EXHIBIT 10.40
NEITHER THIS NOTE NOR ANY SECURITIES WHICH MAY BE ISSUED UPON THE EXERCISE OF
THE WARRANTS HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR REGISTERED OR OTHERWISE QUALIFIED UNDER ANY STATE SECURITIES LAW.
NEITHER THIS NOTE NOR ANY SUCH SECURITIES MAY BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND REGISTRATION
OR OTHER QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR OTHER
QUALIFICATION IS NOT REQUIRED.
THIS NOTE IS SUBJECT TO THE TERMS OF THE SUBORDINATION AGREEMENT (AS DEFINED
HEREIN IN SECTION 8) IN FAVOR OF PNC BANK, NATIONAL ASSOCIATION, AS AGENT FOR
CERTAIN BANKS. NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THE WITHIN
INSTRUMENT, NO PAYMENT ON ACCOUNT OF ANY OBLIGATION ARISING FROM OR IN
CONNECTION WITH THE WITHIN INSTRUMENT OR ANY RELATED AGREEMENT (WHETHER OF
PRINCIPAL, INTEREST OR OTHERWISE) SHALL BE MADE, PAID, RECEIVED OR ACCEPTED
EXCEPT IN ACCORDANCE WITH THE TERMS OF THE SUBORDINATION AGREEMENT.
CECO Environmental Corp.
REPLACEMENT
PROMISSORY NOTE
$500,000 March 12, 2001
WHEREAS, ICS Trustee Services, Ltd. ("ICS") has prior to this date
advanced $500,000 (the "Advance") to CECO Environmental Corp.
WHEREAS, the terms of the Advance are set forth in a Promissory Note
dated December 7, 1999, (the "Original Note"), which Original Note shall be
cancelled and replaced by this Replacement Promissory Note.
FOR VALUE RECEIVED, the undersigned, CECO Environmental Corp. (the
"Company"), a New York corporation, hereby promises to pay to the order of ICS
or registered assigns ("Holder"), the principal sum of FIVE HUNDRED THOUSAND
DOLLARS ($500,000) on the Maturity Date, as defined in Section 1 below. This
Note is part of a series of Notes of like tenor and effect to this Note in the
aggregate principal amount of $5,000,000 issued in connection with a financing
by the Company (the "1999 Subordinated Notes").
1. Maturity. This Note shall be due and payable upon the earlier to
occur of the following events (the "Maturity Date"): (i) six and one-half
(6 1/2) years from the December 7, 1999; (ii) six (6) months after repayment of
the Superior Debt (as defined in Section 8 below); or (iii) the closing (any
such closing referred to as the "Closing") of a Sale Transaction. For purposes
of this Note, a Sale Transaction shall mean (i) a merger, consolidation,
corporate reorganization, or sale of shares of stock of the Company as a result
of which there is a change in control and/or the shareholders of the Company on
the date hereof ("Current Shareholders") own 50% or less of the outstanding
shares of the Company on a fully-diluted basis immediately after the transaction
and, including as outstanding for purposes of such calculation, any warrants,
options or other instruments convertible or exchangeable into equity securities
of the Company issued to persons other than the Current Shareholders in
connection with the transaction or (ii) the sale of (A) fifty percent or more of
the assets of the Company or (B) any subsidiary, division or line of business of
the Company for total consideration in excess of $5 million.
2. Interest. Interest shall accrue on the unpaid principal balance
hereof and on any interest payment that is not made when due at the simple
compounded rate of twelve percent (12%) per annum from the date hereof. Accrued
Interest shall be due and payable on June 30 and December 31 of each year
commencing June 30, 2000 and on the Maturity Date. Notwithstanding the
foregoing, interest due under this Note on June 30, 2000 and December 31, 2000,
will be paid in accordance with the terms of the Subordination Agreement. It
shall not be a default hereunder and interest will not accrue on any portion of
such interest payments deferred pursuant to the Subordination Agreement
("Deferred Interest") so long as the Deferred Interest is paid at the time and
in the manner allowed by the Subordination Agreement. In the Event of Default
(as defined herein), interest shall accrue on all unpaid amounts due hereunder
including without limitation, interest, at the rate of fifteen percent (15%) per
annum. If a judgment is entered against the Company on this Note, the amount of
the judgment so entered shall bear interest at the highest rate authorized by
law as of the date of the entry of the judgment.
