Document:

fs1a1ex4iii_ecoblu.htm

Exhibit 4.3

SECURITY AGREEMENT

This SECURITY AGREEMENT (this “Agreement”), dated as of March 26, 2010, is made by and among the grantors listed on the signature pages hereof (collectively, jointly and severally, the “Grantors” and each, individually, a “Grantor”), and the secured parties listed on the signature pages hereof (collectively, the “Secured Parties” and each, individually, a “Secured Party”).

 

RECITALS

 

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of March 26, 2010 (as may be amended, restated, supplemented, or otherwise modified from time to time, including all schedules thereto, collectively, the “Securities Purchase Agreement”), by and among EcoBlu Products, Inc., a Colorado corporation (“Parent”), and each of the Secured Parties, Parent has agreed to sell, and each of the Secured Parties have each agreed to purchase, severally and not jointly, certain Notes and Warrants; and

 

WHEREAS, each Grantor other than Parent is a direct or indirect wholly-owned Subsidiary (as defined below) of Parent and will receive direct and substantial benefits from the purchase by each of the Secured Parties of the Notes and Warrants; and

 

WHEREAS, in order to induce the Secured Parties to purchase, severally and not jointly, the Notes and Warrants as provided for in the Securities Purchase Agreement, Grantors have agreed to grant a continuing security interest in and to the Collateral in order to secure the prompt and complete payment, observance and performance of the Secured Obligations.

 

AGREEMENTS

 

NOW, THEREFORE, for and in consideration of the recitals made above and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

1. Defined Terms. All capitalized terms used herein (including in the preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the Notes. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein or in the Notes; provided, however, if the Code is used to define any term used herein and if such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern. In addition to those terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings:

 

(a) “Account” means an account (as that term is defined in the Code).

 

(b) “Account Debtor” means an account debtor (as that term is defined in the Code).

 

  

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(c) “Bankruptcy Code” means title 11 of the United States Code, as in effect from time to time.

 

(d) “Books” means books and records (including, without limitation, each Grantor’s Records) indicating, summarizing, or evidencing each Grantor’s assets (including the Collateral) or liabilities, each Grantor’s Records relating to its business operations (including, without limitation, stock ledgers) or financial condition, and each Grantor’s goods or General Intangibles related to such information.

 

(e) “Chattel Paper” means chattel paper (as that term is defined in the Code) and includes tangible chattel paper and electronic chattel paper.

 

(f) “Code” means the Illinois Uniform Commercial Code, as in effect from time to time; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to any Secured Party’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Illinois, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.

 

(g) “Collateral” has the meaning specified therefor in Section 2.

 

(h) “Collateral Access Agreement” means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in any Grantor’s books and records, Equipment, or Inventory, in each case, in form and substance satisfactory to Secured Parties.

 

(i) “Commencement Notice” means a written notice, given by any Secured Party to the other Secured Parties in accordance with the notice provisions set forth in the Securities Purchase Agreement, pursuant to which such Secured Party notifies the other Secured Parties of the existence of one or more Events of Default and of such Secured Party’s intent to commence the exercise of one or more of the remedies provided for under this Agreement with respect to all or any portion of the Collateral as a consequence thereof, which notice shall incorporate a reasonably detailed description of each Event of Default then existing and of the remedial action proposed to be taken.

 

(j) “Commercial Tort Claims” means commercial tort claims (as that term is defined in the Code), and includes those commercial tort claims listed on Schedule 1 attached hereto.

 

(k) “Control Agreement” means a control agreement, in form and substance satisfactory to Secured Parties, executed and delivered by a Grantor, one or more Secured Parties, and the applicable securities intermediary (with respect to a Securities Account) or bank (with respect to a Deposit Account), as may be amended, restated, supplemented, or otherwise modified from time to time.

 

  

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(l) “Copyrights” means all copyrights and copyright registrations, and also includes (i) the copyright registrations and recordings thereof and all applications in connection therewith listed on Schedule 2 attached hereto and made a part hereof, (ii) all reissues, continuations, extensions or renewals thereof, (iii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iv) the right to sue for past, present and future infringements and dilutions thereof, (v) the goodwill of each Grantor’s business symbolized by the foregoing or connected therewith, and (vi) all of each Grantor’s rights corresponding thereto throughout the world.

 

(m) “Copyright Security Agreement” means each Copyright Security Agreement among Grantors, or any of them, and Secured Parties, in substantially the form of Exhibit A attached hereto, pursuant to which Grantors have granted to each Secured Party a security interest in all their respective Copyrights, as may be amended, restated, supplemented, or otherwise modified from time to time.

 

(n) “Deposit Account” means a deposit account (as that term is defined in the Code).

 

(o) “Equipment” means equipment (as that term is defined in the Code).

 

(p) “Event of Default” has the meaning specified therefor in the Notes.

 

(q) “General Intangibles” means general intangibles (as that term is defined in the Code) and, in any event, includes payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill (including the goodwill associated with any Trademark, Patent, or Copyright), Patents, Trademarks, Copyrights, URLs and domain names, industrial designs, other industrial or Intellectual Property or rights therein or applications therefor, whether under license or otherwise, programs, programming materials, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, including Intellectual Property Licenses, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds, and tax refund claims, interests in a partnership or limited liability company which do not constitute a security under Article 8 of the Code, and any other personal property other than Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts, goods, Investment Related Property, Negotiable Collateral, and oil, gas, or other minerals before extraction.

 

(r) “Governmental Authority” means any domestic or foreign federal, state, local, or other governmental or administrative body, instrumentality, board, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body.

 

  

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(s) “Guaranties” means each Guaranty, in the form attached hereto as Exhibit D, executed by a Guarantor in favor of any or all of the Secured Parties, together with any other guaranty or similar agreement now or hereafter executed by a Guarantor in favor of any or all of the Secured Parties in connection with the Notes or any of the other Transaction Documents, as may be amended, restated, supplemented, or otherwise modified from time to time.

 

(t) “Guarantor” means each Grantor, other than Parent, and each other Person that now or hereafter executes a Guaranty.

 

(u) “Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law or any equivalent laws in any other jurisdiction, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

 

(v) “Intellectual Property” means Patents, Copyrights, Trademarks, the goodwill associated with such Trademarks, trade secrets and customer lists, and Intellectual Property Licenses.

 

(w) “Intellectual Property Licenses” means rights under or interests in any patent, trademark, copyright or other intellectual property, including software license agreements with any other party, whether the applicable Grantor is a licensee or licensor under any such license agreement, including the license agreements listed on Schedule 3 attached hereto and made a part hereof, as may be amended, restated, supplemented, or otherwise modified from time to time.

 

(x) “Inventory” means inventory (as that term is defined in the Code).

 

(y) “Investment Related Property” means (i) investment property (as that term is defined in the Code), and (ii) all of the following (regardless of whether classified as investment property under the Code): all Pledged Interests, Pledged Operating Agreements, and Pledged Partnership Agreements.

 

(z) “Lien” has the meaning specified therefor in the Notes.

 

(aa) “Negotiable Collateral” means letters of credit, letter-of-credit rights, instruments, promissory notes, drafts, and documents.

 

(bb) “New Subsidiary” has the meaning specified therefor in the Notes.

 

(cc) “Notes” has the meaning specified therefor in the Securities Purchase Agreement.

 

  

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(dd) “Patents” means all patents and patent applications, and also includes (i) the patents and patent applications listed on Schedule 4 attached hereto and made a part hereof, (ii) all renewals thereof, (iii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iv) the right to sue for past, present and future infringements and dilutions thereof, and (v) all of each Grantor’s rights corresponding thereto throughout the world.

 

(ee) “Patent Security Agreement” means each Patent Security Agreement among Grantors and Secured Parties in substantially the form of Exhibit B attached hereto, pursuant to which Grantors have granted to each Secured Party a security interest in all their respective Patents, as may be amended, restated, supplemented, or otherwise modified from time to time.

 

(ff) “Permitted Liens” has the meaning specified therefor in the Notes.

 

(gg) “Permitted Secured Party” means, with respect to the exercise of any remedy provided for under this Agreement, any Secured Party that has delivered a Commencement Notice with respect to the exercise of such remedy to the other Secured Parties and has not received a Veto Notice with respect thereto within the Veto Period; provided, however, there shall only be a single Permitted Secured Party that may exercise any specific remedy at any one time (it being agreed that if a Commencement Notice is delivered by more than one Secured Party with respect to any remedy provided for under this Agreement, then the first Secured Party to deliver a Commencement Notice and not receive a Veto Notice within the Veto Period shall be the only Secured Party that may exercise such remedy).

 

(hh) “Person” has the meaning specified therefor in the Securities Purchase Agreement.

 

(ii) “Pledged Companies” means, each Person listed on Schedule 5 hereto as a “Pledged Company,” together with each other Person all or a portion of whose Stock is acquired or otherwise owned by a Grantor after the date hereof.

 

(jj) “Pledged Interests” means all of each Grantor’s right, title and interest in and to all of the Stock now or hereafter owned by such Grantor, regardless of class or designation, including all substitutions therefor and replacements thereof, all proceeds thereof and all rights relating thereto, also including any certificates representing the Stock, the right to receive any certificates representing any of the Stock, all warrants, options, share appreciation rights and other rights, contractual or otherwise, in respect thereof, and the right to receive dividends, distributions of income, profits, surplus, or other compensation by way of income or liquidating distributions, in cash or in kind, and cash, instruments, and other property from time to time received, receivable, or otherwise distributed in respect of or in addition to, in substitution of, on account of, or in exchange for any or all of the foregoing.

 

  

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(kk) “Pledged Operating Agreements” means all of each Grantor’s rights, powers, and remedies under the limited liability company operating agreements of each of the Pledged Companies that are limited liability companies, as may be amended, restated, supplemented, or otherwise modified from time to time.

 

(ll) “Pledged Partnership Agreements” means all of each Grantor’s rights, powers, and remedies under the partnership agreements of each of the Pledged Companies that are partnerships, as may be amended, restated, supplemented, or otherwise modified from time to time.

 

(mm) “Proceeds” has the meaning specified therefor in Section 2.

 

(nn) “Real Property” means any estates or interests in real property now owned or hereafter acquired by any Grantor and the improvements thereto.

 

(oo) “Records” means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.

 

(pp) “Secured Obligations” mean all of the present and future payment and performance obligations of Grantors arising under this Agreement, the Notes, the Guaranties, and the other Transaction Documents, including, without duplication, reasonable attorneys’ fees and expenses and any interest, fees, or expenses that accrue after the filing of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any Insolvency Proceeding.

 

(qq) “Securities Account” means a securities account (as that term is defined in the Code).

 

(rr) “Security Documents” means, collectively, this Agreement, each Copyright Security Agreement, each Patent Security Agreement, each Trademark Security Agreement, each Control Agreement, and each other security agreement, pledge agreement, assignment, mortgage, security deed, deed of trust, and other agreement or document executed and delivered by a Grantor as security for any of the Secured Obligations, as may be amended, restated, supplemented, or otherwise modified from time to time.

 

(ss) “Security Interest” and “Security Interests” have the meanings specified therefor in Section 2.

 

(tt) “Significant Secured Party” means, on any date of determination, any Secured Party holding 17.5% or more of the aggregate principal amount of Notes outstanding on such date.

 

  

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(uu) “Stock” means all shares, options, warrants, interests (including, without limitation, membership and partnership interests), participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the United States Securities and Exchange Commission and any successor thereto under the Securities Exchange Act of 1934, as in effect from time to time).

 

(vv) “Subsidiaries” and “Subsidiary” each have the meanings specified therefor in the Notes.

 

(ww) “Supporting Obligations” means supporting obligations (as such term is defined in the Code).

 

(xx) “Trademarks” means all trademarks, trade names, trademark applications, service marks, service mark applications, and also includes (i) the trade names, trademarks, trademark applications, service marks, and service mark applications listed on Schedule 6 attached hereto and made a part hereof, and (ii) all renewals thereof, (iii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iv) the right to sue for past, present and future infringements and dilutions thereof, (v) the goodwill of each Grantor’s business symbolized by the foregoing or connected therewith, and (vi) all of each Grantor’s rights corresponding thereto throughout the world.

 

(yy) “Trademark Security Agreement” means each Trademark Security Agreement among Grantors and Secured Parties in substantially the form of Exhibit C attached hereto, pursuant to which Grantors have granted to each Secured Party a security interest in all their respective Trademarks.

 

(zz) “Transaction Documents” has the meaning specified therefor in the Securities Purchase Agreement.

 

(aaa) “URL” means “uniform resource locator,” an internet web address.

 

(bbb) “Veto Notice” means, with respect to any Commencement Notice, a written notice given by any Significant Secured Party to the other Secured Parties in accordance with the notice provisions set forth in the Securities Purchase Agreement pursuant to which such Significant Secured Party notifies the other Secured Parties of its objection to the commencement of the remedial action specified in such Commencement Notice and certifies that, to the best of its knowledge, it is a Significant Secured Party.

 

(ccc) “Veto Period” means, with respect to any Commencement Notice, the period of ten (10) consecutive calendar days following the delivery of such Commencement Notice to the Secured Parties.

 

(ddd) “Warrants” has the meaning specified therefor in the Securities Purchase Agreement.

 

  

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2. Grant of Security. Each Grantor hereby unconditionally grants, assigns, and pledges to each Secured Party a separate, continuing security interest (each, a “Security Interest” and, collectively, the “Security Interests”) in all assets of such Grantor (other than Real Property) whether now owned or hereafter acquired or arising and wherever located (collectively, the “Collateral”), including, without limitation, such Grantor’s right, title, and interest in and to the following, whether now owned or hereafter acquired or arising and wherever located:

 

(a) all of such Grantor’s Accounts;

 

(b) all of such Grantor’s Books;

 

(c) all of such Grantor’s Chattel Paper;

 

(d) all of such Grantor’s Deposit Accounts;

 

(e) all of such Grantor’s Equipment and fixtures;

 

(f) all of such Grantor’s General Intangibles;

 

(g) all of such Grantor’s Inventory;

 

(h) all of such Grantor’s Investment Related Property;

 

(i) all of such Grantor’s Negotiable Collateral;

 

(j) all of such Grantor’s rights in respect of Supporting Obligations;

 

(k) all of such Grantor’s Commercial Tort Claims;

 

(l) all of such Grantor’s money, cash, cash equivalents, or other assets of each such Grantor that now or hereafter come into the possession, custody, or control of any Secured Party;

 

(m) all of the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance or Commercial Tort Claims covering or relating to any or all of the foregoing, and any and all Accounts, Books, Chattel Paper, Deposit Accounts, Equipment, General Intangibles, Inventory, Investment Related Property, Negotiable Collateral, Supporting Obligations, money, or other tangible or intangible property resulting from the sale, lease, license, exchange, collection, or other disposition of any of the foregoing, the proceeds of any award in condemnation with respect to any of the foregoing, any rebates or refunds, whether for taxes or otherwise, and all proceeds of any such proceeds, or any portion thereof or interest therein, and the proceeds thereof, and all proceeds of any loss of, damage to, or destruction of the above, whether insured or not insured, and, to the extent not otherwise included, any indemnity, warranty, or guaranty payable by reason of loss or damage to, or otherwise with respect to any of the foregoing (the “Proceeds”). Without limiting the generality of the foregoing, the term “Proceeds” includes whatever is receivable or received when Investment Related Property or proceeds are sold, exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of any indemnity or guaranty payable to any Grantor or any Secured Party from time to time with respect to any of the Investment Related Property.

 

  

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3. Security for Obligations. This Agreement and the Security Interests created hereby secure the payment and performance of the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Secured Parties, or any of them, but for the fact that they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor.

 

4. Grantors Remain Liable.  Anything herein to the contrary notwithstanding, (a) each of the Grantors shall remain liable under the contracts and agreements included in the Collateral, including the Pledged Operating Agreements and the Pledged Partnership Agreements, to perform all of the duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Parties, or any of them, of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under such contracts and agreements included in the Collateral, and (c) no Secured Party shall have any obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement, nor shall any Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.  Until an Event of Default shall occur and be continuing, except as otherwise provided in this Agreement or any other Transaction Document, Grantors shall have the right to possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of their respective businesses, subject to and upon the terms hereof and the other Transaction Documents.  Without limiting the generality of the foregoing, it is the intention of the parties hereto that record and beneficial ownership of the Pledged Interests, including all voting, consensual, and dividend rights, shall remain in the applicable Grantor until the occurrence of an Event of Default and until any Secured Party shall notify the applicable Grantor of such Secured Party’s exercise of voting, consensual, or dividend rights with respect to the Pledged Interests pursuant to Section 15 hereof.

 

5. Representations and Warranties.  Each Grantor hereby represents and warrants as follows:

 

(a) The exact legal name of each of the Grantors is set forth on the signature pages of this Agreement.

 

(b) Schedule 7 attached hereto sets forth (i) all Real Property owned or leased by Grantors, together with all other locations of Collateral, as of the date hereof, and (ii) the chief executive office of each Grantor as of the date hereof.  As of the date hereof, the Inventory and Equipment (other than Equipment out for repair) of the Grantors are not stored with a bailee, warehouseman, or similar party (unless, in any such case, such bailee, warehouseman or other party has entered into a Collateral Access Agreement with respect to such Inventory and Equipment).

 

  

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(c) As of the date hereof, no Grantor has any interest in, or title to, any Copyrights, Intellectual Property Licenses, Patents, or Trademarks except as set forth on Schedules 2, 3, 4 and 6, respectively, attached hereto.  This Agreement is effective to create a valid and continuing Lien on such Copyrights, Intellectual Property Licenses, Patents and Trademarks and, upon filing of the Copyright Security Agreement with the United States Copyright Office and filing of the Patent Security Agreement and the Trademark Security Agreement with the United States Patent and Trademark Office, and the filing of appropriate financing statements in the jurisdictions listed on Schedule 8 hereto, all action necessary or desirable to protect and perfect the Security Interests in and to each Grantor’s Patents, Trademarks, or Copyrights has been taken and such perfected Security Interests are enforceable as such as against any and all creditors of and purchasers from any Grantor.  No Grantor has any interest in any Copyright that is necessary in connection with the operation of such Grantor’s business, except for those Copyrights identified on Schedule 2 attached hereto which have been registered with the United States Copyright Office.

 

(d) This Agreement creates a valid security interest in all of the Collateral of each Grantor, to the extent a security interest therein can be created under the Code, securing the payment of the Secured Obligations. Except to the extent a security interest in the Collateral cannot be perfected by the filing of a financing statement under the Code, all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken or will have been taken upon the filing of financing statements listing each applicable Grantor, as a debtor, and Secured Parties, as secured parties, in the jurisdictions listed next to such Grantor’s name on Schedule 8 attached hereto. Upon the making of such filings, Secured Parties shall each have a first priority perfected security interest in all of the Collateral of each Grantor to the extent such security interest can be perfected by the filing of a financing statement.  All action by any Grantor necessary to protect and perfect such security interest on each item of Collateral has been duly taken.

