Document:

Amended and Restated Convertible Promissory Note

EXHIBIT 10.1

THE SHARES ISSUABLE UPON CONVERSION OF THIS CONVERTIBLE NOTE AND THE CONVERTIBLE NOTE HAVE NOT BEEN REGISTERED UNDER THE FEDERAL OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR HYPOTHECATED IN ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS AS MAY BE APPLICABLE OR, AN OPINION OF COUNSEL TO THE COMPANY, THAT AN EXEMPTION FROM SUCH APPLICABLE LAWS EXIST.

THIS AMENDED, RESTATED AND CONSOLIDATED CONVERTIBLE NOTE REPLACES AND SUPERSEDES THAT CERTAIN AMENDED, RESTATED AND CONSOLIDATED CONVERTIBLE NOTE ISSUED ON MAY 4, 2016.

AMENDED, RESTATED AND CONSOLIDATED

CONVERTIBLE NOTE

$3,404,000.00

Issuance Date: June 2, 2016

Maturity Date: December 15, 2017

FOR VALUE RECEIVED, Ecosphere Technologies, Inc. (the “Company”), a Delaware corporation, hereby promises to pay to the order of Brisben Water Solutions LLC or its assigns (the “Holder”), the principal sum of $3,404,000.00 together with interest at 10% per annum  on the basis of a 360-day year except as otherwise stated: (i) on the principal amount of $1,000,000 from September 12, 2014 to February 9, 2015; (ii) on the principal amount of $1,250,000 from February 9, 2015 to March 19, 2015; (iii) on the principal amount of $1,500,000 from March 19, 2015 to May 8, 2015; (iv) on the principal amount of $1,750,000 from May 8, 2015 to June 18, 2015; (v) on the principal amount of $2,000,000 from June 18, 2015 to July 10, 2015; (vi) on the principal amount of $2,125,000 from July 10, 2015 to March 30, 2016; (vii) on the principal amount of $150,000, the fixed amount of $30,000; (viii) on the principal amount of $200,000, the fixed amount of $40,000; (ix) on the principal amount of $2,154,000 from March 30, 2016 to April 8, 2016, (x) on the principal amount of $2,254,000 from April 8, 2016 to May 4, 2016; (xi) on the principal amount of $2,554,000 from May 4, 2016 to May 20, 2016; (xii) on the principal amount of $2,604,000 from May 20, 2016 to May 27, 2016;  (xiii) on the principal amount of $2,754,000 from May 27, 2016 to June 2, 2016; and (xiv) on the principal amount of $3,054,000 from June 2, 2016.

 This Amended, Restated and Consolidated Convertible Note (the “Note”) replaces and supersedes that Amended, Restated and Consolidated Convertible Note issued May 4, 2016.

Interest shall be due and payable on the earlier of: (i) the Conversion Date (defined below), or each Conversion Date if more than one; and (ii) the Maturity Date (defined above), and the principal of this Note is due and payable on the Maturity Date.

While in default, this Note (or the amount thereof in default) shall bear interest at the rate of 18% per annum or such maximum rate of interest allowable under the laws of the State of Florida. Payments shall be made in lawful money of the United States. On 10 business days prior written notice to the Holder, the Company may prepay the principal and accrued and unpaid interest, in whole or in part, without penalty or provision.  This Note shall be prepaid upon the sale by the Company of any part of the Collateral (as defined below) and shall be repaid upon occurrence of any events requiring repayment under the Security Agreement (defined below).  The Company shall give the Holder written notice of any sale of any part of the Collateral at least 30 days prior to such sale.

This Note shall be secured by the Collateral, as defined in the Security Agreement between the Company and the Holder, dated as of the date hereof, which replaces and supersedes all prior security agreements entered into between the Company and the Holder prior to the date hereof (the “Security Agreement”). The Parties acknowledge and agree that the Security Agreement contains a covenant that, in enforcing the Holder’s rights under the Security Agreement and this Note, the Lender shall never seek to take possession of, nor cause the sale, transfer or other disposition of, nor in any way limit or interfere with the rights of Ecosphere or other parties to certain equity interests in Sea of Green Systems, Inc. (“SOGS”) and Ecosphere Development Corporation LLC (“EDC”), or any other agriculture-related asset held directly, or indirectly, by Ecosphere or any entity it controls, or by SOGS or any entity SOGS acquires or is acquired by, or by EDC or any entity EDC acquires or is acquired by. The preceding sentence shall not be construed to limit the Holder’s rights to any asset that is explicitly included in the definition of Collateral under the Security Agreement.  

1.

Conversion to Common Stock or Series C Convertible Stock; Warrants.

(a)

The number of shares of common stock issuable upon a conversion of this Note shall be determined by dividing: (i) the principal amount of this Note being converted by (ii) $0.115 per share. No fractional shares shall be issued upon a conversion. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall pay the Holder cash equal to the product of such fraction multiplied by the common stock’s fair market value at the time of conversion based on the closing price of a share of common stock on the Conversion Date.

