<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
444 Madison Avenue
New York, New York 10022
------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------------------------------
To the Shareholders of American International Petroleum Corporation:
Notice is hereby given that the Annual Meeting of Shareholders of American
International Petroleum Corporation, a Nevada corporation (the "Company"), will
be held on June 30, 1999, at the Players Island Hotel in Lake Charles,
Louisiana, at 10:00 a.m. Central Daylight Time, to consider and act upon the
following proposals:
1. To elect five (5) Directors to serve for a term of one year and until their
successors are duly elected and qualified;
2. To ratify the appointment of Hein + Associates LLP as independent public
accountants of the Company for 1999.
3. To approve an amendment to the Company's Articles of Incorporation to
increase the authorized capital stock by increasing the number of
authorized shares of common stock from 100,000,000 to 200,000,000.
4. To approve the issuance, if necessary, upon conversion of the Company's 14%
Convertible Notes of more than 9,807,150 shares of common stock,
representing 19.9% of the outstanding shares of common stock on the date of
the sale of the 14% Convertible Notes, as required by Nasdaq rules.
5. To approve the issuance, if necessary, upon conversion of the Company's 5%
Convertible Secured Debenture of more than 13,243,377 shares of common
stock representing 19.9% of the outstanding shares of Common Stock on the
date of the sale of the 5% Convertible Secured Debenture, as required by
Nasdaq Rules.
6. To transact such other business as may properly come before the meeting and
any adjournment(s) thereof.
Shareholders of record at the close of business on May 5, 1999 will be entitled
to vote at the meeting or any adjournment thereof.
By order of the Board of Directors,
George N. Faris, Chairman of the Board
Dated: June 1, 1999
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. THE PROXY MAY
BE REVOKED IN WRITING PRIOR TO THE MEETING, OR IF YOU ATTEND THE MEETING, YOU
MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
------------------
PROXY STATEMENT
------------------
This Proxy Statement is being furnished in connection with the solicitation by
the Board of Directors of American International Petroleum Corporation, a
Nevada corporation (the "Company"), of proxies for the Annual Meeting of
Shareholders to be held at 10:00 a.m. Central Daylight Time, on June 30, 1999,
and any adjournment or adjournments thereof (the "Meeting"). The Meeting will
be held at the Players Island Hotel in Lake Charles, Louisiana. The purposes
for which the Meeting is to be held are set forth in the Notice of Meeting on
the preceding page. All expenses of this solicitation will be paid for by the
Company, which solicitation will be made by use of the mails and by personal
contacts by the officers of the Company. The approximate date of mailing of
this Proxy Statement and the accompanying form of proxy to shareholders is June
1, 1999.
Shareholders of record at the close of business on May 5, 1999 (the
"Record Date") are entitled to notice of and to vote at the Meeting. Any
shareholder present at the Meeting may revoke his or her proxy by informing the
Secretary of such revocation and vote in person on each matter brought before
the Meeting. The accompanying proxy is also subject to revocation at any time
before it is exercised by filing with the Secretary of the Company an
instrument revoking the proxy or a duly executed proxy bearing a later date.
All shares represented by each properly signed and returned proxy in the
accompanying form, unless revoked, will be voted at the Meeting, or at any
adjournment thereof, in accordance with the instructions thereon. If no
instructions are specified, the shares will be voted FOR the election of the
named nominees for Directors, FOR the ratification of the auditors, FOR the
amendment to the Articles of Incorporation increasing the authorized capital by
increasing the authorized shares of common stock from 100 million to 200
million, FOR the approval of the issuance upon conversion of the 14%
Convertible Notes of more than 9,807,150 shares of common stock, representing
19.9% of the outstanding shares of common stock on the date of the sale of the
14% Convertible Notes, as required by the rules of The Nasdaq Stock Market,
Inc., and FOR the approval of the issuance upon conversion of the 5%
Convertible Secured Debenture of more than 13,243,377 shares of common stock,
representing 19.9% of the outstanding shares of common stock on the date of the
sale of the 5% Convertible Secured Debenture, as required by the rules of The
Nasdaq Stock Market, Inc. If any other matters are properly presented at the
Meeting, or any adjournment thereof, the persons voting the proxies will vote
them in accordance with their best judgment.
As of May 5, 1999, 66,784,943 shares of the common stock of the Company,
par value $.08 ("Common Stock"), were outstanding. Each share of Common Stock
is entitled to one vote. The affirmative vote of the plurality of the votes
cast in person or by proxy at the Meeting and entitled to vote will determine
the election of Directors. The affirmative vote of the majority of the votes
present in person or by proxy at the Meeting and entitled to vote is required
to ratify the selection of the auditors, the issuance of more than 9,807,150
shares of Common Stock upon conversion of the 14% Convertible Notes and the
issuance of more than 13,243,377 shares of Common Stock upon conversion of the
5% Convertible Secured Debenture. The affirmative vote of a majority of the
outstanding shares of Common Stock is required for approval of the amendment to
the Company's Articles of Incorporation to increase the authorized capital by
increasing the number of authorized shares of Common Stock from 100 million to
200 million.
Votes cast by proxy or in person at the Meeting will be counted by the
persons appointed by the Company to act as election inspectors for the Meeting.
The election inspectors will treat shares represented by proxies that reflect
abstentions as shares that are present and entitled to vote, for purposes of
determining the presence of a quorum. Abstentions, however, do not constitute a
vote "for" or "against" any matter and thus will be disregarded in the
calculation of votes cast. In addition, where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not provided
voting instructions (commonly referred to as "broker non-votes"), those shares
will not be included in the vote totals.
