All Energy Corp - FORM 10-K - EX-10.7 - April 15, 2010
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NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH
COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
Principal Amount: $65,000.00 Issue Date: January 16, 2010
Purchase Price: $65,000.00
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, ALL FUELS & ENERGY COMPANY, a Delaware corporation
(hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES,
INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of Sixty Five Thousand
Dollars ($65,000.00) together with any interest as set forth herein, on October 16, 2010 (the
“Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight
percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same
becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.
This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein with
the written consent of the Holder which may be withheld for any reason or for no reason. Any
amount of principal or interest on this Note which is not paid when due shall bear interest at the rate
of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default
Interest”). Interest shall commence accruing on the Issue Date, shall be computed on the basis of
a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent
not converted into common stock, $0.01 par value per share (the “Common Stock”) in accordance
with the terms hereof) shall be made in lawful money of the United States of America. All payments
shall be made at such address as the Holder shall hereafter give to the Borrower by written notice
made in accordance with the provisions of this Note. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a business day, the same shall instead be due
on the next succeeding day which is a business day and, in the case of any interest payment date
which is not the date on which this Note is paid in full, the extension of the due date thereof shall
not be taken into account for purposes of determining the amount of interest due on such date. As
used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day
on which commercial banks in the city of New York, New York are authorized or required by law
or executive order to remain closed. Each capitalized term used herein, and not otherwise defined,
shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date
hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and
shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and
will not impose personal liability upon the holder thereof.
The following terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right from time to time, and at any time on or prior
to the later of: (i) the Maturity Date; and (ii) the date of payment of the Default Amount (as defined
in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding
principal amount of this Note to convert all or any part of the outstanding and unpaid principal
amount of this Note into fully paid and non- assessable shares of Common Stock, as such Common
Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into
which such Common Stock shall hereafter be changed or reclassified at the conversion price (the
“Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no
event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this
Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially
owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised
or unconverted portion of any other security of the Borrower subject to a limitation on conversion
or exercise analogous to the limitations contained herein) and (2) the number of shares of Common
Stock issuable upon the conversion of the portion of this Note with respect to which the
determination of this proviso is being made, would result in beneficial ownership by the Holder and
its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the
proviso 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 (the “Exchange
Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such
proviso. The number of shares of Common Stock to be issued upon each conversion of this Note
shall be determined by dividing the Conversion Amount (as defined below) by the applicable
Conversion Price then in effect on the date specified in the notice of conversion, in the form attached
hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in
accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile
(or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before
6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term
“Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the
principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option,
accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this
Note to the Conversion Date, provided, however, that the Company shall have the right to pay any
or all interest in cash plus (3) at the Borrower’s option, Default Interest, if any, on the amounts
referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
1.2 Conversion Price.
(a) Calculation of Conversion Price. The Conversion Price shall be the Variable Conversion Price
(as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends
or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary
distributions and similar events). The “Variable Conversion Price” shall mean the Applicable
Percentage (as defined herein) multiplied by the Market Price (as defined herein). “Market Price”
means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock
during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion
Notice is sent by the Holder to the Borrower via facsimile (the “Conversion Date”). “Trading Price”
means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board,
or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting
Service”) mutually acceptable to Borrower and Holder and hereafter designated by Holders of a
majority in interest of the Notes and the Borrower or, if the OTCBB is not the principal trading
market for such security, the closing bid price of such security on the principal securities exchange
or trading market where such security is listed or traded or, if no closing bid price of such security
is available in any of the foregoing manners, the average of the closing bid prices of any market
makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.
If the Trading Price cannot be calculated for such security on such date in the manner provided
above, the Trading Price shall be the fair market value as mutually determined by the Borrower and
the holders of a majority in interest of the Notes being converted for which the calculation of the
Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day”
shall mean any day on which the Common Stock is traded for any period on the OTCBB, or on the
principal securities exchange or other securities market on which the Common Stock is then being
traded. “Applicable Percentage” shall mean 58%.
