Exhibit 10.13
SECURITY AGREEMENT
Dated as
of May 28, 1999
Between
COSO FINANCE PARTNERS,
a California general partnership,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
TABLE OF CONTENTS
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1. Definitions............................................... 1
2. Assignment, Pledge and Grant of Security Interest......... 2
3. Obligations Secured....................................... 6
4. Events of Default......................................... 6
5. Remedies.................................................. 7
6. Remedies Cumulative; Delay Not Waiver..................... 8
7. Covenants................................................. 9
8. Representations and Warranties............................ 9
9. Notices................................................... 9
10. Further Assurances........................................ 9
11. Place of Perfection; Records.............................. 10
12. Continuing Assignment and Security Interest; Transfer..... 10
13. Release of Collateral..................................... 11
14. Attorneys' Fees........................................... 11
15. Severability.............................................. 12
16. Time...................................................... 12
17. Agreement for Security Purposes........................... 12
18. Liability................................................. 12
19. Governing Law............................................. 12
20. Attorney-In-Fact.......................................... 12
21. Reinstatement............................................. 13
22. WAIVER OF JURY TRIAL...................................... 13
23. Amendment................................................. 13
24. Duties and Liabilities of the Collateral Agent Generally.. 14
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SECURITY AGREEMENT
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This Security Agreement ("Agreement"), dated as of May 28, 1999, is
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entered into by and between COSO FINANCE PARTNERS, a California general
partnership ("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION, in its
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capacity as collateral agent ("Collateral Agent"), for the benefit of U.S. BANK
TRUST NATIONAL ASSOCIATION, in its capacity as trustee ("Trustee") for the
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holders of all senior secured notes issued pursuant to that certain Indenture
dated as of May 28, 1999, (the "Indenture") among Grantor, Trustee, Coso Energy
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Developers, a California general partnership ("BLM"), Coso Power Developers, a
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California general partnership ("Navy II"), and Caithness Coso Funding Corp., a
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Delaware corporation (the "Issuer") (such notes, the "Senior Secured Notes", and
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the holders thereof, the "Holders of the Senior Secured Notes") and all other
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Permitted Additional Senior Lenders (as defined in the Indenture). Terms not
otherwise defined herein are defined in the Indenture.
PREFACE
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A. Grantor owns the Navy I Project (as defined in the Indenture) (the
"Project").
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B. Issuer has, simultaneously with the execution and delivery of this
Agreement, issued $110,000,000 of 6.80% Senior Secured Notes due 2001 and
$303,000,000 of 9.05% of Senior Secured Notes due 2009, the proceeds of which
will be used to make loans to Grantor, BLM and Navy II.
C. Pursuant to a Guarantee dated as of even date herewith (the
"Guarantee"), Grantor has guaranteed the payment and performance of Issuer's
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obligations under the Senior Secured Notes and the Indenture.
D. Grantor desires now to grant Collateral Agent, for the benefit of
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, a security interest in the Collateral (as defined below)
as security for the payment and performance of Grantor's obligations under the
Guarantee.
AGREEMENT
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In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1. Definitions. (a) Unless otherwise defined, all terms used herein
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which are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given to
those terms in the UCC; and (b) "UCC" shall mean the Uniform Commercial Code as
the same may, from time to time, be in effect in the State of New York;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the security interest in
any Collateral is governed by
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the Uniform Commercial Code as in effect in a jurisdiction other than the State
of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect
in such other jurisdiction for purposes of the provisions hereof relating to
such attachment, perfection or priority and for purposes of definitions related
to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
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(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3, Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes, and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) the following agreements and documents, as amended,
supplemented, substituted, renewed or replaced from time to time (individually,
an "Assigned Agreement," collectively, the "Assigned Agreements") and all of
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Grantor's rights thereunder:
(A) that certain Amended and Restated Plant Operations and
Maintenance Agreement, dated as of May 28, 1999, by and between Grantor, Coso
Operating Company LLC, a Delaware limited liability company ("COC") and FPL
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Energy Operating Services, Inc., a Florida corporation;
(B) that certain Amended and Restated Field Operations and
Maintenance Agreement, dated as of May 28, 1999, by and between Grantor and COC;
(C) that certain Power Purchase Contract, dated as of June
4, 1984, as amended, by and between Southern California Edison Company and
Grantor (as assignee of China Lake Joint Venture, a California general
