Document:

ex10_3.htm

Exhibit 10.3

 

 

GUARANTY

 

This GUARANTY (the “Guaranty”), dated as of February 24, 2011, is executed and delivered by Eagle Domestic Drilling Operations LLC (“Eagle”), and Blast AFJ, Inc. (“Blast AFJ”; Eagle and Blast AFJ, collectively, the “Guarantors” and each, individually, a “Guarantor”) in favor of XXXXXXXXX, in its capacity as the Investor under the Purchase Agreement (as defined below) and as Secured Party under the Security Agreement (as defined below) (in such capacities, and together with its successors, transferees and assigns, the “Secured Party”).

 

W I T N E S S E T H:

WHEREAS, each Guarantor is a wholly owned subsidiary of Blast Energy Services, Inc. (the “Issuer”); and

 

WHEREAS, in accordance with that certain Note Purchase Agreement of even date herewith (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”) between the Issuer and the Secured Party, the Secured Party has agreed to purchase notes from the Issuer in an amount up to $2,522,111.11 (the “Loan”); and

 

WHEREAS, in order to induce the Secured Party to enter into the Purchase Agreement and to extend the Loan to Issuer pursuant to the Purchase Agreement, and in consideration thereof, each Guarantor has agreed to jointly and severally guaranty the Guarantied Obligations (as defined below) and execute and deliver this Guaranty; and

 

WHEREAS, the aforesaid Loan will be beneficial to the Guarantors inasmuch as the proceeds of the Loan to the Issuer will indirectly benefit the Guarantors.

 

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by Guarantors, Guarantors hereby agree as follows:

 

1. Guaranty of Payment and Performance.  Each Guarantor hereby jointly and severally, irrevocably and unconditionally guarantees to the Secured Party the full and punctual payment when due (whether at maturity, pursuant to a mandatory prepayment requirement, by acceleration or otherwise and whether for principal, interest (including all interest that accrues after the commencement of any Insolvency Proceeding (as defined in the Security Agreement) irrespective of whether a claim therefor is allowed in such case or proceeding), fees, expenses or otherwise), and the performance, of all liabilities, agreements and other obligations of the Issuer to the Secured Party, in each case, whether direct or indirect, absolute or contingent, due or to become due, secured or unsecured, now existing or hereafter arising or acquired (whether by way of discount, letter of credit, lease, loan, overdraft or otherwise), including without limitation all Obligations (as defined in the Security Agreement) and any other obligations under the Purchase Agreement, the Notes and other Transaction Documents (collectively, the “Guarantied Obligations”).  This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance of the Guarantied Obligations and not of their collectibility only and is in no way conditioned upon any requirement that the Secured Party first attempts to collect any of the Guarantied Obligations from the Issuer or resort to any security or other means of obtaining their payment.  Should the Issuer default in the payment or performance of any of the Guarantied Obligations, the obligations of each Guarantor hereunder shall become immediately due and payable to the Secured Party, without demand or notice of any nature, all of which are expressly waived by the Guarantors.  Payments by the Guarantors hereunder may be required by the Secured Parties on any number of occasions.

 

 

  

  

  

 

2. Guarantors’ Agreement to Pay.  Each Guarantor further agrees, as the principal obligor and not as a guarantor only, to pay to the Secured Party, on demand, all costs and expenses (including court costs and reasonable legal expenses) incurred or expended by the Secured Party in connection with enforcement of this Guaranty, together with interest on amounts recoverable under this Guaranty from the time such amounts become due under this Guaranty until payment, at the rate per annum equal to the default rate set forth in the Notes; provided that if such interest exceeds the maximum amount permitted to be paid under applicable law, then such interest shall be reduced to such maximum permitted amount.

 

3. Unlimited Guaranty; Covenant.  The liability of each Guarantor hereunder shall be unlimited to the extent of the Guarantied Obligations and the other obligations of the Guarantors hereunder (including, without limitation, under Section 2 above).

 

4. Waivers by Guarantors; Secured Party’s Freedom to Act.  Each Guarantor agrees that the Guarantied Obligations will be paid and performed strictly in accordance with their terms regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Secured Party with respect thereto.  Each Guarantor waives presentment, demand, protest, notice of acceptance, notice of Guarantied Obligations incurred and all other notices of any kind, all defenses which may be available to the Issuer by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshalling of assets of the Issuer, and all suretyship defenses generally. Without limiting the generality of the foregoing, each Guarantor agrees to the provisions of any instrument evidencing, securing or otherwise executed in connection with any Obligation and agrees that the obligations of each Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by (i) the failure of any Secured Party to assert any claim or demand or to enforce any right or remedy against the Issuer; (ii) any extensions, renewals, increases, restatements, replacements, settlements or compromises of any Obligation; (iii) any rescissions, forbearances, waivers, amendments or modifications of any of the terms or provisions of any agreement evidencing, securing or otherwise executed in connection with any Obligation; (iv) the substitution or release of any entity primarily or secondarily liable for any Obligation or of any property or asset subject to a Lien in favor of Secured Party; (v) the adequacy of any rights Secured Party may have against any collateral or other means of obtaining repayment of the Guarantied Obligations; (vi) the impairment of any collateral securing the Guarantied Obligations, including without limitation the failure to perfect or preserve any rights Secured Party might have in such collateral or the substitution, exchange, surrender, release, loss or destruction of any such collateral; or (vii) any other act or omission which might in any manner or to any extent vary the risk of such Guarantor or otherwise operate as a release or discharge of Issuer or any other guarantor, all of which may be done without notice to such Guarantor.

