Contract
EXHIBIT 10.3
THIS NOTE AND ANY SHARES OF COMMON STOCK INTO WHICH THIS NOTE MAY BE CONVERTED HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED FOR SALE UNDER ANY STATE
SECURITIES LAWS (COLLECTIVELY, “SECURITIES LAWS”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED UNLESS REGISTERED OR QUALIFIED FOR SALE UNDER ALL APPLICABLE SECURITIES LAWS OR UNLESS,
IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER, ANY SUCH OFFER, SALE OR OTHER TRANSFER IS EXEMPT FROM THE REGISTRATION OR QUALIFICATION
REQUIREMENTS OF SUCH SECURITIES LAWS.
| $ | ||
| “Subscription Amount” | “Issuance Date” |
“Holder”
FOR VALUE RECEIVED, SAVE THE WORLD AIR, INC., a corporation organized under the laws of the
state of Nevada (the “Company”), promises to pay to the order of the holder identified above
(together with any subsequent holder hereof, called the “Holder”), at the address of the Holder
shown on the books and records of the Company, or at such other place as Holder may direct from
time to time, the “Subscription Amount” noted above (the “Loan”), payable in full on July 31, 2006,
or at an earlier date as provided herein (the “Maturity Date”). This Note is one of several Notes
issued by the Company on one or more Issuance Dates (collectively, the “Notes”).
The Company agrees to pay interest on the unpaid principal amount of the Subscription Amount
from time to time outstanding hereunder at the rate of 9% per year. Interest hereunder shall be
computed on the basis of a year of three hundred sixty-five (365) days and the actual number of
days elapsed. Interest on the unpaid principal amount hereof shall accrue on a monthly basis on
the last day of each calendar month, commencing on the calendar month following the Issuance Date.
Interest on the unpaid principal amount hereof shall be payable quarterly commencing on the last
day of the second calendar month after the calendar month of the Issuance Date and continuing on
the last day of each third calendar month thereafter until all sums due hereunder have been paid in
full. Accrual of interest hereunder shall commence on the Issuance Date.
Payments of both principal and interest will be made in immediately available funds in lawful
money of the United States of America to the Holder at the Investor’s Address.
The Note is subject to the following additional provisions:
1. The Company shall be entitled to withhold from all payments of principal and/or interest of
this Note any amounts required to be withheld under the applicable
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provisions of the U.S. Internal Revenue Code of 1986, as amended, or other applicable laws at
the time of such payments.
2. This Note has been issued subject to investment representations of the original Holder
hereof and may be transferred or exchanged only in compliance with the Securities Act and
applicable state and other securities laws. Prior to the due presentment for such transfer of this
Note, the Company and any agent of the Company may treat the person in whose name this Note is duly
registered on the Company’s Note register as the owner hereof for the purpose of receiving payment
as herein provided and all other purposes, whether or not this Note is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary. The transferee shall be
bound, as the original Holder by the same representations and terms described herein and under the
Agreement.
3. a. The Holder or the Company may, at such Holder’s option, at any time convert the
principal amount of this Note or any portion thereof, and any interest accrued and unpaid thereon
(the “Conversion Amount”), into a number shares of fully paid and non-assessable Common Stock of
the Company (the “Conversion Shares”) pursuant to the following formula: the Conversion Amount
divided by Seventy Cents ($0.70) (as the same may be adjusted from time to time pursuant to the
provisions of this Note, the “Conversion Price”). The Holder may exercise the right to convert all
or any portion of the Conversion Amount by delivering to the Company (i) an executed and completed
notice of conversion in the form attached to this Note (the “Notice of Conversion”) to the Company
and (ii) this Note. The business day on which a Notice of Conversion and this Note are delivered
to the Company in accordance with the provisions hereof shall be deemed a “Conversion Date”. The
Company will transmit the certificates representing Conversion Shares issuable upon such conversion
of this Note (together with the certificates representing the amount of this Note not so converted)
to the Holder via express courier within ten Business Days after the Conversion Date. No
fractional shares shall be issued upon conversion of this Note. The amount of any of the
Conversion Amount which is less than a whole share of Common Stock shall be paid to the Holder in
cash. If the conversion of this Note requires that the Company amend its charter to increase the
number of common shares authorized, the conversion may not take place prior to the Company’s
completion of that process. Any delay due to such circumstance shall not be an event of default
under this Note. The Company shall promptly take any action required to effect such amendments to
its charter.
