COMMERCIAL LINE OF CREDIT

Community Bank

N.A.

AGREEMENT AND NOTE

331 West Pulteney Street

Corning, New York 14830

(607)937-5471

LOAN NUMBER

AGREEMENT DATE

LOAN TERM

LINE OF CREDIT LIMIT

C-10-03-088174

March 31, 2010

On Demand

$7,000,000.00

LOAN PURPOSE: Working Capital

 

BORROWER INFORMATION

Coming Natural Gas Corporation

330 William Street, P.

0. Box 58

Corning, NY 14830-0058

 

LINE OF CREDIT AGREEMENT AND NOTE.

This Commercial Line of Credit Agreement and Note will be referred to in this
document as the "Agreement."

LENDER.

"Lender" means Community Bank N.A. whose address is 331 West Pulteney Street,
Coming, New York 14830 , its successors and assigns.

BORROWER.

"Borrower" means each person or legal entity who signs this Agreement.

PROMISE TO PAY.

For value received, receipt of which is hereby acknowledged, the Borrower
promises to pay, on demand by Lender, the principal amount of Seven Million and
00/100 Dollars ($7,000,000.00) or such lesser amount as shall have been advanced
by Lender, from time to time, to or on behalf of Borrower under this Agreement,
and all interest and any other charges, including service charges, to the order
of Lender at its office at the address noted above or at such other place as
Lender may designate in writing. The Borrower will make all payments in lawful
money of the United States of America.

PAYMENT SCHEDULE.

This Agreement will be paid according to the following required payment
schedule: Beginning on May 1, 2010, monthly payments of accrued and unpaid
interest. The unpaid principal balance of this Note, together with all accrued
interest and charges owing in connection therewith, shall be due and payable on
demand. All payments received by the Lender from the Borrower for application to
the Line of Credit may be applied to the Borrower's obligations under the Line
of Credit in such order as determined by the Lender.

INTEREST RATE AND SCHEDULED PAYMENT CHANGES.

The initial variable interest rate on this Agreement will be 4.000% per annum.
This interest rate may change on May 1, 2010, and on the same day of each month
thereafter. Each date on which the interest rate may change is called the
"Change Date." Beginning with the first Change Date, Lender will calculate the
new interest rate based on One Month Libor Rate in effect on the Change Date
(the "Index") plus 2.250 percentage points (the "Margin"). If the Index is not
available at that time, Lender will choose a new Index which is based on
comparable information. The Index is used solely to establish a base from which
the actual rate of interest payable under this Agreement will be calculated, and
is not a reference to any actual rate of interest charged by any lender to any
particular borrower. The interest rate will never be less than 4.000%.

Nothing contained herein shall be construed as to require the Borrower to pay
interest at a greater rate than the maximum allowed by law. If, however, from
any circumstances, Borrower pays interest at a greater rate than the maximum
allowed by law, the obligation to be fulfilled will be reduced to an amount
computed at the highest rate of interest permissible under applicable law and
if, for any reason whatsoever, Lender ever receives interest in an amount which
would be deemed unlawful under applicable law, such interest shall be
automatically applied to amounts owed, in Lender's sole discretion, or as
otherwise allowed by applicable law. An increase in the interest rates will
result in a higher payment amount. Interest on this Agreement is calculated on a
365/360 day basis. The unpaid balance of this loan shall, after an Event of
Default exists under this Agreement or any other agreement related to the loan,
be subject to a Default Rate of interest equal to 2.000 percentage points over
the applicable variable interest rate in effect from time to time, calculated as
described above in the section "Interest Rate."

LATE PAYMENT CHARGE.

If any required payment is more than 10 days late, then at Lender's option,
Lender will assess a late payment charge of $25.00 or 5% of the amount past due,
whichever is greater.

LINE OF CREDIT TERMS.

This Agreement is discretionary. The Borrower acknowledges and agrees that
although the Borrower may from time to time request an advance under this
Agreement up to a maximum amount equal to the Line of Credit Limit, the Lender
in no way is obligated to make such advance and all advances will be made by
Lender in its sole and absolute discretion and subject to the terms and
conditions of this Agreement.

Advances.

* Advances under this Agreement may be requested orally or in writing by the
Borrower or by an authorized person.

* The total of all advances requested and unpaid principal cannot exceed Seven
Million and 00/100 Dollars ($7,000,000.00).

* All advances made will be charged to a loan account in Borrower's name on
Lender's books, and the Lender shall debit such account the amount of each
advance made to, and credit to such account the amount of each repayment made by
Borrower.

Suspension and Termination.

Advances under this Agreement will be available until the earlier to occur of
(a) demand by the Lender; (b) the Line of Credit is cancelled by Borrower; or
(c) the occurrence of an Event of Default.

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Loan Type Conversion.

Provided no default or event of default shall have occurred, the Borrower may,
at its option, apply for conversion of this Agreement into a Term loan 30 days
prior to the Maturity Date. However, the Lender shall have no obligation to
approve the Borrower's application.

SECURITY TO NOTE.

Security (the "Collateral") for this Agreement is granted pursuant to the
following security document(s):

* Security Agreement dated March 31, 2010.

* Security Agreement dated March 31, 2010 evidencing security interest in Rabbi
Trust Account, Community Bank, N. A. # 89151111309.

RIGHT OF SET-OFF.

To the extent permitted by law, Borrower agrees that Lender has the right to
set-off any amount due and payable under this Agreement, whether matured or
unmatured, against any amount owing by Borrower to Lender including any or all
of Borrower's accounts with Lender. This shall include all accounts Borrower
holds jointly with someone else and all accounts Borrower may open in the
future. Such right of set-off may be exercised by Lender against Borrower or
against any assignee for the benefit of creditors, receiver, or execution,
judgment or attachment creditor of Borrower, or against anyone else claiming
through or against Borrower or such assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off has not been exercised by Lender prior to the
making, filing or issuance or service upon Lender of, or of notice of,
assignment for the benefit of creditors, appointment or application for the
appointment of a receiver, or issuance of execution, subpoena or order or
warrant.

PAYABLE ON DEMAND.

This is a demand note. Payment is due upon Lender's demand.

DEFAULT. Upon the occurrence of any one of the following events (each, an "Event
of Default" or "default" or "event of default"), Lender's obligations, if any,
to make any advances will, at Lender's option, immediately terminate and Lender,
at its option, may declare all indebtedness of Borrower to Lender under this
Agreement to be immediately due and payable without further notice of any kind
notwithstanding anything to the contrary in this Agreement or any other
agreement: (a) Borrower's failure to make any payment on time or in the amount
due; (b) any default by Borrower under the terms of this Agreement or any other
agreement or security instrument executed in connection with this Agreement
(such documents hereafter identified individually as "Loan Document" and
collectively as "Loan Documents"); (c) any default by Borrower under the terms
of any other note, loan agreement, security agreement, mortgage or other
document in favor of Lender; (d) the death, dissolution, or termination of
existence of Borrower or any guarantor; (e) Borrower is not paying Borrower's
debts as such debts become due; (f) the commencement of any proceeding under
bankruptcy or insolvency laws by or against Borrower or any guarantor or the
appointment of a receiver; (g) any default under the terms of any other
indebtedness of Borrower to any other creditor; (h) any writ of attachment,
garnishment, execution, tax lien or similar instrument is issued against any
collateral securing the loan, if any, or any of Borrower's property or any
judgment is entered against Borrower or any guarantor; (i) any part of
Borrower's business is sold to or merged with any other business, individual, or
entity; (j) any representation or warranty made by Borrower to Lender in any of
the Loan Documents or any financial statement delivered to Lender proves to have
been false in any material respect as of the time when made or given; (k) if any
guarantor, or any other party to any agreement or instrument with or in favor of
Lender entered into or delivered in connection with the Loan terminates,
attempts to terminate or defaults under any such agreement or instrument; (1)
Lender has deemed itself insecure or there has been a material adverse change of
condition of the financial prospects of Borrower or any collateral securing the
obligations owing to Lender by Borrower. Upon the occurrence of an event of
default, Lender may pursue any remedy available under any Related Document, at
law or in equity.

RELATED DOCUMENTS.

If this Agreement is secured by a security agreement, mortgage, deed of trust,
trust deed, security deed or loan agreement of even or previous date, it is
subject to all the terms thereof.

GENERAL WAIVERS.

To the extent permitted by law, the Borrower severally waives any required
notice of presentment, demand, acceleration, intent to accelerate, protest and
any other notice and defense due to extensions of time or other indulgence by
Lender or to any substitution or release of collateral. No failure or delay on
the part of Lender, and no course of dealing between Borrower and Lender, shall
operate as a waiver of such power or right, nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof or the
exercise of any other power or right.

JOINT AND SEVERAL LIABILITY.

If permitted by law, each Borrower executing this Agreement is jointly and
severally bound.

SEVERABILITY.

If a court of competent jurisdiction determines any term or provision of this
Agreement is invalid or prohibited by applicable law, that term or provision
will be ineffective to the extent required. Any term or provision that has been
determined to be invalid or prohibited will be severed from the rest of this
Agreement without invalidating the remainder of either the affected provision or
this Agreement.

SURVIVAL.

The rights and privileges of the Lender hereunder shall inure to the benefits of
its successors and assigns, and this Agreement shall be binding on all heirs,
executors, administrators, assigns and successors of Borrower.

ASSIGNABILITY.

Lender may assign, pledge or otherwise transfer this Agreement or any of its
rights and powers under this Agreement without notice, with all or any of the
obligations owing to Lender by Borrower, and in such event the assignee shall
have the same rights as if originally named herein in place of Lender. Borrower
may not assign this Agreement or any benefit accruing to it hereunder without
the express written consent of the Lender.

ORAL AGREEMENTS DISCLAIMER.

This Agreement represents the final agreement between the parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no unwritten oral agreements between the parties.

GOVERNING LAW

. This Agreement is governed by the laws of the state of New York except to the
extent that federal law controls.

HEADING AND GENDER.

The headings preceding text in this Agreement are for general convenience in
identifying subject matter, but have no limiting impact on the text which
follows any particular heading. All words used in this Agreement shall be
construed to be of such gender or number as the circumstances require.

ATTORNEYS' FEES AND OTHER COSTS.

