EXHIBIT D
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of June 30, 2006 (this "Agreement"),
among Consolidated Energy, Inc., a Wyoming corporation (the "Company") and all
of the Subsidiaries of the Company (such subsidiaries, the "Guarantors") (the
Company and Guarantors are collectively referred to as the "Debtors") and the
holder or holders of the Company's Variable Rate Original Issue Discount
Convertible Secured Debenture due June 30, 2008 in the original aggregate
principal amount of up to $4,444,444 (the "Debenture") signatory hereto, their
endorsees, transferees and assigns (collectively referred to as the "Secured
Parties").
W I T N E S S E T H:
WHEREAS, pursuant to the Debenture, the Secured Parties have severally
agreed to extend the loans to the Company evidenced by the Debenture;
WHEREAS, pursuant to a certain Subsidiary Guarantee dated as of the
date hereof (the "Guarantee"), the Guarantors have jointly and severally agreed
to guarantee and act as surety for payment of such Debentures; and
WHEREAS, in order to induce the Secured Parties to extend the loans
evidenced by the Debentures, each Debtor has agreed to execute and deliver to
the Secured Parties this Agreement and to grant the Secured Parties, pari passu
with each other Secured Party, a perfected security interest in certain property
of such Debtor to secure the prompt payment, performance and discharge in full
of all of the Company's obligations under the Debenture and the Guarantors'
obligations under the Guarantee.
NOW, THEREFORE, in consideration of the agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "account", "chattel paper", "commercial tort claim", "deposit account",
"document", "equipment", "fixtures", "general intangibles", "goods",
"instruments", "inventory", "investment property", "letter-of-credit rights",
"proceeds" and "supporting obligations") shall have the respective meanings
given such terms in Article 9 of the UCC.
(a) "Collateral" means the collateral in which the Secured
Parties are granted a security interest by this Agreement and which
shall include the following personal property of the Debtors, whether
presently owned or existing or hereafter acquired or coming into
existence, wherever situated, and all additions and accessions thereto
and all substitutions and replacements thereof, and all proceeds,
products and accounts thereof, including, without limitation, all
proceeds from the sale or transfer of the Collateral and of insurance
covering the same and of any tort claims in connection therewith, and
all dividends, interest, cash, notes, securities, equity interest or
other property at any time and from time to time acquired, receivable
or otherwise distributed in respect of, or in exchange for, any or all
of the Pledged Securities (as defined below):
(i) All goods, including, without limitation, (A) all
machinery, equipment (including, without limitation, the
Equipment, as such term is defined in the Purchase Agreement),
computers, motor vehicles, trucks, tanks, boats, ships,
appliances, furniture, special and general tools, fixtures, test
and quality control devices and other equipment of every kind and
nature and wherever situated, together with all documents of
title and documents representing the same, all additions and
accessions thereto, replacements therefor, all parts therefor,
and all substitutes for any of the foregoing and all other items
used and useful in connection with any Debtor's businesses and
all improvements thereto and (B) all inventory;
(ii) All contract rights and other general intangibles,
including, without limitation, all partnership interests,
membership interests, stock or other securities, rights under any
of the Organizational Documents, agreements related to the
Pledged Securities, licenses, distribution and other agreements,
computer software (whether "off-the-shelf", licensed from any
third party or developed by any Debtor), computer software
development rights, leases, franchises, customer lists, quality
control procedures, grants and rights, goodwill, trademarks,
service marks, trade styles, trade names, patents, patent
applications, copyrights, and income tax refunds;
(iii) All accounts, together with all instruments, all
documents of title representing any of the foregoing, all rights
in any merchandising, goods, equipment, motor vehicles and trucks
which any of the same may represent, and all right, title,
security and guaranties with respect to each account, including
any right of stoppage in transit; provided, however, that this
clause (iii) shall not include the accounts receivables of the
Company or the Guarantors;
(iv) All documents, letter-of-credit rights, instruments and
chattel paper;
(v) All commercial tort claims;
(vi) All deposit accounts and all cash (whether or not
deposited in such deposit accounts);
(vii) All investment property;
(viii) All supporting obligations; and
(ix) All files, records, books of account, business papers,
and computer programs; and
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(x) the products and proceeds of all of the foregoing
Collateral set forth in clauses (i)-(ix) above.
Without limiting the generality of the foregoing, the
"Collateral" shall include all investment property and general
intangibles respecting ownership and/or other equity interests in
each Guarantor, including, without limitation, the shares of
capital stock and the other equity interests listed on Schedule H
hereto (as the same may be modified from time to time pursuant to
the terms hereof), and any other shares of capital stock and/or
other equity interests of any other direct or indirect subsidiary
of any Debtor obtained in the future, and, in each case, all
certificates representing such shares and/or equity interests
and, in each case, all rights, options, warrants, stock, other
securities and/or equity interests that may hereafter be
received, receivable or distributed in respect of, or exchanged
for, any of the foregoing (all of the foregoing being referred to
herein as the "Pledged Securities") and all rights arising under
or in connection with the Pledged Securities, including, but not
limited to, all dividends, interest and cash.
Notwithstanding the foregoing, nothing herein shall be
deemed to constitute an assignment of any asset which, in the
event of an assignment, becomes void by operation of applicable
law or the assignment of which is otherwise prohibited by
applicable law (in each case to the extent that such applicable
law is not overridden by Sections 9-406, 9-407 and/or 9-408 of
the UCC or other similar applicable law); provided, however, that
to the extent permitted by applicable law, this Agreement shall
create a valid security interest in such asset and, to the extent
permitted by applicable law, this Agreement shall create a valid
security interest in the proceeds of such asset.
(b) "Intellectual Property" means the collective reference to all
rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws or
otherwise, including, without limitation, (i) all copyrights arising
under the laws of the United States, any other country or any
political subdivision thereof, whether registered or unregistered and
whether published or unpublished, all registrations and recordings
thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in
the United States Copyright Office, (ii) all letters patent of the
United States, any other country or any political subdivision thereof,
all reissues and extensions thereof, and all applications for letters
patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, (iii) all trademarks,
trade names, corporate names, company names, business names,
fictitious business names, trade dress, service marks, logos, domain
names and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired,
all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or any political
subdivision thereof, or otherwise, and all common law rights related
thereto, (iv) all trade secrets arising under the laws of the United
States, any other country or any political subdivision thereof, (v)
all rights to obtain any reissues, renewals or extensions of the
foregoing, (vi) all licenses for any of the foregoing, and (vii) all
causes of action for infringement of the foregoing.
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(c) "Majority in Interest" shall mean, at any time of
determination, the majority in interest (based on then-outstanding
principal amounts of Debentures at the time of such determination) of
the Secured Parties.
(d) "Necessary Endorsement" shall mean undated stock powers
endorsed in blank or other proper instruments of assignment duly
executed and such other instruments or documents as the Agent (as that
term is defined below) may reasonably request.
(e) "Obligations" means all of the liabilities and obligations
(primary, secondary, direct, contingent, sole, joint or several) due
or to become due, or that are now or may be hereafter contracted or
acquired, or owing to, of any Debtor to the Secured Parties,
including, without limitation, all obligations under this Agreement,
the Debentures, the Guarantee and any other instruments, agreements or
other documents executed and/or delivered in connection herewith or
therewith, in each case, whether now or hereafter existing, voluntary
or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such
obligations or liabilities that are paid, to the extent all or any
part of such payment is avoided or recovered directly or indirectly
from any of the Secured Parties as a preference, fraudulent transfer
or otherwise as such obligations may be amended, supplemented,
converted, extended or modified from time to time. Without limiting
the generality of the foregoing, the term "Obligations" shall include,
without limitation: (i) principal of, and interest on the Debentures
and the loans extended pursuant thereto; (ii) any and all other fees,
indemnities, costs, obligations and liabilities of the Debtors from
time to time under or in connection with this Agreement, the
Debentures, the Guarantee and any other instruments, agreements or
other documents executed and/or delivered in connection herewith or
therewith; and (iii) all amounts (including but not limited to
post-petition interest) in respect of the foregoing that would be
payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Debtor.
