THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE
DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS
OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND
REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING
WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED.
No. 1 $2,000,000
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
14% Convertible Note due April 21, 2000
AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation
(together with its successors, the "Company"), for value received hereby
promises to pay to:
INFINITY EMERGING OPPORTUNITIES LIMITED
(the "Holder") and registered assigns, the principal sum of Two Million Dollars
($2,000,000) or, if less, the principal amount of this Note then outstanding, on
the Maturity Date by wire transfer of immediately available funds to the Holder
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts, and
to pay interest, quarterly in arrears, on (i) the last day of March, June,
September and December of each year until the Maturity Date, commencing June 30,
1998 (unless such day is not a Business Day, in
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14% CONVERTIBLE NOTE - Page 1
which event on the next succeeding Business Day) (each an "Interest Payment
Date"), (ii) the Maturity Date, (iii) each Conversion Date, as hereafter
defined, and (iv) the date the principal amount of the Convertible Notes shall
be declared to be or shall automatically become due and payable, on the
principal sum hereof outstanding in like coin or currency, at the rates per
annum set forth below, from the most recent Interest Payment Date to which
interest has been paid on this Convertible Note, or if no interest has been paid
on this Convertible Note, from the date of this Convertible Note until payment
in full of the principal sum hereof has been made.
The interest rate shall be fourteen percent (14%) per annum (the "Interest
Rate") or, if less, the maximum rate permitted by applicable law. Past due
amounts (including interest, to the extent permitted by law) will also accrue
interest at the Interest Rate plus 2% per annum or, if less, the maximum rate
permitted by applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Note will be calculated on the basis of a 360-day
year of twelve 30 day months. All payments of principal and interest hereunder
shall be made for the benefit of the Holder pursuant to the terms of the
Agreement (hereafter defined). At the option of the Company, interest may be
paid in cash or in shares of Common Stock. If the Company determines to pay
interest in shares of Common Stock, it shall be required to notify the Holder of
such election at least five (5) Business Days prior to the applicable Interest
Payment Date. On each Conversion Date, interest shall be paid in shares of
Common Stock on the portion of the principal balance of the Convertible Note
then being converted. The number of shares of Common Stock issued as interest
shall be determined by dividing the dollar amount of interest due on the
applicable Interest Payment Date by the product of 85% multiplied by the
Conversion Price then in effect.
This Convertible Note (this "Convertible Note") is one of a duly
authorized issuance of $12,000,000 aggregate principal amount of Convertible
Notes of the Company referred to in that certain Securities Purchase Agreement
dated as of the date hereof between the Company and the Purchasers named therein
(the "Agreement"). The Agreement contains certain additional agreements among
the parties with respect to the terms of this Convertible Note, including,
without limitation, provisions which (A) limit the conversion rights of the
Holder, (B) specify voluntary and mandatory repayment, prepayment and redemption
rights and obligations and (C) specify Events of Default following which the
remaining balance due and owing hereunder may be accelerated. All such
provisions are an integral part of this Convertible Note and are incorporated
herein by reference. This Convertible Note is transferable and assignable to one
or more Persons, in accordance with the limitations set forth in the Agreement.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Note and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder or "Holders" shall
mean the Person listed in the Register as the registered holder of such
Convertible Notes. The ownership of this Convertible Note shall be proven by the
Register.
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14% CONVERTIBLE NOTE - Page 2
1. Certain Terms Defined. All terms defined in the Agreement and not
otherwise defined herein shall have for purposes hereof the meanings provided
for in the Agreement.
2. Covenants. Unless the Majority Holders otherwise consent in writing,
the Company covenants and agrees to observe and perform each of its covenants,
obligations and undertakings contained in the Agreement, which obligations and
undertakings are expressly assumed herein by the Company and made for the
benefit of the holder hereof.
3. Payment of Principal. The Company shall repay the remaining unpaid
balance on this Convertible Note on the Maturity Date. The Company may, and
shall be obligated to, prepay all or a portion of this Convertible Note on the
terms specified in the Agreement.
