EXHIBIT 4.8


FORM OF SENIOR SECURED DEBENTURE


THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT
TO RULE 144 OR RULE 144A UNDER SAID ACT. 
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.


PRB OIL
& GAS, INC.



SENIOR SECURED DEBENTURE


	
  Issuance Date: December 28, 2006

  	
   

  	
  Principal: U.S. $                      

  



 


FOR
VALUE RECEIVED, PRB Oil & Gas, Inc., a Colorado
corporation (the ”Company”), a wholly owned subsidiary of PRB Energy Inc.,
a Nevada corporation (“Parent”),
hereby promises to pay to the order of                             or registered assigns (“Holder”) the amount set out above as the
Principal (as reduced pursuant to the terms hereof pursuant to redemption or
otherwise, the “Principal”) when
due, upon the Maturity Date (as defined below), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay
interest (“Interest”) on any
outstanding Principal at a rate equal to 13.00% per annum (the “Interest Rate”), from the date set out
above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon an Interest
Date (as defined below) or, the Maturity Date, acceleration, redemption or
otherwise (in each case in accordance with the terms hereof).  This Senior Debenture (including all Senior
Debentures issued in exchange, transfer or replacement hereof, this “Debenture”) is one of an issue of Senior
Debentures issued pursuant to the Securities Purchase Agreement (as defined
below) on the Closing Date (collectively, the “Debentures”
and such other Senior Debentures, the “Other
Debentures”).  Certain
capitalized terms used herein are defined in Section 21.


(1)           PAYMENTS OF
PRINCIPAL.  On the Maturity Date, the
Company shall pay to the Holder an amount equal to the Principal, as well as
all accrued but unpaid Interest.  The “Maturity Date” shall be August 31, 2008, or (a) such earlier
date as may be accelerated by the Required Holders upon an Event of Default in
accordance with the terms hereof, or (b) such later date as may be extended at
the option of the Required Holders (i) in the event that, and for so long as,
an Event of Default (as defined in Section 3(a)) shall have occurred and be
continuing or any event shall have occurred and be continuing which with the
passage of time and the failure to cure would result in an Event of Default or
(ii) through the date that is ten (10) days after the consummation of a Change
of Control in the event that a Change of Control is publicly










 



announced or a Change of
Control Notice (as defined in Section 4(b)) is delivered prior to the Maturity
Date.


(2)           INTEREST; INTEREST
RATE.  Interest on this Debenture
shall commence accruing on the Issuance Date and shall be computed on the basis
of a 365-day year and actual days elapsed and shall be payable in arrears for
each Payment Quarter on the first day of the succeeding Payment Quarter during
the period beginning on the Issuance Date and ending on, and including, the Maturity
Date (each, an “Interest Date”). Interest shall be
payable on each Interest Date, to the record holder of this Debenture on the
applicable Interest Date, in cash (“Cash Interest”).
Interest
accrues at the Interest Rate on all outstanding unpaid Principal owed under
this Debenture and all accrued Interest is payable on each Interest Date.  Upon the occurrence and during the
continuance of an Event of Default, the Interest Rate shall be increased to eighteen
percent (18.00%) the (“Default Rate”).  In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the
Interest as calculated and unpaid at such increased rate during the continuance
of such Event of Default shall continue to apply to the extent relating to the
days after the occurrence of such Event of Default through and including the
date of cure of such Event of Default.


(3)           RIGHTS
UPON EVENT OF DEFAULT.


(a)           Event of Default.  Each of the following events shall constitute
an “Event of Default”:


(i)            the Company’s failure
to pay to the Holder any amount of Principal, Interest, Late Charges or other
amounts when and as due under this Debenture (including, without limitation,
the Company’s failure to pay any redemption payments or amounts hereunder) or
any other Transaction Document (as defined in the Securities Purchase
Agreement),  if such failure continues (A)
for a period of at least five (5) Business Days in the case of a failure to pay
any amount of Principal or (B) for a period of at least three (3) Business Days
from notice by Holder in the case of a failure to pay any other amount;


(ii)           any default occurs and
is continuing under any redemption of or acceleration prior to maturity of any
Indebtedness of the Company, Parent or any of their Subsidiaries (as defined in
Section 3(a) of the Securities Purchase Agreement) in excess of $100,000 other
than with respect to any redemption of the Other Debentures in accordance with
their terms; provided, that in the event that any such acceleration of
indebtedness is rescinded by the holders thereof prior to acceleration of this
Debenture or the Other Debentures, no Event of Default shall exist as a result
of such rescinded acceleration;