(b) Conversion Price During Major Announcements. Notwithstanding anything contained in Section
1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which the Borrower is the
surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or
substantially all of the assets of the Borrower or (ii) any person, group or entity (including the
Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common
Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii)
is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective
upon the Announcement Date and continuing through the Adjusted Conversion Price Termination
Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been
applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that
would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof,
“Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction
or tender offer (or takeover scheme) for which a public announcement as contemplated by this
Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or
the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the
termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which
caused this Section 1.2(b) to become operative.
1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists,
the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of
shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full
conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all
times to have authorized and reserved two times the number of shares that is actually issuable upon
full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time;
initially 11,206,897 shares) (the “Reserved Amount”). The Reserved Amount shall be increased
from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the
Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities
or make any change to its capital structure which would change the number of shares of Common
Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower
shall at the same time make proper provision so that thereafter there shall be a sufficient number of
shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the
outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer
agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii)
agrees that its issuance of this Note shall constitute full authority to its officers and agents who are
charged with the duty of executing stock certificates to execute and issue the necessary certificates
for shares of Common Stock in accordance with the terms and conditions of this Note.
If, at any time a Holder of this Note submits a Notice of Conversion, and the Borrower does not have
sufficient authorized but unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article I (a “Conversion Default”), the Borrower shall issue
to the Holder all of the shares of Common Stock which are then available to effect such conversion.
The portion of this Note which the Holder included in its Conversion Notice and which exceeds the
amount which is then convertible into available shares of Common Stock (the “Excess Amount”)
shall, notwithstanding anything to the contrary contained herein, not be convertible into Common
Stock in accordance with the terms hereof until (and at the Holder’s option at any time after) the date
additional shares of Common Stock are authorized by the Borrower to permit such conversion, at
which time the Conversion Price in respect thereof shall be the lesser of (i) the Conversion Price on
the Conversion Default Date (as defined below) and (ii) the Conversion Price on the Conversion
Date thereafter elected by the Holder in respect thereof. In addition, the Borrower shall pay to the
Holder payments (“Conversion Default Payments”) for a Conversion Default in the amount of (x)
the sum of (1) the then outstanding principal amount of this Note plus (2) accrued and unpaid interest
on the unpaid principal amount of this Note through the Authorization Date (as defined below) plus
(3) Default Interest, if any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y) .24,
multiplied by (z) (N/365), where N = the number of days from the day the holder submits a Notice
of Conversion giving rise to a Conversion Default (the “Conversion Default Date”) to the date (the
“Authorization Date”) that the Borrower authorizes a sufficient number of shares of Common Stock
to effect conversion of the full outstanding principal balance of this Note. The Borrower shall use
its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable
following the earlier of (i) such time that the Holder notifies the Borrower or that the Borrower
otherwise becomes aware that there are or likely will be insufficient authorized and unissued shares
to allow full conversion thereof and (ii) a Conversion Default. The Borrower shall send notice to
the Holder of the authorization of additional shares of Common Stock, the Authorization Date and
the amount of Holder’s accrued Conversion Default Payments. The accrued Conversion Default
Payments for each calendar month shall be paid in cash or shall be convertible into Common Stock
(at such time as there are sufficient authorized shares of Common Stock) at the applicable
Conversion Price, at the Borrower’s option, as follows:
(a) In the event Holder elects to take such payment in cash, cash payment shall be made to Holder
by the fifth (5th) day of the month following the month in which it has accrued; and
(b) In the event Holder elects to take such payment in Common Stock, the Holder may convert such
payment amount into Common Stock at the Conversion Price (as in effect at the time of conversion)
at any time after the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article I (so long as there is then a sufficient number of authorized
shares of Common Stock).