If legal proceedings are instituted to enforce the terms of this Agreement,
Borrower agrees to pay all costs of the Lender in connection therewith,
including reasonable attorneys' fees, to the extent permitted by law.

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ADDITIONAL PROVISIONS.

The Commitment Letter from Lender to Borrower dated April 29, 2009, and its
terms and conditions, together with the Line of Credit Agreement dated June 5,
2009, are incorporated by reference and made a part hereof with the same force
and effect as if it were set forth herein. In the event that any of the
provisions contained in the Commitment Letter or the Line of Credit Agreement
conflict in whole or in part with the provisions contained in this Commercial
Line of Credit Agreement and Note, the provisions contained in the Commitment
Letter and Line of Credit Agreement shall control.

WAIVER OF JURY TRIAL

. All parties to this Agreement hereby knowingly and voluntarily waive, to the
fullest extent permitted by law, any right to trial by jury of any dispute,
whether in contract, tort, or otherwise, arising out of, in connection with,
related to, or incidental to the relationship established between them in this
Agreement or any other instrument, document or agreement executed or delivered
in connection with this Agreement or the related transactions.

By signing this Agreement, Borrower acknowledges reading, understanding, and
agreeing to all its provisions and receipt hereof. Corning Natural Gas
Corporation

__________________________________________

By: Michael German Date
Its: President

LENDER: Community Bank N.A.

 

__________________________________________

By: Thomas Beers Date
Its: Commercial Loan Officer/Vice President

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COMMERCIAL SECURITY AGREEMENT

Community Bank

N.A.

331 West Pulteney Street

Corning, New York 14830

(607)937-5471

LOAN NUMBER

AGREEMENT DATE

C-10-03-088174

March 31, 2010

BORROWER INFORMATION

Coming Natural Gas Corporation

330 William Street, P. 0. Box 58

Corning, NY 14830-0058

 

COLLATERAL OWNER INFORMATION

Corning Natural Gas Corporation

330 William Street, P.

0. Box 58

Corning, NY 14830-0058

 

AGREEMENT.

For purposes of this document, the term "Agreement" is used when reference is
made to this Commercial Security Agreement.

LENDER.

"Lender" means Community Bank N.A. whose address is 331 West Pulteney Street,
Corning, New York 14830 , its successors and assigns.

DEBTOR.

For purposes of this Agreement, the term "Debtor" refers to any party who has an
interest in the Collateral defined in the "DESCRIPTION OF COLLATERAL" provision
below. The Debtor includes each party (Borrower) identified above. Throughout
this Agreement, references to Debtor are to be construed as specifically defined
by Article 9 (or equivalent) of the Uniform Commercial Code.

OBLIGOR.

For purposes of this Agreement, the term "Obligor" refers to any party, with
respect to an obligation secured by a security interest in the collateral, that:
(i) owes payment or other performance of the obligation, or (ii) is otherwise
accountable in whole or in part for payment or other performance of the
obligation. Throughout this Agreement, references to Obligor are to be construed
as specifically defined by Article 9 (or equivalent) of the Uniform Commercial
Code.

SECURITY INTEREST GRANT.

Debtor, in consideration of the Obligations to Lender, as defined in the
"OBLIGATIONS" provision below, hereby agrees to all of the terms of this
Agreement and further hereby specifically grants Lender a continuing security
interest in the collateral described in the "DESCRIPTION OF COLLATERAL"
provision below. Debtor further grants Lender a security interest in the
proceeds of said collateral; the proceeds of hazard insurance and eminent domain
or condemnation awards involving the collateral; all products of, and accessions
to, such collateral or interests therein; any and all deposits or other sums at
any time credited by or due from Lender to Debtor; and any and all instruments,
documents, policies, and certificates of insurance, securities, goods, accounts
receivable, choses in action, chattel paper, cash, property, and the proceeds
thereof (whether or not the same are Collateral or proceeds thereof hereunder),
owned by Debtor or in which Debtor has an interest which are now or at any time
hereafter in possession or control of Lender, or in transit by mail or carrier
to or from Lender, or in possession of any third party acting on Lender's
behalf, without regard to whether Lender received the same in pledge, for
safekeeping, as agent or otherwise, or whether Lender has conditionally released
the same. Debtor's grant of a continuing security interest in the foregoing
described collateral secures to Lender the payment of all loans, advances, and
extensions of credit from Lender to Borrower, including all renewals and
extensions thereof, and any and all obligations of every kind whatsoever,
whether heretofore, now, or hereafter existing or arising between Lender and
Borrower and howsoever incurred or evidenced, whether primary, secondary,
contingent, or otherwise.

OBLIGATIONS.

As used in this Agreement, the term "Obligations" shall mean any and all of
Obligor's or Debtor's obligations to Lender, whether they arise under this
Agreement or the note, loan agreement, guaranty, or other evidence of debt
executed in connection with this Agreement, or under any other mortgage, trust
deed, deed of trust, security deed, security agreement, note, lease, instrument,
contract, document, or other similar writing heretofore, now, or hereafter
executed by the Obligor or Debtor to Lender, including any renewals, extensions
and modifications thereof, and including oral agreements and obligations arising
by operation of law. The Obligations shall also include all expenditures that
Lender may make under the terms of this Agreement or for the benefit of Obligor
or Debtor, all interest, costs, expenses, and attorneys' fees accruing to or
incurred by Lender in enforcing the Obligations or in the protection,
maintenance, preservation, or liquidation of the Collateral, and any of the
foregoing that may arise after the filing of any petition by or against Obligor
or Debtor under the Bankruptcy Code, irrespective of whether the obligations do
not accrue because of the automatic stay under Bankruptcy Code Section 362 or
otherwise.

DESCRIPTION OF COLLATERAL.

The collateral covered by this Agreement (the "Collateral") is all of the
Debtor's property described below which the Debtor now owns or may hereafter
acquire or create and all proceeds and products thereof, whether tangible or
intangible, including proceeds of insurance and which may include, but shall not
be limited to, any items listed on any schedule or list attached hereto. The
Collateral described has the meanings contained in the Uniform Commercial Code
as adopted in the state where the Lender is located.

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Deposit Accounts.

"Deposit Accounts" shall consist of all demand, time, savings, passbook, and
similar deposit accounts more particularly described below, which are held by
the Debtor in Lender's institution, or maintained in another bank ("Bank") and
for which Debtor, Lender and Bank have entered into a duly executed Control
Agreement (as used herein, the term "Bank" means an organization that is engaged
in the business of banking, and includes banks, savings banks, savings and loan
associations, credit unions, and trust companies). Deposit Accounts are not a
type of qualifying tax-deferred account as defined in the Internal Revenue Code,
as currently in effect and amended from time to time (e.g. Individual Retirement
Arrangements, qualified retirement plans, Health Savings Accounts, etc.).

DEPOSIT ACCOUNTS DESCRIPTION: Rabbi Trust Account, Community Bank, N. A. #
89151111309

WARRANTIES.

The Debtor warrants the following: Debtor has or will acquire free and clear
title to all of the Collateral, unless otherwise provided herein; the security
interest granted to the Lender shall be a first security interest, and the
Debtor will defend same to the Lender against the claims and demands of all
persons; the Debtor will fully cooperate in placing or maintaining Lender's lien
or security interest; the Debtor agrees not to allow or permit any lien,
security interest, adverse claim, charge, or encumbrance of any kind against the
collateral or any part thereof, without the Lender's prior written consent; all
of the Collateral is located in the state of the Debtor's address specified at
the beginning of this Agreement, unless otherwise certified to and agreed to by
the Lender, or, alternatively, is in possession of the Lender; the Debtor will
not remove or change the location of any Collateral without the Lender's prior
written consent; the Debtor will use the Collateral only in the conduct of its
own business, in a careful and proper manner; the Debtor will not use the
Collateral or permit it to be used for any unlawful purpose; except as otherwise
provided in this Agreement with respect to inventory, Debtor will not, without
the Lender's prior written consent, sell, assign, transfer, lease, charter,
encumber, hypothecate, or dispose of the Collateral, or any part thereof, or any
interest therein, nor will Debtor offer to sell, assign, transfer, lease,
charter, encumber, hypothecate, or dispose of the Collateral, or any part
thereof, or any interest therein; the Debtor will not conduct business under any
name other than that given at the beginning of this Agreement, nor change, nor
reorganize the type of business entity as described, except upon the prior
written approval of the Lender, in which event the Debtor agrees to execute any
documentation of whatsoever character or nature demanded by the Lender for
filing or recording, at the Debtor's expense, before such change occurs; the
information regarding Debtor's state of organization or formation as set forth
in the Resolution is correct, and Debtor further warrants that Debtor will not
change Debtor's state of organization or formation without Lender's prior
written consent and will assist Lender with any changes to any documents,
filings, or other records resulting or required therefrom; the Debtor will keep
all records of account, documents, evidence of title, and all other
documentation regarding its business and the Collateral at the address specified
at the beginning of this Agreement, unless notice thereof is given to the Lender
at least ten (10) days prior to the change of any address for the keeping of
such records; the Debtor will, at all times, maintain the Collateral in good
condition and repair and will not sell or remove same except as to inventory in
the ordinary course of business; the Debtor is a legally created business
entity, as described before, and it has the power, and the person signing is
duly authorized, to enter into this Agreement; the execution of this Agreement
will not create any breach of any provision of the Debtor's organizational
documents (Articles of Incorporation and By-Laws if the Debtor is a corporation,
Articles of Organization and Operating Agreement if the Debtor is a limited
liability company, or Certificate of Limited Partnership (if applicable) or
Partnership Agreement if the Debtor is a partnership), or any other agreement to
which the Debtor is or may become a party; all financial information and
statements delivered by the Debtor to the Lender to obtain loans and extensions
of credit are true and correct and are prepared in accordance with generally
accepted accounting principles; there has been no material adverse change in the
financial condition of the Debtor since it last submitted any financial
information to the Lender; there are no actions or proceedings, including
set-off or counterclaim, which are threatened or pending against the Debtor
which may result in any material adverse change in the Debtor's financial
condition or which might materially affect any of the Debtor's assets; and the
Debtor has duly filed all federal, state, municipal, and other governmental tax
returns, and has obtained all licenses, permits, and the like which the Debtor
is required by law to file or obtain, and all such taxes and fees for such
licenses and permits required to be paid, have been paid in full.

INSURANCE.

