EXHIBIT 10.2

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THIS NOTE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN
A FORM REASONABLY ACCEPTABLE TO THE BORROWER, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT
TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS
NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY THIS NOTE, PROVIDED SUCH PLEDGE IS MADE IN
COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS.

 

UNSECURED SUBORDINATED NOTE

 

November 29, 2016

Principal: $13,000,000

 

FOR VALUE RECEIVED, Midwest Energy Emissions Corp., a Delaware corporation (the
“Borrower”) hereby promises to pay to the order of AC Midwest Energy LLC, a
Delaware limited liability company or its registered permitted assigns (the
“Lender”) the amount set out above as the principal pursuant to the terms of
hereof. Borrower hereby promises to pay accrued and unpaid interest and premium,
if any, on the principal on the dates, rates and in the manner provided herein.
This Unsecured Subordinated Note is referred to herein and in that certain
Amended and Restated Financing Agreement dated as of November 1, 2016, by and
among the Borrower, MES, Inc., a North Dakota corporation (“MES” and, together
with the Borrower, the “Credit Parties”) and the Lender (together with all
exhibits and schedules thereto and as may be amended, restated, modified and
supplemented from time to time, the “Financing Agreement”) as the “Subordinated
Note” and all Unsecured Subordinated Notes issued in exchange, transfer, or
replacement hereof in accordance with the terms hereof are referred to herein as
the “Subordinated Note”.

 

The following is a statement of the rights of the Lender and the conditions to
which this Subordinated Note is subject and to which the Lender, by the
acceptance of this Subordinated Note, agrees:

 

1. Definitions.

 

As used in this Subordinated Note, the following terms have the respective
meanings indicated below, such meanings to be applicable equally to both the
singular and plural forms of such terms:

 

“Affiliate” means, with respect to a specified Person, another Person that (i)
is a director or officer of such specified Person, or (ii) directly or
indirectly through one or more intermediaries, Controls, is Controlled by or is
under common Control with the Person specified.

 

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“Bankruptcy Law” has the meaning set forth in Section 10(a)(iii).

 

“Business Day” means any day other than Saturday or Sunday or any day that banks
in New York, New York are required or permitted to close.

 

“Capital Stock” means (a) in the case of a corporation, corporate stock; (b) in
the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock; (c) in the case of a partnership or limited liability company,
partnership interests (whether general or limited) or membership interests; and
(d) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person, but excluding from all of the foregoing any debt securities
convertible into, or exchangeable for, Capital Stock, whether or not such debt
securities include any right of participation with Capital Stock.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

“Control” means the possession, directly or indirectly, of the power (i) to vote
10% or more of the Capital Stock having ordinary voting power for the election
of directors of a Person or (ii) to direct or cause the direction of management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. “Controlling” and “Controlled” have meanings correlative
thereto.

 

“Current Interest Rate” means a rate per annum equal to the LIBO Rate plus five
percent (5.0%), as adjusted pursuant to the terms of Section 2(b).

 

“Default Rate” means a rate equal to the Current Interest Rate plus three
percent (3.0%) per annum.

 

“Environmental Laws” means all applicable federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively,
“Hazardous Materials”) into the environment, the exposure of humans thereto, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials, as well as all
regulatory authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices of violation or similar notice
letters, orders, permits, plans or regulations issued, entered, promulgated or
approved thereunder.

 

“Equity Interests” means Capital Stock and all warrants, options and other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock, whether or not such debt
security includes the right of participation with Capital Stock).

 

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“Fiscal Quarter” means a fiscal quarter of any Fiscal Year of the Borrower.

 

“Fiscal Year” means a fiscal year of the Borrower.

 

“GAAP” means United States generally accepted accounting principles,
consistently applied.

 

“Governmental Authority” means the government of the United States of America,
any other nation or any political subdivision of any of the foregoing, whether
state or local, and any agency, authority, commission, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions
of or pertaining to government.

 

“Guarantor” means (i) MES, (ii) each other Subsidiary of a Borrower other than
RCF, and (iii) each other Person which guarantees all or any part of the
Obligations.

 

“Hedging Obligations” means, with respect to any specified Person, the
obligations of such Person under: (i) interest rate swap agreements (whether
from fixed to floating or from floating to fixed), interest rate cap agreements
and interest rate collar agreements; (ii) other agreements or arrangements
designed to manage interest rates or interest rate risk; and (iii) other
agreements or arrangements designed to protect such Person against fluctuations
in currency exchange rates or commodity prices.

 

“Holder” means a holder of a Subordinated Note which shall be the Lender or a
permitted assignee thereof.

 

“Indebtedness” of any Person means, without duplication (i) all indebtedness for
borrowed money, (ii) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with GAAP) (other than trade payables entered
into in the ordinary course of business), (iii) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (iv) all obligations evidenced by notes, bonds, notes or similar
instruments whether convertible or not, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(v) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (vi) all
indebtedness referred to in clauses (i) through (v) above secured by (or for
which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, (vii) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (i) through (vi)
above; (viii) banker’s acceptances; (ix) the balance deferred and unpaid of the
purchase price of any property or services due more than three months after such
property is acquired or such services are completed; (x) Hedging Obligations;
and (xi) obligations under convertible securities of a Credit Party. In
addition, the term “Indebtedness” of a Credit Party includes (a) all
Indebtedness of others secured by a Lien on any assets of a Credit Party or
their respective Subsidiaries (whether or not such Indebtedness is assumed by a
Credit Party or their respective Subsidiaries), and (b) to the extent not
otherwise included, the guarantee by a Credit Party of any Indebtedness of any
other Person.

 

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“Insolvent” means, with respect to a Credit Party or its Subsidiaries (taken as
a whole and without consideration of any intercompany Indebtedness among a
Credit Party or its Subsidiaries), (i) the present fair saleable value of a
Credit Party or its Subsidiaries’ assets is less than the amount required to pay
a Credit Party or its Subsidiaries’ total Indebtedness as applicable, (ii) a
Credit Party and/or its Subsidiaries shall become, admit in writing their
inability or publicly declare their inability to pay their debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) a Credit Party and/or its
Subsidiaries has or intends to incur or believes that they will incur debts that
would be beyond their ability to pay as such debts mature in the ordinary course
of business or (iv) a Credit Party and/or its Subsidiaries have unreasonably
small capital with which to conduct the business in which they are engaged as
such business is now conducted and is proposed to be conducted.