The Holder’s election shall be made in writing to the Borrower at any time prior to 6:00 p.m., New
York, New York time, on the third day of the month following the month in which Conversion
Default payments have accrued. If no election is made, the Holder shall be deemed to have elected
to receive cash. Nothing herein shall limit the Holder’s right to pursue actual damages (to the extent
in excess of the Conversion Default Payments) for the Borrower’s failure to maintain a sufficient
number of authorized shares of Common Stock, and each holder shall have the right to pursue all
remedies available at law or in equity (including degree of specific performance and/or injunctive
relief).
1.4 Method of Conversion.
(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in
whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower
a Notice of Conversion (by facsimile or other reasonable means of communication dispatched on
the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section
1.4(b), surrendering this Note at the principal office of the Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein,
upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required
to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this
Note is so converted. The Holder and the Borrower shall maintain records showing the principal
amount so converted and the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon
each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall,
prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the
foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note
unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will
forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the
Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in
the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Note, the unpaid and unconverted principal amount of this
Note represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of shares of Common Stock or other
securities or property on conversion of this Note in a name other than that of the Holder (or in street
name), and the Borrower shall not be required to issue or deliver any such shares or other securities
or property unless and until the person or persons (other than the Holder or the custodian in whose
street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall
have paid to the Borrower the amount of any such tax or shall have established to the satisfaction
of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder
of a facsimile transmission (or other reasonable means of communication) of a Notice of Conversion
meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and
deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the
Common Stock issuable upon such conversion within three (3) business days after such receipt (and,
solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note)
(such second business day being hereinafter referred to as the “Deadline”) in accordance with the
terms hereof and the Purchase Agreement (including, without limitation, in accordance with the
requirements of [Section 2(g)] of the Purchase Agreement that certificates for shares of Common
Stock issued on or after the effective date of the Registration Statement upon conversion of this Note
shall not bear any restrictive legend).
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice
of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable
upon such conversion, the outstanding principal amount and the amount of accrued and unpaid
interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults
on its obligations under this Article I, all rights with respect to the portion of this Note being so
converted shall forthwith terminate except the right to receive the Common Stock or other securities,
cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice
of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for
Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the
Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery
of any judgment against any person or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Borrower to the holder of record, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder
of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise
limit such obligation of the Borrower to the Holder in connection with such conversion. The
Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the
Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on
such date.
(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided the Borrower’s transfer agent
is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer
(“FAST”) program, upon request of the Holder and its compliance with the provisions contained in
Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent
to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting
the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission
(“DWAC”) system.
(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s
right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that
if delivery of the Common Stock issuable upon conversion of this Note is more than three (3)
business days after the Deadline (other than a failure due to the circumstances described in Section
1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder
$2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such
Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following
the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower
by the first day of the month following the month in which it has accrued), shall be added to the
principal amount of this Note, in which event interest shall accrue thereon in accordance with the
terms of this Note and such additional principal amount shall be convertible into Common Stock in
accordance with the terms of this Note.
1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may
not be sold or transferred unless (i) such shares are sold pursuant to an effective registration
statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration or (iii) such shares are sold or
transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares
are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or
otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited
Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase
Agreement (and subject to the removal provisions set forth below), until such time as the shares of
Common Stock issuable upon conversion of this Note have been registered under the Act or
otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, each certificate for shares of Common
Stock issuable upon conversion of this Note that has not been so included in an effective registration
statement or that has not been sold pursuant to an effective registration statement or an exemption
that permits removal of the legend, shall bear a legend substantially in the following form, as
appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH
COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.”
The legend set forth above shall be removed and the Borrower shall issue to the Holder a new
certificate therefor free of any transfer legend if (i) the Borrower or its transfer agent shall have
received an opinion of counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such Common Stock may be
made without registration under the Act and the shares are so sold or transferred, (ii) such Holder
provides the Borrower or its transfer agent with reasonable assurances that the Common Stock
issuable upon conversion of this Note (to the extent such securities are deemed to have been acquired
on the same date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock issuable
upon conversion of this Note, such security is registered for sale by the Holder under an effective
registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then be immediately sold.
