Exhibit 4.1
THE CONVERTIBLE DEBENTURE OF AMERICAN INTERNATIONAL PETROLEUM CORPORATION.
("ISSUER") REPRESENTED HEREBY HAS BEEN ISSUED PURSUANT TO REGULATION S,
PROMULGATED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND HAVE NOT BEEN REGISTERED UNDER THE ACT OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO OR FOR THE ACCOUNT OF A "U.S. PERSON" (AS THAT TERM IS DEFINED IN
REGULATION S) DURING THE PERIOD COMMENCING ON THE DATE HEREOF AND ENDING ON THE
FORTIETH (40TH) DAY FOLLOWING THE DATE HEREOF (THE "RESTRICTED PERIOD"). THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY FIRST BE CONVERTED INTO COMMON
STOCK OF THE ISSUER ON THE 60TH DAY AFTER THE DATE HEREOF. THE ISSUER WILL
NOTIFY THE TRANSFER AGENT OF THE EXPIRATION OF SUCH RESTRICTED PERIOD.
$____________
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
8% CONVERTIBLE SUBORDINATED DEBENTURE DUE AUGUST 1, 1999
THIS DEBENTURE, issued this 6th day of August, 1997, is one of a duly
authorized issue of Debentures of American International Petroleum Corporation.,
a corporation duly organized and existing under the laws of the State of Nevada
(the "Company"), designated as its 8% Convertible Debentures Due August 1, 1999,
in an aggregate original principal amount not exceeding $6,400,000 (the
"Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
__________________________ corporation, the registered holder hereof (the
"Holder"), the principal sum of ___________________Dollars (________), on or
prior to August 1, 1999 (the "Maturity Date"), and to pay interest on the
principal sum outstanding from time to time on the last day of each November,
Feburary, May and August (each an "Interest Payment Date"), commencing August 6,
1997, up to and including the Maturity Date, at the rate of eight percent (8%)
per annum, calculated based upon the actual number of days elapsed during any
interest period in a year comprised of 360 days. Accrual of interest on this
Debenture shall commence on the date of this Debenture and shall continue to
accrue until the next Interest Payment Date. The interest so payable will be
paid on each Interest Payment Date to the person in whose name this Debenture
(or one or more predecessor Debentures) is registered on the records of the
Company regarding registration and transfers of the Debentures (the "Debenture
Register") on the first business day prior to such Interest Payment Date. All
past due,accrued and unpaid interest shall bear interest at the rate of 8% per
annum from the date of default until the date of payment. The principal of, and
interest on, this Debenture are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. The Debenture Register shall represent the record of
ownership and right to receive principal and interest on this Debenture.
Interest and principal shall be payable only to the registered Holder as
reflected in the Debenture Register. The right to receive principal and interest
under this Debenture shall be transferable only through an appropriate entry in
the Debenture Register as provided herein. The forwarding of such payment to the
Holder, subject to collestion, shall constitute a payment of interest hereunder
and shall satisfy and discharge the liability for principal and interest on this
Debenture to the extent of the sum represented by such payment.
This Debenture is subject to the following additional provisions:
1. The Debenture is issuable in mimimum denominations of One Hundred Thousand US
Dollars (USD$100,000.00) and in integral multiples thereof. The Debenture is
exchangeable for like Debentures in equal aggregate principal amount of
different authorized denominations, as requested by the Holder surrendering the
same. No service charge will be made for such registration or transfer or
exchange.
2. Withholding. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments. The Holder shall pay any
other taxes, charges, or levies in connection with
the issuance or transfer thereof. The Holder agrees to provide the Company a
Form W-8, a Certification Under Penalty of Perjury, or a certificate from a
financial institution described in Section 871(h)(4)(B) of the Internal Revenue
Code of 1986 demonstrating that the Holder is not a United States person.
3. Transfer. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), including Regulation S promulgated thereunder. Any Holder of this
Debenture, by acceptance hereof, agrees to the representations, warranties and
covenants herein. Prior to due presentment to the Company for transfer of this
Debenture, the Company and any agent of the Company and the Transfer Agent may
treat the person in whose name this Debenture is duly registered on the
Company's Debenture Register as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes, whether or not this
Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. Conversion. The record Holders of this Debenture shall have conversion rights
as follows (the "Conversion Rights"):
(a) Right to Convert. The record Holder of this Debenture shall be
entitled, at the option of the Holder, to convert up to fifty (50) percent of
the aggregate principal amount of Debentures held by such Holder at any time
commencing Sixty (60) days after the date of this Debenture (the "First
Conversion Date") and the remaining fifty (50) percent of the aggregate
principal amount of Debentures held by such Holder at any time commencing thirty
(30) days following the First Conversion Date, in each case into that number of
fully-paid and non-assessable shares of common stock, par value $.08 per share,
of the Company (the "Common Stock") calculated in accordance with the following
formula: Number of shares issued upon conversion = Principal/Conversion Price,
where
o Principal = The principal amount of the Debenture(s) to be converted.
