Document:

Exhibit 10.2

EXECUTION
COUNTERPART

 

 

SECURITY
AGREEMENT

between

EDISON
MISSION ENERGY

and

CITICORP
NORTH AMERICA, INC.,

as Administrative Agent

Dated as of June 15,
2006

 

 

 

 

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  Section 1.

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.

  	
   

  	
  Representations and Warranties

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 3.

  	
   

  	
  The Pledge

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 4.

  	
   

  	
  Collateral Accounts; cash proceeds

  	
   

  	
  4

  
	
   

  	
   

  	
  4.01   Collateral Accounts

  	
   

  	
  4

  
	
   

  	
   

  	
  4.02   Investment of Balance in Collateral
  Accounts

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 5.

  	
   

  	
  Further Assurances; Remedies

  	
   

  	
  6

  
	
   

  	
   

  	
  5.01   Delivery and Other Perfection

  	
   

  	
  6

  
	
   

  	
   

  	
  5.02   Other Financing Statements and Liens

  	
   

  	
  7

  
	
   

  	
   

  	
  5.03   Special Provisions Relating to the
  Pledged Collateral

  	
   

  	
  7

  
	
   

  	
   

  	
  5.04   Credit Agreement Event of Default, Etc

  	
   

  	
  8

  
	
   

  	
   

  	
  5.05   Deficiency

  	
   

  	
  10

  
	
   

  	
   

  	
  5.06   Removals, Etc

  	
   

  	
  10

  
	
   

  	
   

  	
  5.07   Private Sale

  	
   

  	
  10

  
	
   

  	
   

  	
  5.08   Application of Proceeds

  	
   

  	
  10

  
	
   

  	
   

  	
  5.09   Attorney-in-Fact

  	
   

  	
  11

  
	
   

  	
   

  	
  5.10   Perfection

  	
   

  	
  11

  
	
   

  	
   

  	
  5.11   Termination

  	
   

  	
  11

  
	
   

  	
   

  	
  5.12   Further Assurances

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6.

  	
   

  	
  Miscellaneous

  	
   

  	
  11

  
	
   

  	
   

  	
  6.01   Notices

  	
   

  	
  11

  
	
   

  	
   

  	
  6.02   Delay and Waiver

  	
   

  	
  12

  
	
   

  	
   

  	
  6.03   Amendments, Etc

  	
   

  	
  12

  
	
   

  	
   

  	
  6.04   Successors and Assigns

  	
   

  	
  12

  
	
   

  	
   

  	
  6.05   Counterparts

  	
   

  	
  12

  
	
   

  	
   

  	
  6.06   Governing Law; Submission to Jurisdiction

  	
   

  	
  12

  
	
   

  	
   

  	
  6.07   Headings

  	
   

  	
  12

  
	
   

  	
   

  	
  6.08   Agents and Attorneys-in-Fact

  	
   

  	
  12

  
	
   

  	
   

  	
  6.09   Severability

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Annex 1 — Pledged Interests

  	
   

  	
   

  

 

 

SECURITY
AGREEMENT

SECURITY AGREEMENT (this “Agreement”)
dated as of June 15, 2006, between EDISON MISSION ENERGY, a corporation
organized under the laws of Delaware (the “Obligor”), and CITICORP NORTH
AMERICA, INC., as administrative agent for the Lenders and Issuing Lenders
under the Credit Agreement referred to below (in such capacity, together with
its successors in such capacity, the “Administrative Agent”).

The Obligor, the
Administrative Agent, the various financial institutions as are or may become
parties thereto (collectively, the “Lenders”), and the Issuing Lenders
have entered into that certain Credit Agreement (as amended, supplemented,
amended and restated or otherwise modified and in effect from time to time, the
“Credit Agreement”) dated as of June 15, 2006. This Agreement is
the Borrower Security Agreement referred to in the Credit Agreement.

The Obligor owns a
100% ownership interest in each of the Collateral Parties on the date hereof
and has, subject to the terms and conditions of this Agreement, agreed to grant
a Lien and security interest in the Pledged Collateral referred to herein.

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

SECTION 1.         DEFINITIONS.
Capitalized terms not otherwise defined herein shall have the meanings set
forth in, and the interpretations applicable thereto under, the Credit
Agreement. In addition, as used herein:

“Assigned
Agreements” has the meaning set forth in Section 3(e).

“Big Four
Companies” means Camino Energy Company, a California corporation, Southern
Sierra Energy Company, a California corporation, San Joaquin Energy Company, a
California corporation, and Western Sierra Energy Company, a California
corporation.

“Big Four
Revenue” has the meaning set forth in Section 5.03(b).

“Big Four
Revenue Account” means the Account, as such term is defined in the Account
Control Agreement dated as of June 15, 2006 between the Obligor, the
Administrative Agent and Citibank, N.A.

“Collateral
Accounts” means the Big Four Revenue Account, Default Collateral Account,
Disposition Proceeds Account and the LC Collateral Account.

“Credit Agreement
Termination Date” means the date on which all Secured Obligations, other
than contingent liabilities and Secured Obligations which are unasserted at
such date, have been finally paid and satisfied in full and all Loans and
Commitments have been terminated.

“Default Collateral
Account” has the meaning set forth in Section 4.01(a).

“Disposition Proceeds
Account” has the meaning set forth in Section 4.01(c).

“EMH” means Edison
Mission Holdings Co., a California corporation.

“Indemnitee” has
the meaning set forth in Section 5.11(a).

“LC Collateral Account”
has the meaning set forth in Section 4.01(b).

“MGE” means
Midwest Generation EME, LLC, a Delaware limited liability company.

“Mission del Cielo”
means Mission del Cielo, Inc., a Delaware corporation.

“Permitted Investments”
means (a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of
the United States of America), in each case maturing within one year from the
date of acquisition thereof; (b) investments in commercial paper maturing
within 270 days from the date of acquisition thereof and having, at such
date of acquisition, the highest credit rating obtainable from S&P or from
Moody’s; (c) investments in certificates of deposit, banker’s acceptances
and time deposits maturing within 180 days from the date of acquisition
thereof issued or guaranteed by or placed with, and money market deposit
accounts issued or offered by, any domestic office of any commercial bank
organized under the laws of the United States of America or any State thereof
which has a combined capital and surplus and undivided profits of not less than
$500,000,000; and (d) fully collateralized repurchase agreements with a
term of not more than thirty (30) days for securities described in clause (a) above
and entered into with a financial institution satisfying the criteria described
in clause (c) above.

“Pledged Collateral”
has the meaning set forth in Section 3.

“Pledged
Interests” has the meaning set forth in Section 3(a).

“Secured
Obligations” means all Obligations of the Obligor under the Loan Documents.

“Stock
Collateral” has the meaning set forth in Section 3(c).

SECTION 2.         REPRESENTATIONS
AND WARRANTIES. The Obligor represents and warrants to
the Administrative Agent and the other Lenders that as of the date hereof:

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(a)  The
Obligor is the sole beneficial owner of the Pledged Collateral in which it
purports to grant security interests pursuant to Section 3 and no
Lien exists upon such Pledged Collateral, except for the pledges and security
interests in favor of the Administrative Agent for the benefit of the Lenders
created or provided for herein, which pledges and security interests constitute
a first priority perfected pledge and security interest in and to all of such
Pledged Collateral as provided in Section 3.

(b)  The
Pledged Interests evidenced by the certificates identified under the name of
the Obligor in Annex 1 are duly authorized, validly existing, fully
paid and non-assessable and none of the Pledged Interests is subject to any
contractual restriction or any restriction under the certificate of
incorporation or certificate of formation of each Collateral Party (except for
any restriction contained herein).