(iii)          the Company, Parent or
any of their Subsidiaries, pursuant to or within the meaning of Title 11, U.S.
Code, or any similar Federal, foreign or state law for the relief of debtors
(collectively, “Bankruptcy Law”), (A) commences a voluntary
case, (B) consents to the entry of an order for relief against it in an
involuntary case, (C) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official (a “Custodian”),
(D) makes a general assignment for the benefit of its creditors or (E) admits
in writing that it is generally unable to pay its debts as they become due;



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(iv)          creditors of the Company,
Parent or any of their Subsidiaries file an action for relief under any
Bankruptcy Law against such entity in an involuntary case and such action is
not dismissed within thirty (30) days of such filing or a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for
relief against the Company, Parent or any of their Subsidiaries in an
involuntary case, (B) appoints a Custodian of the Company, Parent or any of their
Subsidiaries or (C) orders the liquidation of the Company, Parent or any of their
Subsidiaries;


(v)           a final judgment or
judgments for the payment of money aggregating in excess of $250,000 are
rendered against the Company, Parent or any of their Subsidiaries and which
judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty (60) days
after the expiration of such stay; provided, however, that any
judgment which is covered by insurance or an indemnity from a credit worthy
party shall not be included in calculating the $250,000 amount set forth above
so long as the Company provides the Holder a written statement from such
insurer or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company will receive the proceeds of such
insurance or indemnity within sixty (60) days of the issuance of such judgment;


(vi)          the Company or Parent,
as applicable, materially breaches any representation or warranty, or breaches
any covenant or other term or condition of any Transaction Document, except, in
the case of a breach of a covenant or other term or condition of any
Transaction Document which is curable, only if such breach continues for a
period of at least ten (10) consecutive Business Days;


(vii)         any breach or failure in
any respect to comply with Section 8 of this Debenture which shall continue for
a period of thirty (30) days after notice of such breach or failure;


(viii)        any Event of Default (as
defined in the Other Debentures) occurs and is continuing with respect to any
Other Debentures;


(ix)           any Event of Default
(as defined in the Security Agreement) occurs and is continuing under the
Security Agreement, the repudiation by the Company, Parent or any of their
Subsidiaries of any of its obligations under the Security Documents or the
unenforceability of the Security Documents against the Company, Parent or any
of their Subsidiaries for any reason; or


(x)            the Company does not
take the post-closing actions set forth in that certain Letter Agreement
between the Company and the Holders, dated as of the date hereof.


(b)           Redemption Right.  Promptly after the occurrence of an Event of
Default with respect to this Debenture or any Other Debenture, the Company
shall deliver written notice thereof via facsimile and overnight courier (an “Event of Default Notice”) to the Holder.  At any time after the earlier of the Holder’s
receipt of an Event of Default Notice and



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the Holder becoming aware
of an Event of Default, the Required Holders may require the Company to redeem
all or any portion of the Debentures  (as
“Event of Default Redemption”) by
delivering written notice thereof (the “Event of Default
Redemption Notice”) to the Company, which Event of Default
Redemption Notice shall indicate the portion of the Debentures the Required Holders
are electing to redeem; provided that upon the occurrence of any default
described in Section 3(a)(vi) and 3(a)(vii), the Debentures shall
automatically, and without any action on behalf of the Holders, be redeemed by
the Company.  Each portion of the Debentures
subject to redemption by the Company pursuant to this Section 3(b) shall be
redeemed by the Company at a price equal to 110% of the outstanding Principal
amount and accrued and unpaid Interest and accrued and unpaid Late Charges and
Interest with respect to such portion of the Debentures subject to redemption (the
“Event of Default Redemption Price”).  Redemptions required by this Section 3(b)
shall be made in accordance with the provisions of Section 7.


(4)           RIGHTS UPON
FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.


(a)           Assumption.  The Company shall not enter into or be party
to a Fundamental Transaction unless the Successor Entity assumes in writing all
of the obligations of the Company under this Debenture and the other
Transaction Documents in accordance with the provisions of this Section 4(a)
pursuant to written agreements in form and substance reasonably satisfactory to
the Required Holders and approved by the Required Holders prior to such
Fundamental Transaction.  Upon the
occurrence of any Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Debenture referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under
this Debenture with the same effect as if such Successor Entity had been named
as the Company herein. The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions and shall be applied without
regard to any limitations on the redemption of this Debenture.


