EXHIBIT 10.1
DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER RULE 504 OF REGULATION D PROMULGATED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS.
CDN $100,000.00 OCTOBER 13, 2009
5% CONVERTIBLE DEBENTURE
THIS DEBENTURE of American Exploration Corporation, a corporation
organized under the laws of the State of Nevada (the "Company"), in the
aggregate principal amount of One Hundred Thousand Dollars (Cdn $100,000), is
designated as the $100,000 5% Convertible Debenture (the "Debenture").
FOR VALUE RECEIVED, except as otherwise provided herein, the Company
promises to pay to DMS Ltd. (the "Holder"), the principal sum of which One
Hundred Thousand Canadian Dollars ($100,000), on or prior to the Maturity Date
as defined herein, and to pay interest to the Holder on the principal sum at the
rate of five percent (5%) per annum. Except as otherwise provided herein,
interest shall accrue daily commencing on the Issuance Date (as defined in
Section 1 below) in the form of cash or common stock of the Company selected by
the Holder, until payment in full of the principal sum, together with all
accrued and unpaid interest, has been made or duly provided for.
This Debenture is subject to the following additional provisions:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"Conversion Date" shall have the meaning set forth in Section 4(a)
hereof.
"Conversion Ratio" means, at any time, a fraction, the numerator of
which is the then outstanding principal amount represented by the Debenture plus
accrued but unpaid interest thereon, and the denominator of which is the
conversion price at such time.
"Issuance Date" shall mean the date of the first issuance of this
Debenture.
"Maturity Date" shall mean the earlier of: (i) that date when the
Company is able to meet the insolvency test (i.e, when the Company has
sufficient funds in its cash account to meet its obligations as they arise on a
daily basis, which shall be determined by management in good faith); or (ii)
January 13, 2010.
"Notice of Conversion" shall have the meaning set forth in Section 4(a)
hereof.
SECTION 2. EVENTS OF DEFAULT AND REMEDIES.
I. "Event of Default," when used herein, means any one of the following
events (whatever the reason and whether any such event shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(a) any default in the payment of the principal of or interest on this
Debenture as and when the same shall become due and payable either at the
Maturity Date, by acceleration, conversion, or otherwise;
(b) the Company shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach of, this
Debenture, and such failure or breach shall not have been remedied within five
(5) Business Days of its receipt of notice of such failure or breach;
(c) the Company or any of its subsidiaries shall commence a voluntary
case under the United States Bankruptcy Code as now or hereafter in effect or
any successor thereto (the "Bankruptcy Code"); or an involuntary case is
commenced against the Company under the Bankruptcy Code and the petition is not
controverted within thirty (30) days, or is not dismissed within sixty (60)
days, after commencement of the case; or a "custodian" (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or any substantial
part of the property of the Company or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced against the Company any such proceeding which remains undismissed
for a period of sixty (60) days; or the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company suffers any appointment of any custodian
or the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of thirty (30) days; or the Company makes
a general assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state in writing that it is unable to pay its debts generally as
they become due; or the Company shall call a meeting of its creditors with a
view to arranging a composition or adjustment of its debts; or the Company shall
by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other action is taken
by the Company for the purpose of effecting any of the foregoing;
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(d) the Company shall default in any of its obligations under any
mortgage, indenture or instrument under which there may be issued, or by which
there may be secured or evidenced, any indebtedness of the Company in an amount
exceeding One Hundred Thousand Dollars (Cdn $100,000.00), whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable;
(e) the Company shall have its Common Stock deleted or delisted, as the
case may be, from the OTCBB or other national securities exchange or market on
which such Common Stock is listed for trading or suspended from trading thereon;
(f) notwithstanding anything herein to the contrary, but subject to the
limitations set forth in the Debenture, the Company shall fail to deliver to the
Holder share certificates representing the shares of Common Stock to be issued
upon conversion of any or all of a portion of the Debenture within three (3)
business days after to the Company's receipt of notice from the Holder to the
Company;
II. (a) If any Event of Default occurs, and continues beyond a cure
period, if any, then the Holder may, by written notice to the Company,
accelerate the payment due under this Debenture by declaring all amounts so due
under this Debenture, whereupon the same shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are waived by the Company, notwithstanding anything contained herein to
the contrary, and the Holder may immediately and without expiration of any
additional grace period enforce any and all of its rights and remedies hereunder
and all other remedies available to it under applicable law.
(b) The Holder may thereupon proceed to protect and enforce its rights
either by suit in equity and/or by action at law or by other appropriate
proceedings whether for the specific performance (to the extent permitted by
law) of any covenant or agreement contained in this Debenture or in aid of the
exercise of any power granted in this Debenture, and proceed to enforce the
payment of any of the Debenture held by it, and to enforce any other legal or
equitable right of such Holder.