3. Payments. Payments of both principal and interest shall be made at
the principal executive office of the Company, or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America.
So long as no Event of Default has occurred in this Note, all
payments hereunder shall first be applied to interest, then to principal. Upon
the occurrence of an Event of Default in this Note, all payments hereunder shall
first be applied to costs pursuant to Section 13.5, then to interest and the
remainder to principal.
4. Registration, Transfer and Exchange of Notes. The Company will keep
at its principal office a register in which it will provide for the registration
of and transfer of this Note, at its own expense (excluding transfer taxes). If
any Note is surrendered at said office or at the place of payment named in the
Note for registration of transfer or exchange (accompanied in the case of
registration of transfer or exchange by a written instrument of transfer in form
satisfactory to the Company duly executed by or on behalf of the holder), the
Company, at its expense, will deliver in exchange one or more new Notes in
denominations of $10,000 or larger multiples of $1,000, as requested by the
holder for the aggregate unpaid principal amount. Any Note or Notes issued in a
transfer or exchange shall carry the same rights to increase Notes surrendered.
The Holder agrees that prior to making any sale, transfer, pledge, assignment,
hypothecation, or other disposition (each, a "Transfer") of the Note, the Holder
shall give written notice to the Company describing the manner in which any such
proposed Transfer is to be made and providing such additional information and
documentation regarding the Transfer as the Company reasonably requests. If the
Company so requests, the Holder shall at his expense provide the Company with an
opinion of counsel (which counsel must be reasonably satisfactory to the
Company, to the holder, in form and substance satisfactory to the Company) that
the proposed Transfer complies with applicable federal and state securities
laws. The Company shall have no obligation to Transfer any Notes unless the
holder thereof has complied with the foregoing provisions, and any such
attempted Transfer shall be null and void.
5. Registered Owner. Prior to due presentation for registration of
transfer, the Company may treat the person in whose name any Note is registered
as the owner and holder of such Note for the purpose of receiving payment of
principal of, and interest on, such Note and for all other purposes.
6. Conversion.
a. Conversion Procedure.
(1) At any time and from time to time, the Company
may elect to convert all or any portion of the unpaid principal balance
on any 1999 Subordinated Note into the number of shares of common stock
of the Company, $0.01 par value per share ("Common Stock") computed by
multiplying the unpaid principal balance to be converted times $1.00
per share and dividing the result by the 1999 Subordinated Note
Conversion Price determined pursuant to Section 6.b. The Company shall
pay to the holder of each 1999 Subordinated Note so converted, all
accrued and unpaid interest in cash or, at the Company's option, in
Common Stock valued at Fair Market Value, at the time of conversion
with respect to such 1999 Subordinated Note so converted with no
further interest accruing or payable on the converted portion of the
1999 Subordinated Note.
(2) Each conversion of all or any portion of a 1999
Subordinated Note will be deemed to have been effected as of the close
of business on the date on which the Company gives written notice to a
holder of such 1999 Subordinated Note that the Company shall convert
all or part of such 1999 Subordinated Note. At such time as such
conversion has been effected, the rights of the holder of such 1999
Subordinated Note as provided hereunder with respect to the portion of
the 1999 Subordinated Note to be converted will cease, and the Person
or Persons in whose name or names any certificate or certificates for
shares of Common Stock are to be issued upon such conversion will be
deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(3) As soon as possible after a conversion has been
effected and in no event later than twenty (20) business days
thereafter, the Company will deliver to the converting holder:
(a) a certificate or certificates representing
the number of shares of Common Stock issuable by reason of such
conversion in such name or names and such denomination or denominations
as the holder of the converted 1999 Subordinated Note has specified;
(b) payment of all accrued and unpaid interest on
such converted portion of the 1999 Subordinated Note;
(c) the amount payable under Subsection 6.a.(6)
below with respect to such conversion; and
(d) if applicable, a replacement 1999
Subordinated Note representing any portion of the 1999 Subordinated
Note which was not converted.