 

 

  

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5. Unenforceability of Obligations Against Issuer.  If for any reason the Issuer has no legal existence or is under no legal obligation to discharge any of the Guarantied Obligations, or if any of the Guarantied Obligations have become irrecoverable from the Issuer by operation of law or for any other reason, this Guaranty shall nevertheless be binding on each Guarantor to the same extent as if such Guarantor at all times had been the principal obligor on all such Guarantied Obligations. In the event that acceleration of the time for payment of the Guarantied Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Issuer, or for any other reason, all such amounts otherwise subject to acceleration under the terms of any agreement evidencing, securing or otherwise executed in connection with any Obligation shall be immediately due and payable by the Guarantors.

 

6. Subrogation; Subordination.  Until the payment and performance in full of all Guarantied Obligations, no Guarantor shall exercise any rights against the Issuer arising as a result of payment by such Guarantor hereunder, by way of subrogation or otherwise, (the Secured Party having no duty or obligation to take any action at any time to protect or preserve any right of subrogation) and will not prove any claim in competition with Secured Party or its affiliates in respect of any payment hereunder in bankruptcy or insolvency proceedings of any nature; no Guarantor will claim any set-off or counterclaim against the Issuer in respect of any liability of such Guarantor to the Issuer; and each Guarantor waives any benefit of and any right to participate in any collateral which may be held by Secured Party.  The payment of any amounts due with respect to any indebtedness of the Issuer now or hereafter held by any Guarantor is hereby subordinated to the prior payment in full of the Guarantied Obligations.  Each Guarantor agrees that after the occurrence of any default in the payment or performance of the Guarantied Obligations, after the expiration of any applicable grace period, if any, it will not demand, sue for or otherwise attempt to collect after such time any such indebtedness of the Issuer to such Guarantor until the Guarantied Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, any Guarantor shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Guarantor as trustee for the Secured Party and be paid over to the Secured Party on account of the Guarantied Obligations without affecting in any manner the liability of the Guarantors under the other provisions of this Guaranty.

 

7. Further Assurances.  Each Guarantor agrees to do all such things and execute all such documents, as the Secured Party may consider reasonably necessary or desirable to give full effect to this Guaranty and to perfect and preserve the rights and powers of the Secured Party hereunder.

 

8. Termination; Reinstatement.  This Guaranty shall remain in full force and effect until the Guarantied Obligations are paid in full and not subject to any recapture or preference in bankruptcy or similar proceedings.  This Guaranty shall continue to be effective or be reinstated if at any time any payment made or value received with respect to an Obligation is rescinded or must otherwise be returned by Secured Party upon the insolvency, bankruptcy or reorganization of the Issuer, or otherwise, all as though such payment had not been made or value received.

 

 

  

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9. Successors and Assigns.  This Guaranty shall be jointly and severally binding upon each Guarantor, its respective successors and assigns, and shall inure to the benefit of and be enforceable by the Secured Party and its successors, transferees and assigns.  The Secured Party may assign or otherwise transfer any agreement or any note held by it evidencing, securing or otherwise executed in connection with the Guarantied Obligations, or sell participations in any interest therein, to any other person or entity, and such other person or entity shall thereupon become vested, to the extent set forth in the agreement evidencing such assignment, transfer or participation, with all the rights in respect thereof granted to the Secured Party herein.

 

10. Amendments and Waivers.  No amendment or waiver of any provision of this Guaranty or consent to any departure by any Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Secured Party.  No failure on the part of the Secured Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.

 

11. Notices.  All notices and other communications called for hereunder shall be made in writing and, unless otherwise specifically provided herein, shall be deemed to have been duly made or given when delivered by hand or mailed first class mail postage prepaid or, in the case of telegraphic or telexed notice, when transmitted, answer back received, addressed as follows: if to the Guarantors, at the address set forth in the Purchase Agreement for the Issuer, and if to the Secured Party, at the address set forth in the Purchase Agreement.

 

12. Governing Law; Consent to Jurisdiction.  This Guaranty shall be governed by, and construed in accordance with, the laws of the State of New York without reference to its conflicts of laws provisions.  Each Guarantor agrees that any suit for the enforcement of this Guaranty may be brought in the courts of the State of New York or any federal court sitting therein and consents to the non-exclusive jurisdiction of such court and to service of process in any such suit being made upon such Guarantor by mail at the address specified in Section 11 hereof.  Each Guarantor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit was brought in an inconvenient court.  Any enforcement action relating to this Guaranty may be brought by motion for summary judgment in lieu of a complaint pursuant to Section 3213 of the New York Civil Practice Law and Rules.

 

13. WAIVER OF JURY TRIAL.  EACH GUARANTOR AND, BY ITS ACCEPTANCE OF THIS GUARANTY, THE SECURED PARTY, HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF: (A) THIS GUARANTY OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED IN CONNECTION WITH THE OBLIGATIONS; (B) THE VALIDITY, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF; OR (C) ANY OTHER CLAIM OR DISPUTE HOWEVER ARISING BETWEEN ANY GUARANTOR AND THE SECURED PARTY.

 

14. Certain References.  All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person, persons, entity or entities may require.  The terms “herein”, “hereof” or “hereunder” or similar terms used in this Guaranty refer to this entire Guaranty and not only to the particular provision in which the term is used.  Capitalized Terms used but not defined herein shall have the meaning ascribed to such terms in the Purchase Agreement.

 

 

  

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15. Miscellaneous.  This Guaranty, together with the Security Agreement executed and delivered by the Guarantors as of the date hereof to the Secured Parties (the “Security Agreement”), constitutes the entire agreement of the Guarantors with respect to the matters set forth herein.  The rights and remedies herein provided are cumulative and not exclusive of any remedies provided by law or any other agreement, and this Guaranty shall be in addition to any other guaranty of the Obligations.  The invalidity or unenforceability of any one or more sections of this Guaranty shall not affect the validity or enforceability of its remaining provisions. Captions are for the ease of reference only and shall not affect the meaning of the relevant provisions.  The meanings of all defined terms used in this Guaranty shall be equally applicable to the singular and plural, masculine, feminine and generic forms of the terms defined.

 

  

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IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed and delivered as of the date appearing in the introductory paragraph of this Guaranty.