(c)  The
Pledged Interests evidenced by the certificates identified under the name of
the Obligor in Annex 1 constitute all the membership interests,
shares or other ownership interests of any class or character of each
Collateral Party, in each case, beneficially owned by the Obligor on the date
hereof (whether or not registered in the name of the Obligor), and Annex 1
correctly identifies, as at the date hereof, the membership interests and shares
constituting the Pledged Interests and the respective issuer, certificate
numbers, class and amounts of such shares.

SECTION 3.         THE
PLEDGE. As collateral security for the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) of the
Secured Obligations, the Obligor hereby pledges and grants to the
Administrative Agent, for the benefit of the Lenders, a security interest in
all of the Obligor’s right, title and interest in the following property,
whether now owned by the Obligor or hereafter acquired and whether now existing
or hereafter coming into existence (all being collectively referred to herein
as “Pledged Collateral”):

(a)  the
shares in the Westside Entities, EMH, Mission del Cielo and the membership
interests in MGE identified in Annex 1 or other ownership interests
of whatever class or character in these companies, now or hereafter owned by
the Obligor, in each case together with the certificates (if any) evidencing
the same (collectively, the “Pledged Interests”);

(b)  all
membership interests, stock, securities, moneys or property representing a
dividend on any of the Pledged Interests, or representing a distribution or
return of capital upon or in respect of the Pledged Interests, or resulting
from a split-up, revision, reclassification or any change of the Pledged
Interests or otherwise received in exchange therefor, and any subscription
warrants, rights or options issued to the holders of, or otherwise in respect
of, the Pledged Interests;

(c)  in the
event of any consolidation or merger involving the Collateral Parties in which
a Collateral Party is not the surviving entity, all ownership interests of any
class or character of the successor entity formed by or resulting from such
consolidation or merger (the Pledged Interests together with all other
certificates of membership interests, shares, securities, properties or moneys
as may from time to time be pledged hereunder pursuant to clause (a) or
(b) above and this clause (c) being herein
collectively referred to as the “Stock Collateral”);

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(d)  the
Collateral Accounts and all amounts, Permitted Investments and other property
(including securities, financial assets, investment property, security
entitlements and instruments, as applicable) at any time deposited in or
credited thereto and all security entitlements with respect thereto, including,
without limitation, the Big Four Revenue; and

(e)  all
proceeds of and to any of the property of the Obligor described in the
preceding clauses of this Section 3 (including all causes of
action, claims and warranties now or hereafter held by the Obligor in respect
of any of the items listed above) and, to the extent related to any property
described in said clauses or such proceeds, all books, correspondence, credit files,
records, invoices and other papers.

SECTION 4.         COLLATERAL
ACCOUNTS; CASH PROCEEDS.

4.01         Collateral Accounts.

(a)  The Administrative Agent will cause
to be established at a banking institution to be selected by the Administrative
Agent a cash collateral account (the “Default Collateral Account”), into
which there shall be deposited from time to time upon the occurrence and during
the continuance of an Event of Default the cash proceeds of any of the Pledged
Collateral required to be delivered to the Administrative Agent pursuant hereto.
The balance from time to time in the Default Collateral Account shall
constitute part of the Pledged Collateral hereunder and shall not constitute
payment of the Secured Obligations until applied as hereinafter provided. Except
as expressly provided in the next sentence, the Administrative Agent shall
remit the collected balance standing to the credit of the Default Collateral
Account to or upon the order of the Obligor as the Obligor shall from time to
time instruct. However, at any time following the occurrence and during the
continuance of an Event of Default, the Administrative Agent may (and, if
instructed by the Required Lenders, shall) in its (or their) discretion apply or cause to be applied
(subject to collection) the balance from time to time standing to the credit of
the Default Collateral Account to the payment of the Secured Obligations in the
manner specified in Section 5.08. The balance from time to time in
the Default Collateral Account shall be subject to withdrawal only as provided
herein. In addition to the foregoing, the Obligor agrees that, at any time
after the occurrence and during the continuance of an Event of Default, if the
proceeds of any Pledged Collateral hereunder shall be received by it, the Obligor
shall, upon the request of the Administrative Agent, as promptly as possible
deposit such proceeds into the Default Collateral Account. Until so deposited,
all such proceeds shall be held in trust by the Obligor for and as the property
of the Administrative Agent and shall not be commingled with any other funds or
property of the Obligor. The Default Collateral Account shall be established in
the name of the Obligor, but under the exclusive dominion and control of the
Administrative Agent.

(b)  The Administrative Agent will cause to be established at
a banking institution to be selected by the Administrative Agent a cash collateral account
(the “LC Collateral Account”), into which there shall be deposited from
time to time amounts required to be deposited to such account pursuant to Section 2.6.13
of the Credit Agreement. The balance from time to time in the LC Collateral
Account shall constitute part of the Pledged Collateral hereunder and shall
be held by the Administrative Agent in the first instance for the LC Exposure
under the Credit Agreement and thereafter for the payment of the Secured
Obligations. The LC
Collateral Account shall be established in the name of the Obligor, but under
the exclusive dominion and control of the Administrative Agent.

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(c)  The Administrative Agent will cause
to be established at a banking institution to be selected by the Administrative
Agent a cash collateral account (the “Disposition Proceeds Account”),
into which the Obligor shall deposit the Net Cash Proceeds of Dispositions
with respect to the Collateral Parties and the Subsidiaries of the Collateral
Parties in excess of $100,000,000, in the aggregate, as to which a prepayment
of the Loans has not yet been made in accordance with Section 3.1.2(a) of
the Credit Agreement, and the
Obligor agrees that, immediately upon the occurrence of a Current Disposition,
which, together with all prior Dispositions, yields Net Cash Proceeds in excess
of $100,000,000, in
the aggregate, it shall as
promptly as possible deposit such proceeds into the Disposition Proceeds
Account. Such Net Cash Proceeds shall be held in the Disposition Proceeds
Account pending prepayment of the Loans (and/or Cash Collateralize LC
Exposure) and the termination of the Commitments or the making of investments,
in each case, in accordance with Section 3.1.2(a) of the
Credit Agreement. The balance
from time to time in the Disposition Proceeds Account shall constitute part of
the Pledged Collateral hereunder and shall not constitute payment of the
Secured Obligations until applied as hereinafter provided. Except as expressly
provided in the next sentence, the Administrative Agent shall remit the
collected balance standing to the credit of the Disposition Proceeds Account with respect to
any Current Disposition (i) to or upon the order of the Obligor to make
Investments with the Net Cash Proceeds (or any portion thereof) of such Current
Disposition as contemplated by Section 3.1.2(a) of the
Credit Agreement or (ii) to or upon the order of the Obligor to the extent
that the Net Cash Proceeds
(or any portion thereof) of such Current Disposition are not required to
be applied to prepayment of the Loans on the related Mandatory Prepayment Date
in accordance with Section 3.1.2(d) of the Credit Agreement; provided
that investment earnings on Permitted Investments credited to the Disposition
Proceeds Account shall be remitted to or upon the direction of the Obligor at
the request of the Obligor. However,
at any time following the occurrence and during the continuance of an Event of
Default, the Administrative Agent may (and, if instructed by the Required
Lenders, shall) in its
(or their) discretion apply or cause to be applied (subject to collection) the
balance from time to time standing to the credit of the Disposition Proceeds
Account (including, without limitation, investment earnings on Permitted
Investments) to the payment of the Secured Obligations in the manner specified
in Section 5.08. The balance from time to time in the Disposition
Proceeds Account shall be subject to withdrawal only as provided herein. The
Disposition Proceeds Account shall be established in the name of the Obligor,
but under the exclusive dominion and control of the Administrative Agent.