 

“LC Note” has the meaning set forth in the Financing Agreement as in effect on
the date hereof.

 

“LIBO Rate” means, as of the date of determination, the three-month London
Interbank Offered Rate as reported in the Money Rates table of The Wall Street
Journal or any successor or similar publication as reasonably selected by the
Lender.

 

“Lien” means any mortgage, lien, pledge, security interest, conditional sale or
other title retention agreement, charge or other security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law, including any conditional sale or other title retention
agreement or any lease or license in the nature thereof, any option or other
agreement to sell or give a security interest in.

 

“Material Adverse Effect” means any material adverse effect on the business,
properties, assets, operations, the Collateral, results of operations or
condition (financial or otherwise) of a Credit Party and/or its Subsidiaries,
taken as a whole, or on the transactions contemplated hereby and by the other
Transaction Documents, or on the authority or ability of a Credit Party and/or
its Subsidiaries to fully and timely perform its obligations under any
Transaction Document.

 

“Maturity Date” means the earlier of: (a) December 15, 2020 and (b) such earlier
date as the unpaid principal balance of the Subordinated Notes become due and
payable pursuant to the terms of this Subordinated Note.

 

“Note” and “Notes” has the meaning set forth in the Financing Agreement as in
effect on the date hereof.

 

“Obligations” means any and all obligations, liabilities and indebtedness,
including without limitation, principal, interest (including, but not limited
to, interest calculated at the Default Rate and post-petition interest in any
proceeding under any Bankruptcy Law), and other fees, costs, expenses and other
charges and other obligations under this Subordinated Note, of the Credit
Parties to the Lender and other Holders of any and every kind and nature,
howsoever created, arising or evidenced and howsoever owned, held or acquired,
whether now or hereafter existing, whether now due or to become due, whether
primary, secondary, direct, indirect, absolute, contingent or otherwise
(including, without limitation, obligations of performance), whether several,
joint or joint and several, and whether arising or existing under written or
oral agreement or by operation of law, in all such cases, arising under this
Subordinated Note.

 

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“Other Taxes” has the meaning set forth in Section 5(b).

 

“Permitted Redemption Date” means the date on which the Borrower has elected to
redeem this Subordinated Note in accordance with Section 3(b).

 

“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.

 

“Principal Payment Date” has the meaning set forth in Section 3(a).

 

“RCF” means Rebel Crew Films, Inc., a California corporation.

 

“Secured Note” has the meaning set forth in the Financing Agreement as in effect
on the date hereof.

 

“Subsidiaries” means any entity in which a Credit Party, directly or indirectly,
owns at least 50% of the Capital Stock or other Equity Interests.

 

“Taxes” has the meaning set forth in Section 5(a).

 

“Transaction Documents” has the meaning set forth in the Financing Agreement as
in effect on the date hereof.

 

“Unasserted Contingent Obligations” means Obligations for taxes, costs,
indemnifications, reimbursements, damages and other liabilities (excluding
Obligations in respect of the principal of, and interest and premium (if any)
on, and fees and expenses relating to, any Obligation) in respect of which no
assertion of liability (whether oral or written) and no claim or demand for
payment (whether oral or written) has been made (and, in the case of Obligations
for indemnification, no notice for indemnification has been issued by the
indemnitee) at such time.

 

2. Interest. The Borrower shall pay interest on the unpaid principal amount of
this Subordinated Note at the rates, time and manner set forth below:

 

(a) Rate of Interest. This Subordinated Note shall bear interest on the unpaid
principal amount from the date hereof (the “Issuance Date”) through the date
this Subordinated Note is paid in full in cash (whether upon final maturity, by
redemption, prepayment, acceleration or otherwise) at the applicable Current
Interest Rate, subject to adjustment pursuant to subsection (b) below. Interest
shall be computed on the basis of a 360-day year and actual days elapsed and
shall be payable quarterly, in arrears, on or before the last day of each Fiscal
Quarter (each, an “Interest Date”) during the period beginning on the Issuance
Date and ending on, and including, the date on which the Obligations under this
Subordinated Note are paid in full.

 

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(b) Interest Rate Adjustments. The Current Interest Rate applicable to this
Subordinated Note is subject to adjustment on a quarterly basis, with interest
rate changes becoming effective on the first day of the next succeeding calendar
quarter based on the LIBO Rate published on the last Business Day of the
preceding calendar quarter. If the LIBO Rate becomes unavailable, the Lender may
designate a substitute index for calculation of the Current Interest Rate
applicable to this Subordinated Note.

 

(c) Interest Payments. Interest on this Subordinated Note shall be payable on or
before each Interest Date or at any such other time this Subordinated Note
becomes due and payable (whether by acceleration, redemption or otherwise) to
the Lender on the applicable Interest Date. Each Interest Date shall be
considered the last day of an accrual period for U.S. federal income tax
purposes. Any payment of interest due and owing on this Subordinated Note shall
be made by cash only by wire transfer of immediately available funds.

 

(d) Default Rate. At the election of the Lender and following the delivery of
written notice of such election to the Borrower following the occurrence and
during the continuation of any Event of Default (or automatically while any
Event of Default under Section 10(a)(iii) or (iv) exists), this Subordinated
Note shall bear interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on the unpaid principal amount thereof at the Default
Rate from the date of receipt of such written notice through and including the
date such Event of Default is waived or, to the extent expressly provided
herein, cured. In the event that such Event of Default is subsequently waived
or, to the extent expressly provided herein, cured, the adjustment referred to
in the preceding sentence shall cease to be effective as of the date of such
waiver or cure; provided that interest as calculated and unpaid at the Default
Rate during the continuance of such Event of Default shall continue to be due to
the extent relating to the days after the imposition of the Default Rate as set
forth above through and including the date on which such Event of Default is
waived or, to the extent expressly provided herein, cured. All such interest
shall be payable to the Lender on demand of the Lender or other Holders.