(b)           Redemption Right.  No sooner than fifteen (15) days nor later
than ten (10) days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the
Holder (a “Change of Control Notice”).  At any time during the period beginning after
the Holder’s receipt of a Change of Control Notice and ending on the date of
the consummation of such Change of Control (or, in the event a Change of
Control Notice is not delivered at least ten (10) days prior to a Change of Control,
at any time on or after the date which is ten (10) days prior to a Change of
Control and ending ten (10) days after the consummation of such Change of
Control), the Required Holders may require the Company to redeem all or any
portion of the Debentures by delivering written notice thereof (“Change of Control Redemption Notice”) to the Company, which
Change of Control Redemption Notice shall indicate the portion of the Debentures
each Holder is electing to redeem.  The
portion of this Debenture subject to redemption pursuant to this Section 4
shall be redeemed by the Company at a price equal to 110% of the sum of the amount
being redeemed together with accrued and unpaid Interest with respect to such amount
and accrued and unpaid Late Charges with respect to such amount and Interest
(the “Change of Control Redemption Price”).



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Redemptions required by
this Section 4 shall be made in accordance with the provisions of Section 7 and
shall have priority to payments to stockholders in connection with a Change of
Control.


(5)           COMPANY REDEMPTION.  So long as a Registration Statement covering
all of the Registrable Securities is effective, the Company may elect to pay to
the Holder of this Debenture the Company Redemption Amount, subject to and in
accordance with the terms of this Section 5, by redeeming the Principal, in
whole but not in part, in accordance with this Section 5 (a “Company Redemption”); provided that all of the
outstanding Principal must be redeemed by the Company, subject to the
provisions of this Section 5.  On or
prior to the date which is the sixth (6th) Trading Day prior to the Company
Redemption (each, a “Company Redemption Notice
Due Date”), the Company shall deliver written notice (each, a “Company Redemption Notice”), to the Holder which Company Redemption
Notice shall state the amount which the Company elects to redeem pursuant to a
Company Redemption (the “Company Redemption Amount”),
which shall be equal to 110% of the outstanding Principal, together with
accrued and unpaid Interest with respect to such Company Redemption Amount and
accrued and unpaid Late Charges with respect to such Company Redemption Amount
and Interest. Each Company Redemption Notice shall be irrevocable.  The Company shall redeem the applicable Company
Redemption Amount of this Debenture pursuant to this Section 5 together with
the corresponding Company Redemption Amounts of the Other Debentures pursuant
to the corresponding provisions of the Other Debentures.  If the Company elects a Company Redemption, then
the Company Redemption Amount which is to be paid to the Holder on the
applicable Company Redemption Date shall be redeemed by the Company on such Company
Redemption Date, and the Company shall pay to the Holder on such Company
Redemption Date, by wire transfer of immediately available funds, an amount in
cash equal to the Company Redemption Amount.


(6)           NON-CIRCUMVENTION.  The Company and Parent hereby covenant and
agree that neither the Company nor Parent will, by amendment of its Certificate
of Incorporation, Bylaws or through any reorganization, transfer of assets,
consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Debenture, and will at
all times in good faith carry out all of the provisions of this Debenture and
take all action as may be required to protect the rights of the Holder of this
Debenture.


(7)           HOLDER’S REDEMPTIONS.


(a)           Mechanics.  The Company shall deliver the applicable
Event of Default Redemption Price to the Holder within five Business Days after
the Company’s receipt of the Required Holders’ Event of Default Redemption
Notice.  If the Required Holders have
submitted a Change of Control Redemption Notice in accordance with Section 4(b),
the Company shall deliver the applicable Change of Control Redemption Price to
the Holder concurrently with the consummation of such Change of Control if such
notice is received prior to the consummation of such Change of Control and
within five (5) Business Days after the Company’s receipt of such notice
otherwise.  In the event of a redemption
of less than all of the Principal of this Debenture, the Company shall promptly
cause to be issued and delivered to the



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Holder a new Debenture
(in accordance with Section 12(d)) representing the outstanding Principal which
has not been redeemed.


(b)           Redemption by
Holders.  Any Event of Default
Redemption Notice or Change of Control Redemption Notice for redemption or
repayment as a result of an event or occurrence substantially similar to the
events or occurrences described in Section 3(b), Section 4(b) or Section 8 is
to be delivered to the Company by the Required Holders.  If the Company receives any Event of Default Redemption
Notice or Change of Control Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such Redemption
Notice, then the Company shall redeem a pro rata amount from each holder of the
Debentures (including the Holder) based on the principal amount of the
Debentures submitted for redemption pursuant to such Event of Default
Redemption Notice or Change of Control Redemption Notice received by the
Company from the Required Holders.


