EXHIBIT 10.1
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS 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 THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: [________________________
Original Conversion Price (subject to adjustment herein): $1.20
$_______________
2.5% CONVERTIBLE DEBENTURE
DUE [two years from date of Issuance]
THIS DEBENTURE is one of a series of duly authorized and issued 2.5%
Convertible Debentures of New Frontier Energy, Inc., a Colorado corporation,
having a principal place of business at PO Box 298, Littleton, CO 80120 (the
"Company"), designated as its 2.5% Convertible Debenture, due [two years from
date of Issuance] (the "Debenture(s)").
FOR VALUE RECEIVED, the Company promises to pay to ________________________
or its registered assigns (the "Holder"), or shall have paid pursuant to the
terms hereunder, the principal sum of $_______________ by [____________ , or
such earlier date as the Debentures are required or permitted to be repaid as
provided hereunder (the "Maturity Date"), and to pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this
Debenture in accordance with the provisions hereof. This Debenture is subject to
the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Subscription Agreement, and
(b) the following terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in Section
5(d).
"Base Conversion Price" shall have the meaning set forth in Section
5(b).
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which
banking institutions in the State of New York are authorized or required by
law or other government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 33% of the voting securities of the Company, or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving
effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 33% of the aggregate voting power
of the Company or the successor entity of such transaction, or (iii) the
Company sells or transfers its assets, as an entirety or substantially as
an entirety, to another Person and the stockholders of the Company
immediately prior to such transaction own less than 33% of the aggregate
voting power of the acquiring entity immediately after the transaction,
(iv) a replacement at one time or within a three year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the board
of directors was approved by a majority of the members of the board of
directors who are members on the date hereof), or (v) the execution by the
Company of an agreement to which the Company is a party or by which it is
bound, providing for any of the events set forth above in (i) or (iv).
"Common Stock" means the common stock, par value $0.001 per share, of
the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Date" shall have the meaning set forth in Section 4(a).
"Conversion Price" shall have the meaning set forth in Section 4(b).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of Debentures.
"Debenture Register" shall have the meaning set forth in Section 2(c).
"Dilutive Issuance" shall have the meaning set forth in Section 5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in Section
5(b).
"Effectiveness Period" shall have the meaning given to such term in
the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions scheduled
to occur or occurring by virtue of one or more Notice of Conversions, if
any, (ii) all liquidated damages and other amounts owing in respect of the
Debentures shall have been paid; (iii) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (iv)
the Common Stock is trading on the Trading Market and all of the shares
issuable pursuant to the Transaction Documents are listed (if applicable)
for trading on a Trading Market (and the Company believes, in good faith,
that trading of the Common Stock on a Trading Market will continue
uninterrupted for the foreseeable future), (v) there is a sufficient number
of authorized but unissued and otherwise unreserved shares of Common Stock
for the issuance of all of the shares issuable pursuant to the Transaction
Documents, (vi) there is then existing no Event of Default or event which,
with the passage of time or the giving of notice, would constitute an Event
of Default, (vii) no public announcement of a pending or proposed
Fundamental Transaction, Change of Control Transaction or acquisition
transaction has occurred that has not been consummated.
"Event of Default" shall have the meaning set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Corporation pursuant to
any stock or option plan duly adopted by a majority of the non-employee
members of the Board of Directors of the Corporation or a majority of the
members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise of or conversion of any
securities issued hereunder, convertible securities, options or warrants
issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to
increase the number of such securities, and (c) securities issued pursuant
to acquisitions or strategic transactions, provided any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an
operating company in a business synergistic with the business of the
Corporation and in which the Corporation receives benefits in addition to
the investment of funds, but shall not include a transaction in which the
Corporation is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities.
"Fundamental Transaction" shall have the meaning set forth in Section
5(d).
"Interest Conversion Rate" means one share of Common Stock (as
adjusted for splits, recapitalizations and the like) for each one and
20/100 dollars ($1.20) in interest due.
"Interest Payment Date" shall have the meaning set forth in Section
2(a).
"Late Fees" shall have the meaning set forth in Section 2(c).
