at any time after November 27, 1997 into the Company's
Common Stock at $6.25 per share (approximately 112% of the average closing bid
price for the five trading days preceding the closing), no conversions may take
place before February 12, 1998 (120 days after close) unless the market price of
the Company's Common Stock exceeds approximately $8.33 per share (145% of the
Closing Price). After six months, the Notes may be converted at the lesser of
(i) $6.25 per share, (ii) 85% of the Market price at conversion and (iii) the
daily weighted-average sales price reported for the lowest five consecutive
trading days during any 40-day period following the Call Date. The proceeds are
being used for start-up capital for the refinery and for other Company projects
and general correspondence. The Company anticipates that the Notes will be
converted into common stock or repaid in full by the due date. If the Company is
unable to repay the Notes on a timely basis, it believes it will be able to
successfully renegotiate new payment terms with the holders of the Notes.
However, failure to do so could impede or jeopardize the Company's ability to
continue its operations. The previously outstanding notes to MGTF totaling
$2,108,000 were paid in full on October 1, 1997. The Company utilized a portion
of the proceeds from other borrowings to repay this debt.
Blank Check Preferred Stock and Control of the Company. The Company's
Certificate of Incorporation authorizes the issuance of Preferred Stock with
such designations, rights and preferences as may be determined from time to time
by the Board of Directors. Accordingly, the
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Board of Directors is empowered, without shareholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Common Stock. Although there are no present plans, agreements, commitments
or undertakings with respect to the Company's issuance of any shares of
Preferred Stock, any such issuances may be deemed to be an anti-takeover device
which could be utilized as a method of discouraging, delaying or preventing a
change in control of the Company or to dilute the public ownership of the
Company and give clear control of the Company to current Management, and there
can be no assurance that the Company will not issue such shares.
Adverse Effect of Potential Future Sales of Common Stock under Rule 144 or this
Registration Statement. Of the Company's 48,286,137 issued and outstanding
shares of Common Stock as of November 5, 1997, approximately 5,546,779 shares
are "restricted securities" (not including the shares being registered hereby)
as that term is defined under Rule 144 under the Securities Act. Approximately
1,600,000 shares of Common Stock are issuable on or after February 12, 1998,
assuming that the market for the Company's Common Stock is then $4.50, or a
lesser number if the marketprice is higher. In addition, approximately 1,898,159
shares of Common Stock are being registered hereby for resale under the
Securities Act. The Company is unable to predict the effect that sales made
pursuant to this Registration Statement, Rule 144 or otherwise may have on the
then existing market price of the Company's securities. The possibility exists
that the sale of any of these Securities, or even the potential of such sales,
may have a depressive effect on the price of the Company's securities in any
public trading market. This could impair the Company's ability to raise
additional equity capital. See "Voting Securities" in the Company's 1996 Proxy
Statement.
Shares Outstanding; Shares Eligible for Future Sale; Future Sale of Shares May
Cause Dilution and Adversely Effect Stock Price. The Company has 100,000,000
authorized shares of Common Stock, of which 48,286,137 were issued and
outstanding as of November 5, 1997. In the event all of the issued and
outstanding options and warrants are exercised and all outstanding convertible
debentures are converted pursuant to their terms, approximately 54,555,126
shares of Common Stock would be outstanding as of the date of this filing.
Issuance of such securities may have a dilutive effect on the Company's Common
Stock and adversely effect the price of the Company's Common Stock in the
market. Management will have broad discretion with respect to the issuance of
the remaining authorized but unissued shares, including discretion to issue such
shares in compensatory and acquisition transactions. In the event that the
Company seeks to procure additional financing through the sale and issuance of
its securities, or in the event that current warrantholders, optionholders or
debentureholders exercise or convert their securities into shares of Common
Stock, the then current shareholders of the Company may suffer immediate and
substantial dilution in their percentage ownership of shares of the Common
Stock. In addition, the future issuance of shares below the then current market
price of the Common Stock may have a depressive effect in the future market
price of the Common Stock, although such market price is subject to numerous
factors, many of which are beyond the Company's control, including general
economic business conditions and the then current economic condition of the oil
and gas industry.
