Exhibit 10.2
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of May 8, 2003 (as amended or
supplemented from time to time, this "Agreement"), is made by Power Efficiency
Corporation, a Delaware corporation (the "Borrower"), for the benefit of
Summit Energy Ventures, LLC, a Delaware limited liability company (the
"Lender").
W I T N E S S E T H
WHEREAS, the Lender has agreed to extend to the Borrower a revolving line
of credit loan in a principal amount not to exceed $1,000,000, (the "Loan"),
evidenced by a Revolving Credit Note, dated May 8, 2003, issued by the
Borrower payable to the Lender (the "Note") and subject to the terms and
conditions specified in the Note; and
WHEREAS, the Lender is willing to make the Loan, but only upon the
condition, inter alia, that the Borrower shall have executed and delivered to
the Lender this Agreement;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower hereby
agrees with the Lender as follows:
1. Defined Terms; Interpretation.
(a) Defined Terms. Capitalized terms not otherwise defined in this
Agreement shall have the meanings set forth in the Note. All terms used in
this Security Agreement and defined in Article 9 of the Code (as defined
below) shall have the respective meanings assigned to those terms in Article 9
of the Code. In addition, the following terms shall have the following
respective meanings:
"Code" shall mean the Uniform Commercial Code as the same may from time to
time be in effect in the State of New York or, by reason of mandatory
application, any other applicable jurisdiction.
"Collateral" shall have the meaning assigned to it in Section 2 of this
Agreement.
"Event of Default" and "Default" shall mean any default or Event of
Default (as defined under the Note) under the Note, this Agreement or any
other instruments securing the Note.
"Obligations" shall mean all the unpaid principal amount of, and accrued
interest on, the Note, the Lending Fee, and all other obligations and
liabilities of the Borrower to the Lender, now existing or hereafter incurred,
under, arising out of or in connection with, the Note or this Agreement.
(b) Interpretation. In this Agreement, unless otherwise indicated, the
singular includes the plural and plural the singular; words importing any
gender include the other gender; references to statutes or regulations are to
be construed as including all statutory or regulatory provisions
consolidating, amending or replacing the statute or regulation referred to;
references to "writing" include printing, typing, lithography and other means
of reproducing words in a tangible visible form; the words "including,"
"includes" and "include" are to be deemed to be followed by the words "without
limitation"; references to articles, sections (or subdivisions of sections),
exhibits, annexes or schedules are to this Agreement; references to agreements
and other contractual instruments include all subsequent amendments,
extensions and other modifications to those instruments; and references to
persons include their respective successors and permitted assigns and, in the
case of governmental authorities, persons succeeding to their respective
functions and capacities.
2. Grant of Security Interest; Perfection.
(a) Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due of all the
Obligations and in order to induce the Lender to make the Loan in
accordance with the terms of the Note, the Borrower hereby pledges and
grants to the Lender a security interest in all the Borrower's right,
title and interest in, to and under the following properties and
assets, wherever located, and whether now held or in the future
acquired by the Borrower and whether now existing or in the future
coming into existence (all of which being hereinafter collectively
called the "Collateral"):
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(i) all tangible and intangible personal property and fixtures
of every kind and nature, including all furniture, fixtures,
equipment, raw materials, inventory, other goods, accounts,
contract rights, rights to the payment of money, insurance
policies, insurance refund claims and all other insurance
claims and proceeds, tort claims, chattel paper, electronic
chattel paper, documents, instruments, securities and other
investment property, deposit accounts, rights to proceeds of
letters of credit, letter-of-credit rights, supporting
obligations of every nature, and general intangibles including
all tax refund claims, license fees, patents, patent
applications, trademarks, trademark applications, trade names,
copyrights, copyright applications, rights to sue and recover
for past infringement of patents, trademarks and copyrights,
computer programs, computer software, engineering drawings,
service marks, customer lists, goodwill, and all licenses,
permits, agreements of any kind or nature pursuant to which (A)
the Borrower operates or has authority to operate, (B) the
Borrower possesses, uses or has authority to possess or use
property (whether tangible or intangible) of others, or (C)
others possess, use, or have authority to possess or use
property (whether tangible or intangible) of the Borrower, and
all recorded data of any kind or nature, regardless of the
medium of recording, including all software, writings, plans,
specifications and schematics;
(ii) all other tangible and intangible property of the
Borrower, including all books, correspondence, credit files,
records, invoices, tapes, cards, computer runs and other papers
and documents in the possession or under the control of the
Borrower or any computer bureau or service company from time to
time acting for the Borrower; and
(iii) to the extent not otherwise included, all proceeds and
products in whatever form of all or any part of the other
Collateral, including all rents, profits, income and benefits
and all condemnation awards and all other compensation for any
casualty event with respect to all or any part of the other
Collateral (together with all rights to recover and proceed
with respect to the same), and all accessions to, substitutions
for and replacements of all or any part of the other
Collateral.
