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UNSECURED SUBORDINATED PROMISSORY NOTE
THIS UNSECURED SUBORDINATED PROMISSORY NOTE HAS BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (AS AMENDED, THE "SECURITIES ACT") UNDER ANY APPLICABLE
STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION UNDER THE SECURITIES
ACT OR ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS THE PROPOSED TRANSFER MAY
BE EFFECTED WITHOUT REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS.
No. ___________ U.S.$______
Issuance Date: April 27, 2011
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
UNSECURED SUBORDINATED PROMISSORY NOTE DUE June 14, 2011
THIS UNSECURED SUBORDINATED PROMISSORY NOTE of Environmental Solutions
Worldwide, Inc. (the "Company"), issued this 27th day of April, 2011 (the
"Issuance Date"), is duly authorized and issued pursuant to that certain
Subordinated Note Subscription Agreement, dated as of April 27, 2011 between the
Company and the Holder (as defined below) (the "Note Subscription Agreement")
(including all Unsecured Subordinated Promissory Notes issued in exchange,
transfer or replacement hereof, this "Note"), designated as one of its Unsecured
Subordinated Promissory Notes Due June 14, 2011, in an aggregate principal
amount of U.S.$[____] (collectively, the "Notes").
FOR VALUE RECEIVED, the Company promises to pay to [_________________] (or
his or its permitted assigns) the registered holder hereof (the "Holder"), the
principal sum of $[_______], on or prior to June 14, 2011 (the "Maturity Date"),
subject to Section 1, and to pay interest in-kind (through the issuance of
substantially similar Notes) on the principal sum outstanding on a monthly basis
(each such date of payment an "Interest Payment Date"), commencing May 27, 2011,
up to and including the date on which this Note has been paid in full, at the
rate of 10% per annum, and shall be computed on the basis of a 365-day year and
actual days elapsed (depending upon the subscription date). Accrual of interest
on this Note shall commence on the Issuance Date and shall continue to accrue
until the next Interest Payment Date. The interest so payable will be paid on
each Interest Payment Date to the person or entity in whose name this Note (or
one or more predecessor Notes) is registered on the records of the Company
regarding registration and transfers of the Notes (the "Notes Register") on the
first business day immediately prior to such Interest Payment Date. All accrued
and unpaid interest shall bear interest at the same rate of 10% per annum until
the date of payment. The principal (and all accrued and unpaid interest) of this
Note is payable in currency of the United States of America or pursuant to the
terms of Section 1 below, or such other manner of payment, at the sole option of
the Holder. The Notes Register shall represent the record of ownership and right
to receive principal and interest payments on this Note. Interest and principal
shall be payable only to the registered Holder as reflected in the Notes
Register. The right to receive principal and interest payments under this Note
shall be transferable only through an appropriate entry in the Notes Register as
provided herein.
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This Note is subject to the following additional provisions:
1. No Prepayment; Exchange Rights and Obligations. (a) The Company shall
not prepay any amount of principal or accrued interest outstanding under this
Note prior to the Maturity Date without the prior written consent of the Holder;
provided, that in the event the Borrower has failed to close an offering of
shares of its common stock, par value $0.001 per share (the "Common Stock") that
are registered under the Act, at a sale price of $0.12 per share (as adjusted
for any stock split, stock dividend or other similar adjustment) pursuant to a
rights offering of the Company that raises at least an incremental $2.5 million
of cash for the Company and also permits all holders of the Notes to exchange
their Notes (and the other notes paid in kind for the payment of interest under
the Notes) for shares of Common Stock at such price (with such closed offering
referred to herein as the "Qualified Offering") on or prior to the Maturity
Date, then the Holder, at his or its sole option, may require the Company to
refrain from making any and all payments on any of the outstanding principal and
accrued interest outstanding under this Note; provided, however, the Company is
not prohibited hereunder from paying any accrued interest in-kind through the
issuance of substantially similar Notes, at any time.
