Contract
Exhibit
10.48
THIS
SECURITY HAS NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THIS SECURITY
IS “RESTRICTED” AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
THE
HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE MAY
NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY, WHICH SHALL NOT BE UNREASONABLY WITHHELD, AND
THEN ONLY: (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A; (II)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904
UNDER THE SECURITIES ACT; (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE); (IV) TO AN
INSTITUTIONAL “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(A)(1), (2), (3); OR
(7) UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
COMPANY A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS NOTE (IN THE FORM OF WHICH CAN BE OBTAINED FROM
THE COMPANY) AND AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, OR (V) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I)
THROUGH (V) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE.
6.5%
SECOND-PRIORITY SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
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NUMBER: FIVE
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$2,178,000.00
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POMONA,
CALIFORNIA
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NOVEMBER
6,
2009
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FOR VALUE RECEIVED, GENERAL ENVIRONMENTAL MANAGEMENT,
INC., a Nevada corporation (the “Company”), promises to pay to
Xxxxxxx X. Xxxxxxx, an individual currently residing in Oxnard, California (the
latest of any registered holder of this Note is herein referred to as the “Holder”), in United States
dollars (in immediately available funds) the principal sum of TWO MILLION ONE HUNDRED SEVENTY EIGHT
THOUSAND DOLLARS ($2,178,000.00), together with (i) interest accrued
thereon from the date of this Note on the unpaid principal balance outstanding
from time to time; and (ii) other costs and expenses payable or to become
payable on the terms of this Note. The Company will not, and will
instruct any transfer agent not to, register on the books of the Company the
transfer of this Note (or any Shares issued upon conversion of this Note) unless
the conditions specified in the legend set out in capital letters at the top of
this Note are satisfied.
1
This Note
is “Note Five” in the series of six promissory notes (the “Notes”) made by the Company
pursuant to the terms and conditions of that certain Stock Purchase Agreement
dated as of November 6, 2009 by and among the Company and the other parties
thereto (the “Stock Purchase
Agreement”), the other Notes in the series being designated in the Stock
Purchase Agreement as the Seller’s Note (herein the “Senior Note”) and Note One,
Note Two, Note Three and Note Four (herein, the “Junior Notes”).
1. Interest
Rate. Interest on this Note shall accrue on all amounts
outstanding from the date hereof until the earlier of (i) the payment in
full of all outstanding principal of, and interest and costs and expenses
payable on, this Note, or (ii) the conversion of this Note into common
stock of the Company (“Shares”) pursuant to Paragraph
8 hereof, at the rate of (A) Six and One Half Percent (6.5%) before the
occurrence of any Event of Default (as defined hereinafter), hereunder and, (B)
Nine and One Half Percent (9.5%) per annum after and during the continuance of
any Event of Default, provided
that in no event shall the interest rate be higher than the maximum rate
permitted by applicable law. Interest on this Note shall be
compounded monthly and calculated on the basis of the actual number of days
elapsed and a 360-day year.
2. Payment Schedule. Payment of
the outstanding principal of this Note shall be due and payable in 41
installments (“Installments”) commencing on
July 1, 2010 and continuing on the first day of each calendar month through
November 1, 2013 (collectively, the “Installment Dates”).
Installments are payable in the following amounts (subject
to the other terms of this Note): (A) the amount of principal and accrued
interest payable in the first forty Installments shall be equal Installments of
principal and interest, calculated on the basis of a 30-year amortization of
this Note, provided
that the first Installment shall also include all interest accrued during
the first seven months from the date of this Note; and (B) the final, “balloon”,
Installment shall be in the amount of all then-outstanding principal, interest
and other amounts then outstanding hereunder. Schedule A to this Note sets forth
the schedule and amount of such Installments. Notwithstanding the
foregoing, (C) all outstanding principal and interest shall become due and
payable on the date, if any, on which the principal amount, or part thereof, of
this Note is accelerated and (D) the amount of principal specified in any
Prepayment Notice (as defined hereafter) shall be payable on the date specified
for such payment in that Notice of Prepayment. On each Installment
Date, all interest accrued at a rate higher than 6.5% per annum shall also be
payable. Costs and expenses such as may become payable hereunder are
payable at the earlier of (i) demand of the Holder; or (ii) the next succeeding
Installment Date. All payments hereunder are payable at any United
States address or by wire transfer to any United States bank account, in each
case as the Holder may designate from time to time to the
Company. Whenever any payment to be made hereunder would otherwise
become due on a date which is not a Business Day (as hereinafter defined), the
payment shall be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the payment of interest with
respect to such payment. “Business Day” means any day on
which banks in the City of Los Angeles, California are generally open for
business.
