SECURITY AGREEMENT
THIS
SECURITY AGREEMENT
(the
“Agreement”), is
entered into and made effective as of September____, 2008, by and between
Vortex
Resource Corp. (the
“Company”),
and
Trafalgar
Capital Specialized Investment Fund, Luxembourg
(the “Secured
Party”).
WHEREAS,
the
Company shall issue and sell to the Secured Party, as provided in the Securities
Purchase Agreement dated the date hereof between
the Company and the Secured Party (the “Securities Purchase
Agreement”),
and the
Secured Party shall purchase up to Two Million Seven Hundred Fifty Thousand
Dollars ($2,750,000) of secured promissory notes (the “Notes”),
which
shall be convertible into shares of the Company’s common stock, par value $.001
(the “Common
Stock”)
(as
converted, the “Conversion
Shares”),
for a
total purchase price of Two Million Seven Hundred Fifty Thousand
Dollars ($2,750,000);
WHEREAS,
to
induce
the Secured Party to enter into the transaction contemplated by the Securities
Purchase Agreement, the Notes, the Pledge Agreement, and the Escrow
Agreement,
each as
defined in the Securities Purchase
Agreement (collectively referred to as the “Transaction
Documents”),
the
Company hereby grants to the Secured Party a security interest in and to the
pledged collateral identified on Attachment
1
hereto
until the satisfaction of the Obligations, as defined herein below.
NOW,
THEREFORE, in
consideration of the premises and the mutual covenants herein contained, and
for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE
1.
DEFINITIONS
AND INTERPRETATIONS
Section
1.1. Recitals.
The
above
recitals are true and correct and are incorporated herein, in their entirety,
by
this reference.
Section
1.2. Interpretations.
Nothing
herein expressed or implied is intended or shall be construed to confer upon
any
person other than the Secured Party any right, remedy or claim under or by
reason hereof.
Section
1.3. Obligations
Secured.
The
obligations secured hereby are any and all obligations of the Company now
existing or hereinafter incurred to the Secured Party, whether oral or written
and whether arising before, on or after the date hereof including, without
limitation, those obligations of the Company to the Secured Party under the
Securities Purchase Agreement, the Notes, and Irrevocable Transfer Agent
Instructions and any other amounts now or hereafter owed to the Secured Party
by
the Company thereunder or hereunder (collectively, the “Obligations”).
ARTICLE
2.
PLEDGED
COLLATERAL, ADMINISTRATION OF COLLATERAL
AND
TERMINATION OF SECURITY INTEREST
Section
2.1. Grant
of Security Interest.
1. As
security for the Obligations, Company hereby pledges to Secured Party and grants
to Secured Party a security interest in all right, title and interests of
Company and its subsidiaries in and to the property described in Attachment
1
hereto, whether now existing or hereafter from time to time acquired
(collectively, the “Pledged
Collateral.”).
(a) Simultaneously
with the execution and delivery of this Agreement, the Company shall make,
execute, acknowledge, file, record and deliver to the Secured Party any
documents reasonably requested by the Secured Party to perfect its security
interest in the Pledged Collateral. Simultaneously with the execution and
delivery of this Agreement, the Company shall make, execute, acknowledge and
deliver to the Secured Party such documents and instruments, including, without
limitation, financing statements, certificates, affidavits and forms as may,
in
the Secured Party’s reasonable judgment, be necessary to effectuate, complete or
perfect, or to continue and preserve, the security interest of the Secured
Party
in the Pledged Collateral, and the Secured Party shall hold such documents
and
instruments as secured party, subject to the terms and conditions contained
herein.
Section
2.2. Rights;
Interests; Etc.
(a) So
long
as no Event of Default (as hereinafter defined) shall have occurred and be
continuing:
(i) the
Company and its subsidiaries shall be entitled to exercise any and all rights
pertaining to the Pledged Collateral or any part thereof for any purpose not
inconsistent with the terms hereof; and
(ii) the
Company and its subsidiaries shall be entitled to receive and retain any and
all
payments paid or made in respect of the Pledged Collateral.
(b) Upon
the
occurrence and during the continuance of an Event of Default:
(i) All
rights of the Company and/or its subsidiaries to exercise the rights which
it
would otherwise be entitled to exercise pursuant to
Section 2.2(a)(i) hereof and to receive payments which it would
otherwise be authorized to receive and retain pursuant to
Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have
the
sole right to exercise such rights and to receive and hold as Pledged Collateral
such payments; provided,
however,
that if
the Secured Party shall become entitled and shall elect to exercise its right
to
realize on the Pledged Collateral pursuant to Article 5 hereof, then all
cash sums received by the Secured Party, or held by Company and/or its
subsidiaries for the benefit of the Secured Party and paid over pursuant to
Section 2.2(b)(ii) hereof, shall be applied against any outstanding
Obligations; and
2
(ii) All
interest, dividends, income and other payments and distributions which are
received by the Company and/or its subsidiaries contrary to the provisions
of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of
the Secured Party, shall be segregated from other property of the Company and/or
its subsidiaries and shall be forthwith paid over to the Secured Party; or
(iii) The
Secured Party in its sole discretion shall be authorized to sell
any
or all of the Pledged Collateral at public or private sale in order to recoup
all of the outstanding principal plus accrued interest owed pursuant to the
Notes as described herein
(c) Each
of
the following events shall constitute a default under this Agreement (each
an
“Event
of Default”):
(i) any
default, whether in whole or in part, shall occur in the payment to the Secured
Party of principal, interest or other item comprising the Obligations as and
when due or with respect to any other debt or obligation of the Company to
a
party other than the Secured Party;
(ii) any
default, whether in whole or in part, shall occur in the due observance or
performance of any obligations or other covenants, terms or provisions to be
performed under this Agreement or the Transaction Documents;
(iii) the
Company and/or its subsidiaries shall: (1) make a general assignment for
the benefit of its creditors; (2) apply for or consent to the appointment
of a receiver, trustee, assignee, custodian, sequestrator, liquidator or similar
official for itself or any of its assets and properties; (3) commence a
voluntary case for relief as a debtor under the United States Bankruptcy Code;
(4) file with or otherwise submit to any governmental authority any
petition, answer or other document seeking: (A) reorganization, (B) an
arrangement with creditors or (C) to take advantage of any other present or
future applicable law respecting bankruptcy, reorganization, insolvency,
readjustment of debts, relief of debtors, dissolution or liquidation;
(5) file or otherwise submit any answer or other document admitting or
failing to contest the material allegations of a petition or other document
filed or otherwise submitted against it in any of the proceedings set forth
in
this Section 2.2(c)(ii) under any such applicable law, or (6) be
adjudicated a bankrupt or insolvent by a court of competent jurisdiction; or
(iii)
any
case, proceeding or other action shall be commenced against the Company for
the
purpose of effecting, or an order, judgment or decree shall be entered by any
court of competent jurisdiction approving (in whole or in part) anything
specified in Section 2.2(c)(ii) hereof, or any receiver, trustee,
assignee, custodian, sequestrator, liquidator or other official shall be
appointed with respect to the Company and/or its subsidiaries, or shall be
appointed to take or shall otherwise acquire possession or control of all or
a
substantial part of the assets and properties of the Company and/or its
subsidiaries, and any of the foregoing shall continue unstayed and in effect
for
any period of thirty (30) days.
3
ARTICLE
3.
ATTORNEY-IN-FACT;
PERFORMANCE
Section
3.1. Secured
Party Appointed Attorney-In-Fact.
Upon
the
occurrence of an Event of Default, the Company hereby appoints the Secured
Party
as its attorney-in-fact, with full authority in the place and stead of the
Company and in the name of the Company or otherwise, from time to time in the
Secured Party’s discretion to take any action and to execute any instrument
which the Secured Party may reasonably deem necessary to accomplish the purposes
of this Agreement, including, without limitation, to receive and collect all
instruments made payable to the Company representing any payments in respect
of
the Pledged Collateral or any part thereof and to give full discharge for the
same. The Secured Party may demand, collect, receipt for, settle, compromise,
adjust, xxx for, foreclose, or realize on the Pledged Collateral as and when
the
Secured Party may determine. To facilitate collection, the Secured Party may
notify account debtors and obligors on any Pledged Collateral or Pledged
Collateral to make payments directly to the Secured Party.
Section
3.2. Secured
Party May Perform.
If
the
Company fails to perform any agreement contained herein, the Secured Party,
at
its option, may itself perform, or cause performance of, such agreement, and
the
expenses of the Secured Party incurred in connection therewith shall be included
in the Obligations secured hereby and payable by the Company under
Section 8.3.
ARTICLE
4.
REPRESENTATIONS
AND WARRANTIES
Section
4.1. Authorization;
Enforceability.
Each
of
the parties hereto represents and warrants that it has taken all action
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby; and upon execution and delivery,
this
Agreement shall constitute a valid and binding obligation of the respective
party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors’ rights or by the principles governing the
availability of equitable remedies.
Section
4.2. Ownership
of Pledged Collateral.
The
Company warrants and represents that it is the legal and beneficial owner of
the
Pledged Collateral free and clear of any lien, security interest, option or
other charge or encumbrance except for the security interest created by this
Agreement.
4
ARTICLE
5.
DEFAULT;
REMEDIES; SUBSTITUTE COLLATERAL
Section
5.1. Default
and Remedies.
(a) If
an
Event of Default described in Section 2.2(c)(i) or (ii) occurs,
then in each such case the Secured Party may declare the Obligations to be
due
and payable immediately, by a notice in writing to the Company, and upon any
such declaration, the Obligations shall become immediately due and payable.
If
an Event of Default described in Sections 2.2(c)(iii) or
(iv) occurs and is continuing for the period set forth therein, then the
Obligations shall automatically become immediately due and payable without
declaration or other act on the part of the Secured Party.
(b) Upon
the
occurrence of an Event of Default, the Secured Party shall: (i) be entitled
to receive all distributions with respect to the Pledged Collateral,
(ii) to cause the Pledged Collateral to be transferred into the name of the
Secured Party or its nominee, (iii) to dispose of the Pledged Collateral,
and (iv) to realize upon any and all rights in the Pledged Collateral then
held by the Secured Party.
Section
5.2. Method
of Realizing Upon the Pledged Collateral: Other Remedies.
Upon
the
occurrence of an Event of Default, in addition to any rights and remedies
available at law or in equity, the following provisions shall govern the Secured
Party’s right to realize upon the Pledged Collateral:
(a) Any
item
of the Pledged Collateral may be sold for cash or other value in any number
of
lots at brokers board, public auction or private sale and may be sold without
demand, advertisement or notice (except that the Secured Party shall give the
Company ten (10) days’ prior written notice of the time and place or
of the time after which a private sale may be made (the “Sale
Notice”)),
which notice period shall in any event is hereby agreed to be commercially
reasonable. At any sale or sales of the Pledged Collateral, the Company may
bid
for and purchase the whole or any part of the Pledged Collateral and, upon
compliance with the terms of such sale, may hold, exploit and dispose of the
same without further accountability to the Secured Party. The Company will
execute and deliver, or cause to be executed and delivered, such instruments,
documents, assignments, waivers, certificates, and affidavits and supply or
cause to be supplied such further information and take such further action
as
the Secured Party reasonably shall require in connection with any such
sale.
(b) Any
cash
being held by the Secured Party as Pledged Collateral and all cash proceeds
received by the Secured Party in respect of, sale of, collection from, or other
realization upon all or any part of the Pledged Collateral shall be applied
as
follows:
(i) to
the
payment of all amounts due the Secured Party for the expenses reimbursable
to it
hereunder or owed to it pursuant to Section 8.3 hereof;
(ii) to
the
payment of the Obligations then due and unpaid.
5
(iii) the
balance, if any, to the person or persons entitled thereto, including, without
limitation, the Company.
(c) In
addition to all of the rights and remedies which the Secured Party may have
pursuant to this Agreement, the Secured Party shall have all of the rights
and
remedies provided by law, including, without limitation, those under the Uniform
Commercial Code.
(i) If
the
Company fails to pay such amounts due upon the occurrence of an Event of Default
which is continuing, then the Secured Party may institute a judicial proceeding
for the collection of the sums so due and unpaid, may prosecute such proceeding
to judgment or final decree and may enforce the same against the Company and
collect the monies adjudged or decreed to be payable in the manner provided
by
law out of the property of Company, wherever situated.
(ii) The
Company agrees that it shall be liable for any reasonable fees, expenses and
costs incurred by the Secured Party in connection with enforcement, collection
and preservation of the Transaction Documents, including, without limitation,
reasonable legal fees and expenses, and such amounts shall be deemed included
as
Obligations secured hereby and payable as set forth in Section 8.3
hereof.
Section
5.3. Proofs
of Claim.
In
case
of the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relating to the Company or the property of the Company or of such
other obligor or its creditors, the Secured Party (irrespective of whether
the
Obligations shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Secured Party shall have made
any
demand on the Company for the payment of the Obligations), subject to the rights
of Previous Security Holders, shall be entitled and empowered, by intervention
in such proceeding or otherwise:
(i) to
file
and prove a claim for the whole amount of the Obligations and to file such
other
papers or documents as may be necessary or advisable in order to have the claims
of the Secured Party (including any claim for the reasonable legal fees and
expenses and other expenses paid or incurred by the Secured Party permitted
hereunder and of the Secured Party allowed in such judicial proceeding),
and
(ii) to
collect and receive any monies or other property payable or deliverable on
any
such claims and to distribute the same; and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by the Secured Party to make such payments
to
the Secured Party and, in the event that the Secured Party shall consent to
the
making of such payments directed to the Secured Party, to pay to the Secured
Party any amounts for expenses due it hereunder.
Section
5.4. Duties
Regarding Pledged Collateral.
The
Secured Party shall have no duty as to the collection or protection of the
Pledged Collateral or any income thereon or as to the preservation of any rights
pertaining thereto, beyond the safe custody and reasonable care of any of the
Pledged Collateral actually in the Secured Party’s possession.
6
ARTICLE
6.
AFFIRMATIVE
COVENANTS
The
Company covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4
hereof):
Section
6.1. Existence,
Properties, Etc.
(a) The
Company shall do, or cause to be done, all things, or proceed with due diligence
with any actions or courses of action, that may be reasonably necessary
(i) to maintain Company’s due organization, valid existence and good
standing under the laws of its state of incorporation, and (ii) to preserve
and keep in full force and effect all qualifications, licenses and registrations
in those jurisdictions in which the failure to do so could have a Material
Adverse Effect (as defined below); and (b) the Company shall not do, or
cause to be done, any act impairing the Company’s corporate power or authority
(i) to carry on the Company’s business as now conducted, and (ii) to
execute or deliver this Agreement or any other document delivered in connection
herewith, including, without limitation, any UCC-1 Financing Statements required
by the Secured Party to which it is or will be a party, or perform any of
its obligations hereunder or thereunder. For purpose of this Agreement, the
term
“Material
Adverse Effect”
shall
mean any material and adverse affect as determined by Secured Party in its
sole
discretion, whether individually or in the aggregate, upon (a) the
Company’s assets, business, operations, properties or condition, financial or
otherwise or results of operations of the Company, taken as a whole, excluding
any change, event, circumstance or effect that is caused by changes in general
economic conditions or changes generally affecting the industry in which the
Company operates (provided that such changes do not affect the Company in a
materially disproportionate manner); or (b) the Company’s ability to make
payment as and when due of all or any part of the Obligations; or (c) the
Pledged Collateral.
Section
6.2. Financial
Statements and Reports.
The
Company shall furnish to the Secured Party such financial data as the Secured
Party may reasonably request. Without limiting the foregoing, the Company shall
furnish to the Secured Party (or cause to be furnished to the Secured Party)
the
following:
(a) as
soon
as practicable and in any event within ninety (90) days after the end of each
fiscal year of the Company, the balance sheet of the Company as of the close
of
such fiscal year, the statement of earnings and retained earnings of the Company
as of the close of such fiscal year, and statement of cash flows for the Company
for such fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles consistently applied, certified by
the
chief executive and chief financial officers of the Company as being true and
correct and accompanied by a certificate of the chief executive and chief
financial officers of the Company, stating that the Company has kept, observed,
performed and fulfilled each covenant, term and condition of this Agreement
during such fiscal year and that no Event of Default hereunder has occurred
and
is continuing, or if an Event of Default has occurred and is continuing,
specifying the nature of same, the period of existence of same and the action
the Company proposes to take in connection therewith;
7
(b) within
thirty (30) days of the end of each calendar month, a balance sheet of the
Company as of the close of such month, and statement of earnings and retained
earnings of the Company as of the close of such month, all in reasonable detail,
and prepared substantially in accordance with generally accepted accounting
principles consistently applied, certified by the chief executive and chief
financial officers of the Company as being true and correct; and
(c) promptly
upon receipt thereof, copies of all accountants' reports and accompanying
financial reports submitted to the Company by independent accountants in
connection with each annual examination of the Company.
Section
6.3 Accounts
and Reports.
The
Company shall maintain a standard system of accounting in accordance with
generally accepted accounting principles consistently applied and provide,
at
its sole expense, to the Secured Party the following:
(a) as
soon
as available, a copy of any notice or other communication alleging any
nonpayment or other material breach or default, or any foreclosure or other
action respecting any material portion of its assets and properties, received
respecting any of the indebtedness of the Company in excess of $25,000 (other
than the Obligations), or any demand or other request for payment under any
guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting the indebtedness or obligations of others in excess of $25,000,
including any received from any person acting on behalf of the Secured Party
or
beneficiary thereof, except for supplier requests in the normal course of
business for payment of past due accounts payable invoices so long as such
past
due amounts do not exceed in the aggregate $50,000 at any time; and
(b) within
fifteen (15) days after the making of each submission or filing, a copy of
any report, financial statement, notice or other document, whether periodic
or
otherwise, submitted to the shareholders of the Company, or submitted to or
filed by the Company with any governmental authority involving or affecting
(i)
the Company that could have a Material Adverse Effect; (ii) the
Obligations; (iii) any part of the Pledged Collateral; or (iv) any of
the transactions contemplated in this Agreement or the Transaction
Documents.
Section6.4. Maintenance
of Books and Records; Inspection.
The
Company shall maintain its books, accounts and records in accordance with
generally accepted accounting principles consistently applied, and permit the
Secured Party, its officers and employees and any professionals designated
by
the Secured Party in writing, during business hours and upon reasonable notice
to visit and inspect any of its properties (including but not limited to the
Pledged Collateral), corporate books and financial records, and to discuss
its
accounts, affairs and finances with any employee, officer or director
thereof.
8
Section
6.5. Maintenance
and Insurance.
(c) The
Company shall maintain or cause to be maintained, at its own expense, all of
its
assets and properties in good working order and condition, making all necessary
repairs thereto and renewals and replacements thereof.
(d) The
Company shall maintain or cause to be maintained, at its own expense, insurance
in form, substance and amounts (including deductibles), which the Company deems
reasonably necessary to the Company’s business, (i) adequate to insure all
assets and properties of the Company, which assets and properties are of a
character usually insured by persons engaged in the same or similar business
against loss or damage resulting from fire or other risks included in an
extended coverage policy; (ii) against public liability and other tort
claims that may be incurred by the Company; (iii) as may be required by the
Transaction Documents and/or applicable law and (iv) as may be reasonably
requested by Secured Party, all with adequate, financially sound and reputable
insurers.
Section
6.6. Contracts
and Other Collateral.
The
Company shall perform all of its obligations under or with respect to each
instrument, receivable, contract and other intangible included in the Pledged
Collateral to which the Company is now or hereafter will be party on a timely
basis and in the manner therein required, including, without limitation, this
Agreement.
Section
6.7. Defense
of Collateral, Etc.
The
Company shall defend and enforce its right, title and interest in and to any
part of: (a) the Pledged Collateral; and (b) if not included within
the Pledged Collateral, those assets and properties whose loss could have a
Material Adverse Effect, the Company shall defend the Secured Party’s right,
title and interest in and to each and every part of the Pledged Collateral,
each
against all manner of claims and demands on a timely basis to the full extent
permitted by applicable law.
Section
6.8. Payment
of Debts, Taxes, Etc.
The
Company shall pay, or cause to be paid, all of its indebtedness and other
liabilities and perform, or cause to be performed, all of its obligations in
accordance with the respective terms thereof, and pay and discharge, or cause
to
be paid or discharged, all taxes, assessments and other governmental charges
and
levies imposed upon it, upon any of its assets and properties on or before
the
last day on which the same may be paid without penalty, as well as pay all
other
lawful claims (whether for services, labor, materials, supplies or
otherwise) as and when due
Section
6.9. Taxes
and Assessments; Tax Indemnity.
The
Company shall (a) file all tax returns and appropriate schedules thereto
that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Company, upon its income and profits or
upon
any properties belonging to it, prior to the date on which penalties attach
thereto, and (c) pay all taxes, assessments and governmental charges or
levies that, if unpaid, might become a lien or charge upon any of its
properties; provided,
however,
that
the Company in good faith may contest any such tax, assessment, governmental
charge or levy described in the foregoing clauses (b) and (c) so long as
appropriate reserves are maintained with respect thereto.
9
Section
6.10. Compliance
with Law and Other Agreements.
The
Company shall maintain its business operations and property owned or used in
connection therewith in compliance with (a) all applicable federal, state
and local laws, regulations and ordinances governing such business operations
and the use and ownership of such property, and (b) all agreements,
licenses, franchises, indentures and mortgages to which the Company is a party
or by which the Company or any of its properties is bound. Except as set forth
in its cash flow projections provided to the Secured Party as set forth in
the
Securities Purchase Agreement, without limiting the foregoing, the Company
shall
pay all of its indebtedness promptly in accordance with the terms thereof.
Section
6.11. Notice
of Default.
The
Company shall give written notice to the Secured Party of the occurrence of
any
default or Event of Default under this Agreement, the Transaction Documents
or
the Debenture any other agreement of Company for the payment of money, promptly
upon the occurrence thereof.
Section
6.12. Notice
of Litigation.
The
Company shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Company, or affecting any of
the
assets of the Company, and (b) any dispute, not resolved within fifteen
(15) days of the commencement thereof, between the Company on the one hand
and
any governmental or regulatory body on the other hand, which might reasonably
be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Company.
ARTICLE
7.
NEGATIVE
COVENANTS
The
Company covenants and agrees that, from the date hereof until the Obligations
have been fully paid and satisfied, the Company shall not, unless the Secured
Party shall consent otherwise in writing:
Section
7.1. Indebtedness.
Other
than in the ordinary course of business consistent with past practice, the
Company shall not directly or indirectly permit, create, incur assume, permit
to
exist, increase, renew or extend on or after the date hereof any additional
debt
or permit any subsidiary of the Company to do or allow any of the foregoing
without the Secured Party’s prior written consent beyond that which is set forth
in Schedule 4(j) of the Securities Purchase Agreement. .
10
Section
7.2. Liens
and Encumbrances.
Other
than in the ordinary course of business consistent with past practice, and
except for such assignment, transfer, pledge, mortgage, security interest or
other lien or encumbrance as is outstanding on the date of this Agreement,
the
Company shall not directly or indirectly make, create, incur, assume or permit
to exist any assignment, transfer, pledge, mortgage, security interest or other
lien or encumbrance of any nature in, to or against any part of the Pledged
Collateral or of the Company’s capital stock, or offer or agree to do so, or own
or assign, pledge or in any way transfer or encumber its right to receive any
income or other distribution or proceeds from any part of the Pledged Collateral
or the Company’s capital stock; or enter into any sale-leaseback financing
respecting any part of the Pledged Collateral as lessee, or cause or assist
the
inception or continuation of any of the foregoing.
Section
7.3. Certificate
of Incorporation, By-Laws, Mergers, Consolidations, Acquisitions and
Sales.
Other
than in the ordinary course of business consistent with past practice, without
the prior express written consent of the Secured Party, the Company shall not:
(a) Amend its Certificate of Incorporation or By-Laws; (b) issue
or
sell any Common Stock or Preferred Stock without consideration or for a
consideration per share less
than
the bid price of the Common Stock
determined immediately prior to its issuance, (c) issue or sell any
Preferred Stock, warrant, option, right, contract, call, or other security
or
instrument granting the holder thereof the right to acquire Common Stock without
consideration or for a consideration per share less than such Common Stock’s bid
price value determined immediately prior to its issuance,
(c) be a
party to any merger, consolidation or corporate reorganization,
(d) purchase or otherwise acquire all or substantially all of the assets or
stock of, or any partnership or joint venture interest in, any other person,
firm or entity, (e) enter into any security instrument granting the holder
a security interest in any of the assets of the Company or sell, transfer or
lease all or any substantial part of the assets of the Company, nor
(f) create any subsidiaries nor convey any of its assets to any
subsidiary.
Section
7.4. Management,
Ownership.
The
Company shall not materially change its ownership, executive staff or management
without the prior written consent of the Secured Party. The ownership, executive
staff and management of the Company are material factors in the Secured Party's
willingness to institute and maintain a lending relationship with the
Company.
Section
7.5. Dividends,
Etc.
The
Company shall not declare or pay any dividend of any kind, in cash or in
property, on any class of its capital stock, nor purchase, redeem, retire or
otherwise acquire for value any shares of such stock, nor make any distribution
of any kind in respect thereof, nor make any return of capital to shareholders,
nor make any payments in respect of any pension, profit sharing, retirement,
stock option, stock bonus, incentive compensation or similar plan (except as
required or permitted hereunder), without the prior written consent of the
Secured Party.
11
Section
7.6. Guaranties;
Loans.
Other
than in the ordinary course of business, and except for such guarantees or
liabilities as are outstanding on the date of this Agreement, the Company shall
not guarantee nor be liable in any manner, whether directly or indirectly,
or
become contingently liable after the date of this Agreement in connection with
the obligations or indebtedness of any person or persons, except for (i) the
indebtedness currently secured by the liens identified on the Pledged Collateral
identified on Exhibit A hereto and (ii) the endorsement of negotiable
instruments payable to the Company for deposit or collection in the ordinary
course of business. The Company shall not make any loan, advance or extension
of
credit to any person other than in the normal course of its
business.
Section
7.7. Debt.
Other
than in the ordinary course of business, and except for such indebtedness as
is
outstanding on the date of this Agreement, without the prior written approval
of
Trafalgar, the Company shall not create, incur, assume or suffer to exist any
additional indebtedness of any description whatsoever in an aggregate amount
in
excess of $50,000 (excluding any indebtedness of the Company to the Secured
Party, trade accounts payable and accrued expenses incurred in the ordinary
course of business and the endorsement of negotiable instruments payable to
the
Company, respectively for deposit or collection in the ordinary course of
business).
Section
7.8. Conduct
of Business.
The
Company will continue to engage in the business of the Company in the same
manner as heretofore conducted and only in the ordinary course consistent with
past practice.
Section
7.9. Places
of Business.
The
location of the Company’s chief place of business is at the address set forth in
Section 8.1 hereof. The Company shall not change the location of its chief
place
of business, chief executive office or any place of business disclosed to the
Secured Party or move any of the Pledged Collateral from its current location
(other
than in the ordinary course of business) without
thirty (30) days' prior written notice to the Secured Party in each instance.
ARTICLE
8.
MISCELLANEOUS
Section
8.1. Notices.
All
notices or other communications required or permitted to be given pursuant
to
this Agreement shall be in writing and shall be considered as duly given on:
(a) the date of delivery, if delivered in person, by nationally recognized
overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:
12
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If
to the Company:
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Xxxxx
Xxxxx, CEO
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0000
Xxxxxxxx Xxxx., Xxxxx 000
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Xxxxxxx
Xxxxx, XX 00000
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Facsimile:
000-000-0000
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With
a Copy to:
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Law
Offices of Xxxxxxx X. Xxxxxxx LLC
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000
Xxxxxxx Xxxxxx, 0xx
Xxxxx
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Xxxx
Xxxxxx XX 00000
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Facsimile:
000-000-0000
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And
if to the Secured Party:
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Trafalgar
Capital Specialized
Investment
Fund, Luxembourg
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00000
XX 00xx
Xxxxxx
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Xxxxxxxx,
Xxxxxxx
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Suite
306
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Attention:
Xxx Xxxxx
Portfolio
Manager
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Facsimile:
1-786-323-1651
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Any
party
may change its address by giving notice to the other party stating its new
address. Commencing on the tenth (10th) day
after the giving of such notice, such newly designated address shall be such
party’s address for the purpose of all notices or other communications required
or permitted to be given pursuant to this Agreement.
Section
8.2. Severability.
If
any
provision of this Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision and shall
not
in any manner affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be carried out as if
any
such invalid or unenforceable provision were not contained herein.
Section
8.3. Expenses.
In
the
event of an Event of Default, the Company will pay to the Secured Party the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel, which the Secured Party may incur in connection with:
(i) the custody or preservation of, or the sale, collection from, or other
realization upon, any of the Pledged Collateral; (ii) the exercise or
enforcement of any of the rights of the Secured Party hereunder or
(iii) the failure by the Company to perform or observe any of the
provisions hereof.
13
Section
8.4. Waivers,
Amendments, Etc.
The
Secured Party’s delay or failure at any time or times hereafter to require
strict performance by Company of any undertakings, agreements or covenants
shall
not waiver, affect, or diminish any right of the Secured Party under this
Agreement to demand strict compliance and performance herewith. Any waiver
by
the Secured Party of any Event of Default shall not waive or affect any other
Event of Default, whether such Event of Default is prior or subsequent thereto
and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party,
nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
Section
8.5. Continuing
Security Interest.
This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall: (i) remain in full force and effect until payment in full of the
Obligations; and (ii) be binding upon the Company and its successors and
heirs and (iii) inure to the benefit of the Secured Party and its
successors and assigns. Upon the payment or satisfaction in full of the
Obligations, the Company shall be entitled to the return, at its expense, of
such of the Pledged Collateral as shall not have been sold in accordance with
Section 5.2 hereof or otherwise applied pursuant to the terms
hereof.
Section
8.6. Independent
Representation.
Each
party hereto acknowledges and agrees that it has received or has had the
opportunity to receive independent legal counsel of its own choice and that
it
has been sufficiently apprised of its rights and responsibilities with regard
to
the substance of this Agreement.
Section
8.7. Applicable
Law: Jurisdiction.
This
Agreement shall be governed by and interpreted in accordance with the laws
of
the State of Florida without regard to the principles of conflict of laws.
The
parties further agree that any action between them shall be heard in Florida
and
expressly consent to the jurisdiction and venue of the Florida State Court
sitting in Broward County, Florida and the United States District Court for
the
Southern District of Florida for the adjudication of any civil action asserted
pursuant to this Paragraph.
Section
8.8. Waiver
of Jury Trial.
AS
A
FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO
MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
ANY
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
14
Section
8.9. Entire
Agreement.
This
Agreement constitutes the entire agreement among the parties and supersedes
any
prior agreement or understanding among them with respect to the subject matter
hereof.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
15
IN
WITNESS WHEREOF, the
parties hereto have executed this Security Agreement as of the date first above
written.
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COMPANY:
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By:
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Name:
Xxxxx Xxxxx
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Title:
Chief Executive Officer
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SECURED
PARTY:
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TRAFALGAR
CAPITAL SPECIALIZED
|
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INVESTMENT
FUND, LUXEMBOURG
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By:
Trafalgar
Capital Sarl
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Its:
General
Partner
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By:
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Name:
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Title:
Chairman of the Board
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16
EXHIBIT
A
DEFINITION
OF PLEDGED COLLATERAL
For
the
purpose of securing prompt and complete payment and performance by the Company
of all of the Obligations, the Company unconditionally and irrevocably hereby
grants to the Secured Party a continuing security interest in and to, and lien
upon, the three xxxxx specified below in the Company’s Xxxx Xxxxxxxx gas field
subsidiary.
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1.
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X/0,
X/0, XX/0, XX/0, of Section 000, Xxxxx X, X.X.X. XX Xx. Xxxxxx, Xxxxxxxx
Xxxxxx, Xxxxx.
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2.
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S/2,
W/2, SW/4, SW/4, of Section 000, Xxxxx X, X.X.X. XX Xx. Xxxxxx, Xxxxxxxx
Xxxxxx, Xxxxx.
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3.
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X/0,
X/0, XX/0, XX/0, of Section 000, Xxxxx X, X.X.X. XX Xx. Xxxxxx, Xxxxxxxx
Xxxxxx, Xxxxx.
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A-1
