Exhibit 4.10
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UNLESS PERMITTED UNDER CANADIAN SECURITIES LEGISLATION,
THE HOLDER OF THESE SECURITIES SHALL NOT TRADE THE
SECURITIES NOR ANY SECURITIES INTO WHICH THEY MAY BE
CONVERTED BEFORE SEPTEMBER 30, 2005.
USD$175,000
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DYNAMOTIVE ENERGY SYSTEMS CORPORATION
DEMAND secured CONVERTIBLE NOTE
THIS NOTE is one of a duly authorized issue of Notes of DYNAMOTIVE ENERGY
SYSTEMS CORPORATION, a corporation duly organized and existing under the laws
of the Province of British Columbia (the "Corporation")which are designated
as its Convertible Secured Notes in an aggregate principal amount not
exceeding USD$2,000,000.
FOR VALUE RECEIVED, the Corporation promises to pay to Paul Hughes, the
registered holder hereof (the "Holder"), the principal sum of one hundred
seventy five thousand Dollars ($175,000 USD) together with interest thereon
within 10 days of demand made on or after May 31, 2006 (such tenth day being
the "Maturity Date"). The principal so payable will be paid on the Maturity
Date to the person in whose name this Note (or one or more predecessor Notes)
is registered on the records of the Corporation regarding registration and
transfers of the Notes (the "Note Register") on the tenth day after the
Maturity Date. The principal of this Note is payable in currency of the U.S.
as at the time of payment is legal tender for payment of public and private
debts, at the address last appearing on the Note Register of the Corporation
as designated in writing by the Holder from time to time. The Corporation
will pay the principal upon this Note on the Maturity Date, less any amounts
required by law to be deducted for withholding taxes, to the registered
holder of this Note as of the tenth day prior to the Maturity Date and
addressed to such holder at the last address appearing on the Note Register.
The forwarding of such cheque shall constitute a payment and shall satisfy
and discharge the liability for the principal on this Note to the extent of
the sum represented by such cheque plus any amounts so deducted unless such
cheque is not paid at par.
This Note shall bear interest at the rate of 10% per annum from the date of
advance of funds until repayment in full. The Corporation shall pay the
Holder's costs of collection and enforcement if this note is dishonoured.
Interest shall be paid at the time the principal on the Maturity date.
This Note is subject to the additional terms and conditions in paragraphs 1
to 12 attached hereto and forming a part hereof.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly
executed by an officer hereunto duly authorized.
DYNAMOTIVE ENERGY SYSTEMS CORPORATION
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Per: "ROBERT ANDREW KINGSTON"
Dated: May 31, 2005.
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1. The Notes are issuable in denominations of Ten Thousand Dollars ($10,000
USD) and integral multiples thereof. The Notes are exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holders surrendering the same. No service charge will be
made for such registration of transfer or exchange.
2. Notwithstanding that the Maturity Date has not occurred, the Holder
shall be entitled to demand earlier repayment of this Note at the time and to
the extent the Corporation receives contribution funds from the Government of
Canada under its Technology Partnerships Canada ("TPC") program agreement
with the Corporation. The Holder shall be entitled to priority in such TPC
receivable The Holder shall be kept apprised of the status of the
contribution application and the related such receivable which the
Corporation covenants it shall direct TPC to send to its Canadian legal
counsel, Lang Michener LLP, 1500 1055 West Georgia Street, Vancouver, BC,
Canada, V6E 4N7 attn B. Zinkhofer (604 691 7483; bzinkhof@lmls.com) to be
held by said counsel for the Holder(s) of the Note(s). The Holder shall be
entitled to notice of the receipt of the contribution funding and may
thereafter elect with 10 days to have the amount paid to it as repayment
hereunder failing which the funds shall be paid over to the Corporation.
3. This Note has been issued subject to investment representations of the
original purchaser hereof. Prior to due presentment for transfer of this
Note, the Corporation and any agent of the Corporation may treat the person
in whose name this Note is duly registered on the Company's Note Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Note be overdue, and neither the
Corporation nor any such agent shall be affected by notice to the contrary.
4. The Holder of this Note is entitled, at its option, at any time, until
repayment hereof to convert the principal and interest amount of this Note or
any portion of the principal amount hereof which is at least Ten Thousand
Dollars ($10,000 USD) or, if at the time of such election to convert the
aggregate principal amount of all Notes registered to the Holder is less than
Ten Thousand Dollars ($10,000 USD), then the whole amount thereof, into
Common Shares of the Corporation at the Conversion Price ("Conversion Price")
which is USD$0.40 for each Common Share.
5. The "Conversion Price" was established using a 15% discount to the
"Market Price" which is defined as the weighted average closing price of the
Common Shares during the 5 day period prior to advancement of funds under
this Note (subject to a floor of $0.40) on the over the counter market, NASD
OTC BB. The Market Price was determined by multiplying each daily published
closing trade price for such 5 days by the number of Common Shares traded on
each day during such 5 consecutive trading days and summing such products and
dividing the resultant sum by the aggregate of the daily volumes in that
period .
