SECURITY AGREEMENT
GREYSTONE
BUSINESS
CREDIT
II, L.L.C.
THIS
SECURITY AGREEMENT (this "Agreement")
is
dated as of September 17, 2007, and is between Appco-KY,
Inc.,
a
Tennessee corporation corporation ("Grantor")
and
Greystone
Business Credit II, L.L.C.
("Agent").
WITNESSETH:
WHEREAS,
pursuant to that certain Loan and Security Agreement
dated as of the date hereof among Appalacian Oil Company, Inc., a Tennessee
corporation ("Borrower"),
the
Lenders parties thereto ("Lenders")
and
Agent (as the same may be amended, restated, modified or supplemented and in
effect from time to time, the "Loan
Agreement"),
Lenders have agreed to make Loans and other financial accommodations available
to the Borrower;
WHEREAS,
pursuant to that certain Guaranty dated as of the date hereof between Grantors
and Agent, Grantors have agreed to guaranty all of Borrower's Obligations;
and
WHEREAS,
it is a condition to availability of Loans under the Loan Agreement that
Grantors shall have granted the security interests contemplated by this
Agreement in order to secure the payment and performance of their obligations
under the Guaranty and Borrower's Obligations under the Loan Agreement
(collectively, the "Guarantied
Obligations");
NOW,
THEREFORE, in consideration of the foregoing, and in order to induce Lenders
to
make the Loans and other financial accommodations available to the Borrower
under the Loan Agreement, each Grantor hereby agrees with Lenders as
follows:
SECTION
1. Definitions.
Except
as
provided by the immediately following sentence, capitalized terms used herein
and not otherwise defined herein shall have the respective meanings provided
for
in the Loan Agreement. All capitalized terms defined in the UCC and not
otherwise defined herein shall have the respective meanings provided for by
the
UCC. References to "Sections" or "Schedules" shall be to Sections or Schedules
of this Agreement unless otherwise specifically provided.
SECTION
2. Grant
of Security Interests.
To
secure
the payment and performance of the Guarantied Obligations, each Grantor hereby
grants to Agent, a lien on, security interest in and right of set-off against
any and all right, title and interest in and to all of the following properties
and interests in properties of each Grantor, whether now owned or hereafter
created, acquired or arising (all being collectively referred to herein as
the
"Collateral"):
(i)
all
Accounts and all Goods whose sale, lease or other disposition by Borrower has
given rise to Accounts and have been returned to, or repossessed or stopped
in
transit by, Borrower;
(ii)
all
Chattel Paper, Instruments, Documents and General Intangibles (including all
patents, patent applications, trademarks, trademark applications, trade names,
trade secrets, goodwill, copyrights, copyright applications, registrations,
licenses, software, franchises, customer lists, tax refund claims, claims
against carriers and shippers, guarantee claims, contracts rights, payment
intangibles, security interests, security deposits and rights to
indemnification);
(iii)
all
Inventory;
(iv)
all
Goods (other than Inventory), including Equipment, vehicles and Fixtures;
(v)
all
Investment Property;
(vi)
all
Deposit Accounts, bank accounts, deposits and cash;
(vii)
all
Letter-of-Credit Rights;
(viii)
all Commercial Tort Claims listed in Schedule 2;
(ix)
all
Supporting Obligations;
(x)
any
other property of any Grantor now or hereafter in the possession, custody or
control of any Lender or Agent or any parent, Affiliate or Subsidiary of Agent
or any Lender or any participant with any Lender in the Loans, for any purpose
(whether for safekeeping, deposit, collection, custody, pledge, transmission
or
otherwise); and
(xi)
all
additions and accessions to, substitutions for, and replacements, products
and
Proceeds of the foregoing property, including proceeds of all insurance policies
insuring the foregoing property, and all of Borrower's books and records
relating to any of the foregoing and to Borrower's business.
SECTION
3. Representations
and Warranties.
Each
Grantor represents and warrants to Agent as of the date hereof as
follows:
3.1 Authorization;
No Conflict.
