CONVERTIBLE PROMISSORY NOTE DUE FEBRUARY 29, 2012
Exhibit
10.2
THIS
NOTE, THE SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE AND THE SHARES OF COMMON STOCK THAT ARE ISSUABLE UPON
CONVERSION OF SUCH SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. NEITHER THIS NOTE NOR SUCH SHARES OF COMMON STOCK MAY BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUING
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
Principal
Amount: $______________
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Issue
Date: January 4, 2011
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CONVERTIBLE PROMISSORY NOTE
DUE FEBRUARY 29,
2012
FOR VALUE RECEIVED, ThermoEnergy
Corporation, a Delaware corporation (the “Borrower”), hereby promises to pay to
the order of ____________________ (the “Holder”), the sum of
____________________ ($___________) in installments as herein
provided.
This Note
is issued pursuant to the terms of an Note Amendment and Forbearance Agreement
dated as of January 4, 2011 by and between the Borrower and the Holder (the
“Amendment Agreement”) and is subject to the provisions of, and entitled to the
benefits of, the Amendment Agreement. The Borrower’s obligations
under this Note are secured by the grant to Xxxxxxx Xxxxx Specialty Group LLC
(as agent for itself and other creditors of the Borrower, including the Holder)
(the “Agent”) of a security interest in all of the issued and outstanding equity
securities of CASTion Corporation, a Massachusetts corporation (“CASTion”), held
by the Borrower, pursuant to a Stock Pledge Agreement dated as of July 2, 2007
among the Borrower, the Agent, the Holder, certain other creditors of the
Borrower (the “Pledge Agreement”) and the holder of this Note is entitled to the
benefits of the Pledge Agreement. (This Note and the other promissory
notes of like tenor issued in series herewith and secured by the Pledge
Agreement are herein referred to as the “Notes”).
Interest
on the outstanding principal balance shall accrue at the rate of ten percent
(10%) per annum, computed on the basis of a 360-day year, using the number of
days actually elapsed.
Principal
and interest shall be payable in fourteen (14) consecutive monthly payments of
_________________ ($_______________) each, commencing on January 31, 2011 and
continuing on the last day of each and every month thereafter, to and including
February 29, 2012 (the “Maturity Date”), when the outstanding balance hereof,
plus any accrued interest and charges, shall be due and payable in
full. Payments shall first be applied toward accrued and unpaid
interest and the balance, if any, shall be applied against
principal.
UPON
MATURITY OF THIS NOTE OR UPON AN EVENT OF DEFAULT (AS DEFINED BELOW), INTEREST
SHALL ACCRUE ON THE PRINCIPAL BALANCE AND OVERDUE INTEREST AT EIGHTEEN PERCENT
(18%) PER ANNUM UNTIL SUCH PRINCIPAL AND OVERDUE INTEREST SHALL BE PAID IN
FULL.
The
Holder shall have the right at any time and from time to time until the
principal and interest on this Note shall have been paid in full, to convert all
or any portion of the principal and any interest due under this Note into shares
of the Borrower’s Series B Convertible Preferred Stock, par value $0.01 per
share (the “Preferred Stock”). If the Holder exercises its right of
conversion, the Holder shall give the Borrower a Notice of Conversion in the
form annexed to this Note, setting forth the amount of principal and interest
which the Holder is converting into Preferred Stock (the “Conversion Amount”) at
a price of $2.40 per share, subject to equitable adjustment in the event of a
stock split, combination, reverse split affecting the outstanding shares of
Preferred Stock (the “Conversion Price”). The date of such notice is
referred to as the Conversion Date. Upon delivery to the Borrower of a completed
Notice of Conversion, the Borrower shall deliver, within five (5) business days
after the Conversion Date (such fifth day being the “Delivery Date”) to the
Holder a certificate for that number of shares of Preferred Stock into which the
Conversion Amount is being converted.
