Document:

Exhibit 10.56

 

THIS DOCUMENT PREPARED BY

AND RECORDING REQUESTED BY

AND WHEN RECORDED MAIL TO:

R. Christian Brose

201 N. Tryon Street, Ste 3000

Charlotte, NC 28202

 

 

 

LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES

 

dated as of March 31, 2011

 

by

 

Dallas Clean Energy McCommas Bluff, LLC,

 

a Delaware limited liability company,
 as Grantor

 

to

 

 

Peter S. Graf,
 the Trustee

 

 

for the benefit of

 

 

The Bank of New York Mellon Trust Company, N.A., a national banking association

 

 

Property:

 

 

Leasehold estate concerning approximately 1.9976 acres

 

located at the McComass Bluff Landfill,

 

Dallas, Texas

 

 

 

[Collateral includes Fixtures]

 

 

LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT AND
 ASSIGNMENT OF RENTS AND LEASES

 

THIS LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES (“Deed of Trust”), made and entered into as of March 31, 2011, by Dallas Clean Energy McCommas Bluff, LLC, a Delaware limited liability company, whose address is 624 S. Grand Avenue, Suite 2420, Los Angeles, California 90017-3325 (“Grantor”), in favor of Peter S. Graf, whose address is 2626 Howell Street, 10th Floor, Dallas, Texas  75204-4064 (“Trustee,” said term referring always to the named Trustee and his successors in trust), for the use and benefit of The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee (the “Bond Trustee”), under that certain Trust Indenture, dated as of January 1, 2011 (as further amended, restated, modified, or otherwise supplemented from time to time, the “Indenture”), by and between the Bond Trustee and Mission Economic Development Corporation (the “Issuer”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to the Indenture, the Issuer has issued its $40,200,000 Solid Waste Disposal Revenue Bonds (Dallas Clean Energy McCommas Bluff, LLC Project) Series 2011 (the “Bonds”), to assist in financing the cost of the acquisition, construction, improvement and installation of certain solid waste disposal facilities being developed by the Grantor (the “Project”), and to pay certain other items relating to the Bonds;

 

WHEREAS, the Issuer will loan the proceeds derived from the sale of the Bonds to the Grantor pursuant to a Loan Agreement dated as of January 1, 2011 (the “Loan Agreement”) under which the Grantor is required to make loan payments sufficient to pay when due the principal of, premium, if any, and interest on the Bonds and related expenses; and

 

WHEREAS, the Grantor’s repayment obligations under the Loan Agreement will be evidenced by a promissory note dated the date of issuance of the Bonds (the “Note”), from the Grantor to the Issuer and assigned to the Bond Trustee pursuant to the Indenture, and secured by this Deed of Trust;

 

NOW, THEREFORE, THIS DEED OF TRUST FURTHER WITNESSETH:

 

That for and in consideration of the indebtedness and other obligations of Grantor hereinafter set forth, and the trust herein created, Grantor does. hereby irrevocably CONVEY WARRANT, GRANT, BARGAIN, SELL, ASSIGN, TRANSFER, PLEDGE AND SET OVER unto Trustee, and the successors and assigns of Trustee, all of the following described land, leaseholds and interests in land, estates, easements, rights, improvements, personal property, fixtures, equipment, furniture, furnishings, appliances and appurtenances, including replacements and additions thereto (hereinafter referred to collectively as the “Premises”):

 

(a)           All of Grantor’s interest and any after-acquired leasehold or fee title in certain real property consisting of approximately 1.9976 acres and located at the McComass Bluff Landfill in Dallas, Texas as more particularly described in Exhibit A attached hereto and by this reference made a part hereof (the “Land”);

 

 

(b)           All right, title and interest of Grantor in and to buildings, structures and improvements of every nature whatsoever now or hereafter situated on the Land, and all gas and electric fixtures, radiators, heaters, engines and machinery, boilers, ranges, elevators and motors, plumbing and heating fixtures, carpeting and other floor coverings, water heaters, awnings and storm sashes, and cleaning apparatus which are or shall be attached to said buildings, structures or improvements, and all other furnishings, furniture, fixtures, machinery, equipment, appliances, vehicles and personal property of every kind and nature whatsoever now or hereafter owned by Grantor and located in, on or about, or used or intended to be used with or in connection with the construction, use, operation or enjoyment of the Premises, including all extensions, additions, improvements, betterments, renewals and replacements, substitutions, or proceeds from a permitted sale of any of the foregoing, and all building materials and supplies of every kind now or hereafter placed or located on the Land (collectively the “Improvements”), all of which are hereby declared and shall be deemed to be fixtures and accessions to the Land and a part of the Premises as between the parties hereto and all persons claiming by, through or under them, and which shall be deemed to be a portion of the security for the indebtedness herein described and to be secured by this Deed of Trust;

 

(c)           All right, title and interest of Grantor as lessee under that certain Lease to Develop Landfill Gas dated December 12, 1994 (as amended and assigned from time to time, the “Lease”), between the City of Dallas, Texas (the “Lessor”) and the Grantor (as assignee and successor in interest to predecessor lessees), including any after-acquired title or interest of Grantor in the property described in the Lease, which Lease includes the Land or some part thereof;

 

(d)           All easements, rights-of-way, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers, minerals, flowers, shrubs, crops, trees, timber and other emblements, to the extent owned by or benefiting Grantor, now or hereafter located on the Land or under or above the same or any part or parcel thereof, and all ground leases, estates, rights, titles, interests, privileges, liberties, tenements, hereditaments and appurtenances, reversions, and remainders whatsoever, in any way belonging, relating or appertaining to the Premises or any part thereof, or which hereafter shall in any way belong, relate or be appurtenant thereto and benefiting Grantor, whether now owned or hereafter acquired by them;

 

(e)           All of Grantor’s rents, issues, profits and revenues of the Premises from time to time accruing (including without limitation all payments under leases, ground leases or tenancies, proceeds of insurance, condemnation payments, tenant security deposits and escrow funds), and all of the estate, right, title, interest, property, possession, claim and demand whatsoever at law, as well as in equity, of Grantor of, in and to the same, reserving only the right to them to collect the same so long as Grantor is not in default hereunder or such collection is not otherwise restricted by this Deed of Trust;

 

(f)            All rights and options of Grantor in any bankruptcy proceeding to make any elections to remain in possession under the Lease; and, in the event of bankruptcy of Grantor, Grantor shall be deemed in possession, regardless of the presence of other tenants, and all of Grantor’s possessory rights and rights to terminate or reject any leases are hereby encumbered and made a part of the Premises; and

 

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(g)           All furniture, machinery, supplies, construction materials, goods, equipment, fixtures, inventory, accounts, contract rights, permits, chattel paper, documents, instruments and general intangibles (including, without limitation, the right to use all names, logos and other identification) associated with operation of the Premises or used or useful in connection therewith and all books and records in any way related to the Premises.

 

SUBJECT, HOWEVER, in each case to (i) liens for taxes not then delinquent, (ii) the Loan Agreement, this Deed of Trust, the Lease and the Indenture, (iii) any lien or encumbrance disclosed on the title insurance policy delivered in connection with the issuance of the Bonds; (iv) mineral leases, servitudes or other mineral rights, utility, access and other easements and rights of way, restrictions and exceptions that an authorized officer of the Grantor certifies will not interfere with the operation of or impair the value of the Premises, and (iv) such minor defects, irregularities, encumbrances, easements, rights of way and clouds on title as normally exist with respect to property similar in character to the Premises and would not reasonably be expected to materially impair the property affected thereby for the purpose for which it was acquired or is held by the Grantor (collectively, “Permitted Liens”).

 

TO HAVE AND TO HOLD the Premises and all parts, rights, members and appurtenances thereof, to the use and benefit of Trustee and the successors, successors-in-title and assigns of Trustee, forever; and Grantor covenants that Grantor is lawfully seized and possessed of the Premises pursuant to the Lease as aforesaid and has good right to convey the same, that the same are unencumbered (other than Permitted Liens), and Grantor does warrant and will forever defend the title thereto against the claims of all persons whomsoever.

 

But this conveyance is made IN TRUST for the following uses and trusts, and for no other purposes, to-wit:

 

(a)           To secure the payment of an indebtedness for borrowed money in the principal amount not exceeding FORTY MILLION TWO HUNDRED THOUSAND MILLION DOLLARS ($40,200,000), together with interest thereon, which Beneficiary has advanced as evidenced by the Note, and being finally due and payable on December 1, 2024, pursuant to the terms of the Loan Agreement and the Indenture;

 

(b)           To secure all sums advanced by Beneficiary to Grantor or expended by Beneficiary for Grantor’s account, including but not limited to advances for taxes and insurance pursuant to the terms of this Deed of Trust, and the faithful performance of all terms and conditions contained herein;

 

(c)           To secure the payment of all court costs, expenses and costs of whatever kind incident to the collection of any indebtedness secured hereby and the enforcement or protection of the lien of this conveyance, including reasonable attorney’s fees and any amounts paid to prevent termination of the Lease; and

 

(d)           To secure any amounts expended by Beneficiary in removing, isolating or cleaning up any hazardous materials from the Premises, whether or not such action is required by any “Applicable Environmental Law” (as hereinafter defined).

 

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Should the indebtedness, including, without limitation, the Note, secured by this Deed of Trust (hereinafter referred to collectively as the “Secured Indebtedness”) be paid in full and discharged according to the tenor and effect thereof when the same shall become due and payable, and should Grantor perform all covenants herein contained in a timely manner, then this Deed of Trust shall be canceled and released.

 

GRANTOR HEREBY FURTHER COVENANTS AND AGREES WITH TRUSTEE AND THE BOND TRUSTEE AS FOLLOWS:

 

ARTICLE I

 

1.01         Payment of Indebtedness.  Grantor shall pay the indebtedness evidenced by the Note according to the tenor thereof and the remainder of any Secured Indebtedness promptly as the same shall become due.

 

1.02         Taxes, Liens, Rents and Other Charges.

 

(a)           Grantor shall pay, on or before the delinquency date thereof, all ground rents, taxes, levies, license fees, permit fees and all other charges required to be paid by Grantor under the Lease and all rents and other payments due under the Lease and shall submit to Bond Trustee such evidence of the due and punctual payment of all such taxes, assessments and other fees and charges as Bond Trustee may reasonably request. Grantor shall have the right before they become delinquent to contest or object to the amount or validity of any such tax, assessment, fee or charge by appropriate legal proceedings but this right shall not be deemed or construed in any way as relieving, modifying or extending Grantor’s covenant to pay any such tax, assessment, fee or charge at the time and in the manner provided herein, unless Grantor has given prior written notice to Bond Trustee of Grantor’s intent to so contest or object, and unless at Bond Trustee’s sole option: (i) Grantor shall furnish a good and sufficient bond or surety as requested by and satisfactory to Bond Trustee; and (ii) Grantor shall have provided a good and sufficient undertaking as may be required or permitted by law to accomplish a stay of such proceedings.

 

(b)           Grantor shall pay, on or before the due date thereof, all taxes, assessments, charges, expenses, costs and fees which may now or hereafter be levied upon, or assessed or charged against, or incurred in connection with, the Note, the Secured Indebtedness, this Deed of Trust or any other instrument now or hereafter evidencing, securing or otherwise relating to the Secured Indebtedness.

 

(c)           Grantor shall pay, on or before the due date thereof, (i) all premiums on policies of insurance covering, affecting or relating to the Premises, as required pursuant to Section 1.03, below; (ii) all ground rentals, other lease rentals and other sums, if any, owing by Grantor and becoming due under the Lease or any other lease or rental contract affecting the Premises; and (iii) and subject to the terms of the Lease, all utility charges which are incurred by Grantor for the benefit of the Premises, or which may become a charge or lien against the Premises for gas, electricity, water and sewer services and the like furnished to the Premises, and all other public or private assessments or charges of a

 

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similar nature affecting the Premises or any portion thereof, whether or not the nonpayment of same may result in a lien thereon. Grantor shall submit to Bond Trustee such evidence of the due and punctual payment of all such premiums, rentals and other sums as Bond Trustee may reasonably require.

 

(d)           In the event of the passage of any state, federal, municipal or other governmental law, order, rule or regulation, subsequent to the date hereof, in any manner changing or modifying the laws now in force governing the taxation of deeds of trust or security agreements, or debts secured thereby or in the manner of collecting such taxes so as to adversely affect Bond Trustee, Grantor will pay any such tax on or before the due date thereof.

 

If Grantor fails to make such prompt payment or if, in the opinion of Bond Trustee, any such state, federal, municipal, or other governmental law, order, rule or regulation prohibits Grantor from making such payment or would penalize Grantor if Grantor makes such payment, or if, in the opinion of Bond Trustee, the making of such payment might result in the imposition of interest beyond the maximum amount permitted by applicable law, then the entire balance of the Secured Indebtedness and all interest accrued thereon shall, at the option of Bond Trustee, become immediately due and payable.

 

(e)           Grantor shall not suffer any mechanic’s, materialmen’s, laborer’s, statutory or other lien to be created or remain outstanding against the Premises; provided, however, that Grantor may contest any such lien in good faith by appropriate legal proceedings provided the lien is bonded in such manner as not to adversely affect the Premises or this Deed of Trust. Bond Trustee has not consented and will not consent to the performance of any work or the furnishing of any materials on behalf of Grantor which might be deemed to create a lien or liens superior to the lien hereof.

