Document:

meec_ex103.htm

EXHIBIT 10.3

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (the “Agreement”) is made as of August 14, 2014, by and among Midwest Energy Emissions Corp., a Delaware corporation (“MEEC”), MES, Inc., a North Dakota corporation (“MES”, and collectively with MEEC, the “Debtors”) and AC Midwest Energy LLC, a Delaware limited liability company (the “Lender”).

PREAMBLE:

WHEREAS, Lender is purchasing a senior secured convertible note from MEEC in the original principal amount of the $10,000,000 (the “Note”) pursuant to the terms of that certain Financing Agreement by and among the Lender and the Debtors dated as of the date hereof (as may be further amended, restated, supplemented or otherwise modified from time to time, the “Financing Agreement”);

 

WHEREAS, pursuant to the terms of the Financing Agreement, the obligations of MEEC under the Note are guaranteed by MES; and

WHEREAS, as a condition precedent to executing the Financing Agreement and purchasing the Note, Lender has, among other things, required that this Agreement is executed and delivered by Debtors to Lender.

NOW, THEREFORE, in consideration of the premises which are incorporated herein by this reference and constitute an integral part hereof, the execution and delivery of this Agreement and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties agree as follows:

ARTICLE ONE. DEFINITIONS

SECTION 1.01. DEFINED TERMS. In addition to terms defined elsewhere in this Agreement or any exhibit hereto, when used herein, the following terms shall have the following meanings:

“Account Debtor” shall mean any Person who is or who may become obligated to Debtors under, with respect to, or on account of an Account Receivable or other Collateral.

“Accounts Receivable” shall mean any and all accounts (as such term is defined in the UCC) of Debtors and each and every right of Debtors to (i) the payment of money or (ii) the receipt or disbursement of products, goods, services or other valuable consideration, whether such right now exists or hereafter arises, whether such right arises out of a sale, lease or other disposition of Inventory, or out of a rendering of services, or out of a policy of insurance issued or to be issued, or from a secondary obligation or arising out of the use of a credit or charge card or information contained on or for use with such card, incurred or to be incurred, or any other transaction or event, whether such right is created, generated or earned by Debtors or by some other Person who subse­quently transfers its interest to Debtors, whether such right is or is not already earned by performance, and howsoever such right may be evidenced, together with all other rights and interests (including all liens and security interests) which Debtors may at any time have by law or agreement against any Account Debtor or other Person obligated to make any such payment or against any property of such Account Debtor or other Person.

  

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“Affiliate” shall mean individually, and “Affiliates” shall mean collectively, each Person which, directly or indirectly, owns or controls, on an aggregate basis, at least a five percent (5%) interest in any other Person, or which is controlled by or is under common control with any other Person.

“Collateral” shall mean all of Debtors’ assets, howsoever arising, wherever located and whether now owned or existing or hereafter existing or acquired, including, but not limited to, the following:

	 	
(i) 

	
all Equipment including titled Vehicles;

	 	
(ii) 

	
all Accounts Receivable;

	 	
(iii) 

	
all Inventory;

	
  

	
(iv)

	
any and all monies, reserves, deposits, deposit accounts, securities, cash, cash equivalents, bal­ances, credits, and interest and dividends on any of the above, of or in the name of Debtors, now or hereafter with the Lender or any financial institution, and any and all other property of any kind and description of or in the name of Debtors, now or hereafter, for any reason or purpose whatsoever, in the possession or control of, or in transit to, the Lender or any agent or bailee for the Lender;

	 	
(v)  

	
all chattel paper, whether tangible or electronic chattel paper, contract rights, letter of credit rights, and instruments including, without limitation, all supporting obligations of any of the foregoing;

	 	
(vi)  

	
all General Intangibles;

	 	
(vii)  

	
all investment property;

	 	
(viii)  

	
all furniture and fixtures;

	 	
(ix)  

	
all documents of title and receipts, including, without limitation, all Vehicle Titles, whether negotiable or non-negotiable, including all goods covered by such documents;

	
  

	
(x)

	
any and all substitutions, renewals, improvements, replacements, additions and proceeds of (i) through (ix) above, including, without limitation, proceeds of insurance policies.

 “Collateral Locations” shall mean the locations set forth on Exhibit 1.01-A attached hereto.

  

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“Equipment” shall mean all machinery and equipment owned by Debtors, wherever located, whether now owned or hereafter existing or acquired by Debtors, any embedded software thereon, any additions thereon, accessions thereto or replacements of parts thereof. Equipment shall include, without limitation, all titled Vehicles.

“General Intangibles” shall mean all general intang­ibles (as such term is defined in the UCC) owned by Debtors, including, but not limited to payment intangibles, goodwill, software, trademarks, trade names, licenses, patents, patent applications, copyrights, inventions, franchises, books and records of Debtors, designs, trade secrets, registra­tions, prepaid expenses, all rights to and payments of refunds, overpayments, rebates and return of monies, including, but not limited to, sales tax refunds, tax refunds, tax refund claims and rights to and payments of refunds, overpayments or overfundings under any pension, retire­ment or profit sharing plans and any guarantee, security interests or other security held by or granted to Debtors to secure payment by an Account Debtor of any of the Accounts Receivable.

“Inventory” shall mean any and all goods, finished goods, whole goods, materials, raw materials, work-in-progress, components or supplies, wheresoever located and whether now owned or hereinafter acquired and owned by Debtors, including, without limitation, goods, finished goods, whole goods, materials, raw materials, work-in-process, components or supplies in transit, wheresoever located, whether now owned or hereafter acquired by Debtors, which are held for demonstration, illustration, sale or lease, furnished under any contract of service or held as raw materials, work-in-process for manufacturing or processing or supplies for manufacturing or pro­cessing, and all materials used or consumed in the business of Debtors, and shall include such other property, the sale or dis­position of which has given rise to an Accounts Receivable and which has been returned to or repossessed or stopped in transit by or on behalf of Debtors, but shall not include property owned by third parties in the possession of Debtors.

“Person” shall mean individually, and “Persons” shall mean collectively, any individual, sole proprietor­ship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, federal, state, county, city, municipal or otherwise including, without limitation, any instrumentality, division, agency, body or department thereof).

“UCC” shall mean the Uniform Commercial Code as enacted and amended in the State of Illinois, and as may be further amended from time to time.

“Vehicle” shall mean individually and “Vehicles” shall mean collectively, any motor vehicle, tank trailers and chassis, wherever located, whether now owned or hereafter existing or acquired by Debtors, and all attachments and accessions thereto or replacements of parts thereof. A list of Vehicles in existence as of the date of this Agreement is attached hereto as Exhibit 1.01-B and made a part hereof.

“Vehicle Title” shall mean, individually, and “Vehicle Titles” shall mean, collectively, each of the titles issued for any Vehicle.

SECTION 1.02. OTHER TERMS. Accounting terms used in this Agreement which are not specifically defined shall have the meanings customarily given them in accordance with generally accepted account­ing principles in effect from time to time. Terms used in this Agreement which are defined in the UCC, shall, unless the context indicates otherwise or are otherwise defined in this Agreement, have the meanings provided for by the UCC. Other capitalized terms used in this Agreement which are not specifically defined herein or in the UCC shall have the meanings set forth in the Financing Agreement.

