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EXHIBIT 10.2
 

THIS SECURED CONVERTIBLE REDEEMABLE DEBENTURE AND THE SECURITIES INTO WHICH IT
IS CONVERTIBLE (COLLECTIVELY, THE “SECURITIES”), HAVE NOT BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE.  THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE
HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”).  THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE
OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, OR ELIGIBLE
TO BE OFFERED OR SOLD PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL
OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
EXEMPTIONS ARE AVAILABLE.  FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES
MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.
 
 
SECURED CONVERTIBLE DEBENTURE
 
 
NOVO ENERGIES CORP.
 
 
Effective January 26, 2010
 

No.  1
US$500,000.00

This Secured Convertible Debenture (this “Debenture”) is issued by Novo Energies
Corp., a Florida corporation (the “Company”), to Trafalgar Capital Specialized
Investment Fund, FIS (together with its permitted successors and assigns, the
“Holder”) pursuant to exemptions from registration under Section 4(2) and/or
Regulation D as promulgated by the U.S. Securities and Exchange Commission (the
“SEC”) under the Securities Act of 1933, as amended, in the amount of Five
Hundred Thousand United States Dollars (US$500,000) as follows:
 
Section 1.01                      Principal and Interest.  For value received,
the Company hereby promises to pay to the order of the Holder in lawful money of
the United States of America and in immediately available funds the principal
sum of Five Hundred Thousand United States Dollars (US$500,000) together with
interest on the unpaid principal of this Debenture at ten percent (10%) per
annum.  Commencing on January 31, 2010, monthly interest payments in the amount
of Four Thousand One Hundred Sixty-Six Dollars and 67/100 (US$4,166.67) shall be
paid to the Holder on the last day of each month from the date hereof until the
Maturity Date.  The Holder shall deduct the first two (2) interest payments from
the proceeds at the Closing (as defined in that certain Securities Purchase
Agreement, dated January 26, 2010, by and between the Company and the Holder
(the “Purchase Agreement”)).  The entire principal amount outstanding and all
accrued but unpaid interest hereon and the associated ten percent (10%) premium
shall be paid to the Holder three-hundred sixty-five (365) days from the Closing
Date (the “Maturity Date”).  Capitalized terms used but not defined in this
Debenture shall have the meaning ascribed to them in the Purchase Agreement.
 

MI-323695 v1
 
 

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Section 1.02                      Conversion Upon Default.  Upon the earlier of
(i) one hundred twenty (120) days from the date hereof, or (ii) the occurrence
of an Event of Default (defined below), the Holder is entitled to convert and
sell on the same day or at any subsequent time, all or any part of the principal
amount of the Debenture, plus accrued interest into shares (the “Conversion
Shares”) of common stock of the Company, par value $0.00001 per share (“Common
Stock”).  The number of shares of Common Stock issuable upon a conversion
hereunder shall equal the quotient obtained by dividing (a) the outstanding
amount of this Debenture to be converted by (y) the Conversion Price.  The
“Conversion Price” shall mean the lower of (a) 100% of the Volume Weighted
Average Price (“VWAP”) of the Common Stock as reported by Bloomberg, LP on the
day prior to the Closing Date (as defined in the Purchase Agreement) the (“Fixed
Conversion Price”) and (b) a fifteen percent (15%) discount to the lowest daily
closing VWAP of the Common Stock during the five (5) Trading Days (as defined in
the Purchase Agreement) prior to the Conversion Date (as defined below).  No
fraction of shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share.  To convert this Debenture, the Holder hereof shall deliver written
notice thereof, substantially in the form of Exhibit A to this Debenture, with
appropriate insertions (the “Conversion Notice”), to the Company at its address
as set forth herein.  The date upon which the conversion shall be effective (the
“Conversion Date”) shall be deemed to be the date set forth in the Conversion
Notice.
 
Section 1.03                      Limitations on Conversion.
 
(1)      The Holder shall not have the right to convert more than Fifty Thousand
United States Dollars (US$50,000) of the principal amount of the Debenture plus
accrued interest per week unless (i) the foregoing restriction is waived by the
Company, and (ii) the shares of Common Stock of the Company are trading above
100% of the VWAP of the Common Stock on the day prior to the Closing Date.
 