o Conversion Price = the lesser of (x) eighty-five (85) percent of the average
Closing Bid Prices of the Company's Common Stock for the five days immediately
preceding the Notice of Conversion, or (y) the lowest of the daily Weighted
Average Sale Prices of the Company's Common Stock for the tewnty (20) trading
days immediately preceding the Date of Conversion. For purposes hereof, the term
"Closing Bid Price" shall mean the closing bid price of the Company's Common
Stock as reported by Bloomberg LP for the NASDAQ (or, if not reported by NASDAQ,
as reported by such other exchange or market where traded), subject to
adjustment pursuant to Subsection (d) below.
(b) Mechanics of Conversion. No fractional shares of Common Stock shall be
issued upon conversion of this Debenture. In lieu of any fractional share to
which the Holder would otherwise be entitled, the Company shall pay cash to such
Holder in an amount equal to such fraction multiplied by the Conversion Price
then in effect. The Company shall also pay in cash to the Holder through the
date of conversion all accrued and unpaid interest. In order to convert all or a
portion of this Debenture into shares of Common Stock, the Holder shall give
written notice via facsimile to the Company of the portion of this Debenture it
elects to so convert and a calculation of the number of shares of Common Stock
to be issued upon conversion. The Holder shall also provide to the Company the
original Debenture within five (5) days from the date Holder gives written
notice to the Company of its intent to the convert. Notwithstanding the
foregoing, the conversion right of the Holder set forth above shall be limited,
solely to the extent required, from time to time, such that in no instance shall
the maximum number of shares of Common Stock which the Holder may receive in
respect of any conversion of any portion of this Debenture exceed, at any one
time, an amount equal to the remainder of (i) 4.99% of the then issued and
outstanding shares of Common Stock of the Company following such conversion,
minus (ii) the number of shares of Common Stock of the Company then owned
(beneficially or of record) by the Holder (the "Limitation on Conversion");
provided, however, the Limitation on Conversion shall not apply, and shall be of
no further force or effect following the occurrence of any Event of Default
described in Section 9 below and for which the Holder has provided written
notice thereof and which is not cured within the greater of the applicable time
period specified in either (I) such written notice of the Holder or (II) Section
9 below. Notwithstanding the foregoing,The Company shall not be obligated to
issue any Common Stock as dividends or upon conversion of the Debentures or
exercise of the Warrants if, after giving effect to such issuance, more than an
aggregate of 19.9% shares of Common Stock issued and outstanding as of the
Closing (the "Maximum Number of Shares") shall have been previously issued in
respect thereof. In the event that the ISSUER issues the Maximum Number of
Shares, the ISSUER
shall (i) immediately give notice to the Holder that such event has occured
(the"Maximum Share Notice"), (ii) take either of the following actions within
Ninety (90) days of such notice:(a)obtain shareholder approval for the issuance
of Common Stock in excess of 20% of the issued and outstanding shares or
(b)repay the Debentures, at the redemption price specified in Sec.5,in cash,
within two (2) days, and redeem the Warrants with the Warrant redemption price
equal to either (i) if the Common Stock is above the exercise price of the
Warrant, then the Redemption Price of the Warrant is the difference of the
Common Stock minus the Exercise Price of the Warrant multiplied by the number
Warrants owned by the Holder, or (ii) if the Common Stock price is below the
exercise price of the Warrant, then the redemption price is equal to the value
of the Warrants based on Black-Scholes model.For purposes of this redemption,
Common Stock price is defined as the average of the Closing Bid Prices of the
Common Stock for the five (5) trading days immediately preceding the Payment
Date.
The Company shall issue, and shall use its best efforts to cause the
Transfer Agent to issue, within three (3) trading days after delivery to the
Company of a Notice of Conversion of the number of shares of Common Stock to
which the Holder shall be entitled as aforesaid. The date on which Notice of
Conversion is given, including notice by facsimile signature, shall be deemed to
be the "Date of Conversion". The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Date of Conversion. If the shares of Common Stock issuable upon such conversion
are not received by the Holder, or Holders United States Agent, within five (5)
trading days after the Date of Conversion, the Notice of Conversion shall
become, at the option of the Holder, null and void.
As contemplated by the Subscription Agreement, the Holder shall be
required to deliver this Debenture within five (5) days to the Company upon the
delivery of any Notice of Conversion. The Company shall retain an accounting
record of the portion of the principal balance of this Debenture which is deemed
to be paid upon the conversion of any portion of this Debenture by the Holder
hereof. Following conversion of this Debenture, or a portion thereof, the
principal and, upon payment thereof in cash, the interest owed on that Debenture
or portion of the Debenture so converted will be deemed paid in full and
satisfied, and such Debenture or portion thereof will no longer be outstanding.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Debentures, such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all then outstanding Debentures; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding
Debentures, the Company will take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(d) Adjustment to Conversion Price.