The Debtor agrees that it will, at its own expense, fully insure the Collateral
against all loss or damage for any risk of whatsoever nature in such amounts,
with such companies, and under such policies as shall be satisfactory to the
Lender. All policies shall expressly provide that the Lender shall be the loss
payee or, alternatively, if requested by Lender, mortgagee. The Lender is
granted a security interest in the proceeds of such insurance and may apply such
proceeds as it may receive toward the payment of the Obligations, whether or not
due, in such order as the Lender may in its sole discretion determine. The
Debtor agrees to maintain, at its own expense, public liability and property
damage insurance upon all its other property, to provide such policies in such
form as the Lender may approve, and to furnish the Lender with copies of other
evidence of such policies and evidence of the payments of the premiums thereon.
All policies of insurance shall provide for a minimum 10 days' written notice of
cancellation to Lender. At the request of Lender, such policies of insurance
shall be delivered to and held by Lender. Debtor agrees that Lender is
authorized to act as attorney for Debtor in obtaining, adjusting, settling, and
canceling such insurance and endorsing any drafts or instruments issued or
connected with such insurance. Debtor specifically authorizes Lender to disclose
information obtained in conjunction with this Agreement and from policies of
insurance to prospective insurers of the Collateral. If the Debtor at any time
fails to obtain or to maintain any of the insurance required above or pay any
premium in whole or in part relating thereto, the Lender, without waiving any
default hereunder, may make such payment or obtain such policies as the Lender,
in its sole discretion, deems advisable to protect the Debtor's property. All
costs incurred by the Lender, including reasonable attorneys' fees, court costs,
expenses, and other charges thereby incurred, shall become a part of the
Obligations and shall be payable on demand.

DEPOSIT ACCOUNTS.

Debtor shall immediately deliver to Lender all certificated certificates of
deposit included in the Collateral. Negotiable certificates of deposit shall be
endorsed to the order of Lender. Debtor shall execute any and all other
documents necessary to provide an appropriate security interest in any account
with Lender. With respect to deposit accounts held in another Bank, Debtor shall
deliver to Lender a control agreement ("Control Agreement") in a form and
content satisfactory to Lender assigning the Debtor's rights in the deposit
account to Lender, and the Bank shall acknowledge receipt of the Control
Agreement. The Control Agreement must be in a form that provides that the Bank
will comply with any instruction originated by the Lender directing disposition
of funds in the Deposit Account without further

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consent of the Debtor. The form of Control Agreement must be in a form
satisfactory to the Lender, and must provide that said Bank will comply with a
directive originated by the Lender and will not comply with any directive of the
Debtor without the additional written consent of the Lender.

Debtor agrees that Lender may, at any time (whether before or after default) and
in its sole discretion, surrender for payment and obtain payment of any portion
of the Collateral, whether such have matured or the exercise of the Lender's
rights results in a loss of interest or principal or other penalty on such
deposits, and, in connection therewith, cause payments to be made directly to
Lender.

Any and all replacement or renewal certificates and other benefits and proceeds
related to the Collateral that are received by the Debtor shall be held by
Debtor in trust for Lender and immediately delivered to Lender to be held as
part of the Collateral.

Without limiting the foregoing, it is specifically understood and agreed that
Lender shall have no responsibility for ascertaining any maturities or similar
matters relating to any of the Collateral or for informing Debtor with respect
to any such matters (irrespective of whether lender actually has, or may be
deemed to have, knowledge thereof).

ADDITIONAL COLLATERAL.

In the event that Lender should, at any time, determine that the Collateral or
Lender's security interest in the Collateral is impaired, insufficient, or has
declined or may decline in value, or if Lender should deem that payment of the
Obligations is insecure, time being of the very essence, then Lender may
require, and Debtor agrees to furnish, additional Collateral that is
satisfactory to Lender. Lender's request for additional collateral may be oral
or in writing delivered by United States mail addressed to Debtor and shall not
affect any other subsequent right of the Lender to request additional
Collateral.

FINANCING STATEMENT(S) AND LIEN PERFECTION

. Lender is authorized to file a conforming financing statement or statements to
perfect its security interest in the Collateral, as provided in Revised Article
9, Uniform Commercial Code - Secured Transactions. Debtor agrees to provide such
information, supplements, and other documents as Lender may from time to time
require to supplement or amend such financing statement filings, in order to
comply with applicable state or federal law and to preserve and protect the
Lender's rights in the Collateral. The Debtor further grants the Lender a power
of attorney to execute any and all documents necessary for the Lender to perfect
or maintain perfection of its security interest in the Collateral, and to change
or correct any error on any financing statement or any other document necessary
for proper placement of a lien on any Collateral which is subject to this
Agreement.

LANDLORD'S WAIVER.

Upon request, Debtor shall furnish to Lender, in a form and upon such terms as
are acceptable to Lender, a landlord's waiver of all liens with respect to any
Collateral covered by this Agreement that is or may be located upon leased
premises.

RELATIONSHIP TO OTHER AGREEMENTS.

This Agreement and the security interests (and pledges and assignments, as
applicable) herein granted are in addition to (and not in substitution, novation
or discharge of) any and all prior or contemporaneous security agreements,
security interest, pledges, assignments, mortgages, liens, rights, titles, or
other interests in favor of Lender or assigned to Lender by others in connection
with the Obligations. All rights and remedies of Lender in all such agreements
are cumulative.

TAXES, LIENS, ETC.

The Debtor agrees to pay all taxes, levies, judgments, assessments, and charges
of any nature whatsoever relating to the Collateral or to the Debtor's business.
If the Debtor fails to pay such taxes or other charges, the Lender, at its sole
discretion, may pay such charges on behalf of the Debtor; and all sums so
dispensed by the Lender, including reasonable attorneys' fees, court costs,
expenses, and other charges relating thereto, shall become a part of the
Obligations and shall be payable on demand.

ENVIRONMENTAL HAZARDS.

Debtor certifies that as to any real estate which has been, is now, or will be
in the future owned or occupied by Debtor, that such real estate has not in the
past, nor will now or in the future be allowed in any manner to be exposed to or
contain hazardous or environmentally harmful substances as may be defined or
regulated by any state or federal law or regulation which impacts, in any way,
such substances, except to the extent the existence of such substances has been
presently disclosed in writing to Lender, and Debtor will immediately notify
Lender in writing of any assertion made by any party to the contrary. Debtor
indemnifies and holds Lender and Lender's directors, officers, employees, and
agents harmless from any liability or expense of whatsoever nature, including
reasonable attorneys' fees, incurred directly or indirectly as a result of
Debtor's involvement with hazardous or environmentally harmful substances as may
be defined or regulated as such under any state or federal law or regulation.

PROTECTION OF COLLATERAL.

Debtor agrees that Lender may, at Lender's sole option, whether before or after
any event of default, and without prior notice to Debtor, take the following
actions to protect Lender's interest in the Collateral: (a) pay for the
maintenance, preservation, repair, improvement, or testing of the Collateral;
(b) pay any filing, recording, registration, licensing, certification, or other
fees and charges related to the Collateral; or (c) take any other action to
preserve and protect the Collateral or Lender's rights and remedies under this
Agreement, as Lender may deem necessary or appropriate from time to time. Debtor
agrees that Lender is not obligated and has no duty whatsoever to take the
foregoing actions. Debtor further agrees to reimburse Lender promptly upon
demand for any payment made or any expenses incurred by Lender pursuant to this
authorization. Payments and expenditures made by Lender under this authorization
shall constitute additional Obligations, shall be secured by this Agreement, and
shall bear interest thereon from the date incurred at the maximum rate of
interest, including any default rate, if one is provided, as set forth in the
notes secured by this obligation.

INFORMATION AND REPORTING.

The Debtor agrees to supply to the Lender such financial and other information
concerning its affairs and the status of any of its assets as the Lender, from
time to time, may reasonably request. The Debtor further agrees to permit the
Lender, its employees, and agents, to have access to the Collateral for the
purpose of inspecting it, together with all of the Debtor's other physical
assets, if any, and to permit the Lender, from time to time, to verify Accounts
as well as to inspect, copy, and to examine the books, records, and files of the
Debtor.

CROSS-COLLATERALIZATION

. Obligor and Debtor agree that any security interest provided in Collateral
under this Agreement or any collateral provided in connection with any and all
other indebtedness of Obligor or Debtor to Lender, whether or not such
indebtedness is

 

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related by class or claim and whether or not contemplated by the parties at the
time of executing each evidence of indebtedness, shall act as collateral for all
said indebtedness. This cross-collateralization provision shall not apply to any
Collateral that is/are household goods or a principal dwelling.

CROSS-DEFAULT

. Any default of the Obligor or Debtor in the terms of any obligations to Lender
shall constitute a default under this Agreement.

DEFAULT.

The occurrence of any of the following events shall constitute a default of this
Agreement: (a) the non-payment, when due (whether by acceleration of maturity or
otherwise), of any amount payable on any of the Obligations or any extension or
renewal thereof; (b) the failure to perform any agreement of the Obligor or
Debtor contained herein or in any other agreement Obligor or Debtor has or may
have with Lender; (c) the publication of any statement, representation, or
warranty, whether written or oral, by the Obligor or Debtor to the Lender, which
at any time is untrue in any respect as of the date made; (d) the condition that
any Obligor or Debtor becomes insolvent or unable to pay debts as they mature,
or makes an assignment for the benefit of the Obligor's or Debtor's creditors,
or conveys substantially all of its assets, or in the event of any proceedings
instituted by or against any Obligor or Debtor alleging that such Obligor or
Debtor is insolvent or unable to pay debts as they mature (failure to pay being
conclusive evidence of inability to pay); (e) Debtor or Obligor makes
application for appointment of a receiver or any other legal custodian, or in
the event that a petition of any kind is filed under the Federal Bankruptcy Code
by or against such Obligor or Debtor and the resulting proceeding is not
discharged within thirty days after filing; (f) the entry of any judgment
against any Obligor or Debtor, or the issue of any order of attachment,
execution, sequestration, claim and delivery, or other order in the nature of a
writ levied against the Collateral; (g) the death of any Obligor or Debtor who
is a natural person, or of any partner of the Obligor or Debtor which is a
partnership; (h) the dissolution, liquidation, termination of existence,
business failure, merger, and consolidation or transfer of a substantial part of
the property of any Obligor or Debtor which is a corporation or partnership; (i)
the Collateral or any part of the Collateral declines in value in excess of
normal wear, tear, and depreciation or becomes, in the judgment of Lender,
impaired, unsatisfactory, or insufficient in character or value, including but
not limited to the filing of a competing financing statement; breach of warranty
that the Debtor is the owner of the Collateral free and clear of any
encumbrances (other than those encumbrances disclosed by Debtor or otherwise
made known to Lender, and which were acceptable to Lender at the time); sale of
the Collateral (except in the ordinary course of business) without Lender's
express written consent; failure to keep the Collateral insured as provided
herein; failure to allow Lender to inspect the Collateral upon demand or at
reasonable time; failure to make prompt payment of taxes on the Collateral;
loss, theft, substantial damage, or destruction of the Collateral; and, when
Collateral includes inventory, accounts, chattel paper, or instruments, failure
of account debtors to pay their obligations in due course; or (j) the Lender in
good faith, believes the Obligor's ability to repay the Obligor's indebtedness
secured by this Agreement, any Collateral, or the Lender's ability to resort to
any Collateral, is or soon will be impaired, time being of the very essence.