4.1 Conversion of Convertible Note. The Holder shall have the right, at
its option, at any time from and after the earlier to occur of (x) June 30,
1998, (y) the date the Registration Statement has been declared effective by the
Commission or (z) immediately preceding the occurrence of a Sale Event, convert
the principal amount of this Convertible Note, or any portion of such principal
amount, into that number of fully paid and nonassessable shares of Common Stock
(as such shares shall then be constituted) determined pursuant to this Section
4.1. The number of shares of Common Stock to be issued upon each conversion of
this Convertible Note shall be determined by dividing the Conversion Amount (as
defined below) by the Conversion Price in effect on the date (the "Conversion
Date") a Notice of Conversion is delivered to the Company by the Holder by
facsimile or other reasonable means of communication dispatched prior to 5:00
p.m., New York City Time. The term "Conversion Amount" means, with respect to
any conversion of this Convertible Note, the sum of (1) the principal amount of
this Convertible Note to be converted in such conversion plus (2) accrued and
unpaid interest, if any, on such principal amount at the interest rates provided
in this Convertible Note to the Conversion Date plus (3) Default Interest, if
any, on the interest referred to in the immediately preceding clause (2) plus
(4) at the Holder's option, any amounts owed to the Holder pursuant to Section
4.3 hereof, Section 10.1 of the Agreement or Section 10.4 of the Agreement.
4.2 Conversion Price. This Convertible Note shall be converted into a
number of shares of Common Stock at a conversion price (the "Conversion Price")
based on a formula F/P, where F = the principal amount of the Convertible Note
being converted plus accrued and unpaid interest thereon through the date of
conversion plus Default Interest, if any, on such interest, and P = the product
of 85% multiplied by the average of the lowest five (5) consecutive DWASP for
the Common Stock for the forty (40) Trading Days ending on the day prior to the
Conversion Date (subject, in each case, to equitable adjustments for stock
splits, stock dividends or rights offerings by the Company relating to the
Company's securities or the securities of any subsidiary of the Company,
combinations, recapitalization, reclassifications, extraordinary distributions
and similar
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14% CONVERTIBLE NOTE - Page 3
events as contemplated by Article XI of the Agreement). The term "DWASP" means,
for any security as of any date, the daily-weighted average sales price on the
Nasdaq Market as reported by Bloomberg or, if the Nasdaq Market is not the
principal trading market for such security, the dailyweighted average sales
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the daily-weighted average sales price of such security
in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no daily-weighted average sales price
is reported for such security by Bloomberg, then the average of the bid prices
of any market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the DWASP cannot be calculated for such
security on such date on any of the foregoing bases, the DWASP of such security
on such date shall be the fair market value as mutually determined by the
Company and the Holders of a majority in interest of Convertible Notes being
converted for which the calculation of the closing bid price is required in
order to determine the Conversion Price of such Convertible Notes.
4.3 Authorized Shares.
(a) Consistent with Section 7.11 of the Agreement, the Company (i)
shall promptly irrevocably instruct its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this Convertible
Note shall constitute full authority to its officers and agents who are
charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock in accordance with
the terms and conditions of this Convertible Note.