1
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ACTIONS TO BE TAKEN AT THE ANNUAL MEETING
Proposal 1. Election of Five (5) Nominees As Directors
At the Meeting, five (5) Directors are to be elected for the ensuing year
and until their successors are duly elected and qualified. Proxies not marked
to the contrary will be voted for the election of the following 5 persons, all
of whom are standing for re-election.
Year First
Name Age Position(s) Became a Director
---- --- ----------- -----------------
George N. Faris 58 Chairman of the Board and 1981
Chief Executive Officer
William R. Smart 78 Director 1987
Daniel Y. Kim 77 Director 1987
Donald G. Rynne 76 Director 1992
Richard W. Murphy 69 Director 1998
Biographical Information
Dr. George N. Faris has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since 1981. Dr. Faris was the founder of ICAT,
an international engineering and construction company, and served as its
President from ICAT's inception in 1972 until October 1985. Prior to 1972, Dr.
Faris was the President and Chairman of the Board of Directors of Donbar
Development Corporation, a company engaged in the patent development of rotary
heat exchangers, devices which exchange heat from medium to medium and on which
Dr. Faris was granted a number of patents. Dr. Faris received a Ph.D. in
Mechanical Engineering from Purdue University in 1968.
Dr. Daniel Y. Kim has served as a member of the Company's Board of
Directors since July 1987. Dr. Kim is a Registered Professional Geophysicist in
California and Colorado. From 1981 until 1984, Dr. Kim was President and Chief
Executive Officer of Kim Tech, Inc., a research and development company. In
1984, Kim Tech, Inc. was merged into Bolt Industries, a public company engaged
in the manufacture of air guns and auxiliary equipment used to generate shock
waves in seismic exploration for oil, gas and minerals. Dr. Kim has been a
director of Bolt Industries since 1984. From 1977 to 1980, Dr. Kim was Chief
Consulting Geophysicist for Standard Oil Company of Indiana. Dr. Kim received a
B.S. degree in Geophysics and a Ph.D. degree in Geophysics from the University
of Utah in 1951 and 1955, respectively.
Mr. Donald G. Rynne has served as a member of the Company's Board of
Directors since September 1992. Mr. Rynne has been Chairman of the Board of
Directors of Donald G. Rynne & Co., Inc., a privately owned company engaged in
international consulting and trading, since founding that company in 1956. Mr.
Rynne is involved in international maritime trading and consulting, dealing
primarily in the Middle East in hydrocarbon products and capital equipment. Mr.
Rynne received a B.A. degree from Columbia University in 1949.
Mr. William R. Smart has served as a member of the Company's Board of
Directors since June 1987. Since November 1, 1983, Mr. Smart has been Senior
Vice President of Cambridge Strategic Management Group, a management consulting
firm. Mr. Smart was Chairman of the Board of Directors of Electronic
Associates, Inc., a manufacturer of electronic equipment, from May 1984 until
May 1992. He has served on the Board of Directors of Apollo Computer Company
and Executone Information Systems, Inc. Mr. Smart is presently a director of
National Datacomputer Company and Hollingsworth and Voss Company. Mr. Smart
received a B.S. degree in Electrical Engineering from Princeton University in
1941.
Ambassador Richard W. Murphy was educated at Harvard College (B.A. 1951)
and at Emmanuel College, Cambridge (A.B. 1953). After service in the U.S. Army,
he was appointed to the Foreign Service of the Department of State. From 1971
to 1983 he held successive appointments as Ambassador to Mauritania, Syria, the
2
<PAGE>
Philippines and Saudi Arabia. He was Assistant Secretary of State for Near
Eastern and South Asian Affairs from 1983-89 when he retired. President Reagan
nominated him to the rank of Career Ambassador in 1996, a rank restricted at
any given time to five career diplomats. Since 1989 Mr. Murphy has been Senior
Fellow for the Middle East at the Council on Foreign Relations in New York City
and a private consultant. He is a frequent commentator on Middle Eastern issues
for National Public Radio, CNN, and BBC and has written for the New York Times,
The Washington Post, The International Herald Tribune and the Christian Science
Monitor. He was also a Director of Maxxus Energy.
The business background of each executive officer of the Company, to the
extent not set forth above, is described below.
Mr. Denis J. Fitzpatrick, 54, joined the Company in August 1994 as Vice
President, Secretary and Chief Financial Officer. During the previous five
years, Mr. Fitzpatrick was the Chief Financial Officer of Nahama & Weagant
Energy Company, a publicly traded independent exploration and production
company. Mr. Fitzpatrick has held various accounting and financial management
positions during his 24 years in the oil and gas industry. He has also served
as a Director or Officer of the Council of Petroleum Accountants Society;
served on the Tax Committee of the American Petroleum Institute and as a member
of the American Management Association. Mr. Fitzpatrick received a B.S. degree
in Accounting from the University of Southern California in 1974.
Mr. Gustave E. Chew, 60, joined the Company in December 1997 as President
of American International Refinery, Inc., a wholly-owned subsidiary of the
Company. He received Bachelor of Science degrees in Chemical Engineering and
Accounting in 1959 from Lehigh University. Mr. Chew was most recently Managing
Director of Neste Trifinery Petroleum Services in Corpus Christi, Texas. He has
38 years of experience in the refining industry, including 28 years with
British Petroleum North America. Mr. Chew was Chairman of the Asphalt Institute
during 1998 and for nine years has served as a Director of the National
Petroleum Refiners Association.