 

(e) (i) Except for the Security Interests created hereby, such Grantor is and will at all times be the sole holder of record and the legal and beneficial owner, free and clear of all Liens other than Permitted Liens, of the Pledged Interests indicated on Schedule 5 as being owned by such Grantor and, when acquired by such Grantor, any Pledged Interests acquired after the date hereof; (ii) all of the Pledged Interests are duly authorized, validly issued, fully paid and nonassessable and the Pledged Interests constitute or will constitute the percentage of the issued and outstanding Stock of the Pledged Companies of such Grantor identified on Schedule 5 hereto; (iii) such Grantor has the right and requisite authority to pledge all Investment Related Property pledged by such Grantor to each Secured Party as provided herein; (iv) all actions necessary or desirable to perfect, establish the first priority of, or otherwise protect, Secured Parties’ respective Liens in the Investment Related Property pledged hereunder, and the proceeds thereof, have been duly taken, (A) upon the execution and delivery of this Agreement; (B) upon the taking of possession by any Secured Party of any certificates constituting the Pledged Interests, to the extent such Pledged Interests are represented by certificates, together with undated powers endorsed in blank by the applicable Grantor; (C) upon the

 

  

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 filing of financing statements in the applicable jurisdiction set forth on Schedule 8 attached hereto for such Grantor with respect to the Pledged Interests of such Grantor that are not represented by certificates, and (D) with respect to any Securities Accounts, upon the delivery of Control Agreements with respect thereto; and (v) each Grantor has delivered to and deposited with any Secured Party (or, with respect to any Pledged Interests created or obtained after the date hereof, will deliver and deposit in accordance with Sections 6(a) and 8 hereof) all certificates representing the Pledged Interests now or hereafter owned by such Grantor to the extent such Pledged Interests are represented by certificates, and undated powers endorsed in blank with respect to such certificates. None of the Pledged Interests owned or held by such Grantor has been issued or transferred in violation of any securities registration, securities disclosure, or similar laws of any jurisdiction to which such issuance or transfer may be subject.

 

(f) No consent, approval, authorization, or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the grant of a Security Interest by such Grantor in and to the Collateral pursuant to this Agreement or for the execution, delivery, or performance of this Agreement by such Grantor, or (ii) for the exercise by any Secured Party of the voting or other rights provided in this Agreement with respect to Investment Related Property pledged hereunder or the remedies in respect of the Collateral pursuant to this Agreement, except (A) as may be required in connection with such disposition of Investment Related Property by laws affecting the offering and sale of securities generally and (B) for any consent that may be required for the assignment of any Intellectual Property License that expressly provides that such Intellectual Property License is not assignable (or is not assignable without the consent of the other party to such Intellectual Property License).

 

(g) Schedule 9 contains a complete and accurate list of all of each Grantor’s Deposit Accounts and Securities Accounts, including, without limitation, with respect to each bank or securities intermediary (a) the name and address of such Person and (b) the account numbers of such accounts maintained with such Person.

 

6. Covenants.  Each Grantor, jointly and severally, covenants and agrees with each Secured Party that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 24 hereof (but only to the extent the particular assets described in this Section 6 constitute Collateral hereunder):

 

(a) Possession of Collateral.  In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Investment Related Property, or Chattel Paper, and if and to the extent that perfection or priority of Secured Parties’ respective Security Interests is dependent on or enhanced by possession, the applicable Grantor, immediately upon the request of any Secured Party, shall execute such other documents and instruments as shall be requested by such Secured Party or, if applicable, endorse and deliver physical possession of such Negotiable Collateral, Investment Related Property, or Chattel Paper to such Secured Party, together with such undated powers endorsed in blank as shall be requested by such Secured Party.

 

  

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(b) Chattel Paper.

 

(i) Each Grantor shall take all steps reasonably necessary to grant each Secured Party control of all Chattel Paper in accordance with the Code and all “transferable records” as that term is defined in Section 16 of the Uniform Electronic Purchase Act and Section 201 of the federal Electronic Signatures in Global and National Commerce Act as in effect in any relevant jurisdiction; and

 

(ii) If any Grantor retains possession of any Chattel Paper or instruments (which retention of possession shall be subject to the extent permitted hereby and by the Securities Purchase Agreement), promptly upon the request of any Secured Party, such Chattel Paper and instruments shall be marked with the following legend: “This writing and the obligations evidenced or secured hereby are subject to the Security Interests of [names of Secured Parties].”

 

(c) Control Agreements.  Except as set forth on Schedule 9, no Grantor shall establish or maintain any Deposit Account or Securities Account (or any other similar account) unless (i) Grantors shall have provided each Secured Party with 10 days’ advance written notice of each such account and (ii) the Secured Parties shall have received a Control Agreement in respect of such account concurrently with the opening thereof.  Each Grantor shall ensure that all of its Account Debtors forward payment of the amounts owed by them directly to a Deposit Account that is subject to a Control Agreement and deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all of their collections (including those sent directly by their Account Debtors to a Grantor) into a Deposit Account subject to a Control Agreement.

 

(d) Letter-of-Credit Rights.  Each Grantor that is or becomes the beneficiary of a letter of credit shall promptly (and in any event within 2 Business Days after becoming a  beneficiary) notify Secured Parties thereof and, upon the request by any Secured Party, enter into a multi-party agreement with Secured Parties and the issuing or confirming bank with respect to letter-of-credit rights assigning such letter-of-credit rights to Secured Parties and directing all payments thereunder to Secured Parties, all in form and substance satisfactory to Secured Parties.

 

(e) Commercial Tort Claims.  Each Grantor shall promptly (and in any event within 2 Business Days of receipt thereof) notify Secured Parties in writing upon incurring or otherwise obtaining a Commercial Tort Claim after the date hereof and, upon request of any Secured Party, promptly amend Schedule 1 to this Agreement to describe such after-acquired Commercial Tort Claim in a manner that reasonably identifies such Commercial Tort Claim, and hereby authorizes the filing of additional financing statements or amendments to existing financing statements describing such Commercial Tort Claims, and agrees to do such other acts or things deemed necessary or desirable by any Secured Party to give Secured Parties a first priority, perfected security interest in any such Commercial Tort Claim.

 

  

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(f) Government Contracts.  If any Account or Chattel Paper arises out of a contract or contracts with the United States of America or any department, agency, or instrumentality thereof, Grantors shall promptly (and in any event within 2 Business Days of the creation thereof) notify Secured Parties thereof in writing and execute any instruments or take any steps reasonably required by any Secured Party in order that all moneys due or to become due under such contract or contracts shall be assigned to Secured Parties, and shall provide written notice thereof and take all other appropriate actions under the Assignment of Claims Act or other applicable law to provide each Secured Party a first-priority perfected security interest in such contract.

 

(g) Intellectual Property.

 

(i) Upon request of any Secured Party, in order to facilitate filings with the United States Patent and Trademark Office and the United States Copyright Office or any other applicable Governmental Authority, each Grantor shall execute and deliver to Secured Parties one or more Copyright Security Agreements, Trademark Security Agreements, or Patent Security Agreements to further evidence Secured Parties’ respective Liens on such Grantor’s Copyrights, Trademarks or Patents.

 

(ii) Each Grantor shall have the duty (A) to promptly sue for infringement, misappropriation, or dilution with respect to its rights in Intellectual Property and to recover any and all damages for such infringement, misappropriation, or dilution, (B) to prosecute diligently any trademark application or service mark application that is part of the Trademarks pending as of the date hereof or hereafter until the termination of this Agreement, (C) to prosecute diligently any patent application that is part of the Patents pending as of the date hereof or hereafter until the termination of this Agreement, and (D) to take all reasonable and necessary action to preserve and maintain all of each Grantor’s Trademarks, Patents, Copyrights, Intellectual Property Licenses, and its rights therein, including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings.  Each Grantor shall promptly file an application with the United States Copyright Office for any Copyright that has not been registered with the United States Copyright Office. Each Grantor shall promptly file an application with the United States Patent and Trademark Office for any Patent or Trademark that has not been registered with the United States Patent and Trademark Office. Any expenses incurred in connection with the foregoing shall be borne by Grantors.  Each Grantor further agrees not to abandon any Trademark, Patent, Copyright, or Intellectual Property License.

 

(iii) Grantors acknowledge and agree that Secured Parties shall have no duties with respect to the Trademarks, Patents, Copyrights, or Intellectual Property Licenses.  Without limiting the generality of this Section 6(g), Grantors acknowledge and agree that no Secured Party shall be under any obligation to take any steps necessary to preserve rights in the Trademarks, Patents, Copyrights, or Intellectual Property Licenses against any other Person, but any Secured Party may do so at its option from and after the occurrence and during the continuance of an Event of Default, and all expenses incurred in connection therewith (including fees and expenses of attorneys and other professionals) shall be for the sole account of the Grantors and shall be deemed to be Secured Obligations.

 

  

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(h) Investment Related Property.

 

(i) If any Grantor shall receive or become entitled to receive any Pledged Interests after the date hereof, it shall promptly (and in any event within 2 Business Days of receipt thereof) identify such Pledged Interests in a written notice to Secured Parties;

 

(ii) All sums of money and property paid or distributed in respect of the Investment Related Property pledged hereunder which are received by any Grantor shall be held by the Grantors in trust for the benefit of Secured Parties segregated from such Grantor’s other property, and such Grantor shall deliver it forthwith to the Secured Parties in the exact form received;

 

(iii) Each Grantor shall promptly deliver to Secured Parties a copy of each notice or other communication received by it in respect of any Pledged Interests;

 

(iv) No Grantor shall make or consent to any material amendment or other modification or waiver with respect to any Pledged Interests, Pledged Operating Agreement, or Pledged Partnership Agreement, or enter into any agreement or permit to exist any restriction with respect to any Pledged Interests;

 

(v) Each Grantor agrees that it will cooperate with Secured Parties in obtaining all necessary approvals and making all necessary filings under federal, state, local, or foreign law in connection with the Security Interests on the Investment Related Property pledged hereunder or any sale or transfer thereof; and

 

(vi) As to all limited liability company or partnership interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor hereby represents, warrants and covenants that the Pledged Interests issued pursuant to such agreement (A) are not and shall not be dealt in or traded on securities exchanges or in securities markets, (B) do not and will not constitute investment company securities, and (C) are not and will not be held by such Grantor in a securities account.  In addition, none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, provide or shall provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction.

 

  

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(i) Transfers and Other Liens.  Grantors shall not (i) sell, lease, license, assign (by operation of law or otherwise), transfer or otherwise dispose of, or grant any option with respect to, any of the Collateral, except as expressly permitted by this Agreement and the other Transaction Documents, or (ii) create or permit to exist any Lien upon or with respect to any of the Collateral of any of Grantors, except for Permitted Liens.  The inclusion of Proceeds in the Collateral shall not be deemed to constitute consent by any Secured Party to any sale or other disposition of any of the Collateral except as expressly permitted in this Agreement or the other Transaction Documents. Notwithstanding anything contained in this Agreement to the contrary, Permitted Liens shall not be permitted with respect to any Pledged Interests.

 

(j) Preservation of Existence.  Each Grantor shall maintain and preserve its existence, rights and privileges, and become or remain duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.

 

(k) Maintenance of Properties. Each Grantor shall maintain and preserve all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder.

 

(l) Maintenance of Insurance. Each Grantor shall maintain insurance with responsible and reputable insurance companies or associations acceptable to Secured Parties (including, without limitation, comprehensive general liability, property, hazard, rent and business interruption insurance) with respect to its assets and properties (including ,without limitation, all real properties leased or owned by it and any and all Inventory and Equipment) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated and, in each case, acceptable to Secured Parties.

 

(m) Locations of Inventory and Equipment.  Each Grantor shall keep its Inventory and Equipment (other than Equipment out for repair) only at the locations identified in part (c) on Schedule 7 and shall maintain its chief executive office only at the location identified in part (b) on Schedule 7.  Promptly upon the request of any Secured Party (but in no event later than five (5) days following the date of such request), each Grantor shall obtain a Collateral Access Agreement from each Person holding or otherwise in possession of or having a Lien on (as bailee or otherwise) any books and records, Inventory, Equipment or other Collateral of such Grantor.

 

(n) Other Actions as to Any and All Collateral.  Each Grantor shall promptly (and in any event within 2 Business Days of acquiring or obtaining such Collateral) notify Secured Parties in writing upon (i) acquiring or otherwise obtaining any Collateral after the date hereof consisting of Trademarks, Patents, registered Copyrights, Intellectual Property Licenses, Investment Related Property, Chattel Paper (electronic, tangible or otherwise), 

 

  

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documents (as defined in Article 9 of the Code), promissory notes (as defined in the Code, or instruments (as defined in the Code) or (ii) any amount payable under or in connection with any of the Collateral being or becoming evidenced after the date hereof by any Chattel Paper, documents, promissory notes, or instruments and, in each such case upon the request of any Secured Party, promptly execute such other documents, or if applicable, deliver such Chattel Paper, other documents or certificates evidencing any Investment Related Property and do such other acts or things deemed necessary or desirable by any Secured Party to protect Secured Parties’ respective Security Interests therein.

 

(o) Insurance.  Not later than ten (10) Business Days after the Closing Date (as defined in the Securities Purchase Agreement), each Grantor shall deliver or cause to be delivered evidence of its liability and property insurance together with loss payee and additional insured endorsements with respect to such insurance, as applicable, in favor of each Secured Party, in each case, in form and substance acceptable to such Secured Parties.

 

7. Relation to Other Transaction Documents.  The provisions of this Agreement shall be read and construed with the Transaction Documents referred to below in the manner so indicated.

 

(a) Securities Purchase Agreement and Notes. In the event of any conflict between any provision in this Agreement and any provision in the Securities Purchase Agreement or Notes, such provision of the Securities Purchase Agreement or Notes shall control, except to the extent the applicable provision in this Agreement is more restrictive with respect to the rights of Grantors or imposes more burdensome or additional obligations on Grantors, in which event the applicable provision in this Agreement shall control.

 

(b) Patent, Trademark, Copyright Security Agreements.  The provisions of the Copyright Security Agreements, Trademark Security Agreements, and Patent Security Agreements are supplemental to the provisions of this Agreement, and nothing contained in the Copyright Security Agreements, Trademark Security Agreements or the Patent Security Agreements shall limit any of the rights or remedies of any Secured Party hereunder.

 

8. Further Assurances.

 

(a) Each Grantor agrees that from time to time, at its own expense, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that any Secured Party may reasonably request, in order to perfect and protect the Security Interests granted or purported to be granted hereby or to enable any Secured Party to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.

 

  

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(b) Each Grantor authorizes the filing by any Secured Party of financing or continuation statements, or amendments thereto, and such Grantor will execute and deliver to such Secured Party such other instruments or notices, as may be necessary or as such Secured Party may reasonably request, in order to perfect and preserve the Security Interests granted or purported to be granted hereby.

 

(c) Each Grantor authorizes any Secured Party at any time and from time to time to file, transmit, or communicate, as applicable, financing statements and amendments (i) describing the Collateral as “all personal property of debtor” or “all assets of debtor” or words of similar effect, (ii) describing the Collateral as being of equal or lesser scope or with greater detail, or (iii) that contain any information required by part 5 of Article 9 of the Code for the sufficiency or filing office acceptance.  Each Grantor also hereby ratifies any and all financing statements or amendments previously filed by any Secured Party in any jurisdiction.

 

(d) Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior written consent of each Secured Party affected thereby, subject to such Grantor’s rights under Section 9-509(d)(2) of the Code.

 

(e) Each Grantor shall permit each Secured Party or its employees, accountants, attorneys or agents, to examine and inspect any Collateral or any other property of such Grantor at any time during ordinary business hours.

 

9. Secured Parties’ Right to Perform Contracts, Exercise Rights, etc.  Upon the occurrence and during the continuance of an Event of Default, any Secured Party (a) may proceed to perform any and all of the obligations of any Grantor contained in any contract, lease, or other agreement and exercise any and all rights of any Grantor therein contained as fully as such Grantor itself could, (b) shall have the right to use any Grantor’s rights under Intellectual Property Licenses in connection with the enforcement of the Secured Party’s rights hereunder, including the right to prepare for sale and sell any and all Inventory and Equipment now or hereafter owned by any Grantor and now or hereafter covered by such licenses, and (c) shall have the right to request that any Stock that is pledged hereunder be registered in the name of such Secured Party or any of its nominees.

 

10. Secured Parties Appointed Attorney-in-Fact. Each Grantor, on behalf of itself and each New Subsidiary of such Grantor, hereby irrevocably appoints each Secured Party as the attorney-in-fact of such Grantor and each such New Subsidiary. In the event any Grantor or any New Subsidiary fails to execute or deliver in a timely manner any Transaction Document or other agreement, document, certificate or instrument which such Grantor or New Subsidiary now or at any time hereafter is required to execute or deliver pursuant to the terms of the Securities Purchase Agreement or any other Transaction Document, each Secured Party shall have full authority in the place and stead of such Grantor or New Subsidiary, and in the name of such Grantor, such New Subsidiary or otherwise, to execute and deliver each of the foregoing. Without limitation of the foregoing, each Secured Party shall have full authority in the place and stead of each Grantor and each New Subsidiary, and in the name of any such Grantor, any such New Subsidiary or otherwise, at such time as an Event of Default has occurred and is continuing, to take any action and to execute any instrument which such Secured Party may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation:

 

  

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(a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with any Collateral of such Grantor or New Subsidiary;

 

(b) to receive and open all mail addressed to such Grantor or New Subsidiary and to notify postal authorities to change the address for the delivery of mail to such Grantor or New Subsidiary to that of such Secured Party;

 

(c) to receive, indorse, and collect any drafts or other instruments, documents, Negotiable Collateral or Chattel Paper;

 

(d) to file any claims or take any action or institute any proceedings which such Secured Party may deem necessary or desirable for the collection of any of the Collateral of such Grantor or New Subsidiary or otherwise to enforce the rights of any Secured Party with respect to any of the Collateral;

 

(e) to repair, alter, or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any Person obligated to such Grantor or New Subsidiary in respect of any Account of such Grantor or New Subsidiary;

 

(f) to use any labels, Patents, Trademarks, trade names, URLs, domain names, industrial designs, Copyrights, customer lists, advertising matter or other industrial or intellectual property rights, in advertising for sale and selling Inventory and other Collateral and to collect any amounts due under Accounts, contracts or Negotiable Collateral of such Grantor or New Subsidiary; and

 

(g) such Secured Party shall have the right, but shall not be obligated, to bring suit in its own name to enforce the Trademarks, Patents, Copyrights and Intellectual Property Licenses and, if such Secured Party shall commence any such suit, the appropriate Grantor or New Subsidiary shall, at the request of such Secured Party, do any and all lawful acts and execute any and all proper documents reasonably required by such Secured Party in aid of such enforcement.

 

To the extent permitted by law, each Grantor hereby ratifies, for itself and each of its New Subsidiaries, all that such attorney-in-fact shall lawfully do or cause to be done by virtue hereof.  This power-of-attorney granted pursuant to this Section 10 is coupled with an interest and shall be irrevocable until this Agreement is terminated.