 

  

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ARTICLE TWO. COLLATERAL

SECTION 2.01. SECURITY INTERESTS. To secure payment of the Obligations, Debtors hereby irrevocably pledge, assigns, transfer, convey and set over to the Lender and hereby grants to the Lender a security interest in and to the Collateral, howsoever arising, wherever located and whether now owned or existing or hereafter existing or acquired. The parties acknowledge and agree that such security interest shall be subordinate to a first and paramount security interest of Lender in the Collateral, and prior to all other liens on the Collateral.

SECTION 2.02. PERFECTION AND FILING REQUIREMENTS. Debtors shall perform any and all acts requested by the Lender to establish, maintain and continue the Lender's security interests and liens in the Collateral, including but not limited to, executing financing statements, executing such documentation as may be necessary to issue Vehicle Titles for any Vehicle showing Lender’s lien of record, and such other instruments and documents when and as reasonably requested by the Lender. Debtors hereby authorize Lender through any of Lender’s employees, agents or attorneys to file any and all financing statements, including, without limitation, any continuations, transfers or amendments thereof required to perfect Lender’s security interest and liens in the Collateral under the UCC without authentication or execution by Debtors.

SECTION 2.03. COLLECTION OF ACCOUNTS RECEIVABLE. Unless otherwise provided herein, Debtors may collect at Debtors’ own expense the Accounts Receivable in the ordinary course of business; provided, however, that Debtors’ authorization to collect the Accounts Receivable is subject to the following:

 

(A) The Lender, at any time after the occurrence of an Event of Default, may, in its sole and reasonable discretion, notify any or all of the Account Debtors that (i) the Accounts Receivable have been assigned to the Lender; and/or (ii) that all further payments on the Accounts Receivable should be paid solely to the Lender. When requested by the Lender after the occurrence of an Event of Default, Debtors at their expense will notify or cause to be notified any or all Account Debtors to pay directly to the Lender any sum or sums then due or to become due on the Accounts Receivable or any part thereof and all bills and statements thereafter sent by any Borrower to such Account Debtors shall state that the same have been assigned to the Lender and are payable solely to the Lender.

 

(B) The Lender, at any time after the occurrence of an Event of Default, may in its sole and reasonable discretion, require Debtors to establish and maintain a “lock box” account at the Lender or at a financial institution acceptable to Lender subject to the control of the Lender, and Debtors, at their expense, will notify or cause to be notified all Account Debtors to pay directly any sum or sums then due or to become due on the Accounts Receivable to such lock box account at the Lender.

 

(C) In the event an Account Debtors are notified under Subsections 2.03(A) or 2.03(B) of this Agreement or one or more Events of Default have occurred under the terms of this Agree­ment, the Lender shall have and succeed to all rights, remedies, securities and liens of Debtors in respect to such Accounts Receivable or other Collateral, including, but not limited to, the right of stoppage in transit of any merchandise, guarantees or other contracts or suretyship with respect to any such merchandise, warranties, unpaid seller's liens, statutory liens, artisans' liens, or the right to other collateral security held by or to which Debtors are entitled for the payment of any such merchandise, and shall have the right to enforce the same in its name or to direct the enforcement thereof by Debtors for the benefit of the Lender, and Debtors shall, at the reasonable request of the Lender, deliver to the Lender a separate written assignment of any of the same. The Lender, however, shall not incur any obligation or liability of Debtors to any Account Debtor, including, but not limited to, obligations or liabilities pursuant to any contract, agreement, warranty, guarantee, judicial decree or jury award. The Lender, in such an event, is also hereby irrevoc­ably authorized to receive, open and dispose of all mail addressed to Debtors, to notify the Post Office authorities to change the address for delivery of Debtors’ mail to an address designated by the Lender, to endorse Debtors’ name on all notes, checks, drafts, bills of exchange, money orders, commercial paper of any kind whatsoever, and any other instruments or documents received howsoever in payment of the Accounts Receivable, or any part thereof, and the Lender or any officer or employee thereof is hereby irrevocably constituted and appointed agent and attorney-in-fact for Debtors for the foregoing purpose.

 

  

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(D) Debtors shall not collect, compromise or accept any sum in full payment or satisfaction of any of the Accounts Receivable for materially less than the amount due without the express written consent of the Lender, except in the ordinary course of business. The consent of Lender required in this clause shall not be unreasonably withheld or delayed.

 

(E) The Lender may directly request any Account Debtor for a written confirmation of the Accounts Receivable at any time whether before or after the occurrence of an Event of Default.

 

SECTION 2.04. USE OF COLLATERAL. Debtors shall at all times keep the Collateral in good condition and repair and free and clear of all unpaid charges (including, but not limited to, taxes), liens and encumbrances, and shall pay or cause to be paid all obligations as they come due, including but not limited to, mortgage payments, real estate taxes, assessments and rent due on the premises where the Collateral is or may be located, except for charges, liens, encumbrances and obligations being contested in good faith by Debtors and for which adequate reserves have been established. Debtors agree that (except as provided in the immediately preceding sentence) in the event Debtors fail to pay such obligations, the Lender may, at its sole and arbitrary discretion, pay such obligations for the account of Debtors. The Lender may, in its sole discretion, discharge taxes, liens or security interests or other encumbrances at any time levied or placed on the Collateral and may, in its sole and arbitrary discretion, pay for the main­tenance and preser­vation of the Collateral. Any payments made by the Lender pursuant to this Section shall be repayable to the Lender by Debtors immedi­ately upon the Lender's demand therefor, with interest at a rate equal to the highest interest rate described in the Notes in effect from time to time during the period from and including the date funds are so expended by the Lender to the date of repayment, and any such amounts due and owing the Lender shall be an additional obligation of Debtors to the Lender secured hereunder.

 

SECTION 2.05. ORIGINAL VEHICLE TITLES. Debtors shall deliver, or cause to be delivered within five (5) business days of the making of the Loans all original Vehicle Titles to Lender. Each Debtors acknowledge and agree that Lender shall hold the original Vehicle Titles in its possession and may, in Lender’s sole discretion and at Debtors’ sole expense, cause new or duplicate Vehicle Titles to be issued on any Vehicle showing Lender’s lien of record. Upon the sale of any Vehicle and delivery to Lender of such net sale proceeds as Lender may require, Lender shall release the Vehicle Title for such Vehicle to Debtors.

ARTICLE THREE. REPRESENTATIONS AND WARRANTIES

 

SECTION 3.01. DEBTORS. Debtors represent and warrant to the Lender that:

 

(A) Organization, Etc. Debtors are duly incorporated, validly existing and in good standing under the laws of the State of Delaware and North Dakota, respectively, and are duly qualified and in good standing or has applied for quali­fication as a foreign corporation authorized to do business in each jurisdiction where, because of the nature of their activities or properties, such qualification is required.

 

  

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(B) Authorization: No Conflict. The execution and delivery of this Agreement are all within the corporate powers of the Debtors, have been duly authorized by all necessary action, have, or by the time of their execution and delivery shall have, received all necessary governmental or regulatory approval (if any shall be required), and do not and will not contravene or conflict with any provision of (i) law, rule, regulation or ordinance, (ii) their organizational documents; or (iii) any agreement binding upon Debtors or any of their properties, as the case may be.

 

(C) Validity and Binding Nature. The Agreement is the legal, valid and binding obligations of Debtors, enforceable against Debtors in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorgani­zation and other similar laws of general application affecting the rights and remedies of creditors and except as the availability of specific performance or injunctive relief is subject to the discre­tion of the court before which any proceeding therefor may be brought.