Mr. William L. Tracy, 51, has been employed by the Company since February
1992 and has been Treasurer and Controller of the Company since August 1993.
From May 1989 until February 1992, Mr. Tracy was self-employed as an energy
consultant with the Commonwealth of Kentucky. From June 1985 until May 1989,
Mr. Tracy served as President of City Gas and Transmission Corp., a public oil
and gas production and refining company. He received his BBA from Bellarmine
College in Louisville, Kentucky in 1974.
The Company's executive officers are appointed annually by the Board to
serve until their successors are duly elected and qualified.
Certain Information Concerning the Board of Directors
The Company has three standing committees: the Executive Committee, to
oversee the day to day operations of the Company; the Compensation Committee,
to review and set the compensation to be received by various officers and other
employees and consultants of the Company; and the Audit Committee, to review
the financial reporting and internal controls of the Company. The Executive
Committee is composed of Messrs. Smart (Chairman), Rynne and Faris; the
Compensation Committee is composed of Messrs. Kim (Chairman) and Smart; and the
Audit Committee is composed of Messrs. Smart (Chairman), Rynne and Kim.
The Board of Directors held 16 meetings during the year ended December 31,
1998. The Compensation Committee held one meeting and the Audit Committee held
one meeting during 1998. Each incumbent Director attended at least 75% of such
Board meetings and of the meetings of Committees on which such Director served.
During 1998, the Company reimbursed outside Directors for their actual
Company-related expenses, including the costs of attending Directors' meetings.
The Company accrued, for each outside Director, $500 per month for serving in
such capacity; $500 for participation in each Committee meeting, if such
Director served on a Standing Committee of the Board of Directors; and $500 for
each Board meeting attended in person.
3
<PAGE>
Securities Ownership of Management and Principal Shareholders
The following table sets forth certain information, as of the Record Date,
regarding the beneficial ownership of Common Stock of (i) each person known by
the Company to be the beneficial owner of more than 5% of the Common Stock;
(ii) each Director; (iii) each executive officer named in the Summary
Compensation Table below; and (iv) all Directors and executive officers as a
group.
Name and Address Amount and Nature of Percent
of Beneficial Holder(1) Beneficial Ownership of Class
----------------------- -------------------- --------
George N. Faris 3,770,000(2) 5.4%
Daniel Y. Kim 213,500(3) *
Donald G. Rynne 716,862(4) 1.1%
William R. Smart 357,608(5) *
Richard W. Murphy 50,000(6) *
Denis J. Fitzpatrick 221,250(7) *
Gustave E. Chew 100,000(8) *
William L. Tracy 126,280(9) *
All officers and Directors as a group 5,555,500(10) 7.7%
(consisting of 8 persons)
H.W. Partners, L.P.(11) 7,266,269(12) 9.9%
1601 Elm Street, Suite 4000
Dallas, Texas 75201
- ------------
* Less than 1% of class
(1) All officers and Directors have an address c/o the Company, 444 Madison
Avenue, New York, NY 10022.
(2) Includes 1,870,000 shares of common stock issuable upon the exercise of
stock options owned by Dr. Faris. Excludes 1,082,500 options not
exercisable within 60 days.
(3) Includes 205,500 shares of common stock issuable upon the exercise of stock
options owned by Dr. Kim.
(4) Includes 210,000 shares of common stock issuable upon the exercise of stock
options owned by Mr. Rynne.
(5) Includes 267,000 shares of common stock issuable upon the exercise of stock
options of common stock owned by Mr. Smart.
(6) Includes 50,000 shares of common stock issuable upon the exercise of stock
options owned by Mr. Murphy. Excludes 50,000 options not exercisable within
60 days.
(7) Includes 221,250 shares of common stock issuable upon the exercise of stock
options owned by Mr. Fitzpatrick. Excludes 193,750 options not exercisable
within 60 days.
(8) Includes 100,000 shares of common stock issuable upon the exercise of stock
options owned by Mr. Chew. Excludes 150,000 options not exercisable within
60 days.
(9) Includes 126,000 shares of common stock issuable upon the exercise of stock
options owned by Mr. Tracy. Excludes 116,750 options not exercisable within
60 days.
(10) Includes all of the shares of common stock issuable upon the exercise of
options described in notes (2) through (9) above.
(11) H.W. Partners, L.P. serves as investment advisor to Infinity Investors
Limited, IEO Holdings Limited, Summit Capital Limited and Glacier Capital
Limited, (the "Funds") the registered owners of the 14% Convertible Notes
and warrants to purchase Common Stock, and has been granted investment
discretion over the securities of the Company owned by each of those funds.
In this capacity, H.W. Partners, L.P. and its general partner, H.W.
Finance, L.L.C., may be deemed to have voting and dispositive power over
such securities. Mr. Clark W. Hunt and Mr. Barrett Wissman are the
principal officers of H.W. Partners, L.P.
(12) Represents the maximum number of shares that may be acquired upon
conversion of the outstanding 14% Convertible Notes and warrants owned by
the funds referred to in footnote (11). As of the date hereof, the Funds
hold warrants to purchase an aggregate of 5,295,978 shares of Common Stock
at an exercise price of $2.00 per share. The terms of the 14% Convertible
Notes and warrants provide that the number of shares that the registered
owners may acquire upon conversion or exercise may not exceed that number
that would render them, as a group, the beneficial owners of more than 9.9%
of the then outstanding shares of Common Stock.