(d)  The Obligor shall establish the Big Four Revenue Account
into which cash and Permitted Investments received from the Big Four Companies
shall be deposited or credited pursuant to Section 5.03(b). Except as
expressly provided in the next sentence, the Administrative Agent shall remit the collected balance
standing to the credit of the Big Four Revenue Account to or upon the order of
the Obligor as the Obligor shall from time to time instruct. However, at any
time following the occurrence and during the continuance of an Event of
Default, the Administrative Agent may (and, if instructed by the Required
Lenders, shall) in its
(or their) discretion apply or cause to be applied (subject to collection) the
balance from time to time standing to the credit of the Big Four Revenue
Account to the payment of the Secured Obligations in the manner specified in Section 5.08.
The balance from time to time in the Big Four Revenue Account shall be subject
to withdrawal only as provided herein. In addition to the foregoing, the
Obligor agrees that, at any time after the occurrence and during the
continuance of an Event of Default, if the any amounts required to be deposited
into the Big Four Revenue Account hereunder shall be received by it, the
Obligor shall, upon the request of the Administrative Agent, as promptly as
possible deposit such proceeds into the Big Four Revenue Account. Until so
deposited, all such proceeds shall be held in trust by the Obligor for and as
the property of the Administrative Agent and shall not be commingled with any
other funds or property of the Obligor. The Big Four Revenue Account shall be
established in the name of the Obligor, but under the exclusive dominion and
control of the Administrative Agent.

 5
 

(e)  Each Collateral Account shall be a “securities account” (as defined in Section 8-501(a) of
the UCC) and, to the extent that credit balances not constituting “financial
assets” (as defined in Section 8-102(a)(9) of the UCC) are
credited thereto, a “deposit account” (as defined in Section 9-102(a)(29)
of the UCC).

4.02         Investment of Balance in Collateral
Accounts. The cash balance standing to the credit of the Collateral
Accounts shall be invested from time to time in such Permitted Investments as
the Obligor (or, after the occurrence and during the continuance of an Event of
Default, the Administrative Agent) shall determine, which Permitted Investments
shall be credited to the Collateral Accounts); provided that at any time after
the occurrence and during the continuance of an Event of Default, the
Administrative Agent may (and, if instructed by the Required Lenders, shall) in
its (or their) discretion at any time and from time to time elect to liquidate
any such Permitted Investments and to apply or cause to be applied the proceeds
thereof to the payment of the Secured Obligations in the manner specified in Section 5.08.

SECTION 5.         FURTHER
ASSURANCES; REMEDIES. In furtherance of the grant of the
pledge and security interest pursuant to Section 3, the Obligor
hereby agrees until the Credit Agreement Termination Date, with the
Administrative Agent and each of the other Lenders as follows:

5.01         Delivery and Other Perfection. The
Obligor shall:

(a)  if any
of the membership interests, shares, securities, moneys or property required to
be pledged by the Obligor under clauses (a), (b), and  (c) of
Section 3 are received by the Obligor, forthwith either (x) transfer
and deliver to the Administrative Agent such membership interests, shares of
stock or securities so received by the Obligor (together with the certificates
for any such membership interests, shares and securities duly endorsed in blank
or accompanied by undated stock powers duly executed in blank), all of which
thereafter shall be held by the Administrative Agent, pursuant to the terms of
this Agreement, as part of the Pledged Collateral or (y) take such other
action as the Administrative Agent shall reasonably request, at the direction
of the Required Lenders, to duly record the Lien created hereunder in such
stock, securities, moneys or property in said clauses (a), (b) and (c);

(b)  give,
execute, deliver, file and/or record any financing statement, notice,
instrument, document, agreement or other papers that may be necessary or
reasonably requested by the Administrative Agent, at the direction of the
Required Lenders, to create, preserve, perfect or validate the security
interest granted pursuant hereto or to enable the Administrative Agent, at any
time following the occurrence and continuance of an Event of Default, to
exercise and enforce its rights hereunder with respect to such pledge and security
interest, causing any or all of the Pledged Collateral to be transferred of
record into the name of the Administrative Agent or its nominee (and the
Administrative Agent agrees that if any Pledged Collateral is transferred into
its name or the name of its nominee, the Administrative Agent will thereafter
promptly give to the Obligor copies of any notices and communications received
by it with respect to the Pledged Collateral pledged by the Obligor hereunder);

 6
 

(c)  keep
full and accurate books and records relating to the Pledged Collateral, and
stamp or otherwise mark such books and records in order to reflect the security
interests granted by this Agreement; and

(d)  permit
representatives or agents of the Administrative Agent, upon reasonable notice,
at any time during normal business hours to inspect and make abstracts from its
books and records pertaining to the Pledged Collateral, and, upon the
occurrence and during the continuation of an Event of Default, permit
representatives or agents of the Administrative Agent to be present at the
Obligor’s place of business to receive copies of all communications and
remittances relating to the Pledged Collateral, and forward copies of any
notices or communications received by the Obligor with respect to the Pledged
Collateral, all in such manner as the Administrative Agent may require.

5.02         Other
Financing Statements and Liens.

(a)  The
Obligor shall not create, incur, assume or suffer to exist any Lien upon the
Pledged Collateral at any time, except for the pledges and security interests
in favor of the Administrative Agent for the benefit of the Lenders created
pursuant hereto or provided for herein, which pledges and security interests
constitute a first priority perfected pledge and security interest in and to
all of the Pledged Collateral.

(b)  Without
the prior written consent of the Administrative Agent (at the direction of the
Required Lenders), the Obligor shall not file or suffer to be on file, or
authorize or permit to be filed or to be on file, in any jurisdiction, any
financing statement or like instrument with respect to the Pledged Collateral
in which the Administrative Agent is not named as the sole secured party for
the benefit of the Lenders or (ii) cause or permit any Person, other than
the Administrative Agent to have “control” (as such term is defined in Section 9-104
of the UCC) of any existing Collateral Account.

5.03         Special
Provisions Relating to the Pledged Collateral.

(a)   Stock
Collateral. 

(i)  The Obligor will cause the Stock Collateral to constitute at
all times all ownership interests of any class or character of the Collateral
Parties then outstanding.

(ii)  So long as no Event of Default shall have occurred and be
continuing, the Obligor shall have the right to exercise all voting, consensual
and other powers of ownership pertaining to the Stock Collateral for all
purposes not inconsistent with the terms of this Agreement, any other Loan
Document or any other instrument or agreement referred to herein; provided
that the Obligor agrees that it will not vote the Stock Collateral in any
manner that is inconsistent with the terms of this Agreement or any other Loan
Document; and the Administrative Agent, at the direction of the Required
Lenders, shall execute and deliver to the Obligor or cause to be executed and
delivered to the Obligor all such proxies, powers of attorney, dividend and
other orders, and all such instruments, without recourse, as the Obligor may
reasonably request for the purpose of enabling the Obligor to exercise the
rights and powers that it is entitled to exercise pursuant to this Section 5.03(a)(ii).

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(iii)  If any Event of Default shall have occurred, then so long
as such Event of Default shall continue, and whether or not the Administrative
Agent or any Lender exercises any available right to declare any of the Secured
Obligations due and payable or seeks or pursues any other relief or remedy
available to it under applicable law or under this Agreement, any Loan Document
or any other agreement relating to the Secured Obligations, all dividends and
other distributions on the Stock Collateral shall be paid directly to the
Administrative Agent and retained by it in the Collateral Account as part of
the Pledged Collateral, subject to the terms of this Agreement, and, if the
Administrative Agent shall so request in writing, the Obligor agrees to execute
and deliver to the Administrative Agent appropriate additional dividend,
distribution and other orders and documents to that end, provided that
if such Event of Default is cured, any such dividend or distribution
theretofore paid to the Administrative Agent shall, upon request of the Obligor
(except to the extent theretofore applied to the Secured Obligations), be
returned by the Administrative Agent to the Obligor.

(iv)  All Stock Collateral in which the Obligor shall hereafter
grant a security interest pursuant to Section 3 shall be duly
authorized, validly existing, fully paid and non-assessable and none of the
Stock Collateral, including the Stock Collateral evidenced by the certificates
identified under the name of the Obligor in Annex 1, shall be subject to
any contractual restriction (except for any such restriction contained herein).

