SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of April 8, 1995,
by and between Powerine Oil Company, a California corporation ("Debtor") and
Wickland Oil Company, a California corporation ("Secured Party"), is made with
reference to the following:
A. Debtor and Secured Party have entered into that certain Powerine
Petroleum Sale and Storage Agreement, dated as of April 8, 1995 and certain
agreements referred to therein (collectively, as amended, supplemented or
otherwise modified from time to time, the "Purchase Agreement") pursuant to
which, among other things: (i) Debtor shall sell to Secured Party, among other
things, certain crude oil, feed stock and blend stock, which commodities
subsequently shall be resold by Secured Party to Debtor, and (ii) Secured Party
shall sell to Debtor additional crude oil, feed stock and blend stock (all such
commodities to be sold by Secured Party to Debtor pursuant to clauses (i) and
(ii) to be collectively referred to as the "Commodities").
B. As security for the prompt and complete payment or performance of
all obligations of Debtor under the Purchase Agreement, Debtor has agreed to
grant Secured Party a security interest in the property hereinafter described.
C. Capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and other agreements hereinafter contained, Debtor hereby agrees with
Secured Party for its benefit as follows:
1. Grant of Security Interest. Debtor hereby grants to Secured
Party a continuing security interest in the following property of Debtor,
wherever located, whether the same is now owned or hereafter acquired (the
"Collateral"):
a) all inventories (including, without limitation, the
Commodities, all other crude oil, feed stock and blend stock, fuel oil, refined
oil and products and all other petroleum products of every kind, grade or
nature) and merchandise, including without limitation raw materials, work in
process, finished products, goods in transit, materials used or consumed in the
manufacture or production thereof, all packing materials, supplies and
containers relating to or used in connection with the foregoing, all goods in
which Debtor has an interest in mass or an interest or right as a consignee and
all goods which are returned to or repossessed by Debtor, whether used or
consumed in Debtor's business, held for sale or lease, furnished under service
contracts, or otherwise, and all bills of lading, warehouse receipts, documents
of title or general intangibles relating to any of the foregoing (collectively,
the "Inventory");
(b) all goods, farm products, equipment, machinery, tooling,
molds, dies, furniture, fixtures (whether or not attached to real property),
furnishings, trade fixtures, motor vehicles and rolling stock, materials and
parts and all other tangible personal property (collectively, the "Equipment");
(c) all rights to the payment of money or other form of
consideration, accounts, notes, accounts receivable, drafts, documents, chattel
paper, choses in action, undertakings, surety bonds, insurance policies,
acceptances and all other forms of claims, demands, instruments and receivables,
together with all guarantees, security agreements, leases and rights and
interests securing the same and all right, title and interest of Debtor in the
merchandise which gave or shall give rise thereto, including the right of
stoppage in transit, repossession and resale (collectively the "Receivables");
(d) all agreements, contracts, credits, letters of credit,
security agreements, indentures, purchase and sale orders, warranty rights and
contract rights of any nature, whether written or oral (including, without
limitation, the Purchase Agreement and all related agreements), and all consents
or other authorizations relating thereto, to the extent assignable (collectively
the "Contracts");
(e) all licenses, permits, franchises, certificates and other
governmental authorizations and approvals of any nature whatsoever, to the
extent assignable (collectively the "Licenses and Permits");
(f) all deposit accounts, including without limitation, all
demand, time, savings, passbook, custodial, safekeeping, escrow or like accounts
maintained by Debtor with any bank, savings and loan association, credit union
or like organization, and all money, cash, cash equivalents, investment