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Procurement and Retention of Key Personnel; Dependence on Key Personnel. The
success of the Company is dependent upon the efforts, abilities and expertise of
its Chief Executive Officer, George N. Faris, as well the Company's Chief
Financial Officer, Denis J. Fitzpatrick. The Company has entered into an
employment agreement with Dr. Faris. Each of these officers intends to devote
substantially all of his business time to the Company's affairs. The Company's
future success is also dependent, in part, on the ability of the Company to
attract and retain qualified personnel. No assurance can be given, however, that
the Company will be able to attract qualified individuals, and if hired, that
the Company would be able to retain such persons in its employ. As compared to
other publicly traded oil and gas companies, the Company has fewer resources to
attract and/or retain key personnel, and the Company does not have the depth of
managerial employees to rely upon in the event of the loss of any single
employee. Accordingly, the loss of any key employee could have a material
adverse affect on the operation of the Company's business and may have greater
adverse consequences to the Company than to other publicly traded oil and gas
companies. The Company maintains a $2,000,000 key man life insurance policy on
the life of its Chief Executive Officer, Dr.
George N. Faris.
Continued Listing Requirements for Nasdaq Securities. The Company's securities
are traded on the Nasdaq National Market System ("Nasdaq-NMS"), but there can be
no assurance that the Company will meet the maintenance criteria for the
continued listing of its securities on Nasdaq-NMS. Continued listing on
Nasdaq-NMS requires, among other criteria, a company to have tangible assets of
at least $4,000,000 and that the listed security(s) (other than those owned by
directors, officers, and other beneficial owners of more than 10% of such
securities) have a market value of at least $5,000,000 and a minimum bid price
of $1.00. Although the Company currently satisfies Nasdaq-NMS maintenance
criteria, there can be no assurance that it will continue to do so. If in the
future the Company is unable to satisfy Nasdaq-NMS criteria for continued
listing of its securities, they may be delisted therefrom. In that event, the
Company would seek to have its securities listed on The Nasdaq Small Cap Market
or other securities exchange, subject to the Company's ability to satisfy the
eligibility criteria for listing. If the Company were unable to obtain any such
listing, trading, if any, in the Company's securities would thereafter have to
be conducted in the OTC "Bulletin Board." As a result, an investor might find it
more difficult to dispose of the Common Stock due to the reduced visibility of
the Company on the market.
Disclosure Relating to Low-priced Stocks: Restrictions on Resales of Low-Priced
Stocks and Restrictions on Broker- Dealer Sales. The Commission has adopted
rules that regulate broker-dealer practices in connection with transactions in
"penny stocks." Penny stocks generally are equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on Nasdaq, provided that current price and volume
information with respect to transactions in that security is provided by the
exchange or system). The penny stock rules, particularly Rule 15g-9, require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prepared by the
Commission that provides information about penny stocks and the nature and level
of risks in the penny stock market. Bid and offer quotations, and the broker
dealer and salesperson compensation information, must be given to the customer
orally or in writing prior to effecting the
12
<PAGE>
transaction and must be given to the customer in writing before or with the
customer's confirmation. In addition, the penny stock rules require that prior
to a transaction in a penny stock not otherwise exempt from such rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. If the Common Stock were no
longer traded on Nasdaq, the Common Stock, depending on its market price, would
be subject to the penny stock rules. If the Company's securities become subject
to the penny stock rules, investors in this offering may find it more difficult
to sell the Company's securities. At present, the Company's securities do not
come within the definitional scope of these regulations.