(2)      The Company shall not effect any conversions of this Debenture and the
Holder shall not have the right to convert any portion of this Debenture or
receive shares of Common Stock as payment of interest hereunder to the extent
that after giving effect to such conversion or receipt of such interest payment,
the Holder together with any affiliate thereof, would beneficially own (as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules promulgated thereunder) in excess of 4.99% of
the number of shares of Common Stock outstanding immediately after giving effect
to such conversion or receipt of shares as payment of interest unless the
Company is in default.  Since the Holder will not be obligated to report to the
Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 4.99% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of this
Debenture is convertible shall be the responsibility and obligation of the
Holder.  If the Holder has delivered a Conversion
 

 
 

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 Notice for an outstanding amount of this Debenture that, without regard to any
other shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder, the Company
shall notify the Holder of this fact and shall honor the conversion for the
maximum principal amount permitted to be converted on such Conversion Date in
accordance with the terms of this Debenture and, any principal amount tendered
for conversion in excess of the permitted amount hereunder shall remain
outstanding under this Debenture.  The provisions in this Section 1.03(2) may be
waived by a Holder (but only as to itself and not to any other Holder) upon not
less than sixty-six (66) days prior notice to the Company.  Other Holders shall
be unaffected by such waiver.
 
Section 1.04                      Reservation of Common Stock.  The Company
shall reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of this
Debenture, such number of shares of Common Stock as shall from time to time be
sufficient to effect such conversion, based upon the Conversion Price.  If at
any time the Company does not have a sufficient number of Conversion Shares
authorized and available, then the Company shall take any and all actions
required by Section 4(e) of the Purchase Agreement.
 
Section 1.05                      Optional Redemption; Premium. The Company may
redeem this Debenture, in whole or in part, at any time after the Closing Date
by providing the Holder with three (3) days advance notice (the “Redemption
Notice”) and by paying unpaid principal and interest accrued to the date of such
redemption and a ten percent (10%) premium on the principal amount redeemed.  On
the Maturity Date, the Company shall pay a premium of ten percent (10%) of the
then outstanding principal amount of the Debenture in addition to the
outstanding principal and accrued but unpaid interest due hereunder. The date
upon which a redemption or payment of principal and/or interest is made shall be
referred to as a “Repayment Date”.
 
Section 1.06                      Paying Agent and Registrar.  Initially, the
Company will act as paying agent and registrar.  The Company may change any
paying agent, registrar, or Company-registrar by giving the Holder not less than
ten (10) business days’ written notice of its election to do so, specifying the
name, address, telephone number and facsimile number of the paying agent or
registrar.  The Company may act in any such capacity.
 
Section 1.07                      Secured Nature of Debenture.  This Debenture
is secured by those certain Security Instruments (as defined in the Purchase
Agreement).
 
Section 1.08                      Currency Exchange Rate Protections.
 
(a)           “Closing Date Exchange Rate” means the Euro to US dollar spot
exchange rate as determined by the Holder’s custodian bank on the date of funds
transfer to the Escrow Agent’s account .
 
(b)           “Repayment Exchange Rate” means in relation to each date of a
Conversion Notice or date of a Redemption Notice, the Euro to US dollar spot
exchange rate as quoted by the Holder’s custodian bank on such date or other
such similar source.
 
 
 

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(c)           If on the date of any Conversion Notice or Redemption Notice, the
Repayment Exchange Rate is less than the Closing Date Exchange Rate then the
number of Shares to be issued shall be increased by the same percentage as
results from dividing the Closing Date Exchange Rate by the relevant Repayment
Exchange Rate.  By way of example, if the number of Shares to be issued in
respect of a particular Conversion Notice or Redemption Notice would, but for
this Section 1.08, be 1,000 and if the Closing Date Exchange Rate is 1.80 and
the relevant Repayment Exchange Rate is 1.75, then 1,029 shares of Common Stock
will be issued in relation to that Conversion Notice or Redemption Notice, as
the case may be.  For the avoidance of doubt, the formula for such calculation,
by way of example for this Section, equals ((1.80 /1.75)-1)*1000 = 29 additional
shares.
 