(b) If at any time a Holder of this Convertible Note submits a
Notice of Conversion (x) the Company does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion in
full in accordance with the provisions of this Article 4 or (y) the
Company is prohibited by the applicable rules of the Nasdaq Market to
effect such conversion in full as provided in subsection (d) below,
without stockholder approval (each, a "Conversion Default"), the Company
shall issue to the Holder all of the shares of Common Stock which are then
available to effect such conversion. The portion of this Convertible Note
which the Holder included in its Conversion Notice and which exceeds the
amount which is then convertible into available shares of Common Stock
(the "Excess Amount") shall, notwithstanding anything to the contrary
contained herein, not be convertible into Common Stock in accordance with
the terms hereof until (and at the Holder's option at any time after) the
date additional shares of Common Stock are authorized by the Company, or
its stockholders, as applicable, at which time the Conversion Price in
respect thereof shall be the lower of (i) the Conversion Price on the
Conversion Default Date (as defined below) and (ii) the Conversion Price
on the Conversion Date thereafter elected
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14% CONVERTIBLE NOTE - Page 4
by the Holder in respect thereof. The Company shall pay to the Holder
payments ("Conversion Default Payments") for a Conversion Default in the
amount of (N/365) x .24 x the Excess Amount on the Conversion Date in
respect of the Conversion Default (the "Conversion Default Date"), where N
= the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company, or its stockholders, as
applicable, authorizes a sufficient number of shares of Common Stock to
effect conversion of the full outstanding principal balance of this
Convertible Note. The Company shall use its best efforts to authorize, or
cause its stockholders to authorize within 90 days of the occurrence of a
Conversion Default, as applicable, a sufficient number of shares of Common
Stock as soon as practicable following the earlier of (i) such time that
the Holder notifies the Company or that the Company otherwise becomes
aware that there are or likely will be insufficient shares to allow full
conversion thereof and (ii) a Conversion Default. The Company shall send
notice to the Holder of the authorization of additional shares of Common
Stock, the Authorization Date and the amount of Holder's accrued
Conversion Default Payments. The accrued Conversion Default Payments for
each calendar month shall be paid in cash or shall be convertible into
Common Stock (at such time as there are sufficient authorized shares of
Common Stock) at the Market Price, at the Holder's option, as follows:
(i) In the event the Holder elects to take such payment in
cash, cash payment shall be made to Holder by the fifth Business Day
of the month following the month in which it has accrued; and
(ii) In the event the Holder elects to take such payment in
Common Stock, the Holder may convert such payment amount into Common
Stock at the Conversion Price (as in effect at the time of
conversion) at any time after the fifth Business Day of the month
following the month in which it has accrued (at such time as there
are sufficient authorized shares of Common Stock) in accordance with
the terms of this Article 4.
(c) The Holder's election pursuant to this Section 4.3 shall be made
in writing to the Company at any time prior to 5:00 p.m., New York City
Time, on the third Business Day of the month following the month in which
Conversion Default payments have accrued. If no election is made, the
Holder shall be deemed to have elected to receive cash. Nothing herein
shall limit the Holders right to pursue actual damages (to the extent in
excess of the Conversion Default Payments) due to the Company's failure to
maintain a sufficient number of authorized shares of Common Stock.
(d) In no event shall the Company issue more than the Maximum Number
of Shares upon conversion of this Convertible Note, unless the Company
shall have obtained Stockholder Approval (as defined below) or a waiver of
such requirement by the Nasdaq
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14% CONVERTIBLE NOTE - Page 5
Market. As used herein, Stockholder Approval means approval by the
stockholders of the Company in accordance with Rule 4460(i) of the rules
of the Nasdaq Market. Once the Maximum Number of Shares has been issued
(the date of which is hereinafter referred to as the "Maximum Conversion
Date"), unless the Company shall have obtained Stockholder Approval or a
waiver of such requirement by the Nasdaq Market within 90 days of the
Maximum Conversion Date, the Company shall pay to the Holder within five
(5) Business Days of the Maximum Conversion Date (or, if the Company is,
in good faith, using its best efforts to obtain Stockholder Approval, then
the earlier of (x) 90 days following the Maximum Conversion Date, and (y)
such date that it becomes reasonably apparent that Stockholder Approval
will not be obtained within such 90 day period), the Formula Price plus
accrued and unpaid Default Interest, if any. The Maximum Number of Shares
shall be subject to adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events
relating to the Common Stock occurring after the date hereof as
contemplated by Article XI of the Agreement. With respect to each Holder
of Convertible Notes, the Maximum Number of Shares shall refer to such
Holder's pro rata share thereof based upon the aggregate principal balance
of the Convertible Notes then outstanding. In the event that the Company
obtains Stockholder Approval, the approval of the Nasdaq Market or
otherwise is able to increase the number of shares to be issued above the
Maximum Number of Shares (such increased number being the "New Maximum
Number of Shares"), the references to Maximum Number of Shares above shall
be deemed to be, instead, references to the New Maximum Number of Shares.
4.4 Method of Conversion
(a) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Convertible Note in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Convertible Note to the Company unless the entire
unpaid principal amount of this Convertible Note is so converted.