(4) The issuance of certificates for shares of Common
Stock upon conversion of a 1999 Subordinated Note will be made without
charge to the holders of such 1999 Subordinated Note for any issuance
tax in respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of shares of
Common Stock. Upon conversion of all or any portion of a 1999
Subordinated Note, the Company will take all such actions as are
necessary in order to insure that the Common Stock issued as a result
of such conversion is validly issued, fully paid and nonassessable.
(5) The Company will not close its books against the
transfer of Common Stock issued or issuable upon conversion of the 1999
Subordinated Notes in any manner which interferes with the timely
conversion of the 1999 Subordinated Notes.
(6) If any fractional interest in a share of Common
Stock would, except for the provisions of this Subsection 6.a.(6), be
deliverable upon any conversion of any 1999 Subordinated Note, the
Company, in lieu of delivering the fractional share therefor, shall pay
an amount to the holder thereof equal to the Fair Market Value of such
fractional interest as of the date of conversion.
(7) Any 1999 Subordinated Notes which are converted
shall be canceled and will not be reissued or otherwise transferred.
(8) The Company will take such corporate action as
may be necessary from time to time so that at all times it will have
authorized, and reserved out of its authorized but unissued Common
Stock for the sole purpose of issuance upon conversion the 1999
Subordinated Notes, a sufficient number of shares of Common Stock to
permit the conversion in full of the sum of the aggregate unpaid
principal balances and accrued but unpaid interest due on all 1999
Subordinated Notes.
(9) For purposes of this Section 6, "Fair Market
Value" means the average of the last reported sales price of the Common
Stock on the Nasdaq Stock Market or on any national or regional
securities exchange on which the Common Stock is listed or admitted to
unlisted trading privileges and on which the Common Stock is
principally traded or quoted, as reported for each of the 10
consecutive trading days ending on the 10th trading date prior to any
dividend payment date; or if there is no public market for the Common
Stock of the Company, the Fair Market Value shall be calculated based
on the price paid per share of Common Stock or the valuation of the
Company in the Company's most recent equity financing transaction with
a third party, or, if in the judgment of the Board of Directors of the
Company, the fair market value is materially different from that
reflected by such valuation, then the Fair Market Value shall be
determined by the Board of Directors in good faith.
b. Adjustments to 1999 Subordinated Notes Conversion
Price.
(1) In order to prevent dilution of the interests of
the holders of the 1999 Subordinated Notes as a result of the
conversion right granted to the Company under this subsection 6, the
1999 Subordinated Note Conversion Price will be subject to adjustment
from time to time pursuant to this Section 6.b. The term "1999
Subordinated Note Conversion Price" initially means $2.00, as
subsequently adjusted as provided below.
(2) If the Company issues or sells, or in accordance
with Section 6.c. is deemed to have issued or sold, any shares of its
Common Stock (except as set forth in Section 6.c.(9)) without
consideration or for a consideration per share less than the 1999
Subordinated Note Conversion Price in effect immediately prior to the
time of such issuance or sale, then upon such issuance or sale the 1999
Subordinated Note Conversion Price will be reduced to the conversion
price determined by dividing (a) the sum of (1) the product derived by
multiplying the 1999 Subordinated Conversion Price in effect
immediately prior to such issuance or sale times the number of
fully-diluted shares of Common Stock outstanding immediately prior to
such issuance or sale, and (2) the consideration, if any, received by
the Company upon such issuance or sale, by (b) the number of shares of
fully-diluted Common Stock outstanding immediately prior to such
issuance or sale plus the number of shares of Common Stock issued or
deemed to have been issued in such sale pursuant to this Section 6.
c. Effect on 1999 Subordinated Note Conversion Prices of
Certain Events.