partnership);
(D) that certain Interconnection Facilities Agreement,
dated as of May 29, 1985, by and between Southern California Edison Company and
Grantor (as assignee of China Lake Joint Venture, a California general
partnership);
(E) that certain contract No. N62474-79-C-5382, dated
December 6, 1979, by and between the United States of America acting through the
Department of the Navy and California Energy Company, Inc., as modified,
amended, assigned and restated by contract modification P00004 dated as of
October 19, 1983, a memorandum of which was recorded on March 12, 1986 as
instrument No. 86-1043 of official records of Inyo County, California, including
all modifications, amendments and assignment thereto and thereof made before the
effective date of this Security Agreement and any permitted modifications,
amendments and assignment thereto and thereof made after the effective date of
this Security agreement;
(F) that certain Acquisition Agreement of even date
herewith among Coso Land Company, a California general partnership, Grantor,
BLM, Navy II and COC;
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(G) those certain documents constituting the Steam Exchange
Agreements including:
(1) that certain Coso Geothermal Exchange Agreement,
by and between the Coso Partnerships and CalEnergy, dated January 11, 1994;
(2) that certain Amendment to Coso Geothermal Exchange
Agreement, by and between the Coso Partnerships and CalEnergy, dated April 12,
1995;
(3) that certain Amendment to Coso Geothermal Exchange
Agreement, by and between the Coso Partnerships, dated May 28, 1999;
(4) that certain Amendment Number P00029 to the
Original Navy Contract, dated October 4, 1994;
(5) that certain Amendment Number P00030 to the
Original Navy Contract, dated December 19, 1994;
(6) that certain Amendment P00033 to the Original Navy
Contract, dated January 8, 1995;
(7) that certain Amendment P00039 to the Navy
Contract, dated November 19, 1998;
(8) that certain Agreement for the Calculation of
Mineral Royalties/Revenues in the Coso Known Geothermal Resource Area, executed
by the USBLM, MMS and CalEnergy, dated December 16, 1994;
(9) that certain Amendment to the Agreement for the
Calculation of Mineral Royalties/Revenues in the Coso Known Geothermal Resource
Area, executed by the USBLM, MMS and the Coso Partnerships, dated May 28, 1999;
and
(10) that certain Cotenancy Agreement, executed by the
Coso Partnerships, dated May 28, 1999;
(H) that certain Settlement Agreement and Release, by and
between the Mission Group, Mission Power Engineering Company, California Energy
Company, Inc., and the Grantor, BLM and Navy II, dated June 9, 1993;
(I) all other Project Documents, as defined in the
Indenture, not listed above;
(J) all proceeds of and any unearned premiums on any
insurance policies maintained by Grantor or any other Person covering the
property, rights and interests of
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Grantor (the "Trust Property"), including, without limitation, the right to
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receive the proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damage to the Trust Property;
(K) (to the extent assignable) all other agreements,
including vendor warranties, running to Grantor or assigned to Grantor, relating
to the maintenance, improvement, operation or acquisition of the Project or any
part thereof, or transport of material, equipment and other parts of the Project
or any part thereof;
(L) any lease or sublease agreements or easement agreements
relating to the Project or any part thereof or any ancillary facilities, to
which Grantor is or may become a party;
(M) each Additional Project Document, and any other
agreements to which Grantor may hereafter be or become a party relating to the
operation or maintenance of the Project or any part thereof;
(N) all amendments, supplements, substitutions and renewals
to any of the aforesaid agreements; and
(O) all Governmental Approvals (as defined in the
Indenture), permits, approvals and consents relating to the Project, but
excluding any such permits, approvals and consents which by their terms or by
operation of law would become void solely by virtue of a security interest being
granted therein;
(ii) all rents, profits, income, royalties and revenues derived
in any other manner by Grantor from its ownership of the Project or any part
thereof and the operation of the Project or any part thereof, including all
revenues from sale of electricity, steam, goods or services;
(iii) all other personal property and fixtures of Grantor,
whether now owned or existing or hereafter acquired or arising, or in which
Grantor may have an interest, and wheresoever located, whether or not of a type
which may be subject to a security interest under the UCC, including all
mirrors, piping, fluids, turbines, generators, machinery, tools, engines,
appliances, mechanical and electrical systems, transmission lines, transformers,
towers, elevators, lighting, alarm systems, fire control systems, furnishings,
furniture, service equipment, motor vehicles, building or maintenance equipment,
building or maintenance materials, supplies, goods and property covered by any
warehouse receipts or bills of lading or other such documents, spare parts,
maps, plans, specifications, architectural, engineering, construction or shop
drawings, manuals or similar documents, copyrights, trademarks and trade names,
and any replacements, renewals or substitutions for any of the foregoing or
additional tangible or intangible personal property hereafter acquired by
Grantor;
(iv) all goods, money, instruments, investment securities,
accounts, contract rights, documents, deposit accounts, bank accounts, chattel
paper, general intangibles, equipment and inventory;
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(v) the Revenue Account, the Principal Account, the Interest
Account, the Debt Service Reserve Account, the Capital Expenditure Reserve
Account, the Operating and Maintenance Fees Account, the Management Fees
Account, the Distribution Account, the Distributions Suspense Account, the Loss
Proceeds Account and the Redemption Account, including any subaccounts within
such accounts, all other accounts and sub-accounts established pursuant to that
certain Deposit and Disbursement Agreement, dated as of May 28, 1999, by and
between the Issuer, the Grantor, BLM, Navy II, the Collateral Agent, and U.S.