(f) "Organizational Documents" means with respect to any Debtor,
the documents by which such Debtor was organized (such as a
certificate of incorporation, certificate of limited partnership or
articles of organization, and including, without limitation, any
certificates of designation for preferred stock or other forms of
preferred equity) and which relate to the internal governance of such
Debtor (such as bylaws, a partnership agreement or an operating,
limited liability or members agreement).
(g) "UCC" means the Uniform Commercial Code of the State of New
York and or any other applicable law of any state or states which has
jurisdiction with respect to all, or any portion of, the Collateral or
this Agreement, from time to time. It is the intent of the parties
that defined terms in the UCC should be construed in their broadest
sense so that the term "Collateral" will be construed in its broadest
sense. Accordingly if there are, from time to time, changes to defined
terms in the UCC that broaden the definitions, they are incorporated
herein and if existing definitions in the UCC are broader than the
amended definitions, the existing ones shall be controlling.
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2. Grant of Security Interest in Collateral. As an inducement for the
Secured Parties to extend the loans as evidenced by the Debentures and to secure
the complete and timely payment, performance and discharge in full, as the case
may be, of all of the Obligations, each Debtor hereby unconditionally and
irrevocably pledges, grants and hypothecates to the Secured Parties a continuing
and perfected security interest in and to, a lien upon and a right of set-off
against all of their respective right, title and interest of whatsoever kind and
nature in and to, the Collateral (a "Security Interest" and collectively, the
"Security Interests").
3. Delivery of Certain Collateral. Contemporaneously or prior to the
execution of this Agreement, each Debtor shall deliver or cause to be delivered
to the Agent (a) any and all certificates and other instruments representing or
evidencing the Pledged Securities, (b) any and all certificates and other
instruments or documents representing any of the other Collateral, in each case,
together with all Necessary Endorsements, and (c) the signature cards on a
control account established at a commercial bank selected by the Company into
which not less than $250,000 of proceeds from the sale of the Debentures shall
be deposited, and which shall only be used to make payments of interest and
principal when due on the Debentures, and as to which the Agent shall be a
necessary signatory to make any disbursement. The Debtors are, contemporaneously
with the execution hereof, delivering to Agent, or have previously delivered to
the Agent, a true and correct copy of each Organizational Document governing any
of the Pledged Securities.
4. Representations, Warranties, Covenants and Agreements of the
Debtors. Each Debtor represents and warrants to, and covenants and agrees with,
the Secured Parties as follows:
(a) Each Debtor has the requisite corporate, partnership, limited
liability company or other power and authority to enter into this
Agreement and otherwise to carry out its obligations hereunder. The
execution, delivery and performance by each Debtor of this Agreement
and the filings contemplated therein have been duly authorized by all
necessary action on the part of such Debtor and no further action is
required by such Debtor. This Agreement has been duly executed by each
Debtor. This Agreement constitutes the legal, valid and binding
obligation of each Debtor, enforceable against each Debtor in
accordance with its terms except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization and similar laws
of general application relating to or affecting the rights and
remedies of creditors and by general principles of equity.
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(b) The Debtors have no place of business or offices where their
respective books of account and records are kept (other than
temporarily at the offices of its attorneys or accountants) or places
where Collateral is stored or located, except as set forth on Schedule
A attached hereto. Except as specifically set forth on Schedule A,
each Debtor is the record owner of the real property where such
Collateral is located, and there exist no mortgages or other liens on
any such real property except for Permitted Liens (as defined in the
Debentures). Except as disclosed on Schedule A, none of such
Collateral is in the possession of any consignee, bailee,
warehouseman, agent or processor.
(c) Except for Permitted Liens (as defined in the Debentures) and
except as set forth on Schedule B attached hereto, the Debtors are the
sole owner of the Collateral (except for non-exclusive licenses
granted by any Debtor in the ordinary course of business), free and
clear of any liens, security interests, encumbrances, rights or
claims, and are fully authorized to grant the Security Interests.
Except as set forth on Schedule B attached hereto, there is not on
file in any governmental or regulatory authority, agency or recording
office an effective financing statement, security agreement, license
or transfer or any notice of any of the foregoing (other than those
that will be filed in favor of the Secured Parties pursuant to this
Agreement) covering or affecting any of the Collateral. Except as set
forth on Schedule B attached hereto and except pursuant to this
Agreement, so long as this Agreement shall be in effect, the Debtors
shall not execute and shall not knowingly permit to be on file in any
such office or agency any such financing statement or other document
or instrument (except to the extent filed or recorded in favor of the
Secured Parties pursuant to the terms of this Agreement).
(d) No written claim has been received that any Collateral or
Debtor's use of any Collateral violates the rights of any third party.
There has been no adverse decision to any Debtor's claim of ownership
rights in or exclusive rights to use the Collateral in any
jurisdiction or to any Debtor's right to keep and maintain such
Collateral in full force and effect, and there is no proceeding
involving said rights pending or, to the best knowledge of any Debtor,
threatened before any court, judicial body, administrative or
regulatory agency, arbitrator or other governmental authority.
(e) Each Debtor shall at all times maintain its books of account
and records relating to the Collateral at its principal place of
business and its Collateral at the locations set forth on Schedule A
attached hereto and may not relocate such books of account and records
or tangible Collateral unless it delivers to the Secured Parties at
least 30 days prior to such relocation (i) written notice of such
relocation and the new location thereof (which must be within the
United States) and (ii) evidence that appropriate financing statements
under the UCC and other necessary documents have been filed and
recorded and other steps have been taken to perfect the Security
Interests to create in favor of the Secured Parties a valid, perfected
and continuing perfected first priority (or, if applicable, second
priority) lien in the Collateral.
(f) This Agreement creates in favor of the Secured Parties a
valid, security interest in the Collateral, subject only to Permitted
Liens (as defined in the Debentures) securing the payment and
performance of the Obligations. Upon making the filings described in
the immediately following paragraph, all security interests created
hereunder in any Collateral which may be perfected by filing Uniform
Commercial Code financing statements shall have been duly perfected.
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Except for the filing of the Uniform Commercial Code financing
statements referred to in the immediately following paragraph, the
recordation of the Intellectual Property Security Agreement (as
defined below) with respect to copyrights and copyright applications
in the United States Copyright Office referred to in paragraph (m),
the execution and delivery of deposit account control agreements
satisfying the requirements of Section 9-104(a)(2) of the UCC with
respect to each deposit account of the Debtors, and the delivery of
the certificates and other instruments provided in Section 3, no
action is necessary to create, perfect or protect the security
interests created hereunder. Without limiting the generality of the
foregoing, except for the filing of said financing statements, the
recordation of said Intellectual Property Security Agreement, and the
execution and delivery of said deposit account control agreements, no
consent of any third parties and no authorization, approval or other
action by, and no notice to or filing with, any governmental authority
or regulatory body is required for (i) the execution, delivery and
performance of this Agreement, (ii) the creation or perfection of the
Security Interests created hereunder in the Collateral or (iii) the
enforcement of the rights of the Secured Parties hereunder.
(g) Each Debtor hereby authorizes the Secured Parties, or any of
them, to file one or more financing statements under the UCC with
respect to the Security Interests with the proper filing and recording
agencies in any jurisdiction deemed proper by them.
(h) The execution, delivery and performance of this Agreement by
the Debtors does not (i) violate any of the provisions of any
Organizational Documents of any Debtor or any judgment, decree, order
or award of any court, governmental body or arbitrator or any
applicable law, rule or regulation applicable to any Debtor or (ii)
conflict with, or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing any
Debtor's debt or otherwise) or other understanding to which any Debtor
is a party or by which any property or asset of any Debtor is bound or
affected. If any, all required consents (including, without
limitation, from stockholders or creditors of any Debtor) necessary
for any Debtor to enter into and perform its obligations hereunder
have been obtained.
