SECURITY AGREEMENT
Exhibit 10.5
This SECURITY AGREEMENT (this “Agreement”), dated as of January 1, 2009, is entered
into by and between RENEGY HOLDINGS, INC., a Delaware corporation (“Debtor”), and AZ
BIOMASS LLC, a Delaware limited liability company (“Secured Party”). Debtor and Secured
Party may be referred to herein individually as a “Party,” and collectively as the
“Parties.”
Recitals
A. The Parties have entered into that certain Membership Interest Purchase Agreement, dated as
of the date hereof (the “Purchase Agreement”), pursuant to which Secured Party purchased
from Debtor the all of the authorized Class A Membership Interests of Snowflake White Mountain
Power, LLC, an Arizona limited liability company (“SWMP”).
B. Pursuant to the Purchase Agreement, Secured Party has transferred the amount of $12,300,000
(the “Purchase Amount”) to that certain deposit account (the “Deposit Account”),
entitled “Renegy Holdings, Inc.,” account number 103690226750, maintained by Debtor with US Bank
National Association as the depository bank (the “Depository Bank”). In connection with
such transfer, the Parties and the Depository Bank have entered into that certain Blocked Account
Control Agreement, dated as of the date hereof (the “Deposit Account Control Agreement”).
Secured Party has agreed to instruct the Depository Bank to allow Debtor to withdraw the funds
contained in the Deposit Account in accordance with Section 2.02 of the Purchase Agreement subject
to Debtor’s contingent obligations to refund to Secured Party the Purchase Amount, or portions
thereof, pursuant to Section 2.02 and Section 12.03 of the Purchase Agreement.
C. In order to induce Secured Party to transfer the full amount of the Purchase Amount to the
Deposit Account as of the date hereof and as security for Debtor’s contingent obligations to refund
to Secured Party the Purchase Amount, or portions thereof, pursuant to Section 2.02 and Section
12.03 of the Purchase Agreement, Debtor has agreed to grant Secured Party a security interest in
all of its right, title and interest in, to and under the Collateral (defined below).
D. Debtor has determined that it is in its best interests to execute this Agreement inasmuch
as Debtor will derive substantial direct and indirect benefits from (i) the transfer of the full
amount of the Purchase Amount to the Deposit Account as of the date hereof and (ii) the release of
portions thereof in accordance with Section 2.02 of the Purchase Agreement, and Debtor understands
and agrees that Secured Party has relied on this representation in connection with entering into
the Purchase Agreement and transferring the Purchase Amount to the Deposit Account as of the date
hereof.
Agreement
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and
other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged,
the parties hereto covenant and agree as follows:
1. Definitions. Any term used or defined in the Code (as defined below) that is not
defined in this Agreement has the meaning given to that term in the Code, as in effect from time to
time, when used in this Agreement. Other capitalized terms used but not defined herein have the
respective meanings assigned to them in the Purchase Agreement. As used herein the terms “Debtor,”
“Secured Party,” “Party,” “Parties,” “Purchase Agreement,” “Deposit Account,” “Depository Bank,”
and “Deposit Account Control Agreement” shall have the meanings specified above, and the following
terms shall have the following meanings, respectively, unless the context hereof otherwise clearly
requires:
A “Bankruptcy Event” shall be deemed to have occurred with respect to Debtor upon the
occurrence of any of the events set forth under the definition of “Bankruptcy” contained in that
certain Amended and Restated Limited Liability Company Agreement of SWMP dated as of the date
hereof .
“Bankruptcy Law” means Xxxxx 00, Xxxxxx Xxxxxx Code, and any other existing or future
law (or any successor law or statute) of any jurisdiction, domestic (including state and federal)
or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship, moratorium or
similar law for the relief of debtors.
“Code” means the Uniform Commercial Code as in effect in the State of New York from
time to time, or in any jurisdiction the laws of which may be applicable to or in connection with
the creation, perfection or priority of any security interest created or purported to be created
under this Agreement.
“Collateral” means all of Debtor’s right, title and interest in, to and under the
following described property of Debtor: (i) the Deposit Account; (ii) all money, investments,
interest and other funds on deposit in or credited to the Deposit Account; and (iii) all proceeds
of any of the foregoing.