In the
event, on or before July 5, 2011 [the business day immediately following the
date that is 6 months after the date of the note], the Borrower makes any
payments of principal or accrued interest on this Note, then simultaneously with
the making of such payment a portion of the principal and accrued and unpaid
interest on this Note in an amount equal to the amount of such payment shall
automatically convert into shares of the Preferred Stock at a price per share
equal to the Conversion Price.
In the
event that (i) the closing price of the Borrower’s Common Stock, par value
$0.001 per share (the “Common Stock”) for twenty (20) consecutive trading days
on the principal trading market on which the Common Stock is listed or traded,
or if the Common Stock is not listed on a trading market, in the
over-the-counter market, as reported by the OTC Bulletin Board, or if the Common
Stock is not then listed on a trading market or quoted on the OTC Bulletin
Board, as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices) equals
or exceeds $0.72 per share and (ii) the daily average trading volume of the
Common Stock exceeds 30,000 shares for twenty (20) consecutive trading days,
then upon notice from the Borrower to the Holder, given at any time thereafter,
the entire principal amount of this Note then outstanding, plus all accrued and
unpaid interest thereon, shall automatically convert into shares of Preferred
Stock at the Conversion Price. In the event
of a stock split, combination, reverse split or similar event affecting the
outstanding shares of Common Stock, the references in this paragraph to closing
price and trading volume shall be adjusted equitably.
Except to
the extent that the entire unpaid principal balance of this Note is being
presented for conversion, the Holder shall not be required to present this Note
in order to effect conversion, and the Holder shall maintain a ledger setting
forth each conversion of principal and interest on this Note and such ledger
shall, absent manifest error, be deemed to be binding and conclusive on the
Borrower. In the event of any partial conversion of this Note, the
amount so converted shall be charged first against accrued and unpaid interest
and the balance, if any, shall be charged against principal.
Upon
conversion of all or any portion of the principal and accrued interest on this
Note, the Borrower will issue to the Holder a five-year Common Stock Purchase
Warrant (in substantially the form attached hereto as Exhibit B) for the
purchase, at an exercise price of $0.30 per share, of that number of shares of
Common Stock determined by dividing (i) 200% of the amount of principal and
interest so converted by (ii) $0.30.
This Note
may be prepaid in whole or in part at any time upon not fewer than fifteen (15)
days’ prior written notice to the Holder (during which 15-day period the Holder
may elect to convert any or all of the principal and any interest due under this
Note into shares of Preferred Stock pursuant to the sixth paragraph of this
Note), without premium or penalty. In the case of partial
prepayments, all amounts shall first be applied toward accrued and unpaid
interest and the balance, if any, shall be applied against
principal.
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Except as
otherwise set forth herein, not later than the Delivery Date, the Borrower shall
deliver to the Holder a certificate or certificates representing the number of
shares of Preferred Stock being acquired upon the conversion of this Note (which
certificate or certificates shall bear a legend indicating that such shares have
been issued in reliance on an exemption from the registration requirements of
the Securities Act of 1933 (the “Securities Act”) and may not be sold,
transferred or otherwise disposed of except pursuant to an effective
registration statement under the Securities Act or in reliance on an exemption
to the registration requirements of the Securities Act), and (b) a bank check in
the amount of accrued and unpaid interest on the portion of the Note being
converted unless the Holder converts such interest into Preferred
Stock. If in the case of any Notice of Conversion such certificate or
certificates are not delivered to or as directed by the applicable Holder by the
Delivery Date, the Holder shall be entitled to elect by written notice to the
Borrower at any time on or before its receipt of such certificate or
certificates thereafter, to rescind such conversion, in which event the
conversion shall be deemed void ab initio.