 

(e) Savings Clause. In no contingency or event shall the interest rate charged
pursuant to the terms of this Subordinated Note exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such a court
determines that the Lender or other Holders received interest hereunder in
excess of the highest applicable rate, the amount of such excess interest shall
be applied against the principal amount then outstanding under this Subordinated
Note to the extent permitted by applicable law, and any excess interest
remaining after such application shall be refunded promptly to the Borrower.

 

3. Principal Redemptions.

 

(a) Subject to Section 11, commencing on June 15, 2017 and continuing on each of
September 15, December 15, March 15 and June 15 thereafter (each a “Principal
Payment Date”) (provided that such Principal Payment Date is a Business Day, and
otherwise on the next succeeding Business Day), the Borrower shall pay principal
on the Subordinated Notes in equal installments of (i) $500,000 per Principal
Payment Date for the 2017 calendar year, (ii) $625,000 per Principal Payment
Date for the 2018 calendar year, and (iii) thereafter $750,000 per Principal
Payment Date, with a final payment of all outstanding principal together with
such other amounts as shall then be due and owing from Borrower to Lender under
the Subordinated Notes on the Maturity Date or the date on which the
indebtedness evidenced hereby is accelerated as provided herein..

 

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(b) Permitted Redemption.

 

(i) The Borrower may, at its option, elect to pay to the Lender and all of the
other Holders the Permitted Redemption Amount (as defined below), on the
specified Permitted Redemption Date, by redeeming, in whole or in part, amounts
outstanding under this Subordinated Note (the “Permitted Redemption”). On or
prior to the date which is the second (2nd) Business Day prior to the proposed
Permitted Redemption Date, the Borrower shall deliver written notice (the
“Permitted Redemption Notice”) to the Lender and all of the other Holders
stating: (i) that the Borrower elects to redeem this Subordinated Note pursuant
to the Permitted Redemption and (ii) the proposed Permitted Redemption Date. The
“Permitted Redemption Amount” shall be in increments of not less than $100,000
of the aggregate outstanding principal amount of this Subordinated Note as of
the Permitted Redemption Date, plus all accrued and unpaid interest and fees
with respect to such principal amount as of the Permitted Redemption Date.

 

(ii) A Permitted Redemption Notice delivered pursuant to this subsection shall
be irrevocable. If the Borrower elects to redeem the Subordinated Notes pursuant
to a Permitted Redemption under this subsection, then the Permitted Redemption
Amount which will be paid to the Lender and if applicable, the other Holders, on
the Permitted Redemption Date by wire transfer of immediately available funds.

 

4. Payments Generally. Whenever any payment of cash is to be made by the
Borrower to any Person pursuant to this Subordinated Note, such payment shall be
made in lawful money of the United States of America by a wire transfer to,
subject to the next sentence, the account identified by such Person in writing
to the Borrower. Whenever any amount expressed to be due by the terms of this
Subordinated Note are 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 Date which is not the date on which this Subordinated Note
is paid in full in cash, 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. Any amount due under this Subordinated Note which is not paid when
due shall accrue interest at the Default Rate from the date such amount was due
until the same is paid in full in cash. Such interest shall continue to accrue
post-petition in any proceeding under any Bankruptcy Law.

 

5. Taxes.

 

(a) Any and all payments by or on behalf of the Borrower hereunder shall be
made, free and clear of and without deduction for any and all current or future
taxes, levies, imposts, deductions, charges or with the Borrower that are or
would be applicable to the Lender or other Holders, and all liabilities with
respect thereto, excluding (i) (A) income taxes imposed on the net income of the
Lender or other Holders (including branch profits taxes) and (B) franchise taxes
imposed on the net income of the Lender or other Holders, in each case by the
jurisdiction under the laws of which such Holder is organized or qualified to do
business or a jurisdiction or any political subdivision thereof in which the
Lender or other Holders engages in business activity other than activity arising
solely from such Holder having executed this Subordinated Note and having
enjoyed its rights and performed its obligations hereunder, and (ii) any U.S.
federal withholding tax or U.S. federal backup withholding tax (in the case of
any Holder) that is imposed with respect to amounts payable to such Holder at
the time such Holder becomes a party to this Subordinated Note (or designates a
new lending office) or is attributable to such Holder’s failure to comply with
this Section 5 (all such non-excluded taxes, levies, imposts, deductions,
charges, with the Borrower and liabilities, collectively or individually, being
called “Taxes”). If Borrower must deduct any Taxes from or in respect of any sum
payable hereunder to the Lender or other Holders: (A) the sum payable shall be
increased by the amount (an “additional amount”) necessary so that, after making
all required deductions (including deductions applicable to additional sums
payable under this Section 5), the Lender or such other Holder shall receive an
amount equal to the sum it would have received had no such deductions been made,
(B) Borrower shall make such deductions and (C) Borrower shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law.

 

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(b) The Borrower will pay to the relevant Governmental Authority in accordance
with applicable law any current or future stamp or documentary taxes or any
other excise taxes, or similar charges or levies that arise from any payment
made hereunder that are or would be applicable to the Lender or other Holders
(“Other Taxes”).

 

(c) The Borrower agrees to indemnify the Lender and any other Holder for the
full amount of Taxes and Other Taxes paid by Lender or any such other Holder and
any liability (including penalties, interest and expenses (including reasonable
attorney’s fees and expenses)) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant Governmental Authority. A certificate as to the amount of such
payment or liability prepared by the Lender or other Holders absent manifest
error, shall be final conclusive and binding for all purposes. Such
indemnification shall be made within thirty (30) days after the date such Holder
makes written demand therefor. The Borrower shall have the right to receive that
portion of any refund of any Taxes and Other Taxes received by the Lender or
other Holder, for which Borrower has previously paid any additional amount or
indemnified such Holder and which leaves such Holder, after Borrower’s receipt
thereof, in no better or worse financial position than if no such Taxes or Other
Taxes had been imposed or additional amounts or indemnification paid to the
Lender or other Holders.