“Event of Default” means any one or more of the following: (i) a Bankruptcy Event
shall have occurred; (ii) Debtor shall have failed to timely pay in full any of the Secured
Obligations on or before the date such payment is due; (iii) this Agreement or the Deposit Account
Control Agreement at any time and for any reason shall cease to create a valid and perfected first
priority security interest in and to the Collateral or ceases to be in full force and effect or is
declared null and void, or the validity or enforceability of this Agreement, the Deposit Account
Control Agreement or the obligations of Debtor under Section 2.02 or Section 12.03 of the Purchase
Agreement is contested by Debtor or Debtor denies it has any further liability for the Secured
Obligations prior to the fulfillment thereof; and (iv) Debtor shall create, incur, assume or permit
to exist any Lien, upon or with respect to any Collateral, other than the Liens created pursuant to
this Agreement.
-2-
“Person” means any natural person, corporation, limited liability company, general
partnership, limited partnership, proprietorship, other business organization, trust, union,
association or governmental or regulatory authority.
“Secured Obligations” means collectively, the full, prompt and complete payment to
Secured Party of (i) all funds in the Deposit Account upon notice of Secured Party’s decision to
exercise its right to rescind the Purchase Agreement following a Rescission Event (as defined under
and in accordance with the provisions of Section 12.03 of the Purchase Agreement) and (ii) funds in
an amount equal to the Holdback Amount upon a the occurrence of a Holdback Return Event (as defined
under and in accordance with the provisions of Section 2.02 of the Purchase Agreement).
2. Grant of Security Interest. As security for the due and punctual payment and
performance of the Secured Obligations in full, Debtor hereby agrees that Secured Party shall have,
and Debtor hereby grants to and creates in favor of Secured Party, a continuing first priority Lien
on and security interest in and to the Collateral. The intent of the parties hereto is that the
Collateral secures all Secured Obligations of the Debtor, whether or not such Secured Obligations
exist under this Agreement or the Purchase Agreement; provided, however, that if Debtor is
permitted to withdraw funds from the Deposit Account pursuant to the Deposit Account Control
Agreement and Debtor withdraws such funds in compliance with the terms of the Deposit Account
Control Agreement, Secured Party’s security interest shall automatically terminate as to such
properly withdrawn funds.
3. Representations and Warranties. Debtor represents and warrants to Secured Party
that on the date hereof:
(a) Debtor is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Debtor has full power and authority to execute and deliver this
Agreement and the Deposit Account Control Agreement and to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby including to own,
hold, sell, transfer and grant a security interest in the Collateral.
(b) The execution and delivery by Debtor of this Agreement and the Deposit Account Control
Agreement, and the performance by Debtor of its obligations hereunder and thereunder have been duly
and validly authorized by all appropriate action in accordance with the organizational and
governing documents of Debtor and applicable Law. This Agreement and the Deposit Account Control
Agreement have been duly and validly executed and delivered by Debtor and, assuming valid execution
and delivery by Secured Party and, solely with respect to the Deposit Account Control Agreement,
the Depository Bank, constitute the legal, valid and binding obligations of Debtor enforceable
against Debtor in accordance with their terms.
(c) The execution and delivery by Debtor of this Agreement and the Deposit Account Control
Agreement and the performance by Debtor of its obligations under this Agreement and the Deposit
Account Control Agreement and the consummation of the transactions contemplated hereby and thereby
will not:
-3-
(i) conflict with or result in a violation or breach of any of the terms, conditions or
provisions of the organizational documents of Debtor;
(ii) conflict with or result in a violation or breach of any term or provision of any Law or
Order applicable to Debtor; or
(iii) conflict with or result in a violation or breach of, constitute (with or without notice
or lapse of time or both) a default under, require Debtor to obtain any consent, approval or action
of, make any filing with or give any notice to any Person as a result or under the terms of, result
in or give to any Person any right of termination, cancellation, acceleration or modification in or
with respect to, or result in the creation or imposition of any Lien (other than liens created
under this Agreement and the Deposit Account Control Agreement) upon Debtor or any of its Assets
and Properties under any Material Contract or Permit to which Debtor is a party or by which any of
its Assets and Properties is bound.
(d) Collateral Ownership. After deposit by Secured Party of the Purchase Amount into
the Deposit Account Debtor shall be the sole legal and beneficial owner of the Collateral, and
Debtor has, and at all times during the term of this Agreement will have, good and marketable title
to the Collateral, free and clear of all pledges, Liens, claims, or encumbrances, and will have at
all times full right, power and authority to grant a security interest in the Collateral to Secured
Party in the manner provided herein, free and clear of any lien, security interest, adverse claims
or other charges or encumbrances, subject in all respects to the rights of Secured Party under this
Agreement and the Deposit Account Control Agreement.