 

(D) Title to Assets. Except as set forth in the Lien Section of this Article Three, it has good and marketable title to all assets owned by it, including, but not limited to, the Collateral, subject to no (i) liens, encumbrances, security interests, or mortgages; (ii) zoning, building, fire, health or environmental code violations of any governmental authority; and (iii) violations of any covenants, conditions or restrictions of record.

 

(E) Liens. None of its assets are subject to any lien, encumbrance or security interest, except for Permitted Liens.

 

(F) Genuineness of Accounts Receivable. All the Accounts Receivable of it are genuine and were incurred in the ordinary course of business and are not in default.

 

(G) Collateral Locations. Except for Vehicles currently in operation by Debtors, all of the tangible Collateral is located at the Collateral Locations.

 

ARTICLE FOUR. COVENANTS

SECTION 4.01. DEBTORS. Until all the Obligations are paid in full, the Debtors covenant and agree that:

(A) Books, Records and Inspections. Debtors will (i) maintain complete and accurate books and records; (ii) permit reasonable access by the Lender to the Debtors’ books and records; (iii) make entries on their books and records, in form and manner satisfactory to Lender, disclosing Lender’s security interest in the Collateral and shall keep a separate account on its books of all collections received thereon; and (iv) permit the Lender, upon reasonable notice, to inspect the properties, whether real or personal, and operations of Debtors.

 

  

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(B) Insurance. Debtors will maintain such insurance as may be required by law and such other insurance to the extent and against such hazards and liabilities as is customarily maintained by companies similarly situated. All property insurance policies with respect to the Collateral shall contain loss payable clauses in form and substance reasonably satisfactory to the Lender, naming the Lender as a loss payee as its interest may appear, and providing that such policies and loss payable clauses may not be canceled, amended or terminated unless at least thirty (30) days prior written notice thereof has been given to the Lender. All insurance proceeds received by the Lender may be retained by the Lender, in its sole discretion, for application to the payment of any of the principal or interest on the Obligations then due and owing the Lender by it as the Lender may determine.

 

(C) Liens. Debtors will not create or permit to exist any mortgage, pledge, title retention lien, or other lien, encumbrance or security interest with respect to any assets now owned or hereafter acquired and owned, except for Permitted Liens.

 

(D) Mergers, Consolidations and Sales. Debtors will not be a party to any merger or consolidation with, or purchase or otherwise acquire all or substantially all of the assets or stock of any class of, or any partnership or joint venture interest in, any other Person, or sell, transfer, convey or lease all or any substantial part of its assets, or sell or assign, with or without recourse, any Accounts Receivable, except with the prior written consent of the Lender.

 

(E) Violation of Law. Debtors will not materially violate any law, statute, ordinance, rule, regulation, judgment, decree, order, writ or injunction of any federal, state or local authority, court, agency, bureau, board, commission, department or governmental body.

 

(F) Good Title. Debtors shall at all times maintain good and marketable title to all of its assets other than Permitted Liens.

 

(G) Collateral Locations. Debtors shall give the Lender 30 days prior written notice of the location of any Collateral at any place other than the Collateral Locations other than Vehicles currently in operation by Debtor.

 

ARTICLE FIVE. EVENTS OF DEFAULT

SECTION 5.01. EVENTS OF DEFAULT. Each of the following acts, occurrences or omissions shall constitute an event of default under this Agreement (herein referred to as an “Event of Default”), whatever the reason for such Event of Default and whether it shall be voluntary or involu­ntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any governmental or nongovernmental body or tribunal:

(A) Any representation or warranty made by Debtor contained in this Agreement shall at any time prove to have been incorrect in any material respect when made;

 

(B) Debtor shall default in the performance or observance of any term, covenant, condition or agreement on its part to be performed or observed under this Agreement; or

 

(C) An Event of Default shall occur under the Financing Agreement or any of the other Transaction Documents.

 

  

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ARTICLE SIX. REMEDIES

 

SECTION 6.01. REMEDIES UPON DEFAULT. Upon the occurrence and continuance of any Event of Default, and the expiration of any applicable cure period, and in every such event:

 

(A) Lender may, in its sole and arbitrary discretion, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, exercise all of the remedies of a secured party and mortgage holder under applicable law, includ­ing, but not limited to, the UCC, and all of its rights and remedies under the other Transaction Documents; and

 

(B) Lender may require Debtors to make the Collateral and the records pertaining to the Collateral available to the Lender at a place designated by the Lender which is reasonably convenient or may take repossession of the Collateral and the records pertaining to the Collateral without the use of any judicial process and without any prior notice thereof to Debtors; and

 

(C) Except as otherwise provided by law, Lender may, at its option, and in its sole and arbitrary discretion, sell the Collateral at public or private sale upon such terms and conditions as Lender may reasonably deem proper, and Lender may purchase the Collateral at any such sale, and apply the net proceeds, after deducting all costs, expenses and attorneys' fees incurred at any time in the collection of the indebtedness of Debtors to the Lender and in the protection and sale of the Collateral, to the payment of said indebtedness, returning the remaining proceeds, if any, to Debtors, with Debtors remaining liable for any amount remaining unpaid after such application; and

 

(D) The Lender may, at its option, and in its reasonable discretion, grant extensions, compromise claims and settle Accounts Receivable for less than face value, all without prior notice to Debtors; and

 

(E) Lender may, at its option, and in its sole and arbitrary discretion, use, in connection with any assembly or disposition of the Collateral, any trademark, trade name, trade style, copyright, patent right or technical process used or utilized by Debtors; and

 

(F) Debtors shall, upon the request of the Lender, forthwith upon receipt, transmit and deliver to the Lender in the form received, all cash, checks, drafts and other instruments for the payment of money (properly endorsed, where required, so that such items may be collected by Lender) which may be received by Debtors at any time in full or partial payment of any Col­lateral. Debtors shall not commingle any such items which may be so received by Debtors with any other of its funds or property but shall hold them separate and apart from their own funds or property and in trust for the Lender until delivery is made to Lender.

 

SECTION 6.02. ATTORNEY-IN-FACT. Upon the occurrence and during the continuation of an Event of Default, Debtors hereby appoint Lender as such Person’s attorney-in-fact, with full authority in such Person's place and stead and in such Person’s name or otherwise, from time to time in Lender’s sole and arbitrary discretion, to take any action and to execute any instrument which Lender may deem necessary or advisable to accomplish the purpose of this Agreement.

 

SECTION 6.03. REMEDIES ARE SEVERABLE AND CUMULATIVE. All provisions contained herein pertaining to any remedy of the Lender shall be and are severable and cumulative and in addition to all other rights and remedies available in the other Transaction Documents, at law and in equity, any one or more may be exercised simultaneously or successively. Any notification required pursuant to this Article or under applicable law shall be reasonably and properly given to Debtors at the address and by any of the methods of giving such notice as set forth in Section 7.03 of this Agree­ment, at least 10 days before taking any action.

 

  

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ARTICLE SEVEN. MISCELLANEOUS

 

SECTION 7.01. NO WAIVER; MODIFICATIONS IN WRITING. No failure or delay on the part of Lender in exercising any right, power or remedy pursuant to this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exer­cise thereof, or the exercise of any other right, power or remedy. No amendment, modification, supplement, termination or waiver of any provision of this Agreement, nor any consent by Lender to any departure by Debtors therefrom, shall be effective unless the same shall be in writing and signed by Lender. Any waiver of any provision of this Agreement and any consent by Lender to any departure by Debtors from the terms of any provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on Debtors in any case shall entitle Debtors to any other or further notice or demand in similar or other circumstances.

 

SECTION 7.02. SET-OFF. Lender shall have the right to set-off, appropriate and apply toward payment of any of the Obligations, in such order of application as Lender may from time to time and at any time elect, any cash, credit, deposits, accounts, securities and any other property of Debtors which is in transit to or in the possession, custody or control of Lender, or any agent, bailee, or Affiliate of Lender. Debtors hereby grants to Lender a security interest in all such property.

 

SECTION 7.03. NOTICES, ETC. All notices, demands, instructions and other communications required or permitted to be given to or made upon any party hereto shall be in writing personally delivered or sent by overnight courier or by facsimile machine, and shall be deemed to be given for purposes of this Agreement on the day that such writing is delivered or sent by facsimile machine or one (1) days after such notice is sent by overnight courier to the intended recipient thereof in accordance with the provisions of this Section 7.03. Unless otherwise specified in a notice sent or delivered in accordance with the foregoing provisions of this Section 7.03 of this Agreement, notices, demands, instructions and other communications in writing shall be given to or made upon the respective parties hereto at their respective addresses indicated for such party below:

	
If to the Debtors:

	
Midwest Energy Emissions Corp. 
Attn: Alan Kelley, CEO 
500 W Wilson Bridge Rd Ste 140 
Worthington, OH 43085

Fax: (614) 505-7377 
E-mail: akelley@midwestemissions.com

 

	With copies to:	

Taft Stettinius & Hollister LLP

Attn: Mitchell D. Goldsmith

111 E. Wacker Drive, Suite 2800

Chicago, Illinois 60601-3713

Fax: (312) 275-7569

E-mail: mgoldsmith@taftlaw.com

                                                               

  

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If to the Lender:

	
Alterna Capital Partners LLC 
Attn: Samir Patel

15 River Road, Suite 320 

Wilton, Connecticut 06897 
Fax: (203) 563-9210 
E-Mail: samir.patel@alternacapital.com

	
With a copy to:

	
Levenfeld Pearlstein, LLC 

Attn: David B. Solomon 

2 North LaSalle Street-Suite 1300 

Chicago, IL 60602 

Fax (312) 346-8434

E-Mail: dsolomon@lplegal.com

SECTION 7.04. COSTS, EXPENSES AND TAXES. Debtors agree to pay all out-of-pocket fees and expenses of Lender (includ­ing, but not limited to, UCC filing and search fees and fees and expenses of outside counsel to Lender and paralegals) incurred by Lender in connection with the transactions contemplated in the Financing Agreement and this Agreement. In addition, Debtors shall pay any and all stamp, transfer and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement and agrees to hold the Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. If any suit or proceeding arising from any of the foregoing is brought against Lender, Debtors, to the extent and in the manner directed by Lender, will resist and defend such suit or proceeding or cause the same to be resisted and defended by counsel approved by Lender. If Debtors shall fail to do any act or thing which it has covenanted to do under this Agreement or any representation or warranty on the part of Debtors contained in this Agreement shall be breached, Lender may, in its sole and arbitrary discre­tion, after 10 days written notice is sent to Debtors, do the same or cause it to be done or remedy any such breach, and may expend its funds for such purpose; and any and all amounts so expended by the Lender shall be repayable to the Lender by Debtors immediately upon the Lender's demand therefor, with interest at a rate equal to the highest interest rate set forth in the Notes in effect from time to time during the period from and including the date funds are so expended by Lender to the date of repayment, and any such amounts due and owing Lender shall be deemed to be part of the Obligations secured hereunder. The obligations of Debtors under this Section shall survive the termination of this Agreement and the discharge of the other obli­gations of Debtors hereunder.

 

  

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SECTION 7.05. COMPUTATIONS. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agree­ment, be made in accordance with generally accepted accounting principles applied on a basis consistent with those at the time in effect.

 

SECTION 7.06. FURTHER ASSURANCES. Debtors agree to do such further acts and things and to execute and deliver to Lender such additional assignments, agreements, powers, documents and instruments as Lender may reasonably require or deem advisable to carry into effect the purposes of this Agreement, or to confirm unto Lender its rights, powers and remedies under this Agreement.

 

SECTION 7.07. COUNTERPARTS; SIGNATURES. This Agree­ment may be executed in any number of counterparts, each of which counterparts, once they are executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same agreement. This Agreement may be executed by any party to this Agreement by original signature, facsimile and/or electronic signature.

 

SECTION 7.08. BINDING EFFECTS; ASSIGNMENT. This Agreement shall be binding upon, and inure to the benefit of, Lender, Debtors and their respective successors, as­signs, representatives and heirs. Debtors shall not assign any of its rights nor delegate any of its obligations under this Agreement without the prior written consent of Lender and no such consent by Lender shall, in any event, relieve Debtors of any of its obliga­tions hereunder.

 

SECTION 7.09. HEADINGS. Captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any pro­vision of this Agreement and shall not affect the con­struction of this Agreement.

 

SECTION 7.10. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all prior representations, agreements, covenants and understandings, whether oral or written, related to the subject matter of the Agreement. Except as specifically set forth in this Agreement, Lender makes no covenants to Debtors, including, but not limited to, any commitments to provide any financing to Debtors.

 

SECTION 7.11. GOVERNING LAW. This Agreement shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of the State of New York.

 

  

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SECTION 7.12. SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffec­tive only to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

 

SECTION 7.13. CONFLICT. In the event of any conflict between this Agreement and any other Transaction Documents, the terms and provisions of this Agreement shall govern and control.

 

SECTION 7.14. DEBTORS’ ACKNOWLEDGMENT. Debtors expressly acknowledge and agrees that (A) MEEC’s financing by the Lender described in this Agreement and the other Transaction Documents constitutes good and valuable consideration to Debtors in exchange for Debtors’ various covenants and agreements set forth in this Agreement; and (B) Debtors have been represented and advised by counsel in connection with the execution and delivery of this Agreement and that such attorney has explained the terms and provisions of this Agreement to Debtor.

 

SECTION 7.15. CUSTOMER IDENTIFICATION - USA PATRIOT ACT NOTICE; OFAC AND BANK SECRECY ACT. Lender hereby notifies Debtors that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56, signed into law October 26, 2001) (the “Act”), and Lender's policies and practices, Lender is required to obtain, verify and record certain information and documentation that identifies Debtors, which information includes the name and address of Debtors and such other information that will allow Lender to identify Debtors in accordance with the Act. In addition, Debtors shall (a) ensure that no person who owns a controlling interest in or otherwise controls Debtors or any subsidiary of Debtors is or shall be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or included in any Executive Orders, (b) not use or permit the use of the proceeds of the Loan to violate any of the foreign asset control regulations of OFAC or any enabling statute or Executive Order relating thereto, and (c) comply, and cause any of its subsidiaries to comply, with all applicable Bank Secrecy Act (“BSA”) laws and regulations, as amended.

 

SECTION 7.16. JURISDICTION; WAIVER. DEBTORS ACKNOWLEDGE THAT THIS AGREEMENT IS BEING SIGNED BY THE LENDER IN PARTIAL CONSIDERATION OF LENDER'S RIGHT TO ENFORCE IN THE JURISDICTION STATED BELOW THE TERMS AND PROVISION OF THIS AGREEMENT. DEBTORS CONSENT TO JURISDICTION IN THE STATE OF NEW YORK AND VENUE IN ANY FEDERAL OR STATE COURT IN NEW YORK NEW YORK FOR SUCH PURPOSES AND WAIVE ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND ANY OBJECTION THAT SAID COUNTY IS NOT CONVENIENT. DEBTORS WAIVE ANY RIGHTS TO COMMENCE ANY ACTION AGAINST LENDER IN ANY JURISDICTION EXCEPT THE AFORESAID CITY AND STATE. LENDER AND DEBTORS HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT AND/OR THE TRANSACTIONS WHICH ARE THE SUBJECT OF THIS AGREEMENT.