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of 110% of the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon.
"New York Courts" shall have the meaning set forth in Section 9(d).
"Notice of Conversion" shall have the meaning set forth in Section
4(a).
"Original Issue Date" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Registration Rights Agreement" means Section 5(B) of the Subscription
Agreement, entitled "Registration Rights".
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Conversion Shares and naming the Holder as a
"selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subscription Agreement" means the subscription agreement to which the
Company and each original Holder is a party, with respect to the private
placement which commenced on June 28, 2005.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on each date in question: the
Nasdaq Over-the-Counter Bulletin Board, the Nasdaq SmallCap Market, the
American Stock Exchange, the New York Stock Exchange or the Nasdaq National
Market.
"Transaction Documents" shall mean this Debenture, the Subscription
Agreement, the Warrants and any other documents or agreements executed in
connection with the transactions contemplated under the Subscription
Agreement.
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"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed
or quoted on a Trading Market and if prices for the Common Stock are then
reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (c) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good
faith by the Holders and reasonably acceptable to the Company.
Section 2. Interest.
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a) Payment of Interest in Cash or Kind. The Company shall pay interest to
the Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture at the rate of 2.5% per annum, payable on the earlier of the
Conversion Date or the Maturity Date with respect to the principal amount
converted or maturing on such date, as applicable (each such date, an "Interest
Payment Date"), in cash or shares of Common Stock at the Interest Conversion
Rate, or a combination thereof, at the Company's option, provided, however, that
payment in shares of Common Stock may only occur if the Equity Conditions have
been met as of the Interest Payment Date.
b) Interest Calculations. Interest shall be calculated on the basis of a
365-day year and shall accrue daily and be compounded quarterly commencing on
the Original Issue Date, until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest shall cease to accrue with respect to any
principal amount converted, provided that the Company in fact delivers the
Conversion Shares within the time period required by Section 4(d)(ii). Interest
hereunder will be paid to the Person in whose name this Debenture is registered
on the records of the Company regarding registration and transfers of Debentures
(the "Debenture Register"). Except as otherwise provided herein, if at any time
the Company pays interest partially in cash and partially in shares of Common
Stock, then such payment shall be distributed ratably among the Holders based
upon the principal amount of Debentures held by each Holder, unless otherwise
agreed to in writing by all of the Holders.
c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder
shall entail a late fee at the rate of 12% per annum (or such lower maximum
amount of interest permitted to be charged under applicable law) ("Late Fees")
which will accrue daily, from the date such interest is due hereunder through
and including the date of payment.
d) Prepayment. Except as otherwise set forth in this Debenture, the Company
may not prepay any portion of the principal amount of this Debenture without the
prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
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a) Different Denominations. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
b) Investment Representations. This Debenture has been issued subject to
certain investment representations of the original Holder set forth in the
Subscription Agreement and may be transferred or exchanged only in compliance
with the Subscription Agreement and applicable federal and state securities laws
and regulations.
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c) Reliance on Debenture Register. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the Person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 4. Conversion.
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a) Voluntary Conversion. At any time after the Original Issue Date until
this Debenture is no longer outstanding, this Debenture shall be convertible
into shares of Common Stock, at the option of the Holder, in whole or in part at
any time and from time to time. The Holder shall effect conversions by
delivering to the Company the form of Notice of Conversion attached hereto as
Annex A (a "Notice of Conversion"), specifying therein the principal amount of
Debentures to be converted and the date on which such conversion is to be
effected (a "Conversion Date"). If no Conversion Date is specified in a Notice
of Conversion, the Conversion Date shall be the date that such Notice of
Conversion is provided hereunder. However, the Conversion Date shall not be a
date that is earlier than the date of receipt of the Notice of Conversion by the
Company. To effect conversions hereunder, the Holder shall not be required to
physically surrender Debentures to the Company unless the entire principal
amount of this Debenture plus all accrued and unpaid interest thereon has been
so converted. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture in an amount equal to the
applicable conversion. The Holder and the Company shall maintain records showing
the principal and/or accrued interest amounts converted and the date of such
conversions. The Company shall deliver any objection to any Notice of Conversion
within 1 Business Day of receipt of such notice. In the event of any dispute or
discrepancy, the records of the Company shall be controlling and determinative
in the absence of manifest error. The Holder and any assignee, by acceptance of
this Debenture, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the unpaid and
unconverted principal amount of this Debenture may be less than the amount
stated on the face hereof.
