EXHIBIT 4.2
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK OF
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
PURSUANT TO SECTION _______ OF THE NEVADA
GENERAL CORPORATION LAW
1. Number of Shares of Series A Convertible Preferred Stock. Of the
7,000,000 shares of authorized but unissued Preferred Stock, $.01 par value
("Preferred Stock") of the Corporation, eighteen thousand (18,000) shares shall
be designated and known as Series A Convertible Preferred Stock, par value $.01
per share ("Series A Convertible Preferred Stock").
2. Voting.
(a) Unless required by law, no holder of any shares of Series A Convertible
Preferred Stock shall be entitled to vote at any meeting of stockholders of the
Corporation (or any written actions of stockholders in lieu of meetings) with
respect to any matter presented to the stockholders of the Corporation for their
action or consideration. Notwithstanding the foregoing, the Corporation shall
provide each holder of record of Series A Convertible Preferred Stock with
timely notice of every meeting of stockholders of the Corporation and shall
provide each holder with copies of all proxy materials distributed in connection
therewith.
(b) So long as shares of Series A Convertible Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by the Nevada General Corporation Law) of
the holders of at least 85% of the then outstanding shares of Series A
Convertible Preferred Stock:
(i) alter or change the rights, preferences or privileges of the
Series A Convertible Preferred Stock;
(ii) create any new class or series of capital stock ranking on a
parity with ("Pari Passu Securities") or a preference over the Series A
Convertible Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter
or change the rights, preferences or privileges of any Senior Securities so
as to affect adversely the Series A Convertible Preferred Stock;
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(iii) increase the authorized number of shares of Series A Convertible
Preferred Stock;
(iv) do any act or thing not authorized or contemplated by this
Certificate of Designations which would result in taxation of the holders
of shares of the Series A Convertible Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision
of the Internal Revenue Code as hereafter from time to time amended); or
(v) issue any additional shares of Series A Preferred Stock except as
pursuant to the Securities Purchase Agreement (defined below).
In the event holders of at least 85% of the then outstanding shares of
Series A Convertible Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series A
Convertible Preferred Stock, pursuant to subsection (b) above, so as to affect
the Series A Convertible Preferred Stock, then the Corporation will deliver
notice of such approved change to the holders of the Series A Convertible
Preferred Stock that did not agree to such alteration or change (the "Dissenting
Holders") and Dissenting Holders shall have the right for a period of thirty
(30) days to convert any and all shares of then held Series A Convertible
Preferred Stock pursuant to the terms of this Certificate of Designations as in
effect prior to such alteration or change, or else to continue to hold their
shares of Series A Convertible Preferred Stock.
3. Dividends
No holder of any shares of Series A Convertible Preferred Stock shall be
entitled to receive any dividends.
4. Liquidation
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidating Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series A
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Convertible Preferred Stock shall have received the Liquidation Preference (as
defined in Paragraph 4(c)) with respect to each share. If upon the occurrence of
a Liquidation Event, the assets and funds available for distribution among the
holders of the Series A Convertible Preferred Stock and holders of Pari Passu
Securities shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series A Convertible
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that Liquidation Preference payable on
each such share bears to the aggregate Liquidation Preference payable on all
such shares.
(b) The Liquidation Preference shall be the Stated Value of $1,000 per
share of Series A Convertible Preferred Stock.