 

11. Secured Parties May Perform.  If any Grantor fails to perform any agreement contained herein, any Secured Party may itself perform, or cause performance of, such agreement, and the reasonable expenses of such Secured Party incurred in connection therewith shall be payable, jointly and severally, by Grantors.

 

  

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12. Secured Parties’ Duties; Bailee for Perfection.  The powers conferred on Secured Parties hereunder are solely to protect the Secured Parties’ respective interests in the Collateral and shall not impose any duty upon any Secured Party in favor of any Grantor or any other Secured Party to exercise any such powers.  Except for the safe custody of any Collateral in its actual possession and the accounting for moneys actually received by it hereunder, no Secured Party shall have any duty to any Grantor or any other Secured Party as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.  A Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its actual possession if such Collateral is accorded treatment substantially equal to that which such Secured Party accords its own property.  Each Secured Party agrees that, with respect to any Collateral at any time or times in its possession and in which any other Secured Party has a Lien, the Secured Party in possession of any such Collateral shall be the bailee of each other Secured Party solely for purposes of perfecting (to the extent not otherwise perfected) each other Secured Party’s Lien in such Collateral, provided that no Secured Party shall be obligated to obtain or retain possession of any such Collateral.  Without limiting the generality of the foregoing, Secured Parties and Grantors hereby agree that any Secured Party that is in possession of any Collateral at such time as the Secured Obligations owing to such Secured Party have been paid in full may re-deliver such Collateral to the applicable Grantor or, if requested by any Secured Party prior to such re-delivery, may deliver such Collateral (unless otherwise restricted by applicable law or court order and subject in all events to the receipt of an indemnification of all liabilities arising from such delivery) to the requesting Secured Party, without recourse to or representation or warranty by the Secured Party in such possession.

 

13. Collection of Accounts, General Intangibles and Negotiable Collateral.  At any time upon the occurrence and during the continuation of an Event of Default, any Secured Party may (a) notify Account Debtors of any Grantor that the Accounts, General Intangibles, Chattel Paper or Negotiable Collateral have been assigned to such Secured Party or that such Secured Party has a security interest therein, and (b) collect the Accounts, General Intangibles and Negotiable Collateral directly, and any collection costs and expenses shall constitute part of the Secured Obligations.

 

14. Disposition of Pledged Interests by Secured Party.  None of the Pledged Interests existing as of the date of this Agreement are, and none of the Pledged Interests hereafter acquired on the date of acquisition thereof will be, registered or qualified under the various federal, state or other securities laws of the United States or any other jurisdiction, and disposition thereof after an Event of Default may be restricted to one or more private (instead of public) sales in view of the lack of such registration.  Each Grantor understands that in connection with such disposition, any Secured Party may approach only a restricted number of potential purchasers and further understands that a sale under such circumstances may yield a lower price for the Pledged Interests than if the Pledged Interests were registered and qualified pursuant to federal, state and other securities laws and sold on the open market.  Each Grantor, therefore, agrees that:  (a) if a Secured Party  shall, pursuant to the terms of this Agreement, sell or cause the Pledged Interests or any portion thereof to be sold at a private sale, such Secured Party shall have the right to rely upon the advice and opinion of any nationally recognized brokerage or investment firm (but shall not be obligated to seek such advice and the failure to do so shall not be considered in determining the commercial reasonableness of such action) as to the best manner in which to offer the Pledged Interest or any portion thereof for sale and as to the best price reasonably obtainable at the private sale thereof; and (b) such reliance shall be conclusive evidence that such Secured Party has handled the disposition in a commercially reasonable manner.

 

  

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15. Voting Rights.

 

(a) Upon the occurrence and during the continuation of an Event of Default, (i) any Secured Party may, at its option, and with 2 Business Days prior notice to any Grantor, and in addition to all rights and remedies available to Secured Parties under any other agreement, at law, in equity, or otherwise, exercise all voting rights, and all other ownership or consensual rights in respect of the Pledged Interests owned by such Grantor, but under no circumstances is any Secured Party obligated by the terms of this Agreement to exercise such rights, and (ii) if such Secured Party duly exercises its right to vote any of such Pledged Interests, each Grantor hereby appoints such Secured Party as such Grantor’s true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote such Pledged Interests in any manner that such Secured Party deems advisable for or against all matters submitted or which may be submitted to a vote of shareholders, partners or members, as the case may be.  This power-of-attorney granted pursuant to this Section 15 is coupled with an interest and shall be irrevocable until this Agreement is terminated.

 

(b) For so long as any Grantor shall have the right to vote the Pledged Interests owned by it, such Grantor covenants and agrees that it will not, without the prior written consent of Secured Parties, vote or take any consensual action with respect to such Pledged Interests which would materially or adversely affect the rights of Secured Parties exercising the voting rights owned by such Grantor or the value of the Pledged Interests.

 

16. Remedies.  Upon the occurrence and during the continuance of an Event of Default:

 

(a) Any Secured Party may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, in the other Transaction Documents, or otherwise available to it, all the rights and remedies of a secured party on default under the Code or any other applicable law.  Without limiting the generality of the foregoing, each Grantor expressly agrees that, in any such event, any Secured Party without any demand, advertisement, or notice of any kind (except a notice specified below of time and place of public or private sale) to or upon any Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code or by any other applicable law), may take immediate possession of all or any portion of the Collateral and (i) require Grantors to, and each Grantor hereby agrees that it will at its own expense and upon request of such Secured Party forthwith, assemble all or part of the Collateral as directed by such Secured Party and make it available to such Secured Party at one or more locations where such Grantor regularly maintains Inventory, and (ii) without notice except as specified below,

 

  

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sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of such Secured Party’s offices or elsewhere, for cash, on credit, and upon such other terms as such Secured Party may deem commercially reasonable.  Each Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 days notice to any Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and specifically such notice shall constitute a reasonable “authenticated notification of disposition” within the meaning of Section 9-611 of the Code.  No Secured Party shall be obligated to make any sale of Collateral regardless of notice of sale having been given.  Any Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

 

(b) Each Secured Party is hereby granted a license or other right to use, without liability for royalties or any other charge, each Grantor’s labels, Patents, Copyrights, rights of use of any name, trade secrets, trade names, Trademarks, service marks and advertising matter, URLs, domain names, industrial designs, other industrial or intellectual property or any property of a similar nature, whether owned by any Grantor or with respect to which any Grantor has rights under license, sublicense, or other agreements (but only to the extent (i) such license, sublicense or agreement does not prohibit such use by such Secured Party and (ii) such Grantor will not be in default under such license, sublicense, or other agreement as a result of such use by such Secured Party), as it pertains to the Collateral, in preparing for sale, advertising for sale and selling any Collateral, and each Grantor’s rights under all licenses and all franchise agreements shall inure to the benefit of such Secured Party.

 

(c)  Each Secured Party may, in addition to other rights and remedies provided for herein, in the other Transaction Documents, or otherwise available to it under applicable law and without the requirement of notice to or upon any Grantor or any other Person (which notice is hereby expressly waived to the maximum extent permitted by the Code or any other applicable law), (i) with respect to any Grantor’s Deposit Accounts in which any such Secured Party’s Liens are perfected by control under Section 9-104 of the Code, instruct the bank maintaining such Deposit Account for the applicable Grantor to pay the balance of such Deposit Account to or for the benefit of such Secured Party, and (ii) with respect to any Grantor’s Securities Accounts in which Agent’s Liens are perfected by control under Section 9-106 of the Code, instruct the securities intermediary maintaining such Securities Account for the applicable Grantor to (A) transfer any cash in such Securities Account to or for the benefit of such Secured Party, or (B) liquidate any financial assets in such Securities Account that are customarily sold on a recognized market and transfer the cash proceeds thereof to or for the benefit of such Secured Party.

 

(d) Any cash held by any Secured Party as Collateral and all proceeds received by any Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied against the Secured Obligations in the order set forth in Section 17 hereof. In the event the proceeds of Collateral are insufficient for the Satisfaction in Full of the Secured Obligations (as defined below), each Grantor shall remain jointly and severally liable for any such deficiency.

 

  

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(e) Each Grantor hereby acknowledges that the Secured Obligations arose out of a commercial transaction, and agrees that if an Event of Default shall occur and be continuing any Secured Party shall have the right to an immediate writ of possession without notice of a hearing. Each Secured Party shall have the right to the appointment of a receiver for the properties and assets of each Grantor, and each Grantor hereby consents to such rights and such appointment and hereby waives any objection such Grantor may have thereto or the right to have a bond or other security posted by any Secured Party.

 

(f) Notwithstanding anything in this Agreement to the contrary, each Secured Party agrees that it will not exercise any remedy provided for under this Agreement with respect to all or any portion of the Collateral (including, without limitation, pursuant to a Collateral Access Agreement) unless such Secured Party is a Permitted Secured Party (provided that the foregoing shall not prevent any Secured Party from commencing or participating in any Insolvency Proceeding or taking any action (other than with respect to the Collateral) to enforce the payment or performance of any Grantors’ obligations under any of the Notes, Guaranties or other Transaction Documents).  This Section 16(f) is not intended to confer any rights or benefits upon Grantors, or any of them, or any other Person except Secured Parties, and no Person (including any or all Grantors) other than Secured Parties shall have any right to enforce any of the provisions of this Section 16(f). As between Grantors, or any of them, and any Secured Party, any action that such Secured Party may take under this Agreement shall be conclusively presumed to have been authorized and approved by the other Secured Parties.

 

17. Priority of Liens; Application of Proceeds of Collateral.  Each Secured Party hereby acknowledges and agrees that, notwithstanding the time or order of the filing of any financing statement or other registration or document with respect to the Collateral and the Security Interests, or any provision of this Agreement, any other Security Document, the Code or other applicable law, solely as amongst the Secured Parties, the separate Security Interests of the Secured Parties shall have the same rank and priority; provided, that, the foregoing shall not apply to any Security Interest of a Secured Party that is void or voidable as  a matter of law.  In furtherance thereof, all proceeds of Collateral received by any Secured Party shall be applied as follows:

 

(a)           first, ratably to pay any expenses due to any of the Secured Parties (including, without limitation, the reasonable costs and expenses paid or incurred by any Secured Party to correct any default under or enforce any provision of the Transaction Documents, or after the occurrence of any Event of Default in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated) or indemnities then due to any of the Secured Parties under the Transaction Documents, until paid in full;

 

  

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(b)           second, ratably to pay any fees or premiums then due to any of the Secured Parties under the Transaction Documents, until paid in full;

 

(c)           third, ratably to pay interest due in respect of the Secured Obligations then due to any of the Secured Parties, until paid in full;

 

(d)           fourth, ratably to pay the principal amount of all Secured Obligations then due to any of the Secured Parties, until paid in full;

 

(e)           fifth, ratably to pay any other Secured Obligations then due to any of the Secured Parties; and

 

(f)           sixth, to Grantors or such other Person entitled thereto under applicable law.

 

18. Remedies Cumulative.  Each right, power, and remedy of any Secured Party as provided for in this Agreement or in any other Transaction Document or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Agreement or in the other Transaction Documents or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by any Secured Party, of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by such Secured Party of any or all such other rights, powers, or remedies.

 

19. Marshaling. No Secured Party shall be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Secured Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising.  To the extent that it lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of any Secured Party’s rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.

 

20. Acknowledgment.

 

(a)           Each Secured Party hereby agrees and acknowledges that no other Secured Party has agreed to act for it as an administrative or collateral agent, and each Secured Party is and shall remain solely responsible for the attachment, perfection and priority of all Liens created by this Agreement or any other Security Document in favor of such Secured Party.  No Secured Party shall have by reason of this Agreement or any other Transaction Document an agency or fiduciary relationship with any other Secured Party.  No Secured Party (which term, as used in this sentence, shall include reference to each

 

  

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Secured Party’s officers, directors, employees, attorneys, agents and affiliates and to the officers, directors, employees, attorneys and agents of such Secured Party’s affiliates) shall: (i) have any duties or responsibilities except those expressly set forth in this Agreement and the other Security Documents or (ii) be required to take, initiate or conduct any enforcement action (including any litigation, foreclosure or collection proceedings hereunder or under any of the other Security Documents).  Without limiting the foregoing, no Secured Party shall have any right of action whatsoever against any other Secured Party as a result of such Secured Party acting or refraining from acting hereunder or under any of the Security Documents except as a result and to the extent of losses caused by such Secured Party’s actual gross negligence or willful misconduct (it being understood and agreed by each Secured Party that the delivery by any Significant Secured Party of one or more Veto Notices shall not be deemed to be or construed as gross negligence or willful misconduct on the part of the Secured Party delivering any such Veto Notice).  No Secured Party assumes any responsibility for any failure or delay in performance or breach by any Grantor or any Secured Party of its obligations under this Agreement or any other Transaction Document.  No Secured Party makes to any other Secured Party any express or implied warranty, representation or guarantee with respect to any Secured Obligations, Collateral, Transaction Document or Grantor.  No Secured Party nor any of its officers, directors, employees, attorneys or agents shall be responsible to any other Secured Party or any of its officers, directors, employees, attorneys or agents for: (i) any recitals, statements, information, representations or warranties contained in any of the Transaction Documents or in any certificate or other document furnished pursuant to the terms hereof; (ii) the execution, validity, genuineness, effectiveness or enforceability of any of the Transaction Documents; (iii) the validity, genuineness, enforceability, collectability, value, sufficiency or existence of any Collateral, or the attachment, perfection or priority of any Lien therein; or (iv) the assets, liabilities, financial condition, results of operations, business, creditworthiness or legal status of any Grantor or any Account Debtor.  No Secured Party nor any of its officers, directors, employees, attorneys or agents shall have any obligation to any other Secured Party to ascertain or inquire into the existence of any default or Event of Default, the observance or performance by any Grantor of any of the duties or agreements of such Grantor under any of the Transaction Documents or the satisfaction of any conditions precedent contained in any of the Transaction Documents.

 

(b)           Each Secured Party hereby acknowledges and represents that it has, independently and without reliance upon any other Secured Party, and based upon such documents, information and analyses as it has deemed appropriate, made its own credit analysis of each Grantor and its own decision to enter into the Transaction Documents and to purchase the Notes and Warrants, and each Secured Party has made such inquiries concerning the Transaction Documents, the Collateral and each Grantor as such Secured Party feels necessary and appropriate, and has taken such care on its own behalf as would have been the case had it entered into the Transaction Documents without any other Secured Party.  Each Secured Party hereby further acknowledges and represents that the other Secured Parties have not made any representations or warranties to it concerning any Grantor, any of the Collateral or the legality, validity, sufficiency or enforceability of any of the Transaction Documents.  Each Secured Party also hereby acknowledges that it 

 

  

24

  

 

will, independently and without reliance upon the other Secured Parties, and based upon such financial statements, documents and information as it deems appropriate at the time, continue to make and rely upon its own credit decisions in taking or refraining to take any other action under this Agreement or the Transaction Documents.  No Secured Party shall have any duty or responsibility to provide any other Secured Party with any notices, reports or certificates furnished to such Secured Party by any Grantor or any credit or other information concerning the affairs, financial condition, business or assets of any Grantor (or any of its affiliates) which may come into possession of such Secured Party.

 

21. Indemnity and Expenses.

 

(a) Without limiting any obligations of Parent under the Securities Purchase Agreement, each Grantor agrees to indemnify all Secured Parties from and against all claims, lawsuits and liabilities (including attorneys’ fees) arising out of or resulting from this Agreement (including enforcement of this Agreement) or any other Transaction Document, except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the party seeking indemnification as determined by a final non-appealable order of a court of competent jurisdiction. This provision shall survive the termination of this Agreement and the Transaction Documents and the Satisfaction in Full of the Secured Obligations.

 

(b) Grantors, jointly and severally, shall, upon demand, pay to each Secured Party all of the costs and expenses which such Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or, upon an Event of Default, the sale of, collection from, or other realization upon, any of the Collateral in accordance with this Agreement and the other Transaction Documents, (iii) the exercise or enforcement of any of the rights of such Secured Party hereunder or (iv) the failure by any Grantor to perform or observe any of the provisions hereof.

 

22. Merger, Amendments; Etc.  THIS AGREEMENT, TOGETHER WITH THE OTHER TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES SOLELY WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.  No provision of this Agreement may be amended other than by an instrument in writing signed by each Grantor and each Significant Secured Party, and any amendment to any provision of this Agreement made in conformity with the provisions of this Section 22 shall be binding on all Secured Parties, provided that no such amendment shall be effective to the extent that it (1) applies to less than all of the Secured Parties, (2) imposes any obligation or liability on any Secured Party without such Secured Party’s prior written consent (which may be granted or withheld in such Secured Party’s sole discretion) or (3) applies retroactively. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party, provided that all of the Significant Secured Parties (in a writing signed by all of the Significant Secured Parties) may waive any provision of this Agreement, and any waiver of any provision of this Agreement made in conformity with the provisions of this Section 22 shall be binding on all Secured Parties, provided that no such waiver shall be effective to the extent that it (1) applies to less than all the Secured Parties (unless a party gives a waiver as to itself only), (2) imposes any obligation or liability on any Secured Party without such Secured Party’s prior written consent (which may be granted or withheld in such Secured Party’s sole discretion) or (3) applies retroactively.

 

  

25

  

 

23. Addresses for Notices. All notices and other communications provided for hereunder (a) shall be given in the form and manner set forth in the Securities Purchase Agreement and (b) shall be delivered, (i) in the case of notice to any Grantor, by delivery of such notice to Parent at Parent’s address specified in the Securities Purchase Agreement or at such other address as shall be designated by Parent in a written notice to each of the Secured Parties in accordance with the provisions thereof, and (ii) in the case of notice to any Secured Party, by delivery of such notice to such Secured Party at its address specified in the Securities Purchase Agreement or at such other address as shall be designated by such Secured Party in a written notice to Parent and each other Secured Party in accordance with the provisions thereof.

 

24. Separate, Continuing Security Interests; Assignments under Transaction Documents.  This Agreement shall create a separate, continuing security interest in the Collateral in favor of each Secured Party and shall (a) remain in full force and effect until Satisfaction in Full of the Secured Obligations, (b) be binding upon each of Grantors, and their respective permitted successors and permitted assigns, and (c) inure to the benefit of, and be enforceable by, the Secured Parties and their respective successors, transferees and assigns.  Without limiting the generality of the foregoing clause (c), any Secured Party may, in accordance with the provisions of the Transaction Documents, assign or otherwise transfer all or any portion of its rights and obligations under the Transaction Documents to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Secured Party herein or otherwise. Upon Satisfaction in Full of the Secured Obligations, the Security Interests granted hereby shall terminate and all rights to the Collateral shall revert to Grantors or any other Person entitled thereto. At such time, each Secured Party will authorize the filing of appropriate termination statements to terminate such Security Interests.  No transfer or renewal, extension, assignment, or termination of this Agreement or any other Transaction Document, or any other instrument or document executed and delivered by any Grantor to any Secured Party nor any additional loans made by any Secured Party to any Grantor, nor the taking of further security, nor the retaking or re-delivery of the Collateral to Grantors, or any of them, by any Secured Party, nor any other act of Secured Parties, or any of them, shall release any of Grantors from any obligation, except a release or discharge executed in writing by all Secured Parties.  No Secured Party shall by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, unless such waiver is in writing and signed by such Secured Party and then only to the extent therein set forth.  A waiver by any Secured Party of any right or remedy on any occasion shall not be construed as a bar to the exercise of any such right or remedy which such Secured Party would otherwise have had on any other occasion.