Speculative Nature of Options and Warrants. As of September 17, 1997, the
Company had outstanding an aggregate of 9,479,198 Warrants, of which 5,957,347
are exercisable until March 1, 1998 at $4.00 per share, and 3,521,851 are
exercisable from March 31, 1998 to June 6, 2002 at various prices between $.41
to $6.25 per share. The Company also had outstanding employee stock options to
purchase an aggregate of 3,477,500 shares of Common Stock exercisable for up to
four years ending in December 31, 1999, consisting of 1,902,500 and 1,525,000 at
an exercise price of $.50 and $1.05 per share, respectively. Options and
warrants are generally more speculative than Common Stock issuable on the
exercise thereof. During the term of the options and warrants, the holders
thereof are given the opportunity to profit from a rise in the market price of
the Company's Common Stock, subject, in certain cases, to the Company's right of
redemption. Historically, the percentage increase or decrease in the market
price of an option or warrant has tended to be greater than the percentage
increase or decrease in the market price of the underlying common shares. The
holders of options and warrants would be most likely to exercise them and
purchase the Company's Common Stock at a time when the Company could obtain
capital by a new offering of securities on terms more favorable than those
provided by the options and warrants. Consequently, the terms on which the
Company could obtain additional capital during such period may be adversely
affected.
IRS Excise Tax Claim. In May 1992, AIRI was advised by the Internal Revenue
Service ("IRS") that the IRS was considering an assessment of excise taxes,
penalties and interest of approximately $3,500,000 related to the sale of fuel
products during 1989. The IRS claims that AIRI failed to comply with an
administrative procedure that required sellers and buyers in tax-free
transactions to obtain certification from the IRS. The Company believes that
AIRI complied with the substance of the existing requirements and that such
sales were either tax-free or such excise taxes were paid by the end-users of
such products. AIRI has offered to negotiate a settlement of this matter with
IRS Appeals since early 1993. Such negotiations included face-to-face meetings,
numerous phone calls and written transmittals and several offers of settlement
by both the Company and the IRS. During these negotiations, the IRS Appeals
officers offered to waive all of the penalties and 75% of the amount of the
proposed tax liability. However, AIRI rejected this offer and requested the IRS'
National Office to provide technical advice to its Appeals officers. After
numerous conferences and discussions with the National Office in 1995, the
National Office issued an adverse Technical
13
<PAGE>
Advice Memorandum ("TAM") to its Appeals Office in Dallas, Texas, to the effect
that AIRI should be liable for the tax on the sale of diesel fuel for the first
three quarters of 1989. However, even in light of the findings of the TAM, the
IRS Appeals officer has indicated to AIRI that the IRS still wants to negotiate
a settlement. As a result, AIRI is having ongoing discussions with the IRS
regarding the situation. Depending upon the results of these discussions, the
Company will decide whether to litigate or settle this situation. Regardless of
whether the Company decides to litigate or settle, it believes it will incur
some form of liability, either in legal expenses or payments to the IRS, or some
combination of both. Consequently, it has provided an aggregate allowance of
$1,500,000 for this potential incurrence of expenditures, although at this time,
the Company is unable to determine exactly what liability may arise from this
assessment.
RISKS ASSOCIATED WITH OIL AND GAS EXPLORATION AND PRODUCTION:
Lack of Proven Reserves of Gas or Oil. Although the Company has identified
structures within the Kazakstan License area, the Company has not drilled these
prospects and accordingly, does not have any proven reserves of oil and gas. In
order to establish such reserves, the Company will have to incur all of the
risks associated with such exploration specified below.
Risk of Capital Losses Due to Speculative Nature of Oil and Gas Industry. Oil
and gas exploration is extremely speculative, involving a high degree of risk.
Even if reserves are found as a result of drilling, profitable production from
reserves cannot be assured. No assurance can be given that any wells the Company
may drill will recover oil or gas reserves, or in the event reserves are found,
that favorable market conditions would exist to recover the costs of drilling or
to realize profits. There is also no assurance that the Company's current
financial condition and available cash resources will enable the Company to
drill offset wells. There can be no assurance that the drilling of any new
prospects actually will occur or will be profitable. There is also no assurance
that wells will produce oil or gas in sufficient amounts to yield profits or
even to return the Company's drilling costs.
Exposure to Losses from Drilling and Other Hazards. Unusual or unexpected
formation pressures, down-hole fires or other hazardous conditions may be
encountered in drilling oil and gas wells and in the refining of oil. If such
hazards are encountered, completion of wells may be substantially delayed and
the costs significantly increased. Even though a well is completed and is found
to be productive, water or other deleterious substances may be encountered,
which may impair or prevent production of oil or gas, and which may adversely
affect the Company's operations. In addition, floods and adverse weather
conditions hinder or delay feedstock and product movements at the Refinery and
drilling and production operations, as can labor disputes, work stoppages,
shortages of equipment and materials or the unavailability of oil barges and
drilling rigs.