(b)

To convert this Note into common stock on any date (a “Conversion Date”), the Holder shall: (i) transmit by email (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the “Conversion Notice”) to the Company, and (ii) surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction).  On or before the second business day following the date of receipt of a Conversion Notice, the Company shall confirm that it has issued to the Holder the number of shares of common stock to which the Holder shall be entitled, and shall return to the Holder a new Note with respect to the portion of the original Note which was not converted.  The person or persons entitled to receive the 

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common stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such common stock on the Conversion Date.

(c)

$2,000,000 in amounts of principal and interest accrued thereon under this Note shall be convertible into common stock of the Company. All additional amounts of principal and interest accrued under this Note shall also be convertible into common stock of the Company, except that in the event there shall not be sufficient authorized capital to permit full conversion of outstanding amounts into common stock, the Holder and the Company agree as follows: in lieu of any shares of common stock deliverable upon conversion of this Note, the Company may, to the extent that it lacks sufficient authorized common stock, issue the Holder an equivalent number, on an as-converted basis, of shares of the Company’s Series C Convertible Preferred Stock (the “Series C”), which converts on the basis of 1,000,000 shares of common stock to one share of Series C, in accordance with the Certificate of Designation setting forth the terms of the Series C, which is attached as Exhibit B to this Note.

(d)

For the avoidance of doubt, and notwithstanding anything in this Note or any other agreement between the Company and the Holder, Section 1 of the January 18, 2016 Note is no longer of any force or effect, and, no amounts of principal or interest under this Note shall be convertible into shares of common stock for SOGS.

(e)

Warrants. 

(i) The Company acknowledges and agrees that as further consideration for the advance of $500,000 made in connection with the issuance of this Note, the Holder shall be issued 8,695,652 warrants to purchase shares of common stock of the Company (or, if the Company lacks the authorized common stock, an equivalent number of shares of Series C on terms reasonably acceptable to the Holder), exercisable for five years at $0.045 per share (subject to adjustment as defined therein) and which permit the Holder to exercise on a cashless basis. 

(ii) In addition, a total of 51,066,847 warrants held by the Holder or affiliated persons shall be amended such that the exercise price shall be $0.045 and the warrants shall expire five years from the date of this Note. All other terms of the warrants held by the Holder or affiliated persons shall remain unchanged and are hereby affirmed.

2.

Royalty Agreement. The Holder and the Company acknowledge that they are entering into a Royalty Agreement as of the date hereof, in the form attached as Exhibit C. The Holder and the Company further acknowledge and agree that (i) any and all payments to be made under the Royalty Agreement are distinct obligations owed to the Holder over and above any payments owed to the Holder under the terms of this Note and shall not be credited to the Company as prepayments or repayments of amounts owed under this Note; and (ii) the Royalty Agreement 

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shall be binding on the Company according to its terms for the period stated therein, with continuing effect beyond, and irrespective of, repayment of this Note.

3.

Anti-Dilution Protection.

(a)

In the event, prior to the payment of this Note, that the Company shall issue any of its shares of common stock as a stock dividend or shall subdivide the number of outstanding shares of common stock into a greater number of shares, then, in either of such events, the Conversion Price  shall be decreased proportionately; and, conversely, in the event that the Company shall reduce the number of outstanding shares of common stock by combining such shares into a smaller number of shares, then, in such event, the Conversion Price shall be increased proportionately.  Any dividend paid or distributed upon the common stock in shares of any other class of capital stock of the Company or securities convertible into shares of common stock shall be treated as a dividend paid in common stock.  In the event that the Company shall pay a dividend consisting of the securities of any other entity or in cash or other property, upon the next conversion of this Note, the Holder shall receive the securities, cash, or property which the Holder would have been entitled to if the conversion occurred immediately prior to the record date of such dividend.

(b)

In the event, prior to the payment of this Note, that the Company shall be recapitalized by reclassifying its outstanding common stock (other than into shares of common stock with a different par value, or by changing its outstanding shares of common stock to shares without par value), or in the event the Company or a successor corporation, partnership, limited liability company or other entity (any of which is defined as a “Corporation”) shall consolidate or merge with or convey all or substantially all of its, or of any successor Corporation's property and assets to any other Corporation or Corporations (any such other Corporation being included within the meaning of the term “successor Corporation” used in the context of any consolidation or merger of any other Corporation with, or the sale of all or substantially all of the property of any such other Corporation to, another Corporation or Corporations), or in the event of any other material change in the capital structure of the Company or of any successor Corporation by reason of any reclassification, reorganization, recapitalization, consolidation, merger, conveyance or otherwise, then, as a condition of any such reclassification, reorganization, recapitalization, consolidation, merger or conveyance, a prompt, proportionate, equitable, lawful and adequate provision shall be made whereby  in lieu of the securities of the Company theretofore issuable upon the conversion of this Note, the Holder upon conversion shall receive the securities or assets as may be issued or paid as a result of the foregoing; and in any such event, the rights of the Holder of this Note to any adjustment in the number of shares of common stock obtainable upon conversion of this Note, as provided, shall continue and be preserved in respect of any shares, securities or assets which the Holder becomes entitled to obtain.  Notwithstanding anything herein to the contrary, this Section 2 shall not apply to a merger with a subsidiary provided the Company is the continuing Corporation or involving a subsidiary merger and provided further such merger does not result in any reclassification, capital reorganization or other change of the securities issuable under this Note.  The foregoing provisions of this Section 2(b) shall apply to successive reclassifications, capital reorganizations and changes of securities and to successive consolidations, mergers, sales or conveyances.