securities, deposits and prepayments of Debtor in any such deposit account (all
of the foregoing being deemed to be in any such account as soon as the same is
put in transit to such account by mail or other courier);
(g) all trademarks, trade names, trade styles, and service marks
(and all prints and labels on which any of the foregoing appear), designs,
letters patent of the United States or any other country, other general
intangibles, and all registrations, recordings, reissues, extensions, renewals,
continuations, continuations-in-part and licenses thereof (including
applications for registration and recording);
(h) all other proprietary rights and confidential information,
technology, processes, trade secrets, computer programs, source codes, software,
customer lists, sales literature and catalogues, price lists, subscriber
information, formulae, goodwill and all applications and registrations relating
to any of the foregoing;
(i) all real property, leases, easements, rights-of-way and other
interests in real property;
(j) all stocks, bonds, debentures, securities, subscription
rights, options, warrants, puts, calls, certificates, partnership interests,
joint venture interests, investments and/or brokerage accounts and all rights,
preferences, privileges, dividends, distributions, redemption payments or
liquidation payments with respect thereto;
(k) all files, correspondence, books and records of Debtor,
including without limitation, books of account and ledgers of every kind and
nature, all electronically recorded data relating to the Collateral, Debtor or
the business thereof, all computer programs, tapes, discs and data processing
software containing the same, and all receptacles and containers for such
records;
(l) all other goods, accounts, general intangibles, documents,
instruments, rights, interests and properties of every kind and description,
tangible or intangible, real or personal;
(m) all rights, remedies, powers and/or privileges of Debtor with
respect to any of the foregoing; and
(n) all proceeds, replacements, products, additions, accessions
and substitutions of any of the foregoing.
Nothing in this Agreement shall be deemed to constitute an assumption
by Secured Party of any liability or obligation of Debtor with respect to any of
the Collateral.
With respect to the Collateral consisting of the Commodities, the
security interest granted in this Section 1 with respect to such Collateral is
intended to be a purchase money security interest within the meaning of the
Uniform Commercial Code of the State of California (the "Code").
2. Security for Obligations.
(a) This Agreement secures and the Collateral is collateral
security for the prompt payment or performance in full when due, whether by
acceleration or otherwise (including the payment of amounts which would become
due but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code, 11 U.S.C. ss. 362(a)), of all obligations of Debtor to Secured
Party now or hereafter arising under the Purchase Agreement and all obligations
of Debtor now or hereinafter arising under this Agreement (all such obligations
being the "Secured Obligations").
(b) It is the intention of Debtor that the continuing grant of
security interests provided for herein shall remain as security for the payment
and performance of the Secured Obligations, whether now existing or hereinafter
incurred by future advances or otherwise, and whether or not contemplated by the
parties at the date hereof. No notice of the continuing grant of such security
interests, therefore, shall be required to be stated on the face of any document
representing any such Secured Obligation nor shall it otherwise be necessary to
identify any such Secured Obligation as being secured hereby. Any such Secured
Obligation shall be deemed to have been made pursuant to Section 9204 of the
Code.
(c) Debtor acknowledges and agrees that the entire Powerine
Refinery and all components thereof, including, without limitation, all tanks,
pipelines and equipment which may be affixed to real property, are intended to
be and remain personal property or trade fixtures which are readily removable
and are not intended to be permanently affixed to real property or constitute
real property or improvements thereon for any purposes.