2
3.
Seniority; Enforcement; Subrogation.
3.1 Certain Definitions. For
purposes of Paragraph 3, “Company” means the Company on
a consolidated basis As to the Company: (i) “Senior Debt” means all Debt
outstanding from the Company to ComVest Capital LLC (the “ComVest Debt”), as of the date
of this Note, and includes any increase in the amount of indebtedness owed to
ComVest, and when it has been fully repaid, the ComVest Debt shall no longer be
part of the Senior Debt calculation; and (ii) “Junior Debt” means all Debt,
whether now or hereafter incurred or outstanding, other than the Senior Debt and
this Note. "Debt"
as to any person or entity (including the Company) (any such person or entity,
the “Obligor”) means:
(a) all obligations incurred by the Obligor in respect of borrowed money; (b)
all obligations owing by the Obligor to the seller or lessor of any real or
personal property under leases that are treated as "finance leases"; (c), or any
other creditor, bank or person in respect of amounts paid under letters of
credit, acceptances or other similar instruments; (d) any other obligations of
the Obligor that constitute a balance sheet liability of the Obligor, from time
to time; (e) all Guarantees issued by the Obligor in respect of any of the
foregoing items of Debt; (f) all liabilities (xxxxxx or conditional), principal
of and premium, if any, and interest (including without limitation, interest
accruing or that would have accrued but for the filing of a bankruptcy,
reorganization or other insolvency proceeding whether or not such interest
constitutes an allowed claim in such proceeding) on, and any and all other fees,
charges, expense reimbursement obligations, indemnities and other amounts owing
or which may become owing (whether or not then payable) pursuant to the terms
of, or any settlement or compromise of, all leases, accounts payable, trade
debt, agreements, documents and instruments providing for, creating, securing,
guaranteeing or evidencing or otherwise entered into in connection with all such
debt; (g) all deferrals, renewals, extensions, refundings, replacements,
refinancings and restructuring of and amendments, modification and supplements
to any Debt described above. For purposes of this Paragraph 3, the term
"Guarantee" means, as to
any person, any obligation of such person guaranteeing or intended to guarantee
any indebtedness, including without limitation leases, dividends, principal,
premium, interest, penalties, fees, reimbursements, indemnifications, damages,
and other expenses payable under the terms of the documentation governing such
indebtedness.
3.2 No New Debt
Senior
to Senior Debt. After the
date of this Note, the Company, Santa Xxxxx Waste Water Company, a California corporation (“SCWW”) or California
Living Waters, Inc. shall not incur any Debt other than debt incurred to replace the
indebtedness to the National Bank of California, the terms of which purport to be senior
to any of the Notes. All new debt of the Company, SCWW and CLW shall be
Junior Debt to any of the Notes.
3.3 Debt
Priority. Obligations under this Note are senior to all Junior
Debt on the terms set forth in Paragraph 4. Obligations under this
Note shall be junior to the Senior Debt only to the extent of the express terms,
such as existed on the date this Note, of the Senior Debt. In
the event that the Company shall fail to comply with any of the covenants or
other agreements contained in any agreement or instrument relating to Senior
Debt or an event of default shall occur with respect to Senior Debt other than a
Payment Default, which default or event of default shall not have been cured or
waived (a "Covenant
Default"), the Company shall give prompt written notice of such Covenant
Default to the Holder.
3
3.4 Subrogation. In the
event that the Holder shall be required to turn over any payment or distribution
under this Note to the holders of Senior Debt (or to any court) to be applied to
Senior Debt, the full amount of such payment shall automatically be added to the
principal amount of this Note and the Holder shall become subrogated to the
rights of the Senior Debt holders to the extent of such payments to such Senior
Debt holder or holders or court.
3.5 Continuing
Effect. The provisions of this Paragraph 3 are not intended to
impair and shall not impair as between the Company and Holder the obligation of
the Company to pay Holder all amounts owing under this Note. All
rights and interests under this Note, and all agreements and obligations of the
Company under this Paragraph 3 shall remain in full force and effect
irrespective of (i) any lack of validity or unenforceability of any agreement or
instrument relating to any Senior Debt, or (ii) any other circumstances that
might otherwise constitute a defense available to, or a discharge of, any
Holders of this Note or the Company.
3.6 Event of Default Not
Affected. Notwithstanding the foregoing in this Paragraph 3,
the failure of the Company to timely pay, according to the terms of this Note
other than this Paragraph 3, any amount payable on such other terms shall
constitute an Event of Default hereunder.
4.
Default.
