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EXHIBIT 4.2
DEBENTURE AGREEMENT
$1,000,000
FIXED INTEREST RATE SUBORDINATED
DEBENTURE WITH CONVERSION PRIVILEGES
AND CALL PROVISION WITH PREMIUM
UNIT CERTIFICATE
CERTIFICATE NO.
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DUE FEBRUARY 1, 2001
Denver, Colorado February 26, 1999
After date and for value received, Horizontal Ventures, Inc., a
Colorado corporation (hereinafter the "Company") promises to pay to the order of
_______________at _____________________ the sum of __________ pursuant to the
terms hereinafter set forth:
1. SECURITIES PURCHASED. The Holder hereof has purchased as an
investment for his own account units of the debenture (the "Units"), each Unit
consisting of $25,000 and $5,000 minimum increments thereafter of the Company's
$1,000,000 convertible debenture. Each Unit may be converted to shares of the
Company's no par value common stock as set forth below.
2. SENIOR DEBT. The Debenture shall have a preference in liquidation to
all obligations except bank debt, purchase money debt which is secured by the
property purchased and secured leases which it shall be subordinated to, plus
any other indebtedness the subordination to which is agreed to by persons
holding at least two thirds (2/3) of the outstanding debentures. Upon a
liquidation, dissolution, bankruptcy or reorganization, or similar transaction
by the company, the holders of the "senior debt" would be paid in full before
payment would be made on the debenture.
3. SECURITY. The convertible debenture is secured by the Company's
limestone deposits located in southern Indiana, U.S.A. pursuant to that certain
Deed of Trust executed by Horizontal Ventures, Inc dated February 26, 1999, and
recorded in the records of the Clerk and Recorder of the County of Monroe as
reception No. ______________ (the "Mortgage").
4. CONVERSION. The convertible debenture holder may convert the
debenture, including accrued interest, into the Company's no par value common
stock at any time from August 1, 1999 until 5:00 p.m. E.S.T. on February 1, 2000
at the rate of $15 per share and thereafter until 5:00 p.m. E.S.T. on January
31, 2001 at the rate of $20 per share unless the Company shall earlier call the
debenture pursuant to paragraph 7 of this Debenture Agreement. Should the holder
elect to exercise his right to conversion, the Company shall pay any
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unconverted accrued interest on said debenture less any value of a dividend
which has been declared but not paid on the dated of the exercise of the
conversion rights.
5. INTEREST. This debenture shall be subject to an annual interest rate
of 15% per annum. The debenture is due in full including all principal and
accrued interests on or before February 1, 2001. Any payments of principal and
interest not paid when due shall bear interest at a default rate of 20% per
annum until paid. Except for a failure to pay a "call" as set forth below, the
remedy for which is a reversion to the rights and terms pursuant to this
agreement.
6. CALL PROVISION. At any time during the term of this Debenture the
Company, at its sole option, may call the entire Debenture due or any portion
thereof by paying the principal balance of the Debenture owing plus any accrued
interest plus, under certain circumstances, a penalty as set forth hereinafter
(the "Call Price"). Should a partial Call be made, the Company will make such
Call on a pro rata basis per unit outstanding. The penalty shall be the
difference, if any, between the total interest accrued and paid on the principal
and 5% of the principal balance. By way of example only, if at the time of a
call only 3 months have past and therefore only 3.75% interest on the principal
had accrued, there would be a penalty of 1.25% so that the total return was 5%
on principal. Once the Call Price is paid and upon the surrender of the original
debenture by the holder, the Company will reissue debentures for the principal
amount not called. Notice of the Call shall be given to each Unit holder at
least 30 days prior to the date of payment. Notwithstanding anything to the
contrary in Section 4 hereof, each Unit Holder shall have the right to convert
the Units of debenture being called including interest on or before the date for
payment of the Call Price as set forth in the written notice. Upon conversion, a
Unit Holders right to payment of the Call Price shall cease.