REMEDY

. Upon the occurrence of an event of default, Lender, at its option, shall be
entitled to exercise any one or more of the remedies described in this
Agreement, in all documents evidencing the Obligations, in any other agreements
executed by or delivered by Obligor or Debtor for benefit of Lender, in any
third-party security agreement, mortgage, pledge, or guaranty relating to the
Obligations, in the Uniform Commercial Code of the state in which Lender is
located, and all remedies at law and equity, all of which shall be deemed
cumulative. The Obligor agrees that, whenever a default exists, all Obligations
may (notwithstanding any provision in any other agreement), at the sole option
and discretion of the Lender and without demand or notice of any kind, be
declared, and thereupon immediately shall become due and payable; and the Lender
may exercise, from time to time, any rights and remedies, including the right to
immediate possession of the Collateral, available to it under applicable law.
The Debtor agrees, in the case of default, to assemble, at its own expense, all
Collateral at a convenient place acceptable to the Lender. The Lender shall, in
the event of any default, have the right to take possession of and remove the
Collateral, with or without process of law, and in doing so, may peacefully
enter any premises where the Collateral may be located for such purpose. Debtor
waives any right that Debtor may have, in such instance, to a judicial hearing
prior to such retaking. The Lender shall have the right to hold any property
then in or upon said Collateral at the time of repossession not covered by the
security agreement until return is demanded in writing by Debtor. Obligor and
Debtor agree to pay all reasonable costs of the Lender in connection with the
collecting of the Obligations and enforcement of any rights connected with
retaking, holding, testing, repairing, improving, selling, leasing, or disposing
of the Collateral, or like expenses. These expenses, together with interest
thereon from the date incurred until paid by Obligor or Debtor at the maximum
post-default rate stated in the notes secured hereby, which Obligor and Debtor
agree to pay, shall constitute additional Obligations and shall be secured by
and entitled to the benefits of this Agreement. The Lender may sell, lease, or
otherwise dispose of the Collateral, by public or private proceedings, for cash
or credit, without assumption of credit risk. Unless the Collateral is
perishable or threatens to decline speedily in value or of a type customarily
sold on a recognized market, Lender will send Debtor reasonable notice of the
time and place of any public sale or of the time after which any private sale or
other disposition will be made. Any notification of intended disposition of the
Collateral by the Lender shall be deemed to be reasonable and proper if sent
United States mail, postage prepaid, electronic mail, facsimile, overnight
delivery or other commercially reasonable means to the Debtor at least ten (10)
days before such disposition, and addressed to the Debtor either at the address
shown herein or at any other address provided to Lender in writing for the
purpose of providing notice. Proceeds received by Lender from disposition of the
Collateral may be applied toward Lender's expenses and other obligations in such
order or manner as Lender may elect. Debtor shall be entitled to any surplus if
one results after lawful application of the proceeds. If the proceeds from a
sale of the Collateral are insufficient to extinguish the Obligations of the
Obligor hereunder, Obligor shall be liable for a deficiency. Lender shall have
the right, whether before or after default, to collect and receipt for,
compound, compromise, and settle, and give releases, discharges, and
acquittances with respect to, any and all amounts owed by any person or entity
with respect to the Collateral. Lender may remedy any default and may waive any
default without waiving the default remedied and without waiving any other prior
or subsequent default. The rights and remedies of the Lender are cumulative, and
the exercise of any one or more of the rights or remedies shall not be deemed an
election of rights or remedies or a waiver of any other right or remedy.

FUTURE ADVANCES AND AFTER-ACQUIRED PROPERTY.

Future advances may be made at any time by the Lender under this Agreement to
the extent allowed by law. The security interest grant contained in this
Agreement also applies to any Collateral of the type(s)

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identified in this Agreement that the Debtor acquires after this Agreement is
executed, except that no security interest attaches to after-acquired consumer
goods unless the Debtor acquires rights in such goods within 10 days of Lender
giving value. In anticipation of future advances by Lender, the Obligor or
Debtor authorize Lender to file any necessary financing statements to protect
Lender's security interest.

EXERCISE OF LENDER'S RIGHTS.

Any delay on the part of the Lender in exercising any power, privilege, or right
hereunder, or under any other document executed by Obligor or Debtor to the
Lender in connection herewith, shall not operate as a waiver thereof, and no
single or partial exercise thereof or any other power, privilege, or right shall
preclude other or further exercise thereof. The waiver by the Lender of any
default of the Obligor or Debtor shall not constitute a waiver of subsequent
default.

CONTINUING AGREEMENT.

This is a continuing agreement, and shall remain in full force and effect until
the Obligations are paid in full. In the event that Lender should take
additional Collateral, or enter into other security agreements, mortgages,
guarantees, assignments, or similar documents with respect to the Obligations,
or should Lender enter into other such agreements with respect to other
obligations of Obligor or Debtor, such agreements shall not discharge this
Agreement, which shall be construed as cumulative and continuing and not
alternative and exclusive.

The security interest (and pledge and assignment as applicable), hereby granted
and all of the terms and provisions of this Agreement shall be deemed a
continuing agreement and shall continue in full force and effect until the
Obligations are paid in full. Any such revocation or termination shall only be
effective if explicitly confirmed in a signed writing issued by Lender to such
effect and shall in no way impair or affect any transactions entered into or
rights created or liabilities incurred or arising prior to such revocation or
termination, as to which this Agreement shall be truly operative until same are
repaid and discharged in full. Unless otherwise required by applicable law,
Lender shall be under no obligation to issue a termination statement or similar
document unless Debtor requests same in writing, and providing further, that all
Obligations have been repaid and discharged in full and there are no commitments
to make advances, incur any obligations, or otherwise give value.

ABSENCE OF CONDITIONS OF LIABILITY.

This Agreement is unconditional. Lender shall not be required to exhaust its
remedies against Debtor, other collateral, or guarantors, or pursue any other
remedies within Lender's power before being entitled to exercise its remedies
hereunder. Lender's rights to the Collateral shall not be altered by the lack of
validity or enforceability of the Obligations against Obligor, and this
Agreement shall be fully enforceable irrespective of any counterclaim which the
Obligor may assert on the underlying debt and notwithstanding any stay,
modification, discharge, or extension of Obligor's Obligation arising by virtue
of Debtor's insolvency, bankruptcy, or reorganization, whether occurring with or
without Lender's consent.

NOTICES

. Any notice or demand given by Lender to Obligor or Debtor in connection with
this Agreement, the Collateral, or the Obligations, shall be deemed given and
effective upon deposit in the United States mail, postage prepaid, electronic
mail, facsimile, overnight delivery or other commercially reasonable means
addressed to Obligor or Debtor at the address designated at the beginning of
this Agreement, or such other address as Obligor or Debtor may provide to Lender
in writing from time to time for such purposes. Actual notice to Obligor or
Debtor shall always be effective no matter how such notice is given or received.

WAIVERS.

Debtor waives notice of Lender's acceptance of this Agreement, defenses based on
suretyship, and to the fullest extent permitted by law, any defense arising as a
result of any election by Lender under the Bankruptcy Code or the Uniform
Commercial Code. Debtor and any maker, endorser, guarantor, surety, third-party
pledgor, and other party executing this Agreement that is liable in any capacity
with respect to the Obligations hereby waive demand, notice of intention to
accelerate, notice of acceleration, notice of nonpayment, presentment, protest,
notice of dishonor, and any other similar notice whatsoever.

WAIVER OF JURY TRIAL.

All parties to this Agreement hereby knowingly and voluntarily waive, to the
fullest extent permitted by law, any right to trial by jury of any dispute,
whether in contract, tort, or otherwise, arising out of, in connection with,
related to, or incidental to the relationship established between them in this
Agreement or any other instrument, document or agreement executed or delivered
in connection with this Agreement or the related transactions.

JOINT AND SEVERAL LIABILITY. If this Agreement is executed by more than one
Party, it is understood and agreed that each such Party to this Agreement shall
be jointly and severally bound and the word "Obligor" or "Debtor" as used herein
shall be construed to be of such number as circumstances required.

SEVERABILITY.

Whenever possible, each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law; but, in the event any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity and shall be severed from the rest of this Agreement without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

SURVIVAL.

The rights and privileges of the Lender hereunder shall inure to the benefits of
its successors and assigns, and this Agreement shall be binding on all heirs,
executors, administrators, assigns, and successors of Obligor or Debtor.

ASSIGNABILITY.

Lender may assign, pledge, or otherwise transfer this Agreement or any of its
rights and powers under this Agreement without notice, with all or any of the
Obligations, and in such event the assignee shall have the same rights as if
originally named herein in place of Lender. Obligor or Debtor may not assign
this Agreement or any benefit accruing to it hereunder without the express
written consent of the Lender.

AUTHORIZATIONS.