5. Optional Conversion. The holders of shares of Series A Convertible
Preferred Stock shall have the following conversion rights:
(a) Right to Convert; Conversion Price. Subject to the terms, conditions,
and restrictions of this Paragraph 5, commencing on the Original Issuance Date
(as hereinafter defined), the holder of any shares of Series A Convertible
Preferred Stock shall have the right to convert each such share of Series A
Convertible Preferred Stock (except that upon any liquidation of the
Corporation, the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Series A
Convertible Preferred Stock) into a number of shares of Common Stock equal to
the Stated Value of such share or shares of Series A Convertible Preferred Stock
divided by (i) 92% of the average of the three lowest volume weighted average
sales prices, as reported by Bloomberg L.P., on the principal market for the
Corporation's Common Stock (the "Principal Market") during the period of twenty
Trading Days ending with the last Trading Day prior to the date of conversion
(the "Market Price"), (the "Conversion Price"). To illustrate, if the Market
Price as of the Conversion Date is $1.35 and 100 shares of Series A Convertible
Preferred Stock are being converted, the Stated Value for which would be
$100,000, then the Conversion Price shall be $1.24 per share of Common Stock
($1.35 x .92), whereupon the Stated Value of $100,000 of Series A Convertible
Preferred Stock would entitle the holder thereof to convert the 100 shares of
Series A Convertible Preferred Stock into 80,645 shares of Common Stock
($100,000 divided by $1.24 equals 80,645). The right of each holder to convert
shares of Series A Convertible Preferred Stock into shares of Common Stock is
subject to the limitations set forth in Paragraph 5(b) below, and for the
purpose of complying with the limitation set forth in Paragraph 5(b)(ii), shall
be prorated among the original purchasers of the shares of Series A Convertible
Preferred Stock (the "Initial Holders') and their subsequent transferees, if
any, based upon the number of shares of Series A Convertible Preferred Stock
purchased by the Initial Holders. As used herein, "Original Issuance Date" means
the date upon which shares of Series A Convertible Preferred Stock are initially
issued.
(b) Numerical Limitations. (i) No shares of Series A Convertible Preferred
Stock may be converted into Common Stock, to the extent that, after giving
effect to the conversion and issuance of the Common Stock to be issued pursuant
to the applicable Conversion Notice (as defined in Paragraph 5(c) below), the
total number of shares of Common Stock deemed beneficially
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owned by the holder requesting conversion (other than by virtue of the ownership
of unconverted shares of Series A Convertible Preferred Stock or the ownership
of other securities that have limitations on a holder's rights to exchange,
convert or exercise similar to those limitations set forth herein), together
with all shares of Common Stock deemed beneficially owned by such holder's
Affiliates (as defined in Rule 405 of the Securities Act of 1933, as amended)
that would be aggregated for purposes of determining whether a group under
Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules
promulgated thereunder, would exceed 9.99% of the total issued and outstanding
shares of Common Stock. If any court of competent jurisdiction shall determine
that the foregoing limitation is ineffective to prevent a holder from being
deemed the beneficial owner of more than 9.99% of the then outstanding shares of
Common Stock, then the Corporation shall redeem so many of such holder's shares
of Series A Convertible Preferred Stock pursuant to Paragraph 7(a) hereof as are
necessary to cause such holder to be deemed the beneficial owner of not more
than 9.99% of the then outstanding shares of Common Stock; provided that such
conversion limitation shall not apply following the occurrence of any Event of
Default which is not cured within ten days of the occurrence of such Event of
Default.
(ii) Unless the Corporation shall have obtained the approval of its
voting stockholders to such issuance, if required in accordance with the
rules of the Principal Market, the Corporation shall not issue shares of
Common Stock upon conversion of any shares of Series A Convertible
Preferred Stock if such issuance of Common Stock, when added to the number
of shares of Common Stock previously issued by the Corporation upon
conversion of shares of the Series A Convertible Preferred Stock, together
with shares of Common Stock issued and issuable upon exercise of warrants
issued in connection with the sale of shares of Series A Convertible
Preferred Stock, would result in the issuance of more than 19.9% of the
number of shares of Common Stock which were issued and outstanding on the
Original Issuance Date. To the extent the number of shares of Common Stock
issuable upon conversion would but for the limitation set forth in this
Paragraph 5(b)(ii) exceed such limit, the Corporation shall redeem promptly
(but not later than the fifth Trading Day after receipt of the applicable
Conversion Notice) the shares of Series A Convertible Preferred Stock that
may not be converted into shares of Common Stock as a result of such
limitation in accordance with Section 7(a) hereof.