4.1 Bankruptcy
Event. In the event of any liquidation, dissolution or winding
up of the Company, or of any execution, sale, receivership, insolvency,
arrangement, marshalling of assets or liabilities, composition, assignment for
the benefit of creditors, bankruptcy, liquidation, readjustment, reorganization
or other similar proceeding relative to the Company or its debts, its property
or its operations, whether voluntary or involuntary (each of the foregoing, a
"Bankruptcy Event"),
this Note shall be irrevocably paid in full in cash or other immediately
available funds before any payment is made upon the Junior Debt. In the event of
any such Bankruptcy Event, any payment or distribution of any kind or character,
whether in cash, property or securities that shall be made upon or in respect of
Junior Debt shall be promptly remitted to the Holder of this Note and applied in
payment of this Note unless and until the this Note shall have been irrevocably
paid or satisfied in full.
4.2 Payment Default on This
Note. In the event that the Company shall fail to timely pay
amounts payable hereunder (in this Paragraph 4, a "Payment Default"), then no
cash payment shall be made by the Company on account of Junior Debt, whether for
principal, interest or otherwise, or for the purchase, acquisition or retirement
thereof, unless and until such this Note shall have been irrevocably paid in
full.
4
4.3 Covenant Default on This
Note. In the event that the Company shall fail to comply
with any of the covenants or other agreements contained in the Stock Purchase
Agreement, or any guarantee or other agreement or instrument relating to this
Note or an Event of Default shall occur with respect to this Note (other than a
Payment Default) which default or event of default shall not have been cured or
waived (in this Paragraph 4, a "Covenant Default"), and a
holder of Junior Debt shall have received written notice of such Covenant
Default from the Company or any Holder of this Note or any representative
thereof, then no cash payment shall be made after receipt of such written notice
by that holder of Junior Debt, in each case, on account of that Junior Debt,
whether for principal, interest or otherwise, unless and until such this Note
shall have been irrevocably paid in full or until such Covenant Default shall
have been cured or waived.
4.4 Junior Debt Restricted on Note
Default. If there shall exist a continuing default under this Note, the
holders of Junior Debt shall not take any action to collect, or to pursue any
other remedy with respect to, accelerated principal on Junior Debt prior to the
earlier of: (i) (x) the irrevocable payment in full of all this Note in cash or
other immediately available funds, and (y) the termination of all guarantees of
this Note; or (ii) the occurrence or commencement of a Bankruptcy Event, and in
the event that an involuntary Bankruptcy Event is commenced against the Company,
such involuntary Bankruptcy Event is not dismissed, bonded, stayed, vacated or
discharged within 60 days of commencement thereof.
4.5 Certain Payments Held in
Trust. In the event that the holder of any Junior Debt shall
receive any payment or distribution of assets that such holder is not entitled
to retain under the provisions of this Note, such holder shall hold any amount
so received in trust for the benefit of the Holder of this Note, shall segregate
such assets from other assets held by such Holder and shall on demand forthwith
turn over such payment or distribution (without liability for interest thereon)
to the Holder of this Note in the form received (with any necessary endorsement)
to be applied to this Note. Upon such payment to the Holder of this Note, the
full amount of such payment shall automatically be added to the principal amount
of this Note.
4.6 Third Party Beneficiaries; Specific
Performance; Continuing Effect. The provisions of this
Paragraph 4 are for the benefit of the Holder of this Note (and the Holder’s
successors and assigns) and shall be enforceable by the Holder directly against
holders of Junior Debt. No Holder of this Note shall be prejudiced in
its right to enforce subordination of Junior Debt by any act or failure to act
by the Company or anyone in custody of the Company's assets or property. Any
Holder of this Note is hereby authorized to demand specific performance of the
provisions of this Paragraph 4 applicable to it, whether or not the Company
shall have complied with any of the provisions of this Note applicable to this
Note. Holders of Junior Debt shall not, to the full extent permitted by law, be
entitled to any defense based on the adequacy of a remedy at law, which might be
asserted as a bar to such specific performance. The provisions of this Paragraph
4 shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of this Note is rescinded or must otherwise be returned by the
Holder of this Note upon the bankruptcy, insolvency or reorganization of the
Company or otherwise, all as though such payment had not been
made. The provisions of this Paragraph 4 are not intended to impair
and shall not impair as between the Company and Holder the obligation of the
Company to pay Holder all amounts owing under this Note. All rights
and interests under this Note, and all agreements and obligations of the Holder
of this Note and the Company under this Paragraph 4 shall remain in full force
and effect irrespective of (i) any lack of validity or unenforceability of any
agreement or instrument relating to this Note, or (ii) any other circumstances
that might otherwise constitute a defense available to Senior Debt or the
Company, or a discharge of this Note.
