Exhibit 10.1
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THIS NOTE AND THE COMMON EQUITY ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON EQUITY ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (B) AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
CONVERTIBLE DEMAND NOTE
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$2,024,000 April 24, 0000
Xxx Xxxx, Xxx Xxxx
FOR VALUE RECEIVED, PA LLC, a Delaware limited liability company (together
with its successors, the "Maker") promises to pay to PetroTech Holdings, Corp.,
(the "Payee") on demand at c/o Laurus Capital Management, LLC, 000 Xxxxxxx
Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other place as may be
designated in writing by the holder of this Convertible Demand Note, the
principal sum (the "Principal Amount") of TWO MILLION TWENTY FOUR THOUSAND
DOLLARS and 00/100 Dollars ($2,024,000.00), which sum shall all be payable in
lawful money of the United States of America, together with interest that shall
accrue on the unpaid principal balance computed from the date hereof at twelve
percent (12.0%) per annum. Interest shall be calculated on the basis of the
actual number of days elapsed over a year of 360 days and shall be paid in full
upon demand by Payee of repayment of the Principal Amount under this Note.
1. DEFINITIONS.
"Common Stock" shall mean the shares of stock representing the
Parent's common stock, $0.001 par value per share.
"Conversion Shares" shall mean the shares of Common Stock to be issued
upon conversions of principal, interest or fees hereunder and in accordance with
the terms hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fixed Conversion Price" shall mean $5.43.
"Parent" shall mean PetroAlgae Inc., a Delaware corporation.
"Principal Market" means the NASD Over The Counter Electronic Bulletin
Board, NASDAQ Capital Market, NASDAQ National Market System, American Stock
Exchange or New York Stock Exchange (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock).
2. USE OF PROCEEDS. The proceeds of the loan made pursuant to this
Convertible Demand Note shall be used by Maker solely for working capital
purposes.
3. OPTIONAL REDEMPTION IN CASH. The Maker may prepay this Convertible
Demand Note ("Optional Redemption") by paying to the Payee a sum of money equal
to the Principal Amount outstanding at such time together with accrued but
unpaid interest thereon and any and all other sums due, accrued or payable to
the Payee arising under this Convertible Demand Note (the "Redemption Amount")
outstanding on the Redemption Payment Date (as defined below). The Maker shall
deliver to the Payee a written notice of redemption (the "Notice of Redemption")
specifying the date for such Optional Redemption (the "Redemption Payment
Date"), which date shall be no sooner than ten (10) business days after the date
of the Notice of Redemption (the "Redemption Period"). A Notice of Redemption
shall not be effective with respect to any portion of this Convertible Demand
Note for which the Payee has previously delivered a Notice of Conversion (as
hereinafter defined) or for conversions elected to be made by the Maker pursuant
to Section 5 during the Redemption Period. The Redemption Amount shall be
determined as if the Payee's and Maker's, as applicable, conversion elections
had been completed immediately prior to the date of the Notice of Redemption. On
the Redemption Payment Date, the Redemption Amount must be paid in good funds to
the Payee. In the event the Maker fails to pay the Redemption Amount on the
Redemption Payment Date as set forth herein, then such Redemption Notice will be
null and void.
4. MAKER'S PAYMENT OF INTEREST ON OPTIONAL INTEREST PAYMENT DATES.
a. Subject to the restrictions set forth below in this Section 4,
commencing on June 1, 2009 and on the first business day of each succeeding
September, December and March thereafter (each, an "Optional Interest
Payment Date") through the date of repayment in full of all amounts
outstanding under this Note, the Maker shall have the right, but not the
obligation, to pay all accrued and unpaid interest as of such Optional
Interest Payment Date through the issuance by Parent of fully paid and
non-assessable shares of Common Stock to the Payee at a price per share
equal to the greater of (i) the volume weighted average price of the Common
Stock for the fifteen (15) days immediately prior to the applicable
Optional Interest Payment Date and (ii) the Fixed Conversion Price (the
"Interest Conversion Price").
b. Mechanics of Maker's Conversion. In the event that the Maker elects
to convert accrued and unpaid interest into Common Stock, the Maker shall
give no less than five (5) business days written notice of such election by
delivering an executed and completed notice of conversion in substantially
the form of Exhibit A hereto (appropriate completed) ("Notice of Interest
Conversion") to the Payee and Parent and such Notice of Interest Conversion
shall provide a breakdown in reasonable detail of the accrued and unpaid
interest that are being converted. On each Optional Interest Payment Date
and in accordance with its Notice of Interest Conversion, the Payee shall
make the appropriate reduction to the accrued and unpaid interest as
entered in its records and shall provide notice thereof to the Maker.
