-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ToDCK8A5dDO7q7/6V/hrSN3IuLPcFL/ZU7BfUUBaOhL1PxM4qkv/eRYQI1xFR/Rl LZClj3axI3XViO89IsCUNw== 0000950123-96-004252.txt : 19960813 0000950123-96-004252.hdr.sgml : 19960813 ACCESSION NUMBER: 0000950123-96-004252 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INTERNATIONAL PETROLEUM CORP /NV/ CENTRAL INDEX KEY: 0000799119 STANDARD INDUSTRIAL CLASSIFICATION: LESSORS OF REAL PROPERTY, NEC [6519] IRS NUMBER: 133130236 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14905 FILM NUMBER: 96607949 BUSINESS ADDRESS: STREET 1: 444 MADISON AVE STE 3203 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129563333 MAIL ADDRESS: STREET 1: 444 MADISON AVE STE 3203 CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 FORM 10-Q / AMERICAN INTERNATIONAL PETROLEUM CORP. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20449 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 Commission File number No. 0-14905 AMERICAN INTERNATIONAL PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) Nevada 13-3130236 (State or other jurisdiction of (I.R.S. Employer incorporated or organization) Identification No.) 444 MADISON AVENUE, SUITE 3203, NEW YORK, NEW YORK 10022 (Address of principal executive offices) (Zip Code) (212) 688-3333 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___X___ No________ APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of the registrant's common stock, $.08 par value, as of August 12, 1996, is 31,565,014 shares. 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1996 1995 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents $ 115,091 $ 162,218 Cash - restricted 25,000 226,223 Accounts receivable 1,101,090 1,073,553 Inventory 452,428 504,953 Prepaid expenses 714,414 547,509 ------------ ------------ Total current assets 2,408,023 2,514,456 ------------ ------------ Property, plant and equipment: Unevaluated property not subject to amortization 6,989,403 4,998,824 Oil and gas properties pursuant to the full cost method 30,455,382 31,566,297 Refinery property and equipment 15,542,426 15,521,995 Other 508,972 506,445 ------------ ------------ 53,496,183 52,593,561 Less - accumulated depreciation, depletion and amortization (23,149,810) (22,502,472) ------------ ------------ Total property, plant and equipment 30,346,373 30,091,089 ------------ ------------ Other long-term assets, net 167,019 34,817 ------------ ------------ TOTAL ASSETS $ 32,921,415 $ 32,640,362 ============ ============
See notes to consolidated financial statements -2- 3 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1996 1995 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable $ 21,226 $ 66,759 Current installments of long-term debt 1,232,500 1,870,000 Accounts payable 1,863,150 2,363,562 Accrued expenses and other liabilities 1,289,931 1,616,678 ------------ ------------ TOTAL CURRENT LIABILITIES 4,406,807 5,916,999 Long term debt 6,174,993 5,432,671 ------------ ------------ Total Liabilities 10,581,800 11,349,670 STOCKHOLDERS' EQUITY: Preferred stock, par value $3.00, authorized 7,000,000 shares, none issued (Note 6) -- -- Common stock, par value $.08, 50,000,000 shares authorized, 29,449,121 shares issued and outstanding at June 30, 1996 and 24,705,926 shares issued and outstanding at December 31, 1995 (Note 6) 2,355,930 1,976,474 Additional paid-in capital 76,220,126 74,768,272 Stock purchase warrants 1,297,754 1,297,754 Accumulated Deficit (57,534,195) (56,751,808) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 22,339,615 21,290,692 ------------ ------------ Commitments and Contingencies (Note 5) -- -- ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,921,415 $ 32,640,362 ============ ============
See notes to consolidated financial statements -3- 4 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, (Unaudited)
1996 1995 ------------ ------------ REVENUES: Oil and gas sales $ 337,054 $ 319,644 Refinery lease fees 548,722 360,863 Interest Income 799 23,261 Other 79,758 25,561 ------------ ------------ Total revenues 966,333 729,329 ------------ ------------ EXPENSES: Operating 104,567 117,232 General and Administrative 688,523 847,900 Depreciation, depletion and amortization 322,908 274,763 Interest 320,545 243,761 ------------ ------------ Total expenses 1,436,543 1,483,656 ------------ ------------ NET LOSS $ (470,210) $ (754,327) ============ ============ Loss per share of common stock $ (0.02) $ (0.03) ============ ============ Weighted average number of shares outstanding 26,767,464 22,140,591 ============ ============
See notes to consolidated financial statements -4- 5 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, (Unaudited)
1996 1995 ------------ ------------ REVENUES: Oil and gas sales $ 641,246 $ 624,929 Refinery lease fees 1,117,318 379,927 Interest Income 3,473 36,202 Other 127,902 35,972 ------------ ------------ TOTAL REVENUES 1,889,939 1,077,030 ------------ ------------ EXPENSES: Operating 216,665 208,021 General and Administrative 1,287,028 1,748,372 Depreciation, depletion and amortization 647,453 628,453 Interest 521,180 520,447 ------------ ------------ Total expenses 2,672,326 3,105,293 ------------ ------------ NET LOSS $ (782,387) $ (2,028,263) ============ ============ Loss per share of common stock $ (0.03) $ (0.10) ============ ============ Weighted average number of shares outstanding 26,364,473 20,619,826 ============ ============
See notes to consolidated financial statements -5- 6 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, (Unaudited)
1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (782,387) $(1,273,936) ----------- ----------- Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and depletion 647,453 353,690 Amortization of bond/loan costs 35,213 34,404 Changes in current assets & liabilities: (Increase) decrease in accounts receivable (27,537) 184,849 Decrease in inventory 52,525 142,911 (Increase) decrease in prepaid expenses 22,699 (211,073) Increase (decrease) in accounts payable and accrued expense (718,652) 61,583 ----------- ----------- Total adjustments 11,701 566,364 ----------- ----------- Net cash used by operating activities (770,686) (707,572) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to oil and gas properties (779,664) (905,116) Additions to refinery property and equipment (20,431) -- (Additions) retirements to other assets (169,661) 4,353 ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (969,756) (900,763) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash - restricted 201,223 (3,286) Increase (decrease) in notes payable (45,533) -- Payments on long-term debt (1,035,178) (467,500) Proceeds from issuance of debentures, net 1,810,000 -- Proceeds from issuance of common stock, net of offering expenses 762,803 2,233,668 Proceeds from exercise of stock warrants -- 32 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,693,315 1,762,914 ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (47,127) 154,579 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 162,218 943,371 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 115,091 $ 1,097,950 =========== ===========
See notes to consolidated financial statements -6- 7 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1996 (Unaudited)
Additional Stock Common Stock paid-in purchase Shares Amount capital warrants Deficit Total ---------- ---------- ----------- ---------- ------------ ------------ BALANCE, DECEMBER 31, 1995 24,705,926 $1,976,474 $74,768,272 $1,297,754 ($56,751,808) $ 21,290,692 Stock issued in lieu of accounts payable 154,057 12,325 96,182 -- -- 108,507 Conversion of debentures 2,655,805 212,464 647,536 -- -- 860,000 Stock issued for services 100,000 8,000 92,000 -- -- 100,000 Sale of common stock - net 1,833,333 146,667 616,136 -- -- 762,803 Net loss for the period -- -- -- -- (722,387) (722,387) ---------- ---------- ----------- ---------- ------------ ------------ BALANCE, June 30, 1996 29,449,121 $2,355,930 $76,220,126 $1,297,754 ($57,474,195) $ 22,399,615 ========== ========== =========== ========== ============ ============