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(c)

In the event the Company, at any time while this Note shall remain outstanding, shall sell all or substantially all of its assets, or dissolve, liquidate, or wind up its affairs, prompt, proportionate, equitable, lawful and adequate provision shall be made as part of the terms of any such sale, dissolution, liquidation, or winding up such that the Holder of this Note may thereafter receive, upon exercise hereof, in lieu of the securities of the Company which it would have been entitled to receive, the same kind and amount of any shares, securities or assets as may be issuable, distributable or payable  upon any such sale, dissolution, liquidation or winding up with respect to each common share of the Company; provided, however, that in the event of any such sale, dissolution, liquidation or winding up, the conversion provisions of this Note shall terminate on a date fixed by the Company, such date so fixed to be not earlier than 6:00 p.m., New York time, on the 30th day after the date on which notice of such termination of conversion provisions of this Note has been given by mail to the Holder of this Note at such Holder's address as it appears on the books of the Company.

4.

Event of Default.  In the event of any failure to pay this Note when due; or the Company shall be in breach of or default under any agreement with the Holder; or the Company shall 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 as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to its debts, or seeking appointment of a receiver, custodian, trustee or other similar official for it or for all or any substantial part of its assets; or there shall be commenced against the Company, any case, proceeding or other action which results in the entry of an order for relief or any such adjudication or appointment remains undismissed, undischarged or unbounded for a period of 30 days after service upon the Company; or there shall be commenced against the Company, any case, proceeding or other action seeking issuance of a warrant of attachment, execution, restraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 10 days from the entry thereof after service upon the Company; or the Company shall make an assignment for the benefit of creditors; or the Company shall take any action indicating its consent to, approval of, or acquiescence in, or in furtherance of, any of the foregoing; or the Company or any of its subsidiaries shall fail to pay any indebtedness for borrowed money to any third party when due; then, or any time thereafter during the continuance of any of such events, the entire unpaid balance of this Note then outstanding, together with accrued interest thereon, if any, shall be and become immediately due and payable without notice of demand by Holder.

5.

Investment Intent.  The Holder, by acceptance of this Note, warrants and represents that it is acquiring this Note and the underlying common stock for its own account, for investment and not with a view to, or for resale in connection with, the distribution thereof.  The Holder has no present intention of reselling or distributing them after any period of time.  The acquisition of the securities for investment is consistent with Holder’s financial needs.

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6.

Miscellaneous.

(a)

All makers and endorsers now or hereafter becoming parties hereto jointly and severally waive demand, presentment, notice of non-payment and protest. 

(b)

This Note may not be changed or terminated orally, but only with an agreement in writing, signed by the parties against whom enforcement of any waiver, change, modification, or discharge is sought with such agreement being effective and binding only upon attachment hereto.

(c)

This Note and the rights and obligations of the Holder and of the undersigned shall be governed and construed in accordance with the laws of the State of Delaware.

(d)

Any action brought by either party against the other concerning this Note shall be brought only in the state or federal courts of Florida and venue shall be in the County of Martin or the Southern District of Florida.  The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. 

(e)

In the event that there is any controversy or claim arising out of or relating to this Note, or to the interpretation, breach or enforcement thereof, and any action or proceeding is commenced to enforce the provisions of this Note, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and expenses (including such fees and costs on appeal).

(f)

Upon any endorsement, assignment, or other transfer of this Note by the Holder or by operation of law, the term “Holder,” as used herein, shall mean such endorsee, assignee, or other transferee or successor to the Holder, then becoming the holder of this Note.  This Note shall inure to the benefit of the Holder and its successors and assigns and shall be binding upon the undersigned and their successors and assigns.  

(g) 

In the event that any interest paid on this Note is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note, and any surplus thereafter shall immediately be refunded to the Company.

(h)

To the extent permitted by law, any reproduction of this Note shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by Holder or the Company in the regular course of business) and that, to the extent permitted by law, any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Company has caused this Note to be executed as of the date aforesaid.

