PROMISSORY NOTE SECURED BY PLEDGE AGREEMENT
Exhibit
99.3
THIS
NOTE AND THE SHARES ACQUIRABLE ON CONVERSION HEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR UNDER ANY
STATE SECURITIES LAWS AND MAY ONLY BE SOLD OR TRANSFERRED IF THE HOLDER HEREOF
COMPLIES WITH THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
PROMISSORY
NOTE SECURED BY PLEDGE AGREEMENT
| $2,925,000 |
September
28,
2006
|
BUCKEYE
VENTURES, INC., a Michigan corporation (the “Company”), for value received,
hereby promises to pay Xxxxx Xxxxxx and Xxxxxx Xxxxxx (the “Holder”) the
principal amount of Two Million Nine Hundred Twenty-Five Thousand Dollars
($2,925,000), together with accrued interest thereon at the rate of 5.00% per
annum (computed on the basis of a 365-day year) from the date hereof. Interest
shall be payable monthly in arrears on the first day of each month commencing
on
October 1, 2006; provided, however, that any interest accruing on the
unconverted Convertible Portion (as defined below) shall not be required to
be
paid until the Maturity Date (as defined below) and may be paid in shares of
Common Stock (as defined below) valued at their then fair market value as
determined by the Company in good faith. The principal amount hereof and all
accrued and unpaid interest shall be due and payable on September 30, 2008
or, if extended as provided in the Merger Agreement (as defined below)
September 30, 2009 (the “Maturity Date”). This Promissory Note Secured by
Pledge Agreement (this “Note”) is being issued pursuant to that certain
Agreement and Plan of Merger dated as of September 28, 2006 by and among
the Company, EK Acquisition Corp., Energy King, Inc., the Holder and certain
other parties (the “Merger Agreement”) and is subject to the terms and
conditions set forth therein, including without limitation the provisions
therein which provide for the adjustment of the principal amount of this Note
in
certain instances. Capitalized terms used and not otherwise defined in this
Note
shall have the meanings ascribed to such terms in the Merger Agreement. In
the
event that the principal amount of this Note is reduced pursuant to the Merger
Agreement, then the Holder shall not be entitled to retain any interest
previously paid upon the amount of the reduction and, at the Company’s option,
the Company may apply all or any portion of such amounts to reduce the principal
amount of this Note or the amount of any further interest payments required
to
be paid pursuant to this Note or the Company may require that the holder
promptly repay all or any portion of such amounts to the Company upon
demand
The
Company shall have the right to prepay this Note in whole or in part without
penalty at any time and from time to time with or without prior notice. Except
as expressly provided in this Note, payments of principal and interest on this
Note shall be made in lawful money of the United States of America paid by
check
to the Holder delivered to the Holder at its address identified in the Merger
Agreement, or such other location as the holder of this Note shall have
designated by written notice to the Company;
provided, however,
that at
the election of the Company, all or any part of the principal and interest
due
hereunder may be paid by wire transfer to an account designated by the Holder
in
writing.
If
any
payment hereunder becomes due and payable on a Saturday, Sunday, or legal
holiday under the laws of the State of California, the due date thereof shall
be
extended to the next succeeding business day, and interest shall be payable
thereon during such extension at the rate specified above.
In
no
contingency or event whatsoever shall interest charged hereunder, however such
interest may be characterized or computed, exceed the highest rate permissible
under any law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. In the event that such a court determines
that the Holder has received interest hereunder in excess of the highest rate
applicable hereto, the Holder shall promptly apply to such excess amount to
the
unpaid principal balance or, to the extent no such balance exists, refund such
excess interest to the Company.