The
Borrower’s obligations to issue and deliver the Preferred Stock upon conversion
of this Note in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Borrower or
any violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Holder in connection with the issuance of such
shares. In the event the Holder shall elect to convert any or all of
this Note, The Borrower may not refuse conversion based on any claim that such
Holder or any one associated or affiliated with the Holder of has been engaged
in any violation of law, agreement or for any other reason unless an injunction
from a court, on notice, restraining and or enjoining conversion of all or part
of this Note shall have been sought and obtained. In the absence of
an injunction precluding the same, the Borrower shall issue the Preferred Stock
or, if applicable, cash, upon a properly noticed conversion. Upon a conversion
hereunder, the Borrower shall not be required to issue stock certificates
representing fractions of shares of the Preferred Stock. All fractional shares
shall be carried forward and any fractional shares which remain after a Holder
converts all of this Note shall be rounded up to the next whole number of
shares.
The
entire unpaid principal amount of this Note, together with interest thereon
shall, on written notice from the Holder, forthwith become and be due and
payable if any one or more Events of Default shall have occurred (for any reason
whatsoever and whether such happening shall be voluntary or involuntary or be
affected or come about by operation of law pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) and be continuing.
The
occurrence of any one or more of the following events or conditions shall
constitute an “Event of Default” under this Note:
(i) Borrower’s
failure to make any payment of principal or interest or any other sums within
five (5) days of the date when due on this Note; or
(ii) Any
representation or warranty or other statement made or furnished to the Holder by
or on behalf of the Borrower in the Amendment Agreement or in any document or
instrument furnished in connection with the Purchase Agreement (including the
Pledge Agreement) proves to have been false or misleading in any material
respect when made or furnished; or
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(iii) Breach
of or failure in the due observance or performance in any material respect of
any covenant, condition or agreement on the part of the Borrower to be observed
or performed pursuant to this Note or any other agreement between the Borrower
and the Holder (including the Amendment Agreement and the Pledge Agreement) and
(if curable) the failure to cure any such breach or failure within ten (10) days
after receipt of written notice thereof from the Holder; or
(iv) Merger
of CASTion with or into any other entity (including without limitation the
Borrower), or the Borrower’s failure to maintain the separate corporate
existence of CASTion; or
(v) Any
transfer, by operation of law or otherwise, of any equity interests of or in
CASTion, or any issuance of any equity interests of or in CASTion, to any person
or entity other than a wholly-owned subsidiary of the Borrower; or the sale or
other transfer by CASTion of any substantial portion of its assets other than
inventory sold in the ordinary course of business; or the granting by CASTion of
any pledge of, security interest or mortgage on any of its assets;
or
(vi) If
the Borrower shall (a) apply for or consent to the appointment of a receiver,
trustee or liquidator of all or a substantial part of any of its assets; (b) be
unable, or admit in writing its inability, to pay its debts as they mature; (c)
file or permit the filing of any petition, case arrangement, reorganization, or
the like under any insolvency or bankruptcy law, or the adjudication of it as a
bankrupt, or the making of an assignment for the benefit of creditors or the
consenting to any form or arrangement for the satisfaction, settlement or delay
of debt or the appointment of a receiver for all or any part of its properties;
or (d) any action shall be taken by the Borrower for the purpose of effecting
any of the foregoing; or
(vii) An
order, judgment or decree shall be entered, or a case shall be commenced,
against the Borrower, without its application, approval or consent by any court
of competent jurisdiction, approving a petition or permitting the commencement
of a case seeking reorganization or liquidation of the Borrower or appointing a
receiver, trustee or liquidator of the Borrower, or of all or a substantial part
of the assets of the Borrower, and the Borrower, by any act, indicate its
approval thereof, consent thereto, or acquiescence therein, or such order,
judgment, decree or case shall continue unstayed and in effect for any period of
90 consecutive days or an order for relief in connection therewith shall be
entered; or
(viii) If
the Borrower shall dissolve or liquidate, or be dissolved or liquidated, or
cease to legally exist, or merge or consolidate, or be merged or consolidated
with or into any other corporation; or
(ix) Any
other violation of any agreement or contract between Borrower and Holder or
other lenders of Borrower and such violation shall remain unremedied for fifteen
(15) days after notice thereof shall have been given to the
Borrower.
