Exhibit 10.2
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: May 10, 2006
Original Conversion Price (subject to adjustment herein): $2.00
$608,194
2.5% CONVERTIBLE DEBENTURE
DUE JANUARY 1, 2008
THIS DEBENTURE is duly authorized and issued by 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 January 1, 2008 (the "Debenture").
FOR VALUE RECEIVED, the Company promises to pay to Natural Resource Group
Gathering, LLC, a Colorado limited liability company or its registered assigns
(the "Holder"), or shall have paid pursuant to the terms hereunder, the
principal sum of $608,194.00 by January 1, 2008, or such earlier date as this
Debenture is 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.
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"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 this Debenture.
"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)."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 this
Debenture shall have been paid; (iii) the Common Stock is trading on the
Trading Market and all of the shares issuable pursuant to this Debenture is
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), (iv) 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 this Debenture, (v) 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 7.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"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).
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"Interest Conversion Rate" means one share of Common Stock (as
adjusted for splits, recapitalizations and the like) for each two dollars
($2.00) 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 this Debenture shall equal the sum
of 110% of the principal amount of the Debenture to be prepaid, plus all
accrued and unpaid interest thereon.
"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
this Debenture regardless of the number of transfers of the 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.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"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.
"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 Debenture
(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 Debenture held by each Holder, unless otherwise
agreed to in writing by all of the Holders.
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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 Debenture 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
Purchase and Sale Agreement and may be transferred or exchanged only in
compliance with the Purchase and Sale Agreement and applicable federal and state
securities laws and regulations.
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.
---------- ----------
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
this Debenture 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 this Debenture 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.
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b) Conversion Price. The conversion price in effect on any Conversion Date
shall be equal to $2.00 (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.
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 representing the number of shares of
Common Stock being acquired upon the conversion of Debenture (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).
iii. 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 this Debenture and payment of interest on this
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) be issuable (taking into account the adjustments and restrictions
of Section 5) upon the conversion of the outstanding principal amount of
this Debenture 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.
iv. 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.
v. Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Debenture 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 Debenture 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.
---------- --------------------
a) Stock Dividends and Stock Splits. If the Company, at any time while this
Debenture is 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
Company pursuant to this Debenture, the Company's outstanding 2.5% Convertible
Debentures due July 22, 2007, 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.
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b) Subsequent Equity Sales. If the Company at any time while this Debenture
is 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 this Debenture
is 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.
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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 this Debenture, 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 this Debenture 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.
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Section 7. Events of Default.
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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 this
Debenture, or (B) interest (including Late Fees) on, or liquidated damages
in respect of, this 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;
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 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 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 this Debenture 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;
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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;
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 this Debenture in
accordance with the terms hereof;
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. This Debenture 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.
9
Section 8. Subordination.
---------- --------------
(a) Agreement to Subordinate. The Company agrees, and the Holder agrees by
accepting the Debenture that the indebtedness evidenced by this Debenture is
subordinated in right of payment, to the extent and in the manner provided in
this Section 8, to the prior payment in full of the Company's 2.5% Convertible
Debentures due July 22, 2007. This agreement to subordinate is for the benefit
of the holders of the 2.5% Convertible Debentures due July 22, 2007. The
provisions of this Section 8 shall be null and void upon full payment of the
2.5% Convertible Debentures due July 22, 2007.
(b) Liquidation; Dissolution; Bankruptcy. Upon any distribution to
creditors of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or any of its properties, in an assignment for the
benefit of creditors or any marshaling of the Company's assets and liabilities,
the holders of the 2.5% Convertible Debentures due July 22, 2007 shall be
entitled to receive payment in full of all obligations due in respect of such
2.5% Convertible Debentures due July 22, 2007 (including interest after the
commencement of any such proceeding at the rate specified in the 2.5%
Convertible Debentures due July 22, 2007, whether or not allowable as a claim in
such proceeding) before the Holder of this Debenture shall be entitled to
receive any payment with respect to the Debenture.
(c) Change; Extension of Time; Renewal, or Alteration. The holders of the
2.5% Convertible Debentures due July 22, 2007 may, at any time and from time to
time, without the consent of or notice to the Holder of this Debenture, without
incurring responsibility to the Holder of this Debenture and without impairing
or releasing the obligations of the Holder of this Debenture to the holders of
the 2.5% Convertible Debentures due July 22, 2007, change or extend the time of
payment of, or renew or alter, any of the 2.5% Convertible Debentures due July
22, 2007, or otherwise amend in any manner any agreement pursuant to which the
2.5% Convertible Debentures due July 22, 2007 shall have been issued and
exercise or refrain from exercising any rights against the Company and any other
person.
(e) Failure to Act. No holder of the 2.5% Convertible Debentures due July
22, 2007 shall be prejudiced in its right to enforce subordination of this
Debenture by any act or failure to act by the Company or any other person in the
custody of the assets or property of the Company.
(f) Purpose. The provisions of this Section 8 regarding subordination are
solely for the purpose of defining the relative rights of the holders of the
2.5% Convertible Debentures due July 22, 2007 on the one hand and the rights of
the Holder of this Debenture on the other hand, and none of such provisions
shall impair, as between the Company and the Holder of this Debenture, the
obligation of the Company, which is unconditional and absolute, to pay to the
Holder of this Debenture the principal of and interest on this Debenture in
accordance with the terms of this Debenture, and no such provisions shall
prevent the Holder of this Debenture from exercising the remedies permitted by
applicable law in accordance with the provisions of this Note.
Section 9. Miscellaneous.
---------- --------------
10
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.
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
Colorado, 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 Purchase
Agreement and this Debenture (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
Denver, State of Colorado. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of any court in the City of Denver, State of Colorado 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 Purchase Agreement and this Debenture), 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 state and federal courts sitting in the City of Denver, State of
Colorado 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.
11
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.
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.
*********************
12
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: /s/ Xxx Xxxxx
---------------------------------
Name: Xxx Xxxxx
Title: Chief Accounting and Financial Officer
13
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 January 1, 2008, 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 Debenture 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:
14
Schedule 1
CONVERSION SCHEDULE
The 2.5% Convertible Debenture due on January 1, 2008, in the aggregate
principal amount of $608,194.00 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)
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15
