NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH IT MAY BE CONVERTED HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE TRANSFERRED OR SOLD, UNLESS IT HAS BEEN REGISTERED UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
Note No. September 30, 2004
------------ --
New York, New York
SECURED CONVERTIBLE NOTE
------------------------
ENTECH ENVIRONMENTAL TECHNOLOGIES, INC, a Florida corporation (together
with its subsidiaries and successors, the "MAKER"), for value received, hereby
promises to pay to the order of XXXXXX PARTNERS, L.P., a Delaware limited
partnership ("HOLDER") and registered assigns the principal sum indicated in the
space provided below or so much thereof as shall be funded. This Note is one of
a series of Notes ("SERIES OF NOTES") not to exceed an aggregate amount of ONE
MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) in principal. All payments
made on this Note shall be made to Holder by wire transfer of immediately
available funds to Holder's account (the "BANK ACCOUNT") at such bank in the
United States as may be specified in writing by Holder to Maker, together with
interest on the principal sum of this Note outstanding from time to time. All
payments made on this Note and the other notes within the Series of Notes shall
be made pro rata and pari passu.
1. MATURITY DATE. The principal sum of this Note shall be payable on
--------------
September 30, 2006 (the "MATURITY DATE"), in such coin or currency of the United
Stales of America as at the time of payment shall be legal tender for the
payment of public and private debts. The Maker shall have no right to prepay
this Note,
2. INTEREST. Interest on the principal sum of this Note outstanding
--------
from time to time shall be payable on the Maturity Date at the rate of 8% per
annum from the date of issuance set forth above until payment in full of the
principal sum hereof has been made. Any installment of principal or interest not
paid when due, by acceleration or otherwise, shall bear interest after the due
date at the rate equal to the lesser of (a) 18% per annum or (b) the highest
rate of interest permitted by applicable law, payable upon demand. Interest on
this Note shall be calculated on the basis of a 360-day year and paid for the
actual number of days elapsed.
3. COLLATERAL.
----------
(a) SECURITY INTEREST. Maker hereby grants to Holder to secure
------------------
this Note a first perfected security interest in and lien on all of the
tangible and intangible assets of Maker, whether now owned or existing,
hereafter acquired or arising, or in which Maker now or hereafter has any
rights, and wheresoever located including, without limitation, any and all
of the following: (i) accounts; (ii) accounts receivable; (iii) chattel
paper; (iv) documents; (v) equipment; (vi) general intangibles, including,
without limitation, patents, patent applications, trademarks and service
marks, and computer software and programs; (vii) instruments; (viii)
inventory; (ix) investment property; (x) monies, residues and property of
any kind that is now, or at any time hereafter, in the possession or under
the control of Maker; (xi) real property; (xii) accessions to,
substitutions for, and all replacements, products and proceeds of the
foregoing, including, without limitation, proceeds of insurance policies;
and (xiii) books and records (including, without limitation, customer
lists, credit files, computer programs, print-outs and other computer
materials and records) of Maker pertaining to any of the foregoing
(collectively, the "COLLATERAL"), and agrees that Holder shall have all of
the rights of a secured party under the Uniform Commercial Code of the
State of California.
(b) FINANCING STATEMENTS AND COSTS. Maker will join with Holder in
------------------------------
the execution and filing of such Financing statement or statements as may
be requested by Holder in form and content reasonably required by Holder.
Maker will pay all costs of filing any financing, continuation or
termination statements with respect to the security interest created by
this Note, together with costs and expenses of any lien search reasonably
required by Holder during the term hereof.
(c) COLLECTIONS; HOLDER'S RIGHT TO NOTIFY DEBTORS; VERIFICATION.
-------------------------------------------------------------
Maker hereby authorizes Holder, at any time or times after an Event of
Default (as hereinafter defined), to: (i) notify any or all debtors that
the accounts receivable have been assigned to Holder and that Holder has a
security interest therein; and (ii) direct such debtors to make all
payments due from them to Maker upon the accounts receivable directly to a
lock box designated by Holder. Holder shall promptly furnish Maker with a
copy of any such notice sent. Any such notice, in Holder's sole discretion,
may be sent on Maker's letterhead, in which event Maker shall co-sign such
notice with Holder.
(d) CONSIGNMENT OF INVENTORY. Maker shall not at any time permit
------------------------
any inventory to be placed on consignment with any person or entity without
the prior written consent of Holder.