Environmental Hazards. The Company's operations are subject to all of the
environmental risks normally incident to oil and gas exploratory, drilling, and
refining activities, including, but not limited to, blowouts, pollution and
fires. Any of these occurrences could result in environmental
14
<PAGE>
damage or destruction, including the discharge of hazardous materials into the
environment. Although the Company maintains comprehensive and general liability
coverage as is customary in the oil and gas industry, and coverage against
certain risks, the Company is not fully covered for damages incurred as a
consequence of environmental mishaps. Furthermore, to the extent covered, no
assurance can be given that any such coverage would be adequate protection in
the event of an environmental problem. Accordingly, no assurance can be given
that the Company's operations would not be severely impeded in the event of an
environmental mishap or problem.
Potential Cost Increases and Delays Due to Possible Shortages of Personnel and
Drilling Equipment. It is possible that field personnel, drilling rigs, pipes,
casing, or other tubular goods will not be available when needed for the
drilling, completion or operation of the Company's prospects and wells. This
possibility could result in drilling or completion delays and, in some
instances, result in additional costs beyond normal drilling and completion
costs, which could have a material adverse effect on the Company.
Intense Competition and Uncertain Markets. The oil and gas industry, is highly
competitive. Many companies, most of which have greater experience and financial
resources than the Company, are likely to compete with the Company for producing
properties. There can be no assurance that a market will be available for any
oil and gas produced by wells in which the Company owns an interest. The
Company's success is dependent not only on the productivity of the producing
properties and the ultimate sale of said production, but also on (i) the market
prices for oil and gas, which are highly unstable, (ii) operating costs incurred
in producing the oil and/or gas, (iii) transportation costs, (iv) the cost of
crude oil feedstocks, and (v) other factors which may be beyond the control of
the Company.
Energy Market Subject to Fluctuation. Revenues generated by the Company's oil
and gas operations and the carrying value of its oil and gas properties are
highly dependent on the prices for oil and natural gas. The price which the
Company receives for its oil is dependent upon numerous factors beyond the
control of the Company's Management, the exact effect of which cannot be
predicted. These factors include, but are not limited to, (i) the quantity and
quality of the oil or gas produced, (ii) the overall supply of domestic and
foreign oil or gas from currently producing and subsequently discovered
fields,(iii) the extent of importation of foreign oil or gas, (iv) the marketing
and competitive position of other fuels, including alternative fuels, as well as
other sources of energy, (v) the proximity, capacity and cost of oil or gas
pipelines and other facilities for the transportation of oil or gas, (vi) the
regulation of allowable production by governmental authorities, and
(vii)international political developments, including nationalization of oil
wells and political unrest or upheaval the areas of the world in which the
Company has an interest or plans to conduct operations. All of the
aforementioned factors, coupled with the Company's ability or inability to
engage in effective marketing strategies, may affect the supply or demand for
the Company's oil or gas and, thus, the price attainable therefor.
Government Legislation May Limit Revenues or Increase Costs. The oil and gas
industry is subject to local governmental regulations which, in the case of the
Company, will be the Kazakstan
15
<PAGE>
government. This jurisdiction is empowered to enact legislation or regulations
to limit the rates at which oil and gas is produced and to impose taxes on oil
and gas when sold. Since energy policies are uncertain, no prediction can be
made as to the ultimate effect of any such governmental policies and controls
upon the Company. The Company will also be subject to the laws of jurisdictions
through which oil and gas pipe lines traverse. These jurisdictions also have the
power to adversely effect the cost of operations and can impose restrictions on
transportation of oil and gas to world markets.