 

  

26

  

 

25. Governing Law; Jurisdiction; Service of Process; Jury Trial. The parties hereby agree that pursuant to 735 Illinois Compiled Statutes 105/5-5 they have chosen that all questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Chicago, Illinois, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper; provided, however, any suit seeking enforcement against any Collateral or other property may be brought, at any Secured Party’s option, in the courts of any jurisdiction where such Secured Party elects to bring such action or where such Collateral or other property may be found.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Without limitation of the foregoing, each Grantor other than Parent hereby irrevocably appoints Parent as such Grantor’s agent for purposes of receiving and accepting any service of process hereunder or under any of the other Security Documents.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

26. Miscellaneous.

 

(a) This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof. Any party delivering an executed counterpart of this Agreement by facsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Security Document mutatis mutandis.

 

(b) Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction.

 

  

27

  

 

(c) Headings used in this Agreement are for convenience only and shall not be used in connection with the interpretation of any provision hereof.

 

(d) The pronouns used herein shall include, when appropriate, either gender and both singular and plural, and the grammatical construction of sentences shall conform thereto.

 

(e) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. For clarification purposes, the Recitals are part of this Agreement.

 

(f) Unless the context of this Agreement or any other Transaction Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms “includes” and  “including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement or any other Transaction Document refer to this Agreement or such other Transaction Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Transaction Document, as the case may be.  Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified.  Any reference in this Agreement or in any other Transaction Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). “Satisfaction in Full of the Secured Obligations” shall mean the indefeasible payment in full in cash and discharge, or other satisfaction in accordance with the terms of the Transaction Documents and discharge, of all Secured Obligations in full. Any reference herein to any Person shall be construed to include such Person’s permitted successors and permitted assigns. Any requirement of a writing contained herein or in any other Transaction Document shall be satisfied by the transmission of a Record and any Record so transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein.

 

(g) All dollar amounts referred to in this Agreement and the other Transaction Documents are in United States Dollars (“U.S. Dollars”), and all amounts owing under this Agreement and all other Transaction Documents shall be paid in U.S. Dollars. All amounts denominated in other currencies shall be converted in the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Agreement, the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation.

 

[signature pages follow]

 

  

28

  

 

IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement by and through their duly authorized officers, as of the day and year first above written.

 

	
GRANTORS:

	
ECOBLU PRODUCTS, INC., a Colorado corporation

 

By:                                                                

Name:                                                           

Title:                                                             

 

 

  

29

  

 

 

	
SECURED PARTIES:

	
IROQUOIS MASTER FUND LTD.

 

 

                                                                             

By: Joshua Silverman, Authorized Signatory

 

 

  

30

  

 

SCHEDULE 1

 

COMMERCIAL TORT CLAIMS

 

 

NONE

 

  

31

  

 

SCHEDULE 2

 

COPYRIGHTS

 

 

NONE

 

  

32

  

 

SCHEDULE 3

 

INTELLECTUAL PROPERTY LICENSES

 

1)   License of Purchase, Distribution and Services Agreement by Bluwood USA in favor of EcoBlu Products, Inc., dated as of August 24th 2009.

 

2)   License of Hartindo AF21 Product, Purchase, Sales, Distribution, Marketing and Service Agreement by Megola in favor of EcoBlu Products, Inc., dated as of November 11th 2009.

 

  

33

  

 

 

SCHEDULE 4

 

PATENTS

 

 

NONE

 

  

34

  

 

SCHEDULE 5

 

PLEDGED COMPANIES

 

 

	
Name of Pledgor

	
Name of Pledged Company

	
Percentage of Class Owned

	
NONE

	  	  
	  	  	  

  

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SCHEDULE 6

 

TRADEMARKS

 

 

	
Grantor

	
Country

	
Mark

	
Application/ Registration No.

	
App/Reg Date

	
EcoBlu Products, Inc.

	
US

	
ECOBLU

	
77769468

	
June 26, 2009

	
EcoBlu Products, Inc.

	
US

	
ECOBLU

	
77768573

	
June 25, 2009

 

  

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SCHEDULE 7

 

 

Part (a)

 

Owned Real Property

 

NONE

 

Leased Real Property

 

909 West Vista Way, Vista, California 92083 (Corporate office)

 

	
o  

	
Landlord is “James A Meredith Trust”

 

1280 Jefferson Lane, Colton, California 92324 (Manufacturing Plant)

 

	
o  

	
Landlord is “Cascade Warehouse/Scott Cantonwine”

 

300 South McKinley Street, Prosper, Texas 75078

 

	
o  

	
Landlord is “Guthrie Properties, Ltd.”

 

Other Locations of Collateral                                                      

 

NONE

 

Part (b)

 

Chief Executive Office of each Grantor:

 

909 West Vista Way, Vista CA 92083

 

Part (c)

 

Locations of Inventory and Equipment:

 

1280 Jefferson Lane, Colton CA 92324

 

  

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SCHEDULE 8

 

LIST OF UNIFORM COMMERCIAL CODE FILING JURISDICTIONS

 

	
Grantor

	
Jurisdictions

	
EcoBlu Products, Inc.

	
Colorado

	  	  
	  	  
	  	  
	  	  
	  	  
	  	  
	  	  

 

  

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SCHEDULE 9

 

DEPOSIT ACCOUNTS AND SECURITIES ACCOUNTS

 

Deposit Accounts

Regents Bank

501 West Broadway Suite 550

San Diego, CA 92101

Account Number: 002107852

ABA Routing Number: 122243321

Regents Bank

501 West Broadway Suite 550

San Diego, CA 92101

Account Number: 002108330

ABA Routing Number: 122243321

Securities Accounts

 

None.

 

  

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EXHIBIT A

 

COPYRIGHT SECURITY AGREEMENT

 

This COPYRIGHT SECURITY AGREEMENT (this “Copyright Security Agreement”) is made this 26th day of March 2010, by the Grantors listed on the signature pages hereof (collectively, jointly and severally, “Grantors” and each individually “Grantor”), in favor of the Secured Parties under and as defined in the below-described Security Agreement.

 

RECITALS

 

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of March 26, 2010 (as may be amended, restated, supplemented, or otherwise modified from time to time, including all schedules thereto, collectively, the “Securities Purchase Agreement”), by and among EcoBlu Products, Inc., a Colorado corporation (“Parent”), and each of the Secured Parties, Parent has agreed to sell, and each of the Secured Parties have each agreed to purchase, severally and not jointly, certain Notes and Warrants; and

 

WHEREAS, in order to induce each of the Secured Parties to purchase, severally and not jointly, the Notes and Warrants as provided for in the Securities Purchase Agreement, Grantors have executed and delivered to each of the Secured Parties that certain Security Agreement of even date herewith (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the “Security Agreement”); and

 

WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to each of the Secured Parties this Copyright Security Agreement.

 

AGREEMENTS

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantors hereby agree as follows:

 

1. DEFINED TERMS.  All capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement.

 

2. GRANT OF SECURITY INTEREST IN COPYRIGHT COLLATERAL.  Each Grantor hereby grants to each Secured Party a continuing first priority security interest in all of such Grantor’s right, title and interest in, to and under the following, whether presently existing or hereafter created or acquired (collectively, the “Copyright Collateral”):

 

(a) all of each Grantor’s Copyrights and Copyright Intellectual Property Licenses to which it is a party including those referred to on Schedule I hereto;

 

(b) all reissues, continuations or extensions of the foregoing; and

 

  

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(c) all products and proceeds of the foregoing, including any claim by such Grantor against third parties for past, present or future infringement or dilution of any Copyright or any Copyright licensed under any Intellectual Property License.

 

3. SECURITY FOR OBLIGATIONS.  This Copyright Security Agreement and the Security Interests created hereby secures the payment and performance of all the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Copyright Security Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Secured Parties, or any of them, whether or not they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor.

 

4. SECURITY AGREEMENT.  The security interests granted pursuant to this Copyright Security Agreement are granted in conjunction with the security interests granted to Secured Parties pursuant to the Security Agreement.  Each Grantor hereby acknowledges and affirms that the rights and remedies of Secured Parties with respect to their respective security interests in the Copyright Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

 

5. AUTHORIZATION TO SUPPLEMENT.  To the extent required under the Security Agreement, Grantors shall give Secured Parties prompt notice in writing of any additional copyright registrations or applications therefor after the date hereof. Grantors hereby authorize Secured Parties unilaterally to modify this Agreement by amending Schedule I to include any future registered copyrights or applications therefor of Grantors.  Notwithstanding the foregoing, no failure to so modify this Copyright Security Agreement or amend Schedule I shall in any way affect, invalidate or detract from any Secured Party’s continuing security interest in all Collateral, whether or not listed on Schedule I.

 

6. COUNTERPARTS.  This Copyright Security Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.  In proving this Copyright Security Agreement or any other Transaction Document in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought.

 

  

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7. CONSTRUCTION.  Unless the context of this Copyright Security Agreement or any other Transaction Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms “includes” and  “including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Copyright Security Agreement or any other Transaction Document refer to this Copyright Security Agreement or such other Transaction Document, as the case may be, as a whole and not to any particular provision of this Copyright Security Agreement or such other Transaction Document, as the case may be.  Section, subsection, clause, schedule, and exhibit references herein are to this Copyright Security Agreement unless otherwise specified. Any reference in this Copyright Security Agreement or in any other Transaction Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein).  Any reference herein to any Person shall be construed to include such Person’s permitted successors and permitted assigns.  Any requirement of a writing contained herein or in any other Transaction Document shall be satisfied by the transmission of a Record and any Record so transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. The language used in this Copyright Security Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.  For clarification purposes, the Recitals are part of this Copyright Security Agreement.

 

[signature pages follow]

 

  

42

  

 

IN WITNESS WHEREOF, each Grantor has caused this Copyright Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.

 

	
GRANTORS:

	
ECOBLU PRODUCTS, INC., a Colorado corporation

 

By:                                                               

Name:                                                            

Title:                                                            

 

  

43

  

 

SCHEDULE I

 

to

 

COPYRIGHT SECURITY AGREEMENT

 

Copyright Registrations

 

	
Grantor

	
Country

	
Copyright

	
Registration No.

	
Registration Date

	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  

 

Copyright Licenses

 

  

44

  

 

EXHIBIT B

 

PATENT SECURITY AGREEMENT

 

This PATENT SECURITY AGREEMENT (this “Patent Security Agreement”) is made this 26th day of March 2010, by the Grantors listed on the signature pages hereof (collectively, jointly and severally, “Grantors” and each individually “Grantor”), in favor of the Secured Parties under and as defined in the below-described Security Agreement.

 

RECITALS

 

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of March 26, 2010 (as may be amended, restated, supplemented, or otherwise modified from time to time, including all schedules thereto, collectively, the “Securities Purchase Agreement”), by and among EcoBlu Products, Inc., a Colorado corporation (“Parent”), and each of the Secured Parties, Parent has agreed to sell, and each of the Secured Parties have each agreed to purchase, severally and not jointly, certain Notes and Warrants; and

 

WHEREAS, in order to induce each of the Secured Parties to purchase, severally and not jointly, the Notes and Warrants as provided for in the Securities Purchase Agreement, Grantors have executed and delivered to each of the Secured Parties that certain Security Agreement of even date herewith (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the “Security Agreement”); and

 

WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to each of the Secured Parties this Patent Security Agreement.

 

AGREEMENTS

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantors hereby agree as follows:

 

1. DEFINED TERMS.  All capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement.

 

2. GRANT OF SECURITY INTEREST IN PATENT COLLATERAL.  Each Grantor hereby grants to each Secured Party a continuing first priority security interest in all of such Grantor’s right, title and interest in, to and under the following, whether presently existing or hereafter created or acquired (collectively, the “Patent Collateral”):

 

(a) all of its Patents and Patent Intellectual Property Licenses to which it is a party including those referred to on Schedule I hereto;

 

(b) all reissues, continuations or extensions of the foregoing; and

 

  

45

  

 

(c) all products and proceeds of the foregoing, including any claim by such Grantor against third parties for past, present or future infringement or dilution of any Patent or any Patent licensed under any Intellectual Property License.

 

3. SECURITY FOR OBLIGATIONS.  This Patent Security Agreement and the Security Interests created hereby secures the payment and performance of all the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Patent Security Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Secured Parties, or any of them, whether or not they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor.

 

4. SECURITY AGREEMENT.  The security interests granted pursuant to this Patent Security Agreement are granted in conjunction with the security interests granted to Secured Parties pursuant to the Security Agreement.  Each Grantor hereby acknowledges and affirms that the rights and remedies of Secured Parties with respect to their respective security interests in the Patent Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

 

5. AUTHORIZATION TO SUPPLEMENT.  If any Grantor shall obtain rights to any new patentable inventions or become entitled to the benefit of any patent application or patent for any reissue, division, or continuation, of any patent, the provisions of this Patent Security Agreement shall automatically apply thereto. To the extent required under the Security Agreement, Grantors shall give prompt notice in writing to Secured Parties with respect to any such new patent rights.  Without limiting each Grantor’s obligations under this Section 5, Grantors hereby authorize Secured Parties unilaterally to modify this Agreement by amending Schedule I to include any such new patent rights of Grantors.  Notwithstanding the foregoing, no failure to so modify this Patent Security Agreement or amend Schedule I shall in any way affect, invalidate or detract from any Secured Party’s continuing security interest in all Collateral, whether or not listed on Schedule I.

 

6. COUNTERPARTS.  This Patent Security Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof. In proving this Patent Security Agreement or any other Transaction Document in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought.

 

  

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7. CONSTRUCTION.  Unless the context of this Patent Security Agreement or any other Transaction Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms “includes” and  “including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.”  The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Patent Security Agreement or any other Transaction Document refer to this Patent Security Agreement or such other Transaction Document, as the case may be, as a whole and not to any particular provision of this Patent Security Agreement or such other Transaction Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Patent Security Agreement unless otherwise specified.  Any reference in this Patent Security Agreement or in any other Transaction Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to any Person shall be construed to include such Person’s permitted successors and permitted assigns. Any requirement of a writing contained herein or in any other Transaction Document shall be satisfied by the transmission of a Record and any Record so transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. The language used in this Patent Security Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. For clarification purposes, the Recitals are part of this Patent Security Agreement.

 

[signature pages follow]

 

  

47

  

 

IN WITNESS WHEREOF, each Grantor has caused this Patent Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.

 

	
GRANTORS:

	
ECOBLU PRODUCTS, INC., a Colorado corporation

 

By:                                                               

Name:                                                          

Title:                                                            

 

 

  

48

  

 

EXHIBIT C

TRADEMARK SECURITY AGREEMENT

 

This TRADEMARK SECURITY AGREEMENT (this “Trademark Security Agreement”) is made this 26th day of March 2010, by the Grantors listed on the signature pages hereof (collectively, jointly and severally, “Grantors” and each individually “Grantor”), in favor of the Secured Parties under and as defined in the below-described Security Agreement.

 

RECITALS

 

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of March 26, 2010 (as may be amended, restated, supplemented, or otherwise modified from time to time, including all schedules thereto, collectively, the “Securities Purchase Agreement”), by and among EcoBlu Products, Inc., a Colorado corporation (“Parent”), and each of the Secured Parties, Parent has agreed to sell, and each of the Secured Parties have each agreed to purchase, severally and not jointly, certain Notes and Warrants; and

 

WHEREAS, in order to induce each of the Secured Parties to purchase, severally and not jointly, the Notes and Warrants as provided for in the Securities Purchase Agreement, Grantors have executed and delivered to each of the Secured Parties that certain Security Agreement of even date herewith (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the “Security Agreement”); and

 

WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to each of the Secured Parties this Trademark Security Agreement.

 

AGREEMENTS

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantors hereby agree as follows:

 

1. DEFINED TERMS.  All capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement.

 

2. GRANT OF SECURITY INTEREST IN TRADEMARK COLLATERAL.  Each Grantor hereby grants to each Secured Party a continuing first priority security interest in all of such Grantor’s right, title and interest in, to and under the following, whether presently existing or hereafter created or acquired (collectively, the “Trademark Collateral”):

 

  

49

  

 

(a) all of its Trademarks and Trademark Intellectual Property Licenses to which it is a party including those referred to on Schedule I hereto;

 

(b) all goodwill, trade secrets, proprietary or confidential information, technical information, procedures, formulae, quality control standards, designs, operating and training manuals, customer lists, and other General Intangibles with respect to the foregoing;

 

(c) all reissues, continuations or extensions of the foregoing;

 

(d) all goodwill of the business connected with the use of, and symbolized by, each Trademark and each Trademark Intellectual Property License; and

 

(e) all products and proceeds of the foregoing, including any claim by such Grantor against third parties for past, present or future (i) infringement or dilution of any Trademark or any Trademark licensed under any Intellectual Property License or (ii) injury to the goodwill associated with any Trademark or any Trademark licensed under any Intellectual Property License.

 

3. SECURITY FOR OBLIGATIONS.  This Trademark Security Agreement and the Security Interests created hereby secures the payment and performance of all the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Trademark Security Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Secured Parties, or any of them, whether or not they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor.

 

4. SECURITY AGREEMENT.  The security interests granted pursuant to this Trademark Security Agreement are granted in conjunction with the security interests granted to Secured Parties pursuant to the Security Agreement.  Each Grantor hereby acknowledges and affirms that the rights and remedies of Secured Parties with respect to their respective security interests in the Trademark Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

 

5. AUTHORIZATION TO SUPPLEMENT.  If any Grantor shall obtain rights to any new trademarks, the provisions of this Trademark Security Agreement shall automatically apply thereto. To the extent required under the Security Agreement, Grantors shall give prompt notice in writing to Secured Parties with respect to any such new trademarks or renewal or extension of any trademark registration.   Without limiting each Grantor’s obligations under this Section 5, Grantors hereby authorize Secured Parties unilaterally to modify this Agreement by amending Schedule I to include any such new trademark rights of Grantors.  Notwithstanding the foregoing, no failure to so modify this Trademark Security Agreement or amend Schedule I shall in any way affect, invalidate or detract from any Secured Party’s continuing security interest in all Collateral, whether or not listed on Schedule I.

 

  

50

  

 

6. COUNTERPARTS.  This Trademark Security Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof. In proving this Trademark Security Agreement or any other Transaction Document in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought.

 

7. CONSTRUCTION.  Unless the context of this Trademark Security Agreement or any other Transaction Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms “includes” and  “including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.”  The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Trademark Security Agreement or any other Transaction Document refer to this Trademark Security Agreement or such other Transaction Document, as the case may be, as a whole and not to any particular provision of this Trademark Security Agreement or such other Transaction Document, as the case may be.  Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Trademark Security Agreement or in any other Transaction Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to any Person shall be construed to include such Person’s permitted successors and permitted assigns. Any requirement of a writing contained herein or in any other Transaction Document shall be satisfied by the transmission of a Record and any Record so transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. The language used in this Trademark Security Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. For clarification purposes, the Recitals are part of this Trademark Security Agreement.