(i) The capital stock and other equity interests listed on
Schedule H hereto represent all of the capital stock and other equity
interests of the Guarantors, and represent all capital stock and other
equity interests owned, directly or indirectly, by the Company. All of
the Pledged Securities are validly issued, fully paid and
nonassessable, and the Company is the legal and beneficial owner of
the Pledged Securities, free and clear of any lien, security interest
or other encumbrance except for the security interests created by this
Agreement and other Permitted Liens (as defined in the Debenture).
(j) The ownership and other equity interests in partnerships and
limited liability companies (if any) included in the Collateral (the
"Pledged Interests") by their express terms do not provide that they
are securities governed by Article 8 of the UCC and are not held in a
securities account or by any financial intermediary.
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(k) Each Debtor shall at all times maintain the liens and
Security Interests provided for hereunder as valid and perfected first
priority liens and security interests in the Collateral in favor of
the Secured Parties (and, with respect to all Collateral other than
the Equipment, a perfected third priority lien and security interest)
until this Agreement and the Security Interests hereunder shall be
terminated pursuant to Section 11 hereof. Each Debtor hereby agrees to
defend the same against the claims of any and all persons and
entities. Each Debtor shall safeguard and protect all Collateral for
the account of the Secured Parties. At the request of the Secured
Parties, each Debtor will sign and deliver to the Secured Parties at
any time or from time to time one or more financing statements
pursuant to the UCC in form reasonably satisfactory to the Secured
Parties and will pay the cost of filing the same in all public offices
wherever filing is, or is deemed by the Secured Parties to be,
necessary or desirable to effect the rights and obligations provided
for herein. Without limiting the generality of the foregoing, each
Debtor shall pay all fees, taxes and other amounts necessary to
maintain the Collateral and the Security Interests hereunder, and each
Debtor shall obtain and furnish to the Secured Parties from time to
time, upon demand, such releases and/or subordinations of claims and
liens which may be required to maintain the priority of the Security
Interests hereunder.
(l) No Debtor will transfer, pledge, hypothecate, encumber,
license, sell or otherwise dispose of any of the Collateral (except
for non-exclusive licenses granted by a Debtor in its ordinary course
of business and sales of inventory by a Debtor in its ordinary course
of business) without the prior written consent of a Majority in
Interest.
(m) Each Debtor shall keep and preserve its equipment, inventory
and other tangible Collateral in good condition, repair and order and
shall not operate or locate any such Collateral (or cause to be
operated or located) in any area excluded from insurance coverage.
(n) Each Debtor shall maintain with financially sound and
reputable insurers, insurance with respect to the Collateral,
including Collateral hereafter acquired, against loss or damage of the
kinds and in the amounts customarily insured against by entities of
established reputation having similar properties similarly situated
and in such amounts as are customarily carried under similar
circumstances by other such entities and otherwise as is prudent for
entities engaged in similar businesses but in any event sufficient to
cover the full replacement cost thereof and, with respect to the
Equipment, in an amount at least equal to the purchase price thereof.
Each Debtor shall cause each insurance policy issued in connection
herewith to provide, and the insurer issuing such policy to certify to
the Agent that (a) the Agent will be named as lender loss payee and
additional insured under each such insurance policy; (b) if such
insurance be proposed to be cancelled or materially changed for any
reason whatsoever, such insurer will promptly notify the Agent and
such cancellation or change shall not be effective as to the Agent for
at least thirty (30) days after receipt by the Agent of such notice,
unless the effect of such change is to extend or increase coverage
under the policy; and (c) the Agent will have the right (but no
obligation) at its election to remedy any default in the payment of
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premiums within thirty (30) days of notice from the insurer of such
default. If no Event of Default (as defined in the Debenture) exists
and if the proceeds arising out of any claim or series of related
claims do not exceed $100,000, loss payments in each instance will be
applied by the applicable Debtor to the repair and/or replacement of
property with respect to which the loss was incurred to the extent
reasonably feasible, and any loss payments or the balance thereof
remaining, to the extent not so applied, shall be payable to the
applicable Debtor, provided, however, that payments received by any
Debtor after an Event of Default occurs and is continuing or in excess
of $100,000 for any occurrence or series of related occurrences shall
be paid to the Agent and, if received by such Debtor, shall be held in
trust for and immediately paid over to the Agent unless otherwise
directed in writing by the Agent. Copies of such policies or the
related certificates, in each case, naming the Agent as lender loss
payee and additional insured shall be delivered to the Agent at least
annually and at the time any new policy of insurance is issued.
(o) Each Debtor shall, within ten (10) days of obtaining
knowledge thereof, advise the Secured Parties promptly, in sufficient
detail, of any substantial change in the Collateral, and of the
occurrence of any event which would have a material adverse effect on
the value of the Collateral or on the Secured Parties' security
interest therein.
(p) Each Debtor shall promptly execute and deliver to the Secured
Parties such further deeds, mortgages, assignments, security
agreements, financing statements or other instruments, documents,
certificates and assurances and take such further action as the
Secured Parties may from time to time request and may in its sole
discretion deem necessary to perfect, protect or enforce its security
interest in the Collateral including, without limitation, if
applicable, the execution and delivery of a separate security
agreement with respect to each Debtor's Intellectual Property
("Intellectual Property Security Agreement") in which the Secured
Parties have been granted a security interest hereunder, substantially
in a form acceptable to the Secured Parties, which Intellectual
Property Security Agreement, other than as stated therein, shall be
subject to all of the terms and conditions hereof.
(q) Each Debtor shall permit the Secured Parties and their
representatives and agents to inspect the Collateral at any time, and
to make copies of records pertaining to the Collateral as may be
requested by a Secured Party from time to time.
(r) Each Debtor shall take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any
rights, claims, causes of action and accounts receivable in respect of
the Collateral.
(s) Each Debtor shall promptly notify the Secured Parties in
sufficient detail upon becoming aware of any attachment, garnishment,
execution or other legal process levied against any Collateral and of
any other information received by such Debtor that may materially
affect the value of the Collateral, the Security Interests or the
rights and remedies of the Secured Parties hereunder.
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(t) All information heretofore, herein or hereafter supplied to
the Secured Parties by or on behalf of any Debtor with respect to the
Collateral is accurate and complete in all material respects as of the
date furnished.
(u) The Debtors shall at all times preserve and keep in full
force and effect their respective valid existence and good standing
and any rights and franchises material to its business.
(v) No Debtor will change its name, type of organization,
jurisdiction of organization, organizational identification number (if
it has one), legal or corporate structure, or identity, or add any new
fictitious name unless it provides at least 30 days prior written
notice to the Secured Parties of such change and, at the time of such
written notification, such Debtor provides any financing statements or
fixture filings necessary to perfect and continue perfected the
perfected security Interest granted and evidenced by this Agreement.
(w) No Debtor may consign any of its Inventory or sell any of its
Inventory on bill and hold, sale or return, sale on approval, or other
conditional terms of sale without the consent of a Majority in
Interest which shall not be unreasonably withheld, except to the
extent such consignment or sale is at market prices for cash and does
not exceed 15% of the total value of all of the Company's finished
goods in Inventory.
(x) No Debtor may relocate its chief executive office to a new
location without providing 30 days prior written notification thereof
to the Secured Parties and so long as, at the time of such written
notification, such Debtor provides any financing statements or fixture
filings necessary to perfect and continue the perfection of the
perfected Security Interests granted and evidenced by this Agreement.
(y) Each Debtor was organized and remains organized solely under
the laws of the state set forth next to such Debtor's name in the
first paragraph of this Agreement. Schedule D attached hereto sets
forth each Debtor's organizational identification number or, if any
Debtor does not have one, states that one does not exist.
(z) (i) The actual name of each Debtor is the name set forth in
the preamble above; (ii) no Debtor has any trade names except as set
forth on Schedule E attached hereto; (iii) no Debtor has used any name
other than that stated in the preamble hereto or as set forth on
Schedule E for the preceding five years; and (iv) no entity has merged
into any Debtor or been acquired by any Debtor within the past five
years except as set forth on Schedule E.
(aa) At any time and from time to time that any Collateral
consists of instruments, certificated securities or other items that
require or permit possession by the secured party to perfect the
security interest created hereby, the applicable Debtor shall deliver
such Collateral to the Agent.