(c) Notice of Conversion. The right of conversion shall be exercised by the
holder thereof by giving written notice (the "Conversion Notice") to the
Corporation, by facsimile or by registered mail or overnight delivery service,
with a copy by facsimile to the Corporation's then transfer agent for its Common
Stock, as designated by the Corporation from time to time, that the holder
elects to convert a specified number of shares of Series A Convertible Preferred
Stock representing a specified Stated Value thereof into Common Stock and, if
such conversion will result in the conversion of all of such holder's shares of
Series A Convertible Preferred Stock, by surrender of a certificate or
certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series A
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in the Conversion Notice, together with a statement of
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the name or names (with address) in which the certificate or certificates for
shares of Common Stock shall be issued. The Conversion Notice shall include
therein the Stated Value of shares of Series A Convertible Preferred Stock to be
converted, and a calculation (i) of the Market Price, (ii) the Conversion Price,
and (iii) the number of shares of Common Stock to be issued in connection with
such conversion.
(d) Issuance of Certificates; Time Conversion Effected. (i) Promptly, but
in no event more than five Trading Days, after the receipt of the Conversion
Notice referred to in Subparagraph 5(c) (the "Deadline"), the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock into which such
shares of Series A Convertible Preferred Stock are converted. To the extent
permitted by law, such conversion shall be deemed to have been effected on the
date on which such Conversion Notice shall have been received by the Corporation
and at the time specified stated in such Conversion Notice, which must be during
the calendar day of such notice, and at such time the rights of the holder of
such share or shares of Series A Convertible Preferred Stock shall cease, and
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby.
Issuance of shares of Common Stock issuable upon conversion which are requested
to be registered in a name other than that of the registered holder shall be
subject to compliance with all applicable federal and state securities laws. In
lieu of delivering physical certificates representing the Common Stock issuable
upon conversion, provided the Corporation's transfer agent is participating in
the Depository Trust Company ("DTC") Fast Automated Securities Transfers
Program, upon initial request of the holder of the Series A Convertible
Preferred Stock and its compliance with the provisions contained in this
Paragraph 5(d) (i), the Corporation shall use its best efforts to cause its
transfer agent to electronically transmit the Common Stock issuable upon
conversion of the Series A Convertible Preferred Stock by crediting the account
of such holders' Prime Broker with DTC through its Deposit Withdraw Agent
Commission System.
(ii) The Corporation understands that a delay in the issuance of the
shares of Common Stock beyond the Deadline could result in economic loss to
the holder. As compensation to the holder for such loss, the Corporation
agrees to pay late payments to the holder for late issuance of shares of
Common Stock upon conversion in the event the Corporation fails to deliver
the Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock more than one day following the Deadline. Late payments
will accrue in the amount of $500.00 for each $100,000 Stated Value of the
Series A Convertible Preferred Stock then outstanding, per day in cash for
each of the first ten days beyond the Deadline and, $1,000.00 for each
$100,000 Stated Value of the Series A Convertible Preferred Stock then
outstanding per day in cash for each day thereafter that the Company fails
to deliver such Common Stock. The Corporation shall pay any payments
incurred under this Paragraph 5(d) (ii) in immediately available funds upon
demand. Nothing herein shall limit holder's right to pursue injunctive
relief and/or actual damages for the Corporation's failure to issue and
deliver Common Stock to the holder. Furthermore, in addition to any other
remedies which may be available to the holder, in the event that the
Corporation fails for any reason to effect delivery of such shares of
Common Stock by the Deadline, the holder will be entitled to
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revoke the relevant Conversion Notice by delivering a notice to such effect
to the Corporation whereupon the Corporation and the holder shall each be
restored to their respective positions immediately prior to delivery of
such Conversion Notice.