(b) Perfection. The Borrower authorizes the Lender to file such
financing statements and continuation statements in such offices from
time to time before, on or after the date of this Agreement, as are
necessary or as the Lender may determine to be appropriate to create,
perfect and establish the priority of the liens granted by this
Agreement in any and all of the Collateral, to preserve the validity,
perfection or priority of the liens granted by this Agreement in any
and all of the Collateral or to enable the Lender to exercise its
remedies, rights, powers and privileges under this Agreement, and
consents that any such financing statements may be filed describing the
Collateral as "all assets" or "all personal property" of the Borrower
(without, however, modifying the description of the Collateral as set
forth in Section 2(a)). Concurrently with the execution and delivery of
this Agreement, the Borrower shall take all such other actions, and
authenticate or sign and file or record such other records or
instruments, as are necessary or as the Lender may request to perfect
and establish the priority of the liens granted by this Agreement in
any and all of the Collateral or to enable the Lender to exercise its
remedies, rights, powers and privileges under this Agreement, including
cooperating with the Lender in obtaining, and taking such other actions
as are necessary or that the Lender may request in order for it to
obtain, control with respect to any of the Collateral the perfection of
which requires control under the Code (including, in the case of the
deposit accounts listed on Schedule 4(f), causing the relevant bank at
which that deposit account is maintained to enter into an agreement in
substantially the form of Annex 1 or such other form as the Lender may
in its discretion accept).
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3. Rights of the Lender; Limitations on the Lender's Obligations. It is
expressly agreed by the Borrower that, anything herein to the contrary
notwithstanding, the Borrower shall remain liable under the contracts and
agreements included in the Collateral, to observe and perform all the conditions
and obligations to be observed and performed by it thereunder, all in accordance
with and pursuant to the terms and provisions of each such contracts and
agreements, to the same extent as if this Agreement had not been executed and
delivered. The exercise by the Lender of any right, remedy, power or privilege
in respect of this Agreement shall not release the Borrower from any of its
duties and obligations under those contracts and agreements. The Lender shall
have no obligation or liability under those contracts or agreements or in
respect of any governmental approval included in the Collateral by reason of
this Agreement or the assignment to the Lender of any payment relating to those
contracts or agreements pursuant to this Agreement, nor shall the Lender be
required or obligated in any manner to perform or fulfill any of the obligations
of the Borrower under or pursuant to those contracts or agreements or any such
governmental approval, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party under those contracts or agreements, or to present
or file any claim, or to take any action to collect or enforce any performance
or the payment of any amounts which may have been assigned to it or to which it
may be entitled at any time or times.
4. Representations and Warranties. The Borrower hereby represents and
warrants that:
(a) Schedule 4(a) correctly sets forth the full and correct legal
name, type of organization, jurisdiction of organization,
organizational ID number (if applicable), chief executive office and
mailing address of the Borrower as of the date of this Agreement.
(b) The Borrower is the sole beneficial owner of the Collateral or
otherwise has the power to grant a security interest in the Collateral
pursuant to this Agreement, and the Collateral is free and clear of all
liens, and no security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or
any part of the Collateral is on file or of record in any public
office, except such as may have been filed by the Borrower in favor of
the Lender pursuant to this Agreement and as set forth in the Note.
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(c) The liens granted by this Agreement in favor of the Lender
have attached and constitute a perfected security interest in all of
the Collateral. This Agreement constitutes a valid and continuing first
lien on and first security interest in the Collateral in favor of the
Lender, prior to all other liens, encumbrances, security interests and
rights of others, except as set forth in Schedule 4(c).
(d) Schedule 4(d) is a true and complete list of all of the
physical locations of the Collateral as of the date of this Agreement
and certain other information relative thereto.
(e) Schedule 4(e) sets forth completely and correctly all
copyrights, patents and trademarks owned by Borrower as of the date of
this Agreement; except pursuant to licenses and other user agreements
entered into by the Borrower in the ordinary course of business and
listed in Schedule 4(e), the Borrower owns and possesses the right to
use, and has done nothing to authorize or enable any other person to
use, any copyright, patent or trademark listed in Schedule 4(e).
(f) Schedule 4(f) is a true and complete list of all deposit
accounts maintained by the Borrower at the respective banks listed in
such Schedule.