(e) PROCEEDS OF EQUIPMENT. Maker shall not, without the prior
-----------------------
written consent of Holder, sell, lease or grant a security interest in, or
otherwise dispose of or encumber, any equipment, or any part thereof. Upon
any disposition of equipment, Maker shall, unless otherwise agreed to by
Holder, deliver all of the cash proceeds to Holder or his designee, which
proceeds shall be applied to payments under the Note. Notwithstanding the
foregoing, Maker shall have the right to trade in obsolete, redundant or
unnecessary equipment in connection with the purchase of any new equipment,
provided that such new equipment is subject to Holder's security interest
free and clear of all other liens and encumbrances.
(f) GENERAL INTANGIBLES. Maker shall not at any time sell,
--------------------
assign, transfer, license or issue a permit to use any general intangible,
or forfeit or allow to lapse any rights to any general intangible, of Maker
without the prior written consent of Holder.
(g) PROCEEDS OF REAL PROPERTY. Maker shall not, without the prior
--------------------------
written consent of Holder, sell, lease (as lessor or sublessor) or grant a
mortgage in, or otherwise encumber, any real property or any part thereof.
Upon any such disposition, Maker shall deliver all of the proceeds thereof
to Holder, or his designee, to be applied to the repayment of the Note.
4. NO PREPAYMENTS AND ACCELERATION. All payments on account of the
----------------------------------
indebtedness evidenced by this Note shall be applied first to accrued and unpaid
interest and then to principal. No prepayments of principal may be made.
5. CONVERSION.
----------
(a) ELECTIVE CONVERSION. At the election of Holder, but subject
--------------------
to the limitations provided herein and in the Note Purchase Agreement of
even date herewith, Holder shall have the right to convert all or any part
of the principal and accrued interest of this Note into shares of Common
Stock, $0.001 par value per share at the price of $0.025 per share of
Common Stock.
(b) NOTICE; EXERCISE OF CONVERSION RIGHT. Holder shall give
----------------------------------------
written notice to Maker of Holder's election to convert this Note in whole
or in part into shares of Common Stock. If Holder intends to exercise its
right of conversion only in part, it shall so specify in its notice to
Maker.
2
(c) CLOSING. Closing of the conversion of this Note shall occur at
-------
the office of Maker not less than five (5) business days after delivery of
Holder's notice of conversation. This Note shall be surrendered to Maker at
the closing. If only a portion of the debt represented by this Note is
being converted, then (i) the principal of this Xxxx shall be deemed
converted first, then the accrued interest and (ii) a new Note of like
tenor shall be issued by Maker to Holder for the unconverted balance of the
principal and accrued interest. The issuance of certificates for shares of
capital stock upon the conversion of this Xxxx shall be made without charge
to Holder for any taxes or other costs or expenses.
(d) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
--------------------------------------------------------
character of the shares of Common Stock at the time issuable upon
conversion of this Note and the Conversion Price therefore, are subject to
adjustment upon the occurrence of the following events, and all such
adjustments shall be cumulative:
(i) ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS,
-------------------------------------------------------
RECAPITALIZATIONS, ETC. The Conversion Price of this Note and the number
----------------------
of shares of Common Stock at the time issuable upon conversion of this Note
shall be appropriately adjusted to reflect any stock dividend, stock split,
combination of shares, reclassification, recapitalization or other similar
event affecting the number of outstanding shares of Common Stock.
(ii) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER,
--------------------------------------------------------
ETC. In case of any consolidation or merger of the Maker with or into
---
any other corporation, entity or person, or any other corporate
reorganization, in which the Maker shall not be the continuing or
surviving entity of such consolidation, merger or reorganization (any
such transaction being hereinafter referred to as a "REORGANIZATION"),
then, in each case, the Holder, on conversion hereof at any time after
the consummation or effective date of such Reorganization (the
"EFFECTIVE DATE"), shall receive, in lieu of the shares of stock or
other securities at any time issuable upon the conversion of this Note
issuable on such conversion prior to the Effective Date, the stock and
other securities and property (including cash) to which such holder
would have been entitled upon the Effective Date if such holder had
converted this Note immediately prior thereto (all subject to further
adjustment as provided in this Note).
