EXHIBIT 10.32
REVISED SECURITY AGREEMENT
THIS REVISED SECURITY AGREEMENT, dated October 27, 2004, (this
"Agreement") is by and between Commonwealth Energy Corporation, a California
corporation, located at 600 Anton Boulevard, Suite 2000, Costa Mesa, California
92626 (the "Debtor") and DTE Energy Trading, Inc., a Michigan corporation,
located at 414 South Main Street, Suite 200, Ann Arbor, Michigan 48104 (the
"Secured Party"). This Revised Security Agreement replaces the Security
Agreement dated July 24, 2002 between Debtor and Secured Party.
RECITALS
A. Debtor and Secured Party are parties to several agreements: (i) an EEI
Power Purchase and Sale Agreement, dated July 1,2003, between Debtor and Secured
Party, together with all Transactions and Confirmations from time to time
thereto (as the same may be amended, extended or replaced from time to time,
(the "Master Agreement"); (ii) a Revised Escrow Agreement, dated October 27,2004
between and among Standard Federal Bank (the "Escrow Agent"), Debtor and Secured
Party (the "Revised Escrow Agreement"); and (iii) a Revised Operating Agreement
dated October 27,2004 between Debtor and Secured Party (the "Revised Operating
Agreement"). The Master Agreement, the Revised Escrow Agreement and the Revised
Operating Agreement, together with this Revised Security Agreement, are each
referred to herein as a "Transaction Agreement" and are collectively referred to
herein as the "Transaction Agreements").
B. As security for the performance and observance by Debtor of its
obligations under the Transaction Agreements, Debtor has agreed to grant to
Secured Party a security interest in certain of Debtor's assets related to the
retail sales customers ("RSC's") of Debtor to be served pursuant to the Master
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, and other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
In consideration of the facts set forth in the Recitals, the execution and
delivery of the Transaction Agreements, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, Debtor
hereby agrees with and for the benefit of Secured Party as follows:
1. DEFINED TERMS
The terms "Accounts", "Deposit Accounts", "Investment Property" and
"General Intangibles" shall have the meanings ascribed to them in the Uniform
Commercial Code as adopted by the State of Michigan. Other capitalized terms not
otherwise defined herein shall have the same meanings as in the Master Agreement
unless the context dictates otherwise.
2. CREATION OF SECURITY INTEREST
In order to the secure the full and prompt payment, performance and
observance by Debtor of all of its duties and obligations under any of the
Transaction Agreements (collectively, the "Obligations"), Debtor does hereby
grant to and create in favor of the Secured Party, its successors and assigns, a
present and continuing first priority security interest in: (a) all contracts
and agreements
between Debtor and any RSC for which Secured Party is providing wholesale
electric energy and related services to serve such RSC including, without
limitation, those contracts and agreements listed on Attachment 1 hereto, as the
same may be amended from time to time (collectively, the "RSC Contracts"); (b)
all Accounts arising from, and related to, the RSC Contracts, including, without
limitation, all accounts receivable from an RSC for which Secured Party is
providing energy for purchases of electric energy and related services and any
other right of Secured Party to payment from an RSC in whatever form, all
whether now owned or existing or hereafter arising or acquired (collectively,
the "Secured Party Accounts"); (c) all cash and other funds deposited in Deposit
Account Number #1054515459 (the "Lockbox Account"), maintained with the Escrow
Agent and Deposit Account Number #400641.1 (the "Escrow Account") maintained
with the Escrow Agent established pursuant to the Revised Escrow Agreement; (d)
the Lockbox Account and the Escrow Account themselves; (e) all Investment
Property into which the cash and other funds deposited into the Lockbox Account
and the Escrow Account are invested from time to time including, without
limitation, money market funds and other securities; (f) all General Intangibles
of Debtor relating to the RSC's; and (g) all proceeds and products of any of the
foregoing, including without limitation all proceeds of the Secured Party
Accounts, the Lockbox Account and the Escrow Account, and all proceeds of, and
all other profits, rentals or receipts, in whatever form, arising from the
collection, sale, lease, exchange, assignment, licensing or other disposition
of, or realization upon, any Collateral or the proceeds thereof, including,
without limitation, all claims of Debtor 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 with respect to any Collateral, and any
condemnation or requisition payments with respect to any Collateral, in each
case whether now existing or hereafter arising (collectively, "Proceeds") (the
collateral referenced in items (a) through (g) above is collectively referred to
herein as the "Collateral").
