As filed with the Securities and Exchange Commission on June 15, 1998
Registration Nos. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 13-3130236
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
444 Madison Ave, Suite 3203
New York, New York 10022
(212) 688-3333
(Address and telephone number of
registrant's principal executive offices)
DR. GEORGE N. FARIS
Chief Executive Officer
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
444 Madison Avenue, Suite 3203
New York, New York 10022
Telephone: (212) 688-3333
Telecopier: (212) 688-6657
(Name, address and
telephone number of agent for service)
Copies to:
CHARLES SNOW, ESQ.
SNOW BECKER KRAUSS P.C.
605 Third Avenue
New York, New York 10158-0125
Telephone: (212) 687-3860
Fax: (212) 949-7052
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Proposed Proposed
Class to be Amount Maximum Maximum Amount of
of Securities Offering Price Aggregate Registration Registration
to be Registered Registered Per Security(1) Offering Price (1) Fee
- ---------------- -------------- --------------- ------------------ ------------
<S> <C> <C> <C> <C>
Common Stock, 22,598,870 (2) $2.03(3) $ 45,875,706.10 $13,901.73
$.08 par value
Common Stock, 3,991,978 (4) $2.03(3) $ 8,103,715.34 $ 2,455.67
$.08 par value ----------
Total Registration Fee...................................................$16,357.40
==========
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933.
(2) Represents shares that may be acquired by the selling securityholders
named herein (the "Selling Securityholders") pursuant to an Equity
Financing Agreement dated as of April 21, 1998 (as amended, the "Equity
Financing Agreement"). The number of shares purchasable has been
calculated in accordance with the Equity Financing Agreement at an assumed
purchase price of $1.77, representing 85% of the average of the closing
bid prices of the Common Stock on the Nasdaq National Market for the 5
trading days preceding June 9, 1998.
(3) Calculated solely for the purpose of determining the registration fee
pursuant to Rule 457(g)(3) based upon the closing price of the Common
Stock on the Nasdaq National Market on June 8, 1998.
(4) Includes 3,595,978 shares issuable upon exercise of warrants issued to
certain of the Selling Securityholders in connection with the Equity
Financing Agreement and 396,000 shares issuable upon exercise of warrants
issued to a Selling Securityholder as a finder's fee in connection with
the Equity Financing Agreement. Includes an indeterminate number of shares
which may become issuable pursuant to the antidilution provisions of the
warrants.
----------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
PRELIMINARY PROSPECTUS DATED JUNE 15, 1998
SUBJECT TO COMPLETION
Information contained herein is subject to completion or amendment. 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.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
Shares of Common Stock
This Prospectus relates to the offer and sale by the selling securityholders
named herein (the "Selling Securityholders") of shares (the "Shares") of the
common stock, $.08 par value (the "Common Stock"), of American International
Petroleum Corporation, a Nevada corporation (the "Company"), registered in the
registration statement of which this Prospectus forms a part (the "Registration
Statement").
The shares of Common Stock offered hereby may be acquired by the Selling
Securityholders (i) pursuant to a two-year Equity Financing Agreement dated as
of April 21, 1998 (as amended, the "Equity Financing Agreement") or (ii) upon
exercise of warrants to purchase an aggregate of 3,991,978 shares of Common
Stock issued in connection with the Equity Financing Agreement. The purchase
price for determining the number of shares of Common Stock that the Selling
Securityholders may acquire pursuant to the Equity Financing Agreement is 85% of
the average closing bid prices of the Common Stock on the Nasdaq National Market
for the five trading days preceding the date of a notice of purchase. See"The
Company - Recent Developments - Financings".
The distribution of the Shares by the Selling Securityholders, or by pledgees,
donees, distributees, transferees or other successors in interest, may be
affected from time to time by underwriters who may be selected by the Selling
Securityholders and/or broker-dealers, in one or more transactions (which may
involve crosses and block transactions) on the Nasdaq National Market or other
over-the-counter markets, or in special offerings, exchange distributions or
secondary distributions pursuant to and in accordance with the rules of the
Nasdaq National Market or of such other over-the-counter markets, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. In
connection with the distribution of the Shares or otherwise, the Selling
Securityholders may enter into hedging or option transactions with
broker-dealers and may sell Shares short and deliver the Shares to close out
such short positions. See "Selling Securityholders" and "Plan of Distribution".
The Common Stock is quoted on the Nasdaq National Market under the symbol
"AIPN". On June 8, 1998, the closing price of the Common Stock on the Nasdaq
National Market was $2.03 per share.
The Company will not receive any proceeds from the sale of the Shares by the
Selling Securityholders.