	
EAGLE DOMESTIC DRILLING OPERATIONS LLC

	
By:

	
/s/ Michael L. Peterson

	  	
Name: Michael L. Peterson

	  	
Title: President

	  
	
BLAST AFJ, INC.

	
By:

	
/s/ Michael L. Peterson

	  	
Name: Michael L. Peterson

	  	
Title: Presidentex10_4.htm

Exhibit 10.4

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT (this “Agreement”), dated as of February 24, 2011, among the Grantor(s) listed on the signature pages hereof and those additional entities that hereafter become parties hereto by executing the form of Supplement attached hereto as Annex 1 (collectively, jointly and severally, the “Grantors” and each, individually, a “Grantor”), and XXXXXXXXX (together with its successors and assigns, the “Secured Party”).

 

 

W I T N E S S E T H:

 

WHEREAS, the Secured Party is the holder of that certain Senior Secured Promissory Note bearing even date herewith in the principal amount of $2,250,000 (together with any and all promissory notes issued by Blast Energy Services, Inc. (the “Company”) after the date hereof pursuant to the Purchase Agreement (as defined below), collectively and each individually, the “Note”) issued or to be issued by the Company pursuant to the terms of the Note Purchase Agreement dated as of the date hereof (as amended, amended and restated, supplemented, or otherwise modified from time to time, the “Purchase Agreement”) by and between the Company and the Secured Party, and

 

WHEREAS, pursuant to the terms and conditions of the Purchase Agreement, the Secured Party has agreed to extend loans to the Company, repayment of which is evidenced by the Note, and

 

WHEREAS, in order to induce Secured Party to enter into the Purchase Agreement and other Transaction Documents and to extend the loans pursuant to the Purchase Agreement, each of Eagle Domestic Drilling Operations LLC (“Eagle”), and Blast AFJ, Inc. (“Blast AFJ”; Eagle and Blast AFJ, collectively, the “Guarantors” and each, individually, a “Guarantor”) have agreed to jointly and severally guaranty the obligations of the Company to the Secured Party pursuant to that certain Guaranty dated as of the date hereof (as amended, amended and restated, supplemented, or otherwise modified from time to time, the “Guaranty”) executed by the Guarantors in favor of the Secured Party, and

 

WHEREAS, in order to induce Secured Party to enter into the Purchase Agreement and other Transaction Documents and to extend the loans pursuant to the Purchase Agreement, the Grantors have agreed to execute and deliver to the Secured Party this Agreement and other collateral documents and to grant the Secured Party a continuing security interest in and to the Collateral in order to secure the prompt and complete payment, observance and performance of, among other things, the Secured Obligations, and

 

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

 

 

  

  

  

 

1. Defined Terms. All capitalized terms used herein (including in the preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the Note, or if not expressly defined in the Note, then in the Purchase Agreement.  Any terms used in this Agreement that are defined in the Code (whether or not capitalized) shall be construed and defined as set forth in the Code unless otherwise defined herein or in Note or the Purchase Agreement; provided, however, that if the Code is used to define any term used herein and if such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern. In addition to those terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings:

 

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

 

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

 

(c)  “Books” means books and records (including each Grantor’s Records indicating, summarizing, or evidencing such Grantor’s assets (including the Collateral) or liabilities, each Grantor’s Records relating to such Grantor’s business operations or financial condition, and each Grantor’s goods or General Intangibles related to such information).

 

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

 

(e) “Closing Date” has the meaning specified therefor in the Purchase Agreement.

 

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

 

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

 

(h) “Commercial Tort Claims” means commercial tort claims (as that term is defined in the Code), and includes those commercial tort claims listed on Schedule 10 attached hereto.

 

(i) “Company” has the meaning specified therefor in the recitals to this Agreement.

 

(j) “Copyrights” means copyrights and copyright registrations, and also includes (i) the copyright registrations and applications listed on Schedule 2 attached hereto and made a part hereof (as the same may be amended or modified from time to time), (ii) all extensions or renewals thereof, (iii) all income, royalties, damage awards and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements thereof, (iv) the right to sue for past, present and future infringements thereof, and (v) all of each Grantor’s rights corresponding thereto throughout the world.

 

 

  

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

 

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

 

(m) “Event of Default” has the meaning specified therefor in the Note.

 

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

 

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

 

(p) “Grantor” and “Grantors” have the meanings specified therefor in the recitals to this Agreement.

 

(q) “Guarantor” has the meaning specified therefor in the recitals to this Agreement.

 

(r) “Guaranty” has the meaning specified therefor in the recitals to this Agreement.

 

(s) “Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of title 11 of the United States Code, as in effect from time to time, or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement or other similar relief.

 

 

  

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

 

(u) “Intellectual Property Licenses” means rights under or interests in any patent, trademark, copyright or other intellectual property, including software license agreements with any other party, whether the applicable Grantor is a licensee or licensor under any such license agreement, including the license agreements listed on Schedule 3 attached hereto and made a part hereof.

 

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

 

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

 

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

 

(y) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing, of any Grantor to the Secured Party under this Agreement, the Note, the Purchase Agreement, the Guaranty, the other Transaction Documents, and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Secured Party as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time.  Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on, the Note and the loans extended pursuant thereto (including any interest that accrues after the commencement of an Insolvency Proceeding regardless of whether allowed or allowable in whole or in part as a claim in such Insolvency Proceeding); (ii) any and all other fees, legal fees and other expenses, indemnities, costs, obligations and liabilities of the Grantors from time to time under or in connection with this Agreement, the Note, the Purchase Agreement, the Guaranty, the other Transaction Documents, and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; (iii) payment of the Major Transaction Prepayment Price (as defined in the Note), and (iv) all amounts in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Grantor.  Any reference in this Agreement or in the Transaction Documents to the Obligations shall include all or any portion thereof and any extensions, modifications, renewals or alterations thereof, both prior and subsequent to any Insolvency Proceeding.