(e) Security Interest Perfection. Debtor has taken all actions necessary or desirable
to establish Secured Party’s “control” (pursuant to and within the meaning of Section 9-104(a)(2)
of the Code) over the Deposit Account. Upon the execution and delivery of this Agreement and the
Deposit Account Control Agreement, Secured Party’s security interest in the Collateral conferred
hereby will be a valid, perfected, first priority security interest.
(f) Assignment Restrictions. There are no restrictions upon the ability of Debtor to
grant a security interest in any of the Collateral.
(g) Governmental Approvals. No consent, approval, authorization or order of, and no
notice to or filing with any court, governmental authority or third party is required in connection
with, the grant by Debtor of the security interest herein.
(h) Debtor Information. Debtor’s exact name and chief executive office and principal
place of business are as follows: Renegy Holdings, Inc., 0000 Xxxxx Xxx Xxxxx Xxxxx, Xxxx, Xxxxxxx
00000.
4. Further Assurances. Debtor will faithfully preserve, protect and defend Secured
Party’s security interest in the Collateral as a prior perfected security interest under the Code,
superior and prior to the rights of all third Persons, and will do all such other acts and things
upon reasonable request therefor by Secured Party. Debtor will execute, deliver, file and record,
and Debtor hereby authorizes Secured Party to so file, all such other documents and instruments,
including, without limitation, financing statements, security agreements, assignments and
-4-
documents and powers of attorney with respect to the Collateral, and pay all fees and taxes
related thereto (other than Secured Party’s attorneys’ fees), as Secured Party in its reasonable
discretion may deem necessary or advisable from time to time in order to attach, continue,
preserve, perfect, and protect said security interest, and Debtor hereby irrevocably appoints
Secured Party, its officers, employees and agents, or any of them, as attorneys-in-fact for Debtor
to execute, deliver, file and record such items for Debtor and in Debtor’s name, place and stead.
This power of attorney, being coupled with an interest, shall be irrevocable for the term of this
Agreement. At Secured Party’s request, Debtor shall take or cause to be taken all actions
reasonably necessary or desirable to perfect the security interest granted hereunder by “control,”
in accordance with the provisions of Section 9-104 of the Code. Without limiting the foregoing, at
any time and from time to time, upon the written request of Secured Party, and at the sole expense
of Debtor, the Debtor shall promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as Secured Party may reasonably deem
desirable to obtain the full benefits of this Agreement and of the rights and powers herein
granted.
5. Covenants. Debtor covenants and agrees as follows:
(a) Debtor shall furnish to Secured Party any information that Secured Party from time to time
reasonably requests concerning any covenant, provision or representation contained herein or any
other matter in connection with the Collateral.
(b) So long as any of the Secured Obligations remain unsatisfied, Debtor shall, at its own
expense, appear and defend any action, suit or proceeding that purports to affect its title to, or
right or interest in, the Collateral or the security interest of Secured Party therein. Debtor
shall give prompt written notice to Secured Party (and in any event not later than 15 days prior to
any change described below in this clause (b) of (i) any change in the location of Debtor’s chief
executive office or principal place of business; (ii) any change in Debtor’s name; (iii) any change
in Debtor’s identity or structure in any manner that might make any financing statement filed in
connection with any of the Collateral incorrect or misleading; (iv) any change in Debtor’s
jurisdiction of organization; or (v) any change in Debtor’s registration as an organization.
During the term of this Agreement, Debtor shall not exchange, sell, convey, transfer, assign or
otherwise dispose of any of the Collateral or any right, title or interest therein. Debtor shall
not create, incur or permit to exist any Liens upon or with respect to any of the Collateral other
than the security interest in the Collateral created by this Agreement.
6. Obligations as to Collateral. The powers conferred on Secured Party hereunder are
solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, Secured Party shall have no duty as to the Collateral or
as to the taking of any necessary steps to preserve rights against prior parties or any other
rights pertaining to the Collateral. Secured Party shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if Secured Party takes
such action for that purpose substantially similar to actions Secured Party takes with respect to
its own property.