5
4.7 Certain Notices. The Company
agrees, for the benefit of the holders of this Note, that in the event that this
Note shall become due and payable before the expressed maturity of any
Installment because of the occurrence of an Event of Default hereunder, the
Company will give prompt notice in writing of such happening to the holders of
this Note.
4.8 Event of Default Not
Affected. Notwithstanding the foregoing in this Paragraph 4,
the failure of the Company to timely pay, according to the terms of this Note
other than this Paragraph 4, any amount payable on such other terms shall
constitute an Event of Default hereunder.
5. Security Interest. This Note
is secured by all of the capital stock of California Living Waters,
Incorporated, a California corporation (“CLW”) and of SCWW, by, and
pursuant to the terms of, that certain a Security Agreement dated
November 5, 2009 by and among the Company, the initial Holders of this Note, the
Senior Note(s)and the Junior Note(s).
6. Guarantee. This
Note is the “Note Five” as defined in, and being in part the subject of, that
certain Corporate
Guarantee dated as of November 5, 2009, by the Company and GEM
Environmental Management Inc., and that certain CLW Guarantee dated November 5,
2009 by California Living Waters Inc.
7. Events of Default.
“Default” means any
event which is, or after notice or passage of time, or both, would be, an Event
of Default. “Event
of Default”) means:
(a)
the Company shall fail to pay in full any principal, accrued interest or other
amounts due to Holder under this Note when due and payable. If an
Event of Default shall occur under and as defined in this Paragraph, then Holder
shall give notice to the Purchaser of such breach, and Purchaser shall have 10
days from the receipt of such notice to cure the default. Notwithstanding,
default interest, if applicable shall commence upon the default and shall
continue until the default is cured in accordance with this
Paragraph.
(b)
the Company shall default in the performance of or compliance with any covenant,
agreement or other obligation of the Company contained in this Note that is not
remedied, waived or cured within five (5) days following such default in
performance or noncompliance;
(c) any representation or
warranty of the Company contained herein or in the Stock Purchase Agreement
shall prove to have been false or incorrect in any material respect as of the
date of this Note;
(d) the Company shall default (as
principal, guarantor or other surety) in the payment of any principal of,
premium (if any) or interest on, any indebtedness for borrowed money to any
other party, or shall default in the performance of or compliance with any other
obligation contained in the documentation evidencing or securing any such other
indebtedness, and in connection with such default such indebtedness becomes due
and payable prior to the date it would otherwise become due and payable, or the
Company shall fail to pay such indebtedness at its stated maturity;
(e)
other than on terms approved in writing beforehand by the Holder, (i) the
Company's dissolution, termination of existence, suspension or discontinuance of
business or ceasing to operate as a going concern; (ii) the appointment of a
receiver, trustee, custodian or similar official, for the Company or any
material portion of the property or assets of the Company; (iii) the conveyance
of any material portion of the assets of the Company to a trustee, mortgage or
liquidating agent or an assignment for the benefit of creditors by the Company;
(iv) the commencement of any proceeding, whether federal or state, relating to
bankruptcy, insolvency, dissolution, reorganization, composition, renegotiations
of outstanding indebtedness, arrangement or otherwise to the relief of debtors
or the readjustment of indebtedness, by or against the Company, which is not
stayed, vacated or released within sixty (60) days of commencement; (v) the
consent by the Company to the action, appointment, conveyance, or commencement
of any of the foregoing; or (vi) any Company corporate action in furtherance of
any of the foregoing.
6
(f)
entry of a final judgment or judgments, that are not stayed, bonded or
discharged within thirty (30) days, the aggregate unpaid liabilities thereon are
in excess of $250,000 (excluding insured portions) against the Company or for
which the Company is otherwise responsible;
(g)
there shall occur, or the Company shall enter into any agreement providing for,
a Change of Control (as defined below) of the Company; the term “Change of Control” shall mean
any transaction or series of related transactions (including without limitation
any reorganization, merger, consolidation, sale of assets or sale of stock) that
will result in (i) the sale of all or substantially all of the assets of
the Company, (ii) a change in ownership of 50% or more of the Company’s
then outstanding capital stock, in one or a series of transactions occurring
within a period of six (6) months, other than any such change of ownership
resulting from the sale by the Company of its securities in connection with one
or more financing transactions, or (iii) a consolidation or merger of the
Company with or into any other corporation or corporations (or other corporate
reorganization) immediately after which the shareholders of the Company hold
less than fifty percent (50%) of the voting power of the surviving
corporation.