b) Conversion Price. The conversion price in effect on any Conversion Date
shall be equal to $1.20 (subject to adjustment herein)(the "Conversion Price").
c) Intentionally omitted.
d) Mechanics of Conversion
i. Conversion Shares Issuable Upon Conversion. The number of shares of
Common Stock issuable upon a conversion hereunder shall be determined by
the quotient obtained by dividing (x) the outstanding principal amount of
this Debenture to be converted by (y) the Conversion Price. i.
ii. Delivery of Certificate Upon Conversion. Not later than five (5)
Trading Days after any Conversion Date (the "Share Delivery Date"), the
Company will deliver to the Holder (A) a certificate or certificates
representing the Conversion Shares which shall be free of restrictive
legends and trading restrictions (other than those required by the
Subscription Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of Debentures (including, if so elected
by the Company, shares of Common Stock representing payment of accrued
interest) and (B) a check in the amount of accrued and unpaid interest (if
the Company has elected to pay accrued interest in cash). The Company
shall, if available and if allowed under applicable securities laws, use
its best efforts to deliver any certificate or certificates required to be
delivered by the Company under this Section electronically through the
Depository Trust Corporation or another established clearing corporation
performing similar functions.
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iii. Failure to Deliver Certificates. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as
directed by the applicable Holder by the third Trading Day after a
Conversion Date, the Holder shall be entitled by 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 certificates representing the
principal amount of Debentures tendered for conversion. In the event that
the Company has sent the certificate or certificates to the Holder prior to
receipt of the notice of rescission by the Holder, the Holder shall
immediately return the certificate or certificates.
iv. Obligation Absolute; Partial Liquidated Damages. If the Company
fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after
the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, for each $1000 of principal amount
being converted, $10 per Trading Day (increasing to $20 per Trading Day
after 5 Trading Days after the Conversion Date after such damages begin to
accrue (10 Trading Days total after the Conversion Date)) for each Trading
Day after such fifth Trading Day after the Conversion Date until such
certificates are delivered. Unless this Debenture has previously been
converted, the Company's obligations to issue and deliver the Conversion
Shares upon conversion of this Debenture in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by
the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other person,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
such Conversion Shares; provided, however, such delivery shall not operate
as a waiver by the -------- ------- Company of any such action the Company
may have against the Holder. In the event a Holder of this Debenture shall
elect to convert any or all of the outstanding principal amount hereof, the
Company may not refuse conversion based on any claim that the Holder or any
one associated or affiliated with the Holder of has been engaged in any
violation of law, agreement or for any other reason, unless, an injunction
from a court, on notice, restraining and or enjoining conversion of all or
part of this Debenture shall have been sought and obtained and the Company
posts a surety bond for the benefit of the Holder in the amount of 150% of
the principal amount of this Debenture outstanding, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be
payable to such Holder to the extent it obtains judgment. In the absence of
an injunction precluding the same, the Company shall issue Conversion
Shares or, if applicable, cash, upon a properly noticed conversion. Nothing
herein shall limit a Xxxxxx's right to pursue actual damages or declare an
Event of Default pursuant to Section 8 herein for the Company's failure to
deliver Conversion Shares within the period specified herein and such
Holder shall have the right to pursue all remedies available to it at law
or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall
not prohibit the Holders from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.