(iii) CERTIFICATE AS TO ADJUSTMENTS. In case of any adjustment or
-----------------------------
readjustment in the price or kind of securities issuable on the
conversion of this Note, the Maker will promptly give written notice
thereof to the Holder in the form of a certificate, certified and
confirmed by the Board of Directors of the Maker, setting forth such
adjustment or readjustment and showing in reasonable detail the facts
upon which such adjustment or readjustment is based.
(e) MAXIMUM EXERCISE. The Holder shall not be entitled to convert
-----------------
this Note to acquire a number of shares of Common Stock which would be in
excess of the sum of (i) the number of shares of Common Stock beneficially
owned by the Holder and its affiliates on an exercise date, the number of
shares of Common Stock issuable upon such exercise of any Warrant with
respect to which the determination of this limitation is being made on the
conversation date that would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common
Stock on such date. For the purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate conversions which would result in the issuance of more than
4.99%. The restriction described in this paragraph may be revoked upon
sixty-one (61) days prior notice from the Holder to the Maker. The Holder
may allocate which of the equity securities of the Company deemed
3
beneficially owned by the Holder shall be included in the 4.99% amount
described above and which shall be allocated to the excess above 4.99%.
6. EVENTS OF DEFAULT.
-------------------
(a) Event of Default. It shall be an event of default hereunder
------------------
if: (i) Maker shall fail to pay any amount of unpaid principal or interest
hereunder when due (whether by maturity, acceleration or otherwise) and
such failure shall continue for a period of three (3) days after notice of
nonpayment; or (ii) any proceedings shall be instituted by or against Maker
under the provisions of any Federal bankruptcy, reorganization, arrangement
of debt, insolvency or receivership laws or similar state or Federal laws
providing for the relief of debtors and is not discharged within thirty
(30) days thereafter; or (iii) Maker shall make an assignment for the
benefit of its creditors; or (iv) any proceedings shall be instituted by or
against Maker for its liquidation or dissolution and is not discharged
within thirty (30) days thereafter or Maker's business as a going concern
shall terminate for any reason; or (v) any representation warranty or
covenant herein or in the Note Purchase Agreement of even date herewith or
in any written statement pursuant hereto or thereto, report, financial
statement or certificate made or delivered to Holder by Maker shall be
untrue or incorrect in any material respect as to Maker, as of the date
when made or deemed made; or (vi) Maker shall fail to pay when due, by
acceleration or otherwise, any other note in the Series of Notes; or (vii)
Maker shall suffer an event of default any other indebtedness for borrowed
money which shall not have been cured within applicable notice and grace
periods.
(b) Acceleration of Maturity Date; Remedies. Upon the occurrence
-----------------------------------------
of an event of default hereunder, at the option of Holder, the entire
unpaid principal balance hereunder together with interest thereon shall
become immediately due and payable and Holder may thereupon;
(i) Exercise all rights of Holder hereunder, under the Uniform
Commercial Code as adopted by the State of California and under other
applicable law, cumulatively and not exclusively;
(ii) Immediately take possession, with or without legal process,
of any or all of the Collateral wherever it may be found using
self-help to do so, and for such purpose any Holder, as principal and
agent of Maker, may enter upon any premises upon which the Collateral
is situated and remove the same therefrom, without such entry
constituting a breach of the peace, or require Maker to assemble the
Collateral and return it to Holder at Maker's expense at a place
designated by such Holder, and Maker waives any and all claims or
damages due to, or arising from or connected with, any such taking;
(iii) Sell, lease or otherwise dispose of all or any of the
Collateral, in such Collateral's then condition or after any further
manufacturing or processing thereof, at a public or a private sale or
sales for cash, credit or any combination thereof, with such notice as
may be required by law (Maker thereby agrees that, in the absence of
any contrary requirement of law, ten (10) days prior notice of a
public or private sale of Collateral shall be deemed reasonable
notice), in lots or in bulk, as Holder, in his sole discretion, shall
deem advisable. Such sale may be adjourned from time to time with or
without notice. Holder shall have the right to conduct such sales on
Maker's premises or elsewhere and shall have the right to use Maker's
premises without charge for such sales for such time or times as
Holder shall see fit Holder may purchase all or any part of the
Collateral at a public or, if permitted, a private sale and, in lieu
of actual payment of such purchase price, may set-off the amount of
such price against the outstanding amounts due under the Note. The
proceeds realized from the sale of
4
any Collateral shall be applied first to the reasonable cost, expenses
and attorneys fees incurred by Holder for collection, acquisition,
completion, protection, removal, storage, sale or delivery of the
Collateral; second, to any accrued but unpaid Interest, and third, to
any other sums required to be paid by Maker to Holder under the Note.