The
Holder may at any time on or after November 15, 2006 (the “Conversion Start
Date”) and prior to the Maturity Date convert up to One Million Five Hundred
Thousand Dollars ($1,500,000) of the principal amount of this Note in the
aggregate (the “Convertible Portion”) or any portion of the Convertible Portion
in increments of not less than $10,000 (unless such amount is the only portion
of the Convertible Portion then remaining outstanding under this Note in which
event the conversion of the remaining principal amount included in the
Convertible Portion shall be permitted) into fully paid and nonassessable shares
of the Common Stock, par value $.001 per share, of the Company (the "Common
Stock"), on the basis of one share of such stock for each $0.20 in principal
amount of this Note if converted on or prior to December 31, 2006, one share
of
stock for each $0.25 in principal amount of this Note if converted on or after
January 1, 2007 to and including December 31, 2007 and one share of
such stock for each $0.35 in principal amount of this Note if converted on
or
after January 1, 2008 (the "Conversion Price"). Such conversion shall be
effected by the surrender of this Note at the principal office of the Company
(or such other office or agency of the Company as the Company may designate
by
notice in writing to the Holder) at any time during usual business hours,
together with notice in writing that the Holder wishes to convert a portion
of
this Note, which notice shall also state the name(s) (with addresses) and
denominations in which the certificate(s) for Common Stock shall be issued
and
shall include instructions for delivery thereof. Such conversion shall be deemed
to have been effected as of the close of business on the date on which this
Note
shall have been surrendered and such notice shall have been received, and at
such time (the "Conversion Date") the rights of the Holder with respect to
the
principal amount of the Note converted shall cease and the person(s) in whose
name(s) any certificate(s) for Common Stock are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of
the
shares of Common Stock represented by such certificate(s). As soon as
practicable after the Conversion Date, the Company shall deliver to, or as
directed by, the Holder, certificates representing the number of shares of
Common Stock issuable by reason of such conversion registered in such name
or
names and such denomination or denominations as the Holder shall have specified,
together with cash as provided below in respect of any fraction of a share
of
such stock otherwise issuable upon such conversion. The Company shall make
payment to the Holder of accrued interest to the date of conversion on the
portion of the Note converted at the time and in the manner provided for the
payment of interest on the unconverted Convertible Portion of this Note. In
each
case of conversion, the Company shall either (i) endorse on this Note the date
and amount of this Note so converted, and such amount shall be deemed no longer
outstanding and promptly return this Note to the Holder, or (ii) promptly
execute and deliver a new Note to the Holder in the principal amount equal
to
the remaining principal amount of this Note.
From
and
after the Conversion Start Date the Company will, if necessary, take such
actions as may be required to increase its authorized shares of Common Stock
and
reserve and keep available out of its authorized but unissued shares of Common
Stock or its treasury shares, or otherwise, solely for the purpose of issuance
upon the conversion of this Note, such number of shares of Common Stock as
shall
then be issuable upon the conversion of this Note. The Company covenants that
all shares of Common Stock which shall be so issuable shall, when issued, be
duly and validly issued, fully paid and nonassessable and free from all taxes,
liens and charges.
2
In
the
event the Company shall at any time subdivide (by any stock split, stock
dividend or otherwise) its outstanding Common Stock into a greater number of
shares of such stock, the Conversion Price shall be proportionately decreased.
Conversely, in the event the outstanding shares of Common Stock shall at any
time be combined into a smaller number of shares (by reverse stock split or
otherwise), the Conversion Price shall be proportionately increased. In the
case
of any stock dividend described in this paragraph, the adjustment to be made
shall be made as of the time immediately after the close of business on the
record date for the determination of holders of any class of securities entitled
to receive such dividend; provided, however, that if such record date shall
have
been fixed and such dividend shall not have been fully paid on the date fixed,
such adjustment shall be cancelled as of the close of business on such record
date and, thereafter, the Conversion Price shall be adjusted pursuant to this
paragraph as of the time of actual payment of such dividend. In the case of
any
subdivision (other than a stock dividend) or combination described in this
paragraph, the adjustment to be made pursuant hereto shall be made as of the
close of business on the date immediately prior to the date upon which such
corporate action becomes effective. Notwithstanding the foregoing, the Company
shall not be required to give effect to any adjustment to the Conversion Price
if the amount of such adjustment would be less than $.01, but any such
adjustment shall be carried forward and adjustment with respect thereto shall
be
made at the time of and together with any subsequent adjustment which, together
with such amount and any other amount or amounts so carried forward, causes
a
cumulative net adjustment of $.01 or more.