3. SECURITY INTEREST ABSOLUTE
Debtor agrees that all rights of Secured Party and the security interests
granted to Secured Party hereunder, shall be absolute and unconditional,
irrespective of:
(a) any lack of validity or enforceability of any of the
Obligations;
(b) the failure of Secured Party: (i) to assert any claim or demand
or to enforce any right or remedy against the Debtor or any other person
or entity under the provisions of any Transaction Agreement and this
Agreement; or (ii) to exercise any right or remedy against any guarantor
of, or collateral securing, any Obligations;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other extension,
compromise or renewal of any Obligations;
(d) any reduction, limitation, impairment or termination of any
Obligations for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to (and
Debtor hereby waives any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, any
Obligations or otherwise;
(e) any amendment to, recission, waiver, or other modification of,
or any consent to departure from, any of the terms of any Transaction
Agreement or this Agreement;
(f) any addition, exchange, release, surrender or nonperfection of
any collateral (including the Collateral), or any amendment to or waiver
or release of or addition to or consent to departure from any guaranty,
for any of the Obligations; or
(g) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Debtor,
any surety or any guarantor.
4. DEBTOR'S WARRANTIES AND REPRESENTATIONS
In addition to any representations and warranties of Debtor set forth in
the Transaction Agreements, all of which are incorporated herein by this
reference. Debtor hereby warrants and represents to and for the benefit of
Secured Party that:
(a) Organization: Good Standing. Debtor is a corporation, duly
organized, validly existing and in good standing under the laws of the
State of California. Debtor's exact legal name is as set forth in the
first paragraph of this Agreement. Debtor is qualified to do business and
in good standing under the laws of the State of Michigan.
(b) Authority. Debtor has full power and authority, and has
completed all proceedings and obtained all approvals and consents of
whatever kind necessary, to execute, deliver, and perform this Agreement
and the transactions contemplated hereby;
(c) No Default or Lien. The execution, delivery, and performance of
this Agreement will not contravene, or constitute a default under or
result in a lien upon any property of Debtor (other than the lien granted
hereby) pursuant to Debtor's organizational documents, any applicable law
or regulation or any contract, agreement, judgment, order, decree, or
other instrument binding upon or affecting Debtor;
(d) Enforceability. This Agreement constitutes a legal, valid, and
binding obligation of Debtor, enforceable in accordance with its terms
except as such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance or similar laws affecting the
enforcement of creditors' rights generally, or by equitable principles
relating to enforceability (regardless of whether the application of such
principles is considered in a proceeding in equity or at law). This
Agreement grants to Secured Party a valid, first-priority, enforceable
lien on and security interest in the Collateral;
(e) Ownership. Debtor is the sole owner of, and has good and
marketable title to, the Collateral, free and clear of all claims,
interests, charges, options, liens, encumbrances and defects of title of
any kind whatsoever;
(f) No Dispute. All of the Collateral consisting of Accounts does
and will evidence bona fide sales to the customers named in Debtor's
books. No dispute, right ofsetoff, counterclaim or defenses exists as of
the date hereof with respect to any of the Collateral;
(g) Trade Names. Attachment 2 lists all trade names, aliases and
other names by which Debtor and any predecessor in interest was previously
known within the last six years;
(h) Address. Debtor's address set forth in the first paragraph of
this Agreement is the location of principal place of business;
(i) Disclosure. All information furnished by Debtor to Secured Party
for purposes of, or in connection with, the Transaction Agreements and
this Agreement is and will be true and accurate in all material respects,
and none of such information shall be incomplete by omitting to state any
fact necessary to make such information not misleading in light of the
circumstances under which it was furnished;
(j) No Violations. Debtor is not in any material violation of any
judgment, order, decree, law, rule, regulation, permit or license; and
(k) Lien Search. Attached hereto as Attachment 3 are true, accurate
and certified copies of UCC lien searches with respect to Debtor and its
predecessors in interest through the date of this Agreement in all
applicable jurisdictions.
5. DEBTOR'S COVENANTS
In addition to all covenants of Debtor set forth in the Transaction
Agreements, all of which are incorporated herein by this reference. Debtor
hereby agrees:
(a) Maintenance of Existence. Debtor shall maintain and preserve its
existence and good standing in the jurisdiction of its organization and in
the State of Michigan and shall not make any change in its name,
organizational structure or in the jurisdiction under the laws of which
Debtor is organized, without the prior written consent of Secured Party,
which shall not be unreasonably withheld.
(b) Location of Office. In the event that Debtor should change the
location of principal place of business listed in the first paragraph of
this Agreement, Debtor shall give written notice of same to Secured Party
at least thirty (30) days in advance of any such change.
(c) Liens. Debtor shall not sell, exchange, lease, transfer,
encumber or pledge the Collateral, create any security interest therein
(except that created by this Agreement), or otherwise dispose of the
Collateral or any of Debtor's rights therein or under this Agreement
without the prior written consent of Secured Party. Debtor will not permit
any other security interest to attach to any of the Collateral, permit the
Collateral to be levied upon under any legal process, or permit anything
to be done that may impair the value of any of the Collateral or the
security intended to be afforded by this Agreement. Debtor may assign the
Collateral in the case of a sale or merger of all or a part of the
Debtor's business(es) and the Secured Party will not unreasonably move to
prevent such assignment; provided, however, that Secured Party's first
priority security interest will continue upon such assignment.