If any deficiency shall arise, Maker shall remain liable to Holder
therefor.
(iv) Holder may enforce any one or more remedies hereunder
successively or concurrently at his option.
(v) The assertion or employment of any right or remedy hereunder,
or otherwise, shall not prevent the concurrent assertion or employment
of any other appropriate right or remedy.
No delay or omission of Holder to exercise any right or power
accruing upon any event of default occurring and continuing as
aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such event of default or an acquiescence
therein; and every power and remedy given by the Note or by law may be
exercised from time to time, and as often as shall be deemed
expedient by Holder.
7. RESERVATION OF COMMON STOCK. Maker shall at all times reserve and
-----------------------------
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the Note and all other Notes in
the series, the full number of whole shares of Common Stock then deliverable
upon the conversion or exchange of all of the Notes then outstanding. Maker
shall take at all times such corporate action as shall be necessary in order
that Maker may validly and legally issue fully paid and non-assessable shares of
Common Stock upon the conversion of this Note and all other Notes in the series,
in accordance with the provisions hereof.
8. NOTICE OF INTENT TO SELL OR MERGE COMPANY. The Company will give
---------------------------------------------
Maker 90 days notice before entering into a transaction to merge or sell a
controlling interest in the Company.
9. GENERAL PROVISIONS.
-------------------
(a) Maker intends and believes that each provision in this Note
comports with all applicable local, state and Federal laws and judicial
decisions. However, if any provision or provisions, or if any portion of
any provision or provisions, in this Note is found by a court of law to be
in violation of any applicable local, state or Federal ordinance, statute,
law, administrative or judicial decision, or public policy, and if such
court should declare such portion, provision or provisions of this Note to
be illegal, invalid, unlawful, void or unenforceable as written, then it is
the intent of all parties hereto that such portion, provision or provisions
shall be given force to the fullest possible extent that they are legal,
valid and enforceable, that the remainder of this Note and all related
documents and agreements shall be construed as if such illegal, invalid,
unlawful, void or enforceable portion, provision or provisions were not
contained therein, and that the rights, obligations and interest of Maker
and Holder hereof under the remainder of this Note and all related
documents and agreements shall continue in full force and effect. All
agreements herein are expressly limited so that in no contingency or event
whatsoever, whether by reason of advancement of the proceeds hereof,
acceleration of maturity of the unpaid principal balance hereof, or
otherwise hereof, shall the amount paid or agreed to be paid to Holder
hereof for the use, forbearance or detention of the money to be advanced
hereunder exceed the highest lawful rate permissible under applicable usury
laws. If, from any circumstance whatsoever, the fulfillment of any
provision hereof, at the time performance of such provision shall be due,
shall involve transcending the limit of validity proscribed by the law
which a
5
court of competent jurisdiction may deem applicable hereto then, ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity and if from any circumstance Holder hereof shall ever receive as
interest an amount which would achieve the highest lawful rate, such amount
which would be excessive interest shall applied to the reduction of the
unpaid principal balance due hereunder and not to the payment of interest.
(b) The captions to the various paragraphs hereof are for
convenience of reference and are not to be considered as defining or
limiting in any way the scope or intent of the provisions hereof.
(c) This Note and all the provisions hereof shall be binding upon
Maker and all persons claiming under or through Maker, and shall inure to
the benefit of Holder, together with its successors and assigns, including
each owner and Holder from time to time of this Note.
(d) No provision of this Note may be waived, changed, modified or
discharged without an agreement in writing signed by the party against whom
enforcement of such waiver, change, modification or discharge is sought.
(e) Time is of the essence as to all dates set forth herein
subject to any applicable grace or cure period or notice expressly provided
herein; provided, however, that unless otherwise stated, whenever any
payment to be made under this Note shall be stated to be due on a day other
than a business day, such payment shall be made on the immediately
preceding business day.
(f) Maker agrees that its liability shall not in any manner be
effected by any indulgence, extension of time, renewal, waiver,
modification granted or consented to by Holder and Maker consents to any
indulgences and all extensions of time, renewals, waivers, or modifications
that may be granted by Holder with respect to the payment or other
provisions of this Note, and to any substitution, exchange or release of
the Collateral, or any part thereof, with or without substitution, and
agrees to the addition or release of any endorsers, guarantors, or
sureties, if any, all whether primarily or secondarily liable, without
notice to Maker and without affecting its liability hereunder.