If
any
capital reorganization or reclassification of the capital stock of the Company
(other than a change in par value, or from par value to no par value, or from
no
par value to par value, or as a result of an issuance of Common Stock by
dividend or other distribution or by reason of a subdivision or combination),
or
any consolidation or merger of the Company with or into another corporation,
or
any sale of all or substantially all of the Company's property and assets to
any
person, firm or corporation (collectively, any "Organic Change") shall be
effected in such a way that holders of Common Stock shall be entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock, then, as a condition to such
Organic Change, lawful and adequate provision shall be made whereby the Holder
shall thereafter have the right to acquire and receive upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock of the Company immediately theretofore acquirable and receivable (directly
or upon subsequent conversion, assuming unrestricted convertibility) upon the
conversion of this Note, such shares of stock, securities or assets as may
be
issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock immediately
theretofore acquirable and receivable (directly or upon subsequent conversion,
assuming unrestricted convertibility) upon conversion of this Note had such
Organic Change not taken place (except that the terms of the parenthetical
provisions at the end of the next sentence shall be applied in determining
the
number of shares of Common Stock immediately theretofore acquirable and
receivable). In any such case, appropriate provision shall be made with respect
to the Holder's rights and interests to the end that the provisions contained
in
this Note (including without limitation provisions for adjustments of the number
of shares of Common Stock acquirable and receivable upon the exercise of the
conversion rights granted herein) shall thereafter be applicable in relation
to
any shares of stock, securities or assets thereafter deliverable upon the
conversion of this Note (including, in the case of any such consolidation,
merger or sale in which the successor corporation or purchasing entity is other
than the Company, an immediate adjustment in the number of shares of Common
Stock acquirable and receivable upon conversion of this Note). In the event
of a
merger or consolidation of the Company with or into another corporation or
the
sale of all or substantially all of the Company's property and assets to another
corporation as a result of which a number of shares of common stock of the
surviving or purchasing corporation greater or lesser than the number of shares
of Common Stock of the Company outstanding immediately prior to such merger,
consolidation or sale are issuable to holders of Common Stock, the aggregate
number of shares of Common Stock into which this Note was convertible in effect
immediately prior to such merger, consolidation or sale shall be adjusted
(pursuant to the preceding paragraph) as though there were a subdivision or
combination of the outstanding shares of Common Stock. The provisions of this
paragraph shall similarly apply to successive Organic Changes.
3
Promptly
upon any adjustment in the number of shares of Common Stock acquirable and
receivable upon conversion of this Note or any adjustment or readjustment in
the
Conversion Price, the Company shall send written notice to the Holder, which
notice shall set forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. The Company shall, upon written
request at any time of any holder of this Note, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number
of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of this Note. The Company may retain
a
firm of independent public accountants of recognized standing which may be
the
firm regularly retained by the Company to make any computation required under
this Note and a certificate signed by such firm shall be conclusive evidence
of
the correctness of any computation made under this Section.
The
Company shall not be required to issue any fractional shares of Common Stock
upon any conversion of this Note. If any fraction of a share of Common Stock
except for the provisions of this paragraph would be issuable upon conversion
of
this Note, the Company may elect not to convert such portion of the Note or
in
lieu of issuing such fractional share pay an amount in cash equal to the then
current fair market thereof as determined by the Company in good
faith.
To
the
extent applicable, the Company may withhold any present or future income, stamp
or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any governmental authority from any amounts payable to the Holder hereunder
and the Company shall send to the Holder notice showing payment thereof. The
Company will not be responsible for any income tax of the Holder for interest
due on the Note, or stamp duty or other tax due on conversion of the Note.
Nothing contained in this Note shall be construed as conferring upon the Holder
the right to receive any dividend or other distribution as a stockholder or
to
vote or to consent or to receive notice as a stockholder in respect of the
meetings of stockholders for the election of directors of the Company or any
other matter.
If
any of
the following conditions or events (each an “Event of Default” and collectively,
the “Events of Default”) shall occur and be continuing:
(a) if
the
Company shall default in the payment of any principal on this Note when the
same
becomes due and payable, whether at maturity or otherwise, and such payment
shall not have been made within fifteen (15) days after written notice of
default shall have been received by the Company from the Holder; or
(b) if
the
Company shall default in the payment of any interest on the Note when the same
becomes due and payable and such default shall continue more than thirty (30)
days after written notice of default shall have been received by the Company
from the Holder; or
4
(c) if
the
Company shall make an assignment for the benefit of creditors, or shall admit
in
writing its inability to pay its debts as they become due, or shall file a
voluntary petition in bankruptcy, or shall be adjudicated as bankrupt or
insolvent, or shall file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, or
shall file any answer admitting or not contesting the material allegations
of a
petition filed against the Company in any such proceeding, or shall seek or
consent to or acquiesce in the appointment of any custodian, trustee, receiver
or liquidator of the Company or of all or any substantial part of the properties
of the Company, or if the Company or its directors or majority stockholders
(or
such greater number as may be required to effect such action) shall take any
action looking to the dissolution or liquidation of the Company; or
(d) if,
within sixty (60) days after the commencement of an involuntary bankruptcy
proceeding or other action against the Company seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such action
shall
not have been dismissed or all orders or proceedings thereunder affecting the
operations or the business of the Company stayed, or if the stay of any such
order or proceeding shall thereafter be set aside, or if, within sixty (60)
days
after the appointment without the consent or acquiescence of the Company of
any
custodian, trustee, receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company, such appointments shall
not
have been vacated;
then
the
Holder hereof may at any time (unless all Events of Default shall theretofore
have been remedied or cured) at its option, by written notice to the Company,
declare this Note to be due and payable, whereupon this Note shall forthwith
mature and become due and payable, together with interest accrued and unpaid
hereon, without presentment, demand, protest or notice, all of which are hereby
waived.