Debtor authorizes Lender, without notice or demand and without altering Debtor's
liability or Lender's rights hereunder, from time to time to take acts which may
alter the Obligation of Obligor to Lender or Debtor's or Obligor's right to
restitution or subrogation or both, including to the extent allowed by law:

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Renewing, compromising, extending, or otherwise changing the time for payment
of, or otherwise changing the terms of the Obligations or any part thereof,
including increasing the rate of interest; Extending additional credit to
Obligor in any manner for any purpose; Incurring costs, including attorneys'
fees, with respect to enforcing Lender's rights with respect to the Obligations,
and collateral securing the Obligations;

Exchanging, enforcing, waiving, or releasing (whether intentionally or
unintentionally) any security for the Obligations or any part thereof or
purchase such security at private or public sale and to file any financing
statements necessary for Lender to perfect or protect Lender's security
interest;

Settling, releasing, compromising with, or substituting any one or more
endorsers, guarantors, or other obligors or the Obligations; Impairing the value
of Lender's interest in Collateral through failure to obtain or maintain
protection, failure to obtain or maintain recordation of an interest, or through
failure to perform a duty owed to Debtor to preserve the Collateral; and
Applying all monies received from Debtor and others or from Collateral in
Lender's discretion without in any way

being required to marshal assets.

GOVERNING LAW.

This Agreement has been delivered in the state of New York and shall be
construed in accordance with the laws of that state.

HEADINGS AND GENDER.

The headings preceding text in this Agreement are for general convenience in
identifying subject matter, but have no limiting impact on the text which
follows any particular heading. All words used in this Agreement shall be
construed to be of such gender or number as the circumstances require.

MISCELLANEOUS.

Time is of the essence of this Agreement. Except as otherwise defined in this
Agreement, all terms herein shall have the meanings provided by the Uniform
Commercial Code as it has been adopted in the state of New York. All rights,
remedies, and powers of the Lender hereunder are irrevocable and cumulative, and
not alternative or exclusive, and shall be in addition to all rights, remedies,
and powers given hereunder or in or by any other instruments or by the provision
of the Uniform Commercial Code as adopted in the state where the Lender is
located, or any other laws, now existing or hereafter enacted. The Obligor
specifically agrees that, if it has heretofore or hereafter executed any loan
agreement in conjunction with the Agreement, any ambiguities between this
Agreement and any such loan agreement shall be construed under the provisions of
the loan agreement, to the extent that it may be necessary to eliminate any such
ambiguity. Obligor and Debtor release Lender from any liability which might
otherwise exist for any act or omission of Lender related to the collection of
any debt secured by this Agreement or the disposal of any Collateral, except for
the Lender's willful misconduct.

ORAL AGREEMENTS DISCLAIMER.

This Agreement represents the final agreement between the parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no unwritten oral agreements between the parties.

ACKNOWLEDGMENT. Debtor acknowledges agreeing to all of the provisions in this
Agreement, and further acknowledges receipt of a true and complete copy of this
Agreement.

IN WITNESS WHEREOF, Debtor has executed this Agreement on the date and year
shown below.

Corning Natural Gas Corporation

__________________________________________

By: Michael German Date
Its: President

LENDER: Community Bank N.A.

 

__________________________________________

By: Thomas Beers Date
Its: Commercial Loan Officer/Vice President

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COMMERCIAL SECURITY AGREEMENT

Community Bank

N.A.

331 West Pulteney Street

Corning, New York 14830

(607)937-5471

LOAN NUMBER

AGREEMENT DATE

C-10-03-088174

March 31, 2010

BORROWER INFORMATION

Coming Natural Gas Corporation

330 William Street, P. 0. Box 58

Corning, NY 14830-0058

 

COLLATERAL OWNER INFORMATION

Corning Natural Gas Corporation

330 William Street, P.

0. Box 58

Corning, NY 14830-0058

AGREEMENT. For purposes of this document, the term "Agreement" is used when
reference is made to this Commercial Security Agreement.

LENDER.

"Lender" means Community Bank N.A. whose address is 331 West Pulteney Street,
Corning, New York 14830 , its successors and assigns.

DEBTOR.

For purposes of this Agreement, the term "Debtor" refers to any party who has an
interest in the Collateral defined in the "DESCRIPTION OF COLLATERAL" provision
below. The Debtor includes each party (Borrower) identified above. Throughout
this Agreement, references to Debtor are to be construed as specifically defined
by Article 9 (or equivalent) of the Uniform Commercial Code.

OBLIGOR.

For purposes of this Agreement, the term "Obligor" refers to any party, with
respect to an obligation secured by a security interest in the collateral, that:
(i) owes payment or other performance of the obligation, or (ii) is otherwise
accountable in whole or in part for payment or other performance of the
obligation. Throughout this Agreement, references to Obligor are to be construed
as specifically defined by Article 9 (or equivalent) of the Uniform Commercial
Code.

SECURITY INTEREST GRANT.

Debtor, in consideration of the Obligations to Lender, as defined in the
"OBLIGATIONS" provision below, hereby agrees to all of the terms of this
Agreement and further hereby specifically grants Lender a continuing security
interest in the collateral described in the "DESCRIPTION OF COLLATERAL"
provision below. Debtor further grants Lender a security interest in the
proceeds of said collateral; the proceeds of hazard insurance and eminent domain
or condemnation awards involving the collateral; all products of, and accessions
to, such collateral or interests therein; any and all deposits or other sums at
any time credited by or due from Lender to Debtor; and any and all instruments,
documents, policies, and certificates of insurance, securities, goods, accounts
receivable, choses in action, chattel paper, cash, property, and the proceeds
thereof (whether or not the same are Collateral or proceeds thereof hereunder),
owned by Debtor or in which Debtor has an interest which are now or at any time
hereafter in possession or control of Lender, or in transit by mail or carrier
to or from Lender, or in possession of any third party acting on Lender's
behalf, without regard to whether Lender received the same in pledge, for
safekeeping, as agent or otherwise, or whether Lender has conditionally released
the same. Debtor's grant of a continuing security interest in the foregoing
described collateral secures to Lender the payment of all loans, advances, and
extensions of credit from Lender to Borrower, including all renewals and
extensions thereof, and any and all obligations of every kind whatsoever,
whether heretofore, now, or hereafter existing or arising between Lender and
Borrower and howsoever incurred or evidenced, whether primary, secondary,
contingent, or otherwise.

OBLIGATIONS.

As used in this Agreement, the term "Obligations" shall mean any and all of
Obligor's or Debtor's obligations to Lender, whether they arise under this
Agreement or the note, loan agreement, guaranty, or other evidence of debt
executed in connection with this Agreement, or under any other mortgage, trust
deed, deed of trust, security deed, security agreement, note, lease, instrument,
contract, document, or other similar writing heretofore, now, or hereafter
executed by the Obligor or Debtor to Lender, including any renewals, extensions
and modifications thereof, and including oral agreements and obligations arising
by operation of law. The Obligations shall also include all expenditures that
Lender may make under the terms of this Agreement or for the benefit of Obligor
or Debtor, all interest, costs, expenses, and attorneys' fees accruing to or
incurred by Lender in enforcing the Obligations or in the protection,
maintenance, preservation, or liquidation of the Collateral, and any of the
foregoing that may arise after the filing of any petition by or against Obligor
or Debtor under the Bankruptcy Code, irrespective of whether the obligations do
not accrue because of the automatic stay under Bankruptcy Code Section 362 or
otherwise.

DESCRIPTION OF COLLATERAL.

The collateral covered by this Agreement (the "Collateral") is all of the
Debtor's property described below which the Debtor now owns or may hereafter
acquire or create and all proceeds and products thereof, whether tangible or
intangible, including proceeds of insurance and which may include, but shall not
be limited to, any items listed on any schedule or list attached hereto. The
Collateral described has the meanings contained in the Uniform Commercial Code
as adopted in the state where the Lender is located.

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Accounts. "Accounts" consist of the Debtor's right to payment of a monetary
obligation, whether or not earned by performance, (i) for property that has been
or is to be sold, leased, licensed, assigned, or otherwise disposed of; (ii) for
services rendered or to be rendered;

for a policy of insurance issued or to be issued; (iv) for a secondary
obligation incurred or to be incurred; (v) for energy provided or to be
provided; (vi) for the use or hire of a vessel under a charter or other
contract; (vii) arising out of the use of a credit card or charge card or
information contained on or for use with the card; (viii) as winnings in a
lottery or other game of chance operated or sponsored by a state, governmental
unit of a state, or person licensed or authorized to operate the game by a state
or governmental unit of a state; or (ix) for health-care-insurance receivables.

Inventory.

"Inventory" consists of all inventory and goods, other than farm products, which
(i) are leased by Debtor as lessor, (ii) are held by Debtor for sale or lease or
to be furnished under a contract of service, (iii) are furnished by Debtor under
a contract of service, or

consist of raw materials, work in process, or materials used or consumed in
business.

General Intangibles.

"General Intangibles" shall consist of all personal property now owned or
hereafter acquired by the Debtor, including things in action, other than
accounts, chattel paper, commercial tort claims, deposit accounts, goods,
instruments, investment property, letter of credit rights, letters of credit,
money, and oil, gas, or other minerals before extraction. General Intangibles
shall also include all payment intangibles now held or hereafter acquired by
Debtor and all software now owned or hereafter acquired by Debtor, which is not
encompassed by the term "Goods," and all supporting information pertaining or
relating thereto. General Intangibles include, but are not limited to,
intellectual property, rights that arise under a license of intellectual
property, including the right to exploit the intellectual property without
liability for infringement, and the right to payment of a loan of funds that is
not evidenced by chattel paper or an instrument.

Chattel Paper.

"Chattel Paper" shall consist of all records now held or hereafter acquired by
Debtor that evidence both a monetary obligation and a security interest in
specific goods, a security interest in specific goods and software used in the
goods, a security interest in specific goods and license of software used in the
goods, a lease of specific goods, or a lease of specific goods and license of
software used in the goods. In this paragraph, "monetary obligation" means a
monetary obligation secured by the goods or owed under a lease of the goods and
includes a monetary obligation with respect to software used in the goods. The
term does not include (i) charters or other contracts involving the use or hire
of a vessel, or (ii) records that evidence a right to payment arising out of the
use of a credit card or charge card of information contained on or for use with
the card. If a transaction is evidenced by records that include an instrument or
series of instruments, the group of records taken together constitutes chattel
paper. The definition of chattel paper includes electronic chattel paper. Debtor
agrees that it will assist Lender in obtaining control of electronic chattel
paper by (i) creating a single authoritative copy of the record(s) existing
which is unique and identifiable, (ii) ensuring that the authoritative copy
identifies the Lender as the assignee of the record(s), and (iii) ensuring that
the authoritative copy is communicated to and maintained by the Lender or its
designated custodian. Copies or revisions that add or change an identified
assignee of the authoritative copy can be made only with the participation of
the Lender. Debtor agrees that each copy or authoritative copy and any copy of a
copy shall be readily identifiable as a copy that is not the authoritative copy,
and any revision of any authoritative copy is readily identifiable as an
authorized or unauthorized revision.

