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NEITHER THESE SECURITIES NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
8% SENIOR SECURED CONVERTIBLE PROMISSORY
NOTE
OF
CLEAN POWER TECHNOLOGIES, INC.
Note No.: 07-09-2008 - 1
Original Principal Amount:
$2,000,000.00
Issuance Date: July 9, 2008
THIS NOTE is one of a duly authorized
issue of Notes issued by CLEAN POWER TECHNOLOGIES, INC., a
corporation duly organized and existing under the laws of the
State of Nevada ( the “
Company ”), designated as the Company’s 8%
Senior Secured Convertible Promissory Note in an aggregate
principal amount of no less than a minimum of Two Million U.S.
Dollars ($2,000,000) and up to a maximum of Five Million U.S.
Dollars (U.S. $5,000,000.00) (the “ Notes
”).
FOR VALUE RECEIVED , the Company
hereby promises to pay to the order of The Quercus Trust, or its
registered assigns or successors-in-interest ( “
Holder ” ) the principal sum of TWO MILLION
U.S. Dollars (U.S. $2,000,000.00) together with all accrued but
unpaid interest thereon, if any, on the Maturity Date, to the
extent such principal amount and interest has not been converted
into the Company’s Common Stock, $0.001 par value per
share (the “ Common Stock ” ),
in accordance with the terms hereof. Interest on the
unpaid principal balance hereof shall accrue at the rate of 8%
per annum from the original date of issuance, July 9, 2008
(“Issuance Date”) and shall be payable at the option
of the Company to the Holder annually either in cash or in
Common Stock. Interest on this Note shall accrue daily
commencing on the Issuance Date and shall be computed on the
basis of a 360-day year, 30-day months and actual days elapsed
and shall be payable in accordance with Section 1
hereof.
The Note shall mature (the “Maturity
Date”) upon the earlier of (i) twenty-four (24)
months from the Issuance Date and (ii) the completion by
the Company of one or a series of related debt or equity
financing transactions, exclusive of any financing transactions
by a factor or commercial bank, which raises gross proceeds of
$4.5 million (the “Funding”). In the event the
Company consummates the Funding, the Holder may not convert the
principal and interest due under this Note but shall instead be
prepaid one hundred and twenty percent (120%) of the amount then
owed.
Except as otherwise provided herein, any
payments of principal and interest on this Note shall be made in
lawful money of the United States of America by wire transfer of
immediately available funds to such account as the Holder may
from time to time designate by written notice in accordance with
the provisions of this Note. This Note may not be prepaid
in whole or in part except as otherwise provided herein or in
the Transaction Documents. Whenever any amount expressed
to be due by the terms of this Note is due on any day which is
not a Business Day (as defined below), the same shall instead be
due on the next succeeding day which is a Business Day.
Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Securities
Purchase Agreement dated on or about the Issuance Date pursuant
to which the Note was originally issued (the “
Purchase Agreement ” ). For purposes
hereof the following terms shall have the meanings ascribed to
them below:
“ Approved Market” means the
New York Stock Exchange, or the American Stock Exchange.
“ Bankruptcy Event ” means
any of the following events: (a) the Company or any
subsidiary commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction relating to the Company or any
subsidiary thereof; (b) there is commenced against the
Company or any subsidiary any such case or proceeding that is
not dismissed within 30 days after commencement; (c) the
Company or any subsidiary is adjudicated insolvent or bankrupt
or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any subsidiary
suffers any appointment of any custodian or the like for it or
any substantial part of its property that is not discharged or
stayed within 30 days; (e) the Company or any subsidiary
makes a general assignment for the benefit of creditors;
(f) the Company or any subsidiary, by any act or failure to
act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the
foregoing.
“ Business Day ” shall mean
any day other than a Saturday, Sunday or a day on which
commercial banks in the City of New York are authorized or
required by law or executive order to remain closed.
“ Conversion Price ”
shall be $0.35 (U.S.) per share.
“ Convertible Securities ”
means any convertible securities, warrants, options or other
rights to subscribe for or to purchase or exchange for, shares
of Common Stock.
“ Debt ” shall mean
indebtedness of any kind.
“ Effective Date ” means the
date on which a Registration Statement covering all the
Underlying Shares and other Registrable Securities (as defined
in the Registration Rights Agreement) is declared effective by
the SEC.
“ Effective Registration ”
shall have the meaning set forth in the Purchase Agreement.
“ Exchange Act ” shall mean
the Securities Exchange Act of 1934, as amended.
“ Principal Amount ” shall
refer to the sum of (i) the original principal amount of
this Note, (ii) all accrued but unpaid interest (including
Default Interest, if any) hereunder, and (iii) any default
payments owing under the Transaction Documents but not
previously paid or added to the Principal Amount.
“ Principal Market ” shall
mean the OTC Bulletin Board or such other principal market or
exchange on which the Common Stock is then listed for
trading.
“ Registration Statement ”
shall have the meaning set forth in the Registration Rights
Agreement.
“ Securities Act ” shall mean
the Securities Act of 1933, as amended.
“ Trading Day ” shall mean a
day on which there is trading on the OTC Bulletin Board or such
other market or exchange on which the Common Stock is then
principally traded.