Political and Economic Situation in Kazakstan. The Company's oil and gas
exploration is confined at present to Kazakstan. A favorable political climate
in Kazakstan and the openness of its markets to United States trade is essential
to the success of the Company. The Confederation of Independent States
("CIS"),of which Kazakstan is part, appear to have embraced political reforms
and market economies. However, there are no local procedures for such vast
changes; the region has known only totalitarianism and a centrally-planned
economy for most of this century. Any reversal in such perceived new political
and economic trends and policies, or in international trade policy generally,
could materially affect the Company's operations. Moreover, the political
situation in the Kazakstan, where the Company expects to generate all of its
revenues in the near future, remains in constant transition. Because the CIS
countries are in the early stages of development of a market economy, the
commercial framework in still developing. New market-oriented laws are being
enacted, but their application is still uncertain. Although the Company believes
that Kazakstan has advanced in the area of commercial law, Kazakstan laws and
courts are not well tested in contract enforcement. Similarly, although
Kazakstan law regarding foreign investment provides protection against
nationalization and confiscation, there is little or no judicial precedent in
this area. There can be no assurance that additional detrimental changes in
Kazakstan regulations will not occur. Foreign firms operating in this region may
be subject to numerous other risks that are not present in domestic operations,
including political strife, the possibility of expropriation, inadequate
distribution facilities, restrictions on royalties, dividends and currency
remittances, inflation, fluctuations of foreign currencies, high and
unpredictable levels of taxation, requirements for governmental approvals for
new ventures and local participation in operations. Such problems could have a
material adverse effect on the Company's operations abroad.
Inability of the Company to Fully Insure Potential Casualty Losses or Possible
Liabilities to Others. The Company has general liability insurance, property
insurance, and other insurance. Under the terms of such policies, the Company is
insured against covered casualty damages to its property and liabilities to
others for negligence and other matters. There is a risk, however, that the
Company may not be insured against all losses or liabilities which arise from
the hazards inherent in the oil and gas industry, either because insurance
protecting against such losses or liabilities is unavailable or because damages
may exceed the amount of coverage obtained, or because the Company has elected
not to purchase such coverage. In the event the Company incurs uninsured losses
or liabilities, the Company will have to bear fully such losses directly, and
its properties and assets may be exposed to forfeiture.
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<PAGE>
Currency Risks. The recent history of trading in CIS currencies as against the
U.S. Dollar has been characterized by significant declines in value and
considerable volatility. Although in recent months, CIS currencies have
experienced relative stability against the U.S. Dollar, there is a risk of
further declines in value and continued volatility in the future. To the extent
such major capital expenditures involve importation of equipment and the like,
current law permits the conversion of CIS revenues into foreign currency to make
such payments. CIS currencies are generally not convertible outside the CIS
countries. In the event the Company discovers oil or gas in the License area,
the market for the same may exist locally or in world markets. To the extent
that production is utilized in the CIS countries, currency liquidity and
restrictions may adversely effect the Company. However, the Company may receive
and hold U.S. Dollars within the CIS countries, which may mitigate its currency
risk there. A market exists within the CIS countries for the conversion of CIS
currencies into other currencies, but it is limited in size and is subject to
rules limiting the purposes for which conversion may be effected. The limited
availability of other currencies may tend to inflate their values relative to
the CIS currencies and there can be no assurance that such a market will
continue to exist indefinitely. Moreover, the banking systems in the CIS
countries are not yet as developed as its Western counterparts and considerable
delays may occur in the transfer of funds within, and the remittance of funds
out of these countries. Any delay in converting CIS currencies into a foreign
currency in order to make a payment or delay in the transfer of such foreign
currency could have a material adverse effect on the Company.
Currency Controls; Restrictions on Repatriation of Payments. While applicable
legislation in the CIS currently permits the repatriation of profits and capital
and the making of other payments in hard currency, the ability of the Company to
repatriate such profits and capital and to make such other payments is dependent
upon the continuation of the existing legal regimes for currency control and
foreign investment, administrative policies and practices in the enforcement of
such legal regimes and the availability of foreign exchange in sufficient
quantities in those countries.
Legal Risks. The CIS countries lack a fully developed legal system. Their law is
evolving rapidly and in ways that may not always coincide with market
developments, resulting in ambiguities, inconsistencies and anomalies, and
ultimately in investment risk that would not exist in more developed legal
systems. For example, the ability of a creditor both to obtain a lien or other
similar priority in payment and to enforce such priority is uncertain.
