All Energy Corp - FORM 10-Q - EX-10.4 - EXHIBIT 10.4 - September 16, 2011
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).
THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (C) IN
COMPLIANCE WITH RULE 144 OR 144A THEREUNDER, IF AVAILABLE, AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, (D) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT, OR (E) IN A TRANSACTION THAT DOES NOT
REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO
THE COMPANY AN OPINION OF COUNSEL OR OTHER EVIDENCE OF EXEMPTION, IN
EITHER CASE REASONABLY SATISFACTORY TO THE COMPANY. HEDGING
TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS
IN COMPLIANCE WITH THE U.S. SECURITIES ACT.
8% CONVERTIBLE PROMISSORY NOTE
ALL FUELS & ENERGY COMPANY
DUE September 1, 2013
Original Issue Date August 16, 2011 US$77,200
This Convertible Promissory Note is one of a series of duly authorized and issued convertible
promissory notes of All Fuels & Energy Company, a Delaware corporation (the “Company”),
designated its 8% Convertible Promissory Notes due September 1, 2013 (the “Note”), issued to Lee
Bear I, LLC (together with its permitted successors and assigns, the “Holder”) in accordance with
exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”),
pursuant to a Securities Purchase Agreement, dated August 15, 2011 (the “Securities Purchase
Agreement”) between the Company and the Holder. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Securities Purchase Agreement.
Article I.
Section 1.01 Principal and Interest. For value received, the Company hereby promises to pay to the
order of the Holder, in lawful money of the United States of America and in immediately available
funds the principal sum of $77,200 on the earliest of (i) September 1, 2013 (the “Maturity Date”),
or (ii) an Event of Default (as defined in Section 3.01).
(a) This Note shall accrue interest at 8% per annum on the unpaid principal balance of
the Note.
(b) On the Maturity Date, the entire unpaid principal amount and accrued interest shall
be paid to the Holder, unless this Note is converted in accordance with Section 1.02 herein.
(c) Except as otherwise set forth in this Note, the Company may prepay any portion of
the principal amount of this Note without the prior written consent of the Holder.
Section 1.02 Optional Conversion. Upon the effectiveness of the Reverse Split, the Holder shall
be entitled, at its option, to convert all or any part of the principal amount of the Note into the
Company’s common stock at $00.00069 (the “Conversion Price,” as set forth below) . The number
of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient
obtained by dividing (x) the outstanding principal amount of this Note plus any accrued but unpaid
interest to be converted as set forth in the applicable Conversion Notice by (y) the Conversion Price.
To convert this Note, the Holder hereof shall deliver written notice thereof, substantially in the form
of Exhibit A to this Note, with appropriate insertions (the “Conversion Notice”), to the Company
at its address as set forth herein. The date upon which the conversion shall be effective (the
“Conversion Date”) shall be deemed to be the date set forth in the Conversion Notice. Any
conversion of any portion of the Note shall be deemed to be a pre-payment of principal, without any
penalty, and shall be credited against any future payments of principal in the order that such
payments become due and payable.
Section 1.03 Absolute Obligation/Ranking. 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 liquidated damages (if any) on, this Note at the time, place, and rate, and
in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company.
This Note ranks pari passu with all other Notes now or hereinafter issued pursuant to the Securities
Purchase Agreement.
Section 1.04 Paying Agent and Registrar. Initially, the Company will act as paying agent and
registrar. The Company may change any paying agent, registrar, or Company-registrar by giving the
Holder not less than ten (10) business days’ written notice of its election to do so, specifying the
name, address, telephone number and facsimile number of the paying agent or registrar. The
Company may act in any such capacity.
Section 1.05 Different Denominations. This Note is exchangeable for an equal aggregate principal
amount of Notes of different authorized denominations, as requested by the Holder surrendering the
same. No service charge will be made for such registration of transfer or exchange.