 

1.03         Insurance.

 

(a)           Upon the request of Bond Trustee, Grantor shall procure for, deliver to and maintain for the benefit of Bond Trustee during the term of this Deed of Trust, original paid-up insurance policies of such insurance companies, in such amounts, in form and substance, and with such expiration dates as are acceptable to Bond Trustee and containing non-contributory standard mortgagee clauses, their equivalent, or a satisfactory mortgagee loss payable endorsement in favor of Bond Trustee, providing the following types of insurance covering the Premises and the interest and liabilities incident to the ownership, possession and operation thereof:

 

(i)            insurance against loss or damage by fire, lightning, windstorm, hail, explosion, riot, riot attending a strike, civil commotion, aircraft, vehicles, smoke, vandalism and malicious mischief and against such other hazards as, under good insurance practices, from time to time are insured against for properties of similar character and location, the amount of which insurance shall be not less than the full replacement cost of the Premises without deduction for depreciation, and which policies of insurance shall contain satisfactory replacement cost endorsements;

 

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(ii)           during the course of any construction or repair of the Premises, to maintain nonreporting builder’s risk insurance with standard waiver of subrogation clauses, and, in the event any portion of the improvements are completed prior to the satisfaction of the Secured Indebtedness, to maintain insurance on all buildings and other improvements on the Premises against damage by fire, windstorm, and other risks normally insured against under so-called “extended coverage,” in companies and amounts satisfactory to Bond Trustee. All policies evidencing such insurance shall have attached thereto standard mortgagee riders making such insurance payable to Bond Trustee as its interest may appear, and all such policies or appropriate certificates, at Bond Trustee’s request, shall be deposited with it;

 

(iii)          comprehensive public liability insurance on an “occurrence basis” against claims for “personal injury,” including without limitation bodily injury, death or property damage occurring on, in or about the Premises and the adjoining streets, sidewalks and passageways as reasonably required by Bond Trustee;

 

(iv)          worker’s compensation insurance (including employer’s liability insurance, if requested by Bond Trustee) for all employees of Grantor engaged on or with respect to the Premises, in such amount as is reasonably satisfactory to Bond Trustee, or, if such limits are established by law, in such amounts;

 

(v)           business interruption insurance against loss of income arising out of damage or destruction by fire, lightning, windstorm, hail, explosion, riot, riot attending a strike, civil commotion, aircraft, vehicles, smoke, vandalism and malicious mischief and such other hazards as are presently included in so-called “extended coverage,” of twelve (12) months’ anticipated gross income from the Premises; and

 

(vi)          such other insurance on the Premises or any replacements or substitutions therefor and in such amounts as may from time to time be reasonably required by Bond Trustee against other insurable casualties which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height and type of the improvements, their construction, location, use and occupancy, or any replacements or substitutions therefor.

 

(b)           All policies of insurance required by the terms of this Deed of Trust shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act of negligence of Grantor which might otherwise result in forfeiture of said insurance, and the further agreement of the insurer waiving all rights of set off, counterclaim or deductions against Grantor.

 

(c)           Bond Trustee is hereby authorized and empowered, at its option, to adjust or compromise any loss under any insurance policies maintained for its benefit pursuant to this Section 1.03, and to collect and receive the proceeds from any such policy or

 

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policies. Each insurance company is hereby authorized and directed to make payment for all such losses directly to Bond Trustee as its interest may appear, instead of to Grantor and Bond Trustee jointly. In the event any insurance company fails to disburse directly and solely to Bond Trustee but disburses instead either solely to Grantor or to Grantor and Bond Trustee jointly, Grantor agrees immediately to endorse and transfer such proceeds to Bond Trustee to the extent of Bond Trustee’s interest therein. Upon the failure of Grantor to endorse and transfer such proceeds as aforesaid, Bond Trustee may execute such endorsements or transfers for and in the name of Grantor, and Grantor hereby irrevocably appoints Bond Trustee as Grantor’s agent and attorney-in-fact so to do. After deducting from said insurance proceeds all of its reasonable expenses incurred in the collection and administration of such sums including reasonable attorney’s fees, Bond Trustee shall apply the net insurance proceeds or any part thereof, first, to the extent permitted by the Indenture, the Loan Agreement and the Lease, to the repair and/or restoration of the Premises, and second, if the Grantor is in default under the Loan Agreement or the Lease after expiration of all relevant grace or cure periods, to the payment of the Secured Indebtedness, whether or not due and in whatever order Bond Trustee elects subject to the requirements of the Indenture and the Loan Agreement, and third, if neither of the foregoing options is available for any other purposes or objects for which Bond Trustee is entitled to advance funds under this Deed of Trust, all without affecting the lien and security interest created by this Deed of Trust, and any balance of such monies then remaining shall be paid to Grantor or the person or entity lawfully entitled thereto. Bond Trustee shall not be held responsible for any failure to collect any insurance proceeds due under the terms of any policy regardless of the cause of such failure.

 

(d)           At least fifteen (15) days prior to the expiration date of each policy maintained pursuant to this Section 1.03, a renewal or replacement thereof satisfactory to Bond Trustee shall be delivered to Bond Trustee. At Bond Trustee’s request, Grantor shall deliver to Bond Trustee receipts evidencing the payment for all such insurance policies and renewals or replacements. The delivery of any insurance policies hereunder shall constitute an assignment of all unearned premiums as further security hereunder. In the event of the foreclosure of this Deed of Trust or any other transfer of title to the Premises in extinguishment or partial extinguishment of the Secured Indebtedness, all right, title and interest of Grantor in and to all insurance policies then in force shall pass to the purchaser or Bond Trustee, and Bond Trustee is hereby irrevocably appointed by Grantor as attorney-in-fact for Grantor to assign any such policy to said purchaser or to Bond Trustee without accounting to Grantor for any unearned premiums thereon.

 

(e)           All policies of insurance required pursuant to the terms of this Section 1.03, shall be deemed to incorporate by reference a provision that such policies will not be cancelled or materially amended, which term shall include any reduction in the scope or limits of coverage, without at least thirty (30) days prior written notice to Bond Trustee. In the event Grantor fails to provide, maintain, keep in force or deliver and furnish to Bond Trustee the policies of insurance required by this Section 1.03, Bond Trustee may procure such insurance or single-interest insurance for such risks covering Bond Trustee’s interest, and Grantor will pay all premiums thereon promptly upon demand by Bond Trustee. Until such payment is made by Grantor, the amount of all such premiums, together with interest as hereinafter set forth, shall be added to the Secured Indebtedness and shall be secured by this Deed of Trust.

 

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(f)            Notwithstanding anything in this Section 1.03 to the contrary, any requirements under this Section 1.03 may be satisfied by delivery to Bond Trustee of the appropriate riders, assurances, endorsements or certificates for any insurance Grantor is required to maintain under the Lease.

 

1.04         Reserved.

 

1.05         Condemnation.  If all or any portion of the Premises shall be damaged or taken through condemnation (which term when used in this Deed of Trust shall include any damage or taking by any governmental or quasi governmental authority and any transfer by private sale in lieu thereof), either temporarily or permanently, other than an insubstantial taking for the purpose of widening existing roads bordering the Land which does not adversely affect access or the use of the Land and does not permit Grantor to terminate the Lease, then the entire Secured Indebtedness shall, at the option of Bond Trustee but subject to the applicable provisions of the Lease, Indenture and Loan Agreement, immediately become due and payable. Grantor, immediately upon obtaining knowledge of the institution, or the proposed, contemplated or threatened institution of any action or proceeding for the taking through condemnation of the Premises or any part thereof will notify Bond Trustee, and Bond Trustee is hereby authorized, at its option, to commence, appear in and prosecute, through counsel selected by Bond Trustee, in its own or in Grantor’s name, any action or proceeding relating to any condemnation to which Grantor is a party. Grantor may compromise or settle any claim for compensation but shall not make any compromise or settlement for an award that is less than the Secured Indebtedness without the prior written consent of Bond Trustee. All such compensation, awards, damages, claims, rights of action and proceeds and the right thereto are hereby assigned by Grantor to Bond Trustee, and Bond Trustee is authorized, at its option, to collect and receive all such compensation, awards or damages and to give proper receipts and acquittance therefor without any obligation to question the amount of any such compensation, awards or damages. After deducting from said condemnation proceeds all of its expenses incurred in the collection and administration of such sums, including reasonable attorney’s fees, Bond Trustee shall apply the net proceeds as provided in, and subject to the provisions of, Section 1.03(c) hereof.

 

1.06         Care of Premises.

 

(a)           Grantor will keep the buildings, parking areas, roads and walkways, landscaping, and all other improvements of any kind now or hereafter erected on the Land or any part thereof in good condition and repair, will not commit or suffer any waste and will not do or suffer to be done anything which would or could increase the risk of fire or other hazard to the Premises or any other part thereof or which would or could result in the cancellation of any insurance policy carried with respect to the Premises.

 

(b)           Grantor will not remove, demolish or alter the structural character of any improvement located on the land without the written consent of Bond Trustee nor make or permit use of the Premises for any purpose other than that for which the same are now used.

 

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(c)           If the Premises or any part thereof is damaged by fire or any other cause, Grantor will give immediate written notice thereof to Bond Trustee.

 

(d)           Bond Trustee or its representative is hereby authorized to enter upon and inspect the Premises at any time.

 

(e)           Grantor will promptly comply with all present and future laws, ordinances, rules and regulations of any governmental authority affecting the Premises or any part thereof.

 

(f)            Subject to the terms of the Lease, if all or any part of the Premises shall be damaged by fire or other casualty, Grantor will promptly restore the Premises to the equivalent of its original condition; and if a part of the Premises shall be damaged through condemnation, Grantor will promptly restore, repair or alter the remaining portions of the Premises in a manner satisfactory to Bond Trustee. Notwithstanding the foregoing, Grantor shall not be obligated so to restore unless in each instance, Bond Trustee agrees to make available to Grantor (pursuant to a procedure satisfactory to Bond Trustee) any net insurance or condemnation proceeds actually received by Bond Trustee hereunder in connection with such casualty loss or condemnation, to the extent such proceeds are required to defray the expense of such restoration or to be used in accordance with the provisions of the Indenture and the Loan Agreement; provided, however, that the insufficiency of any such insurance or condemnation proceeds to defray the entire expense of restoration shall in no way relieve Grantor of its obligation to restore if so required by the terms of the Lease, the Indenture or the Loan Agreement. In the event all or any portion of the Premises shall be damaged or destroyed by fire or other casualty or by condemnation, Grantor shall promptly deposit with Bond Trustee a sum equal to the amount by which the estimated cost of the restoration of the Premises (as determined by Bond Trustee in its good faith judgment) exceeds the actual net insurance or condemnation proceeds with respect to such damages or destruction.

 

(g)           The provisions of this Section 1.06 shall be subject in all respects to the requirements under the Lease imposed on the Grantor regarding care, maintenance and upkeep of the Premises.

 

1.07         Leases, Contracts. Etc.

 

(a)           As additional collateral and further security for the Secured Indebtedness, Grantor does hereby assign to Bond Trustee Grantor’s interest in the Lease and Grantor’s interest to receive all compensation due Grantor under the Shell Gas Sale Agreement, any other Gas Sale Agreements and Project Revenue Generating Agreements (as such terms are defined in the Indenture), and Grantor agrees to execute and deliver to Bond Trustee such additional instruments, in form and substance satisfactory to Bond Trustee, as hereafter may be requested by Bond Trustee further to evidence and confirm said assignment; provided, however, that acceptance of any such assignment shall not be

 

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construed as a consent by Bond Trustee to any lease, tenant contract, rental agreement, franchise agreement, management contract, sales contract or other contract, license or permit, or to impose upon Bond Trustee any obligation with respect thereto. Grantor shall faithfully keep and perform, or cause to be kept and performed, all of the covenants, conditions and agreements contained in each of said instruments, now or hereafter existing, on the part of Grantor to be kept and performed and shall at all times do all things necessary to compel performance by each other party to said instruments of all obligations, covenants and agreements by the Lessor to be performed thereunder.

 

(b)           Grantor shall not execute an assignment of the rents, issues or profits or any part thereof, from the Premises unless Bond Trustee shall first consent to such assignment, which consent shall not be unreasonably withheld, and unless such assignment shall expressly provide that it is subordinate to the assignment contained in this Deed of Trust and any assignment executed pursuant hereto.

 

(c)           The Grantor shall pay all rent and other charges required under the Lease as and when the same are due and the Grantor shall keep, observe, and perform, or cause to be kept, observed, and performed, all of the other terms, covenants, provisions, and agreements of the Lease on the part of the tenant thereunder to be kept, observed, and performed, and shall not in any manner, cancel, terminate, or surrender, or permit any cancellation, termination, or surrender of the Lease, in whole or in part, or, without the written consent of the Issuer, either orally or in writing, modify, amend, or permit any modification or amendment of any of the terms thereof in any respect, and any attempt on the part of the Grantor to exercise any such right without such written consent of the Issuer shall be null and void ab initio and shall be of no force or effect.

 

(d)           The Grantor shall do, or cause to be done, all things necessary to preserve and keep unimpaired the rights of the Grantor as tenant under the Lease and to prevent any default under the Lease or any termination, surrender, cancellation, forfeiture, or impairment thereof, and in the event of the failure of the Grantor to make any payment required to be made by the Grantor pursuant to the provisions of the Lease or to keep, observe, or perform, or cause to be kept, observed, or performed, any of the terms, covenants, provisions, or agreements of the Lease, the Grantor agrees that the Issuer may (but shall not be obligated to) take any action on behalf of the Grantor, to make or cause to be kept, observed, or performed any such terms, covenants, provisions, or agreements and to enter upon the Premises and take all such action thereof as may be necessary therefor to the end that the rights of the Grantor in and to the leasehold estate created by the Lease shall be kept unimpaired and free from default, and all money so expended by the Issuer, with interest thereon from the date of each such expenditure, shall be paid by the Grantor to the Issuer promptly upon demand by the Issuer and shall be added to the indebtedness and secured by this Deed of Trust, and the Issuer shall have, in addition to any other remedy thereof, the same rights and remedies in the event of non-payment of any such sum by the Grantor as in the case of a default by the Grantor in the payment of any sums due under the Loan Agreement and/or the Note.

 

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(e)           The Grantor shall enforce the obligations of the Lessor under the Lease to the end that it may enjoy all of the rights granted to it under the Lease; promptly notify the Issuer in writing of any default by the Lessor or by the Grantor in the performance or observance of any of the terms, covenants, or conditions on the part of the Lessor or the Grantor, as the case may be, to be performed or observed under the Lease; promptly advise the Issuer in writing of the occurrences of any of the events of default enumerated in the Lease and of the giving of any notice by the Lessor to the Grantor of any default by the Grantor in performance or observance of any of the terms, covenants, or conditions of the Lease on the part of the Grantor to be performed or observed; and promptly deliver to the Issuer a true and complete copy of each such notice. If, pursuant to the Lease, the Lessor shall deliver to the Issuer a copy of any notice of default given to the Grantor, such notice shall constitute full authority and protection to the Issuer for any action taken or omitted to be taken by the Issuer in good faith in reliance thereon.

 

(f)            If any action or proceeding shall be instituted to evict the Grantor or to recover possession of the Premises or for any other purpose affecting the Lease or this Deed of Trust, the Grantor shall, immediately upon service thereof on or to the Grantor, deliver to the Issuer a true and complete copy of each petition, summons, complaint, notice of motion, order to show cause and of all other provisions, pleadings, and papers, however designated, served in any such action or proceeding.