5. Covenants. The Borrower covenants and agrees with the Lender that from
and after the date of this Agreement and until the Obligations are fully
satisfied:
(a) Further Documentation. At any time and from time to time, upon
the written request of the Lender, and at the sole expense of the
Borrower, the Borrower promptly and duly shall execute and deliver any
and all such further instruments and documents and take such further
action as the Lender reasonably may deem desirable to create, perfect
and establish the priority of the liens granted by this Agreement in
any and all of the Collateral, to preserve the validity, perfection or
priority of the liens granted by this Agreement in any and all of the
Collateral, and otherwise to enable the Lender to obtain the full
benefits of this Agreement and of the rights and powers herein granted,
including the filing of any financing or continuation statements under
the Code in effect in any jurisdiction with respect to the liens and
security interests granted hereby. The Borrower also hereby authorizes
the Lender to file any such financing or continuation statement without
the signature of the Borrower to the extent permitted by applicable
law. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note or other
instrument, such note or instrument shall immediately become a part of
the Collateral and shall be pledged to the Lender, duly endorsed by the
Borrower in a manner satisfactory to the Lender.
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(b) Maintenance of Records. The Borrower will keep and maintain at
its own cost and expense satisfactory and complete records of the
Collateral including a record of all payments received and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. The Borrower will mark, to the extent feasible, its books
and records pertaining to the Collateral to evidence this Agreement and
the security interests granted hereby. For the Lender's further
security, the Borrower agrees that the Lender shall have a special
property interest in all of the Borrower's books and records pertaining
to the Collateral and the Borrower shall deliver and turn over copies
of any such books and records to the Lender or to its representatives
at any time on reasonable demand of the Lender.
(c) Indemnification. In any suit, proceeding or action brought by
the Lender under any contract or agreement that is a part of the
Collateral for any sum owing thereunder, or to enforce any provisions
of such contract or agreement, the Borrower will save, indemnify and
keep the Lender harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the person or entity against whom
such suit, proceedings or action is brought, arising out of a breach by
the Borrower of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to or in favor
of such obligee or its successors from the Borrower, and all such
obligations of the Borrower shall be and remain enforceable against and
only against the Borrower and shall not be enforceable against the
Lender.
(d) Compliance with Laws, etc. The Borrower will comply, in all
material respects, with all acts, rules, regulations, orders, decrees
and directions of any governmental authority, applicable to the
Collateral or any part thereof; provided, however, that the Borrower
may contest any act, regulation, order, decree or direction in any
reasonable manner.
(e) Payment of Obligations. The Borrower will pay promptly when
due, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of its income or profits therefrom,
as well as all claims of any kind (including claims for labor,
materials and supplies), except that no such charge need be paid if (i)
the validity thereof is being contested in good faith by appropriate
proceedings, (ii) such proceedings do not involve any danger of the
sale, forfeiture or loss of any of the Collateral or any interest
therein and (iii) such charge is adequately reserved against in
accordance with generally accepted accounting principles.
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(f) Limitation on Sale and Liens. Other than as set forth in the
Note, the Borrower will not (i) dispose of the Collateral, (ii) permit
any person other than the Lender to have control of any deposit
account, electronic chattel paper, investment property or letter-of-
credit right included in the Collateral and (iii) create, permit or
suffer to exist, and will defend the Collateral against and take such
other action as is necessary to remove, any lien, security interest,
encumbrance, claim or right, in or to the Collateral, and will defend
the right, title and interest of the Lender in and to any of the
Borrower's rights under and in the Collateral against the claims and
demands of all persons whomsoever.
(g) Removals; Further Identification of Collateral. Without at
least 30 days' prior written notice to the Lender, the Borrower shall
not (i) change its location (as that term is defined in the Code) from
that shown on Schedule 4(a), (ii) change its name from the name shown
on Schedule 4(a) as its current legal name or (iii) permit any Goods to
be located anywhere other than at one of the locations identified in
Schedule 4(d) or in transit from one of those locations to another. The
Borrower will furnish promptly to the Lender upon request statements
and schedules further identifying, describing and stating the physical
location of the Collateral and such other reports in connection with
the Collateral as the Lender reasonably may request at any time, all in
reasonable detail.
(h) Notices. The Borrower will advise the Lender promptly, in
reasonable detail, (i) of any lien, security interest, encumbrance or
claim made or asserted against any of the Collateral, (ii) of any
material change in the composition of the Collateral not in the
ordinary course of business, and (iii) of the occurrence of any other
event which would have a material adverse effect on the aggregate value
of the Collateral or on the security interests created hereunder not in
the ordinary course of business.
(i) Right of Inspection. The Lender shall at all times have full
and free access during normal business hours to all the books,
correspondence and records of the Borrower, and the Lender or its
representatives may examine the same, take extracts therefrom and make
photocopies thereof, and the Borrower agrees to render to the Lender,
at the Borrower's cost and expense, such clerical and other assistance
as may be reasonably requested with regard thereto. The Lender and its
representatives shall at all times also have the right to enter into
and upon any premises where any of the Collateral is located for the
purpose of inspecting the same, observing its use or otherwise
protecting the interests of the Lender therein.