[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

 

  

12

  

 

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

 

 

	DEBTORS:	

MIDWEST ENERGY EMISSIONS CORP.

	 
	 	 	 	 
	 	By:	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 
	 	
MES, INC. 

	 
	 	 	 	 
	 	By:	 	 
	 	Name:	 	 
	 	Title:	 	 

 

 

	LENDER:	AC ENERGY MIDWEST LLC	 
	 	 	 	 
	 	By:	 	 
	 	Name:	 	 
	 	Title:	 	 

 

Signature Page-Security Agreement

 

  

13

  

EXHIBIT 1.01-A TO

 

SECURITY AGREEMENT

 

Collateral Locations

	
1.

	
MEEC Corporate Offices, 500 W. Wilson Bridge Rd. Ste. 140, Worthington, OH 43085

	
2.

	
MES, Inc. – 913 Big Hanaford Rd., Centralia, WA 98531

	
3.

	
MES, Inc. – 341 Interstate 45 West, Fairfield, TX 75840

	
4.

	
c/oBNB Electric – 2580 Jackson Highway, Chehalis, WA 98532

	
5.

	
c/o Albermarle – 1664 Highland Rd., Twinsburg OH 44087

  

14

  

 

EXHIBIT 1.01-B TO MIDWEST ENERGY EMISSIONS, INC.

 

SECURITY AGREEMENT

 

Vehicles

 

N/A

 

15meec_ex104.htm

EXHIBIT 10.4

 

INTERCREDITOR AGREEMENT

 

THIS INTERCREDITOR AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof, this “Agreement”) is entered into as of August 14, 2014, by and among Richard Galterio (“Agent”) as agent for the Investors (as defined in that certain Noteholder Agency Appointment Agreement by and between the Investors and Agent, the “Agency Agreement”)) (each a “Subordinated Creditor” and collectively the "Subordinated Creditors"), Midwest Energy Emissions Corp., a Delaware corporation (“Borrower”) and MES, Inc., a North Dakota corporation (the “Guarantor”) (Borrower and Guarantor shall be referred to herein as the “Credit Parties”) and AC Midwest Energy LLC, a Delaware limited liability company (“Senior Lender”).

 

R E C I T A L S

 

A. Borrower, Guarantor and Senior Lender have entered into that certain Financing Agreement] dated the date of this Agreement (as the same may be amended, restated, supplemented or otherwise modified from time to time as permitted hereunder, the “Senior Credit Agreement”) pursuant to which, among other things, Senior Lender has agreed, subject to the terms and conditions set forth in the Senior Credit Agreement, to make certain loans and financial accommodations to Borrower.  All of Borrower’s and Guarantor’s obligations to Senior Lender under the Senior Credit Agreement and the other Senior Debt Documents (as hereinafter defined)are secured by junior Liens (as hereinafter defined) in certain of the now existing and hereafter acquired personal property of Borrower and Guarantor (the “Collateral”).

 

B. Borrower has issued certain promissory notes (as listed on the attached Exhibit A) to Subordinated Creditors (as the same may be amended, restated, supplemented or otherwise modified from time to time as permitted hereunder, the "Subordinated Notes") in the aggregate original principal amount of $1,902,500.00. All of Borrower's obligations to Subordinated Creditors under the Subordinated Notes are secured by senior Liens on the Collateral.

 

C. As an inducement to and as one of the conditions precedent to the agreement of Senior Lender to make the loans and financial accommodations contemplated by the Senior Credit Agreement, Senior Lender has required the execution and delivery of this Agreement by Agent on behalf of the Subordinated Creditors and the Credit Parties in order to set forth the relative rights and priorities of Senior Lender and Subordinated Creditors under the Senior Debt Documents (as hereinafter defined) and the Subordinated Debt Documents (as hereinafter defined).

 

NOW, THEREFORE, in order to induce Senior Lender to consummate the transactions contemplated by the Senior Credit Agreement, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto hereby agree as follows:

 

	
1.  

	
Definitions.  The following terms shall have the following meanings in this Agreement:

 

“Bankruptcy Code” shall mean the provisions of Title 11 of the United States Code, as amended from time to time and any successor statute and all rules and regulations promulgated thereunder.

 

“Credit Parties” shall mean, collectively, Borrower and Guarantor.

 

“Distribution” shall mean, with respect to any indebtedness, obligation or security  any payment or distribution by any Credit Party of cash on account of such indebtedness, obligation or security.

 

  

1

  

 

“Enforcement Action” shall mean (a) to take from or for the account of any Credit Party, by set-off or in any other manner, the whole or any part of any moneys which may now or hereafter be owing by any Credit Party with respect to the Subordinated Debt, (b) to sue for payment of, or to initiate or participate with others in any suit, action or proceeding against any Credit Party to (i) enforce payment of or to collect the whole or any part of the Subordinated Debt or (ii) commence judicial enforcement of any of the rights and remedies under the Subordinated Debt Documents or applicable law with respect to the Subordinated Debt, (c) to accelerate the Subordinated Debt, (d) to exercise any put option or to cause any Credit Party to honor any redemption or mandatory prepayment obligation under any Subordinated Debt Document, or (e) to take any action under the provisions of any state or federal law, including, without limitation, the Uniform Commercial Code, or under any contract or agreement, to enforce, foreclose upon, take possession of or sell any property or assets of any Credit Party, including the Collateral.

 

“Lien” shall mean “Lien” as defined in the Senior Credit Agreement or any similar term in any Senior Debt Document that replaces the Senior Credit Agreement in connection with a Permitted Refinancing.

 

“Paid in Full” or “Payment in Full” shall mean the payment in full in cash of all Senior Debt and termination of all commitments to lend under the Senior Debt Documents.

 

“Permitted Refinancing” shall mean any refinancing, extension or replacement of the Senior Debt under the Senior Debt Documents).

 

“Permitted Refinancing Senior Debt Documents” shall mean any financing documentation which replaces the Senior Debt Documents and pursuant to which the Senior Debt under the Senior Debt Documents is refinanced, extended or replaced, as such financing documentation may be amended, supplemented, replaced, refinanced, extended or otherwise modified from time to time in compliance with this Agreement.

 

“Permitted Subordinated Debt Payments” shall mean payments of principal or interest by awarding the equivalent value of the same in stock of Borrower. For purposes of clarity, Permitted Subordinated Debt Payments shall not include payments of cash of any kind, including, but not limited to, checks, wires, money orders, certificates of deposit, cashier’s checks, or certified checks.

 

“Person” shall mean any natural person, corporation, general or limited partnership, limited liability company, firm, trust, association, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity.

 

“Proceeding” shall mean any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a Person, whether initiated under the Bankruptcy Code, any other similar federal or state statute or any other applicable law.

 

“Senior Debt’ shall mean, collectively, all obligations, liabilities and indebtedness of every nature of each Credit Party from time to time owed to Senior Lender under the Senior Debt Documents, including, without limitation, the principal amount of all debts, claims and indebtedness, accrued and unpaid interest accruing thereon (including, without limitation, interest accruing after the commencement of a Proceeding, without regard to whether or not such interest is an allowed claim) and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, whether before or after the filing of a Proceeding under the Bankruptcy Code together with any interest, fees, costs and expenses accruing thereon after the commencement of a Proceeding under the Bankruptcy Code, without regard to whether or not such interest, fees, costs and expenses are an allowed claim.