b. If at any time on or prior to the Maturity Date the Company should either consummate or
enter into a “firm commitment” agreement for debt and/or equity financings in a transaction or
series of transactions in which the Company would be entitled to receive at least Five Million
Dollars ($5,000,000.00) of proceeds before payment of all costs of consummating such transaction or
transactions (the “Financing”), the Company may, in its sole and absolute discretion, elect to
require that the Holders of all, but not less than all, of the Notes, convert their respective
Notes on the same terms and subject to the same conditions as if each Holder had elected to
exercise such Holder’s rights of conversion as provided for herein (the “Mandatory Conversion”).
Whether or not the Company obtains the Financing, the Company shall have no obligation to require
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a Mandatory Conversion. Should it elect to exercise its rights to require a Mandatory
Conversion, the Company shall promptly so notify the Holder and each holder of the other Notes, but
not later than five business days following the Maturity Date. The principal amount of this Note,
and any accrued interest thereon, shall be reduced as per that principal amount indicated on the
Notice of Conversion upon the proper receipt by the Holder of such Conversion Shares due upon such
Notice of Conversion.
4. The number of Conversion Shares shall be adjusted as follows:
a. If the Company shall at any time after the Issuance Date subdivide its outstanding shares
of Common Stock into a greater number of shares of Common Stock, the number of Conversion Shares in
effect immediately prior to such subdivision shall be proportionately increased, and conversely, in
case the outstanding shares of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect immediately prior to such combination shall be
proportionately reduced.
b. If the Company shall at any time or from time to time after the Issuance Date make, or fix
a record date for the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in each such event the
number of Conversion Shares issuable upon conversion of this Note shall be proportionately
increased; provided, however, that if such record date is fixed and such dividend is not fully
paid, or if such distribution is not fully made on the date fixed therefor, the number of
Conversion Shares shall be recomputed to reflect that such dividend was not fully paid or that such
distribution was not fully made.
c. If the Company at any time or from time to time after the Issuance Date makes, or fixes a
record date for the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company other than shares of Common Stock, then and
in each such event provision shall be made so that Holder shall receive upon exercise of the
conversion right of this Note, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Company which Xxxxxx would have received had the
Conversion Amount of this Note been exercised on the date of such event and had it thereafter,
during the period from the date of such event to and including the date of conversion or purchase,
retained such securities receivable during such period.
d. If the Common Stock issuable upon the conversion of this Note or option to purchase is
changed into the same or a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a transaction described elsewhere in
Section 4 of this Note), then, and in any such event, each Holder shall have the right thereafter,
upon conversion of this Note or purchase pursuant to option to receive the kind and amount of stock
and other securities and property receivable upon such reorganization or other change, in an amount
equal to the amount that Holder would have been entitled to had it immediately prior to such
reorganization, reclassification or change converted this Note, but only to the extent this Note is
actually converted, all subject to further adjustment as provided herein.
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e. If at any time the Company proposes (A) the acquisition of the Company by another entity by
means of any transaction or series of related transactions (including, without limitation, any
reorganization, merger, consolidation or stock issuance) that results in the transfer of fifty
percent (50%) or more of the then outstanding voting power of the Company; or (B) a sale of all or
substantially all of the assets of the Company, then the Company shall give the Holder ten (10)
days notice of the proposed effective date of the transaction. If this Note has not been converted
by the effective date of such transaction, this Note shall be exercisable into the kind and number
of shares of stock or other securities or property of the Company or of the entity resulting from
such merger or acquisition to which such Holder would have been entitled if immediately prior to
such acquisition or merger, it had exercised this Note. The provisions of this Section 4(e) shall
similarly apply to successive consolidations, mergers, sales or conveyances.
5. No provision of this Note shall alter or impair the obligation of the Company, which
is absolute and unconditional, upon an Event of Default (as defined below), to pay the principal
of, and interest on this Note at the place, time, and rate, and in the coin or currency herein
prescribed.