Pursuant to the terms of the Notice of Interest Conversion, the Parent will
issue instructions to the transfer agent within one (1) business day of the
date of the delivery to the Payee and Parent of the Notice of Interest
Conversion and shall cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Payee by crediting the account of
the Payee's designated broker with the Depository Trust Corporation ("DTC")
through its Deposit Withdrawal Agent Commission ("DWAC") system within
three (3) business days after receipt by the Payee and Parent of the Notice
of Interest Conversion (the "Interest Conversion Delivery Date"). In the
case of the exercise of the conversion rights set forth herein the
conversion privilege shall be deemed to have been exercised and the
Conversion Shares issuable upon such conversion shall be deemed to have
been issued upon the date of receipt by the Payee and Parent of the Notice
of Interest Conversion. The Payee shall be treated for all purposes as the
record holder of the Interest Conversion Shares, unless the Payee provides
the Maker or Parent, written instructions to the contrary.
c. Additional Interest Conversion Mechanics. The number of shares of
Common Stock to be issued upon each conversion accrued and unpaid interest
shall be determined by dividing that portion of the interest to be
converted by the applicable Interest Conversion Price.
5. PAYEE'S CONVERSION RIGHTS
a. Optional Conversion of Payee. The Payee shall have the right, but
not the obligation, to convert all or any portion of the issued and
outstanding Principal Amount and/or accrued interest and fees due and
payable into fully paid and non-assessable shares of Common Stock at the
Fixed Conversion Price.
b. Mechanics of Payee's Conversion. In the event that the Payee elects
to convert this Convertible Demand Note into Common Stock, the Payee shall
give notice of such election by delivering an executed and completed notice
of conversion in substantially the form of Exhibit B hereto (appropriate
completed) ("Notice of Conversion") to the Maker and Parent such Notice of
Conversion shall provide a breakdown in reasonable detail of the Principal
Amount, accrued interest and fees that are being converted. On each
Conversion Date (as hereinafter defined) and in accordance with its Notice
of Conversion, the Payee shall make the appropriate reduction to the
Principal Amount, accrued interest and fees as entered in its records and
shall provide written notice thereof to the Maker within two (2) business
days after the Conversion Date. Each date on which a Notice of Conversion
is delivered or telecopied to the Maker and Parent, in accordance with the
provisions hereof shall be deemed a Conversion Date (the "Conversion
Date"). Pursuant to the terms of the Notice of Conversion, the Maker will
issue instructions to the transfer agent within one (1) business day of the
date of the delivery to the Maker and Parent of the Notice of Conversion
and shall cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Payee by crediting the account of
the Payee's designated broker with the DTC through its DWAC system within
three (3) business days after receipt by the Maker and Parent of the Notice
of Conversion (the "Payee Conversion Delivery Date" and together with the
Interest Conversion Delivery Date, the "Delivery Dates" and each, a
"Delivery Date"). In the case of the exercise of the conversion rights set
forth herein the conversion privilege shall be deemed to have been
exercised and the Conversion Shares issuable upon such conversion shall be
deemed to have been issued upon the date of receipt by the Maker and Parent
of the Notice of Conversion. The Payee shall be treated for all purposes as
the record holder of the Conversion Shares, unless the Payee provides the
Maker or Parent, written instructions to the contrary.
c. Additional Conversion Mechanics.
1. The number of shares of Common Stock to be issued upon each
conversion of this Convertible Demand Note shall be determined by
dividing that portion of the principal and interest and fees to be
converted, if any, by the Fixed Conversion Price.
2. The Fixed Conversion Price and number and kind of shares to
be issued upon conversion is subject to adjustment from time to time
upon the occurrence of certain events, as follows:
(a) If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock or any
preferred stock issued in shares of Common Stock, the Fixed
Conversion Price, as the case may be, shall be proportionately
reduced in case of subdivision of shares or stock dividend or
proportionately increased in the case of combination of
shares, in each such case by the ratio which the total number
of shares of Common Stock outstanding immediately after such
event bears to the total number of shares or units of Common
Stock outstanding immediately prior to such event.