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v. Compensation for Buy-In on Failure to Timely Deliver Certificates
Upon Conversion. In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(d)(ii) by the third
Trading Day after the Conversion Date, and if after such third Trading Day
the Holder is required by its brokerage firm to purchase (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale
by such Holder of the Conversion Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall (A) pay
in cash to the Holder (in addition to any remedies available to or elected
by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common
Stock that such Holder anticipated receiving from the conversion at issue
multiplied by (2) the actual sale price of the Common Stock at the time of
the sale (including brokerage commissions, if any) giving rise to such
purchase obligation and (B) at the option of the Holder, either reissue
Debentures in principal amount equal to the principal amount of the
attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied
with its delivery requirements under Section 4(d)(ii). For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of Debentures with
respect to which the actual sale price of the Conversion Shares at the time
of the sale (including brokerage commissions, if any) giving rise to such
purchase obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder
requires the Company to make payment in respect of a Buy-In for the failure
to timely deliver certificates hereunder and the Company timely pays in
full such payment, the Company shall not be required to pay such Holder
liquidated damages under Section 4(d)(iv) in respect of the certificates
resulting in such Buy-In.
vi. Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of the Debentures and payment of interest on the
Debenture, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holders,
not less than such number of shares of the Common Stock as shall (subject
to any additional requirements of the Company as to reservation of such
shares set forth in the Subscription Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5) upon the conversion
of the outstanding principal amount of the Debentures and payment of
interest hereunder. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the Registration
Statement is then effective under the Securities Act, registered for public
sale in accordance with such Registration Statement.
vii. Fractional Shares. Upon a conversion hereunder, in the event the
conversion yields a fractional share, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of
Common Stock.
viii. Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of the Debentures shall be made without charge
to the Holders thereof for any documentary stamp or similar taxes that may
be payable in respect of the issue 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 of such Debentures so converted 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.
Section 5. Certain Adjustments.
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a) Stock Dividends and Stock Splits. If the Company, at any time while the
Debentures are outstanding: (A) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of Common Stock (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
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Company pursuant to this Debenture, the Company's Series A 18% Cumulative
Convertible Preferred Stock or the Company's Series B 12% Cumulative Convertible
Preferred Stock, including as interest thereon), (B) subdivide outstanding
shares of Common Stock into a larger number of shares, (C) combine (including by
way of reverse stock split) outstanding shares of Common Stock into a smaller
number of shares, or (D) issue by reclassification of shares of the Common Stock
any shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section 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 re-classification.
b) Subsequent Equity Sales. If the Company at any time while Debentures are
outstanding, shall offer, sell, grant any option to purchase or offer, sell or
grant any right to reprice its securities, or otherwise dispose of or issue (or
announce any offer, sale, grant or any option to purchase or other disposition)
any Common Stock or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at an effective price per share less than the then
Conversion Price (such lower price, the "Base Conversion Price" and such
issuances collectively, a "Dilutive Issuance"), as adjusted hereunder (if the
holder of the Common Stock or Common Stock Equivalents so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which is issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share which is less than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price), then the Conversion Price
shall immediately (except in the case of an Exempt Issuance) be reduced to the
price determined by dividing (1) an amount equal to the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issuance multiplied
by the Conversion Price in effect immediately prior to such issuance and (B) the
consideration, if any, received by the Corporation upon such issuance, by (2)
the total number of shares of Common Stock outstanding immediately after such
issuance. Such adjustment shall be made whenever such Common Stock or Common
Stock Equivalents are issued. The Company shall notify the Holder in writing, no
later than the Business Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this section, indicating therein the applicable
issuance price, or of applicable reset price, exchange price, conversion price
and other pricing terms (such notice the "Dilutive Issuance Notice"). For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Conversion Shares based upon the Base Conversion
Price regardless of whether the Holder accurately refers to the Base Conversion
Price in the Notice of Conversion.
c) Pro Rata Distributions. If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price shall be determined by multiplying such Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the VWAP determined as of the record date mentioned above, and of which
the numerator shall be such VWAP on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
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d) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the Company
with or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (C)
any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion absent such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of one share of Common Stock (the "Alternate Consideration"). For
purposes of any such conversion, the determination of the Conversion Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder's right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(c) and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
e) Calculations. All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this Section 5, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) issued and outstanding.
f) Exempt Issuance. Notwithstanding the foregoing, no adjustment will be
made under this Section 5 in respect of an Exempt Issuance.
g) Notice to Holders.
i. Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any of this Section 5, the Company shall promptly mail
to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. If the Company issues a variable rate security in a Variable
Rate Transaction (as defined in the Subscription Agreement), despite the
prohibition thereon in the Subscription Agreement, the Company shall be
deemed to have issued Common Stock or Common Stock Equivalents at the
lowest possible conversion or exercise price at which such securities may
be converted or exercised.