 

6. Reissuance.

 

(a) Transfer. If this Subordinated Note is to be transferred, such transfers
shall be made in accordance with Section 12(b) below, and the Lender or other
Holder shall surrender such Subordinated Note to the Borrower, whereupon the
Borrower will forthwith issue and deliver upon the order of the Lender or other
Holder a new Subordinated Note (in accordance with this Section 6), registered
as the Lender or other Holder may request, representing the outstanding
principal being transferred by the Lender or other Holder and, if less than the
entire outstanding principal is being transferred, a new Subordinated Note (in
accordance with this Section 6) to the Lender or other Holder representing the
outstanding principal not being transferred.

 

(b) Lost, Stolen or Mutilated Subordinated Note. Upon receipt by the Borrower of
evidence reasonably satisfactory to the Borrower of the loss, theft, destruction
or mutilation of any Subordinated Note and: (i) in the case of loss, theft or
destruction, upon delivery of an indemnity agreement reasonably satisfactory to
the Borrower (provided, however, that if the Lender or other Holder is an
institutional investor, the affidavit of an authorized partner or officer of
such Lender or other Holder setting forth the circumstances with respect to such
loss, theft or destruction shall be accepted as satisfactory evidence thereof
and no separate indemnity agreement or other security shall be required,
provided that the party that lost the Subordinated Note shall remain liable to
the Borrower should such lost note ultimately result in loss or liability to
Borrower), and (ii) in the case of mutilation, upon surrender and cancellation
of the mutilated Subordinated Note, the Borrower shall execute and deliver to
the Lender or other Holder a new Subordinated Note (in accordance with this
Section 6) representing the outstanding principal.

 

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(c) Subordinated Note Exchangeable for Different Denominations. This
Subordinated Note is exchangeable, upon the surrender thereof by the Lender or
other Holder at the principal office of the Borrower, for a new Subordinated
Note or Subordinated Notes (in accordance with this Section 6) representing in
the aggregate the outstanding principal of the surrendered Subordinated Note,
and each such new Subordinated Notes will represent such portion of such
outstanding principal as is designated by the Lender or other Holder at the time
of such surrender.

 

(d) Issuance of New Subordinated Notes. Whenever the Borrower is required to
issue a new Subordinated Note pursuant to the terms of this Subordinated Note,
such new Subordinated Note: (i) shall be of like tenor with the Subordinated
Note being replaced, (ii) shall represent, as indicated on the face of such new
Subordinated Note, the principal remaining outstanding (or, in the case of a new
Subordinated Note being issued pursuant to paragraph (a) or (b) of this Section
6, the principal designated by the Lender or other Holder which, when added to
the principal represented by the other new Subordinated Notes issued in
connection with such issuance, does not exceed the principal remaining
outstanding under the Subordinated Note being replaced immediately prior to such
issuance of new Subordinated Notes), (iii) shall have an issuance date, as
indicated on the face of such new Subordinated Note, which is the same as the
Issuance Date of the Subordinated Note being replaced, (iv) shall have the same
rights and conditions as the Subordinated Note being replaced, and (v) shall
represent accrued interest on the principal of the Subordinated Note being
replaced, from the Issuance Date.

 

7. Register.

 

(a) The Borrower shall maintain at its principal executive office (or such other
office or agency of the Borrower as it may designate by notice to each Holder of
Subordinated Notes), a register for the Subordinated Notes in which the Borrower
shall record the name and address of the Person in whose name the Subordinated
Notes have been issued (including the name and address of each transferee) and
the principal amount of Subordinated Notes held by such Person. The Borrower
shall keep the register open and available at all times during business hours
for inspection of any Holder or its legal representatives.

 

(b) Notwithstanding anything to the contrary contained herein, the Subordinated
Notes are registered obligations and the right, title, and interest of each
Lender and its assignees in and to such Subordinated Notes shall be transferable
only upon notation of such transfer in a register to be maintained by the
Borrower for so long as it acts as its own registration agent for the
Subordinated Notes, and by the transfer agent used for the Borrower’s common
stock (or other capital stock issued in substitution or exchange for, or
otherwise in respect of, such common stock) should it elect to no longer act as
transfer agent for the Subordinated Notes. The Subordinated Notes shall only
evidence a Lender’s or its assignee’s right, title and interest in and to the
related Subordinated Notes, and in no event is any such Subordinated Note to be
considered a bearer instrument or obligation. This Section 7(b) shall be
construed so that the Subordinated Notes are at all times maintained in
“registered form” within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2)
of the Code and any related Treasury regulations promulgated thereunder.

 

8. Covenants

 

(a) Notice of Default. Promptly upon any officer of a Borrower obtaining
knowledge: (i) of any condition or event that constitutes an Event of Default
(or event or circumstance that, with the passage of time, the giving of notice,
or both, would become an Event of Default) or that notice has been given to a
Credit Party with respect thereto; (ii) that any Person has given any notice to
a Credit Party or taken any other action with respect to any event or condition
set forth in Section 10; or (iii) of the occurrence of any event or change that
has caused or evidences, either in any case or in the aggregate, a Material
Adverse Effect, a certificate of its chief executive officer or chief financial
officer specifying the nature and period of existence of such condition, event
or change, or specifying the notice given and action taken by any such Person
and the nature of such claimed Event of Default, default, event or condition,
and the action(s) the Credit Parties or one of their Subsidiaries have taken, is
taking and proposes to take with respect thereto; provided that once all
“Obligations” (as defined in the Financing Agreement) with respect to the
Secured Note and LC Note have been satisfied in full the Borrower shall not
disclose material nonpublic information to the Lender, or to advisors to or
representatives of the Lender, unless prior to disclosure of such information
the Borrower identifies such information as being material nonpublic information
and provides the Lender, such advisors and representatives with the opportunity
to accept of refuse to accept such material nonpublic information for review.

