SECURITY AGREEMENT
THIS
SECURITY AGREEMENT (“Agreement”) dated as of September 19, 2008, among South
Texas Oil Company, a Nevada corporation (“Company”), Southern
Texas Oil Company, a Texas corporation (“Southern Texas”), STO Operating
Company, a Texas corporation formerly known as Leexus Operating Company (“STO
Operating”), STO Properties LLC, a Texas limited liability company (“STO
Properties”), STO Drilling Company, a Texas corporation (“STO Drilling”;
each
such
corporation or limited liability company, including Company, and together with
each other Person who becomes a party to this Agreement by execution of a
joinder in the form of Exhibit
A
attached
hereto, is referred to individually as a “Debtor” and, collectively, as the
“Debtors”), and Viking
Asset Management, LLC, a California limited liability company,
in
its
capacity as Collateral Agent (as defined below) for the benefit of the entities
(the “Buyers”) identified on the Schedule
of Buyers
attached
to the Purchase Agreement defined below (as
set
forth in Section 5.12 hereof, together with its successors and assigns in such
capacity, the “Secured Party”).
W
I T N E
S S E T H:
WHEREAS,
Company and Buyers have entered into that certain Securities Purchase
Agreement dated as of the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the "Purchase Agreement"), pursuant to
which, among other things, Company is issuing to Buyers the Bridge Notes
(as defined in the Purchase Agreement) (the Bridge Notes are referred to herein
collectively as the “Notes”); and
WHEREAS,
Debtors (other than Company) are direct or indirect subsidiaries or affiliates
of Company and, as such, will derive substantial benefit and advantage from
the
funds borrowed under the Purchase Agreement, and it will be to each such
Debtor’s direct interest and economic benefit to assist the Company in procuring
such funds.
NOW,
THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
parties hereto agree as follows:
Section
1. Definitions.
Capitalized terms used herein without definition and defined in the Purchase
Agreement are used herein as defined therein. In addition, as used
herein:
“Accounts”
means
any “account,” as such term is defined in the Uniform Commercial Code, and, in
any event, shall include, without limitation, “supporting obligations” as
defined in the Uniform Commercial Code.
“As-extracted
Collateral”
means
any “as-extracted collateral,” as such term is defined in the Uniform Commercial
Code.
“Chattel
Paper”
means
any “chattel paper,” as such term is defined in the Uniform Commercial
Code.
“Collateral”
shall
have the meaning ascribed thereto in Section 3 hereof.
“Commercial
Tort Claims”
means
“commercial tort claims”, as such term is defined in the Uniform Commercial
Code.
“Contracts”
means
all contracts, undertakings, or other agreements (other than rights evidenced
by
Chattel Paper, Documents or Instruments) in or under which a Debtor may now
or
hereafter have any right, title or interest, including without limitation with
respect to an Account, any agreement relating to the terms of payment or the
terms of performance thereof.
“Copyrights”
means
any copyrights, rights and interests in copyrights, works protectable by
copyrights, copyright registrations and copyright applications, including,
without limitation, the copyright registrations and applications listed on
Schedule
III
attached
hereto, and all renewals of any of the foregoing, all income, royalties, damages
and payments now and hereafter due and/or payable under or with respect to
any
of the foregoing, including without limitation damages and payments for past,
present and future infringements of any of the foregoing and the right to xxx
for past, present and future infringements of any of the foregoing.
“Deposit
Accounts”
means
all “deposit accounts” as such term is defined in the Uniform Commercial Code,
now or hereafter held in the name of a Debtor.
“Documents”
means
any “documents,” as such term is defined in the Uniform Commercial Code, and
shall include without limitation all documents of title (as defined in the
Uniform Commercial Code), bills of lading or other receipts evidencing or
representing Inventory or Equipment.
“Equipment”
means
any “equipment,” as such term is defined in the Uniform Commercial Code and, in
any event, shall include, Motor Vehicles.
“Event
of Default”
shall
have the meaning set forth in the Notes.
“General
Intangibles”
means
any “general intangibles,” as such term is defined in the Uniform Commercial
Code, and, in any event, shall include without limitation all right, title
and
interest in or under any Contract, models, drawings, materials and records,
claims, literary rights, goodwill, rights of performance, Copyrights,
Trademarks, Patents, warranties, rights under insurance policies and rights
of
indemnification.
“Goods”
means
any “goods”, as such term is defined in the Uniform Commercial Code, including
without limitation fixtures and embedded Software to the extent included in
“goods” as defined in the Uniform Commercial Code .
“Governmental
Authority”
means
the government of the United States of America or any other nation, or any
political subdivision thereof, whether state or local, or any agency, authority,
instrumentality, regulatory body, court, central
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bank
or
other entity exercising executive, legislative, judicial, taxing, regulatory
or
administration powers or functions of or pertaining to government or any Debtor
of any of their Subsidiaries, or any of their respective properties, assets
or
undertakings.
“Instruments”
means
any “instrument,” as such term is defined in the Uniform Commercial Code, and
shall include without limitation promissory notes, drafts, bills of exchange,
trade acceptances, letters of credit, letter of credit rights (as defined in
the
Uniform Commercial Code), and Chattel Paper.
“Inventory”
means
any “inventory,” as such term is defined in the Uniform Commercial
Code.
“Investment
Property”
means
any “investment property”, as such term is defined in the Uniform Commercial
Code.
“Majority
Buyers”
means,
at any date of determination, Buyers individually or collectively holding fifty
percent (50%) or more of the then aggregate outstanding principal amount of
the
Notes (or, if no Notes are then outstanding, fifty percent (50%) or more of
the
then aggregate outstanding amount of Obligations).
“Motor
Vehicles”
shall
mean motor vehicles, tractors, trailers and other like property, whether or
not
the title thereto is governed by a certificate of title or
ownership.
“Obligations”
shall
mean all obligations, liabilities and indebtedness of every nature of Debtors
from time to time owed or owing under or in respect of this Agreement, the
Purchase Agreement, the Notes, the Bridge Guaranty, the Conveyances of Limited
Overriding Royalty Interests, any and all Bridge Guarantees, the Bridge Pledge
Agreement, the Bridge Mortgages, the Bridge Account Control Agreements and
any
of the other Bridge Security Documents, as the case may be, including without
limitation the principal amount of all debts, claims and indebtedness, accrued
and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable whether before or after the filing
of a bankruptcy, insolvency or similar proceeding under applicable federal,
state, foreign or other law.
“Patents”
means
any patents and patent applications, including without limitation the inventions
and improvements described and claimed therein, all patentable inventions and
those patents and patent applications listed on Schedule IV
attached
hereto, and the reissues, divisions, continuations, renewals, extensions and
continuations-in-part of any of the foregoing, and all income, royalties,
damages and payments now or hereafter due and/or payable under or with respect
to any of the foregoing, including, without limitation, damages and
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payments
for past, present and future infringements of any of the foregoing and the
right
to xxx for past, present and future infringements of any of the
foregoing.
“Proceeds”
means
“proceeds,” as such term is defined in the Uniform Commercial Code and, in any
event includes without limitation, (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable with respect to any of the Collateral,
(b) any and all payments (in any form whatsoever) made or due and payable from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any Governmental
Authority (or any person acting under color of any Governmental Authority),
and
(c) any and all other amounts from time to time paid or payable under, in
respect of or in connection with any of the Collateral.
“Representative”
means
any Person acting as agent, representative or trustee on behalf of the Secured
Party from time to time.
“Software”
means
all “software” as such term is defined in the Uniform Commercial Code, now owned
or hereafter acquired by a Debtor, other than software embedded in any category
of Goods, including without limitation all computer programs and all supporting
information provided in connection with a transaction related to any
program.
“Trademarks”
means
any trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos, other business
identifiers, prints and labels on which any of the foregoing have appeared
or
appear, all registrations and recordings thereof, and all applications in
connection therewith, including without limitation the trademarks and
applications listed in Schedule
V
attached
hereto and renewals thereof, and all income, royalties, damages and payments
now
or hereafter due and/or payable under or with respect to any of the foregoing,
including without limitation damages and payments for past, present and future
infringements of any of the foregoing and the right to xxx for past, present
and
future infringements of any of the foregoing.