 

(g)           No release or forbearance of any of the Grantor’s obligations under the Lease, pursuant to the Lease or otherwise, shall release the Grantor from any of its obligations under this Deed of Trust, including its obligation with respect to the payment of rent as provided for in the Lease and the performance of all of the terms, provisions, covenants, conditions, and agreements contained in the Lease to be kept, performed, and complied with by the tenant therein.

 

(h)           The Grantor shall not make any election or give any consent or approval (other than the exercise of a renewal right or extension right or other right conferring a benefit on the Grantor, provided that any such action has no adverse effect or consequence to the Issuer) for which a right to do so is conferred upon the Grantor as tenant under the Lease without the prior written consent of the Issuer. In case of any Event of Default under this Deed of Trust, all such rights, together with the right of termination, cancellation, modification, change, supplement, alteration, or amendment of the Lease, all of which have been assigned for collateral purposes to the Issuer, shall vest in and be exercisable solely by the Issuer.

 

(i)            The Grantor shall give the Issuer prompt written notice of the commencement of any arbitration or appraisal proceeding under and pursuant to the provisions of the Lease, if and as required under the Lease. The Issuer shall have the right to intervene and participate in any such proceeding, and the Grantor shall confer with the Issuer to the extent which the Issuer deems necessary for the protection of the Issuer. Upon the written request of the Issuer, the Grantor shall exercise all rights of arbitration conferred upon it, if any, by the Lease. The Grantor shall select an arbitrator who is approved in writing by the Issuer; provided, however, that if at the time any such proceeding shall be commenced, the Grantor shall be in default in the performance or observance of any covenant, condition, or other requirement of the Lease, or of this Deed of Trust, on the part of the Grantor to be performed or observed, the Issuer shall have, and is hereby granted, the sole and exclusive right to designate and appoint on behalf of the Grantor the arbitrator or arbitrators, or appraiser or appraisers, in such proceeding.

 

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(j)            Not more than three hundred sixty (360) and not less than two hundred seventy (270) days before any renewal or extension of the term of the Lease takes effect, the Grantor shall give the Issuer written notice of such renewal or extension.

 

(k)           Upon the written demand of the Issuer, the Grantor shall exercise any rights under the Lease to extend the term of the Lease beyond the term of this Deed of Trust or to comply with any law affecting the Grantor or the Issuer or which is necessary, in the reasonable judgment of the Issuer, to preserve the value of the security intended to be afforded by this Deed of Trust. The Grantor shall promptly provide evidence of such exercise of such right to the reasonable satisfaction of the Issuer. In the event that the Grantor fails to so exercise any such right or upon the occurrence of an Event of Default, the Grantor hereby agrees and grants to the Issuer all right and authority to exercise such right in the name of the Grantor or in its own name. Nothing contained herein shall affect or limit any rights of the Issuer under the Lease.

 

1.08         Security Agreement/Assignment.

 

(a)           Grantor hereby grants to Bond Trustee, as security for the Secured Indebtedness, a security interest in the Premises to the fullest extent that the Premises now or hereafter may be subject to a security interest under the Texas Uniform Commercial Code (the “UCC”). Grantor intends for this Deed of Trust to be a “security agreement” within the meaning of the UCC. Grantor hereby irrevocably authorizes Bond Trustee to prepare, execute and file all initial financing statements, and any restatements, extensions, continuations, renewals or amendments thereof, in such form as Bond Trustee may require to perfect or continue the perfection of this security interest or other statutory liens held by Bond Trustee. Unless prohibited by applicable law, Grantor agrees to pay all reasonable expenses incident to the preparation, execution, filing and/or recording of any of the foregoing. With respect to any of the Premises in which a security interest is not perfected by the filing of a financing statement, Grantor consents and agrees to undertake, and to cooperate fully with Bond Trustee, to perfect the security interest hereby granted to Bond Trustee in the Premises. Without limiting the foregoing, if and to the extent any of the Premises is held by a bailee for the benefit of Grantor, Grantor shall promptly notify Bond Trustee thereof and, if required by Bond Trustee, promptly obtain an acknowledgment from such bailee that is satisfactory to Bond Trustee and confirms that such bailee holds the Premises for the benefit of Bond Trustee as secured party and shall only act upon instructions from Bond Trustee with respect to the Premises.

 

(b)           THIS INSTRUMENT IS A PRESENT ASSIGNMENT OF THE GRANTOR’S RIGHTS IN ANY LEASES AND THE RENTS ASSOCIATED THEREWITH. The Grantor hereby appoints the Issuer or its assignee as the Grantor’s irrevocable attorney in fact to appear in any action and/or to collect all rents and any award made to the Grantor in any court proceeding involving any tenant under any lease in bankruptcy, insolvency or reorganization proceedings in any state or federal court, and any and all payments made by any tenant under any lease in lieu of rent; provided,

 

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however, that so long as no Event of Default (hereinafter defined) or event which with the lapse of time or the giving of notice, or both, would constitute such an Event of Default, has occurred and is continuing, the Grantor shall have a license to collect the rents and to use and enjoy the same (subject to the terms of the Indenture), but such license to collect the rents shall not operate or permit the collection by the Grantor of any installment of rent in advance of the date prescribed in the applicable lease or leases for the payment thereof.

 

(c)           The provisions hereunder shall not in any way impair or diminish any obligation of the Grantor under the Loan Agreement and the Note, nor shall any of such obligations be imposed on the Bond Trustee or the Issuer. Upon payment of the Note and of all other sums required to be paid under the Loan Agreement, the Note and this Deed of Trust and the performance and observance of the provisions thereof, the assignment of leases hereunder shall cease and terminate and all of the right, title, interest, claim and demand of the Issuer in such leases shall revert to the Grantor or to such other person as may be legally entitled thereto, and the Issuer shall at the request of the Grantor or any such person deliver to the Grantor or any such person an instrument, in recordable form if requested, canceling and discharging such assignment.

 

(d)           The Grantor represents and warrants that it has full right and title to assign any leases and the rents and other payments due and to become due thereunder, that no other assignment of any interest therein has been made.

 

(e)           The Grantor agrees that the assignment of any leases is irrevocable and that the Grantor will not, while such assignment is in effect, take any action which is inconsistent with such assignment, or make or suffer to be made any other assignment, designation or direction of the subject matter of the assignment made in this section, and that any such assignment shall be void and of no effect as against the Issuer. The Grantor will from time to time, upon request of the Issuer, execute all instruments of further assurance of the assignment made in this section as the Issuer may request.

 

1.09         Further Assurances: After-Acquired Property.  At any time, and from time to time, upon request by Bond Trustee, Grantor will make, execute and deliver or cause to be made, executed and delivered, to Bond Trustee and, where appropriate, cause to be recorded and/or filed and from time to time thereafter to be rerecorded and/or reified at such time and in such offices and places as shall be deemed desirable by Bond Trustee, any and all such other and further deeds of trusts, security agreements, financing statements, continuation statements, instruments of further assurance, certificates and other documents as may, in the opinion of Bond Trustee, be necessary or desirable in order to effectuate, complete or perfect, or to continue and preserve (a) the obligations of Grantor under the Note, the Loan Agreement, and under this Deed of Trust, and (b) the security interest created by this Deed of Trust as a first and prior security interest upon and security title in and to all of the Premises, whether now owned or hereafter acquired by Grantor. Upon any failure by Grantor so to do, Bond Trustee may make, execute, record, file, rerecord and/or refile any and all such deeds of trust, security agreements, financing statements, continuation statements, instruments, certificates, and documents for and in the name of Grantor, and Grantor hereby irrevocably appoints Bond Trustee the agent and attorney-in-fact of Grantor so to do. The security title of this Deed of Trust will automatically attach, without further act, to all after-acquired property attached to and/or used in the operation of the Premises or any part thereof.

 

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1.10         Indemnity: Expenses.  Grantor will pay or reimburse Trustee and Bond Trustee, upon demand therefor, for all reasonable attorney’s fees, costs and expenses incurred by Trustee and/or Bond Trustee in any suit, action, legal proceeding or dispute of any kind in which Trustee and/or Bond Trustee is made a party or appears as party plaintiff or defendant, affecting the Secured Indebtedness, this Deed of Trust or the interest created herein, the Lease or the Premises, including, but not limited to, the exercise of the power of sale contained in this Deed of Trust, any condemnation action involving the Premises or any action to protect the security hereof, and any such amounts paid by Trustee and/or Bond Trustee shall be added to the Secured Indebtedness and shall be secured by this Deed of Trust. Grantor will indemnify and hold Trustee and Bond Trustee harmless from and against all claims, damages, and expenses, including attorney’s fees and court costs, resulting from any action by a third party against Trustee or Bond Trustee relating to this Deed of Trust or the interest created herein, or the Premises, including, but not limited to, any action or proceeding claiming loss, damage or injury to person or property, or any action or proceeding claiming a violation of any national, state or local law, rule or regulation, including those relating to environmental standards or dangerous or hazardous wastes, provided Grantor shall not be required to indemnify Trustee or Bond Trustee for matters directly caused by Trustee’s or Bond Trustee’s gross negligence or willful misconduct.

 

1.11         Estoppel Affidavits.  Either Bond Trustee or Grantor, upon thirty (30) days prior written notice, shall furnish the other a written statement, duly acknowledged, based upon its records, setting forth the unpaid principal of, and interest on, the Secured Indebtedness, stating whether or not to its knowledge any off-sets or defenses exist against the Secured Indebtedness, or any portion thereof, and, if such off-sets or defenses exist, stating in detail the specific facts relating to each such off-set or defense.

 

1.12         Subrogation.  To the full extent of the Secured Indebtedness, Bond Trustee is hereby subrogated to the liens, claims and demands, and to the rights of the owners and holders of each and every lien, claim, demand and other encumbrance on the Premises which is paid or satisfied, in whole or in part, out of the proceeds of the Secured Indebtedness and the respective liens claims, demands and other encumbrances shall be, and each of them is hereby preserved and shall pass to and be held by Bond Trustee as additional collateral and further security for the Secured Indebtedness, to the same extent they would have been preserved and would have been passed to and held by Bond Trustee had they been duly and legally assigned, transferred, set over and delivered unto Bond Trustee by assignment, notwithstanding the fact that the same may be satisfied and canceled of record.

 

1.13         Books, Records, Accounts and Annual Reports.  Grantor shall keep and maintain or shall cause to be kept and maintained, at Grantor’s cost and expense, and in accordance with standard accounting principles, and Grantor grants Bond Trustee a security interest in books, records and accounts reflecting all items of income and expense in connection with any services, equipment or furnishings provided in connection with the operation of the Premises. Bond Trustee, by Bond Trustee’s agents, accountants and attorneys, shall have the right from time to

 

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time to examine such books, records and accounts at the office of Grantor or such other person or entity maintaining such books, records and accounts, to make such copies or extracts thereof as Bond Trustee shall desire, and to discuss Grantor’s affairs, finances and accounts with Grantor and with the officers and principals of Grantor, at such reasonable times as may be requested by Bond Trustee.

 

1.14         Limit of Validity. If from any circumstances whatsoever, fulfillment of any provision of this Deed of Trust or of the Note, at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other applicable law, with regard to obligations of like character and amount, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Deed of Trust or under the Note that is in excess of the current limit of such validity, but such obligation shall be fulfilled to the limit of such validity. The provisions of this Section 1.14 shall control every other provision of this Deed of Trust and of the Note.

 

1.15         Legal Actions.  In the event that Trustee and/or Bond Trustee is made a party, either voluntarily or involuntarily, in any action or proceeding affecting the Premises, the Note, the Secured Indebtedness or the validity or priority of this Deed of Trust (but excluding any action or proceeding involving a dispute solely between Bond Trustee and a participating lender, if any), Grantor shall immediately, upon demand, reimburse Trustee and/or Bond Trustee for all costs, expenses and liabilities incurred by Trustee and/or Bond Trustee by reason of any such action or proceeding, including reasonable attorney’s fees, and any such amounts paid by Trustee and/or Bond Trustee shall be added to the Secured Indebtedness and shall be secured by this Deed of Trust.

 

1.16         Use and Management of Premises.  Grantor shall at all times operate the Premises in the manner prescribed in the Lease.

 

1.17         Conveyance of Premises.  Grantor shall not directly or indirectly encumber (by lien, junior mortgage, or otherwise), pledge, convey, transfer or assign any or all of its interest in the Premises without the prior written consent of Bond Trustee. Bond Trustee’s consent to such a transfer, if given in Bond Trustee’s sole discretion, shall not release or alter in any manner the liability of Grantor or anyone who has assumed or guaranteed the payment of the Secured Indebtedness or any portion thereof. At the option of Bond Trustee the Secured Indebtedness shall be immediately due and payable in the event that Grantor conveys all or any portion of the Premises or any interest therein, or in the event that Grantor’s equitable title thereto or interest therein shall be assigned, transferred or conveyed in any manner, without obtaining Bond Trustee’s prior written consent thereto, and any waiver or consent for any prior transfer shall not preclude Bond Trustee from declaring the Secured Indebtedness due and payable for any subsequent transfer. A change in control of Grantor shall constitute a transfer in violation of this restriction.

 

1.18         Compliance with Applicable Environmental Law.  The term “Applicable Environmental Law” shall be defined as any statutory law or case law pertaining to health or the environment, or petroleum products, or oil, or hazardous substances, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980

 

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(“CERCLA”) as codified at 42 U.S.C. § 9601 et. seq.; the Resource Conservation and Recovery Act of 1976, as amended, as codified at 42 U.S.C. § 6901 et seq.; and the Superfund Amendments and Reauthorization Act of 1986, as codified at 42 U.S.C. § 9671, et seq.; the terms “hazardous substance” and “release” shall have the meanings specified in CERCLA; provided, in the event CERCLA is amended to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment; and provided, to the extent that the laws of the State of Texas establish a meaning for “hazardous substance” or “release” which is broader than that specified in CERCLA, such broader meaning shall apply. The Grantor represents and warrants to the Bond Trustee that, to the best of its knowledge, the Premises and the Grantor are not in violation of or subject to any existing, pending or threatened investigation or inquiry by any governmental authority or any response costs or remedial obligations under any Applicable Environmental Law and this representation and warranty would continue to be true and correct following disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Premises; that, to the best of its knowledge, the Grantor has taken all steps necessary to determine and has determined that no petroleum products, oil, hazardous substances, or solid wastes have been disposed of or otherwise released on the Premises subject to certain exceptions (if any) as identified on Schedule 1.18 attached hereto; and that, to the best of its knowledge, the use which the Grantor has made, makes or intends to make of the Premises will not result in the location on or disposal or other release of any petroleum products, oil, hazardous substances or solid waste on or to the Premises. As between the Grantor and the Bond Trustee, the Grantor hereby agrees to pay any fines, charges, fees, expenses, damages, losses, liabilities, or response costs arising from or pertaining to the application of any such Applicable Environmental Law to the Premises and to indemnify and forever save the Trustee and the Bond Trustee harmless from any and all judgments, fines, charges, fees, expenses, damages, losses, liabilities, response costs, or attorneys’ fees and expenses arising from the application of any such Applicable Environmental Law to the Premises or the Bond Trustee; and this indemnity shall survive any payment of the Note or foreclosure of this Deed of Trust or the taking by the Bond Trustee of a deed in lieu of foreclosure. The Grantor agrees to notify the Bond Trustee in the event that any governmental agency or other entity notifies the Grantor that it may not be in compliance with any Applicable Environmental Laws. Subject to the terms of the Lease, the Grantor agrees to permit the Bond Trustee to have access to the Premises at all reasonable times in order to conduct, at the Bond Trustee’s expense, any tests which the Bond Trustee deems are necessary to ensure that the Grantor and the Premises are in compliance with all Applicable Environmental Laws.