			
	 
	COMPANY:

	 
	Ecosphere Technologies, Inc.,

	 
	a Delaware corporation

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	By:

	 

	 
	 
	Dennis McGuire,

	 
	 
	Chief Executive Officer

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EXHIBIT A

 TO THE AMENDED, RESTATED AND CONSOLIDATED 

CONVERTIBLE NOTE DATED JUNE 2, 2016

CONVERSION NOTICE

Reference is made to the Amended, Restated and Consolidated Convertible Note dated June 2, 2016 (the “Note”) issued to the undersigned by Ecosphere Technologies, Inc. (the “Company”).  In accordance with and pursuant to the Note, the undersigned hereby elects to convert, in whole or in part (as applicable), the principal and any accrued interest of the Note to which this notice is attached into common stock of the Company, as of the date specified below.

											
	Date of Conversion:

	 

	Please confirm the following information:

	Conversion Price:

	 

	Principal and accrued interest to be converted (if partial):

	 

	Number of shares of common stock to be issued (or number of shares of common stock underlying equivalent issuance of Series C Preferred Stock, if applicable):

	 

	Please issue the common stock (or Series C Preferred Stock, if applicable) into which the Note is being converted in the following name and to the following address:

	Issue to:

	 

	 
	 

	 
	 

	Email Address:

	 

	Tax ID:

Authorization:

	____________________________________________________________

	By:

	 

	Title:

	 

	Dated:

	 

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EXHIBIT BAmended and Restated Security Agreement

EXHIBIT 10.2

SECURITY AGREEMENT

This Security Agreement (the “Agreement”) is entered into as of this 2nd day of June, 2016 by and between Ecosphere Technologies, Inc., a Delaware corporation (“Ecosphere”), and Brisben Water Solutions LLC (the “Lender” and together with Ecosphere, the “Parties”). The Parties hereby agree as follows:

1.

Creation of Security Interest.  In connection with the issuance by Ecosphere of that certain Amended, Restated and Consolidated Convertible Note, dated as of the date hereof, in the amount of $3,404,000.00 (the “Note”) and as consideration for the Lender’s advance of funds thereunder, Ecosphere hereby grants to the Lender a security interest in the Collateral described in Section 2 to secure the performance or payment of all of the Obligations (as defined below) of Ecosphere under Section 3. The Parties agree that notwithstanding any provision to the contrary contained in any prior agreement between the parties, the entry into each of this Agreement and the Note do not constitute a default or violation of any covenant under any prior agreement of the parties, and it is the intent of the parties that this Agreement shall replace and supersede all prior security agreements made between the parties without affecting the validity or priority of any security interests in the Collateral granted in favor of the Lender under any such prior security agreements to secure the Obligations. 

2.

Collateral.  The collateral of this Agreement (the “Collateral”) consists of the items described on attached Exhibit A, including the Physical Collateral and the Patent Collateral, as defined in Exhibit A. 

3.

Ecosphere's Obligations.

(a)

Obligation to Pay.  Ecosphere shall pay to the Lender $3,404,000.00 and accrued interest thereon in accordance with the terms of the Note. 

(b)

Additional Obligations.

(i)

Protection of Collateral.  The Physical Collateral:

(A)

will not be misused or abused, but will be maintained in good and operable condition, reasonable wear and tear excepted (except for any loss, damage or destruction which is fully covered by insurance proceeds) and will be repaired, renewed and replaced by Ecosphere, in the exercise of reasonable discretion, shall deem necessary;

(B)

will be insured by Ecosphere in the amount of $750,000 for the Ecos PowerCube® unit and $500,000 for the Ecos GrowCubeTM unit until this Agreement is terminated against all expected risks to which it is exposed, including fire, theft, wind and flood, and those which the Lender may designate, with the policies acceptable to the Lender, payable to the Lender and providing for 30 days' minimum cancellation notice to the Lender, and with certificates evidencing such insurance delivered to the Lender as a condition to advances under the Note; and

(ii)

Protection of Security Interest.

(A)

The Collateral will not be sold, licensed, transferred, encumbered, pledged, or disposed of or be subjected to any unpaid charge, including taxes, or to any subsequent interest of a third person created or suffered by Ecosphere voluntarily or involuntarily, unless the Lender consents in advance in writing to such charge, transfer, disposition or subsequent interest, and

(B)

The Lender has filed Financing Statements and may file additional Financing Statements it deems necessary in places it deems appropriate to protect the security interest under this Agreement against the rights or interests of third persons.

(C)

Any proceeds received by Ecosphere upon the sale, lease, license, assignment, transfer, encumbrance, pledge or other disposition of any of the Collateral or any part thereof shall be paid to Lender when received and applied to the Note until all principal, accrued interest and attorneys’ fees outstanding under the Note are paid in full.  All additional proceeds, if any, from such sale or other disposition shall be retained by Ecosphere.