WARRANTIES

. The Debtor warrants the following: Debtor has or will acquire free and clear
title to all of the Collateral, unless otherwise provided herein; the security
interest granted to the Lender shall be a first security interest, and the
Debtor will defend same to the Lender against the claims and demands of all
persons; the Debtor will fully cooperate in placing or maintaining Lender's lien
or security interest; the Debtor agrees not to allow or permit any lien,
security interest, adverse claim, charge, or encumbrance of any kind against the
collateral or any part thereof, without the Lender's prior written consent; all
of the Collateral is located in the state of the Debtor's address specified at
the beginning of this Agreement, unless otherwise certified to and agreed to by
the Lender, or, alternatively, is in possession of the Lender; the Debtor will
not remove or change the location of any Collateral without the Lender's prior
written consent; the Debtor will use the Collateral only in the conduct of its
own business, in a careful and proper manner; the Debtor will not use the
Collateral or permit it to be used for any unlawful purpose; except as otherwise
provided in this Agreement with respect to inventory, Debtor will not, without
the Lender's prior written consent, sell, assign, transfer, lease, charter,
encumber, hypothecate, or dispose of the Collateral, or any part thereof, or any
interest therein, nor will Debtor offer to sell, assign, transfer, lease,
charter, encumber, hypothecate, or dispose of the Collateral, or any part
thereof, or any interest therein; the Debtor will not conduct business under any
name other than that given at the beginning of this Agreement, nor change, nor
reorganize the type of business entity as described, except upon the prior
written approval of the Lender, in which event the Debtor agrees to execute any
documentation of whatsoever character or nature demanded by the Lender for
filing or recording, at the Debtor's expense, before such change occurs; the
information regarding Debtor's state of organization or formation as set forth
in the Resolution is correct, and Debtor further warrants that Debtor will not
change Debtor's state of organization or formation without Lender's prior
written consent and will assist Lender with any changes to any documents,
filings, or other records resulting or required therefrom; the Debtor will keep
all records of account, documents, evidence of title, and all other
documentation regarding its business and the Collateral at the address specified
at the beginning of this Agreement, unless notice thereof is given to the Lender
at least ten (10) days prior to the change of any address for the keeping of
such records; the Debtor will, at all times, maintain the Collateral in good
condition and repair and will not sell or remove same except as to inventory in
the ordinary course of business; the Debtor is a legally created business
entity, as described before, and it has the power, and the person signing is
duly authorized, to enter into this Agreement; the execution of this Agreement
will not create any breach of any provision of the Debtor's organizational
documents (Articles of Incorporation and By-Laws if the Debtor is a corporation,
Articles of Organization and Operating Agreement if the Debtor is a limited
liability company, or Certificate of Limited Partnership (if applicable) or
Partnership Agreement if the Debtor is a partnership), or any other agreement to
which the Debtor is or may become a party; all financial information and
statements delivered by the Debtor to the Lender to obtain loans and extensions
of credit are true and correct and are prepared in accordance with generally
accepted accounting principles; there has been no material adverse change in the
financial condition of the Debtor since it last submitted any financial
information to the Lender; there are no actions or proceedings, including
set-off or counterclaim, which are threatened or pending against the Debtor
which may result in any material adverse change in the Debtor's financial
condition or which might materially affect any of the Debtor's assets; and the
Debtor has duly filed all federal, state, municipal, and other governmental tax
returns, and has obtained all licenses,

 

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permits, and the like which the Debtor is required by law to file or obtain, and
all such taxes and fees for such licenses and permits required to be paid, have
been paid in full.

INSURANCE.

The Debtor agrees that it will, at its own expense, fully insure the Collateral
against all loss or damage for any risk of whatsoever nature in such amounts,
with such companies, and under such policies as shall be satisfactory to the
Lender. All policies shall expressly provide that the Lender shall be the loss
payee or, alternatively, if requested by Lender, mortgagee. The Lender is
granted a security interest in the proceeds of such insurance and may apply such
proceeds as it may receive toward the payment of the Obligations, whether or not
due, in such order as the Lender may in its sole discretion determine. The
Debtor agrees to maintain, at its own expense, public liability and property
damage insurance upon all its other property, to provide such policies in such
form as the Lender may approve, and to furnish the Lender with copies of other
evidence of such policies and evidence of the payments of the premiums thereon.
All policies of insurance shall provide for a minimum 10 days' written notice of
cancellation to Lender. At the request of Lender, such policies of insurance
shall be delivered to and held by Lender. Debtor agrees that Lender is
authorized to act as attorney for Debtor in obtaining, adjusting, settling, and
canceling such insurance and endorsing any drafts or instruments issued or
connected with such insurance. Debtor specifically authorizes Lender to disclose
information obtained in conjunction with this Agreement and from policies of
insurance to prospective insurers of the Collateral. If the Debtor at any time
fails to obtain or to maintain any of the insurance required above or pay any
premium in whole or in part relating thereto, the Lender, without waiving any
default hereunder, may make such payment or obtain such policies as the Lender,
in its sole discretion, deems advisable to protect the Debtor's property. All
costs incurred by the Lender, including reasonable attorneys' fees, court costs,
expenses, and other charges thereby incurred, shall become a part of the
Obligations and shall be payable on demand.

ACCOUNTS.

As of the time any account becomes subject to the security interest (or pledge
or assignment as applicable) granted hereby, Debtor shall be deemed further to
have warranted as to each and all of such accounts as follows: (a) each account
and all papers and documents relating thereto are genuine and in all respects
what they purport to be; (b) each account is valid and subsisting and arises out
of a bona fide sale of goods sold and delivered to, or out of and for services
theretofore actually rendered by Debtor to, the account debtor named in the
account or other bona fide transaction; (c) the amount of the account
represented as owing is the correct amount actually and unconditionally owing
except for normal cash discounts and is not subject to any setoffs, credits,
defenses, or countercharges; and (d) Debtor is the owner thereof free and clear
of any charges, liens, security interests, adverse claims, and encumbrances of
any and every nature whatsoever.

Lender shall have the right in its own name or in the name of the Debtor,
whether before or after default, to require Debtor: (1) to transmit all proceeds
of collection of accounts to Lender; (2) to notify any and all account debtors
to make payments of the accounts directly to Lender; (3) to demand, collect,
receive, receipt for, sue for, compound, and give acquittal for, any and all
amounts due or to become due on the accounts and to endorse the name of the
Debtor on all commercial paper given in payment or part payment thereof; and (4)
in Lender's discretion, to file any claim or take any other action or proceeding
that Lender may deem necessary or appropriate to protect and preserve and
realize upon the accounts and related Collateral.

Unless and until Lender elects to collect accounts, and the privilege of Debtor
to collect accounts is revoked by Lender in writing, Debtor shall continue to
collect accounts, account for same to Lender, shall not commingle the proceeds
of collections of accounts with any funds of the Debtor, and shall deposit such
proceeds in an account with Lender. In order to assure collection of accounts in
which Lender has an interest hereunder, Lender may notify the post office
authorities to change the address for delivery of mail addressed to Debtor to
such address as Lender may designate, open and dispose of such mail, and receive
the collections of accounts included therewith. Lender shall have no duty or
obligation whatsoever to collect any account or to take any other action or
preserve or protect the Collateral; however, should Lender elect to collect any
account or take possession of the Collateral, Debtor releases Lender from any
claim or claims for loss or damage arising from any act or omission in
connection therewith, and costs of collection incurred by Lender shall be an
obligation secured hereby and constitute a portion of the Obligations.

Upon request by Lender, whether before or after default, Debtor shall take such
action and execute and deliver such documents as Lender may reasonably request
in order to identify, confirm, mark, segregate, and assign accounts and to
evidence Lender's interest in same. Without limiting the foregoing Debtor, upon
request, agrees to assign accounts to Lender, identify and mark accounts as
being subject to the security interest for pledge (or assignment as applicable)
granted hereby, mark Debtor's books and records to reflect such assignments, and
forthwith to transmit to Lender in the form as received by Debtor any and all
proceeds of collection of such accounts.

Debtor will deliver to Lender, prior to the 10th day of each month, or with such
other frequency as Lender may request, a written report in form and content
satisfactory to Lender, showing a listing and aging of accounts and such other
information as Lender may request from time to time. Debtor shall immediately
notify Lender of the assertion by any account debtor of any setoff, defense, or
claim regarding an account or any other matter adversely affecting an account.

Returned or repossessed goods arising from or relating to any accounts included
within the Collateral shall, if requested by Lender, be held separate and apart
from any other property. Debtor, on request by Lender, but not less than weekly
even though no request has been made, shall report to Lender identifying
information with respect to any such goods relating to accounts included in
transactions under this Agreement.

INVENTORY.

Debtor will deliver to Lender prior to the 10th day of each month, or on such
other frequency as Lender may request, a written report in form and content
satisfactory to Lender, with respect to the preceding month or other applicable
period showing Debtor's opening inventory, inventory acquired, inventory sold,
inventory returned, inventory used in Debtor's business, closing inventory, and
other inventory not with the preceding categories, and such other information as
Lender may request from time to time. Debtor shall immediately notify Lender of
any matter adversely affecting the inventory, including, without limitation, any
event causing loss or depreciation in the value of the inventory and the amount
of such possible loss or depreciation.

Debtor will promptly notify Lender in writing of any addition to, change in, or
discontinuance of its place(s) of business as shown in this Agreement, and the
location of the office where it keeps its records. All Collateral will be
located at the place(s) of business shown herein, as modified by any written
notice(s) given pursuant hereto.

 

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Unless and until the privilege of Debtor to use inventory in the ordinary course
of Debtor's business is revoked by Lender in the event of default or if Lender
deems itself insecure, Debtor may use the inventory in any manner not
inconsistent with this Agreement, may sell that part of the Collateral
consisting of inventory provided that all such sales are in the ordinary course
of business, and may use and consume any raw materials or supplies that are
necessary in order to carry on Debtor's business. A sale in the ordinary course
of business does not include a transfer in partial or total satisfaction of a
debt.