Upon the
occurrence of any Event of Default described in Paragraph (a), (d), (e), or (g)
above, all outstanding principal of this Note and all accrued but unpaid
interest thereon shall be accelerated automatically, without any further action
by any party, and shall become immediately due and payable notwithstanding any
other provision of this Note, without presentment, demand, protest, notice of
protest or other notice of dishonor of any kind, all of which are hereby
expressly waived by the Company; and upon the occurrence of any other Event of
Default described in the other subparagraphs above in this Paragraph, Holder
may, at Holder’s option exercisable at any time thereafter, by notice to the
Company in writing, accelerate this Note and declare the entire outstanding
principal balance of this Note and all accrued but unpaid interest thereon
immediately due and payable, without presentment, demand, protest, notice of
protest or other notice of dishonor of any kind, all of which are hereby
expressly waived by the Company. Holder may enforce its rights under
this Note and otherwise at law or in equity or both. All remedies
available to Holder under this Note or otherwise shall be cumulative, and no
course of dealing between the Company and Holder or any delay or omission in
exercising any power or right shall operate as a waiver thereof. The
Company shall notify the Holder immediately in writing of the occurrence of any
Event of Default, which notification shall include a summary of the material
facts relating to such Event of Default and shall specify the date on which such
Event of Default occurred.
7
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8.
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Optional
Conversion; Fixed Percentage; As-Converted Basis; Expiration
Time.
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The
Holder of this Note may, but shall not be required to, in the Holder’s sole
discretion convert (a “Conversion”) this Note in
whole or in part as to principal and interest outstanding hereon into
Shares. The Holder may effect only one Conversion
hereunder. The number of Shares that the Company is required to issue
to the Holder upon such Conversion (the “Conversion Shares”) shall in all cases of
a full Conversion of all outstanding principal and interest hereon be equal to
that number of Shares that shall, post-Conversion, comprise ten percent (10%) of
all Shares outstanding post-Conversion. In the case of a Conversion
of less than all outstanding principal and interest hereon, the number of
Conversion Shares shall be reduced to be pro rata to the percentage of
outstanding principal and interest being converted. For
purposes of calculating the Conversion Shares, “outstanding” shall be determined
on an as-converted, fully-diluted basis, meaning that there shall be added to
the number of “outstanding” Shares all Shares as would be outstanding if all
entities or persons entitled to do so were to have exercised, immediately prior
to the Conversion, all (xxxxxx or conditional) options, warrants, conversion
rights, preferred stock conversion, or other rights of any person or entity to
receive or purchase Shares. For added clarity, the Conversion may be
exercised as to the full 10% of outstanding, as defined above, Shares (or any
pro rata portion thereof in the case of a partial Conversion)
regardless The Holder may effect the Conversion at any time after the date
hereof but not later than the “Conversion Option Expiration
Time”, if any. “Conversion Option Expiration Time” means the
later of 5:00 p.m. Pacific Time on the thirtieth (30th)
calendar day after the Company shall first, if ever, have reached, and given the
Holder notice that the Company has reached, the Company’s Capital Restructuring
Goal as defined below, (the “Capital Goal
Date”). The Company acknowledges, and agrees not to assert to
the contrary in any judicial or other proceeding, that the terms of the
Conversion are not a penalty but rather are a negotiated financial right of the
Holder, given the risk of nonpayment of this Note and the possibility of the
expiration of the Holder’s Conversion option. For purposes of this
Paragraph only, (i) “interest” shall not include incremental interest that shall
have accrued by reason of the interest rate hereunder having been adjusted to a
rate higher than 6.5% per annum, which amounts and (ii) outstanding obligations
of the Company to pay costs and expenses hereunder shall remain payable to the
Holder notwithstanding such Conversion.
“Capital Restructuring Goal”
means the concurrent fulfillment of each of the following events: (i) the
Seller’s Note shall have been fully paid on the terms thereof as to all
theretofore outstanding principal, interest, costs and expenses; (ii) the
Company shall have available, as properly reflected in the Company’s books
(prepared in accordance with generally accepted accounting principles
consistently applied by the Company in accord with its accounting methods and
policies in effect as of September 30, 2009) one million dollars ($1,000,000) in
uncommitted working capital (not including any working capital lines of credit);
and (iii) the Company shall have invested into SCWW capital of at least one
million dollars $1,000,000. The Company agrees promptly to give the
Holder notice of the Company’s having reached the Company’s Capital
Restructuring Goal.
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8.1 Mechanics of Conversion.
(a) Conversion Notice.
The Holder shall effect the Conversion, if at all, by the Holder’s notice to the
Company (the “Conversion
Notice”). No Conversion Notice shall be effective if received
after, and the Holder’s Conversion rights hereunder shall expire at, the
Conversion Option Expiration Time.
