SENIOR SECURED CONVERTIBLE NOTE
"AMOUNT" League City, Texas
____, 2008
FOR VALUE RECEIVED, Momentum Biofuels, Inc., a Colorado corporation
("MMBI") and Momentum Biofuels, Inc., a Texas corporation
("MMBI-Texas")(together, "Borrower"), 2600 South Shore Blvd, Suite 100, League
City, TX 77573 (the "Borrower"), promises to pay to the order of "NAME" at
"ADDRESS" (the "Holder") or at such other place as Holder may from time to
time designate in writing, the principal sum of "AMOUNT" ($AutoMergeField)
in lawful money of the United States of America, together with interest on so
much thereof as is from time to time outstanding at the rate hereinafter
provided, and payable as hereinafter provided.
This note is one of a series of notes, designated the Senior Secured
Convertible Notes (individually referred to herein as a "Note," the series of
notes is referred to herein collectively as the "Notes"), aggregating up to
$600,000 issued by the Borrower. All the Notes shall rank pari passu in respect
to payment of principal and interest and upon any dissolution, liquidation or
winding-up of Borrower, or either of them. The holders of the Notes shall be
referred to as the "Lenders." As used herein, the term "Majority of the Lenders"
means a majority in interest of the Holders of the Notes.
1. Interest Rate. The unpaid balance of this Note shall bear interest at the
rate of ten percent (10%) per annum, simple interest.
2. Payment/Maturity Date. Interest will be payable quarterly on the first day of
the months of August, November, February, and May. The total outstanding
principal balance hereof, together with accrued and unpaid interest, shall be
paid on May 1, 2013.
3. Payment in Kind. Interest will be payable in cash.
4. Default Interest and Attorney Fees. Upon declaration of a valid default
hereunder, the balance of the principal remaining unpaid, interest accrued
thereon, and all other costs, and fees shall bear interest at the rate of
eighteen percent (18%) per annum from the date of default. In the event of
default, the Borrower and all other parties liable hereon agree to pay all costs
of collection, including reasonable attorneys' fees. In addition, if Borrower
defaults in any of the covenants set forth in paragraph 11, Borrower will issue
Holder one warrant to purchase one share of MMBI's common stock ("Penalty
Warrant") for each $.25 principal amount of the Note. The Penalty Warrants will
be exercisable for seven years from the date of default at an exercise price per
share of the closing bid price of MMBI's common stock on the date of default,
and shall have customary anti-dilution rights (for stock splits, stock dividends
and sales of substantially all the company's assets), and piggyback registration
rights.
5. Security Agreement. This Note is secured by all of the assets and property of
Borrower (the "Property"), in accordance with the terms of a Security Agreement
(the "Security Agreement") and other documents evidencing such security interest
between the Borrower and the Holder (with the Security Agreement, the "Security
Documents.").
6. Interest Calculation. Daily interest shall be calculated on a 365-day year
and the actual number of days in each month.
7. Conversion.
(a) Holder may convert the balance of the Note, or any portion thereof,
and all accrued interest into shares of MMBI's common stock at any
time at the Conversion Price of $0.40 per share.
(b) Upon any recapitalization or restructuring or other adjustment of MMBI
capital structure in which the number of shares of common stock is
adjusted, increased or decreased, or otherwise modified, or in the
event of a spin-off or other distribution of assets, or merger or
acquisition, then the number and type of shares or other securities
into which the principal amount and accrued interest of this Note may
be converted shall likewise be changed so that this Note and accrued
interest is thereafter convertible into the number of shares of common
stock or other securities of MMBI which the Holder would have received
had the Holder converted the entire principal amount and accrued
interest under this Note into common stock of MMBI immediately prior
to such recapitalization, restructuring or other event.
(c) The Holder may not convert any portion of this Note, or be forced to
convert any portion of this Note, to the extent such conversion would
result in the Holder beneficially owning (as determined in accordance
with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 4..999% of the then issued and outstanding shares of MMBI
common stock, including shares issuable upon conversion of the Note
held by the Holder after application of this paragraph; provided,
however, that upon a holder of this Note providing MMBI with sixty-one
(61) days prior notice (the "Waiver Notice") that such holder waives
this subparagraph 7(d) with regard to any or all shares of MMBI common
stock issuable upon conversion of this Note, this Section 7(d) shall
be of no force or effect with regard to those shares of MMBI common
stock referenced in the Waiver Notice; provided, further, that this
provision shall be of no further force or effect during the sixty-one
(61) days immediately preceding the expiration of the term of this
Note.
(d) The Holder may not convert any portion of this Note, or be forced to
convert any portion of this Note, to the extent such conversion would
result in the Holder beneficially owning (as determined in accordance
with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.999% of the then issued and outstanding shares of MMBI
common stock, including shares issuable upon conversion of the Note
held by the Holder after application of this paragraph; provided,
however, that upon a holder of this Note providing MMBI with sixty-one
(61) days prior notice (the "Waiver Notice") that such holder waives
this subparagraph 7(d) with regard to any or all shares of MMBI common
stock issuable upon conversion of this Note, this Section 7(d) shall
be of no force or effect with regard to those shares of MMBI common
stock referenced in the Waiver Notice; provided, further, that this
provision shall be of no further force or effect during the sixty-one
(61) days immediately preceding the expiration of the term of this
Note.
8. Anti-Dilution. If at any time before this Note is paid in full or converted
in full the MMBI (a) sells its common stock, or securities convertible into its
common stock, at a price (or an equivalent conversion price) lower than the
Conversion Price set forth in paragraph 7 of this Note; or (b) reduces the price
at which any of its convertible securities or warrants (other than this Note and
the Warrant issued at the same time as this Note) may be converted or exercised,
the Conversion Price will be reduced to the price of the common stock (or
equivalent conversion price) in such subsequent transaction or transactions or
reductions.
9. Prepayment. This Note may be prepaid in whole or part upon 30 days written
notice. If this Note is prepaid before May 1, 2010, MMBI will issue the holder
of the Note a warrant (a "Prepayment Warrant") to purchase one share of MMBI's
common stock for each $1.00 principal amount of the Note. The Prepayment
Warrants will be exercisable for seven years from the date the Note is paid at
an exercise price per share equivalent to the closing bid price of MMBI's common
stock on the date of payment, and shall have customary anti-dilution rights (for
stock splits, stock dividends and sales of substantially all the company's
assets), and piggyback registration rights
10. Costs of Collection. Borrower agrees that if, and as often as, this Note is
placed in the hands of an attorney for collection or to defend or enforce any of
Holder's rights hereunder or under any instrument securing payment of this Note,
as the result of Borrower being in actual default or actual breach of any of the
covenants herein, Borrower shall pay to Holder its reasonable attorneys' fees
and all court costs and other expenses incurred in connection therewith,
regardless of whether a lawsuit is ever commenced or whether, if commenced, the
same proceeds to judgment or not. Such costs and expenses shall include, without
limitation, all costs, reasonable attorneys' fees, and expenses incurred by
Holder in connection with any insolvency, bankruptcy, reorganization,
foreclosure, deed in lieu of foreclosure or similar proceedings involving
Borrower or any endorser, surety, guarantor, or other person liable for this
Note which in any way affect the exercise by Holder of its rights and remedies
under this Note, or any other document or instrument securing, evidencing, or
relating to the indebtedness evidenced by this Note.
11. Default. Borrower agrees that upon the occurrence of any default set forth
below, and such default continues for a period of 30 days after Holder has given
written notice of such default as provided herein, at the option of Holder, the
unpaid principal balance of this Note and all accrued interest thereon shall
become immediately due, payable, and collectible, without notice or demand, upon
the occurrence at any time of any of the following events, each of which shall
be deemed to be an event of default hereunder.
(a) Borrower's failure to make any payment of principal on or before the
date on which such payment becomes due and payable under this Note;
(b) Borrower's failure to make any payment of interest or other charges on
or before the date on which such payment becomes due and payable under
this Note and such failure continues for a period of 30 days;
(c) Dissolution, liquidation or termination of either Borrower;
(d) The commission of any act of insolvency by Borrower, or the making of
an assignment to or for the benefit of creditors of Borrower, or the
appointment of a receiver, liquidator, conservator or trustee of
Borrower, or its property, or the filing of a voluntary petition or
the commencement of any proceeding by Borrower for relief under any
bankruptcy, insolvency, reorganization, arrangement or receivership
laws, or any other law relating to the relief of debtors of any state
or of the United States, or the filing of any involuntary petition
(unless and until discharged or dismissed within 30 business days
after such filing) for the bankruptcy, insolvency, reorganization,
arrangement or receivership or the involuntary commencement of any
similar proceeding under the laws of any state or of the United States
relating to the relief of debtors, against Borrower;;
(e) Failure to make any prepayment after announcing such prepayment in
accordance with paragraph 9.
(f) Entry of a decree or order by a court having jurisdiction for the
appointment of a receiver or trustee or assignee in insolvency,
bankruptcy or reorganization of either Borrower or of its property, or
for the winding up or liquidation of its affairs, and continuation of
such decree or order in force undischarged or unstayed for a period of
ninety (90) days.
(g) Borrower's material breach or material violation of any agreement or
covenant contained in this Note not specified in (a) through (f)
above, or in any other document or instrument securing, evidencing, or
relating to the indebtedness evidenced by this Note and such breach or
violation continues for a period of 30 days after written notice of
such breach or violation is given as specified herein;
Upon the occurrence of any event which might, upon notice or the passage of time
constitute an Event of Default, the Company shall notify the Holder of the Note
and the Holders of all other Notes of the occurrence of the event of default
within ten (10) days.
12. Application of Payments. Any payment made against the indebtedness evidenced
by this Note shall be applied against the following items in the following
order: (1) costs of collection, including reasonable attorneys' fees incurred or
paid; (2) all costs, expenses, default interest, late charges and other expenses
incurred by Holder and all other holders of the Notes and reimbursable to the
Holders pursuant to this Note and all other Notes (as described herein); (3) to
the Holders of all Notes, ordinary interest accrued to the date of said payment;
and (4) finally, outstanding principal to the Holders of all outstanding Notes.
13. Representations, Warranties and Covenants of the Borrower. Each Borrower
represents, warrants and covenants with the Holder as follows:
(a) Authorization; Enforceability. All Borrower action on the part of the
Borrower necessary for the authorization, execution and delivery of
this Note and the performance of all obligations of the Borrower
hereunder has been taken, and this Note constitutes a valid and
legally binding obligation of the Borrower, enforceable in accordance
with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, and
(ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
(b) Governmental Consents. No consent, approval, qualification, order or
authorization of, or filing with, any local, state or federal
governmental authority is required on the part of the Borrower in
connection with the Borrower's valid execution, delivery or
performance of this Note except any notices required to be filed with
the Securities and Exchange Commission under Regulation D of the
Securities Act, or such filings as may be required under applicable
state securities laws, which will be timely filed within the
applicable periods therefor.
(c) No Violation. The execution, delivery and performance by the Borrower
of this Note and the consummation of the transactions contemplated
hereby will not result in a violation in any material respect of its
Articles of Incorporation or By-Laws, or of any provision of any
mortgage, agreement, instrument or contract to which it is a party or
by which it is bound or, to the best of its knowledge, of any federal
or state judgment, order, writ, decree, statute, rule or regulation
applicable to the Borrower or be in material conflict with or
constitute, with or without the passage of time or giving of notice,
either a material default under any such provision or an event that
results in the creation of any material lien, charge or encumbrance
upon any assets of the Borrower or the suspension, revocation,
impairment, forfeiture or nonrenewal of any material permit, license,
authorization or approval applicable to the Borrower, its business or
operations, or any of its assets.
(d) In Pari Passu. The Borrower may create additional security interests
in the Property to secure payment of additional debt that will be
equal to or subordinate to the interest of the Note Holders if holders
of two-thirds in interest of the Notes agree. Any such additional
security interests may only secure new loans to the Borrower.
(e) Covenants. So long as any Note is outstanding and in addition to the
other covenants of the Borrower set forth herein:
(i) Borrower will pay no dividends or other distributions to the
holders of any shares of its common stock unless all payments have
been made to the Holders on a current basis.
(ii) The Borrower will provide the Holders prompt notice of any
material adverse event affecting the Borrower or companies owned by
the Borrower.
(iii) The Borrower shall make in a timely manner all payments due
and not reasonably disputed to any person who has a security interest
in the Property.
14. Assignment of Note. This Note may not be assigned by Borrower. The Note may
be assigned by Holder with the express written consent of the Borrower, which
consent will not unreasonably be withheld.
15. Non-Waiver. No delay or omission on the part of Holder in exercising any
rights or remedy hereunder shall operate as a waiver of such right or remedy or
of any other right or remedy under this Note. A waiver on any one or more
occasion shall not be construed as a bar to or waiver of any such right and/or
remedy on any future occasion.
16. Maximum Interest. In no event whatsoever shall the amount paid, or agreed to
be paid, to Holder for the use, forbearance, or retention of the money to be
loaned hereunder ("Interest") exceed the maximum amount permissible under
applicable law. If the performance or fulfillment of any provision hereof, or
any agreement between Borrower and Holder shall result in Interest exceeding the
limit for Interest prescribed by law, then the amount of such Interest shall be
reduced to such limit. If, from any circumstance whatsoever, Holder should
receive as Interest an amount which would exceed the highest lawful rate, the
amount which would be excessive Interest shall be applied to the reduction of
the principal balance owing hereunder (or, at the option of Holder, be paid over
to Borrower) and not to the payment of Interest.
17. Purpose of Loan. Borrower certifies that the loan evidenced by this Note is
obtained for business or commercial purposes and that the proceeds thereof will
not be used primarily for personal, family, household or agricultural purposes.
18. Waiver of Presentment. Borrower and the endorsers, sureties, guarantors and
all persons who may become liable for all or any part of this obligation shall
be jointly and severally liable for such obligation and hereby jointly and
severally waive presentment and demand for payment, notice of dishonor, protest
and notice of protest, and any and all lack of diligence or delays in collection
or enforcement hereof. Said parties consent to any modification or extension of
time (whether one or more) of payment hereof, the release of all or any part of
the security for the payment hereof, and the release of any party liable for
payment of this obligation. Any modification, extension, or release may be
without notice to any such party and shall not discharge said party's liability
hereunder.
19. Governing Law. As an additional consideration for the extension of credit,
Borrower and each endorser, surety, guarantor, and any other person who may
become liable for all or any part of this obligation understand and agree that
the loan evidenced by this Note is made in the State of Texas and the provisions
hereof will be construed in accordance with the laws of the State of Texas, and
such parties further agree that in the event of default this Note may be
enforced in any court of competent jurisdiction in the State of Texas, and they
do hereby submit to the jurisdiction of such court regardless of their residence
or where this Note or any endorsement hereof may be executed.
20. Binding Effect. The term "Borrower" as used herein shall include the
original Borrower of this Note and any party who may subsequently become liable
for the payment hereof as an assumer with the consent of the Holder, provided
that Holder may, at its option, consider the original Borrower of this Note
alone as Borrower unless Holder has consented in writing to the substitution of
another party as Borrower.
21. Joint and Several Liability of Borrowers. Borrower and BBII are jointly and
severally liable on this Note.
22. Relationship of Parties. Nothing herein contained shall create or be deemed
or construed to create a joint venture or partnership between Borrower and
Holder. Holder is acting hereunder as a lender only.
23. Severability. Invalidation of any of the provisions of this Note or of any
paragraph, sentence, clause, phrase, or word herein, or the application thereof
in any given circumstance, shall not affect the validity of the remainder of
this Note.
24. Amendment. This Note may not be amended, modified, or changed, except only
by an instrument in writing signed by both of the parties.
25. Time of the Essence. Time is of the essence for the performance of each and
every obligation of Borrower hereunder.
26. Notices. All notices, consents, approvals, requests, demands and other
communications which are required or may be given hereunder shall be in writing
and shall be duly given if personally delivered, sent by telefax, telegram or
overnight courier or posted by U.S. registered or certified mail, return receipt
requested, postage prepaid and addressed to the other parties at the addresses
set forth below.
If to the Borrowers:
Momentum Biofuels, Inc.
2600 South Shore Blvd
Suite 100
League City, TX 77573
ATTN: President
If to the Holder:
at the address as shown on the register maintained by the
Holder for such purpose.
Each of the above addressees may change its address for purposes of
this Section by giving to the other addressee notice of such new address in
conformance with this Section. If the Borrower receives any notice pursuant to
this Note or any other Note of this series, it must, not later than within three
business days, dispatch a copy of such notice to the Holder of this Note and to
each other Holder of any Note as reflected in the current Note Register.
27. Agreement among Lenders. Borrower acknowledges that Lenders will enter into
an Agreement among Lenders pursuant to which Lenders may appoint an agent to act
on their behalf (the "Agent"). A copy of the Agreement among Lenders shall be
provided to Borrower. Borrower, upon receiving written notice signed by a
Majority of the Lenders that an Agent has been appointed on their behalf, shall
acknowledge and accept the Agent's authority to act on behalf of the Lenders in
accordance with the Agreement among Lenders
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
[DATE], 2008.
MOMENTUM BIOFUELS, INC.
a Colorado corporation
By:________________________
Chief Executive Officer
MOMENTUM BIOFUELS, INC.
a Texas corporation
By:________________________
Chief Executive Officer