 

  

2

  

 

“Senior Debt Documents” shall mean the Senior Credit Agreement and all loan documents executed in connection therewith and, after the consummation of any Permitted Refinancing, the Permitted Refinancing Senior Debt Documents.

 

“Senior Default” shall mean any “Event of Default” under the Senior Debt Documents.

 

“Senior Lender” shall mean the holder of the Senior Debt.

 

“Subordinated Debt” shall mean all of the obligations, liabilities and indebtedness of each Credit Party to each Subordinated Creditor evidenced by or incurred pursuant to the Subordinated Debt Documents.

 

“Subordinated Debt Documents” shall mean the Subordinated Notes, any pledge, security or other collateral agreements with respect to the Subordinated Debt, any other guaranties with respect to the Subordinated Debt and all other documents, agreements and instruments now existing or hereinafter entered into evidencing or pertaining to all or any portion of the Subordinated Debt, as the same may be amended, restated, supplemented or otherwise modified from time to time, as permitted hereunder.

 

	
2.  

	
Subordination.

 

2.1. Subordination of Subordinated Debt to Senior Debt.  Each Credit Party covenants and agrees, and each Subordinated Creditor hereby covenants and agrees, notwithstanding anything to the contrary contained in any of the Subordinated Debt Documents, that the payment of any and all of the Subordinated Debt shall be subordinate and subject in right and time of payment, to the extent and in the manner hereinafter set forth, to the Payment in Full of all Senior Debt; provided, however, in the event of a default under the Subordinated Debt Documents, and a liquidation of the Collateral, proceeds from such liquidation may be paid first to the Subordinated Creditors until Payment in Full of the Subordinated Debt. Each holder of Senior Debt, whether now outstanding or hereafter created, incurred, assumed or guaranteed, shall be deemed to have acquired Senior Debt in reliance upon the provisions contained in this Agreement.

 

2.2. Liquidation, Dissolution, Bankruptcy.  In the event of any Proceeding involving any Credit Party prior to the Payment in Full of the Senior Debt:

 

(a) All Senior Debt shall first be Paid in Full before any Distribution, whether in cash, securities or other property, shall be made to any Subordinated Creditor on account of Subordinated Debt, except in the case of liquidation of the Collateral, in which case the proceeds from the liquidation of the Collateral shall be paid first to the Subordinated Creditors until Payment in Full of the Subordinated Debt.

 

  

3

  

 

(b) Except as set forth below, any Distribution, whether in cash which would otherwise, but for the terms hereof, be payable or deliverable in respect of the Subordinated Debt shall be paid or delivered directly to Senior Lender (to be held and/or applied by Senior Lender in accordance with the terms of the Senior Debt Documents) until all Senior Debt is Paid in Full; provided, however that Distributions constituting proceeds from the liquidation of the Collateral, in which case the proceeds from the liquidation of the Collateral shall be paid first to the Subordinated Creditors until Payment in Full of the Subordinated Debt.  Each Subordinated Creditor irrevocably authorizes, empowers and directs any debtor, debtor in possession, receiver, trustee, liquidator, custodian, conservator or other Person having authority, to pay or otherwise deliver all such Distributions to Senior Lender, for the benefit of the Senior Lender, for application to the Senior Debt until Payment in Full of all Senior Debt.  Each Subordinated Creditor also irrevocably authorizes and empowers Senior Lender, in the name of such Subordinated Creditor, to demand, sue for, collect and receive any and all such Distributions.

 

(c) Each Subordinated Creditor agrees not to initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity, perfection or priority of the Senior Debt or any Liens securing the Senior Debt.

 

(d) Each Subordinated Creditor agrees to execute, verify, deliver and file any proofs of claim in respect of the Subordinated Debt reasonably requested by Senior Lender in connection with any such Proceeding and hereby irrevocably authorizes, empowers and appoints Senior Lender his agent and attorney-in-fact to (i) execute, verify, deliver and file such proofs of claim upon the failure of such Subordinated Creditor promptly to do so prior to 15 days before the expiration of the time to file any such proof of claim and (ii) vote such claim in any such Proceeding upon the failure of such Subordinated Creditor to do so prior to 10 days before the expiration of the time to vote any such claim; provided Senior Lender shall not have any obligation to execute, verify, deliver, file and/or vote any such proof of claim.  In the event that Senior Lender votes any claim in accordance with the authority granted hereby, no Subordinated Creditor shall be entitled to change or withdraw such vote.

 

(e) This Agreement shall constitute a “subordination agreement” for the purposes of Section 510(a) of the Bankruptcy Code and shall be enforceable in any Proceeding in accordance with its terms.  The Senior Debt shall continue to be treated as Senior Debt and the provisions of this Agreement shall continue to govern the relative rights and priorities of Senior Lender and Subordinated Creditors even if all or part of the Senior Debt or the Liens securing the Senior Debt are subordinated, set aside, avoided, invalidated or disallowed in connection with any such Proceeding, and this Agreement shall be reinstated if at any time any payment of any of the Senior Debt is rescinded or must otherwise be returned by any holder of Senior Debt or any representative of such holder.

 

2.3. Subordinated Debt Payment Restrictions.  Notwithstanding the terms of the Subordinated Debt Documents, each Credit Party hereby agrees that it may not make, and each Subordinated Creditor hereby agrees that he will not accept, any Distribution with respect to the Subordinated Debt until the Senior Debt is Paid in Full.  Notwithstanding the immediately preceding sentence, subject to the terms of Section 2.2, the Credit Parties may make, and Subordinated Creditor may accept, Permitted Subordinated Debt Payments so long as no Senior Default then exists or would be caused thereby.

 

2.4. Subordinated Debt Standstill Provisions.  Until the Senior Debt is Paid in Full, no Subordinated Creditor shall, without the prior written consent of Senior Lender take any Enforcement Action with respect to the Subordinated Debt.  Notwithstanding the foregoing, subject to the provisions of Section 2.2(d), each Subordinated Creditor may file proofs of claim against any Credit Party in any Proceeding involving such Credit Party.  Any Distributions or other proceeds of any Enforcement Action obtained by any Subordinated Creditor, except for Distributions resulting from the sale of the Collateral,  shall in any event be held in trust by him for the benefit of Senior Lender and promptly paid or delivered to Senior Lender for the benefit of Senior Lender in the form received until all Senior Debt is Paid in Full.

 

  

4

  

 

2.5. Incorrect Payments.  If any Distribution on account of the Subordinated Debt not permitted to be made by any Credit Party or accepted by any Subordinated Creditor under this Agreement is made and received by any Subordinated Creditor, such Distribution shall be held in trust by such Subordinated Creditor for the benefit of Senior Lender and shall be promptly paid over to Senior Lender, with any necessary endorsement, for application (in accordance with the Senior Debt Documents) to the payment of the Senior Debt then remaining unpaid, until all of the Senior Debt is Paid in Full.

 

2.6. Subordination of Liens and Security Interests; Agreement Not to Contest; Sale of Collateral; Release of Liens and Security Interests.