<PAGE>
See "Risk Factors" beginning on page 7 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 Shares have been registered pursuant to registration rights granted to the
Selling Securityholders. The Company has agreed to pay all expenses of
registration in connection with the offering, other than brokerage commissions
and underwriting discounts incurred by the Selling Securityholders, which will
be borne by the Selling Securityholders. In addition, the Company has agreed to
indemnify the Selling Securityholders, underwriters who may be selected by the
Selling Securityholders and certain other persons against certain liabilities,
including liabilities under the Securities Act of 1933 as amended (the
"Securities Act"). The sale of the Shares by the Selling Securityholders is
subject to the prospectus delivery and other requirements of the Securities Act.
The date of this Prospectus is ___________, 1998
<PAGE>
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, proxy and information statements 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 Room of 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, Suite 1300, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60611, and copies of such material
also may be obtained from the Public Reference Room of the Commission at
prescribed rates. Information concerning the operation of the Public Reference
Room of the Commission may be obtained by calling 1-800-SEC-0330. The Commission
also 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.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission are incorporated in this
Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 ("Form 10-K").
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1998.
3. The Company's Proxy Statement dated April 15, 1998 for its Annual
Meeting of Shareholders scheduled to be held on June 29, 1998.
4. 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.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14, and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made hereby 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
contained 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 documents that have been
incorporated by reference in this Prospectus (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the documents that this Prospectus incorporates).
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Requests for copies of such documents should be directed to the Company at 444
Madison Avenue, Suite 3203, New York, New York 10022; Attention: Corporate
Secretary.
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 or to a solicitation of any offer to buy from any person in any
state in which any such offer or solicitation would be unlawful.
THE COMPANY
The following information concerning the Company, is qualified in its entirety
by the more detailed information, financial statements and the notes thereto
appearing elsewhere in, or incorporated by reference into, this Prospectus. The
information included in, or incorporated by reference into, this Prospectus
contains forward-looking statements that involve risks and uncertainties,
including the Company's continuing losses, working capital deficits, the ability
to enter into profitable contracts to utilize the Company's Lake Charles,
Louisiana refinery, completion of construction projects and financing of
refinery operations, the timely development and financing of new oil and gas
projects, the impact of competitive products and pricing, and other risks
detailed from time to time in the Company's SEC reports. Unless otherwise
indicated or the context otherwise requires, all references to the Company in
this Prospectus include American International Petroleum Corporation and its
wholly owned subsidiaries.
The Company, through its wholly-owned subsidiary, American International
Refinery, Inc. (AIRI"), is the owner of a refinery in Lake Charles, Louisiana
(the "Refinery"). The Company implemented the production and processing of
asphalt, vacuum gas oil and other products at the Refinery in the first quarter
of 1998 utilizing low-cost, low-gravity, high-sulphur crudes from Mexico and
Venezuela. In addition, the Company, through its wholly-owned subsidiary,
American International Petroleum Kazakstan ("AIPK"), is the owner of a 70%
working interest in a 20,000 square kilometer exploration block in western
Kazakstan and is engaged in oil and gas exploration and development in western
Kazakstan. The Company also is seeking other oil and gas projects in the United
States, Russia and Central Asia.
The Company was organized on April 1, 1929 under the laws of the State of Nevada
under the name Pioneer Mines Operating Company. The name of the Company was
changed to American International Petroleum Corporation in 1982. The executive
offices of the Company are located at 444 Madison Avenue, Suite 3203, New York,
New York 10022, and its telephone number is (212) 688-3333.
Recent Developments
Zao Nafta
On March 16, 1998, the Company signed an agreement for the Exploration of the
Mamourinskoye and Saratovskoye oil fields, with Zao Nafta ("Nafta") a Russian
closed stock company. This agreement gave the company 90 days in which to
perform technical and legal due diligence evaluations of the Nafta properties.
These oil fields are included in 17 oil and gas licenses (the "Licenses") held
by Nafta, covering about 877,000 acres in the Samara and Saratov regions of
Southwestern Russia, approximately 600 to 800 kilometers north
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of the Caspian Sea and southeast of Moscow. Upon favorable completion of the due
diligence evaluation, a joint venture will be formed to operate these 17
Licenses with the Company, as Operator, holding a 75% working interest.
The Company agreed to pay $11 million for the 75% working interest in the joint
venture, $5.0 million in cash and $6.0 million in crude oil from 25% of the
Company's future net production. The Company made a refundable advance on the
purchase price of $300,000 to Nafta for their use in assisting the Company in
completing all legal and contractual conditions required by the Company.
Proven recoverable reserves, assigned by governmental authorities for these
Licenses, are estimated at about 34 million barrels of oil.
The joint venture agreement will provide for the Company, as Operator, to
develop and execute an investment program to activate the 16 wells available for
re-entry in the Mamourinskoye License. The Company will commit to expend at
least $25 million during the first 24 months of the joint venture on this
program and other exploration and production activities within the respective
License areas, as long as work can be technically and economically justified.
However, the Company's commitments are determined by, and limited to, the joint
venture programs to be established by the Company, so Nafta will be responsible
for contractual License commitments which may exceed these levels. All work
programs for Licenses are determined annually by the respective area
governmental agencies controlling the Licenses and therefore are subject to
change and revisions based on the results of the prior year's activity.