(d)           If on any Repayment Date, the Cash Payment Date Exchange Rate, as
defined below is less than the Closing Date Exchange Rate then the amount of
cash required to satisfy the amounts due at such time shall be increased by the
same percentage as results from dividing the Closing Date Exchange Rate by the
relevant Cash Payment Date Exchange Rate. “Cash Payment Date Exchange
Rate” means in relation to each Repayment Date the Euro to US dollar spot
exchange rate as quoted in the London edition of the Financial Times on such
date.  By way of example, if the amount of cash required to repay all amounts
due on such date would, but for this Section 1.08, be US$1,000 and if the
Closing Date Exchange Rate is 1.80 and the relevant Repayment Exchange Rate is
1.75 then the amount of cash from the cash payment required to repay all amounts
due on such date will be US$1,028.57. For the avoidance of doubt, the formula
for such calculation, by way of example for this Section, equals
((1.80/1.75)-1)*US$1000 = US$28.57 additional dollars.
 
 
ARTICLE II.
 
Section 2.01                      Amendments and Waiver of Default.  The
Debenture may not be amended without the written consent of the Holder.
 
 
ARTICLE III.
 
Section 3.01                      Events of Default.  An “Event of Default” is
defined as follows: (a) failure by the Company to pay amounts due hereunder
within two (2) calendar days of the required payment date; (b) failure by the
Company’s transfer agent to issue Common Stock (which shall be freely tradable,
if permitted by applicable laws) to the Holder within five (5) calendar days
from the Conversion Date; (c) failure by the Company for ten (10) calendar days
after notice to it to comply with any of its other agreements in this Debenture;
(d) events of bankruptcy or insolvency of the Company; and (e) a breach by the
Company of its obligations under any of the Transaction Documents (as such term
is defined in the Purchase Agreement) if such breach is not cured by the Company
within fifteen (15) calendar days after receipt of written notice thereof.  Upon
the occurrence of an Event of Default, all interest accrued as of the Closing
Date shall be accrued at fifteen percent (15%) per annum (the “Default Rate”)
and the Company shall be liable to the Holder for a five percent (5%) redemption
premium on any
 

 
 

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outstanding principal.  In addition, the Holder may, in its sole discretion,
accelerate full repayment of all debentures (including, without limitation, this
Debenture) outstanding and accrued interest thereon (at the Default Rate) or
may, notwithstanding any limitations contained in this Debenture, the Purchase
Agreement or any other Transaction Document, convert all debentures (including,
without limitation, this Debenture) outstanding and accrued interest thereon
into shares of Common Stock pursuant to Section 1.02 herein.

 
Section 3.02                      Failure to Issue Common Stock. The Company
acknowledges that failure to honor a Notice of Conversion shall cause
irreparable harm to the Holder.
 
 
ARTICLE IV.
 
Section 4.01                      Re-issuance of Debenture.  When the Holder
elects to convert a part of the Debenture or the Company redeems a part of the
Debenture, then the Company shall reissue a new Debenture in the same form as
this Debenture to reflect the new principal amount.
 
 
ARTICLE V.
 
Section 5.01 Restriction on Issuance of the Capital Stock, Incurring Debt or
Granting of Security Interests. So long as any of the principal of or interest
on any debentures (including, without limitation, this Debenture) remain unpaid,
the Company shall  (i) not enter into any security instrument granting a third
party a security interest in any and all assets of the Company or any subsidiary
of the Company (whether now owned or acquired in the future while any debentures
(including, without limitation, this Debenture) are outstanding without the
prior written consent of the Holder), (ii) not permit any subsidiary of the
Company (whether now owned or acquired in the future while any debentures
(including, without limitation, this Debenture) to enter into any security
instrument granting a third party a security interest in any and all assets of
such subsidiary without the prior written consent of the Holder or (iii) not
incur any additional debt or permit any subsidiary of the Company to incur any
additional debt without the prior written consent of the Holder.
 