(iii)

Sale of FNES Interest.  In addition to the Lender’s rights and remedies with respect to the Collateral, to secure the performance or payment of the Obligations, Ecosphere agrees as follows:

(A)

Ecosphere shall not sell, assign, transfer or encumber in any manner Ecosphere’s 30.6% limited liability company ownership interest in Fidelity National Environmental Solutions, LLC (“FNES”, and such 30.6% interest, the “FNES Interest”); and

(B)

In the event Ecosphere is in default of the Note and Lender declares the Note to be immediately due and payable, Ecosphere shall sell the FNES Interest or any part thereof for cash at public or private sale, subject to full compliance with the provisions, including tag-along rights and rights of first refusal, of the Amended and Restated Limited Liability Company Agreement of FNES, as in effect on the date hereof.  To facilitate the sale process, Lender may solicit offers to purchase the FNES Interest.  Such public or private sale shall take place no later than 90 days after the date of default by non-payment.  Ecosphere shall give Lender at least 30 days’ notice of the time and place of any public sale or the time at which any private sale is to be made.  At any sale of the FNES Interest the Lender may be the purchaser of the FNES Interest or any part thereof and shall be entitled to use and apply any sums due it under the Note as a credit on account of the purchase price of the FNES Interest or any part thereof payable at such sale.  All proceeds received by Ecosphere upon sale of the FNES Interest or any part thereof shall be paid to Lender and applied to the Note until all principal, accrued interest and attorneys’ fees outstanding under the Note are paid in full.  All additional proceeds, if any, from the sale shall be retained by Ecosphere.

(iv)

Sale of EM Interest.  In addition to the Lender’s rights and remedies with respect to the Collateral, to secure the performance or payment of the Obligations, Ecosphere agrees as follows:

(A)

Ecosphere shall not sell, assign, transfer or encumber in any manner the 25% limited liability company ownership interest in Ecosphere Mining, LLC (“EM”) which Ecosphere owns and has pledged to the Lender under this Agreement (the “EM Interest”); and

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(B)

In the event Ecosphere is in default of the Note and Lender declares the Note to be immediately due and payable, Ecosphere shall sell the EM Interest or any part thereof for cash at public or private sale.  To facilitate the sale process, Lender may solicit offers to purchase the EM Interest.  Such public or private sale shall take place no later than 90 days after the date of default by non-payment.  Ecosphere shall give Lender at least 30 days’ notice of the time and place of any public sale or the time at which any private sale is to be made.  At any sale of the EM Interest, the Lender may be the purchaser of the EM Interest or any part thereof and shall be entitled to use and apply any sums due it under the Note as a credit on account of the purchase price of the EM Interest or any part thereof payable at such sale.  All proceeds received by Ecosphere upon sale of the EM Interest or any part thereof shall be paid to Lender and applied to the Note until all principal, accrued interest and attorneys’ fees outstanding under the Note are paid in full.  All additional proceeds, if any, from the sale shall be retained by Ecosphere.

(v)

Allocation of Ecosphere Revenues.  In addition to the Lender’s rights and remedies with respect to the Collateral, to secure the performance or payment of the Obligations, Ecosphere and its subsidiaries agree that so long as any amounts payable under the Note remain outstanding, Ecosphere and its subsidiaries shall allocate and pay to Lender 5% of all revenues actually received by Ecosphere and its subsidiaries from equipment sales, licensing fees, services and other sources to payment of the Obligations, as prepayments of principal and accrued interest; provided, however, that for the purposes of such calculations, management fees payable to Ecosphere from Sea of Green Systems, Inc. (“SOGS”), which have been accruing at the rate of $25,000 monthly since January 1, 2015 and remain unpaid as of the date hereof (the “Management Fees”), shall not be considered revenues under this Section 3(b)(v).  Provided, further, that SOGS shall not be deemed to be a subsidiary within the meaning of the first sentence of this Section 3(b)(v).  Equipment sales from Ecosphere to SOGS shall be deemed to be revenues of Ecosphere.  To the extent Ecosphere pays the Lender $200,000 under the Note from its receipt of at least $450,000 as a result of a financing transaction related to SOGS engaging in a reverse merger, sums received by SOGS as a result of such reverse merger shall not be deemed to be revenues within the meaning of the first sentence of this Section 3(b)(v).

(vi)

Allocation of Initial Public Offering Proceeds.  In addition to the Lender’s rights and remedies with respect to the Collateral, to secure the performance or payment of the Obligations, Ecosphere and its subsidiaries agree that so long as any amounts payable under the Note remain outstanding, Ecosphere and its subsidiaries shall allocate and pay to Lender 10% of all net proceeds actually received by Ecosphere or its subsidiaries in connection with the closing of an initial public offering of any of its present subsidiaries to payment of the Obligations; provided, however, that for the purposes of such calculations, the Management Fees shall not be considered net proceeds under this Section 3(b)(vi).  For avoidance of doubt, financing proceeds received in connection with a reverse merger shall not be deemed to be an initial public offering.  For purposes of this Section 3(b)(vi), “reverse merger” means a merger, consolidation or share exchange between an Ecosphere subsidiary and another entity which is treated as a reverse merger for accounting purposes.