7. CONVERSION RIGHTS. In addition to the conversion rights discussed in
paragraphs 4 and 7 above, the holder shall have the following rights:
a. Should the Holder elect to exercise his right to conversion, the
corporation shall pay in cash upon delivery of the stock certificate any accrued
interest on said debenture less any value of a dividend which has been declared
but not paid on the date of the election to convert.
b. The Company represents and warrants that at the time of making
this Debenture Agreement it has sufficient authorized but unissued no par value
common stock available to satisfy its obligations pursuant to all rights of
conversion granted hereby and the Company agrees to reserve sufficient common
stock during the conversion term of this debenture to provide for the conversion
of this debenture. Should the Company at any time during the conversion period
have a capital reorganization, merger, consolidation, stock swap or sell
substantially all of its assets to any person or corporation, then as part of
such merger, consolidation or sale, provision shall be made for the conversion
rights to be adjusted in such a manner as to provide for the protection of said
rights so as to permit the conversion in as nearly equivalent a manner as set
forth herein as is possible. The Company shall reserve for issuance
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upon conversion sufficient, equivalent recapitalized equity to meet its
obligations hereunder during the entire conversion period.
c. Upon presentation to the Company at the notice address of (1) a
letter requesting conversion, (2) the Conversion Agreement, which is Exhibit A
attached hereto and which provides for the cancellation of the Units upon
issuance of the common stock, and (3) the original Debenture Agreement all duly
executed; the Company shall within 5 business days issue a certificate for the
appropriate number of shares and send said certificate to the holder postage
prepaid, registered mail, return receipt or any other manner agreed to by the
holder and the Company.
d. All shares of common stock or other securities delivered upon the
exercise of the rights of conversion shall be validly issued, fully paid and
non-assessable.
e. Irrespective of the date of issuance and delivery of a
certificate or certificates for any shares of common stock issuable upon the
exercise of conversion rights, each person (including a corporation) in whose
name any such certificate or certificates is to be issued will for all purposes
be deemed to have become the holder of record of the common stock, the
securities, and/or property represented thereby on the date on which a duly
executed notice of exercise of conversion rights and the canceled underlying
Debenture is delivered to the Company.
f. The holder is not, by virtue of ownership of the Units of this
convertible debenture, entitled to any rights whatsoever as a stockholder of the
Company.
8. ANTI-DILUTION PROVISION/ADJUSTMENTS FOR CHANGE IN CAPITALIZATION. At
the execution of this Debenture Agreement each debenture Unit may be converted
by the Unit of the debenture into the Company's no par value common stock at any
time from August 1, 1999 until 5:00 p.m. February 1, 2000 at the rate of $15 per
share and thereafter until 5:00 p.m. on February 1, 2001 at the rate of $20 per
share. This conversion ratio is to be adjusted upon the occurrence of any
Extraordinary Common Stock Event as defined below for which the Company does not
receive fair value or compensation therefor in money, services, or property or
upon the occurrence of certain other events. The conversion price shall be
adjusted by multiplying the then effective conversion price by a fraction, the
numerator of which shall be the number of shares of common stock outstanding
immediately prior to such Extraordinary Common Stock Event and the denominator
of which shall be the number of shares of common stock outstanding immediately
after such Extraordinary Common Stock Event, and the product so obtained shall
thereafter be the new conversion ratio. The conversion price, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events. "Extraordinary Common Stock Events"
shall mean (i) the uncompleted issuance of additional shares of common stock as
a dividend or other distribution on outstanding common stock, (ii) the
subdivision of outstanding shares of common stock into a greater number of
shares of common stock, or (iii) the combination of outstanding shares of common
stock into a smaller number of shares of common stock.
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Upon the occurrence of each adjustment or readjustment of the
conversion price, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
the holder a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
Each such certificate shall be certified by the Chief Financial Officer or
Chairman of the Company. The Company shall, upon written request at any time of
the holder, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the conversion ratio,
as applicable, at the time in effect, and (iii) the number of shares of common
stock and the amount, if any, of other property which at the time would be
received upon the exercise of conversion rights.
9. DEFAULT. Upon a default by the Company the Unit Holders owning not
less than 66 2/3% of the debenture Units may commence foreclosure of the
Mortgage given as collateral and seek such other remedy as may be appropriate.
Waiver of a default shall not act as an estoppel for future action by Unit
Holders nor otherwise justify further waiver for subsequent acts of default.
10. RESTRICTED SECURITIES/RESTRICTIONS ON ASSIGNMENTS. The undersigned
holder acknowledges that he understands that the securities represented by this
Convertible Debenture have not been registered pursuant to the Securities Act of
1933 or pursuant to the laws of the State of Colorado or any other state and
that the Company is relying on exemptions from registration of theses
securities. Each debenture, and common share which may be issued as a result of
the conversion of the debenture shall be imprinted with a restrictive legend as
follows:
"This Debenture (Common Stock) and the rights hereunder have not
been registered or qualified under federal or state securities
laws. This Debenture (Common Stock) may not be assigned unless so
registered or qualified or unless an exemption exists, the
availability of which is to be established by issuer's counsel at
the holder's expense; provided, however, if the proposed assignment
is made to a person or entity outside of the United States or
Canada, and not for the benefit of or to any U.S. or Canadian
person, the establishment by issuer's counsel of the availability
of an exemption from registration shall not be necessary for the
holder to make such assignment in the absence of a change of law or
regulation which would then require proof of exemption or
registration of such transaction. The assignee under any such
assignment shall be likewise subject to the terms of this
restriction upon any proposed assignment or transfer."