3. Representations and Warranties. Debtor represents and warrants
as follows:
(a) Status of Debtor. Debtor is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified or licensed to conduct business in each
jurisdiction in which the nature of its business or assets requires such
qualification or licensing under applicable law. Debtor has the requisite power
and authority to own its assets and to transact the business in which it is
presently engaged and in which it proposes to engage and to grant to Secured
Party the security interests in the Collateral as herein provided;
(b) Binding Agreement. This Agreement has been duly authorized and
constitutes the legal, valid and binding obligation of Debtor enforceable
against Debtor in accordance with its terms;
(c) Title to Collateral. Except for the security interests granted
to Secured Party hereby and except as otherwise disclosed on Schedule A, Debtor
has, and will at all times during the term hereof have, good and marketable
title to all and every part of the Collateral, free and clear of any mortgage,
pledge, lien, security interest, encumbrance, conditional sale contract, lease
or other title retention agreement, or any other adverse claim of any nature
whatsoever (collectively, "Lien"), except as otherwise permitted in Section 5(a)
hereof. No effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any recording office,
except such as may have been filed in favor of Secured Party relating to this
Agreement and except as otherwise disclosed on Schedule A or as otherwise
permitted in Section 5(a). Upon the execution and delivery of this Agreement by
Debtor and the filing of appropriate financing statements with the appropriate
governmental agencies or, as applicable, upon Secured Party's taking possession
of the Collateral, Secured Party will have a perfected security interest in and
to the Collateral having, except with respect to and only to the extent of any
existing Liens disclosed on Schedule A, first priority for the full amount of
all of the Secured Obligations;
(d) No Default or Required Consent. Neither the execution and
delivery of this Agreement by Debtor nor the effectuation by Secured Party of
any of its rights and remedies hereunder, whether upon default or otherwise,
will result in a breach of or constitute a default under any charter provision
or bylaw of Debtor or any other agreement or instrument to which Debtor is a
party or by which any of the Collateral is bound, nor violate any law or any
rule or regulation of any administrative agency or any order, writ, injunction
or decree of any court or administrative agency, nor does any of the foregoing
require the consent of any person, entity or governmental agency or any notice
or filing with any governmental or regulatory body (except as may be required in
connection with any sale or disposition of the Collateral by laws affecting the
offering and sale of securities generally);
(e) Credit Information. Any and all credit or other information
heretofore furnished to Secured Party by Debtor in connection with the Secured
Obligations or Debtor's financial condition or the value or condition of the
Collateral is true and correct, and all such information hereafter furnished to
Secured Party by Debtor will be true and correct when furnished;
(f) No Litigation. Other than lawsuits filed against Debtor by
M.G. Trade Finance Corp., which shall be dismissed, there is no legal,
administrative or other proceeding pending or threatened against Debtor's title
to the Collateral or against Debtor's grant of a security interest therein
hereunder, nor does Debtor know of any basis for the assertion of any such
claim;
(g) Location of Debtor. Schedule B hereto identifies the principal
place of business of Debtor and the place where Debtor keeps all of its books
and records for its general accounting purposes, including all books and records
with respect to the Receivables;
(h) Location of Collateral. Schedule C hereto identifies all of
the locations at which Debtor keeps the Inventory; Schedule E hereto identifies
all of the locations at which Debtor keeps the Equipment. Debtor has exclusive
possession and control of the Inventory except for Inventory in transit;
(i) Acquisition of Businesses. Except as specified on Schedule F
hereto, Debtor has never acquired the business of another person, nor been the
surviving or resulting company in a merger or consolidation, nor obtained assets
in a transaction subject to the bulk transfer laws or outside the ordinary
course of the seller's business; and
(j) Use of Other Names. Schedule G hereto identifies all of the
corporate and fictitious business and/or trade names which Debtor has used in
the past five (5) years.
4. Affirmative Covenants. Debtor covenants that until such time as
all of the Secured Obligations are paid or satisfied in full in cash, unless
Secured Party shall otherwise consent in writing:
(a) Conduct of Business and Maintenance of Assets and Licenses.