 

ARTICLE II

 

2.01         Events of Default.  The terms “default,” “Event of Default” or “Events of Default,” wherever used in this Deed of Trust, shall mean any one or more of the following events:

 

(a)           Failure by Grantor to pay any portion of the Secured Indebtedness as and when the same comes due, which failure is not cured within five (5) days after written notice thereof; or

 

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(b)           Failure of the Grantor to observe and perform any covenant, condition or agreement on its part required to be observed or performed by this Deed of Trust other than as provided in (a), which continues for a period of sixty (60) days after written notice delivered by the Bond Trustee to the Company which notice shall specify such failure and request that it be remedied, unless the Trustee shall agree in writing to an extension of such time; provided, however, that such period shall be extended if either corrective action is instituted within such period and diligently pursued until the default is corrected or if the failure stated in the notice cannot be corrected within such period, the Bond Trustee will not unreasonably withhold their consent to an extension of such time if corrective action is instituted within such period and diligently pursued until the default is corrected; or

 

(c)           The occurrence of a default, Loan Default Event or Event of Default under the Note, the Loan Agreement or any instrument or agreement now or hereafter evidencing or securing the Note or the Secured Indebtedness, after allowing for the expiration of all applicable grace periods; or

 

(d)           Any representation, statement or warranty of Grantor contained in this Deed of Trust, the Loan Agreement, or in any other instrument, document, transfer, conveyance, assignment or loan agreement given by Grantor with respect to the Secured Indebtedness, proving to be untrue or misleading in any material respect, whether or not the falsity of such representation, statement or warranty was known to Grantor at the time of the making thereof, and whether or not such representation, statement or warranty was limited to the best knowledge or belief of Grantor; or

 

(e)           The Premises are subjected to actual or threatened waste by Grantor, or any part thereof is removed, demolished or altered without the prior written consent of Bond Trustee; or

 

(f)            Any material adverse claim relating to the Land or the Premises, by title, lien or otherwise is established in any legal or equitable proceeding; or

 

(g)           Unless the written consent of Bond Trustee is first obtained (which consent may be withheld in Bond Trustee’s sole discretion) there occurs any transfer of the Premises, or any interest therein; or

 

(h)           A default occurs under the Lease and continues beyond any cure period thereunder or the Lessor or any sublessor thereunder commences any action to terminate the Lease or to evict Grantor from the Premises and such action or eviction is uncontested.

 

Provided that with respect to any of the foregoing, such Event of Default will be deemed to have occurred upon the occurrence of such event without notice being required if Bond Trustee is prevented from giving notice by bankruptcy or other applicable law.

 

2.02         Acceleration of Maturity.  If an Event of Default shall have occurred, then the entire Secured Indebtedness shall, at the option of Bond Trustee, immediately become due and payable without notice or demand, time being of the essence of this Deed of Trust, and no omission on the part of Bond Trustee to exercise such option when entitled to do so shall be construed as a waiver of such right.

 

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2.03         Right to Enter and Take Possession.

 

(a)           If an Event of Default shall have occurred, Grantor, upon demand of Bond Trustee, shall forthwith surrender to Bond Trustee the actual possession of the Premises and, if and to the extent permitted by law, Bond Trustee itself, or by such officers or agents as it may appoint, may enter and take possession of all or any part of the Premises without the appointment of a receiver or an application therefor, and may exclude Grantor and its agents and employees wholly therefrom, and take possession of the books, papers and accounts of Grantor.

 

(b)           If Grantor shall for any reason fail to surrender or deliver the Premises or any part thereof after such demand by Bond Trustee, Bond Trustee may obtain a judgment or decree conferring upon Bond Trustee the right to immediate possession or requiring Grantor to deliver immediate possession of the Premises to Bond Trustee. Grantor will pay to Bond Trustee, upon demand, all expenses of obtaining such judgment or decree, including reasonable compensation to Bond Trustee, its attorneys and agents, and all such expenses and compensation shall, until paid, become part of the Secured Indebtedness and shall be secured by this Deed of Trust.

 

(c)           Upon every such entering upon or taking of possession, Bond Trustee may hold, store, use, operate, manage and control the Premises and conduct the business thereof, and, from time to time (i) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property; (ii) insure or keep the Premises insured; (iii) manage and operate the Premises and exercise all of the rights and powers of Grantor to the same extent as Grantor could in its own name or otherwise act with respect to the same; and (iv) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted to Bond Trustee, all as Bond Trustee from time to time may determine to be in its best interest. Bond Trustee may collect and receive all the rents, issues, profits and revenues from the Premises, including those past due as well as those accruing thereafter, and, after deducting (A) all expenses of taking, holding, managing and operating the Premises (including compensation for the services of all persons employed for such purposes); (B) the cost of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions; (C) the cost of such insurance; (D) such rent, taxes, assessments and other similar charges as Bond Trustee may at its option pay; (E) other proper charges upon the Premises or any part thereof or under the Lease; and (F) the reasonable compensation, expenses and disbursements of the attorneys and agents of Bond Trustee, Bond Trustee shall apply the remainder of the monies and proceeds so received by Bond Trustee, to pay all of the Secured Indebtedness and the Grantor’s obligations under the Loan Agreement and this Deed of Trust. Anything in this Section 2.03 to the contrary notwithstanding, Bond Trustee shall not be obligated to discharge or perform the duties of a landlord to any tenant or incur any liability as a result of any exercise by Bond Trustee of its rights under this Deed of Trust, and Bond Trustee shall be liable to account only for the rents, incomes, issues and profits actually received by Bond Trustee.

 

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(d)                                 Whenever all such interest, deposits and principal installments and other sums due under any of the terms, covenants, conditions and agreements of this Deed of Trust shall have been paid and all Events of Default shall have been cured, Bond Trustee shall surrender possession of the Premises to Grantor, its successors or assigns. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing.

 

2.04                           Performance by Bond Trustee.  If Grantor shall default in the payment, performance or observance of any term, covenant or condition of this Deed of Trust, Bond Trustee may, at its option, pay, perform or observe the same, and all reasonable payments made or reasonable costs or expenses incurred by Bond Trustee in connection therewith, with interest thereon at the then-current rate of the Bonds or at the maximum rate from time to time allowed by applicable law, whichever is less, shall be secured hereby and shall be, without demand, immediately repaid by Grantor to Bond Trustee. Bond Trustee shall be the sole judge of the necessity for any such actions and of the reasonableness of the amounts to be paid. Bond Trustee is hereby empowered to enter and to authorize others to enter upon the Premises or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without thereby becoming liable to Grantor or any person in possession holding under Grantor. Notwithstanding anything to the contrary herein, Bond Trustee shall have no obligation, explicit or implied to pay, perform, or observe any term, covenant, or condition.

 

2.05                           Receiver.  If any Event of Default shall have occurred, Bond Trustee, upon application to a court of competent jurisdiction, shall be entitled as a matter of strict right, without notice and without regard to the occupancy or value of any security for the Secured Indebtedness or the solvency of any party bound for its payment, to the appointment of a receiver to take possession of and to operate the Premises, to exercise all rights of lessee under the Lease and to collect and apply the rents, issues, profits and revenues thereof. The receiver shall have all of the rights and powers permitted under the laws of the state wherein the Land is situated. Grantor will pay unto Bond Trustee upon demand all expenses, including receiver’s fees, reasonable attorney’s fees, costs and agent’s compensation, incurred pursuant to the provisions of this Section 2.05, and any such amounts paid by Grantor shall be added to the Secured Indebtedness and shall be secured by this Deed of Trust.

 

2.06                           Enforcement.

 

(a)                                  If an Event of Default shall have occurred, then at the option of Bond Trustee this Deed of Trust may be foreclosed in any manner now provided by Texas law, and the Trustee, or the agent or successor of Trustee, at the request of Bond Trustee, may sell the Premises or any part of the Premises at one or more public sales at the courthouse of the county in which the Land or any part of the Land is situated and otherwise at such place, time and date as provided by the statutes of the State of Texas then in force governing sales of real estate under powers of sale conferred by deed of trust.  At any such public sale, Trustee may execute and deliver to the purchaser a conveyance of the Premises or any part of the Premises. Bond Trustee shall have the right to enforce any of its remedies set forth herein without notice to Grantor, except for such notice as may be required by law. In the event of any sale under this Deed of Trust by virtue of the

 

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exercise of the powers herein granted, or pursuant to any order in any judicial proceedings or otherwise, the Premises may be sold as an entirety or in separate parcels and in such manner or order as Bond Trustee in its sole discretion may elect, and if Bond Trustee so elects, Trustee or Bond Trustee may sell the personal property covered by this Deed of Trust at one or more separate sales in any manner permitted by the Uniform Commercial Code of the state in which the Land is located, and one or more exercises of the powers herein granted shall not extinguish or exhaust such powers, until the entire Premises are sold or the Secured Indebtedness is paid in full. If the Secured Indebtedness is now or hereafter further secured by any chattel mortgages, pledges, contracts of guaranty, assignments of lease or other security instruments, Bond Trustee at its option may exhaust the remedies granted under any of said security instruments or this Deed of Trust either concurrently or independently, and in such order as Bond Trustee may determine.

 

Said sale may be adjourned by the Trustee, or his agent or successors, and reset at a later date without additional publication; provided that an announcement to that effect be made at the scheduled place of sale at the time and on the date the sale is originally set. Any sale or sales may be made by an agent acting for the Trustee and his appointment need not be in writing.

 

(b)                                 In the event of any sale of the Premises as authorized by this Section 2.06, all prerequisites of such sale shall be presumed to have been performed, and in any conveyance given hereunder all statements of facts, or other recitals therein made, as to the non-payment of the Secured Indebtedness or as to the advertisement of sale, or the time, place and manner of sale, or as to any other fact or thing, shall be taken in all courts of law or equity as prima facie  evidence that the facts so stated or recited are true.

 

(c)                                  If an Event of Default shall have occurred, Bond Trustee may, in addition to and not in abrogation of the rights covered under subparagraph (a) of this Section 2.06, either with or without entry or taking possession as herein provided or otherwise, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy to pursue any other remedy available to it, all as Bond Trustee in its sole discretion shall elect.

 

2.07                           Purchase by Bond Trustee.  Upon any foreclosure sale or sale of all or any portion of the Premises under the power herein granted, Bond Trustee may bid for and purchase the Premises and shall be entitled to apply all or any part of the Secured Indebtedness as a credit to the purchase price.

 

2.08                           Application of Proceeds of Sale.  In the event of a foreclosure or other sale of all or any portion of the Premises, the proceeds of said sale shall be applied, first, to the expenses of such sale and of all proceedings in connection therewith, including reasonable fees of the attorney and trustee (and attorney and trustee fees and expenses shall become absolutely due and payable whenever foreclosure is commenced); then to rent, insurance premiums, liens, assessments, taxes and charges including utility charges advanced by Bond Trustee, and interest thereon; then to payment of the Secured Indebtedness and accrued interest thereon, in such order of priority as Bond Trustee shall determine, in its sole discretion; and finally the remainder, if any, shall be paid to Grantor, or to the person or entity lawfully entitled thereto.

 

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2.09                           Grantor as Tenant Holding Over.  In the event of any such foreclosure sale or sale under the powers herein granted, Grantor (if Grantor shall remain in possession) shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over.

 

2.10                           Waiver of Appraisement, Valuation, Etc.  Grantor agrees, to the full extent permitted by law, that in case of a default on the part of Grantor hereunder, neither Grantor nor anyone claiming through or under Grantor will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension, homestead, exemption or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust, or the absolute sale of the Premises, or the delivery of possession thereof immediately after such sale to the purchaser at such sale, and Grantor, for itself and all who may at any time claim through or under it, hereby waives to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets subject to the security interest of this Deed of Trust marshaled upon any foreclosure or sale under the power herein granted.

 

2.11                           Waiver of Homestead.  Grantor hereby waives and renounces all homestead and exemption rights provided for by the Constitution and the laws of the United States and of any state, in and to the Premises as against the collection of the Secured Indebtedness, or any part thereof.

 

2.12                           Leases.  Bond Trustee, at its option, is authorized to foreclose this Deed of Trust subject to the rights of any tenants of the Premises, and the failure to make any such tenants parties to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted to be by Grantor, a defense to any proceeding instituted by Bond Trustee to collect the sums secured hereby.

 

2.13                           Discontinuance of Proceedings.  In case Bond Trustee shall have proceeded to enforce any right, power or remedy under this Deed of Trust by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to Bond Trustee, then in every such case, Grantor, Trustee and Bond Trustee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Bond Trustee shall continue as if no such proceedings had occurred.

 

2.14                           Remedies Cumulative.  No right, power or remedy conferred upon or reserved to Bond Trustee by this Deed of Trust is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law, in equity or by statute.

 

2.15                           Waiver.

 

(a)                                  No delay or omission by Bond Trustee or by any holder of the Note to exercise any right, power or remedy accruing upon any default shall exhaust or impair any such right, power or remedy or shall be construed to be a waiver of any such default, or acquiescence therein, and every right, power and remedy given by this Deed of Trust

 

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to Bond Trustee may be exercised from time to time and as often as may be deemed expedient by Bond Trustee. No consent or waiver expressed or implied by Bond Trustee to or of any breach or default by Grantor in the performance of the obligations of Grantor hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of the same or any other obligations of Grantor hereunder. Failure on the part of Bond Trustee to complain of any act or failure to act or failure to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by Bond Trustee of its rights hereunder or impair any rights, powers or remedies of Bond Trustee hereunder.