4
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who own more than 10 percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Such reporting persons are required by regulation to furnish the Company with
copies of all Section 16(a) reports that they file.
Based solely on its review of the copies of such reports received by it,
or written representations from certain reporting persons that no Form 5 was
required for those persons, the Company believes that, during the period from
January 1, 1998 through December 31, 1998, all filing requirements applicable
to its officers, Directors and greater than 10 percent beneficial owners were
complied with, except that Mr. Rynne did not report the sale, during the first
quarter of 1998, of warrants to purchase 89,260 shares of the Company's Common
Stock for $16,000, and Mr. Smart did not report the purchase on January 28,
1998 and sale on April 29, 1998 of 5,000 shares of the Company's Common Stock
which his broker transacted without his knowledge or prior approval. Mr. Smart
purchased the shares at $1.1155 and sold the shares at $1.1555. Mr. Smart has
paid the Company the $200 profit he realized on such sale in satisfication of
his liability to the Company under Section 16(b) of the Securities Exchange Act
of 1934.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table discloses compensation for services rendered by the
Company's Chief Executive Officer and all other executive officers of the
Company whose compensation exceeded $100,000 in 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
- -------------------------------------------------------------- ------------------------------------------------------
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation 0ptions(#) Compensation
- ------------------------ ------ ------------ ----------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
George N. Faris 1998 $330,000 $120,000 $ -- 1,000,000(1) $ --
Chairman of the 1997 312,000 257,000 7,200(2) 750,000 193,000(3)
Board and Chief 1996 292,000 15,000 9,600(2) 1,202,500(4) 422,000(5)
Executive Officer
Denis J. Fitzpatrick 1998 $140,000 $ 31,250 $ -- 170,000(6) $ --
Secretary, Vice 1997 118,000 102,000 -- 125,000 25,000(7)
President and Chief 1996 105,000 5,000 15,000(8) 120,000(4) --
Financial Officer
Gustave E. Chew 1998 $200,000 $ -- $ 7,200(2) 150,000(9) $ --
President, 1997 (10) -- -- 100,000(10) --
American International 1996 (10) -- -- -- --
Refinery, Inc.
William L. Tracy 1998 $100,000 $ 13,500 -- 106,000(11) $ --
Treasurer and 1997 88,000 62,000 -- 75,000 23,000(7)
Controller 1996 (12) -- -- -- --
</TABLE>
- ------------
(1) Includes 420,000 regular options which vest 25% per year beginning December
31, 1998 and 580,000 contingent options which will vest only if the
Company's common stock trades at $5.00 per share for 15 consecutive days
at any time before December 31, 1999. Both the regular and contingent
options have an exercise price of $2.00 per share.
(2) Vehicle allowance.
(3) Includes deferred salary payment of $109,000 and income tax reimbursement
of $84,000.
(4) The number of options shown were issued in substitution for previously
outstanding options and re-issued in 1996. The exercise price is now $.50
per share.
(5) On October 13, 1995, the Company and Dr. Faris executed an amendment to Dr.
Faris' employment agreement, pursuant to which Dr. Faris relinquished
certain rights in exchange for 900,000 shares of Common Stock. See
"Employment Contract" below.
5
<PAGE>
(6) Includes 70,000 regular options which vest 25% per year beginning December
31, 1998 and 100,000 contingent options which will vest only if the
Company's common stock trades at $5.00 per share for 15 consecutive days
at any time before December 31, 1999. Both the regular and contingent
options have an exercise price of $2.00 per share.
(7) Deferred salary payment.
(8) Mr. Fitzpatrick was paid $15,000 for living expenses incurred while
working in the New York office.
(9) Contingent options which will vest only if the Company's common stock
trades at $5.00 per share for 15 consecutive days at any time before
December 31, 1999 with an exercise price of $2.00 per share.
(10) Mr. Chew was hired in December 1997 and earned less than $100,000 during
1997. He was granted 100,000 options as a signing bonus.
(11) Includes 56,000 regular options which vest 25% per year beginning December
31, 1998 and 50,000 contingent options which will vest only if the
Company's common stock trades at $5.00 per share for 15 consecutive days
at any time before December 31, 1999. Both the regular and contingent
options have an exercise price of $2.00 per share.
(12) Mr. Tracy's compensation was less than $100,000 in 1996.
Note: The contingent options will terminate if the Company's common stock does
not trade at $5.00 per share for 15 consecutive days prior to December
31, 1999.
1998 Stock Option Plan
The Company has established a 1998 Stock Option Plan (the "1998 Plan").
The 1998 Plan was approved by the Board of Directors on May 29, 1998 and by the
Company's shareholders on June 29, 1998. The 1998 Plan is administered by the
Board of Directors of the Company or a Committee designated by them. Under the
1998 Plan employees, including officers and managerial or supervising
personnel, are eligible to receive Incentive Stock Options ("ISO's") or ISO's
in tandem with stock appreciation rights ("SAR's"), and employees, Directors,
contractors and consultants are eligible to receive non-qualified stock options
("NQSO's") or NQSO's in tandem with SAR's. Options may be granted under the
1998 Plan to purchase an aggregate of 5,000,000 shares of Common Stock. If an
option granted under the 1998 Plan terminates or expires without having been
exercised in full, the unexercised shares subject to that option will be
available for a further grant of options under the 1998 Plan. Options may not
be transferred other than by will or the laws of descent and distribution and,
during the lifetime of the optionee, may be exercised only by the optionee.