Should the Company decide to complete the Nafta transaction, based on existing
information, it plans to implement an early oil program which should establish
production from at least 7 of the 16 wells located in the Mamourinskoye License.
This early oil program is estimated to cost approximately $1 to $2 million and
should allow for the trucking of crude production of about 3,000 barrels of oil
per day to local refineries within 120 days of the establishment of the joint
venture. However, there can be no assurance, at this time, that this level of
production will be reached. The License area is approximately 60 to 80
kilometers from some of the largest refineries located in Russia, and the main
export pipelines pass within 50 kilometers of each of the 17 License areas.
St. Marks Refinery
In March 1998, the Company signed an agreement, subject to certain conditions,
to purchase the 20,000 barrels per day St. Marks Refinery and product storage
terminal located on the St. Marks River near Tallahassee, Florida in a tax free
exchange of stock worth up to $4.5 million. If the Company decides not purchase
the 55- acre facility, it has agreed to an annual evergreen lease of the
Refinery under specific terms and conditions.
The primary advantage to the Company of the St. Marks acquisition or lease, is
the immediate increase of its retail presence from two to five states along the
U.S. Gulf Coast, plus a 50% increase in storage tank capacity by adding 33 more
tanks totaling more than 460,000 barrels to the Company assets. This transaction
provides an opportunity for the Company to double the retail sales capacity of
petroleum products manufactured at its Lake Charles, Louisiana Refinery through
access to new asphalt product markets plus jet fuel, diesel and industrial fuel
oil sales in Florida, Georgia and Alabama.
4
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Financings
During April and May of 1998, the Company issued and sold $12,000,000 aggregate
principal amount of Convertible Notes to certain of the Selling Securityholders
for a total purchase price of $11,880,000 pursuant to a Securities Purchase
Agreement dated as of April 21, 1998 (the "Securities Purchase Agreement"). The
Convertible Notes are convertible into shares of Common Stock, at the option of
the holder thereof, at a conversion price equal to 85% of the average of the
lowest five consecutive daily weighted average sales price of the Common Stock
on the Nasdaq National Market for the 40 trading days ending on the date prior
to the conversion date. Interest on the Convertible Notes is payable quarterly
on the last day of March, June, September and December of each year commencing
June 30, 1998, in cash or additional shares of Common Stock, at the option of
the Company, except that interest payable upon conversion of the Convertible
Notes is payable in additional shares of Common Stock.
In connection with the Selling Securityholders' agreement to purchase the
Convertible Notes pursuant to the Securities Purchase Agreement, the Company
issued to the Selling Securityholders warrants to purchase an aggregate of
1,400,000 shares of Common Stock, exercisable at any time prior to April 21,
2003, at an exercise price of $2.76 per share (the "Securities Purchase
Agreement Warrants").
The Company also has entered into the Equity Financing Agreement pursuant to
which certain of the Selling Securityholders agreed to purchase from the
Company, commencing August 1, 1998, shares of Common Stock from time to time on
or prior to April 21, 2000, for an aggregate purchase price of up to
$40,000,000, subject to the satisfaction of certain specified conditions. The
Selling Securityholders are obligated to purchase shares of Common Stock (i)
upon request of the Company or (ii) if the ratio of the closing bid price of the
Common Stock to the average of the closing bid prices of the Common Stock over
the preceding five trading days (the "Average Closing Price") equals or exceeds
1.2 to 1.0. Purchases may not occur more frequently than once every 20 trading
days. The purchase price of shares of Common Stock purchased pursuant to the
Equity Financing Agreement is 85% of the Average Closing Price. Minimum
purchases under the Equity Financing Agreement are $1,000,000 and the maximum
purchases are $5,000,000.
In connection with the Selling Securityholders' agreement to purchase shares of
Common Stock pursuant to the Equity Financing Agreement, the Company issued to
the Selling Securityholders additional warrants to purchase an aggregate of
1,595,978 shares (the "Closing Warrants") and 2,000,000 shares (the "Commitment
Fee Warrants") of Common Stock, respectively. The Closing Warrants are
exercisable at any time prior to April 21, 2003, at an exercise price of $2.76
per share, subject to adjustment in certain events. All or a portion of the
Commitment Fee Warrants become exercisable on the date on which the Company
exercises its option to reduce the amount of the equity financing line under the
Equity Financing Agreement, (ii) the termination of the Equity Financing
Agreement, or (iii) upon certain other specified events. If the Company elects
to reduce the amount of the equity financing line, 50,000 Commitment Fee
Warrants will become exercisable for each $1,000,000 reduction to the equity
financing line. Additionally, 50,000 Commitment Fee Warrants will become
exercisable for each $1,000,000 portion of the equity line which remains unused
at the termination of the Equity Financing Agreement. The Commitment Fee
Warrants may be exercised prior to April 21, 2003 at an exercise price of $2.76
per share, subject to adjustment in certain events.