6. COVENANTS OF THE PARENT.
a. During the period that conversion rights exist hereunder, the
Parent will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock
upon the full conversion of this Convertible Demand Note, including,
without limitation, all interest that may accrue hereunder over a three
year term.
b. During the period the conversion right exists, Parent covenants and
agrees that (i) the number of shares of Common Stock that may be issued
upon conversion hereunder will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances, (ii) all such
issued and outstanding shares of Common Stock will be issued in compliance
with applicable state and federal laws.
7. OTHER RELATED CONVERSION PROVISIONS.
a. Issuance of New Note. Upon any partial conversion of this
Convertible Demand Note, a new Note containing the same date and provisions
of this Convertible Demand Note shall, at the request of the Payee, be
issued by the Maker to the Payee for the principal balance of this
Convertible Demand Note and interest which shall not have been converted or
paid.
b. Rights of Equityholders. The Payee shall not be entitled to vote or
receive dividends or be deemed the holder of the Conversion Shares or any
other securities of the Parent which may at any time be issuable upon
conversion of this Convertible Demand Note for any purpose, nor shall
anything contained herein be construed to confer upon the Payee, as such,
any of the rights of a equityholder of the Parent or any right to vote for
the election of directors or upon any matter submitted to equityholders at
any meeting thereof, or to give or withhold consent to any corporate action
(whether upon the recapitalization, issuance of shares, reclassification of
shares, change of nominal value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, in each case, until the Delivery Date
applicable to the respective Conversion Equity purchasable upon the
conversion hereof shall have occurred as provided herein.
c. Investment Representations. By acceptance of this Note, the Payee
represents to the Maker and Parent and agrees that:
(i) The Note is being acquired for the account
of the Payee, and the Payee has no present
intention of offering, selling, transferring
or otherwise disposing of the Note or the
shares of Common Stock issuable upon
conversion or exercise thereof.
(ii) The Payee will not sell, transfer or
otherwise dispose of the Note or shares of
Common Stock issuable upon conversion or
exercise thereof, unless either:
(I) a registration statement under the
Securities Act of 1933, as amended
(the "Act"), covering such portion
of the Note or such shares of Common
Stock issued or issuable upon
conversion or exercise thereof which
is to be so offered, sold,
transferred or otherwise disposed of
has become effective; or
(II) the proposed offer, sale, transfer
or other disposition of the Note or
the shares of Common Stock issued or
issuable upon conversion or exercise
thereof are exempt from the
registration provisions of the Act.
(iii) Maker and Parent are under no obligation to
register the Note or the shares of Common
Stock issuable upon conversion or exercise
thereof under the Act or any securities laws
of any state or take any action to make any
exemption from such registration provisions
available unless otherwise subsequently
agreed in writing by the parties hereto.
6. EVENT OF DEFAULT. The occurrence of any of the following events set
forth in this section shall constitute an event of default ("Event of Default")
hereunder:
a. Failure to Pay. The Maker fails to pay on demand hereunder any of
principal, interest or other fees hereon in accordance herewith, or the
Maker fails to pay any of the other Obligations (under the Master Security
Agreement, dated as of the August 21, 2008 (as amended, restated, modified
and/or supplemented from time to time, the "Master Security Agreement") by
and between LV Administrative Services, Inc., as Agent (in its capacity as
administrative and/or collateral agent, the "Agent") and the Maker when
due; or
b. Breach of Covenant. The Maker or any of its subsidiaries breaches
any covenant or any other term or condition of this Convertible Demand
Note, the Master Security Agreement or any other Document (as defined in
the Master Security Agreement) in any material respect and such breach, if
subject to cure, continues for a period of fifteen (15) days after the
occurrence thereof; or
c. Breach of Representations and Warranties. Any representation,
warranty or statement made or furnished by the Maker or Parent, as
applicable, in this Convertible Demand Note, the Master Security Agreement
or any other Document (as defined in the Master Security Agreement) shall
at any time be false or misleading in any respect on the date as of which
made or deemed made; or
d. Default Under the Master Security Agreement. The occurrence of any
default (or similar term) in the observance or performance of the Master
Security Agreement or any other Document (as defined in the Master Security
Agreement) or condition relating to any indebtedness or contingent
obligation of the Maker or any of its subsidiaries; or
e. Bankruptcy. The Maker shall (i) apply for, consent to or suffer to
exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part
of its property, (ii) make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under the federal bankruptcy
laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt or
insolvent, (v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) acquiesce to, any petition filed
against it in any involuntary case under such bankruptcy laws, or (vii)
take any action for the purpose of effecting any of the foregoing.
