Exhibit 10.05
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of May 9, 2002, by and
between Mid-Power Resource Corporation, a Nevada corporation, with its principal
executive offices at 3800 Howard Hughes Parkway, Suite 860, Las Vegas, Nevada
89109 ("Debtor"), and SCRS Investors, LLC, a Delaware limited liability company
("Secured Party").
RECITALS
A. Pursuant to that certain "Acquisition Agreement and Plan of Merger" dated as
of June 13, 2002, made by and among Mid-Power Service Corporation, a Nevada
corporation and corporate parent of Debtor ("Parent"), Red Star, Inc., a Nevada
corporation, and Debtor, Debtor has succeeded by a corporate merger to the
tangible and intangible personal and real properties comprising certain
producing, nonproducing and unexplored coalbed methane gas properties located in
Carbon and Emery Counties, Utah, and commonly referred to by the parties as the
Clear Creek property (the "Property").
B. B. In order to obtain funds for a portion of the acquisition consideration
paid and payable under the Acquisition Agreement and Plan of Merger, as well as
funds for contemplated further expenditures on or respecting the Property,
Parent and Debtor have entered into a Loan Agreement dated effective as of May
9, 2002 (the "Loan Agreement"), under which Secured Party has agreed to loan up
to $25,500,000 to Parent and Debtor, upon the terms and subject to the
conditions set forth therein (the "Loan"). The obligation to repay the Loan is
evidenced by a Promissory Note of even date with the Loan Agreement (the
"Promissory Note"), executed by Parent and Debtor and delivered to Secured
Party.
C. As a condition to Secured Party's agreement to make the Loan to Parent and
Debtor and to secure the payment of the obligations under the Loan Agreement and
Promissory Note, Secured Party has requested that Debtor grant to Secured Party
a security interest in the Clear Creek property and any and all inventory and
receivables therefrom.
D. Debtor, which has received and will receive good and valuable consideration
as a result of Secured Party's Loan to Parent and Debtor, has agreed to grant a
security interest in the Clear Creek property, subject to the terms and
conditions set forth herein.
NOW, THEREFORE, upon these premises, which are incorporated herein by
reference, in consideration of the mutual covenants and agreements contained
herein, the parties hereto agree as follows:
1. Collateral. Debtor hereby grants to Secured Party a first priority
security interest (the "Security Interest") in all of Debtor's right, title and
interest in and to (a) the Property, including all items of tangible personal
property constituting a part of, or used or useful in connection with the
operation of, the Clear Creek property, all as more specifically identified on
Exhibit A hereto; and (b) any and all inventory and receivables of Debtor
related to the Clear Creek property (collectively, the "Collateral").
2. Obligations Secured. The Collateral shall secure (a) the full and
prompt payment of all amounts due or to become due under the Promissory Note,
together with all costs and expenses (including reasonable attorneys' fees) that
may be reasonably incurred by Secured Party in the collection or enforcement of
the Promissory Note; (b) all obligations of Debtor and Parent under the Loan
Agreement and this Agreement; and (c) all amounts that are owed to Secured Party
under any extension, renewal or modification of the foregoing (collectively, the
"Obligations").
3. Covenants. Debtor agrees that, so long as any Obligations remain
unpaid, it will (a) join with Secured Party in executing such financing
statements (including amendments thereto and continuation statements thereof),
assignments or other documents, in form satisfactory to Secured Party, as
Secured Party may reasonably specify to create, perfect, continue, protect or
enforce the Security Interest or the priority of the Security Interest; (b) give
Secured Party notice of any change in its name or its principal executive
offices, or the establishment or change of any location where the Collateral or
its records pertaining to the Collateral will be located, in each case, within
10 days of such change or establishment; (c) maintain the Collateral in good
operating condition and repair and be responsible for any loss or damage to the
Collateral; (d) pay when due all taxes, registration fees, license fees, permit
fees, and other charges that may be assessed or become owing on or in connection
with the Collateral, other than those being contested by Debtor in good faith;
(e) not misuse, unlawfully use or conceal the Collateral; (f) allow Secured
Party to inspect the Collateral during normal business hours and upon reasonable
prior notice; (g) maintain insurance coverage with respect to the Collateral in
such amounts and covering such risks as are customarily maintained by entities
owning facilities that are comparable to the Property; (h) comply with all of
the terms, conditions and covenants contained in the Loan Agreement (i) not
sell, assign, lease, transfer, or otherwise dispose of or encumber the
Collateral (a "disposition"), other than (A) dispositions in the ordinary course
of business (which does not include the disposition of major items of equipment,
except to the extent such items of equipment are replaced by equivalent
property), (B) dispositions of property that is replaced by equivalent property,
or (C) dispositions of property that is no longer useful in Debtor's operations;
or (D) for "Permitted Security Interests." When used herein, "Permitted Security
Interest" means (w) any security interest arising by operation of law in the
ordinary course of business and securing amounts not more than 90 days overdue;
(x) security interests expressly permitted in writing by Lender; (y) easements,
rights-of-way, servitudes, permits, surface leases and other rights affecting
the surface that do not interfere with the use, operation, value or unrestricted
alienability of the affected property and do not interfere with the ability of
the Lender to enforce any rights under the Promissory Note or any
Borrower-Related Agreements nor in any way materially and adversely affect the
ongoing interests of Borrowers; and (z) purchase money security interests
securing amounts no greater than $1,000,000 incurred in the ordinary course of
business.
4. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" hereunder: (a) Debtor
and/or Parent shall fail to pay, as and when due, any principal of or accrued
interest on the Promissory Note within five days after the date on which such
payment is due; (b) Debtor and/or Parent shall fail to comply with any material
provision of the Loan Agreement, this Agreement, the Promissory Note, or any of
the other security agreements executed in connection with the Loan Agreement,
which failure shall remain uncured for a period of 30 days or more after Debtor
and Parent have received notice thereof; (c) any representation or warranty made
by Debtor and/or Parent in the Loan Agreement, this Agreement, the Promissory
Note, or any of the other security agreements executed in connection with the
Loan Agreement shall fail to be true and correct in all material respects; (d)
Debtor and/or Parent shall make an assignment for the benefit of creditors; (e)
an order, judgment or decree shall be entered adjudicating Debtor and/or Parent
bankrupt or insolvent; or (f) Debtor and/or Parent shall commence proceedings
under any bankruptcy or insolvency laws, or a third party shall commence such
proceedings against Debtor and/or Parent, and such proceedings shall not be
dismissed within 90 days after commencement.
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5. Remedies. Upon the occurrence of an Event of Default, or at any time
thereafter that an Event of Default shall be continuing, Secured Party may, at
its option (a) declare the unpaid principal balance of the Promissory Note,
together with interest accrued thereon, to be immediately due and payable and
proceed to enforce payment of the same; (b) take, retain and receive the
payments, receipts, income and profits arising from the Collateral, and all
proceeds of the Collateral, until the Obligations are paid and satisfied in
full; or (c) sell the Collateral or exercise any other remedy available to it
under the Uniform Commercial Code as enacted in the state of Nevada.
6. Deficiency. In the event that the proceeds of any sale, collection
or realization of or upon the Collateral are insufficient to satisfy all of the
Obligations, Debtor and Parent shall remain liable to Secured Party for any such
deficiency. Notwithstanding the foregoing, Secured Party recognizes that Debtor
and Parent are corporations and that no past, present or future directors,
officers, employees, agents or representatives of Debtor and/or Parent shall
have any personal liability for any obligation whatsoever or howsoever arising
(including, without limitation, under contract or in tort or equity) under or
with respect to the Promissory Note, the Loan Agreement, this Agreement, the
Obligations, the transactions contemplated hereby or thereby, or applicable law.
Secured Party shall not (a) assert or seek to assert any claim against; (b) name
in any civil action or proceeding or arbitration; or (c) seek or obtain any
judgment, order or decree against any director, officer, employee, agent or
representative of Debtor and/or Parent or any of their respective properties or
assets.
7. Remedies Cumulative. Each right, power and remedy of Secured Party
as provided for in the Loan Agreement or this Agreement, or now or hereafter
existing at law, in equity, by statute or otherwise, shall be cumulative and
concurrent and shall be in addition to every other right, power or remedy
provided for in the Loan Agreement and this Agreement, and the exercise by
Secured Party of any one or more of such rights, powers or remedies shall not
preclude the simultaneous or later exercise by Secured Party of any or all such
other rights, powers or remedies.