 

[signature pages follow]

 

  

51

  

 

IN WITNESS WHEREOF, each Grantor has caused this Trademark Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.

 

	
GRANTORS:

	
ECOBLU PRODUCTS, INC., a Colorado corporation

 

By:                                                               

Name:                                                          

Title:                                                            

 

 

  

52

  

 

SCHEDULE I

to

TRADEMARK SECURITY AGREEMENT

 

Trademark Registrations/Applications

 

	
Grantor

	
Country

	
Mark

	
Application/ Registration No.

	
App/Reg Date

	
EcoBlu Products, Inc.

	
US

	
ECOBLU

	
77769468

	
June 26, 2009

	
EcoBlu Products, Inc.

	
US

	
ECOBLU

	
77768573

	
June 25, 2009

	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  

 

Trade Names

 

 

Common Law Trademarks

 

 

Trademarks Not Currently In Use

 

 

Trademark Licenses

 

  

53

  

 

EXHIBIT D

 

Form of Guaranty

 

See attached

 

 

54REOSTAR ENERGY CORP - Exhibit 10.10

 

  OFFICE LEASE AGREEMENT 

  

  between 

  

  HULEN SOUTH TOWER LIMITED, 

  as Landlord 

  

  and 

  

  REOSTAR ENERGY CORPORATION, 

  as Tenant 

3880 Hulen Street 

Fort Worth, Texas 

	
      BASIC LEASE INFORMATION 

    
	 	 
	Tenant: 	ReoStar Energy Corporation  
	 	 
	Address of Tenant: 	3880 Hulen Street 

      Suites 500 and 510 

      Fort Worth, Texas 76107 
	 	 
	Tenant Contact 	Scott Allen Telephone: 817-989-7367 
	 	 
	Landlord:  	Hulen South Tower Limited 
	 	 
	Address of Landlord: 	Hulen South Tower Limited 

      c/o Isenberg Management Associates, Inc. 

      400 S. Zang Blvd., Suite 1020 

      Dallas, 75208 
	 	 
	Landlord Contact: 	Susan Burns Telephone: (214) 948-0500 
	 	 
	Premises:  	Suite No. 500 containing approximately 11,822
      rentable square feet in the office building known as Frost Bank Tower (the
      "Building"), located at 3880 Hulen Street in the City of Fort Worth, Tarrant
      County, Texas, on the land (the "Land") described on Exhibit B. The Premises
      are outlined on the plan attached to the Lease as Exhibit A. 
	 	 
	Commencement Date: 	February 1, 2010 
	 	 
	Term: 	Six (6) months commencing on the "Commencement
      Date" and ending at 5:00 p.m., on the last day of the sixth (6th) full calendar
      month following the Commencement Date, subject to adjustment and earlier
      termination as provided in the Lease. 
	 	 

 
	Basic Rental: 	Months 

      1-6 

      	Annual Rate (per rsf) 

      $15.15 	Monthly Rate 

      $14,927.28 

 
	 	 
	Base Year: 	2010 
	 	 
	Tenant's Proportionate Share: 	A percentage, the numerator of which is the
      rentable square feet in the Premises, and the denominator of which is the

      rentable square feet in the Building (i.e., 71,532 rentable
      square feet).  

 ii

	Security Deposit:	 $15,762.67 
	 	 
	Rent: 	Basic Rental and all other sums that Tenant
      may owe to Landlord under the Lease. 
	 	 
	Permitted Use: 	General Office. 
	 	 
	Tenant's Broker: 	Stream Realty Partners, L.P. 
	 	 
	Landlord's Broker: 	MinkerTrahant & Associates (Richard D. Minker)
      

The foregoing Basic Lease Information is incorporated into and made a part of
the Lease identified above. If any conflict exists between any Basic Lease Information
and the Lease, then the Lease shall control. 

	LANDLORD 	HULEN SOUTH TOWER LIMITED, 

      a Texas limited partnership 
	 	 
	
      By:  

    	 Isenberg Management Associates, Inc., 

      a Texas corporation, its sole general partner 
	 	 
	 	 
	 	By: /s/ Ralph Isenberg                                        
      

             Ralph Isenberg, President 

      

      Date: January 31, 2010 
	 	 
	 	 
	 	 
	 	 
	 	 

 

 iii 

	TENANT 
      	REOSTAR ENERGY CORPORATION, 

      a Nevada corporation 
	 	 
	
      By:      

    	/s/ Scott Allen                                                        
	 	 
	
      Name: 

    	Scott Allen                                                              
	 	 
	
      Title:   

    	Chief Financial Officer                                          
	 	 
	
      Date:  

    	January 31, 2010 
	 	 
	 	 

 iv 

	
      TABLE OF CONTENTS 

    
	 	 
	 	Page 
	 	 
	Definitions and Basic Provisions 	1
	 	 
	Lease Grant	1
	 	 
	Delivery of Premises and Term 	1
	 	 
	Rent 	1
	 	 
	Delinquent Payment; Handling Charges 	2
	 	 
	Security Deposit	2
	 	 
	Landlord's Obligations 	2
	 	 
	Improvements; Alterations; Repairs; Maintenance
      	4
	 	 
	Use; Smoke-Free Environment 	6
	 	 
	Assignment and Subletting 	6
	 	 
	Insurance; Waivers; Subrogation; Indemnity
      	7
	 	 
	Subordination Attornment; Notice to Landlord's
      Mortgagee 	8
	 	 
	Rules and Regulations 	9
	 	 
	Condemnation 	9
	 	 
	Fire or Other Casualty 	10
	 	 
	Taxes 	11
	 	 
	Events of Default 	11
	 	 
	Remedies 	12
	 	 
	Payment by Tenant; Non-Waiver 	13 

 v 

	 	 
	Landlord's Lien 	13
	 	 
	Surrender of Premises 	14
	 	 
	Holding Over 	14
	 	 
	Certain Rights Reserved by Landlord 	14
	 	 
	Substitution Space 	15
	 	 
	Miscellaneous 	15
	 	 
	Special Provisions 	18

 vi 

LEASE AGREEMENT 

             
This OFFICE LEASE AGREEMENT (the "Lease") is entered into as of the last
date written above, but effective as of February 1, 2010, between Hulen South
Tower Limited, a Texas limited partnership ("Landlord"), and ReoStar
Energy Corporation, a Nevada corporation ("Tenant"). 

             
1. Definitions and Basic Provisions. The definitions and basic provisions
set forth in the Basic Lease Information (the "Basic Lease Information")
executed by Landlord and Tenant contemporaneously herewith are incorporated herein
by reference for all purposes. 

             
2. Lease Grant. Subject to the terms of this Lease, Landlord leases
to Tenant, and Tenant leases from Landlord, the Premises. 

             
3. Delivery of Premises and Term. 

             
             
a. The Premises is being leased "AS IS," with Tenant accepting all defects, if
any; and LANDLORD MAKES NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT
TO THE PREMISES (WITHOUT LIMITATION, LANDLORD MAKES NO WARRANTY AS TO THE HABITABILITY,
FITNESS OR SUITABILITY OF THE PREMISES FOR A PARTICULAR PURPOSE NOR AS TO THE
ABSENCE OF ANY TOXIC OR OTHERWISE HAZARDOUS SUBSTANCES); AND THERE ARE NO WARRANTIES
THAT EXTEND BEYOND THOSE EXPRESSLY STATED IN THIS LEASE. This Section 3 is subject
to any contrary requirements under applicable law; however, in this regard Tenant
acknowledges that it has been given the opportunity to inspect the Premises and
to have qualified experts inspect the Premises prior to the execution of this
lease. 

             
             
b. If the Commencement Date is not the first day of a calendar month, then the
Term shall be extended by the time between the Commencement Date and the first
day of the next month. Tenant shall execute and deliver to Landlord, within ten
(10) days after Landlord has requested same, a letter confirming the Commencement
Date. If Tenant fails to execute and deliver to Landlord such confirming letter
within ten (10) days of Landlord's request, then the Commencement Date shall be
that date designated by Landlord in writing as the Commencement Date. 

 1

             
4. Rent. 

             
             
a. Tenant shall timely pay to Landlord the Basic Rental and all
additional sums to be paid by Tenant to Landlord under this Lease, including the
amounts set forth in subparagraph b. below and Exhibit D, without deduction
or set off, at the address specified for Landlord in the Basic Lease Information
(or such other address as Landlord may from time to time designate in writing
to Tenant). Basic Rental, adjusted as herein provided, shall be payable monthly
in advance. The first monthly installment of Basic Rental shall be payable on
February 1, 2010, and a like monthly installment of Basic Rental shall be due
on the first day of the second full calendar month of the Term and continuing
thereafter on the first day of each succeeding calendar month during the Term.
Rent (i.e., Basic Rental and all additional sums to be paid by Tenant to Landlord
under this Lease, including the amounts set forth in subparagraph b. below and
Exhibit D) for any fractional month at the beginning of the Term shall
be prorated based on 1/365 of the current annual Rent for each day of the partial
month this Lease is in effect, and shall be due on the Commencement Date. 

             
             
b. Tenant shall pay to Landlord an amount equal to the product
of (i) the cost of all electricity used by the Building ("Electrical Costs"),
multiplied by (ii) Tenant's Proportionate Share, effective upon the Commencement
Date of the Lease, even if no Basic Rental is due. Such amount shall be payable
monthly based on Landlord's estimate of the amount due for each month, and shall
be due on the Commencement Date and on the first day of each calendar month thereafter.
Tenant shall pay to Landlord an estimated amount of Electrical Costs equal to
the product of (i) $2.25 multiplied by (ii) the rentable square feet in the Premises
($2,216.63 per month). No less than annually, Landlord shall furnish to Tenant
a statement of Landlord's actual Electrical Costs (the "Annual Cost Statement")
for the previous year adjusted as provided herein. If the Annual Cost Statement
reveals that Tenant paid more for Electrical Costs than Tenant's Proportionate
Share of Electrical Costs in the year for which such statement was prepared, then
Landlord shall promptly reimburse Tenant such excess; likewise, if Tenant paid
less than Tenant's Proportionate Share of Electrical Costs, then Tenant shall
promptly pay Landlord such deficiency. With respect to any calendar year or partial
calendar year in which the Building is not occupied to the extent of ninety-five
percent (95%) of the rentable area thereof, the Electrical Costs for such period
shall, for the purposes hereof, be increased to the amount which would have been
incurred had the Building been occupied to the extent of ninety-five percent (95%)
of the rentable area thereof. 

 2

             
5. Delinquent Payment; Handling Charges. All payments required of
Tenant hereunder shall bear interest from the date due until paid at the maximum
lawful rate. Alternatively, Landlord may charge Tenant a fee equal to 10% of the
delinquent payment to reimburse Landlord for its cost and inconvenience incurred
as a consequence of Tenant's delinquency. In no event, however, shall the charges
permitted under this Section 5 or elsewhere in this Lease, to the extent the same
are considered to be interest under applicable law, exceed the maximum lawful
rate of interest. 

             
6. Security Deposit. Contemporaneously with the execution
of this Lease, Tenant shall pay to Landlord, in immediately available funds, the
Security Deposit, which shall be held by Landlord without liability for interest
and as security for the performance by Tenant of its obligations under this Lease.
The Security Deposit is not an advance payment of Rent or a measure or limit of
Landlord's damages upon an Event of Default (defined below). Landlord may, from
time to time and without prejudice to any other remedy, use all or a part of the
Security Deposit to perform any obligation which Tenant was obligated, but failed,
to perform hereunder. Following any such application of the Security Deposit,
Tenant shall pay to Landlord on demand the amount so applied in order to restore
the Security Deposit to its original amount. Within a reasonable time after the
Term ends, provided Tenant has performed all of its obligations hereunder, Landlord
shall return to Tenant the balance of the Security Deposit not applied to satisfy
Tenant's obligations. If Landlord transfers its interest in the Premises, then
Landlord shall assign the Security Deposit to the transferee and Landlord thereafter
shall have no further liability for the return of the Security Deposit. 

             
7. Landlord's Obligations. 

             
             
 a. Services. Provided no Event of Default exists, Landlord shall
furnish to Tenant (i) water (hot and cold) at those points of supply provided
for general use of tenants of the Building; (ii) heated and refrigerated air conditioning,
as appropriate, during the Building hours established by Landlord from time to
time, and at such temperatures and in such amounts as are reasonably standard
for similarly situated buildings in Fort Worth, Texas; (iii) janitorial service
to the Premises on weekdays other than holidays for Building-standard installations
(Landlord reserves the right to bill Tenant separately for extra janitorial service
required for non-standard installations) and such window washing as may from time
to time in Landlord's judgment be reasonably required; (iv) elevators for ingress
and egress to the floor on which the Premises are located, in common with other
tenants, provided that Landlord may reasonably limit the number of elevators to
be in operation at times other than during customary Building hours and on holidays;
(v) replacement of Building-standard light bulbs and fluorescent tubes; and (vi)
electrical current during normal Building hours 

 3

 

other than for special lighting, equipment that requires
more than 277/480 volts, or other equipment whose electrical energy consumption
exceeds normal office usage. Landlord shall maintain the common areas of the Building
in reasonably good order and condition, except for damage occasioned by Tenant
or its employees, agents or invitees. If Tenant desires any of the services specified
in this Section 7a. at any time other than times herein designated, such services
shall be supplied to Tenant upon the written request of Tenant delivered to Landlord
before 3:00 p.m. one (1) business day preceding such extra usage, and Tenant shall
pay to Landlord the cost of such services within ten (10) days after Landlord
has delivered to Tenant an invoice therefor. 

             
             
b. Excess Utility Use. Landlord shall
not be required to furnish electrical current for special lighting, equipment
that requires more than 277/480 volts, or other equipment whose electrical energy
consumption exceeds normal office usage. If Tenant's requirements for or consumption
of electricity exceed the electricity to be provided by Landlord as described
in Section 7a., Landlord shall, at Tenant's expense, make reasonable efforts to
supply such service through the then-existing feeders and risers serving the Building
and the Premises, and Tenant shall pay to Landlord the cost of such service within
ten (10) days after Landlord has delivered to Tenant an invoice therefor. Landlord
may determine the amount of such additional consumption and potential consumption
by either or both: (i) a survey of standard or average tenant usage of electricity
in the Building performed by a reputable consultant selected by Landlord and paid
for by Tenant; or (ii) a separate meter in the Premises installed, maintained,
and read by Landlord, at Tenant's expense. Tenant shall not install any electrical
equipment requiring special wiring or requiring voltage in excess of 277/480 volts
or otherwise exceeding Building capacity unless approved in advance by Landlord.
The use of electricity in the Premises shall not exceed the capacity of existing
feeders and risers to or wiring in the Premises. Any risers or wiring required
to meet Tenant's excess electrical requirements shall, upon Tenant's written request,
be installed by Landlord, at Tenant's cost, if, in Landlord's sole and absolute
judgment, the same are necessary and shall not cause permanent damage or injury
to the Building or the Premises, cause or create a dangerous or hazardous condition,
entail excessive or unreasonable alterations, repairs, or expenses, or interfere
with or disturb other tenants of the Building. If Tenant uses machines or equipment
(other than general office machines) in the Premises which affect the temperature
otherwise maintained by the air conditioning system or otherwise overload any
utility, Landlord may install supplemental air conditioning units or other supplemental
equipment in the Premises, and the cost thereof, including the cost of installation,
operation, use, and maintenance, shall be paid by Tenant to Landlord within ten
(10) days after Landlord has delivered to Tenant an invoice therefor. 

             
             
c. Changes in Service Providers. If
permitted by law, Landlord shall have the sole and exclusive right, in its absolute
discretion, at any time during the Term 

 4

to either contract for service from an alternate supplier or suppliers
of services, including without limitation electrical services (each an "Alternate
Supplier") or continue to contract for service from the current supplier (the
"Current Supplier") of such services. Tenant agrees to cooperate with Landlord,
the Current Supplier and any Alternate Supplier at all times, and as reasonably
necessary, shall allow Landlord, Current Supplier and any Alternate Supplier reasonable
access to the Premises (including without limitation access to any electric lines,
feeders, risers, wiring and other machinery located in the Premises) in connection
with such services. Provided Landlord acts in a commercially reasonable manner
in attempting to restore electrical services, Landlord shall not be liable or
responsible for any loss, damage, or expense that Tenant may sustain or incur
by reason of any change, failure, interference, disruption, or defect in the supply
or character of the services, including without limitation electric energy, furnished
to the Premises, or if the quantity or character of the services varies from the
quantity or character of the services provided to the Premises as of the Commencement
Date. Provided Landlord acts in a commercially reasonable manner in attempting
to restore electrical services, no change, failure, defect, unavailability, or
unsuitability resulting from a change in any service shall constitute an actual
or constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under the
Lease. 

             
             
d. Restoration
of Services; Abatement. Landlord shall use reasonable efforts to restore any service
that Landlord has contracted to provide to Tenant that becomes unavailable; however,
such unavailability shall not render Landlord liable for any damages caused thereby,
be a constructive eviction of Tenant, constitute a breach of any implied warranty,
or, except as provided in the next sentence, entitle Tenant to any abatement of
Tenant's obligations hereunder. However, if Tenant is prevented from using a substantial
portion of the Premises (i.e., more than 25 percent (25%) of the Premises) for
more than ten (10) consecutive days because of the unavailability of any service
that Landlord has contracted to provide to Tenant, Tenant shall, as its exclusive
remedy therefor, be entitled to a reasonable abatement of Rent for each consecutive
day (after such 10-day period) that Tenant is so prevented from using a substantial
portion of the Premises. If Tenant is prevented from using the entire Premises
for more than thirty (30) consecutive days because of the unavailability of any
service that Landlord has contracted to provided to Tenant, Tenant shall be entitled
to terminate this Lease, in Tenant's sole discretion. Rent shall not abate nor
shall Tenant have the right to terminate, however, if Tenant's actions caused
the unavailability of such service. 

 5

             
8. Improvements; Alterations; Repairs; Maintenance.

             
             
a. Improvements; Alterations. Except
as otherwise expressly provided herein and in any addendum, improvements to the
Premises shall be installed (i) by Landlord or by contractors and subcontractors
approved in writing by Landlord, (ii) at the expense of Tenant, and (iii) only
in accordance with plans and specifications which have been previously submitted
to and approved in writing by Landlord. After the initial Tenant improvements
are made, if any, no alterations or physical additions in or to the Premises may
be made without Landlord's prior written consent. Tenant shall not paint or install
lighting or decorations, signs, window or door lettering, or advertising media
of any type on or about the Premises without the prior written consent of Landlord.
All alterations, additions, or improvements (whether temporary or permanent in
character, and including without limitation all air-conditioning equipment and
all other equipment that is in any manner connected to the Building's plumbing
system) made in or upon the Premises, either by Landlord or Tenant, shall be Landlord's
property at the end of the Term and shall remain on the Premises without compensation
to Tenant. Approval by Landlord of any of Tenant's drawings and plans and specifications
prepared in connection with any improvements in the Premises shall not constitute
a representation or warranty of Landlord as to the adequacy or sufficiency of
such drawings, plans and specifications, or the improvements to which they relate,
for any use, purpose, or condition, but such approval shall merely be the consent
of Landlord as required hereunder. 