“ Underlying Shares ” means
the shares of Common Stock into which the Note is convertible
(including repayment in Common Stock as set forth herein) in
accordance with the terms hereof and the Purchase Agreement.
The following terms and conditions shall apply
to this Note:
Section 1.
Payments of
Principal and Interest.
(a)
Interest Payments. Interest on the
unpaid principal balance hereof shall accrue at the rate of 8%
per annum from the Issuance Date and shall be payable at the
option of the Company to the Holder annually either in cash or
in Common Stock (the “Interest Payment Date”).
Interest on this Note shall accrue daily commencing on the
Issuance Date and shall be computed on the basis of a 360-day
year, 30-day months and actual days elapsed and shall be
payable. In the event the Company makes an Interest
Payment in Common Stock, the Common Stock shall be valued at the
volume weighted average price per share of common stock as
quoted on Bloomberg, LP for the ten (10) days prior to the
Interest Payment Date.
(b)
Payment of Principal. Subject to
the provisions hereof, including without limitation, the
Optional Redemption described below, the Principal Amount of
this Note shall be due and payable on the Maturity Date.
Payment of the Principal Amount shall be effected in cash
or shares as provided herein.
(c)
Optional Redemption . The Company
may, at its option, choose to redeem the Note at any time prior
to the one (1) year anniversary of the Issuance Date. Any
such redemption by the Company pursuant to this Section 1(b)
shall be at one hundred and twenty percent (120%) of the
principal amount of the Note.
(d)
Change of Control Redemption . In
the event that a third party acquires greater then fifty percent
(50%) of the Company’s voting rights in one or a series of
transactions, the Holder may elect to have the Note redeemed by
the Company at one hundred and ten percent (110%) of the amount
owed under the Note. The Company may, at its option,
satisfy any redemption request pursuant to this Section 1(c) in
cash or Common Stock.
(e)
Taxes . Company may withhold and
pay over to the relevant authorities any backup withholding from
any interest payment to be made to the Holder to the extent that
such withholding is required by the Internal Revenue Code or any
other applicable federal law, rule, or regulation.
Notwithstanding any provision to the contrary
contained in this Section 1, the Company’s right to pay
the Principal Amount and any interest thereon in shares of its
Common Stock is conditioned on the following: (i) the
Company’s Common Stock will continue to be at all times
registered under Sections 12(b) or (g) of the 1934 Act,
(ii) the Company will comply in all material respects with its
reporting and filing obligations under the 1934 Act, and
will not take any action or file any document (whether or not
permitted by the 1934 Act or the rules thereunder) to
terminate or suspend such reporting and filing obligations;
(iii) until one year following such time as the Notes and
Warrants are no longer outstanding, the Company shall maintain
the listing or trading of the Common Stock on the Principal
Market or one of the other Approved Markets and shall comply in
all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Approved
Market on which the Common Stock is listed; (iv) the
existence of an effective registration statement covering all of
the Underlying Shares; (v) the Holder is not then in possession
of any material, non-public information, (vi) the Company shall
not have breached any provision, covenant, representation or
warranty of any Transaction Document, and (v) there have not
been any Events of Default.
Section 2.
Seniority . The
obligations of the Company hereunder shall rank senior to all
other Debt of the Company, whether now or hereinafter existing.
Section 3.
Conversion .
(a)
Conversion by Holder . Subject to
the terms hereof and restrictions and limitations contained
herein, the Holder shall have the right, at Holder’s
option, at any time and from time to time to convert, in part or
in whole, the outstanding Principal Amount under this Note into
shares of Common Stock by delivering to the Company a fully
executed notice of conversion in the form of conversion notice
attached hereto as Exhibit A (the “
Conversion Notice ” ), which may be
transmitted by facsimile (with the original mailed on the same
date by certified or registered mail, postage prepaid and return
receipt requested) on the date of conversion (the “
Conversion Date ”). This Note may be
converted, at the option of the Holder, in whole or in part, at
the earlier of twelve (12) months after the Issuance Date, or
upon an Effective Registration, into Common Stock at a
conversion price equal to $0.35 per share; provided, however,
that the Holder shall not convert all or any portion of this
Note in the event that the Company notifies the Holder of the
consummation of the Funding. Partial conversions prior to
any such notification are permitted. In the event that the
Company closes any debt or equity financing (an “ Other
Financing ”) during the time that the Note remains
outstanding, Holder shall have the right, in its sole
discretion, to tender all of the outstanding principal balance
plus accrued and unpaid interest on this Note (in lieu of cash)
together with the Warrants in connection herewith as
consideration to purchase the securities issued by the Company
in such Other Financing.
(b)
Conversion Date Procedures . Upon
conversion of this Note pursuant to this Section 3, the
outstanding Principal Amount hereunder shall be converted into
such number of fully paid, validly issued and non-assessable
shares of Common Stock, free of any liens, claims and
encumbrances, as is determined by dividing the amount being
converted by the then applicable Conversion Price .
(c)
Stock Certificates or DWAC . The
Company will deliver to the Holder not later than three (3)
Trading Days after the Conversion Date, a certificate or
certificates which shall be free of restrictive legends and
trading restrictions (assuming that the Registration Statement
has been declared effective), representing the number of shares
of Common Stock being
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