SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this
“Agreement”) is dated as of March 1, 2010, and is entered into by and among
ThermoEnergy Corporation, a Delaware corporation having its principal place of
business in Little Rock, Arkansas (the “Borrower”) and the persons and entities
named on Schedule I hereto (collectively, the “Secured Parties”) and The Quercus
Trust, for itself and as the agent for and for the benefit of the other Secured
Parties (the “Agent”). Capitalized terms not otherwise defined herein
are used as defined in the Delaware Uniform Commercial Code on the date of this
Agreement (the “UCC”).
WHEREAS, the Borrower is, on or about
the date hereof, executing and delivering to the Secured Parties a series of 3%
Secured Convertible Promissory Notes of even date herewith in the initial
aggregate principal amount of $2,700,000 (the “Notes”); and
WHEREAS, it is a condition precedent to
the Secured Parties’ making any advances to the Borrower under the Notes that
the Borrower execute and deliver to the Secured Parties a security agreement in
substantially the form hereof; and
WHEREAS, the Borrower wishes to grant a
security interest in favor of the Secured Parties 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. The Borrower hereby grants and otherwise pledges to
the Secured Parties a continuing security interest in all of the present and
future rights, title and interests of the Borrower in and to the following
property, and each item thereof, all whether now or hereafter existing, or owned
or acquired by the Borrower, or now or hereafter arising or due or to become
due, wherever such property may be located, together with all substitutions for,
replacements of, additions to, accessions to, and products, Proceeds and records
of any and all of the following (collectively, the “Collateral”):
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(i)
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all
Accounts;
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(ii)
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all
Inventory;
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(iii)
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all
Equipment;
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(iv)
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all
Fixtures;
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(v)
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all
Contracts;
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(vi)
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all
Chattel Papers;
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(vii)
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all
Documents;
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(viii)
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all
Instruments;
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(ix)
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all
Investment Property;
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(x)
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all
Deposit Accounts;
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(xi)
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all
General Intangibles;
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(xii)
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all
Supporting Obligations
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(xiii)
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all
Commercial Tort Claims;
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(xiv)
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all
Intellectual Property; and
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(xv)
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all
other items of tangible and intangible personal property of any and every
kind and description which are not otherwise described
herein;
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excluding
only the shares of the capital stock of CASTion Corporation, a Massachusetts
corporation, owned beneficially or of record by the Borrower, which shares shall
not be deemed to be part of the Collateral.
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 Notes, as well as the
Borrower’s performance and observance of all covenants contained herein and in
the Notes (the “Obligations”).
SECTION 3. Agent as Agent of
Investors.
(a) The
Agent shall serve and act as agent for all Secured Parties and shall take such
action on their behalf under the provisions of this Agreement and shall exercise
such powers and perform such duties as are expressly delegated to the Agent by
the terms of this Agreement, together with such powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities except those expressly set forth herein.
(b) The
Secured Parties, the Agent and the Borrower acknowledge and agree that each Note
is secured by a security interest in the Collateral and that the priorities of
the security interests which secure each Secured
Party’s respective Note and its or his rights in and to the
Collateral which secures such Notes shall at all times be equal and that each
Secured Party shall share and be equal in priority and rights with the other
Secured Parties in proportion to the then outstanding principal amounts of, plus
the accrued but unpaid interest on, their respective Notes.
(c) In
the event that an Event of Default occurs, and a Secured Party gives the Agent
notice thereof, the Agent shall immediately thereafter (i) give written notice
of the Event of Default to all Secured Parties, and (ii) commence enforcement,
collection (including judicial or nonjudicial foreclosure) or similar proceeding
with respect to the Collateral; provided that
while the Agent may take immediate action in its discretion in order to attempt
to preserve the rights of the Secured Parties hereunder, the Agent (a) shall not
be required to take any action hereunder unless and until, if requested by the
Agent, the Agent receives direction from 66⅔ in interest of the Secured Parties
(determined on the basis of the outstanding principal amounts of the Notes), and
(b) shall take such all such actions to enforce this Agreement and to
realize upon, collect and dispose of the Collateral or any portion thereof as
may be directed by 66⅔ in interest of the Secured
Parties; provided that the Agent shall not be required to take any action
that is contrary to law or to the terms of this Agreement, or that would subject
it or any of its employees or agents to liability.
(d) The
Agent acknowledges and agrees that this Agreement and the terms and provisions
hereof are solely for the benefit of the Secured Parties and shall not benefit
in any way any other person or entity, including, without limitation, the
Borrower or any of its guarantors. Nothing in this Agreement is
intended to affect, limit or in any way diminish the security interests which
the Secured Parties claim in the assets of the Borrower insofar as the rights of
the Borrowers and third parties are concerned. The Agent, on behalf
of all Secured Parties, specifically reserves any and all of their respective
rights, security interests and rights to assert security interests against the
Borrowers and any third parties, including guarantors.
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(e) The
Borrower, the Secured Parties and the Agent acknowledge and agree that each
Secured Party’s respective rights and priorities with respect to the Collateral
shall exist and be enforceable against the Collateral only by the Agent on
behalf of all Secured Parties in accordance with the terms hereof, independent
of the time or order of attachment or perfection of such Secured Party’s
respective security interest, or the time or order of filing of financing
statements. The subordinations, agreements and priorities set forth
in this Agreement shall remain in full force and effect regardless of whether
any Secured Party in the future seeks to rescind, amend, terminate or reform, by
liquidation or otherwise, its or his respective agreements with the
Borrower.
(f) The
Borrower, the Secured Parties and the Agent acknowledge and agree that the
indebtedness and payment obligations of the Borrower with respect to each Note
shall be of equal priority, no Note shall have a priority of payment over or be
subordinate to any other Note, and any and all property, Proceeds or other
payments received by the Agent in connection with its enforcement of the Secured
Parties’ security interests as contemplated herein shall be applied promptly by
the Agent to the payment to the Secured Parties pari passu of all outstanding
amounts owed under their respective Notes.
(g) Subject
to the shared priority and respective rights of the Secured Parties set forth in
this Agreement, the Agent, on behalf of the Secured Parties, shall be entitled
to obtain loss payee endorsements and additional insured status with respect to
any and all policies of insurance now or hereafter obtained by
the Borrower insuring against casualty or other loss to any property
of the Borrower in which any Secured Party may have a security interest, and, in
connection therewith, may file claims, settle disputes, make adjustments and
take any and all other action otherwise then permitted to each Secured Party
with regard thereto, which it may deem advisable with respect to any assets of
the Borrower.
(h) Neither
the Agent nor any officer or agent thereof shall be liable to the
Borrower or the Secured Parties for monetary damages for any action taken or
omitted to be taken by the Agent except for liability (i) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law or (ii) for any transaction from which the Agent or such officer or agent
thereof derived an improper personal benefit.
(i) The
Borrower shall indemnify and hold harmless the Agent for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (including reasonable attorneys’ fees) of any
kind whatsoever which may be imposed on, incurred by or asserted against the
Agent in connection with or in any way arising out of this Agreement; provided,
however, that the Borrower shall not be liable to the Agent for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent’s gross
negligence or willful misconduct as determined by a final judgment of a court of
competent jurisdiction. The Borrower shall upon demand pay to
the Agent the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, that
the Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Agent or the Secured Parties hereunder,
or (iv) the failure by the Borrower to perform or observe any of the provisions
hereof. In the event the Borrower fails to comply with its
obligations under this Section 3(i), after commercially practicable efforts by
the Agent to obtain such compliance, each of the Secured Parties agrees to
contribute and pay to the Agent its or his pro rata share of all such
obligations.
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SECTION
4. Representations, Warranties
and Covenants. The Borrower represents, warrants and covenants as
follows:
(a) The
Borrower is a corporation existing and in good standing under the laws of the
State of Delaware.
(b) The
Borrower 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 Borrower is duly
empowered and authorized to own and to grant security interests in the
Collateral. The execution, delivery and performance by the Borrower
of this Agreement, of the Notes 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 Borrower, including without limitation, the Borrower’s
Certificate of Incorporation, By-Laws and any other loan or security agreements
to which the Borrower is a party or by which the Borrower or its property is
bound.
(c) Assuming
the due filing of a financing statement in proper form with the Secretary of
State of the State of Delaware, the security interest granted to the Secured
Parties pursuant to this Agreement is a valid, perfected security interest in
the that portion of the Collateral in which a security interest may be perfected
under the UCC.
(d) The
Borrower shall not hereafter transfer, assign or otherwise dispose of the
Collateral, except in the ordinary course of business, without the Agent’s prior
written consent. The Borrower 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 Parties 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.
SECTION
5. Agent’s
Appointment as Attorney-in-Fact. The Borrower hereby
irrevocably constitutes and appoints, from and after the occurrence of a default
by the Borrower in the Obligations, the Agent and any officer or agent thereof,
with full power of substitution, as the Borrower’s true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Borrower and in the name of the Borrower or in the Agent’s own name
as agent hereunder for the Secured Parties, from time to time in the Agent’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
grant to the Agent the power and right, on behalf of the Borrower, without
notice to or assent by the Borrower 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 Agent
may deem necessary or desirable to protect, perfect and validate the Secured
Parties’ security interest.
The
Borrower 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 Notes remains unpaid.
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The
powers conferred upon the Agent hereunder are solely to protect the interests of
the Secured Parties in the Collateral and shall not impose any duty upon the
Agent to exercise any such powers. The Agent shall be accountable
only for amounts that the Agent actually receives as a result of the exercise of
such powers and neither the Agent nor any of its partners, officers, directors,
employees or agents shall be responsible to the Borrowers or the other Secured
Parties for any act or failure to act, except for the Agent’s own gross
negligence or willful misconduct.
SECTION 6. Remedies. If
a default by the Borrower in the Obligations shall have occurred and be
continuing (an “Event of Default”), the Agent shall have all of the rights and
remedies which secured parties may have under the UCC 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 Borrower:
(i) Accelerate
and declare all or any part of the Obligations to be immediately due, payable
and performable;
(ii) Appropriate,
set off and apply to any or all of the Obligations, any or all Collateral in
such manner as the Agent may determine; and/or
(iii) Foreclose
the security interest created under this Agreement or under any other agreement
relating to the Collateral by any procedure permitted under the UCC, with or
without judicial process.
SECTION 7. Termination of Security
Interest. The Secured Parties’ security interest in the
Collateral shall be extinguished when the Borrower completes
performance of all Obligations.
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 Delaware
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 or having jurisdiction over Wilmington, Delaware in any action that
may be brought for the enforcement of this Agreement, 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 Notes 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. No
Secured Party shall be deemed to have waived any of its respective rights
hereunder or under any other agreement, instrument or paper signed by the
Borrower unless such waiver be in writing and signed by the Agent (with respect
to the Secured Parties’ rights and interest under the Notes or under this
Agreement) or by such Secured Party (with respect to any other
rights). No delay or omission on the part of the Agent in exercising
any right shall operate as a waiver of such right or any other
right. All of the Secured Parties’ 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
Borrower, the Agent and the Secured Parties.
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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, the Borrower, the Agent and the other Secured Parties have
caused this Agreement to be duly executed as of the date first above
written.
| ThermoEnergy Corporation | The Quercus Trust | |||
| By: | /s/ Xxxx X. Xxxxxxx | By: | /s/ Xxxxx Xxxxxxx | |
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Empire
Capital Partners, ltd
By:
Empire
Capital Management, llc,
its
Investment Manager
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Empire
Capital Partners, lp
By:
Empire
gp, llc, its General Partner
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| By: | /s/ Xxxxx Xxxxxxxx | By: | /s/ Xxxxx Xxxxxxxx | |
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Empire
Capital Partners Enhanced Master Fund, ltd
By:
Empire
Capital Management, llc,
its
Investment Manager
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| By: | /s/ Xxxxx Xxxxxxxx | /s/ Xxxxxx X. Xxxxx | ||
| Xxxxxx X. Xxxxx | ||||
| Focus Fund, l.p. | ||||
| By: | /s/ X. Xxxxxx Xxxxxx III | |||
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