Contract
THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ENERGY & ENGINE TECHNOLOGY CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECURED
CONVERTIBLE NOTE
FOR VALUE
RECEIVED, ENERGY & ENGINE TECHNOLOGY CORPORATION, a Nevada corporation
(hereinafter called "Borrower"), hereby promises to pay to LONGVIEW
FUND, LP, 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxxxxxxx, XX 00000, Fax: (000)
000-0000 (the
"Holder") or order, without demand, the sum of
__________________________________________ Dollars ($__________), with simple
interest accruing on April _____, 2007 (the "Maturity Date"), if not paid
sooner.
This Note
has been entered into pursuant to the terms of a subscription agreement between
the Borrower and the Holder, dated of even date herewith (the “Subscription
Agreement”), and shall be governed by the terms of such Subscription Agreement.
Unless otherwise separately defined herein, all capitalized terms used in this
Note shall have the same meaning as is set forth in the Subscription Agreement.
The following terms shall apply to this Note:
ARTICLE
I
GENERAL
PROVISIONS
1.1 |
Payment
Grace Period.
The Borrower shall have a ten (10) business day grace period to pay any
monetary amounts due under this Note, after which grace period a default
interest rate of fifteen percent (15%) per annum shall apply to the
amounts owed hereunder. |
1.2 |
Conversion
Privileges.
The Conversion Privileges set forth in Article II shall remain in full
force and effect immediately from the date hereof and until the Note is
paid in full regardless of the occurrence of an Event of Default. The Note
shall be payable in full on the Maturity Date, unless previously converted
into Common Stock in accordance with Article II hereof; provided, that if
an Event of Default has occurred, the Borrower may not pay this Note,
without the consent of the Holder, until one year after the later of the
date the Event of Default has been cured or one year after the Maturity
Date. |
1.3 |
Interest
Rate.
Subject
to Section 5.7 hereof, interest payable on this Note shall accrue at a
rate per annum (the "Interest Rate") equal to the "prime rate" published
in The Wall Street Journal from time to time, plus four percent (4%). The
interest rate shall be increased or decreased as the case may be for each
increase or decrease in the prime rate in an amount equal to such increase
or decrease in the prime rate; each change to be effective as of the day
of the change in such rate. The Interest Rate shall not be less than eight
percent (8%) per annum. Interest on the Principal Amount shall be payable
on October 1, 2005 and semi-annually thereafter and on the Maturity Date,
whether by acceleration or otherwise. Interest shall compound
annually. |
196
ARTICLE
II
CONVERSION
RIGHTS
The
Holder shall have the right to convert the principal due under this Note into
Shares of the Borrower's Common Stock, $.001 par value per share (“Common
Stock”) as set forth below.
2.1. |
Conversion
into the Borrower's Common Stock. |
(a) |
The
Holder shall have the right from and after the date of the issuance of
this Note and then at any time until this Note is fully paid, to convert
any outstanding and unpaid principal portion of this Note, and accrued
interest, at the election of the Holder (the date of giving of such notice
of conversion being a "Conversion Date") into fully paid and nonassessable
shares of Common Stock as such stock exists on the date of issuance of
this Note, or any shares of capital stock of Borrower into which such
Common Stock shall hereafter be changed or reclassified, at the conversion
price as defined in Section 2.1(b) hereof (the "Conversion Price"),
determined as provided herein. Upon delivery to the Borrower of a
completed Notice of Conversion, a form of which is annexed hereto,
Borrower shall issue and deliver to the Holder within three (3) business
days from the Conversion Date (such third day being the “Delivery Date”)
that number of shares of Common Stock for the portion of the Note
converted in accordance with the foregoing. At the election of the Holder,
the Borrower will deliver accrued but unpaid interest on the Note in the
manner provided in Section 1.3 through the Conversion Date directly to the
Holder on or before the Delivery Date (as defined in the Subscription
Agreement). The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of
the principal of the Note and interest to be converted, by the Conversion
Price. |
b. |
Subject
to adjustment as provided in Section 2.1(c) hereof, the Conversion Price
per share shall be the lesser of (i) $0.12, or (ii) seventy percent (70%)
of the average of the five lowest closing bid prices of the Common Stock
as reported by Bloomberg L.P. for the Principal Market for the twenty
trading days preceding a Conversion Date. Until the later of two hundred
and seventy (270) days after the issue date of this Note, or until the
closing bid price of the Common Stock as reported by Bloomberg L.P. for
the Principal Market is less than $0.06, the minimum Conversion Price
shall be $0.05. |
(c) |
The
Conversion Price and number and kind of shares or other securities to be
issued upon conversion determined pursuant to Section 2.1(a), shall be
subject to adjustment from time to time upon the happening of certain
events while this conversion right remains outstanding, as
follows: |
197
X. |
Xxxxxx,
Sale of Assets, etc. If the Borrower at any time shall consolidate with or
merge into or sell or convey all or substantially all its assets to any
other corporation, this Note, as to the unpaid principal portion thereof
and accrued interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance. The foregoing provision
shall similarly apply to successive transactions of a similar nature by
any such successor or purchaser. Without limiting the generality of the
foregoing, the anti-dilution provisions of this Section shall apply to
such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance. |
B. |
Reclassification,
etc. If the Borrower at any time shall, by reclassification or otherwise,
change the Common Stock into the same or a different number of securities
of any class or classes that may be issued or outstanding, this Note, as
to the unpaid principal portion thereof and accrued interest thereon,
shall thereafter be deemed to evidence the right to purchase an adjusted
number of such securities and kind of securities as would have been
issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other
change. |
C.
|
Stock
Splits, Combinations and Dividends. If the shares of Common Stock are
subdivided or combined into a greater or smaller number of shares of
Common Stock, or if a dividend is paid on the Common Stock in shares of
Common Stock, the Conversion Price shall be proportionately reduced in
case of subdivision of shares or stock dividend or proportionately
increased in the case of combination of shares, in each such case by the
ratio which the total number of shares of Common Stock outstanding
immediately after such event bears to the total number of shares of Common
Stock outstanding immediately prior to such event..
|
D. |
Share
Issuance. So long as this Note is outstanding, if the Borrower shall issue
or agree to issue any shares of Common Stock except for the Excepted
Issuances (as defined in the Subscription Agreement) for a consideration
less than the Conversion Price in effect at the time of such issue, then,
and thereafter successively upon each such issue, the Conversion Price
shall be reduced to such other lower issue price. For purposes of this
adjustment, the issuance of any security carrying the right to convert
such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in an adjustment to the
Conversion Price upon the issuance of the above-described security and
again upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than
the then applicable Maximum Base Price. The reduction of the Conversion
Price described in this paragraph is in addition to other rights of the
Holder described in this Note and the Subscription
Agreement. |
198
(d) |
Whenever
the Conversion Price is adjusted pursuant to Section 2.1(c) above, the
Borrower shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a statement of
the facts requiring such adjustment. |
(e) |
During
the period the conversion right exists, Borrower will reserve from its
authorized and unissued Common Stock not less than 175% of the number of
shares of Common Stock issuable upon the full conversion of this Note.
Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Xxxxxxxx agrees that its
issuance of this Note shall constitute full authority to its officers,
agents, and transfer agents who are charged with the duty of executing and
issuing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the conversion of this
Note. |
2.2 |
Method
of Conversion.
This Note may be converted by the Holder in whole or in part as described
in Section 2.1(a) hereof and the Subscription Agreement. Upon partial
conversion of this Note, a new Note containing the same date and
provisions of this Note shall, at the request of the Holder, be issued by
the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or
paid. |
2.3 |
Maximum
Conversion.
The Holder shall not be entitled to convert on a Conversion Date that
amount of the Note in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) the number of shares of Common
Stock issuable upon the conversion of the Note with respect to which the
determination of this provision is being made on a Conversion Date, which
would result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock of the Borrower
on such Conversion Date. For the purposes of the provision to the
immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Holder shall not be limited to aggregate conversions of only 4.99% and
aggregate conversion by the Holder may exceed 4.99%. The Holder shall have
the authority and obligation to determine whether the restriction
contained in this Section 2.3 will limit any conversion hereunder and to
the extent that the Holder determines that the limitation contained in
this Section applies, the determination of which portion of the Notes are
convertible shall be the responsibility and obligation of the Holder. The
Holder may waive the conversion limitation described in this Section 2.3,
in whole or in part, upon and effective after 61 days prior written notice
to the Borrower. The Holder may allocate which of the equity of the
Borrower deemed 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%. |
199
ARTICLE
III
EVENT
OF DEFAULT
The
occurrence of any of the following events of default ("Event of Default") shall,
at the option of the Holder hereof, make all sums of principal and interest then
remaining unpaid hereon and all other amounts payable hereunder immediately due
and payable, upon demand, without presentment, or grace period, all of which
hereby are expressly waived, except as set forth below:
3.1 |
Failure
to Pay Principal or Interest.
The Borrower fails to pay any installment of principal, interest or other
sum due under this Note when due and such failure continues for a period
of ten (10) business days after the due date. The ten (10) day period
described in this Section 3.1 is the same ten (10) business day period
described in Section 1.1 hereof. |
3.2 |
Breach
of Covenant.
The Borrower breaches any material covenant or other term or condition of
the Subscription Agreement or this Note in any material respect and such
breach, if subject to cure, continues for a period of ten (10) business
days after written notice to the Borrower from the
Holder. |
3.3 |
Breach
of Representations and Warranties.
Any material representation or warranty of the Borrower made herein, in
the Subscription Agreement, or in any agreement, statement or certificate
given in writing pursuant hereto or in connection therewith shall be false
or misleading in any material respect as of the date made and the Closing
Date. |
3.4 |
Receiver
or Trustee.
The Borrower shall make an assignment for the benefit of creditors, or
apply for or consent to the appointment of a receiver or trustee for it or
for a substantial part of its property or business; or such a receiver or
trustee shall otherwise be appointed without the consent of the Borrower
is not dismissed within sixty (60) days of
appointment. |
3.5 |
Judgments.
Any money judgment, writ or similar final process shall be entered or
filed against Borrower or any of its property or other assets for more
than $75,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days. |
3.6 |
Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law, or the issuance
of any notice in relation to such event, for the relief of debtors shall
be instituted by or against the Borrower and if instituted against
Borrower are not dismissed within sixty (60) days of
initiation. |
3.7 |
Delisting.
Delisting of the Common Stock from the OTC Bulletin Board (“Bulletin
Board”) or Principal Market; failure to comply with the requirements for
continued listing on the Bulletin Board for a period of five consecutive
trading days; or notification from the Bulletin Board or any Principal
Market that the Borrower is not in compliance with the conditions for such
continued listing on the Bulletin Board or other Principal
Market. |
3.8 |
Non-Payment. A
default by the Borrower under any one or more obligations in an aggregate
monetary amount in excess of $100,000 for more than twenty days after the
due date, unless the Borrower is contesting the validity of such
obligation in good faith. |
200
3.9 |
Stop
Trade.
An SEC or judicial stop trade order or Principal Market trading suspension
that lasts for five or more consecutive trading
days. |
3.10 |
Failure
to Deliver Common Stock or Replacement Note.
Xxxxxxxx's failure to timely deliver Common Stock to the Holder pursuant
to and in the form required by this Note and Sections 7 and 11 of the
Subscription Agreement, or, if required, a replacement
Note. |
3.11 |
Non-Registration
Event.
The occurrence of a Non-Registration Event as described in Section 11.4 of
the Subscription Agreement. |
3.12 |
Reservation
Default.
Failure by the Borrower to have reserved for issuance upon conversion of
the Note the amount of Common stock as set forth in this Note and the
Subscription Agreement. |
3.13 |
Cross
Default. A
default by the Borrower of a material term, covenant, warranty or
undertaking of any other agreement to which the Borrower and Holder are
parties, or the occurrence of a material event of default under any such
other agreement which is not cured after any required notice and/or cure
period. |
ARTICLE
IV
SECURITY
INTEREST
4. |
Security
Interest/Waiver of Automatic Stay.
This Note is secured by a security interest granted to the Collateral
Agent for the benefit of the Holder pursuant to a Security Agreement, as
delivered by Borrower to Holder. The Borrower acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by
or against the Borrower, or if any of the Collateral (as defined in the
Security Agreement) should become the subject of any bankruptcy or
insolvency proceeding, then the Holder should be entitled to, among other
relief to which the Holder may be entitled under the Transaction Documents
and any other agreement to which the Borrower and Holder are parties
(collectively, "Loan Documents") and/or applicable law, an order from the
court granting immediate relief from the automatic stay pursuant to 11
U.S.C. Section 362 to permit the Holder to exercise all of its rights and
remedies pursuant to the Loan Documents and/or applicable law. THE
BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11
U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND
AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE
BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION,
11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT
IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND
REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower
hereby consents to any motion for relief from stay that may be filed by
the Holder in any bankruptcy or insolvency proceeding initiated by or
against the Borrower and, further, agrees not to file any opposition to
any motion for relief from stay filed by the Holder. The Borrower
represents, acknowledges and agrees that this provision is a specific and
material aspect of the Loan Documents, and that the Holder would not agree
to the terms of the Loan Documents if this waiver were not a part of this
Note. The Borrower further represents, acknowledges and agrees that this
waiver is knowingly, intelligently and voluntarily made, that neither the
Holder nor any person acting on behalf of the Holder has made any
representations to induce this waiver, that the Borrower has been
represented (or has had the opportunity to he represented) in the signing
of this Note and the Loan Documents and in the making of this waiver by
independent legal counsel selected by the Borrower and that the Borrower
has discussed this waiver with counsel. |
201
ARTICLE
V
MISCELLANEOUS
5.1 |
Failure
or Indulgence Not Waiver.
No failure or delay on the part of Holder hereof in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing hereunder are cumulative to,
and not exclusive of, any rights or remedies otherwise
available. |
5.2 |
Notices.
All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with
charges prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as such
party shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at
the address or number designated below (if delivered on a business day
during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or
upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be: (i) if to the Borrower to:
Energy
& Engine Technology Corporation, 0000 Xxxx Xxxxx Xxxxxxx, Xxxxx, XX
00000, Attn: Xxxxx X. Xxxx, Esq., telecopier number: (000)
000-0000,
and (ii) if to the Holder, to the name, address and telecopy number set
forth on the front page of this Note, with a copy by telecopier only to
Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx
Xxxx 00000, telecopier number: (000)
000-0000. |
5.3 |
Amendment
Provision.
The term "Note" and all reference thereto, as used throughout this
instrument, shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or
supplemented. |
5.4 |
Assignability.
This Note shall be binding upon the Borrower and its successors and
assigns, and shall inure to the benefit of the Holder and its successors
and assigns. |
5.5 |
Cost
of Collection.
If default is made in the payment of this Note, Borrower shall pay the
Holder hereof reasonable costs of collection, including reasonable
attorneys' fees. |
5.6 |
Governing
Law.
This Note shall be governed by and construed in accordance with the laws
of the State of New York. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the civil or state courts of New York or in the federal
courts located in the State and county of New York. Both parties and the
individual signing this Agreement on behalf of the Borrower agree to
submit to the jurisdiction of such courts. The prevailing party shall be
entitled to recover from the other party its reasonable attorney's fees
and costs. |
202
5.7 |
Maximum
Payments.
Nothing contained herein shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Borrower to the Holder and thus
refunded to the Borrower. |
5.8 |
Shareholder
Status.
The Holder shall not have rights as a shareholder of the Borrower with
respect to unconverted portions of this Note. However, the Holder will
have all the rights of a shareholder of the Borrower with respect to the
shares of Common Stock to be received by Holder after delivery by the
Holder of a Conversion Notice to the
Borrower. |
203
IN
WITNESS WHEREOF,
Xxxxxxxx has caused this Note to be signed in its name by an authorized officer
as of the ____ day of April, 2005.
ENERGY
& ENGINE TECHNOLOGY CORPORATION | ||
By: |
||
Name: | ||
Title: |
WITNESS:
______________________________________
204
NOTICE
OF CONVERSION
(To be
executed by the Registered Holder in order to convert the Note)
The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by Energy & Engine Technology
Corporation on April ____, 2005 into Shares of Common Stock of Energy &
Engine Technology Corporation (the "Borrower") according to the conditions set
forth in such Note, as of the date written below.
Date
of Conversion: |
|
Conversion
Price: |
|
Shares
To Be Delivered: |
|
Signature: |
|
Print
Name: |
|
Address: |
|
205