1.6 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or
disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower
of a transaction or series of related transactions in which more than 50% of the voting power of the
Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower
with or into any other Person (as defined below) or Persons when the Borrower is not the survivor
shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the
Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such
transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated
pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability
company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and
outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation,
exchange of shares, recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Borrower shall be changed into the same or a different number of
shares of another class or classes of stock or securities of the Borrower or another entity, or in case
of any sale or conveyance of all or substantially all of the assets of the Borrower other than in
connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall
thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities or assets which the Holder would have been entitled
to receive in such transaction had this Note been converted in full immediately prior to such
transaction (without regard to any limitations on conversion set forth herein), and in any such case
appropriate provisions shall be made with respect to the rights and interests of the Holder of this
Note to the end that the provisions hereof (including, without limitation, provisions for adjustment
of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall
thereafter be applicable, as nearly as may be practicable in relation to any securities or assets
thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction
described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior
written notice (but in any event at least fifteen (15) days prior written notice) of the record date of
the special meeting of shareholders to approve, or if there is no such record date, the consummation
of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar
event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b)
the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the
obligations of this Section 1.6(b). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s
shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a
spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of
this Note after the date of record for determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion had such Holder been the holder of such
shares of Common Stock on the record date for the determination of shareholders entitled to such
Distribution.
(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are issued and outstanding,
the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting discounts or allowances
in connection therewith) less than the Conversion Price in effect on the date of such issuance (or
deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon
the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per
share received by the Borrower in such Dilutive Issuance.
The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in
any manner issues or grants any warrants, rights or options (not including employee stock option
plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such
warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter
referred to as “Options”) and the price per share for which Common Stock is issuable upon the
exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price
shall be equal to such price per share. For purposes of the preceding sentence, the “price per share
for which Common Stock is issuable upon the exercise of such Options” is determined by dividing
(i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance
or granting of all such Options, plus the minimum aggregate amount of additional consideration, if
any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional
consideration payable upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made
upon the actual issuance of such Common Stock upon the exercise of such Options or upon the
conversion or exchange of Convertible Securities issuable upon exercise of such Options.
Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the
Borrower in any manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of Options), and the price per
share for which Common Stock is issuable upon such conversion or exchange is less than the
Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For
the purposes of the preceding sentence, the “price per share for which Common Stock is issuable
upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received
or receivable by the Borrower as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the
Borrower upon the conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment
to the Conversion Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(e) Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues
any convertible securities or rights to purchase stock, warrants, securities or other property (the
“Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of
this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if such Holder had held the number of
shares of Common Stock acquirable upon complete conversion of this Note (without regard to any
limitations on conversion contained herein) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the
Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense,
shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of
a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Borrower shall, upon the written request at any time
of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of
Common Stock and the amount, if any, of other securities or property which at the time would be
received upon conversion of the Note.
1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the
principal securities market on which the Common Stock is then listed or traded, in no event shall the
Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued
pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock
that the Borrower can issue pursuant to any rule of the principal United States securities market on
which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of
the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to
equitable adjustment from time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after the date hereof.