6. In addition to the Common Shares issuable on conversion hereof, the
Corporation will also allot and issue 0.50 of a three-year share purchase
warrant (the "Warrants") per Common Share issued as a result of any
conversion hereunder exercisable at any time and from time to time prior to
the Maturity Date or expiry of the warrants at a price which is 105% of the
Market Price. The Warrant will be in the Corporation's usual form of non-
transferable Warrant.
7. A conversion may be in whole or in part and from time to time, subject
to the limits herein, and shall be effectuated by surrendering the Notes to
be converted to the Corporation at 230, 1700 West 75th Avenue, Vancouver,
British Columbia, V6P 6G2, Canada, facsimile (604) 267-6039 with the form of
conversion notice attached hereto as Exhibit "A", executed by the Holder of
this Note evidencing such Holder's intention to convert this Note or a
specified portion (as above provided) hereof, and accompanied, if such shares
are to be issued in a name other than Holder, by proper assignment hereof in
blank. No fractions of shares will be issued on conversion, but the number
of shares issuable shall be rounded to the nearest whole share. The date on
which notice of conversion is given shall be deemed to be the date on which
the Holder has delivered this Note, with the conversion notice duly executed,
to the Company, or, if earlier, the date set forth in such notice of
conversion if this Note is received by the Corporation within two business
days' thereafter. Unless there has occurred an Event of Default or a demand
for repayment in cash, any Note outstanding on the Maturity Date shall be, at
the Corporation's election, converted into Shares at the conversion price
which would be in effect if the notice of conversion were given on the
Maturity Date.
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8. No provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to prepay the principal of this
Note at any time, and at the place and rate, herein prescribed, on 5 business
days notice sent to the Holder by prepaid registered mail. This Note and all
other Notes now or hereafter issued of similar terms are direct obligations
of the Company. This Note ranks equally and rateably with all other Notes
now or hereafter issued under the terms set forth herein.
9. Upon the occurrence of an Event of Default that has occurred and is
continuing the principal sum may be immediately demanded to be due. Each of
the following shall constitute an Event of Default:
(a) if a proceeding or case shall be commenced against the Corporation
in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, termination or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, examiner, liquidator or the like of the
Corporation or all or any substantial part of its property, or (iii)
similar relief in respect of the Corporation under any law relating
to bankruptcy, insolvency, reorganization, winding-up or composition
or adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 30 or more days, or an order for relief
against the Corporation shall be entered in an involuntary case
under the Companies Creditors Arrangement Act (Canada) or the
Bankruptcy and Insolvency Act (Canada);
(b) if the Corporation shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, examiner,
liquidator or the like of itself or of all or any substantial part
of its property, (ii) make a general assignment for the benefit of
its creditors, (iii) commence a voluntary case under the Companies
Creditors Arrangement Act (Canada) or the Bankruptcy and Insolvency
Act, or (iv) institute any proceeding or file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, termination, winding-up or composition
or readjustment of debts;
(c) if the Corporation shall cease to carry on the ordinary course of
its business or a substantial part thereof; and
(d) if the Corporation shall purport to redirect its TPC contribution
entitlements to any person other than the Holder as contemplated
above.
10. No recourse shall be had for the payment of the principal of this Note,
or for any claim based hereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer or director, as such, past, present or
future, of the Corporation or any successor corporation, whether by virtue of
any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
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11. The Holder of this Note, by acceptance hereof, agrees that this Note is
being acquired for investment and that such Holder will not offer, sell or
otherwise dispose of this Note or the Shares of Common Stock issuable upon
exercise thereof except under circumstances which will not result in a
violation of applicable law relating to the sale of securities. The Holder of
this Note acknowledges that any Common Shares acquired on the conversion
hereof will bear a restrictive legend if the Holder is, or appears to be, a
US Person. Whether or not the Holder is a US Person the Holder acknowledges
that the Common Shares issued on conversion of the Notes will be restricted
under Canadian and US securities laws.
12. This Note is secured by the additional rights and charges provided to
Holders of the Notes in the Security Agreement executed by the Company
contemporaneously with the making of this Note a copy of which Security
Agreement is available on request of the Company.
13. This Note shall be governed by and construed in accordance with the laws
of the Province of British Columbia, Canada.
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Registered Holder
in order to Convert the Note)
The undersigned hereby irrevocably elects to convert the above Note No.
_____ or $_____________ of such Note into Common Shares and Warrants of
DynaMotive Energy Systems Corporation according to the conditions hereof, as
of the date written below.
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Date of Conversion
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Signature
The Securities are to registered
and delivered as follows:
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Name
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Address
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Address
This original Note and Notice of Conversion should be received by the
Corporation by the third business day following the Date of Conversion and
the Corporation will continue to hold the Common Shares and Warrants for the
Holder until the original is received.
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