             
             
b. Repairs;
Maintenance. Tenant shall maintain the Premises in a clean, safe, operable, attractive
condition, and shall not permit or allow to remain any waste or damage to any
portion of the Premises. Tenant shall repair or replace (to the extent such replacement
is not considered a capital expenditure), subject to Landlord's direction and
supervision, any damage to the Premises caused by the actions of Tenant or Tenant's
agents, contractors, or invitees. If Tenant fails to make such repairs within
fifteen (15) days after the occurrence of such damage, then Landlord may make
the same at Tenant's cost, which shall be payable to Landlord within ten (10)
days after Landlord has delivered to Tenant an invoice therefor. 

             
             
c. Performance
of Work. All work described in this Section 8 (that is, all improvements, alterations,
repairs and maintenance) shall be performed only by Landlord or by contractors
and subcontractors approved in writing by Landlord. Tenant shall cause all contractors
and subcontractors to procure and maintain insurance coverage against such risks,
in such amounts, and with such companies as Landlord may reasonably require, and
to procure payment and performance bonds reasonably satisfactory to Landlord covering
the cost of the work. All such work shall be performed in accordance with all
legal requirements and in a good and workmanlike manner so as not to damage the
Premises, the primary structure or structural qualities of the Building, or plumbing,
electrical lines, or any other utility transmission facilities. All such work

 

 6

which may affect the HVAC, electrical system, or plumbing must
be approved by the Building's engineer of record. 

             
             
d.
Mechanic's Liens. Tenant shall not permit any mechanic's liens to be filed against
the Premises or the Building for any work performed, materials furnished, or obligation
incurred by or at the request of Tenant. If such a lien is filed, then Tenant
shall, within ten (10) days after Landlord has delivered notice of the filing
to Tenant, either pay the amount of the lien or diligently contest such lien and
deliver to Landlord a bond or other security reasonably satisfactory to Landlord.
If Tenant fails to timely take either such action, then Landlord may pay the lien
claim without inquiry as to the validity thereof, and any amounts so paid, including
expenses and interest, shall be paid by Tenant to Landlord within ten (10) days
after Landlord has delivered to Tenant an invoice therefor. 

             
9. Use; Smoke-Free Environment. Tenant shall continuously
occupy and use the Premises only for the Permitted Use and shall comply with all
laws, orders, rules, and regulations relating to the use, condition, and occupancy
of the Premises, including, without limitation, any requirements of the Americans
With Disabilities Act (Public Law (July 28, 1990)), as amended, and the Texas
Architectural Barriers Act (Article 9102, Tex. Rev. Civ. St. (1991)), as amended.
The Premises shall not be used for any use which is disreputable or creates extraordinary
fire hazards or results in an increased rate of insurance on the Building or its
contents or the storage of any hazardous materials or substances. If, because
of Tenant's acts, the rate of insurance on the Building or its contents increases,
then such acts shall be an Event of Default, Tenant shall pay to Landlord the
amount of such increase on demand, and acceptance of such payment shall not constitute
a waiver of any of Landlord's other rights. Tenant shall conduct its business
and control its agents, employees, and invitees in such a manner as not to create
any nuisance or interfere with other tenants or Landlord in its management of
the Building. Tenant acknowledges that the Building has been declared a smoke-free
building. No smoking is allowed in the Premises nor anywhere in the Building,
including stairwells and restrooms. If Tenant violates the no-smoking rule, Tenant
can be declared in default of this Lease and the remedies available to Landlord
in Section 18 may be exercised. 

             
10. Assignment and Subletting. 

             
             
a.
Transfers; Consent. Tenant shall not, without the prior written consent of Landlord
(which Landlord may grant or deny in its sole discretion), (i) advertise that
any portion of the Premises is available for lease, (ii) assign, transfer, or
encumber this Lease or any estate or interest herein, whether directly or by operation
of law, (iii) permit any other entity to become Tenant hereunder by merger, consolidation,

 7

or other reorganization, (iv) if Tenant is an entity other than
a corporation whose stock is publicly traded, permit the transfer of an ownership
interest in Tenant so as to result in a change in the current control of Tenant,
(v) sublet any portion of the Premises, (vi) grant any license, concession, or
other right of occupancy of any portion of the Premises, or (vii) permit the use
of the Premises by any parties other than Tenant (any of the events listed in
clauses (ii) through (vii) being a "Transfer"). If Tenant requests Landlord's
consent to a Transfer, then Tenant shall provide Landlord with a written description
of all terms and conditions of the proposed Transfer, copies of the proposed documentation,
and the following information about the proposed transferee: name and address;
reasonably satisfactory information about its business and business history; its
proposed use of the Premises; banking, financial, and other credit information;
and general references sufficient to enable Landlord to determine the proposed
transferee's creditworthiness and character. Tenant shall reimburse Landlord for
its reasonable attorneys' fees and other reasonable expenses incurred in connection
with considering any request for its consent to a Transfer. If Landlord consents
to a proposed Transfer, then the proposed transferee shall deliver to Landlord
a written agreement whereby it expressly assumes the Tenant's obligations hereunder;
however, any transferee of less than all of the space in the Premises shall be
liable only for obligations under this Lease that are properly allocable to the
space subject to the Transfer, and only to the extent of the rent it has agreed
to pay Tenant therefor. Landlord's consent to a Transfer shall not release Tenant
from performing its obligations under this Lease, but rather Tenant and its transferee
shall be jointly and severally liable therefor. Landlord's consent to any Transfer
shall not waive Landlord's rights as to any subsequent Transfers. If an Event
of Default occurs while the Premises or any part thereof are subject to a Transfer,
then Landlord, in addition to its other remedies, may collect directly from such
transferee all rents becoming due to Tenant and apply such rents against Rent.
Tenant authorizes its transferees to make payments of rent directly to Landlord
upon receipt of notice from Landlord to do so.

             
             
b.
Cancellation. Landlord may, within thirty (30) days after submission of Tenant's
written request for Landlord's consent to a Transfer, cancel this Lease (or, as
to a subletting or assignment, cancel as to the portion of the Premises proposed
to be sublet or assigned) as of the date the proposed Transfer was to be effective.
If Landlord cancels this Lease as to any portion of the Premises, then this Lease
shall cease for such portion of the Premises and Tenant shall pay to Landlord
all Rent accrued through the cancellation date relating to the portion of the
Premises covered by the Proposed Transfer and all brokerage commissions paid or
payable by Landlord in connection with this Lease that are allocable to such portion
of the Premises. Thereafter, Landlord may lease such portion of the Premises to
the prospective transferee (or to any other person) without liability to Tenant.

 8

               
             
c.
Additional Compensation. Tenant shall pay to Landlord, immediately upon receipt
thereof, all compensation received by Tenant for a Transfer that exceeds the Rent
allocable to the portion of the Premises covered thereby. 

             11.
 Insurance; Waivers; Subrogation; Indemnity. 

             
             
a.
Insurance. Tenant shall at its expense procure and maintain throughout the Term
the following insurance policies: (i) commercial general liability insurance in
amounts of not less than a combined single limit of $2,000,000 or such other amounts
as Landlord may from time to time reasonably require, insuring Tenant, Landlord,
and Landlord's property manager against all liability for injury to or death of
a person or persons or damage to or loss of use of property arising from the use
and occupancy of the Premises, (ii) contractual liability insurance coverage sufficient
to cover Tenant's indemnity obligations hereunder, (iii) special form or all risk
insurance covering the replacement value of Tenant's property and improvements,
and other property (including property of others), in the Premises, and (iv) business
income and extra expense interruption insurance. Tenant's insurance shall provide
primary coverage to Landlord when any policy issued to Landlord provides duplicate
or similar coverage, and in such circumstance Landlord's policy will be excess
over Tenant's policy. Tenant shall furnish certificates of such insurance and
such other evidence satisfactory to Landlord (including copies of policies) of
the maintenance of all insurance coverages required hereunder, and Tenant shall
obtain a written obligation on the part of each insurance company to notify Landlord
at least thirty (30) days before cancellation or a material change of any such
insurance. All such insurance policies shall be in form, and issued by companies,
reasonably satisfactory to Landlord. 

             
             
b.
Waiver; No Subrogation. Landlord shall not be liable to Tenant or those claiming
by, through, or under Tenant for any injury to or death of any person or persons
or the damage to or theft, destruction, loss, or loss of use of any property (a
"Loss") caused by casualty, theft, fire, third parties, or any other matter beyond
the control of Landlord, or for any injury or damage or inconvenience which may
arise through repair or alteration of any part of the Building, or failure to
make repairs, or from any lapse or failure of any security measure, or from any
other cause, except if such Loss is caused by Landlord's gross negligence or misconduct.
Landlord and Tenant each waives any claim it might have against the other for
any damage to or theft, destruction, loss, or loss of use of any property, to
the extent the same is insured against under any insurance policy that covers
the Building, the Premises, Landlord's or Tenant's fixtures, personal property,
leasehold improvements, or business, or, in the case of Tenant's waiver, is required
to be insured against under the terms hereof, regardless of whether the negligence
or fault of the other party caused such loss. If required to effect the foregoing
waiver, each party shall cause its insurance carrier to 

 

 9

endorse all applicable policies waiving the carrier's rights of recovery under
subrogation or otherwise against the other party. 

                          c.
Indemnity. Subject to Section 11b., Tenant shall defend, indemnify, and hold harmless
Landlord and its agents from and against all claims, demands, liabilities, causes
of action, suits, damages, judgments, and expenses (including attorneys' fees)
for any Loss arising from any occurrence on the Premises or from Tenant's failure
to perform its obligations under this Lease (other than a Loss arising from the
negligence or misconduct of Landlord or its agents). This indemnity provision
shall survive termination or expiration of this Lease. 

             12.
Subordination Attornment; Notice to Landlord's Mortgagee. 

                          a.
Subordination. This Lease shall be subordinate to any first lien deed of trust,
mortgage, or other security instrument (a "Mortgage"), or any ground lease, master
lease, or primary lease (a "Primary Lease"), that now or hereafter covers all
or any part of the Premises (the mortgagee under any Mortgage or the lessor under
any Primary Lease is referred to herein as "Landlord's Mortgagee"). 

                          b.
Attornment. Tenant shall attorn to any party succeeding to Landlord's interest
in the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, termination of lease, or otherwise, upon such party's request,
and shall execute such agreements confirming such attornment as such party may
reasonably request. Landlord's right to obtain such a subordination and attornment
is subject to Landlord's providing Tenant with a written Subordination, Non-disturbance
and Attornment Agreement from the lessor, beneficiary or mortgagee wherein Tenant's
right to peaceable possession of the Premises during the Term shall not be disturbed
if Tenant pays the Rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default under this Lease. 

                          c.
Notice to Landlord's Mortgagee. Tenant shall not seek to enforce any remedy it
may have for any default on the part of the Landlord without first giving written
notice by certified mail, return receipt requested, specifying the default in
reasonable detail, to any Landlord's Mortgagee whose address has been given to
Tenant, and affording such Landlord's Mortgagee a reasonable opportunity to perform
Landlord's obligations hereunder.            

 

  

  

  10

              13.
 Rules and Regulations. Tenant shall comply with the rules and regulations
of the Building which are attached hereto as Exhibit C. Landlord may, from time
to time, change such rules and regulations for the safety, care, or cleanliness
of the Building and related facilities, provided that such changes are applicable
to all tenants of the Building, are commercially reasonable for buildings similarly
situated in Fort Worth, Texas, and will not unreasonably interfere with Tenant's
use of the Premises. Tenant shall be responsible for the compliance with such
rules and regulations by its employees, agents, and invitees. 

             14.
 Condemnation. 

                          a.
Taking - Landlord's and Tenant's Rights. If any part of the Building is taken
by right of eminent domain or conveyed in lieu thereof (a "Taking"), and such
Taking prevents Tenant from conducting its business in the Premises in a manner
reasonably comparable to that conducted immediately before such Taking, then this
Lease may, in Tenant's sole discretion, terminate and the monthly installments
of Rent shall be abated during the unexpired portion of the Lease Term, effective
from the date of the Taking. Tenant may accomplish the termination of Lease by
delivering written notice to Landlord within thirty (30) days after the Taking.
If Tenant does not elect to terminate the Lease, Landlord may, at its expense,
relocate Tenant to office space reasonably comparable to the Premises, provided
that Landlord notifies Tenant of its intention to do so within thirty (30) days
after the Taking. Such relocation may be for a portion of the remaining Term or
the entire Term. Landlord shall complete any such relocation within 180 days after
Landlord has notified Tenant of its intention to relocate Tenant. If Landlord
does not elect to relocate Tenant following such Taking, then Tenant may terminate
this Lease as of the date of such Taking by giving written notice to Landlord
within sixty (60) days after the Taking, and Rent shall be apportioned as of the
date of such Taking. If Landlord does not relocate Tenant and Tenant does not
terminate this Lease, then Basic Rental shall be abated on a reasonable basis
as to that portion of the Premises rendered untenantable by the Taking. 

                          b.
Taking - Landlord's Rights. If any material portion, but less than all, of the
Building becomes subject to a Taking, or if Landlord is required to pay any of
the proceeds received for a Taking to Landlord's Mortgagee, then this Lease, at
the option of Landlord, exercised by written notice to Tenant within thirty (30)
days after such Taking, shall terminate and Rent shall be apportioned as of the
date of such Taking. If Landlord does not so terminate this Lease and does not
elect to relocate Tenant, then this Lease will continue, but if any portion of
the Premises has been taken, Basic Rental shall abate as provided in the last
sentence of Section 14a. 

 11

                            c.
Award. If any Taking occurs, then Landlord shall receive the entire award or other
compensation for the Land, the Building, and other improvements taken, and Tenant
may separately pursue a claim against the condemnor for the value of Tenant's
personal property which Tenant is entitled to remove under this Lease, moving
costs, loss of business, and other claims it may have, provided such claims to
not reduce the award payable to Landlord. 

             15.
 Fire or Other Casualty. 

                          a.
Repair Estimate. If the Premises or the Building are damaged by fire or other
casualty (a "Casualty"), Landlord shall, within sixty (60) days after such
Casualty, deliver to Tenant a good faith estimate (the "Damage Notice")
of the time needed to repair the damage caused by such Casualty. 

                          b.
Landlord's and Tenant's Rights. If a material portion of the Premises or the Building
is damaged by Casualty such that Tenant is prevented from conducting its business
in the Premises in a manner reasonably comparable to that conducted immediately
before such Casualty and Landlord estimates that the damage caused thereby cannot
be repaired within 180 days after the commencement of repair, then Landlord may,
at its expense, relocate Tenant to office space reasonably comparable to the Premises,
provided that Landlord notifies Tenant of its intention to do so in the Damage
Notice. Such relocation may be for a portion of the remaining Term or the entire
Term. Landlord shall complete any such relocation within 180 days after Landlord
has delivered the Damage Notice to Tenant. If (i) Tenant is prevented from conducting
its business in the Premises in a manner reasonably comparable to that conducted
immediately before such Casualty, (ii) Landlord estimates that the damage caused
thereby cannot be repaired within 180 days after the commencement of repair, and
(iii) Landlord does not elect to relocate Tenant following such Casualty, then
Tenant may terminate this Lease by delivering written notice to Landlord of its
election to terminate within thirty (30) days after the Damage Notice has been
delivered to Tenant. If Landlord does not relocate Tenant and Tenant does not
terminate this Lease, then (subject to Landlord's rights under Section 15c.) Landlord
shall repair the Building or the Premises, as the case may be, as provided below,
and Basic Rental for the portion of the Premises rendered untenantable by the
damage shall be abated on a reasonable basis from the date of damage until the
completion of the repair. 

                          c.
Landlord's Rights. If a Casualty damages a material portion of the Building, and
Landlord makes a good faith determination that restoring the Premises would be
uneconomical, or if Landlord is required to pay any insurance proceeds arising
out of the Casualty to Landlord's Mortgagee, then Landlord may terminate this
Lease by giving written notice of its election to terminate within thirty (30)
days after the 

  

  

  

   

 12

  

  

  

 Damage Notice has been delivered to Tenant, and Basic Rental
hereunder shall be abated as of the date of the Casualty. 

                          d.
Repair Obligation. If (i) Tenant is able to conduct its business in the Premises
in a manner reasonably comparable to that conducted immediately before such Casualty,
or (ii) the damage caused by such Casualty can be repaired within 180 days after
the commencement of repair, or (iii) neither party exercises its right, if any,
to terminate this Lease following a Casualty, then Landlord shall, within a reasonable
time after such Casualty, commence to repair the Building and the Premises and
shall proceed with reasonable diligence to restore the Building and Premises to
substantially the same condition as they existed immediately before such Casualty;
however, Landlord shall not be required to repair or replace any part of the furniture,
equipment, fixtures, and other improvements which may have been placed by, or
at the request of, Tenant or other occupants in the Building or the Premises,
and Landlord's obligation to repair or restore the Building or Premises shall
be limited to the extent of the insurance proceeds actually received by Landlord
for the Casualty in question. 

             16.
 Taxes. Tenant shall be liable for all taxes levied or assessed
against personal property, furniture, or fixtures placed by Tenant in the Premises.
If any taxes for which Tenant is liable are levied or assessed against Landlord
or Landlord's property and Landlord elects to pay the same, or if the assessed
value of Landlord's property is increased by inclusion of such personal property,
furniture or fixtures and Landlord elects to pay the taxes based on such increase,
then Tenant shall pay to Landlord, upon demand, that part of such taxes for which
Tenant is primarily liable hereunder. 

             17.
 Events of Default. Each of the following occurrences shall constitute
an "Event of Default": 

                          a.
Tenant's failure to pay Rent, or any other sums due from Tenant to Landlord under
the Lease (or any other lease executed by Tenant for space in the Building), when
due and such failure continues for ten (10) days following written notice thereof
(provided, however, that Landlord shall be obligated to give only two such notices
in any calendar year, and after such two notices, Landlord will no longer be obligated
to give any other notice under this Section 17a. within such calendar year); 

                          b.
Tenant's failure to perform, comply with, or observe any other agreement or obligation
of Tenant under this Lease (or any other lease executed by Tenant for space in
the Building), and such failure continues for twenty (20) days following written
notice thereof; provided that if such failure cannot reasonably be cured within
said twenty (20) day period and Tenant commences to cure such failure within 

  

 13

  

  

  

  such 20-day period and thereafter
diligently pursues such cure to completion, then such failure shall not be an
Event of Default unless it is not fully cured within an additional twenty (20)
days after the expiration of the original 20-day period; 

                          c.
The filing of a petition by or against Tenant (the term "Tenant" shall
include, for the purpose of this Section 17c., any guarantor of the Tenant's obligations
hereunder) (i) in any bankruptcy or other insolvency proceeding; (ii) seeking
any relief under any state or federal debtor relief law; (iii) for the appointment
of a liquidator or receiver for all or substantially all of Tenant's property
or for Tenant's interest in this Lease; or (iv) for the reorganization or modification
of Tenant's capital structure; 

                          d.
Tenant shall abandon (as defined by Texas case law, or by Section 93.002 of the
Texas Property Code, as amended) any portion of the Premises; and 

                          e.
The written admission by Tenant that it cannot meet its obligations as they become
due or the making by Tenant of an assignment for the benefit of its creditors.