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(bb) Each Debtor, in its capacity as issuer, hereby agrees to
comply with any and all orders and instructions of Agent regarding the
Pledged Interests consistent with the terms of this Agreement without
the further consent of any Debtor as contemplated by Section 8-106 (or
any successor section) of the UCC. Further, each Debtor agrees that it
shall not enter into a similar agreement (or one that would confer
"control" within the meaning of Article 8 of the UCC) with any other
person or entity.
(cc) Each Debtor shall cause all tangible chattel paper
constituting Collateral to be delivered to the Agent, or, if such
delivery is not possible, then to cause such tangible chattel paper to
contain a legend noting that it is subject to the security interest
created by this Agreement. To the extent that any Collateral consists
of electronic chattel paper, the applicable Debtor shall cause the
underlying chattel paper to be "marked" within the meaning of Section
9-105 of the UCC (or successor section thereto).
(dd) If there is any investment property or deposit account
included as Collateral that can be perfected by "control" through an
account control agreement, the applicable Debtor shall cause such an
account control agreement, in form and substance in each case
satisfactory to the Secured Parties, to be entered into and delivered
to the Secured Parties.
(ee) To the extent that any Collateral consists of
letter-of-credit rights, the applicable Debtor shall cause the issuer
of each underlying letter of credit to consent to an assignment of the
proceeds thereof to the Secured Parties.
(ff) To the extent that any Collateral is in the possession of
any third party, the applicable Debtor shall join with the Secured
Parties in notifying such third party of the Secured Parties' security
interest in such Collateral and shall use its best efforts to obtain
an acknowledgement and agreement from such third party with respect to
the Collateral, in form and substance satisfactory to the Secured
Parties.
(gg) If any Debtor shall at any time hold or acquire a commercial
tort claim, such Debtor shall promptly notify the Secured Parties in a
writing signed by such Debtor of the particulars thereof and grant to
the Secured Parties in such writing a security interest therein and in
the proceeds thereof, all upon the terms of this Agreement, with such
writing to be in form and substance satisfactory to the Secured
Parties.
(hh) Each Debtor shall immediately provide written notice to the
Secured Parties of any and all accounts which arise out of contracts
with any governmental authority and, to the extent necessary to
perfect or continue the perfected status of the Security Interests in
such accounts and proceeds thereof, shall execute and deliver to the
Secured Parties an assignment of claims for such accounts and
cooperate with the Secured Parties in taking any other steps required,
in their judgment, under the Federal Assignment of Claims Act or any
similar federal, state or local statute or rule to perfect or continue
the perfected status of the Security Interests in such accounts and
proceeds thereof.
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(ii) Each Debtor shall cause each subsidiary of such Debtor to
immediately become a party hereto (an "Additional Debtor"), by
executing and delivering an Additional Debtor Joinder in substantially
the form of Annex A attached hereto and comply with the provisions
hereof applicable to the Debtors. Concurrent therewith, the Additional
Debtor shall deliver replacement schedules for, or supplements to all
other Schedules to (or referred to in) this Agreement, as applicable,
which replacement schedules shall supersede, or supplements shall
modify, the Schedules then in effect. The Additional Debtor shall also
deliver such opinions of counsel, authorizing resolutions, good
standing certificates, incumbency certificates, organizational
documents, financing statements and other information and
documentation as the Secured Parties may reasonably request. Upon
delivery of the foregoing to the Secured Parties, the Additional
Debtor shall be and become a party to this Agreement with the same
rights and obligations as the Debtors, for all purposes hereof as
fully and to the same extent as if it were an original signatory
hereto and shall be deemed to have made the representations,
warranties and covenants set forth herein as of the date of execution
and delivery of such Additional Debtor Joinder, and all references
herein to the "Debtors" shall be deemed to include each Additional
Debtor.
(jj) Each Debtor shall vote the Pledged Securities to comply with
the covenants and agreements set forth herein and in the Debentures.
(kk) Each Debtor shall register the pledge of the applicable
Pledged Securities on the books of such Debtor. Each Debtor shall
notify each issuer of Pledged Securities to register the pledge of the
applicable Pledged Securities in the name of the Secured Parties on
the books of such issuer. Further, except with respect to certificated
securities delivered to the Agent, the applicable Debtor shall deliver
to Agent an acknowledgement of pledge (which, where appropriate, shall
comply with the requirements of the relevant UCC with respect to
perfection by registration) signed by the issuer of the applicable
Pledged Securities, which acknowledgement shall confirm that: (a) it
has registered the pledge on its books and records; and (b) at any
time directed by Agent during the continuation of an Event of Default,
such issuer will transfer the record ownership of such Pledged
Securities into the name of any designee of Agent, will take such
steps as may be necessary to effect the transfer, and will comply with
all other instructions of Agent regarding such Pledged Securities
without the further consent of the applicable Debtor.
(ll) In the event that, upon an occurrence of an Event of
Default, Agent shall sell all or any of the Pledged Securities to
another party or parties (herein called the "Transferee") or shall
purchase or retain all or any of the Pledged Securities, each Debtor
shall, to the extent applicable: (i) deliver to Agent or the
Transferee, as the case may be, the articles of incorporation, bylaws,
minute books, stock certificate books, corporate seals, deeds, leases,
indentures, agreements, evidences of indebtedness, books of account,
financial records and all other Organizational Documents and records
of the Debtors and their direct and indirect subsidiaries; (ii) use
its best efforts to obtain resignations of the persons then serving as
officers and directors of the Debtors and their direct and indirect
subsidiaries, if so requested; and (iii) use its best efforts to
obtain any approvals that are required by any governmental or
regulatory body in order to permit the sale of the Pledged Securities
to the Transferee or the purchase or retention of the Pledged
Securities by Agent and allow the Transferee or Agent to continue the
business of the Debtors and their direct and indirect subsidiaries.
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(mm) Without limiting the generality of the other obligations of
the Debtors hereunder, each Debtor shall promptly (i) cause to be
registered at the United States Copyright Office all of its material
copyrights, (ii) cause the security interest contemplated hereby with
respect to all Intellectual Property registered at the United States
Copyright Office or United States Patent and Trademark Office to be
duly recorded at the applicable office, and (iii) give the Agent
notice whenever it acquires (whether absolutely or by license) or
creates any additional material Intellectual Property.
(nn) Each Debtor will from time to time, at the joint and several
expense of the Debtors, promptly execute and deliver all such further
instruments and documents, and take all such further action as may be
necessary or desirable, or as the Secured Parties may reasonably
request, in order to perfect and protect any security interest granted
or purported to be granted hereby or to enable the Secured Parties to
exercise and enforce their rights and remedies hereunder and with
respect to any Collateral or to otherwise carry out the purposes of
this Agreement.
(oo) Schedule F attached hereto lists all of the patents, patent
applications, trademarks, trademark applications, registered
copyrights, and domain names owned by any of the Debtors as of the
date hereof. Schedule F lists all material licenses in favor of any
Debtor for the use of any patents, trademarks, copyrights and domain
names as of the date hereof. All material patents and trademarks of
the Debtors have been duly recorded at the United States Patent and
Trademark Office and all material copyrights of the Debtors have been
duly recorded at the United States Copyright Office.
(pp) Except as set forth on Schedule G attached hereto, none of
the account debtors or other persons or entities obligated on any of
the Collateral is a governmental authority covered by the Federal
Assignment of Claims Act or any similar federal, state or local
statute or rule in respect of such Collateral.
5. Effect of Pledge on Certain Rights. If any of the Collateral
subject to this Agreement consists of nonvoting equity or ownership interests
(regardless of class, designation, preference or rights) that may be converted
into voting equity or ownership interests upon the occurrence of certain events
(including, without limitation, upon the transfer of all or any of the other
stock or assets of the issuer), it is agreed that the pledge of such equity or
ownership interests pursuant to this Agreement or the enforcement of any of
Agent's rights hereunder shall not be deemed to be the type of event which would
trigger such conversion rights notwithstanding any provisions in the
Organizational Documents or agreements to which any Debtor is subject or to
which any Debtor is party.