Debtor shall do or cause to be done all things necessary to preserve in full
force and effect its existence, its corporate powers and authority, its
qualifications to carry on business in all applicable jurisdictions, and all
rights, interests and assets necessary to the conduct of its business;
(b) Delivery of Collateral. With respect to any Collateral as to
which Secured Party's security interest need or may be perfected by, or the
priority thereof need be assured by, possession of such Collateral, Debtor shall
upon demand of Secured Party deliver possession of same in pledge to Secured
Party, endorsed or accompanied by such instruments of assignment or transfer as
Secured Party may specify and stamped or marked in such manner as Secured Party
may specify;
(c) Protection of Security and Legal Proceedings. Debtor shall, at
its own expense, take any and all actions necessary or desirable to preserve,
protect and defend the security interests of Secured Party in the inventory,
receivables and any other material items of Collateral (including, without
limitation, the Powerine Refinery) and the perfection and priority thereof
against any and all adverse claims, including appearing in and defending all
actions and proceedings which purport to affect any of the foregoing. Debtor
shall promptly reimburse Secured Party for any and all sums, including costs,
expenses and reasonable attorneys' fees, which Secured Party may pay or incur in
defending, protecting or enforcing its security interests in the Collateral or
the perfection or priority thereof;
(d) Payment of Taxes. Debtor shall pay or cause to be paid all
taxes and other levies required by the Purchase Agreement and all taxes and
other levies attributable to Debtor's income taxes with respect to the
Collateral when the same become due and payable;
(e) Use and Maintenance of Collateral. Debtor shall comply with
all laws, statutes and regulations pertaining to its use and ownership of the
Collateral and its conduct of its business, the violation of which would have a
material adverse effect on the value or marketability of the Collateral or on
Debtor's business; properly care for and maintain all of the Collateral in
accordance with good industry practices; keep accurate and complete books and
records pertaining to the Collateral in accordance with generally accepted
accounting principles; and promptly and completely perform all of its
obligations under the Contracts and maintain in full force and effect all of the
Licenses and Permits, the violation of which, or the failure to maintain in full
force and effect, as the case may be, would have a material adverse effect on
the value or marketability of the Collateral or on Debtor's business;
(f) Insurance. Debtor shall, at its own expense, keep the
Collateral insured against loss by fire, theft and other extended coverage
hazards as in effect on the date hereof and as required by the Purchase
Agreement. All such insurance shall be written by companies and on forms
satisfactory to Secured Party, such policies shall provide that coverage shall
not lapse for any reason whatsoever without the insurer giving to the Secured
Party fifteen (15) days' prior written notice, and the policies of such
insurance or, at the election of Secured Party, certificates thereof
satisfactory to Secured Party, shall be delivered to Secured Party within ten
(10) days following the date of execution of this Agreement;
(g) Inspection. Debtor shall give Secured Party such information
as may be reasonably requested concerning the Collateral and shall at all
reasonable times and upon reasonable notice permit Secured Party and its agents
and representatives to enter upon any premises upon which the Collateral is
located for the purpose of inspecting the Collateral. Furthermore, Secured Party
shall at all reasonable times on reasonable notice have full access to and the
right to audit any and all of Debtor's books and records pertaining to the
Collateral, to confirm and verify the value of the Collateral and to do whatever
else Secured Party reasonably may deem necessary or desirable to protect its
interests; provided, however, that any such action which involves communicating
with customers of Debtor shall be carried out by Secured Party through Debtor's
independent auditors unless an Event of Default (as defined in Section 8 below)
occurs and is continuing, in which case Secured Party shall then have the right
directly to notify such obligors;
(h) Notification. Debtor shall notify Secured Party in writing
within three (3) business days of the occurrence of (i) an Event of Default or
of the occurrence of an event which, with notice or lapse of time, or both,
would constitute an Event of Default, or (ii) any event which adversely affects
the value of the inventory, receivables and any other material items of
Collateral (including, without limitation, the Powerine Refinery), the ability
of Debtor or Secured Party to dispose of the Collateral or the rights and
remedies of Secured Party in relation thereto; and
(i) Further Assurances. Debtor agrees that at any time and from
time to time, at the expense of Debtor, Debtor will promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary or desirable, or that Secured Party may request, in order to perfect
and to protect any security interest granted or purported to be granted hereby
or to enable Secured Party to exercise and to enforce its rights and remedies
hereunder with respect to any Collateral.
5. Negative Covenants.
Debtor covenants that until such time as all of the Secured Obligations
are paid or satisfied in full in cash, without the prior written consent of
Secured Party:
(a) Sale or Hypothecation of Collateral. Debtor shall not directly
or indirectly, whether voluntarily, involuntarily, by operation of law or
otherwise (i) sell, assign, transfer, exchange, lease, lend, grant any option
with respect to or dispose of any of the Collateral (other than inventory and
other property sold or leased in the ordinary course of Debtor's business), or
any of Debtor's rights therein, nor (ii) create or permit to exist any Lien on
or with respect to any of the Collateral, except for the Lien in favor of
Secured Party, those disclosed on Schedule A and other immaterial Liens which
arise in the ordinary course of business and which do not materially adversely
effect the security interests granted to Secured Party hereunder; provided,
however, to the extent that a financing statement or Lien is filed or recorded
involuntarily against any of the Collateral, Debtor shall have a period of
thirty (30) calendar days to cause such financing statement or Lien to be
released, but provided further, however, that if the amount of indebtedness
secured by any such financing statement or Lien exceeds $____________ in any one
instance, or $____________ in the aggregate, such thirty (30) day grace period
shall not be available to Debtor. The inclusion of "proceeds" as a component of
the Collateral shall not be deemed a consent by Secured Party to any sale,
assignment, transfer, exchange, lease, loan, granting of an option with respect
to or disposition of all or any part of the Collateral other than in the
ordinary course of business;
(b) Location of Collateral; Changes of Name. Except for
inventoried goods sold or leased in the ordinary course of business or vehicles,
rolling stock or other property moved in the ordinary course of business, Debtor
shall not cause or allow, without giving to Secured Party at least thirty (30)
days' prior written notice (i) any of the Collateral to be moved; (ii) move its
principal place of business or the location of its books or records; or (iii)
change its name, its trade or fictitious business name(s) or its form of doing
business;
(c) Certain Agreements. Debtor shall not cause, suffer or permit
to occur any compromise, adjustment, amendment, modification, settlement,
waiver, substitution or termination in respect of any Receivable, other than in
the ordinary course of business; and
(d) Preservation of Collateral. Debtor shall not cause or allow
anything to be done which might impair, or fail to do anything necessary or
advisable in order to preserve, the value of the Collateral and the security
interests of Secured Party therein, the occurrence of which or the failure of
the occurrence of which would have a material adverse effect on the value or
marketability of the Collateral or on Debtor's business.
6. Secured Party Appointed Attorney-in-Fact. Debtor hereby
appoints Secured Party Debtor's attorney-in-fact with full authority in the
place and stead of Debtor and in the name of Debtor or otherwise, from time to
time (whether before or after an Event of Default) in Secured Party's sole and
absolute discretion to take any action and to execute any instrument which
Secured Party may deem necessary or advisable to maintain or perfect the
security interests granted to it hereunder. Debtor acknowledges that the
foregoing grant of power of attorney is coupled with an interest and is
irrevocable.
7. Secured Party May Perform. During the continuance of an Event
of Default, if Debtor fails to perform any agreement or covenant contained
herein, Secured Party may itself perform or cause the performance of such
agreement or covenant, and the expenses of Secured Party incurred in connection
therewith, plus interest at the maximum rate permitted by law from the date of
such advance to the date of reimbursement, shall be payable by Debtor under
Section 11. However, nothing in this Agreement shall obligate Secured Party to
act.