(1) For purposes of determining the adjusted 1999
Subordinated Note Conversion Prices under Section 6.b., the following
will be applicable:
(a) Issuance of Rights or Options. If the Company
grants, issues or sells Options to acquire Common Stock or Convertible
Securities and the price per share for which Common Stock is issuable
upon the exercise of such Options or upon conversion or exchange of any
Convertible Securities issuable upon the exercise of such Options is
less than the 1999 Subordinated Note Conversion Price in effect
immediately prior to the time of the granting, issuance or sale of such
Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company at the time
of the granting of such Options for such price per share. For purposes
of this Section, the "price per share for which Common Stock is
issuable" shall be determined by dividing (A) the sum of (i) the
amount, if any, received or receivable by the Company as consideration
for the granting of such Options, plus (ii) the minimum aggregate
amount of additional consideration payable to the Company upon exercise
of all such Options, plus (iii) in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the
exercise of such Options. No further adjustment of the 1999
Subordinated Note Conversion Price shall be made when Convertible
Securities are actually issued upon the exercise of such Options or
when Common Stock is actually issued upon the exercise of such Options
or the conversion or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and
the price per share for which Common Stock is issuable upon such
conversion or exchange thereof is less than the 1999 Subordinated Note
Conversion Price in effect immediately prior to the time of such issue
or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this Section,
the "price per share for which Common Stock" shall be determined by
dividing (A) the sum of (i) the amount received or receivable by the
Company as consideration for the issue or sale of such Convertible
Securities, plus (ii) the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the 1999 Subordinated Note
Conversion Price shall be made when Common Stock is actually issued
upon the conversion or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the 1999 Subordinated
Note Conversion Price had been or are to be made pursuant to other
provisions of this Section 6, no further adjustment of the 1999
Subordinated Note Conversion Price shall be made by reason of such
issue or sale.
(c) Change in Option Price or Conversion Rate. If
the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange
of any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock change
at any time, the 1999 Subordinated Note Conversion Price in effect at
the time of such change shall be readjusted to the 1999 Subordinated
Note Conversion Price which would have been in effect at such time had
such Options or Convertible Securities originally provided for such
changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or
sold.
(2) For purposes of determining the adjusted 1999
Subordinated Note Conversion Price under Subsection 6.b.(2) and (3),
the following will be applicable:
(a) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the gross amount received by the Company
therefor after deducting any discounts or commissions paid or incurred
by the Company in connection with the issuance and sale. In case any
Common Stock, Options or Convertible Securities are issued or sold for
a consideration other than cash, the amount of the consideration other
than cash received by the Company will be the Fair Market Value thereof
as of the date of receipt. If any Common Stock, Options or Convertible
Securities are issued in connection with any merger in which the
Company is the surviving Company, the amount of consideration therefor
will be deemed to be the Fair Market Value of such portion of the net
assets and business of the non-surviving Company as is attributable to
such Common Stock, Options or Convertible Securities, as the case may
be.
(b) Integrated Transactions. In case any Options
are issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a
consideration of $0.01 each.
(c) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition
of any shares so owned or held will be considered an issue or sale of
Common Stock.
(d) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock,
Options or Convertible Securities or (ii) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date
will be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or upon the making of such other distribution or the date
of the granting of such right of subscription or purchase, as the case
may be.
(3) Subdivision or Combination of Common Stock. If
the Company at any time subdivides one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
1999 Subordinated Note Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced, and if the Company at
any time combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the 1999 Subordinated Note Conversion Price
in effect immediately prior to such combination will be proportionately
increased.
(4) Stock Dividends. In the event of any stock
dividend or other distribution payable in shares of Common Stock, or
other securities or property of the Company, including securities of a
third party, then in each such event the 1999 Subordinated Note
Conversion Price shall be adjusted by multiplying the 1999 Subordinated
Note Conversion Price then in effect by a fraction (i) the numerator of
which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance, and (ii)
the denominator of which is the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance
plus the number of shares of Common Stock issuable in payment of such
dividend or the number of shares of Common Stock which may be purchased
at fair market value using the consideration equal to the aggregate
Fair Market Value of the securities or other property of the Company to
be distributed; provided, however, this adjustment shall exclude any
such distributions to the extent a substantially similar distribution
is made to the holders of the 1999 Subordinated Notes.