This
Note is a nonrecourse note and is secured solely by a pledge of certain shares
of stock of Energy King, Inc., a California corporation (the “Operating
Company”), pursuant to a Pledge Agreement of even date herewith between the
Company, the Holder, the other Stockholders and Xxxxx Xxxxxx, as agent for
the
Holder and the other Stockholders ("Pledge Agreement"). The Company shall be
liable upon the indebtedness evidenced by this Note, for all sums to accrue
or
to become payable hereon and for performance of any covenants contained in
this
Note or the Pledge Agreement to the extent, but only to the extent, of the
security granted to the Lender pursuant to the Pledge Agreement. No attachment,
execution or other writ or process shall be sought, issued or levied against
the
Company or upon any assets, properties or funds of the Company other than the
properties, rights, estates and interests pledged pursuant to the Pledge
Agreement. In the event of any foreclosure of such title, liens or security
interests, no judgment of any deficiency upon such indebtedness, sums and
amounts shall be sought or obtained by Lender against the
Company.
5
Notwithstanding
anything to the contrary contained in this Note, in the event that Buckeye,
the
Company or EK Acquisition Corp. (each, an “Indemnified Party”) is (or, pending
resolution of a disputed claim, may be) entitled to receive any amounts from
the
Holder or any of the other Stockholders (each, an “Indemnifying Party”) under
the Merger Agreement or under any of the other documents executed or to be
executed in connection with the Merger Agreement, including without limitation
any amounts owed under the indemnification provisions of Article 11 of the
Merger Agreement, the Company may take any one or more of the following actions
(and such actions shall not result in an Event of Default under this
Agreement):
(i) offset
and deduct from any amounts to be paid to the Holder of this Note (or that
may
be converted by the Holder) any amounts owed by any Indemnifying Party to any
Indemnified Party under the Merger Agreement or any other agreement or document
executed in connection with the Merger Agreement; or
(ii) pending
resolution of any claim, withhold from the amounts to be paid to the Holder
of
this Note (or that may be converted by the Holder) any amounts which may be
owed
by any Indemnifying Party to any Indemnified Party under the Merger Agreement
or
any other agreement or document executed in connection with the Merger
Agreement;
In
either
case, neither such amount nor any interest on such amount shall be required
to
be paid by the Company to Holder (or converted), provided, however, that if
within thirty (30) days the Holder notifies the Company that it disputes the
amounts so offset, deducted or withheld, then if and to the extent the Holder
prevails with respect to such dispute amounted the Holder shall be entitled
to
any interest required to be paid pursuant to this Note with respect to the
disputed amount and not paid as a result of the operation of this sentence;
provided further, however, that the Company shall be permitted to deposit any
such disputed amount so withheld in escrow with an escrow agent selected by
the
Company and reasonably satisfactory to the Holder of this Note, pending
resolution of such dispute (where, if permitted, the amount escrowed may be
invested in investments mutually acceptable to the Company and the Holder),
in
which case no interest shall be required to be paid with respect to such amount,
regardless of the resolution of the dispute and, upon the resolution of the
dispute, the escrowed amount and any earnings or losses upon such escrowed
amount shall be paid or allocated to the Company or paid and allocated to the
Holder, as appropriate.
THIS
NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND
NOT
THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF CALIFORNIA.
All
notices delivered pursuant to the terms hereof shall be deemed to have been
duly
given when given in accordance with the terms of the Merger
Agreement.
Whenever
in this Note reference is made to the Company or the Holder, such reference
shall be deemed to include their respective heirs, legal representatives,
successors and assigns; provided, however, that the Holder may not transfer
this
Note or any portion of this Note or any of its rights under this Note or any
portion hereof, including without limitation to the Common Stock or other
securities that may be issuable or issued with respect to the Convertible
Portion of this Note, without the consent of the Company or, with respect to
such Common Stock, as expressly permitted pursuant to the terms of the Transfer
Restriction Agreement.
6
IN
WITNESS WHEREOF,
the
undersigned has caused this Note to be executed by its duly authorized officer
on the date first above written.
By:______________________________
Xxxx
X.
Xxxxx
President
7