             18.
 Remedies. Upon any Event of Default, Landlord may, in addition
to all other rights and remedies afforded Landlord hereunder or by law or equity,
take any of the following actions: 

                          a.
Terminate this Lease by giving Tenant written notice thereof, in which event,
Tenant shall pay to Landlord the sum of (i) all Rent accrued hereunder through
the date of termination, and (ii) all amounts due under Section 19a. In addition,
Tenant shall pay to Landlord, not as rent or a penalty but as compensation for
Landlord's loss of the benefit of its bargain with Tenant, an amount equal to
(i) the total Rent that Tenant would have been required to pay for the remainder
of the Term discounted to present value at a per annum rate equal to the "Prime
Rate" as published by The Wall Street Journal, Southwest Edition, in its listing
of "Money Rates" on the date this Lease is terminated, minus (ii) the then present
fair rental value of the Premises for such period, similarly discounted; or 

                          b.
Terminate Tenant's right to possession of the Premises without terminating this
Lease by giving written notice thereof to Tenant, in which event Tenant shall
pay to Landlord (i) all Rent and other amounts accrued hereunder to the date of
termination of possession, (ii) all amounts due from time to time under Section
19a., and (iii) all Rent and other sums required hereunder to be paid by Tenant
during the remainder of the Term, diminished by any net sums thereafter received
by Landlord through reletting the Premises during such period. Reentry by Landlord
in the Premises shall not affect Tenant's obligations hereunder for the unexpired
Term; rather, Landlord 

  

 14

  

  

  

 may, from time to time, bring action against Tenant to
collect amounts due from Tenant, without the necessity of Landlord's waiting until
the expiration of the Term. Unless Landlord delivers written notice to Tenant
expressly stating that it has elected to terminate this Lease, all actions taken
by Landlord to exclude or dispossess Tenant of the Premises shall be deemed to
be taken under this Section 18b. If Landlord elects to proceed under this Section
18b., it may at any time elect to terminate this Lease under Section 18a. 

                          c.
To the extent Landlord is required by applicable law or undertakes to mitigate
Landlord's damages, Tenant nevertheless acknowledges and agrees that so long as
Landlord markets the Premises after Tenant's default in a manner not materially
inconsistent with Landlord's marketing plan for the Building, as revised from
time to time, Landlord shall be conclusively deemed to have made objectively reasonable
efforts to relet the Premises and to have fulfilled any obligation to mitigate
damages by reason of Tenant's default, without regard to (i) when and if the Premises
are in fact relet; (ii) offers or expressions of willingness to lease the Premises
by prospective tenants who do not meet Landlord's commercially reasonable criteria
for the Premises; and (iii) whether or not Landlord leases other space in the
Building prior to leasing the Premises. Tenant further agrees that Landlord may,
without breaching any duty to Tenant, lease all or any part of the Premises to
such tenant or tenants as Landlord may deem appropriate, on such terms and conditions
as Landlord deems appropriate, and that to the extent Landlord locates prospective
tenants meeting Landlord's commercially reasonable criteria Landlord may lease
other space in the Building other than the Premises to such prospects before leasing
the Premises, regardless of how or when any space in the Building became available
for lease. In no event shall Landlord be obligated to employ any particular advertising
or marketing means or methods other than those usually employed by Landlord or
its leasing agents without regard to how the space became available for lease.
Landlord may at any time modify the manner, means, or methods employed to market
available space in the Building. 

                          d.
Landlord may alter locks or other security devices at the Premises, in accordance
with applicable Texas law, to deprive Tenant of access thereto. 

             19.
 Payment by Tenant; Non-Waiver. 

                          a.
Payment by Tenant. Upon any Event of Default (i.e., after any applicable notice
and cure period), Tenant shall pay to Landlord all costs incurred by Landlord
(including court costs and reasonable attorneys' fees and expenses) in (i) obtaining
possession of the Premises, (ii) removing and storing Tenant's or any other occupant's
property, (iii) repairing, restoring, altering, remodeling, or otherwise putting
the Premises into condition acceptable to a new tenant, (iv) if Tenant is dispossessed
of 

  

 15

  

  

  

 the Premises and this Lease is not terminated, reletting
all or any part of the Premises (including brokerage commissions, cost of tenant
finish work, and other cost incidental to such reletting), (v) performing Tenant's
obligations which Tenant failed to perform, and (vi) enforcing, or advising Landlord
of, its rights, remedies, and recourses arising out of the Event of Default. 

                          b.
No Waiver. Landlord's acceptance of Rent following an Event of Default shall not
waive Landlord's rights regarding such Event of Default. No waiver by Landlord
of any violation or breach of any of the terms contained herein shall waive Landlord's
rights regarding any future violation of such term or violation of any other term.

             20.
 Landlord's Lien: Intentionally Deleted. 

             21.
 Surrender of Premises. No act by Landlord shall be deemed an acceptance
of a surrender of the Premises, and no agreement to accept a surrender of the
Premises shall be valid unless the same is made in writing and signed by Landlord.
At the expiration or termination of this Lease, Tenant shall deliver to Landlord
the Premises with all improvements located thereon in good repair and condition,
reasonable wear and tear (and condemnation and fire or other casualty damage,
as to which Sections 14 and 15 shall control) excepted, and shall deliver to Landlord
all keys to the Premises. Provided that Tenant has performed all of its obligations
hereunder, Tenant may remove all unattached trade fixtures, furniture, and personal
property placed in the Premises by Tenant (but Tenant shall not remove any such
item which was paid for, in whole or in part, by Landlord), and shall remove such
alterations, additions, improvements, trade fixtures, equipment, and furniture
as Landlord may request. Tenant shall repair all damage caused by such removal.
All items not so removed shall be deemed to have been abandoned by Tenant and
may be appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord
without notice to Tenant and without any obligation to account for such items.
The provisions of this Section 21 shall survive the end of the Term. 

             22.
 Holding Over. If Tenant fails to vacate the Premises at the end
of the Term, then Tenant shall be a tenant at will and, in addition to all other
damages and remedies to which Landlord may be entitled for such holding over,
Tenant shall pay, in addition to the other Rent, a daily Basic Rental equal to
the greater of (a) 150% of the daily Basic Rental payable during the last month
of the Term, or (b) the prevailing rental rate in the Building for similar space.

             23.
Certain Rights Reserved by Landlord. Provided that the exercise
of such rights does not unreasonably interfere with Tenant's occupancy of the
Premises, Landlord shall have the following rights: 

  

 16

  

  

  

                           a.
To decorate and to make inspections, repairs, alterations, additions, changes,
or improvements, whether structural or otherwise, in and about the Building, or
any part thereof; for such purposes, to enter upon the Premises (during Tenant's
normal business hours) and, during the continuance of any such work, to temporarily
close doors, entryways, public space, and corridors in the Building; for such
purposes, to interrupt or temporarily suspend Building services and facilities
provided such interruptions do not unreasonably and unnecessarily interfere with
Tenant's occupancy of the Premises; and to change the arrangement and location
of entrances or passageways, doors, doorways, corridors, elevators, stairs, restrooms,
or other public parts of the building.

                          b.
To take such reasonable measures as Landlord deems advisable for the security
of the Building and its occupants, including without limitation, using X-ray technology
or similar means to screen and/or search all persons entering or leaving the Building,
evacuating the Building for cause, suspected cause, or for drill purposes; temporarily
denying access to the Building; and closing the Building after normal business
hours and on Saturdays, Sundays, and holidays, subject, however, to Tenant's right
to enter when the Building is closed after normal business hours under such reasonable
regulations as Landlord may prescribe from time to time which may include by way
of example, but not of limitation, access by means of a controlled access system,
or that persons entering or leaving the Building, whether or not during normal
business hours, identify themselves to a security officer by registration or otherwise
and that such persons establish their right to enter or leave the Building; 

                          c.
To change the name by which the Building is designated; and 

                          d.
To enter the Premises during Tenant's normal business hours to show the Premises
to prospective purchasers, lenders, or tenants. 

             24.
 Intentionally Deleted. 

             25.
 Miscellaneous. 

                          a.
Landlord Transfer. Landlord may transfer, in whole or in part, the Building and
any of its rights under this Lease. If Landlord assigns its rights under this
Lease, then Landlord shall thereby be released from any further obligations hereunder.

                          b.
Landlord's Liability. The liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease shall be limited to Tenant's actual direct, but
not consequential, damages therefor and Landlord's liability shall be limited

  

  

 17

  

  

 to the interest of Landlord in the Building and the Land,
and Landlord shall not be personally liable for any deficiency. This section shall
not be deemed to limit or deny any remedies which Tenant may have in the event
of default by Landlord hereunder which do not involve the personal liability of
Landlord. In addition to the foregoing, If Landlord, or any subsequent owner of
the Building, sells the Building, its liability for the performance of its agreements
and obligations under this Lease will terminate upon the sale of the Building,
and Tenant agrees to look solely to the purchaser for the performance of such
agreements and obligations. For the purposes of this paragraph, any holder of
a mortgage or deed of trust that affects the Premises at any time, and any landlord
under any lease to which this Lease is subordinate at any time, will be a subsequent
owner of the Building when it succeeds to the interest of Landlord or any subsequent
owner of the Building. Tenant agrees to attorn (as set forth herein above) to
any subsequent owners of the Building.

                           c.
Force Majeure. Other than for Tenant's monetary obligations under this Lease,
whenever a period of time is herein prescribed for action to be taken by either
party hereto, such party shall not be liable or responsible for, and there shall
be excluded from the computation for any such period of time, any delays due to
strikes, riots, acts of God, shortages of labor or materials, war, governmental
laws, regulations, or restrictions, or any other causes of any kind whatsoever
which are beyond the reasonable control of such party.

                          d.
Brokerage. Landlord and Tenant each warrant to the other that it has not dealt
with any broker or agent in connection with the negotiation or execution of this
Lease, other than the brokers set forth in the Basic Lease Information. Tenant
and Landlord shall each indemnify the other against all costs, expenses, attorneys'
fees, and other liability for commissions or other compensation claimed by any
broker or agent claiming the same by, through, or under the indemnifying party.

                          e.
Estoppel Certificates. From time to time, Tenant shall furnish to any party designated
by Landlord, within ten (10) days after Landlord has made a request therefor,
a certificate signed by Tenant confirming and containing such factual certifications
and representations as to this Lease as Landlord may reasonably request.

                          f.
Notices. All notices and other communications given pursuant to this Lease shall
be in writing and shall be (i) mailed by first class, United States Mail, postage
prepaid, certified, with return receipt requested, and addressed to the parties
hereto at the address specified in the Basic Lease Information, (ii) hand delivered
to the intended address, or (iii) sent by prepaid telegram, cable, facsimile transmission,
or telex followed by a confirmatory letter. Notice sent by certified mail, postage
prepaid, shall be effective three (3) business days after being deposited in the
United States Mail; all other notices shall be effective upon delivery to the
address of the addressee. 

  

 18

  

  

  

 The parties hereto may change their addresses by giving
notice thereof to the other in conformity with this provision. 

                          g.
Separability. If any clause or provision of this Lease is illegal, invalid, or
unenforceable under present or future laws, then the remainder of this Lease shall
not be affected thereby and in lieu of such clause or provision, there shall be
added as a part of this Lease a clause or provision as similar in terms to such
illegal, invalid, or unenforceable clause or provision as may be possible and
be legal, valid and enforceable. 

                          h.
Entire Agreement; Amendments; Binding Effect. This Lease contains the entire agreement
between the parties, and no rights are created in favor of either party other
than as specified or expressly contemplated in this Lease. No brochure, rendering,
information or correspondence will be deemed to be a part of this agreement unless
specifically incorporated herein by reference. This Lease may not be amended except
by instrument in writing signed by Landlord and Tenant. No provision of this Lease
shall be deemed to have been waived by Landlord unless such waiver is in writing
signed by Landlord, and no custom or practice which may evolve between the parties
in the administration of the terms hereof shall waive or diminish the right of
Landlord to insist upon the performance by Tenant in strict accordance with the
terms hereof. The terms and conditions contained in this Lease shall inure to
the benefit of and be binding upon the parties hereto, and upon their respective
successors in interest and legal representatives, except as otherwise herein expressly
provided. This Lease is for the sole benefit of Landlord and Tenant, and, other
than Landlord's Mortgagee, no third party shall be deemed a third party beneficiary
hereof. 

                          i.
Quiet Enjoyment. Provided Tenant has performed all of the terms and conditions
of this Lease to be performed by Tenant, Tenant shall peaceably and quietly hold
and enjoy the Premises for the Term, without hindrance from Landlord or any party
claiming by, through, or under Landlord, subject to the terms and conditions of
this Lease. 

                          j.
Joint and Several Liability. If there is more than one Tenant, then the obligations
hereunder imposed upon Tenant shall be joint and several. If there is a guarantor
of Tenant's obligations hereunder, then the obligations hereunder imposed upon
Tenant shall be the joint and several obligations of Tenant and such guarantor,
and Landlord need not first proceed against Tenant before proceeding against such
guarantor nor shall any such guarantor be released from its guaranty for any reason
whatsoever. 

 

  

 19 

  

  

  

                            k.
Captions. The captions contained in this Lease are for convenience of reference
only, and do not limit or enlarge the terms and conditions of this Lease. 

                          l.
No Merger. There shall be no merger of the leasehold estate hereby created with
the fee estate in the Premises or any part thereof if the same person acquires
or holds, directly or indirectly, this Lease or any interest in this Lease and
the fee estate in the leasehold Premises or any interest in such fee estate. 

                          m.
No Offer. The submission of this Lease to Tenant shall not be construed as an
offer, nor shall Tenant have any rights under this Lease unless Landlord executes
a copy of this Lease and delivers it to Tenant. 

                          n.
No Representations and Warranties. LANDLORD'S DUTIES AND WARRANTIES ARE LIMITED
TO THOSE SET FORTH IN THIS LEASE, AND SHALL NOT INCLUDE ANY IMPLIED DUTIES OR
WARRANTIES, ALL OF WHICH ARE HEREBY DISCLAIMED BY LANDLORD AND WAIVED BY TENANT.

                          o.
Governing Law. The laws of the State of Texas govern the interpretation, validity,
performance and enforcement of this Lease. Venue for any action under this Lease
is in Tarrant County, Texas. 

                          p.
Exhibits. All exhibits and attachments attached hereto are incorporated herein
by this reference. 

	 	Exhibit A - Outline of Premises 

      Exhibit B - Property Description 

      Exhibit C - Building Rules and Regulations 

      Exhibit D - Operating Expense Escalator 

      Exhibit E - Parking 

      Exhibit F - Monument Signage 

      Exhibit G - Renewal Option 

 

             
26. Special Provision. Notwithstanding anything contained herein
to the contrary, Landlord and Tenant agree that in the event a third party tenant
is found to lease a portion of ReoStar's 11,822 rentable square feet, this Lease
and the terms thereof may be modified to reflect the reduction in rentable square
footage as mutually agreed upon between Landlord and Tenant in a subsequent written
agreement. Under no circumstance shall Tenant be responsible for any direct costs
or expenses associated with leasing any portion of ReoStar's 11,822 rentable square
feet to a third party tenant. 

             

  

 20

  

  

  

              
27. Leasing Commissions. Notwithstanding anything to the contrary contained in
this Lease, Landlord agrees that Landlord shall be solely responsible for the
payment of any commissions to Tenant's Broker and Landlord's Broker which are
the subject of a separate agreement(s) between Landlord and Tenant's Broker and
Landlord's Broker. Tenant shall not be liable for any commissions associated with
the leasing of the Premises. 

Signatures to appear on the following page. 

             
DATED as of the date first above written. 

	LANDLORD 	HULEN SOUTH TOWER LIMITED, 

      a Texas limited partnership 
	 	 
	
      By:  

    	 Isenberg Management Associates, Inc., 

      a Texas corporation, its sole general partner 
	 	 
	 	 
	 	By: /s/ Ralph Isenberg                                         
      

             Ralph Isenberg, President 
	 	 
	 	 
	TENANT 	REOSTAR ENERGY CORPORATION, 

      a Nevada corporation 
	 	 
	
      By: 

    	/s/ Scott Allen                                                        
	 	 
	
      Name/Title: 

    	Scott Allen, Chief Financial Officer                     
	 	 
	 	 

 

  

  

 21

  

  

  

  
 EXHIBIT A 

  

  The Premises 

 

11,822 rentable square feet.

  

  

 22

  

  

  
 EXHIBIT B 

  

  THE LAND 

 

 Being all of Lot 1, Block 1, Hulen Towers Addition to the
City of Fort Worth, Tarrant County, Texas, as recorded in Volume 388/154, pages
86 and 87, Tarrant County Plat Records. 

  

 23

  

  

  
 EXHIBIT C 

  

  BUILDING RULES AND REGULATIONS 

 

              
   The following rules and regulations shall apply to the Premises,
the Building, the parking garage associated therewith (where applicable), the
Land and the appurtenances thereto: 

	1. 	Upon initial occupancy, Tenant will receive
      two (2) suite keys, two (2) restroom keys (where applicable), and one (1)
      post office box key, free of charge. Tenant agrees to pay a charge, in an
      amount fixed by Landlord from time to time, for any additional keys issued
      by Landlord to Tenant. Tenant shall not duplicate any keys. No locks shall
      be allowed on any door of the Premises except those installed by Landlord.
      
	 	 
	2. 	Landlord will provide and maintain a directory
      board in the ground floor of the Building and allot one (1) name strip for
      Tenant's use. 
	 	 
	3. 	Tenant will refer all contractor, contractors'
      representatives and installation technicians, rendering any service to Tenant,
      to Landlord for Landlord's supervision, approval and control before performance
      of any contractual service. This provision shall apply to all work performed
      in the Building, including installations of telephones, telegraph equipment
      or any other physical portion of the Building. 
	 	 
	4. 	Movement in or out of the Building of furniture
      or office equipment, or dispatch or receipt by Tenant of any merchandise
      or materials which requires use of elevators or stairways, or movement through
      the Building entrances or lobby shall be restricted to hours designated
      by Landlord, and all persons in or entering the Building shall observe Landlord's
      security procedures. All such movements through the Building entrances,
      lobby or building common areas shall be conducted under Landlord's supervision
      at such times and in such a manner as Landlord may reasonably require. Tenant
      is to assume all risk as to damage to article moved and injury to persons
      or public engaged or not engaged in such movement, including equipment,
      property and personnel of Landlord if damaged or injured as a result of
      acts in connection with carrying out this service for Tenant from time of
      entering the property to completion of work; and Landlord shall not be liable
      for acts of any person engaged in, or any damage or loss to any said property
      or persons resulting from any act in connection with such performed for
      Tenant. 