See notes to consolidated financial statements. -7- 8 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 1. Statement of Information Furnished The accompanying unaudited consolidated financial statements of American International Petroleum Corporation and Subsidiaries (the "Company") have been prepared in accordance with Form 10-Q instructions and in the opinion of management contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of June 30, 1996 the results of operations for the three and six month periods ended June 30, 1996 and 1995 and cash flows for the six months ended June 30, 1996 and 1995. These results have been determined on the basis of generally accepted accounting principles and practices applied consistently with those used in the preparation of the Company's 1995 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that the accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's 1995 Annual Report on Form 10-K. 2. Regulation S Offerings During the first quarter of 1996, the Company received cash and settled certain liabilities totaling approximately $991,000 from the sale and issuance of shares of its common stock in accordance with the safe harbor provided by Regulation S as promulgated by the Securities and Exchange Commission. 3. Note Receivable In order to enhance the financial strength of the Refinery's lessee, Gold Line Refining, Ltd. ("Gold Line"), thus assisting Gold Line in securing a new government contract, the Company agreed in February 1996 to reduce the fully reserved principal balance of its note receivable from Gold Line to $900,732 from $1,801,464. Gold Line was awarded a new one-year $45 million contract to provide fuels to the Defense Fuel Supply Center ("DFSC") effective April 1, 1996. 8 9 4. Sale of Debentures During the first six months of 1996, the Company received net proceeds of $1,810,000 from the sale of Convertible Redeemable Subordinated Debentures, issued in accordance with Regulation S. 5. Contingencies IRS Excise Tax Dispute In May 1992, a Company subsidiary, American International Refinery, Inc. ("AIRI"), was notified by the Internal Revenue Service ("IRS") that the IRS was considering an assessment of excise taxes, penalties and interest of approximately $3,500,000 related to the sale of fuel products during 1989. The IRS claims that AIRI failed to comply with an administrative procedure that required sellers, and buyers in tax-free transactions, to obtain certification from the IRS. The Company believes that AIRI complied with the substance of the existing requirements and such sales were either tax-free or such excise taxes were paid by the end-users of such products. The Company has submitted a formal response, and has negotiated with the IRS regarding a settlement since 1993. Since this time, the IRS has indicated a willingness to waive all of the penalties and 75% of the proposed tax liability. At the request of the IRS, the Company recently met with the IRS to attempt to finalize a settlement. It now appears that this dispute may be resolved by year-end, although settlement discussions are continuing and, at this time, the Company is unable to determine what liability may arise from this assessment. The Company has provided an allowance during 1995 of $250,000 for estimated costs, either in the form of legal expenses or payments to the IRS, or some combination of both, however, it is possible this allowance may not be sufficient in amount to settle the dispute. Legal Proceedings The Company and its subsidiaries are party to various legal proceedings, including environmental matters. Although the ultimate disposition of these proceedings is not presently determinable, in the opinion of the Company, any liability that might ensue would not be material in relation to the consolidated financial position or results of operations of the Company. In October 1995, Rio Bravo S.A., the operator of the Company's Lot IV Block in Peru, locked-out the personnel of Pan American International Petroleum Corporation ("PAIPC"), a wholly-owned Company subsidiary, from access thereto and filed a legal action in Peru against PAIPC claiming damages of $11,695,000 and alleging that PAIPC's License Contract with the government to explore Block IV (the "License Contract") was cancelled by the government due to the fact PAIPC did not complete the minimum work program required 9 10 under the License Contract. However, because the minimum work program was completed and was certified as complete by the government (the performance bond placed by PAIPC to assure its compliance with the minimum work program has, in fact, been released by the government) and, since the License Contract with the government is still in effect and has not been cancelled, the Company expects the legal action by Rio Bravo will be decided in PAIPC's favor. PAIPC has also filed counterclaims and liens against Rio Bravo to defend its interests in the Block and License Contract and continues to participate in meetings with the government related to the activities in the Block and in all matters of administration of the License Contract. The Company hopes to attain a favorable resolution of this problem, however, at this time, the Company is unable to determine what liability, if any, may arise from this action. 6. Changes in Securities At the Company's Annual Meeting of Shareholders on July 11, 1996, the Shareholders approved an amendment to the Company's Articles of Incorporation to increase the authorized capital stock of the Company to 107 million shares, including 100 million shares of Common Stock, par value $.08, and 7 million shares of "blank check" preferred stock, par value $.01. 7. Subsequent Events In March and April 1996, the Company sold $2 million worth of 10% and 9% Convertible Redeemable Subordinated Debentures issued in accordance with Regulation S. As of August 12, 1996, $1.325 million of these debentures had been converted into approximately 4 million shares of the Company's common stock, of which 1.7 million shares were issued subsequent to June 30, 1996. 10 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The statements discussed in this report include forward-looking statements that involve risks and uncertainties, including the timely development and acceptance of new services and products, the impact of competitive services, products, and pricing, and other risks detailed from time to time in the Company's SEC reports. During the six months ended June 30, 1996, the Company issued shares of its common stock and convertible debentures for aggregate net cash proceeds of $2,573,000, respectively and significantly increased its revenues and reduced its general and administrative expenses. As a result, the Company reduced its working capital deficit by $1,404,000 to approximately $1,999,000 at June 30, 1996. The proceeds from the sale of its stock and debentures and increased cash flow from operations were utilized to pay approximately $890,000 of current portions of debt and related interest, and approximately $649,000 was utilized by the Company in investing activities during this period, primarily for oil and gas exploration in Colombia and Peru. The Company also utilized approximately $771,000 for operations. Net loss for the period totalled $782,000 including non-cash provisions for depreciation, depletion, and amortization of $683,000. Approximately $48,000 was provided during the quarter by the reduction of current assets other than cash and approximately $719,000 was used to decrease accounts payable. The Company's 12% Secured Debentures (the "12% Debentures") require certain principal payments and contain certain restrictive covenants and conditions with which the Company must comply. During the next twelve months approximately $1,229,000 and $358,000 in principal and interest, respectively, are due for payment, of which all of the principal is payable on December 31, 1996 and one-half of the interest is payable in each of December 1996 and June 1997. In the event that the Company is unable to meet its obligations pursuant to the 12% Debentures in a timely manner, the Company's oil and gas reserves and its operations may be severely affected. The Company has an outstanding Loan Agreement (the "MGTF Note") with MG Trade Finance Corp. ("MGTF"), which is secured by its Lake Charles, Louisiana refinery (the "Refinery"). As of August 12, 1996, the outstanding principal balance of the MGTF Note was approximately $2.3 million, which is due in full on March 31, 1998. 50% of the lease fee proceeds the Company receives from the lessee of the Refinery, Gold Line Refining, Ltd. ("Gold Line") is utilized to pay interest and amortize the principal on the MGTF Note. If lease fees are not sufficient to satisfy all accrued interest when 11 12 due, the Company is obligated to satisfy any shortfall. The Company may be required to fund future working capital requirements that arise from Refinery operations, including any liability that may arise from any claims or settlements related to the Refinery. During April and May 1996, Gold Line's processing rates were lower than normal because the refinery was closed during a portion of each of these months for annual refurbishment and repair. However, during each of June and July 1996, Gold Line processed an average in excess of 16,000 barrels of feedstock per day, which increased the Company's lease fees in each month to approximately $240,000. Should Gold Line continue to maintain this level of operation, the combination of the increased lease fees and payment of its scheduled quarterly principal and interest note payments to the Company could provide the Company with approximately $1.7 million more cash flow during the next twelve months than during the last year. In March and April 1996 the Company received net proceeds of $1.81 million from the sale of Convertible Redeemable Subordinated Debentures, issued in accordance with Regulation S. The proceeds are being utilized to repay debt and for working capital purposes. As of August 12, 1996 approximately two-thirds of these debentures