Section 1.06 Investment Representations. This Note has been issued subject to certain investment
representations of the original Holder set forth in the Securities Purchase Agreement and may be
transferred or exchanged only in compliance with the Securities Purchase Agreement and applicable
federal and state securities laws and regulations.
Section 1.07 Reliance on Note Register. Prior to due presentment to the Company for transfer or
conversion 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 Note Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not this Note is overdue,
and neither the Company nor any such agent shall be affected by notice to the contrary.
Section 1.08 In addition to the rights and remedies given it by this Note, the Holder shall have all
those rights and remedies allowed by applicable laws. The rights and remedies of the Holder are
cumulative and recourse to one or more right or remedy shall not constitute a waiver of the others.
Article II.
Section 2.01 Amendments and Waiver of Default. The Note may not be amended without the
consent of the Holder. Notwithstanding the above, without the consent of the Holder, the Note may
be amended to cure any ambiguity, defect or inconsistency or to make any change that does not
adversely affect the rights of the Holder.
Article III.
Section 3.01 Events of Default. Each of the following events shall constitute a default under this
Note (each an “Event of Default”):
(a) failure by the Company to pay principal amount due hereunder within five (5) days
of the date such payment is due;
(b) failure by the Company’s transfer agent to issue Common Stock to the Holder within
five (5) days of the Company’s receipt of the attached Conversion Notice from Holder in accordance
with the Securities Purchase Agreement;
(c) failure by the Company for five (5) days after notice to it to comply with any of its
other agreements in the Note;
(d) the Company shall: (1) make a general assignment for the benefit of its creditors; (2)
apply for or consent to the appointment of a receiver, trustee, assignee, custodian, sequestrator,
liquidator or similar official for itself or any of its assets and properties; (3) commence a voluntary
case for relief as a debtor under the United States Bankruptcy Code; (4) file with or otherwise submit
to any governmental authority any petition, answer or other document seeking: (A) reorganization,
(B) an arrangement with creditors or (C) to take advantage of any other present or future applicable
law respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief of debtors,
dissolution or liquidation; (5) file or otherwise submit any answer or other document admitting or
failing to contest the material allegations of a petition or other document filed or otherwise submitted
against it in any proceeding under any such applicable law, or (6) be adjudicated a bankrupt or
insolvent by a court of competent jurisdiction;
(e) an order, judgment or decree shall be entered by any court of competent jurisdiction
approving (in whole or in part) anything specified in Section 3.01(d) hereof, or any receiver, trustee,
assignee, custodian, sequestrator, liquidator or other official shall be appointed with respect to the
Company, or shall be appointed to take or shall otherwise acquire possession or control of all or a
substantial part of the assets and properties of the Company, and any of the foregoing shall continue
unstayed and in effect for any period of sixty (60) days;
(f) default shall occur with respect to any indebtedness for borrowed money of the
Company or under any agreement under which such indebtedness may be issued by the Company
and such default shall continue for more than the period of grace, if any, therein specified, if the
aggregate amount of such indebtedness for which such default shall have occurred exceeds
$100,000;
(g) default shall occur with respect to any contractual obligation of the Company under
or pursuant to any contract, lease, or other agreement to which the Company is a party and such
default shall continue for more than the period of grace, if any, therein specified, if the aggregate
amount of the Company’s contractual liability arising out of such default exceeds or is reasonably
estimated to exceed $100,000;
(h) final judgment for the payment of money in excess of $100,000 shall be rendered
against the Company and the same shall remain undischarged for a period of 20 days during which
execution shall not be effectively stayed; or
(i) any material breach by the Company of any of its representations or warranties under
the Securities Purchase Agreement;
Section 3.02 If any Event of Default occurs, the full principal amount of this Note, together with
any other amounts owing in respect thereof, to the date of acceleration shall become, at the Holder’s
election, immediately due and payable in cash. Commencing five (5) days after the occurrence of
any Event of Default that results in the eventual acceleration of this Note, interest on this Note shall
begin to accrue at the rate of 15% per annum, or such lower maximum amount of interest permitted
to be charged under applicable law. All Notes for which the full amount hereunder shall have been
paid in accordance herewith shall promptly be surrendered to or as directed by the Company. The
Holder need not provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by the Holder at any time prior to
payment hereunder and the Holder shall have all rights as a Note holder until such time, if any, as
the full payment under this Section shall have been received by it. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent thereon.