 
ARTICLE VI.
 
Section 6.01                      Notice.  Notices regarding this Debenture
shall be sent to the parties at the following addresses, unless a party notifies
the other parties, in writing, of a change of address:
 
If to the Company, to:
Novo Energies Corp.
 
Europa Place D’Armes 750 Cote de Place d’Armes Suite 64
 
Montreal, QC H2Y 2X8, Canada
 
Attention:  Antonio Treminio, CEO
 
Facsimile:  (917) 591-8886
   
With a copy to:
Sanders Ortoli Vaughn-Flam Rosenstadt LLP
 
501 Madison Avenue, 14th Floor
 
New York, NY 10022
 
Attention: William S. Rosenstadt, Esq.
 
Telephone: (212) 588-0022
 
Facsimile: (212) 826-9307

 
 

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If to the Holder:
Trafalgar Capital Specialized Investment Fund, FIS
 
The Dickens, Kirk Street
16 Northington Street
London WC1N 2DG
 
Attention: Andrew Garai, Chairman of the Board of
 
Trafalgar Capital Sarl, General Partner
 
Facsimile: 011-44-207-405-0161 and 001-786-323-1651
   
With a copy to:
K&L Gates LLP
 
200 South Biscayne Blvd., Suite 3900
 
Miami, FL 33131
 
Attention:  Clayton Parker, Esq.
 
Telephone: 305-539-3306
 
Facsimile: 305-358-7095
   

Section 6.02                      Governing Law.  This Debenture shall be deemed
to be made under and shall be construed in accordance with the laws of the State
of Florida without giving effect to the principals of conflict of laws
thereof.  Each of the parties consents to the jurisdiction of the U.S. District
Court sitting in the Southern District of the State of Florida or the state
courts of the State of Florida sitting in Miami-Dade County, Florida in
connection with any dispute arising under this Debenture and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens to the bringing of any such proceeding in such
jurisdictions.
 
Section 6.03                      Severability.  The invalidity of any of the
provisions of this Debenture shall not invalidate or otherwise affect any of the
other provisions of this Debenture, which shall remain in full force and effect.
 
Section 6.04                      Entire Agreement and Amendments.  This
Debenture and the other Transaction Documents represent the entire agreement
between the parties hereto with respect to the subject matter hereof and there
are no representations, warranties or commitments, except as set forth
herein.  This Debenture may be amended only by an instrument in writing executed
by the parties hereto.
 
Section 6.05                      Counterparts.  This Debenture may be executed
in multiple counterparts, each of which shall be an original, but all of which
shall be deemed to constitute on instrument.
 
Section 6.06                      Usury Laws.  If, under any circumstances, it
shall be found that any interest or other amount deemed interest hereunder or in
connection with any other agreement pertaining to this Debenture, shall violate
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,
 

 
 

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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, resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Holder, but will suffer and permit its execution
as though no such law had been enacted.  This provision shall control every
other provision of all agreements between the Company and the Holder.

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IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as
executed this Debenture as of the date first written above.
 

 
NOVO ENERGIES CORP.
         
By:                _________________
 
Name:           Antonio Treminio
 
Title:             Chief Executive Officer

 
 

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EXHIBIT A
 
 
NOTICE OF CONVERSION
 
 
(To be executed by the Holder in order to Convert the Debenture)
 

TO:
 

The undersigned hereby irrevocably elects to convert US$_____________ of the
principal amount of the above Debenture into Shares of Common Stock of Novo
Energies Corp., according to the conditions stated therein, as of the Conversion
Date written below.
 
Conversion Date:
 
Applicable Conversion Price:
 
Signature:
 
Name:
 
Address:
 
Amount to be converted:
US$                                                                                      
Amount of Debenture unconverted:
US$                                                                                      
Conversion Price per share:
US$                                                                                      
Number of shares of Common Stock to be issued:
 
Please issue the shares of Common Stock in the following name and to the
following address:
 
Issue to:
 
Authorized Signature:
 
Name:
 
Title:
 
Phone Number:
 
Broker DTC Participant Code:
 
Account Number:
 

 

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