Bank Trust National Association as Depositary;
(vi) the proceeds of all of the foregoing (all of the collateral
described in clauses (i) through (vi) being herein collectively referred to as
the "Collateral"), including without limitation (1) all rights of Grantor to
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receive moneys due and to become due under or pursuant to the Collateral, (2)
all rights of Grantor to receive return of any premiums for or proceeds of any
insurance, indemnity, warranty or guaranty with respect to the Collateral or to
receive condemnation proceeds, (3) all claims of Grantor for damages arising out
of or for breach of or default under the Assigned Agreements or any other
Collateral, and (4) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed, whether voluntarily or
involuntarily.
(b) Grantor has heretofore delivered or concurrently with the
delivery hereof is delivering to the Collateral Agent, a copy of an executed
counterpart of each of the Assigned Agreements. Grantor will deliver to
Collateral Agent an executed counterpart of each Additional Project Document,
and material amendments and supplements to the foregoing, included in the
Collateral, as they are entered into by Grantor promptly upon the execution
thereof.
(c) Anything herein contained to the contrary notwithstanding,
Grantor shall remain liable under each of the Assigned Agreements, to perform
all of the obligations undertaken by it thereunder, all in accordance with and
pursuant to the terms and provisions thereof, and the Collateral Agent shall
have no obligation or liability under any of such Assigned Agreements by reason
of or arising out of this Agreement (during the period of Grantor's right of use
and possession thereof as provided herein), nor shall the Collateral Agent be
required or obligated in any manner to perform or fulfill any obligations of
Grantor thereunder or to make any payment, or to make any inquiry as to the
nature or sufficiency of any payment received by it, or present or file any
claim, or take any action to collect or enforce the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
(d) Subject to the terms of the Guarantee, upon the occurrence and
during the continuance of an Event of Default, Grantor does hereby constitute
the Collateral Agent, acting for and on behalf of Trustee, the Holders of the
Senior Secured Notes, and the Permitted Additional Senior Lenders, if any, and
each successor or assign thereof, the true and lawful attorney of Grantor,
irrevocably, with full power coupled with an interest (in the name of Grantor or
otherwise) to ask, require, demand, receive, compound and give acquittance for
any and all moneys and claims for moneys due and to become due under or arising
out of the Assigned Agreements or any of the other Collateral, including without
limitation any insurance policies
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with respect to the Project, to elect remedies thereunder, to endorse any checks
or other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings in connection therewith which the
Collateral Agent may deem to be necessary or advisable; provided, however, that
the Collateral Agent shall give Grantor notice of any action taken by it as such
attorney-in-fact promptly after taking any such action.
(e) If any default by Grantor under any of the Assigned Agreements
shall occur, the Collateral Agent shall, at its option, be permitted (but shall
not be obligated) to remedy any such default by giving written notice of such
intent to Grantor and to the parties to each Assigned Agreement in default. The
Collateral Agent shall have a reasonable opportunity, but not fewer than sixty
(60) days (or such other period as the Collateral Agent and the Persons other
than Grantor who are parties to such Assigned Agreement may agree) after giving
such notice, in which to cure such default and upon the commencement thereof
will proceed diligently to cure such default. Any curing by the Collateral Agent
of Grantor's default under any of the Assigned Agreements shall not be construed
as an assumption by the Collateral Agent of any obligations, covenants or
agreements of Grantor under such Assigned Agreements, and the Collateral Agent
shall not incur any liability to Grantor or any other Person as a result of any
actions undertaken by the Collateral Agent in curing or attempting to cure any
such default. This Agreement shall not be deemed to release or to affect in any
way the obligations of Grantor under the Assigned Agreements.
