DISTRIBUTION OF NET PROFITS FROM SUBSIDIARY. The Holders shall be entitled to receive, on a pro rata basis (based on the number of shares of Preferred Stock held by the shareholder as compared to each of the other holders of the Preferred Stock designating the Subsidiary, as defined below) and pari passu basis, a quarterly distribution of twenty-five percent (25%) of the quarterly Net Profits from the Offeror's wholly-owned subsidiary, "Water On Demand 1, LLC" (“WOD, “WOD Subsidiary” or the "Subsidiary"), paid within three (3) months of Subsidiary's accounting quarter-end. “Net Profits” are defined as Net Profits for the WOD Subsidiary calculated according to US GAAP, after all costs and expenses are deducted, including allocations of intercompany expenses and any interest expenses, but before the deduction of income taxes. Further, past losses shall be deducted from the calculation of “Net Profits” cumulatively and on the same pro rata basis as defined above, so that the quarterly distributions of twenty-five percent of the quarterly Net Profits will be paid net of any cumulative losses incurred in prior periods. In the event the Offeror causes a Subsidiary's business operations to be terminated, or sells a Subsidiary or substantially all of its assets, or the Subsidiary business is otherwise discontinued, in addition to the distribution of net profits of the Subsidiary for the period of the Subsidiary's accounting quarter prior to such termination or sale, the Holders shall be entitled to receive the distribution of, on a pro rata, pari passu basis, 25% of the proceeds, net of the Subsidiary’s liabilities, from the liquidation of the Subsidiary's assets following such termination, or 25% of the proceeds, net of the Subsidiary’s liabilities, derived from any such sale of Subsidiary or substantially all of its assets, in either case also net of any prior cumulative losses at the Subsidiary. The rights of the Holders to the distribution of Net Profits from Subsidiary as defined in this Section 3 shall survive the conversion of the Series Y Convertible Preferred Stock into Common Stock. After any such conversion the distribution of Net Profits to the Holder shall take place as if the Holder still held the same number of Series Y Convertible Preferred Stock as it held prior to converting to Common Stock.