had been converted into common stock of the Company. The Company is negotiating an agreement with Carbopetrol S.A., one of the purchasers of its crude oil production in Colombia, wherein Carbopetrol would pay the Company an "up-front" payment of $200,000 for a 1% override of the Company's interest in its new Chicoral discovery and any formation below the Company's currently-producing Doima formation in the Toqui-Toqui field in Colombia. Carbopetrol has an option to purchase up to 5% of the Company's interest in the Chicoral for $1,000,000, which option must be exercised by June, 1997. Since the Chicoral is not yet producing oil, the initial $200,000 payment would be considered an advance royalty for which the Company would pay 14% annual interest, payable in crude oil from the Company's current production. In the event the Chicoral does not attain certain levels of future production, the advance royalty paid to date would be repaid by the Company in the form of crude oil at a minimum rate of 200 barrels per day from its then-existing production. The proceeds from the override sale would be utilized by the Company to develop the Chicoral discovery. Negotiations are continuing with various other oil companies regarding a possible farmout of the Company's Chicoral discovery and its other Colombian properties in return for cash and drilling obligations in the Company's Toqui-Toqui field. Such a transaction, if timely consummated, could provide the Company with capital to repay the remaining portion of its recently-issued Debentures, while ensuring that its Chicoral discovery would be fully exploited in the shortest time practicable with little or no cost to the Company. Although a farmout would result in a lower 12 13 overall Company ownership interest of its Colombian reserves, the net result to the Company could be an increase in its oil and gas reserve base, a stronger balance sheet and greater potential for earnings and cash-flow growth. The Company has no remaining drilling or work obligations in Colombia or Peru. Depending upon available funds, or whether the Company is successful with its farmout plans, the Company estimates it could utilize up to $4,000,000 for exploration and development of its properties and prospects in South America during the next twelve months. In December 1995, the Company entered into a Farmout Agreement with P.T. Pelangi Niaga Mitra Internasional, an Indonesian company ("PNMI"), wherein the Company would earn a 49% working interest in a Technical Assistance Contract ("TAC") with Pertamina for the Pamanukan Selatan area of West Java Province, Indonesia. The Farmout Agreement was subject to PNMI receiving governmental certification and Pertamina's approval to conduct operations under this TAC. However, recent changes now required by the government in the language and structure of these types of agreements have caused the Company to withdraw from the project. The 100,000 shares of the Company's common stock, previously issued to PNMI as a portion of the Company's obligations under the Farmout Agreement, have been returned to the Company and subsequently cancelled. The Company recently had an independent engineering firm perform an analysis to determine the viability of operating its 16,500 barrel per day Vacuum Distillation Unit ("VDU") to produce asphalt, vacuum gas oil, and diesel fuel in addition to, but separate from, the operations currently being performed by Gold Line. Preliminary studies utilizing actual pricing scenarios from 1994 and 1995 indicated that such a project could provide the Company with significant amounts of revenues and profits, if appropriate feedstock and end-product contracts and adequate financing could be secured. After considerable study and discussion, the Company decided to move forward with the project and obtained a $6 million 12.5% interim loan commitment (the "Commitment") for the project from Venture Guarantee Group in London, England. The total capital required to prepare the VDU for operation is estimated at $4.0 to $4.5 million, which includes construction of additional storage tanks, a polymerization unit, a laboratory, a truck-rack facility, a barge dock, and other miscellaneous items. It is expected that the Commitment funds could be utilized when needed during the VDU project construction period. In July, the Company utilized some internally-generated cash flow and a small amount of borrowed funds to commence with the project. Some of the storage tanks were recently delivered and are currently being installed. The majority of the funding for the VDU project is expected to be needed in September and October 1996 and should be supplied by the Commitment, although other forms of financing could be used. 13 14 In June 1996, the Company entered into two renewable agreements with Coastal Refining & Marketing, Inc. ("Coastal"), a subsidiary of The Coastal Corporation. The first agreement with Coastal is an asphalt terminalling agreement, whereby the Company will store, heat, blend, and polymerize Coastal's asphalt. The second agreement is an asphalt purchase agreement whereby the Company is to sell all of its truck-rack asphalt to Coastal. The terminalling operation is scheduled to begin in November 1996, and will continue during the asphalt-off season until mid-April 1997, when the Company plans to commence the production and sale of its own asphalt, in addition to vacuum gas oil ("VGO") and diesel fuel. Depending upon the volume of Coastal's asphalt handled by the Company, the Terminalling operation should provide the Company with approximately $100,000 to $200,000 per month in additional net cash flows. Depending upon the daily rate of processing, the type of feedstock used, and if only conventional asphalt is produced with the VGO and diesel, the Company's annual revenues from the sales of various products from the VDU could eventually be in excess of $70 million. However, the Company plans to initially operate the VDU at 7,000 to 10,000 barrels per day to produce primarily conventional paving asphalt, VGO, and diesel. At these levels, the Company expects its annual revenues from the sale of the various products to range between $40 million and $50 million. As polymerized asphalt manufacturing levels increase, revenues should be substantially higher, as should the Company's margins which, in any event, are expected to be favorable. The new facility will include a state of the art polymerizing unit capable of processing in excess of 7,500 barrels/day of polymerized asphalt. Because of recently revised state and federal government highway specifications requiring some form of polymer modification, the demand for the longer lasting, more-expensive, polymerized asphalt is expected to increase. The favorable margins are anticipated mainly because the Company's facility has the flexibility to utilize lower-cost heavy crudes as feedstock and the ability to provide polymerized, as well as conventional, asphalt. In addition, the closest established asphalt manufacturer is located over 100 miles from the Company's facility. Most of the Company's competition in its asphalt manufacturing business will come from refiners who do not have processing flexibility such as the Company's. The favorable margins from the VDU operation should be sufficient to provide the Company with the capital necessary to repay its debts and to provide funding for future development and exploration of its existing oil and gas properties. However, the Company is currently having discussions with various entities which have expressed an interest in providing the Company with financing (the "Replacement Financing") to prepay loans from the Commitment, as well as its other existing long-term liabilities, and provide other 14 15 working capital needs until the Company's internally-generated cash flows are sufficient to support all of its operations. If the Company is unable to secure the Replacement Financing, management believes loan proceeds from the Commitment, in addition to the anticipated cash flows from the VDU operations, will be sufficient to satisfy these requirements. At this time, however, there is no certainty that the Company's VDU project will be successful or that the Company will obtain all of the Commitment or the Replacement Financing. The Company intends to meet its capital and operating funds requirements in the near term from revenues generated from operations, and from additional financing as necessary. However, there is no assurance of success of any farmout or financing efforts the Company may pursue or the timing or success of the exploitation of its discoveries in South America. In the event the Company is not able to fund its exploration and development projects on its own in a timely manner, Management believes it will be able to obtain partners for certain projects. 15 16 Results of Operations For the Three Months Ended June 30, 1996 as compared to the Three Months Ended June 30, 1995 The following table highlights the Company's results of operations for the three months ended June 30, 1996 and 1995.