(5) Distributions of Property. In the event that the
Company makes a distribution of its property to the holders of Common
Stock as a dividend in liquidation or partial liquidation or by way of
return of capital or other than as a dividend payable out of funds
legally available for dividends under the laws of the State of
Delaware, the holders of 1999 Subordinated Notes Preferred Stock shall,
upon conversion thereof, be entitled to receive, in addition to the
number of shares of Common Stock receivable thereupon, and without
payment of any consideration therefor, a sum equal to the amount of
such property as would have been payable to them as owners of that
number of shares of Common Stock receivable upon such conversion, had
they been the holders of record of such Common Stock on the record date
for such distribution; and an appropriate provision therefor shall be
made a part of any such distribution; provided, however, this
adjustment shall exclude any such distributions to the extent a
substantially similar distribution is made to the holders of the 1999
Subordinated Notes.
(6) Reorganization, Reclassification, Merger or
Consolidation. If at any time, as a result of:
(i) a capital reorganization or
reclassification (other than a subdivision,
combination, dividend or distribution provided for in
Subsections (3), (4) or (5) above); or
(ii) a merger or consolidation of the
Company with another Company (whether or not the
Company is the surviving Company), the Common Stock
issuable upon the conversion of the 1999 Subordinated
Notes shall be changed into or exchanged for the same
or a different number of shares of any class or
classes of stock of the Company or any other Company,
or other securities convertible into such shares,
then, as a part of such reorganization,
reclassification, merger or consolidation,
appropriate adjustments shall be made in the terms of
the 1999 Subordinated Notes (or of any instruments or
securities into which the 1999 Subordinated Notes are
changed or converted or for which the 1999
Subordinated Notes are exchanged), so that:
(x) the holders of shares of the 1999 Subordinated Notes or of
such substitute securities shall thereafter be entitled to receive,
upon conversion of the such 1999 Subordinated Notes or of such
substitute securities, the substantially equivalent kind and amount of
shares of stock, other securities, money and property which such
holders would have received at the time of such capital reorganization,
reclassification, merger, or consolidation, if the Company had elected
to convert such 1999 Subordinated Notes into Common Stock immediately
prior to such capital reorganization, reclassification, merger, or
consolidation, and
(y) the 1999 Subordinated Notes or such substitute securities
shall thereafter be adjusted on terms as nearly equivalent as may be
practicable to the adjustments theretofore provided in this Section
6.c.
The provisions of this Subsection (6) shall similarly apply to
successive capital reorganizations, reclassifications, mergers, and
consolidations.
(7) Certain Events. If any event occurs of the type
contemplated by the provisions of Section 6.c. but not expressly
provided for by such provisions, then the Board of Directors will make
an appropriate adjustment in the 1999 Subordinated Note Conversion
Price so as to protect the rights of the holders of the 1999
Subordinated Notes; provided, however, that, no such adjustment will
increase the 1999 Subordinated Note Conversion Price as otherwise
determined pursuant to Section 6.c. or decrease the number of shares of
Common Stock issuable upon conversion of the 1999 Subordinated Notes.
(8) Notwithstanding the foregoing, no adjustment to
the 1999 Subordinated Note Conversion Price shall be made for:
(a) issuances of Common Stock occurring prior to
the date of this replacement Note;
(b) the issuance of warrants to officers,
directors, shareholders or other investors in the Company, provided
such issuance is approved by the Board of Directors;
(c) the issuance of shares of Common Stock into
which the 1999 Subordinated Notes are convertible;
(d) the issuance of shares of Common Stock upon
exercise of all options and warrants outstanding as of the date of this
replacement Note;
(e) the issuance of options to acquire shares of
Common Stock under the Company's incentive stock option or similar
plans(or the issuance of such Common Stock upon the exercise thereof),
provided each such plan has been approved by the Board of Directors;
(f) the issuance of shares of Common Stock under
the Company's stock purchase or similar plans, provided each such plan
has been approved by the Board of Directors;
(g) the issuance of Common Stock or Options,
warrants or rights to acquire Common Stock or the issuance of Common
Stock upon the exercise thereof, in connection with (i) strategic
transactions including acquisitions, joint ventures and similar
arrangements, (ii) to vendors or suppliers or other business
associates, (iii), in connection with debt financings or (iv) as
compensation to service providers including without limitation, as
brokers, finders and financial consultants, in connection with capital
raising transactions.