“Uniform
Commercial Code”
shall
mean the Uniform Commercial Code as in effect from time to time in the State
of
New York; provided,
that to the extent that the Uniform Commercial Code is used to define any term
herein and such term is defined differently in different Articles or Divisions
of the Uniform Commercial Code, the definition of such term contained in Article
or Division 9 shall govern.
Section
2. Representations,
Warranties and Covenants of Debtors.
Each
Debtor represents and warrants to, and covenants with, the Secured Party as
follows:
(a) Such
Debtor has or will have rights in and the power to transfer the Collateral
in
which it purports to grant a security interest pursuant to Section
3
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hereof
(subject, with respect to after acquired Collateral, to such Debtor acquiring
the same) and no Lien other than Permitted Liens exists or will exist upon
such
Collateral at any time;
(b) This
Agreement is effective to create in favor of Secured Party a valid security
interest in and Lien upon all of such Debtor’s right, title and interest in and
to the Collateral, and, upon (i) the filing of appropriate Uniform Commercial
Code financing statements in the jurisdictions listed on Schedule
I
attached
hereto, and (ii) each Deposit Account (other than any accounts consisting solely
of an aggregate of up to $500,000 in cash collateral (in all such accounts
collectively), to the extent such cash collateral constitutes a Permitted Lien
described in clause (xi) of the definition thereof contained in Section 5(f)
of
the Purchase Agreement (such accounts, collectively, the “L/C Collateral
Accounts”)) being subject to an Account Control Agreement (as hereinafter
defined) between the applicable Debtor and depositary institution and the
Secured Party on behalf of the Secured Party, such security interest will be
a
duly perfected first priority perfected security interest in all the Collateral
(other than Instruments not constituting Chattel Paper), and upon delivery
of
the Instruments to the Secured Party or its Representative, duly endorsed by
such Debtor or accompanied by appropriate instruments of transfer duly executed
by such Debtor, the security interest in the Instruments will be duly
perfected;
(c) All
of
the Equipment, Inventory and Goods owned by such Debtor is located at the places
as specified on Schedule
I
attached
hereto. Except as disclosed on Schedule
I,
none of
the Collateral is in the possession of any bailee, warehousemen, processor
or
consignee. Schedule
I
discloses such Debtor’s name as of the date hereof as it appears in official
filings in the state of its incorporation, formation or organization, the type
of entity of such Debtor (including corporation, partnership, limited
partnership or limited liability company), organizational identification number
issued by such Debtor’s state of incorporation, formation or organization (or a
statement that no such number has been issued), such Debtor’s state or province,
as applicable, of incorporation, formation or organization and the
chief
place of business, chief executive office and the office where such Debtor
keeps
its books and records. Such Debtor has only one state of incorporation,
formation or organization. Such Debtor (including any Person acquired by such
Debtor) does not do business and has not done business during the past five
(5)
years under any trade name or fictitious business name, except as disclosed
on
Schedule
II
attached
hereto;
(d) No
Copyrights, Patents or Trademarks listed on Schedules
III, IV and
V,
respectively, if any, have been adjudged invalid or unenforceable or have been
canceled, in whole or in part, or are not presently subsisting. Each of such
Copyrights, Patents and Trademarks is valid and enforceable. Such Debtor is
the
sole and exclusive owner of the entire and unencumbered right, title and
interest in and to each of such Copyrights, Patents and Trademarks, identified
on Schedules
III, IV
and
V,
as
applicable, as being owned by such Debtor, free and clear of any liens, charges
and encumbrances (other than Permitted Liens),
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including
without limitation licenses, shop rights and covenants by such Debtor not to
xxx
third persons. Such Debtor has adopted, used and is currently using, or has
a
current bona fide intention to use, all of such Trademarks and Copyrights.
Such
Debtor has no notice of any suits or actions commenced or threatened with
reference to the Copyrights, Patents or Trademarks owned by it;
(e) Each
Debtor agrees to deliver to the Secured Party an updated Schedule
I, II, III, IV and/or V
within
five (5) Business Days of any change thereto;
(f) All
depositary and other accounts including, without limitation, Deposit Accounts,
securities accounts, brokerage accounts and other similar accounts, maintained
by each Debtor are described on Schedule
VI
hereto,
which description includes for each such account the name of the Debtor
maintaining such account, the name, address and telephone and telecopy numbers
of the financial institution at which such account is maintained, the account
number and the account officer, if any, of such account. No Debtor shall open
any new Deposit Accounts (other than any L/C Collateral Account), securities
accounts, brokerage accounts or other accounts unless such Debtor shall have
given Secured Party ten (10) Business Days’ prior written notice of its
intention to open any such new accounts. Each Debtor shall deliver to Secured
Party a revised version of Schedule
VI
showing
any changes thereto within five (5) Business Days of any such change. Each
Debtor hereby authorizes the financial institutions at which such Debtor
maintains an account to provide Secured Party with such information with respect
to such account as Secured Party from time to time reasonably may request,
and
each Debtor hereby consents to such information being provided to Secured Party.
In addition, all of Debtor’s depositary, brokerage, security and other accounts
including without limitation Deposit Accounts shall be subject to the provisions
of Section 4.5 hereof;
(g) Such
Debtor does not own any Commercial Tort Claim except for those disclosed on
Schedule
VII
hereto;
(h) Such
Debtor does not have any interest in real property or mining rights with respect
to real property except as disclosed on Schedule
VIII.
Each
Debtor shall deliver to Secured Party a revised version of Schedule
VIII
showing
any changes thereto within twenty (20) Business Days of any such change. Except
as otherwise agreed to by Secured Party, all such interests in real property
or
mining rights with respect to such real property are subject to a mortgage,
deed
of trust and assignment of production proceeds (in form and substance
satisfactory to Secured Party) in favor of Secured Party (hereinafter, a
“Mortgage”). Each debtor acknowledges that each such Mortgage contains an
Exhibit
A
(or
other applicable Exhibit) listing the properties in which Debtor has an
interest, and to the extent that Schedule
VIII
is
updated pursuant to this Section 2(h), the applicable Debtor shall be obligated
to execute an amendment to the applicable Exhibit to the applicable Mortgage
such that, after giving effect to such Mortgage amendment, Secured Party will
have a first priority perfected security interest in such new real property
or
mining rights;
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(i) Each
Debtor shall duly and properly record each interest in real property held by
such Debtor except with respect to easements, rights of way, access agreements,
surface damage agreements, surface use agreement or similar agreements that
such
Debtor, using prudent customs and practices in the industry in which it
operates, does not believe are of material value or material to the operation
of
such Debtor’s business or, with respect to certain local, state and federal
rights of way, are not capable of being recorded as a matter of local, state
or
federal law; and
(j) All
Equipment (including without limitation Motor Vehicles) owned by a Debtor and
subject to a certificate of title or ownership statute is described on
Schedule
IX
hereto.
Section
3. Collateral.
As
collateral security for the prompt payment in full when due (whether at stated
maturity, by acceleration or otherwise) of the Obligations, each Debtor hereby
pledges and grants to the Secured Party, for its benefit and the benefit of
the
Buyers, a Lien on and security interest in and to all of such Debtor’s right,
title and interest in the personal property and assets of such Debtor, whether
now owned by such Debtor or hereafter acquired and whether now existing or
hereafter coming into existence and wherever located (all being collectively
referred to herein as “Collateral”),
including, without limitation:
(a) all
Instruments, together with all payments thereon or thereunder:
(b) all
Accounts;
(c) all
Inventory;
(d) all
General Intangibles (including payment intangibles (as defined in the Uniform
Commercial Code) and Software);
(e) all
Equipment;
(f) all
Documents;
(g) all
Contracts;
(h)
all
Goods;
(i) all
Investment Property;
(j) all
Deposit Accounts, including, without limitation, the balance from time to time
in all bank accounts maintained by such Debtor;
(k) Commercial
Tort Claims specified on Schedule
VII;
(l) all
As-extracted Collateral;
(m) all
Trademarks, Patents and Copyrights; and
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(n) all
other
tangible and intangible property of such Debtor, including, without limitation,
all interests in real property, Proceeds, tort claims, products, accessions,
rents, profits, income, benefits, substitutions, additions and replacements
of
and to any of the property of such Debtor described in the preceding clauses
of
this Section 3 (including, without limitation, any proceeds of insurance
thereon, insurance claims and all rights, claims and benefits against any Person
relating thereto), other rights to payments not otherwise included in the
foregoing, and all books, correspondence, files, records, invoices and other
papers, including without limitation all tapes, cards, computer runs, computer
programs, computer files and other papers, documents and records in the
possession or under the control of such Debtor or any computer bureau or service
company from time to time acting for such Debtor.