3. Obligations Secured. This Agreement and all of the Collateral secure
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the payment and performance of Grantor's (a) obligations under the Guarantee,
including, but not limited to, the payment of all amounts owed to Trustee for
the benefit of the Holders of the Senior Secured Notes and (b) obligations
owing, if any, to the Permitted Additional Senior Lenders, of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, pursuant to the terms of
the Guarantee, or any other instrument evidencing Permitted Indebtedness (other
than Permitted Indebtedness described in clause (4) of the definition of
Permitted Indebtedness), including, but not limited to, the payment of all
amounts owed to the Collateral Agent of every kind and description (whether or
not evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, pursuant to the terms of the Indenture, the
Financing Documents or this Agreement, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
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4. Events of Default. The occurrence and continuance of an Event of
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Default under the Indenture, whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body, shall constitute an Event
of Default hereunder.
5. Remedies.
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(a) Subject to the terms of the Guarantee and the notice and other
requirements of applicable law, if any Event of Default has occurred and is
continuing, the Collateral Agent may (i) exercise the rights of acceleration set
forth in Section 5.2 of the Indenture, (ii) proceed to protect and enforce the
rights vested in it by this Agreement, including, but not limited to, the right
to cause all revenues hereby pledged as security and all other moneys pledged
hereunder to be paid directly to it, and to enforce its rights hereunder to such
payments and all other rights hereunder by such appropriate judicial proceedings
as it shall deem most effective to protect and enforce any of such rights,
either at law or in equity or otherwise, whether for specific enforcement of any
covenant or agreement contained in any of the Assigned Agreements, or in aid of
the exercise of any power therein or herein granted, or for any foreclosure
hereunder and sale under a judgment or decree in any judicial proceeding, or to
enforce any other legal or equitable right vested in it by this Agreement or by
law; (iii) cause any action at law or suit in equity or other proceeding to be
instituted and prosecuted to collect or enforce any Obligations or rights
included in the Collateral, or to foreclose or enforce any other agreement or
other instrument by or under or pursuant to which such Obligations are issued or
secured, either in Grantor's name or in Collateral Agent's name as Collateral
Agent may deem necessary, subject in each case to the provisions and
requirements thereof; (iv) sell or otherwise dispose of any or all of the
Collateral or cause the Collateral to be sold or otherwise disposed of in one or
more sales or transactions, at such prices as the Collateral Agent may deem
commercially reasonable, and for cash or on credit or for future delivery,
without assumption of any credit risk, at any broker's board or at public or
private sale, without demand of performance or notice of intention to sell or of
time or place of sale (except such notice as is required by applicable statute
and cannot be waived or is contemplated herein or by the other Financing
Documents), it being agreed that the Collateral Agent may be a purchaser on
behalf of Trustee, the Holders of the Senior Secured Notes, the Permitted
Additional Senior Lenders, if any, or on its own behalf at any such sale and
that the Collateral Agent or anyone else who may be the purchaser of any or all
of the Collateral so sold shall thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any equity of redemption, of
Grantor, any such demand, notice or right and equity being hereby expressly
waived and released to the extent permitted by law; (v) incur reasonable
expenses, including reasonable attorneys' fees, consultants' fees, and other
costs appropriate to the exercise of any right or power under this Agreement;
(vi) perform any obligation of Grantor hereunder or under any other Financing
Document, Project Document or Additional Project Document, and make payments,
purchase, contest or compromise any encumbrance, charge, or lien, and pay taxes
and expenses, without, however, any obligation so to do; (vii) take possession
of the Collateral and render it usable, and repair and renovate the same,
without, however, any obligation to do so, and enter upon the site where the
Project is located or any other location where the same may be located for that
purpose, control, manage, operate, rent and lease the Collateral, either
separately or in conjunction with the Project, collect all rents and income from
the Collateral and apply the same to reimburse the Holders of the Senior Secured
Notes or the Permitted Additional Senior Lenders, if any, for any cost or
expenses incurred hereunder or under any of the Financing Documents and to the
payment or performance of the Obligations, and apply the balance to whomsoever
is legally entitled thereto; (viii) secure the appointment of a receiver of the
Project or any part thereof and/or the Collateral or any part thereof (to the
extent and in the manner provided by applicable law); or (ix) exercise any other
or additional rights or remedies granted to a secured party under the UCC. If,
pursuant to applicable law, prior notice of
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any such action is required to be given to Grantor, Grantor hereby acknowledges
that the minimum time required by such applicable law, or if no minimum is
specified, ten (10) Business Days, shall be deemed a reasonable notice period.