Rather, records showing the principal amount converted (or otherwise
repaid) and the date of such conversion or repayment shall be
maintained on a ledger substantially in the form of Annex A attached
hereto (a copy of which shall be delivered to the Company or
transfer agent with each Notice of Conversion). It is specifically
contemplated that the Holder hereof shall act as the calculation
agent for conversions and repayments. In the event of any dispute or
discrepancies, such records maintained by the Holder shall be
controlling and determinative in the absence of manifest error. The
Holder and any assignee, by acceptance of this Convertible Note,
acknowledge and agree that, by reason of the provisions of this
paragraph, following a conversion of a portion of this Convertible
Note, the principal amount represented by this Convertible Note will
be the amount indicated on Annex A attached hereto (which may be
less than the amount stated on the face hereof).
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14% CONVERTIBLE NOTE - Page 6
(b) The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock or other securities or property
on conversion of this Convertible Note in a name other than that of
the Holder (or in street name), and the Company shall not be
required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be
held for the Holder's account) requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax has
been paid.
(c) Upon receipt by the Company of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, the outstanding principal
amount and the amount of accrued and unpaid interest on this
Convertible Note shall be reduced to reflect such conversion, and,
unless the Company defaults on its obligations under this Article 4,
all rights with respect to the portion of this Convertible Note
being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion. If the Holder shall have
given a Notice of Conversion as provided herein, the Company's
obligation to issue and deliver the certificates for shares of
Common Stock shall be absolute and unconditional, irrespective of
the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the
recovery of any judgment against any person or any action by the
Holder to enforce the same, any failure or delay in the enforcement
of any other obligation of the Company to the Holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder of any obligation to the
Company, and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with such conversion. The date of receipt (including
receipt via telecopy) of such Notice of Conversion shall be the
Conversion Date so long as it is received before 5:00 p.m., New York
City Time, on such date.
(d) Notwithstanding the foregoing, if a Holder has not
received certificates for all shares of Common Stock prior to the
expiration of the Deadline with respect to a conversion of any
portion of this Convertible Note for any reason, then (unless the
Holder otherwise elects to retain its status as a holder of Common
Stock by so notifying the Company), the Holder shall regain the
rights of a Holder of this Convertible Note with respect to such
unconverted portions of this Convertible Note and the Company shall,
as soon as practicable, return such unconverted Convertible Note to
the holder or, if the Convertible Note has not been
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14% CONVERTIBLE NOTE - Page 7
surrendered, adjust its records to reflect that such portion of this
Convertible Note has not been converted. In all cases, the Holder
shall retain all of its rights and remedies (including, without
limitation, (i) the right to receive Conversion Default Payments to
the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined
in accordance with Section 4.3 for the Company's failure to convert
this Convertible Note.
(e) In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Company's
transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, upon request of
the Holder and its compliance with the provisions contained in
Section 4.1 and in this Section 4.4, the Company shall use its best
efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the Holder by crediting the
account of Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.
5. Miscellaneous. This Convertible Note shall be deemed to be a contract
made under the laws of the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of said State. The parties
hereto, including all guarantors or endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Convertible Note,
except as specifically provided herein, and assent to extensions of the time of
payment, or forbearance or other indulgence without notice. The Company hereby
submits to the exclusive jurisdiction of the United States District Court for
the Southern District of New York and of any New York state court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Convertible Note. The Company irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum. The Company hereby irrevocably waives any and all right to trial by jury
in any legal proceeding arising out of or relating to this Convertible Note.
The Holder of this Convertible Note by acceptance of this Convertible Note
agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
[Signature page follows]
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14% CONVERTIBLE NOTE - Page 8
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: April 21, 1998
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: s/ George N. Faris
----------------------------
Name: George N. Faris
Title: Chief Executive Officer
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14% CONVERTIBLE NOTE - Page 9
ANNEX A
CONVERSION AND REPAYMENT LEDGER
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Interest Principal New
Principal Converted or Converted or Principal
Date Balance Paid Paid Balance Issuer Initials Holder Initials
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