Section
4. Covenants;
Remedies.
In
furtherance of the grant of the pledge and security interest pursuant to Section
3 hereof, each Debtor hereby agrees with the Secured Party as
follows:
4.1.
Delivery
and Other Perfection; Maintenance, etc.
(a) Delivery
of Instruments, Documents, Etc.
Each
Debtor shall deliver and pledge to the Secured Party or its Representative
any
and all Instruments, negotiable Documents, Chattel Paper and certificated
securities (accompanied by stock powers executed in blank) duly endorsed and/or
accompanied by such instruments of assignment and transfer executed by such
Debtor in such form and substance as the Secured Party or its Representative
may
request; provided,
that so
long as no Event of Default shall have occurred and be continuing, each Debtor
may retain for collection in the ordinary course of business any Instruments,
negotiable Documents and Chattel Paper received by such Debtor in the ordinary
course of business, and the Secured Party or its Representative shall, promptly
upon request of a Debtor, make appropriate arrangements for making any other
Instruments, negotiable Documents and Chattel Paper pledged by such Debtor
available to such Debtor for purposes of presentation, collection or renewal
(any such arrangement to be effected, to the extent deemed appropriate by the
Secured Party or its Representative, against a trust receipt or like document).
If
a
Debtor retains possession of any Chattel Paper, negotiable Documents or
Instruments pursuant to the terms hereof, such Chattel Paper, negotiable
Documents and Instruments shall be marked with the following legend: “This
writing and the obligations evidenced or secured hereby are subject to the
security interest of Viking
Asset Management, LLC, a California limited liability company,
in its
capacity as collateral agent for the benefit of the Buyers,
as
secured party.”
(b) Other
Documents and Actions.
Each
Debtor shall give, execute, deliver, file and/or record any financing statement,
notice, instrument, document, agreement or other papers that may be necessary
or
desirable (in the reasonable judgment of the Secured Party or its
Representative) to create, preserve, perfect or validate the security interest
granted pursuant hereto (or any security interest or
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mortgage
contemplated or required hereunder, including with respect to Section
2(h)
of this
Agreement) or to enable the Secured Party or its Representative to exercise
and
enforce the rights of the Secured Party hereunder with respect to such pledge
and security interest, provided
that
notices to account debtors in respect of any Accounts or Instruments shall
be
subject to the provisions of clause (e) below. Notwithstanding
the foregoing, each Debtor hereby irrevocably authorizes the Secured Party
at
any time and from time to time to file in any filing office in any jurisdiction
any initial financing statements and amendments thereto that (a) indicate the
Collateral (i) as all assets of such Debtor or words of similar effect,
regardless of whether any particular asset comprised in the Collateral falls
within the scope of Article 9 of the Uniform Commercial Code of the State of
New
York or such jurisdiction, or (ii) as being of an equal or lesser scope or
with
greater detail, and (b) contain any other information required by part 5 of
Article 9 of the Uniform Commercial Code of the State of New York or any other
State for the sufficiency or filing office acceptance of any financing statement
or amendment, including (i) whether such Debtor is an organization, the type
of
organization and any organization identification number issued to such Debtor,
and (ii) in the case of a financing statement filed as a fixture filing or
indicating Collateral as As-extracted Collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates. Each
Debtor agrees to furnish any such information to the Secured Party promptly
upon
request. Each Debtor also ratifies its authorization for the Secured Party
to
have filed in any jurisdiction any like initial financing statements or
amendments thereto if filed prior to the date hereof.
(c) Books
and Records.
Each
Debtor shall maintain, at its own cost and expense, complete and accurate books
and records of the Collateral, including without limitation a record of all
payments received and all credits granted with respect to the Collateral and
all
other dealings with the Collateral. Upon the occurrence and during the
continuation of any Event of Default, each Debtor shall deliver and turn over
any such books and records (or true and correct copies thereof) to the Secured
Party or its Representative at any time on demand. Each Debtor shall permit
any
representative of the Secured Party to inspect such books and records at any
time during reasonable business hours and will provide photocopies thereof
at
such Debtor’s expense to the Secured Party upon request of the Secured
Party.
(d) Motor
Vehicles.
Each
Debtor shall, promptly upon the request of the Secured Party or its
Representative, cause the Secured Party to be listed as the lienholder on each
certificate of title or ownership covering any items of Equipment, including
Motor Vehicles having a value in excess of $50,000 in the aggregate for all
such
items of Equipment of the Debtors, or otherwise comply with the certificate
of
title or ownership laws of the relevant jurisdiction issuing such certificate
of
title or ownership in order to properly evidence and perfect Secured Party’s
security interest in the assets represented by such certificate of title or
ownership.
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(e) Notice
to Account Debtors; Verification.
(i)
Upon the occurrence and during the continuance of any Event of Default (or
if
any rights of set-off (other than set-offs against an Account arising under
the
Contract giving rise to the same Account) or contra accounts may be asserted),
upon request of the Secured Party or its Representative, each Debtor shall
promptly notify (and each Debtor hereby authorizes the Secured Party and its
Representative so to notify) each account debtor in respect of any Accounts
or
Instruments or other Persons obligated on the Collateral that such Collateral
has been assigned to the Secured Party hereunder, and that any payments due
or
to become due in respect of such Collateral are to be made directly to the
Secured Party, and (ii) the Secured Party and its Representative shall have
the
right at any time or times to make direct verification with the account debtors
or other Persons obligated on the Collateral of any and all of the Accounts
or
other such Collateral.
(f) Intellectual
Property.
Each
Debtor represents and warrants that the Copyrights, Patents and Trademarks
listed on Schedules
III, IV
and
V,
respectively, constitute all of the registered Copyrights and all of the Patents
and Trademarks now owned by such Debtor. If such Debtor shall (i) obtain rights
to any new patentable inventions, any registered Copyrights or any Patents
or
Trademarks, or (ii) become entitled to the benefit of any registered Copyrights
or any Patents or Trademarks or any improvement on any Patent, the provisions
of
this Agreement above shall automatically apply thereto and such Debtor shall
give to Secured Party prompt written notice thereof. Each Debtor hereby
authorizes Secured Party to modify this Agreement by amending Schedules
III, IV
and
V,
as
applicable, to include any such registered Copyrights or any such Patents and
Trademarks. Each Debtor shall have the duty (i) to prosecute diligently any
patent, trademark, or service xxxx applications pending as of the date hereof
or
hereafter, (ii) to make application on unpatented but patentable inventions
and
on trademarks, copyrights and service marks, as appropriate, (iii) to preserve
and maintain all rights in the Copyrights, Patents and Trademarks, to the extent
material to the operations of the business of such Debtor and (iv) to ensure
that the Copyrights, Patents and Trademarks are and remain enforceable, to
the
extent material to the operations of the business of such Debtor. Any expenses
incurred in connection with such Debtor’s obligations under this Section 4.1(f)
shall be borne by such Debtor. Except for any such items that a Debtor
reasonably believes (using prudent industry customs and practices) are no longer
necessary for the on-going operations of its business, no Debtor shall abandon
any right to file a patent, trademark or service xxxx application, or abandon
any pending patent, application or any other Copyright, Patent or Trademark
without the written consent of Secured Party, which consent shall not be
unreasonably withheld.