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6. The Lender's Appointment as Attorney-in-Fact.
(a) The Borrower hereby irrevocably constitutes and appoints the
Lender and any officer or agent thereof, with full power of substitution,
as its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of the Borrower and in the name of the
Borrower or in its own name, from time to time in the Lender's
discretion, for the purpose of carrying out the terms of this Agreement,
to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, hereby gives the Lender the power and right,
on behalf of the Borrower, without notice to or assent by the Borrower,
to do the following:
(i) to create, perfect and establish the priority of the liens
granted by this Agreement in any and all the Collateral, to
preserve the validity, perfection or priority of the liens
granted by this Agreement in any and all of the Collateral or
to enable the Lender to exercise its remedies, rights, powers
and privileges under this Agreement;
(ii) upon the occurrence and continuance of any Default or
Event of Default, to ask, demand, collect, receive and give
acquittances and receipts for any and all moneys due and to
become due under any contract or account that is a part of the
Collateral and, in the name of the Borrower or its own name or
otherwise, to take possession of and endorse and collect any
checks, drafts, notes, acceptances or other instruments for the
payment of moneys due under any contract or account that is a
part of the Collateral and to file any claim or to take any
other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Lender for the purpose of
collecting any and all such moneys due under any such contract
or account whenever payable;
(iii) to pay or discharge taxes, liens, security interests or
other encumbrances levied or placed on or threatened against
the Collateral; and
(iv) upon the occurrence and continuance of any Default or
Event of Default, (A) to direct any party liable for any
payment under any of the contracts or accounts that are a part
of the Collateral to make payment of any and all moneys due and
to become due thereunder directly to the Lender or as the
Lender shall direct; (B) to receive payment of and receipt for
any and all moneys, claims and other amounts due and to become
due at any time in respect of or arising out of any Collateral;
(C) to commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral; (D) to defend any
suit, action or proceeding brought against the Borrower with
respect to any Collateral; (E) to settle, compromise or adjust
any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as
the Lender may deem appropriate; and (F) generally to sell,
transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and
completely as though the Lender were the absolute owner thereof
for all purposes, and to do, at the Lender's option and the
Borrower's expense, at any time, or from time to time, all acts
and things which the Lender deems necessary to protect,
preserve or realize upon the Collateral and the Lender's
security interest therein, in order to effect the intent of
this Agreement, including the preparation, execution and
recordation of patent, trademark or other forms of assignment,
all as fully and effectively as the Borrower might do.
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The Borrower hereby ratifies all that said attorneys-in-fact
shall lawfully do or cause to be done by virtue hereof. This power of
attorney is a power coupled with an interest and is irrevocable.
(b) The powers conferred on the Lender hereunder are solely to
protect its interests in the Collateral and shall not impose any duty
upon it to exercise any such powers. The Lender shall be accountable
only for amounts that it actually receives as a result of the exercise
of such powers and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or
failure to act, except for its own gross negligence or willful
misconduct.
(c) The Borrower also authorizes the Lender, at any time and from
time to time (i) to communicate in its own name with any party to any
contract or agreement that is a part of the Collateral with regard to
the assignment of those contracts or agreements hereunder and other
matters relating thereto and (ii) to execute, in connection with the
sale provided for in paragraph (b) of Section 8 of this Agreement, any
endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
7. Performance by the Lender of the Borrower's Obligations. If the Borrower
fails to perform or comply with any of its agreements contained in this
Agreement, and the Lender, as provided for by the terms of this Agreement,
itself performs or complies, or otherwise causes performance or compliance, with
such agreement, the expenses of the Lender incurred in connection with such
performance or compliance, together with interest thereon, shall be payable by
the Borrower to the Lender on demand and shall constitute an Obligation secured
by this Agreement.
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8. Remedies, Rights Upon An Event of Default.
(a) If an Event of Default shall occur and be continuing:
(i) The Borrower shall, upon written request by the Lender,
notify (and the Borrower hereby authorizes the Lender so to
notify) each account debtor in respect of any Accounts and
General Intangible that such Collateral has been assigned to
the Lender under this Agreement and that any payments due or to
become due in respect of that Collateral shall be made directly
to the Lender;
(ii) All payments received by the Borrower under or in
connection with any of the Collateral shall be held by the
Borrower in trust for the Lender, shall be segregated from
other funds of the Borrower and shall forthwith upon receipt by
the Borrower, be turned over to the Lender, in the same form as
received by the Borrower (duly indorsed by the Borrower to the
Lender, if required); and
(iii) Any and all such payments so received by the Lender
(whether from the Borrower or otherwise) may, in the sole
discretion of the Lender, be held by the Lender as collateral
security for, and then or at any time thereafter applied in
whole or in part by the Lender, against all or any part of the
Obligations.
