SECURITY AGREEMENT
Exhibit
10.1
THIS SECURITY AGREEMENT (this
“Agreement”) is dated as of July 31, 2009, and is entered into by and between
ThermoEnergy Corporation, a Delaware corporation having its principal place of
business in Little Rock, Arkansas (the “Debtor”), and Focus Fund, L.P. (the
“Secured Party”). Capitalized terms not otherwise defined herein are
used as defined in the Arkansas Uniform Commercial Code on the date of this
Agreement.
WHEREAS, the Debtor is borrowing up to
Six Hundred Thousand Dollars ($600,000) from the Secured Party pursuant to that
certain 8% Secured Convertible Promissory Note of even date herewith in favor
of the Secured Party (the “Note”); and
WHEREAS, it is a condition precedent to
the Secured Party’s making any advances to the Debtor under the Note that the
Debtor execute and deliver to the Secured Party a security agreement in
substantially the form hereof; and
WHEREAS, the Debtor wishes to grant a
security interest in favor of the Secured Party as herein provided.
NOW, THEREFORE, in consideration of the
promises contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. Grant of
Security. As consideration for the Secured Party’s loan to
the Debtor pursuant to the Note, the Debtor hereby grants to the
Secured Party a security interest in the entirety of the Debtor’s Membership
Interest (representing an 85% beneficial ownership) in ThermoEnergy Power
Systems, LLC, a Delaware limited liability company (“TEPS”) and any and all
proceeds from the transfer, assignment or other permitted disposition thereof
(the “Collateral”). Notwithstanding the foregoing, the security
interest in the Collateral granted hereby shall attach only to a portion of the
Debtors’ membership Interest in TEPS representing a 42% beneficial ownership
until such time as the aggregate amount advanced by the Secured Party to the
Debtor under the Note equals $600,000, whereupon the security interest in the
entirety of the Collateral shall attach.
SECTION 2. Security for
Obligations. This Agreement secures and the Collateral is
collateral security for the prompt payment or performance in full (including,
without limitation, amounts that would become due but for the filing of a
petition in bankruptcy), of all amounts when due under the Note, as well as the
Debtor’s performance and observance of all covenants contained herein and in the
Note (the “Obligations”).
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SECTION 3. Further
Assurances. The Debtor hereby authorizes the Secured Party to
execute and file any and all financing statements necessary to carry out this
Agreement. The Debtor further agrees that from time to time, at the
expense of the Debtor, the Debtor will promptly execute and deliver all further
instruments and documents, and take all further action that the Secured Party
may reasonably request, in order to perfect, protect and maintain or establish
the priority of any security interest granted or purported to be granted hereby
or to enable the Secured Party to exercise and enforce its rights and remedies
hereunder with respect to the Collateral.
SECTION
4. Representations, Warranties
and Covenants. The Debtor represents, warrants and covenants as
follows:
(a) The
Debtor is a corporation existing and in good standing under the laws of the
State of Delaware.
(b) TEPS
is a limited liability company existing and in good standing under the laws of
the State of Delaware.
(c) The
Debtor is duly empowered and authorized to enter into and perform its
obligations under this Agreement and all other instruments and transactions
contemplated hereby or relating hereto. The Debtor is duly empowered
and authorized to own and to grant security interests in the
Collateral. The execution, delivery and performance by the Debtor of
this Agreement, of the Note and of all other instruments contemplated hereby do
not and will not violate any law or any provision of, nor be grounds for
acceleration under, any agreement, indenture, note or instrument which is
binding upon the Debtor, including without limitation, the Debtor’s Certificate
of Incorporation, By-Laws and any other loan or security agreements to which the
Debtor is a party or by which the Debtor or its property is bound.
(d) Assuming
the due filing of financing statements in proper form with the Secretary of
State of the State of Delaware, the security interest granted to the Secured
Party pursuant to this Agreement is a valid, perfected first-priority security
interest in the that portion of the Collateral in which a security interest may
be perfected under the Uniform Commercial Code.
(e) The
Debtor shall not hereafter transfer, assign or otherwise dispose of the
Collateral without the Secured Party’s prior written consent. The
Debtor shall not create, permit or suffer to exist, and shall take such other
action as is necessary to remove, any claim to or interest in the Collateral,
and shall defend the right, title and interest of the Secured Party in and to
the Collateral against all claims and demands of all persons and entities at any
time claiming the same or any interest therein.
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SECTION
5. Secured
Party’s Appointment as Attorney-in-Fact. The Debtor hereby
irrevocably constitutes and appoints, from and after the occurrence of a default
by the Debtor in its obligations under this Agreement, the Secured Party and any
officer or agent thereof, with full power of substitution, as the Debtor’s true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of the Debtor and in the name of the Debtor or in the Secured
Party’s own name, from time to time in the Secured Party’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 that may
be necessary or desirable to accomplish the purposes of this agreement and,
without limiting the generality of the foregoing, hereby grants to the Secured
Party the power and right, on behalf of the Debtor, without notice to or assent
by Debtor to execute, file and record all such financing statements,
certificates of title and other certificates of registration and operation and
similar documents and instruments as the Secured Party may deem necessary or
desirable to protect, perfect and validate the Secured Party’s security
interest.
The
Debtor hereby ratifies all that such attorneys shall lawfully do or cause to be
done by virtue hereof. This power of attorney is a power coupled with
an interest and shall be irrevocable so long as any amount of principal or
accrued interest under the Note remains unpaid.
The
powers conferred upon the Secured Party hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon the Secured Party
to exercise any such powers. The Secured Party shall be accountable
only for amounts that the Secured Party actually receives as a result of the
exercise of such powers and neither the Secured Party nor any of its partners,
officers, directors, employees or agents shall be responsible to the Debtor for
any act or failure to act, except for the Secured Party’s own gross negligence
or willful misconduct.
SECTION 6.
Remedies. If a default by the Debtor in its Obligations under
Section 2 of this Agreement shall have occurred and be continuing, the Secured
Party shall have all of the rights and remedies which secured parties may have
under the Arkansas Uniform Commercial Code or other applicable law or at equity,
and may do, at its option, one or more of the following, with or without further
notice to the Debtor:
(a) Accelerate and
declare all or any part of the Obligations to be immediately due, payable and
performable;
(b) Appropriate,
set off and apply to any or all of the Obligations, any or all Collateral in
such manner as the Secured Party may determine; and/or
(c) Foreclose
the security interest created under this Agreement or under any other agreement
relating to the Collateral by any procedure permitted under the Arkansas Uniform
Commercial Code. with or without judicial process.
SECTION 7. Termination of Security
Interest. The Secured Party’s security interest in the
Collateral shall be extinguished when (a) the Debtor completes performance of
all Obligations to the Secured Party, and (b) the Secured Party has no
commitment to the Debtor (whether under the Note or otherwise) that would give
rise to an Obligation. .
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SECTION 8. Governing
Law. This Agreement and the rights of the parties shall be
construed and enforced in accordance with the laws of the State of Arkansas
applicable to agreements executed and to be performed wholly within such state
and without regard to principles of conflicts of law. Each party
irrevocably (a) consents to the jurisdiction of the federal and state courts
situated in Little Rock, Arkansas in any action that may be brought for the
enforcement of this Note, and (b) submits to and accepts, with respect to its
properties and assets, generally and unconditionally, the in personam
jurisdiction of the aforesaid courts, waiving any defense that such court is not
a convenient forum In any such litigation to the extent permitted by
applicable law, each party waives personal service of any summons, complaint or
other process, and agrees that the service thereof may be made either (i) in the
manner for giving of notices provided in the Note (other than by telecopier) or
(ii) in any other manner permitted by law..
SECTION 9. Severability. In
case any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation and in any other jurisdiction, shall not in any way be affected or
impaired thereby.
SECTION 10. General. The
Secured Party shall not be deemed to have waived any of its respective rights
hereunder or under any other agreement, instrument or paper signed by the Debtor
unless such waiver be in writing and signed by the Secured Party. No
delay or omission on the part of the Secured Party in exercising any right shall
operate as a waiver of such right or any other right. All of the
Secured Party’s rights and remedies, whether evidenced hereby or by any other
agreement, instrument or paper, shall be cumulative and may be exercised
singularly or concurrently. The provisions hereof shall, as the case
may require, bind or inure to the benefit of, the respective heirs, successors,
legal representatives and assigns of the Debtor and the Secured
Party.
SECTION 11. Amendments. This
Agreement may be amended or modified only by a written instrument executed by
each party hereto.
SECTION 12. Counterparts. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original and together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, Debtor and Secured
Party have caused this Agreement to be duly executed as of the date first above
written.
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ThermoEnergy
Corporation
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By:
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/s/ Xxxxxx X.
Xxxxxx
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Xxxxxx
X. Xxxxxx
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Chairman
and Chief Executive Officer
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Focus
Fund l.p.
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By:
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/s/ X. Xxxxxx Xxxxxx
III
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