(b) Stock Certificate. As promptly
as possible after the Conversion, the Company shall issue to the Holder, or
Holder’s nominee, a certificate representing the number of Conversion Shares
issuable upon the Conversion in accordance with the terms of this
Note and a cash payment in lieu of any fractional share otherwise issuable upon
the Conversion; provided,
however, that the Company shall not be obligated to issue to the Holder
such certificate or payment unless and until this Note, or an appropriate
affidavit of loss, is delivered to the Company.
(c) Record Date. Upon
Conversion, the shareholder(s) in whose name the certificate for Conversion
Shares is to be issued shall be deemed to have become a holder of record of such
Conversion Shares on the date as of which Notice of Conversion is deemed to have
been received by the Company.
(d)
Fractional
Shares. If the Company may not legally issue fractional Shares at
the time of Conversion, the number of Conversion Shares shall be rounded up to
the nearest Share.
(e)
Merger or
Consolidation. Subject to the terms of Paragraph 7(g) above, if at
any time or from time to time there shall be an acquisition of the Company by
another entity by means of merger, consolidation or otherwise, resulting in the
exchange of the outstanding Shares for securities or consideration issued or
caused to be issued by the acquiring entity or any of its affiliates, then, as a
part of such acquisition, the Company shall make provision so that the Holder
shall thereafter be entitled to receive, upon Conversion of this Note, the
number of shares of stock or other securities or property of the acquiring
corporation resulting from such acquisition to which the Holder would have been
entitled if the Holder had converted this Note immediately prior to such
acquisition. In any such case appropriate adjustments shall be made in the
application of the provisions of this Paragraph 8.1(e) with respect to the
rights of the Holder after such acquisition to the end that the provisions of
this Paragraph 8.1(e) shall be applicable after that event in as nearly
equivalent a manner as may be practicable.
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(f) Notice to Holders. In
the event the Company shall propose to take any action of the type described in
Paragraphs 8.1(e), the Company shall give notice to the Holder, which
notice shall specify the record date, if any, with respect to any such action
and the approximate date on which such action is to take place. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Note Conversion Price, as
applicable, and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon Conversion of this Note. In the case of any
action that would require the fixing of a record date, such notice shall be
given at least fifteen (15) days prior to the date so fixed, and in case of all
other action, such notice shall be given at least twenty (20) days prior to the
taking of such proposed action.
(g) Costs. The Company shall
pay all documentary, stamp, transfer or other transactional taxes attributable
to the issuance or delivery of Conversion Shares (or substitute value under
Paragraph 8.1(e)) upon conversion of this Note; provided, however, that the
Company shall not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any certificate for such
Shares in a name other than that of the Holder.
(h) Reservation of Shares.
The Company shall take all necessary action to reserve, and shall reserve at all
times so long as any principal amount under this Note remains outstanding (or,
if later, until the final Conversion Option Expiration Time), free from
statutory or contractual preemptive rights, out of its authorized but unissued
capital stock, solely for the purpose of effecting the Conversion of this Note,
sufficient Shares, to provide for the Conversion of this Note.
(i)
Good Faith in All
Performance. The Company will not, by amendment of its Articles of
Incorporation or Bylaws or through any reorganization, transfer of
assets, issuance or sale of securities or otherwise, avoid or seek to avoid the
observance or performance of any of the terms of this Paragraph 8 or the other
provisions of this Note and will at all times in good faith assist in the
carrying out of all provisions hereof and in the taking of all actions as may be
necessary in order to protect the conversion and other rights of the Holder
hereunder against impairment.
9. Prepayment.
9.1 Prepayment
Right. The Company may prepay this Note in whole or from time
to time in part, together with all accrued interest on this Note (or portion
being prepaid) without penalty or premium of any kind, provided that the Company
shall have given the Holder of this Note written notice (a “Notice of Prepayment”)
specifying (A) a date certain (the “Prepayment Date”) on which the
Company thereby commits to make such prepayment; and (B) the principal amount of
that prepayment. To be effective, a Notice of Prepayment must have
been received by the Holder of this Note not later than 14 days prior to the
Prepayment Date. Upon Holder’s receipt Notice of Prepayment, the Prepayment Date
shall thereby become the Installment Date for the principal amount of prepayment
specified in the Notice of Prepayment.