Any balance of such payments so paid to or held by the Lender
and remaining after payment in full of all the Obligations shall be
paid over to the Borrower or to whomsoever may be lawfully entitled to
receive the same.
(b) If any Event of Default shall occur and be continuing, the
Lender may exercise in addition to all other rights and remedies
granted to it in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting
the generality of the foregoing, the Borrower expressly agrees that in
any such event the Lender, without demand of performance or other
demand, advertisement or notice of any kind (except the notice
specified below of time and place of public or private sale) to or upon
the Borrower or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived), may
forthwith collect, receive appropriate and realize upon the Collateral,
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or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or sell or otherwise dispose of and
deliver said Collateral (or contract to do so), or any part thereof, in
one or more parcels at public or private sale or sales, at any exchange
broker's board or at any of the Lender's offices or elsewhere at such
prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. The Lender shall have
the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the
whole or any part of said Collateral so sold, free of any right or
equity of redemption in the Borrower, which right or equity is hereby
expressly released. The Borrower further agrees, at the Lender's
request, to assemble the Collateral, make it available to the Lender at
places which the Lender reasonably shall select, whether at the
Borrower's premises or elsewhere. The Lender shall apply the net
proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses
of every kind incurred therein or incidental to the care, safe keeping
or otherwise of any or all of the Collateral or in any way relating to
the rights of the Lender hereunder, including reasonable attorneys'
fees and legal expenses, to the payment in whole or in part of the
Obligations, in such order as the Lender may elect, the Borrower
remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after
the payment by the Lender of any other amount required by any provision
of law, need the Lender account for the surplus, if any, to the
Borrower. To the extent permitted by applicable law, the Borrower
waives all claims, damages, and demands against the Lender arising out
of the repossession, retention or sale of the Collateral. The Borrower
agrees that the Lender need not give more than ten (10) days' notice
(which notification shall be deemed given when mailed, postage prepaid,
addressed to the Borrower at its address set forth in Section 10
hereof) of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters. The Borrower shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which the Lender is entitled,
the Borrower also being liable for the fees of any attorneys employed
by the Lender to collect such deficiency.
(c) The Borrower also agrees to pay all costs of the Lender,
including attorneys' fees, incurred with respect to the collection of
any of the Obligations and the enforcement of any of their respective
rights hereunder.
9. Limitation on the Lender's Duty in Respect of Collateral. Beyond the safe
custody thereof, the Lender shall not have any duty as to any Collateral in
its possession or control or in the possession or control of any agent or
nominee of it or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto.
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10. Notices. All notices, demands and approvals hereunder shall be in
writing and shall be deemed to have been sufficiently given or served when
presented personally, telecopied or when deposited in the mail with first class
postage prepaid:
If to the Borrower: Ray Skiptunis
Power Efficiency Corporation
75-153 Merle Drive, Suite B
Palm Desert, CA 92211
If to the Lender: Steven Strasser
Summit Energy Ventures, LLC
P.O. Box 7387
Bellevue, WA 98008
and shall be deemed to have been received upon the earlier of actual receipt
thereof or the fourth calendar day after such mailing. Either party may change
its address by notice to the other.
11. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12. No Waiver; Cumulative Remedies. The Lender shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder and no waiver shall be valid unless in writing, signed by
the Lender, and then only to the extent therein set forth. A waiver by the
Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Lender would otherwise
have had on any future occasion. No failure to exercise nor any delay in
exercising on the part of the Lender, any right, power or privilege hereunder,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or future exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights and remedies provided by
law. None of the terms or provisions of this Agreement may be waived, altered,
modified or amended except by an instrument in writing, duly executed by the
Lender.
13. Successors and Assigns; Governing Law. This Agreement and all
obligations of the Borrower hereunder shall be binding upon the successors and
assigns of the Borrower, and shall, together with the rights and remedies of
the Lender hereunder, inure to the benefit of the Lender and its successors
and assigns. This Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of New York.
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14. Further Indemnification. The Borrower agrees to pay, and to save the
Lender harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all excise, sales or other taxes which may
be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Agreement.
15. Termination. When all Obligations have been paid in full and the Total
Commitment has expired or been terminated, this Agreement shall terminate, and
the Lender shall forthwith cause to be assigned, transferred and delivered,
against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in respect of the
Collateral, to or on the order of the Borrower. The Lender shall also execute
and deliver to the Borrower upon that termination such Code termination
statements and such other documentation as is reasonably requested by the
Borrower to effect the termination and release of the liens granted by this
Agreement on the Collateral.