 

 

  

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(z) “Organizational Documents” means, with respect to each Grantor, the documents by which such Grantor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Grantor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

 

(aa) “Patents” means patents and patent applications, and also includes (i) the patents and patent applications listed on Schedule 4 attached hereto and made a part hereof (as the same may be amended or modified from time to time), (ii) all divisions, continuations, continuations-in-part, reissues and extensions thereof, (iii) all income, royalties, damage awards and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements thereof, (iv) the right to sue for past, present and future infringements thereof, and (v) all of each Grantor’s rights corresponding thereto throughout the world.

 

(bb) “Patent Security Agreement” means each Patent Security Agreement among Grantors, or any of them, and Secured Party in substantially the form of Exhibit A attached hereto, pursuant to which Grantors have granted to Secured Party a security interest in all their respective Patents.

 

(cc) “Permitted Encumbrances” has the meaning specified therefor in the Purchase Agreement.

 

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

 

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

 

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

 

 

  

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(gg) “Pledged Interests Addendum” means a Pledged Interests Addendum substantially in the form of Exhibit B to this Agreement.

 

(hh) “Pledged Operating Agreements” means all of each Grantor’s rights, powers, and remedies under the limited liability company operating agreements of each of the Pledged Companies that are limited liability companies.

 

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

 

(jj) “Purchase Agreement” has the meaning specified therefor in the recitals to this Agreement.

 

(kk) “Real Property” means any estates or interests in real property, including Oil and Gas Properties, now owned or hereafter acquired by any Grantor and the improvements thereto.

 

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

 

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

 

(nn) “Secured Obligations” means each and all of the following: (a) all of the present and future obligations of Grantors arising from this Agreement, the Note, the Purchase Agreement, the Guaranty or the other Transaction Documents, and (b) all Obligations of the Company or any Guarantor, including, in the case of each of clauses (a) and (b), reasonable attorneys fees and expenses and any interest, fees, or expenses that accrue after the filing of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any Insolvency Proceeding.

 

(oo) “Secured Party’s Liens” means the Liens granted by the Grantors to Secured Party under the Transaction Documents.

 

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

 

(qq) “Stock” means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Commission under the Exchange Act).

 

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

 

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

 

 

  

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

 

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

 

2. Grant of Security.  Each Grantor hereby unconditionally grants, assigns, and pledges to Secured Party a continuing security interest (herein referred to as the “Security Interest”) in all personal property, tangible or intangible, of such Grantor whether now owned or hereafter acquired or arising and wherever located, including such Grantor’s right, title, and interest in and to the following, whether now owned or hereafter acquired or arising and wherever located (the “Collateral”):

 

(a) all of such Grantor’s Accounts;

 

(b) all of such Grantor’s Books;

 

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

 

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

 

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

 

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

 

(g) all of such Grantor’s Inventory;

 

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

 

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

 

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

 

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

 

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

 

 

  

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

 

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

 

4. Grantors Remain Liable.  Anything herein to the contrary notwithstanding, (a) each of the Grantors shall remain liable under the contracts and agreements included in the Collateral, including the Pledged Operating Agreements, to perform all of the duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under such contracts and agreements included in the Collateral, and (c) Secured Party shall not have any obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of any Grantors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.  Until an Event of Default shall occur and be continuing, except as otherwise provided in this Agreement, the Note, the Purchase Agreement, or other Transaction Documents, Grantors shall have the right to possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of their respective businesses, subject to and upon the terms hereof and of the Note, the Purchase Agreement and the other Transaction Documents.  Without limiting the generality of the foregoing, it is the intention of the parties hereto that record and beneficial ownership of the Pledged Interests, including all voting, consensual, and dividend rights, shall remain in the applicable Grantor until Secured Party, after the occurrence and during the continuance of an Event of Default, shall exercise its voting, consensual, or dividend rights with respect to the Pledged Interests pursuant to Section 15 hereof.

 

 

  

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

 

(a) The exact legal name, jurisdiction of incorporation, organization or formation, organizational identification number, if any, and chief executive officer of each of the Grantors is set forth on Schedule 1  attached hereto.  No Grantor has trade names except as set forth on Schedule 1 attached hereto.  No Grantor has used any name other than that as set forth on Schedule 1 for the preceding five years.  No entity has merged into any Grantor or been acquired by any Grantor within the past five years except as set forth on Schedule 1.

 

(b) Schedule 7 attached hereto sets forth all Real Property owned or leased by Grantors as of the Closing Date.

 

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

 

(d) Each Grantor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and the other Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Grantor of this Agreement and the filings contemplated herein and the other Transaction Documents to which it is a party have been duly authorized by all necessary action on the part of such Grantor and no further action is required by such Grantor.  This Agreement and the other Transaction Documents to which it is a party has been duly executed by each Grantor.  This Agreement and the other Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of each Grantor, enforceable against such Grantor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

 

(e) No written claim has been received by any Grantor that any Collateral or any Grantor’s use of any Collateral violates the rights of any third party. There has been no adverse decision to any Grantor’s claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to such Grantor’s right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of such Grantor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

 

  

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(f) Each Grantor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business (except when temporarily kept at the offices of its attorneys or accountants) and its Collateral at the locations set forth on Schedule 7 attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to Secured Party at least thirty (30) days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the Code and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of Secured Party, subject to Permitted Encumbrances, a valid, perfected and continuing perfected first priority lien in the Collateral.

 

(g) The execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party by each Grantor do not (i) violate any of the provisions of the Organizational Documents of any Grantor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Grantor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing such Grantor’s debt or otherwise) or other understanding to which any Grantor is a party or by which any property or asset of any Grantor is bound or affected, except, in all cases, for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect. If any, all required consents (including, without limitation, from stockholders or creditors of the Grantor) necessary for the Grantor to enter into and perform its obligations hereunder have been obtained.