(g) Further
Identification of Collateral.
Each
Debtor will, when and as often as requested by the Secured Party or its
Representative, furnish to the Secured Party or such Representative, statements
and schedules further identifying and describing the Collateral and such other
reports in connection with
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the
Collateral as the Secured Party or its Representative may reasonably request,
all in reasonable detail.
(h) Investment
Property.
Each
Debtor will take any and all actions required or requested by the Secured Party,
from time to time, to (i) cause the Secured Party to obtain exclusive control
of
any Investment Property owned by such Debtor in a manner acceptable to the
Secured Party and (ii) obtain from any issuers of Investment Property and such
other Persons, for the benefit of the Secured Party, written confirmation of
the
Secured Party’s control over such Investment Property. For purposes of this
Section 4.1(h), the Secured Party shall have exclusive control of Investment
Property if (i) such Investment Property consists of certificated securities
and
a Debtor delivers such certificated securities to the Secured Party (with
appropriate endorsements if such certificated securities are in registered
form); (ii) such Investment Property consists of uncertificated securities
and
either (x) a Debtor delivers such uncertificated securities to the Secured
Party
or (y) the issuer thereof agrees, pursuant to documentation in form and
substance satisfactory to the Secured Party, that it will comply with
instructions originated by the Secured Party without further consent by such
Debtor, and (iii) such Investment Property consists of security entitlements
and
either (x) the Secured Party becomes the entitlement holder thereof or (y)
the
appropriate securities intermediary agrees, pursuant to the documentation in
form and substance satisfactory to the Secured Party, that it will comply with
entitlement orders originated by the Secured Party without further consent
by
any Debtor.
(i) Reserved.
(j) Commercial
Tort Claims.
Each
Debtor shall promptly notify Secured Party of any Commercial Tort Claim acquired
by it that concerns a claim in excess of $50,000 and, unless otherwise consented
to by Secured Party, such Debtor shall enter into a supplement to this Agreement
granting to Secured Party a Lien on and security interest in such Commercial
Tort Claim.
4.2
Other
Liens.
Debtors
will not create, permit or suffer to exist, and will defend the Collateral
against and take such other action as is necessary to remove, any Lien on the
Collateral other than Permitted Liens, and will defend the right, title and
interest of the Secured Party in and to the Collateral and in and to all
Proceeds thereof against the claims and demands of all Persons
whatsoever.
4.3
Preservation
of Rights.
Whether
or not any Event of Default has occurred or is continuing, the Secured Party
and
its Representative may, but shall not be required to, take any steps the Secured
Party or its Representative deems necessary or appropriate to preserve any
Collateral or any rights against third parties to any of the Collateral,
including obtaining insurance for the Collateral at any time when a Debtor
has
failed to do so, and Debtors shall promptly pay, or reimburse the Secured Party
for, all expenses incurred in connection therewith.
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11 -
4.4
Formation
of Subsidiaries; Name Change; Location; Bailees.
(a) No
Debtor
shall form any subsidiary unless (i) such Debtor pledges all of the stock of
such subsidiary to the Secured Party pursuant to the existing pledge agreement
in favor of the Secured Party, and (ii) such subsidiary becomes a party to
this
Agreement and all other applicable Bridge Security Documents.
(b)
No
Debtor
shall (i) reincorporate or reorganize itself under the laws of any jurisdiction
other than the jurisdiction in which it is incorporated or organized as of
the
date hereof without the prior written consent of Secured Party, or (ii)
otherwise change its name, identity or corporate structure, in each case,
without the prior written consent of Secured Party. Each Debtor will notify
Secured Party promptly in writing prior to any such change in the proposed
use
by such Debtor of any trade name or fictitious business name other than any
such
name set forth on Schedule
II
attached
hereto.
(c) Except
for the sale of Inventory in the ordinary course of business and other sales
of
assets expressly permitted in the Purchase Agreement, each Debtor will keep
the
Collateral at the locations specified in Schedule
I.
Each
Debtor will give Secured Party thirty (30) day’s prior written notice of any
change in such Debtor’s chief place of business or of any new location for any
of the Collateral.
(d) If
any
Collateral is at any time in the possession or control of any warehousemen,
bailee, consignee or processor, such Debtor shall, upon the request of Secured
Party or its Representative, notify such warehousemen, bailee, consignee or
processor of the Lien and security interest created hereby and shall instruct
such Person to hold all such Collateral for Secured Party’s account, subject to
Secured Party’s instructions.
(e) Each
Debtor acknowledges that it is not authorized to file any financing statement
or
amendment or termination statement with respect to any financing statement
without the prior written consent of Secured Party and each Debtor agrees that
it will not do so without the prior written consent of Secured Party, subject
to
such Debtor’s rights under Section 9-509(d)(2) to the Uniform Commercial
Code.
(f) No
Debtor
shall enter into any Contract that restricts or prohibits the grant to Secured
Party of a security interest in Accounts, Chattel Paper, Instruments or payment
intangibles or the proceeds of the foregoing to the Uniform Commercial
Code.
4.5 Bank
Accounts and Securities Accounts.
(a) On
or
prior to the date hereof, the Secured Party and each Debtor shall enter into
an
account control agreement or securities account control agreement, as
applicable, (each an “Account Control Agreement”), in a form specified by the
Secured Party, with each financial institution with which such
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Debtor
maintains from time to time any Deposit Accounts (general or special, but
specifically excluding the L/C Collateral Accounts), securities accounts,
brokerage accounts or other similar accounts, which financial institutions
are
set forth on Schedule
VI
attached
hereto. Pursuant to the Account Control Agreements and pursuant hereto, each
such Debtor grants and shall grant to the Secured Party a continuing lien upon,
and security interest in, all such accounts and all funds at any time paid,
deposited, credited or held in such accounts (whether for collection,
provisionally or otherwise) or otherwise in the possession of such financial
institutions, and each such financial institution shall act as the Secured
Party’s agent in connection therewith. Following the date hereof, no Debtor
shall establish any Deposit Account (other than L/C Collateral Accounts),
securities account, brokerage account or other similar account with any
financial institution, unless the Secured Party and such Debtor shall have
previously entered into an Account Control Agreement with such financial
institution which purports to cover such account. Other than xxxxx cash not
exceeding $10,000 in the aggregate for all Debtors and funds deposited in L/C
Collateral Accounts, each Debtor shall deposit and keep on deposit all of its
funds into a Deposit Account which is subject to an Account Control
Agreement.
(b) Upon
the
Secured Party’s request following the occurrence and during the continuance of
an Event of Default, each Debtor shall establish lock-box or blocked accounts
(collectively, “Blocked Accounts”) in such Debtor’s name with such banks as are
reasonably acceptable to the Secured Party (“Collecting Banks”), subject to
irrevocable instructions in a form reasonably acceptable to the Secured Party,
to which the obligors of all Accounts shall directly remit all payments on
Accounts and in which such Debtor will immediately deposit all cash payments
for
Inventory or other cash payments constituting proceeds of Collateral in the
identical form in which such payment was made, whether by cash or check. In
addition, the Secured Party may establish one or more depository accounts at
each Collecting Bank or at a centrally located bank (collectively, the
“Depository Account”). All amounts held or deposited in the Blocked Accounts
held by such Collecting Bank shall be transferred to the Depository Account
without any further notice or action required by Secured Party. Subject to
the
foregoing, each Debtor hereby agrees that all payments received by the Secured
Party, whether by cash, check, wire transfer or any other instrument, made
to
such Blocked Accounts or otherwise received by the Secured Party, and whether
in
respect of the Accounts or as proceeds of other Collateral or otherwise, will
be
the sole and exclusive property of the Secured Party. Each Debtor, and any
of
its Affiliates, employees, agents and other Persons acting for or in concert
with such Debtor, shall, acting on behalf of and as trustee for the Secured
Party, receive, as the sole and exclusive property of the Secured Party, any
moneys, checks, notes, drafts or other payments relating to and/or proceeds
of
Accounts or other Collateral which come into the possession or under the control
of such Debtor or any Affiliates, employees, agent or other Persons acting
for
or in concert with such Debtor, and immediately upon receipt thereof, such
Debtor or Persons shall deposit the same or cause the same to be deposited
in
kind, in a Blocked Account.
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13 -
4.6
Events
of Default, Etc.
During
the period during which an Event of Default shall have occurred and be
continuing:
(a) Each
Debtor shall, at the request of the Secured Party or its Representative,
assemble the Collateral and
make
it available to Secured Party or its Representative at a place or places
designated by the Secured Party or its Representative which are reasonably
convenient to Secured Party or its Representative, as applicable, and such
Debtor;
(b) The
Secured Party or its Representative may make any reasonable compromise or
settlement deemed desirable with respect to any of the Collateral and may extend
the time of payment, arrange for payment in installments, or otherwise modify
the terms of any of the Collateral;
(c) The
Secured Party shall have all of the rights and remedies with respect to the
Collateral of a secured party under the Uniform Commercial Code (whether or
not
said Uniform Commercial Code is in effect in the jurisdiction where the rights
and remedies are asserted) and such additional rights and remedies to which
a
secured party is entitled under the laws in effect in any jurisdiction where
any
rights and remedies hereunder may be asserted, including without limitation
the
right, to the maximum extent permitted by law, to: (i) exercise all voting,
consensual and other powers of ownership pertaining to the Collateral as if
the
Secured Party were the sole and absolute owner thereof (and each Debtor agrees
to take all such action as may be appropriate to give effect to such right)
and
(ii) to the appointment of a receiver or receivers for all or any part of the
Collateral or business of a Debtor, whether such receivership is incident to
a
proposed sale or sales of such Collateral or otherwise and without regard to
the
value of the Collateral or the solvency of any person or persons liable for
the
payment of the Obligations secured by such Collateral. Each Debtor hereby
consents to the appointment of such receiver or receivers, waives any and all
defenses to such appointment, and agrees that such appointment shall in no
manner impair, prejudice or otherwise affect the rights of Secured Party under
this Agreement. Each Debtor hereby expressly waives notice of a hearing for
appointment of a receiver and the necessity for bond or an accounting by the
receiver;
(d) The
Secured Party or its Representative in their discretion may, in the name of
the
Secured Party or in the name of a Debtor or otherwise, demand, xxx for, collect
or receive any money or property at any time payable or receivable on account
of
or in exchange for any of the Collateral, but shall be under no obligation
to do
so;
(e)
The
Secured Party or its Representative may take immediate possession and occupancy
of any premises owned, used or leased by a Debtor and may exercise all other
rights and remedies of an assignee which may be available to the Secured
Party;
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14 -
(f) The
Secured Party may, upon ten (10) Business Days’ prior written notice to Debtors
of the time and place (which notice Debtors hereby agree is commercially
reasonable notification for purposes hereof), with respect to the Collateral
or
any part thereof which shall then be or shall thereafter come into the
possession, custody or control of the Secured Party or its Representative,
sell,
lease, license, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Secured Party deems best, and for
cash or for credit or for future delivery (without thereby assuming any credit
risk), at public or private sale, without demand of performance or notice of
intention to effect any such disposition or of the time or place thereof (except
such notice as is required above or by applicable statute and cannot be waived),
and the Secured Party or anyone else may be the purchaser, lessee, licensee,
assignee or recipient of any or all of the Collateral so disposed of at any
public sale (or, to the extent permitted by law, at any private sale) and
thereafter hold the same absolutely, free from any claim or right of whatsoever
kind, including any right or equity of redemption (statutory or otherwise),
of
Debtors, any such demand, notice and right or equity being hereby expressly
waived and released. The Secured Party may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such
sale
may be made at any time or place to which the sale may be so adjourned;
and
(g) The
rights, remedies and powers conferred by this Section 4.6 are in addition to,
and not in substitution for, any other rights, remedies or powers that the
Secured Party may have under any Transaction Document, at law, in equity or
by
or under the Uniform Commercial Code or any other statute or agreement. The
Secured Party may proceed by way of any action, suit or other proceeding at
law
or in equity and no right, remedy or power of the Secured Party will be
exclusive of or dependent on any other. The Secured Party may exercise any
of
its rights, remedies or powers separately or in combination and at any
time.
The
proceeds of each collection, sale or other disposition under this Section 4.6
shall be applied in accordance with Section 4.9 hereof.
4.7
Deficiency.
If the
proceeds of sale, collection or other realization of or upon the Collateral
are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Obligations, Debtors shall remain liable for any
deficiency.
4.8
Private
Sale.
Each
Debtor recognizes that the Secured Party may be unable to effect a public sale
of any or all of the Collateral consisting of securities by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the “Act”),
and applicable state securities laws, but may be compelled to resort to one
or
more private sales thereof to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such Collateral for their
own
account for investment and not with a view to the distribution or resale
thereof. Each Debtor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable to the seller than if such
sale
were a public sale and, notwithstanding such circumstances, agrees that
any
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15 -
such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Secured Party shall be under no obligation to delay a sale of any
of
the Collateral to permit a Debtor to register such Collateral for public sale
under the Act, or under applicable state securities laws, even if Debtors would
agree to do so. The Secured Party shall not incur any liability as a result
of
the sale of any such Collateral, or any part thereof, at any private sale
provided for in this Agreement conducted in a commercially reasonable manner,
and each Debtor hereby waives any claims against the Secured Party arising
by
reason of the fact that the price at which the Collateral may have been sold
at
such a private sale was less than the price which might have been obtained
at a
public sale or was less than the aggregate amount of the Obligations, even
if
the Secured Party accepts the first offer received and does not offer the
Collateral to more than one offeree.
Each
Debtor further agrees to do or cause to be done all such other acts and things
as may be necessary to make such sale or sales of any portion or all of any
such
Collateral valid and binding and in compliance with any and all applicable
laws,
regulations, orders, writs, injunctions, decrees or awards of any and all
courts, arbitrators or governmental instrumentalities, domestic or foreign,
having jurisdiction over any such sale or sales, all at such Debtor’s expense,
provided
that
Debtors shall be under no obligation to take any action to enable any or all
of
such Collateral to be registered under the provisions of the Act. Each Debtor
further agrees that a breach of any of the covenants contained in this Section
4.8 will cause irreparable injury to the Secured Party, that the Secured Party
has no adequate remedy at law in respect of such breach and, as a consequence,
agrees that each and every covenant contained in this Section 4.8 shall be
specifically enforceable against Debtors, and each Debtor hereby waives and
agrees not to assert any defenses against an action for specific performance
of
such covenants except for a defense that no Event of Default has occurred and
is
continuing.
4.9
Application
of Proceeds.
The
proceeds of any collection, sale or other realization of all or any part of
the
Collateral, and any other cash at the time held by the Secured Party under
this
Agreement, shall be applied in the manner set forth in the Notes (or, if not
so
set forth, in a manner acceptable to, and at the election of, the Secured
Party).
4.10
Attorney-in-Fact.