(b) If, prior to the payment of all principal or accrued interest
outstanding under this Note, the Company closes a Qualified Offering on or prior
to the Maturity Date, then the Holder may elect to (i) exchange any outstanding
Notes then held by him or it for a subscription of the Common Stock in the
Qualified Offering as payment by the Holder of the subscription price therefor
(but excluding from exchange any portion of the Notes that are not permitted by
the terms of the Qualified Offering to be exchanged in the Qualified Offering
(i.e., if the amount owing under the Notes exceeds the permitted pro-rata
participation level made available to the Holder in the Qualified Offering)),
(ii) purchase for cash an equivalent number of shares of Common Stock as would
be issued pursuant to the exchange provided for in clause (i) of this Section
1(b) or (iii) be repaid from the proceeds of such Qualified Offering, all
amounts outstanding under the Notes then held by him or it; provided, that any
such repayment shall be subject to the terms of the Postponement And
Subordination Agreement dated as of the 16th day of February, 2011 by and among
the Holder, Canadian Imperial Bank of Commerce and the other parties thereto (as
amended, modified or supplemented from time to time, the "Subordination
Agreement").
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(c) In the event (i) the Qualified Offering closes on or prior to the
Maturity Date and (ii) for any reason the Holder shall have failed to have
exchanged in the Qualified Offering any and all principal or accrued interest
outstanding under this Note and (iii) the Holder wishes to exchange for Common
Stock at a price of $0.12 per share (as adjusted for any stock split, stock
dividend or other similar adjustment), then the Company [at its sole option]
shall be required to (i) offer the Holder the immediate right to purchase
additional shares of Common Stock at such price, so that all principal and
accrued interest outstanding under this Note shall have been exchanged for
shares of Common Stock at such price or (ii) subject to the terms of the
Subordination Agreement, repay all principal and accrued interest outstanding
under this Note from the proceeds of such Qualified Offering.
(d) At any time after the Maturity Date, if any amount of principal or
accrued interest remains outstanding under this Note, the Holder shall have the
right and option (but not the obligation) to exchange any or all
then-outstanding amount of principal or accrued interest under this Note in any
offering or other sale made by the Company for any shares of Common Stock (or
any other equity securities or equity-linked rights or securities whatsoever)
(as payment by the participating Holder of the sale price therefor).
(e) The Holder may, at his or its sole option, extend the Maturity Date.
2. Notes. The Note is exchangeable for an equal aggregate principal amount of
Notes of different authorized denominations, as requested by the Holders
surrendering the same, but shall not be issuable in denominations less than
integral multiples of ten thousand dollars ($10,000). No service charge will be
made for such registration of transfer or exchange.
3. Transfer. This Note has been issued subject to investment representations of
the original purchaser hereof and may be transferred, assigned or exchanged only
in compliance with the Securities Act of 1933, as amended (the "Securities
Act"), including Regulation D promulgated under the Securities Act. Any Holder
of this Note, by acceptance hereof, agrees to the representations, warranties
and covenants herein. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the person in
whose name this Note is duly registered on the Company's Notes Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Note be overdue, and neither the Company nor
any such agent shall be affected by notice to the contrary.
(a) No Interference. The Company shall not close its books against the
transfer of this Note.
(b) Non-Circumvention. The Company shall not, and shall cause its
subsidiaries not to, directly or indirectly, by any action avoid or seek to
avoid the observance or performance of any terms of this Note or impair or
diminish its value, but shall at all times in good faith assist in carrying out
of all such terms of this Note.
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(c) Authority. The Company warrants and represents that: (i) it has all
requisite corporate power and authority to enter into and perform its
obligations under this Note and to issue and deliver the Note to the Holder;
(ii) the execution, delivery, and performance by the Company of its obligations
under this Note, including the issuance and delivery of the Note to the Holder,
have been duly authorized by all necessary corporate action on the part of the
Company; and (iii) this Note has been duly executed and delivered by the Company
and is a legal, valid and binding obligation of the Company and is enforceable
against the Company in accordance with its terms.