 

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

 

  

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(i) (i) Except for the Security Interest created hereby, each Grantor is and will at all times be the sole holder of record and the legal and beneficial owner, free and clear of all Liens other than Permitted Encumbrances, of the Pledged Interests indicated on Schedule 5 as being owned by such Grantor and, when acquired by such Grantor, any Pledged Interests acquired after the Closing Date; (ii) all of the Pledged Interests are duly authorized, validly issued, fully paid and nonassessable and the Pledged Interests constitute or will constitute the percentage of the issued and outstanding Stock of the Pledged Companies of such Grantor identified on Schedule 5 hereto as supplemented or modified by any Pledged Interests Addendum or any Supplement to this Agreement; (iii) such Grantor has the right and requisite authority to pledge the Investment Related Property pledged by such Grantor to Secured Party as provided herein; (iv) all actions necessary or desirable to perfect, establish, subject to Permitted Encumbrances, the first priority of, or otherwise protect, Secured Party’s Liens in the Investment Related Collateral, and the proceeds thereof, have been duly taken, (A) upon the execution and delivery of this Agreement, (B) upon the taking of possession by Secured Party or its representative of any certificates constituting the Pledged Interests, to the extent such Pledged Interests are represented by certificates, together with undated powers endorsed in blank by the applicable Grantor; (C) upon the filing of financing statements in the applicable jurisdiction set forth on Schedule 8 attached hereto for such Grantor with respect to the Pledged Interests of such Grantor that are not represented by certificates, and (D) with respect to any Securities Accounts or Deposit Accounts, upon the delivery of account control agreements with respect thereto; and (v) each Grantor has delivered to and deposited with Secured Party (or, with respect to any Pledged Interests created or obtained after the Closing Date, will deliver and deposit in accordance with Sections 6(a) and 8 hereof) all certificates representing the Pledged Interests owned by such Grantor to the extent such Pledged Interests are represented by certificates, and undated powers endorsed in blank with respect to such certificates. None of the Pledged Interests owned or held by such Grantor has been issued or transferred in violation of any securities registration, securities disclosure, or similar laws of any jurisdiction to which such issuance or transfer may be subject.

 

(j) No consent, approval, authorization, or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the grant of a Security Interest by such Grantor in and to the Collateral pursuant to this Agreement or for the execution, delivery, or performance of this Agreement and the other Transaction Documents to which it is a party by such Grantor, or (ii) for the exercise by Secured Party of the voting or other rights provided for in this Agreement or any other Transaction Document with respect to the Investment Related Property or the remedies in respect of the Collateral pursuant to this Agreement or any other Transaction Document, except as may be required in connection with such disposition of Investment Related Property by laws affecting the offering and sale of securities generally.

 

(k) Schedule 9 attached hereto sets forth all motor vehicles owned by Grantors as of the Closing Date, by model, model year and vehicle identification number (“VIN”).

 

6. Covenants.  Each Grantor, jointly and severally, covenants and agrees with Secured Party that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 22 hereof:

 

  

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(a) Possession of Collateral.  In the event that any Collateral, including Proceeds, is evidenced by or consists of Negotiable Collateral, Investment Related Property, or Chattel Paper, and if and to the extent that perfection or priority of Secured Party’s Security Interest is dependent on or enhanced by possession, the applicable Grantor, promptly (and in any event within one (1) Business Day) upon the request of Secured Party, shall execute such other documents and instruments as shall be reasonably requested by Secured Party or, if applicable, endorse and deliver physical possession of such Negotiable Collateral, Investment Related Property, or Chattel Paper to Secured Party or its representative, together with such undated powers endorsed in blank as shall be reasonably requested by Secured Party;

 

(b) Chattel Paper.

 

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

 

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

 

(c) Control Agreements.

 

(i) Except to the extent otherwise permitted by the Purchase Agreement, each Grantor shall obtain an authenticated account control agreement (or other similar agreement) from each bank or financial institution maintaining a Deposit Account or a Securities Account for such Grantor to which the proceeds of any Collateral are to be received that Secured Party deems necessary or desirable to perfect Secured Party’s Liens in such Deposit Account or Securities Account, as applicable;

 

(ii) Except to the extent otherwise permitted by the Purchase Agreement, each Grantor shall obtain authenticated control agreements, from each issuer of uncertificated securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or for any Grantor that Secured Party deems necessary or desirable to perfect Secured Party’s Liens in such financial assets or commodities, as applicable;

 

(d) Letter-of-Credit Rights.  Each Grantor that is or becomes the beneficiary of a letter of credit shall promptly (and in any event within two (2) Business Days after becoming a beneficiary), notify Secured Party thereof and, thereafter, upon the request by Secured Party, except with respect to documentary letters of credit received by a Grantor from customers in the ordinary course of business if no Event of Default has occurred and is continuing, enter into a tri-party agreement with Secured Party and the issuer or confirmation bank with respect to letter-of-credit rights assigning such letter-of-credit rights to Secured Party and directing all payments thereunder to a deposit account designated by Secured Party, all in form and substance reasonably satisfactory to Secured Party;

 

  

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(e) Commercial Tort Claims.  Each Grantor shall promptly (and in any event within two (2) Business Days of receipt thereof), notify Secured Party in writing upon incurring or otherwise obtaining a Commercial Tort Claim after the date hereof and, upon request of Secured Party, promptly amend Schedule 10 to this Agreement to describe such after-acquired Commercial Tort Claim in a manner that reasonably identifies such Commercial Tort Claim, and hereby authorizes the filing of additional financing statements or amendments to existing financing statements describing such Commercial Tort Claims, and agrees to do such other acts or things deemed necessary or desirable by Secured Party to give Secured Party, subject to Permitted Encumbrances, a first priority perfected security interest in any such Commercial Tort Claim;

 

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

 

(g) Intellectual Property.