d. Notices. As soon as practicable (and in any case not later
than fifteen (15) days) upon any adjustment of the 1999 Subordinated
Note Conversion Price, the Company will give written notice thereof to
all holders of 1999 Subordinate Notes.
e. Definitions.
"Convertible Securities" means securities convertible into
or exchangeable for Common Stock.
"Options" means any grant, issue or sale by the Corporation of
any right or option to subscribe for or to purchase Common Stock or any
Convertible Securities.
7. Warrant Coverage. Holder has received, on December 7, 1999, ten-year
warrants (the "Warrants) to purchase 800,000 shares of common stock of the
Company ("Common Stock"). The exercise price of the Warrants is $2.25 per share
of Common Stock of the Company. The Warrants are evidenced by Warrant
Certificates, issued in accordance with the terms of a Warrant Agreement.
8. Subordination. The indebtedness evidenced by this Note shall at all
times be wholly subordinate and junior in right of payment to all obligations of
the Company under or in connection with the Credit Agreement of even date
herewith ("Superior Debt") among the Company as guarantor, the borrowers CECO
Group Inc., CECO Filters, Inc., Air Purator Corporation, New Xxxx Co., Inc.,
U.S. Facilities Management, Inc., The Xxxx & Xxxx Manufacturing Company, and
kbd/Technic, Inc., and the lenders PNC Bank, National Association and various
other financial institutions, upon the terms and conditions contained in the
Subordination Agreement between Green Diamond Oil Corp., Xxxxxx Xxxxxxx, ICS
Trustee Services, Ltd., and PNC Bank, National Association and various other
financial institutions of even date herewith (the "Subordination Agreement").
9. Repayment of Notes. In the event the Company completes an equity
financing or offering or a series of equity financing or offerings for a total
consideration in excess of $10,000,000, then twenty-five percent (25%) of all
such consideration in excess of $10,000,000 shall be used immediately, upon
receipt by the Company, to pre-pay the 1999 Subordinated Notes, provided such
prepayment shall be made proportionately among the 1999 Subordinated Notes until
the 1999 Subordinated Notes are paid in full.
10. Covenants of the Company. The Company covenants and agrees that it
shall not, without the prior written approval of the Holders of a majority of
the aggregate principal amount outstanding of the 1999 Subordinated Notes
("Majority Holders"):
a. Obtain or incur any indebtedness or other monetary
obligations that are senior to or on parity with the Notes, other than
the Superior Debt.
b. Allow, suffer or cause to exist any lien, claim, security
interest or encumbrance on the Company's property or assets, other than
with respect to the Superior Debt and purchase money indebtedness
incurred in the ordinary course of business.
c. Enter into any arrangement or agreement involving the
merger or consolidation of the Company.
d. Use the proceeds from the sale of the 1999 Subordinated
Notes other than in the ordinary course of its business for general
corporate purposes including lending monies to any of its subsidiaries.
The Company also covenants and agrees that it shall operate its
business in the ordinary course.