 

(b)                                 No act or omission by Trustee or Bond Trustee shall release, discharge, modify, change or otherwise affect the original liability under the Note or this Deed of Trust or any other obligation of Grantor or any subsequent purchaser of the Premises or any part thereof, or any maker, co-signer, endorser, surety or guarantor, nor preclude Trustee and/or Bond Trustee from exercising any right, power or privilege herein granted or intended to be granted in the event of any default then existing or of any subsequent default, nor alter the lien of this Deed of Trust, except as expressly provided in an instrument or instruments executed by Bond Trustee, including the Indenture and the Loan Agreement. Without limiting the generality of the foregoing, Bond Trustee may (i) grant forbearance or an extension of time for the payment of all or any portion of the Secured Indebtedness; (ii) take other or additional security for the payment of any of the Secured Indebtedness; (iii) waive or fail to exercise any right granted herein or in the Note; (iv) release any part of the Premises from the security interest or lien of this Deed of Trust or otherwise change any of the terms, covenants, conditions or agreements of the Note or this Deed of Trust; (v) consent to the filing of any map, plat or replat affecting the Premises; (vi) consent to the granting of any easement or other right affecting the Premises; (vii) make or consent to any agreement subordinating the security title or lien hereof, or (viii) take or omit to take any action whatsoever with respect to the Note, this Deed of Trust, the Premises or any document or instrument evidencing, securing or in any way related to the Secured Indebtedness, all without releasing, discharging, modifying, changing or affecting any such liability, or precluding Bond Trustee from exercising any such right, power or privilege or affecting the lien of this Deed of Trust. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Premises, Bond Trustee, without notice, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Premises or the Secured Indebtedness, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings.

 

2.16                           Suits to Protect the Premises.  Bond Trustee shall have power to institute and maintain such suits and proceedings as it may deem expedient (a) to prevent any impairment of the Premises by any acts which may be unlawful or constitute a default under this Deed of Trust; (b) to preserve or protect its interest in the Premises, the Lease and in the rents, issues, profits and revenues arising therefrom; and (c) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order would materially impair the security hereunder or be prejudicial to the interest of Bond Trustee.

 

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2.17                           Proofs of Claim.  In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Grantor, its creditors or its property, Bond Trustee, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Bond Trustee allowed in such proceedings for the entire amount due and payable by Grantor under this Deed of Trust at the date of the institution of such proceedings and for any additional amount which may become due and payable by Grantor hereunder after such date.

 

ARTICLE III

 

3.01                           Successors and Assigns: Successor Trustee.  This Deed of Trust shall inure to the benefit of and be binding upon Grantor, Trustee and Bond Trustee and their respective heirs, executors, legal representatives, successors, successors-in-title, and assigns. Whenever a reference is made in this Deed of Trust to “Grantor,” “Trustee” or “Bond Trustee,” such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors, successors-in-title and assigns of Grantor, Trustee or Bond Trustee, as the case may be, but shall not imply any permission to make or permit any transfer which is otherwise prohibited. In the event of the death, dissolution, absence, inability or refusal to act of Trustee, or for any other reason, Bond Trustee at any time and from time to time shall have the right to name and appoint, by instrument in writing recorded in the appropriate records in the office(s) in which this Deed of Trust is recorded, a successor or any number of successors to execute this trust, who shall be vested with all of the right, title, estate, powers, privileges and duties of the above named Trustee without the necessity of any conveyance from the above named Trustee or any successor.

 

3.02                           Terminology.  All personal pronouns used in this Deed of Trust, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and vice versa. Titles and Articles are for convenience only and neither limit nor amplify the provisions of this Deed of Trust, and all references herein to Articles, Sections or subparagraphs shall refer to the corresponding Articles, Sections or subparagraphs of this Deed of Trust unless specific reference is made to Articles, Sections or subparagraphs of another document or instrument.

 

3.03                           Severability; Complete Agreement.  If any provisions of this Deed of Trust or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Deed of Trust and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. This Deed of Trust, the Note and the instruments executed in connection herewith constitute the full and complete agreement of the parties and supersede all prior negotiations, correspondence, and memoranda relating to the subject matter hereof, and this Deed of Trust may not be amended except by a writing signed by the parties hereto.

 

3.04                           Applicable Law. This Deed of Trust, the Note, the Loan Agreement and all other documents evidencing or securing the Secured Indebtedness, and the rights and obligations of the parties thereto, shall be construed and interpreted in accordance with the laws of the State of Texas.

 

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3.05                           Notices.  All notices provided for herein, or in the Note, or in any other instrument or document evidencing or securing the Loan, or required by applicable law, shall be given personally, by mail, or by Federal Express or other similar national overnight courier, and addressed to the appropriate party at the address designated for such party in the heading of this Deed of Trust, or such other single address as the party who is to receive such notice may designate in writing. Notice by mail shall be by registered or certified mail. All fees or expenses of mail or overnight courier shall be paid by the sender. Notice shall be deemed received at the earlier of the time actually received or three days following the time deposited when sent by mail and one day when sent by overnight courier in the manner aforesaid. Actual receipt of notice shall not be required to effect notice hereunder.

 

3.06                           Replacement of Note.  Upon receipt of evidence reasonably satisfactory to Grantor of the loss, theft, destruction or mutilation of the Note, and in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to Grantor or, in the case of any such mutilation, upon surrender and cancellation of the Note, Grantor at Bond Trustee’s expense will execute and deliver, in lieu thereof, a replacement note, identical in form and substance to such Note and dated as of the date of such Note, and upon such execution and delivery all references in this Deed of Trust to the Note shall be deemed to refer to such replacement note.

 

3.07                           [Reserved].

 

3.08                           Assignment by Bond Trustee.  This Deed of Trust is assignable by Bond Trustee and any assignment hereof by Bond Trustee shall operate to vest in the assignee all rights and powers herein conferred upon and granted to Bond Trustee.

 

3.09                           Time of the Essence.  Time is of the essence with respect to each and every covenant, agreement and obligation of Grantor under this Deed of Trust, the Note and any and all other instruments now or hereafter evidencing, securing or otherwise relating to the Secured Indebtedness.

 

3.10                           Release.  Provided that no Event of Default then exists, Bond Trustee agrees to release this Deed of Trust upon payment in full by Grantor of all obligations on its part under the Loan Agreement, the Note and this Deed of Trust.

 

3.11                           Future Advances.  Upon request of Grantor, Bond Trustee, at Bond Trustee’s option so long as this Deed of Trust secures indebtedness held by Bond Trustee, may make future advances to Grantor. Such future advances, with interest thereon, shall be secured hereby if made under the terms of this Deed of Trust, the Note, the Loan Agreement and the Indenture, or if made pursuant to any other promissory note, instrument or agreement stating that sums advanced thereunder are secured hereby.

 

3.12                           Capitalized Terms.  Any capitalized term used but not defined herein shall have the meaning given such term by the Indenture.

 

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IN WITNESS WHEREOF, Grantor has caused this Deed of Trust to be executed under seal by its duly authorized principal officer as of the day and year first above written.

 

	
 
    	
DALLAS   CLEAN ENERGY
    
	
 
    	
MCCOMMAS   BLUFF, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/S/   Harrison S. Clay
    
	
 
    	
Name:
    	
Harrison   S. Clay
    
	
 
    	
Title:
    	
Manager
    

 

 

STATE OF CALIFORNIA

 

COUNTY OF ORANGE

 

On this 10th day of March, 2011, before me, Lisa M. Broman, Notary Public, personally appeared Harrison S. Clay, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity as a Manager of Dallas Clean Energy McCommas Bluff, LLC, a Delaware limited liability company, on behalf of such limited liability company.

 

I certify under penalty of perjury under the laws of the State of California that the foregoing paragraph is true and correct.

 

Witness my hand and official seal.

 

	
 
    	
/S/   Lisa M. Broman
    
	
 
    	
Lisa   M. Broman, Notary Public
    

 

(Seal)

 

 

EXHIBIT “A”

 

LEGAL DESCRIPTION OF LAND

 

PROCESSING SITE

 

Being a tract of land situated in the Levi Dixon League, Abstract No. 380, Dallas County, Texas, and being in City Block No. 8003, and being part of a tract of land conveyed to City of Dallas by Deed recorded in Volume 80111, Page 2361, Deed Records, Dallas County, Texas, and being more particularly described as follows:

 

COMMENCING at an “X” found at the intersection of the center of Simpson Stuart Road (60 foot right of way) and in the center of Southern Pacific Railroad (200 foot right of way);

 

THENCE South 26 degrees 42 minutes 00 seconds East along the centerline of said railroad, a distance of 2,706.45 feet to a point for corner;

 

THENCE North 63 degrees 18 minutes 00 seconds East, a distance of 199.39 feet to a 1/2 inch iron rod set with yellow cap stamped DCA Inc. for corner, said corner being the POINT OF BEGINNING;

 

THENCE North 63 degrees 15 minutes 44 seconds East, a distance of 218.94 feet to a 1/2 inch iron rod set with yellow cap stamped DCA Inc. for corner;

 

THENCE South 26 degrees 46 minutes 21 seconds East, a distance of 397.23 feet to a 1/2 inch iron rod set with yellow cap stamped DCA Inc. for corner;

 

THENCE South 63 degrees 23 minutes 59 seconds West, a distance of 218.56 feet to a 1/2 inch iron rod set with yellow cap stamped DCA Inc. for corner;

 

THENCE North 26 degrees 49 minutes 36 seconds West, a distance of 396.70 feet to the POINT OF BEGINNING and containing 86,835.58 square feet or 1.9935 acres of land.Exhibit 10.1

 

EXECUTION COPY

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into this 6th day of July, 2010, between Activision Publishing, Inc. (the “Employer”), a subsidiary of Activision Blizzard, Inc. (“Activision Blizzard” and, together with its subsidiaries, the “Activision Blizzard Group”), and Eric Hirshberg (“you”).

 

RECITAL

 

The Employer desires to employ you, and you desire to be so employed by the Employer, on the terms and subject to the conditions set forth in this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual promises set forth in this Agreement, the Employer and you hereby agree as follows:

 

1.             Term of Employment

 

(a)           The term of your employment under this Agreement (the “Term”) shall commence on September 1, 2010 (the “Effective Date”) and shall end on December 31, 2015 (the “Expiration Date”) (or such earlier date on which your employment is terminated under Section 9).  Except as set forth in Section 11(s), upon the Expiration Date (or such earlier date on which your employment is terminated) all obligations and rights under this Agreement shall immediately lapse.

 

(b)           You and the Employer each agree to provide the other with at least six (6) months notice of any intent not to continue your employment following the Expiration Date.   If your employment continues beyond the Expiration Date, you shall be an at-will employee whose employment may be terminated by either party to this Agreement at any time for any reason.

 

2.             Compensation

 

(a)           Subject to the provisions of this Agreement, in full consideration for all rights and services provided by you under this Agreement you shall receive only the compensation set forth in this Section 2 and in Section 10 below.

 

(b)           Commencing on the Effective Date, you shall receive an annual base salary (“Base Salary”) of $750,000.00, which shall be paid in accordance with the Employer’s payroll policies.  Your Base Salary shall be reviewed periodically and may be increased at any time by an amount determined by the Employer, in its sole and absolute discretion, subject to the last sentence of this Section 2(b).  The Employer’s regular periodic review of executive base salaries usually occurs in the first quarter of each calendar year.  Beginning at such review in 2011, and continuing at each such annual review thereafter during the Term, your cumulative Base Salary increases shall not be less than 5% per annum, pro rated for 2010 and for every other period not equal to one year, from the Effective Date.

 

 

(c)           (i) You may be eligible to receive an annual discretionary bonus (the “Annual Bonus”), including for the portion of 2010 occurring after the Effective Date.  Your target Annual Bonus for each calendar year will be one hundred percent (100%) of your Base Salary (prorated for 2010).  In all instances, the actual amount of the Annual Bonus, if any, shall be determined by the Employer, in its sole and absolute discretion, and may be based on, among other things, the portion of the year falling in the Term, your overall performance and the performance of the Employer, Activision Blizzard and the Activision Blizzard Group.  The Annual Bonus, if any, will be paid at the same time bonuses for that year are generally paid to other executives, but in no event earlier than the first day of the first month, or later than the 15th day of the third month, of the year following the year to which the Annual Bonus relates.  Except as otherwise set forth herein, you must remain continuously employed by the Activision Blizzard Group through the date on which an Annual Bonus, if any, is paid to be eligible to receive such Annual Bonus.

 

(ii)  If you (x) meet your AOP Targets (as defined below) for a calendar year, (y) do not receive notice prior March 1 of the immediately following year that you will receive an Annual Bonus equal to at least the target amount of your Annual Bonus for such year, and (z) notify the Employer of your voluntary resignation of employment with the Employer not later than March 8 of such immediately following year, then you shall receive an amount equal to the greater of (x) the excess of: (I) the sum of (your starting Base Salary plus your starting target Annual Bonus plus half of the amount of your Sign-On Bonus) multiplied by 3.8 (the “Formula Amount”), over (II) your Modified Earned Compensation (as defined below) as of your Termination Date and (y) the Base Salary that would have been required to be paid for the remainder of the Term, in a lump sum not later than March 15 of such immediately following year.  The annual operating plan objectives for the Company are determined by the Board of Directors in conjunction with management, and, as used in this Agreement, the term “AOP Targets” means the annual operating plan objectives established for you by the Chief Executive Officer and approved by the Board of Directors and the Compensation Committee of the Board of Directors.  During the course of determining the annual operating plan objectives, you will have the opportunity to provide your comments and input to management regarding these objectives.  Your AOP Targets will reflect your position, including any change in your position (mid-year or otherwise), and other relevant facts and circumstances.  As used in this Agreement, the term “Modified Earned Compensation” means your Earned Compensation as of the applicable measuring date (as defined below) but taking into account only $1 million of the Sign-On Bonus.

 

(d)         Subject to the approval of the Compensation Committee of the Board of Directors of Activision Blizzard (the “Compensation Committee”), Activision Blizzard will grant to you a non-qualified stock option to purchase 350,000 shares of Activision Blizzard’s common stock (the “Option”), 540,000 restricted share units (“RSUs”), and 300,000 performance share units, which represent the conditional right to receive shares of Activision Blizzard’s common stock (the “Performance Share Units” and  collectively with the Option and RSUs, the “Equity Awards”).