For The Three Months Ended June 30, 1996 1995 ---- ---- Exploration and Production Activity: Colombia Properties: Revenues - Oil Sales (000's) $ 337 $ 282 Lease Operating Expenses (000's) $ 101 $ 77 Production Volume - Bbls 36,332 35,248 Average Price per Bbl $ 9.28 $ 7.99 Production Cost per Bbl $ 2.78 $ 2.18 DD&A per Bbl $ 3.77 $ 3.86 Peru Properties: Revenues - Oil Sales (000's) (1) $ 38 Lease Operating Expenses (000's (1) $ 39 Production Volume - Bbls (1) 5,118 Average Price per Bbl (1) $ 7.43 Production Cost per Bbl (1) $ 7.68 DD&A per Bbl (2) -- -- Refinery Operations: Refinery Lease Fees (000's) $ 479 $ 361 Average Daily Throughput(Bbls) 10,641 10,024 Average Throughput Fee $ 0.50 $ 0.40
- ------------------------ (1) Information for 1996 is not available. See Note 5 to "Notes to Consolidated Financial Statements June 30, 1996 - Legal Proceedings". (2) Excludes Peruvian activity since all related properties are currently considered "unevaluated". Oil and Gas Operations: Overall oil and gas revenues increased 5% compared to the same period in the prior year. Colombia oil and gas revenues increased by approximately $55,000, or 20%, compared to the same period last year. Three-fourths of this increase was attributable to increased oil sales and one-fourth was due to the increase in the price the Company received for its oil. The increase in the oil price 16 17 received is related to the increase in the world market price of oil over the same period last year. The 20% increase on Colombia oil sales is offset by the decreased oil production and sales from the Peru operations as previously discussed. (See Note to "Notes to Consolidated Financial Statements June 30, 1996 - Legal Proceedings"). Colombia's production costs increased by approximately $24,000. Joint venture production overhead allocations increased by $28,000 compared to the same period in 1995 due primarily due to the increased capital expenditures for testing and completion of new wells in Colombia. This increase is partially offset by an increase in reimbursed general and administrative costs. A decrease in production costs of approximately $39,000 over the same period last year is attributable to the non-producing Peru properties as discussed above. This decrease in production cost in Peru, partially offset by the increase in Colombia, resulted in a decrease in overall production costs of approximately $15,000 or 13%, compared to the same period last year. Refinery Operations: Refinery lease fees increased by 33% in the second quarter of 1996 compared to the second quarter 1995. The increase is due to Gold Line processing at a higher capacity to fulfill obligations under newly obtained government contracts. Gold Line has increased it's actual production rate, based on actual days processed, to an approximate average of 15,445 barrels per day, compared to 13,467 barrels per day for the same period last year, a 15% increase. During June 1996, Gold Line averaged 16,250 barrels per day while operating everyday during the month and must continue to produce at this approximate daily level in order to comply with the obligations under its government contracts. On January 1, 1996, the throughput fees increased 25%, from $0.40 a barrel to $0.50 a barrel over the same period last year. Other Revenue: Other revenues increased approximately $54,000 during the current quarter due primarily to the decrease in foreign exchange gains in this period compared to the second quarter 1995. General and Administrative: General and Administrative expenses ("G&A") decreased approximately $159,000, or 19% compared to the same period during 1995. An increase in capitalized and reimbursed G&A of $32,000 for the three months ended June 30, 1996, compared to the same period last year, accounted for 20% of the decrease and was related to the increased capital expenditures for the current period compared to the same period last year. Actual decreases in G&A totalling $248,000 realized in this period compared to the same period last year were 17 18 in the following areas: payroll & payroll-related expenses decreased approximately $79,000 and certain other employee costs decreased approximately $21,000. Investor/public relations costs decreased during the current quarter, compared to same quarter last year, by approximately $18,000. Interest expense increased $77,000, or 32%, for the three months ended June 30, 1996, compared to the same period in 1995, due to an increase in outstanding debenture principal of $2,000,000 related to the March and April 1996 sale of the 10% & 9% Debentures discussed above. As of August 12, 1996, two-thirds of these Debentures had been converted into common stock of the Company. Consequently, interest expense related to existing debt on June 30, 1996 is expected to decline in future periods. Depreciation, Depletion, and Amortization increased approximately $48,000, or 18%, compared to the same period last year. The increase was primarily due to a non-recurring prior period adjustment reducing depreciation expense during the second quarter of 1995. 18 19 Results of Operations For the Six Months Ended June 30, 1996 as compared to the Six Months Ended June 30, 1995 The following table highlights the Company's results of operations for the six months ended June 30, 1996 and 1995.
For The Six Months Ended June 30, 1996 1995 ---- ---- Exploration and Production Activity: Colombia Properties: Revenues - Oil Sales (000's) $ 641 $ 541 Lease Operating Expenses (000's) $ 212 $ 143 Production Volume - Bbls 73,098 67,166 Average Price per Bbl $ 8.77 $ 8.05 Production Cost per Bbl $ 2.90 $ 2.12 DD&A per Bbl $ 3.77 $ 3.86 Peru Properties: Revenues - Oil Sales (000's) (1) $ 84 Lease Operating Expenses (000's (1) $ 63 Production Volume - Bbls (1) 11,549 Average Price per Bbl (1) $ 7.28 Production Cost per Bbl (1) $ 5.49 DD&A per Bbl (2) -- -- Refinery Operations: Refinery Lease Fees (000's) $ 1,047 $ 380 Average Daily Throughput(Bbls) 11,574 9,948 Average Throughput Fee $ 0.50 $ 0.40
- ----------------- (1) Information for 1996 is not available. See Note 5 to "Notes to Consolidated Financial Statements June 30, 1996 - Legal Proceedings". (2) Excludes Peruvian activity since all related properties are currently considered "unevaluated". Oil and Gas Operations: Overall oil revenues increased 3% during the current period compared to the same period in the prior year. Colombia's oil and gas revenues increased 18% compared to the same period in the prior year. Actual Colombian oil production has increased 17% over the same period last year due to an increase in production of 26% from two new wells put in service during the third quarter of 1995. An 19 20 increase of 9% is attributable to an increased price of oil realized over the same period last year, which is directly related to the increased price of oil on the world market. The increase in Colombian oil revenues is offset by the decrease in oil production and sales from the Peru operations as previously discussed herein. Production costs increased approximately $8,600, or 4% compared to the same period in the prior year. The increase was due primarily to Joint Venture production overhead allocations in Colombia increasing by $54,000 compared to the same period in 1995, resulting from increased capital expenditures for testing and completion of new wells in Colombia during the current period. This increase is offset by an increase in reimbursed general and administrative costs. A decrease in production costs of approximately $63,000 over the same period last year is attributable to the non-producing Peru properties as previously discussed herein. Refinery Operations: Refinery lease fees increased by 176% during the current period of 1996 compared to the same period in 1995. The increase is due to several factors involving the Company's Lessee, Gold Line Refining, Ltd ("Gold Line"). During the first six months of 1995, Gold Line was operational for only 74 days compared to being operational for 135 days during the same period in 1996. During the first quarter of 1995, Gold Line had been negotiating feedstock contracts and performing start-up maintenance, operating only seven days during the first quarter of 1995 and 67 days during the second quarter of 1995. During the first six months of 1996, Gold Line was operational 135 days out of 182 days of this period. The increase is also due to Gold Line processing at a higher capacity to fulfill its Defense Fuel Supply Center contracts. During the second quarter of this year, Gold Line processed a daily high of approximately 19,000 barrels of throughput and has been processing an average of 15,837 barrels per day for 61 days for the months of June and July, 1996. On January 1, 1996 the throughput fees increased 25%, from $0.40 a barrel to $0.50 a barrel over the same period last year. Other Revenue: Other Revenue increased approximately $92,000 during the current quarter due primarily to the decrease in foreign exchange gains in this period compared to the same period in 1995. General and Administrative: G&A decreased approximately $461,000, or 26% compared to the same period during 1995. An increase in capitalized and reimbursed G&A of $115,000 for the six months ended June 30, 1996, compared to the to the same period last year, accounted for 15% of the decrease and was directly related primarily to the increased capital expenditures for the current