All
payment obligations arising under this Note are subject to the express condition
that at no time shall the Borrower be obligated or required to pay interest at a
rate which could subject the Holder to either civil or criminal liability as a
result of being in excess of the maximum rate which the Borrower is permitted by
law to contract or agree to pay. If by the terms of this Note, the
Borrower is at any time required or obligated to pay interest at a rate in
excess of such maximum rate, the applicable rate of interest shall be deemed to
be immediately reduced to such maximum rate, and interest thus payable shall be
computed at such maximum rate, and the portion of all prior interest payments in
excess of such maximum rate shall be applied and shall be deemed to have been
payments in reduction of principal.
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No
failure or delay on the part of the Holder hereof in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing hereunder are cumulative
to, and not exclusive of, any rights or remedies otherwise
available.
This
Agreement and the rights of the parties shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts applicable to
agreements executed and to be performed wholly within such state and without
regard to principles of conflicts of law.
BORROWER
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY
JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS NOTE AND WAIVES ANY RIGHT TO BRING A COUNTERCLAIM AGAINST
THE HOLDER IN ANY ACTION TO ENFORCE THIS NOTE. THIS WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR HOLDER TO ACCEPT THIS NOTE.
All
notices, requests or other communications required or permitted to be given
under this Agreement to any party shall be in writing and shall be deemed to
have been sufficiently given when delivered by personal service or sent by (i)
registered mail, (ii) overnight courier services with evidence of delivery or
attempted delivery, or (iii) e-mail or other means of electronic communication
(provided the sender receives a machine-generated confirmation of successful
transmission), to the Borrower at 00 Xxx Xxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxxxx
00000 or to the Holder at the address of the Holder as shown on the records of
the Borrower. Either party may, by like notice, change the address or telecopy
number or the person to whom notice is to be given. Notice shall be
deemed given when received or when attempted delivery is made (based on evidence
of attempted delivery by the United States Postal Service or an overnight
courier or a messenger service), provided that notice by telecopier shall be
deemed given when receipt is acknowledged by the recipient.
This Note
may be amended, and enforcement of any provision of this Note may be waived or
delayed only by the written agreement of the Borrower and the Holder; provided
the Borrower gives written notice of such amendment of the holders all of the other then outstanding Notes,
and offers such holders the right to amend their Notes on substantially
identical terms. The term “Note” and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
This Note
shall be binding upon the Borrower and its successors and assigns, and shall
inure to the benefit of the Holder and its successors and
assigns. The Borrower may not assign any of its obligations under
this Note without the consent of the Holder.
If
default is made in the payment of this Note, the Borrower shall pay the Holder
hereof reasonable costs of collection, including reasonable attorneys’ fees,
regardless of whether the Holder commenced litigation in order to enforce its
rights under this Note.
The
Holder shall not have rights as a stockholder of the Borrower with respect to
unconverted portions of this Note. However, from and after the
Conversion Date, the Holder will have all the rights of a shareholder of the
Borrower with respect to the shares of Preferred Stock to be received by Holder
after delivery by the Holder of a Conversion Notice to the Borrower regardless
of whether physical certificates shall have been delivered.
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IN WITNESS WHEREOF, the
parties have caused this Agreement to be duly executed and delivered by the
proper and duly authorized officers as of the date and year first above
written.
ThermoEnergy
Corporation
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By:
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Xxxx
X. Xxxxxxx
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President
and Chief Executive Officer
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NOTICE OF
CONVERSION
(To be
executed by the Holder in order to convert the Note)
The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by ThermoEnergy Corporation on January 4,
2011 into shares of the Series B Convertible Preferred Stock of ThermoEnergy
Corporation according to the conditions set forth in such Note, as of the date
written below.
Date of
Conversion:__________________________________
Amount to
be Converted: :____________________________________
Number of
Shares To Be Delivered:_______________________________
Signature:________________________________________
Print
Name and
Title:____________________________________________________________
Address:______________________________________________________________________
_______________________________________________________________________