The
execution, delivery and performance of this Agreement by each Grantor has been
duly authorized by all necessary action pursuant to its organizational documents
and requires no further action by or in respect of, or filing with, any
governmental authority and do not violate, conflict with or cause a breach
or a
default under (i) any law or any of the organizational documents of such Grantor
or (ii) any agreement or instrument binding upon it. Except for the filing
of
UCC financing statements with the Secretary of State of each Grantor's
jurisdiction of organization, no authorization, approval or other action by,
and
no notice to or filing with, any governmental authority or consent of any other
person is required for the perfection of the security interests granted
hereby.
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3.2 Binding
Obligation; Perfection.
This
Agreement constitutes a valid and binding obligation of each Grantor,
enforceable against such Grantor in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, or similar laws relating
to the enforcement of creditors' rights generally and by general equitable
principles. Lender has a valid first priority security interest in the
Collateral, securing the payment of the Guarantied Obligations, and such
security interests are entitled to all of the rights, priorities and benefits
afforded by the UCC or other applicable law as enacted in any relevant
jurisdiction which relates to perfected security interests.
3.3 Collateral
Locations.
Schedule
3.3
hereto
lists (i) each Grantor's exact legal name as it appears on its certificate
or
articles of incorporation, formation, organization or registration, (ii) each
Grantor's organizational identification number, (iii) each Grantor's chief
executive office and the address where books and records relating to the
Collateral are maintained, (iv) each Grantor's other place(s) of business,
(v) each Grantor's jurisdiction, as applicable, of incorporation, formation,
organization or registration, (vi) location(s) of any other Equipment, Inventory
and other tangible assets (other than mobile goods) included in the Collateral,
(vii) location(s) of owned and leased facilities and name of
lessor/sublessor, and (viii) other collateral location(s).
3.4 Existing
Liens.
Other
than those set forth on Schedule
3.4,
(x)
Grantors own the Collateral free and clear of any Lien and (y) no effective
financing statement or other form of lien notice covering all or any part of
the
Collateral is on file in any recording office.
SECTION
4. Covenants
and Further Assurances.
4.1 Equipment.
Grantor
shall cause all of the Equipment to be maintained and preserved in the same
condition, repair and in working order as when new, ordinary wear and tear
excepted, and shall promptly make or cause to be made all repairs, replacements
and other improvements in connection therewith that are necessary or desirable
to such end. Upon request of Agent, Grantor shall promptly deliver to Agent
any
and all certificates of title, applications for title or similar evidence of
ownership of all of the Equipment and shall cause Lender to be named as
lienholder on any such certificate of title or other evidence of ownership.
Grantor shall promptly inform Agent of any deletions from the
Equipment.
4.2 Collateral
Generally.
(a) Each
Grantor hereby authorizes Agent to file one or more financing or continuation
statements, and amendments thereto (or similar documents required by any laws
of
any applicable jurisdiction), relating to all or any part of the Collateral
without the signature of such Grantor (to the extent such signature is required
under the laws of any applicable jurisdiction).
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(b) Each
Grantor will furnish to Agent, from time to time upon request, statements and
schedules further identifying, updating, and describing the Collateral and
such
other information, reports and evidence concerning the Collateral as Lender
may
reasonably request, all in reasonable detail.
(c) Subject
to the next sentence, each Grantor shall keep the Collateral (other than
Collateral in the possession of Agent, cash on deposit in permitted Deposit
Accounts and investments in permitted Securities Accounts) at the locations
maintained by such Grantor set forth on Schedule
3.3.
Each
Grantor shall give Agent not less than thirty (30) days' prior written notice
of
any change in the location for any of the Collateral.
(d) Each
Grantor shall keep full and accurate books and records relating to the
Collateral and shall stamp or otherwise xxxx such books and records in such
manner as Agent may reasonably request indicating that the Collateral is subject
to the security interests of Agent.
(e) Except
as
otherwise permitted herein or by the Loan Agreement, each Grantor shall
not sell, assign (by operation of law or otherwise) or otherwise dispose
of, or grant any option with respect to, any of the Collateral.
(f) Each
Grantor shall at all times maintain insurance with respect to the Collateral
reasonably satisfactory to Agent.
(g) Agent
agrees that upon payment in full of all Guarantied Obligations and the
termination of the Loan Agreement, the liens and security interests granted
hereunder shall terminate and all rights to the Collateral shall revert to
Grantors. Agent further agrees that upon such termination of the liens and
security interests or release of any Collateral, Agent shall, at the expense
of
Grantors, execute and deliver to each Grantor such documents as such Grantor
shall reasonably request to evidence the termination of the liens and security
interests or the release of such Collateral, as the case may be.
SECTION
5. Remedial
Provisions.
(a) Upon
the
occurrence and during the continuance of an Event of Default, Agent or its
attorneys shall have the right without notice or demand or legal process (unless
the same shall be required by applicable law), personally, or by an agent,
(i) to enter upon, occupy and use any premises owned or leased by any
Grantor or where the Collateral is located (or is believed to be located) until
the Guarantied Obligations are paid in full without any obligation to pay rent
to such Grantor, to render the Collateral useable or saleable and to remove
the
Collateral or any part thereof to the premises of Agent for such time as Agent
may desire in order to effectively collect or liquidate the Collateral and
use
in connection with such removal any and all services, supplies and other
facilities of such Grantor; (ii) to take possession of any Grantor's
original books and records, to obtain access to such Grantor's data processing
equipment, computer hardware and software relating to the Collateral and to
use
all of the foregoing and the information contained therein in any manner Agent
deems appropriate.
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(b) If
any
Event of Default shall have occurred and be continuing, Agent may exercise
in
respect of the Collateral, in addition to all other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of Agent
on
default under the UCC (whether or not the UCC applies to the affected
Collateral) and also may: (i) require any Grantor to, and each Grantor
hereby agrees that it will, at its expense and upon request of Agent forthwith,
assemble all or part of the Collateral as directed by Agent and make it
available to Agent at any place or places designated by Agent which is
reasonably convenient to Agent in which event such Grantor shall at its own
expense (A) forthwith cause the same to be moved to the place or places so
designated by Agent, (B) store and keep any Collateral so delivered to Agent
at
such place or places pending further action by Agent, and (C) while Collateral
shall be so stored and kept, provide such guards and maintenance services as
shall be necessary to protect the same and to preserve and maintain the
Collateral in good condition; (ii) withdraw all cash in any Deposit Account
and apply such monies in payment of the Guarantied Obligations; and (iii)
without notice except as specified below, sell, lease, license or otherwise
dispose of the Collateral or any part thereof by one or more contracts, in
one
or more parcels at public or private sale, and without the necessity of
gathering at the place of sale of the property to be sold, at any of Agent's
offices or elsewhere, at such time or times, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as Agent may
deem commercially reasonable. Agent shall have no obligation to marshal any
Collateral in favor of any Grantor or Borrower.
(c) Each
Grantor agrees that, to the extent notice of sale shall be required by law,
a
reasonable authenticated notification of disposition shall be a notification
given at least ten (10) days prior to any such sale and such notice shall (i)
describe Agent and such Grantor, (ii) describe the Collateral that is the
subject of the intended disposition, (iii) state the method of intended
disposition, (iv) state that such Grantor is entitled to an accounting of the
Guarantied Obligations and state the charge, if any, for an accounting, and
(v)
state the time and place of any public disposition or the time after which
any
private sale is to be made. At any sale of the Collateral, if permitted by
law,
Agent may bid (which bid may be, in whole or in part, in the form of
cancellation of indebtedness) for the purchase, lease, license or other
disposition of the Collateral or any portion thereof for the account of Agent
(on behalf of Agent). Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Agent may disclaim
any warranties that might arise in connection with the sale, lease, license
or
other disposition of the Collateral and have no obligation to provide any
warranties at such time. Agent may adjourn any public or private sale from
time
to time by announcement at the time and place fixed therefor, and such sale
may,
without further notice, be made at the time and place to which it was so
adjourned. To the extent permitted by law, each Grantor hereby specifically
waives all rights of redemption, stay or appraisal, which it has or may have
under any law now existing or hereafter enacted.
-5-
(d) If
an
Event of Default has occurred and is continuing, each Grantor hereby irrevocably
authorizes and empowers Agent, without limiting any other authorizations or
empowerments contained in any of the other Loan Documents, to assert, either
directly or on behalf of any Grantor, any claims any Grantor may have, from
time
to time, against any other party to any of the agreements to which any Grantor
is a party or to otherwise exercise any right or remedy of any Grantor under
any
such agreements (including, without limitation, the right to enforce directly
against any party to any such agreement all of any Grantor's rights thereunder,
to make all demands and give all notices and to make all requests required
or
permitted to be made by such Grantor thereunder).
(e) If
an
Event of Default has occurred and is continuing, the proceeds of any collection,
enforcement, sale or other disposition of, or other realization upon, all or
any
part of the Collateral shall be applied in accordance with the applicable
provisions of the Loan Agreement.
SECTION
6. Notices.
All
notices, approvals, requests, demands and other communications hereunder to
be
delivered to any Grantor and all notices, approvals, requests, demands and
other
communications hereunder shall be given in accordance with the notice provision
of the Loan Agreement.
SECTION
7. Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns except that no Grantor may assign
its rights or obligations hereunder without the written consent of Agent. No
sales of participations, other sales, assignments, transfers or other
dispositions of any agreement governing or instrument evidencing the Guarantied
Obligations or any portion thereof or interest therein shall in any manner
impair the Lien granted to Agent, for the benefit of Lenders,
hereunder.
SECTION
8. Changes
in Writing.
No
amendment, modification, termination or waiver of any provision of this
Agreement shall be effective unless the same shall be in writing signed by
Agent.
SECTION
9. GOVERNING
LAW; SUBMISSION TO JURISDICTION.
THIS
AGREEMENT, AND ALL MATTERS RELATING HERETO OR ARISING THEREFROM (WHETHER
SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE) SHALL BE GOVERNED BY, AND
SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. EACH GRANTOR HEREBY CONSENTS
TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN NEW YORK COUNTY,
STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S ELECTION,
ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
LITIGATED IN SUCH COURTS. EACH GRANTOR EXPRESSLY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS. EACH GRANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON SUCH GRANTOR BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH
GRANTOR IN ACCORDANCE WITH THE PROVISIONS OF SECTION 6 HEREOF AND SERVICE SO
MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN
POSTED.
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SECTION
10. WAIVER
OF JURY TRIAL.
EACH
OF EACH GRANTOR AND AGENT HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.
SECTION
11. Counterparts;
Integration.
This
Agreement may be signed in any number of counterparts, each of which shall
be an
original, with the same effect as if the signatures thereto and hereto were
upon
the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersede any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.
SECTION
12. Headings.
Headings
and captions used in this Agreement are included for convenience of reference
and shall not be given any substantive effect.
[Signature
page follows]
Witness
the due execution hereof by the respective duly authorized officers of the
undersigned as of the date first written above.
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APPCO-KY,
as a Grantor
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| By | /s/ | |
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Its
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GREYSTONE BUSINESS CREDIT II, L.L.C.,
as Agent
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| By | /s/ | |
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Its
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Schedule
2
Commercial
Tort Claims
Schedule
3.3
Pursuant
to Section 3.3, the following information is disclosed:
|
Legal
Name and
Identification
No.
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Chief
Executive Office/Location of Books and Records*
|
Other
Place(s) of Business*
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Jurisdiction
of Organization
|
Location
of Equipment and Goods
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Location
of Leased Facilities
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Other
Collateral Locations*
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Appco-KY,
Inc.
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*
For
each such location, designate whether it is owned or leased, and if leased,
the
name of the lessor.
Schedule
3.4
Liens