 

(i)            The Option will vest in five equal annual installments commencing on the first anniversary of the Effective Date.  The Spread (as defined below) will be determined as of the earlier to occur of (1) the Expiration Date or (2) your Termination Date (such earlier date, the “Exercise Date”).  To the extent not vested on the Exercise Date, the Option shall be forfeited and

 

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cancelled.  Subject to Section 10(e), the amount of Spread attributable to the vested portion of the Option shall be paid after, but not more than 30 days after, the Exercise Date.  Settlement may be in cash or shares of Activision Blizzard common stock, at the discretion of the Employer.  If settlement is in cash, interest shall be credited at 120% of the short-term applicable federal rate determined pursuant to Section 7872 of the Code, compounded annually from the Exercise Date through the date of payment.  For these purposes “Spread” shall mean the excess of the aggregate Fair Market Value (as defined by the Compensation Committee, “Fair Market Value”) of the shares subject to the Option over the aggregate exercise price of the Option, on the Exercise Date.

 

(ii)           One-fifth of the RSUs will vest on the day prior to each anniversary of the first five anniversaries of the Effective Date, subject to your remaining employed by the Activision Blizzard Group through such vesting date.

 

(iii)          The Performance Share Units will vest in equal installments on each of March 15, 2012, March 15, 2013, March 15, 2014, March 15, 2015, and March 10, 2016 if (and only if) your AOP Targets for that fiscal year are achieved, and subject to your remaining employed by Activision Blizzard Group through such vesting date.  Shares of Activision Blizzard common stock earned upon the vesting of Performance Share Units will be delivered to you on the earlier to occur of (x) March 10, 2016 and (y) five days after your Termination Date.

 

You acknowledge that the grant of Equity Awards pursuant to this Section 2(d) is expressly conditioned upon approval by the Compensation Committee, and that the Compensation Committee has discretion to approve or disapprove the grants and/or to determine and make modifications to the terms of the grants.  The Equity Awards shall be subject to all terms of the equity incentive plan pursuant to which they are granted (the “Incentive  Plan”) and the award agreement pursuant to which they are granted.  In the event of a conflict between this Agreement and the terms of the Incentive Plan or award agreements, the Incentive Plan or the award agreements, as applicable, shall govern.

 

(e)           Within three weeks of the Effective Date, the Employer will provide you with a sign on bonus to compensate you for the bonus earned and owed to you by your current employer (the “Sign-On Bonus”) in the amount of $2,000,000.00 (less applicable taxes and withholdings), provided that this bonus will only be earned and payable if you commence employment with the Employer on the Effective Date.

 

(f)            If your employment with the Employer has not terminated prior to, and does not terminate on, the Expiration Date, and you have achieved your AOP Targets for at least four of the five fiscal years commencing after the Effective Date and terminating on or prior to the Expiration Date, then you shall be entitled to receive an amount equal to the excess of: (I) two times the Formula Amount, over (II) your Earned Compensation as of the Expiration Date.  Such amount shall be paid in 2016 and not later than March 15, 2016.  The term “Earned Compensation” means, as of the Expiration Date or the Termination Date, as applicable, the amount of all payments and the value of all benefits provided, or to be provided, to you or your designee in consideration for your services for the Employer through the earlier of the

 

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Termination Date or the Expiration Date, including without limitation any amount payable pursuant to Section 10 hereof.  Except as hereinafter provided, such amount and value shall be determined as of the Termination Date or the Expiration Date, as applicable.  In regard to Equity Awards, the Earned Compensation related to (x) the Option will be the Spread; (y) the RSUs will be based on the Fair Market Value of shares of stock at the time that they vest; and (z) the Performance Share Units will be based on the Fair Market Value of the shares of stock at the time they are delivered to you.  In regard to your participation in a 401(k) or similar deferred compensation plan, the Earned Compensation will be the amounts credited to your account (and for purposes of clarity, employee contributions will not be double-counted, nor shall any other consideration).

 

3.             Title; Location

 

During the Term, you shall serve as Chief Executive Officer of Activision Publishing, Inc.  However, you agree that after the Term shall have commenced and following discussion with the chief executive officer of Activision Blizzard about a change, you may instead be assigned to serve in such other C-level executive position with Activision Blizzard as the chief executive officer of Activision Blizzard shall determine.  Your principal place of business initially shall be the Employer’s headquarters in Santa Monica, California; provided, however, that you acknowledge and agree that you may be required to travel from time to time for business reasons.

 

4.             Duties

 

You shall report directly to the Chief Operating Officer of Activision Blizzard (or such other executive of Activision Blizzard as may be determined from time to time by it in its sole and absolute discretion) and shall have such duties commensurate with your position as may be assigned to you from time to time by the Chief Executive Officer or Chief Operating Officer of Activision Blizzard (or, as applicable, such other executive designated by the Employer).  You are also required to read, review and observe all of the Activision Blizzard Group’s policies, procedures, rules and regulations in effect from time to time during the Term that apply to employees of the Employer, including, without limitation, the Code of Business Conduct and Ethics, as amended from time to time.  You shall devote your full-time working time to the performance of your duties hereunder, shall faithfully serve the Employer, shall in all respects conform to and comply with the lawful directions and instructions given to you by the Chief Operating Officer of Activision Blizzard (or such other executive of the Activision Blizzard Group as may be determined from time to time by the Employer in its sole and absolute discretion) and shall use your best efforts to promote and serve the interests of the Activision Blizzard Group.  Further, you shall at all times place the Employer’s interests above your own, not take any actions that would conflict with the Employer’s interests and shall perform all your duties for the Employer with the highest duty of care.  Further, you shall not, directly or indirectly, render services of any kind to any other person or organization, whether on your own behalf or on behalf of others, without the consent of the Chief Operating Officer of Activision Blizzard or otherwise engage in activities that would interfere with your faithful and diligent performance of your duties hereunder; provided, however, that you may serve on civic or charitable boards or engage in charitable activities without remuneration if doing so is not inconsistent with, or adverse to, your employment hereunder.

 

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5.             Expenses

 

To the extent you incur necessary and reasonable travel or other business expenses in the course of your employment, you shall be reimbursed for such expenses, upon presentation of written documentation in accordance with the Employer’s policies in effect from time to time as applicable to executives of your level.

 

6.             Other Benefits

 

(a)           You shall be eligible to participate in all health, welfare, retirement, pension, life insurance, disability, perquisite and similar plans, programs and arrangements generally available to executives of the Employer at your level from time to time during the Term, subject to the then-prevailing terms, conditions and eligibility requirements of each such plan, program, or arrangement.

 

(b)           You expressly agree and acknowledge that, after the Expiration Date (or such earlier date on which your employment is terminated), you shall not be entitled to any additional benefits, except as specifically provided in this Agreement and the benefit plans in which you participate during the Term, and subject in each case to the then-prevailing  terms and conditions of each such plan.

 

7.             Vacation and Paid Holidays

 

(a)           You will generally be entitled to paid vacation days in accordance with the generally available vacation policies of the Employer in effect for executives of your level from time to time; provided, however, that you will be entitled to accrue no less than twenty (20) paid vacation days per year unless your vacation balance exceeds the Employer’s then-current maximum.

 

(b)           You shall be entitled to all paid holidays allowed by the Employer to its full-time employees in the United States.

 

8.             Protection of the Employer’s Interests

 

(a)           Duty of Loyalty.  During the Term, you will owe a “Duty of Loyalty” to the Employer, which includes, but is not limited to, you not competing in any manner, whether directly or indirectly, as a principal, employee, agent, owner, or otherwise, with any entity in the Activision Blizzard Group; provided, however, that nothing in this Section 8(a) will limit your right to own up to five percent (5%) of any of the debt or equity securities of any business organization that is then required to file reports with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended.

 

(b)           Property of the Activision Blizzard Group.  All rights worldwide with respect to any and all intellectual or other property of any nature produced, created or suggested by you, whether on your own time or not, alone or with others, during the term of your employment or resulting from your services which (i) relate in any manner at the time of conception or reduction to practice to the actual or demonstrably anticipated business of the Activision Blizzard Group, (ii) result from or are suggested by any task assigned to you or any work performed by you on behalf of the Activision Blizzard Group, (iii) were created using the time or resources of the Activision Blizzard Group, or (iv) are based on any property owned or idea

 

5

 

conceived by the Activision Blizzard Group, shall be deemed to be a work made for hire and shall be the sole and exclusive property of the Activision Blizzard Group.  You agree to execute, acknowledge and deliver to the Employer, at the Employer’s request, such further documents, including copyright and patent assignments, as the Employer finds appropriate to evidence the Activision Blizzard Group’s rights in such property.  Your agreement to assign to the Activision Blizzard Group any of your rights as set forth in this Section 8(b) shall not apply to any invention that qualifies fully under the provisions of California Labor Code Section 2870, where no equipment, supplies, facility or trade secret information of the Activision Blizzard Group was used, where the invention was developed entirely upon your own time, where the invention does not relate to the Activision Blizzard Group’s business, and where the invention does not result from any work performed by you for the Activision Blizzard Group.

 

(c)           Covenant Not to Shop.  Other than during the final six (6) months of the Term, you shall not negotiate for employment with any entity or person outside of the Activision Blizzard Group.  During the search process and thereafter you shall remain strictly subject to your continuing obligations under this Agreement, including, without limitation, your Duty of Loyalty, compliance with the Activision Blizzard Group’s policies and your confidentiality obligations.

 

(d)           Confidentiality.  You acknowledge, and the Employer agrees, that during your employment you will have access to and become informed of confidential and proprietary information concerning the Activision Blizzard Group.  During your employment and at all times following the termination of your employment, confidential or proprietary information of any entity in the Activision Blizzard Group shall not be used by you or disclosed or made available by you to any person except as required in the course of your employment with the Activision Blizzard Group.  Upon the termination of your employment (or at any time on the Employer’s request), you shall return to the Activision Blizzard Group all such information that exists, whether in electronic, written, or other form (and all copies or extracts thereof) under your control and shall not retain such information in any form, including without limitation on any devices, disks or other media.  Without limiting the generality of the foregoing, you acknowledge signing and delivering to the Employer the Employee Proprietary Information Agreement attached as Exhibit A hereto (the “Proprietary Information Agreement”) as of the Effective Date and you agree that all terms and conditions contained in such agreement, and all of your obligations and commitments provided for in such agreement, shall be deemed, and hereby are, incorporated into this Agreement as if set forth in full herein.

 

(e)           Return of Property and Resignation from Office.  You acknowledge that, upon termination of your employment for any reason whatsoever (or at any time on the Employer’s request), you will promptly deliver to the Activision Blizzard Group or surrender to the Activision Blizzard Group’s representative all property of any entity in the Activision Blizzard Group, including, without limitation, all documents and other materials (and all copies thereof) relating to the Activision Blizzard Group’s business, all identification and access cards, all contact lists and third party business cards however and wherever preserved, and any equipment provided by any entity in the Activision Blizzard Group, including, without limitation, computers, telephones, personal digital assistants, memory cards and similar devices that you possess or have in your custody or under your control. You will cooperate with the Activision Blizzard Group by participating in interviews to share any knowledge you may have regarding the Activision Blizzard Group’s intellectual or other property with personnel designated by the Activision Blizzard Group.  You also agree to resign from any office held by

 

6

 

you within the Activision Blizzard Group immediately upon termination of your employment for any reason whatsoever (or at any time on the Employer’s request) and you irrevocably appoint any person designated as the Activision Blizzard Group’s representative at that time as your delegate to effect such resignation.

 

(f)            Covenant Not to Solicit.

 

(i)            During your employment, you shall not, at any time or for any reason, either alone or jointly, with or on behalf of others, whether as principal, partner, agent, representative, equity holder, director, employee, consultant or otherwise, directly or indirectly: (a) offer employment to, or solicit the employment or engagement of, or otherwise entice away from the employment or engagement of the Activision Blizzard Group, either for your own account or for any other person, firm or company, any person employed or otherwise engaged by any entity in the Activision Blizzard Group, whether or not such person would commit any breach of a contract by reason of his or her leaving the service of the Activision Blizzard Group; or (b) solicit, induce or entice any client, customer, contractor, licensor, agent, supplier, partner or other business relationship of any entity in the Activision Blizzard Group to terminate, discontinue, renegotiate or otherwise cease or modify its relationship with the Activision Blizzard Group.

 

(ii)           For a period of two (2) years following the termination of your employment for any reason whatsoever, you shall not, at any time or for any reason, either alone or jointly, with or on behalf of others, whether as principal, partner, agent, representative, equity holder, director, employee, consultant or otherwise, directly or indirectly solicit the employment or engagement of, either for your own account or for any other person, firm or company, any person employed or otherwise engaged by any entity in the Activision Blizzard Group (or any person who was employed or otherwise engaged by the Activision Blizzard Group during your final ninety (90) days of employment), whether or not such person would commit any breach of a contract by reason of his or her leaving the service of the Activision Blizzard Group.

 

(iii)          During your employment and at all times following the termination of your employment for any reason whatsoever, you shall not, at any time or for any reason, use the confidential, trade secret information of the Activision Blizzard Group or any other unlawful means to directly or indirectly solicit, induce or entice any client, customer, contractor, licensor, agent, supplier, partner or other business relationship of any entity in the Activision Blizzard Group to terminate, discontinue, renegotiate or otherwise cease or modify its relationship with the Activision Blizzard Group.

 

(iv)          You expressly acknowledge and agree that the restrictions contained in this Section 8(f) are reasonably tailored to protect the Activision Blizzard Group’s confidential information and trade secrets and to ensure that you

 

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do not violate your Duty of Loyalty or any other fiduciary duty to the Employer, and are reasonable in all circumstances in scope, duration and all other respects. The provisions of this Section 8(f) shall survive the expiration or earlier termination of this Agreement.

 

9.             Termination of Employment

 

(a)           By the Employer for Cause.

 

(i)            At any time during the Term, the  Employer may terminate your employment for “Cause,” which shall mean your (i) willful, reckless or gross misconduct, (ii) material breach by you of this Agreement or your Proprietary Information Agreement, which shall continue uncured for a period of 45 days after written notice to you of such material breach consistent with the cure provisions described later in this Paragraph, (iii) conviction of or plea of no contest to a felony or crime involving dishonesty or moral turpitude, (iv) breach of duty of loyalty, or (v) violation of Employer’s corporate governance policies..