6. Events of Default. Each of the following occurrences is hereby defined as an “Event
of Default”:
| (i) | Nonpayment. The Company shall fail to make any payment of principal, interest, or other amounts payable hereunder when and as due; or | ||
| (ii) | Dissolutions, etc. The Company or any subsidiary shall fail to comply with any provision concerning its existence or any prohibition against dissolution, liquidation, merger, consolidation or sale of assets; or | ||
| (iii) | Noncompliance with this Agreement. The Company shall fail to comply in any material respect with any provision hereof, which failure does not otherwise constitute an Event of Default; or | ||
| (iv) | Insolvency. The institution of bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company, which proceedings shall not have been vacated by appropriate court order within sixty (60) days of such institution. |
If one or more “Events of Default” shall occur, then, or at any time thereafter, and in each
and every such case, unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) or cured as provided
herein, at the option of the Holder, and in the Holder’s sole discretion, the Holder may elect to
consider this Note (and all interest through such date) immediately due and payable. In order to so
elect, the Holder must deliver written notice of the election and the amount due to the Company via
certified mail, return receipt requested, at the Company’s address as set forth herein (or any
other
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address provided to the Holder), and thereafter the Company shall have ten (10) business days
upon receipt to cure the Event of Default or pay this Note, or convert the amount due on the Note
pursuant to the conversion formula set forth above. Notwithstanding the foregoing, no Event of
Default shall have occurred, if the Company shall have given a notice of a Mandatory Conversion
hereunder.
7. In case any provision of this Note is held by a court of competent jurisdiction to
be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby.
8. This Note does not entitle the Holder hereof to any voting rights or other rights as a
shareholder of the Issuer prior to the conversion into Common Stock thereof, except as provided by
applicable law. If, however, at the time of the surrender of this Note and conversion the Holder
hereof shall be entitled to convert this Note, the Conversion Shares so issued shall be and be
deemed to be issued to such holder as the record owner of such shares as of the close of business
on the Conversion Date.
9. The Holder shall pay all issue and transfer taxes and other incidental expenses in respect
of the issuance of certificates for Conversion Shares upon the conversion of this Note, and such
certificates shall be issued in the name of the Holder of this Note.
10. In no event will the Holder make a disposition of this Note or the Conversion Shares
unless and until, if requested by the Company, the Holder shall have furnished the Company with an
opinion of counsel satisfactory to the Company and its counsel to the effect that appropriate
action necessary for compliance with the Securities Act of 1933, as amended (the “Act”) relating to
sale of an unregistered security has been taken. Notwithstanding the foregoing, the restrictions
imposed upon the transferability of the Conversion Shares shall terminate as to this Note or any
particular Conversion Share when (i) such security shall have been sold without registration in
compliance with Rule 144 under the Act, or (ii) a letter shall have been issued to the Holder at
its request by the staff of the Securities and Exchange Commission or a ruling shall have been
issued to the Holder at its request by such Commission stating that no action shall be recommended
by such staff or taken by such Commission, as the case may be, if such security is transferred
without registration under the Act in accordance with the conditions set forth in such letter or
ruling and such letter or ruling specifies that no subsequent restrictions on transfer are
required, or (iii) such security shall have been registered under the Act and sold by the Holder
thereof in accordance with such registration.
11. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Note, and in case of loss, theft or destruction of this Note,
upon delivery of an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, upon surrender and cancellation of such Note,
and upon reimbursement to the Company of all reasonable expenses incidental thereto, the Company
will make and deliver to the
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Holder, in lieu thereof, a new Note in substantially identical form and dated as of such
cancellation.
12. If the last or appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday in the
United States or the State of California, then such action may be taken or such right may be
exercised on the next succeeding business day.
13. a. This Note shall be governed by and construed in accordance with the laws of the State
of California applicable to contracts made and to be performed wholly within such state.
b. Except as otherwise provided herein, any notice or demand which, by the provisions
hereof, is required or which may be given to or served upon the parties hereto shall be in writing
and, if by telegram, telecopy or telex, shall be deemed to have been validly served, given or
delivered when sent, if by personal delivery, shall be deemed to have been validly served, given or
delivered upon actual delivery and, if mailed, shall be deemed to have been validly served, given
or delivered three (3) business days after deposit in the United States mails, as registered or
certified mail, with proper postage prepaid and addressed to the party or parties to be notified.
c. The Holder acknowledges that the Conversion Shares acquired upon the exercise of this
Note may have restrictions upon its resale imposed by state and federal securities laws.
d. With regard to any power, remedy or right provided herein or otherwise available to any
party hereunder (i) no waiver or extension of time shall be effective unless expressly contained in
a writing signed by the waiving party; and (ii) no alteration, modification or impairment shall be
implied by reason of any previous waiver, extension of time, delay or omission in exercise, or
other indulgence.
e. This Note constitutes the Company’s and Xxxxxx’s entire agreement with respect to the
subject matter hereof and supersedes all agreements, representations, warranties, statements,
promises and understandings, whether oral or written, with respect to the subject matter hereof.