Notwithstanding anything herein to the contrary, any purchase price obtained by
the Collateral Agent in a foreclosure sale instituted and prosecuted in
accordance with the terms hereof shall be deemed binding and conclusive on the
parties hereto and the Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable attorneys' fees and expenses) incurred by the Collateral Agent in
connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
including any of the Assigned Agreements pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the "Prime Rate" of Bankers Trust Company,
as such rate is announced from time to time, plus one percent (1%), said rate to
change when and as the said Prime Rate changes, from the date on which such
costs or expenses are incurred to the date of payment thereof, shall constitute
additional indebtedness secured by this Agreement and shall be paid by Grantor
to the Trustee on demand.
6. Remedies Cumulative; Delay Not Waiver.
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(a) No right, power or remedy herein conferred upon or reserved to the
Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any right
or power accruing upon the occurrence and during the continuance of any Event of
Default as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement may be exercised from time to
time, and as often as shall be deemed expedient, by the Collateral Agent.
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Grantor, if it is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
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7. Covenants. Grantor covenants as follows:
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(a) Grantor will duly and punctually pay all amounts payable to the
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, in accordance with, and subject to, the
terms of the Guarantee and such other instruments evidencing other Senior
Indebtedness, if any.
(b) Any action or proceeding to enforce this Agreement or any Assigned
Agreement may be taken by the Collateral Agent either in Grantor's name or in
the Collateral Agent's name, as the Collateral Agent may deem necessary.
(c) Grantor agrees to use its commercially reasonable efforts to
obtain consents to this Agreement from each future or successor party to the
Assigned Agreements (the "Contracting Parties").
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(d) Grantor will not make any other assignment (other than to
Collateral Agent) of its rights under the Assigned Agreements.
8. Representations and Warranties. Grantor represents and warrants as
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follows:
(a) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents or pursuant to the documents
evidencing Permitted Liens.
(b) Grantor has not assigned any of its rights under the Assigned
Agreements except as specifically provided in this Agreement or as set forth in
the Indenture.
(c) Grantor has obtained all necessary consents to this Agreement from
each of the Contracting Parties.
9. Notices. Unless otherwise specifically herein provided, all notices
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required or permitted under the terms and provisions hereof shall be in writing
and any such notice shall become effective if given in accordance with Section
10.02 of the Indenture.
10. Further Assurances. (a) Grantor agrees that from time to time, at the
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expense of Grantor, Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
required, or that the Collateral Agent may reasonably request, in order to
perfect and protect the assignment and security interest granted or intended to
be granted hereby or to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, Grantor will: (i) if any Collateral shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Collateral Agent, for the benefit of Trustee, the Holders of Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, such note or
instrument duly endorsed (without recourse) and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
enable the Collateral Agent to
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enforce the provisions of this Agreement and the security interests described
herein; and (ii) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments, endorsement or notices, as may
be necessary or required, or as the Collateral Agent may reasonably request, in
order to perfect and preserve the assignments and security interests granted or
purported to be granted hereby; it being understood and agreed that the
Collateral Agent shall have no obligation in respect of the filing of such
statements or in the perfection or preservation of any such security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor where permitted by
law. Copies of any such statement or amendment thereto shall promptly be
delivered to Grantor
(c) Grantor shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as otherwise provided in the Indenture) all federal,
state, county and municipal stamp taxes and other taxes, duties, imports,
assessments and charges arising out of or in connection with the execution and
delivery of this Agreement, any agreement supplemental hereto and any
instruments of further assurance.