(iii) The holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under 11
U.S.C.ss.101 et seq. (the "Bankruptcy -- ---- Code"). In the event the
Corporation is a debtor under the Bankruptcy Code, the Corporation hereby
waives to the fullest extent permitted any rights to relief it may have
under 11 U.S.C.ss.362 in respect of the holder's conversion privilege. The
Corporation hereby waives to the fullest extent permitted any rights to
relief it may have under 11 U.S.C.ss.362 in respect of the conversion of
the Series A Convertible Preferred Stock. The Corporation agrees, without
cost or expense to the holder, to take or consent to any and all action
necessary to effectuate relief under 11 U.S.C.ss.362.
(e) Fractional Shares. No fractional shares shall be issued upon conversion
of Series A Convertible Preferred Stock into Common Stock. All fractional shares
shall be rounded up to the nearest whole share.
(f) Share Reorganization. If and whenever the Corporation shall:
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(ii) consolidate the outstanding shares of Common Stock into a smaller
number of shares; (iii) issue Common Stock or securities convertible into
or exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the applicable Conversion Price shall be adjusted, effective
immediately after the record date at which the holders of Common Stock are
determined for the purposes of the Share Reorganization or, if no record date is
fixed, the effective date of the Share Reorganization, by multiplying the
applicable Conversion Price in effect on such record or effective date, as the
case may be, by a fraction of which:
(A) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to
the transaction); and
(B) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization,
including, in the case of a
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distribution of securities convertible into or exchangeable for shares of Common
Stock, the number of shares of Common Stock that would have been outstanding if
such securities had been converted into or exchanged for Common Stock on such
record or effective date.
(g) Rights Offering. If and whenever the Corporation shall issue to all or
substantially all the holders of Common Stock, rights, options or warrants under
which such holders are entitled, during a period expiring not more than 45 days
after the record date of such issue, to subscribe for or purchase Common Stock
(or securities convertible into or exchangeable or exercisable for equity
securities "Derivative Securities"), at a price per share (or, in the case of
securities convertible into or exchangeable for Common Stock, at an exchange or
conversion price per share at the date of issue of such securities) of less than
95% of the Closing Bid Price of the Common Stock on such record date (any such
event being herein called a "Rights Offering"), then in each such case the
applicable Conversion Price shall be adjusted, effective immediately after the
record date at which holders of Common Stock are determined for the purposes of
the Rights Offering, by multiplying the applicable Conversion Price in effect on
such record date by a fraction of which:
(i) the numerator shall be the sum of:
(A) the number of shares of Common Stock outstanding on such
record date; and
(B) a number obtained by dividing: either, (i) the product of the
total number of shares of Common Stock so offered for subscription or
purchase and the price at which such shares are so offered, or (II)
the product of the maximum number of shares of Common Stock into or
for which the convertible or exchangeable securities so offered for
subscription or purchase may be converted or exchanged and the
conversion or exchange price of such securities, or, as the case may
be, by the Closing Bid Price of the Common Stock on such record date;
and
(ii) the denominator shall be the sum of:
(A) the number of shares of Common Stock outstanding on such
record date; and
(B) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative Securities,
the maximum number of shares of Common Stock for or into which the
securities so offered for subscription or purchase may be converted or
exchanged). To the extent that such rights, options or warrants are
not exercised prior to the expiry time thereof, the applicable
Conversion Price shall be readjusted effective immediately after such
expiry time to the applicable Conversion Price which would then have
been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such
rights, options or warrants.
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(h) Special Distribution. If and whenever the Corporation shall issue or
distribute to all or substantially all the holders of Common Stock:
(i) shares of the Corporation of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Conversion Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Conversion Price in effect on such record date by a
fraction of which: the numerator shall be the difference between (x) the product
of the number of shares of Common Stock outstanding on such record date and the
Closing Bid Price of the Common Stock on such date; and (y) the fair market
value, as determined by the Directors (whose determination shall be conclusive),
to the holders of Common Stock of the shares, rights, options, warrants,
evidences of indebtedness or other assets issued or distributed in the Special
Distribution (net of any consideration paid therefor by the holders of Common
Stock), and the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Closing Bid Price of the
Common Stock on such date.