The undersigned holder hereof further acknowledges that he is
purchasing this debenture as an investment for his own account and not with an
eye to reselling.
11. REGISTRATION RIGHTS. The Company agrees to file a registration
statement on whatever form is available to it to register the common shares
underlying the conversion privileges granted herein on one occasion upon receipt
of demand for registration executed by
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holders of not less than 50% of the Debenture being issued hereby. Upon receipt
of appropriate demand, the Company will use its best efforts to have said
registration statement filed within 60 days of the demand and will use its best
efforts to have said registration statement declared effective at the earliest
practicable date.
12. AMENDMENT. Neither this debenture or any term thereof may be
changed, waived, discharged or terminated orally or in writing except that any
term of this debenture may be amended and the observance of any such term may be
waived (either generally or in a particular instance and either retroactively or
prospectively) with (and only with) the written consent of the holders of at
lease 66 2/3% in principal amount of the debentures at the time then
outstanding, provided that no such amendment or waiver shall, without the
written consent of all the holders of the debentures at the time then
outstanding (a) change the amount or time of any payment or prepayment of any
debenture or any part thereof, or of any premium or interest thereon, or (b)
reduce the percentage of the principal amount of the debentures the holders of
which are required to consent to any amendment or waiver pursuant to this
paragraph.
12. NOTICES. All notices and communications to any party to this
debenture shall be in writing and sent to the Company and to the holder at the
address set forth below the holder's signature or at such other place as may be
designated in writing by either party hereto. All notices to overseas addresses
shall be by telex or DHL overnight with confirmation of receipt required.
13. GENERAL.
a. This debenture is being delivered and is intended to be performed
in the State of Colorado and shall be construed and enforced in accordance with
and governed by the laws of such State. All of the terms of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto whether so expressed or not, and in
particular shall insure to the benefit of and be enforceable by any holder or
holders at the time of the debentures. This Agreement embodies the entire
convertible debenture agreement and understanding between the undersigned holder
and the Company and supersedes all prior agreements and understandings relating
to the subject matter hereof.
b. The undersigned holder acknowledges that no promises or
guarantees have been made to him concerning the total amount of debentures which
may be issued.
c. The Company may not consolidate or merge, or transfer or lease
all or substantially all of its assets to another corporation unless the other
entity assumes in writing all of the obligations of the Company under the
debentures, and that in the case of a transfer or lease or assets, although the
successor assumes the obligations in writing, the Company shall not be released
from its obligations to pay principal or interest on the debentures.
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d. Interest is payable on the debenture from the date of acceptance
by the Company which date shall not exceed 2 business days from receipt of the
Subscription Agreement with funds.
If you agree to the foregoing terms of the Convertible Debenture,
please sign the form in the place provided for the "Holder" and print or type
your full name, address, telephone number and social security number and execute
the attached subscription agreement. No debenture will be accepted without an
executed subscription agreement and payment in full which shall not be
refundable.
DATED this ______ day of February, 1999.
HORIZONTAL VENTURES, INC. ATTEST:
By
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Xxxxxxx X. Xxxxxx, Chairman and Secretary
Chief Executive Officer
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Fax (000) 000-0000
The foregoing debenture with attached warrant is hereby agreed to as of
the date hereof.
HOLDER:
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EXHIBIT "A"
(ATTACHED TO THE CONVERTIBLE DEBENTURE DATED _________________________)
CONVERSION AGREEMENT
To: Dated:
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The undersigned, pursuant to the Conversion Rights set forth in the
attached Unit of Debenture (Certificate No. _____), hereby agrees to subscribe
for and purchase ______ shares of the common stock covered by such Unit of
Debenture and makes payment herewith in full therefor by assigning the attached
Unit of Debenture to the Company thereby canceling said debt.
Signature:
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Addresses:
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ASSIGNMENT OF DEBENTURE
FOR VALUE RECEIVED, __________________________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Unit of
Debenture (Certificate No. _______) with respect to the number of Units of the
debenture thereby set forth below, unto:
NAME OF ASSIGNEE ADDRESS NO. OF UNITS
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Dated: Signature
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Witness:
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