Options may not be granted under the 1998 Plan after May 29, 2008. The
exercise price of the options granted under the 1998 Plan cannot be less than
the fair market value of the shares of Common Stock on the date the option is
granted. ISO's granted to shareholders owning 10% or more of the outstanding
voting power of the Company must be exercised at a price equal to at least 110%
of the fair market value of the shares of Common Stock on the date of grant.
The aggregate fair market value of Common Stock, as determined at the time of
the grant with respect to which ISO's are exercisable for the first time by any
employee during any calendar year, shall not exceed $100,000. Any additional
Common Stock as to which options become exercisable for the first time during
any such year are treated as NQSO's. The total number of options granted under
the 1998 Plan, as of March 31, 1999 was 2,207,000.
Option Grants in Last Fiscal Year
The table below includes the number of stock options granted to certain
executive officers during the year ended December 31, 1998, exercise
information and potential realizable value.
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable
------------------------------ Value at Assumed
Number of Percent of Annual Rates of
Securities Total Options Stock
Underlying Granted to Price Appreciation
Options Employees in Exercise Expiration for Option Term
Name Granted(#) Fiscal Year Price($/sh) Date 5%($) 10%($)
---- ---------- ----------- ----------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
George Faris .............. 1,000,000 47% $ 2.00 06/29/03 $ -0- $ -0-
Denis Fitzpatrick ......... 170,000 8% $ 2.00 06/29/03 $ -0- $ -0-
Gustave E. Chew ........... 150,000 7% $ 2.00 06/29/03 $ -0- $ -0-
William L. Tracy .......... 106,000 5% $ 2.00 06/29/03 $ -0- $ -0-
</TABLE>
6
<PAGE>
Aggregate Option Exercises in 1998 and Option Values at December 31, 1998
The table below includes the number of shares covered by both exercisable
and non-exercisable stock options owned by certain executive officers as of
December 31, 1998. Also reported are the values for "in-the-money" options
which represent the positive spread between exercise price of any such existing
stock options and the year-end price.
<TABLE>
<CAPTION>
Shares
-------------------------
Acquired or Value Number of Unexercised Value of Unexercised
Name Exercised Realized Options at Year End In-the-Money Options
---- --------- -------- ------------------- --------------------
Exercisable Unexercisable Exercisable Unexercisable
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
George N. Faris .......... -- -- 1,870,000 1,082,500 $683,434 $2,344
Denis J. Fitzpatrick ..... -- -- 221,250 193,750 $ 68,546 $ 515
Gustave E. Chew .......... -- -- 100,000 150,000 $ -0- $ -0-
William L. Tracy ......... -- -- 115,250 116,750 $ 48,440 $ 309
</TABLE>
Employment Contract
Effective May 1, 1989, the Company entered into an employment agreement
with George N. Faris at an annual salary of $200,000, which agreement is
renewed annually. In 1992, the Board increased Dr. Faris' salary to $300,000
per year. In April 1994, Dr. Faris voluntarily reduced his salary to $240,000
per year. In February 1996, Dr. Faris' salary was reinstated to $300,000 per
year. His current salary is $330,000 per year.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employee of the
Company or of any of its subsidiaries during the prior year or was formerly an
officer of the Company or any of its subsidiaries. During the last fiscal year,
none of the executive officers of the Company has served on the Board or
Compensation Committee of any other entity whose officers served either on the
Board of Directors of the Company or on the Compensation Committee of the
Company.
Compensation Committee Report on Executive Compensation
It is the responsibility of the Compensation Committee of the Board of
Directors to administer the Company's incentive plans and to review the
compensation levels and performance of Management.
The Compensation Committee believes that maximizing shareholder value is
the most important measure of success, and achieving this depends on the
coordinated efforts of individual employees working as a team toward defined
common performance goals. The objectives of the Company's compensation program
are to align executive compensation with shareholder value, to reward
individual and team effort and performance furthering the Company's business
goals, and to attract, retain and reward employees who will contribute to the
long-term success of the Company with competitive salary and incentive
compensation.
The total direct compensation package for the Company's executives,
including the Chief Executive Officer (the "CEO"), is made up of 3 elements:
base salary, a short-term incentive program in the form of a performance-based
bonus, and a long-term incentive program in the form of stock options. The
total compensation level for each executive is established by individual levels
of responsibility and reference to competitive compensation levels for
executives performing similar functions and having equivalent levels of
responsibility. In addition, the Compensation Committee factors into the total
compensation of all executives an incentive element that is dependent upon
overall Company performance and increases in shareholder value measured against
objectives established at the beginning of the fiscal year.
Salary
Recommendations for merit increases in base salary are reviewed on an
individual basis, and increases are dependent upon a favorable evaluation of
individual performance relative to individual goals, the functioning of the
executive's team within the corporate structure, success in furthering the
corporate strategy and goals, and individual management skills,
responsibilities and anticipated workload. The Compensation Committee also
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considers demonstrated loyalty and commitment to the Company and the
competitive salaries offered by similar companies to attract executives. Merit
increases for executives are subject to the same budgetary guidelines as apply
to all other employees. In those cases where an executive has entered into an
employment agreement, the base salary is determined pursuant to the terms
thereof.