16. Amendments, Etc. No provision of this Agreement may be waived,
modified or supplemented except by an instrument in writing signed by the
Borrower and the Lender. Any modification, supplement or waiver shall be for
such period and subject to such conditions as shall be specified in the
written instrument effecting the same and shall be binding upon the Lender and
the Borrower, and any such waiver shall be effective only in the specific
instance and for the purpose for which given.
17. Agreements Superseded. This Agreement supersedes all prior agreements
and understandings, written or oral, among the parties with respect to the
subject matter of this Agreement.
[The remainder of this page is intentionally left blank.
Signature pages follow.]
13
IN WITNESS WHEREOF, the Borrower has caused this Agreement to be executed
by its duly authorized officer on the date first set forth above.
POWER EFFICIENCY CORPORATION
(a Delaware corporation)
By:
---------------------------------------------
Name: Raymond J. Skiptunis
Title: President & CEO
SUMMIT ENERGY VENTURES, LLC
(a Delaware limited liability company)
By: Northwest Power Management, its manager
By:
---------------------------------------------
Name: Steven Strasser
Title: President
14
SCHEDULE 4(a)
Identification of Borrower
Legal Name Power Efficiency Corporation
Type of Organization Corporation
Jurisdiction of Organization Delaware
Organizational ID Number 22-3337365
Chief Executive Office Raymond J. Skiptunis
Mailing Address 75-153 Merle Drive, Suite B
Palm Desert, CA 92211
Attention: Raymond J. Skiptunis
15
SCHEDULE 4(c)
Existing Liens
NONE
16
SCHEDULE 4(d)
LOCATION OF POWER EFFICIENCY CORPORATION
COLLATERAL
Type of Facility (office,
Location warehouse, etc.) Owned/Leased Type of Collateral
1. 4220 Varsity Drive, Suite Office/Warehouse/ Assembly Leased Materials, Equipment, and
E; Ann Arbor, MI 48108 Inventory
2. 75-153 Merle Drive, Suite Office/Warehouse/ Research Leased Materials, Equipment, and
B; Palm Desert, CA 92211 Inventory
3. 40 Nassau Terminal Road; Office/Warehouse/ Research
New Hyde Park, New York 11040 Leased Materials and Equipment
17
SCHEDULE 4(e)
DESCRIPTION OF INTELLECTUAL PROPERTY COLLATERAL
Patent
Balanced and Synchronized Phase Detector for an AC Induction Motor Controller
Patent Number: 5,821,726
Date of Patent: Oct. 13, 1998
Inventor: Nicholas Anderson
Assignee: Power Efficiency Corp.
Application number 786,787
Filed: Jan. 21, 1997
Trademark
Registration Number: 2021810
Serial Number: 74/702367
Registration Date: 12/10/1996
Mark: Power Commander
Registration Owner: Power Efficiency Corporation
18
SCHEDULE 4(f)
DEPOSIT ACCOUNTS
Michigan Heritage Bank
28300 Orchard Lake Road
Farmington Hills, MI 48334
Phone: (248) 380-6590
Account number: 210369
Type of Account: Checking
Bank One - Michigan
105 Briarwood Circle
Ann Arbor, MI 48108
Mailing address:
P.O. Box 8601
Ann Arbor, MI 48107
Phone: (734) 995-8100
Type of Account: Checking
Account number: 205000545934
19
ANNEX 1
FORM OF DEPOSIT ACCOUNT CONTROL AGREEMENT
DEPOSIT ACCOUNT CONTROL AGREEMENT
This DEPOSIT ACCOUNT CONTROL AGREEMENT, dated as of [________] (this
"Agreement"), is entered into between Power Efficiency Corporation, a Delaware
corporation (the "Borrower"), Summit Energy Ventures, LLC, a Delaware limited
liability company (the "Lender"), and [NAME OF DEPOSITARY BANK] (the
"Depositary Bank").
W I T N E S S E T H :
WHEREAS, the Borrower is the Depositary Bank's customer with respect to
the Deposit Accounts (as defined below);
WHEREAS, the Borrower and the Lender have entered into a Security
Agreement, dated as of May 8, 2003 (the "Security Agreement") pursuant to
which the Borrower has granted to the Lender a continuing security interest
in, among other things, all right, title and interest of the Borrower in, to
and under the Deposit Accounts, whether now owned or existing or hereafter
acquired or arising; and
WHEREAS, delivery of this Agreement in relation to the Deposit Accounts is
required by the Security Agreement for the purpose of perfecting the Lender's
security interest in, and rights with respect to, the Deposit Accounts;
NOW, THEREFORE, the parties hereto agree as follows:
1. Defined Terms; Interpretation.
(a) Defined Terms. All references herein to the "Code" refer to the
Uniform Commercial Code as in effect from time to time in the State of New
York. Terms defined in the Code have the same meanings when used in this
Agreement.