-5-
7. Appointment of Attorney-in-Fact. Debtor hereby irrevocably appoints Secured Party
(together with its officers, employees and agents) as Debtor’s true and lawful attorney-in-fact,
with full authority in the place and stead of Debtor and in the name of Debtor or otherwise, from
time to time, upon the occurrence and during the continuance of an Event of Default, to take action
and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to:
(a) ask for, demand, collect, xxx for, recover, compromise, receive and give acquittance and
receipts for money due and to become due under or in respect of any of the Collateral;
(b) receive, indorse and collect any drafts or other instruments or documents, in connection
with clause (a) above;
(c) file any claims or take any action or institute any proceedings that Secured Party may
deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the
rights of Secured Party with respect to any of the Collateral; and
(d) (i) prepare, file and sign Debtor’s name on any proof of claim in any bankruptcy or
similar proceeding or similar document against any account debtor, (ii) do all acts and things
necessary, in Secured Party’s sole discretion, to fulfill Debtor’s obligations to Secured Party
under this Agreement, the Purchase Agreement or otherwise, (iii) demand, xxx for, collect,
compromise and give acquittances for any and all Collateral, (iv) prosecute, defend or compromise
any action, claim or proceeding with respect to any of the Collateral, and (v) take such other
action as Secured Party may deem appropriate, including extending or modifying the terms of payment
of Debtor’s debtors.
This power of attorney, being coupled with an interest, shall be irrevocable for the life of this
Agreement.
8. Remedies. After there exists any Event of Default, and for so long as such Event
of Default is continuing:
(a) Secured Party shall have and may exercise all the rights and remedies available to Secured
Party under the Code in effect at the time, and such other rights and remedies as may be provided
by law and as set forth below, including without limitation to take over and collect all of the
Collateral, and to exercise any and all rights provided for under Section 7. Debtor hereby
waives all claims of damages due to or arising from or connected with any of the rights or remedies
exercised by Secured Party pursuant to this Agreement.
(b) In addition to, and without limitation of, any rights of Secured Party under this
Agreement, the Purchase Agreement and applicable law, if any Event of Default occurs, any and all
funds in the Deposit Account may, without prior notice to Debtor, be offset and applied toward the
payment of the Secured Obligations owing to Secured Party, whether or not the Secured Obligations,
or any part thereof, shall then be due. This right of setoff may be enforced or exercised by
Secured Party regardless of whether or not Secured Party has made any demand under this Section
8 or whether the Secured Obligations are contingent, matured, or
unmatured.
-6-
Any delay, neglect or conduct by Secured Party in exercising its rights under this
Section 8 will not be a waiver of the right to exercise this right of setoff. It is
understood that nothing in this Section 8(b) shall be construed to limit Secured Party’s
right to cause Debtor to remit any amounts in the Deposit Account to Secured Party.
9. Absolute Rights and Obligations and Shortfall. All rights of Secured Party and all
obligations of Debtor under this Agreement shall be absolute and unconditional, irrespective of (i)
any lack of validity or enforceability of the Purchase Agreement; (ii) any exchange, release or
nonperfection of any portion of the Collateral; (iii) any change in the time, manner or place of
payment of, or other term of, or any portion of Debtor’s or any other obligor’s obligations under
the Purchase Agreement; or (iv) any other amendment, modification, extension or waiver of, or
consent to any departure from, the Purchase Agreement. In the event that the proceeds of any sale,
collection or realization of or upon the Collateral by or on behalf of Secured Party are
insufficient to pay all amounts to which Secured Party is legally entitled under the Purchase
Agreement, Debtor shall remain liable to Secured Party for and shall pay to Secured Party any
deficiency, together with interest thereon at the rate provided in the Purchase Agreement or, if no
interest is so provided, at such other rate as shall be fixed by applicable law, together with the
reasonable costs of collection and the fees and expenses of any attorneys employed by Secured Party
to collect such deficiency, which may remain after such sale, collection or realization. This
Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any
payment of any of the Secured Obligations is rescinded or must otherwise be returned by Secured
Party or by any other Person upon the insolvency, bankruptcy or reorganization of Debtor, any
Subsidiary of Debtor or any other Person, or any other similar action or proceeding or otherwise,
all as though such payment had not been made.
10. Failure or Delay to Exercise Rights. No failure or delay on the part of Secured
Party in exercising any right, remedy, power or privilege hereunder shall operate as a waiver
thereof or of any other right, remedy, power or privilege of Secured Party hereunder; nor shall any
single or partial exercise of any such right, remedy, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or privilege. No waiver
of a single Event of Default shall be deemed a waiver of a subsequent Event of Default. The rights
and remedies of Secured Party under this Agreement are cumulative and in addition to any rights or
remedies which it may otherwise have, and Secured Party may enforce any one or more remedies
hereunder successively or concurrently at its option.