(g) Maker hereby waives and renounces for itself, its successors
and assigns, all rights to the benefits of any statute of limitations and
any moratorium, reinstatement, marshalling, forbearance, valuation, stay,
extensions, redemption, appraisement, or exemption in homestead laws now
provided, or which may hereafter be provided, by the constitution and the
laws of the United States and of any state thereof, both as to itself and
into all of its property, real and personal, against the enforcement of the
collection of the obligations evidenced by this Note. Holder may, at its
option, release any Collateral given to secure the indebtedness evidenced
hereby and no such release shall impair the obligations of Maker to Holder.
(h) If this Note is placed in the hands of attorneys for collection or
is collected through any legal proceedings, Maker promises and agrees to
pay, in addition to the principal, interest and other sums due and payable
hereon, all costs of collecting or attempting to collect this Note,
including reasonable attorneys' fees and disbursements.
(i) All parties now or hereafter liable with respect to this Note,
whether Maker, principal, surety, guarantor, endorsee or otherwise hereby
severally waive presentment for payment, demand, notice of non-payment or
dishonor, protest and notice of protest. No failure to accelerate the
indebtedness evidence hereby, acceptance of a past due installment
following the expiration of any cure period provided by this Note or
applicable law, or indulgences granted from time to time shall be construed
(i) as a novation of this Note or as a reinstatement of the indebtedness
evidence hereby or as
6
a waiver of such right of acceleration or of the right of Holder thereafter
to insist upon strict compliance with the terms of this Note, or (ii) to
prevent the exercise of such right of acceleration or any other right
granted hereunder or by the laws of the State of New York.
10. New York Law, Jurisdiction and Venue. This Note is a contract
----------------------------------------
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State.
MAKER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY FEDERAL OR
STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, STATE OF NEW YORK, FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE. MAKER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, MAKER HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING OUT OF OR IN ANY WAY PERTAINING OR RELATING TO THIS NOTE, OR
(B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY
DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS NOTE, OR IN CONNECTION WITH
THE TRANSACTIONS RELATED THERETO OR CONTEMPLATED THEREBY OR THE EXERCISE OF ANY
PARTY'S RIGHTS AND REMEDIES HEREUNDER, IN ALL OF THE FOREGOING CASES WHETHER NOT
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE. MAKER AGREES THAT HOLDER MAY FILE A COPY OF THIS WAIVER WITH ANY
COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF
MAKER IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY JURY, AND THAT, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN MAKER
AND HOLDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE SITTING WITHOUT A JURY.
[SIGNATURE PAGE TO FOLLOW]
7
IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly
executed as of the date of issuance set forth above.
STATED PRINCIPAL AMOUNT OF NOTE: $ 561,912.00
-----------
ENTECH ENVIRONMENTAL
TECHNOLOGIES, INC., a Florida
Corporation
ATTEST: By: /s/ Xxxx Xxxxxxxx
--------------------------
Name: Xxxx Xxxxxxxx
------------------------
Title: President
-----------------------
/s/ Xxxx Xxxxxxxx 000 Xxxx Xxxxxxxxxx Xxxxxx
---------------------------- Xxxxxx, Xxxxxxxxxx 00000-0000
Secretary
The undersigned wholly owned subsidiaries OF ENTECH ENVIRONMENTAL
TECHNOLOGIES, INC., will receive a portion of the proceeds of this Note and,
therefore, as an inducement to Holder advancing the proceeds of this Note to
ENTECH ENVIRONMENTAL TECHNOLOGIES, INC., the undersigned join in this Note as
Maker and grant the security interest in Collateral contemplated by this Note.
/s/ Xxxx Xxxxxxxx /s/ Xxxxxxx Xxxxx
----------------------------------- ---------------------------------
By: Xxxx Xxxxxxxx By: Xxxxxxx Xxxxx
-------------------------------- ------------------------------
Title: President X.X. Xxxxx, Inc. Title: Liquidating Agent, CPI
----------------------------- ---------------------------
/s/ Xxxxxxx Xxxxx
-----------------------------------
By: Xxxxxxx Xxxxx
--------------------------------
Title: Liquidating Agent, AFFS
--------------------------