(i) If, prior to the conversion of all of the Debentures at the time
of conversion there is a stock split, stock dividend or other similar event
which occurs during the five-day period utilized to compute the Conversion
Price, then the Closing Bid Price used to compute the Conversion Price shall be
appropriately adjusted to reflect, as deemed equitable and appropriate by the
Company, such stock split, stock dividend or other similar event.
(ii) No adjustment need be made if it would result in a change of
less than 1% of the Conversion Price (whether the Fixed Conversion Price or the
Floating Conversion Price). Any adjustments required to be made by this
subsection shall be rounded up to the right to acquire the nearest whole number
of shares of Common Stock.
5. Redemption. The Company, at its sole option, may redeem any or all of the
outstanding Debentures that remain unconverted at any time from the date of
issuance hereof through the Ninetieth day following the issuance hereof at One
Hundred and Ten (110) percent of the Face Amount of the Debentures, plus accrued
and unpaid interest, which are being redeemed. Beginning on day 91 after the
issuance hereof, and continuing until the entire Debenture has been Converted or
redeemed, the Redemption Price is equal to One Hundred Fifteen (115)percent of
the Face Amount of the Debentures,plus accrued and unpaid interest, which are
being redeemed, provided that no event of default by the ISSUER has occured or
is continuing. Such redemption shall take place upon Ten (10) business days
written notice to the HOLDER . Proceeds of the redemption will be paid to the
HOLDER within Ten business days from the Notice of the Redemption. The Company
will process any Conversion Noticereceived prior to the issuance of a Notice of
Redemption. After an issuance of Notice of Redemption ahs been issued, the
Holder may Issue a Notice of Conversion which will not be honored unless the
Company fails to make the Redemption Payment, when due. In the event of such
failure, the notice of Conversion will be honored as of the date of the Notice
of Conversion. Additionally, if the Company fail to make full payment of the
Redemption Price by the tenth day following the Notice then, the Company waives
its right to redeem any of the remaining then outstanding Debentures, unless a
redemption is approved by the Holder.
6. No Impairment. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and interest on, this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms are
direct obligations of the Company.
7. Protective Provisions. This Debenture may not be amended without the prior
written consent of the Holder hereof.
8. Costs and Expenses. The Company agrees to pay all reasonable costs and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Debenture.
9. Events of Default; Remedies. If one or more of the following described
"Events of Default" shall occur and be continuing:
(a) The Company shall default in the payment of principal or interest on
this Debenture (or any other Debentures issued pursuant to the terms of the
Subscription Agreement), and such failure shall continue uncured for seven(7)
days after notice from the Holder of such failure; or
(b) Any of the representations or warranties made by the Company herein,
in the Subscription Agreement dated the date hereof pursuant to which this
Debenture has been issued or in any certificate or financial or other written
statements heretofore or hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Debenture or the Subscription
Agreement shall be false or misleading in any material respect at the time made;
or
(c) The Company shall fail to perform or observe, in any material respect,
any other covenant term, provision, condition, agreement or obligation of the
Company under the Subscription Agreement, this Debenture, or under any of the
other Debentures issued pursuant to the Subscription Agreement, or under any
other documents executed and delivered in connection with the closing of the
Subscription Agreement (including, without limitation, the failure to deliver
shares of Common Stock upon conversion of all or any portion of this Debenture
in accordance with the terms hereof), and such failure shall continue uncured
for a period of seven (7) days after notice from Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make an assignment for
the benefit of creditors or commence proceedings for its dissolution; or (4)
apply for or consent to the appointment of a trustee, liquidator or receiver for
its or for a substantial part of its property or business; or (5) adopt a plan
of liquidation or dissolution; or
(e) A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its consent and
shall not be discharged within thirty (30) days after such appointments; or
(f) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within sixty (60) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or similar process
in excess of Two Hundred Thousand ($200,000) Dollars in the aggregate shall be
entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company and, if instituted
against the Company shall not be dismissed within sixty (60) days after such
instruction or if the Company shall by any action or answer approve of, consent
to, or acquiesce in any such proceedings or admit the material allegations of,
or default in answering a petition filed in any such proceeding; or
(i) The Common Stock shall (i) be delisted from NASDAQ without being
listed on another exchange or over-the-counter market within two (2) days of
such delisting, or (ii) cease to trade on an exchange or over-the-counter market
for more than ten (10) successive trading days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable,at the Redemption Price specified in Sec.