Furthermore, effective redress in CIS courts in respect of a breach of law and
regulation, or in an ownership dispute, may be difficult to obtain.
RISKS ASSOCIATED WITH REFINERY OPERATION:
Asphalt Production Is a New Venture for the Company. Production and sale of
asphalt products is a new business for the Company and has all of the risks and
hazards associated with the establishment of a new business. Investors should be
aware of the problems, delays, expenses and difficulties encountered by ventures
in the early stages of operations. Typical problems include, delays,
unanticipated expenses, marketing burdens, the failure to obtain market
acceptance of products, competition and production problems, among others. The
Company's asphalt operations
17
<PAGE>
will be adversely effected by its failure to recognize and solve any such
problems as do arise.
Operation of the Refinery Is Subject to Many of the Risks Associated with the
Oil and Gas Industry. Asphalt is a petroleum product and therefore, the
production and sale thereof is subject to many of the risks inherent in such
industry. Accordingly, investors should review the risk disclosures relative to
the production of oil and gas described above. In particular, the production of
asphalt is subject to the adverse effects hazards, such as fire, adverse
weather, labor disputes, lack of availability of transportation facilities,
environmental hazards, cost increases, shortages of equipment and personnel,
competition, fluctuation in the costs of crude oil supplies for the Refinery,
fluctuations in the price of finished products and transportation, government
regulation and inability to adequately and fully insure potential casualty
losses. See Risks Associated with Oil and Gas Exploration and Production for a
fuller description of the manner in which such factors may adversely effect the
Company's oil and gas operations generally, and the Refinery, particularly.
USE OF PROCEEDS
The Company will receive only the proceeds from the exercise of the
Class A Warrants and other Warrants. Such proceeds, which could amount to
approximately $38 million if all of the Class A Warrants and other Warrants were
exercised, will be added to working capital to be used for general corporate
purposes, including the cost of exploration and development of the Kazakstan
License area and to expand and operate the Refinery.
SELLING SHAREHOLDERS
The table below sets forth with respect to each Selling Shareholder,
based upon information available to the Company as of September 17, 1997, the
number of shares of Common Stock and Class A Warrants beneficially owned before
and after the sale of the shares and Class A Warrants offered hereby; the number
of shares and/or Class A Warrants to be sold; and the percent of the outstanding
shares of Common Stock owned before and after the sale of the Common Stock and
Class A Warrants offered hereby. The Selling Shareholders named below may resell
all, a portion or none of such shares or Class A Warrants from time to time.
Each Selling Shareholder's relationship to the Company, if any, is set forth in
a footnote to the table.
18
<PAGE>
SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Percentage
Common Stock Owned
------------------------
Number of Shares Number Number of
of Common Stock of Warrants Shares to be Before After
Name Owned (1) Owned (2) Sold Offering (4) Offering
- ---- ----------------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Gloria L. Bauman -0- 10,000 10,000 * *
Global Funding Group -0- 60,000 60,000 * *
Richard W. Cohen -0- 58,020 (3) 174,060 * *
Jessy Dirks -0- 38,680 (3) 116,040 * *
Walter P. Fitzgerald -0- 58,020 (3) 174,060 * *
Dan and Estelle Jacobson 280,000 10,000 10,000 * *
Michael J. Knight 20,000 10,000 10,000 * *
LKB Financial LLC -0- 457,500 457,500 * *
MG Trade Finance Corp. 130,000 168,912 168,912 * *
Millennium Holdings Group,
Inc. 250,000 -0- 250,000 * *
Portfolio Investment Strategies
Corp. -0- 30,000 30,000 * *
Robert A. Schneider -0- 38,680 (3) 116,040 * *
Gary Schulteis -0- 10,000 10,000 * *
Snow Becker Krauss P.C. 589,205 (5) -0- 150,000 1.1% *
Wall Street Consultants, Inc. -0- 161,547 161,547 * *
--------- ----------- ---------
TOTAL 1,269,205 1,111,359 1,898,159
========= =========== =========
</TABLE>
* Less than 1% of the outstanding Common Stock of the Company.
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole investment power with respect to all Shares
beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days
from the date hereof upon the exercise of warrants.