8. Notices. All notices, demands, requests and other communications
hereunder shall be in writing and shall be delivered by hand, or sent by
certified or registered United States mail, postage prepaid and return receipt
requested, or by prepaid nationally recognized overnight express service or by
fax. Notices shall be sent to the parties at the following addresses (or at such
other addresses for a party as shall be specified by like notice; provided that
such notice shall be effective only upon receipt thereof):
(a) If to Debtor: Mid-Power Resource Corporation
3800 Howard Hughes Parkway
Suite 860
Las Vegas, Nevada, 89109
(b) If to Secured Party: SCRS Investors, LLC
3800 Howard Hughes Parkway
Suite 860
Las Vegas, Nevada, 89109
All such notices shall be deemed to have been received on the date of delivery
if delivered by hand or by confirmed fax, one day after the date of mailing if
given by overnight express service, and four days after the date of mailing if
given by certified or registered U.S. mail.
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9. No Waiver. No failure or delay by Secured Party in demanding the
strict performance of any term, condition, covenant or agreement herein, in the
Loan Agreement or in the Promissory Note, or in exercising any right, power or
remedy consequent upon a breach thereof, shall constitute a waiver of any such
term, condition, covenant or agreement or of any such breach, or preclude
Secured Party from exercising any such right, power or remedy at any later time
or times. By accepting payment after the due date of any amount payable under
the Promissory Note, Secured Party shall not be deemed to waive the right either
to require prompt payment when due of all other amounts payable under the
Promissory Note, or to declare a default for failure to effect prompt payment of
any such other amount.
10. Release of Collateral. Upon payment in full of all of the
Obligations, Secured Party shall release the Collateral to Debtor, or as Debtor
may direct, and this Agreement and the Security Interest shall terminate. Upon
such event, Secured Party shall execute and deliver to Debtor and Parent such
documents as Debtor and/or Parent shall reasonably request to evidence such
termination.
11. Limitation by Law; Severability. All rights, remedies and powers
provided in this Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the provisions
of this Agreement are intended to be subject to all applicable provisions of law
that may be controlling and be limited to the extent necessary so that they will
not render this Agreement invalid or unenforceable, in whole or in part, or not
entitled to be recorded, registered or filed under the provisions of any
applicable law. If any provision hereof is invalid and unenforceable in any
jurisdiction then, to the fullest extent permitted by law (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction in
order to carry out the intentions of the parties hereto as nearly as may be
possible; and (b) the invalidity or unenforceability of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of such
provision in any other jurisdiction.
12. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned without the written
consent of the parties hereto.
13. Titles and Headings. Titles and headings to sections hereof are
inserted for convenience of reference only and are not intended to be a part of,
or to affect the meaning or interpretation of, this Agreement.
14. Amendments, Supplements, etc. Neither this Agreement nor any term,
condition, covenant or agreement hereof may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the parties
hereto.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of Nevada, except as required by mandatory
provisions of law, and except to the extent that the perfection and the effect
of perfection or nonperfection of the Security Interest are governed by the laws
of a jurisdiction other than the state of Nevada.
16. No Third-Party Beneficiaries. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in, or on
behalf of, any person other than the parties hereto. 17. Execution in
Counterparts. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. Delivery of the executed signature pages by
facsimile transmission shall constitute effective and binding execution and
delivery of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DEBTOR:
Mid-Power Resource Corporation
By: /s/ James W. Scott
-----------------------------
Name: James W. Scott
Title: President
SECURED PARTY:
SCRS Investors, LLC
By: /s/ James W. Scott
-----------------------------
Name: James W. Scott
Title: Managing Member
Scrs.securityagrmt.050902.2
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STATE OF Nevada )
ss.
COUNTY OF Clark )
I, a notary of said county and state, do certify that James W. Scott,
who signed the instrument above bearing the date of May __, 2002, on behalf of
Mid-Power Resource Corporation, a Nevada corporation, has this day in my said
county, before me, acknowledged the said instrument to be the act and deed of
said company.
IN WITNESS WHEREOF, I have hereunder set my hand and official seal in
the City of Las Vegas, County of Clark, State of Nevada, this 25th day of June,
2002.
/s/ Susana D. McGee
-----------------------------------
Notary Public in and for the
State of Nevada
/s/ Susana D. McGee
-----------------------------------
Printed Name
Address of Notary Public:
3800 Howard Hughes Pkwy
Ste 860
Las Vegas, Neveda 89109
My Commission Expires: Nov. 15, 2005
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Exhibit A to
Security Agreement
Description of Personal Property Constituting Clear Creek Property
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