(b)  Big
Four Revenue Account. The Obligor shall provide irrevocable written  instructions (copies of which shall be
provided to the Administrative Agent) to each of the Big Four Companies to
deliver to the Big Four Revenue Account any cash or Permitted Investments
distributed, paid or otherwise transferred to the Obligor (the “Big Four Revenue”).

5.04         Credit
Agreement Event of Default, Etc. Upon the occurrence and during the
continuance of an Event of Default:

(a)  the
Obligor shall, at the request of the Administrative Agent assemble the Pledged
Collateral owned by it at such place or places, reasonably convenient to both
the Administrative Agent and the Obligor, designated in its request;

(b)  the
Administrative Agent may make any reasonable compromise or settlement deemed
desirable with respect to any of the Pledged Collateral and may extend the time
of payment, arrange for payment in installments, or otherwise modify the terms
of, any of the Pledged Collateral;

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(c)  the
Administrative Agent shall have all of the rights and remedies with respect to
the Pledged Collateral of a secured party under the UCC (whether or not the UCC
is in effect in the jurisdiction where the rights and remedies are asserted)
and such additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and remedies
hereunder may be asserted, and the right, to the maximum extent permitted by
law, to exercise all voting, consensual and other powers of ownership
pertaining to the Pledged Collateral as if the Administrative Agent were the
sole and absolute owner thereof (and the Obligor agrees to take all such action
as may be appropriate to give effect to such right);

(d)  the
Administrative Agent may, at the direction of the Required Lenders, in its name
or in the name of the Obligor or otherwise, demand, sue for, collect or receive
any money or property at any time payable or receivable on account of or in
exchange for any of the Pledged Collateral, but shall be under no obligation to
do so; and

(e)  the
Administrative Agent may, with respect to the Pledged Collateral or any part
thereof that shall then be or shall thereafter come into the possession,
custody or control of the Administrative Agent, any other Lender or any of
their respective agents, upon ten (10) Business Days’ prior written notice
to the Obligor of the time and place, sell, lease, assign or otherwise dispose
of all or any part of such Pledged Collateral, at such place or places as the
Administrative Agent deems best, and for cash or for credit or for future
delivery (without thereby assuming any credit risk or liability), at public or
private sale, without demand of performance or notice of intention to effect
any such disposition or of the time or place thereof (except as provided above
and such notice as is required above or by applicable statute that cannot be
waived), and upon such other terms as the Administrative Agent, at the
direction of the Required Lenders, may reasonably deem commercially reasonable,
and the Administrative Agent or any other Lender or anyone else may be the purchaser,
lessee, assignee or recipient of any or all of the Pledged Collateral so
disposed of at any public sale (or, to the extent permitted by law, at any
private sale) and thereafter hold the same absolutely, free from any claim or
right of whatsoever kind, including any right or equity of redemption
(statutory or otherwise), of the Obligor, any such demand, notice and right or
equity being hereby expressly waived and released. The Administrative Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the sale may be so adjourned.

The proceeds of
each collection, sale or other disposition under this Section 5.04
shall be applied in accordance with Section 5.08 hereto.

The Obligor
recognizes that, by reason of certain prohibitions contained in the Securities
Act of 1933, as amended, and applicable state securities laws, the Administrative
Agent may be compelled, with respect to any sale of all or any part of the
Pledged Collateral, to limit purchasers to those who will agree, among other
things, to acquire the Pledged Collateral for their own account, for investment
and not with a view to the distribution or resale thereof. The Obligor
acknowledges that any such private sales may be at prices and on terms less
favorable to the Administrative Agent than those obtainable through a public
sale without such restrictions. The parties hereto agree that any such private
sale shall be made in a commercially reasonable manner and that the
Administrative Agent shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Collateral for the period of time
necessary to permit the issuer thereof to register it for public sale.

 9
 

5.05         Deficiency. If the proceeds of
sale, collection or other realization of or upon the Pledged Collateral
pursuant to Section 5.04 are insufficient to cover the costs and
expenses of such realization and the payment in full of the Secured
Obligations, the Obligor shall remain liable for any deficiency to the extent
the Obligor is obligated under this Agreement.

5.06         Removals,
Etc. Without at least thirty (30) days’ prior written notice to the
Administrative Agent, the Obligor shall not (a) maintain any of its books
and records with respect to the Pledged Collateral at any office at any place
other than at the address indicated beneath its signature hereto or (b) change
its corporate name, or the name under which it does business, from the name
shown on the signature pages hereto.

5.07         Private Sale. The Administrative
Agent and the other Lenders  shall incur
no liability as a result of the sale of the Pledged Collateral, or any part thereof,
at any private sale pursuant to Section 5.04 conducted in a
commercially reasonable manner. The Obligor hereby waives any claims against
the Administrative Agent or any other Lender arising by reason of the fact that
the price at which the Pledged Collateral may have been sold at such a private
sale was less than the price that might have been obtained at a public sale or
was less than the aggregate amount of the Secured Obligations, even if the
Administrative Agent accepts the first offer received and does not offer the
Pledged Collateral to more than one offeree.

5.08         Application of Proceeds. Except
as otherwise herein expressly provided, the proceeds of any collection, sale or
other realization of all or any part of the Pledged Collateral pursuant hereto,
and any other cash at the time held by the Administrative Agent under Section 4
or this Section 5, shall be applied by the Administrative Agent:

First,
to the payment of the costs and expenses of such collection, sale or other
realization, including reasonable out-of-pocket costs and expenses
of the Administrative Agent and the fees and expenses of its agents and
counsel, and all expenses incurred and advances made by the Administrative
Agent in connection therewith;

Next,
to the payment in full of the Secured Obligations, in each case equally and
ratably in accordance with the respective amounts thereof then due and owing;
and

Finally,
to the payment to the Obligor, or its successors or assigns, or as a court of
competent jurisdiction may direct, of any surplus then remaining.

As used in this Section 5,
“proceeds” of Pledged Collateral means cash, securities and other property
realized in respect of, and distributions in kind of, Pledged Collateral,
including any thereof received under any reorganization, liquidation or
adjustment of debt of the Obligors or any issuer of or obligor on any of the
Pledged Collateral.

 10
 

5.09         Attorney-in-Fact. Without
limiting any rights or powers granted by this Agreement to the Administrative
Agent while no Event of Default has occurred and is continuing, upon the
occurrence and during the continuance of any Event of Default, the
Administrative Agent is hereby appointed the attorney-in-fact of the Obligor
for the purpose of carrying out the provisions of this Section 5 and
taking any action and executing any instruments that the Administrative Agent
may, at the direction of the Required Lenders, deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, so long as the Administrative Agent shall be entitled under this
Section 5 to make collections in respect of the Pledged Collateral,
the Administrative Agent shall have the right and power to receive, endorse and
collect all checks made payable to the order of the Obligor representing any
dividend, payment or other distribution in respect of the Pledged Collateral or
any part thereof and to give full discharge for the same.

5.10         Perfection. Prior to or
concurrently with the execution and delivery of this Agreement, the Obligor
shall deliver to the Administrative Agent (a) all certificates identified
in Annex 1, accompanied by undated stock powers duly executed in
blank, (b) a UCC-1 financing statement, for filing in each
jurisdiction requested by the Administrative Agent, at the direction of the
Required Lenders, naming the Obligor as debtor and the Administrative Agent as
secured party and (c) such documents as are necessary to grant the Administrative
Agent control of the Big Four Revenue Account (including an account control
agreement).

5.11         Termination. When the Credit
Agreement Termination Date shall have occurred, this Agreement shall terminate,
and the Administrative Agent shall forthwith cause to be assigned, transferred
and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Pledged Collateral and money received
in respect thereof, to or on the order of the Obligor. Upon the request, and at
the expense of the Obligor, the Administrative Agent shall execute and deliver
but without any recourse, warranty or representation whatsoever all such
documentation necessary to release the pledge created pursuant to this
Agreement.