All accounts that arise from the sale of the inventory included within the
Collateral shall be subject to all of the terms and provisions hereof pertaining
to accounts.

Debtor shall take all action necessary to protect and preserve the inventory.

ADDITIONAL COLLATERAL.

In the event that Lender should, at any time, determine that the Collateral or
Lender's security interest in the Collateral is impaired, insufficient, or has
declined or may decline in value, or if Lender should deem that payment of the
Obligations is insecure, time being of the very essence, then Lender may
require, and Debtor agrees to furnish, additional Collateral that is
satisfactory to Lender. Lender's request for additional collateral may be oral
or in writing delivered by United States mail addressed to Debtor and shall not
affect any other subsequent right of the Lender to request additional
Collateral.

FINANCING STATEMENT(S) AND LIEN PERFECTION

. Lender is authorized to file a conforming financing statement or statements to
perfect its security interest in the Collateral, as provided in Revised Article
9, Uniform Commercial Code - Secured Transactions. Debtor agrees to provide such
information, supplements, and other documents as Lender may from time to time
require to supplement or amend such financing statement filings, in order to
comply with applicable state or federal law and to preserve and protect the
Lender's rights in the Collateral. The Debtor further grants the Lender a power
of attorney to execute any and all documents necessary for the Lender to perfect
or maintain perfection of its security interest in the Collateral, and to change
or correct any error on any financing statement or any other document necessary
for proper placement of a lien on any Collateral which is subject to this
Agreement.

LANDLORD'S WAIVER.

Upon request, Debtor shall furnish to Lender, in a form and upon such terms as
are acceptable to Lender, a landlord's waiver of all liens with respect to any
Collateral covered by this Agreement that is or may be located upon leased
premises.

RELATIONSHIP TO OTHER AGREEMENTS.

This Agreement and the security interests (and pledges and assignments, as
applicable) herein granted are in addition to (and not in substitution, novation
or discharge of) any and all prior or contemporaneous security agreements,
security interest, pledges, assignments, mortgages, liens, rights, titles, or
other interests in favor of Lender or assigned to Lender by others in connection
with the Obligations. All rights and remedies of Lender in all such agreements
are cumulative.

TAXES, LIENS, ETC.

The Debtor agrees to pay all taxes, levies, judgments, assessments, and charges
of any nature whatsoever relating to the Collateral or to the Debtor's business.
If the Debtor fails to pay such taxes or other charges, the Lender, at its sole
discretion, may pay such charges on behalf of the Debtor; and all sums so
dispensed by the Lender, including reasonable attorneys' fees, court costs,
expenses, and other charges relating thereto, shall become a part of the
Obligations and shall be payable on demand.

ENVIRONMENTAL HAZARDS

. Debtor certifies that as to any real estate which has been, is now, or will be
in the future owned or occupied by Debtor, that such real estate has not in the
past, nor will now or in the future be allowed in any manner to be exposed to or
contain hazardous or environmentally harmful substances as may be defined or
regulated by any state or federal law or regulation which impacts, in any way,
such substances, except to the extent the existence of such substances has been
presently disclosed in writing to Lender, and Debtor will immediately notify
Lender in writing of any assertion made by any party to the contrary. Debtor
indemnifies and holds Lender and Lender's directors, officers, employees, and
agents harmless from any liability or expense of whatsoever nature, including
reasonable attorneys' fees, incurred directly or indirectly as a result of
Debtor's involvement with hazardous or environmentally harmful substances as may
be defined or regulated as such under any state or federal law or regulation.

PROTECTION OF COLLATERAL.

Debtor agrees that Lender may, at Lender's sole option, whether before or after
any event of default, and without prior notice to Debtor, take the following
actions to protect Lender's interest in the Collateral: (a) pay for the
maintenance, preservation, repair, improvement, or testing of the Collateral;
(b) pay any filing, recording, registration, licensing, certification, or other
fees and charges related to the Collateral; or (c) take any other action to
preserve and protect the Collateral or Lender's rights and remedies under this
Agreement, as Lender may deem necessary or appropriate from time to time. Debtor
agrees that Lender is not obligated and has no duty whatsoever to take the
foregoing actions. Debtor further agrees to reimburse Lender promptly upon
demand for any payment made or any expenses incurred by Lender pursuant to this
authorization. Payments and expenditures made by Lender under this authorization
shall constitute additional Obligations, shall be secured by this Agreement, and
shall bear interest thereon from the date incurred at the maximum rate of
interest, including any default rate, if one is provided, as set forth in the
notes secured by this obligation.

INFORMATION AND REPORTING.

The Debtor agrees to supply to the Lender such financial and other information
concerning its affairs and the status of any of its assets as the Lender, from
time to time, may reasonably request. The Debtor further agrees to permit the
Lender, its employees, and agents, to have access to the Collateral for the
purpose of inspecting it, together with all of the Debtor's other physical
assets, if any, and to permit the Lender, from time to time, to verify Accounts
as well as to inspect, copy, and to examine the books, records, and files of the
Debtor.

CROSS-COLLATERALIZATION. Obligor and Debtor agree that any security interest
provided in Collateral under this Agreement or any collateral provided in
connection with any and all other indebtedness of Obligor or Debtor to Lender,
whether or not such indebtedness is related by class or claim and whether or not
contemplated by the parties at the time of executing each evidence of
indebtedness, shall act as collateral for all said indebtedness. This
cross-collateralization provision shall not apply to any Collateral that is/are
household goods or a principal dwelling.

 

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CROSS-DEFAULT

. Any default of the Obligor or Debtor in the terms of any obligations to Lender
shall constitute a default under this Agreement.

DEFAULT.

The occurrence of any of the following events shall constitute a default of this
Agreement: (a) the non-payment, when due (whether by acceleration of maturity or
otherwise), of any amount payable on any of the Obligations or any extension or
renewal thereof; (b) the failure to perform any agreement of the Obligor or
Debtor contained herein or in any other agreement Obligor or Debtor has or may
have with Lender; (c) the publication of any statement, representation, or
warranty, whether written or oral, by the Obligor or Debtor to the Lender, which
at any time is untrue in any respect as of the date made; (d) the condition that
any Obligor or Debtor becomes insolvent or unable to pay debts as they mature,
or makes an assignment for the benefit of the Obligor's or Debtor's creditors,
or conveys substantially all of its assets, or in the event of any proceedings
instituted by or against any Obligor or Debtor alleging that such Obligor or
Debtor is insolvent or unable to pay debts as they mature (failure to pay being
conclusive evidence of inability to pay); (e) Debtor or Obligor makes
application for appointment of a receiver or any other legal custodian, or in
the event that a petition of any kind is filed under the Federal Bankruptcy Code
by or against such Obligor or Debtor and the resulting proceeding is not
discharged within thirty days after filing; (f) the entry of any judgment
against any Obligor or Debtor, or the issue of any order of attachment,
execution, sequestration, claim and delivery, or other order in the nature of a
writ levied against the Collateral; (g) the death of any Obligor or Debtor who
is a natural person, or of any partner of the Obligor or Debtor which is a
partnership; (h) the dissolution, liquidation, termination of existence,
business failure, merger, and consolidation or transfer of a substantial part of
the property of any Obligor or Debtor which is a corporation or partnership; (i)
the Collateral or any part of the Collateral declines in value in excess of
normal wear, tear, and depreciation or becomes, in the judgment of Lender,
impaired, unsatisfactory, or insufficient in character or value, including but
not limited to the filing of a competing financing statement; breach of warranty
that the Debtor is the owner of the Collateral free and clear of any
encumbrances (other than those encumbrances disclosed by Debtor or otherwise
made known to Lender, and which were acceptable to Lender at the time); sale of
the Collateral (except in the ordinary course of business) without Lender's
express written consent; failure to keep the Collateral insured as provided
herein; failure to allow Lender to inspect the Collateral upon demand or at
reasonable time; failure to make prompt payment of taxes on the Collateral;
loss, theft, substantial damage, or destruction of the Collateral; and, when
Collateral includes inventory, accounts, chattel paper, or instruments, failure
of account debtors to pay their obligations in due course; or (j) the Lender in
good faith, believes the Obligor's ability to repay the Obligor's indebtedness
secured by this Agreement, any Collateral, or the Lender's ability to resort to
any Collateral, is or soon will be impaired, time being of the very essence.

REMEDY.

Upon the occurrence of an event of default, Lender, at its option, shall be
entitled to exercise any one or more of the remedies described in this
Agreement, in all documents evidencing the Obligations, in any other agreements
executed by or delivered by Obligor or Debtor for benefit of Lender, in any
third-party security agreement, mortgage, pledge, or guaranty relating to the
Obligations, in the Uniform Commercial Code of the state in which Lender is
located, and all remedies at law and equity, all of which shall be deemed
cumulative. The Obligor agrees that, whenever a default exists, all Obligations
may (notwithstanding any provision in any other agreement), at the sole option
and discretion of the Lender and without demand or notice of any kind, be
declared, and thereupon immediately shall become due and payable; and the Lender
may exercise, from time to time, any rights and remedies, including the right to
immediate possession of the Collateral, available to it under applicable law.
The Debtor agrees, in the case of default, to assemble, at its own expense, all
Collateral at a convenient place acceptable to the Lender. The Lender shall, in
the event of any default, have the right to take possession of and remove the
Collateral, with or without process of law, and in doing so, may peacefully
enter any premises where the Collateral may be located for such purpose. Debtor
waives any right that Debtor may have, in such instance, to a judicial hearing
prior to such retaking. The Lender shall have the right to hold any property
then in or upon said Collateral at the time of repossession not covered by the
security agreement until return is demanded in writing by Debtor. Obligor and
Debtor agree to pay all reasonable costs of the Lender in connection with the
collecting of the Obligations and enforcement of any rights connected with
retaking, holding, testing, repairing, improving, selling, leasing, or disposing
of the Collateral, or like expenses. These expenses, together with interest
thereon from the date incurred until paid by Obligor or Debtor at the maximum
post-default rate stated in the notes secured hereby, which Obligor and Debtor
agree to pay, shall constitute additional Obligations and shall be secured by
and entitled to the benefits of this Agreement. The Lender may sell, lease, or
otherwise dispose of the Collateral, by public or private proceedings, for cash
or credit, without assumption of credit risk. Unless the Collateral is
perishable or threatens to decline speedily in value or of a type customarily
sold on a recognized market, Lender will send Debtor reasonable notice of the
time and place of any public sale or of the time after which any private sale or
other disposition will be made. Any notification of intended disposition of the
Collateral by the Lender shall be deemed to be reasonable and proper if sent
United States mail, postage prepaid, electronic mail, facsimile, overnight
delivery or other commercially reasonable means to the Debtor at least ten (10)
days before such disposition, and addressed to the Debtor either at the address
shown herein or at any other address provided to Lender in writing for the
purpose of providing notice. Proceeds received by Lender from disposition of the
Collateral may be applied toward Lender's expenses and other obligations in such
order or manner as Lender may elect. Debtor shall be entitled to any surplus if
one results after lawful application of the proceeds. If the proceeds from a
sale of the Collateral are insufficient to extinguish the Obligations of the
Obligor hereunder, Obligor shall be liable for a deficiency. Lender shall have
the right, whether before or after default, to collect and receipt for,
compound, compromise, and settle, and give releases, discharges, and
acquittances with respect to, any and all amounts owed by any person or entity
with respect to the Collateral. Lender may remedy any default and may waive any
default without waiving the default remedied and without waiving any other prior
or subsequent default. The rights and remedies of the Lender are cumulative, and
the exercise of any one or more of the rights or remedies shall not be deemed an
election of rights or remedies or a waiver of any other right or remedy.