Once the Maximum Share Amount has been issued (the date of which is hereinafter referred to as
the “Maximum Conversion Date”), if the Borrower fails to eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the
Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount (a
“Trading Market Prepayment Event”), in lieu of any further right to convert this Note, and in full
satisfaction of the Borrower’s obligations under this Note, the Borrower shall pay to the Holder,
within fifteen (15) business days of the Maximum Conversion Date (the “Trading Market
Prepayment Date”), an amount equal to 150% times the sum of (a) the then outstanding principal
amount of this Note immediately following the Maximum Conversion Date, plus (b) accrued and
unpaid interest on the unpaid principal amount of this Note to the Trading Market Prepayment Date,
plus (c) Default Interest, if any, on the amounts referred to in clause (a) and/or (b) above, plus (d)
any optional amounts that may be added thereto at the Maximum Conversion Date by the Holder in
accordance with the terms hereof (the then outstanding principal amount of this Note immediately
following the Maximum Conversion Date, plus the amounts referred to in clauses (b), (c) and (d)
above shall collectively be referred to as the “Remaining Convertible Amount”). In the event that
the sum of (x) the aggregate number of shares of Common Stock issued upon conversion of this Note
and the other Notes issued pursuant to the Purchase Agreement plus (y) the aggregate number of
shares of Common Stock that remain issuable upon conversion of this Note and the other Notes
issued pursuant to the Purchase Agreement, represents at least one hundred percent (100%) of the
Maximum Share Amount (the “Triggering Event”), the Borrower will use its best efforts to seek and
obtain Shareholder Approval (or obtain such other relief as will allow conversions hereunder in
excess of the Maximum Share Amount) as soon as practicable following the Triggering Event and
before the Maximum Conversion Date. As used herein, “Shareholder Approval” means approval
by the shareholders of the Borrower to authorize the issuance of the full number of shares of
Common Stock which would be issuable upon full conversion of the then outstanding Notes but for
the Maximum Share Amount.
1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares
covered thereby (other than the shares, if any, which cannot be issued because their issuance would
exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall
be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such
converted portion of this Note shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such Holder because of a failure by the Borrower to comply with the
terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline
with respect to a conversion of any portion of this Note for any reason, then (unless the Holder
otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the
Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of
this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder
or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note
has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to
the extent required thereby for such Conversion Default and any subsequent Conversion Default and
(ii) the right to have the Conversion Price with respect to subsequent conversions determined in
accordance with Section 1.3) for the Borrower’s failure to convert this Note.
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this
Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for
such payment, any dividend or other distribution (whether in cash, property or other securities) on
shares of capital stock other than dividends on shares of Common Stock solely in the form of
additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any
other payment or distribution in respect of its capital stock except for distributions pursuant to any
shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
2.2 Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this
Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise
acquire (whether for cash or in exchange for property or other securities or otherwise) in any one
transaction or series of related transactions any shares of capital stock of the Borrower or any
warrants, rights or options to purchase or acquire any such shares.
2.3 Borrowings. So long as the Borrower shall have any obligation under this Note, the Borrower
shall not, without the Holder’s written consent, create, incur, assume or suffer to exist any liability
for borrowed money, except (a) borrowings in existence or committed on the date hereof and of
which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade
creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the
proceeds of which shall be used to repay this Note.
2.4 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower
shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant
portion of its assets outside the ordinary course of business. Any consent to the disposition of any
assets may be conditioned on a specified use of the proceeds of disposition.
2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the
Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances
to any person, firm, joint venture or corporation, including, without limitation, officers, directors,
employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in
existence or committed on the date hereof and which the Borrower has informed Holder in writing
prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $50,000.