11. Place of Perfection; Records. The location of Grantor's chief office
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is 1114 Avenue of the Americas, New York, New York 10036-7790, and the location
of Grantor's place of business is Inyo County, California. Grantor shall give
the Collateral Agent at least forty-five (45) days prior written notice before
it changes the location of its chief executive office and shall at the expense
of Grantor execute and deliver such instruments and documents as required to
maintain a prior perfected security interest and as requested by the Collateral
Agent. Grantor will hold and preserve such records and will permit
representatives of the Collateral Agent upon reasonable notice during normal
business hours to inspect and make abstracts from such records.
12. Continuing Assignment and Security Interest; Transfer. This
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Agreement shall create a continuing assignment of and security interest in the
Collateral and shall (i) remain in full force and effect until payment in full
of the Obligations, (ii) be binding upon Grantor, its successors and assigns and
(iii) inure, together with the rights and remedies of the Collateral Agent, to
the benefit of the Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), but subject to Section 2.06 of the Indenture, the Holders of the Senior
Secured Notes may assign or otherwise transfer their Senior Secured Notes to any
other Person, and such other Person shall thereupon become vested with all or an
appropriate part of the benefits in respect thereof granted to the Holders of
the Senior Secured Notes herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by Collateral Agent to any security it may have in any
order it may deem appropriate, shall not affect the liability of any person on
the indebtedness secured hereby. Upon the payment in full of the Obligations,
the
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security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination, the Collateral
Agent shall, at Grantor's expense, execute and deliver to Grantor such documents
as Grantor shall reasonably request to evidence such termination. If this
Agreement shall be terminated or revoked by operation of law, Grantor will
indemnify and save Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, harmless from any
loss which may be suffered or incurred by Collateral Agent, Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
in acting hereunder prior to the receipt by Collateral Agent, its successors,
transferees, or assigns of written notice of such termination or revocation.
13. Release of Collateral.
---------------------
(a) Subject to paragraphs (b) and (c) of this Section 13, Collateral
may be released from the security interest created by this Agreement at any time
or from time to time upon the request of the Grantor pursuant to a certificate
of a Responsible Officer of the Grantor certifying that all terms for release
and conditions precedent under Section 4.4 of the Credit Agreement, dated as of
the date hereof, by and between the Grantor and the Issuer, have been met and
that such Collateral is being, or has been, sold, leased or transferred, and
specifying the identity of the Collateral to be released. Upon receipt of such
certificate, a Responsible Officer of the Collateral Agent shall execute,
deliver or acknowledge any necessary or proper instruments of termination,
satisfaction or release to evidence the release of any Collateral permitted to
be released pursuant to this Agreement.
(b) No Collateral shall be released from the security interest created
hereunder unless there shall have been delivered to the Collateral Agent the
certificate required by this Section 13.
(c) The Collateral Agent may release Collateral from the security
interest created hereunder upon the sale or disposition of Collateral pursuant
to the Collateral Agent's powers, rights and duties with respect to remedies
provided herein.
14. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
15. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
16. Time. Time is of the essence of this Agreement.
----
11
17. Agreement for Security Purposes. This Agreement is for security
-------------------------------
purposes only. Accordingly, the Collateral Agent shall not, pursuant to this
Agreement, enforce Grantor's rights with respect to the Collateral, including
the exercise of any rights granted under the Consents, until such time as an
Event of Default shall have occurred and is continuing at the time such
enforcement is sought, and after any required notice of such enforcement has
been given, and until such time, subject to the terms of the Indenture and the
other Financing Documents, Grantor reserves the right to exercise all of its
right, title and interest in, to and under the Collateral (including the
Assigned Agreements).
18. Liability. The obligations hereunder are subject to the limitations
---------
set forth in Section 6.11 of the Credit Agreement, the provisions of which are
hereby incorporated by reference.
19. Governing Law. This Agreement, including all matters of construction,
-------------
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the State of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York.