(d) Governmental Actions. Without limiting the generality of the foregoing,
the Company shall obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Note.
4. No Impairment. Except as expressly provided herein, no provision of this Note
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this Note at the time,
place, and rate, and in the manner herein prescribed. This Note and all other
Notes now and hereafter issued of similar terms are direct obligations of the
Company.
5. Termination. After this Note shall have been fully surrendered in connection
with (a) any payment in full of the outstanding principal and interest or (b)
any exchange for Common Stock or similar equity rights pursuant to Section 1,
this Note shall no longer be deemed to be outstanding and all rights with
respect to this Note, including, without limitation, the right to receive
interest hereon and the principal hereof, shall forthwith terminate.
6. Costs and Expenses. The Company agrees to pay all costs and expenses,
including reasonable attorney's fees, which may be incurred by the Holder in
collecting any amount due under this Note.
7. Events of Default; Remedies. If one or more of the following described
"Events of Default" shall occur:
(a) The Company shall default in the payment of principal or interest on
these Notes; or
(b) Any of the representations or warranties made by the Company herein, or
in any certificate or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company or any of its subsidiaries in
connection with the execution and delivery of this Note shall be false or
misleading in a any material respect at the time made; or
(c) The Company shall fail to perform or observe, in any material respect,
any other covenant, term, provision, condition, agreement or obligation of the
Company under this Note or the Note Subscription Agreement of even date with the
original issue date of this Note and such failure shall continue uncured for a
period of fifteen (15) business days after notice from Holder of such failure;
or
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(d) The Company or any of its subsidiaries shall (1) admit in writing its
inability to pay its debts generally as they mature; (2) make an assignment for
the benefit of creditors or commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a trustee, liquidator or receiver for
its or for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the Company,
any of its subsidiaries or for a substantial part of their respective property
or business without their consent and shall not be discharged within forty five
(45) business days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company or any of
its subsidiaries and shall not be dismissed within forty five (45) business days
thereafter; or
(g) Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company or any of its
subsidiaries and, if instituted against the Company or any of its subsidiaries
shall not be dismissed within forty five (45) business days after such
instruction or if the Company or any of its subsidiaries shall by any action or
answer approve of, consent to, or acquiesce in any such proceedings or admit the
material allegations of, or default in answering a petition filed in any
proceeding; or
(h) The Common Stock shall not be traded on an exchange or quotation system
such as the Over the Counter Bulletin Board market; or
(i) Cessation by the Company or any of its subsidiaries of doing business
in the ordinary course; or
(j) A material adverse change to the Company's or any of its subsidiaries
business condition (financial or otherwise), earnings, properties, prospects or
results of operations of the Company or any of its subsidiaries taken as a
whole.
Then, or at any time thereafter, and in each and every such case, unless
such Event or Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the principal (and any
accrued interest) amount of this Note shall become immediately due and payable,
without presentment, demand protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately,
enforce any and all of the Holder's rights and remedies provided herein or any
other rights or remedies afforded by law.
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8. Lost or Destroyed Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
thereof, and indemnity and bond, if requested, all reasonably satisfactory to
the Company.
9. Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to the principles
of conflicts of laws.
10. Business Day Definition. For purposes hereof, the term "business day" shall
mean any day on which banks are generally open for business in the State of New
York, USA and excluding any Saturday and Sunday.
11. Notices. Any notice, demand or request required or permitted to be given by
either the Company or the Holder pursuant to the terms of this Note shall be
made in accordance with Section 10 of the Note Subscription Agreement.
12. Waiver. Any waiver by the Company or the Holder hereof of a breach of any
provision of this Note shall not operate as or be construed to be a waiver of
any breach of such provision or of any breach of any other provision of this
Note. The failure of the Company or the Holder hereof to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note. Any waiver must be
in writing and signed by such party against whom such waiver is sought to be
enforced.