Bonuses
Bonus incentives are structured so that, if the Company and/or employee
achieves target goals, an incentive bonus may be paid to the employee, the
amount of which will be established by the Compensation Committee. This policy
is designed to further motivate individuals to improve performance. The Company
paid an aggregate of approximately $213,000 in bonuses to its employees in 1998
for performance during the previous year.
Stock Options
Executives are eligible for annual stock option grants under the its
current stock option plan applicable, from time to time, to employees
generally. The number of options granted to any individual depends on
individual performance, salary level and competitive data. In addition, in
determining the number of stock options granted to each executive, the
Compensation Committee reviews the unvested options of each executive to
determine the future benefits potentially available to the executive. The
number of options granted will depend in part on the total number of unvested
options deemed necessary to provide a long-term incentive and encourage
executives to remain with, and exert their utmost efforts on behalf of, the
Company. By giving to executives an equity interest in the Company, the value
of which depends upon stock performance, the policy seeks to further align
management and shareholder interests.
During 1998, an aggregate of 2,292,000 Incentive Stock Options were
granted under the 1998 Plan, at an exercise price of $2.00 per share, of which
1,210,000 are contingent on the Company's stock price trading at $5.00 per
share or above for 15 consecutive days before December 31, 1999.
Members of the Compensation Committee:
Daniel Y. Kim, Chairman
William R. Smart
Donald G. Rynne
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Performance Graph
The graph below compares the cumulative shareholder return of the Company
with the cumulative return on the S&P 500 Stock Index and the S&P Exploration
and Production Index assuming a $100 investment made on December 31, 1993.
Cumulative return data presented assumes reinvestment of dividends. The stock
performance shown on the graph below is not necessarily indicative of future
price performance.
[GRAPHIC OMITTED]
Transactions With Management and Others
During 1998, the Company's Chairman and CEO, Dr. George Faris, loaned the
Company $365,000 at an interest rate of 10% per annum. The Company repaid
$100,000 in April 1998 and the remainder in the first quarter of 1999.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE
NOMINEES NAMED ABOVE (PROPOSAL 1).
Proposal 2. Ratification of Independent Public Accountants
Hein + Associates LLP was the Company's independent public accountants for
the year ended December 31, 1998. The Board has appointed these accountants to
be the Company's auditors for 1999 and is seeking shareholder ratification of
such appointment.
The Company has been apprised that Hein + Associates LLP has no financial
interest, either direct or indirect, in the Company. A representative of Hein +
Associates LLP is expected to attend the Meeting and to have an opportunity to
make a statement and/or respond to appropriate questions from shareholders.
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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 2.
Proposal 3. Proposed Amendment to the Articles of Incorporation to Increase the
Authorized Capital Stock by Increasing the Authorized Shares of
Common Stock from 100 Million to 200 Million.
The Board of Directors has adopted, subject to shareholder approval, an
amendment to Article IV of the Articles of Incorporation to increase authorized
capital by increasing the number of authorized shares of Common Stock from
100,000,000 to 200,000,000 shares
The Company's authorized capital stock is 107 million shares, consisting
of 100 million shares of Common Stock, ("Common Stock"), and 7 million shares
of 8% cumulative convertible preferred stock, par value $3.00 ("Preferred
Stock"). As of the Record Date, 66,784,943 shares of Common Stock were issued
and outstanding. An additional 31,815,947 shares of Common Stock are reserved
for issuance upon conversion of the 14% Convertible Debentures and 5%
Convertible Secured Debentures and upon exercise of 5,538,000 outstanding
options held by the Company's officers and directors, with exercise prices
ranging from $.50 to $2.00 per share, and 8,758,796 warrants with exercise
prices ranging from $.40 to $2.59 per share of which 3% are less than $1.07 and
90% are above $1.99. No shares of Preferred Stock are outstanding.
The additional 100 million shares of Common Stock to be authorized would
provide the Board with flexibility for future financial and capital
requirements, for acquisitions, to facilitate efforts to obtain a strategic
partner and financing for projects in Kazakstan and other desirable locations,
and to facilitate the growth and expansion of the Company. The additional
shares also would be available for stock options and other employee benefit
plans, for stock splits and dividends, and for issuance upon conversion of its
outstanding convertible debt securities. The Company does not currently have
any plans, agreements or commitments or understandings for the issuance of
additional shares of Common Stock, except upon exercise of outstanding warrants
and options, pursuant to employee benefit plans, or upon conversion of
outstanding debt securities. Depending on the circumstances, issuance of
additional shares of Common Stock could affect the existing holders of shares
by diluting the voting power of the outstanding shares. The shareholders do not
have preemptive rights under the Articles of Incorporation and will not have
such rights with respect to the additional authorized shares of Common Stock.
Although the Company's Board of Directors does not consider the proposed
amendment to the Company's Articles of Incorporation to be an antitakeover
proposal, the ability to issue additional shares of Common Stock could also be
used to discourage hostile takeover attempts of the Company. Among other
things, the additional shares could be privately placed thereby diluting the
stock ownership of persons seeking to obtain control of the Company, or the
Board could adopt a stockholders' rights plan that would provide for the
issuance of additional shares of Common stock in the event of certain purchases
not approved by the Board of Directors.
Although the Board of Directors has no current plans to propose measures
to the Company's stockholders that may have the effect of discouraging
takeovers, such measures may be proposed if warranted from time to time in the
judgment of the Board of Directors. In addition, the Board of Directors may,
from time to time, adopt other measures or enter into agreements that could
have the effect of discouraging takeovers, but that do not require stockholder
approval.