11. Events of Default.
a. Occurrences of Events of Default. Each of the following
events shall constitute an "Event of Default" for purposes of this
Note:
(1) if the Company fails to pay any amount payable,
under this Note when due;
(2) if the Company breaches any of its
representations, warranties or covenants set forth in this
Note or the Warrant Agreement;
(3) the commencement of an involuntary case against
the Company or its subsidiary or any of its subsidiaries under
any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or the appointing of a receiver,
liquidator, assignee, custodian, trustee or similar official
of the Company or for any substantial part of the Company or
one of its subsidiary's property, or ordering the winding-up
or liquidation of the Company or one of its subsidiary's
affairs;
(4) if the Company or any of its subsidiaries shall
commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or similar official of the
Company or its subsidiary or for any substantial part of the
Company or one of its subsidiary's property, or shall make any
general assignment for the benefit of creditors, or shall take
any corporate action in furtherance of any of the foregoing;
or
(5) if the Company's business shall fail, as
determined in good faith by the Majority Holders and evidenced
by the Company's inability to pay its ongoing debts as such
debts become due.
b. Acceleration Upon Event of Default. If any Event of Default
shall have occurred and be continuing, for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come about
or be effected by operation of law or otherwise), the unpaid principal
amount of, and the accrued interest on, the Notes shall automatically
become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby
expressly waived by the Company.
12. Investment Representations of the Holder. With respect to the
purchase of this Note, the Common Stock issuable upon the exercise of the
Warrants (collectively, the "Securities"), the Holder hereby represents and
warrants to the Company as follows:
a. Experience. The Holder has substantial experience in
evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests.
b. Investment. The Holder is acquiring the Securities for
investment for its own account, not as a nominee or agent, and not with
the view to, or for resale in connection with, any distribution
thereof. The Holder understands that the Securities have not been, and
will not be, registered under the Securities Act of 1933, as amended
("Securities Act"), by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of
which depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the Holder's representations as
expressed herein. The holder is an "accredited investor" within the
meaning of Regulation D, Section 501(a), promulgated by the Securities
and Exchange Commission.
c. Rule 144. The Holder acknowledges that the Securities must
be held indefinitely unless subsequently registered under the
Securities Act, or unless an exemption from such registration is
available. The Holder understands that at this time the Company is not
under any obligation to register any of the Securities. The Holder is
aware of the provisions of Rule 144 promulgated under the Securities
Act that permit limited resale of securities purchased in a private
placement subject to satisfaction of certain conditions.
d. No Public Market. The Holder understands that no public
market now exists for any of the Securities issued by the Company and
that the Company has made no assurances that a public market will ever
exist for the Securities.
e. Access to Data. The Holder has had an opportunity to
discuss the Company's business, management and financial affairs with
the Company's management and has also had an opportunity to ask
questions of the Company's officers, which questions were answered to
its satisfaction.
13. Miscellaneous.
a. Invalidity of Any Provision. If any provision or part of
any provision of this Note shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Note and
this Note shall be construed as if such invalid, illegal or
unenforceable provisions or part hereof had never been contained
herein, but only to the extent of its invalidity, illegality or
unenforceability.
b. Governing Law. The Note shall be governed in all respects
by the laws of the State of New York, excluding its conflict of laws.
c. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have
been duly given (i) on the date of delivery if delivered personally,
(ii) one (1) business day after transmission by facsimile transmission
with a written confirmation copy sent by first class mail, or (iii)
five (5) days after mailing if mailed by first class mail, to the
following addresses:
If to the Company: CECO Environmental Corp.
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx X0X 0X0
XXXXXX
Attention: Xxxxxxx XxXxxxxx
And if to the Holder, to the address or facsimile number of
Holder as set forth on the Company's records, or such other address as
the Holder has provided to the Company by notice duly given.
d. Notice of a Sale Transaction. The Company shall give all
Holders of Notes notice of the Closing of a Sale Transaction at least
thirty (30) days prior to such Closing.
e. Collection. If the indebtedness represented by the Note or
any part thereof is collected at law or in equity or in bankruptcy,
receivership or other judicial proceedings or if the Note is placed in
the hands of attorneys for collection after the occurrence of an Event
of Default, the Company agrees to pay, in addition to the outstanding
principal and accrued interest payable hereon, reasonable attorneys'
fees and costs incurred by the Holder, or on behalf of the Holder by a
representative of the Holder.
f. Successors and Assigns. The rights and obligations of the
Company and the Holder shall be binding upon and benefit the
successors, assigns, heirs, administrators and transferees of the
parties.