f. Judgments. Attachments or levies in excess of $5,000 in the
aggregate are made upon the Maker's assets or a judgment is rendered
against the Maker's property involving a liability of more than $5,000.00;
g. Insolvency. The Maker or any of their respective subsidiaries shall
admit in writing its inability, or be generally unable, to pay its debts as
they become due or cease operations of its present business;
h. Change of Control. A Change of Control (as defined below) shall
occur with respect to the Maker, unless Payee shall have expressly
consented to such Change of Control in writing. A "Change of Control" shall
mean any event or circumstance as a result of which (i) any "Person" or
"group" (as such terms are defined in Sections 13(d) and 14(d) of the
Exchange Act, as in effect on the date hereof), other than the Payee, is or
becomes the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5
under the Exchange Act), directly or indirectly, of 35% or more on a fully
diluted basis of the then outstanding voting equity interest of the Maker
(other than a "Person" or "group" that beneficially owns 35% or more of
such outstanding voting equity interests of the Maker on the date hereof),
(ii) the Board of Directors of the Maker shall cease to consist of a
majority of the Maker's board of directors on the date hereof (or directors
appointed by a majority of the board of directors in effect immediately
prior to such appointment) or (iii) the Maker or any of its subsidiaries
merges or consolidates with, or sells all or substantially all of its
assets to, any other person or entity;
i. Indictment; Proceedings. The indictment or threatened indictment of
the Maker or any of its respective subsidiaries or any executive officer of
the Maker or any of its subsidiaries under any criminal statute, or
commencement or threatened commencement of criminal or civil proceeding
against the Maker or any of its subsidiaries or any executive officer of
the Maker or of its subsidiaries pursuant to which statute or proceeding
penalties or remedies sought or available include forfeiture of any of the
property of the Maker, or any of its subsidiaries; or
j. The Master Security Agreement. (i) An Event of Default shall occur
under and as defined in the Master Security Agreement, (ii) the Maker or
any of its subsidiaries shall breach any term or provision of the Master
Security Agreement in any respect, (iii) the Maker, or any of its
subsidiaries attempts to terminate, challenges the validity of, or its
liability under, the Master Security Agreement, (iv) any proceeding shall
be brought to challenge the validity, binding effect of the Master Security
Agreement or (v) without the consent of the Agent or the Payee, the Master
Security Agreement ceases to be valid, binding and enforceable obligation
of the Maker.
7. DEFAULT INTEREST. Following the occurrence and during the continuance of
an Event of Default, the Maker shall pay additional interest on the outstanding
principal balance of this Convertible Demand Note in an amount equal to two
percent (2%) per month, and all outstanding obligations under this Convertible
Demand Note, the Master Security Agreement, including unpaid interest, shall
continue to accrue interest at such additional interest rate from the date of
such Event of Default until the date such Event of Default is cured or waived.
8. REMEDIES. During the continuance of any Event of Default, the Payee may
in any applicable law, declare immediately due and payable all or part of any
obligation (including any accrued but unpaid interest thereon) under this
Convertible Demand Note whereupon the same shall become immediately due and
payable, without presentment, demand, protest or further notice or other
requirements of any kind, all of which are hereby expressly waived by the Maker.
9. AUTHORITY. The Maker represents that the Maker has full power, authority
and legal right to execute and deliver this Convertible Demand Note and that
this Convertible Demand Note constitutes a valid and binding obligation of the
Maker enforceable against the Maker in accordance with its terms.
10. DEFINED TERMS. Whenever used, the singular number shall include the
plural, the plural the singular, and the words "Payee" and "Maker" shall
include, respectively, their respective successors and assigns; provided,
however, that the Maker shall in no event or under any circumstance have the
right to assign or transfer its obligations under this Convertible Demand Note
or the related documents, in whole or in part, to any other person, party or
entity.