20. Attorney-In-Fact. Grantor hereby constitutes and appoints Collateral
----------------
Agent, acting for and on behalf of itself, Trustee, the Holders of the Senior
Secured Notes, the Permitted Additional Senior Lenders, if any, and each
successor or assign of Collateral Agent, Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, the true and
lawful attorney-in-fact of Grantor, with full power upon the occurrence and
during the continuance of an Event of Default (in the name of Grantor or
otherwise) to enforce all rights of Grantor with respect to the Collateral,
including, without limitation the right:
(a) to ask, require, demand, receive and give acquittance for any and
all moneys and claims for moneys due and to become due under or arising out of
the Assigned Agreements or any of the other Collateral;
(b) to elect remedies thereunder and to endorse any checks or other
instruments or orders in connection therewith;
(c) to file any claims or take any action or institute any proceedings
in connection therewith which Collateral Agent may reasonably deem to be
necessary or advisable to protect the Collateral;
(d) to pay, settle or compromise all bills and claims which may be or
become liens or security interests (other than Permitted Liens prior to
foreclosure by Collateral Agent) against any or all of the Collateral, or any
part thereof, unless a bond or other security satisfactory to Collateral Agent
has been provided; and
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(e) in connection with any acceleration and foreclosure, to do any and
every act which Grantor may do on its behalf with respect to the Collateral or
any part thereof and to exercise any or all of Grantor's rights and remedies
under any or all of the Assigned Agreements.
21. Reinstatement. This Agreement shall continue to be effective or be
-------------
reinstated, as the case may be, if at any time any amount received by Collateral
Agent in respect of the Obligations is rescinded or must otherwise be restored
or returned by Collateral Agent upon the insolvency, bankruptcy, reorganization,
liquidation of Grantor or any Navy I Partner or upon the dissolution of, or
appointment of any intervenor or conservator of, or trustee or similar official
for, Grantor or any Navy I Partner or any substantial part of Grantor's or any
Navy I Partner's assets, or otherwise, all as though such payments had been
made.
22. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF COLLATERAL AGENT OR GRANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
23. Amendment. No modification or waiver of any of the provisions of this
---------
Agreement shall be binding on Collateral Agent, except as expressly set forth in
a writing duly signed and delivered by Collateral Agent and which is otherwise
in accordance with Article 8 of the Indenture.
24. Duties and Liabilities of the Collateral Agent Generally.
--------------------------------------------------------
(a) The Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. The Collateral
Agent shall not have any duties or responsibilities except those expressly set
forth in this Agreement or be a trustee for or have any fiduciary obligation to
any party hereto.
(b) The duties and obligations of the Collateral Agent shall be
determined solely by the express provisions of this Agreement, and the
Collateral Agent shall take such action with respect to this Agreement as it
shall be directed in writing by Trustee, and the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Collateral Agent; and
(i) In the absence of bad faith on the part of the Collateral
Agent, the Collateral Agent may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Collateral Agent which conform to the
requirements of this Agreement;
13
(ii) The Collateral Agent shall not be liable for any error of
judgment made in good faith by an officer or officers of the Collateral Agent,
unless it shall be conclusively determined by a court of competent jurisdiction
that the Collateral Agent was negligent in ascertaining the pertinent facts; and
(iii) The Collateral Agent shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
any direction of Trustee or Grantor given under this Agreement.
(c) None of the provisions of this Agreement shall require the
Collateral Agent to expend or risk its own funds or otherwise to incur any
liability, financial or otherwise, in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it;
(d) The Collateral Agent may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(e) Whenever in the administration of the provisions of this Agreement
the Collateral Agent shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering any action to be taken
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Collateral Agent, be deemed to be conclusively proved and
established by a certificate signed by a Responsible Officer of Trustee or
Grantor as the case may be, and delivered to the Collateral Agent and such
certificate, in the absence of negligence or bad faith on the part of the
Collateral Agent, shall be full warrant to the Collateral Agent for any action
taken, suffered or omitted by it under the provisions of this Agreement upon the
faith thereof;
(f) The Collateral Agent may consult with counsel and the advice or
any opinion of counsel shall be full and complete authorization and protection
in respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel;
(g) The Collateral Agent shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, entitlement order,
approval or other paper or document;
(h) The Collateral Agent may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees appointed with due care, and shall not be responsible for
any willful misconduct or negligence on the part of or for the supervision of,
any agent, attorney, custodian or nominee so appointed;
14
(i) Grantor covenants and agrees to pay to the Collateral Agent from
time to time, and the Collateral Agent shall be entitled to, the fees and
expenses agreed in writing between Grantor and the Collateral Agent, and will
further pay or reimburse the Collateral Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Collateral Agent in accordance with any of the provisions hereof or any other