The net proceeds from the issuance and sale of the Convertible Notes and the
shares of Common Stock pursuant to the Equity Financing Agreement (if any),
together with amounts received upon exercise of the warrants issued in
connection with the Securities Purchase Agreements dated as of October 9, 1997,
as amended, and April 21, 1998, respectively (collectively, the "Securities
Purchase Agreements"), and the Equity
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Financing Agreement will be used to finance the Company's expansion efforts in
Kazakstan and Russia and as working capital.
6
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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.
Historical Continuing Losses and Lack of Liquidity; Going Concern Opinion; No
Revenues in Last Three Quarters of 1997; Negative Cash Flow of Approximately
$5.4 Million for Year Ended December 31, 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 or 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, 1997, the Company received a report from Hein + Associates,
LLP, certified public accountants, which included an explanatory paragraph
relating to the Company's ability to continue as a "going concern". 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 $828,000 for the
year ended December 31, 1997, and it incurred a loss of $17,954,000 during such
period. The Company had no revenues from operations for the last three quarters
of 1997 and had negative cash flow of approximately $5.4 million for the year
ended December 31, 1997. The Company will continue to incur losses unless it is
successful in its efforts to develop the License Areas in Kazakstan and Russia
or the Refinery operations, which business was recently implemented, prove
successful.
Dependence on Equity Line, 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 $14 million, of which
approximately $2 million will fund the capital equipment expansion and startup
costs of its Refinery; approximately $10 million is expected to be spent on
costs associated with its Kazakstan project, and approximately $2 million for
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 $10 million during the next 12 months. In the event the Company
decides to complete the Zao Nafta transaction, a minimum of $6 to $7 million
would be initially required in Russia, approximately $5 million in acquisition
cost, and $1 million to $2 million in workover costs to bring the existing 16
wells in Samara into production. As of April 30, 1998, the Company's existing
working capital was insufficient to provide the Company with all of the capital
it requires to complete its obligations. However, the Company believes that the
capital available under the Equity Financing Agreement, together with projected
cash flows from the Refinery, will satisfy its capital requirements during the
next two years. If cash flow from its Refinery operations are less than
anticipated, certain projects may be delayed or canceled, unless the Company is
able to obtain alternative financing, as to which there can be no assurance.
Outstanding Convertible Debt. As of June 8, 1998, the Company had outstanding
$3,241,667 principal amount of the 1997 Notes and $12,000,000 principal amount
of the Convertible Notes. The Company may prepay the 1997 Notes at the greater
of (x) 100% of the principal amount of the 1997 Notes and (y) the number of
shares into which the 1997 Notes are convertible plus accrued interest, minus
one-third of the difference between (x) and (y). Holders of the 1997 Notes may
convert 1/3 of the original principal amount of the 1997 Notes at any time in
each of May and June 1998, at the lesser of (i) $6.25 per share, (ii) 85% of the
Market Price (as defined) at conversion and (iii) the daily weighted-average
sales price reported for the lowest five
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consecutive trading days during any 40-day period. The proceeds from the 1997
Notes were used for start-up capital for the Refinery and for other corporate
projects and general corporate uses. If the Company is unable to repay the 1997
Notes or the Convertible Notes on a timely basis, it believes it will be able to
successfully renegotiate new payment terms with the holders of the thereof.
However, failure to do so could impede or jeopardize the Company's ability to
continue its operations.
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.
In November 1997, the Company reached an agreement (the "IRS Agreement") with
the IRS to settle this matter by agreeing to pay an aggregate of $646,633 in
tax, plus interest accrued for the applicable periods involved. The method and
timing of such payment is now being discussed with IRS Collections in Houston,
Texas. The Company's proposal calls for the payment of the tax and interest over
a period of approximately one year. In the IRS Agreement, the IRS waived all
penalties and 75% of the amount of the originally proposed tax liability. The
Company continues to maintain that it is not liable for the excise taxes at
issue, but agreed to settle the dispute at a significantly lower amount of
liability in order to bring this long-running issue to conclusion.
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 damage or
destruction, including
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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 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
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<PAGE>
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.
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
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<PAGE>
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 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.
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 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.
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<PAGE>
Adverse Effect of Potential Future Sales of Common Stock Under Rule 144 or this
Registration Statement. Of the Company's 53,227,397 issued and outstanding
shares of Common Stock as of June 8, 1998, approximately 1,547,062 shares are
"restricted securities" (not including the shares being registered in the
Registration Statement), as that term is defined under Rule 144 under the
Securities Act. The Company is unable to predict the effect that sales of Common
Stock pursuant to the Registration Statement, Rule 144 or otherwise may have on
the then existing market price of the Company's Common Stock. The possibility
exists that the sale of any of these shares, or even the potential of such
sales, may have a depressive effect on the price of the Company's Common Stock
in any public trading market. This could impair the Company's ability to raise
additional equity capital.