period compared to the same period last year. Actual decreases in G&A totalling $248,000 realized in 20 21 this period compared to the same period last year were in the following areas: payroll & payroll related expenses decreased approximately $157,000 and certain other employee costs decreased approximately $52,000. Investor/public relations costs decreased during the current quarter compared to same quarter last year by approximately $38,000. Legal expenses and accounting & consulting expenses declined by $34,000 and $72,000, respectively. Interest expense remained approximately the same for the first six months this year compared to the same period last year. Depreciation, Depletion, and Amortization increased approximately $19,000, or 3%, compared to the same period last year primarily due to the increase in oil production over the same period last year. 21 22 PART II: OTHER INFORMATION Item 2. Changes in Securities Prior to the Company's Annual Meeting of Shareholders (the "Meeting") on July 11, 1996, the Company's authorized capital stock was 57 million shares, consisting of 50 million shares of common stock, par value $.08 per share ("Common Stock"), and 7 million shares of 8% cumulative convertible preferred stock, par value $3.00. At the Meeting, the shareholders approved an amendment to Article IV of the Company's Articles of Incorporation (the "Articles") to increase the authorized capital stock of the Company to 107 million shares, including 100 million shares of Common Stock and 7 million shares of "blank check" preferred stock, par value $.01. Increase in the Authorized Common Stock As of May 22, 1996, the Company's Record Date, 26,767,464 shares of Common Stock were issued and outstanding. An additional 6,417,855 shares are reserved for issuance upon exercise of outstanding options and warrants and, depending upon market price, up to 5,300,000 shares were reserved for issuance upon conversion of convertible debentures. Accordingly, on a fully diluted basis, if all outstanding convertible securities were converted and all outstanding options and warrants were exercised, an aggregate of 38,485,319 shares of Common Stock would be issued and outstanding. The additional authorized shares of Common Stock are, in the opinion of management, desirable in order to assure the Company's flexibility of action in the future. The authorized but unissued and unreserved shares of Common Stock may be issued at such times, to such persons and for such consideration as the Board may determine to be in the Company's best interests without further shareholder approval, except as otherwise required by statute or stock exchange rules. Depending on the circumstances, issuance of additional shares of Common Stock could affect the existing holders of shares by diluting the voting power of the outstanding shares. The shareholders do not have preemptive rights under the Articles. "Blank Check" Preferred Stock The amendment contains provisions which permit the Board to designate one or more series of preferred stock ("Preferred Stock"). Such provisions are often referred to as "blank check" provisions, as they give the Board of Directors the flexibility, at any time or from time to time, without further shareholder approval, to create one or more series of Preferred Stock and to determine the designations, preferences and limitations of each such series, including but not limited to (i) the number of shares, (ii) dividend rights, (iii) voting rights, (iv) conversion 22 23 privileges, (v) redemption provisions, (vi) sinking fund provisions, (vii) rights upon liquidation, dissolution or winding up of the Company and (viii) other relative rights, preferences and limitations of such series. In addition, the amendment designates the par value of the Preferred Stock as $.01. The Board of Directors believes that authorizing the issuance of up to 7 million shares of "blank check" Preferred Stock provided the Company with the flexibility to address potential future financing needs by creating a series of Preferred Stock customized to meet the needs of any particular transaction and to market conditions. The Company also could issue Preferred Stock for other corporate purposes, such as to implement joint ventures or to make acquisitions. The Company is not currently considering the issuance of Preferred Stock for such financing or transactional purposes and has no present intention to issue any series of Preferred Stock. If any series of Preferred Stock authorized by the Board provides for dividends, such dividends, when and as declared by the Board of Directors out of any funds legally available therefor, may be cumulative and may have a preference over the Common Stock as to the payment of such dividends. In addition, if any series of Preferred Stock authorized by the Board so provides, in the event of any dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the holders of each such series of the then outstanding Preferred Stock may be entitled to receive, prior to the distribution of any assets or funds to the holders of Common Stock, a liquidation preference established by the Board of Directors, together with all accumulated and unpaid dividends. Depending upon the consideration paid for Preferred Stock, the liquidation preference of Preferred Stock and other matters, the issuance of Preferred Stock could therefore result in a reduction in the assets available for distribution to the holders of Common Stock in the event of liquidation of the Company. Holders of Common Stock do not have any preemptive rights to acquire Preferred Stock or any other securities of the Company. Unissued Stock; Change of Control The amendment to increase the number of authorized shares of Common Stock and to authorize "blank check" Preferred Stock was not designed to deter or to prevent a change in control; however, under certain circumstances, the Company could use the additional shares or Preferred Stock to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control of the Company and thereby to protect the continuity of the Company's management. The Company could also privately place such shares with purchasers who might favor the Board of Directors in opposing a hostile takeover bid, although the Company has no present intention to do so. The Company does not currently have any plans, agreements, commitments or understandings with respect to the 23 24 issuance of additional shares of Common Stock or Preferred Stock, except for outstanding options and warrants and under existing employee incentive and benefit plans and outstanding convertible debentures. Neither the Board nor management is considering the use of Preferred Stock for such purposes, and neither is aware of any present effort to accumulate the Company's securities for the purpose of gaining control of the Company. 24 25 Item 4. Submission of Matters to a Vote of Security Holders At the meeting, the following proposals were submitted for vote to the Company's Security Holders of record as of May 22, 1996: 1. Election of the following Directors to serve during the ensuing year and until their successors are duly elected and qualified: George N. Faris Votes For..................... 21,990,746 Withhold Authority............ 2,234,609 Daniel Y. Kim Votes For..................... 22,091,343 Withhold Authority............ 2,134,012 Donald G. Rynne Votes For..................... 22,114,073 Withhold Authority............ 2,111,282 William R. Smart Votes For..................... 22,073,543 Withhold Authority............ 2,151,812
2. To amend the Company's Articles of Incorporation (the "Articles") to provide for a Board of Directors consisting of not less than three (3) nor more than ten (10) Directors, as specified from time to time by the Board of Directors: Votes For...................... 22,632,624 Votes Against.................. 1,060,278 Abstentions/Broker Non-Votes... 532,453
3. To amend the Articles to increase the number of authorized shares of common stock of the Company, $.08 par value ("Common Stock"), from 50,000,000 to 100,000,000 and to change the previously authorized 7,000,000 shares of 8% percent cumulative convertible preferred stock, par value $3.00 per share, to 7,000,000 shares of "blank check" preferred stock, par value $.01 per share: Votes For....................... 7,286,580 Votes Against................... 3,148,567 Abstentions/Broker Non-Votes.... 13,790,208
4. To amend and restate the Articles so that they conform to the current law of the State of Nevada, to eliminate certain provisions no longer applicable and to consolidate all previous amendments thereto: 25 26 Votes For....................... 5,787,278 Votes Against................... 685,824 Abstentions/Broker Non-Votes.... 17,752,253
5. To amend the By-laws of the Company to provide for a Board of Directors consisting of not less than 3 nor more than 10 members as the Board shall specify from time to time, and to ratify certain other amendments to the By-laws as follows: (i) to decrease the required notice of special meetings of shareholders to 10 days; (ii) to eliminate the right of shareholders to overrule the Chairman's ruling on procedural matters at a shareholders' meeting; and (iii) to eliminate the application of the provisions of the Nevada law that would otherwise require a majority of the shareholders to approve an acquisition by the Company of a "controlling interest" in another entity: Votes For....................... 7,778,476 Votes Against................... 1,560,070 Abstentions/Broker Non-Votes.... 14,886,809