 

(i) Upon request of Secured Party, in order to facilitate filings with the United States Patent and Trademark Office, each Grantor shall execute and deliver to Secured Party one or more Patent Security Agreements to further evidence Secured Party’s Liens on such Grantor’s Patents, Trademarks, or Copyrights, and the General Intangibles of such Grantor relating thereto or represented thereby;

 

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

 

  

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(iii) Grantors acknowledge and agree that Secured Party shall have no duties with respect to the Trademarks, Patents, Copyrights, or Intellectual Property Licenses.  Without limiting the generality of this Section 6(g), Grantors acknowledge and agree that Secured Party shall not be under any obligation to take any steps necessary to preserve rights in the Trademarks, Patents, Copyrights, or Intellectual Property Licenses against any other Person, but Secured Party may do so at its option from and after the occurrence and during the continuance of an Event of Default, and all expenses incurred in connection therewith (including reasonable fees and expenses of attorneys and other professionals) shall be for the sole account of the Company and Guarantors and shall be chargeable to the Company and Guarantors;

 

(iv) In no event shall any Grantor, either itself or through any agent, employee, licensee, or designee, file an application for the registration of any Patent, Trademark, or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving Secured Party prompt (and in any event within ten (10) Business Days) written notice thereof.  Promptly upon any such filing, each Grantor shall comply with Section 6(g)(i) hereof;

 

(h) Investment Related Property.

 

(i) If any Grantor shall receive or become entitled to receive any Pledged Interests after the Closing Date, it shall promptly (and in any event within five (5) Business Days of receipt thereof) deliver to Secured Party a duly executed Pledged Interests Addendum identifying such Pledged Interests;

 

(ii) Upon the occurrence and during the continuance of an Event of Default, all sums of money and property paid or distributed in respect of the Investment Related Property which are received by any Grantor shall be held by the Grantors in trust for the benefit of Secured Party segregated from such Grantor’s other property, and such Grantor shall deliver it forthwith to Secured Party in the exact form received;

 

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

 

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

 

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

 

  

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

 

(i) Real Property; Fixtures.  Each Grantor covenants and agrees that upon the acquisition of any fee interest in Real Property it will promptly (and in any event within two (2) Business Days of acquisition) notify Secured Party of the acquisition of such Real Property and will grant to Secured Party a first priority Mortgage on each fee interest in Real Property now or hereafter owned by such Grantor and shall deliver such other documentation and opinions, in form and substance satisfactory to Secured Party, in connection with the grant of such Mortgage as Secured Party shall request in its reasonable credit judgment, including title insurance policies, financing statements, fixture filings and environmental audits and such Grantor shall pay all recording costs, intangible taxes and other fees and costs (including reasonable attorneys fees and expenses) incurred in connection therewith.  Each Grantor acknowledges and agrees that, to the extent permitted by applicable law, all of the Collateral shall remain personal property regardless of the manner of its attachment or affixation to real property.

 

(j) Transfers and Other Liens.  Except as otherwise expressly permitted hereby or by the Purchase Agreement, Grantors shall not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, or (ii) create or permit to exist any Lien upon or with respect to any of the Collateral of any of Grantors, except for Permitted Encumbrances.  The inclusion of Proceeds in the Collateral shall not be deemed to constitute Secured Party’s consent to any sale or other disposition of any of the Collateral except as expressly permitted in this Agreement, the Purchase Agreement or the other Transaction Documents;

 

(k) Other Actions as to Any and All Collateral.  Each Grantor shall promptly (and in any event, within 5 Business Days of acquiring or obtaining such Collateral) notify Secured Party in writing upon (i) acquiring or otherwise obtaining any Collateral after the date hereof consisting of Trademarks, Patents, Copyrights, Intellectual Property Licenses, Investment Related Property, Chattel Paper (electronic, tangible or otherwise), documents (as defined in Article 9 of  the Code), promissory notes (as defined in the Code, or instruments (as defined in the Code) or (ii) any amount payable under or in connection with any of the Collateral being or becoming evidenced after the date hereof by any Chattel Paper, documents, promissory notes, or instruments and, in each such case upon the request of Secured Party, promptly execute such other documents, or if applicable, deliver such Chattel Paper, other documents or certificates evidencing any Investment Related Property and do such other acts or things deemed reasonably necessary or desirable by Secured Party to protect Secured Party’s Liens therein;

 

  

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(l) Motor Vehicles.  Upon request of Secured Party, with respect to all motor vehicles owned by any Grantor, Grantor shall deliver to Secured Party, a certificate of title for all such motor vehicles and shall cause those title certificates to be filed (with the Secured Party’s Liens noted thereon) in the appropriate state motor vehicle filing office; and

 

(m) Insurance.  The Grantors shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof.  The Grantors shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to Secured Party that (a) Secured Party will be named as lender loss payee (mortgagee, as applicable) and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify Secured Party and such cancellation or change shall not be effective as to Secured Party for at least thirty (30) days after receipt by Secured Party of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) Secured Party will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default.  If no Event of Default exists and if the proceeds arising out of any claim or series of related claims do not exceed $25,000, loss payments in each instance will be available to the Grantors and applied by the Grantors to the repair and/or replacement of property with respect to which the loss was incurred.  If no Event of Default exists and such proceeds exceed $25,000, and after an Event of Default occurs, all proceeds then or thereafter in existence shall be paid to Secured Party (for application to the Obligations) and, if received by any Grantor, shall be held in trust for Secured Party and promptly paid over to Secured Party (for application to the Obligations) unless otherwise directed in writing by Secured Party.  Copies of such policies or the related certificates, in each case, naming Secured Party as lender loss payee and additional insured shall be delivered to Secured Party at least annually and at the time any new policy of insurance is issued

 

(n) Inspection.  The Grantors shall permit Secured Party and its representatives and agents reasonable access to inspect the Collateral during normal business hours, upon reasonable prior notice and without undue interference with the Grantors’ business operations, and to make copies of records pertaining to the Collateral as may be reasonably requested by Secured Party from time to time.