5 above, without presentment, demand protest or notice of any kind, all of which
are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
with expiration of any period of grace, enforce any and all of the Holder's
rights and remedies provided herein or any other rights or remedies afforded by
law.
10. Mergers, Consolidations, Etc. The Company shall not consolidate or merge
into, or transfer all or substantially all of its assets to, any person, unless
such person assumes the obligations of the Company under this Debenture and
immediately after such transaction no Event of Default exists. Any reference of
the Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such assumption. If the Company
merges or consolidates with another corporation or sells or transfers all or
substantially all of its assets to another person and the holders of the Common
Stock of the Company are entitled to receive stock, securities or property in
respect of or in exchange for such Common Stock, then as a condition of such
merger, consolidation, sale or transfer, the Company and any such successor,
purchaser or transferee shall amend this Debenture to provide that it may
thereafter be converted at the option of the Holder on the terms and subject to
the conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
Holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer. The Conversion Price shall be the same as the applicable Conversion
Price defined in Section 4 above.
11. No Dividends. For so long as the Debenture remains outstanding, the Company
will not, without the prior consent of a majority of the Holders, make any
distributions in cash to its holders of Common Stock, any preferred stock or
with respect to any subordinated indebtedness.
12. Lost or Destroyed Debenture. If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver to the Holder, in
exchange and substitution for and upon cancellation of a mutilated Debenture, or
in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new
Debenture for the principal amount of this Debenture so mutilated, lost, stolen
or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such Debenture, and of the ownership thereof, and indemnity, if
requested, all reasonably satisfactory to the Company.
13. Sales in Compliance with Applicable Law. Any Holder of this Debenture, by
acceptance hereof, agrees that such Holder will not offer, sell or otherwise
dispose of this Debenture or the shares of Common Stock issuable upon exercise
thereof except under circumstances which will not result in a violation of the
Act.
14. Governing Law. This Debenture shall be governed by and construed in
accordance with the laws of the State of Nevada, without giving effect to the
principles of conflicts of laws. Any action brought to enforce, or otherwise
arising out of this Debenture shall be heard and determined in either a federal
or state court sitting in the County of Dallas, State of Texas.
15. Business Day and Trading Day Definition. For purposes hereof, the term
"business day" shall mean any day on which banks are generally open for business
in the State of New York, USA and excluding any Saturday and Sunday and a
"trading day" shall mean any business day in which the NASDAQ or other automated
quotation system or exchange on
which the Common Stock is traded is open for trading for at least four (4)
hours.
16. Notices. Any notice, demand or request required or permitted to be given by
either the Company or the Subscriber pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally, or by
facsimile, addressed to the Company at 444 Madison Ave.,Suite 3203, New York NY
10022, Facsimile: 212/688-6657, Attn: President, or to the Subscriber at 38
Hertford St. London, England WIY 7TG, Facsimile: 011-441-71-355-4975, Attn:
James Loughran, with a copy to HW Finance Partners, L.P., 4000 Thanksgiving
Tower, 1601 Elm Street, Dallas, Texas 75201, Facsimile: (214) 720-1662, Attn:
Barrett Wissman, or such other addresses as a party may request by notifying the
other in writing.
17. Waiver. Any waiver by the Company or the Holder hereof of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder hereof to insist upon
strict adherence to any term of this Debenture on one or more occasions shall
not be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this Debenture.
Any waiver must be in writing.
18. Unenforceable Provisions. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
19. Subordination.The rights of any Holder to receive the principal sum or any
part thereof, and to receive the interest due on this Debenture, other than by
conversion into Common Stock or reciept of Common Stock as interest, is and
shall remain subordinate in priority to the payment of the principal of and
interest on (i) all future obligations and guarantees of the Issuer for money
borrowed from any bank, trust company, insurance company or other financial
institution engaged in the business of lending money, for which the Issuer is at
the time of determination responsible or liable as obligor or guarantor; (ii)
all existing or future obligations of the Issuer secured by a lien, mortgage,
pledge or other encumbrance against real or personal property (including common
stock of the Issuer or any of its subsidiaries) of the Issuer, (iii) any
modifications, renewals, extensions or refunding of the foregoing, except for
any of such obligations of the Issuer the payment of which is made expressly
subordinate and junior to this Debenture; (iv) indebtedness under the MG Trade
Finance Corp. ("MGTF") loan agreement (the "Loan Agreement") or any indebtedness
incurred to refinance such obligations; (v) other indebtedness of the Issuer
existing on the date of this Debenture; and (vi) trade payables incurred in the
ordinary course of the Issuer or its subsidiaries. Notwithstanding the
foregoing, provisions of this Sec. 19 will be of no force or effect so long as
none of the Companys obligations described above have been accelerated by their
terms.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by an officer thereof duly authorized.
American International
Petroleum Corporastion
By:
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Name:
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Title:
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