(2) Issuable under the terms of outstanding options exercisable between
$.41 and $6.25 per share of Common Stock.
(3) Issuable pursuant to underwriter's warrants issued in March 1994
covering, in the aggregate,
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<PAGE>
193,400 units each exercisable to purchase for 4.95 per unit, two
shares of Common Stock and one Class A Warrant exercisable to purchase
one share of Common Stock at $4.00 a share.
(4) Based on 54,328,714 shares of Common Stock outstanding (assuming full
exercise of Class A Warrants and other warrants).
(5) Includes 439,205 shares of Common Stock owned by an investment
partnership affiliated with Snow Becker Krauss P.C.
20
<PAGE>
PLAN OF DISTRIBUTION
The Class A Warrants and/or other Warrants (together, the "Securities")
are bing sold by the Selling Shareholders for their own accounts. The Selling
Shareholders may, in one or more transactions on Nasdaq (or any successor stock
exchange), in negotiated transactions or in a combination of such methods of
sale, sell Class A Warrants or the Shares, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at prices
otherwise negotiated. The Selling Shareholders may effect such transactions by
selling the Securities to or through brokers-dealers, and such broker-dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the
Securities for whom such broker-dealers may act as agent (which compensation may
be less than or in excess of customary commissions). The Selling Shareholders
and any broker-dealers that participate in the distribution of the Securities
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Securities sold by them may be deemed to be underwriting discounts
and commissions under the Securities Act. All selling and other expenses
incurred by individual Selling Shareholders will be borne by such Selling
Shareholders.
There can be no assurance that any of the Selling Shareholders will
sell any or all of the Shares of Common Stock offered by them hereunder or that
any of the holders of the Class A Warrants or other Warrants will exercise them.
DESCRIPTION OF SECURITIES
Authorized Stock
The authorized capital stock of the Company consists of 7,000,000
shares of Preferred Stock, $3.00 par value per share, and 100,000,000 shares of
Common Stock, $.08 par value per share.
Each share of Common Stock is entitled to one vote per outstanding
share held on each matter submitted to a vote at a meeting of shareholders. Each
shareholder may exercise such vote either in person or by proxy. Shareholders
are not entitled to cumulate their votes for the election of Directors. There
are no preemptive or other preferential rights to purchase additional shares of
Common Stock. Upon liquidation, dissolution or winding-up of the Company, the
holders of Common Stock are entitled to receive, pro rata, the assets of the
Company which are legally available for distribution to shareholders subject to
the prior rights on liquidation of creditors and the holders of shares of
Preferred Stock, if any. All of the issued and outstanding shares of Common
Stock are fully paid and non-assessable.
The Company's Articles of Incorporation, as amended, provide in accordance with
Nevada law that the officers and Directors of the Company shall not be
personally liable to the Company or its shareholders for damages for breach of a
fiduciary duty as a Director or Officer. It is the position of the staff of the
Securities and Exchange Commission that the limitation on personal liability
does
21
<PAGE>
not apply to violations of Federal securities laws. Moreover, such limitation is
unapplicable to acts or omissions which involve intentional misconduct, fraud,
knowing violations of the law, or unlawful payment of dividends prohibited by
the Nevada Revised Statutes. In addition, the Company's Articles of
Incorporation, as amended, do not limit the availability of non- monetary
relief.
Class A Warrant
Each Class A Warrant entitles the holder thereof to purchase one share of the
Company's Common Stock through March 1, 1998 at an exercise price of $4.00.
Bankers Trust Company ("BTCO") will act as Information Agent and Warrant
Depository Agent for the Company for which it will receive customary
compensation. An affiliate of BTCO has provided investment banking services to
the Company. Holders desiring to exercise their rights under the Class A
Warrants should contact BTCO at 1-800-206-0254.
The Class A Warrants may be redeemed by the Company at any time prior to March
1, 1998 upon 15 days prior written notice, at a price of $.01 per Class A
Warrant, provided that the average closing price of the Company's Common Stock
shall have been at least $8.00 per share (200% of the exercise price of the
Class A Warrants) for the 20 consecutive trading days prior to the notice of
redemption and the Company has a current prospectus to permit exercise of the
Class A Warrants.