(i) Capital Reorganization. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common Stock
or any change of the shares of Common Stock into other shares, other than
in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Corporation with,
or into another body corporate; or
(iii) the transfer of all or substantially all of the assets of the
Corporation to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Debentures
after the effective date of such Capital Reorganization shall be entitled to
receive and shall accept, upon the exercise of such right, in lieu of the number
of shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Corporation or of the body corporate resulting
from such Capital Reorganization that such holder would have been entitled to
receive as a result of such Capital Reorganization if, on the effective date
thereof, such holders had been the holder of the number of shares of Common
Stock to which such holder was theretofore entitled upon conversion; provided,
however, that no such
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Capital Reorganization shall be consummated in effect unless all necessary steps
shall have been taken so that such holders shall thereafter be entitled to
receive such number of shares or other securities of the Corporation or of the
body corporate resulting from such Capital Reorganization, subject to adjustment
thereafter in accordance with provisions the same, as nearly as may be possible,
as those contained above.
(j) Conversion Price Adjustments. In case at any time and from time to time
the Corporation shall issue any shares of Common Stock or Derivative Securities
(the number of shares so issued, or issuable upon conversion or exercise of such
Derivative Securities, as applicable, being referred to as "Additional Shares of
Common Stock") for consideration less than the then Closing Bid Price at the
date of issuance of such shares of Common Stock or such Derivative Securities,
in each such case the Conversion Price shall, concurrently with such issuance,
be adjusted by multiplying the Conversion Price immediately prior to such event
by a fraction: (i) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus the number of shares of Common Stock that the
aggregate consideration received by the Corporation for the total number of such
Additional Shares of Common Stock so issued would purchase at the Closing Bid
Price and (ii) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of Additional Shares of
Common Stock plus the number of such Additional Shares of Common Stock so issued
or sold.
(k) Conversion Price Adjustment Rules. The following terms and procedures
shall be applicable to adjustments to the Conversion Price made pursuant to
Paragraphs 5(f) through (j):
(i) no adjustment in the applicable Conversion Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable Conversion Price then in effect, provided, however, that any
adjustments which, but for the provisions of this clause would otherwise
have been required to be made, shall be carried forward and taken into
account in any subsequent adjustment;
(ii) if any event occurs of the type contemplated by the adjustment
provisions of this Paragraph 5 but not expressly provided for by such
provisions, the Corporation will give notice of such event as provided
herein, and the Corporation's board of directors will make an appropriate
adjustment in the Conversion Price so that the rights of the holders of the
applicable Security shall not be diminished by such event; and
(iii) if a dispute shall at any time arise with respect to any
adjustment of the applicable Conversion Price, such dispute shall be
conclusively determined by the auditors of the Corporation or, if they are
unable or unwilling to act, by a firm of independent chartered accountants
selected by the Directors and any such determination shall be binding upon
the Corporation and the holders of the Series A Convertible Preferred
Stock.
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(l) Certificate as to Adjustment. The Corporation shall from time to time
promptly after the occurrence of any event which requires an adjustment in the
applicable Conversion Price deliver to the holders of the Series A Convertible
Preferred Stock a certificate specifying the nature of the event requiring the
adjustment, the amount of the adjustment necessitated thereby, the applicable
Conversion Price after giving effect to such adjustment and setting forth, in
reasonable detail, the method of calculation and the facts upon which such
calculation is based.
(m) Conversion Default Payments. If at any time a Notice of Conversion is
submitted and (x) the Corporation 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 Paragraph 5 or (y) the Corporation is
prohibited by its Principal Market to effect such conversion in full as provided
below without stockholder approval (each, a "Conversion Default"), the
Corporation shall issue to the holders of the Series A Convertible Preferred
Stock exercising such conversion rights, all of the shares of Common Stock which
are then available to effect such conversion. The portion of this Series A
Convertible Preferred Stock 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 Corporation, 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 by the holder in respect thereof. The Corporation 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 Corporation, or its stockholders, as applicable, authorizes a
sufficient number of shares of Common Stock to effect conversion of the total
number of outstanding shares of Series A Convertible Preferred Stock. The
Corporation shall use its best efforts to authorize, or cause its stockholders
to authorize within 40 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 Corporation
or that the Corporation otherwise becomes aware that there are or likely will be
insufficient shares to allow full conversion thereof and (ii) a Conversion
Default. The Corporation 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 by the fifth business day
of the month following the month in which it has accrued.
6. Redemption of Series A Convertible Preferred Stock.
(a) Mandatory Redemption Date. If, upon the occurrence of the events listed
in Paragraphs 6(a)(i) through (vii) below, there remain issued and outstanding
any shares of Series A Convertible Preferred Stock, then the Corporation shall
be required to redeem all of the
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outstanding shares of the Series A Convertible Preferred Stock, within ten
business days of such occurrence, for cash at a redemption price ("Redemption
Price") equal to (x) the number of shares of Common Stock into which the
outstanding Series A Convertible Preferred Stock are then convertible,
multiplied by (y) the Average Closing Bid Price of Common Stock for the five
Trading Days as reported by Bloomberg, LP immediately prior to the date of the
event causing such redemption of the shares of Series A Convertible Preferred
Stock:
(i) the second anniversary of the Original Issuance Date;
(ii) Upon (w) the occurrence of a Change in Control of the Company,
(x) a transfer of all or substantially all of the assets of the Company to
any Person in a single transaction or series of related transactions, (y) a
consolidation, merger or amalgamation of the Company with or into another
Person in which the Company is not the surviving entity (other than a
merger which is effected solely to change the jurisdiction of incorporation
of the Company and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of Common Stock)
(each of items (w), (x) and (y) being referred to as a "Sale Event"), or
(z) the occurrence of a Registration Default which continues uncured for a
period of ten (10) days.
(iii) Upon the issuance of the Maximum Number of Shares and the
failure within 40 days of such issuance to obtain shareholder approval to
issue additional shares of Common Stock, the Company shall redeem the
outstanding Series A Convertible Preferred Stock for the Redemption Price.
(iv) failure by the Company to pay or repay when due, all or any part
of the principal and interest on the Company's $2,500,000 Bridge Note,
$1,850,000 Bridge Note or $3,000,000 Bridge Note, held by Purchaser;
(v) the trading in the Common Stock shall have been suspended or
delisted by the Commission or by the Nasdaq Stock Market (except for any
suspension of trading of limited duration solely to permit dissemination of
material information regarding the Company and except if, at the time there
is any suspension or delisting on the Nasdaq Stock Market, the Common Stock
is then listed and approved for trading on either the New York Stock
Exchange, the American Stock Exchange, the Nasdaq Stock Market's Small Cap
Market, or the Nasdaq Bulletin Board within ten (10) Trading Days thereof);
(vi) the Registration Statement shall not have been declared effective
by the Commission by the Required Effectiveness Date, or the effectiveness
of any registration statement required to be filed pursuant to the
Registration Rights Agreement shall not be maintained for the Registration
Maintenance Period, in each case which results in the Company incurring the
Default Fee for a period in excess of 45 days.
(b) Right to Redeem Series A Convertible Preferred Stock. At any time, and
from time to time, on and after the Original Issuance Date, the Corporation may,
in its sole discretion, but shall not be obligated to, redeem, in whole or in
part, the then issued and outstanding
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shares of Series A Convertible Preferred Stock, at the Redemption Price. The
Company shall select the Shares of Series A Convertible Preferred Stock to be
redeemed in any redemption in which not all of the outstanding Shares of Series
A Convertible Preferred Stock are to be redeemed so that the ratio of the Shares
of Series A Convertible Preferred Stock of each holder selected for redemption
to the total Shares of Series A Convertible Preferred Stock owned by that holder
shall be the same as the ratio of all such Shares of Series A Convertible
Preferred Stock selected for redemption bears to the total of all then
outstanding Shares of Series A Convertible Preferred Stock.