10
9.2 Conversion
After Any Prepayment. This Paragraph is intended, on its
terms, to assure that any prepayment of this Note will not adversely affect the
ability of the Holder to effect a Conversion to the extent the Holder could have
done had no such prepayment occurred. The terms of Paragraph 8 hereof
shall remain in effect if both: (i) the Company shall have prepaid any amount of
this Note prior to the Capital Goal Date; and (ii) in the event that Capital
Goal Date shall have occurred on or prior to the date specified in Paragraph 2
hereof as the date for payment of the final Installment or any later date on
which the Company shall have paid all amounts outstanding
hereunder. To the extent both of the forgoing events have occurred,
the Holder may effect a Conversion on or before the Conversion Expiration Date
on the same terms as are set forth in Paragraph 8 provided, however, that, at
or before the time the Company is to issue the Conversion Shares, the Holder
shall repay to the Company in immediately available funds an amount equal to the
remainder of (iii) the amount of principal of this Note that the Company shall
have paid or prepaid over time, minus (iv) the amount of
principal that would have been paid by the Company hereunder as of such issuance
date had all payments hereunder been paid by the Company on the Installment
Dates specified in Paragraph 2 hereof.
10. Order of Application of
Payments. All payments to be applied against this Note and the
amounts from time to time payable hereunder, shall be applied in the following
order of priority: (i) against costs and expenses, if any, (including with
relationship to the Holder’s rights and duties toward holders of Senior Debt
and/or Junior Debt and/or in any proceeding or suits related to such Event of
Default); (ii) against all outstanding interest payable at an increased rate
hereunder by reason of any Default; (iii) against all outstanding interest
payable at the base rate of 6.5%; (iv) against any other non-principal monetary
rights the Holder may come to have against the company by reason of this Note;
(v) against prepayment of principal pursuant to a Notice of Prepayment; (vi)
against past-due principal Installments, on this Note, in the sequence of such
past-due Installments, oldest to most recent; (vii) against the outstanding
principal of this Note, in reverse order of the scheduled Installment Dates of
those principal Installments.
11. Expenses of
Enforcement. The Company agrees to reimburse the Holder upon
demand for all reasonable out-of-pocket expenses, all costs and expenses
(including reasonable attorneys fees, accountants’ fees, collection agency fees,
and experts’ fees) of the Holder in connection with the enforcement (including
the negotiation and settlement of the terms of any workout or creditors’
committee or similar proceeding) in connection with the Holder’s enforcement of
the Company’s obligations hereunder.
12. No Rights As A Shareholder.
Nothing contained in this Note shall be construed as conferring upon the Holder
or any other person the right to vote or consent or to receive notice as a
shareholder in respect of meetings of shareholders for the election of directors
of the Company or any other matters or any rights whatsoever as a shareholder of
the Company prior to the time that this Note is converted into Conversion
Shares.
13. Lost, Stolen or Mutilated
Note.
If this Note is lost, stolen, mutilated or destroyed, the Company will,
on such reasonable terms with respect to indemnity or otherwise as it may in its
discretion impose, issue a new Note of like denomination, tenor, and date as
this Note. Any such new Note shall constitute an original contractual
obligation of the Company, and the lost, stolen, mutilated or destroyed, as
applicable, Note shall be null and void.
11
14. Notices. All
notices and other communications required or permitted hereunder shall be in
writing and shall be deemed effectively given upon personal delivery; upon
confirmed transmission by telecopy if sent during normal business hours of the
recipient (or if not, on the next business day of the recipient); three days
after deposit with the United States Post Office, by registered or certified
mail, postage prepaid; or otherwise upon delivery by hand or by messenger or one
day after deposit with a nationally recognized overnight courier
service. Concurrently with the initiation of any such notice, the
sender shall make a good faith effort to send the addressee a copy of such
notice by electronic mail and to alert the addressee by telephone. Each of the
Company and the Holder may, by notice to the other, specify for itself from time
to time address specifications different from the initial address specifications
as follows:
| If to the Company, addressed to: | ||
|
Attention:
Xxx Xxxxxx, CEO
|
||
|
0000
Xxxxxx Xxx, Xxx. 000
|
||
|
Xxxxxx,
Xxxxxxxxxx 00000
|
||
|
Facsimile
No.: 000.000.0000
|
||
|
Telephone
No.: 000.000.0000
|
||
|
Email:
Xxx.Xxxxxx@xx-xxx.xxx
|
||
|
With
a copy to:
|
||
|
Xxxxxxx
Xxxx
|
||
|
Xxxx
LAW Group
|
||
|
0000
Xxxxx Xxxxxx, Xxxxx 000
|
||
|
Xxxxxxx
Xxxxx, XX 00000
|
||
|
Facsimile
number: 000.000.0000
|
||
|
Telephone
No.: 949 250.4230
|
||
|
Email:
xxxxxxxx@xxxxxxxxxxxx.xxx
|
||
| If to Holder, addressed to: | ||
|
United
States Environmental Response, LLC
|
||
|
0000
Xxxxxxx Xxxxxx Xxxx
|
||
|
Xxxxxx,
XX 00000
|
||
|
Facsimile
number: 000.000.0000
|
||
|
Telephone
No.: 000.000.0000
|
||
|
Email:
xxxxxxxxxxxxxxxx@xxxxx.xxx
|
||
|
With
a copy to:
|
||
|
Xxxxxx
X. X’Xxxxxx Professional Corporation
|
||
|
Attention:
Xxxxxx X. X’Xxxxxx
|
||
|
00000
Xxxxxx Xx., Xxxxx 0000
|
||
|
Xxxxxxxx
Xxxxx, XX 00000
|
||
|
Facsimile
number: 000.000.0000
|
||
|
Telephone
No.: 000.000.0000
|
||
|
Email:
Xxxxx@XxxXxxxXxx.xxx
|
||
12
15. Waiver. The
undertakings of the Company hereunder shall remain in full force and effect
without regard to, and shall not be impaired by, (a) any exercise or
nonexercise, or any waiver by the Holder of any right, remedy, power or
privilege under any of the Notes, (b) any amendment to or modification of
the Stock Purchase Agreement or any of the Notes or any GEM guarantee thereof,
or (c) the release or discharge or termination of any security or guarantee
for any of the obligations under the Stock Purchase Agreement or any of the
Notes, whether or not shall have notice or knowledge of any of the foregoing.