(d) Books and Records. Debtor will keep all of its books and records
in accordance with sound business practices sufficient to allow the
preparation of financial statements in accordance with generally accepted
accounting practices. The originals of all such books and records shall be
kept at Debtor's address appearing in the first paragraph of this
Agreement. Secured Party shall have the right to inspect Debtor's books
and records as they pertain to Transactions involving the Secured Party or
the RSC's upon forty-eight (48) hours prior notice. Any such inspection
shall be made during normal business hours.
(e) Reports. Debtor will promptly furnish Secured Party with copies
of publicly filed quarterly financial statements, (10-Q or 10-K statements
filed with the Securities and Exchange Commission) and audited or
unaudited quarterly financial statements of Debtor. Debtor shall
immediately provide to Secured Party written notice of any default or
Event of Default under any Transaction Agreement or this Agreement.
(f) Subordination: Perfection. Debtor will execute, file, record, or
procure from third persons all subordination agreements and other
documents and instruments and take all
such other action that Secured Party considers reasonable or necessary to
perfect, continue perfection of, or to maintain the first priority of
Secured Party's security interest in, and the value of, the Collateral.
Debtor will place upon the documents evidencing the Collateral the notice
of Secured Party's security interest that Secured Party from time to time
requests. Actions that Secured Party may require Debtor to take under the
preceding sentence include, without limitation: (1) giving notice to
Debtor's RSC's of Secured Party's security interest in the Accounts; (2)
obtaining from any third party financing source who has a security
interest in the Collateral a written acknowledgment that the security
interest of such third party is junior and subordinate in all respects to
the security interest granted by Debtor to Secured Party pursuant to this
Agreement; (3) obtaining from any third party who has possession or
control of any Collateral a written acknowledgment and undertaking that
such third party holds the Collateral solely for the benefit of Secured
Party; (4) registering any Collateral that constitutes Investment Property
or Deposit Accounts in the name of Secured Party and taking all other
actions requested by Secured Party to give Secured Party control of the
Collateral; and (5) making Secured Party the sole "customer" of the bank
or financial institution with respect to the Lockbox Account and the
Escrow Account.
(g) Payment of Taxes, etc. Debtor shall pay promptly when due all
taxes, assessments, charges, encumbrances and liens now or hereafter
imposed upon or affecting any Collateral. In the event of a default by
Debtor in paying those taxes, assessments, charges, encumbrances or liens,
it shall be lawful for Secured Party to pay and discharge them, and the
amounts expended by Secured Party in the payment or discharge of those
taxes shall be a lien upon the Collateral, secured by this Agreement and
payable on demand with interest at the highest default rate set forth in
the Loan Documents.
(h) Defense of Litigation. Debtor shall appear in and defend any
action or proceeding that may affect its title to, or Secured Party's
interest in, the Collateral.
(i) Compliance with Laws. Debtor shall comply with all laws,
regulations, and ordinances relating to the possession, operation,
maintenance, and control of the Collateral.
(j) Notice. Upon 5 Business Days' prior written notice to Debtor,
Secured Party shall have the right from time to time to contact Debtor's
RSC's for the purpose of verifying the existence, amount, and
collectibility of and other information regarding Debtor's Accounts with
RSC's.
(k) Payment of Secured Party's Costs and Expenses. If Secured Party
commences proceedings for the purpose of collecting any monies which may
be secured in any way by this Agreement, or to recover, collect or protect
its interest in the Collateral by reason of a default or breach by Debtor,
Debtor agrees to pay Secured Party's reasonable attorneys' fees,
additional advances and debts, and all costs, fees, charges and expenses
in connection therewith; together with any and all disbursements incurred
by Secured Party in connection with the collecting, taking, maintaining
and disposing of the Collateral, including all premiums on bonds and
undertakings, fees for public officers, custodians, auctioneers, charges
for use and occupancy of premises and for electric current; all of which
shall be a lien upon the Collateral, secured by this Agreement and payable
on demand with interest at the highest lawful rate. Counsel fees and
disbursements are in no event to affect, but are to be paid in addition
to, any statutory court costs and disbursement.
(1) Collection of Accounts. Debtor shall instruct all RSC's to make
all payments on Secured Party Accounts directly to the Lockbox Account and
shall use all commercially reasonable efforts to cause all such persons or
entities to agree to make such payments to the Lockbox Account.
(m) Banking Relationship. Debtor shall not borrow any money from,
enter into any credit transaction with or otherwise become obligated in
any manner to pay any amounts to the Escrow Agent or any affiliate of the
Escrow Agent, other than pursuant to the terms of the Revised Escrow
Agreement.