 

 9

 

 

(b) Notice of Litigation. Promptly upon any officer of a Borrower obtaining
knowledge of (i) the institution of, or non frivolous written threat of, any
adverse Proceeding not previously disclosed in writing by the Credit Parties to
the Lender, or (ii) any material development in any adverse Proceeding that, in
the case of either clause (i) or (ii) if adversely determined, could be
reasonably expected to have a Material Adverse Effect, or seeks to enjoin or
otherwise prevent the consummation of, or to recover any damages or obtain
relief as a result of, the transactions contemplated hereby, written notice
thereof together with such other information as may be reasonably available to
Credit Parties to enable the Lender and its counsel to evaluate such matters;
provided that once all “Obligations” (as defined in the Financing Agreement)
with respect to the Secured Note and LC Note have been satisfied in full the
Borrower shall not disclose material nonpublic information to the Lender, or to
advisors to or representatives of the Lender, unless prior to disclosure of such
information the Borrower identifies such information as being material nonpublic
information and provides the Lender, such advisors and representatives with the
opportunity to accept or refuse to accept such material nonpublic information
for review.

 

(c) Restricted Payments. The Credit Parties shall not, and the Credit Parties
shall not permit any of their Subsidiaries to, directly or indirectly:

 

(i) declare or pay any dividend or make any other cash payment or distribution
on account of the Credit Parties or any of their Subsidiaries’ Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Credit Parties or any of their Subsidiaries) or to
the direct or indirect holders of the Credit Parties or any of their
Subsidiaries’ Equity Interests in their capacity as such, other than (i)
dividends or distributions by a Subsidiary of the Borrower to any other
Subsidiary and (ii) dividends or distributions by a Subsidiary of the Borrower
to Borrower; and

 

(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving the
Borrower or the Guarantor) any Equity Interests of the Credit Parties or any of
their Subsidiaries or any direct or indirect parent of the Credit Parties or any
of their Subsidiaries), other than repurchases of Equity Interests by the
Borrower pursuant to the terms of employee stock purchase plans, employee
restricted stock agreements or similar arrangements in an aggregate amount not
to exceed $1,000,000 in any Fiscal Year.

 

(d) Corporate Existence and Maintenance of Properties. The Credit Parties shall
not, and the Credit Parties shall not permit any of their Subsidiaries (other
than RCF) to, fail to maintain and preserve (i) its existence and good standing
in the jurisdiction of its organization and (ii) its qualification to do
business and good standing in each jurisdiction where the nature of its business
makes such qualification necessary (other than such jurisdictions in which the
failure to be so qualified or in good standing could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect).
The Credit Parties shall not, and the Credit Parties shall not permit any of
their Subsidiaries to, fail to maintain or cause to be maintained in good
repair, working order and condition, ordinary wear and tear excepted, all
material properties used or useful in the business of the Credit Parties and
their Subsidiaries and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof.

 

(e) Non-circumvention. Each Credit Party hereby covenants and agrees that
neither the Credit Parties nor any of their Subsidiaries will, by amendment of
its articles or certificate of incorporation, bylaws, or other governing
documents, or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Subordinated Note, and will at all times in good faith
carry out all of the provisions of this Subordinated and take all action as may
be required to protect the rights of the Lender.

 

 10

 

 

(f) Conduct of Business. None of the Credit Parties nor any of their
Subsidiaries shall conduct their businesses in violation of any law, ordinance
or regulation of any Governmental Authority, except where such violations would
not result, either individually or in the aggregate, in a Material Adverse
Effect. None of the Credit Parties nor any of their Subsidiaries shall engage in
any line of business other than the business engaged in on the date hereof and
businesses incidental thereto.

 

(g) Compliance with Laws. The Credit Parties shall not, and the Credit Parties
shall not permit any of their Subsidiaries to fail to: (i) comply in all
material respects with federal, state and other applicable securities laws, and
(ii) comply in all material respects with the requirements of all other
applicable laws, rules, regulations and orders of any Governmental Authority
(including all Environmental Laws).

 

(h) Joinder. The Credit Parties shall notify the Lender prior to the formation
or acquisition of any Subsidiaries. For any Subsidiaries formed or acquired
after the date hereof, the Credit Parties shall at their own expense, upon
formation or acquisition of such Subsidiary, cause each such Subsidiary to
execute an instrument of joinder (a “Joinder Agreement”) in form and substance
reasonably satisfactory to the Lender and the Borrower obligating such
Subsidiary to this Subordinated Note. In the event a Person becomes a Guarantor
(a “New Guarantor”) pursuant to the Joinder Agreement, upon such execution the
New Guarantor shall be bound by all the terms and conditions hereof to the same
extent as though such New Guarantor had originally executed this Subordinated
Note. The addition of a New Guarantor shall not in any manner affect the
obligations of the other Credit Parties hereunder. Each Credit Party and Lender
hereto acknowledges that the schedules and exhibits hereto or thereto may be
amended or modified in connection with the addition of any New Guarantor to
reflect information relating to such New Guarantor.

 

(i) Taxes and Liabilities. Each Credit Party will pay and will cause its
Subsidiaries to pay when due all taxes, assessments and other liabilities except
as contested in good faith and by appropriate proceedings and for which adequate
reserves have been established, and except for taxes, assessments and other
liabilities of RCF.

 

(j) Further Assurances. At any time or from time to time upon the request of the
Lender, each Credit Party will, at its expense, promptly execute, acknowledge
and deliver such further documents and do such other acts and things as the
Lender may reasonably request in order to effect fully the purposes of this
Subordinated Note. In furtherance and not in limitation of the foregoing, each
Credit Party shall take such actions as the Lender may reasonably request from
time to time to ensure that the Obligations are guaranteed by all Subsidiaries
of the Borrower.

 

9. Cross-Guaranty.

 

(a) Cross-Guaranty. Each Guarantor, jointly and severally, hereby absolutely and
unconditionally guarantees to the Lender and its successors and assigns the full
and prompt payment (whether at stated maturity, by acceleration or otherwise)
and performance of, all Obligations. Each Guarantor agrees that its guaranty
obligation hereunder is a continuing guaranty of payment and performance and not
of collection, that its obligations under this Section 9 shall not be discharged
until payment and performance, in full, of the Obligations (other than
Unasserted Contingent Obligations) has occurred and all commitments (if any) to
lend have been terminated, and that its obligations under this Section 9 shall
be absolute and unconditional, irrespective of, and unaffected by:

 

(i) the genuineness, validity, regularity, enforceability or any future
amendment of, or change in, this Subordinated Note or any other agreement,
document or instrument to which any Credit Party is or may become a party;

 

 11

 

 

(ii) the absence of any action to enforce this Subordinated Note (including this
Section 9) or the waiver or consent by the Holders with respect to any of the
provisions thereof;

 

(iii) the Insolvency of any Credit Party or Subsidiary; or

 

(iv) any other action or circumstances that might otherwise constitute a legal
or equitable discharge or defense of a surety or guarantor.