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 53,227,397 were issued and
outstanding as of June 8, 1998. 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 62,083,263 shares of Common
Stock would be outstanding. 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.
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.
Possible Volatility of Market Price of Common Stock. The market price of the
Common Stock 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 Stock. 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
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<PAGE>
volatility which have not necessarily been related to the operating performance
of such companies. Any such fluctuations, or general economic and market trends,
could adversely affect the market price of the Common Stock. 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 Common Stock would likely be
materially adversely affected.
Absence of Dividends. The Company has not paid any cash dividends on its Common
Stock since inception 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.
Furthermore, the Securities Purchase Agreement prohibits the Company from paying
cash dividends or making other Restricted Payments (as defined) in excess of
$50,000 per year.
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 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,
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<PAGE>
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 June 8, 1998, the Company had
outstanding an aggregate of 5,328,020 warrants, at exercise prices ranging from
$.40 to $3.00 per share with expiration dates of from January 12, 1999 to April
21, 2003. The Company also had outstanding employee stock options to purchase an
aggregate of 3,577,500 shares of Common Stock exercisable at exercise prices
ranging from $.50 to $4.28 per share with expiration dates of from December 31,
1999 to December 31, 2002. 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.
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<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth the names of the Selling Securityholders, the
number of shares of Common Stock beneficially owned by each Selling
Securityholder, the number of Shares that each may offer, and the number of
shares of Common Stock beneficially owned by each Selling Securityholder upon
completion of the Offering. The number of Shares sold by each Selling
Securityholder may depend upon a number of factors, including, among other
things, the market price of the Common Stock. None of the Selling
Securityholders has, or within the past three years has had, any position,
office or other material relationship with the Company or any of its
predecessors or affiliates.
<TABLE>
<CAPTION>
Shares of
Shares of Common Common Stock Shares of Common
Stock Owned Before Offered in the Stock Owned
Offering(1) Offering(2) After Offering
------------------ -------------- ------------------
Name of Selling Number Percent Number Number Percent
Securityholder ------ ------- ------ ------ -------
- --------------
<S> <C> <C> <C> <C> <C>
Infinity Emerging 1,002,329(4) 2.0 % 4,365,808(5) (6) (6)
Opportunities Limited (3)
Summit Capital Limited (3) 501,165(4) 1.0 % 3,274,356(5) (6) (6)
Glacier Capital Limited (3) 501,165(4) 1.0 % 3,274,356(5) (6) (6)
Infinity Investors Limited (3) 3,006,987(4) 5.9 % 15,280,328(5) (6) (6)
LKB Financial LLC (7) 657,500(8) 1.2 % 396,000(9) (6) (6)
</TABLE>
- ------------------
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of computing the
percentage of outstanding shares held by each Selling Securityholder, any
security which such person has the right to acquire within 60 days is
deemed to be outstanding for the purpose of computing the percentage
ownership for such person, but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. Each of
the Selling Securityholders specifically disclaims beneficial ownership of
the shares of Common Stock held (or that it may acquire upon exercise or
conversion of any derivative securities held) by the other Selling
Securityholders and, as such, the number of shares of Common Stock
represented hereby does not reflect any shares of Common Stock
beneficially owned by any other Selling Securityholder.
(2) Does not include shares of Common Stock that may be acquired by the
Selling Securityholders upon conversion of the Convertible Notes or upon
exercise of the warrants issued in connection with the Securities Purchase
Agreements, which are being offered by the Selling Securityholders
pursuant to a separate Prospectus dated May 27, 1998.
(3) The address of the principal business office of the Selling Securityholder
is 38 Hertford Street, London, England W1Y 77G.
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<PAGE>
(4) Includes shares acquired upon conversion of the 1997 Notes and shares that
may be acquired upon conversion of the Convertible Notes and the exercise
of the Securities Purchase Agreement Warrants, the Closing Warrants and
the warrants issued in connection with the issuance and sale of the 1997
Notes pursuant to the Securities Purchase Agreement dated as of October 9,
1997, as amended. All information concerning beneficial ownership of the
Common Stock by the Selling Securityholder is as of April 21, 1998 and is
based upon a Schedule 13G filed by the Selling Securityholder. Pursuant to
the terms of the Securities Purchase Agreements and the Equity Financing
Agreement, the securities issued in the transactions which are the subject
thereof are not issuable, convertible or exercisable, as the case may be,
at any time for any number of shares of Common Stock in excess of that
number which would render the Selling Securityholders, as a group, the
beneficial owners of more than 9.99% of the then issued and outstanding
shares of Common Stock of the Company, except upon the occurrence of
certain material contingencies not within the control of the Selling
Securityholders, as described in those agreements.