Each
Debtor hereby irrevocably constitutes and appoints the Secured Party, 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 such Debtor and in
the
name of such Debtor or in its own name, from time to time in the discretion
of
the Secured Party, for the purpose of carrying out the terms of this Agreement,
to take any and all appropriate action, and to execute and deliver any and
all
documents and instruments which may be necessary or desirable to perfect or
protect any security interest granted hereunder, to maintain the perfection
or
priority of any security interest granted hereunder and to otherwise accomplish
the purposes of this Agreement and, without limiting the generality of the
foregoing, hereby gives the Secured Party the power and right, on behalf of
such
Debtor, without notice to or assent by such Debtor, to do the following upon
the
occurrence and during the continuation of any Event of Default:
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16 -
(a) to
take
any and all appropriate action and to execute and deliver any and all documents
and instruments which may be necessary or desirable to accomplish the purposes
of this Agreement;
(b) to
ask,
demand, collect, receive and give acquittance and receipts for any and all
moneys due and to become due under any Collateral and, in the name of such
Debtor 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 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 Secured Party for the purpose of collecting any and all
such
moneys due under any Collateral whenever payable 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 Secured Party for the purpose of collecting any and
all such moneys due under any Collateral whenever payable;
(c) to
pay or
discharge charges or liens levied or placed on or threatened against the
Collateral, to effect any insurance called for by the terms of this Agreement
and to pay all or any part of the premiums therefor;
(d) to
direct
any party liable for any payment under any of the Collateral to make payment
of
any and all moneys due, and to become due thereunder, directly to the Secured
Party or as the Secured Party shall direct, and 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;
(e)
to
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts and other Documents
constituting or relating to the Collateral;
(f)
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;
(g)
to
defend any suit, action or proceeding brought against a Debtor with respect
to
any Collateral;
(h)
to
settle, compromise or adjust any suit, action or proceeding described above
and,
in connection therewith, to give such discharges or releases as the Secured
Party may deem appropriate;
(i)
to
the
extent that a Debtor’s authorization given to Section 4.1(b) of this Agreement
is not sufficient to file such financing statements with respect to this
Agreement, with or without such Debtor’s signature, or to file a photocopy of
this Agreement in substitution for a financing statement, as the Secured Party
may deem appropriate and to execute in such Debtor’s name such financing
statements
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17 -
and
amendments thereto and continuation statements which may require such Debtor’s
signature; and
(j)
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
Secured Party were the absolute owners thereof for all purposes, and to do,
at
the Secured Party’s option and at such Debtor’s expense, at any time, or from
time to time, all acts and things which the Secured Party reasonably deems
necessary to protect, preserve or realize upon the Collateral and the Secured
Party’s lien therein, in order to effect the intent of this Agreement, all as
fully and effectively as such Debtor might do.
Each
Debtor hereby ratifies, to the extent permitted by law, all that such attorneys
lawfully do or cause to be done by virtue hereof. The power of attorney granted
hereunder is a power coupled with an interest and shall be irrevocable until
the
Obligations are indefeasibly paid in full in cash.
Each
Debtor also authorizes the Secured Party, at any time from and after the
occurrence and during the continuation of any Event of Default, (x) to
communicate in its own name with any party to any Contract with regard to the
assignment of the right, title and interest of such Debtor in and under the
Contracts hereunder and other matters relating thereto and (y) to execute,
in
connection with any sale of Collateral provided for in Section 4.5 hereof,
any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
4.11
Perfection.
Prior
to or concurrently with the execution and delivery of this Agreement, each
Debtor shall:
(a)
file
such financing statements, assignments for security and other documents in
such
offices as may be necessary or as the Secured Party or the Representative may
request to perfect the security interests granted by Section 3 of this
Agreement;
(b)
at
Secured Party’s request, deliver to the Secured Party or its Representative the
originals of all Instruments, together with, in the case of Instruments
constituting promissory notes, allonges attached thereto showing such promissory
notes to be payable to the order of a blank payee; and
(c)
at
Secured Party’s request, deliver to the Secured Party or its Representative the
originals of all Motor Vehicle titles, duly endorsed indicating the Secured
Party’s interest therein as lienholder.
4.12
Termination.
This
Agreement and the Liens and security interests granted hereunder shall not
terminate until the termination of the Purchase Agreement and the Notes and
the
full and complete performance and indefeasible satisfaction of all of the
Obligations, whereupon the Secured Party shall forthwith cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty
or
representation whatsoever, any remaining Collateral to or on the order of
Debtors. The
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18 -
Secured
Party shall also execute and deliver to Debtors upon such termination and at
Debtors’ expense such Uniform Commercial Code termination statements,
certificates for terminating the liens on the Motor Vehicles (if any), and
such
other documentation as shall be reasonably requested by Debtors to effect the
termination and release of the Liens and security interests in favor of the
Secured Party affecting the Collateral.
4.13
Further
Assurances.
(a) At
any time and from time to time, upon the written request of the Secured Party
or
its Representative, and at the sole expense of Debtors, Debtors will promptly
and duly execute and deliver any and all such further instruments, documents
and
agreements and take such further actions as the Secured Party or its
Representative may reasonably require in order for the Secured Party to obtain
the full benefits of this Agreement and of the rights and powers herein granted
in favor of the Secured Party, including, without limitation, using Debtors’
best efforts to secure all consents and approvals necessary or appropriate
for
the assignment to the Secured Party of any Collateral held by Debtors or in
which a Debtor has any rights not heretofore assigned, the filing of any
financing or continuation statements under the Uniform Commercial Code with
respect to the liens and security interests granted hereby, transferring
Collateral to the Secured Party’s possession (if a security interest in such
Collateral can be perfected by possession), placing the interest of the Secured
Party as lienholder on the certificate of title of any Motor Vehicle and
obtaining waivers of liens from landlords and mortgagees. Each Debtor also
hereby authorizes the Secured Party and its Representative to file any such
financing or continuation statement without the signature of such Debtor to
the
extent permitted by applicable law.
(b) Upon
the
request of the Secured Party, each Debtor shall procure insurers’
acknowledgments of any assignments of key man life insurance policies which
may
be assigned to the Secured Party as additional security for the Obligations
(if
any) and will take all such further action as required by any insurer or the
Secured Party in connection with any such assignment.
4.14
Limitation
on Duty of Secured Party.
The
powers conferred on the Secured Party under this Agreement are solely to protect
the Secured Party’s interest on behalf of itself and the Buyers in the
Collateral and shall not impose any duty upon it to exercise any such powers.
The Secured Party shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither the Secured
Party nor its Representative nor any of their respective officers, directors,
employees or agents shall be responsible to Debtors for any act or failure
to
act, except for willful misconduct. Without limiting the foregoing, the Secured
Party and any Representative shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in their possession if such
Collateral is accorded treatment substantially equivalent to that which the
relevant Secured Party or any Representative, in its individual capacity,
accords its own property consisting of the type of Collateral involved, it
being
understood and agreed that neither the Secured Party nor any Representative
shall have any responsibility for taking any necessary steps (other than steps
taken in accordance with the standard of care set forth above) to preserve
rights against any Person with respect to any Collateral.
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19 -
Also
without limiting the generality of the foregoing, neither the Secured Party
nor
any Representative shall have any obligation or liability under any Contract
or
license by reason of or arising out of this Agreement or the granting to the
Secured Party of a security interest therein or assignment thereof or the
receipt by the Secured Party or any Representative of any payment relating
to
any Contract or license pursuant hereto, nor shall the Secured Party or any
Representative be required or obligated in any manner to perform or fulfill
any
of the obligations of Debtors under or pursuant to any Contract or license,
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 any Contract or license, 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.
Section
5. Miscellaneous.
5.1
No
Waiver.
No
failure on the part of the Secured Party or any of its Representatives to
exercise, and no course of dealing with respect to, and no delay in exercising,
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise by the Secured Party or any of its
Representatives of any right, power or remedy hereunder preclude any other
or
further exercise thereof or the exercise of any other right, power or remedy.
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.
5.2
Governing
Law.
All
questions concerning the construction, validity enforcement and interpretation
of this Agreement shall be governed by and construed in accordance with the
internal laws and decisions of the State of New York, without giving effect
to
any choice of law or conflict of law provision or rule (whether of the State
of
New York or any other jurisdiction) that would cause the application of the
laws
of any jurisdiction other than the State of New York.
5.3
Notices.
All
notices, approvals, requests, demands and other communications hereunder shall
be delivered or made in the manner set forth in, and shall be effective in
accordance with the terms of, the Purchase Agreement; provided,
that,
to the extent any such communication (i) is being made or sent to a Debtor
that
is not the Company, such communication shall be effective as to such Debtor
if
made or sent to the Company in accordance with the foregoing or (ii) is being
made or sent to Secured Party, such communication shall be made to Secured
Party
at the address set forth below Secured Party’s signature hereto. Debtors and
Secured Party may change their respective notice addresses by written notice
given to each other party five (5) days prior to the effectiveness of such
change.
5.4
Amendments,
Etc.
The
terms of this Agreement may be waived, altered or amended only by an instrument
in writing duly executed by the Debtor sought to be charged or benefited thereby
and the Secured Party. Any such amendment or waiver shall be binding upon the
Secured Party and the Debtor sought to be charged or benefited thereby and
their
respective successors and assigns.
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20 -
5.5
Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the respective
successors and assigns of each of the parties hereto, provided,
that no
Debtor shall assign or transfer its rights hereunder without the prior written
consent of the Secured Party. Secured
Party, in such capacity as collateral agent, may assign its rights hereunder
without the consent of Debtors, in which event such assignee shall be deemed
to
be Secured Party hereunder with respect to such assigned rights.
5.6
Counterparts;
Headings.
This
Agreement may be authenticated in any number of counterparts, all of which
taken
together shall constitute one and the same instrument and any of the parties
hereto may authenticate this Agreement by signing any such counterpart. This
Agreement may be authenticated by manual signature, facsimile or, if approved
in
writing by Secured Party, electronic means, all of which shall be equally valid.
The headings in this Agreement are for convenience of reference only and shall
not alter or otherwise affect the meaning hereof.
5.7
Severability.
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 and shall be liberally construed
in
favor of the Secured Party and its Representative 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.
5.9
SUBMISSION
TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS.
(A) EACH DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF
ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE CITY OF NEW
YORK, BOROUGH OF MANHATTAN, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND EACH DEBTOR HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN
ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER
HAVE
AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT
OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE
RIGHT OF SECURED PARTY TO BRING PROCEEDINGS AGAINST ANY DEBTOR IN THE COURTS
OF
ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY A DEBTOR AGAINST SECURED
PARTY OR ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTION WITH THIS AGREEMENT SHALL
BE
BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK .
(B) EACH
DEBTOR DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SUCH OTHER PERSONS
AS
MAY HEREAFTER BE SELECTED BY IT (AFTER PRIOR WRITTEN NOTICE
TO
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21 -
SECURED
PARTY) WHICH IRREVOCABLY AGREES IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE
ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY EACH DEBTOR TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL
BE
MAILED BY REGISTERED MAIL TO SUCH DEBTOR AT ITS ADDRESS PROVIDED IN THIS
AGREEMENT EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE
TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY
AGENT APPOINTED BY A DEBTOR REFUSES TO ACCEPT SERVICE, SUCH DEBTOR HEREBY AGREES
THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN
SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW.
5.10
WAIVER
OF RIGHT TO TRIAL BY JURY.
EACH DEBTOR AND SECURED PARTY EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL
BY
JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED
TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. EACH DEBTOR AND SECURED PARTY AGREE THAT ANY SUCH CLAIM
OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING
THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL
BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM
OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY
OR
ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO
THIS AGREEMENT.
5.11 Joint
and Several.
The
obligations, covenants and agreements of Debtors hereunder shall be the joint
and several obligations, covenants and agreements of each Debtor, whether or
not
specifically stated herein.
5.12 Collateral
Agent.
(a) Each
of
the Buyers hereby irrevocably appoints and authorizes the Secured Party to
act
as collateral agent hereunder (the “Collateral Agent”), to enter into each of
the instruments, documents and agreements, including any pledge agreement,
guaranty, financing statements, mortgage, Account Control Agreement or any
other
Bridge Security Documents (collectively with this Agreement, the “Financing
Documents”), to which it is a party as agent (including as a collateral agent)
on Buyers’ behalf and to take such actions as Collateral Agent on Buyers’ behalf
under the Financing Documents and to exercise such powers under the Financing
Documents as are delegated to Collateral Agent (as agent, secured party or
otherwise) by the terms thereof, together
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22 -
with
all
such powers as are reasonably incidental thereto. The Collateral Agent shall
take such action under this Agreement and/or any other Transaction Documents
as
the Collateral Agent shall reasonably be directed by Buyers in accordance with
the terms of the Transaction Documents (and, in any event, as reasonably
directed by written direction of Majority Buyers). Subject to Section 5.4,
Secured Party is authorized and empowered to amend, modify, or waive any
provisions of this Agreement or the other Financing Documents to which it is
a
party or which run in its favor on behalf of the Buyers; provided, however,
that
the parties hereto hereby agree that no such amendment,
modification or waiver shall be effective without the unanimous written consent
of the Buyers.
(b) Whether
or not the transactions contemplated hereby shall be consummated, upon demand
therefor, the Buyers shall indemnify the Collateral Agent (to the extent not
reimbursed by or on behalf of the Company and without limiting the obligation
of
the Company to do so), ratably (based on the ratio of the amount of Obligations
a Buyer holds to the aggregate Obligations held by all Buyers) from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind whatsoever,
including, for purposes of clarification, all taxes, which may at any time
(including at any time following the payment in full of the Notes and the
termination or resignation of the Collateral Agent) be imposed on, incurred
by
or asserted against the Collateral Agent in any way relating to or arising
out
of this Agreement, any other Transaction Document or any document contemplated
hereby or referred to herein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Collateral Agent under or in connection
with any of the foregoing; provided,
however,
that
Buyers shall not be liable for the payment to the Collateral Agent of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Collateral Agent’s gross negligence or willful misconduct. In addition, Buyers
shall reimburse the Collateral Agent upon demand for its ratable share (based
on
the ratio of the amount of Obligations a Buyer holds to the aggregate
Obligations held by all Buyers) of any costs or out-of-pocket expenses
(including attorney costs) incurred by the Collateral Agent in connection with
the preparation, execution, delivery, administration, modification, amendment
or
enforcement (whether through negotiations, legal proceedings or otherwise)
of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Transaction Document, or any document contemplated hereby or referred
to herein to the extent that the Collateral Agent is not reimbursed for such
expenses by or on behalf of the Company. Without limiting the generality of
the
foregoing, if any Governmental Authority of any jurisdiction asserts a claim
that the Collateral Agent did not properly withhold tax from amounts paid to
or
for the account of a Buyer (because the appropriate form was not delivered,
was
not properly executed, or because such Buyer failed to notify the Collateral
Agent of a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason), Buyers
shall indemnify the Collateral Agent fully for all amounts paid, directly or
indirectly, by the Collateral Agent as tax or otherwise, including penalties
and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Collateral Agent under this Section
5.12(b),
together with all related costs and
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23 -
expenses
(including attorney costs). The obligation of Buyers in this Section
5.12(b)
shall
survive the payment of all Obligations.
(c) The
Collateral Agent shall not be deemed to have knowledge or notice of the
occurrence of any Event of Default or any event that with the giving of notice
or passage of time would constitute an Event of Default unless the Collateral
Agent shall have received written notice from Buyers describing such Event
of
Default or event that with the giving of notice or passage of time would
constitute an Event of Default and stating that such notice is a “notice of
default”. Upon the occurrence and continuance of an Event of Default, or an
event that with the giving of notice or passage of time would constitute an
Event of Default, the Collateral Agent shall take such action under this
Agreement and/or any other Transaction Documents with respect to such Event
of
Default or event that with the giving of notice or passage of time would
constitute an Event of Default as Collateral Agent shall reasonably be directed
by Buyers in accordance with the terms of the Transaction Documents (and,
in
any event, as reasonably directed by written direction of Majority
Buyers);
provided
that, unless and until the Collateral Agent shall have received such directions,
the Collateral Agent may (but shall not be obligated to) take such action,
or
refrain from taking such action, with respect to such Event of Default or event
that with the giving of notice or passage of time would constitute an Event
of
Default as the Collateral Agent shall deem advisable in the best interests
of
Buyers. In taking such action or refraining from taking such action without
specific direction from Buyers, the Collateral Agent shall use the same degree
of care and skill as a prudent person would exercise or use under the
circumstances in the conduct of such person’s own affairs.
(d) Nothing
in this Section
5.12
shall be
deemed to limit or otherwise affect the rights of Secured Party or Buyers to
exercise any remedy provided in this Agreement or any other Transaction
Document.
(e) The
Collateral Agent may resign from the performance of all of its functions and
duties hereunder and/or under the other Transaction Documents at any time by
giving thirty (30) Business Days’ prior written notice to Buyers. Such
resignation shall take effect upon the appointment of a successor Collateral
Agent pursuant to clause (f) below or as otherwise provided below.
(f) Upon
(i)
Buyers’ receipt of a notice of resignation by the Collateral Agent in accordance
with clause (e) above, or (ii) written notice by Buyers to Collateral Agent
of
Buyers’ election to remove the existing Collateral Agent and appoint a successor
Collateral Agent, Buyers shall have the right to appoint a successor Collateral
Agent. Upon the acceptance of a successor's appointment as Collateral Agent
hereunder and notice of such acceptance to the retiring Collateral Agent, such
successor shall succeed to and become vested with all of the rights, powers,
privileges and duties of the retiring (or retired) Collateral Agent, the
retiring Collateral Agent's resignation shall become immediately effective
and
the retiring Collateral Agent shall be discharged from all of its duties and
obligations hereunder and under the other Transaction Documents (if such
resignation was not already effective and such duties and obligations not
already discharged, as provided below in this paragraph). If no such successor
shall have been so
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24 -
appointed
by Buyers and shall have accepted such appointment within thirty (30) days
after
the retiring Collateral Agent gives notice of its resignation or Buyers give
notice of their election to replace the retiring Collateral Agent, then the
retiring Collateral Agent may, on behalf of Buyers (but without any obligation)
appoint a successor Collateral Agent without the consent of Buyers. From and
following the expiration of such thirty (30) day period, Collateral Agent shall
have the exclusive right without any Person's consent, upon one (1) Business
Days' notice to Buyers, to make its resignation or removal effective
immediately. From and following the effectiveness of such notice, (i) the
retiring Collateral Agent shall be discharged from its duties and obligations
hereunder and under the other Transaction Documents and (ii) all actions,
payments, communications and determinations provided to be made by, to or
through Collateral Agent shall instead be made by or to Buyers directly, until
such time as Buyers appoint a Collateral Agent as provided for above in this
paragraph. The provisions of this Agreement shall continue in effect for the
benefit of any retiring Collateral Agent and its sub-agents after the
effectiveness of its resignation or removal hereunder and under the other
Transaction Documents in respect of any actions taken or omitted to be taken
by
any of them while the retiring Collateral Agent was acting or was continuing
to
act as Collateral Agent.
(g) If
pursuant to any Financing Document the Collateral Agent is given the discretion
to allocate proceeds received by Collateral Agent pursuant to the exercise
of
remedies under the Financing Documents or at law or in equity (including without
limitation with respect to any secured creditor remedies exercised against
the
Collateral and any other collateral security provided for under any Financing
Document), Collateral Agent shall apply such proceeds to the then outstanding
Obligations in the following order of priority (with amounts
received being applied in the numerical order set forth below until exhausted
prior to the application to the next succeeding category and each of the Buyers
or other Persons entitled to payment shall receive an amount equal to its pro
rata share of amounts available to be applied pursuant to clauses second, third
and fourth below):
first,
to
payment of fees, costs and expenses (including reasonable attorney’s fees) owing
to the Collateral Agent;
second,
to
payment of all accrued unpaid interest and fees (other than fees owing to
Collateral Agent) on the Obligations;
third,
to
payment of principal of the Obligations;
fourth,
to
payment of any other amounts owing constituting Obligations; and
fifth,
any
remainder shall be for the account of and paid to whoever may be lawfully
entitled thereto.
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25 -
5.13 No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rules of strict construction
will
be applied against any party.
5.14 Entire
Agreement; Amendments.
This
Agreement supersedes all other prior oral or written agreements between each
Debtor, Secured Party, the Buyers and their affiliates and persons acting on
their behalf with respect to the matters discussed herein, and this Agreement
and the Transaction Documents and instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters
covered herein and therein.
[Signature
Pages Follow]
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26 -
IN
WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
be
duly executed and delivered as of the day and year first above
written.
DEBTORS:
SOUTH
TEXAS OIL COMPANY,
a
Nevada corporation
By:_______________________________
Name:_____________________________
Title:
______________________________
FEIN:_____________________________
SOUTHERN
TEXAS OIL COMPANY, a Texas corporation
By:_______________________________
Name:_____________________________
Title:
______________________________
FEIN:_____________________________
STO
OPERATING COMPANY, a Texas corporation
By:_______________________________
Name:_____________________________
Title:
______________________________
FEIN:_____________________________
STO
PROPERTIES LLC, a Texas limited liability company
By:_______________________________
Name:_____________________________
Title:
______________________________
FEIN:_____________________________
STO
DRILLING COMPANY, a Texas corporation
By:_______________________________
Name:_____________________________
Title:
______________________________
FEIN:_____________________________
SECURED
PARTY:
VIKING
ASSET MANAGEMENT, LLC, a California limited liability company,
in its
capacity as Collateral Agent for the Buyers
By:________________________________
Name: S.
Xxxxxxx Xxxxxxx
Title: Chief
Financial Officer
Notice
Address:
Viking
Asset Management, LLC
000
Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention:
Xxxxxxx Xxxxxxx
Telecopy:
(000) 000-0000
and
Viking
Asset Management, LLC
00
Xxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxx,
Xxxxxxxxxxx 00000
Attention:
Xxxxxx X. Xxxxxxxx
BUYERS:
Solely
for the purposes of Section 5.12
LONGVIEW
MARQUIS MASTER FUND, L.P., a British Virgin Islands limited
partnership
By: Viking
Asset Management, LLC
Its: Investment
Advisor
By:________________________________
Name: S.
Xxxxxxx Xxxxxxx
Title: Chief
Financial Officer
EXHIBIT
A
Form
of
Joinder
Joinder
to Security Agreement
The
undersigned, ______________________________, hereby joins in the execution
of
that certain Security Agreement dated as of September 19, 2008 (the “Security
Agreement”), by South Texas Oil Company, a Nevada corporation (“Company”),
Southern
Texas Oil Company, a Texas corporation (“Southern Texas”), STO Operating
Company, a Texas corporation formerly known as Leexus Operating Company (“STO
Operating”), STO Properties LLC, a Texas limited liability company (“STO
Properties”), STO Drilling Company, a Texas corporation,
the
Buyers (as defined therein), and each other Person that becomes a Debtor
thereunder after the date hereof and pursuant to the terms thereof, to and
in
favor of Viking
Asset Management, LLC, in its capacity as Collateral Agent for the Buyers (the
“Secured Party”).
By
executing this Joinder, the undersigned hereby agrees that it is a Debtor
thereunder and agrees to be bound by all of the terms and provisions of the
Security Agreement.
The
undersigned represents and warrants to Secured Party that:
(a) all
of
the Equipment, Inventory and Goods owned by such Debtor is located at the places
as specified on Schedule I attached hereto;
(b) except
as
disclosed on Schedule I, none of such Collateral is in the possession of any
bailee, warehousemen, processor or consignee;
(c) the
chief
place of business, chief executive office and the office where such Debtor
keeps
its books and records are located at the place specified on Schedule
I;
(d) such
Debtor (including any Person acquired by such Debtor) does not do business
or
has not done business during the past five years under any tradename or
fictitious business name, except as disclosed on Schedule II;
(e) all
Copyrights, Patents and Trademarks owned by the undersigned are listed in
Schedules III, IV and V, respectively;
(f) all
Deposit Accounts, securities accounts, brokerage accounts and other similar
accounts maintained by such Debtor, and the financial institutions at which
such
accounts are maintained, are listed on Schedule VI;
(g) all
Commercial Tort Claims of such Debtor are listed on Schedule VII;
(h) all
interests in real property and mining rights held by such Debtor are listed
on
Schedule VIII;
(i) all
Equipment (including Motor Vehicles) owned by such debtors are listed on
Schedule IX; and
(j) all
other
representations and warranties made by the Debtors in the Security Agreement
are
true, complete and correct in all respects as of the date hereof.
________________,
a _____ corporation
By:______________________________
Title:___________________________
FEIN:____________________________