 

Each Guarantor shall be regarded, and shall be in the same position, as
principal debtor with respect to the obligations guaranteed hereunder.

 

(b) Waivers by Guarantor. Each Guarantor expressly waives all rights it may have
now or in the future under any statute, or at common law, or at law or in
equity, or otherwise, to compel the Lender to marshal assets or to proceed in
respect of the obligations guaranteed hereunder against any other Credit Party
or Subsidiary, any other party or against any security for the payment and
performance of the Obligations before proceeding against, or as a condition to
proceeding against, such Guarantor. It is agreed among each Guarantor that the
foregoing waivers are of the essence of the transaction contemplated by this
Subordinated Note and that, but for the provisions of this Section 9 and such
waivers, the Lender would decline to enter into this Subordinated Note.

 

(c) Benefit of Guaranty. Each Guarantor agrees that the provisions of this
Section 9 are for the benefit of the Lender and its successors and permitted
transferees, endorsees and assigns, and nothing herein contained shall impair,
as between any other Credit Party and the Lender, the obligations of such other
Credit Party under this Subordinated Note.

 

(d) Waiver of Subrogation, Etc. Notwithstanding anything to the contrary in this
Agreement, and except as set forth in subsection (g), each Guarantor hereby
expressly and irrevocably waives any and all rights at law or in equity to
subrogation, reimbursement, exoneration, contribution, indemnification or set
off and any and all defenses available to a surety, guarantor or accommodation
co-obligor. Each Guarantor acknowledges and agrees that this waiver is intended
to benefit the Holders and shall not limit or otherwise affect such Guarantor’s
liability hereunder or the enforceability of this Section 9, and that the
Holders and their respective successors and assigns are intended third party
beneficiaries of the waivers and agreements set forth in this Section 9(d).

 

(e) Election of Remedies. If the Lender may, under applicable law, proceed to
realize their benefits under this Subordinated Note, the Lender or any of the
other Holders may, at its sole option, determine which of its remedies or rights
it may pursue without affecting any of its rights and remedies under this
Section 9. If, in the exercise of any of its rights and remedies, the Lender or
any of the Holders shall forfeit any of its rights or remedies, including its
right to enter a deficiency judgment against any Credit Party or any other
Person, whether because of any applicable laws pertaining to “election of
remedies” or the like, each Credit Party hereby consents to such action by the
Lender and such other Holders and waives any claim based upon such action, even
if such action by the Lender and such other Holders shall result in a full or
partial loss of any rights of subrogation that any Credit Party might otherwise
have had but for such action by the Lender or such other Holders. Any election
of remedies that results in the denial or impairment of the right of the Lender
or other Holders to seek a deficiency judgment against any Credit Party shall
not impair any other Credit Party’s obligation to pay the full amount of the
obligations owed by such Credit Party under this Subordinated Note.

 

 12

 

 

(f) Limitation. Notwithstanding any provision herein contained to the contrary,
each Guarantor’s liability under this Section 9 (which liability is in any event
in addition to amounts for which Borrower is primarily liable under this
Subordinated Note) shall be limited to an amount not to exceed as of any date of
determination the greater of:

 

(i) the net amount of all amounts advanced to such Guarantor under this
Subordinated Note or otherwise transferred to, or for the benefit of, such
Guarantor (including any interest and fees and other charges); and

 

(ii) the amount that could be claimed by the Lender or other Holders from such
Guarantor under this Section 9 without rendering such claim voidable or
avoidable under Section 548 of Chapter 11 of the Bankruptcy Law or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law after taking into account, among other
things, such Guarantor’s right of contribution and indemnification from each
other Credit Party under Section 9(g).

 

(g) Contribution with Respect to Guaranty Obligations.

 

(i) To the extent that any Guarantor shall make a payment under this Section 9
of all or any of the Obligations (other than financial accommodations made to
that Guarantor for which it is primarily liable) (a “Guarantor Payment”) that,
taking into account all other Guarantor Payments then previously or concurrently
made by any other Guarantor, exceeds the amount that such Guarantor would
otherwise have paid if each Guarantor had paid the aggregate Obligations
satisfied by such Guarantor Payment in the same proportion that such Guarantor’s
“Allocable Amount” (as defined below) (as determined immediately prior to such
Guarantor Payment) bore to the aggregate Allocable Amounts of each of the
Guarantor as determined immediately prior to the making of such Guarantor
Payment, then, following payment in full in cash of the Obligations (other than
Unasserted Contingent Obligations) and termination of this Subordinated Note
(including all commitments (if any) to lend hereunder), such Guarantor shall be
entitled to receive contribution and indemnification payments from, and be
reimbursed by, each other Guarantor for the amount of such excess, pro rata
based upon their respective Allocable Amounts in effect immediately prior to
such Guarantor Payment.

 

(ii) As of any date of determination, the “Allocable Amount” of any Guarantor
shall be equal to the maximum amount of the claim that could then be recovered
from such Guarantor under this Section 9 without rendering such claim voidable
or avoidable under Section 548 of Chapter 11 of the Bankruptcy Law or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law.

 

(iii) This subsection(g) is intended only to define the relative rights of
Guarantor and nothing set forth in this subsection(g) is intended to or shall
impair the obligations of Credit Parties, jointly and severally, to pay any
amounts as and when the same shall become due and payable in accordance with the
terms of this Subordinated Note, including this subsection (g). Nothing
contained in this subsection(g) shall limit the liability of any Credit Party to
pay the financial accommodations made directly or indirectly to that Credit
Party and accrued interest, fees and expenses with respect thereto for which
such Credit Party shall be primarily liable.

 

 13

 

 

(iv) The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of the Guarantor to which such
contribution and indemnification is owing.