4.

Representations, Warranties and Covenants.  

        (a) Ecosphere represents, warrants and covenants to Lender that:

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(i)

Ecosphere has good and sufficient title to the Collateral, the FNES Interest and the EM Interest, free and clear of all security interests, liens, encumbrances and claims whatsoever, other than those created in favor of the Lender.

(ii)

No financing statement, notice of lien, security agreement or any other agreement or instrument creating or giving notice of an encumbrance or charge against any of the Collateral, the FNES Interest and the EM Interest is in existence or on file in any public office, except those in favor of Lender.

(iii)

Ecosphere will at all times hereafter keep the Collateral, the FNES Interest and the EM Interest free of all security interests, liens and claims whatsoever, except the security interests, liens and claims in favor of Lender.

(iv)

Ecosphere (i) will, from time to time, on request of Lender, execute such financing statements, statements of assignment, notices and other documents and pay the costs of filing or recording the same in all public offices deemed necessary by Lender and do such other acts as Lender may request to establish and maintain a valid security interest in the Collateral, the FNES Interest and the EM Interest and (ii) authorizes  Lender at Ecosphere’s expense to file any financing statements, or any notices or assignments with the Patent and Trademark Office, relating to the Collateral (without Ecosphere’s signature thereon) which Lender deems appropriate.

(v)

Ecosphere irrevocably appoints Lender as Ecosphere’s attorney-in-fact, with full power of substitution, in its own name or in Ecosphere’s name, place and stead: 

(A)

To file any financing statements, and any documents in the Patent and Trademark Office that Lender deems appropriate in connection with the perfection, protection, priority or enforcement of Lender’s security interest in the Collateral; 

(B)  

To take any actions required of Ecosphere under this Agreement that Ecosphere fails or is unable to take in a timely manner; and 

(C) 

While Ecosphere is in default under this Agreement, to take any actions that Lender deems appropriate (i) to protect, preserve or realize upon the Collateral and its security interest in the Collateral or to accomplish the purposes of this Agreement, including any actions described in Section 6 and (ii)   in connection with the disposition of any Collateral (1) to assign or transfer title to such Collateral to itself or to any third party purchaser in connection with the Lender’s exercise of its rights under the Uniform Commercial Code, and (2) to file with the Patent and Trademark Office or other governmental office or authority any documents necessary or advisable to implement, effectuate or reflect the disposition.

(D)

Lender will not disturb the rights of any third-party licensee of Patent Collateral under a license granted by Ecosphere in the ordinary course of business so long as the licensee is not in breach of its obligations to Ecosphere under the license.

(vi)

Ecosphere will account fully and faithfully for and promptly pay or turn over to Lender proceeds in whatever form received in disposition in any manner of any of the Collateral, the FNES Interest and the EM Interest as provided herein.

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(vii)

All information now or hereafter furnished by Ecosphere to Lender relating in any way to the Collateral, the FNES Interest or the EM Interest is and will be true and correct in all material respects as of the date furnished.

(viii)

The FNES Interest and the EM Interest are not represented by a certificate and are “uncertificated securities” under the Uniform Commercial Code as in effect in Delaware.  Ecosphere will, if the FNES Interest or the EM Interest are represented by a certificate, promptly deliver possession of such certificate to Lender.

                   (b) The Lender represents, warrants and covenants to Ecosphere that, in enforcing the Lender’s rights under this Agreement and the Note, the Lender  (and any assignee of the Note) shall never seek to take possession of, nor cause the sale, transfer or other disposition of, nor in any way limit or interfere with the rights of Ecosphere or other parties to, the following:

(i)

Shares of capital stock of Sea of Green Systems, Inc. (“SOGS”) or any entity which acquires SOGS or  is acquired by SOGS.

(ii)

Limited liability company interests in Ecosphere Development Corporation LLC (“EDC”), or any entity which acquires EDC or is acquired by EDC.

(iii)

Except as explicitly included in the definition of Collateral in Exhibit A, any other agriculture-related asset held directly, or indirectly, by Ecosphere, including the equity interests and assets of subsidiaries of Ecosphere engaged in the agriculture business, including the growing and cultivating of cannabis, and/or licensees to the Patent Collateral within the Agriculture Field of Use (each as defined in Exhibit A). For the avoidance of doubt, the Lender retains full rights to all Collateral described in Exhibit A, and nothing in this section shall be construed to limit the Lender’s rights thereto.

5.