6. To ratify the adoption of the Company's 1995 Stock Option Plan: Votes For....................... 6,091,513 Votes Against................... 3,094,275 Abstentions/Broker Non-Votes.... 14,943,533
7. To ratify the issuance to the Company's Chairman, George N. Faris, of 900,000 shares of restricted Common Stock in connection with the amendment of his Employment Agreement: Votes For....................... 6,091,513 Votes Against................... 3,464,229 Abstentions/Broker Non-Votes.... 14,669,613
8. To ratify the appointment of Price Waterhouse LLP as independent public accountants of the Company for 1996: Votes For....................... 23,201,434 Votes Against................... 827,618 Abstentions/Broker Non-Votes.... 196,303
All of these proposals passed by the required vote, except for the first part of Proposal 5, which required a two-thirds supermajority of all outstanding shares. Therefore, the Bylaws currently provide for a board of directors of ten members. The Board, however, has no current plans to fill the vacancies. Item 5. Other Events See Part 1, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" regarding the commitment from Venture Guaranty Group for financing of the Vacuum Distillation Unit project. 26 27 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 3.1 Amended and Restated Articles of Incorporation 10.1 Registration Rights Agreement dated July 11, 1996 between Dr. George N. Faris and the Registrant 27.1 Financial Data Schedule (b) Reports on Form 8-K. None ------------------------------------ 27 28 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 12, 1996 AMERICAN INTERNATIONAL PETROLEUM CORPORATION By:/s/ Denis J. Fitzpatrick -------------------------------------- Denis J. Fitzpatrick Chief Financial Officer By: /s/ William L. Tracy -------------------------------------- William L. Tracy Treasurer/Controller 28 29 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Restated Certificate of Incorporation. 10.1 Registration Rights Agreement dated July 11, 1996 between Dr. George N. Faris and the Registrant. 27.1 Financial Data Schedule. 29 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AMERICAN INTERNATIONAL PETROLEUM CORPORATION Pursuant to the provisions of Section 78.403 of the Nevada Revised Statutes (the "NRS"), the undersigned corporation adopts the following Amended and Restated Articles of Incorporation: FIRST: The name of the Corporation is American International Petroleum Corporation. SECOND: The Corporation's Articles of Incorporation were filed by the Secretary of State on April 1, 1929. The name of the Corporation at the time of such filing was Pioneer Mines Operating Company. THIRD: The names and addresses of the original incorporators were as follows: Name Post Office Address ---- ------------------- James D. Finch 401 Clay Peters Bldg., Reno, Nevada M.L. Finch 533 St. Lawrence Ave., Reno, Nevada J.C. Finch 533 St. Lawrence Ave., Reno, Nevada. FOURTH: The Board of Directors of the Corporation at a meeting duly convened and held on April 9, 1996, adopted the following resolutions to amend the Articles of Incorporation as follows: RESOLVED, that the Board of Directors hereby adopts an amendment to the Articles of Incorporation of the Corporation to eliminate Article II thereof in its entirety and to modernize the provision so that it conforms to the NRS as in effect on the date hereof by inserting in its stead a new Article II to be and read as follows: Article II The name of the Corporation's registered agent is United Corporate Services, Inc. The address of the Corporation's registered agent is 3579 Hwy. 50 East, Ste. C Carson City, NV 09701. FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment to the Articles of Incorporation of the Corporation to eliminate Article III thereof in its entirety and to modernize the provision so that it conforms to the NRS as in effect on the date hereof by inserting in its stead a new Article III to be and read as follows: Article III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under Chapter 78 of the Nevada Revised Statutes (the "NRS"). FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment to Article IV of the Articles of Incorporation of the Corporation to increase the number of authorized shares of Common Stock from 50,000,000 to 100,000,000 shares, $.08 par value, and to change the eight (8%) percent cumulative voting convertible preferred shares, par value $3.00 per share of the Corporation, to "blank check" preferred stock, par value $.01 per share; and that Article IV be and read as follows: 2 Article IV The maximum number of shares of Common Stock that this Corporation is authorized to have outstanding at any time is one hundred million (100,000,000) shares, par value $.08 per share. The maximum number of preferred shares that this Corporation is authorized to have outstanding at any time is seven million (7,000,000) shares, par value $.01 per share ("Preferred Stock"). The holders of shares of the Corporation shall not have a preemptive right to acquire the Corporation's unissued shares. The following is a statement of the designations, preferences, voting powers, qualifications, special or relative rights and privileges in respect of the Preferred Stock. The Preferred Stock may be issued from time to time in one or more classes or series. The Board of Directors of the Corporation shall have authority to the fullest extent permitted under the NRS to adopt by resolution from time to time one or more Certificates of Designation providing for the designation of one or more classes or series of Preferred Stock and the voting powers, whether full or limited or no voting powers, and such designations, preferences and relative, participating, limitations or restrictions thereof, and to fix or alter the number of shares comprising any such class or series, subject to any requirements of the NRS and this Restated Certificate of Incorporation, as amended from time to time. The authority of the Board of Directors with respect to each such class or series shall include, without limitation of the foregoing, the right to determine and fix the following preferences and powers, which may vary as between different classes or series of Preferred Stock: (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the Corporation to redeem shares of the particular class or series of Preferred Stock and, if redeemable, the price, terms and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount or amounts per share, which the shares of such class or series of Preferred Stock shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (e) the terms and conditions, if any, upon which shares of such class or series shall be convertible into, or exchangeable for, shares of capital stock of any other class or series, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) the obligation, if any, of the Corporation to retire, redeem or purchase shares of such class or series pursuant to a sinking fund or fund of a similar nature or otherwise, and the terms and conditions of such obligation; (g) voting rights, if any, including special voting rights with respect to the election of directors and matters adversely affecting any class or series of Preferred Stock; (h) limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; and 3 (i) such other preferences, powers, qualifications, special or relative rights and privileges thereof as the Board of Directors of the Corporation, by the vote of the members of the Board of Directors then in office acting in accordance with this Restated Certificate of Incorporation, or any Preferred Stock, may deem advisable and are not inconsistent with law, the provisions of this Restated Certificate of Incorporation or the provisions of any such Certificate of Designation. FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment to the Articles of Incorporation of the Corporation to eliminate Article V thereof in its entirety and to renumber the following articles appropriately. FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment to Article VI of the Articles of Incorporation of the Corporation to change the size of the board of directors to not less than three (3) nor more than ten (10); and that Article VI (renumbered as Article V) be and read as follows: Article V The members of the governing board shall be styled directors, and the number thereof shall be not less than three (3) nor more than ten (10). The names and post office addresses of the first Board of Directors were as follows: Names Post Office Addresses ----- --------------------- James D. Finch 401 Clay Peters Bldg., Reno, Nevada M.L. Finch 533 St. Lawrence Ave., Reno, Nevada Stanley B. Finch 728 Nixon Ave., Reno, Nevada V.F. Finch 728 Nixon Ave., Reno, Nevada J.C. Finch 533 St. Lawrence Ave., Reno, Nevada. FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment to the Articles of Incorporation of the Corporation to eliminate Article VII thereof in its entirety and to renumber the following articles appropriately. FURTHER RESOLVED, that the Board of Directors hereby adopts an amendment to Article VIII of the Articles of Incorporation of the Corporation to modernize the provision so that it conforms to the NRS as in effect on the date hereof by inserting in its