 

(v) The rights of the indemnifying Guarantor against other Guarantor under this
subsection (g) shall be exercisable upon the payment in full in cash of the
Obligations (other than Unasserted Contingent Obligations) and the termination
of this Subordinated Note.

 

(h) Liability Cumulative. The liability of each Guarantor under this Section 9
is in addition to and shall be cumulative with all liabilities of each other
Credit Party to the Lender and other Holders under this Subordinated Note,
without any limitation as to amount, unless the instrument or agreement
evidencing or creating such other liability specifically provides to the
contrary.

 

(i) Stay of Acceleration. If acceleration of the time for payment of any amount
payable by the Credit Parties under this Agreement is stayed upon the
insolvency, bankruptcy or reorganization of any of the Credit Parties, all such
amounts otherwise subject to acceleration under the terms of this Agreement
shall nonetheless be payable jointly and severally by the Credit Parties
hereunder forthwith on demand by the Lender or other Holders.

 

(j) Benefit to Credit Parties. All of the Credit Parties and their Subsidiaries
are engaged in related businesses and integrated to such an extent that the
financial strength and flexibility of each such Person has a direct impact on
the success of each other Person. Each Credit Party and each Subsidiary will
derive substantial direct and indirect benefit from this Subordinated Note.

 

10. Events of Default

 

(a) Event of Default. For so long as this Subordinated Note shall remain
outstanding, each of the following events shall constitute an “Event of Default”
under this Subordinated Note:

 

(i) any Creditor Parties’ failure to pay to the Lender and/or Holders: (i) when
and as due under this Subordinated Note, any amount of principal, or (ii) within
five (5) days after the same shall become due under this Subordinated Note,
interest (including interest calculated at the Default Rate), redemptions or
other amounts (including, without limitation, Borrower’s failure to pay any
redemption payments or amounts under this Subordinated Note);

 

(ii) any default occurs and is continuing with respect to, or acceleration prior
to maturity of, any Indebtedness in excess of $2,000,000 of any of the Credit
Parties or any of their Subsidiaries owing to the Lender; provided that, in the
event that any such default or acceleration of Indebtedness is cured or
rescinded by the holders thereof prior to acceleration of the Subordinated Note
or if the Credit Parties repay such Indebtedness such that the amount
outstanding under such Indebtedness ceases to be in excess of $2,000,000, no
Event of Default shall exist as a result of such cured default, rescinded
acceleration or repayment;

 

 14

 

 

(iii) (A) Any of the Credit Parties, pursuant to or within the meaning of Title
11, U.S. Code, or any similar federal, foreign or state law for the relief of
debtors (collectively, “Bankruptcy Law”): (1) commences a voluntary case, (2)
consents to the entry of an order for relief against it in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, (3) consents to
the appointment of or taking of possession by a receiver, trustee, assignee,
liquidator or similar official (a “Custodian”) for all or a substantial part of
its property, (4) makes a general assignment for the benefit of its creditors,
or (5) admits in writing that it is Insolvent or is otherwise generally unable
to pay its debts as they become due; or (B) the board of directors (or similar
governing body) of Borrower or any of its Subsidiaries (including MES) (or any
committee thereof) adopts any resolution or otherwise authorizes any action to
approve any of the actions referred to in this subsection or subsection (iv)
below; provided, however the terms of this subsection or any of the other
subsections of this Section 10 shall not apply to RCF;

 

(iv) a court of competent jurisdiction: (i) enters an order or decree under any
Bankruptcy Law, which order or decree (A) (1) is not stayed or (2) is not
rescinded, vacated, overturned, or otherwise withdrawn within thirty (30) days
after the entry thereof, and (B) is for relief against any of the Credit Parties
in an involuntary case, (ii) appoints a Custodian over all or a substantial part
of the property of any of the Credit Parties or their Subsidiaries and such
appointment continues for thirty (30) days, (iii) orders the liquidation of any
of the Credit Parties, or (iv) issues a warrant of attachment, execution or
similar process against any substantial part of the property of any of the
Credit Parties; or

 

(v) a final judgment or judgments for the payment of money in excess of
$2,000,000 are rendered against any of the Credit Parties and which judgments
are not, within thirty (30) days after the entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within thirty (30) days after the
expiration of such stay, unless (in the case of a monetary judgment)
suchjudgment is covered by third-party insurance, so long as the applicable
Credit Party provides the Lender a written statement from such insurer (which
written statement shall be reasonably satisfactory to the Lender) to the effect
that such judgment is covered by insurance and such Credit Party will receive
the proceeds of such insurance within thirty (30) days following the issuance of
such judgment.

 

(b) Acceleration Right.

 

(i) Promptly after having knowledge of the occurrence of an Event of Default,
the Borrower shall deliver written notice thereof via email and overnight
courier (an “Event of Default Notice”) to the Lender. At any time after the
earlier of the Lender’s and the Holders’ receipt of an Event of Default Notice
and the Lender and any other Holders becoming aware of an Event of Default which
has not been cured or waived, the Lender or such other Holders may require the
Borrower to redeem all or any portion of this Subordinated Note (an “Event of
Default Redemption”) by delivering written notice thereof (the “Event of Default
Redemption Notice”) to the Borrower, which Event of Default Redemption Notice
shall indicate the portion of this Subordinated Note that the Lender or any
other Holders are requiring the Borrower to redeem; provided, that upon the
occurrence of any Event of Default described in Section 10(a)(ii) and (iii), the
Subordinated Notes, in whole, shall automatically, and without any action on
behalf of the Lender or any other Holders, be redeemed by the Borrower. The
Subordinated Notes shall be redeemed by the Borrower at a price equal to one
hundred five percent (105%) of the outstanding principal amount of the
Subordinated Notes, plus accrued and unpaid interest (the “Event of Default
Redemption Price”).

 

(ii) In the case of an Event of Default Redemption, the Borrower shall deliver
the applicable Event of Default Redemption Price to the Lender within five (5)
Business Days after the Borrower’s receipt of the Event of Default Redemption
Notice.