11. HEADINGS, ETC. The headings and captions of the numbered paragraphs of
this Convertible Demand Note are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
12. ENFORCEABILITY. The Maker acknowledges that this Convertible Demand
Note and the Maker's obligations under this Convertible Demand Note are and
shall at all times continue to be absolute and unconditional in all respects,
and shall at all times be valid and enforceable irrespective of any other
agreements or circumstances of any nature whatsoever which might otherwise
constitute a defense to this Convertible Demand Note and the obligations of the
Maker under this Convertible Demand Note or the obligations of any other person
or party relating to this Convertible Demand Note. This Convertible Demand Note
and the guarantees, security agreements, other agreements, instruments and
documents executed and/or delivered in connection herewith (collectively and as
the same may be amended or otherwise modified from time to time, the
"Documents") set forth the entire agreement and understanding of the Payee and
the Maker, and the Maker absolutely, unconditionally and irrevocably waives any
and all right to assert any setoff, counterclaim or crossclaim of any nature
whatsoever with respect to this Convertible Demand Note or the obligations of
the Maker hereunder or thereunder, or the obligations of any other person or
party relating hereto or thereto or to the obligations of the Maker hereunder or
thereunder or otherwise in any action or proceeding brought by the Payee to
collect this Convertible Demand Note, or any portion thereof, or to enforce,
foreclose and realize upon the liens and security interests of the Payee in any
collateral. The Maker acknowledges that no oral or other agreements, conditions,
promises, understandings, representations or warranties exist with respect to
this Convertible Demand Note or with respect to the obligations of the Maker
under this Convertible Demand Note, except those specifically set forth in this
Convertible Demand Note.
13. WAIVER. The Maker waives presentment, demand for payment, notice of
dishonor and any or all notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Convertible Demand Note
and consents to any or all delays, extensions of time, renewals, release of any
party to any document related to this Convertible Demand Note, and of any
available security therefor, and any and all waivers or modifications that may
be granted or consented to by the Payee with regard to the time of payment or
with respect to any other provisions of any of the Documents, and agrees that no
such action, delay or failure to act on the part of the Payee shall be construed
as a waiver by the Payee of, or otherwise affect, in whole or in part, its right
to avail itself of any remedy with respect thereto. No notice to or demand on
the Maker shall be deemed to be a waiver of the obligation of the Maker or of
the right of the Payee to take further action without further notice or demand
as provided in any of the Documents.
14. ASSIGNABILITY. This Convertible Demand Note shall be binding upon the
Maker and its successors and assigns, and shall inure to the benefit of the
Payee and its successors and assigns, and may be assigned by the Payee. The
Maker may not assign any of its obligations under this Convertible Demand Note
without the prior written consent of the Payee, any such purported assignment
without such consent being null and void.
15. SECURITY. LV Administrative Services, Inc., as Agent, for the benefit
of the Payee, has been granted a security interest in certain assets of the
Maker as more fully described in the Master Security Agreement.
16. AMENDMENTS. This Convertible Demand Note may not be modified, amended,
changed or terminated orally, except by an agreement in writing signed by the
Maker, the Parent and the Payee. No waiver of any term, covenant or provision of
this Convertible Demand Note shall be effective unless given in writing by the
Payee and, if so given by the Payee, shall only be effective in the specific
instance in which given.
17. GOVERNING LAW. This Convertible Demand Note is and shall be deemed
entered into in the State of New York and shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws.
IN WITNESS WHEREOF, the Maker has duly executed this Convertible
Demand Note the day and year first above written.
PA LLC
By: /s/ Xxxxxx Xxxxxxx
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Name: Xxxxxx Xxxxxxx
Title: Chief Executive Officer
ACKNOWLEDGED AND AGREED TO BY:
PETROALGAE INC.
By: /s/ Xxxxx Xxxxxxx
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Name: Xxxxx Xxxxxxx
Title: President
SIGNATURE PAGE TO
CONVERTIBLE DEMAND NOTE
EXHIBIT A
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NOTICE OF INTEREST CONVERSION
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PetroTech Holdings, Corp.
c/o Laurus Capital Management, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
ATTN: General Counsel
PetroAlgae Inc.
[Address]
The undersigned hereby converts $_________ of the interest due on [specify
applicable Optional Interest Payment Date] under the Convertible Demand Note
dated as of April 24, 2009 (the "Note") issued by PA LLC (the "Company") to
PetroTech Hldings, Corp. by delivery of shares of Common Stock of PetroAlgae
Inc. ("Shares") on and subject to the conditions set forth in the Note.
1. Date of Conversion
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2. Shares To Be Delivered:
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PA LLC
By:
------------------------------------
Name:
Title:
EXHIBIT B
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NOTICE OF CONVERSION
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PA LLC
[Address]
PetroAlgae Inc.
[Address]
The undersigned hereby converts $_________ of the principal and/or interest
due on [specify applicable Repayment Date] under the Convertible Demand Note
dated as of April 24, 2009 (the "Note") issued by PA LLC (the "Company") by
delivery of shares of Common Stock of PetroAlgae Inc. ("Shares") on and subject
to the conditions set forth in the Note.
3. Date of Conversion
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4. Shares To Be Delivered:
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[PAYEE]
By:
------------------------------------
Name:
Title:
