LIMITED RESOURSE PROMISSORY NOTE
July 31, 2000
$7,741,378.90 New York, New York
FOR VALUE RECEIVED, Energy Systems Investors, L.L.C., a Delaware limited
liability company with its offices at 920 Park Avenue, Apt. 4D, New York, New
York 10028, Attn: Lawrence I. Schneider (the "Maker") promises to pay to the
order of U.S. Energy Systems, Inc., a Delaware corporation or any subsequent
holder of this Note (the "Payee") on July 30, 2001, at its offices located at
U.S. Energy Systems, Inc., 515 N. Flagler Drive, Suite 702, West Palm Beach,
Florida 33401, or at such other location as Payee may designate in writing from
time to time, the principal sum of Seven Million Seven Hundred Forty-One
Thousand Three Hundred Seventy-Eight and 90/100 ($7,741,378.90) Dollars,
together with interest from August 1, 2000 on the unpaid principal balance at
the rate of nine and one-quarter percent (9.25%) per annum. Interest shall be
payable in arrears on July 31, October 31, January 31, and April 30 of every
year commencing October 31, 2000, with any unpaid interest to be paid at
maturity, whether by acceleration or otherwise. Upon maturity, whether by
acceleration, or otherwise, this Note shall bear interest at the rate which
shall be twelve percent (12%) per annum, but not more than the maximum rate
allowed by law. All interest calculations hereunder shall be calculated based on
a 365 day year and on the number of days actually elapsed. Payments of principal
and interest shall be made in lawful money of the United States of America in
immediately available funds. The obligations evidenced by this Note are secured
by the Pledge Agreement dated as of the date hereof between the Maker and the
Payee (the "Pledge Agreement"). This Note has been issued by Maker in connection
with its exercise of the balance of an option to acquire an aggregate of 888,888
shares of Series A Convertible Preferred Stock (the "Series A Stock") of U.S.
Energy Systems, Inc. ("USE"), such option having previously been exercised to
acquire an aggregate of 27,778 shares of Series A Stock.
1. EVENTS OF DEFAULT. The occurrence of any of the following
events will be deemed to be an Event of Default under this Note: (a) the Maker
shall fail to make any payment of principal or of interest on this Note when due
and such payment is not received by the Payee within five days after notice of
such failure is given to Maker; (b) the Maker shall fail, beyond any applicable
notice, grace or cure period, to make any payment or shall fail to keep,
observe, comply with or perform any term, provision, covenant, warranty,
agreement, condition or undertaking on its part required to be paid, complied
with or performed or observed, by the provisions of this Note, the Pledge
Agreement or any of the other agreements, documents or instruments executed
and/or delivered by the Maker to the Payee in connection with the execution of
this Note or the Pledge Agreement; (c) the Maker shall (i) commence any case,
proceeding or other action under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization, or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
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reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition, or other relief with respect to its debts; (ii) commence any case,
proceeding or other action seeking appointment of a receiver, trustee,
custodian, or other similar official for it or for all or any substantial part
of its assets; or (iii) make a general assignment for the benefit of its
creditors; (d) there shall be commenced against the Maker by any person any
case, proceeding or other action of a nature referred to in clause (c) above
that results in the entry of an order for relief or any such adjudication or
appointment, and such order, adjudication or appointment remains undismissed,
undischarged, or unbonded for a period of thirty (30) days; or (e) there shall
be commenced against the Maker by any person any case, proceeding, or other
action seeking issuance of a warrant of attachment, execution, distraint, or
similar process against all or any substantial part of its assets that results
in the entry of an order for any such relief that shall not have been vacated,
discharged, or stayed or bonded pending appeal within thirty (30) days from the
entry thereof; (f) the Maker shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (a), (b), (c), (d) and (e) above; or (g) the Maker shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due.
If an Event of Default shall have occurred and be continuing, Payee may
declare this Note immediately due and payable in full, both as to principal and
accrued interest without any further notice to the Maker, and Payee may proceed
to exercise and enforce any and all of the rights and remedies available to it
hereunder and at law or in equity.
2. LIMITED RECOURSE. (a) Payee hereby covenants and agrees for
itself, its successors and assigns (this covenant to be binding upon any future
holder or holders of the Note and upon any and all persons making a claim of any
kind against the Maker arising out of the Note), that, except to the extent
otherwise provided in this paragraph 2, Payee or any future holder or holders of
the Note shall enforce payment of any obligation or warranty contained in this
Note, solely from (i) the Pledged Collateral (as such term is defined in the
Pledge Agreement) and (ii) not more than $100,000 of the Maker's other assets
(i.e., excluding the Pledged Collateral), and that except as set forth in this
paragraph 2, no deficiency, after applying the net proceeds of any foreclosure
or other sale or disposition (judicial or otherwise) of the pledged, mortgaged,
hypothecated, or assigned property against any and all amounts due under the
Note, shall ever be asserted against the Maker, or in any manner realized upon
the personal liability of the Maker.
(b) The provisions of paragraph 2(a) shall not,
however, (i) constitute a waiver, release or impairment of any obligation
evidenced or secured by the Pledge Agreement; (ii) impair the right of Payee to
name Maker as a party defendant in any action or suit for foreclosure and sale
under the Pledge Agreement; nor (iii) impair the enforcement of the Pledge
Agreement.
3. OPTIONAL PREPAYMENTS. The Maker shall have the right to
prepay all or any part of this Note at any time or from time to time without
penalty. All such prepayments shall be first applied to accrued costs, expenses
and fees, if any, on the Note and/or
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the Pledge Agreement then to interest due on the Note and/or the Pledge
Agreement, and then to the reduction of the principal amount of this Note.
4. WAIVER OF JURY TRIAL. THE MAKER IRREVOCABLY WAIVES ANY AND
ALL RIGHTS THE MAKER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
CLAIM OF ANY NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION
WITH THIS NOTE OR THE PLEDGE AGREEMENT. THE MAKER ACKNOWLEDGES THAT THE
FOREGOING WAIVER IS KNOWING AND VOLUNTARY. THE MAKER ACKNOWLEDGES THAT IT HAS
READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE WAIVER OF
JURY TRIAL, AND HAS BEEN ADVISED BY COUNSEL AS NECESSARY OR APPROPRIATE.
5. MAXIMUM RATE OF INTEREST. NOTHING CONTAINED HEREIN OR IN
ANY INSTRUMENT OR TRANSACTION RELATED HERETO, SHALL BE CONSTRUED OR OPERATE AS
TO REQUIRE THE MAKER, TO PAY INTEREST, OR ANY CHARGE IN THE NATURE OF INTEREST,
IN AN AMOUNT OR AT A RATE WHICH EXCEEDS THE MAXIMUM RATE OF INTEREST ALLOWED BY
APPLICABLE LAW RELATING TO USURY. IN THE EVENT THAT PAYEE DETERMINES THAT
CHARGES AND FEES INCURRED IN CONNECTION WITH THIS NOTE MAY UNDER SUCH APPLICABLE
LAWS CAUSE THE INTEREST RATE HEREON TO EXCEED THE MAXIMUM RATE ALLOWED BY LAW,
THEN SUCH INTEREST SHALL BE RECALCULATED AND ANY AMOUNT IN EXCESS OF THE MAXIMUM
INTEREST PERMITTED BY LAW SHALL BE APPLIED TO REDUCE THE PRINCIPAL AMOUNT OF THE
NOTE. IT IS THE INTENT OF THE PARTIES HERETO THAT UNDER NO CIRCUMSTANCES SHALL
THE MAKER OR ANY OTHER PERSON LIABLE FOR THE PAYMENT OF THIS NOTE BE REQUIRED TO
PAY, NOR SHALL PAYEE BE ENTITLED TO COLLECT, ANY INTEREST WHICH IS IN EXCESS OF
THE MAXIMUM LEGAL RATE PERMITTED UNDER SUCH APPLICABLE LAW. PAYEE MAY, IN
DETERMINING THE MAXIMUM RATE OF INTEREST ALLOWED UNDER APPLICABLE LAW, AS
AMENDED FROM TIME TO TIME, TAKE ADVANTAGE OF ANY STATE OR FEDERAL LAW, RULE OR
REGULATION IN EFFECT FROM TIME TO TIME WHICH MAY GOVERN THE MAXIMUM RATE OF
INTEREST WHICH MAY BE RESERVED, CHARGED OR TAKEN. THE MAKER AND THE PAYEE HAVE
AGREED THAT NEW YORK LAW SHALL GOVERN ALL CONSIDERATIONS AND DETERMINATIONS WITH
REGARD TO USURY.
6. MISCELLANEOUS.
(a) No delay or omission of Payee to exercise
any right or power arising hereunder or by law shall impair any such right or
power or be considered to be a waiver of any such right or power, nor shall
Payee's action or inaction impair any such right or power. No remedy conferred
upon or reserved or available to Payee shall be exclusive of any other
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remedy or remedies available to it, but each and every remedy shall be
cumulative and shall be in addition to every such remedy now or hereafter
existing at law or in equity. Any right or power of Payee may be exercised from
time to time and as often as may be deemed expedient by it. The Maker agrees to
pay on demand, to the extent permitted by law, all costs and expenses incurred
by Payee in the enforcement of its rights with respect to this Note and any
security therefor (including pursuant to the Pledge Agreement), including
without limitation, reasonable fees and expenses of Payee's counsel. If any
provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect.
(b) The Maker and all other parties who at any
time may be liable hereon in any capacity, jointly or severally, waive
presentment, demand for payment, protest and notice of dishonor of this Note
and authorize the holder hereof, without notice, to grant extensions in the
time of payment of and changes in the rate of interest pursuant to Section 5
hereof on any moneys owing on this Note. The Maker also waives all defenses
based on suretyship or impairment of collateral.
(c) This Note shall be binding upon the Maker
and its respective successors and assigns.
(d) Any notice or request hereunder shall be
given by hand delivery, overnight courier, or registered or certified mail,
return receipt requested. Any notice or other communication required or
permitted pursuant to this Note shall be deemed given (i) when personally
delivered to any party or any officer of the party to whom it is addressed, (ii)
on the earlier of actual receipt thereof or three (3) days following posting
thereof by certified or registered mail, postage prepaid, or (iii) upon actual
receipt thereof when sent by a recognized overnight delivery service.
(e) Caption headings in this Note are for
convenience only and are not to be used to interpret or define the provisions of
this Note.
(f) This Note has been delivered to and accepted
by Payee and will be deemed to be made in the New York State. THIS NOTE WILL BE
INTERPRETED AND THE RIGHTS AND LIABILITIES OF PAYEE AND THE MAKER SHALL BE
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCLUDING ITS
CHOICE OF LAWS RULES.
ENERGY SYSTEMS INVESTORS, L.L.C.
By: Henry Schneider
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Henry Schneider, Manager