6. Defaults. The following events shall be "Events of Default":
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(a) The occurrence of an Event of Default (as defined in the
Debenture) under the Debenture;
(b) Any representation or warranty of any Debtor in this
Agreement shall prove to have been incorrect in any material respect
when made;
(c) The failure by any Debtor to observe or perform any of its
obligations hereunder for five (5) days after delivery to such Debtor
of notice of such failure by or on behalf of a Secured Party unless
such default is capable of cure but cannot be cured within such time
frame and such Debtor is using best efforts to cure same in a timely
fashion; or
(d) If any provision of this Agreement shall at any time for any
reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by any Debtor, or a
proceeding shall be commenced by any Debtor, or by any governmental
authority having jurisdiction over any Debtor, seeking to establish
the invalidity or unenforceability thereof, or any Debtor shall deny
that any Debtor has any liability or obligation purported to be
created under this Agreement.
7. Duty To Hold In Trust.
(a) Upon the occurrence of any Event of Default and at any time
thereafter, each Debtor shall, upon receipt of any revenue, income,
dividend, interest or other sums subject to the Security Interests,
whether payable pursuant to the Debenture or otherwise, or of any
check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the same in trust for the Secured
Parties and shall forthwith endorse and transfer any such sums or
instruments, or both, to the Secured Parties, pro-rata in proportion
to their then-current respective principal amounts of Debentures for
application to the satisfaction of the Obligations (and if any
Debenture is not outstanding, pro-rata in proportion to the initial
purchases of the remaining Debentures).
(b) If any Debtor shall become entitled to receive or shall
receive any securities or other property (including, without
limitation, shares of Pledged Securities or instruments representing
Pledged Securities acquired after the date hereof, or any options,
warrants, rights or other similar property or certificates
representing a dividend, or any distribution in connection with any
recapitalization, reclassification or increase or reduction of
capital, or issued in connection with any reorganization of such
Debtor or any of its direct or indirect subsidiaries) in respect of
the Pledged Securities (whether as an addition to, in substitution of,
or in exchange for, such Pledged Securities or otherwise), such Debtor
agrees to (i) accept the same as the agent of the Secured Parties;
(ii) hold the same in trust on behalf of and for the benefit of the
Secured Parties; and (iii) to deliver any and all certificates or
instruments evidencing the same to Agent on or before the close of
business on the fifth business day following the receipt thereof by
such Debtor, in the exact form received together with the Necessary
Endorsements, to be held by Agent subject to the terms of this
Agreement as Collateral.
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8. Rights and Remedies Upon Default.
(a) Upon the occurrence of any Event of Default and at any time
thereafter, the Secured Parties, acting through any agent appointed by
them for such purpose, shall have the right to exercise all of the
remedies conferred hereunder and under the Debentures, and the Secured
Parties shall have all the rights and remedies of a secured party
under the UCC. Without limitation, the Secured Parties shall have the
following rights and powers:
(i) The Secured Parties shall have the right to take
possession of the Collateral and, for that purpose, enter, with
the aid and assistance of any person, any premises where the
Collateral, or any part thereof, is or may be placed and remove
the same, and each Debtor shall assemble the Collateral and make
it available to the Secured Parties at places which the Secured
Parties shall reasonably select, whether at such Debtor's
premises or elsewhere, and make available to the Secured Parties,
without rent, all of such Debtor's respective premises and
facilities for the purpose of the Secured Parties taking
possession of, removing or putting the Collateral in saleable or
disposable form.
(ii) Upon notice to the Debtors by Agent, all rights of each
Debtor to exercise the voting and other consensual rights which
it would otherwise be entitled to exercise and all rights of each
Debtor to receive the dividends and interest which it would
otherwise be authorized to receive and retain, shall cease. Upon
such notice, Agent shall have the right to receive any interest,
cash dividends or other payments on the Collateral and, at the
option of Agent, to exercise in such Agent's discretion all
voting rights pertaining thereto. Without limiting the generality
of the foregoing, Agent shall have the right (but not the
obligation) to exercise all rights with respect to the Collateral
as it were the sole and absolute owners thereof, including,
without limitation, to vote and/or to exchange, at its sole
discretion, any or all of the Collateral in connection with a
merger, reorganization, consolidation, recapitalization or other
readjustment concerning or involving the Collateral or any Debtor
or any of its direct or indirect subsidiaries.
(iii) The Secured Parties shall have the right to operate
the business of each Debtor using the Collateral and shall have
the right to assign, sell, lease or otherwise dispose of and
deliver all or any part of the Collateral, at public or private
sale or otherwise, either with or without special conditions or
stipulations, for cash or on credit or for future delivery, in
such parcel or parcels and at such time or times and at such
place or places, and upon such terms and conditions as the
Secured Parties may deem commercially reasonable, all without
(except as shall be required by applicable statute and cannot be
waived) advertisement or demand upon or notice to any Debtor or
right of redemption of a Debtor, which are hereby expressly
waived. Upon each such sale, lease, assignment or other transfer
of Collateral, the Secured Parties may, unless prohibited by
applicable law which cannot be waived, purchase all or any part
of the Collateral being sold, free from and discharged of all
trusts, claims, right of redemption and equities of any Debtor,
which are hereby waived and released.
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(iv) The Secured Parties shall have the right (but not the
obligation) to notify any account debtors and any obligors under
instruments or accounts to make payments directly to the Secured
Parties and to enforce the Debtors' rights against such account
debtors and obligors.
(v) The Secured Parties may (but are not obligated to)
direct any financial intermediary or any other person or entity
holding any investment property to transfer the same to the
Secured Parties or their designee.
(vi) The Secured Parties may (but are not obligated to)
transfer any or all Intellectual Property registered in the name
of any Debtor at the United States Patent and Trademark Office
and/or Copyright Office into the name of the Secured Parties or
any designee or any purchaser of any Collateral.
(b) The Agent may comply with any applicable law in connection with a
disposition of Collateral and such compliance will not be considered
adversely to affect the commercial reasonableness of any sale of the
Collateral. The Agent may sell the Collateral without giving any warranties
and may specifically disclaim such warranties. If the Agent sells any of
the Collateral on credit, the Debtors will only be credited with payments
actually made by the purchaser. In addition, each Debtor waives any and all
rights that it may have to a judicial hearing in advance of the enforcement
of any of the Agent's rights and remedies hereunder, including, without
limitation, its right following an Event of Default to take immediate
possession of the Collateral and to exercise its rights and remedies with
respect thereto.
(c) For the purpose of enabling the Agent to further exercise rights
and remedies under this Section 8 or elsewhere provided by agreement or
applicable law, each Debtor hereby grants to the Agent, for the benefit of
the Agent and the Secured Parties, an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to such
Debtor) to use, license or sublicense following an Event of Default, any
Intellectual Property now owned or hereafter acquired by such Debtor, and
wherever the same may be located, and including in such license access to
all media in which any of the licensed items may be recorded or stored and
to all computer software and programs used for the compilation or printout
thereof.
9. Applications of Proceeds. The proceeds of any such sale, lease or
other disposition of the Collateral hereunder or from payments made on account
of any insurance policy insuring any portion of the Collateral shall be applied
first, to the expenses of retaking, holding, storing, processing and preparing
for sale, selling, and the like (including, without limitation, any taxes, fees
and other costs incurred in connection therewith) of the Collateral, to the
reasonable attorneys' fees and expenses incurred by the Secured Parties in
enforcing their rights hereunder and in connection with collecting, storing and
disposing of the Collateral, and then to satisfaction of the Obligations pro
rata among the Secured Parties (based on then-outstanding principal amounts of
Debentures at the time of any such determination), and to the payment of any
other amounts required by applicable law, after which the Secured Parties shall
pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or
other disposition of the Collateral, the proceeds thereof are insufficient to
16
pay all amounts to which the Secured Parties are legally entitled, the Debtors
will be liable for the deficiency, together with interest thereon, at the rate
of 18% per annum or the lesser amount permitted by applicable law (the "Default
Rate"), and the reasonable fees of any attorneys employed by the Secured Parties
to collect such deficiency. To the extent permitted by applicable law, each
Debtor waives all claims, damages and demands against the Secured Parties
arising out of the repossession, removal, retention or sale of the Collateral,
unless due solely to the gross negligence or willful misconduct of the Secured
Parties as determined by a final judgment (not subject to further appeal) of a
court of competent jurisdiction.