documents executed in connection herewith (including the compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ). The obligations of Grantor under this Section 24(i) to compensate
the Collateral Agent and to pay or reimburse the Collateral Agent for reasonable
expenses, disbursements and advances shall survive the satisfaction and
discharge of this Agreement or the earlier resignation or removal of the
Collateral Agent;
(j) The Collateral Agent may at any time resign by giving 30 days
written notice of resignation to Grantor and Trustee. Upon receiving such
notice of resignation, Grantor shall promptly appoint a successor and, upon the
acceptance by the successor of such appointment, release the resigning
Collateral Agent from its obligations hereunder by written instrument, a copy of
which instrument shall be delivered to each of Grantor and Trustee, the
resigning Collateral Agent and the successor. If no successor shall have been
so appointed and have accepted appointment within 45 days after the giving of
such notice of resignation, the resigning Collateral Agent may petition any
court of competent jurisdiction for the appointment of a successor;
(k) Any corporation into which the Collateral Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Collateral Agent shall
be a party, or any corporation succeeding to the business of the Collateral
Agent shall be the successor of the Collateral Agent hereunder without the
execution or filing of any paper with any party hereto or any further act on the
part of any of the parties hereto except where an instrument of transfer or
assignment is required by law to effect such succession, anything herein to the
contrary notwithstanding;
(l) Neither the Collateral Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted under this
Agreement or in connection therewith except to the extent caused by the
Collateral Agent's negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, no longer subject to appeal or
review. The parties each (for itself and any person or entity claiming through
it) hereby releases, waives, discharges, exculpates and covenants not to sue the
Collateral Agent for any action taken or omitted under this Agreement except to
the extent caused by the Collateral Agent's negligence or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Collateral Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Collateral Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action;
(m) Grantor shall indemnify, defend and hold harmless the Collateral
Agent and its officers, directors, employees, representatives and agents, from
and against and
15
reimburse the Collateral Agent for any and all claims, expenses, obligations,
liabilities, losses, damages, injuries (to person, property, or natural
resources), penalties, stamp or other similar taxes, actions, suits, judgments,
reasonable costs and expenses (including reasonable attorney's and agent's fees
and expenses) of whatever kind or nature regardless of their merit, demanded,
asserted or claimed against the Collateral Agent directly or indirectly relating
to, or arising from, claims against the Collateral Agent by reason of its
participation in the transactions contemplated hereby, including without
limitation all reasonable costs required to be associated with claims for
damages to persons or property, and reasonable attorneys' and consultants' fees
and expenses and court costs except to the extent caused by the Collateral
Agent's negligence or willful misconduct. The provisions of this Section 24(m)
shall survive the termination of this Agreement or the earlier resignation or
removal of the Collateral Agent;
(n) The Collateral Agent shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations or
warranties contained herein or in the other Security Documents, except for those
made by the Collateral Agent, or for filing any financing statement,
continuation statement or any other perfection instrument or notice, or for
recording or re-recording any Security Document in any public office at any time
or for taking any other action to perfect or maintain the perfection, priority
or effectiveness of any interest on any of the Collateral or in any other
property granted to it hereunder or under any of the other Security Documents.
The Collateral Agent makes no representations as to the value or condition of
the Collateral or any part thereof, or as to the title of the Grantor thereto or
as to the security afforded by the Security Documents or this Agreement or as to
the validity, execution, enforceability, legality or sufficiency of this
Agreement, of any other Security Document, of the Obligations secured hereby and
thereby and the Collateral Agent shall incur no liability or responsibility in
respect of any such matters. The Collateral Agent shall not be responsible for
insuring the Collateral or for the payment of taxes, charges, assessments or
liens upon the Collateral or for the maintenance of the Collateral, except that
in the event the Collateral Agent enters into possession of all or any part of
the Collateral, the Collateral Agent shall preserve the portion of the
Collateral in its possession; and
(o) The Collateral Agent shall not be required to ascertain or inquire
as to the Grantor's performance of any of the covenants or agreements contained
herein or in any Security Document. Whenever it is necessary, or in the opinion
of the Collateral Agent advisable, for the Collateral Agent to ascertain the
amount of obligations then held by a Trustee, on behalf of the Holders of the
Senior Secured Notes, or Permitted Additional Senior Lender, the Collateral
Agent may conclusively rely on a certificate of such party as to such amount.
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IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their partners and officers thereunto
duly authorized, as of the day and year first above written.
GRANTOR:
- --------
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COLLATERAL AGENT:
- -----------------
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
its: Trust Officer