Default.  Any misrepresentation or misstatement in connection with, or non-compliance with or non-performance of the Note or this Agreement, or the occurrence of an event of default under the Note, shall constitute default under this Agreement.  In addition, Ecosphere shall be in default if (i) bankruptcy or insolvency proceedings are instituted by or against Ecosphere, which proceedings are not dismissed within 30 days; (ii) if Ecosphere makes any assignment for the benefit of creditors, or (iii) if Ecosphere shall default in performance of any agreement with the Lender.  

6.

The Lender's Rights and Remedies.

(a)

The Lender may assign this Agreement, with notice to Ecosphere, and, if the Lender does assign this Agreement, the assignee shall be entitled, upon notifying Ecosphere, to performance of all of Ecosphere's obligations under this Agreement.

(b)

Upon Ecosphere's default, the Lender may exercise its rights of enforcement under the Uniform Commercial Code in force in Delaware and any notice of lien filed with the United States Patent Office and, in conjunction with, addition to or substitution for those rights, at the Lender's discretion, it may:

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(i)

To the extent permitted by law, enter upon Ecosphere's premises to take possession of, assemble and collect the Collateral or to render it unuseable.

(ii)

Require Ecosphere to assemble the Collateral and make it available at a place the Lender designates which is mutually convenient, to allow the Lender to take possession or sell, lease, license or otherwise dispose of the Collateral.

(iii)

Waive any default or remedy any default in any reasonable manner without waiving the default remedied and without waiving any other prior or subsequent default.

(iv)

Ecosphere understands that to the extent permitted by law, if Ecosphere fails to meet any of Ecosphere's obligations under this Agreement, the Lender has a right to take possession of the Collateral by all lawful means and to sell, lease, license or otherwise dispose of the Collateral.

(c) 

Upon default of the Note, the Lender shall have rights to a sale of the EM Interest and/or FNES Interest by Ecosphere, including a right to solicit purchasers, in accordance with Sections 3(b)(iii) and 3(b)(iv).

(d)

With regards to only non-monetary defaults, the Lender will give notice to Ecosphere that Ecosphere is in default hereunder, and Ecosphere shall have 30 days from the date of such notice to cure the non-monetary defaults.  

(e)

The Lender’s remedies are limited to recovering its outstanding principal and accrued interest under the Note, attorneys’ fees and costs incurred in the sale of the Collateral.

7. 

Other Lienholders.  Any person or entity taking a junior encumbrance, or other lien upon the Collateral or any part thereof or any interest therein, shall take said lien subject to the rights of the Lender to amend, modify, extend, renew, enlarge or release the Note, this  Agreement or any other document or instrument evidencing, securing or guaranteeing the Note, including, but not limited to, any amendments, modifications, extensions or renewals that increase the amount outstanding under the Note, in each and every case without obtaining the consent of the holder of such junior lien and without the lien of this Agreement losing its priority over the rights of any such junior lien.  Accordingly, any person or entity taking a junior encumbrance, or other lien upon the Collateral or any part therein or any interest therein, shall take said lien subject to the provisions of the Note and this Agreement, including, but not limited to, the above provision.  Nothing in this Section shall be deemed to authorize any such junior encumbrance or other liens on the Collateral, the FNES Interest and the EM Interest.

 

8.

Severability.  In the event any parts of this Agreement are found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.

9.

Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Agreement may be by actual or facsimile signature.

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10.

Benefit.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their legal representatives, successors and assigns.

11.

Notices and Addresses.  All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by FedEx or similar receipted next business day delivery, or by email followed by overnight next business day delivery as follows:

Lender:

Brisben Water Solutions LLC

23 N. Beach Road

Jupiter Island, FL 33455

Attn:  William Brisben

Email:  wbrisben@hotmail.com

with a copy to:

Dinsmore & Shohl LLP

Fifth Third Center

One South Main Street, Suite 1300

Dayton, OH 45402

Attn: Steven R. Watts, Esq.

Email: steve.watts@dinsmore.com

Ecosphere:

3515 SE Lionel Terrace

Stuart, Florida 34997

Attention: Dennis McGuire

Email: dennismcguire1@mac.com

with a copy to:

Nason, Yeager, Gerson, White

& Lioce, P.A.

3001 PGA Boulevard, Suite 305

Palm Beach Gardens, Florida 33410

Attention:  Michael D. Harris

Email:  mharris@nasonyeager.com

or to such other address as any of them, by notice to the other may designate from time to time.  Time shall be counted to, or from, as the case may be, the date of delivery.

12.

Attorneys’ Fees.  In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or proceeding is commenced to enforce the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and expenses (including such fees and costs on appeal).

13.

Oral Evidence.  This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against which enforcement or the change, waiver, discharge or termination is sought.

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14.

Additional Documents.  The parties hereto shall execute such additional instruments as may be reasonably required by their counsel in order to carry out the purpose and intent of this Agreement and to fulfill the obligations of the parties hereunder.