10. Securities Law Provision. Each Debtor recognizes that Agent may be
limited in its ability to effect a sale to the public of all or part of the
Pledged Securities by reason of certain prohibitions in the Securities Act of
1933, as amended, or other federal or state securities laws (collectively, the
"Securities Laws"), and may be compelled to resort to one or more sales to a
restricted group of purchasers who may be required to agree to acquire the
Pledged Securities for their own account, for investment and not with a view to
the distribution or resale thereof. Each Debtor agrees that sales so made may be
at prices and on terms less favorable than if the Pledged Securities were sold
to the public, and that Agent has no obligation to delay the sale of any Pledged
Securities for the period of time necessary to register the Pledged Securities
for sale to the public under the Securities Laws. Each Debtor shall cooperate
with Agent in its attempt to satisfy any requirements under the Securities Laws
(including, without limitation, registration thereunder if requested by Agent)
applicable to the sale of the Pledged Securities by Agent.
11. Costs and Expenses. Each Debtor agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements
pursuant to the UCC, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any searches
reasonably required by the Secured Parties. The Debtors shall also pay all other
claims and charges which in the reasonable opinion of the Secured Parties might
prejudice, imperil or otherwise affect the Collateral or the Security Interests
therein. The Debtors will also, upon demand, pay to the Secured Parties the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Secured Parties
may incur in connection with (i) the enforcement of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, or (iii) the exercise or enforcement of
any of the rights of the Secured Parties under the Debentures. Until so paid,
any fees payable hereunder shall be added to the principal amount of the
Debentures and shall bear interest at the Default Rate.
12. Responsibility for Collateral. The Debtors assume all liabilities
and responsibility in connection with all Collateral, and the Obligations shall
in no way be affected or diminished by reason of the loss, destruction, damage
or theft of any of the Collateral or its unavailability for any reason. Without
limiting the generality of the foregoing, (a) neither the Agent nor any Secured
Party (i) has any duty (either before or after an Event of Default) to collect
any amounts in respect of the Collateral or to preserve any rights relating to
the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the
Collateral for sale, and (b) each Debtor shall remain obligated and liable under
each contract or agreement included in the Collateral to be observed or
performed by such Debtor thereunder. Neither the Agent nor any Secured Party
shall have any obligation or liability under any such contract or agreement by
17
reason of or arising out of this Agreement or the receipt by the Agent or any
Secured Party of any payment relating to any of the Collateral, nor shall the
Agent or any Secured Party be obligated in any manner to perform any of the
obligations of any Debtor under or pursuant to any such contract or agreement,
to make inquiry as to the nature or sufficiency of any payment received by the
Agent or any Secured Party in respect of the Collateral or as to the sufficiency
of any performance by any party under any such contract or agreement, to present
or file any claim, to take any action to enforce any performance or to collect
the payment of any amounts which may have been assigned to the Agent or to which
the Agent or any Secured Party may be entitled at any time or times.
13. Security Interests Absolute. All rights of the Secured Parties and
all obligations of the Debtors hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Debentures or any agreement entered into in connection with the foregoing,
or any portion hereof or thereof; (b) any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Debentures or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guarantee, or any other security, for all or any of the
Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which might
otherwise constitute any legal or equitable defense available to a Debtor, or a
discharge of all or any part of the Security Interests granted hereby. Until the
Obligations shall have been paid and performed in full, the rights of the
Secured Parties shall continue even if the Obligations are barred for any
reason, including, without limitation, the running of the statute of limitations
or bankruptcy. Each Debtor expressly waives presentment, protest, notice of
protest, demand, notice of nonpayment and demand for performance. In the event
that at any time any transfer of any Collateral or any payment received by the
Secured Parties hereunder shall be deemed by final order of a court of competent
jurisdiction to have been a voidable preference or fraudulent conveyance under
the bankruptcy or insolvency laws of the United States, or shall be deemed to be
otherwise due to any party other than the Secured Parties, then, in any such
event, each Debtor's obligations hereunder shall survive cancellation of this
Agreement, and shall not be discharged or satisfied by any prior payment thereof
and/or cancellation of this Agreement, but shall remain a valid and binding
obligation enforceable in accordance with the terms and provisions hereof. Each
Debtor waives all right to require the Secured Parties to proceed against any
other person or entity or to apply any Collateral which the Secured Parties may
hold at any time, or to marshal assets, or to pursue any other remedy. Each
Debtor waives any defense arising by reason of the application of the statute of
limitations to any obligation secured hereby.
14. Term of Agreement. This Agreement and the Security Interests shall
terminate on the date on which all payments under the Debentures have been
indefeasibly paid in full and all other Obligations have been paid or
discharged; provided, however, that all indemnities of the Debtors contained in
this Agreement (including, without limitation, Annex B hereto) shall survive and
remain operative and in full force and effect regardless of the termination of
this Agreement.
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15. Power of Attorney; Further Assurances.
(a) Each Debtor authorizes the Secured Parties, and does hereby make,
constitute and appoint the Secured Parties and their respective officers,
agents, successors or assigns with full power of substitution, as such
Debtor's true and lawful attorney-in-fact, with power, in the name of the
various Secured Parties or such Debtor, to, after the occurrence and during
the continuance of an Event of Default, (i) endorse any note, checks,
drafts, money orders or other instruments of payment (including payments
payable under or in respect of any policy of insurance) in respect of the
Collateral that may come into possession of the Secured Parties; (ii) to
sign and endorse any financing statement pursuant to the UCC or any
invoice, freight or express bill, bill of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices in
connection with accounts, and other documents relating to the Collateral;
(iii) to pay or discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on or threatened against the
Collateral; (iv) to demand, collect, receipt for, compromise, settle and
sue for monies due in respect of the Collateral; (v) to transfer any
Intellectual Property or provide licenses respecting any Intellectual
Property; and (vi) generally, at the option of the Secured Parties, and at
the expense of the Debtors, at any time, or from time to time, to execute
and deliver any and all documents and instruments and to do all acts and
things which the Secured Parties deem necessary to protect, preserve and
realize upon the Collateral and the Security Interests granted therein in
order to effect the intent of this Agreement and the Debentures all as
fully and effectually as the Debtors might or could do; and each Debtor
hereby ratifies all that said attorney shall lawfully do or cause to be
done by virtue hereof. This power of attorney is coupled with an interest
and shall be irrevocable for the term of this Agreement and thereafter as
long as any of the Obligations shall be outstanding. The designation set
forth herein shall be deemed to amend and supersede any inconsistent
provision in the Organizational Documents or other documents or agreements
to which any Debtor is subject or to which any Debtor is a party. Without
limiting the generality of the foregoing, after the occurrence and during
the continuance of an Event of Default, each Secured Party is specifically
authorized to execute and file any applications for or instruments of
transfer and assignment of any patents, trademarks, copyrights or other
Intellectual Property with the United States Patent and Trademark Office
and the United States Copyright Office.
(b) On a continuing basis, each Debtor will make, execute,
acknowledge, deliver, file and record, as the case may be, with the proper
filing and recording agencies in any jurisdiction, including, without
limitation, the jurisdictions indicated on Schedule C attached hereto, all
such instruments, and take all such action as may reasonably be deemed
necessary or advisable, or as reasonably requested by the Secured Parties,
to perfect the Security Interests granted hereunder and otherwise to carry
out the intent and purposes of this Agreement, or for assuring and
confirming to the Secured Parties the grant or perfection of a perfected
security interest in all the Collateral under the UCC.