Article IV.
Section 4.01 Re-issuance of Note. If the Holder elects to convert only a part of the Note, then the
Company shall reissue a new Note in the same form as this Note to reflect the new principal amount
and the Holder shall return the Note to the Company for cancellation.
Article V.
Section 5.01 Adjustments and Limits on Conversion
(a) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. If the Company at any time after the date of issuance of this Note subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Company at any time after the date of
issuance of this Note 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 Conversion
Price in effect immediately prior to such combination will be proportionately increased. Any
adjustment under this Section 6.01(a) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(b) Distribution of Assets. If the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of
return of capital or otherwise (including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this
Note, then, in each such case the Conversion Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of Common Stock entitled to
receive the Distribution shall be reduced, effective as of the close of business on such record date,
to a price determined by multiplying such Conversion Price by a fraction of which (A) the numerator
shall be the closing bid price of the Common Stock on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by the Company’s Board
of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the closing
bid price of the Common Stock on the trading day immediately preceding such record date.
(c) Conversion Limitation. Notwithstanding anything contained herein to the contrary,
the Holder shall not be entitled to convert pursuant to the terms of the Note an amount that would
be convertible into that number of shares of Common Stock which, when added to the number of
shares of Common Stock otherwise beneficially owned by such Holder would exceed 9.99% of the
outstanding shares of Common Stock of the Borrower at the time of conversion. For the purposes
of the immediately preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder.
Article VII.
Section 7.01 Notice. Notices regarding this Note shall be sent to the parties at the following
addresses, unless a party notifies the other parties, in writing, of a change of address:
If to the Company, to: All Fuels & Energy Company
If to the Holder: At the address set forth in the Securities Purchase Agreement
Section 7.02 Governing Law. All questions concerning the construction, validity, enforcement and
interpretation of this Note shall be governed by and construed and enforced in accordance with the
internal laws of the State of Texas, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of Houston, County of Harris (the
“Harris County Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction
of the Harris County Courts for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or such Harris County Courts are improper or inconvenient venue for
such proceeding. Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof via registered
or certified mail or overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Note and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Note or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any provisions of this
Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party
for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
Section 7.03 Severability. The invalidity of any of the provisions of this Note shall not invalidate
or otherwise affect any of the other provisions of this Note, which shall remain in full force and
effect.
Section 7.04 Entire Agreement and Amendments. This Note, together with the Securities Purchase
Agreement, represents the entire agreement between the parties hereto with respect to the subject
matter hereof and there are no representations, warranties or commitments, except as set forth herein.
This Note may be amended only by an instrument in writing executed by the parties hereto.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as executed this
Note as of the date first written above
All Fuels & Energy Company.
By: /s/ DEAN E. SUKOWATEY
Name: Dean E. Sukowatey
Title: Pres/CEO
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
TO:
The undersigned hereby irrevocably elects to convert $ of the
principal amount of the above Note into Shares of Common Stock of All Fuels & Energy Company.,
according to the conditions stated therein, as of the Conversion Date written below.
Conversion Date:
Applicable Conversion Price:
Signature:
Name:
Address:
Amount to be converted: $
Amount of Note unconverted: $
Conversion Price: $
Number of shares of Common Stock to be issued including as payment of interest, if applicable:
Please issue the shares of Common Stock in the following name and to the following address:
Issue to the following account of the Holder:
Authorized Signature:
Name:
Title:
Phone Number:
Broker DTC Participant Code:
Account Number:
