Exhibit
10.3


 


	
  

  



 


THIS DEBENTURE, AND THE SECURITIES INTO WHICH
IT IS CONVERTIBLE (COLLECTIVELY, THE “SECURITIES”), HAVE NOT BEEN REGISTERED
WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE.  THE SECURITIES
ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION
D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE
SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR PURSUANT
TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE
COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS
IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.  HEDGING TRANSACTIONS INVOLVING THE SECURITIES
MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.


 


CONVERTIBLE
DEBENTURE


 


	
  Date:

  	
  March 18, 2005

  
	
   

  	
   

  
	
  Maker:

  	
  APOLLO RESOURCES INTERNATIONAL, INC.

  
	
   

  	
  3001 Knox St., Suite 403, Dallas, TX 75205

  
	
   

  	
   

  
	
  Company:

  	
  JSC KALININGRADNEFT

  
	
   

  	
  ul. Portovaya 32a, 236039, Kaliningrad, Russia

  
	
   

  	
   

  
	
  Shareholders:

  	
  Collectively all of the Shareholders of Maker on the Date, by and through their duly
  authorized representative (“Shareholders’ Representative”), and their heirs,
  successors and assigns.

  
	
   

  	
   

  
	
  The Parties:

  	
  Maker and Shareholders

  
	
   

  	
   

  
	
  Shareholders’ Representative:

  	
  VLADIMIR KOVALSKI

  
	
   

  	
  Baltoil-Group

  
	
   

  	
  130, Dzerginskogo str., Kaliningrad, Russia

  
	
   

  	
   

  
	
  Principal:

  	
  EIGHTEEN MILLION, FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
  ($18,500,000)

  
	
   

  	
   

  
	
  Annual Interest Rate on Unpaid
  Principal:

  	
  6.00%

  
	
   

  	
   

  
	
  Maturity Date:

  	
  March 18, 2006

  
	
   

  	
   

  
	
  Terms of Payment:

  	
  On or before the Maturity Date, Maker shall pay the outstanding
  principal and accrued interest balance (“the Balance”) in one lump sum UNLESS
  either of the parties elects to convert this Debenture under the Conversion
  Terms herein.

  
	
   

  	
   

  
	
  Obligation:

  	
  Maker promises to pay the Shareholders or convert
  this Debenture under the

  
	
   

  	
  Terms of Payment herein.

  
	
   

  	
   

  
	
  Ownership:

  	
  90% of the shares of the stock of Company, equal to

  
	
   

  	
  90% of the total equity ownership of Company.

  
	
   

  	
   

  
	
  Transaction Documents: 

  	
  The Transaction Documents include the following and their Exhibits:

  
	
   

  	
  1.

  	
  This Debenture;

  
	
   

  	
  2.

  	
  The Bill of Sale between the parties on the same date hereof (“Bill
  of Sale”); and

  
	
   

  	
  3.

  	
  The Stock Sale Agreement entered into between the parties on February 9,
  2005.

  
						



 


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General
Terms


 


1.                                       Conversion Terms.  Under the Terms of Payment, either party may
elect on the Maturity Date to convert the Balance of this Debenture into common
stock (the “Common Stock”) of Maker. 
Such conversion shall occur within ten (10) days of said party’s
election to so convert.  Upon such
election, the Shareholders shall be entitled to receive the Calculated Number
(herein so called) of fully paid, non-assessable shares of Common Stock.  The Calculated Number shall be equal to the
number of common shares with a publicly-reported per share value equal to the
Balance.  For the share price valuation
required in the Conversion calculation, the share price shall be equal to
eighty percent (80%) of the average trading price of the Common Stock over the
30 days before the Maturity Date, but in no event less than US$2.00 per share.  The shares of Common Stock to be delivered
upon conversion shall either (a) be registered and free-trading as of the date
of conversion or (b) be registered by Maker so as to be free trading within a
reasonable time (not to exceed 90 days) following the date of conversion.


 


2.                                       Adjustments to Conversion.  If
Maker is recapitalized, consolidated with or merged into any other corporation,
or sells or conveys to any other corporation all or substantially all of the
its property as an entity, provision shall be made as part of the terms of any
such transaction so that the Shareholders may receive, in lieu of the Common
Stock otherwise issuable to the Shareholders upon conversion hereof, at the
same conversion ratio, the same kind and amount of securities or assets as may
be distributable upon the recapitalization, consolidation, merger, sale or
conveyance with respect to the Common Stock.


 


3.                                       Assignment.  This
Debenture and the obligations herein may not be assigned by Maker without prior
written consent of the Shareholders.  The
Shareholders may freely assign all or any portion of their right, title and
interest in and to this Debenture.


 


4.                                       Maker’s Breach. 
Maker shall be in breach of this Debenture upon any of the following
events:


a.               Maker’s material default or breach of any
term of any of the Transactions Documents; or


b.              The filing by Maker or Maker’s successor of
an assignment for the benefit of creditors, bankruptcy, or for relief under any
provisions of the Bankruptcy Code; or by suffering an involuntary petition in
bankruptcy or receivership not vacated within sixty days.


 


5.                                       Shareholders’ Breach.  The Shareholders shall be in
breach of this Debenture upon any of the following events:


a.               A default or breach by the Shareholders of
any term of any of the Transaction Documents; or


b.              A misstatement or misrepresentation by the
Shareholders, by or through the Transaction Documents, regarding the financial
state or condition of the Company, or regarding the Ownership.


 


6.                                       Maker’s Remedy.  Upon
any Shareholders’ Breach hereunder, Maker’s sole remedy, at Maker’s sole
option, shall be to rescind the stock purchase transaction evidenced by the
Transaction Documents, and immediately deliver the Ownership back to the
Shareholders, less all improvements, investments, costs, expenses, obligations,
and deposits made by Maker on behalf of the Company after the date hereof.  In
the event that Maker is restricted from exercising the Company-owned government
concession to sub-surface minerals due to a change in the law governing such
concession, Maker may effect,
jointly with Shareholders, an adjustment of the Consideration contained in the
Bill of Sale and the Principal Amount of this Debenture (in each such event,
the “Adjustment”).  If Maker and the
Shareholders are unable, for whatever reason, to agree upon the amount of the
Adjustment, then Maker shall appoint an appraiser, and the Shareholders shall
appoint an appraiser, and the two appraisers so selected shall in turn select a


 


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third, neutral appraiser.  The neutral appraiser shall determine the
amount of the Adjustment, and such determination shall be final and binding on
the parties.


 


7.                                       Shareholders’ Remedy.  If
Maker breaches hereunder, the Shareholders’ sole remedy, at the Shareholders’
sole option, shall be to rescind the stock purchase transaction evidenced by
the Transaction Documents, and immediately receive the Ownership back from
Maker, less all improvements, investments, costs, expenses, obligations, and
deposits made by Maker on behalf of the Company after the date hereof.


 


8.                                       Notices.  Any notices required or permitted to be given
under this Debenture shall be delivered according to the terms for Notice under
the Bill of Sale.


 


9.                                       Tender.  All cash amounts payable hereunder are
payable in lawful money of the United States.


 


10.                                 Headings.  The article, paragraph and
subparagraph headings hereof are inserted for convenience of reference only and
shall not alter, define, or be used in construing the text of such articles,
paragraphs or subparagraphs.


 


11.                                 Plurality.  When the context requires, singular
nouns and pronouns include the plural.


 


12.                                 Governing Law and
Jurisdiction.  This
Debenture shall be governed by and construed in accordance with the laws of the
United States of America, and more specifically the laws of the state of Texas,
without reference to its conflict of laws rules.  Jurisdiction and venue shall reside
exclusively in the United States courts in Dallas County, Texas.


 


13.                                 Severability.  If
any provision of this Debenture is held to be invalid or unenforceable by
any court of competent jurisdiction, it is the intent of all of the parties
that all other provisions of this Debenture be construed to remain fully valid,
enforceable and binding on the parties.


 


14.                                 Power to Bind. 
Responsible officers of the parties have read and understand the
contents of this Agreement and are empowered and duly authorized on behalf of
their respective party to execute it.


 


15.                                 Counterparts.  This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.


 


16.                                 Shareholders’ Representative.  The
Shareholders’ Representative attests, warrants and pledges that he is fully
authorized to execute this Debenture of behalf of all of the Shareholders, and
that any failure as to this attestation and warranty will constitute a
Shareholders’ Breach under the terms hereof.


 


IN
WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Convertible Debenture effective on the Date
first stated herein.


 


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  MAKER:

  
	
   

  
	
   

  
	
  /s/ Dennis G. McLaughlin, III

  	
   

  
	
  APOLLO RESOURCES INTERNATIONAL, INC.

  
	
  Dennis G. McLaughlin, III, CEO

  
	
   

  
	
   

  
	
  SHAREHOLDERS, BY AND THROUGH THEIR DULY
  AUTHORIZED REPRESENTATIVE:

  
	
   

  
	
   

  
	
  /s/ Vladimir Kovalski

  	
   

  
	
  Vladimir Kovalski

  
	
  SHAREHOLDERS’ REPRESENTATIVE

  
			



 


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