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(c) Each Debtor hereby irrevocably appoints the Secured Parties as
such Debtor's attorney-in-fact, with full authority in the place and
instead of such Debtor and in the name of such Debtor, from time to time in
the Secured Parties' discretion, to take any action and to execute any
instrument which the Secured Parties may deem necessary or advisable to
accomplish the purposes of this Agreement, including the filing, in its
sole discretion, of one or more financing or continuation statements and
amendments thereto, relative to any of the Collateral without the signature
of such Debtor where permitted by law, which financing statements may (but
need not) describe the Collateral as "all assets" or "all personal
property" or words of like import, and ratifies all such actions taken by
the Secured Parties. This power of attorney is coupled with an interest and
shall be irrevocable for the term of this Agreement and thereafter as long
as any of the Obligations shall be outstanding.
16. Notices. All notices, requests, demands and other communications
hereunder shall be subject to the notice provision of the Purchase Agreement (as
such term is defined in the Debentures).
17. Other Security. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Parties shall have the right, in its sole discretion, to
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Parties'
rights and remedies hereunder.
18. Appointment of Agent. The Secured Parties hereby appoint CAMOFI
Master LDC to act as their agent ("CAMOFI" or "Agent") for purposes of
exercising any and all rights and remedies of the Secured Parties hereunder.
Such appointment shall continue until revoked in writing by a Majority in
Interest, at which time a Majority in Interest shall appoint a new Agent,
provided that CAMOFI may not be removed as Agent unless CAMOFI shall then hold
less than $250,000 principal amount of Debentures; provided, further, that such
removal may occur only if each of the other Secured Parties shall then hold not
less than $1,000,000 principal amount of Debentures. The Agent shall have the
rights, responsibilities and immunities set forth in Annex B hereto.
19. Miscellaneous.
(a) No course of dealing between the Debtors and the Secured Parties,
nor any failure to exercise, nor any delay in exercising, on the part of
the Secured Parties, any right, power or privilege hereunder or under the
Debentures shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
(b) All of the rights and remedies of the Secured Parties with respect
to the Collateral, whether established hereby or by the Debentures or by
any other agreements, instruments or documents or by law shall be
cumulative and may be exercised singly or concurrently.
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(c) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and is intended to supersede all
prior negotiations, understandings and agreements with respect thereto.
Except as specifically set forth in this Agreement, no provision of this
Agreement may be modified or amended except by a written agreement
specifically referring to this Agreement and signed by the parties hereto.
(d) In the event any provision of this Agreement is held to be
invalid, prohibited or unenforceable in any jurisdiction for any reason,
unless such provision is narrowed by judicial construction, this Agreement
shall, as to such jurisdiction, be construed as if such invalid, prohibited
or unenforceable provision had been more narrowly drawn so as not to be
invalid, prohibited or unenforceable. If, notwithstanding the foregoing,
any provision of this Agreement is held to be invalid, prohibited or
unenforceable in any jurisdiction, such provision, as to such jurisdiction,
shall be ineffective to the extent of such invalidity, prohibition or
unenforceability without invalidating the remaining portion of such
provision or the other provisions of this Agreement and without affecting
the validity or enforceability of such provision or the other provisions of
this Agreement in any other jurisdiction.
(e) No waiver of any breach or default or any right under this
Agreement shall be considered valid unless in writing and signed by the
party giving such waiver, and no such waiver shall be deemed a waiver of
any subsequent breach or default or right, whether of the same or similar
nature or otherwise.
(f) This Agreement shall be binding upon and inure to the benefit of
each party hereto and its successors and assigns.
(g) Each party shall take such further action and execute and deliver
such further documents as may be necessary or appropriate in order to carry
out the provisions and purposes of this Agreement.
(h) All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each Debtor
agrees that all proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and the
Debenture (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, partners, members, employees
or agents) shall be commenced exclusively in the state and federal courts
sitting in the City of New York, Borough of Manhattan. Each Debtor hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
21
waives, and agrees not to assert in any proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such
proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any
such proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions
contemplated hereby. If any party shall commence a proceeding to enforce
any provisions of this Agreement, then the prevailing party in such
proceeding shall be reimbursed by the other party for its reasonable
attorney's fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such proceeding.
(i) This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement. In the
event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing
(or on whose behalf such signature is executed) the same with the same
force and effect as if such facsimile signature were the original thereof.
(j) All Debtors shall jointly and severally be liable for the
obligations of each Debtor to the Secured Parties hereunder.
(k) Each Debtor shall indemnify, reimburse and hold harmless the
Secured Parties and their respective partners, members, shareholders,
officers, directors, employees and agents (collectively, "Indemnitees")
from and against any and all losses, claims, liabilities, damages,
penalties, suits, costs and expenses, of any kind or nature, (including
fees relating to the cost of investigating and defending any of the
foregoing) imposed on, incurred by or asserted against such Indemnitee in
any way related to or arising from or alleged to arise from this Agreement
or the Collateral, except any such losses, claims, liabilities, damages,
penalties, suits, costs and expenses which result from the gross negligence
or willful misconduct of the Indemnitee as determined by a final,
nonappealable decision of a court of competent jurisdiction. This
indemnification provision is in addition to, and not in limitation of, any
other indemnification provision in the Debentures, the Purchase Agreement
(as such term is defined in the Debentures) or any other agreement,
instrument or other document executed or delivered in connection herewith
or therewith.
(l) Nothing in this Agreement shall be construed to subject Agent or
any Secured Party to liability as a partner in any Debtor or any if its
direct or indirect subsidiaries that is a partnership or as a member in any
Debtor or any of its direct or indirect subsidiaries that is a limited
liability company, nor shall Agent or any Secured Party be deemed to have
assumed any obligations under any partnership agreement or limited
liability company agreement, as applicable, of any such Debtor or any if
its direct or indirect subsidiaries or otherwise, unless and until any such
Secured Party exercises its right to be substituted for such Debtor as a
partner or member, as applicable, pursuant hereto.
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(m) To the extent that the grant of the security interest in the
Collateral and the enforcement of the terms hereof require the consent,
approval or action of any partner or member, as applicable, of any Debtor
or any direct or indirect subsidiary of any Debtor or compliance with any
provisions of any of the Organizational Documents, the Debtors hereby grant
such consent and approval and waive any such noncompliance with the terms
of said documents.
[SIGNATURE PAGES FOLLOW]
23
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.
CONSOLIDATED ENERGY, INC.
By:__________________________________________
Name: David Guthrie
Title: President
EASTERN CONSOLIDATED ENERGY, INC.
By:________________________________
Name:
Title:
CEI HOLDINGS, INC.
By:_________________________________
Name:
Title:
MORGAN MINING, INC.
By:_________________________________
Name:
Title:
WARFIELD PROCESSING, INC.
By:_________________________________
Name:
Title:
EASTERN COAL ENERGIES, INC.
By:_________________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
24
[SIGNATURE PAGE OF HOLDERS TO CEIW SA]
Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing entity: _______________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
25
SCHEDULE A
Principal Place of Business of Debtors:
Locations Where Collateral is Located or Stored:
26
SCHEDULE B
27
SCHEDULE C
28
SCHEDULE D
Organizational Identification Numbers
29
SCHEDULE E
Names; Mergers and Acquisitions
30
SCHEDULE F
Intellectual Property
31
SCHEDULE G
Account Debtors
32
SCHEDULE H
Pledged Securities
33
ANNEX A
to
SECURITY
AGREEMENT
FORM OF ADDITIONAL DEBTOR JOINDER
Security Agreement dated as of [_____ ___, 200__ made by
[____________
and its subsidiaries party thereto from time to time, as Debtors
to and in favor of
the Secured Parties identified therein (the "Security Agreement")
Reference is made to the Security Agreement as defined above;
capitalized terms used herein and not otherwise defined herein shall have the
meanings given to such terms in, or by reference in, the Security Agreement.
The undersigned hereby agrees that upon delivery of this Additional
Debtor Joinder to the Secured Parties referred to above, the undersigned shall
(a) be an Additional Debtor under the Security Agreement, (b) have all the
rights and obligations of the Debtors under the Security Agreement as fully and
to the same extent as if the undersigned was an original signatory thereto and
(c) be deemed to have made the representations and warranties set forth in
Section 4 therein as of the date of execution and delivery of this Additional
Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES SECURITY INTERESTS IN THE
COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES
AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.
Attached hereto are supplemental and/or replacement Schedules to the
Security Agreement, as applicable.
An executed copy of this Joinder shall be delivered to the Secured
Parties, and the Secured Parties may rely on the matters set forth herein on or
after the date hereof. This Joinder shall not be modified, amended or terminated
without the prior written consent of the Secured Parties.
34
IN WITNESS WHEREOF, the undersigned has caused this Joinder to be
executed in the name and on behalf of the undersigned.
[Name of Additional Debtor]
By:
Name:
Title:
Address:
Dated:
35
[ANNEX B
to
SECURITY
AGREEMENT
THE AGENT
1. Appointment. The Secured Parties (all capitalized terms used herein
and not otherwise defined shall have the respective meanings provided in the
Security Agreement to which this Annex B is attached (the "Agreement")), by
their acceptance of the benefits of the Agreement, hereby designate CAMOFI
Master LDC ("CAMOFI" or "Agent") as the Agent to act as specified herein and in
the Agreement. Each Secured Party shall be deemed irrevocably to authorize the
Agent to take such action on its behalf under the provisions of the Agreement
and any other Transaction Document (as such term is defined in the Debentures)
and to exercise such powers and to perform such duties hereunder and thereunder
as are specifically delegated to or required of the Agent by the terms hereof
and thereof and such other powers as are reasonably incidental thereto. The
Agent may perform any of its duties hereunder by or through its agents or
employees.
2. Nature of Duties. The Agent shall have no duties or
responsibilities except those expressly set forth in the Agreement. Neither the
Agent nor any of its partners, members, shareholders, officers, directors,
employees or agents shall be liable for any action taken or omitted by it as
such under the Agreement or hereunder or in connection herewith or therewith, be
responsible for the consequence of any oversight or error of judgment or
answerable for any loss, unless caused solely by its or their gross negligence
or willful misconduct as determined by a final judgment (not subject to further
appeal) of a court of competent jurisdiction. The duties of the Agent shall be
mechanical and administrative in nature; the Agent shall not have by reason of
the Agreement or any other Transaction Document a fiduciary relationship in
respect of any Debtor or any Secured Party; and nothing in the Agreement or any
other Transaction Document, expressed or implied, is intended to or shall be so
construed as to impose upon the Agent any obligations in respect of the
Agreement or any other Transaction Document except as expressly set forth herein
and therein.
3. Lack of Reliance on the Agent. Independently and without reliance
upon the Agent, each Secured Party, to the extent it deems appropriate, has made
and shall continue to make (i) its own independent investigation of the
financial condition and affairs of the Company and its subsidiaries in
connection with such Secured Party's investment in the Debtors, the creation and
continuance of the Obligations, the transactions contemplated by the Transaction
Documents, and the taking or not taking of any action in connection therewith,
and (ii) its own appraisal of the creditworthiness of the Company and its
subsidiaries, and of the value of the Collateral from time to time, and the
Agent shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Secured Party with any credit, market or other information
with respect thereto, whether coming into its possession before any Obligations
are incurred or at any time or times thereafter. The Agent shall not be
responsible to the Debtors or any Secured Party for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith, or for the
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of the Agreement or any other
Transaction Document, or for the financial condition of the Debtors or the value
of any of the Collateral, or be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
the Agreement or any other Transaction Document, or the financial condition of
the Debtors, or the value of any of the Collateral, or the existence or possible
existence of any default or Event of Default under the Agreement, the Debentures
or any of the other Transaction Documents.
36
4. Certain Rights of the Agent. The Agent shall have the right to take
any action with respect to the Collateral, on behalf of all of the Secured
Parties. To the extent practical, the Agent shall request instructions from the
Secured Parties with respect to any material act or action (including failure to
act) in connection with the Agreement or any other Transaction Document, and
shall be entitled to act or refrain from acting in accordance with the
instructions of Secured Parties holding a majority in principal amount of
Debentures (based on then-outstanding principal amounts of Debentures at the
time of any such determination); if such instructions are not provided despite
the Agent's request therefor, the Agent shall be entitled to refrain from such
act or taking such action, and if such action is taken, shall be entitled to
appropriate indemnification from the Secured Parties in respect of actions to be
taken by the Agent; and the Agent shall not incur liability to any person or
entity by reason of so refraining. Without limiting the foregoing, (a) no
Secured Party shall have any right of action whatsoever against the Agent as a
result of the Agent acting or refraining from acting hereunder in accordance
with the terms of the Agreement or any other Transaction Document, and the
Debtors shall have no right to question or challenge the authority of, or the
instructions given to, the Agent pursuant to the foregoing and (b) the Agent
shall not be required to take any action which the Agent believes (i) could
reasonably be expected to expose it to personal liability or (ii) is contrary to
this Agreement, the Transaction Documents or applicable law.
5. Reliance. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram, order
or other document or telephone message signed, sent or made by the proper person
or entity, and, with respect to all legal matters pertaining to the Agreement
and the other Transaction Documents and its duties thereunder, upon advice of
counsel selected by it and upon all other matters pertaining to this Agreement
and the other Transaction Documents and its duties thereunder, upon advice of
other experts selected by it. Anything to the contrary notwithstanding, the
Agent shall have no obligation whatsoever to any Secured Party to assure that
the Collateral exists or is owned by the Debtors or is cared for, protected or
insured or that the liens granted pursuant to the Agreement have been properly
or sufficiently or lawfully created, perfected, or enforced or are entitled to
any particular priority.
37
6. Indemnification. To the extent that the Agent is not reimbursed and
indemnified by the Debtors, the Secured Parties will jointly and severally
reimburse and indemnify the Agent, in proportion to their initially purchased
respective principal amounts of Debentures, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in performing its duties
hereunder or under the Agreement or any other Transaction Document, or in any
way relating to or arising out of the Agreement or any other Transaction
Document except for those determined by a final judgment (not subject to further
appeal) of a court of competent jurisdiction to have resulted solely from the
Agent's own gross negligence or willful misconduct. Prior to taking any action
hereunder as Agent, the Agent may require each Secured Party to deposit with it
sufficient sums as it determines in good faith is necessary to protect the Agent
for costs and expenses associated with taking such action.
7. Resignation by the Agent.
(a) The Agent may resign from the performance of all its functions and
duties under the Agreement and the other Transaction Documents at any time
by giving 30 days' prior written notice (as provided in the Agreement) to
the Debtors and the Secured Parties. Such resignation shall take effect
upon the appointment of a successor Agent pursuant to clauses (b) and (c)
below.
(b) Upon any such notice of resignation, the Secured Parties, acting
by a Majority in Interest, shall appoint a successor Agent hereunder.
(c) If a successor Agent shall not have been so appointed within said
30-day period, the Agent shall then appoint a successor Agent who shall
serve as Agent until such time, if any, as the Secured Parties appoint a
successor Agent as provided above. If a successor Agent has not been
appointed within such 30-day period, the Agent may petition any court of
competent jurisdiction or may interplead the Debtors and the Secured
Parties in a proceeding for the appointment of a successor Agent, and all
fees, including, but not limited to, extraordinary fees associated with the
filing of interpleader and expenses associated therewith, shall be payable
by the Debtors on demand.
8. Rights with respect to Collateral. Each Secured Party agrees with
all other Secured Parties and the Agent (i) that it shall not, and shall not
attempt to, exercise any rights with respect to its security interest in the
Collateral, whether pursuant to any other agreement or otherwise (other than
pursuant to this Agreement), or take or institute any action against the Agent
or any of the other Secured Parties in respect of the Collateral or its rights
hereunder (other than any such action arising from the breach of this Agreement)
and (ii) that such Secured Party has no other rights with respect to the
Collateral other than as set forth in this Agreement and the other Transaction
Documents. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
and the retiring Agent shall be discharged from its duties and obligations under
the Agreement. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of the Agreement including this Annex B shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent.
38