9
ii. Notice to Allow Conversion by Xxxxxx. If (A) the Company shall
declare a dividend (or any other distribution) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock; (C) the Company shall authorize the
granting 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;
(D) the approval of any stockholders of the Company shall be required in
connection with any reclassification of the 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, of any compulsory share
exchange whereby the Common Stock is converted into other securities, cash
or property; (E) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then,
in each case, the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the Debentures, and shall cause
to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 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 the 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 or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, 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.
Holders are entitled to convert Debentures during the 20-day period
commencing the date of such notice to the effective date of the event
triggering such notice.
Section 6. Voting Rights. Holder shall have no voting rights.
--------------
Section 7. Negative Covenants. So long as any portion of this Debenture is
outstanding, the Company will not directly or indirectly, unless it receives the
express written consent of the Holders of at least 51% of the then-outstanding
principal of all the Debentures:
a) enter into, create, incur, or assume any indebtedness or liens of any
kind, on or with respect to any of its property or assets now owned or herafter
acquired or any interest therein or any income or profits therefrom that is
senior to, or pari passu with, in any respect, the Company's obligations under
the Debentures;
b) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holder;
c) repay, repurchase or offer to repay, repurchase or otherwise acquire
more than a de minimis number of shares of its Common Stock or other equity
securities other than as to (i) the existing Series A 18% Convertible Preferred
Stock, (ii) the existing Series B 12% Convertible Preferred Stock, (iii)
warrants outstanding as of the Original Issue Date and (iii) the Conversion
Shares to the extent permitted or required under the Transaction Documents or as
otherwise permitted by the Transaction Documents; or
d) enter into any agreement with respect to any of the foregoing.
Section 8. Events of Default.
-----------------
a) "Event of Default", wherever used herein, means any one of the following
events (whatever the reason and whether it 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):
i. any default in the payment of (A) the principal amount of any
Debenture, or (B) interest (including Late Fees) on, or liquidated damages
in respect of, any Debenture, in each case free of any claim of
subordination, as and when the same shall become due and payable (whether
on a Conversion Date or the Maturity Date or by acceleration or otherwise)
which default, solely in the case of an interest payment or other default
under clause (B) above, is not cured, within 3 Trading Days;
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ii. the Company shall fail to observe or perform any other covenant or
agreement contained in this Debenture (other than a breach by the Company
of its obligations to deliver shares of Common Stock to the Holder upon
conversion which breach is addressed in clause (xii) below) which failure
is not cured, if possible to cure, within the earlier to occur of (A) 5
Trading Days after notice of such default sent by the Holder or by any
other Holder and (B)10 Trading Days after the Company shall become aware of
such failure;
iii. a default or event of default (subject to any grace or cure
period provided for in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents other than the
Debentures, or (B) any other material agreement, lease, document or
instrument to which the Company is bound, except where such event of
default will not have a material adverse effect upon the Company;
iv. any representation or warranty made herein, in any other
Transaction Documents, in any written statement pursuant hereto or thereto,
or in any other report, financial statement or certificate made or
delivered to the Holder or any other holder of Debentures shall be untrue
or incorrect in any material respect as of the date when made or deemed
made, except where such event of default will not have a material adverse
effect upon the Company;
v. (i) the Company shall commence, or there shall be commenced against
the Company, a case under any applicable bankruptcy or insolvency laws as
now or hereafter in effect or any successor thereto, 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 thereof or (ii) there is commenced against
the Company thereof any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 60 days; or (iii) the Company
thereof is adjudicated by a court of competent jurisdiction insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or (iv) the Company thereof 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 60 days; or (v)
the Company thereof makes a general assignment for the benefit of
creditors; or (vi) the Company shall fail to pay, or shall state in writing
that it is unable to pay, or shall be unable to pay, its debts generally as
they become due; or (vii) the Company thereof shall call a meeting of its
creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (viii) the Company thereof shall by any act
or failure to act expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or (ix) any corporate or other action
is taken by the Company thereof for the purpose of effecting any of the