2.6 Contingent Liabilities. So long as the Borrower shall have any obligation under this Note, the
Borrower shall not, without the Holder’s written consent, which shall not be unreasonably withheld,
assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the
obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement
of negotiable instruments for deposit or collection and except assumptions, guarantees, endorsements
and contingencies (a) in existence or committed on the date hereof and which the Borrower has
informed Holder in writing prior to the date hereof, and (b) similar transactions in the ordinary
course of business.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest
thereon when due on this Note, whether at maturity, upon a Trading Market Prepayment Event
pursuant to Section 1.7, upon acceleration or otherwise;
3.2 Conversion and the Shares. The Borrower fails to issue shares of Common Stock to the Holder
(or announces or threatens that it will not honor its obligation to do so) upon exercise by the Holder
of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or
cause its transfer agent to transfer (electronically or in certificated form) any certificate for shares
of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and
when required by this Note, or fails to remove any restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to
the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note
(or makes any announcement, statement or threat that it does not intend to honor the obligations
described in this paragraph) and any such failure shall continue uncured (or any announcement,
statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) days
after the Borrower shall have been notified thereof in writing by the Holder;
3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or
condition contained in this Note and any collateral documents including but not limited to the
Purchase Agreement and such breach continues for a period of ten (10) days after written notice
thereof to the Borrower from the Holder;
3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower
made herein or in any agreement, statement or certificate given in writing pursuant hereto or in
connection herewith (including, without limitation, the Purchase Agreement), shall be false or
misleading in any material respect when made and the breach of which has (or with the passage of
time will have) a material adverse effect on the rights of the Holder with respect to this Note or the
Purchase Agreement;
3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it
or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be
appointed;
3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the
Borrower or any subsidiary of the Borrower or any of its property or other assets for more than
$50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably withheld;
3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower;
3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common
Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National
Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
Exchange;
3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting
requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting
requirements of the Exchange Act; or
3.10 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial
portion of its business.
3.11 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits
it is otherwise generally unable to pay its debts as such debts become due, provided, however, that
any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission
that the Borrower cannot pay its debts as they become due.
3.12 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property
rights, personal, real property or other assets which are necessary to conduct its business (whether
now or in the future).
3.13 Financial Statement Restatement. The restatement of any financial statements filed by the
Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and
until this Note is no longer outstanding, if the result of such restatement would, by comparison to
the unrestated financial statement, have constituted a material adverse effect on the rights of the
Holder with respect to this Note or the Purchase Agreement.
3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without
twenty (20) days prior written notice to the Holder.
Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1
(solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity
Date), the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an
amount equal to the Default Sum (as defined herein). Upon the occurrence and during the
continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay
the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment
Event pursuant to Section 1.7 or upon acceleration), 3.2, 3.3, 3.4, 3.6, 3.8, or 3.8 exercisable through
the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the
occurrence of an Event of Default specified the remaining sections of Articles III (other than failure
to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof),
the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full
satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum
of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the
unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”)
plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding
principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y)
and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default
Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock
issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article
I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the
“Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the
Default Event arises as a result of a breach in respect of a specific Conversion Date in which case
such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for
the Common Stock during the period beginning on the date of first occurrence of the Event of
Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and
all other amounts payable hereunder shall immediately become due and payable, all without demand,
presentment or notice, all of which hereby are expressly waived, together with all costs, including,
without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise
all other rights and remedies available at law or in equity.
If the Borrower fails to pay the Default Amount within five (5) business days of written notice that
such amount is due and payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are sufficient authorized
shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default
Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount
divided by the Conversion Price then in effect.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder 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 privileges. All rights and remedies existing hereunder are cumulative to,
and not exclusive of, any rights or remedies otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required
or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i)
personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage
prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by
hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such
party shall have specified most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or
delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine,
at the address or number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to the Borrower, to:
ALL FUELS & ENERGY COMPANY
6165 N.W. 86th Street
Johnston, Iowa 50131
Attn: Dean E. Sukowatey, President and Chief Executive Officer
facsimile: [enter fax number]
With a copy by fax only to (which copy shall not constitute notice):
[enter name of law firm]
Attn: [attorney name]
[enter address line 1]
[enter city, state, zip]
facsimile: [enter fax number]
If to the Holder:
ASHER ENTERPRISES, INC.
1 Linden Pl., Suite 207
Great Neck, NY. 11021
Attn: Curt Kramer, President
facsimile: [enter fax number]
With a copy by fax only to (which copy shall not constitute notice):
Naidich Wurman Birnbaum & Mayday LLP
80 Cuttermill Road, Suite 410
Great Neck, NY 11021
Attn: Bernard S. Feldman, Esq.
facsimile: [enter fax number]
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in
writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used
throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the
Purchase Agreement) as originally executed, or if later amended or supplemented, then as so
amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note
must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding
anything in this Note to the contrary, this Note may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the
Holder hereof costs of collection, including reasonable attorneys’ fees.