(8)           COVENANTS.


(a)           Rank.  All payments due under this Debenture (a)
shall rank pari passu with all Other Debentures and
(b) shall be senior in right of payment to all other Indebtedness of the
Company and its Subsidiaries except for Permitted Indebtedness that is secured
by Permitted Liens.


(b)           Incurrence of
Indebtedness.  So long as this
Debenture is outstanding, Parent and the Company shall not, and neither Parent
nor the Company shall permit any of its Subsidiaries to, directly or
indirectly, incur or guarantee, assume or suffer to exist any Indebtedness,
other than (i) the Indebtedness evidenced by this Debenture and the Other
Debentures and (ii) Permitted Indebtedness that is either unsecured or secured
by Permitted Liens.


(c)           Existence of Liens.  So long as this Debenture is outstanding, Parent
and the Company shall not, and neither Parent nor the Company shall permit any
of its Subsidiaries to, directly or indirectly, allow or suffer to exist any
mortgage, lien, pledge, charge, security interest or other encumbrance upon or
in any property or assets (including accounts and contract rights) owned by Parent,
the Company or any of either of its Subsidiaries (collectively, “Liens”) other than Permitted Liens.


(d)           Restricted Payments.  Parent shall not, the Company shall not, and
neither Parent nor the Company shall permit any of its Subsidiaries to,
directly or indirectly,


(i)            declare or pay any
dividend or make any other payment or distribution on account of the Parent’s
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Parent) or to the direct or indirect
holders of the Parent’s Equity Interests in their capacity as such;


(ii)           purchase, redeem or
otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Parent) any Equity
Interests of the Parent or any direct or indirect parent of the Parent in
excess of $200,000 per calendar year; or



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(iii)          make any payment on or
with respect to, accelerate the maturity of, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness of the Company or the
Parent, except a payment of interest, principal or other amounts due at the
stated maturity thereof and except for payments of principal, interest and
other amounts under the Other Debentures.


(e)           Asset
Sales. Parent shall not, the Company shall not, and neither Parent nor the
Company shall permit any of its Subsidiaries to, directly or indirectly,
consummate any Asset Sale.


(f)            Use of Proceeds.  The Company shall use the proceeds of sale of
the Debentures:  (i) for the fees and
expenses associated with the sale of the Debentures and Common Stock; (ii) for the
Amherst Acquisition; and (iii) for general corporate purposes.


(g)           Partnerships, Etc.
Related to Amherst Acquisition Properties. 
The Company shall obtain the written consent of the Required Holders prior
to its entering into any partnership, or any similar agreement, with respect to
the Amherst Acquisition.


(9)           VOTE TO ISSUE, OR
CHANGE THE TERMS OF, DEBENTURES.  The affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting of the Required
Holders shall be required for any change or amendment to this Debenture or the
Other Debentures.


(10)         TRANSFER.  This Debenture may be offered, sold, assigned
or transferred by the Holder without the consent of the Company, subject only
to the provisions of Sections 2(f) and 2(g) of the Securities Purchase
Agreement.


(11)         REISSUANCE OF THIS DEBENTURE.


(a)           Transfer.  If this Debenture is to be transferred, the
Holder shall surrender this Debenture to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Debenture
(in accordance with Section 12(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new
Debenture (in accordance with Section 12(d)) to the Holder representing the
outstanding Principal not being transferred.


(b)           Lost, Stolen or
Mutilated Debenture.  Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Debenture, and, in the case of
mutilation, upon surrender and cancellation of this Debenture, the Company
shall execute and deliver to the Holder a new Debenture (in accordance with
Section 12(d)) representing the outstanding Principal.


(c)           Debenture
Exchangeable for Different Denominations. 
This Debenture is exchangeable, upon the surrender hereof by the Holder
at the principal office of the Company, for a new Debenture or Debentures (in
accordance with Section 12(d) and in principal amounts of at least $100,000)
representing in the aggregate the outstanding Principal of this



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Debenture, and each such
new Debenture will represent such portion of such outstanding Principal as is
designated by the Holder at the time of such surrender.