This Note may not be amended, altered or modified except by a writing signed by the Company and the
Holder.
14. a. The rights of the Holder to receive payments hereunder shall be subordinate to the
rights of the holders of up to $10,000,000.00 of the Company’s other securities which may be
issued after the Issuance Date and prior to the Maturity Date (the “Other Debt”), if the terms of
the Other Debt require that the indebtedness represented by all Notes shall be so subordinated. .
b. Unless and until there should occur a default under the terms and conditions of the Other
Debt, the Holder shall be entitled to retain any payment of principal or interest made by the
Company in respect of its obligations under this Note. In the event of and during the continuance
of any such default, no payment of principal of
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or interest on this Note shall be made by the Company or, to the extent made by the Company,
retained by the Holder. If the Company should be in such default, the Company shall so notify the
Holder not later than the next date a payment hereunder shall become due in accordance with the
provisions hereof
c. Upon any distribution of assets of the Company in connection with any dissolution,
winding-up or liquidation (whether or not in bankruptcy, insolvency or other similar proceedings)
the holders of the Other Debt shall first be entitled to receive payment in full in money or
money’s worth, in accordance with the terms of the Other Debt, of all sums due in respect thereto,
before the Holder shall be entitled to receive from the Company any payment under this Note.
IN WITNESS WHEREOF, the Issuer has caused this Convertible Note to be duly executed by an
officer thereunto duly authorized.
| SAVE THE WORLD AIR, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
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NOTICE OF EXERCISE OF CONVERSION RIGHT
TO: SAVE THE WORLD AIR, INC.
(1) The
undersigned hereby elects to convert $____________ of the attached Note into
____________
shares of Common Stock (the “Shares”) of Save the World Air, Inc. pursuant to the
terms of the attached Note.
(2) Please issue a certificate or certificates representing the Shares in the name of the
undersigned or in such other name as is specified below:
Address:
(3) The undersigned confirms that the Shares are being acquired for the account
of the undersigned for investment only and not with a view to, or for resale in
connection with, the distribution thereof and that the undersigned has no present
intention of distributing or selling the Shares.
(4) The undersigned accepts such shares subject to the restrictions on transfer
set forth in the attached Note.
(5) The undersigned hereby represents and warrants that that he or she is either (you must
initial one choice and fill in the requested information):
_______________FOR U.S. INVESTORS ONLY: an “accredited investor” as defined in Rule 501(a) of
Regulation D, a copy of which definition the investor acknowledges receiving and reviewing,
and resident of the State of __________________; or
_______________FOR NON-U.S. PERSONS ONLY: not a “U.S. person” as defined in Rule 902 of
Regulation S, a copy of which definition the investor acknowledges receiving and reviewing,
and a citizen of the country of __________________ and a resident of the country of
__________________,
and, in either case, makes the following further representation:
I, THE UNDERSIGNED, REPRESENT THAT I HAVE A PRE-EXISTING PERSONAL OR BUSINESS RELATIONSHIP
WITH THE COMPANY, ANY OFFICER, DIRECTOR OR CONTROLLING PERSON THEREOF OR HAVE, THROUGH
MYSELF OR THROUGH MY UNAFFILIATED PROFESSIONAL
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ADVISER, THE BUSINESS OR FINANCIAL EXPERIENCE TO PROTECT MY INTERESTS IN CONNECTION WITH MY
SUBSCRIPTION HERETO.
FURTHER, I AM PURCHASING THE SECURITIES OFFERED HEREBY FOR INVESTMENT AND NOT WITH A VIEW
TOWARD DISTRIBUTION THEREOF.
| (Date) | (Signature) | ||||
| (Print Name) | |||||
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