stead a new Article VIII (renumbered as Article VI) to be and read as follows: Article VI The name and post office address of each incorporator executing this certificate are as follows: Name Post Office Address ---- ------------------- James D. Finch 401 Clay Peters Bldg., Reno, Nevada M.L. Finch 533 St. Lawrence Ave., Reno, Nevada J.C. Finch 533 St. Lawrence Ave., Reno, Nevada. FURTHER RESOLVED, that to effectuate the amendments discussed in the foregoing resolutions and to consolidate all previous amendments to the Articles of Incorporation, the Board of Directors hereby adopts a proposal that the Articles of Incorporation shall be restated and amended; and 3 4 FURTHER RESOLVED, that a proposal be presented to the stockholders to consider approving all of the foregoing amendments and changes to the Articles of Incorporation, and that the Chief Executive Officer and Secretary of the Corporation are hereby authorized to file such certificates and take such other steps as may be necessary to accomplish the purposes of the foregoing resolutions. FIFTH: the number of shares of the Corporation outstanding and entitled to vote on an amendment to the Articles of Incorporation is 26,767,464; and the above changes and amendments have been consented to and approved by the vote of the stockholders holding at least a majority of each class of stock outstanding and entitled to vote thereon. SIXTH: The Articles of Incorporation, as amended to the date of this certificate, are hereby restated as follows: 4 5 RESTATED ARTICLES OF INCORPORATION OF AMERICAN INTERNATIONAL PETROLEUM CORPORATION ARTICLE I The name of the Corporation is American International Petroleum Corporation. ARTICLE II The name of the Corporation's registered agent is United Corporate Services, Inc. The address of the Corporation's registered agent is 3579 Hwy. 50 East, Ste. C, Carson City, NV 09701. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under Chapter 78 of the Nevada Revised Statutes (the "NRS"). ARTICLE IV The maximum number of shares of Common Stock that this Corporation is authorized to have outstanding at any time is one hundred million (100,000,000) shares, par value $.08 per share. The maximum number of preferred shares that this Corporation is authorized to have outstanding at any time is seven million (7,000,000) shares, par value $.01 per share ("Preferred Stock"). The holders of shares of the Corporation shall not have a preemptive right to acquire the Corporation's unissued shares. The following is a statement of the designations, preferences, voting powers, qualifications, special or relative rights and privileges in respect of the Preferred Stock. The Preferred Stock may be issued from time to time in one or more classes or series. The Board of Directors of the Corporation shall have authority to the fullest extent permitted under the NRS to adopt by resolution from time to time one or more Certificates of Designation providing for the designation of one or more classes or series of Preferred Stock and the voting powers, whether full or limited or no voting powers, and such designations, preferences and relative, participating, limitations or restrictions thereof, and to fix or alter the number of shares comprising any such class or series, subject to any requirements of the NRS and this Restated Certificate of Incorporation, as amended from time to time. The authority of the Board of Directors with respect to each such class or series shall include, without limitation of the foregoing, the right to determine and fix the following preferences and powers, which may vary as between different classes or series of Preferred Stock: (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares 5 6 of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the Corporation to redeem shares of the particular class or series of Preferred Stock and, if redeemable, the price, terms and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount or amounts per share, which the shares of such class or series of Preferred Stock shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (e) the terms and conditions, if any, upon which shares of such class or series shall be convertible into, or exchangeable for, shares of capital stock of any other class or series, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) the obligation, if any, of the Corporation to retire, redeem or purchase shares of such class or series pursuant to a sinking fund or fund of a similar nature or otherwise, and the terms and conditions of such obligation; (g) voting rights, if any, including special voting rights with respect to the election of directors and matters adversely affecting any class or series of Preferred Stock; (h) limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; and (i) such other preferences, powers, qualifications, special or relative rights and privileges thereof as the Board of Directors of the Corporation, by the vote of the members of the Board of Directors then in office acting in accordance with this Restated Certificate of Incorporation, or any Preferred Stock, may deem advisable and are not inconsistent with law, the provisions of this Restated Certificate of Incorporation or the provisions of any such Certificate of Designation. ARTICLE V The members of the governing board shall be styled directors, and the number thereof shall be not less than three (3) nor more than ten (10). The names and post office addresses of the first Board of Directors were as follows: Names Post Office Addresses ----- --------------------- James D. Finch 401 Clay Peters Bldg., Reno, Nevada M.L. Finch 533 St. Lawrence Ave., Reno, Nevada Stanley B. Finch 728 Nixon Ave., Reno, Nevada V.F. Finch 728 Nixon Ave., Reno, Nevada J.C. Finch 533 St. Lawrence Ave., Reno, Nevada. ARTICLE VI The name and post office address of each incorporator executing this certificate were as follows: Name Post Office Address ---- ------------------- James D. Finch 401 Clay Peters Bldg., Reno, Nevada 6 7 M.L. Finch 533 St. Lawrence Ave., Reno, Nevada J.C. Finch 533 St. Lawrence Ave., Reno, Nevada. ARTICLE VII The Corporation is to have perpetual existence. ARTICLE VIII Except as hereinafter provided, the officers and directors of the Corporation shall not be personally liable to the Corporation or its shareholders for damages for breach of fiduciary duty as a director or officer. This limitation on personal liability shall not apply to acts or omissions which involve intentional misconduct, fraud, knowing violation of the law, or unlawful payments of dividends prohibited by the NRS. IN WITNESS WHEREOF, George N. Faris, the Chief Executive Officer of the Corporation, and Denis J. Fitzpatrick, the Secretary of the Corporation have been authorized to execute the foregoing certificate by resolution of the board of directors, adopted at a meeting of the directors duly called and held on April 9, 1996, and the foregoing certificate sets forth the text of the Articles of Incorporation as amended to the date hereof. Dated: July 11, 1996 AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: /s/ George N. Faris ---------------------------- George N. Faris, its Chief Executive Officer and: /s/ Denis J.Fitzpatrick ---------------------------- Denis J. Fitzpatrick, its Secretary STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On July 11, 1996, personally appeared before me, a Notary Public, for the State and County aforesaid, George N. Faris and Denis J. Fitzpatrick, as Chief Executive Officer and Secretary, respectively, of American International Petroleum Corporation, who acknowledged that they executed the above instrument. /s/ ------------------------------- Notary Public 7 EX-10.1 3 REGISTRATION RIGHTS AGREEMENT DATED 7/11/96 1 Exhibit 10.1 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of July 11, 1996, between Dr. George N. Faris ("Holder"), and AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation (the "Issuer"). W I T N E S S E T H: WHEREAS, in connection with Amendment No. 1, dated October 13, 1995, to the employment agreement between the Issuer and Holder, (the "Amendment"), Holder has acquired from the Issuer 900,000 shares of Common Stock (the "Shares"); and WHEREAS, the shareholders of the Company have approved the Amendment and Holder and the Issuer wish to enter into this Agreement, pursuant to which, and upon the terms and subject to the conditions of which, Holder shall have certain registration rights for shares of Common Stock issued as aforesaid; NOW THEREFORE, in consideration of the premises and the mutual agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Registration Rights for Shares. (a) Piggyback Rights. If, at any time during which Holder owns any of the Shares, the Issuer proposes to file a registration statement with respect to any class of securities (other than pursuant to a registration statement on Forms S-4 or S-8 or any successor form) under the Securities Act of 1933, as amended (the "Securities Act") the Issuer shall notify the Holder at least twenty (20) days prior to the filing of such registration statement and will offer to include in such registration statement all or any portion of the Shares. At the written request of the Holder, delivered to the Issuer within ten (10) days after receipt of the Issuer's notice, the Holder shall state the number of Shares that it wishes to sell or distribute publicly under the proposed