(5) Represents shares of Common Stock issuable upon exercise of the warrants
issued pursuant to the Equity Financing Agreement and that may be acquired
pursuant to the Equity Financing Agreement at an assumed price of $1.81
per share, representing 85% of the average of the closing bid prices of
the Common Stock on the Nasdaq National Market for the 5 trading days
preceding June 1, 1998. The number of shares that each Selling
Securityholder may acquire pursuant to the Equity Financing Agreement may
vary, with the Selling Securityholders notifying the Company in connection
with each issuance thereunder of the number of shares to be issued to each
Selling Securityholder.
(6) Since each of the Selling Securityholders may sell all, some or none of
the shares of Common Stock that it holds, no estimate can be given as to
the number of shares of Common Stock that will be held by each of the
Selling Securityholders upon completion of this offering. See "Plan of
Distribution."
(7) The principal business address of the Selling Securityholder is 4555
Mansell Road, Suite 300, Alpharetta, Georgia 30202.
(8) Includes 514,500 shares of Common Stock issuable upon exercise of warrants
issued in connection with the Securities Purchase Agreements and the
Equity Financing Agreement.
(9) Represents shares of Common Stock issuable upon exercise of warrants
issued as a finder's fee in connection with the Equity Financing
Agreement. Does not include 118,500 shares of Common Stock that may be
acquired by the Selling Securityholder upon exercise of warrants issued in
connection with the Securities Purchase Agreements, which are being
offered by the Selling Securityholder pursuant to a separate Prospectus
dated May 27, 1998.
Additional information concerning the number of shares of Common Stock to be
sold by the Selling Securityholders may be set forth from time to time in
prospectus supplements to this Prospectus. See "Plan of Distribution."
The Shares have been registered pursuant to the registration rights granted to
the Selling Securityholders. All of the registration and filing fees, printing
expenses, blue sky fees, if any, fees and disbursements of counsel for the
Company, and certain fees and disbursements of one counsel for the Selling
Securityholders (not to exceed $25,000) will be paid by the Company; provided,
however, that any underwriting discounts and selling commissions will be borne
by the Selling Securityholders. In addition, the Company has agreed to indemnify
the Selling Securityholders, underwriters who may be selected by the Selling
Securityholders and certain affiliated parties, against certain liabilities,
including liabilities under the Securities Act, in connection with the offering.
The Selling Securityholders also have agreed, at the request of the Company, to
indemnify its officers, directors and "controlling persons" against such
liabilities. Insofar as indemnification for liabilities arising
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<PAGE>
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 Act and is
therefore unenforceable.
PLAN OF DISTRIBUTION
Sales of the Shares may be made from time to time by the Selling
Securityholders, or, subject to applicable law, by pledgees, donees,
distributees, transferees or other successors in interest. Such sales may be
made on the Nasdaq National Market or other over-the-counter markets, in
privately negotiated transactions or otherwise or in a combination of such
transactions at prices and at terms then prevailing or at prices related to the
then current market price, or at privately negotiated prices. In addition, any
Shares covered by this Prospectus which qualify for sale pursuant to Section
4(1) of the Securities Act or Rule 144 promulgated thereunder may be sold under
such provisions rather than pursuant to this Prospectus. Without limiting the
generality of the foregoing, the Shares may be sold in one or more of the
following types of transactions: (a) a block trade in which the broker-dealer so
engaged will attempt to sell the Shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate in the resales.
In connection with distributions of the Shares or otherwise, the Selling
Securityholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares in the course of hedging the positions they assume with Selling
Securityholders. The Selling Securityholders also may sell Shares short and
deliver the Shares to close out such short positions. The Selling
Securityholders also may enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Shares,
which the broker-dealer may resell pursuant to this Prospectus. The Selling
Securityholders also may pledge the Shares to a broker or dealer and upon a
default, the broker or dealer may effect sales of the pledged Shares pursuant to
this Prospectus.
Brokers, dealers or agents may receive compensation in the form of commissions,
discounts or concessions from Selling Securityholders in amounts to be
negotiated in connection with the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act.
Information as to whether underwriters who may be selected by the Selling
Securityholders, or any other broker-dealer, is acting as principal or agent for
the Selling Securityholders, the compensation to be received by underwriters who
may be selected by the Selling Securityholders, or any broker-dealer, acting as
principal or agent for the Selling Securityholders and the compensation to be
received by other broker-dealers, in the event the compensation of such other
broker-dealers is in excess of usual and customary commissions, will, to the
extent required, be set forth in a supplement to this Prospectus (the
"Prospectus Supplement"). Any dealer or broker participating in any distribution
of the Shares may be required to deliver a copy of this Prospectus, including
the Prospectus Supplement, if any, to any person who purchases any of the Shares
from or through such dealer or broker.
