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Form Of Allonge To Promissory Note

Promissory Note

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 This Promissory Note involves

SULPHCO INC | SulphCo, Inc

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Governing Law: New York     Date: 10/1/2007
Industry: Misc. Capital Goods     Sector: Capital Goods

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This Allonge to Promissory Note (“Allonge”) is dated as of this 27th day of April, 2007. Reference is hereby made to that certain Promissory Note dated December 31, 2004, delivered by SulphCo, Inc., as Maker (“Maker”) to Rudolf Gunnerman, as lender, as assigned in part to ______________ (“Holder”), pursuant to that certain Assignment of Promissory Note, dated April 24, 2007 (“Assignment”), and as amended and restated by that certain Promissory Note, dated April 24, 2007, delivered by Maker to Holder (“Note”).
WHEREAS, Maker has requested that Holder extend the Maturity Date of the Note for one year, and Holder has agreed to such extension subject to the other terms set forth herein.
Except as expressly amended by the terms of this Allonge, the terms of the Note remain in full force and effect. All capitalized terms used and not defined herein are used as defined in the Note. As the context requires, all references herein to “Note” refer to the Note as amended by this Allonge.
The following terms of the Note are hereby amended by this Allonge:
I.       Maturity Date and Additional Interest Payment Date . The Maturity Date shall mean December 31, 2008, and in the fourth paragraph of the Note, in the second line, the words “and December 31, 2006” shall be deleted and replaced with “December 31, 2006 and December 31, 2007” so as to add an interest payment due on December 31, 2007
II.     The following is hereby added in its entirety:

Conversion .
1.       Conversion Privileges . Subject to Section II. B.3. below, the Conversion Privileges set forth in paragraph 2 below shall remain in full force and effect immediately from the date hereof and until the Note is paid in full regardless of the occurrence of an Event of Default. The Note shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with paragraph 2. below; provided, that if an Event of Default has occurred, the Holder may extend the Maturity Date up to an amount of time equal to the pendency of the Event of Default. Such extension must be on notice in writing.
2.       Conversion Rights . The Holder shall have the right to convert the principal due under this Note into shares (“Shares”) of the Maker's Common Stock, $.001 par value per share (“Common Stock”) as set forth below.
2.1.     Conversion into the Maker's Common Stock .
(a)       Subject to Section II. 3. below, the Holder shall have the right from and after the date of the issuance of this Note and then at any time until this Note is fully paid, to convert any outstanding and unpaid principal portion of this Note, at the election of the Holder (the date of giving of such notice of conversion being a "Conversion Date") into fully paid and nonassessable shares of Common Stock as such stock exists on the date of issuance of this Note, or any shares of capital stock of Maker into which such Common Stock shall hereafter be changed or reclassified, at the conversion price as defined in paragraph 2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon delivery to the Maker of a completed Notice of Conversion, a form of which is annexed hereto, Maker shall issue and deliver to the Holder within three (3) business days after the Conversion Date (such third day being the “Delivery Date”) that number of shares of Common Stock for the portion of the Note converted in accordance with the foregoing. At the election of the Holder, the Maker will deliver accrued but unpaid interest on the Note, if any, through the Conversion Date directly to the Holder on or before the Delivery Date. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note to be converted by the Conversion Price.

(b)       Subject to adjustment as provided in paragraph 2.1(c) hereof, the Conversion Price per share shall be $3.80, subject to adjustment as described herein.
(c)       The Conversion Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(a), shall be subject to adjustment from time to time upon the happening of certain events while this conversion right remains outstanding, as follows:
 A.       Merger, Sale of Assets, etc. If the Maker at any time shall consolidate with or merge into or sell or convey all or substantially all its assets to any other corporation, this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase such number and kind of shares or other securities and property as would have been issuable or distributable on account of such consolidation, merger, sale or conveyance, upon or with respect to the securities subject to the conversion or purchase right immediately prior to such consolidation, merger, sale or conveyance. The foregoing provision shall similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of the foregoing, the anti-dilution provisions of this Section shall apply to such securities of such successor or purchaser after any such consolidation, merger, sale or conveyance.
 B.       Reclassification, etc. If the Maker at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes that may be issued or outstanding, this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change.
  C.       Stock Splits, Combinations and Dividends. 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 in shares of Common Stock, the Conversion Price 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 of Common Stock outstanding immediately prior to such event.
(d)       Whenever the Conversion Price is adjusted pursuant to paragraph 2.1(c) above, the Maker shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a statement of the facts requiring such adjustment.
(e)       During the period the conversion right exists, Maker will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock issuable upon the full conversion of this Note and as described herein below. Maker represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. Maker agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note.
2.2.     Method of Conversion . This Note may be converted by the Holder in whole or in part as described in Section 2.1(a) hereof. Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Maker to the Holder for the principal balance of this Note and interest which shall not have been paid, and in any case, the unconverted amount of principal and all unpaid interest shall be duly noted in the books and records of Maker.