registration statement. The Issuer will use its best efforts, through its officers, directors, auditors and counsel in all matters necessary or advisable, to cause such registration statement to become effective as promptly as practicable. In that regard, the Issuer makes no representations or warranties as to its ability to have the registration statement declared effective. In the event the Issuer is advised by the staff of the SEC, NASDAQ or any self-regulatory or state securities agency that the inclusion of the Shares will prevent, preclude or materially delay the effectiveness of a registration statement filed by the Issuer with respect to any securities other than the Shares, the Issuer, in good faith, may amend such registration statement to exclude the Shares without otherwise affecting the Holder's rights herein with respect to any other registration statement. (b) Demand Rights. Upon the request of Holder made by notice in writing to the Issuer on any one occasion at any time after the employment of Holder with the Issuer is terminated and prior to December 31, 1999, the Issuer will use its best efforts to register the Shares under the Securities Act on any form available to the Issuer which would permit the sale of the Shares as contemplated herein. The Issuer shall file the registration statement with respect to the Shares as promptly as practicable after receipt of the notice from Holder, and the Issuer shall use its best efforts to keep such registration statement in effect and maintain compliance with each federal and state securities law or regulation and to list the Shares on the Issuer's principal market for the period necessary for Holder to effect a sale or other disposition of such Shares (but in no event for a period greater than two years). If Holder's notice requests the Issuer to register less than all of the Shares, the Issuer shall include in such Registration Statement only such number as Holder requests, and Holder shall have no other right to seek registration of the 2 balance of the Shares, except pursuant to the "piggyback" rights described above. (c) Underwriter's Restrictions. If a registration statement is filed with respect to an underwritten registration on behalf of the Issuer, and if the underwriter thereof advises the Issuer in writing that, in its opinion, the number of Shares requested or demanded to be included in such registration statement exceeds the number that can be sold in such offering without materially adversely affecting the distribution of securities by the underwriter, then the Holder shall delay his offering and sale for such period ending on the earliest of (a) 90 days following the effective date of the Issuer's registration statement or (b) such date as the Issuer, managing underwriter and Holder shall otherwise agree. In the event of such delay, the Issuer shall file such supplements, post-effective amendments and take any such other steps as may be necessary to permit such Holder to make his proposed offering and sale for a minimum period of ninety (90) days immediately following the end of such period of delay. (d) Rule 144 Exception. Notwithstanding anything herein, the Issuer shall not be required to file a registration statement to include the Shares pursuant to this Agreement if, in the opinion of counsel for the Issuer, all of the Shares proposed to be disposed of may be transferred pursuant to the provisions of Rule 144(k) under the Securities Act. (e) Buy-out of Registration Rights. In lieu of carrying out its obligations to effect a registration of any Shares pursuant to this Agreement, the Issuer may carry out such obligation by offering to purchase and purchasing such Registrable Securities requested to be registered at an amount in cash equal to the last reported sale price of the Common Stock on the principal market on which it is traded on the day the request for Registration is made. (f) Registration Procedures. Except as otherwise provided in this Agreement, the Issuer shall have sole control in connection with the preparation, filing, withdrawal, amendment or supplementing of each registration statement, and the distribution of any preliminary prospectus included in the registration statement, and may include within the coverage thereof additional shares of Common Stock or other securities for its own account or for the account of one or more of its other securityholders. The Issuer may require Holder to furnish to the Issuer such information regarding the distribution of such securities and such other information as may otherwise be required by the Securities Act or by any state securities law or by the National Association of Securities Dealers, Inc. to be included in such registration statement or which may otherwise be necessary to comply with the requirements of any thereof. The Issuer shall pay all reasonable and customary expenses in connection with the exercise of the rights contained in this Section , other than brokerage and selling commissions incurred by Holder. 2. Indemnification. (a) Indemnification by Parties. In the event of any registration of a security pursuant to this Agreement, the Issuer shall indemnify the Holder against all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus (and as amended or supplemented) relating to such registration, or caused by any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made unless such statement or omission was made in reliance upon and in conformity with information furnished to the Issuer by the Holder expressly for use therein. The Holder shall also indemnify the Issuer, its officers and directors and each underwriter of the Shares so registered with respect to losses, claims, damages and liabilities caused by any untrue statement or omission made in reliance upon and in conformity with information furnished by the Holder to the Issuer for use in such registration statement or prospectus. 3 (b) Conduct of Indemnification Procedure. Any party that proposes to assert the right to be indemnified hereunder will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section , notify each such indemnifying party of the commencement of such action, suit or proceeding, enclosing a copy of all papers served. No indemnification provided for herein shall be available to any party who shall fail to give notice as provided herein if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice, but the omission so to notify such indemnifying party of any such action, suit or proceeding shall not relieve it from any liability that it may have to any indemnified party otherwise than under this Agreement. In case any such action, suit or proceeding shall be brought against any indemnified party, and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein, to the extent that it shall wish, jointly with the Issuer and/or any other indemnifying party similarly notified, with counsel satisfactory to such indemnified party, at its own expense. If, upon request of the indemnified party, the indemnifying party agrees, which agreement may be withheld absolutely, that the indemnified party may assume the defense of any such action, suit or proceeding, and the indemnifying party approves of counsel selected by the indemnified party, the indemnified party may assume such defense, and the indemnifying party shall not be liable to the indemnified party for any legal or other expenses, except as provided below. The indemnified party shall have the right to employ its counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless the indemnifying parties shall not have employed counsel to assume the defense of such action within a reasonable time after notice of the commencement thereof, in each of which cases the fees and expenses of one counsel or one law firm shall be at the expense of the indemnifying parties. An indemnifying party shall not be liable for any settlement of any action, suit, proceeding or claim effected without its written consent. 3. Specific Performance. The Issuer and Holder acknowledge that remedies at law for the enforcement of this Agreement may be inadequate and intend that this Agreement shall be specifically enforceable. 4. Section Headings. The Section headings contained herein are for the purpose of convenience only and are not intended to define or limit the contents of said Sections . 5. Notices. All notices and other communications hereunder shall be in writing and shall be personally delivered, sent by overnight courier or mailed by registered or certified mail to the parties at such address as either shall have furnished to the other in writing. Notices hereunder shall be deemed to have been duly given when delivered personally or by courier or five (5) days after mailing, when mailed to the party entitled to receive the same. 6. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. -3- 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: /s/ Denis J. Fitzpatrick ------------------------- Denis J. Fitzpatrick, Vice President /s/ George N. Faris ---------------------------- George N. Faris -4- EX-27.1 4 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 APR-01-1996 JUN-30-1996 140,091 0 1,101,090 0 452,428 2,408,023 53,496,183 (23,149,810) 32,921,415 4,406,807 6,174,993 0 0 2,355,930 19,983,685 32,921,415 885,776 966,333 0 104,567 1,331,976 0 320,545 (470,210) 0 0 0 0 0 (470,210) (.02) 0
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