The Holder’s prior recourse to any part or all collateral, if any, under the
Notes shall not constitute a condition of any demand, suit or proceeding for
payment or collection of the obligations under this Note. No act,
failure or delay by the Holder shall constitute a waiver by the Holder of its
rights and remedies hereunder or otherwise. No single or partial waiver by the
Holder of any default or right or remedy that it may have shall operate as a
waiver of any other default, right or remedy or of the same default, right or
remedy on a future occasion. The Company waives to the maximum extent permitted
by applicable law presentment, notice of dishonor and protest, notice of intent
to accelerate and notice of acceleration of all instruments included in or
evidencing any of the obligations under this Note, and any and all other notices
and demands whatsoever.
16. Headings;
Interpretation. The headings and captions used in this Note
are used only for convenience and are not to be considered in construing or
interpreting this Note. The Company and the Holder have participated
jointly in the negotiation and drafting of this Note. If an ambiguity
or question of intent or interpretation arises, this Note shall be construed as
if drafted jointly by the Company and the Holder and no presumption or burden of
proof shall arise favoring or disfavoring either of them by virtue of the
authorship of any of the provisions of this Note. Any reference to
any federal, state, local or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The words “include” or “including” shall mean
“include, without limitation” or “including, without limitation,” as the case
may be, and the language following “include” or “including” shall not be deemed
to set forth an exhaustive list.
17. Time of
Essence. Time shall be of the essence in the performance of
the obligations of the Company hereunder.
13
18. Severability. If,
for any reason, a court of competent jurisdiction finds any provision of this
Note, or any portion hereof, to be unenforceable, such decision shall not affect
the validity of the remaining portion, which remaining portion shall continue in
full force and effect as if this Note had been executed with the invalid portion
thereof eliminated therefrom or modified to the extent permitted by
law.
19. Governing Law. THIS NOTE AND
THE RIGHTS OF THE HOLDER UNDER IT WILL BE GOVERNED BY AND CONSTRUED IN ALL
RESPECTS IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF
CALIFORNIA. The Company submits to and agrees to the exclusive
jurisdiction of the state and federal courts sitting in the city of Los Angeles,
California, in any action or proceeding arising out of or relating to this Note
and agrees that all claims in respect of the action or proceeding may be, and
shall be, heard and determined in any such court. The Company waives
any defense of inconvenient forum to the maintenance of any action or proceeding
so brought and waives any bond, surety or other security that might be required
of any other party with respect thereto. The Holder may make service
of process by sending or delivering a copy of the process to the Company at the
address and in the manner provided for the giving of notices
above. Nothing in this Paragraph, however, shall affect the right of
any of the Holder to serve legal process in any other manner permitted by law or
in equity. The Company and the Holder shall be bound by a final
judgment in any action or proceeding so brought, which shall be conclusive and
may be enforced by suit on the judgment or in any other manner provided by law
or in equity. In the event of any action or suit based upon or arising out of
any alleged breach of any provision of this Note, the prevailing party will be
entitled to recover from the other party reasonable attorneys' fees and other
costs of such action or suit.
IN WITNESS WHEREOF, the
Company has duly executed this Note as of the day and year first above
written.
|
|
By:
|
/s/ | |
|
Xxxxxxx
X. Xxxxxx, CEO
|
|||
14
SCHEDULE
A
(Attached
hereto)
15