foregoing;
vi. the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be issued, or
by which there may be secured or evidenced any indebtedness for borrowed
money or money due under any long term leasing or factoring arrangement of
the Company in an amount exceeding $150,000, 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;
vii. the Common Stock shall not be eligible for quotation on or quoted
for trading on a Trading Market and shall not again be eligible for and
quoted or listed for trading thereon within five Trading Days;
11
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or dispose of
all or in excess of 33% of its assets in one or more transactions (whether
or not such sale would constitute a Change of Control Transaction) or shall
redeem or repurchase more than a de minimis number of its outstanding
shares of Common Stock or other equity securities of the Company (other
than redemptions of Conversion Shares and repurchases of shares of Common
Stock or other equity securities of departing officers and directors of the
Company; provided such repurchases shall not exceed $100,000, in the
aggregate, for all officers and directors during the term of this
Debenture);
ix. the Company shall fail for any reason to deliver certificates to a
Holder prior to the fifth Trading Day after a Conversion Date pursuant to
and in accordance with Section 4(d) or the Company shall provide notice to
the Holder, including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of any Debentures in
accordance with the terms hereof;
12
b) Remedies Upon Event of Default. If any Event of Default occurs, the full
principal amount of this Debenture, together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become, at the
Holder's written election, immediately due and payable in cash. The aggregate
amount payable upon an Event of Default shall be equal to the Mandatory
Prepayment Amount. Commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Debenture, the
interest rate on this Debenture shall accrue at the rate of 18% per annum, or
such lower maximum amount of interest permitted to be charged under applicable
law. All Debentures for which the full Mandatory Prepayment Amount hereunder
shall have been paid in accordance herewith shall promptly be surrendered to or
as directed by the Company. The Holder need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such declaration may be rescinded and annulled by
Xxxxxx at any time prior to payment hereunder and the Holder shall have all
rights as a Debenture holder until such time, if any, as the full payment under
this Section shall have been received by it. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
Section 9. Miscellaneous.
--------------
a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile, sent by
a nationally recognized overnight courier service, addressed to the Company, at
the address set forth above, facsimile number 000-000-0000, Attn: Xx. Xxx Xxxxx
with a copy to 000-000-0000, Attn: Xxxxx X. Xxxxxxxxx, Esq. or such other
address or facsimile number as the Company may specify for such purposes by
notice to the Holders delivered in accordance with this Section. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service addressed to each Holder at the
facsimile telephone number or address of such Xxxxxx appearing on the books of
the Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
5:30 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.
b) Absolute Obligation. 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, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct debt obligation
of the Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein.
12
c) Lost or Mutilated Debenture. 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 (unless the Holder had previously effected a conversion of such
Debenture) but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the "New
York Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Debenture,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
e) 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. Any waiver
must be in writing.
f) Severability. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
13
g) Next Business Day. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Debenture and shall not be deemed to limit or affect
any of the provisions hereof.
*********************
14
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
NEW FRONTIER ENERGY, INC.
By:_______________________________
Name:
Title:
15
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 2.5%
Convertible Debenture of New Frontier Energy, Inc., a Colorado corporation (the
"Company"), due on [____________ , into shares of common stock, par value $0.001
per share (the "Common Stock"), of the Company according to the conditions
hereof, as of the date written below. If shares are to be issued in the name of
a person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the holder for any conversion, except for such transfer
taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts determined in accordance with Section 13(d) of the Exchange Act,
specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account
of Conversion at Issue.
Number of shares of Common Stock to
be issued:
Signature:
Name:
Address:
16
Schedule 1
CONVERSION SCHEDULE
The 2.5% Convertible Debentures due on [________, in the aggregate principal
amount of $____________ issued by New Frontier Energy, Inc. This Conversion
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.
Dated:
Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Original Conversion
Issue Date) Amount of Conversion (or original Company Attest
Principal Amount)
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
17