 

(a) Until the Subordinated Debt has been Paid in Full, any Liens of Senior Lender in the Collateral which may exist shall be and hereby are subordinated for all purposes and in all respects to the Liens of Subordinated Creditors in the Collateral, regardless of the time, manner or order of the creation, granting, attachment or perfection of any such Liens. Each of Senior Lender and  Subordinated Creditor agrees that it (A) will not at any time contest the validity, perfection, priority or enforceability of the Senior Debt, the Senior Debt Documents, the Subordinated Debt, the Subordinated Loan Documents, the Liens of the Subordinated Creditors  or the Liens of Senior Lender in the Collateral, (B) will not object to or oppose any motion by Senior Lender or Subordinated Creditors to lift any automatic stay arising under the Bankruptcy Code (or any order issued by a court in a Proceeding), (C) not object to or oppose any use of, and will consent to, any cash collateral use or debtor in possession financing consented to by Senior Lender on such terms and conditions as Senior Lender, in its sole discretion, may decide.  Each Subordinated Creditor further agrees that it shall not, without the prior written consent of the Senior Lender, (i) commence or continue any Proceeding, propose any plan of reorganization, compromise, arrangement or proposal or file any motion, pleading or material in support of any motion or plan of reorganization, compromise, arrangement or proposal that would impair the rights of the Senior Lender or (ii) at any time that it has any Lien in any Collateral, commence or continue any Proceeding, propose any plan of reorganization, compromise, arrangement or proposal or file any motion, pleading or material in support of any motion or plan of reorganization, compromise, arrangement or proposal that is opposed by Senior Lender, or oppose any plan of reorganization, compromise, arrangement, proposal or liquidation supported by Senior Lender.

 

(b) Until the Payment in Full of the Senior Debt occurs, each Subordinated Creditor hereby irrevocably constitutes and appoints the Senior Lender and any officer or agent of the Senior Lender, with full power of substitution, as his true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Subordinated Creditor or such holder or in the Senior Lender’s own name, from time to time in the Senior Lender’s discretion, for the purpose of carrying out the terms of this Section 2.6, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary to accomplish the purposes of this Section 2.6, including any endorsements or other instruments of transfer or release.

 

(c) Until the Payment in Full of the Senior Debt occurs, no Subordinated Creditor shall demand or accept the grant of any additional Liens on any asset of any Credit Party or any of its Subsidiaries to secure any Subordinated Debt unless such Credit Party or such Subsidiary has granted, or concurrently therewith grants, a Lien on such asset to secure the Senior Debt.

 

2.7. Sale, Transfer or other Disposition of Subordinated Debt.

 

(a) No Subordinated Creditor shall sell, assign, pledge, dispose of or otherwise transfer all or any portion of the Subordinated Debt or any Subordinated Debt Document without the prior written consent of Senior Lender.

 

  

5

  

 

(b) Notwithstanding the failure of any Subordinated Creditor to comply with Section 2.7(a), the subordination effected hereby shall survive any sale, assignment, pledge, disposition or other transfer of all or any portion of the Subordinated Debt, and the terms of this Agreement shall be binding upon the successors, assigns, heirs and legal representatives of such Subordinated Creditor, as provided in Section 10 hereof.

 

2.8. Intentionally left blank.

 

2.9. Obligations Hereunder Not Affected.  All rights and interest of Senior Lender hereunder, and all agreements and obligations of Subordinated Creditors and Credit Parties hereunder, shall remain in full force and effect irrespective of:

 

(a) any lack of validity or enforceability of any document evidencing any of the Senior Debt;

 

(b) any change in the time, manner or place of payment of, or any other term of, all or any of the Senior Debt, or any other permitted amendment or waiver of or any release or consent to departure from any of the Senior Debt Documents;

 

(c) any exchange, release or non-perfection of any collateral for all or any of the Senior Debt;

 

(d) any failure of Senior Lender to assert any claim or to enforce any right or remedy against any other party hereto under the provisions of this Agreement or any Senior Debt Document other than this Agreement;

 

(e) any reduction, limitation, impairment or termination of the Senior Debt for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and Credit Parties and Subordinated Creditors hereby waive any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of invalidity, illegality, nongenuiness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Senior Debt; and

 

(f) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Credit Parties (other than payment or performance) in respect of the Senior Debt or any Subordinated Creditor in respect of this Agreement.

 

Each Subordinated Creditor acknowledges and agrees that each Senior Lender may in accordance with the terms of the Senior Debt Documents, without notice or demand and without affecting or impairing any Subordinated Creditor's obligations hereunder, from time to time (i) renew, compromise, extend, increase, accelerate or otherwise change the time for payment of, or otherwise change the terms of the Senior Debt or any part thereof, including, without limitation, to increase or decrease the rate of interest thereon or the principal amount thereof; (ii) take or hold security for the payment of the Senior Debt and exchange, enforce, foreclose upon, waive and release any such security; (iii) apply such security and direct the order or manner of sale thereof as Senior Lender in its sole discretion, may determine; (iv) release and substitute one or more endorsers, warrantors, borrowers or other obligors; and (v) exercise or refrain from exercising any rights against any Credit Party or any other Person.

 

  

6

  

 

2.10. Marshaling.  Each Subordinated Creditor hereby waives any rights he may have under applicable law to assert the doctrine of marshaling or to otherwise require Senior Lender to marshal any property of any Credit Party for the benefit of such Subordinated Creditor.

 

2.11. Application of Proceeds from Sale or other Disposition of the Collateral.  In the event of any sale, transfer or other disposition (including a casualty loss or taking through eminent domain) of the Collateral, the proceeds resulting therefrom (including insurance proceeds) shall be applied first to the Subordinated Debt in the order and manner determined by Subordinated Creditors in accordance with the Subordinated Debt Documents until such time as the Subordinated Debt is Paid in Full, thereafter, all remaining proceeds shall be applied to the Senior Debt.

 

2.12. Rights Relating to Subordinated Lender’s Actions with respect to the Collateral.  Each Subordinated Creditor hereby agrees that it will not sell the Collateral, or authorize the sale of the Collateral without Senior Lender’s consent, which consent shall not be unreasonably withheld.

 

	
3.  

	
Modifications.

 

3.1. Modifications to Senior Debt Documents.  Senior Lender may at any time and from time to time without the consent of or notice to any Subordinated Creditor, without incurring liability to any Subordinated Creditor and without impairing or releasing the obligations of any Subordinated Creditor under this Agreement, change the manner or place of payment or extend the time of payment of or renew or alter any of the terms of the Senior Debt, or amend or otherwise modify in any manner any agreement, note, guarantee or other instrument evidencing or securing or otherwise relating to the Senior Debt.

 

3.2. Modifications to Subordinated Debt Documents.  Until the Senior Debt has been Paid in Full, and notwithstanding anything to the contrary contained in the Subordinated Debt Documents, no Subordinated Creditor shall without the prior written consent of Senior Lender, agree to any amendment, modification or supplement to the Subordinated Debt Documents.

 

	
4.  

	
Waiver of Certain Rights by Subordinated Creditors.  Each Subordinated Creditor hereby waives all notice of the acceptance by Senior Lender of the subordination and other provisions of this Agreement, and each Subordinated Creditor expressly consents to reliance by the Senior Lender upon the subordination and other agreements as herein provided.

 

	
5.  

	
Representations and Warranties of Subordinated Creditors.  To induce Senior Lender to execute and deliver this Agreement, Agent, on behalf of each Subordinated Creditor, hereby represents and warrants to Senior Lender that as of the date hereof: (a) this Agreement has been duly executed and delivered by the Agent who has the authority to act on behalf of the Subordinated Creditors; (b) this Agreement is the legal, valid and binding obligation of the Subordinated Creditors, enforceable against such Subordinated Creditors in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by equitable principles; and (c) the Subordinated Creditors are the sole owners, beneficially and of record, of the Subordinated Debt Documents and the Subordinated Debt on the date hereof.