(d)           Issuance of New
Debentures.  Whenever the Company is
required to issue a new Debenture pursuant to the terms of this Debenture, such
new Debenture (i) shall be of like tenor with this Debenture, (ii) shall
represent, as indicated on the face of such new Debenture, the Principal
remaining outstanding (or in the case of a new Debenture being issued pursuant
to Section 12(a) or Section 12(c), the Principal designated by the Holder
which, when added to the principal represented by the other new Debentures
issued in connection with such issuance, does not exceed the Principal
remaining outstanding under this Debenture immediately prior to such issuance
of new Debentures), (iii) shall have an issuance date, as indicated on the face
of such new Debenture, which is the same as the Issuance Date of this
Debenture, (iv) shall have the same rights and conditions as this Debenture,
and (v) shall represent accrued Interest and Late Charges on the Principal and
Interest of this Debenture, from the Issuance Date.


(12)         REMEDIES,
CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Debenture shall
be cumulative and in addition to all other remedies available under this
Debenture and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief),
and nothing herein shall limit the Holder’s right to pursue actual and
consequential damages for any failure by the Company to comply with the terms
of this Debenture.  Amounts set forth or
provided for herein with respect to payments and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not,
except as expressly provided herein, be subject to any other obligation of the
Company (or the performance thereof). 
The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. 
The Company therefore agrees that, in the event of any such breach or
threatened breach, the Holder shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.


(13)         PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS.  If (a)
this Debenture is placed in the hands of an attorney for collection or
enforcement or is collected or enforced through any legal proceeding or the
Holder otherwise takes action to collect amounts due under this Debenture or to
enforce the provisions of this Debenture or (b) there occurs any bankruptcy,
reorganization, receivership of the Company or other proceedings affecting
Company creditors’ rights and involving a claim under this Debenture, then the
Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys’
fees and disbursements.


(14)         CONSTRUCTION; HEADINGS.  This Debenture shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed
against any Person as the drafter hereof. 
The headings of this Debenture are for convenience of reference and
shall not form part of, or affect the interpretation of, this Debenture.



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(15)         FAILURE OR INDULGENCE
NOT WAIVER.  No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.


(16)         DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile within one (1) Business
Day of receipt, or deemed receipt, of the Redemption Notice or other event
giving rise to such dispute, as the case may be, to the Holder.  If the Holder and the Company are unable to
agree upon such determination or calculation within one (1) Business Day of
such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within one Business Day submit via facsimile
the disputed arithmetic calculation of the Redemption Price to the Company’s
independent, outside accountant.  The
Company, at the Company’s expense, shall cause the accountant to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than five (5) Business Days from the time it receives the
disputed determinations or calculations. 
Such accountant’s determination or calculation, as the case may be,
shall be binding upon all parties absent demonstrable error.


(17)         NOTICES; PAYMENTS.


(a)           Notices.  Whenever notice is required to be given under
this Debenture, unless otherwise provided herein, such notice shall be given in
accordance with Section 10(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Debenture,
including in reasonable detail a description of such action and the reason
therefor.


(b)           Payments.  Whenever any payment of cash is to be made by
the Company to any Person pursuant to this Debenture, such payment shall be
made in lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address,
in the case of each of the Purchasers, shall initially be as set forth on the
Schedule of Buyers attached to the Securities Purchase Agreement); provided
that the Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by
the terms of this Debenture is due on any day which is not a Business Day, the
same shall instead be due on the next succeeding day which is a Business Day
and, in the case of any Interest Date which is not the date on which this
Debenture is paid in full, the extension of the due date thereof shall not be
taken into account for purposes of determining the amount of Interest due on
such date.  Any amount of Principal or
other amounts due under the Transaction Documents, other than Interest, which
is not paid when due shall result in a late charge being incurred and payable
by the Company in an amount equal to interest on such amount at the rate of
eighteen percent (18.00%) per annum from the date such amount was due until the
same is paid in full (“Late Charge”).


(18)         CANCELLATION.  After all Principal, accrued Interest and
other amounts at any time owed on this Debenture have been paid in full in
cash, this Debenture shall



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automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.


(19)         WAIVER OF NOTICE.  To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement
of this Debenture and the Securities Purchase Agreement.


(20)         GOVERNING LAW.  This Debenture shall be construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Debenture and all disputes
arising hereunder shall be governed by, the laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New York.


(21)         CERTAIN DEFINITIONS.  For purposes of this Debenture, the following
terms shall have the following meanings:


(a)           “Amherst Acquisition”
means the acquisition of certain natural gas wells producing in the
Niobrara formation and approximately 330,000 net acres in northeast Colorado
and southwest Nebraska pursuant to a Purchase and Sale Agreement between the
Company and Lance Oil and Gas Company, Inc. and Western Gas Resources, Inc.