2.3.     Maximum Conversion . The Holder shall not be entitled to convert on a Conversion Date that amount of the Note in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on a Conversion Date, (ii) any Common Stock issuable in connection with the unconverted portion of the Note, and (iii) the number of shares of Common Stock issuable upon the conversion of the Note with respect to which the determination of this provision is being made on a Conversion Date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Maker on such Conversion Date. For the purposes of the provision to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to aggregate conversions of only 4.99% and aggregate conversion by the Holder may exceed 4.99%. The Holder shall have the authority and obligation to determine whether the restriction contained in this Section 2.3 will limit any conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the Notes are convertible shall be the responsibility and obligation of the Holder. The Holder may waive the conversion limitation described in this Section 2.3, in whole or in part, upon and effective after 61 days prior written notice to the Maker to increase such percentage to up to 9.99%. The Holder may allocate which of the equity of the Maker deemed beneficially owned by the Holder shall be included in the 4.99% amount or up to 9.99% amount as described above.
3.       Reservation . Maker will reserve on behalf of all of Holder from its authorized but unissued Common Stock a number of common shares equal to 100% of the amount of Common Stock necessary to allow each holder of a Note to be able to convert all such outstanding principal balance of holder’s Note.

IV.     The following is hereby added in its entirety:
Registration .
4 .1.       Registration Rights . The Maker hereby grants the following registration rights to holders of the Notes and certain Stock Option Agreements being executed and delivered on or about April 26, 2006 and certain shares of stock purchased in connection therewith. The Maker shall file with the Commission a Form S-3 registration statement (the “ Registration Statement ”) (or such other form that it is eligible to use) in order to register (i) all shares issuable upon Conversion of this Note, (ii) shares issuable upon exercise by Holder of the Stock Option Agreement, executed and delivered in connection with the Assignment, (iii) 125,000 shares of Maker Common Stock purchased by certain Note holders on or about April 26, 2007 from Gunnerman (“Stock Purchase”), and (iv) 125,000 shares issuable upon exercise by Holder of the Stock Option Agreement, executed and delivered in connection with the Stock Purchase for resale and distribution under the 1933 Act by June 8, 2007 (the “ Filing Date ”), and shall use commercially reasonable efforts to cause such Registration Statement to be declared effective as soon as possible thereafter . The Maker will register not less than a number of shares of common stock in the aforedescribed registration statement that is equal to 100% of the Shares described in the second sentence of this paragraph 4.1 and as more fully set forth on Schedule 4.1 hereto (collectively the “ Registrable Securities ”). The Registrable Securities shall be reserved and set aside exclusively for the benefit of each holder listed on Schedule 4.1, pro   rata , and not issued, employed or reserved for anyone other than each such holder listed on Schedule 4.1. The Registration Statement will immediately be amended or additional registration statements will be immediately filed by the Maker as necessary to register additional shares of Common Stock to allow the public resale of all Common Stock included in and issuable by virtue of the Registrable Securities

4.2.       Registration Procedures . If and whenever the Maker is required by the provisions of Section 4.1 to effect the registration of any Registrable Securities under the 1933 Act, the Maker will, as expeditiously as possible:
(a)       subject to the timelines provided in this Agreement, prepare and file with the Commission a registration statement required by Section 4, with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as herein provided but not less than 2 years), promptly provide to the holders of the Registrable Securities copies of all filings and Commission letters of comment and notify Holders (by telecopier and by e-mail addresses provided by Holders) and Grushko & Mittman, P.C. (by telecopier and by email to ) on or before the first business day thereafter that the Maker receives notice that (i) the Commission has no comments or no further comments on the Registration Statement, and (ii) the registration statement has been declared effective;
(b)       prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until such registration statement has been effective for a period of two (2) years, and comply with the provisions of the 1933 Act with respect to the disposition of all of the Registrable Securities covered by such registration statement in accordance with the Sellers’ intended method of disposition set forth in such registration statement for such period;
(c)       furnish to the Sellers, at the Maker’s expense, such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or their disposition of the securities covered by such registration statement or make them electronically available;
(d)       use its commercially reasonable best efforts to register or qualify the Registrable Securities covered by such registration statement under the securities or “blue sky” laws of New York and such jurisdictions as the Sellers shall request in writing, provided, however, that the Maker shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction;
(e)       if applicable, list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock of the Maker is then listed;
(f)       notify the Holders within 24 hours of the Maker’s becoming aware that a prospectus relating thereto is required to be delivered under the 1933 Act, of the happening of any event of which the Maker has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing or which becomes subject to a Commission, state or other governmental order suspending the effectiveness of the registration statement covering any of the Registrable Securities;
(g)       provided same would not be in violation of the provision of Regulation FD under the 1934 Act, make available for inspection by the Sellers, and any attorney, accountant or other agent retained by the Seller or underwriter, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Maker, and cause the Maker's officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the seller, attorney, accountant or agent in connection with such registration statement; and
(h)       provide to the Sellers copies of the Registration Statement and amendments thereto five business days prior to the filing thereof with the Commission.

4.3.       Provision of Documents . In connection with each registration described in this Section 4, each Seller will furnish to the Maker in writing such information and representation letters with respect to itself and the proposed distribution by it as reasonably shall be necessary in order to assure compliance with federal and applicable state securities laws.
4.4.       Non-Registration Events . The Maker and the holders listed on Schedule 4.1 hereto agree that the Sellers will suffer damages if any registration statement described in Section 4 is not filed by the Filing Date (the “Non-Registration Event”). If the Non-Registration Event occurs, then the Maker shall deliver to the holder of Registrable Securities, as Liquidated Damages , an amount equal to one percent (1%) for each thirty (30) days (or such lesser pro-rata amount for any period of less than thirty (30) days) of the Principal Amount of the outstanding Notes and purchase price of Shares issued upon conversion of the Notes owned of record by such holder which are subject to the Non-Registration Event. The Maker may pay the Liquidated Damages in cash. The maximum amou

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