8. Events of Default. The occurrence of any of the following shall
constitute an event of default ("Event of Default") hereunder:
(a) Default Under Purchase Agreement, Etc. (i) The default in the
prompt and complete payment or performance of the Purchase Agreement; or (ii)
the default in the prompt and complete payment and performance of any term,
condition or covenant in favor of Secured Party contained in this Agreement or
in any other instrument delivered pursuant to the Purchase Agreement or pursuant
hereto where any such default under this Clause (ii) remains unremedied five (5)
business days following delivery of written notice thereof by Secured Party to
Debtor;
(b) Bankruptcy. The insolvency, failure in business or appointment
of a receiver to take charge of the business or property of Debtor or Castle, or
the commission of an act of bankruptcy, the making of a general assignment for
the benefit of creditors or the filing of any petition in bankruptcy by or
against any such party or for relief under the Federal Bankruptcy Code, as
amended, or under any other laws, whether federal or state, for the relief of
debtors, now or hereafter existing, unless the same is dismissed within thirty
(30) days after the filing thereof;
(c) Inability to Pay Debts. The admission by Debtor or Castle of
its inability to pay its debts as they mature;
(d) Certain Transfers. The transfer of property by Debtor or
Castle under circumstances which would entitle a trustee in bankruptcy or
similar fiduciary to avoid such transfer under the Federal Bankruptcy Code, as
amended, or under any other laws, whether state or federal, for the relief of
debtors, now or hereafter existing;
(e) Appointment of Receiver. The appointment of a receiver,
trustee or custodian for Debtor or Castle or for any substantial part of the
assets of any of the foregoing parties, or the institution of proceedings for
the dissolution or the full or partial liquidation of any of the foregoing
parties, unless such receiver or trustee is discharged within thirty (30) days
of his or its appointment or such proceedings are discharged within thirty (30)
days of their commencement;
(f) Liens on Collateral. The initiation of steps by any third
party to obtain a Lien, levy or writ of attachment or garnishment upon any or
all of the Collateral or substantially all of any of the other property of
Debtor or Castle or to affect any of the Collateral or any such other property
by other legal process, unless the same is dismissed within thirty (30) days
after the initiation thereof, the occurrence of which would have a material
adverse effect on the value or marketability of the Collateral or on Debtor's
business;
(g) Deterioration of Collateral. The occurrence of any
deterioration, depreciation, destruction or impairment of the condition or value
of the Collateral, or any part thereof which has a material adverse effect on
the value or marketability of the Collateral or on Debtor's business;
(h) Dissolution of Debtor, Etc. The cessation of Debtor or Castle
as a going concern;
(i) Misrepresentation. Should any representation made by Debtor or
Castle to Secured Party concerning the financial condition or credit standing of
Debtor or Castle prove to be false or misleading or should any representation or
warranty of Debtor or Castle contained in this Agreement, the Purchase Agreement
or in any document, certificate or instrument delivered pursuant thereto or
hereto prove to be false or misleading in any material respect;
(j) Adverse Judgments. Should a final judgment for the payment of
money in excess of $500,000 be rendered by any court of competent jurisdiction
against Debtor or in excess of $5,000,000 against Castle, and should the same
not be discharged or execution thereunder stayed, whether pursuant to appeal or
otherwise, within thirty (30) days of the entry thereof, or should any final
order, ruling or direction of any competent authority be issued with respect to
Debtor or Castle which materially adversely affects Debtor or Castle, or which
requires a substantial or material adverse change in the business or affairs of
Debtor or Castle, or a material disposition of assets of Debtor or Castle; or
9. Remedies upon Default. If any Event of Default shall have
occurred:
(a) Acceleration of Indebtedness. Secured Party may declare any or
all Secured Obligations, or any part thereof, to be immediately due and payable
without demand or notice (and upon the occurrence of any Event of Default
specified in Sections 8(b) through 8(e) all Secured Obligations shall without
further action by Secured Party become immediately due and payable), and Secured
Party may proceed to collect the same.
(b) Notification to Third Parties. Secured Party may (i) open
Debtor's mail and collect any and all amounts due to Debtor from other persons;
(ii) notify any account debtor obligated on any of the Receivables or any
purchaser of Collateral or any other person of Secured Party's interest in the
Collateral and instruct any such persons to make payments thereon directly to
Secured Party; and (iii) notify postal authorities that all mail addressed to
Debtor is to be delivered to Secured Party.