(b) Interpretation. In this Agreement, unless otherwise indicated, the
singular includes the plural and plural the singular; words importing any
gender include the other gender; references to statutes or regulations are to
be construed as including all statutory or regulatory provisions
consolidating, amending or replacing the statute or regulation referred to;
references to "writing" include printing, typing, lithography and other means
20
of reproducing words in a tangible visible form; the words "including,"
"includes" and "include" are to be deemed to be followed by the words "without
limitation"; references to articles, sections (or subdivisions of sections),
exhibits, annexes or schedules are to this Agreement; references to agreements
and other contractual instruments include all subsequent amendments,
extensions and other modifications to those instruments; and references to
persons include their respective successors and permitted assigns and, in the
case of governmental authorities, persons succeeding to their respective
functions and capacities.
2. Confirmation of Security. The Borrower hereby confirms that, to secure
the Obligations (as defined in the Security Agreement), it has granted to the
Lender a security interest in all of the Borrower's right, title and interest
in and to each Deposit Account at any time or from time to time established,
all amounts at any time or from time to time in any such Deposit Account, and
all proceeds of all or any part of the foregoing (the "Transaction Lien").
3. Establishment of Deposit Accounts. The Depositary Bank confirms that:
(a) the Depositary Bank has established the Deposit Accounts set forth on
Schedule I hereto in the name of the Borrower (such account and any successor
account, the "Deposit Accounts"); and
(b) the Deposit Account is a "deposit account" as defined in Section 9-
102(a)(29) of the Code.
4. Instructions. The Depositary Bank agrees to comply with any
instructions originated by the Lender pursuant to Section 10 directing
disposition of funds in the Deposit Accounts without further consent by the
Borrower or any other person. The Borrower consents to the foregoing agreement
by the Depositary Bank.
5. Waiver of Lien; Waiver of Set-off. The Depositary Bank waives any
security interest, lien or right to make deductions or set-offs that it may
now have or hereafter acquire in or with respect to the Deposit Accounts.
Any amounts credited to the Deposit Accounts will not be subject to deduction,
set-off, banker's lien, or any other right in favor of any person other than
the Lender (except that the Depositary Bank may set off for (a) all items
deposited in and credited to the Deposit Accounts and subsequently returned to
the Depositary Bank unpaid, (b) overdrafts in the Deposit Accounts and
interest thereon, (c) interest and fees (in accordance with the Depositary
Bank's generally applicable account agreements and policies) on any items
deposited in the Deposit Accounts and returned unpaid, and (d) all other
compensation, fees, charges and expenses charged to the Deposit Accounts in
accordance with the Depositary Bank's account roles, policies and normal
banking practices).
21
6. Choice of Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York. The State of New York shall be
deemed to be the Depositary Bank's jurisdiction for purposes of the Code
(including, without limitation, Section 9-304 thereof).
7. Conflict with Other Agreements. In the event of any conflict between
this Agreement (or any portion hereof) and any other agreement between the
Depositary Bank and the Borrower with respect to the Deposit Accounts, whether
now existing or hereafter entered into, the terms of this Agreement shall
prevail.
8. Amendments. No provision of this Agreement may be waived, modified or
supplemented, except by an instrument in writing signed by all the parties to
this Agreement.
9. Notice of Adverse Claims. Except for the claims and interests of the
Lender and the Borrower, the Depositary Bank does not know of any claim to, or
interest in, the Deposit Accounts.
10. Maintenance of Deposit Account. In addition to, and not in lieu of,
the obligation of the Depositary Bank to honor instructions as agreed in
Section 2, the Depositary Bank agrees to maintain the Deposit Accounts as
follows: so long as the Depositary Bank has not received a Notice of Exclusive
Control (as defined below), the Depositary Bank may comply with instructions
of the Borrower or any duly authorized agent of the Borrower in respect of the
Deposit Accounts. After the Depositary Bank receives a written notice from the
Lender that it is exercising exclusive control over the Deposit Accounts in
the form of Exhibit A (a "Notice of Exclusive Control"), the Depositary Bank
will cease complying with instructions of the Borrower or any of its agents
and will thereafter comply with the instructions of the Lender, until such
time as the Lender otherwise advises the Depositary Bank in writing.
11. Successors. This Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors and
assigns.
12. Notices. All notices, demands and approvals hereunder shall be in
writing and shall be deemed to have been sufficiently given or served when
presented personally, telecopied or when deposited in the mail with first
class postage prepaid:
22
If to the Borrower: Power Efficiency Corporation
Attn: Ray Skiptunis
75-153 Merle Drive, Suite B
Palm Desert, CA 92211
If to the Lender: Summit Energy Ventures, LLC
Attn: Steven Strasser
P.O. Box 7387
Bellevue, WA 98008
If to the Depositary Institution: [Name of Depositary Institution]
Attn: [_______]
[Address]
and shall be deemed to have been received upon the earlier of actual receipt
thereof or the fourth calendar day after such mailing. Either party may change
its address by notice to the other.