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<PAGE>
The Company has advised the Selling Securityholders that during such time as
they may be engaged in a distribution of the Shares they are required to comply
with Regulation M promulgated under the Exchange Act. With certain exceptions,
Regulation M precludes any Selling Securityholder, any affiliated purchasers and
any broker-dealer or other person who participates in such distribution from
bidding for or purchasing, or attempting to induce any person to bid for or
purchase any security which is the subject of the distribution until the entire
distribution is complete. Regulation M also prohibits any bids or purchases made
in order to stabilize the price of a security in connection with the
distribution of that security. All of the foregoing may affect the marketability
of the Common Stock.
It is anticipated that the Selling Securityholders will offer all of the Shares
for sale. Further, because it is possible that a significant number of Shares
could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a depressive effect on the market price of the Company's
Common Stock.
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. and an affiliated investment partnership hold
586,205 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 years ended December 31, 1996 and 1997, 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 Note 2 to
the financial statements) of Hein + Associates LLP, independent certified public
accountants, given upon the authority of said firm as experts in accounting and
auditing for the years. 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 year ended 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.
18
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses which will be paid by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock being registered hereby:
Securities and Exchange Commission registration fee...............$16,357.40
Legal fees and expenses............................................15,000.00
Accounting fees.....................................................5,000.00
Printing............................................................2,500.00
Miscellaneous.......................................................1,142.60
----------
Total.....................................$40,000.00
==========
Item 15. Indemnification of Directors and Officers
Under Section 78.751 of the Nevada Corporation Law ("NCL"), directors and
officers may be indemnified against judgments, fines and amounts paid in
settlement and reasonable expenses (including attorneys' fees), actually and
reasonably incurred as a result of specified actions or proceedings (including
appeals), whether civil or criminal (other than an action by or in the right of
the corporation - a "derivative action") if they acted in good faith and for a
purpose which they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to amounts paid in settlement and reasonable
expenses (including attorneys' fees) actually and reasonably incurred by them in
connection with the defense or settlement of such an action (including appeals),
except in respect of a claim, issue or matter as to which such person shall have
been finally adjudged to be liable to the corporation, unless and only to the
extent a court of competent jurisdiction deems proper.
In accordance with Section 78.037(1) of the NCL, Article VIII of the
Registrant's Certificate of Incorporation, as amended, eliminates the personal
liability of the Registrant's directors to the Registrant or its shareholders
for monetary damages for breach of their fiduciary duties as directors, with
certain limited exceptions set forth in said Article VIII and Section 78.037(1).
Article VII of the Registrant's Bylaws provides for indemnification of
directors, officers and others as follows:
"On the terms, to the extent, and subject to the condition prescribed by statute
and by such rules and regulations, not inconsistent with statute, as the Board
of Directors may in its discretion impose in general or particular cases or
classes of cases, (a) the Corporation shall indemnify any person made, or
threatened to be made, a party to an action or proceeding, civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise which any director or officer of the
Corporation served in any capacity at the request of the Corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
joint venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees of any such action or proceeding, or any appeal
therein, and (b) the Corporation may pay, in advance of final disposition of any
such action or proceeding, expenses incurred by such person in defending such
action or proceeding. On the terms, to the extent, and subject to the conditions
prescribed by statute and by such rules and regulations, not inconsistent with
statute, as the Board of Directors may in its discretion impose in general or
particular cases or classes of cases, (a) the Corporation shall indemnify any
person
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<PAGE>
made a party to an action by or in the right of the Corporation to procure a
judgment in its favor, by reason of the fact that he, his testator or intestate,
is or was a director or officer of the Corporation, against the reasonable
expenses, including attorneys' fees, actually and necessarily incurred by him in
connection with the defense of such action, or in connection with an appeal
therein, and (b) the Corporation may pay, in advance of final disposition of any
such action, expenses incurred by such person in defending such action or
proceeding."
The Registrant maintains insurance, at its expense, to reimburse itself and
directors and officers of the Registrant and of its direct and indirect
subsidiaries against any expense, liability or loss arising out of
indemnification claims against directors and officers and to the extent
otherwise permitted under the NCL.
Section 2.7(a) of the Registration Rights Agreement among the Registrant and the
Selling Securityholders provides for indemnification by the Registrant of the
Selling Securityholders, any underwriters who participate in the distribution of
the Shares of Common Stock offered hereby on behalf of the Selling
Securityholders, the directors, officers and any persons who control the Selling
Securityholders against certain liabilities under the Securities Act. In
addition, Section 2.7(b) of the Registration Rights Agreement provides that, at
the request of the Registrant, the Selling Securityholders will indemnify the
Registrant and its directors, officers and any persons who control the
Registrant against certain liabilities under the Securities Act (the "Securities
Act").
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant 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.
Item 16. Exhibits
4.1* Equity Financing Agreement dated as of April 21, 1998 (the "Equity
Financing Agreement").
4.2* Form of Closing Warrant issued pursuant to the Equity Financing
Agreement.
4.3* Form of Closing Fee Warrant issued pursuant to the Equity Financing
Agreement.