5.12         Further Assurances. The Obligor
agrees that, from time to time upon the written request of the Administrative
Agent, the Obligor will execute and deliver such further documents and do such
other acts and things as the Administrative Agent, at the direction of the
Required Lenders, may reasonably request in order fully to effect the purposes
of this Agreement.

SECTION 6.         MISCELLANEOUS.

6.01         Notices. All notices, requests
and other communications provided for herein shall be given or made in writing
in the manner set forth in Section 10.2 of the Credit Agreement. Unless
otherwise changed in accordance with the Credit Agreement by the respective
parties hereto, all notices, requests and other communications to each party
hereto shall be sent to the address for notices of such party set forth on the
signature pages hereto.

 11
 

6.02         Delay and Waiver. No failure to
exercise, no course of dealing with respect to the exercise of, and no delay in
exercising, any right, power or remedy arising under this Agreement will impair
any such right, power or remedy or operate as a waiver hereof. No single or
partial exercise of any such right, power or remedy will preclude any other or
future exercise thereof or the exercise of any other right, power or remedy. The
remedies herein are cumulative and are not exclusive of any remedies provided
by law.

6.03         Amendments,
Etc. The terms of this Agreement may be waived, altered or amended only by
an instrument in writing duly executed by the Obligor and the Administrative
Agent (with the consent of the Required Lenders in accordance with the Credit
Agreement). Any such amendment or waiver shall be binding upon the
Administrative Agent and each other Lender, each holder of any of the Secured
Obligations and the Obligor.

6.04         Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the respective
successors and assigns of the Obligor, the Administrative Agent, each of the
other Lenders and each holder of any of the Secured Obligations (provided,
that the Obligor shall not assign or transfer its rights hereunder without the
prior written consent of the Administrative Agent).

6.05         Counterparts. This Agreement may
be executed in any number of counterparts, each of which when so executed and
delivered will be deemed an original, but all such counterparts together will
constitute but one and the same instrument.

6.06         Governing Law; Submission to
Jurisdiction. The internal law of the State of New York will govern and be
used to construe this Agreement without giving effect to applicable principles
of conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.

6.07         Headings. Section headings
herein have been inserted for convenience of reference only, are not to be
considered a part of this Agreement and will in no way modify or restrict any
of the terms or provisions hereof.

6.08         Agents and Attorneys-in-Fact. The
Administrative Agent may employ agents and attorneys-in-fact in connection
herewith and shall not be responsible or liable for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good
faith.

6.09         Severability. If any provision
of this Agreement is invalid, illegal or unenforceable in any respect or in any
jurisdiction, the validity, legality and enforceability of such provision in
all other respects and of all remaining provisions, and of such provision in
all other jurisdictions, will not in any way be affected or impaired thereby.

 

 12

 

 

IN WITNESS
WHEREOF, the parties hereto have caused this Security Agreement to be duly
executed and delivered as of the day and year first above written.

	
   

  	
   

  	
   

  	
   

  	
  EDISON MISSION ENERGY

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
  /s/Steven D. Eisenberg

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Name:    Steven
  D. Eisenberg

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Title:      Vice
  President and Associate

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
                
  General Counsel

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  18101 Von Karman Avenue

  
	
   

  	
   

  	
   

  	
   

  	
  Suite 1700

  
	
   

  	
   

  	
   

  	
   

  	
  Irvine, CA 92612

  
	
   

  	
   

  	
   

  	
   

  	
  Attention: General Counsel

  
	
   

  	
   

  	
   

  	
   

  	
  Telecopier No.: (949) 752-1420

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  CITICORP NORTH AMERICA, INC.,

  
	
   

  	
   

  	
   

  	
   

  	
  not in its individual capacity but solely as

  
	
   

  	
   

  	
   

  	
   

  	
  Administrative Agent

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Nietzsche Rodricks

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Name:    Nietzsche
  Rodricks

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Title:      Vice
  President

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  2 Penns Way

  
	
   

  	
   

  	
   

  	
   

  	
  New Castle, DE
  19720

  
	
   

  	
   

  	
   

  	
   

  	
  Attention: Lisa
  Rodriguez

  
	
   

  	
   

  	
   

  	
   

  	
  Telecopier No: (212) 994-0961

  

 

 

 

ANNEX 1

to Security Agreement

PLEDGED INTERESTS

 

	
  Issuer

  	
   

  	
  Certificate No.

  	
   

  	
  Registered Owner

  	
   

  	
  Number of Units

  	
   

  
	
  Silverado Energy
  Company

  	
   

  	
  1

  	
   

  	
  Edison Mission Energy

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Viejo Energy
  Company

  	
   

  	
  1

  	
   

  	
  Edison Mission Energy

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Anacapa Energy
  Company

  	
   

  	
  1

  	
   

  	
  Edison Mission Energy

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Del Mar Energy
  Company

  	
   

  	
  1

  	
   

  	
  Edison Mission Energy

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Edison Mission
  Holdings Co.

  	
   

  	
  2

  	
   

  	
  Edison Mission Energy

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Midwest
  Generation EME, LLC

  	
   

  	
  1

  	
   

  	
  Edison Mission Energy

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mission del
  Cielo, Inc.

  	
   

  	
  1

  	
   

  	
  Edison Mission Energy

  	
   

  	
  100Exhibit
10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is dated
as of June 19, 2006 (the “Agreement Date”) between DAVI SKIN, INC., a
Nevada corporation (“Company”) and THEODORE LANES (“Executive”).

WHEREAS, the Company desires to employ Executive as
its Chief Financial Officer upon the terms and subject to the conditions set
forth herein;

NOW, THEREFORE, in consideration of the premises and
the mutual agreements contained herein, the Company and Executive hereby agree
as follows:

ARTICLE 1

DEFINITIONS

The terms set forth below have the following meanings
(such meanings to be applicable to both the singular and plural forms, except
where otherwise expressly indicated):

1.1           “Accrued Bonus”
means the amount of any Initial Bonus and any Additional Bonus earned but not
yet paid with respect to the Year ended prior to the Date of Termination.

1.2           “Accrued Base Salary”
means the amount of Executive’s Base Salary which is accrued but not yet paid
as of the Date of Termination.

1.3           “Additional Bonus”
— see Section 4.3(a).

1.4           “Affiliate”
means any Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, the Company. For the purposes of this
definition, the term “control” when used with respect to any Person means the
power to direct or cause the direction of management or policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.

1.5           “Agreement” has
the meaning set forth in the preamble above.

1.6           “Agreement Date”
has the meaning set forth in the preamble above.

1.7           “Anniversary Date”
means any annual anniversary of the Agreement Date.

1.8           “Base Salary” —
see Section 4.1.

1.9           “Beneficiary” —
see Section 9.1.

1.10         “Board” means
the Board of Directors of the Company.

1.11         “Cause” means any of the following:

(a)           Executive’s conviction of a felony or
of a misdemeanor involving fraud, dishonesty or moral turpitude, or

 

(b)           Executive’s willful or intentional
material breach of this Agreement that results in financial detriment that is
material to the Company and its Affiliates taken as a whole, or

(c)           Executive’s willful or intentional
violation of any Company policy.

1.12         “Change of Control” mean any of the following events:

(a)           any person (as such term is used in Rule 13d-S
under the Exchange Act) or group (as such term is defined in Sections 3(a)(9) and
13(d)(3) of the Exchange Act), other than a Subsidiary or any employee
benefit plan (or any related trust) of the Company or a Subsidiary, becomes the
beneficial owner of 50% or more of the Common Stock or of securities of the
Company that are entitled to vote generally in the election of directors of the
Company (“Voting Securities”) representing 50% or more of the combined voting
power of all Voting Securities of the Company.