(b)           “Asset Sale”
means (i) the sale, lease, conveyance or other disposition of any assets or
rights other than in the ordinary course of business, and (ii) the sale of
Equity Interests in any of the Company’s Subsidiaries; provided that the
following shall not constitute an “Asset
Sale”: (A) sales and recourse lease-backs of compressors in an amount not to
exceed $6,000,000; (B) farm-outs, partnerships and other participation
agreements or arrangements typical in the oil and gas industry and distributions
by the Company or any of its Subsidiaries of an interest in or right to an oil
and gas project, to participants, co-owners, partners, operators, interest
holders or others, that are required pursuant to the documentation governing
such oil and gas project if such agreements or arrangements are not required to
be disclosed in a Form 8-K under the Securities Exchange Act of 1934; (C) the sale of equipment that has become worn out or
obsolete; and (D) the sale of assets if the proceeds therefrom shall be used to
immediately replace such assets and be secured pursuant to the Security
Agreement and the value of such assets shall not exceed $100,000 for any one
sale or in the aggregate $300,000 in any calendar year.


(c)           “Business
Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.


(d)           “Capital
Lease Obligation” means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet prepared in
accordance with GAAP.


(e)           “Capital
Stock” means:  (1)  in the case of a corporation, corporate
stock; (2) in the case of an association or business entity, any and all
shares, interests,



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participations, rights or
other equivalents (however designated) of corporate stock;  (3) in the case of a partnership or limited
liability company, partnership interests (whether general or limited) or
membership interests; and (4) any other interest or participation that confers
on a Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person, but excluding from all of the
foregoing any debt securities convertible into Capital Stock, whether or not
such debt securities include any right of participation with Capital Stock.


(f)            “Change of
Control” means any Fundamental Transaction other than (i) any
reorganization, recapitalization or reclassification of the shares of Capital
Stock in which holders of the Company’s voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (ii) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Company.


(g)           “Closing
Date” shall have the meaning set forth in the Securities Purchase
Agreement, which date is the date the Company initially issued Debentures
pursuant to the terms of the Securities Purchase Agreement.


(h)           “Common
Stock” shall mean the common stock of the Parent, par value $0.001
per share.


(i)            “Eligible
Market” means the Principal Market, The New York Stock Exchange,
Inc., The Nasdaq National Market or The Nasdaq Capital Market.


(j)            “Equity
Interests” means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).


(k)           “Fundamental
Transaction” means that the Company shall, directly or indirectly,
in one or more related transactions, (i) consolidate or merge with or into
(whether or not the Company is the surviving corporation) another Person, or
(ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares of Capital
Stock (not including any shares of Capital Stock held by the Person or Persons
making or party to, or associated or affiliated with the Persons making or
party to, such purchase, tender or exchange offer), or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Capital Stock (not including any shares of Capital Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or
reclassify its Capital Stock.



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(l)               “GAAP” means United States generally accepted accounting
principles, consistently applied.


(m)          “Hedging
Obligations” means, with respect to any specified Person, the
obligations of such Person under:


(i)            interest rate swap
agreements (whether from fixed to floating or from floating to fixed), interest
rate cap agreements and interest rate collar agreements;


(ii)           other agreements or
arrangements designed to manage interest rates or interest rate risk; and


(iii)          other agreements or
arrangements designed to protect such Person against fluctuations in currency
exchange rates or commodity prices.


(n)           “Indebtedness”
means, any indebtedness (excluding accrued expenses and trade payables),
whether or not contingent:


(i)            in respect of borrowed
money;


(ii)           evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof);


(iii)          in respect of banker’s
acceptances;


(iv)          representing Capital
Lease Obligations;


(v)           representing the
balance deferred and unpaid of the purchase price of any property or services
due more than six months after such property is acquired or such services are
completed; or


(vi)          representing any Hedging
Obligations,


if and to the
extent any of the preceding items (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of the Company prepared
in accordance with GAAP.  In addition,
the term “Indebtedness” includes all Indebtedness of others secured by a Lien
on any asset of the Company or its Subsidiaries (whether or not such
Indebtedness is assumed by the Company or such Subsidiary) and, to the extent
not otherwise included, the guarantee by the Company or any of its Subsidiaries
of any Indebtedness of any other Person.