 

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

 

(a) Purchase Agreement. In the event of any conflict between any provision in this Agreement and a provision in the Purchase Agreement, such provision of the Purchase Agreement shall control.

 

  

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(b) Note. In the event of any conflict between any provision in this Agreement and a provision in the Note, such provision of the Note shall control.

 

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

 

8. Further Assurances.

 

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

 

(b) Subject to Section 8(c), each Grantor authorizes the filing by Secured Party of financing or continuation statements, or amendments thereto, and such Grantor will execute and deliver to Secured Party such other instruments or notices, as may be necessary or as Secured Party may reasonably request, in order to perfect and preserve the Security Interest granted or purported to be granted hereby.

 

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

 

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

 

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

 

  

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10. Secured Party Appointed Attorney-in-Fact.  Each Grantor hereby irrevocably appoints Secured Party its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, at such time as an Event of Default has occurred and is continuing under the Note, to take any action and to execute any instrument which Secured Party may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including:

 

(a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with the Accounts or any Supporting Obligations in connection therewith or any other Collateral of such Grantor;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  

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12. Secured Party’s Duties.  The powers conferred on Secured Party hereunder are solely to protect Secured Party’s interest in the Collateral, and shall not impose any duty upon Secured Party to exercise any such powers.  Except for the safe custody of any Collateral in its actual possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.  Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its actual possession if such Collateral is accorded treatment substantially equal to that which Secured Party accords its own property.

 

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

 

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

 

15. Voting Rights.

 

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

 

  

19

  

 

 

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

 

(c) If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Secured Party’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which the Grantor is subject or to which the Grantor is party.

 

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

 

(a) Secured Party may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, in the other Transaction Documents, or otherwise available to it, all the rights and remedies of a secured party on default under the Code or any other applicable law.  Without limiting the generality of the foregoing, each Grantor expressly agrees that, in any such event, Secured Party without demand of performance or other demand, advertisement or notice of any kind (except a notice specified below of time and place of public or private sale) to or upon any of Grantors or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code or any other applicable law), may take immediate possession of all or any portion of the Collateral and (i) require Grantors to, and each Grantor hereby agrees that it will at its own expense and upon request of Secured Party forthwith, assemble all or part of the Collateral as directed by Secured Party and make it available to Secured Party at one or more locations where such Grantor regularly maintains Inventory, and (ii) without notice except as specified below, sell or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale or other disposition, at any of Secured Party’s offices or elsewhere, for cash, on credit, and upon such other terms as Secured Party may deem commercially reasonable. Without limiting the generality of the foregoing, Secured Party may disclaim any and all representations and warranties in connection with any such sale or other disposition.  Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to any of Grantors of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and specifically such notice shall constitute a reasonable “authenticated notification of disposition” within the meaning of Section 9-611 of the Code.  Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given.  Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

 

  

20

  

 

 

(b) Secured Party is hereby granted a license or other right to use, without liability for royalties or any other charge, each Grantor’s labels, Patents, Copyrights, rights of use of any name, trade secrets, trade names, Trademarks, service marks and advertising matter, URLs, domain names, industrial designs, other industrial or intellectual property or any property of a similar nature, whether owned by any of Grantors or with respect to which any of Grantors have rights under license, sublicense, or other agreements, as it pertains to the Collateral, in preparing for sale, advertising for sale and selling any Collateral, and each Grantor’s rights under all licenses and all franchise agreements shall inure to the benefit of Secured Party.

 

(c) Any cash held by Secured Party as Collateral and all cash proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied against the Secured Obligations in the order set forth in the Purchase Agreement.   In the event the proceeds of Collateral are insufficient to satisfy all of the Secured Obligations in full, each Grantor shall remain jointly and severally liable for any such deficiency.

 

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

 

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

 

18. Marshaling. Secured Party  shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Secured Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising.  To the extent that it lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of Secured Party’s rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.

 

  

21

  

 

 

19. Indemnity and Expenses.

 

(a) Each Grantor agrees to indemnify Secured Party from and against all claims, lawsuits and liabilities (including reasonable attorneys fees) growing out of or resulting from this Agreement (including enforcement of this Agreement) or any other Transaction Document to which such Grantor is a party, except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the party seeking indemnification as determined by a final non-appealable order of a court of competent jurisdiction.  This provision shall survive the termination of this Agreement and the repayment of the Secured Obligations.

 

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

 

20. Merger, Amendments; Etc.  THIS AGREEMENT, TOGETHER WITH THE OTHER TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.  No waiver of any provision of this Agreement, and no consent to any departure by any of Grantors herefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No amendment of any provision of this Agreement shall be effective unless the same shall be in writing and signed by Secured Party and each of Grantors to which such amendment applies.

 

21. Addresses for Notices.  All notices and other communications provided for hereunder shall be given in the form and manner and delivered to Secured Party at its address specified in the Purchase Agreement, and to any of the Grantors at their respective addresses specified in the Purchase Agreement or Guaranty, as applicable, or, as to any party, at such other address as shall be designated by such party in a written notice to the other party.

 

  

22

  

 

 

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

 

23. Governing Law.

 

(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER TRANSACTION DOCUMENT IN RESPECT OF SUCH OTHER TRANSACTION DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT SECURED PARTY’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SECURED PARTY ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  SECURED PARTY AND EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 23(b).

 

  

23

  

 

 

(c) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, SECURED PARTY AND EACH GRANTOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  SECURED PARTY AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

24. New Subsidiaries.  Without impairing the limitations and restrictions of Section 3.20 of the Purchase Agreement, any new direct or indirect Subsidiary (whether by acquisition or creation) of Grantor is required to enter into this Agreement by executing and delivering in favor of Secured Party a supplement to this Agreement in the form of Annex 1 attached hereto.  Upon the execution and delivery of Annex 1 by such new Subsidiary, such Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein.  The execution and delivery of any instrument adding an additional Grantor as a party to this Agreement shall not require the consent of any Grantor hereunder.  The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor hereunder.