(c) Notice of Redemption. The Corporation shall provide each holder of
record of the Series A Convertible Preferred Stock being redeemed with written
notice of redemption pursuant to Paragraph 6(b) (the "Redemption Notice") not
less than ten days prior to any date stipulated by the Corporation for the
redemption of the Series A Convertible Preferred Stock (the "Redemption Date").
The Redemption Notice shall contain (i) the Redemption Date, (ii) the number of
shares of Series A Convertible Preferred Stock to be redeemed from the holder to
whom the Redemption Notice is delivered, (iii) instructions for surrender to the
Corporation of the certificate or certificates representing the shares of Series
A Convertible Preferred Stock to be redeemed, and (iv) a procedure for the
holder to specify the number of shares of Series A Convertible Preferred Stock
to be converted into Common Stock pursuant to Subparagraph (d) below.
(d) Right to Convert Series A Convertible Preferred Stock upon Receipt of
Redemption Notice. Upon receipt of the Redemption Notice, the recipient thereof
shall have the option, at its sole election, to submit a Notice of Conversion to
a portion of the Series A Convertible Preferred Stock called for redemption in
the Redemption Notice; provided that such Notice of Conversion will only be
honored by the Corporation if the redemption is not completed by the Redemption
Date.
(e) Surrender of Certificates; Payment of Redemption Price. On or before
the Redemption Date, each holder of the shares of Series A Convertible Preferred
Stock to be redeemed shall surrender the required certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and upon payment to the holder of the
Redemption Price, each such surrendered certificate shall be canceled and
retired. If payment of such Redemption Price is not made in full by the ten days
following the Notice of Redemption, the holder shall again have the right to
convert the Series A Convertible Preferred Stock as provided in Paragraph 5
hereof and the Corporation's right of redemption under Paragraph 6(b), shall
cease to exist from and after the Redemption Date. If a certificate is
surrendered and all the shares evidenced thereby are not being redeemed, the
Corporation shall issue new certificates to be registered in the names of the
person(s) whose name(s) appear(s) as the owners on the respective surrendered
certificates and deliver such certificate to such person(s).
7. Notices. In case at any time:
(a) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other pro rata distribution to the holders
of its Common Stock; or
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(b) the Corporation shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or other rights; or
(c) there shall occur any of the events set forth in Paragraphs 5 (f)
through (k) hereof, or a consolidation or merger of the Corporation with or
into, or a sale of all or substantially all its assets to, another entity or
entities; or
(d) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex or facsimile or by recognized overnight
delivery service to non-U.S. residents, addressed to each holder of any shares
of Series A Convertible Preferred Stock at the address of such holder as shown
on the books of the Corporation, at least 10 days' prior written notice of the
date on which the books of the Corporation shall close or a record shall be
taken for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such event set forth in Paragraphs 5 (f)
through (k) hereof, consolidation, merger, sale, dissolution, liquidation or
winding up. Such notice in accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto and (ii)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
8. Stock to be Reserved. The Corporation, upon the effective date of this
Certificate of Designations, has a sufficient number of shares of Common Stock
available to reserve for issuance upon the conversion of all outstanding shares
of Series A Convertible Preferred Stock. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series A Convertible Preferred Stock
as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series A Convertible
Preferred . The Corporation covenants that all shares of Common Stock which
shall be so issued shall be duly and validly issued, fully paid and
non-assessable. The Corporation will take all such action as may be so taken
without violation of any applicable law or regulation, or of any requirement of
any national securities exchange upon which the Common Stock may be listed to
have a sufficient number of authorized but unissued shares of Common Stock to
issue upon conversion of the Series A Convertible Preferred Stock. The
Corporation will not take any action which results in any adjustment of the
conversion rights if the total number of shares of Common Stock issued and
issuable after such action upon conversion of the Series A Convertible Preferred
Stock would exceed the total number of shares of Common Stock then authorized by
the Corporation's Articles of Incorporation.