The Class A Warrants contain certain provisions that protect the holders thereof
against dilution. The exercise price and the number of shares of Common Stock or
other securities issuable upon exercise of the Class A Warrants are subject to,
dividends (excluding cash dividends), splits, reclassifications,
ecapitalizations, reorganizations, mergers or consolidations of the Company.
The Class A Warrants may be exercised upon surrender of the Class A Warrant
certificate on or prior to the expiration form on the reverse side of the Class
A Warrant certificate completed and executed as indicated, accompanied by full
payment of the exercise price (by check payable to the Company) for the number
of Class A Warrants being exercised. The Warrantholders do not have the right or
privileges of holders of Common Stock.
Transfer Agent
The Company's transfer agent for its shares of Common Stock and Class A Warrants
is Oxford Registrar & Transfer Agency Inc. ("Oxford"), 317 S.W. Alder, Suite
1120, Portland, Oregon 97204.
Dividends
The Company has not paid any cash dividends on its Common Stock. The present
policy of the Board of Directors is to retain earnings to finance the operations
and development of the Company's business. Accordingly, it is anticipated that
no cash dividends will be paid in the foreseeable future.
22
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed upon
for the Company by Snow Becker Krauss P.C., 605 Third Avenue, New York, New York
10158. Snow Becker Krauss P.C., a selling stockholder covered by this
Prospectus, and an affiliated investment partnership, hold 589,205 shares of
Common Stock, all of which was issued to it in exchange for legal fees and
disbursements.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K of American International Petroleum Corporation for
the year ended December 31, 1996, have been so incorporated in reliance upon the
report of Hein & Associates LLP, independent certified public accountants, given
upon the authority of said firm as experts in accounting and auditing for the
year. The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of American International Petroleum Corporation
for the year ended December 31, 1995, have been so incorporated in reliance upon
the report of Bernardo Villegas Perez, independent auditor, given upon the
authority of said firm as an expert in auditing for the year. The financial
statements incorporated in this Prospectus by reference to the Annual Report on
Form 10-K of American International Petroleum Corporation for the two years
ending December 31, 1995, have been so incorporated in reliance upon the report
(which contains an explanatory paragraph relating to the Company's ability to
continue as a going concern as described in Notes 2 and 11 to the financial
statements) of Price Waterhouse LLP, independent certified public accountants,
given upon the authority of said firm as experts in accounting and auditing for
the year.
A report dated February 6, 1997 entitled "American International Petroleum
Corporation, Columbia, S.A., Estimated Reserves and Revenues, as of January 1,
1997" was prepared by Huddleston & Co., Inc. as experts in petroleum and
geological engineers, and was given upon the authority of such firm as experts
in petroleum and geology.
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
23
<PAGE>
- --------------------------------------------------------------------------------
No person is authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
any offer to sell or sale of the securities to which this Prospectus relates
and, if given or made, such information or representations must not be relied
upon as having been authorized. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, imply that there has been no
change in the facts herein set forth since the date hereof. This Prospectus does
not constitute an offer to sell to or a solicitation of any offer to buy from
any person in any state in which any such offer or solicitation would be
unlawful.
TABLE OF CONTENTS
Page
Prospectus....................................1
Available Information.........................2
Documents Incorporated By Reference...........3
Summary Information...........................4
Recent Development Oil and
Gas Exploration and Production
Kazakstan Agreement.......................4
Sale of South American Oil and
Gas Operations............................5
Refinery Operations...........................5
The Offering..................................7
Risk Factors..................................8
General Risks Associated with the
Offering..................................8
Risks Associated with the Company.............9
Risks Associated with Oil and
Gas Exploration and Production............14
Risk Associated with Refinery Operation.......17
Use of Proceeds...............................18
Selling Shareholders..........................18
Plan of Distribution..........................21
Description of Securities.....................21
Legal Matters.................................23
Experts .....................................23
Commission Position on
Indemnification for Securities Act
Liabilities...............................23
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AMERICAN INTERNATIONAL PETROLEUM
CORPORATION
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Prospectus
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