13. Termination. The rights and powers granted to the Lender under this
Agreement have been granted in order to perfect the Transaction Lien, are powers
coupled with an interest and will not be affected by any bankruptcy of the
Borrower or any lapse of time. The obligations of the Depositary Bank under this
Agreement shall continue in effect until the Lender has notified the Depositary
Bank in writing that the Transaction Lien has been terminated pursuant to the
terms of the Security Agreement. Upon receipt of such notice, the obligations of
the Depositary Bank hereunder with respect to the operation and maintenance of
the Deposit Accounts after the receipt of such notice shall terminate, and the
Lender shall have no further right to originate instructions concerning the
Deposit Accounts and any previous Notice of Exclusive Control delivered by the
Lender shall be deemed to be of no further force and effect.
14. Indemnity; Depositary Bank's Responsibility. The Borrower agrees to
indemnify, defend and hold harmless the Depositary Bank and its directors,
officers, agents and employees against any loss, liability or expense
(including reasonable fees and disbursements of counsel) incurred in
connection with this Agreement, including any action taken by the Depositary
Bank pursuant to the instructions of the Lender, except to the extent due to
the gross negligence or willful misconduct of the Depositary Bank (as actually
and finally determined by a final, non-appealable judgment of a court of
competent jurisdiction). The Borrower confirms and agrees that the Depositary
Bank shall not have any liability to the Borrower for wrongful dishonor of any
items as a result of any instructions of the Lender. The Lender confirms and
agrees that the Depositary Bank shall not have any liability to the Lender for
executing transactions with respect to the Deposit Accounts at the direction
of the Borrower that are received by the Depositary Bank before the Depositary
Bank receives a Notice of Exclusive Control. The Depositary Bank shall have no
duty to inquire or determine whether the obligations of the Borrower to the
23
Lender are in default or whether the Lender is entitled to give any such
instructions and the Depositary Bank is fully entitled to rely upon such
instructions from the Lender (even if such instructions are contrary or
inconsistent with any instructions or demands given by the Borrower). The
Depositary Bank may rely on a Notice of Exclusive Control purportedly signed
by the Lender and shall have no duty to investigate or make any determination
as to the validity, genuineness or propriety thereof or the facts giving rise
thereto. This Agreement does not create or impose any obligation or duty upon
the Depositary Bank other than those expressly set forth herein. Without
limiting the generality of the foregoing, the Depositary Bank shall have no
duty or obligation to account to or act on behalf of the Lender with respect
to any other accounts or advise the Lender of the existence of any other
accounts, whether the same are in existence now or are opened after the date
of this Agreement.
15. Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute but one and the same instrument.
To make proof of this Agreement, it shall only be necessary to produce one
such counterpart (or copy thereof if no such counterpart is available).
[The remainder of this page is intentionally left blank.
Signature pages follow.]
24
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
POWER EFFICIENCY CORPORATION
(a Delaware corporation)
By:
---------------------------------------------
Name: Raymond J. Skiptunis
Title: President & CEO
SUMMIT ENERGY VENTURES, LLC
(a Delaware limited liability company)
By: Northwest Power Management, its manager
By:
---------------------------------------------
Name: Steven Strasser
Title: President
[NAME OF DEPOSITARY BANK]
By:
---------------------------------------------
Name:
Title:
25
Exhibit A
[Letterhead of Summit Ventures, LLC]
[Date]
[Name and Address of Depositary Bank]
Attention: ________________________
Re: Notice of Exclusive Control
Ladies and Gentlemen:
As referenced in the Deposit Account Control Agreement dated as of
[_____________] between Power Efficiency Corporation, a Delaware corporation,
us and you (a copy of which is attached), we notify you that we will hereafter
exercise exclusive control over deposit account numbers __________ (the
"Deposit Accounts"). You are instructed not to accept any directions or
instructions with respect to the Deposit Accounts from any person other than
the undersigned unless otherwise instructed by us or ordered by a court of
competent jurisdiction.
You are instructed to deliver a copy of this notice by facsimile
transmission to Power Efficiency Corporation.
Very truly yours,
Summit Ventures, LLC
By: Northwest Power Management, its manager
By:
---------------------------------------------
Name: Steven Strasser
Title: President
cc: Power Efficiency Corporation
Attn: Raymond J. Skiptunis
75-153 Merle Drive, Suite B
Palm Desert, CA 92211
Schedule I
DEPOSIT ACCOUNTS
Deposit Account Number Deposit Account Type Entity