 

 

 24

  

  

  
 
  	5. 	No signs will be allowed in any form on the
        exterior of the Building or windows inside or out, and no signs except
        in location and style fixed by Landlord will be permitted in the public
        corridors or on corridor doors or entrances to the Premises. All signs
        shall be contracted for by Landlord for Tenant at the rate fixed by Landlord
        from time to time, and Tenant will be billed and pay for such service
        accordingly. 
	 	 
	6. 	No portion of the Premises or any other part
        of the Building shall at any time be used or occupied as sleeping or lodging
        quarters. 
	 	 
	7. 	Tenant shall not place, install
        or operate on the Premises or in any part of the Building, any engine,
        stove, or machinery or conduct mechanical operations or cook thereon or
        therein, or place or use in or about the Premises any explosive, gasoline,
        kerosene, oil, acids, caustics or any other flammable, explosive or hazardous
        material without written consent of Landlord. Tenant will, however, be
        allowed to use a microwave. 
	 	 
	8. 	Landlord will not be responsible for lost,
        damaged or stolen property in the Premises or in the common areas, regardless
        of whether such loss or damage occurs when such area is locked against
        entry or not. 
	 	 
	9. 	No fish, dogs (except seeing-eye dogs), cats,
        reptiles or other pets or animals shall be brought into or kept in or
        about the Building, and no cages, pens, aquariums or the like for any
        such animals shall be brought into or kept in the Building. 
	 	 
	10. 	Employees of Landlord shall not receive or
        carry messages for or to any Tenant or other person, nor contract with
        or render free or paid services to any Tenant or Tenant's agents, employees
        or invitees. 
	 	 
	11. 	None of the entryways, passages, doors, elevators,
        elevator doors, hallways or stairways shall be blocked or obstructed,
        nor shall any rubbish, litter, trash or material of any nature be placed,
        emptied or thrown into these areas, or such areas be used at any time
        except for access or egress by Tenant's agents, employees or invitees.
        
	 	 
	12. 	The slatted mini-blinds on the exterior windows
        shall remain in place and not be moved or removed by Tenant. No curtains
        or other window treatments shall be placed between the glass and the Building
        standard window treatment, nor added to the Building standard window treatment.
        

   

  

 25

  

  

  

	13. 	No smoking shall be allowed in the Building,
      including common areas and the Premises. 
	 	 
	14. 	Landlord may prescribe weight limitations and
      determine the locations for safes and other heavy equipment or items, which
      shall in all cases be placed in the Building so as to distribute weight
      in a manner acceptable to Landlord which may include the use of such supporting
      devices as Landlord may require. All damages to the Building caused by the
      installation or removal of any property of a tenant, or done by a tenant's
      property while in the Building, shall be repaired at the expense of such
      tenant. 
	 	 
	15. 	Tenant shall not make or permit any improper,
      objectionable or unpleasant noises or odors in the Building or otherwise
      interfere in any way with other tenants or persons having business with
      them. 
	 	 
	16. 	The current established Building hours will
      be between the hours of 7:00 a.m. to 6:00 p.m. Monday through Friday (excluding
      Building holidays), and 8:00 a.m. to 1:00 p.m. on Saturdays (excluding Building
      holidays). Building holidays are: New Year's Day, Memorial Day, Independence
      Day, Labor Day, Thanksgiving Day and Christmas Day. 

  

 26

  

  

  

 

 EXHIBIT D 

  

  OPERATING EXPENSE ESCALATOR 

 

	(a) 	Tenant shall pay an amount (per each rentable
      square foot in the Premises) equal to the excess ("Excess") from
      time to time of actual Basic Cost per rentable square foot in the Building
      over the basic cost per rentable square foot for calendar year 2010 (the
      "Base Year"). Landlord may collect such amount in a lump sum, to
      be due within thirty (30) days after Landlord furnishes to Tenant the Annual
      Cost Statement (as defined in paragraph (c) of this Exhibit). Alternatively,
      Landlord may make a good faith estimate of the Excess to be due by Tenant
      for any calendar year or part thereof during the Term, and, unless Landlord
      delivers to Tenant a revision of the estimated Excess, Tenant shall pay
      to Landlord, on the Commencement Date and on the first day of each calendar
      month thereafter, an amount equal to the estimated Excess for such calendar
      year or part thereof divided by the number of months in such calendar year
      during the Term. From time to time during any calendar year, Landlord may
      estimate and re-estimate the Excess to be due by Tenant for that calendar
      year and deliver a copy of the estimate or re-estimate to Tenant. Thereafter,
      the monthly installments of Excess payable by Tenant shall be appropriately
      adjusted in accordance with the estimations so that, by the end of the calendar
      year in question, Tenant shall have paid all of the Excess as estimated
      by Landlord. Any amounts paid based on such an estimate shall be subject
      to adjustment pursuant to paragraph (c) of this Exhibit when actual Basic
      Cost is available for each calendar year.  
	 	 
	(b) 	For the purposes of this Exhibit, the term
      "Basic Cost" shall mean all expenses and disbursements of every kind
      (subject to the limitations set forth below) which Landlord incurs, pays
      or becomes obligated to pay in connection with the ownership, operation,
      and maintenance of the Building (including appurtenant rights and easements
      and the associated parking facilities), determined in accordance with generally
      accepted federal income tax basis accounting principles consistently applied,
      including but not limited to the following: 

	 	(i) 	Wages and salaries (including management fees)
      of all employees engaged in the operation, repair, maintenance, and security
      of the Building, including taxes, insurance and benefits relating thereto;
      
	 	 	 
	 	(ii) 	All supplies and materials used in the operation,
      maintenance, repair, and security of the Building; 

 

  

 27

  

  

  

 

 

	 	(iii) 	Amortization of the cost of capital items which
      (a) are required by governmental requirements, and (b) are acquired or installed
      by Landlord for the purpose of reducing operating expenses; all such costs
      shall be amortized over the reasonable life of the capital item under generally
      accepted accounting principles, consistently applied; 
	 	 	 
	 	(iv) 	Cost of all utilities, other than the cost
      of utilities actually reimbursed to Landlord by the Building's tenants;
      
	 	 	 
	 	(v) 	Cost of any insurance or insurance related
      expense applicable to the Building and Landlord's personal property used
      in connection therewith;
	 	 	 
	 	(vi) 	 All taxes and assessments and governmental
      charges whether federal, state, county or municipal, and whether they be
      by taxing districts or authorities presently taxing or by others, subsequently
      created or otherwise, and any other taxes and assessments attributable to
      the Building (or its operation), and the grounds, parking areas, driveways,
      and alleys around the Building, including all sales, use or other tax, including
      margin tax (but excluding, however, federal and state net income tax) now
      or hereafter levied by any governmental authority upon rents or other revenues
      received by Landlord attributable to the Property (collectively, "Taxes");
      
	 	 	 
	 	(vii) 	Cost of repairs and general maintenance of
      the Building; and (viii) Cost of service or maintenance contracts with independent
      contractors for the operation, maintenance, repair, or security of the Building
      (including, without limitation, elevator maintenance, alarm service, window
      cleaning, HVAC maintenance, fountain and sprinkler system maintenance, and
      interior and exterior landscaping). 

  

 The following are specifically excluded from the definition of
the term "Basic Cost." To the extent there is a conflict between the list of included
items (hereinabove) and the list of excluded items (herein below), the list of
excluded items shall control: 

	 	(i) 	expenditures classified as capital expenditures
      for federal income tax purposes except as set forth in subparagraph (b)(iii)
      above; 

 

 28

  

  

  

	 	(ii) 	costs for which Landlord is entitled to specific
      reimbursement by Tenant, by any other tenant of the Building or by any other
      third party;  
	 	 	 
	 	(iii) 	leasing commissions, or other costs incurred
      by Landlord in connection with the leasing of space, including legal fees,
      tenant inducements or incentives, architectural and engineering fees and
      construction costs expenses relating to leasehold improvements, relocation
      costs or other costs or expenses incurred in the decorating, refurbishing
      or other preparation of leasable space for occupancy, including any allowances
      for any of the foregoing; 
	 	 	 
	 	(iv) 	costs to correct defects (including latent
      defects), including any allowances for same, in the construction of the
      Building or its related facilities, except conditions resulting from ordinary
      wear and tear; 
	 	 	 
	 	(v) 	depreciation or amortization except as set
      forth above; 
	 	 	 
	 	(vi) 	cost or expenses (including overtime, fines,
      penalties and legal fees) incurred due to the negligent or intentional violation
      by Landlord, its employees, agents or contractors, of any valid, applicable
      laws, rules, regulations and codes of any federal, state, county, municipal
      or other governmental authority having the jurisdiction over the Building
      that would not have been incurred but for such violation by Landlord, it
      employees, agents or contractors; and 
	 	 	 
	 	(vii) 	the following matters:

	 	(1) 	 Costs of repairs or other work occasioned
      by fire, windstorm, or other casualty of an insurable nature, whether or
      not Landlord carries such insurance, and costs reimbursable to Landlord
      by governmental authorities in eminent domain or condemnation proceedings.
      
	 	 	 
	 	(2) 	Rental and other related expenses, if any,
      incurred in leasing air conditioning systems, elevators, or other equipment
      ordinarily considered to be of a capital nature, except equipment used in
      providing janitorial services and which is not affixed to the Building.
      
	 	 	 
	 	(3)	 Losses due to uncollected rent or fees or
      reserves for bad debts. 
	 	 	 
	 	(4) 	Specific costs incurred for third parties (including
      other tenants), including without limitations, above Building standard electrical
      

 

  

 29

  

	 	 	and/or janitorial services, and other services
      above Building standard. 
	 	 	 
	 	(5) 	All utility costs for which Tenant directly
      contracts with local utility companies. 
	 	 	 
	 	(6)	Costs, fines, interest penalties, attorneys'
      fees, and costs of litigation incurred due to late payment of taxes (except
      for penalties associated with Landlord's good faith contest of real estate
      taxes), utility bills, ground rentals, or mortgage debt, and other such
      costs incurred by Landlord's failure to make such payments when due. 
	 	 	 
	 	(7) 	Penalties, fines, and other costs incurred
      due to violations or alleged violations by any other tenant, or any third
      party of any laws, rules, regulations, codes, or ordinances. 
	 	 	 
	 	(8) 	Costs incurred due to violations or alleged
      violations by Landlord, any other tenant, or other occupant of the Building
      of the terms and conditions of any lease or other rental agreement covering
      space in the Building. 
	 	 	 
	 	(9) 	Overhead and profit increments paid to subsidiaries
      or affiliates of Landlord for services on or to the Building (or any portion
      thereof), to the extent such overhead and profit increments exceed that
      which would have been earned by or paid to an independent, third-party provider
      of the same or similar services. 
	 	 	 
	 	(10) 	Any overhead, administrative, and general office
      expenses other than the management fee specifically provided for above.
      
	 	 	 
	 	(11) 	Any overhead, administrative, and general office
      expenses for off-leased premises managers or owners and any such expenses
      for services not specifically performed for the Building other than the
      management fee specifically provided for above. 
	 	 	 
	 	(12) 	Wages, salaries, and other compensation of
      any kind or nature paid to any executive employees above the grade of building
      manager other than the management fee specifically provided for above. 
	 	 	 
	 	(13) 	Profit of Landlord in the furnishing of goods
      and services to the Building.

 30

	 	(14) 	Costs incurred in the operation of any concession
      serving the Building, including, without limitation, parking facilities.
	 	 	 
	 	(15) 	 Compensation paid to clerks, attendants, and
      other persons in any concessions operated by Landlord. 
	 	 	 
	 	(16) 	Ground rentals, payment of principal and interest
      on debt (and other debt costs), amortization payments on any mortgage executed
      by Landlord covering the Building or the Land (or any portion thereof) (except
      to the extent that any of the foregoing may include payments or prepayments
      of insurance premiums or taxes that would be included in operating expenses
      if paid directly by Landlord), rental concessions, and negative cash flow
      guarantees. 
	 	 	 
	 	(17) 	Costs incurred in connection with the sale,
      refinancing, mortgaging, or selling, or change of ownership of the Building
      or the Land, including, without limitations, brokerage commissions, attorneys'
      and accountants' fees, loan brokerage fees, closing costs, interest charges,
      and taxes. 
	 	 	 
	 	(18) 	State, local, federal, personal, and corporate
      income taxes measured by the income of Landlord from all sources or from
      sources other than rent alone; estate and inheritance taxes; franchise,
      succession and transfer taxes. 
	 	 	 
	 	(19) 	Any increased monetary obligations connected
      with the reassessment of the Building or the Land that are caused as a result
      of Landlord's sale of all or a part of its interest in the Building or the
      Land, or additions and improvements added to the Building or the Land. 
	 	 	 
	 	(20) 	All costs incurred by Landlord in connection
      with any dispute relating to the Landlord's title to or ownership of the
      Building or the Land. 
	 	 	 
	 	(21) 	Advertising and promotional expenditures. 
	 	 	 
	 	(22) 	Costs and expenses for owning, leasing, and
      maintaining sculpture, painting, and other works of art installed in and/or
      on the Building or the Land other than those in place on the effective date.
      

 31

	 	(23) 	Contributions to charitable organizations.
       
	 	 	 
	 	(24) 	Costs and expenses incurred in connection with
      the any floor of the Building on which the leased space thereon is devoted
      exclusively to retail, restaurant, health club or other non-office uses.
      

	(c) 	The term "Annual Cost Statement" shall
      mean a statement of Landlord's actual Basic Cost for the previous year adjusted
      as provided in paragraph (d) of this Exhibit. By April 1 of each calendar
      year, Landlord shall furnish to Tenant the Annual Cost Statement. If the
      Annual Cost Statement reveals that Tenant paid more for Basic Cost than
      the actual Excess in the year for which such statement was prepared, then
      Landlord shall promptly credit or reimburse Tenant for such excess; likewise,
      if Tenant paid less than the actual Excess, then Tenant shall promptly pay
      Landlord such deficiency. 
	 	 
	(d) 	With respect to any calendar year or partial
      calendar year in which the Building is not occupied to the extent of ninety-five
      percent (95%) of the rentable area thereof, the Basic Cost for such period
      shall, for the purposes hereof, be increased to the amount which would have
      been incurred had the Building been occupied to the extent of ninety-five
      percent (95%) of the rentable area thereof. In making the foregoing determination
      and gross-up adjustment, only those cost components of the Basic Cost actually
      incurred for such calendar year that are considered to be variable costs
      under generally accepted accounting principles (i.e., those costs that vary
      directly with the level of occupancy of the Building) shall be adjusted
      to reflect the amount thereof that would have been incurred if the Building
      were 95% occupied for the entire calendar year. Such gross-up adjustment
      shall be made separately with respect to each such item of cost on the basis
      that each such item of cost varies with Building occupancy, as, for example
      and not by way of limitation, on the basis of the number of tenant-occupied
      square feet of the Building receiving janitorial services as to the cost
      of such services, and on the basis of the number of floors served by elevators
      as to the cost of elevator maintenance. If any such item of cost is subject
      to a contract for the provision of such service, such adjustment shall be
      based upon the level of services and the cost of such services under such
      contract. In no event shall the application of the foregoing provisions
      result in any profit to Landlord. 
	 	 
	e. 	Notwithstanding anything to the contrary contained
      herein, in no event will the amount per rentable square foot paid by Tenant
      for Controllable Basic Costs increase by more than six percent (6%) over
      the amount of per rentable square foot paid by Tenant for Controllable Basic
      Costs for the previous calendar year. As used herein, the term "Controllable
      Basic Costs" means all items of Basic 

 

 32

	 	Costs other than Uncontrollable Basic Costs.
      As used herein, the term "Uncontrollable Basic Costs" means (i) all taxes
      and assessments and governmental charges whether federal state, county or
      municipal, and whether they be by taxing districts or authorities presently
      taxing or by others, subsequently created or otherwise, and any other taxes
      and assessments attributable to the Building (or its operation), and the
      grounds, parking areas, driveways, and alleys around the Building, excluding,
      however, federal and state taxes on income (ii) dues, taxes or assessments
      payable under covenants applicable to the Land and the Building, (iii) cost
      of any insurance or insurance related expense applicable to the Building
      and Landlord's personal property used in connection therewith, and (iv)
      cost of all utilities, including without limitation, the cost of water,
      sewer, trash removal, gas and telephone, and (v) management fees associated
      with the Building calculated as a percentage of gross revenues or as a fixed
      minimum rate.
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 

 33

   
 EXHIBIT E 

  

  PARKING 

 

 Tenant shall be permitted to use six (6) reserved vehicular
parking spaces in the parking lot associated with the Building (the "Parking
Area") at a cost of $00.00 per month per space. Tenant's use of all parking
spaces shall be subject to such terms, conditions and regulations as are from
time to time charged or applicable to patrons of the Parking Area, including,
without limitation, the terms and conditions of that certain Easement for Ingress
and Egress and Reciprocal Parking Agreement which encumbers the Land and which
is recorded in the Real Property Records of Tarrant County, Texas, as amended
from time to time. If, for any reason, Landlord fails or is unable to provide,
or Tenant is not permitted to use, all or any portion of the parking spaces to
which it is entitled hereunder, then Tenant's obligation to pay for such spaces
shall be abated for so long as Tenant does not have the use thereof; this abatement
shall be in full settlement of all claims that Tenant might otherwise have against
Landlord because of Landlord's failure or inability to provide Tenant with such
parking spaces. If Tenant sublets any portion of the Premises or assigns any of
its interest in this Lease, then the parking spaces allocated to Tenant hereunder
shall be reduced to the extent the ratio between the rentable square feet of the
Premises and the parking spaces granted to Tenant hereunder exceeds the Building
standard ratio of parking space per rentable square foot as established by Landlord
from time to time. 

Tenant has initially been assigned space #1 in the covered parking next to the
Building and spaces #1, #2, #3, #23 and #24 in the canvas covered parking area.

 34

   
 EXHIBIT F 

  

  SIGNAGE 

 

Tenant's existing monument signage to remain in place throughout
the Lease Term and any renewal periods. 

 35

   
 EXHIBIT G 

  

  RENEWAL OPTION 

 

Provided no Event of Default exists and Tenant is occupying
the entire Premises at the time of such election, and provided Tenant has provided
financial statements and Landlord has approved such, Tenant may renew this Lease
for one (1) additional period of eighty-four (84) months on mutually acceptable
terms, by delivering written notice of the exercise thereof to Landlord no later
than ninety (90) days before the expiration of the then existing Term. On or before
the commencement date of the extended Term in question, Landlord and Tenant shall
execute an amendment to this Lease or a replacement lease extending the Terms
as mutually agreed upon; however, Tenant shall have no further renewal options
unless expressly granted by Landlord in writing. 

Tenant's rights under this Exhibit shall terminate if (i) this Lease or Tenant's
right to possession of the Premises is terminated, (ii) Tenant assigns any of
its interest in this Lease or sublets any portion of the Premises, or (iii) Tenant
fails to timely exercise its option under this Exhibit, time being of the essence
with respect to Tenant's exercise thereof. Tenant may not assign this renewal
option to any assignee of the Lease, nor may any sublessee or assignee exercise
this option. Tenant and Landlord shall promptly execute and deliver an appropriate
amendment of this Lease to evidence such terms following commencement of the extended
Term. 

 36

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