(c) Except as expressly provided for herein, the Company specifically
(i) waives all rights it may have (A) to notice of nonpayment, notice of
default, demand, presentment, protest and notice of protest with respect to any
of the obligations hereunder or the shares of Common Stock and (B) notice of
acceptance hereof or of any other action taken in reliance hereon, notice and
opportunity to be heard before the exercise by the Holder of the remedies of
self-help, set-off, or other summary procedures and all other demands and
notices of any type or description except for cure periods, if any; and (ii)
releases the Holder, its officers, directors, agents, employees and attorneys
from all claims for loss or damage caused by any act or failure to act on the
part of the Holder, its officers, attorneys, agents, directors and employees
except for gross negligence or willful misconduct.
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III. To effectuate the terms and provision of this Debenture, the
Holder may give notice of any default to the Attorney-in-Fact as set forth
herein and give a copy of such notice to the Company and its counsel,
simultaneously, and request the Attorney-in-Fact to comply with the terms of
this Debenture.
SECTION 3. CONVERSION.
(a) The unpaid principal amount of this Debenture shall be convertible
into shares of Common Stock at the price of $0.50 per share, at the option of
the Holder, in whole or in part, at any time, commencing on the Issuance Date.
Such shares of Common Stock shall be with restriction and issued pursuant to
Rule 506 of Regulation D of the Securities Act. The Holder shall effect
conversions by surrendering the Debenture to be converted to the Company
together with the form of notice attached hereto ("Notice of Conversion") in the
manner set forth in Section 3(h) hereof. Each Notice of Conversion shall specify
the principal amount of Debenture to be converted and the date on which such
conversion is to be effected (the "Conversion Date") which date shall not be
less than one (1) Business Day after the date on which the Notice of Conversion
is delivered to the Company. Subject to the last paragraph of Section 3(b)
hereof, each Notice of Conversion, once given, shall be irrevocable. If the
Holder is converting less than all of the principal amount represented by the
Debenture tendered by the Holder in the Notice of Conversion, the Company shall
deliver to the Holder a new Debenture for such principal amount as has not been
converted within one (1) Business Day of the Conversion Date.
(b) Not later than one (3) Business Days after the Conversion Date, the
Company shall deliver to the Holder: (i) a certificate or certificates
representing the number of shares of Common Stock being acquired upon the
conversion of the Debenture, and once the Debenture so converted in part shall
have been surrendered to the Company, the Company shall deliver to the Holder a
Debenture in the principal amount of the Debenture not yet converted; PROVIDED,
HOWEVER, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of the Debenture,
until the Debenture is either delivered for conversion to the Company or any
transfer agent for the Debenture or Common Stock, or the Holder notifies the
Company that such Debenture has been lost, stolen or destroyed and provides an
affidavit of loss and an agreement reasonably acceptable to the Company
indemnifying the Company from any loss incurred by it in connection with such
loss, theft or destruction. In the case of a conversion pursuant to a Notice of
Conversion, if such certificate or certificates are not delivered by the date
required under this Section 4(b), the Holder shall be entitled, upon providing
written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event, the Company shall immediately return the Debenture tendered for
conversion.
(ii) If the Company, at any time while the Debenture is
outstanding: (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock payable in shares of its capital
stock (whether payable in shares of its Common Stock or of capital stock of any
class); (b) subdivide outstanding shares of Common Stock into a larger number of
shares; (c) combine outstanding shares of Common Stock into a smaller number of
shares; or (d) issue by reclassification any shares of capital stock of the
Company, the Conversion Price as applied in Section 4(c)(i) shall be multiplied
by a fraction, the numerator of which shall be the number of shares of Common
Stock of the Company outstanding immediately before such event and the
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denominator of which shall be the number of shares of Common Stock outstanding
immediately after giving effect to such event. Any adjustment made pursuant to
this Section 3(c)(ii) shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification, provided that no
adjustment shall be made if the Company does not complete such dividend,
distribution, subdivision, combination or reclassification.
(iii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the holder of Debenture then
outstanding shall have the right thereafter to convert such Debenture only into
the shares of stock and other securities and property receivable upon or deemed
to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange (except in the event the
property is cash, then the Holder shall have the right to convert the Debenture
and receive cash in the same manner as other stockholders), and the Holder shall
be entitled upon such event to receive such amount of securities or property as
the holder of shares of the Common Stock into which such Debenture could have
been converted immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange would have been entitled. The terms of
any such consolidation, merger, sale, transfer or share exchange shall include
such terms so as to continue to give to the Holder the right to receive the
securities or property set forth in this Section 3(c)(iii) upon any conversion
following such consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges;
(iv) If:
(A) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(B) the Company shall declare a special
non-recurring cash dividend redemption of its
Common Stock; or
(C) the Company shall authorize the grant to all
holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
(D) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company (other than a subdivision or combination
of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is
a party, any sale or transfer of all or
substantially all of the assets of the Company,
or any compulsory share exchange whereby the
Common Stock is converted into other securities,
cash or property; or
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(E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or
winding-up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debenture, and shall cause to be mailed and faxed
to the Holder of the Debenture at his last address and facsimile number set
forth in the Debenture at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; PROVIDED, HOWEVER, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
(c) Subject to the terms and limitations set forth in the Debenture,
the Company covenants and agrees that it shall, at all times, reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of the Debenture as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holder of the Debenture, two (2) times such number of shares of
Common Stock as shall be issuable upon the conversion of the aggregate principal
amount of the outstanding Debenture. The Company covenants that all shares of
Common Stock that shall be issuable upon conversion of the Debenture shall, upon
issuance, be duly and validly authorized and issued and fully paid and
non-assessable.