 

(ii)           In the case of any termination for Cause pursuant to clause (iii) of the definition thereof, the Employer shall give you at least thirty (30) days written notice of its intent to terminate your employment.  The notice shall specify (x) the effective date of your termination and (y) the particular acts or circumstances that constitute Cause for such termination.  You shall be given the opportunity within forty-five (45) days after receiving the notice to explain why Cause does not exist or to cure any basis for Cause.  Within fifteen (15) days after any such explanation or cure, the Employer will make its final determination regarding whether Cause exists and deliver such determination to you in writing.  If the final decision is that Cause exists and no cure has occurred, your employment with the Employer shall be terminated for Cause as of the date of termination specified in the original notice.  If the final decision is that Cause does not exist or a cure has occurred, your employment with the Employer shall not be terminated for Cause at that time.

 

(iii)          If your employment terminates for any reason other than a termination by the Employer for Cause, at a time when the Employer had Cause to terminate you (or would have had Cause if it then knew all relevant facts) your termination shall be treated as a termination by the Employer for Cause.

 

(b)           By the Employer Without  Cause.  The Employer may terminate your employment without Cause at any time during the Term and such termination shall not be deemed a breach by the Employer of any term of this Agreement or any other duty or obligation, expressed or implied, which the Employer may owe to you pursuant to any principle or provision of law.

 

(c)           By You In Certain Circumstances.  At any time during the Term, you may terminate your employment if, without your written agreement or other voluntary action on your part (I) the Employer reassigns your principal place of business to a location that is  more than

 

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fifty (50) miles from your principal place of business as of the Effective Date and that materially and adversely affects your commute or (II) you are assigned to serve in a position other than Chief Executive Officer of Activision Publishing, Inc. or in such other C-level executive position with Activision Blizzard as the chief executive officer of Activision Blizzard shall determine; provided, however, that you must (i) provide the Employer with written notice of your intent to terminate your employment under this Section 9(c) and a description of the event you believe gives you the right to do so within thirty (30) days after the initial existence of the event and (ii) the Employer shall have ninety (90) days after you provide the notice described above to cure any such default (the “Cure Period”).  You will have five (5) days following the end of the Cure Period to terminate your employment, after which your ability to terminate your employment under this Section 9(c) will no longer exist.

 

(d)           Death.  In the event of your death during the Term, your employment shall terminate immediately as of the date of your death.

 

(e)           Disability.  In the event that you are or become “disabled,” the Employer shall, to the extent permitted by applicable law, have the right to terminate your employment.  For purposes of this Agreement, “disabled” shall mean that either (i) you have a physical or mental impairment that renders you unable to perform the duties required of you under this Agreement, even with the Employer providing you a reasonable accommodation, as determined by a physician selected by the Employer in its sole discretion or (ii) you are receiving benefits under any long-term disability plan of the Employer then in effect.  You shall cooperate and make yourself available for any medical examination requested by the Employer with respect to any determination of whether you are disabled within ten (10) days of such a request.  Without limiting the generality of the foregoing, to the extent provided by the Employer’s policies and practices then in effect, you shall not receive any Base Salary during any period in which you are disabled; provided, however, that nothing in this Section 9(e) shall impact any right you may have to any payments under the Employer’s short-term and long-term disability plans, if any.

 

10.          Termination of Obligations and Severance Payments

 

(a)           General.  Upon the termination of your employment pursuant to Section 9, your rights and the Employer’s obligations to you under this Agreement shall immediately terminate except as provided in this Section 10 and Section 11(s), and you (or your heirs or estate, as applicable) shall be entitled to receive any amounts or benefits set forth below (subject in all cases to Sections 10(g), 11(q) and 11(r)).  The payments and benefits provided pursuant to this Section 10 are (x) in lieu of any severance or income continuation protection under any plan of the Activision Blizzard Group that may now or hereafter exist and (y) deemed to satisfy and be in full and final settlement of all obligations of the Activision Blizzard Group to you under this Agreement.  You shall have no further right to receive any other compensation benefits following your termination of employment for any reason except as set forth in this Section 10.

 

For the purposes of this Agreement, the following terms shall have the following meanings:

 

“Basic Severance” shall mean payment of (1) any Base Salary earned but unpaid as of the Termination Date; (2) any business expenses incurred but not reimbursed under Section 5 as

 

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of the Termination Date; and (3) payment in lieu of any vacation accrued under Section 7 but unused as of the Termination Date.

 

“Bonus Severance” shall mean payment of:

 

(i)            an amount equal to the Annual Bonus that the Employer determines, in its sole discretion, you would have received in accordance with Section 2(c)(i) for any year that ended prior to the Termination Date had you remained employed through the date such bonus would have been otherwise been paid; and

 

(ii)           an amount equal to the Annual Bonus that the Employer determines, in its sole discretion, you would have received in accordance with Section 2(c)(i) for the year in which your Termination Date occurs had you had remained employed through the date such bonus would have been paid, multiplied by a fraction, the numerator of which is the number corresponding to the calendar month in which the Termination Date occurs and the denominator of which is 12, where, for purposes of calculating the amount of such bonus, any goals will be measured by actual performance.

 

“Termination Date” shall mean the effective date of your termination of employment pursuant to Sections 9(a)-(e).

 

(b)           Death.  In the event your employment is terminated under Section 9(d):

 

(i)            Basic Severance.  Your heirs or estate, as the case may be, shall receive payment of the Basic Severance in a lump sum within thirty (30) days following the Termination Date unless a different payment date is prescribed by an applicable compensation, incentive or benefit plan, in which case payment shall be made in accordance with such plan;

 

(ii)           Lump Sum Payment of Two Times Base Salary.  Your heirs or estate, as the case may be, shall receive payment of an amount equal to two (2) times the Base Salary (at the rate in effect as of the Termination Date) in a lump sum within thirty (30) days following the Termination Date;  provided, however, that this amount shall be reduced by any payments to which you become entitled upon death under any Employer-sponsored plan;

 

(iii)          Bonus Severance.  Your heirs or estate, as the case may be, shall receive payment of the Bonus Severance in a lump sum no later than the 15th day of the third month of the year following the year to which the underlying amount relates; and

 

(iv)          Impact on Equity Awards.  All outstanding Equity Awards shall cease to vest.  All vested RSUs shall be paid in accordance with their terms.  The Option shall be treated as set forth in Section 2 above.  Any Equity Awards that are not vested as of your Termination Date will be cancelled immediately.

 

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(c)           Termination by the Employer if You Become Disabled.  In the event the Employer terminates your employment under Section 9(e):

 

(i)            Basic Severance.  You or your legal representative, as the case may be, shall receive payment of the Basic Severance in a lump sum within thirty (30) days following the Termination Date unless a different payment date is prescribed by an applicable compensation, incentive or benefit plan, in which case payment shall be made in accordance with such plan;

 

(ii)           Salary Continuation.  You or your legal representative, as the case may be, shall receive the payment of an amount equal to the Base Salary (at the rate in effect on the Termination Date) that you would have received had you remained employed through the Expiration Date, which amount shall be paid in equal installments commencing on the first payroll date following the 60th day following the Termination Date in accordance with the Employer’s payroll practices as in effect from time to time, provided that the first such payment shall include any installments relating to the 60 day period following the Termination Date;  provided, however, that, to the extent doing so will not result in the imposition of additional taxes under Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended and the rules and regulations promulgated thereunder (the “Code”), this amount shall be reduced by any payments which you have received or to which you become entitled under any Employer-sponsored long-term disability plan;

 

(iii)          Bonus Severance.  You or your legal representative, as the case may be, shall receive payment of the Bonus Severance in a lump sum no later than the 15th day of the third month of the year following the year to which the underlying amount relates;

 

(iv)          Impact on Equity Awards.  All outstanding Equity Awards shall cease to vest.  All vested RSUs shall be paid in accordance with their terms.  The Option shall be treated as set forth in Section 2 above.  Any Equity Awards that are not vested as of your Termination Date will be cancelled immediately; and

 

(v)           Severance Conditioned Upon Release.  Payments and benefits described in Sections 10(c)(ii) and 10(c)(iii) are conditioned upon your or your legal representative’s execution of a waiver and release in a form prepared by the Employer and promptly provided to you and that release becoming effective and irrevocable in its entirety within 60 days of the Termination Date.  Unless otherwise provided by the Employer, if the release referenced above does not become effective and irrevocable on or prior to the 60th day following the Termination Date, you shall not be entitled to any payments under this Section 10(c) other than the Basic Severance.

 

(d)           Termination by the Employer Without Cause, by You Under Section 9(c).  In the event the Employer terminates your employment under Section 9(b) or you terminate your employment under Section 9(c):

 

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(i)            Basic Severance.  You shall receive payment of the Basic Severance in a lump sum within thirty (30) days following the Termination Date unless a different payment date is prescribed by an applicable compensation, incentive or benefit plan, in which case payment shall be made in accordance with such plan;

 

(ii)           Minimum Severance.  You or your legal representative, as the case may be, shall receive an amount equal to the greater of (x) the excess of: (I) the Formula Amount over (II) your Modified Earned Compensation as of your Termination Date and (y) the Base Salary that would have been required to be paid for the remainder of the Term.  Such amount shall be paid in the year after the year in which occurs your Termination Date, but prior to March 15 of such year;

 

(iii)          Bonus Severance.  You or your legal representative, as the case may be, shall receive payment of the Bonus Severance in a lump sum no later than the 15th day of the third month of the year following the year to which the underlying amount relates;

 

(iv)          Impact on Equity Awards.  All outstanding Equity Awards shall cease to vest.  All vested RSUs shall be paid in accordance with their terms.  The Option shall be treated as set forth in Section 2 above.  Any Equity Awards that are not vested as of your Termination Date will be cancelled immediately; and

 

(v)           Severance Conditioned Upon Release.  Payments and benefits described in Sections 10(d)(ii)  and 10(d)(iii) are conditioned upon your or your legal representative’s execution of a waiver and release in a form prepared by the Employer and promptly provided to you and that release becoming effective and irrevocable in its entirety within 60 days of the Termination Date.  Unless otherwise provided by the Employer, if the release referenced above does not become effective and irrevocable on or prior to the 60th day following the Termination Date, you shall not be entitled to any payments under this Section 10(d) other than the Basic Severance.

 

(e)           Termination by the Employer For Cause.  In the event your employment is terminated by the Employer under Section 9(a), then:

 

(i)            Basic Severance.  You shall receive payment of the Basic Severance in a lump sum within thirty (30) days following the Termination Date unless a different payment date is prescribed by an applicable compensation, incentive or benefit plan, in which case payment shall be made in accordance with such plan; and

 

(ii)           Impact on Equity Awards.  All outstanding Equity Awards shall cease to vest and, whether or not vested, shall no longer be exercisable and shall be cancelled immediately.

 

(f)            Termination on the Expiration Date.   In the event your employment terminates on the Expiration Date, then:

 

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(i)            Basic Severance.  You shall receive payment of the Basic Severance in a lump sum within thirty (30) days following the Termination Date unless a different payment date is prescribed by an applicable compensation, incentive or benefit plan, in which case payment shall be made in accordance with such plan;

 

(ii)           Performance Payment.  If you have achieved your AOP Targets for at least four of the five fiscal years commencing after the Effective Date and terminating on or prior to the Expiration Date, you shall also receive an amount equal to: (I) two times the Formula Amount, minus (II) your Earned Compensation as of the Expiration Date.  Such amount shall be paid in 2016 and prior to March 15, 2016.  For purposes of clarity, if your employment terminates for any reason (including your voluntary resignation in violation of your obligations under this Agreement) prior to the Expiration Date, or continues after the Expiration Date, you will not receive any payment pursuant to this provision;

 

(iii)          Impact on Equity Awards.  All outstanding Equity Awards, unless provided for otherwise in Paragraph 2(d) above, shall cease to vest. All vested RSUs shall be paid in accordance with their terms.  The Option shall be treated as set forth in Section 2 above.  Any Equity Awards that are not vested as of the Expiration Date will be cancelled immediately; and

 

(iv)          Severance Conditioned Upon Release.  Payments and benefits described in Section 10(f)(ii) are conditioned upon your or your legal representative’s execution of a waiver and release in a form prepared by the Employer and promptly provided to you and that release becoming effective and irrevocable in its entirety within 60 days of the Termination Date.  Unless otherwise provided by the Employer, if the release referenced above does not become effective and irrevocable on or prior to the 60th day following the Termination Date, you shall not be entitled to any payments under this Section 10(f) other than the Basic Severance.

 

(g)           Breach of Post-termination Obligations or Subsequent Employment.

 

(i)            Breach of Post-termination Obligations. In the event that you breach any of your obligations under Section 8, the Employer’s obligation, if any, to make payments and provide benefits under Section 10 (other than payment of the Basic Severance) shall immediately and permanently cease and you shall not be entitled to any such payments or benefits.

 

(ii)           Subsequent Employment. Notwithstanding anything to the contrary contained herein, you shall receive any payments and benefits to which you may be entitled under Section 10 (other than payment of the Basic Severance) only for the time period that you do not obtain subsequent employment and/or provide services of any kind for compensation, whether as principal, owner, partner, agent, shareholder, director, employee, consultant, advisor or otherwise, to any person, company,

 

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venture or other person or business entity.  If, at any time, you obtain subsequent employment or provide services as set forth in the prior sentence, you must promptly notify the Company and payments and benefits to which you may be entitled under Section 10 (other than payment of the Basic Severance) shall cease as of the date you commenced such employment or provision of services.

 

11.          General Provisions

 

(a)           Entire Agreement.  This Agreement, and the Proprietary Information Agreement and  the New Employee Letter and Certification (as defined in Section 11(d)), supersede all prior or contemporaneous agreements and statements, whether written or oral, concerning the terms of your employment with the Activision Blizzard Group, and no amendment or modification of these agreements shall be binding unless it is set forth in a writing signed by both the Employer and you.  To the extent that this Agreement conflicts with any of the Employer’s policies, procedures, rules or regulations, this Agreement shall supersede the other policies, procedures, rules or regulations.

 

(b)           Use of Employee’s Name and Likeness.  You hereby irrevocably grant the Activision Blizzard Group the right, but not the obligation, to use your name or likeness in any product made by the Activision Blizzard Group or for any publicity or advertising purpose in any medium now known or hereafter existing.