13. Notices of Certain Actions. In case at any time the Company shall propose
to:
(a) pay any dividend or make any distribution on shares of Common Stock in
shares of Common Stock or equivalents thereto or make any other distribution; or
(b) issue any rights, warrants or other Common Stock to any holders of
Common Stock entitling them to purchase any additional shares of Common Stock or
any other rights, debentures, warrants or other Common Stock; or
(c) effect any reclassification or change of outstanding shares of Common
Stock, or any consolidation, merger, sale, lease or conveyance of property (not
in the Company's ordinary course of business), described in Section 7 hereof or
otherwise; or
(d) effect any liquidation, dissolution or winding-up of the Company;
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then, and in any one or more of such cases (a) through (d), the Company
shall, subject to any other Sections of this Note, give written notice thereof,
by certified mail, postage prepaid, or by facsimile, electronic mail (or similar
electronic transmission) to the Holder at the Holder's address as it shall
appear in the Notes Register, mailed at least fifteen (15) days prior to (i) the
date as of which the holders of record of shares of securities to be entitled to
receive any such dividend, distribution, rights, debentures, warrants or other
securities are to be determined or (ii) the date on which any such
reclassification, change of outstanding shares of Common Stock, consolidation,
merger, sale, lease, conveyance of property, liquidation, dissolution or
winding-up is expected to become effective, and the date as of which it is
expected that holders of record of shares of Common Stock shall be entitled to
exchange their shares for securities or other property, if any, deliverable upon
such reclassification, change of outstanding shares, consolidation, merger,
sale, lease, conveyance of property, liquidation, dissolution or winding-up.
14. Unenforceable Provisions. If any provision of this Notice is invalid,
illegal or unenforceable, the balance of this Notice shall remain in effect, and
if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
15. Restriction on Redemption and Dividends. Until all of the Notes as issued by
the Company and outstanding as of the original issue date of this Note (or
becoming outstanding after such date, such as the Notes paid with respect to the
interest in-kind) have been paid in full, exchanged or otherwise satisfied in
accordance with their terms, the Company shall not, directly or indirectly, (A)
repurchase, redeem, or declare or pay any cash dividend or distribution on, the
Common Stock or (B) distribute any material property or assets of any kind to
holders of the Common Stock in respect of the Common Stock.
16. Rank. Obligations under this Note, including payments of principal and
interest and other payments due under this Note, shall rank subordinate to the
Company's obligations under the Guaranty by Corporation dated on or about March
10, 2010 granted by the Company in favor of Canadian Imperial Bank of Commerce
("CIBC") and shall be subject to the terms of the Subordination Agreement.
17. Payment of Collection, Enforcement and Other Costs. If (a) this Note is
placed in the hands of an attorney for collection or enforcement or is collected
or enforced through any legal proceeding or the Holder otherwise takes action to
collect amounts due under this Note or to enforce the provisions of this Note or
(b) there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors' rights and involving a claim
under this Note, then the Company shall pay the reasonable costs incurred by the
Holder for such collection, enforcement or action or in connection with such
bankruptcy, reorganization, receivership or other proceeding, including, but not
limited to, reasonable attorneys' fees and disbursements.
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18. Construction; Headings. This Note shall be deemed to be jointly drafted by
the Company and the Holder and shall not be construed against any person as the
drafter hereof. The headings of this Note are for convenience of reference and
shall not form part of, or affect the interpretation of, this Note.
19. Remedies, Characterizations, Other Obligations, Breaches and Injunctive
Relief. The remedies provided in this Note shall be cumulative and in addition
to all other remedies available under this Note and any of the other Transaction
Documents (as defined in the Note Subscription Agreement), at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Note. Amounts set forth
or provided for herein with respect to payments shall be the amounts to be
received by the Holder and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance thereof). The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
20. Waiver of Notice. To the extent permitted by law, the Company hereby waives
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note and the
Note Subscription Agreement.
* * * * *
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
by an officer thereof duly authorized.
Environmental Solutions Worldwide, Inc.
By:
Title:
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