Approval of this amendment to the Articles of Incorporation requires
approval by a majority of the outstanding shares of Common Stock entitled to
vote thereon. As a result, any shares not voted (whether by abstention, broker
non-vote or otherwise) will have the same effect as a vote against the
proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 3.
Proposal 4. To Approve the Issuance, If Necessary, Upon Conversion of 14%
Convertible Notes of More Than 9,807,150 Shares of Common Stock, as
Required by Nasdaq Rules.
Nasdaq rules require the Company to obtain shareholder approval for the
issuance of securities involving the sale of 20% or more of its Common Stock at
less than fair market value. Nasdaq may delist the securities of any issuer
that fails to obtain such stockholder approval before the issuance of such
securities.
In April and May 1998, the Company sold an aggregate of $12 million
principal amount of its 14% Convertible Notes due April 21, 2000 (the "Notes"),
together with warrants to purchase 1,400,000 shares of its
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Common Stock to four institutional investors for a total purchase price of $12
million. The exercise price of these warrants is $2.00 per share. The Notes are
convertible into shares of Common Stock at the option of the holder thereof,
subject to the limitations discussed below.
The number of shares of Common Stock into which the Notes may be converted
is equal to the outstanding principal balance of the Notes at any given time,
divided by the conversion price. The conversion price is equal to 85% of the
lowest five consecutive day weighted average sale price of the Common Stock on
the Nasdaq Stock Market during the 40 trading days preceding the date of
conversion. There is no minimum conversion price. Consequently, the lower the
market price of the Common Stock, the greater the number of shares of Common
Stock a holder of the Notes will receive upon conversion. No holder may convert
the Notes to the extent such conversion would result in the holders as a group
becoming the beneficial owner of more than 9.9% percent of the then outstanding
Common Stock, or the holders in the aggregate acquiring more than 9,807,150
shares of Common Stock, representing 19.9% of the number of shares of Common
Stock outstanding on the date upon which the Notes were initially issued,
unless such issuance is approved by shareholders.
The conversion price and the number of shares of Common Stock that may be
acquired upon conversion of the Debenture is subject to adjustment in the event
of a stock split, stock dividend, reorganization or reclassification, or the
issuance of Common Stock (or securities convertible into, or exercisable or
exchangeable for Common Stock) at less than market value.
The conversion, or the potential conversion of the Notes at a discount of
approximately 15% of the then prevailing market price of the Common Stock and
the immediate resale of the shares of Common Stock acquired upon conversion
into the public market may depress the market price of the Common Stock and
will have a dilutive impact on other shareholders.
If this proposal is not approved by shareholders, upon any conversion
that, together with prior conversions, would result in the issuance of more
than 9,807,150 shares of Common Stock, but for the limitation discussed above,
the Company will be required to pay the holder requesting conversion an amount
in cash equal to the closing price of the Common Stock on the date of
conversion times the number of shares in excess of 9,807,150 shares. The number
of shares available for conversion without exceeding this number is currently
1,142,493 shares. As of the date hereof, the Company had either redeemed or
converted an aggregate principal amount of $9,664,554, leaving an outstanding
principle balance of only $2,335,446 on the Notes. The Company's ability to
make such cash payments will depend on its available cash resources at the time
of a request for conversion. The payment of such amounts instead of the
issuance of shares of Common Stock upon conversion may adversely affect the
liquidity and financial condition of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 4.
Proposal 5. To Approve the Issuance, If Necessary, Upon Conversion of 5%
Convertible Secured Debenture of More Than 13,243,377 Shares of
Common Stock, as Required by Nasdaq Rules.
Nasdaq rules require the Company to obtain shareholder approval for the
issuance of securities involving the sale of 20% or more of its Common Stock at
less than fair market value. Nasdaq may delist the securities of any issuer
that fails to obtain such stockholder approval before the issuance of such
securities.
On February 18, 1999, the Company sold $10 million principal amount of its
5% Convertible General Debenture due February 18, 2004 (the "Debenture"),
together with a warrant to purchase 2,000,000 shares of its Common Stock, at an
exercise price of $2.59 per share, to a single investor for a purchase price of
$10 million. The Debenture is convertible into shares of Common Stock at any
time on or after August 8, 1999 (or earlier if the market price of the Common
Stock is at least $1.55 for five consecutive trading days), at the option of
the holder thereof, subject to the limitations discussed below.
The number of shares of Common Stock into which the Debenture may be
converted is equal to the outstanding principal balance of the Debenture at any
given time, divided by the conversion price. The conversion price is equal to
the lower of $1.288 and 85% of the lowest weighted average sale price of the
Common Stock on the Nasdaq Stock Market during the three trading days preceding
the date of conversion. There is no minimum conversion price. Consequently, the
lower the market price of the Common Stock, the greater the number of shares of
Common Stock the holder of the Debenture will receive upon conversion. No
holder may convert the Debenture to the extent such conversion would result in
a holder becoming the beneficial owner of more
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than five percent of the then outstanding Common Stock, or the holders in the
aggregate acquiring more than 13,243,377 shares of Common Stock, representing
19.9% of the number of shares of Common Stock outstanding on the date upon
which the Debenture was issued, unless such issuance is approved by
shareholders.