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9. No Reissuance of Series A Convertible Preferred Stock. Shares of Series
A Convertible Preferred Stock which are converted into shares of Common Stock as
provided herein shall not be reissued.
10. Issue Tax. The issuance of certificates for shares of Common Stock upon
conversion of Series A Convertible Preferred Stock shall be made without charge
to the holder for any United States issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series A Convertible
Preferred Stock which is being converted.
11. Closing of Books. The Corporation will at no time close its transfer
books against the transfer of any Series A Convertible Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series A Convertible Preferred Stock in any manner which interferes with the
timely conversion of such Series A Convertible Preferred Stock, except as may
otherwise be required to comply with applicable securities laws.
12. Definitions. As used in this Certificate of Designations, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
$0.08 par value, as constituted on the date of filing of this Certificate of
Designations authorizing the issuance of the Series A Convertible Preferred
Stock, and shall also include any capital stock of any class of the Corporation
thereafter authorized which shall neither be limited to a fixed sum or
percentage of par value in respect of the rights of the holders thereof to
participate in dividends nor entitled to a preference in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation; provided that the shares of Common Stock receivable upon
conversion of shares of Series A Convertible Preferred Stock shall include only
shares designated as Common Stock of the Corporation on the date of filing of
this instrument, or in case of any reorganization, reclassification, or stock
split of the outstanding shares thereof, the stock, securities or assets
provided for in Paragraphs 5(f) through (k). Any capitalized terms used in this
Certificate of Designations but not defined herein shall have the meanings set
forth in that certain Securities Purchase Agreement ("Securities Purchase
Agreement") by the Corporation and the other persons signatory thereto relating
to the issuance and sale of the Series A Convertible Preferred Stock to the
holders of the Series A Convertible Preferred Stock, a copy of which will be
provided to any stockholder of the Corporation upon request to the Secretary of
the Corporation, without charge.
13. Loss, Theft, Destruction of Preferred Stock. Upon receipt of evidence
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
certificates representing shares of Series A Convertible Preferred Stock and, in
the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (which shall not include the posting
of any bond), or, in the case of any such mutilation, upon surrender and
cancellation of the Series A Convertible Preferred Stock certificate, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated certificates for Series A Convertible Preferred Stock,
new certificates for Series A Convertible Preferred Stock of like tenor.
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14. Who Deemed Absolute Owner. The Corporation may deem the person in whose
name the Series A Convertible Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series A Convertible Preferred Stock for the purpose of conversion of the
Series A Convertible Preferred Stock and for all other purposes, and the
Corporation shall not be affected by any notice to the contrary. All such
payments and such conversion shall be valid and effectual to satisfy and
discharge the liability upon the Series A Convertible Preferred Stock to the
extent of the sum or sums so paid or the conversion so made.
15. Register. The Corporation shall keep at its principal office a register
in which the Corporation shall provide for the registration of the Series A
Convertible Preferred Stock. Upon any transfer of the Series A Convertible
Preferred Stock in accordance with the provisions hereof, the Corporation shall
register such transfer on the Series A Convertible Preferred Stock register.
16. Headings. The headings of the Sections of this Certificate of
Designations are inserted for convenience only and do not constitute a part of
this Certificate of Designations.
IN WITNESS WHEREOF, Denis J. Fitzpatrick, Chief Financial Officer of the
Corporation, under penalties of perjury, does hereby declare and certify that
this is the act and deed of the Corporation and the facts stated herein are true
and accordingly has signed this Certificate of Designations as of this _____ day
of July, 2000.
AMERICAN INTERNATIONAL PETROLEUM
CORPORATION
By:
------------------------------
Denis J. Fitzpatrick
Chief Financial Officer
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