 

(c)           Assignment.  This Agreement and the rights and obligations hereunder shall not be assignable or transferable by you without the prior written consent of the Employer.  The Employer may assign this Agreement or all or any part of its rights and obligations under this Agreement at any time and following such assignment all references to the Employer shall be deemed to refer to such assignee and the Employer shall thereafter have no obligation under this Agreement.

 

(d)           No Conflict with Prior Agreements.  You represent to the Employer that neither your commencement of employment under this Agreement nor the performance of your duties under this Agreement conflicts or will conflict with any contractual or legal commitment on your part to any third party, nor does it or will it violate or interfere with any rights of any third party.  If you have acquired any confidential or proprietary information in the course of your prior employment or otherwise in connection with your provision of services to any entity outside the Activision Blizzard Group, during the Term you will fully comply with any duties to such entity then-applicable to you not to disclose or otherwise use such information.  Without limiting the generality of the foregoing, you acknowledge signing and delivering to the Employer the New Employee Letter and Certification attached as Exhibit B hereto (the “New Employee Letter and Certification”) as of the Effective Date and you agree that all terms and conditions contained in such agreement, and all of your obligations and commitments provided for in such agreement, shall be deemed, and hereby are, incorporated into this Agreement as if set forth in full herein.

 

(e)           Successors.  This Agreement shall be binding on and inure to the benefit of the Employer and its successors and assigns, including successors by merger and operation of law.  This Agreement shall also be binding on and inure to the benefit of you and your heirs, executors, administrators and legal representatives.

 

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(f)            Waiver.  No waiver by you or the Employer at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  No waiver of any provision of this Agreement shall be implied from any course of dealing between or among the parties hereto or from any failure by any party hereto to assert its rights hereunder on any occasion or series of occasions.

 

(g)           Expiration.  This Agreement does not constitute a commitment of the Employer with regard to your employment, express or implied, other than to the extent expressly provided for herein.  Upon the Expiration Date, or, if earlier, the termination of this Agreement pursuant to Section 9, neither the Employer nor you shall have any obligation to the other with respect to your continued employment.

 

(h)           Taxation.  The Employer may withhold from any payments made under the Agreement all federal, state, city or other applicable taxes or amounts as shall be required or permitted pursuant to any law, governmental regulation or ruling or agreement with you.

 

(i)            Immigration.  In accordance with the Immigration Reform and Control Act of 1986, employment under this Agreement is conditioned upon satisfactory proof of your identity and legal ability to work in the United States.

 

(j)            Choice of Law.  Except to the extent governed by federal law, this Agreement shall be governed by and construed in accordance with the laws of the State of California or whatever other state in which you were last employed by the Employer, without regard to conflict of law principles.

 

(k)           Arbitration.

 

(i)            Except as otherwise provided in this Agreement, any dispute or controversy between the Employer and you will be settled by final and binding arbitration by a single arbitrator to be held in the city in which you were last employed by the Employer, unless the Employer and you agree otherwise, in accordance with the JAMS rules for resolution of employment disputes then in effect, except as provided in this Section 11(k).  The arbitrator the parties select will have the authority to grant any party all remedies otherwise available by law, but will not have the power to grant any remedy that would not be available in a state or federal court in the jurisdiction in which the arbitration is being held.  Either party may seek court intervention in a dispute for interim equitable relief in a court of competent subject matter jurisdiction located within the city in which you were last employed by the Employer, but the resort to interim equitable relief will be pending and in aid of arbitration only, and in such cases the trial on the merits of the action will occur in front of, and will be decided by, the arbitrator, who will have the same ability to order legal or equitable remedies as could a court of general jurisdiction.  The arbitrator will have the authority to hear and rule on dispositive motions (such as motions for summary adjudication or summary judgment) and has the exclusive authority to resolve any dispute relating to the interpretation,

 

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applicability, enforceability or formation of this agreement to arbitrate claims, including but not limited to any claim that all or any part of this agreement is void or voidable.  This agreement to arbitrate applies to all claims that the Employer may have against you or that you may have against the Employer or the Employer’s current and former officers, directors, employees, representatives and agents, and/or all entities affiliated with the Employer, as well as the current and former officers, directors, employees, representatives and agents of those affiliates. This arbitration obligation shall not prohibit the Employer or you from filing a claim with an administrative agency, nor does it apply to claims for workers’ compensation or unemployment benefits, claims for benefits under an employee welfare or pension plan that specifies a different dispute resolution procedure, or claims which, by law, cannot be compelled to binding arbitration via private agreement.

 

(ii)           Notwithstanding anything to the contrary in the rules of JAMS, the arbitration shall provide (a) for written discovery and depositions as provided under the Federal Rules of Civil Procedure and (b) for a written decision by the arbitrator that includes the essential findings and conclusions upon which the decision is based which must be issued no later than thirty (30) days after a dispositive motion is heard or an arbitration hearing has completed.  The Employer will pay the fees and administrative costs charged by the arbitrator and JAMS; provided, however, that if you initiate the arbitration, you must initiate it by paying to JAMS an amount equal to the filing fee for the state court of general jurisdiction in the state in which you were last employed by the Employer.

 

(iii)          Either party will have the same amount of time to file any claim against any other party as it would have if the claim had been filed in state or federal court in the city in which you were last employed by the Employer.  In conducting the arbitration, the arbitrator shall follow the Federal Rules of Evidence (including but not limited to all applicable privileges).

 

(iv)          The arbitrator must be experienced in employment law.  He or she will be selected by the mutual agreement of the parties.  If the parties cannot agree on an arbitrator, the parties will alternately strike names from a list provided by JAMS until only one name remains.  If a JAMS arbitrator is not available to conduct an arbitration in the city in which you last worked for the Employer, then another similar arbitration service provider will be selected by the mutual agreement of the parties (and all references to JAMS in this Section 11(k) will be deemed to be references to that arbitration service provider).

 

(v)           The decision of the arbitrator will be final, conclusive and binding on the parties to the arbitration.  The prevailing party in the arbitration, as determined by the arbitrator, shall be entitled to recover his/her or its reasonable attorneys’ fees, experts’ fees and costs, including the costs or fees charged by the arbitrator and JAMS, in addition to such other relief as may be granted, under the standards provided by law for awarding such

 

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fees and costs applicable to the claims asserted.  Judgment may be entered on the arbitrator’s decision in any court having jurisdiction.

 

(vi)          You understand that your and the Employer’s agreement to arbitrate all disputes means that both you and the Employer are waiving your right to file a court action, except for requests for injunctive relief pending arbitration.  You also understand that both you and the Employer are giving up any right to a jury trial.

 

(l)            Severability.  It is expressly agreed by the parties that each of the provisions included in Section 8(f) is separate, distinct, and severable from the other and remaining provisions of Section 8(f), and that the invalidity or unenforceability of any Section 8(f) provision shall not affect the validity or enforceability of any other provision or provisions of this Agreement.  If any provision of this Agreement is held to be illegal, invalid or unenforceable under, or would require the commission of any act contrary to, existing or future laws effective during the Term, such provisions shall be fully severable, the Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement.  Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a legal and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

 

(m)          Services Unique.  You recognize that the services being performed by you under this Agreement are of a special, unique, unusual, extraordinary and intellectual character giving them a peculiar value, the loss of which cannot be reasonably or adequately compensated for in damages in the event of a breach of this Agreement by you.

 

(n)           Injunctive Relief.  In the event of a breach of or threatened breach of the provisions of this Agreement regarding the exclusivity of your services and the provisions of Section 8, you agree that any remedy at law would be inadequate.  Accordingly, you agree that the Employer is entitled to obtain injunctive relief for such breaches or threatened breaches in any court of competent jurisdiction.  The injunctive relief provided for in Section 11(k)(i) and this Section 11(n) is in addition to, and is not in limitation of, any and all other remedies at law or in equity otherwise available to the applicable party.  The parties agree to waive the requirement of posting a bond in connection with a court or arbitrator’s issuance of an injunction.

 

(o)           Remedies Cumulative.  The remedies in this Agreement are not exclusive, and the parties shall have the right to pursue any other legal or equitable remedies to enforce the terms of this Agreement.

 

(p)           Headings.  The headings set forth herein are included solely for the purpose of identification and shall not be used for the purpose of construing the meaning of the provisions of this Agreement.

 

(q)           Section 409A.  To the extent applicable, it is intended that the Agreement comply with the provisions of Section 409A.  The Agreement will be administered and

 

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interpreted in a manner consistent with this intent, and any provision that would cause the Agreement to fail to satisfy Section 409A will have no force and effect until amended to comply therewith (which amendment may be retroactive to the extent permitted by Section 409A).  Notwithstanding anything contained herein to the contrary, to the extent any payment under this Agreement is subject to Section 409A, you shall not be considered to have terminated employment with the Employer for purposes of the Agreement and no payments shall be due to you under the Agreement which are payable upon your termination of employment unless you would be considered to have incurred a “separation from service” from the Employer within the meaning of Section 409A.  To the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Agreement during the six-month period immediately following your termination of employment shall instead be paid on the first business day after the date that is six months following your termination of employment (or upon your death, if earlier).  In addition, for purposes of the Agreement, each amount to be paid or benefit to be provided to you pursuant to the Employment Agreement shall be construed as a separate identified payment for purposes of Section 409A.  With respect to expenses eligible for reimbursement under the terms of the Agreement, (i) the amount of such expenses eligible for reimbursement in any taxable year shall not affect the expenses eligible for reimbursement in another taxable year and (ii) any reimbursements of such expenses shall be made no later than the end of the calendar year following the calendar year in which the related expenses were incurred, except, in each case, to the extent that the right to reimbursement does not provide for a “deferral of compensation” within the meaning of Section 409A; provided, however that with respect to any reimbursements for any taxes to which you become entitled under the terms of the Agreement, the payment of such reimbursements shall be made by the Employer no later than the end of the calendar year following the calendar year in which you remit the related taxes.

 

(r)            Section 280G and Section 162(m).  Notwithstanding anything herein to the contrary, in the event that you receive any payments or distributions, whether payable, distributed or distributable pursuant to the terms of this Agreement or otherwise, that constitute “parachute payments” within the meaning of Section 280G of the Code, and the net after-tax amount of the parachute payment is less than the net after-tax amount if the aggregate payment to be made to you were three times your “base amount” (as defined in Section 280G(b)(3) of the Code), less $1.00, then the aggregate of the amounts constituting the parachute payment shall be reduced to an amount that will equal three times your base amount, less $1.00.  To the extent the aggregate of the amounts constituting the parachute payments are required to be so reduced, the amounts provided under Section 10 of this Agreement shall be reduced (if necessary, to zero) with amounts that are payable first reduced first; provided, however, that, in all events the payments provided under Section 10 of this Agreement which are not subject to Section 409A shall be reduced first.  Similarly, you agree that no payments or distributions, whether payable, distributed or distributable pursuant to the terms of this Agreement or otherwise, shall be made to you if the Employer reasonably anticipates that Section 162(m) of the Code would prevent the Employer from receiving a deduction for such payment.  If, however, any payment is not made pursuant to the previous sentence, the Employer shall make such payment as soon as practicable in the first calendar year that it reasonably determines that it can do so and still receive a deduction for such payment.  The determinations to be made with respect to this Section 11(r) shall be made by a certified public accounting firm designated by the Employer.

 

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(s)           Survivability.  The provisions of Sections 8, 10(g), 11(b), 11(c), 11(e), 11(f), 11(h), 11(i), 11(k), 11(l), 11(m), 11(n), 11(o), 11(q), 11(r), this 11(s) and Section 12 (as well as the Proprietary Information Agreement and the New Employee Letter and Certification) shall survive the termination or expiration of this Agreement.

 

(t)            Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument.

 

(u)           Legal Counsel.  You acknowledge that you have been given the opportunity to consult with legal counsel or any other advisor of your own choosing regarding this Agreement.  You understand and agree that any attorney retained by the Employer, the Activision Blizzard Group or any member of management who has discussed any term or condition of this Agreement with you or your advisor is only acting on behalf of the Employer and not on your behalf.

 

(v)           Right to Negotiate.  You hereby acknowledge that you have been given the opportunity to participate in the negotiation of the terms of this Agreement.  You acknowledge and confirm that you have read this Agreement and fully understand its terms and contents.  You further acknowledge that you were represented by an attorney during this process and all of the provisions herein have been fully explained to you.

 

(w)          No Broker.  You have given no indication, representation or commitment of any nature to any broker, finder, agent or other third party to the effect that any fees or commissions of any nature are, or under any circumstances might be, payable by the Activision Blizzard Group in connection with your employment under this Agreement.

 

(x)            All Terms Material.  Your failure to comply with any of the terms of this Agreement shall constitute a material breach of this Agreement.

 

12.          Indemnification

 

The Employer agrees that it shall indemnify and hold you harmless to the fullest extent permitted by Delaware law from and against any and all third-party liabilities, costs and claims, and all expenses actually and reasonably incurred by you in connection therewith by reason of the fact that you are or were employed by the Activision Blizzard Group, including, without limitation, all costs and expenses actually and reasonably incurred by you in defense of litigation arising out of your employment hereunder.

 

13.          Notices

 

All notices which either party is required or may desire to give the other shall be in writing and given either personally or by depositing the same in the United States mail addressed to the party to be given notice as follows:

 

	
To the Employer:
    	
 
    	
Activision Publishing, Inc.
    
	
 
    	
 
    	
3100 Ocean Park Boulevard
    
	
 
    	
 
    	
Santa Monica, California 90405
    
	
 
    	
 
    	
Attention: Chief Legal Officer
    

 

19

 

	
To You:
    	
 
    	
Eric Hirshberg
    
	
 
    	
 
    	
c/o Gary Stiffelman
    
	
 
    	
 
    	
Ziffren Brittenham LLP
    
	
 
    	
 
    	
1801 Century Park West
    
	
 
    	
 
    	
LA, CA 90067
    

 

Either party may by written notice designate a different address for giving of notices.  The date of mailing of any such notices shall be deemed to be the date on which such notice is given.

 

	
ACCEPTED AND AGREED TO:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Employer
    	
 
    	
Employee
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ACTIVISION   PUBLISHING, INC.
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
By:
    	
/s/ Robert A.   Kotick
    	
 
    	
/s/ Eric Hirshberg
    
	
 
    	
ROBERT A. KOTICK
    	
 
    	
ERIC HIRSHBERG
    
	
 
    	
Chief Executive   Officer
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Date:
    	
July 6, 2010
    	
 
    	
Date:
    	
July 6, 2010
    

 

20

 

Exhibit A

 

Proprietary Information Agreement

 

21

 

Exhibit B

 

New Employee Letter and Certification

 

22

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