4.4* Registration Rights Agreement dated as of April 21, 1998.
5.1 Opinion of Snow Becker Krauss P.C.
23.1 Consent of Snow Becker Krauss P.C. (contained in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Hein + Associates LLP.
23.4 Consent of Bernardo Villagas Perez
24.1 Powers of Attorney (included on the signature page of this
Registration Statement)
- --------------
* Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1998
II-2
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes that it will:
(a) (l) File, during any period in which it offers or sells the securities
offered hereby, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act.
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represents a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement.
(iii) Include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) For determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities
offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.
(3) Remove from registration by means of a post-effective
amendment any of the securities being registered that
remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed
to be a new registration statement relating to the
securities offered therein, and the offering of such
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<PAGE>
securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to
directors, officers or controlling persons of the
Registrant pursuant to any arrangement, provision or
otherwise, the Registrant has been advised 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. In
the event that claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Securities Act and
will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on June 9, 1998.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By: /s/ Dr. George N. Faris
-----------------------
Dr. George N. Faris
Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned hereby authorizes George N. Faris and/or Denis J.
Fitzpatrick as his attorneys-in-fact to execute in the names of each such person
and to file such amendments (including post-effective amendments) to this
registration statement as the Registrant deems appropriate and appoints such
persons as attorneys-in-fact to sign on his behalf individually and in each
capacity stated below and to file all amendments, exhibits, supplements and
post-effective amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons on June 9, 1998 in the
capacities stated.
Signature Title
/s/ George N. Faris
- -----------------------------
George N. Faris Chief Executive Officer and Chairman of the
Board of Directors (principal executive
officer)
/s/ Denis J. Fitzpatrick
- -----------------------------
Denis J. Fitzpatrick Vice President, Chief Financial Officer and
Secretary (principal financial and accounting
officer)
/s/ Donald G. Rynne
- -----------------------------
Donald G. Rynne Director
/s/ Daniel Y. Kim
- -----------------------------
Daniel Y. Kim Director
/s/ William R. Smart
- -----------------------------
William R. Smart Director
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
5.1 Opinion of Snow Becker Krauss P.C.
23.1 Consent of Snow Becker Krauss P.C. (contained in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Hein + Associates LLP.
23.4 Consent of Bernardo Villagas Perez
24.1 Powers of Attorney (included on the signature page of this
Registration Statement)
Exhibit 5.1
SNOW BECKER KRAUSS P.C.
605 Third Avenue
New York, NY 10158
Phone: (212) 687-3860
Fax: (212) 949-7052
June 9, 1998
Board of Directors
American International Petroleum Corporation
444 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
You have requested our opinion, as counsel for American International
Petroleum Corporation, a Nevada corporation (the "Company"), in connection with
the registration statement (the "Registration Statement") on Form S-3, under the
Securities Act of 1933 (the "Act"), filed by the Company with the Securities and
Exchange Commission. The Registration Statement relates to an offering of the
shares (the "Shares") of common stock, par value $0.08 ("Common Stock"), of the
Company by the selling securityholders named in the Registration Statement. The
Shares are purchasable(i) pursuant to an Equity Financing Agreement dated as of
April 21, 1998 as amended, (the "Equity Financing Agreement") and (ii) upon
exercise of various warrants (collectively, the "Warrants") issued to the
Selling Securityholders, as described in the Registration Statement.
We have examined such records and documents and made such
examinations of law as we have deemed relevant in connection with this opinion.
Based upon the foregoing, it is our opinion that:
1. The Company has been duly organized is validly existing and in
good standing under the laws of the State of Nevada
2. The Shares have been duly authorized and, when issued for the
purchase price specified in the Equity Financing Agreement or upon payment of
the exercise price specified in the Warrants, as the case may be, will be
legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption Legal
Matters in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
SNOW BECKER KRAUSS P.C.
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
April 9, 1996 appearing on page F-2 of American International Petroleum
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Houston, Texas
June 10, 1998
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
American International Petroleum Corporation:
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3, and the accompanying Prospectus, of our report dated
April 9, 1997, appearing on page F-1 of American International Petroleum
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997.
We also consent to the reference to us under the heading "Experts" in the
Prospectus filed herewith.
/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP
Houston, Texas
June 11, 1998
EXHIBIT 23.4
June 10, 1998
BERNARDO VILLEGAS PEREZ
Contador Publico
Martricula 4962A
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the incorporation by reference in the prospectus
constituting part of this Registration Statement on Form S-3 of my report dated
March 15, 1996 appearing on pages F-2 and F-3 of American International
Petroleum Corporation's Annual Report on Form 10-K for the year ended December
31, 1995. I also consent to the reference to me under the heading "Expert" in
such Prospectus.
/s/ BERNARDO VILLEGAS PEREZ
BERNARDO VILLEGAS PEREZ
Auditor
Professional Card No., 4962-A