(o)           “Mortgage”
means a Mortgage in form and substance reasonably satisfactory to the Holder,
as it may be amended, supplemented or otherwise modified from time to time.


(p)           “Parent
Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity



 12
 






 



security is quoted or
listed on an Eligible Market, or, if there is more than one such Person or
Parent Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction.


(q)           “Payment Quarter” means each of: the period beginning
on and including January 1, 2007 and ending on and including March 31, 2007;
the period beginning on and including April 1, 2007 and ending on and including
June 30, 2007; the period beginning on and including July 1, 2007 and ending on
and including September 30, 2007; the period beginning on and including October
1, 2007 and ending on and including December 31, 2007; the period beginning on
and including January 1, 2008 and ending on and including March 31, 2008; the
period beginning on and including April 1, 2008 and ending on and including
June 30, 2008; and the period beginning on and including July 1, 2008 and
ending on and including the Maturity Date.


(r)            “Permitted Indebtedness” means (a) purchase money debt, Capital Lease Obligations or other
Indebtedness incurred in connection with the acquisition of an interest in
property, equipment, entities or other assets or otherwise in the ordinary
course of business, provided that such purchase money debt, Capital Lease
Obligations or other Indebtedness is recourse only to the interests in
property, equipment, entities or other assets so acquired and
(b) Indebtedness of the Parent, the Company or any Subsidiary outstanding
as of the Closing Date and the refinancing,
renewal or extension thereof, provided that (i) there are no additional
obligors with respect thereto (ii) there is no shortening of the maturity
thereof, (iii) principal amount thereof is not increased, and (iv) the security
interest is not changed or amended; (c) recourse leases of compressors in an
amount not to exceed $6.0 million and (d) additional Indebtedness not to exceed
$500,000 at any time which shall not be secured or shall be subordinated to the
Debentures.


(s)           “Permitted Liens”
means (i) any Lien for taxes not yet due or delinquent or being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary
course of business by operation of law with respect to a liability that is not
yet due or delinquent, (iii) any Lien created by operation of law, such as
materialmen’s liens, mechanics’ liens and other similar liens, arising in the
ordinary course of business with respect to a liability that is not yet due or
delinquent or that are being contested in good faith by appropriate
proceedings, (iv) Liens securing the Company’s obligations under the
Debentures, (v) Liens securing Permitted Indebtedness, (vi) Liens in the
RMG Assets and Liens associated with the settlement or judgment entered in the
arbitration between Parent and Rocky Mountain Gas in the arbitration commenced
on June 22, 2006, provided, however, that any such Liens do not have a material
adverse effect on or materially impair the value of the Holders’ interests in
the Collateral (as defined in the Security Agreement), (vii) royalties, overriding royalties, reversionary
interests, production payments and similar burdens granted by Parent or any
Subsidiary with respect to the interests owned by such Person, consistent with past
practice and industry standards, if the net cumulative effect of such burdens
does not operate to deprive such Person of any material right in respect of its
assets or properties (except for rights customarily granted with respect to
such interests), if such royalties, overriding royalties, reversionary
interests, production payments and similar burdens are not required to be disclosed in a Form
8-K under the Securities Exchange Act of 1934; (viii)
easements, rights of way, servitudes,



 13
 






 



permits, surface
leases and other rights in respect to surface operations, pipelines, grazing,
logging, canals, ditches, reservoirs or the like, conditions, covenants and
other restrictions, and easements of streets, alleys, highways, pipelines,
telephone lines, power lines, railways and other easements and rights of way
on, over or in respect of Parent or any Subsidiary’s assets or properties,
consistent with past practice and industry standards and that are not required to be disclosed in a Form 8-K
under the Securities Exchange Act of 1934; (ix) all
contracts, agreements and instruments, and all defects and irregularities and
other matters affecting Parent or any Subsidiary’s assets and properties which
were in existence at the time such assets and properties were originally
acquired by such Person and all routine operational agreements entered into in
the ordinary course of business, which contracts, agreements, instruments,
defects, irregularities and other matters and routine operational agreements
are not such as to, individually or in the aggregate, interfere materially with
the operation, value or use of Parent or any Subsidiary’s assets and
properties, considered in the aggregate, consistent with past practice and
industry standards and that are not
required to be disclosed in a Form 8-K under the Securities Exchange Act of
1934; (x) Liens in connection with workmen’s compensation,
unemployment insurance or other social security, old age pension or public
liability obligations; (xi) legal or equitable encumbrances up to an aggregate
amount of $250,000 deemed to exist by reason of the existence of any litigation
or other legal proceeding or arising out of a judgment or award with respect to
which an appeal is being prosecuted in good faith; or (xii) rights reserved to
or vested in any municipality, governmental, statutory or other public
authority to control or regulate Parent or any Subsidiary’s assets and
properties in any manner, and all applicable laws, rules and orders from any
governmental authority, to the extent any such rights could not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect (as defined in the Securities Purchase
Agreement).