FUTURE ADVANCES AND AFTER-ACQUIRED PROPERTY.

Future advances may be made at any time by the Lender under this Agreement to
the extent allowed by law. The security interest grant contained in this
Agreement also applies to any Collateral of the type(s) identified in this
Agreement that the Debtor acquires after this Agreement is executed, except that
no security interest attaches to after-acquired consumer goods unless the Debtor
acquires rights in such goods within 10 days of Lender giving value. In
anticipation of future advances by Lender, the Obligor or Debtor authorize
Lender to file any necessary financing statements to protect Lender's security
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EXERCISE OF LENDER'S RIGHTS. Any delay on the part of the Lender in exercising
any power, privilege, or right hereunder, or under any other document executed
by Obligor or Debtor to the Lender in connection herewith, shall not operate as
a waiver thereof, and no single or partial exercise thereof or any other power,
privilege, or right shall preclude other or further exercise thereof. The waiver
by the Lender of any default of the Obligor or Debtor shall not constitute a
waiver of subsequent default.

CONTINUING AGREEMENT.

This is a continuing agreement, and shall remain in full force and effect until
the Obligations are paid in full. In the event that Lender should take
additional Collateral, or enter into other security agreements, mortgages,
guarantees, assignments, or similar documents with respect to the Obligations,
or should Lender enter into other such agreements with respect to other
obligations of Obligor or Debtor, such agreements shall not discharge this
Agreement, which shall be construed as cumulative and continuing and not
alternative and exclusive.

The security interest (and pledge and assignment as applicable), hereby granted
and all of the terms and provisions of this Agreement shall be deemed a
continuing agreement and shall continue in full force and effect until the
Obligations are paid in full. Any such revocation or termination shall only be
effective if explicitly confirmed in a signed writing issued by Lender to such
effect and shall in no way impair or affect any transactions entered into or
rights created or liabilities incurred or arising prior to such revocation or
termination, as to which this Agreement shall be truly operative until same are
repaid and discharged in full. Unless otherwise required by applicable law,
Lender shall be under no obligation to issue a termination statement or similar
document unless Debtor requests same in writing, and providing further, that all
Obligations have been repaid and discharged in full and there are no commitments
to make advances, incur any obligations, or otherwise give value.

ABSENCE OF CONDITIONS OF LIABILITY.

This Agreement is unconditional. Lender shall not be required to exhaust its
remedies against Debtor, other collateral, or guarantors, or pursue any other
remedies within Lender's power before being entitled to exercise its remedies
hereunder. Lender's rights to the Collateral shall not be altered by the lack of
validity or enforceability of the Obligations against Obligor, and this
Agreement shall be fully enforceable irrespective of any counterclaim which the
Obligor may assert on the underlying debt and notwithstanding any stay,
modification, discharge, or extension of Obligor's Obligation arising by virtue
of Debtor's insolvency, bankruptcy, or reorganization, whether occurring with or
without Lender's consent.

NOTICES.

Any notice or demand given by Lender to Obligor or Debtor in connection with
this Agreement, the Collateral, or the Obligations, shall be deemed given and
effective upon deposit in the United States mail, postage prepaid, electronic
mail, facsimile, overnight delivery or other commercially reasonable means
addressed to Obligor or Debtor at the address designated at the beginning of
this Agreement, or such other address as Obligor or Debtor may provide to Lender
in writing from time to time for such purposes. Actual notice to Obligor or
Debtor shall always be effective no matter how such notice is given or received.

WAIVERS.

Debtor waives notice of Lender's acceptance of this Agreement, defenses based on
suretyship, and to the fullest extent permitted by law, any defense arising as a
result of any election by Lender under the Bankruptcy Code or the Uniform
Commercial Code. Debtor and any maker, endorser, guarantor, surety, third-party
pledgor, and other party executing this Agreement that is liable in any capacity
with respect to the Obligations hereby waive demand, notice of intention to
accelerate, notice of acceleration, notice of nonpayment, presentment, protest,
notice of dishonor, and any other similar notice whatsoever.

WAIVER OF JURY TRIAL.

All parties to this Agreement hereby knowingly and voluntarily waive, to the
fullest extent permitted by law, any right to trial by jury of any dispute,
whether in contract, tort, or otherwise, arising out of, in connection with,
related to, or incidental to the relationship established between them in this
Agreement or any other instrument, document or agreement executed or delivered
in connection with this Agreement or the related transactions.

JOINT AND SEVERAL LIABILITY. If this Agreement is executed by more than one
Party, it is understood and agreed that each such Party to this Agreement shall
be jointly and severally bound and the word "Obligor" or "Debtor" as used herein
shall be construed to be of such number as circumstances required.

SEVERABILITY.

Whenever possible, each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law; but, in the event any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity and shall be severed from the rest of this Agreement without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

SURVIVAL

. The rights and privileges of the Lender hereunder shall inure to the benefits
of its successors and assigns, and this Agreement shall be binding on all heirs,
executors, administrators, assigns, and successors of Obligor or Debtor.

ASSIGNABILITY

. Lender may assign, pledge, or otherwise transfer this Agreement or any of its
rights and powers under this Agreement without notice, with all or any of the
Obligations, and in such event the assignee shall have the same rights as if
originally named herein in place of Lender. Obligor or Debtor may not assign
this Agreement or any benefit accruing to it hereunder without the express
written consent of the Lender.

AUTHORIZATIONS.

Debtor authorizes Lender, without notice or demand and without altering Debtor's
liability or Lender's rights hereunder, from time to time to take acts which may
alter the Obligation of Obligor to Lender or Debtor's or Obligor's right to
restitution or subrogation or both, including to the extent allowed by law:

 a. Renewing, compromising, extending, or otherwise changing the time for
    payment of, or otherwise changing the terms of the Obligations or any part
    thereof, including increasing the rate of interest;
 b. Extending additional credit to Obligor in any manner for any purpose;

 

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Incurring costs, including attorneys' fees, with respect to enforcing Lender's
rights with respect to the Obligations, and collateral securing the Obligations;

Exchanging, enforcing, waiving, or releasing (whether intentionally or
unintentionally) any security for the Obligations or any part thereof or
purchase such security at private or public sale and to file any financing
statements necessary for Lender to perfect or protect Lender's security
interest;

(e) Settling, releasing, compromising with, or substituting any one or more
endorsers, guarantors, or other obligors or the Obligations;

(f) Impairing the value of Lender's interest in Collateral through failure to
obtain or maintain protection, failure to obtain or maintain recordation of an
interest, or through failure to perform a duty owed to Debtor to preserve the
Collateral; and

(g) Applying all monies received from Debtor and others or from Collateral in
Lender's discretion without in any way being required to marshal assets.

GOVERNING LAW

. This Agreement has been delivered in the state of New York and shall be
construed in accordance with the laws of that state.

HEADINGS AND GENDER.

The headings preceding text in this Agreement are for general convenience in
identifying subject matter, but have no limiting impact on the text which
follows any particular heading. All words used in this Agreement shall be
construed to be of such gender or number as the circumstances require.

MISCELLANEOUS.

Time is of the essence of this Agreement. Except as otherwise defined in this
Agreement, all terms herein shall have the meanings provided by the Uniform
Commercial Code as it has been adopted in the state of New York. All rights,
remedies, and powers of the Lender hereunder are irrevocable and cumulative, and
not alternative or exclusive, and shall be in addition to all rights, remedies,
and powers given hereunder or in or by any other instruments or by the provision
of the Uniform Commercial Code as adopted in the state where the Lender is
located, or any other laws, now existing or hereafter enacted. The Obligor
specifically agrees that, if it has heretofore or hereafter executed any loan
agreement in conjunction with the Agreement, any ambiguities between this
Agreement and any such loan agreement shall be construed under the provisions of
the loan agreement, to the extent that it may be necessary to eliminate any such
ambiguity. Obligor and Debtor release Lender from any liability which might
otherwise exist for any act or omission of Lender related to the collection of
any debt secured by this Agreement or the disposal of any Collateral, except for
the Lender's willful misconduct.

ORAL AGREEMENTS DISCLAIMER.

This Agreement represents the final agreement between the parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no unwritten oral agreements between the parties.

ACKNOWLEDGMENT. Debtor acknowledges agreeing to all of the provisions in this
Agreement, and further acknowledges receipt of a true and complete copy of this
Agreement.

IN WITNESS WHEREOF, Debtor has executed this Agreement on the date and year
shown below.

Corning Natural Gas Corporation

__________________________________________

By: Michael German Date
Its: President

LENDER: Community Bank N.A.

 

__________________________________________

By: Thomas Beers Date
Its: Commercial Loan Officer/Vice President

2004-2009 Compliance Systems, Inc. 303E-4937 - 2009.11.99

Commercial - Security Agreement DL4008 Page 7 of 7

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