(c) Compromise of Claims. Secured Party may grant extensions,
compromise claims and settle Collateral for less than face value, all without
prior notice to Debtor.
(d) Use of Trade Names, Etc. Secured Party may use in connection
with any assembly or disposition of the Collateral, any trademark, trade name,
trade style, copyright, patent right, technical process or other proprietary
right used or utilized by Debtor.
(e) Other Rights Against Debtor Hereunder. Secured Party may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party under the Code, and Secured Party may also without notice except
as specified below sell the Collateral or any part thereof in one or more
parcels at public or private sale, for cash, on credit or for future delivery,
and upon such other terms as Secured Party in its sole and absolute discretion
may deem commercially reasonable, and in connection with any such sale may enter
upon the premises on which the Powerine Refinery is located at any time upon
reasonable advance notice to Debtor, and may, thereupon, dismantle and remove
all or any part of the Powerine Refinery. Debtor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to Debtor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. Secured Party may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Debtor hereby waives any claims against Secured Party arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Secured Party accepts the first offer received and does not
offer such Collateral to more than one offeree, and in all events such sale
shall be deemed to be commercially reasonable. At any such public or private
sale, Secured Party may be the purchaser of the Collateral.
(f) Application of Proceeds. Any cash held by Secured Party as
Collateral and all cash proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the direction of Secured Party, be held by Secured Party as
collateral for, and/or then or at any time thereafter applied (after payment of
any amounts payable to Secured Party pursuant to Section 11) in whole or in part
by Secured Party against all or any part of the Secured Obligations in such
order as Secured Party shall elect. Any surplus of such cash or cash proceeds
held by Secured Party and remaining after payment in full of all the Secured
Obligations shall be paid over to Debtor or to whomsoever may be lawfully
entitled to receive such surplus. In a like manner, Debtor shall pay to Secured
Party, without demand, whatever amount of the Secured Obligations remains unpaid
after the Collateral has been sold and the proceeds applied as aforesaid,
together with interest thereon from the date of demand at the highest rate
specified in the Note, which interest shall also constitute a part of the
Secured Obligations.
(g) Termination of Agreements. Secured Party may terminate any
agreement or commitment of Secured Party for the granting of further credit to
Debtor.
(h) Other Rights. Secured Party shall not be obligated to resort
to its rights or remedies with respect to any other security for or guaranty or
payment of the Secured Obligations before resorting to its rights and remedies
against Debtor hereunder. All rights and remedies of Secured Party shall be
cumulative and not in the alternative.
10. Liability and Indemnification. Secured Party shall not be
liable to Debtor for any act (including, without limitation, any act of active
negligence) of or omission by Secured Party unless Secured Party's conduct
constitutes willful misconduct or gross negligence. Debtor agrees to indemnify
and to hold Secured Party harmless from and against all losses, liabilities,
claims, damages, costs and expenses (including actual attorneys' fees and
disbursements) with respect to (a) any action taken (including, without
limitation, any act of active negligence) or any omission by Secured Party with
respect to this Agreement, provided that Secured Party's conduct does not
constitute willful misconduct or gross negligence, and (b) any claims arising
out of Debtor's ownership of the Collateral or Secured Party's security interest
therein.
11. Expenses. Debtor will upon demand pay to Secured Party the
amount of any and all expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which Secured Party may incur in
connection with (a) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (b) the exercise or
enforcement of any of the rights of Secured Party hereunder, and (c) the failure
by Debtor to perform or observe any of the provisions hereof.
12. Security Interest Absolute. All rights of Secured Party and
security interests hereunder, and all Secured Obligations of Debtor hereunder,
shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Purchase
Agreement or any other document or any other agreement or instrument relating
thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations, or any other amendment
or waiver of or any consent to any departure from the Purchase Agreement or any
other document or any other agreement or instrument relating thereto;
(c) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Debtor.