 

25. Secured Party.  Each reference herein to any right granted to, benefit conferred upon or power exercisable by the “Secured Party” shall be a reference to Secured Party, its successors and assigns.

 

26. Miscellaneous.

 

(a) This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.  Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement.  Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement.  The foregoing shall apply to each other Transaction Document mutatis mutandis.

 

  

24

  

 

 

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

 

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

 

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

 

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

 

[SIGNATURE PAGE FOLLOWS]

 

  

25

  

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

 

	
GRANTORS:

	
BLAST ENERGY SERVICES, INC.

 

	  	
By:

	
/s/ Michael L. Peterson

	  	  	
Name: Michael L. Peterson

	  	  	
Title: President

	  	  
	  	
EAGLE DOMESTIC DRILLING OPERATIONS LLC

 

	  	
By:

	
/s/ Michael L. Peterson

	  	  	
Name: Michael L. Peterson

	  	  	
Title: President

	  	  
	  	
BLAST AFJ, INC.

 

	  	
By:

	
/s/ Michael L. Peterson

	  	  	
Name: Michael L. Peterson

	  	  	
Title: President

	  	  
	
SECURED PARTY:

	
XXXXXXXXX

 

	  	
By:

	
/s/ XXXXXXXXX

	  	  	
Name: XXXXXXXXX

	  	  	
Title: Authorized Signatory

[SIGNATURE PAGE TO SECURITY AGREEMENT]

 

 

  

  

  

SCHEDULE 1

 

 

ORGANIZATIONAL INFORMATION

 

	
Legal Name

	
Jurisdiction of Incorporation

	
Identification Number in Jurisdiction of Formation

	
Chief Executive Officer

	
Blast Energy Services, Inc.*

 

	
Texas

	
800949748

	
Michael L. Peterson

	
Eagle Domestic Drilling Operations LLC

 

	
Texas

	
800179717

	
Michael L. Peterson

	
Blast AFJ, Inc.

 

	
Delaware

	
4762456

	
Michael L. Peterson

 

* Blast Energy Services, Inc. is the result of a merger between Blast Energy Services, Inc. California and Blast Energy Services, Inc., Texas, which was affected solely to re-domicile the company.

 

  

  

  

SCHEDULE 2

 

 

COPYRIGHT REGISTRATIONS AND APPLICATIONS

 

 

NONE

 

  

  

  

SCHEDULE 3

 

 

INTELLECTUAL PROPERTY LICENSES

 

 

NONE

 

 

 

 

  

  

  

SCHEDULE 4

 

 

PATENTS AND PATENT APPLICATIONS

 

 

	
    Patent Applicant

	
Application

or Patent No.

	
 

Country

	
Issue or

Filing Date

	
Expiration Date

	
 

Title

	
 

Owner

	
Blast Energy Services, Inc.

	
12706712

	
USA

	
February 17 2010

	
Patent pending

	
Blasting Lateral Holes from Existing Well Bores

	
John Adam

 

  

  

  

SCHEDULE 5

 

PLEDGED COMPANIES

 

 

	
Name of Pledgor

	
Name of Pledged Company

	
Number of Shares/Units

	
Class of Interests

	
Percentage of Class Owned

	
Certificate Nos.

	
Blast Energy Services, Inc.

	
Eagle Domestic Drilling Operations, LLC

	
100%of Membership Interest

	
Membership Interests

	
100%

	
Non-Certificated Shares

	
Blast Energy Services, Inc.

	
Blast AFJ, Inc.

	
90,000,000

	
Common Stock

	
100%

	
Non-Certificated Shares

 

 

  

  

  

SCHEDULE 6

 

TRADE NAMES, TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS, AND SERVICE MARK APPLICATIONS

 

 

NONE

 

  

  

  

SCHEDULE 7

 

OWNED OR LEASED REAL PROPERTY

 

 

	
Address

	
Activity & Assets

	
Landlord, Warehouse or Consignee

	
Hockley, TX  77447

	
Storage of AFJ Tractor  Trailer, spare engine and other down-hole equipment

	
Landlord

	
14550 Torrey Chase Blvd., Suite 330

Houston, Texas 77014

	
Corporate Office Location of books and records

	
Frontline Group

	
N. Sugar Valley Field

Old Van Vleck Road

Sugar Valley, TX 77480

Matagorda County

	
Non-operating interest in oil and gas leases held by the oil production from the Milberger #1 unit, the Milberger #2 well and the Oxbow #1 well.

	
Sun Resources Texas, Inc. (operator)

 

 

  

  

  

SCHEDULE 8

 

 

LIST OF UNIFORM COMMERCIAL CODE FILING JURISDICTIONS

 

 

	
Grantor

 

	
Jurisdictions

	
Blast Energy Services, Inc.

 

	
Texas and California

	
Eagle Domestic Drilling Operations LLC

 

	
Texas

	
Blast AFJ, Inc.

 

	
Delaware and Texas

 

 

 

  

 

  

SCHEDULE 9

 

MOTOR VEHICLES

 

 

	
AFJ Semi-Tractor Trailer Rig:

 

	  
	
2000 Volvo Diesel Tractor

 

	
VIN#

	
2006 Doonan Dropdeck Trailer

 

	
VIN#

	
Service Trailer:

 

	  
	
2005 Load Trail Gooseneck Trailer

 

	
VIN#

 

 

 

  

  

  

SCHEDULE 10

 

 

COMMERCIAL TORT CLAIMS

 

[include specific case caption or descriptions per Official Code Comment 5 to Section 9-108 of the Code]

 

 

NONE

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