4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of
the State of New York without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this Note shall be brought only
in the state courts of New York or in the federal courts located in the state and county of Nassau.
The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any
action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue
or based upon forum non conveniens. The Company and Holder waive trial by jury. The prevailing
party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Note or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of any other provision of
any agreement. Each party hereby irrevocably waives personal service of process and consents to
process being served in any suit, action or proceeding in connection with this Agreement or any other
Transaction Document 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
Agreement 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 other manner permitted by law.
4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount
in excess of the outstanding principal amount (or the portion thereof required to be paid at that time)
plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of cash payment on this Note may be
difficult to determine and the amount to be so paid by the Borrower represents stipulated damages
and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to
convert this Note and to earn a return from the sale of shares of Common Stock acquired upon
conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.
The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash payment without the
opportunity to convert this Note into shares of Common Stock.
4.8 Purchase Agreement. By its acceptance of this Note, each party agrees to be bound by the
applicable terms of the Purchase Agreement.
4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall
have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note
into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting
of the Borrower’s shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Borrower of a record of its shareholders for the
purpose of determining shareholders who are entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation, reclassification or recapitalization) any share of any class or any other securities or
property, or to receive any other right, or for the purpose of determining shareholders who are
entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all
of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower,
the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such record is to be taken for the purpose of such
dividend, distribution, right or other event, and a brief statement regarding the amount and character
of such dividend, distribution, right or other event to the extent known at such time. The Borrower
shall make a public announcement of any event requiring notification to the Holder hereunder
substantially simultaneously with the notification to the Holder in accordance with the terms of this
Section 4.9.
4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach
of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened
breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition
to all other available remedies at law or in equity, and in addition to the penalties assessable herein,
to an injunction or injunctions restraining, preventing or curing any breach of this Note and to
enforce specifically the terms and provisions thereof, without the necessity of showing economic loss
and without any bond or other security being required.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly
authorized officer this January 16, 2010.
ALL FUELS & ENERGY COMPANY
By: /s/
Dean E. Sukowatey
President and Chief Executive Officer
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Notes)
The undersigned hereby irrevocably elects to convert $__________ principal amount of the Note
(defined below) into shares of common stock, $0.01 par value per share (“Common Stock”), of ALL
FUELS & ENERGY COMPANY, a Delaware corporation (the “Borrower”) according to the
conditions of the convertible note of the Borrower dated as of ___________ (the “Notes”), as of the
date written below. If securities are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates. No fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Note is attached hereto (or evidence of loss, theft or destruction thereof).
The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of
Conversion to the account of the undersigned or its nominee with DTC through its Deposit
Withdrawal Agent Commission system (“DWAC Transfer”).
Name of DTC Prime Broker:
Account Number:
In lieu of receiving shares of Common Stock issuable pursuant to this Notice of Conversion by way
of a DWAC Transfer, the undersigned hereby requests that the Borrower issue a certificate or
certificates for the number of shares of Common Stock set forth below (which numbers are based
on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
Name:
Address:
The undersigned represents and warrants that all offers and sales by the undersigned of the securities
issuable to the undersigned upon conversion of the Notes shall be made pursuant to registration of
the securities under the Securities Act of 1933, as amended (the “Act”), or pursuant to an exemption
from registration under the Act.
Date of Conversion: ___________________________
Applicable Conversion Price: ____________________
Number of Shares of Common Stock to be Issued Pursuant to
Conversion of the Notes: ______________
Signature: ___________________________________
Name: ______________________________________
Address: ____________________________________
The Borrower shall issue and deliver shares of Common Stock to an overnight courier not later than
three business days following receipt of the original Note(s) to be converted, and shall make
payments pursuant to the Notes for the number of business days such issuance and delivery is late.