 

 15

 

 

11. Subordination.

 

(a) Notwithstanding anything in this Subordinated Note to the contrary, all
obligations, indebtedness and other liabilities of Borrower under or in respect
of this Subordinated Note shall be subordinated and junior in right of payment
to all currently existing and future obligations, indebtedness and other
liabilities of Borrower to any commercial banks, thrift institutions, finance
companies, financial institutions, investor or any other Person providing
financing to Borrower (including, without limitation, the obligations in respect
of the Secured Note and LC Note). Notwithstanding the foregoing, all
Indebtedness due under the Subordinated Note shall be pari passu in right of
payment, whether with respect to payment of redemptions, interest, damages or
upon liquidation or dissolution or otherwise, to all other current and future
unsecured subordinated Indebtedness (including trade payables or similar
obligations to trade creditors incurred or entered into in the ordinary course
of business) of the Borrower and its Subsidiaries.

 

(b) In furtherance of the foregoing and notwithstanding anything to the contrary
in this Subordinated Note, until the Secured Note and the LC Note (if any
amounts are owning thereon) and the other “Obligations” (as defined in the
Financing Agreement) are paid in full in respect of all such obligations, (i)
the Lender and other Holders of this Subordinated Note will not make any demand
for, and will not be entitled to receive, any payment on account of this
Subordinated Note (other than regularly scheduled interest payments), and (ii)
neither the Borrower nor any other Person on the Borrower’s behalf will make any
payment with respect to this Subordinated Note.

 

12. Miscellaneous

 

(a) The Borrower, on behalf of the Credit Parties, shall reimburse: (i) Lender
on demand for all reasonable costs and expenses, including, without limitation,
reasonable legal expenses and reasonable invoiced attorneys’ fees of outside
counsel, incurred by Lender in connection with the: (A) documentation and
consummation of the transactions contemplated hereunder, including, without
limitation, overnight courier or other express or messenger delivery costs
incurred in connection therewith; (B) collection of any Obligations; and (ii)
Lender and any other Holders on demand for all reasonable costs and expenses,
including, without limitation, reasonable legal expenses and reasonable invoiced
attorneys’ fees of one outside counsel incurred by Lender or any other Holders,
in connection with: (A) the administration and enforcement of Lender’s and any
other Holder’s rights under this Subordinated Note (including, without
limitation, any costs and expenses of any third party provider engaged by Lender
for such purposes); (B) any refinancing or restructuring of the Subordinated
Note whether in the nature of a “work out,” in any insolvency or bankruptcy
proceeding or otherwise, and whether or not consummated; and (C) any
intangibles, documentary, stamp or other similar taxes, fees and excises, if
any, including any interest and penalties, and any finder’s or brokerage fees,
commissions and expenses (other than any fees, commissions or expenses of
finders or brokers engaged by the Lender or other Holders), that may be payable
in connection with this Subordinated Note. All such costs, expenses and charges
shall constitute Obligations hereunder, shall be payable by the Credit Parties
to the Lender and other Holders on demand, and, until paid, shall bear interest
at the highest rate then applicable to this Subordinated Note. Without limiting
the foregoing, if: (i) the Subordinated Note is placed in the hands of an
attorney for collection or enforcement or is collected or enforced through any
legal proceeding or Lender or any other Holder otherwise takes action to collect
amounts due under the Subordinated Note or to enforce the provisions of the
Subordinated Note or (ii) there occurs any bankruptcy, reorganization or
receivership of any Credit Party or other proceedings affecting creditors’
rights and involving a claim under the Subordinated Note, then the Credit
Parties shall pay the costs incurred by Lender or such other Holders for such
collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but not limited to,
reasonable attorneys’ fees (limited to one outside counsel for the Lender and
the other Holders, and disbursements (including such fees and disbursements
related to seeking relief from any stay, automatic or otherwise, in effect under
any Bankruptcy Law).

 

 16

 

 

(b) This Subordinated Note shall be binding upon and inure to the benefit of the
parties and their respective permitted successors and assigns, including any
purchasers of this Subordinated Note. The Borrower shall not assign this
Subordinated Note or any rights or obligations hereunder without the prior
written consent of each of the Holders of this Subordinated Note. Lender may
assign some or all of its rights and obligations hereunder in connection with
the transfer of any of its Subordinated Notes with the consent of the Borrower
(which consent shall not be unreasonably withheld or delayed and which consent
shall not be required during the existence of an Event of Default (but which
consent will be required at all times for transfers to a direct competitor of
the Credit Parties) or in connection with an assignment or transfer to an
Affiliate (determined without regard to clause (i) of the definition thereof) of
Lender), in which event such assignee shall be deemed to be a Holder hereunder
with respect to such assigned rights and obligations, and the Credit Parties
shall use their best efforts to ensure that such transferee is registered as a
Holder.

 

(c) This Subordinated Note shall be construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Subordinated Note and all disputes arising hereunder shall
be governed by, the laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of New
York or any other jurisdictions) that would cause the application of the laws of
any jurisdictions other than the State of New York. The parties hereto (a) agree
that any legal action or proceeding with respect to this Subordinated Note shall
be brought in any state or federal and state court located within New York, New
York, (b) irrevocably waive any objections which either may now or hereafter
have to the venue of any suit, action or proceeding arising out of or relating
to this Subordinated Note brought in the aforementioned courts, and (c) further
irrevocably waive any claim that any such suit, action, or proceeding brought in
any such court has been brought in an inconvenient forum.

 

(d) THE LENDER AND THE BORROWER IRREVOCABLY WAIVE THE RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE ANY PROVISION OF THIS
SUBORDINATED NOTE.

 

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

 

 17

 

 

IN WITNESS WHEREOF, Borrower has caused this Subordinated Note to be duly
executed as of the date set out above.

 

BORROWER:

 

Midwest Energy Emissions Corp.

 

By:

/s/ Richard H. Gross

Name:

Richard H. Gross

Title:

Chief Financial Officer

 

GUARANTOR:

 

MES, INC.

 

By:

/s/ Richard H. Gross

Name:

Richard H. Gross

Title:

Chief Financial Officer

 

Agreed and Accepted:

 

 

 

 

 

 

AC Midwest Energy LLC

 

 

 

 

 

 

By:

/s/ Samir Patel

 

 

Name:

Samir Patel

 

 

Title:

Manager

 

 

 

 

18