11. Costs and Expenses. Debtor shall pay or reimburse Secured Party within five
Business Days after demand for all reasonable costs and expenses incurred by it in connection with
the administration, enforcement, attempted enforcement or preservation of any rights or remedies
under this Agreement, including reasonable attorneys’ fees; provided , however that for the
avoidance of doubt such cost , expenses and fees shall not include any cost, expenses and fees
incurred in the preparation and negotiation of this Agreement or the Deposit Account Control
Agreement.
12. Amendment. No amendment or waiver of any provision of this Agreement, and no
consent to any departure by Debtor therefrom, shall be effective unless in writing signed by
Secured Party and Debtor, and each such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
-7-
13. Notices. All notices, statements, requests and demands given to or made upon
either party hereto in accordance with the provisions of this Agreement shall be given or made as
provided in the Purchase Agreement.
14. Assignment. This Agreement shall be binding upon and inure to the benefit of
Secured Party and Debtor and their respective successors and assigns, except that Debtor may not
assign or transfer its obligations hereunder or any interest herein without the prior written
consent of Secured Party.
15. Choice of Law, Venue, Jury Trial.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS (OTHER THAN NEW YORK GENERAL
OBLIGATIONS LAW 5-1401 AND 5-1402).
(b) Each of the Parties hereby irrevocably consents and agrees that any legal action or
proceeding with respect to this Agreement may be brought in any of the courts of the State of New
York and the courts of the United States of America for the Southern District of New York, and the
appellate courts from any thereof having subject matter jurisdiction and, by execution and delivery
of this Agreement and such other documents executed in connection herewith, each Party hereby (a)
accepts the exclusive jurisdiction of the aforesaid courts (provided that to the extent that such
courts refuse to exercise jurisdiction hereunder for any reason whatsoever, the parties consent
that any legal action or proceeding shall be brought in any U.S. District Court or court of the
State of Arizona located in the Maricopa County, Arizona); (b) irrevocably agrees to be bound by
any final judgment (after any and all appeals) of any such court with respect to such documents;
(c) irrevocably waives, to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceedings with respect to such
documents brought in any such court, and further irrevocably waives, to the fullest extent
permitted by law, any claim that any such suit, action or proceedings brought in any such court has
been brought in any inconvenient forum; (d) agrees that service of process in any such action may
be effected by mailing a copy thereof by registered or certified mail (or any substantially similar
form of mail), postage prepaid, to such Party at its address set forth below, or at such other
address of which the other Parties shall have been notified; and (e) agrees that nothing herein
shall affect the right to effect service of process in any other manner permitted by law.
(c) EACH OF THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS
AGREEMENT.
-8-
16. Indemnification. Debtor agrees to defend, indemnify and hold Secured Party
harmless from and against any and all any and all liabilities or obligations of Secured Party to
Depository Bank under Section 6 of the Deposit Account Control Agreement if such liabilities or
obligations arise as a result of Secured Party’s delivery of instructions to Depository Bank: (i)
after the occurrence, and during the continuance, of an Event of Default or (ii) directing
Depository Bank to transfer funds to Debtor.
17. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
18. Counterparts. This Agreement may be executed in any number of counterparts, and
by different parties hereto in separate counterparts, each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute one and the same instrument. Debtor
acknowledges and agrees that a facsimile transmission to Secured Party of the signature pages
hereof purporting to be signed on behalf of Debtor shall constitute effective and binding execution
and delivery hereof by Debtor.
-9-
IN WITNESS WHEREOF, the parties hereto, by their representatives thereunto duly authorized,
have executed and delivered this Agreement as of the day and year first above set forth.
| DEBTOR: |
||||
| RENEGY HOLDINGS, INC., a Delaware corporation |
||||
| By: | /s/ Xxxxxx X. Xxxxxxx | |||
| Name: | Xxxxxx X. Xxxxxxx | |||
| Title: | Chief Executive Officer | |||
| SECURED PARTY: AZ BIOMASS LLC, a Delaware limited liability company |
||||
| By: | Antrim Corporation | |||
| Its: Manager | ||||
| By: | /s/ Xxxxxxxx X. Xxxxx | |||
| Name: | Xxxxxxxx X Xxxxx | |||
| Title: | Vice President | |||
[Execution Page of Security Agreement]