13. Amendments, Waiver. No amendment or waiver of any provision of
this Agreement nor consent to any departure by Debtor herefrom shall in any
event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
14. Notices. All notices, demands and requests of any kind which
either party may be required or desires to serve upon the other hereunder shall
be in writing and shall be delivered and be effective in accordance with the
notice provision of the Purchase Agreement.
15. Continuing Security Interest; Assignment of Obligations.
(a) This Agreement shall create a continuing security interest in
the Collateral and shall (i) remain in full force and effect until the Secured
Obligations have been paid or satisfied in full, subject to Section 16, (ii) be
binding upon Debtor, its successors and assigns, (iii) inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its successors, transferees and assigns, (iv) constitute, along with the
Purchase Agreement and any other document or any other agreement or instrument
relating thereto, the entire agreement between Debtor and Secured Party, and (v)
be severable in the event that one or more of the provisions herein is
determined to be illegal or unenforceable. Without limiting the generality of
the foregoing clause (iii), Secured Party may assign or otherwise transfer any
Secured Obligation to any other person or entity, and such other person or
entity shall thereupon become vested with all the benefits in respect thereof
granted to Secured Party herein or otherwise. Upon the payment in full of the
Secured Obligations, Secured Party, at the request and expense of Debtor, shall
release the security interests in the Collateral granted herein and execute such
termination statements as may be necessary therefor, to the extent that such
Collateral shall not have been sold or otherwise applied pursuant to the terms
hereof.
(b) In the event Debtor consummates a refinancing transaction with
a third party (a "Refinancing") in which all of the Secured Obligations then
outstanding (other than with respect of Debtor's obligations to make payments to
Secured Party arising from purchase money transactions effected in the normal
course of business as contemplated by the Purchase Agreement) are paid or
satisfied in full in cash, Secured Party will subordinate the priority of its
Lien in the Collateral (other than (i) Collateral consisting of inventory in
which it has a purchase money security interest, and (ii) Collateral consisting
of accounts receivable and proceeds arising from Debtor's resale or other
disposition of the inventory Collateral referred to in Clause (i) above) to
Liens in favor of such third party securing the Refinancing.
(c) In the event that a sale of all or substantially all of the
assets of Debtor or all of Debtor's capital stock is consummated, following or
concurrently with a Refinancing meeting all of the requirements of Subsection
(b) above, Secured Party shall release its Liens and security interests in the
Collateral (other than (i) Collateral consisting of inventory in which it has a
purchase money security interest, and (ii) Collateral consisting of accounts
receivable and proceeds arising from Debtor's resale or other disposition of the
inventory Collateral referred to in Clause (i) above) pursuant to documents
reasonably acceptable to both Secured Party and Debtor.
16. Reinstatement of Rights. Secured Party's rights hereunder
shall be reinstated and revived, and the enforceability of this Agreement shall
continue, with respect to any amount at any time paid on account of the Secured
Obligations which thereafter shall be required to be restored or returned by
Secured Party upon the bankruptcy, insolvency or reorganization of Debtor or
Castle, all as though such amount had not been paid.
17. Governing Law; Terms. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California. Unless
otherwise defined herein or in the Purchase Agreement, terms defined in the Code
are used herein as therein defined.
18. TRIAL BY JURY. DEBTOR HEREBY WAIVES, AND COVENANTS THAT IT
WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SUBJECT MATTER
HEREOF OR ANY PURCHASE DOCUMENT OR ANY SECURED OBLIGATION, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR IN TORT OR
OTHERWISE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
DEBTOR:
POWERINE OIL COMPANY,
a California corporation
By: /s/ A. L. Gualtieri
-----------------------------
A.L. Gualtieri
President
SECURED PARTY:
WICKLAND OIL COMPANY,
a California corporation
By: /s/ John W. Reho
-------------------------------
John W. Reho
Vice President and
Chief Financial Officer