g. Waivers. The Company and any endorsers, sureties,
guarantors, and all others who are, or may become liable for the
payment hereof severally: (a) waive presentment for payment, demand,
notice of demand, notice of nonpayment or dishonor, protest and notice
of protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the
payment of this Note, (b) consent to all extensions of time, renewals,
postponements of time of payment of this Note or other modifications
hereof from time to time prior to or after the maturity date hereof,
whether by acceleration or in due course, without notice, consent or
consideration to any of the foregoing, (c) agree to any substitution,
exchange, addition, or release of any of the security for the
indebtedness evidenced by this Note or the addition or release of any
party or person primarily or secondarily liable hereon, (d) agree that
Holder shall not be required first to institute any suit, or to exhaust
its remedies against the Company or any other person or party to become
liable hereunder or against the security in order to enforce the
payment of this Note and (e) agree that, notwithstanding the occurrence
of any of the foregoing (except by the express written release by
Holder of any such person), the Company shall be and remain, directly
and primarily liable for all sums due under this Note.
h. Time. Time is of the essence in this Note.
i. Captions. The captions of sections of this Note are for
convenient reference only, and shall not affect the construction or
interpretation of any of the terms and provisions set forth in this
Note.
j. Number and Gender. Whenever used in this Note, the singular
number shall include the plural, and the masculine shall include the
feminine and the neuter, and vice versa.
k. Remedies. All remedies of the Holder shall be cumulative
and concurrent and may be pursued singly, successively, or together at
the sole discretion of the Holder and may be exercised as often as
occasion therefor shall arise. No act of omission or commission of the
Holder, including specifically any failure to exercise any right,
remedy or recourse shall be effective unless it is set forth in a
written document executed by the Holder and then only to the extent
specifically recited therein. A waiver or release with reference to one
event shall not be construed as continuing as a bar to or as a waiver
or release of any subsequent right, remedy, or recourse as to any
subsequent event.
l. No Waiver by Holder. The acceptance by Holder of any
payment under this Note which is less than the amount then due or the
acceptance of any amount after the due date thereof, shall not be
deemed a waiver of any right or remedy available to Holder nor nullify
the prior exercise of any such right or remedy by Holder. None of the
terms or provisions of this Promissory Note may be waived, altered,
modified or amended except by a written document executed by Holder and
then only to the extent specifically recited therein. No course of
dealing or conduct shall be effective waive, alter, modify or amend any
of the terms or provisions hereof. The failure or delay to exercise any
right or remedy available to Holder shall not constitute a waiver of
the right of the Holder to exercise the same or any other right or
remedy available to Holder at that time or at any subsequent time.
m. Submission to Jurisdiction. BORROWER, AND ANY ENDORSERS,
SURETIES, GUARANTORS AND ALL OTHERS WHO ARE, OR WHO MAY BECOME, LIABLE
FOR THE PAYMENT HEREOF SEVERALLY, IRREVOCABLY AND UNCONDITIONALLY (A)
AGREE THAT ANY SUIT, ACTION, OR OTHER LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS NOTE OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT
DELIVERED PURSUANT TO, OR IN CONNECTION WITH THIS NOTE SHALL BE BROUGHT
AND MAINTAINED IN THE COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, OR
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK; (B) CONSENT TO THE JURISDICTION OF EACH SUCH COURT IN ANY SUCH
SUIT, ACTION OR PROCEEDING; AND (C) WAIVE ANY OBJECTION WHICH IT OR
THEY MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION, OR
PROCEEDING IN ANY OF SUCH COURTS.
n. Waiver of Trial by Jury. HOLDER AND BORROWER HEREBY
KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT
EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING
OR COUNTERCLAIM BASED ON THIS NOTE, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS NOTE OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION
THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER TO MAKE THE LOAN
EVIDENCED BY THIS NOTE.
CECO ENVIRONMENTAL CORP.
By: /s/ Xxxxxxx XxXxxxxx
------------------------------
Xxxxxxx XxXxxxxx, President