15.

Governing Law.  All claims relating to or arising out of this Agreement, or the breach thereof, whether sounding in contract, tort, or otherwise, shall also be governed by the laws of the State of Delaware without regard to choice of law considerations.

16.

Section or Paragraph Headings.  Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Agreement.

(Signature Page Follows)

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IN WITNESS WHEREOF the parties hereto have set their hand as of the date first above written.

			
	 
	ECOSPHERE:

	 
	ECOSPHERE TECHNOLOGIES, INC.

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	By:

	 

	 
	 
	Dennis McGuire, Chief Executive Officer

	 
	 
	 

	 
	 
	 

	 
	BRISBEN WATER SOLUTIONS LLC

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	By:

	 

	 
	 
	William Brisben, Manager

THE UNDERSIGNED subsidiaries of Ecosphere Technologies, Inc. have executed this Agreement solely to acknowledge their obligations under Section 3(b)(v) and (vi).

			
	 
	ECOSPHERE MINING, LLC

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	By:

	 

	 
	 
	Dennis McGuire, Chief Executive Officer

	 
	 
	 

	 
	 
	 

	 
	SEA OF GREEN SYSTEMS, INC.

	 
	 
	 

	 
	 
	 

	 
	By:

	 

	 
	 
	Corey McGuire, Chief Executive Officer

 

9

EXHIBIT A

COLLATERAL

This Security Agreement covers all of the following property of Ecosphere Technologies, Inc. (“Ecosphere”), whether now or hereafter owned, existing, acquired or arising and wherever now or hereafter located (capitalized terms used herein shall have the meaning ascribed to such term under the Uniform Commercial Code as in effect in the State of Delaware and/or as otherwise set forth herein):

(a)

The Ecos PowerCube® unit (with the Ecos GrowCubeTM unit, the “Physical Collateral”) located in Stuart, Florida.

(b)

One completed Ecos GrowCubeTM unit (with the Ecos PowerCube® unit, the “Physical Collateral”) located at 236709 E. Lechelt Road, Kennewick WA 99337-7545.

(c)

Each United States Patent listed on Schedule A-1 hereto (the “Patent Collateral”), to the extent that such patents are used in any global field of use other than the Agriculture Field of Use, as defined on Schedule A-1.

(e)

All warranties, increases, parts, renewals, additions and accessions to, substitutions for, and replacements, products and Proceeds of the foregoing property, and all of Ecosphere's books and records relating to any of the foregoing. Provided, however, that if Ecosphere manufactures any additional Ecos PowerCube® units or Ecos GrowCube® units, they shall not be deemed to be Physical Collateral or subject to this Agreement.

(f)

30.6% of the limited liability company interests in Fidelity National Environmental Solutions, LLC, a Delaware limited liability company and Ecosphere’s subsidiary (the “FNES Interest”). 

(g)

25% of the limited liability company interests in Ecosphere Mining, LLC, a Delaware limited liability company and Ecosphere’s subsidiary (the “EM Interest”). 

(h)

All Proceeds received, directly or indirectly, by Ecosphere from the Patent Collateral in any global field of use other than the Agriculture Field of Use, as defined on Schedule A-1. 

Proceeds shall mean and include all proceeds of, and all other profits, products, rents or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or other realization upon collateral, including, without limitation, all licenses, permits, authorizations and applications, all claims of Ecosphere against third parties for loss of, damage to or destruction of, or for proceeds payable under, or unearned premiums with respect to, policies of insurance in respect of, any collateral, and any condemnation or requisition payments with respect to any collateral, in each case whether now existing or hereafter arising.

Schedule A-1

Patent Collateral

1.

Approved U.S. Patent No’s.:

7,699,994;

7,699,988;

7,785,470;

7,943,087;

8,318,027;

8,593,102;

8,721,898;

8,858,064;

8,936,392;

8,906,242;

8,968,577;

8,999,154;

9,034,180; 

9,169,146;

9,266,752;

Patent Application No. 14/162,479 filed January 23, 2014, allowed for issuance April 2016; and

U.S. Patent, when issued, pertaining to Patent Application No. 62/083,747 filed November 24, 2014, relating to the Ecos GrowCubeTM.

and all reissues, continuations, divisions, continuations-in-part, renewals, improvements or extensions thereof.

2.

Exception: The lien on the above U.S. Patents shall exclude the Agriculture Field of Use. For purposes hereof, “Agriculture Field of Use” means and refers to the application of all patents, patents pending, trade secrets, trademarks, “know how” and “show how” related to the Company’s Precision Agriculture line of equipment and nutrient technology developed, or to be developed, by the Company and its subsidiaries to the cultivation of crops on a global basis. For the avoidance of doubt, “crops” shall mean any and all plants, including, but not limited to, food crops, cannabis, grass and ornamental plants.

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