(t)            “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.


(u)           “Principal
Market” means the American Stock Exchange.


(v)           “Property”
means any right or interest in or to property of any kind whatsoever, whether
real, personal or mixed and whether tangible or intangible, including, without
limitation, capital stock.


(w)          “Registrable
Securities” shall have the meaning set forth in the Registration
Rights Agreement.


(x)            “Registration
Rights Agreement” means that certain registration rights agreement
dated as of the Subscription Date by and among the Company and the initial
holders of the Debentures relating to, among other things, the registration of
the resale of the Common Stock.


(y)           “Registration
Statement” shall have the meaning set forth in the Registration
Rights Agreement.



 14
 






 



(z)            “Required
Holders” means the holders of Debentures representing at least a
majority of the aggregate principal amount of the Debentures then outstanding.


(aa)         “RMG Assets”
means the assets that are designated as RMG Assets on Annex A to the
Security Agreement.


(bb)         “SEC”
means the United States Securities and Exchange Commission.


(cc)         “Securities
Purchase Agreement” means that certain securities purchase agreement
dated as of the Subscription Date by and among the Company and the initial
holders of the Debentures pursuant to which the Company issued the Debentures.


(dd)         “Security
Agreement” means the Pledge and Security Agreement dated as of December
28, 2006 among the Parent, the Company, its Subsidiaries, the holder of this
Debenture and the holders of the Other Debentures.


(ee)         “Security
Documents” means the Security Agreement, the Mortgages, if any, and
all other instruments, documents and agreements delivered by the Company or any
of its Subsidiaries in order to grant to any holder of a Debenture or Other
Debenture, a Lien on any real, personal or mixed property of the Company or one
of its Subsidiaries as security for the obligations under the Debentures and
Other Debentures.


(ff)           “Subscription
Date” means December 28, 2006.


(gg)         “Successor
Entity” means the Person, which may be the Company, formed by,
resulting from or surviving any Fundamental Transaction or the Person with
which such Fundamental Transaction shall have been made, provided that
if such Person is not a publicly traded entity whose common stock or equivalent
equity security is quoted or listed for trading on an Eligible Market,
Successor Entity shall mean such Person’s Parent Entity.


(hh)         “Trading Day”
means any day on which the Common Stock is traded on the Principal Market, or,
if the Principal Market is not the principal trading market for the Common
Stock, then on the principal securities exchange or securities market on which
the Common Stock is then traded; provided that “Trading Day”
shall not include any day on which the Common Stock is scheduled to trade on
such exchange or market for less than 4.5 hours or any day that the Common
Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).


(22)         DISCLOSURE.  Upon receipt or delivery by the Company of
any notice in accordance with the terms of this Debenture, unless the Company
has in good faith determined that the matters relating to such notice do not
constitute material, nonpublic information relating to the Company or its
Subsidiaries, the Company shall within one (1) Business Day after any such
receipt or delivery publicly disclose such material, nonpublic information on a
Current



 15
 






 



Report on Form 8-K or
otherwise.  In the event that the Company
believes that a notice contains material, nonpublic information relating to the
Company or its Subsidiaries, the Company so shall indicate to such Holder
contemporaneously with delivery of such notice, and in the absence of any such
indication, the Holder shall be allowed to presume that all matters relating to
such notice do not constitute material, nonpublic information relating to the
Company or its Subsidiaries.


[Signature Page Follows]



 16
 






 



IN WITNESS WHEREOF, the
Company has caused this Debenture to be duly executed as of the Issuance Date
set out above.


	
   

  	
  PRB OIL & GAS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William F. Hayworth

  	
   

  
	
   

  	
  Name:  William
  F. Hayworth

  
	
   

  	
  Title: 
  President

  



 



 17
 






 



By signing below,
Parent agrees to be bound by and subject to Section 6 and Section 8 of this
Debenture.


	
   

  	
  PRB ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ William F. Hayworth

  	
   

  
	
   

  	
  Name:  William
  F. Hayworth

  
	
   

  	
  Title: 
  President & Chief Operating Officer

  



 



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