The conversion price and the number of shares of Common Stock that may be
acquired upon conversion of the Debenture is subject to adjustment in the event
of a stock split, stock dividend, reorganization or reclassification. In
addition, if prior to February 18, 2000, the Company issues shares of Common
Stock (or securities convertible into, or exercisable or exchangeable, for
Common Stock) in a private placement at less than the discount, or if lower,
the $1.288 ceiling price, specified in the Debenture, the conversion price of
the Debenture will be adjusted to such lower price.
The conversion, or the potential conversion of the Debenture at a discount
of approximately 15% of the then prevailing market price of the Common Stock
and the immediate resale of the shares of Common Stock acquired upon conversion
into the public market may depress the market price of the Common Stock and
will have a dilutive impact on other shareholders.
If this proposal is not approved by shareholders, upon any conversion
that, together with prior conversions, would result in the issuance of more
than 13,243,377 shares of Common Stock, but for the limitation discussed above,
the Company will be required to redeem in cash the principal amount that may
not be converted at 125% of the principal amount plus accrued interest and
penalty interest. The Company's ability to make such cash payments will depend
on its available cash resources at the time of a request for conversion. The
payment of such amounts instead of the issuance of shares of Common Stock upon
conversion may adversely affect the liquidity and financial condition of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 5.
Shareholder Proposals
No person who intends to present a proposal for action at a forthcoming
shareholders' meeting of the Company may seek to have the proposal included in
the proxy statement or form of proxy for such meeting unless that person (a) is
a record beneficial owner of at least $1,000 in market value of shares of
Common Stock, has held such shares for at least one year at the time the
proposal is submitted, and such person shall continue to own such shares
through the date on which the meeting is held, (b) provides the Company in
writing with his name, address, the number of shares held by him and the dates
upon which he acquired such shares, with documentary support for a claim of
beneficial ownership, (c) notifies the Company of his intention to appear
personally at the meeting or by a qualified representative under Nevada law to
present his proposal for action and (d) submits his proposal timely. A
shareholder may submit only one proposal with a supporting statement of not
more than 500 words, if requested, for inclusion in the proxy materials. Under
certain circumstances enumerated in the Securities and Exchange Commission's
rules relating to the solicitation of proxies, the Company may be entitled to
omit the proposal and any statement in support thereof from its proxy statement
and form of proxy.
Proposals of shareholders of the Company which are intended to be
presented at the Company's next annual meeting must be received by the Company
no later than January 24, 2000 in order that they may be included in the proxy
statement and form of proxy relating to that Meeting.
By Order of the Board of
Directors,
George N. Faris
Chairman of the Board of
Directors
Dated: June 1, 1999
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P R O X Y
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
This Proxy is Solicited by the Board of Directors
The undersigned, a holder of Common Stock of American International
Petroleum Corporation, a Nevada corporation (the "Company"), hereby appoints
GEORGE N. FARIS and DENIS J. FITZPATRICK, and each of them, the proxies of the
undersigned, each with full power of substitution, to represent and vote for the
undersigned all of the shares of the Company which the undersigned would be
entitled to vote at the Annual Meeting of Shareholders of the Company to be held
on June 30, 1999 and any adjournments thereof, as follows: 1. The election of
five(5) members to the Board of Directors to hold office until the next annual
meeting of shareholders and until their successors are duly elected and
qualified:
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to vote for all
nominees listed below.
(Instructions: To withhold authority to vote for any individual nominee,
strike a line through his name below.)
George N. Faris, Daniel Y. Kim, Donald G. Rynne, William R. Smart,
Richard W. Murphy
2. The ratification of the appointment of Hein + Associates LLP as independent
public accountants of the Company for 1999.
/ / FOR / / AGAINST / / ABSTAIN
3. To amend the Articles of Incorporation to increase the authorized capital
stock by increasing the number of authorized shares of common stock. from
100 million to 200 million.
/ / FOR / / AGAINST / / ABSTAIN
4. To approve, if necessary, the issuance upon conversion of 14% Convertible
Debentures of more than 9,807,150 shares of common stock.
/ / FOR / / AGAINST / / ABSTAIN
5. To approve, if necessary, the issuance upon conversion of 5% Convertible
Debentures of more than 13,243,377 shares of common stock.
/ / FOR / / AGAINST / / ABSTAIN
6. Upon such other matters as may properly come before the meeting and any
adjournments thereof.
/ / FOR / / AGAINST / / ABSTAIN
(continued on other side)
<PAGE>
(continued from other side)
The undersigned hereby revokes all previous proxies to vote at the Annual
Meeting.
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS
HEREON. IF NO DIRECTION IS MADE, THIS PROXY, WHEN EXECUTED, WILL BE VOTED FOR
THE ELECTION OF THE FIVE DIRECTORS NAMED IN PROPOSAL 1, FOR PROPOSALS 2, 3, 4,
AND 5, AND AS SAID PROXIES SHALL DEEM ADVISABLE ON SUCH OTHER BUSINESS AS MAY
COME BEFORE THE MEETING.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated June 1, 1999, relating to the
Annual Meeting, and the Annual Report to Shareholders for the year ended
December 31, 1998.
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Signature(s) of Shareholder(s)
The signature(s) hereon should correspond exactly with the name(s) of the
Shareholders(s) appearing on the Stock Certificate. If stock is jointly held,
all joint owners should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If signer is a corporation
or partnership, please sign the full corporate or partnership name, and give the
title of signing officer or general partner.
Date: , 1999
---------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE. IT IS IMPORTANT THAT YOU VOTE.
