Exhibit 10.3
SECURITY AGREEMENT
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THIS SECURITY AGREEMENT (as amended, restated, supplemented or
otherwise modified from time to time, this "Agreement") dated as of July 9, 2007
among SONTERRA RESOURCES, INC., a Delaware corporation (the "Company"; the
Company, 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
hereinafter sometimes 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 set forth in Section
5.12 hereof, together with its successors and assigns in such capacity, the
"Secured Party") for the benefit of itself and Buyer (as hereinafter defined).
W I T N E S S E T H:
WHEREAS, during the period beginning on the date hereof and ending on
July 31, 2007, Sonterra expects to execute and deliver the Purchase Agreements,
pursuant to which and subject to the terms and conditions thereof, on the
Acquisition Closing Date, the Purchases will be consummated;
WHEREAS, on the Deposit Closing Date, The Longview Fund, L.P., a
California limited partnership ("Buyer"), will purchase from the Company certain
senior secured notes in an original aggregate principal amount of $322,500 (such
notes, together with any promissory notes or other securities issued in exchange
or substitution therefor or replacement thereof, and as any of the same may be
amended, supplemented, restated or modified and in effect from time to time, the
"Deposit Notes");
WHEREAS, on the Acquisition Closing Date, Buyer will purchase from the
Company (i) certain senior secured notes (such notes, together with any
promissory notes or other securities issued in exchange or substitution therefor
or replacement thereof, and as any of the same may be amended, supplemented,
restated or modified and in effect from time to time, the "Equity Acquisition
Notes") in the principal amount of $5,990,010, and (ii) certain additional
senior secured notes (such notes, together with any promissory notes or other
securities issued in exchange or substitution therefor or replacement thereof,
and as any of the same may be amended, supplemented, restated or modified and in
effect from time to time, the "Non-Equity Acquisition Notes" and, together with
the Equity Acquisition Notes, the "Acquisition Notes"; and, collectively with
the Deposit Notes, the "Notes");
WHEREAS, the Notes are being acquired by Buyer and Buyer has made
certain financial accommodations to the Company pursuant to a Securities
Purchase Agreement of even date herewith among the Company, the Principals and
Buyer (as the same may be amended, restated, supplemented or otherwise modified
from time to time, the "Purchase Agreement");
WHEREAS, each Debtor (other than the Company) that from time to time
may be a party hereto is a direct or indirect subsidiary of the Company and, as
such, will derive substantial benefit and advantage from the financial
accommodations to the Company set forth in the Purchase Agreement and the Notes,
and it will be to each such Debtor's direct interest and economic benefit to
assist the Company in procuring said financial accommodations from Buyer; and
WHEREAS, to induce Buyer to enter into the Purchase Agreement and
purchase the Notes, each Debtor has agreed to pledge and grant a security
interest in all of its right, title and interest in and to the Collateral (as
hereinafter defined) as security for its Liabilities for the benefit of the
Secured Party, Buyer and their respective successors and assigns.
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 (if any), 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,
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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 bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administration powers or functions of or pertaining to government over
any Debtor or any of its 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.
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"Liabilities" 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 Warrants, the Registration Right Agreement, any of the other
Security Documents and any of the other Transaction 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 and whether or not an allowed
claim in any such proceeding.
"Lien" shall have the meaning set forth in the Purchase
Agreement.
"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.
"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
(if any), 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 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.
"Permitted Lien" shall have the meaning set forth in the
Purchase Agreement.
"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 body, authority, bureau or agency (or
any person acting under color of 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.
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"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 (if any) 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 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 being subject to an Account Control
Agreement (as hereinafter defined) between the applicable Debtor and
depository institution and the Secured Party on behalf of Buyer, such
security interest will be a duly perfected first priority security
interest in all of 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.
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(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 or province, as
applicable, 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 officer and the office where such Debtor
keeps its books and records and the states in which such Debtor
conducts its business. Such Debtor has only one state or province, as
applicable, of incorporation, formation or organization. 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 (if any) 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,
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,
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
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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
such Debtor's depositary, security, brokerage 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 (if any).
(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 (if any). Each Debtor shall deliver to
Secured Party a revised version of Schedule VIII showing any changes
thereto within ten (10) 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").
(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 agreements 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 state and federal rights of
way, are not capable of being recorded as a matter of state and federal
law.
(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 Liabilities, each Debtor hereby pledges and grants to the Secured Party, for
the benefit of itself and Buyer, 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;
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(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) all Commercial Tort Claims specified on Schedule VII;
(l) all As-extracted Collateral;
(m) all Trademarks, Patents and Copyrights; and
(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, 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.
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(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
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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 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, in its capacity as collateral agent for the benefit of
Buyer, 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, Mortgage 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
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.
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(c) Books and Records. Each Debtor (or the Company on
behalf of a 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
acquiring same, 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 Debtor,
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.
(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 (if any), 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
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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, trademark or service xxxx 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 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.
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(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 except 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 such Debtor has failed to do so, and Debtors shall
promptly pay, or reimburse the Secured Party for, all expenses incurred in
connection therewith.
4.4 Formation of Subsidiaries; Name Change; Location; Bailees.
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(a) No Debtor shall form any subsidiary unless (i) such
Debtor pledges all of the stock of such subsidiary to the Secured Party
(in the case of Company, pursuant to the existing pledge agreement by
Company in favor of the Secured Party or, with respect to a Debtor
other than Company, pursuant to a pledge agreement in form and
substance acceptable to Secured Party), (ii) such subsidiary becomes a
party to this Agreement and all other applicable Security Documents and
(iii) the formation of such Subsidiary is not prohibited by the terms
of the Transaction 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, 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 tradename 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 by the
terms of 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.
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(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 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.
4.5 Bank Accounts and Securities Accounts.
-------------------------------------
(a) On or prior to the date hereof, the Secured Party and
each Debtor, as applicable, 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 Debtor maintains
from time to time any Deposit Accounts (general or special), 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
Initial Closing Date, no Debtor shall establish any Deposit Account,
securities account, brokerage account or other similar account with any
financial institution unless prior thereto, the Secured Party and such
Debtor shall have entered into an Account Control Agreement with such
financial institution which purports to cover such account. 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
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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 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.
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 be
incident to a proposed sale or sales of such Collateral or otherwise
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and without regard to the value of the Collateral or the solvency of
any person or persons liable for the payment of the Liabilities 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 exercise all other rights and remedies which may
be available to the Secured Party;
(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;
(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
15
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 Liabilities, 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 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 Liabilities, 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.
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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 or to
maintain the perfection or priority of any security interest granted hereunder,
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:
(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
17
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 in
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 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 Liabilities are indefeasibly paid in full in cash and this
Agreement is terminated in accordance with Section 4.12 hereof.
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 4.6 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:
18
(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; and
(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.
4.12 Termination. This Agreement and the Liens and security interests
granted hereunder shall not terminate until the termination of the Notes and the
full and complete performance and indefeasible satisfaction of all the
Liabilities (i) in respect of the Notes (including, without limitation, the
indefeasible payment in full in cash of all such Liabilities) and (ii) with
respect to which claims have been asserted by Collateral Agent and/or Buyer,
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 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. 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.
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 Buyer 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
19
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.
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
the internal laws 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
20
(ii) is being made or sent to Collateral Agent, such communication shall be made
to Collateral Agent at the address set forth below Collateral Agent's signature
hereto. Debtors and Collateral Agent 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.
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 its 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 or facsimile, .pdf or similar electronic signature, 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
21
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, BUYER 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 (AND SECURED PARTY AND
BUYER HEREBY SUBMIT TO THE JURISDICTION OF SUCH COURT). EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING
SERVED IN ANY SUCH ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY
AT THE ADDRESS FOR NOTICES TO IT IN ACCORDANCE WITH SECTION 5.3 OF THIS
AGREEMENT AND AGREES THAT SUCH NOTICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY 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 EACH 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 and Buyer Indemnification.
------------------------------------------
(a) Buyer hereby irrevocably appoints and authorizes the
Secured Party to act as collateral agent (the "Collateral Agent") on
its behalf under this Agreement and to enter into each of the
instruments, documents and agreements, including any pledge agreement,
22
guaranty, financing statements, mortgage, Account Control Agreement or
any other Security Documents (the "Financing Documents"), to which
Secured Party is a party (including in its capacity as Collateral
Agent) on Buyer's behalf and to take such actions as Collateral Agent
on Buyer's behalf and to exercise such powers under the Financing
Documents as are delegated to Collateral Agent or Secured Party (as
applicable) by the terms thereof, together 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 Buyer in
accordance with the terms of the Transaction Documents. Secured Party
is authorized and empowered to amend, modify, or waive any provisions
of this Agreement or the other Financing Documents only with the
consent of Buyer.
(b) Whether or not the transactions contemplated hereby
shall be consummated, upon demand therefor Buyer 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 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 Financing 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 Buyer 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, Buyer shall reimburse
the Collateral Agent upon demand for its ratable share 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 Buyer (because the appropriate form was not delivered, was not
properly executed, or because 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)
Buyer 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
23
this Section 5.12(b), together with all related costs and expenses
(including attorney costs). The obligation of Buyer in this Section
5.12(b) shall survive the payment of all Liabilities hereunder.
(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 Buyer 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 Buyer in accordance
with the terms of the Transaction Documents, 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 of such Event of
Default or event that with the giving of notice or passage of time
would constitute an Event of Default or as the Collateral Agent shall
deem advisable in the best interests of Buyer. In taking such action or
refraining from taking such action without specific direction from
Buyer, 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 Buyer 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
Financing Documents at any time by giving thirty (30) Business Days
prior written notice to Buyer. 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) Buyer's receipt of a notice of resignation
by the Collateral Agent in accordance with clause (e) above, or (ii)
written notice by Buyer to Collateral Agent of Buyer's election to
remove the existing Collateral Agent and appoint a successor Collateral
Agent, Buyer 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 Financing Documents (if such
resignation was not already effective and such duties and obligations
24
not already discharged, as provided below in this paragraph). If no
such successor shall have been so appointed by Buyer and shall have
accepted such appointment within thirty (30) days after the retiring
Collateral Agent gives notice of its resignation or Buyer give notice
of their election to replace the retiring Collateral Agent, then the
retiring Collateral Agent may, on behalf of Buyer (but without any
obligation) appoint a successor Collateral Agent without the consent of
Buyer. 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 Buyer, 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 Financing 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 Buyer directly, until
such time as Buyer appoints 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 Financing 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.
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. This Agreement supersedes all other prior oral
or written agreements between each Debtor, Secured Party, Buyer 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.
- Remainder of Page Intentionally Left Blank; Signature Page Follows -
25
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.
DEBTOR:
-------
SONTERRA RESOURCES, INC., a Delaware
corporation
By: /s/ Xxxxxxx X. Xxxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: President
FEIN: 00-0000000
SECURED PARTY:
--------------
VIKING ASSET MANAGEMENT, LLC, a
California limited liability company, in
its capacity as Collateral Agent for
Buyer
By: /s/ S. Xxxxxxx Xxxxxxx
-------------------------------------
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
Telecopy: (000) 000-0000
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.
BUYER:
------
Solely for the purposes of Section 5.12
------------
THE LONGVIEW FUND, L.P., a
California limited partnership, as Buyer
By: Viking Asset Management, LLC
Its: Investment Advisor
By: /s/ S. Xxxxxxx Xxxxxxx
------------------------------------
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 _____ __, 2007 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Security Agreement") by Sonterra Resources, Inc., a Delaware corporation, Buyer
(as defined therein), and each other Person that becomes a Debtor thereunder
after the date thereof and hereof and pursuant to the terms thereof, to and in
favor of Viking Asset Management, LLC, in its capacity as Collateral Agent for
Buyer. 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 and such Debtor conducts
business in the jurisdiction set forth on Schedule I;
(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 or licensed 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 debtor
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:___________________________________
SCHEDULE I
TO
SECURITY AGREEMENT
UCC Financing Statements; Location of Equipment, Inventory, Goods and Books and
-------------------------------------------------------------------------------
Records; Goods in Possession of Consignees, Bailees, Warehousemen, Agents and
-----------------------------------------------------------------------------
Processors; Debtors' Legal Names; State of Incorporation; Organizational
------------------------------------------------------------------------
Identification Number; Chief Executive Office.
----------------------------------------------
I. DEBTOR:
1 Legal Name of Debtor:
2 State of Incorporation:
3 Organizational Identification Number:
4 Chief Executive Office:
5 Location of Books and Records:
6 Locations of Equipment, Inventory and Goods:
7 Locations of Goods in Possession of Consignees,
Bailees, Warehousemen, Agents and Processors
(including names of such consignees, bailees, etc.):
8 Jurisdictions For UCC Filings:
SCHEDULE II
TO
SECURITY AGREEMENT
Tradenames and Fictitious Names
-------------------------------
(Present and Past Five Years)
-----------------------------
None
SCHEDULE III
TO
SECURITY AGREEMENT
U.S. Copyright Registrations; Foreign Copyright Registrations; U.S. Copyright
-----------------------------------------------------------------------------
Applications; Foreign Copyright Applications; Copyright Licenses
----------------------------------------------------------------
U.S. Copyright Registrations
----------------------------
None.
Foreign Copyright Registrations
-------------------------------
None.
U.S. Copyright Applications
---------------------------
None.
Foreign Copyright Applications
------------------------------
None.
Copyright Licenses
------------------
None.
SCHEDULE IV
TO
SECURITY AGREEMENT
U.S. Patent Registrations; Foreign Patent Registrations; U.S. Patent
--------------------------------------------------------------------
Applications; Foreign Patent Applications; Patent Licenses
----------------------------------------------------------
U.S. Patent Registrations
-------------------------
None.
Foreign Patent Registrations
----------------------------
None.
U.S. Patent Applications
------------------------
None.
Foreign Patent Applications
---------------------------
None.
Patent Licenses
---------------
None.
SCHEDULE V
TO
SECURITY AGREEMENT
U.S. Trademark Registrations; Foreign Trademark Registrations; U.S. Trademark
-----------------------------------------------------------------------------
Applications; Foreign Trademark Applications; Trademark Licenses
----------------------------------------------------------------
U.S. Trademark Registrations
----------------------------
None.
Foreign Trademark Registrations
-------------------------------
None.
U.S. Trademark Applications
---------------------------
None.
Foreign Trademark Applications
------------------------------
None.
Trademark Licenses
------------------
None.
SCHEDULE VI
TO
SECURITY AGREEMENT
Depository Accounts and Other Accounts
--------------------------------------
Name of Account Type of Account (with Account
--------------- --------------------- -------
Holder Bank general description) Number
------ ---- -------------------- ------
SCHEDULE VII
TO
SECURITY AGREEMENT
Commercial Tort Claims
----------------------
SCHEDULE VIII
TO
SECURITY AGREEMENT
Interests in Real Property and Mining Rights
--------------------------------------------
SCHEDULE IX
TO
SECURITY AGREEMENT
Titled Equipment
----------------
[To be completed]