(d) No fractional shares of Common Stock shall be issuable upon a
conversion hereunder and the number of shares to be issued shall be rounded up
to the nearest whole share. If a fractional share interest arises upon any
conversion hereunder, the Company shall eliminate such fractional share interest
by issuing to the Holder an additional full share of Common Stock.
(e) The issuance of a certificate or certificates for shares of Common
Stock upon conversion of the Debenture shall be made without charge to the
Holder for any documentary stamp or similar taxes that may be payable in respect
of the issuance or delivery of such certificate, provided that the Company shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in
a name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
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(f) The Debenture converted into Common Stock shall be canceled upon
conversion.
(g) On the Maturity Date, the unconverted principal amount of the
Debenture and all interest due thereon shall convert automatically into shares
of Common Stock at the Conversion Price.
(h) Each Notice of Conversion shall be given by facsimile or electronic
mail to the Company on any business day. Any such notice shall be deemed given
and effective upon the transmission of such facsimile or electronic mail at the
facsimile telephone number or e-mail address (with printed confirmation of
transmission).
SECTION 4. ABSOLUTE PAYMENT OBLIGATION; LIMITATION ON PREPAYMENT.
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 Maturity Date at
the time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture is a direct obligation of the Company.
SECTION 7. NO RIGHTS OF STOCKHOLDERS. This Debenture shall not entitle
the Holder to any of the rights of a stockholder of the Company, including
without limitation, the right to vote on or consent to any action, to receive
dividends and other distributions, or to receive any notice of, or to attend,
meetings of stockholders or any other proceedings of the Company, unless and to
the extent converted into shares of Common Stock in accordance with the terms
hereof.
SECTION 8. LOSS, THEFT, MUTILATION OR DESTRUCTION. If this Debenture
shall be mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, 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 an affidavit of
such loss, theft or destruction of such Debenture, and, if requested by the
Company, an agreement to indemnity the Company in form reasonably acceptable to
the Company.
SECTION 9. GOVERNING LAW. This Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Nevada without regard to the principles of conflicts of law thereof. Any action
to enforce the terms of this Debenture shall be exclusively brought in the state
and/or federal courts in the state and county of Nevada. Service of process in
any action by the Holder to enforce the terms of this Debenture may be made by
serving a copy of the summons and complaint, in addition to any other relevant
documents, by commercial overnight courier to the Company.
SECTION 10 NOTICES. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted to be given to
any party hereunder shall be in writing and shall be deemed duly given only if
delivered to the party personally or sent to the party by facsimile or
electronic mail upon electronic confirmation receipt (promptly followed by a
hard-copy delivered in accordance with this Section 11) or three days after
being mailed by registered or certified mail (return receipt requested), with
postage and registration or certification fees thereon prepaid, or if sent by
nationally recognized overnight courier, one day after being mailed, addressed
to the party at its address as set forth below:
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SECTION 11. WAIVER. Any waiver by the Company or the Holder 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 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
in any other occasion. Any waiver must be in writing.
SECTION 12. INVALIDITY. If any provision of this Debenture is held to
be invalid, illegal or unenforceable, the balance of this Debenture shall remain
in effect, and if any provision is held to be inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons and
circumstances.
SECTION 13. TRANSFER; ASSIGNMENT. This Debenture may not be transferred
or assigned, in whole or in part, at any time, except in compliance by the
transferor and the transferee with applicable federal and state securities laws.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized as of the date first above
indicated.
AMERICAN EXPLORATION CORPORATION
Date: October __, 2009
By:
_______________________________________
Name:
Title: President
Holder
Date: October __, 2009
__________________________________________
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NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Holder
in order to Convert the Debentures)
The undersigned hereby irrevocably elects to convert the attached Debenture into
shares of Common Stock, par value $0.001 per share (the "Common Stock"), of
American Exploration Corporation (the "Company"), according to the provisions
hereof, as of the date written below.
Conversion calculations:
_____________________________________________
Date to Effect Conversion
_____________________________________________
Principal Amount of Debenture to be Converted
_____________________________________________
Interest to be Converted or Paid
_____________________________________________
Applicable Conversion Price
_____________________________________________
Number of Shares to be Issued Upon Conversion
_____________________________________________
Signature
_____________________________________________
Name
_____________________________________________
Address
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