(b)           approval by the stockholders of the
Company of either of the following:

(i)            a merger, reorganization,
consolidation or similar transaction (any of the foregoing, a “Merger”) as a
result of which the Persons who were the respective beneficial owners of the
outstanding Common Stock and Voting Securities of the Company immediately
before such Merger are not expected to beneficially own, immediately after such
Merger, directly or indirectly, more than 50% of, respectively, the common
stock and the combined voting power of the Voting Securities of the corporation
resulting from such Merger in substantially the same proportions as immediately
before such Merger, or

(ii)           a plan of liquidation of the Company
or a plan or agreement for the sale or other disposition of all or
substantially all of the assets of the Company.

Notwithstanding the foregoing, there shall not be a
Change in Control if, in advance of such event, Executive agrees in writing
that such event shall not constitute a Change in Control.

1.13         “Code” means the
Internal Revenue Code of 1986, as amended from time to time.

1.14         “Common Stock”
means the common stock of the Company.

1.15         “Company” is
defined as set forth in the preamble of this Agreement.

1.16         “Compensation Committee”
means the compensation committee of the Board

1.17         “Date of Termination”
means the effective date of a Termination of Employment for any reason,
including death or Disability, whether by either of the Company or by
Executive.

1.18         “Disability”
means a mental or physical condition which, in the opinion of the Board,
renders Executive unable or incompetent to carry out the material job
responsibilities which such Executive held or the material duties to which
Executive was assigned at the time the disability was incurred, which has
existed for at least three months and which in the opinion of a physician
mutually agreed upon by the Company and Executive (provided that neither party
shall

 2
 

 

unreasonably withhold his agreement) is expected to be
permanent or to last for an indefinite duration or a duration in excess of six
months.

1.19         “Employment Period”
— see Section 3.1.

1.20         “Exchange Act”
means the Securities Exchange Act of 1934.

1.21         “Executive” has
the meaning set forth in the preamble above.

1.22         “Fair Market Value”
means, as of any date, (a) the average of the high and low prices of the
Common Stock on such date reported on The NASDAQ Stock Market (or, if no sale
of the Common Stock was reported for such date, on the next preceding date on
which such a sale of such security was reported), (b) if the Common Stock
is not listed on The NASDAQ Stock Market, but is listed on a national
securities exchange, the average of the high and low prices of the Common Stock
on such date reported by such exchange or, if (or, if no sale of the Common
Stock was reported for such date, on the next preceding date on which such a
sale of such security was reported), (c) if the Common Stock is not listed
on The NASDAQ Stock Market or any national securities exchange, the average of
the high bid and low asked quotations for the Common Stock on such date in the
over-the-counter market (or, if no quotation of the Common Stock was reported
for such date, on the next preceding date on which such a quotation of such
security was reported), or (d)if there is no public market for the Common
Stock, the fair market value of the Common Stock determined by the Compensation
Committee in the good faith exercise of its discretion.

1.23         “Good Reason” means the occurrence of any one or more of the
following events unless Executive specifically agrees in writing that such
event shall not be Good Reason:

(a)           any material breach of this Agreement
by the Company,

(b)           any material reduction in Executive’s
duties after a Change of Control.

1.24         “including”
means including without limitation.

1.25         “Initial Option”
— see Section 5.1.

1.26         “Option” means
an option to purchase shares of Common Stock.

1.27         “Option Term” —
see Section 5.2(d).

1.28         “Permitted Transferee”
means the spouse of Executive, a lineal descendant of Executive or a spouse of
a meal descendant of Executive or a trust, limited partnership or other entity
principally benefiting all or a portion of such individuals.

1.29         “Person” means
any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, entity or government instrumentality, division, agency,
body or department.

1.30         “Subsequent Options”
— see Section 5.1(a).

 3
 

 

1.31         “Subsidiary”
means, with respect to any Person, (a) any corporation of which more than
50% of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of
whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned by such Person, and (b) any
partnership in which such Person has a direct or indirect interest (whether in
the form of voting or participation in profits or capital contribution) of more
than 50%.

1.32         “Taxes” means
the incremental United States federal, state and local income, excise and other
taxes payable by Executive with respect to any applicable item of income.

1.33         “Termination For Good
Reason” means a Termination of Employment by Executive for a Good
Reason, whether during or after the Employment Period.

1.34         “Termination of Employment”
means a termination by the Company or by Executive of Executive’s employment by
the Company.

1.35         “Termination Without Cause”
means a Termination of Employment by the Company for any reason other than
Cause or Executive’s death or Disability, whether during or after the Employment
Period, including a Termination of Employment at the end of the Employment
Period after the Company’s giving a Notice of Non-Renewal.

1.36         “Triggering Transaction”
shall mean any transaction involving the issuance of equity or debt securities
resulting in aggregate net proceeds to the Company of more than Three Million
Dollars ($3,000,000).

1.37         “Withholding Taxes”
means any United States federal, state, local or foreign withholding taxes and
other deductions required to be paid in accordance with applicable law by
reason of compensation received pursuant to this Agreement.

1.38         “Year” means a
one-year period under this Agreement ending on any Anniversary Date.

ARTICLE 2

DUTIES

2.1           Duties. The
Company shall employ Executive during the Employment Period as its Chief
Financial Officer. During the Employment Period, Executive shall perform the
duties properly assigned to him hereunder, shall devote substantially all of
his business time, attention and effort to the affairs of the Company and shall
use his reasonable best efforts to promote the interests of the Company.

2.2           Other Activities.
Executive may serve on corporate, civic or charitable boards or committees,
deliver lectures, fulfill speaking engagements, teach at educational
institutions, or manage personal investments; provided that such activities do
not individually or in the aggregate significantly interfere with the
performance of his duties under this Agreement.

 4
 

 

ARTICLE 3

EMPLOYMENT PERIOD

3.1           Employment Period.
Subject to Section 3.2 and the termination provisions hereinafter
provided, the term of Executive’s employment under this Agreement (the “Employment
Period”) shall begin on the Agreement Date and end on the Anniversary Date
which is three (3) years after such date.

3.2           Extensions of Employment
Period. The Company and Executive may mutually agree to extend the
Employment Period. Absent such mutual extension, the Agreement shall terminate
at the end of the Employment Period.

ARTICLE 4

COMPENSATION

4.1           Salary. The
Company shall pay Executive an annual salary (the “Base Salary”) in accordance
with its normal payroll practices (but not less frequently than monthly) as
follows:

a.             An annual salary at a rate of $120,000 for the first
year of the Agreement,

b.             An annual salary at a rate of $132,000 for the second
year of the Agreement, and

c.             After the second Anniversary Date, the Base Salary shall
be reviewed by the Compensation Committee after consultation with Executive.

The Base Salary may from time to time be modified as determined by the
Compensation Committee. Any increase in Base Salary shall not limit or reduce
any other obligation of the Company to Executive under this Agreement as
provided hereunder.

4.2           Initial Bonus. In
addition to Base Salary, Executive shall be eligible to receive initial bonuses
(the “Initial Bonus”) in each of the first year and the second year of this
Agreement as follows:

a.             In the first year of the Agreement, Executive shall
receive an aggregate Initial Bonus of up to $18,000 payable in the following
increments on the condition that Executive performs the following duties:

i.              $4,000 upon timely filing of each of three (3) Form 10Qs
on behalf of the Company with the United States Securities and Exchange
Commission (“SEC”), each such payment to be made after the filing of each
respective Form 10Q for each quarter; and

ii.             $6,000 upon timely filing of the Form 10K
on behalf of the Company with the SEC and timely
filing of all tax returns of the Company, such payment to be made after the
filing of such Form 10K and such tax returns.