(n) Copies ofRSC Contracts. Within 30 days of execution. Debtor
agrees to provide Secured Party with a copy of each RSC Contract in which
Secured Party has a security interest.
6. DEFAULT
A default under this Agreement shall be deemed to exist upon the
occurrence of any of the following (an "Event of Default"):
(a) Default Under Any Transaction Agreement. An Event of Default
occurs and continues under any Transaction Agreement;
(b) Misrepresentation By Debtor. Any representation or warranty by
Debtor hereunder, or in any Transaction Agreement, shall be inaccurate or
incomplete in any material respect;
(c) Breach of Covenant. Debtor shall fail to fully perform or comply
with any of Debtor's covenants or agreements contained in this Agreement
or any Transaction Agreement. In the event of such breach. Secured Party
will notify Debtor in writing and Debtor shall have two (2) Business Days
to cure such breach;
(d) Debtor Bankruptcy. Debtor shall become insolvent, file
bankruptcy, shall have a receiver, trustee or other person appointed to
manage its operations or shall otherwise fail to pay its creditors in the
ordinary course of business when debts are due; and
(e) Supplier Bankruptcy. Any supplier of wholesale electricity to
Debtor (other than Secured Party) shall become insolvent, file bankruptcy,
shall have a receiver, trustee or other person appointed to manage its
operations, and such event should have a material, detrimental financial
impact to Debtor . [See notice requirements set forth in Article 4.2(vii)
of the Revised Operating Agreement dated October 27, 2004.]
7. REMEDIES
Upon the occurrence of any such Event of Default, Secured Party may, at
its option, and without notice to or demand on Debtor, exercise all rights of a
secured party under the Uniform Commercial Code, in addition to all rights and
remedies available to Secured Party under any Transaction Agreement, at law, in
equity, or otherwise, m addition, upon an Event of Default, Secured Party or a
licensed alternative energy supply ("AES") designated by Secured Party shall
have the right, but not the obligation, to assume the RSC Contracts which have
been pledged to Secured Party hereunder. If Secured Party elects to assume such
RSC Contracts (the "Assumed RSC Contracts"), the Secured Party shall notify
Debtor and the RSC under the Assumed RSC Contracts identifying, in each case,
the relevant RSC Contract and the effective date of such assignment (the
"Assignment Effective Date"). On the Assignment Effective Date, Secured Party or
its licensed AES designee shall be deemed to be substituted as "AES" under the
Assumed RSC Contracts in place of Debtor and shall be deemed to have assumed all
of Debtor's obligations and all rights and privileges pursuant to the Assumed
RSC Contracts arising on and after the Assignment Effective Date.
8. WAIVER OF BREACH
The acceptance of any partial payment by Secured Party after maturity, or
the waiver of any breach or default, shall not constitute a waiver of any other
or subsequent breach or default or prevent Secured Party from immediately
pursuing any or all its remedies hereunder, or under any other document
providing additional security to Secured Party.
9. TERMINATION
This Agreement shall terminate when indefeasible payment in full and the
performance and satisfaction of all Obligations have been made. Upon such
termination the Secured Party shall assign transfer and deliver without recourse
and without warranty to the Debtor any Collateral previously assigned or
delivered to the Secured Party (and any property received in respect thereof) as
has not theretofore been sold or otherwise applied pursuant to the provisions of
this Agreement; provided however, that this Agreement shall be automatically
reinstated effective as of the original date of execution of this Agreement, if
at any time payment, in whole or in part, of any of the Obligations is reduced,
rescinded or must otherwise be restored or returned by the Secured Party for any
reason whatsoever, including the bankruptcy, insolvency, dissolution,
liquidation or reorganization of the Debtor or upon or as a result of the
appointment of a custodian, receiver, trustee or other officer with similar
powers with respect to Debtor the Debtor or any of its property or otherwise.
10. MISCELLANEOUS PROVISIONS
(a) Binding Effect. This Agreement shall bind and inure to the benefit of
Debtor and Secured Party and their respective successors and assigns.
(b) Entire Agreement. This Agreement, together with the Transaction
Agreements, constitutes the entire agreement of Debtor and Secured Party with
respect to the subject matter hereof and thereof, superseding all prior and
contemporaneous negotiations, agreements and understandings whether written or
oral.
(c) Modification. This Agreement may be amended only by a written
instrument executed by both the Debtor and the Secured Party.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Michigan without regard to
conflicts of laws principles.
Executed on the day and year set forth above.
COMMONWEALTH ENERGY CORPORATION
By: /s/ Peter Weigand
Its: President
("Debtor")
DTE ENERGY TRADING, INC.
By: /s/ Randall D. Balhorm
Its: President
("Secured Party")