 5
 

 

b.             In the second year of the Agreement, Executive shall
receive an aggregate Initial Bonus of up to $19,800 payable in the following
increments on the condition that Executive performs the following duties:

i.              $4,500 upon timely filing of each of three (3) Form 10Qs
on behalf of the Company with the United States Securities and Exchange
Commission (“SEC”), each such payment to be made after the filing of each
respective Form 10Q for each quarter; and

ii.             $6,300 upon timely filing of the Form 10K
on behalf of the Company with the SEC and timely
filing of all tax returns of the Company, such payment to be made after the
filing of such Form 10K and such tax returns,

4.3           Signing Bonus. As
a signing bonus for executing this Agreement, the Company hereby grants
Executive options to purchase 10,000 shares of Common Stock, at an exercise
price equal to $1.00 per share. Such options granted under this Section 4.3
shall be exercisable immediately as of the Agreement Date. Executive shall be
solely and fully responsible for any taxes incurred by Executive as a result of
the grant of options under this Section 4.3.

4.4           Additional Bonus.

(a)           Executive shall be eligible to
receive an additional cash bonus (“Additional Bonus”) in accordance with the
terms hereof for each Year during the Employment Period, as determined in the
sole discretion of the Compensation Committee. Such Additional Bonus shall not
exceed 100% of Executive’s applicable Base Salary.

(b)           The Company shall pay the entire
Additional Bonus that is payable with respect to a Year in a lump-sum cash
payment as soon as practicable after the Compensation Committee determines to
grant Executive an Additional Bonus.

ARTICLE 5

STOCK OPTION GRANTS

5.1           Option Grants. As
an inducement to Executive to enter into this Agreement, in addition to the
options granted to Executive in Section 4.3, the Company hereby grants to
Executive, as of the Agreement Date, an Option to purchase 360,000 shares of
Common Stock (the “Initial Option”). The Compensation Committee may at any time
in its discretion consider Executive for possible future annual or other grants
of Options (such Options collectively, the “Subsequent Options”).

5.2           Terms and Conditions of Options.

(a)           The Initial Option and each
Subsequent Option (if any) shall be subject to the terms and conditions
specified in paragraphs (b) or (c) of this Section, respectively, and
shall also be subject to the terms and conditions specified in paragraph (d) of
this Section.

(b)           The Initial Option:

(i)            shall have an exercise price equal
to $1.00 per share; and

 6
 

 

(ii)           shall vest and become exercisable in
equal 30,000-share increments at the end of each calendar quarter during
the Term for so long as Executive remains employed by the Company (as set forth
in the table below); provided that
the Initial Option shall immediately vest in full and become fully exercisable
for all shares upon a Termination of Employment by reason of the death or
Disability, a Termination Without Cause, a Termination for Good Reason, a
Change of Control or upon a Triggering Transaction.

Vesting
Schedule for Initial Option

	
  Number of
  Shares Vesting

  	
   

  	
  Date of Vesting

  	
   

  	
  Total Unvested Shares

  
	
  30,000

  	
   

  	
  September 30,
  2006

  	
   

  	
  330,000

  
	
  30,000

  	
   

  	
  December 31,
  2006

  	
   

  	
  300,000

  
	
  30,000

  	
   

  	
  March 31,
  2007

  	
   

  	
  270,000

  
	
  30,000

  	
   

  	
  June 30,
  2007

  	
   

  	
  240,000

  
	
  30,000

  	
   

  	
  September 30,
  2007

  	
   

  	
  210,000

  
	
  30,000

  	
   

  	
  December 31,
  2007

  	
   

  	
  180,000

  
	
  30,000

  	
   

  	
  March 31,
  2008

  	
   

  	
  150,000

  
	
  30,000

  	
   

  	
  June 30,
  2008

  	
   

  	
  120,000

  
	
  30,000

  	
   

  	
  September 31,
  2008

  	
   

  	
  90,000

  
	
  30,000

  	
   

  	
  December 31,
  2008

  	
   

  	
  60,000

  
	
  30,000

  	
   

  	
  March 31,
  2009

  	
   

  	
  30,000

  
	
  30,000

  	
   

  	
  June 8,
  2009

  	
   

  	
  0

  

 

(c)           Each
Subsequent Option shall be granted on terms and conditions that are determined
by the Compensation Committee or pursuant to any equity issuance plan that may
be adopted by the Company.

(d)           The
Initial Option and each Subsequent Option:

(i)            shall have a term (the “Option Term”)
of 10 years;

(ii)           may be exercised after the Date of
Termination to the extent such Option was vested as of the Date of Termination,
and

 7
 

 

(iii)          shall not be transferable by Executive
during his lifetime except to a Permitted Transferee.

(e)           Manner of Exercise of
Option. Any Option or any part thereof shall be exercised by
Executive, his Permitted Transferee or, if after his death, a Beneficiary by a
written notice to the Company stating the number of shares of Common Stock with
respect to which the Option is being exercised and the form of payment of the
exercise price of the Option (cash or check) and any related Withholding Taxes.
The Company shall deliver the purchased shares of Common Stock promptly after
its receipt of notice of exercise and payment. The Company shall use its
reasonable best efforts to cause all shares of Common Stock issued upon the
exercise of Options to be registered or qualified under all applicable
securities laws so that all such shares of Common Stock shall be unrestricted
and freely transferable.

5.3           Adjustment of Options.
In the event of any change in the number or kind of outstanding shares of
Common Stock by reason of any recapitalization, reorganization, merger, consolidation,
stock split or any similar change affecting the Common Stock or the declaration
of a dividend payable in Common Stock, the Company shall make an appropriate
adjustment in the number of shares of Common Stock and exercise price
applicable to each Option so that, after such adjustment, the Option shall
represent a right to receive, upon payment of the same aggregate exercise price
as in effect immediately before such adjustment, the same consideration (or if
such consideration is not available, other consideration of the same value)
that Executive would have received in connection with such recapitalization,
reorganization, merger, consolidation, stock split, dividend payable in stock
or any similar change if he had owned on the applicable record date a number of
shares of Common Stock equal to the number of shares of Common Stock subject to
such Option prior to such adjustment.

ARTICLE 6

OTHER BENEFITS

6.1           Incentive, Savings and
Retirement Plans. In addition to Base Salary, any Initial Bonus and any
Additional Bonus, Executive shall be entitled to participate during the
Employment Period in all incentive (including equity incentive plans), savings
and retirement plans, practices, policies and programs that are from time to
time applicable to other senior executives of the Company.

6.2           Welfare Benefits.
During the Employment Period, Executive and/or his family, as the case may be,
shall be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the Company
(including medical, prescription, dental, disability, salary continuance,
employee life, group life, dependent life, accidental death and travel accident
insurance plans and programs) applicable to other senior executives of the
Company. Specifically, the Company shall provide medical insurance benefits to
Executive and Executive’s immediate family members at the Company’s expense.

6.3           Fringe Benefits.
During the Employment Period, Executive shall be entitled to all fringe
benefits that are from time to time available to other senior executives of the
Company.

 8
 

 

6.4           Vacation. During
the Employment Period, Executive shall be entitled to paid vacation time in
accordance with the plans, practices, policies, and programs applicable to
other senior executives of the Company, but in no event shall such vacation
time be less than three (3) weeks per calendar year, subject to a maximum
aggregate accrual of eight (8) weeks during Executive’s employment with
the Company.

6.5           Expenses. During
the Employment Period, Executive shall be entitled to receive prompt
reimbursement for all reasonable employment-related expenses incurred by
Executive upon the receipt by the Company of accounting of such expenses in
accordance with practices, policies and procedures applicable to other senior
executives of the Company; provided, that
all such expenses must be pre-approved by the Company prior to being incurred
to be reimbursable hereunder.

ARTICLE 7

TERMINATION BENEFITS

7.1           Termination for Cause or
Other Than for Good Reason. If the Company terminates Executive’s
employment for Cause or Executive terminates his employment other than for Good
Reason, death or Disability, the Company shall pay to Executive immediately
after the Date of Termination an amount equal to the sum of Executive’s Accrued
Base Salary and Accrued Bonus.

7.2           Termination for Death or
Disability. If Executive’s employment terminates during the
Employment Period due to his death or Disability, the Company shall pay to
Executive or his Beneficiaries, as the case may be, immediately after the Date
of Termination an amount which is equal to the sum of Executive’s Accrued Base
Salary and Accrued Bonus.

7.3           Termination Without Cause
or for Good Reason. In the event of a Termination Without Cause or a
Termination for Good Reason (whether during of after the Employment Period),
Executive shall receive the following:

(a)           immediately after the Date of
Termination, a lump-sum amount in immediately available funds equal to the sum
of Executive’s Accrued Base Salary and Accrued Bonus;

(b)           immediately after the Date of
Termination, a lump-sum amount in immediately available funds equal to the
product of (i) Executive’s applicable Base Salary, multiplied by one-third
(1/3) if the Date of Termination is between six (6) months and twelve (12)
months after the Agreement Date, and (ii) applicable Base Salary,
multiplied by one-half (1/2) if the Date of Termination is after the first
Anniversary Date;

(c)           the continuation of the benefits
specified in Section 6.2 to which Executive is entitled as of the Date of
Termination for (i) four (4) months after the Date of Termination if
the Date of Termination occurs after the first six (6) months of this
Agreement but on or before the first Anniversary Date, and (ii) for six (6) months
after the Date of Termination if the Date of Termination occurs after the first
Anniversary Date.

 9
 

 

7.4           Other Termination Benefits.
In addition to any amounts or benefits payable upon a Termination of Employment
hereunder, Executive shall, except as otherwise specifically provided herein,
be entitled to any payments or benefits provided hereunder or under the terms
of any plan, policy or program of the Company or as otherwise required by
applicable law.

ARTICLE 8

RESTRICTIVE COVENANTS

8.1           Non-Solicitation of
Employees; Confidentiality; Non-Competition.

(a)           Executive covenants and agrees that,
at no time during the Employment Period for each of (i), (ii), (iii) and (iv) below
and during the one-year period immediately following a Termination of
Employment for each of (i) and (iv) below, will Executive:

(i)            directly or indirectly employ or
seek to employ any person employed at that time by the Company or any of its
Subsidiaries or otherwise encourage or entice any such person to leave such
employment;

(ii)           become employed by, enter into a
consulting arrangement with or otherwise agree to perform personal services for
a Competitor (as defined in Section 8.1(b));

(iii)          acquire an ownership interest in a
Competitor, or

(iv)          solicit any customers or vendors of
the Company on behalf of or for the benefit of a Competitor.

(b)           For purposes of this Section, “Competitor”
means any Person which sells goods or services which are directly competitive
with those sold by a business that (i) is being conducted by the Company
or any Subsidiary of the Company at the time in question and at the Date of
Termination.

(c)           Executive covenants and agrees that
at no time during the Employment Period nor at any time following any
Termination of Employment will Executive communicate, furnish, divulge or
disclose in any manner to any Person any Confidential Information (as defined
in Section 8.1(d)) without the prior express written consent of the
Company. After a Termination of Employment, Executive shall not, without the
prior written consent of the Company, or as may otherwise be required by law or
legal process, communicate or divulge such Confidential Information to anyone
other than the Company and its designees.

(d)           For purposes of this Section, ‘Confidential
Information” shall mean financial information about the Company, contract terms
with vendors and suppliers, customer and supplier lists and data, trade
secrets, business plans and strategies and such other competitively-sensitive
information to which Executive has access as a result of his positions with the
Company, except that Confidential Information shall not include any information
which was or becomes generally available to the public (i) other than as a
result of a wrongful disclosure by Executive, (ii) as a result of
disclosure by Executive during the Employment Period which he reasonably and in
good faith believes is required by the performance of his duties under this
Agreement, or (iii) any information compelled to be disclosed by
applicable law

 10
 

 

or administrative regulation; provided that Executive,
to the extent not prohibited from doing so by applicable law or administrative
regulation, shall give the Company written notice of the information to be so
disclosed pursuant to clause (iii) of this sentence as far in advance
of  its disclosure as is practicable.

8.2           Injunction. Executive
acknowledges that monetary damages will not be an adequate remedy for the
Company in the event of a breach of this Article 8, and that it would be
impossible for the Company to measure damages in the event of such a breach. Therefore,
Executive agrees that, in addition to other rights that the Company may have,
the Company is entitled to an injunction preventing Executive from any breach
of this Article 8.

ARTICLE 9

MISCELLANEOUS

9.1           Beneficiary. If
Executive dies prior to receiving all of the amounts payable to him in
accordance with the terms of this Agreement, such amounts shall be paid to one
or more beneficiaries (each, a “Beneficiary”) designated by Executive in writing
to the Company during his lifetime, or if no such Beneficiary is designated, to
Executive’s estate. Such payments shall be made in a lump sum to the extent so
payable and, to the extent not payable in a lump sum, in accordance with the
terms of this Agreement. Executive, without the consent of any prior
Beneficiary, may change his designation of Beneficiary or Beneficiaries at any
time or from time to time by a submitting to the Company a new designation in
writing.

9.2           Assignment: Successors.
Neither party may assign his or its rights and obligations under this Agreement
without the prior written consent of the other party, except that Company may
assign this Agreement to a successor of the Company’s business which expressly
assumes the Company’s obligations hereunder in writing. This Agreement shall be
binding upon and inure to the benefit of Executive, his estate and
Beneficiaries, the Company and the successors and permitted assigns of the
Company.

9.3           Severability. If
one or more parts of this Agreement are declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity shall not
invalidate any part of this Agreement not declared to be unlawful or invalid. Any
part so declared to be unlawful or invalid shall, if possible, be construed in
a manner which will give effect to the terms of such part to the fullest extent
possible while remaining lawful and valid.

9.4           Captions. The
names of the Articles and Sections of this Agreement or for convenience of
reference only and do not constitute a part hereof.

9.5           Amendment: Waiver.
This Agreement shall not be amended or modified except by written instrument
executed by the Company and Executive. A waiver of any term, covenant or
condition contained in this Agreement shall not be deemed a waiver of any other
term, covenant or condition, and any waiver of any default in any such term,
covenant or condition shall not be deemed a waiver of any later default
thereof.

9.6           Notices. All
notices hereunder shall be in writing and delivered by hand, by
nationally-recognized delivery service that guarantees overnight delivery, or
by first-class, registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:

 11
 

 

 

	
  If to the Company, to:

  	
   

  	
  Davi Skin, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Buchalter Nemer

  
	
   

  	
   

  	
  A Professional Corporation

  
	
   

  	
   

  	
  1000 Wilshire Boulevard, Suite 1500

  
	
   

  	
   

  	
  Los Angeles, CA 90017-2457

  
	
   

  	
   

  	
  Attn: Donald S. Lee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  If to Executive,
  to:

  	
   

  	
  Theodore Lanes

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

Either party may from time to time designate a new
address by notice given in accordance with this Section. Notice shall be
effective when actually received by the addressee.

9.7           Counterparts. This
Agreement may be executed in several counterparts, each of which shall be
deemed to be an original but all of which together will constitute one and the
same instrument.

9.8           Entire Agreement.
This Agreement forms the entire agreement between the parties hereto with respect
to the subject matter contained in this Agreement and, except as otherwise
provided herein, shall supersede all prior agreements, promises and
representations regarding employment, compensation, severance or other payments
contingent upon termination of employment, whether in writing or otherwise.

9.9           Applicable Law.
This Agreement shall be interpreted and construed in accordance with the laws
of the State of California, without regard to its choice of law principles.

9.10         Survival. The
provisions of Articles 7, 8 and 9 shall survive termination of this
Agreement.

 12
 

 

IN WITNESS WHEREOF, the
parties have executed this Agreement on the date first above written.

 

	
  

  	
  “COMPANY”

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DAVI SKIN, INC.,

  a Nevada corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “EXECUTIVE”

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THEODORE LANES

  	
   

  
						

 

 

 13

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