 

  

7

  

 

	
6.  

	
Subrogation.  Subject to the Payment in Full of the Senior Debt and the terms of this Agreement, except as specifically provided in this Agreement to the contrary, each Subordinated Creditor shall be subrogated to the rights of Senior Lender to receive Distributions with respect to the Senior Debt until the Subordinated Debt is paid in full.  If Senior Lender is required to disgorge any proceeds of Collateral, payment or other amount received by such Person (whether because such proceeds, payment or other amount is invalidated, declared to be fraudulent or preferential or otherwise) or turn over or otherwise pay any amount (a “Recovery”) to the estate or to any creditor or representative of a Credit Party or any other Person, then the Senior Debt shall be reinstated (to the extent of such Recovery) as if such Senior Debt had never been paid and to the extent any Subordinated Creditor has received proceeds, payments or other amounts to which such Subordinated Creditor would not have been entitled under this Agreement had such reinstatement occurred prior to receipt of such proceeds, payments or other amounts, such Subordinated Creditor shall turn over such proceeds, payments or other amounts to Senior Lender for reapplication to the Senior Debt.  A Distribution made pursuant to this Agreement to Senior Lender which otherwise would have been made to any Subordinated Creditor is not, as between the Credit Parties and Subordinated Creditors, a payment by the Credit Parties to or on account of the Subordinated Debt.

 

	
7.  

	
Right To Purchase Loan.  Without limiting any provisions of applicable law, Subordinated Creditors agree that Senior Lender shall be entitled to purchase the Subordinated Notes and Subordinated Debt Documents (excluding the warrants issued by the Borrower to the Subordinated Creditors) by paying to Subordinated Creditors the full amount of the Subordinated Debt.   The foregoing purchase right shall be exercisable upon not less than ten (10) days’ notice given at any time after an event of default under either the Senior Debt Documents or the Subordinated Debt Documents.  The following provisions shall apply to any sale of the Subordinated Debt and Subordinated Debt Documents pursuant to this provision:

 

(a) Such sale shall be non-recourse to Subordinated Creditors and shall be on an “as-is, where-is” basis, without representation or warranty by Subordinated Creditors, except that Subordinated Creditors shall represent with respect to its own interest that: (i) Subordinated Creditors have good title to the Subordinated Debt Documents; (ii) Subordinated Creditors have all requisite right and authority to sell and assign the same; and (iii) the amount of the of the Subordinated Debt is accurate;

 

(b) At the written request of either Subordinated Creditors or Senior Lender, the parties shall open escrow with Chicago Title Insurance Company or another nationally recognized title insurance company, its affiliate, successor or assign (“Escrow Holder”);

 

(c) Agent and/or the Subordinated Creditors shall deliver at the closing of such sale, or promptly deposit with the Escrow Holder, if applicable: (i) an allonge executed in favor of Junior Lender (or its Nominee) to be affixed to the Subordinated Notes, in form and substance acceptable to Senior Lender in its reasonable discretion; (ii) the original Subordinated Notes; (iii) a UCC-3, assigning Subordinated Creditors’ UCC-1 filings (if any) against any of the Credit Parties to Senior Lender; (iv) an “omnibus” assignment of the Subordinated Debt Documents; and (v) other documents reasonably required in connection with and in order to more completely effectuate such sale;

 

(d) The closing date of the sale of the Loan shall take place no less than ten (10) days nor more than thirty (30) days (provided that if the thirtieth day is not a Business Day, then no later than the first Business Day immediately following such 30th day) after the date Senior Lender notifies Agent and/or the Subordinated Creditors that it has exercised the foregoing purchase right (or such earlier date as agreed upon by Senior Lender and Subordinated Creditors);

 

(e) After such sale, to the extent reasonably required by and at the cost and expense of Senior Lender, Agent and the Subordinated Creditors shall from time to time execute any other documents required to more completely effectuate such sale.

  

8

  

 

	
8.  

	
Modification.  Any modification or waiver of any provision of this Agreement, or any consent to any departure by any party from the terms hereof, shall not be effective in any event unless the same is in writing and signed by Senior Lender and each Subordinated Creditor, and then such modification, waiver or consent shall be effective only in the specific instance and for the specific purpose given. Any notice to or demand on any party hereto in any event not specifically required hereunder shall not entitle the party receiving such notice or demand to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder.

 

	
9.  

	
Further Assurances.  Each party to this Agreement promptly will execute and deliver such further instruments and agreements and do such further acts and things as may be reasonably requested in writing by any other party hereto that may be necessary in order to effect fully the terms of this Agreement.

 

	
10.  

	
Notices.  All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:

 

	

if to Subordinated Creditors, to Richard Galterio, at

 

___________________________

___________________________

Fax: (___) ___-_______________

E-mail:______________________

 

if to any of the Borrower or the Guarantor, to Midwest EnergyEmissions Corp.

 

Attn: Alan Kelley, CEO

500 W Wilson Bridge Rd Ste. 140

Worthington, OH 43085

Fax: (614) 505-7377

E-mail: akelley@midwestemissions.com

 

  

9

  

 

	

In each case, with a copy (for informational purposes only):

 

Taft Stettinius & Hollister LLP

Attn:  Mitchell D. Goldsmith

111 E. Wacker Drive, Suite 2800

Chicago, Illinois 60601-3713

Fax: (312) 275-7569

E-mail:  mgoldsmith@taftlaw.com

 

If to the Senior Lender:

c/o Alterna Capital Partners LLC

Attn: Samir Patel

15 River Road, Suite 320

Wilton, Connecticut 06897

Fax: (203) 563-9210

E-Mail: samir.patel@alternacapital.com

With a copy to (for informational purposes only):

Levenfeld Pearlstein, LLC

E-Mail: dsolomon@lplegal.com

 

All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received or (ii) sent by facsimile or electronic mail shall be deemed to have been given when sent, provided that if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient.

 

  

10

  

 

	
11.  

	
Successors and Assigns.  This Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and assigns of Senior Lender and the Credit Parties and the successors, assigns, heirs and legal representatives of Agent and Subordinated Creditors.  To the extent permitted under the Senior Debt Documents, Senior Lender may, from time to time, without notice to Agent or any of the Subordinated Creditors, assign or transfer any or all of the Senior Debt or any interest therein to any Person and, notwithstanding any such assignment or transfer, or any subsequent assignment or transfer, the Senior Debt shall, subject to the terms hereof, be and remain Senior Debt for purposes of this Agreement, and every permitted assignee or transferee of any of the Senior Debt or of any interest therein shall, to the extent of the interest of such permitted assignee or transferee in the Senior Debt, be entitled to rely upon and be the third party beneficiary of the subordination provided under this Agreement and shall be entitled to enforce the terms and provisions hereof to the same extent as if such assignee or transferee were initially a party hereto.  Each Subordinated Creditor agrees that any party that consummates a Permitted Refinancing may rely on and enforce this Agreement.  Agent and each Subordinated Creditor further agree that he, she or it will, at the request of Senior Lender, enter into an agreement, in the form of this Agreement, mutatis mutandis, with the party that consummates the Permitted Refinancing; provided, that the failure of any Subordinated Creditor to execute such an agreement shall not affect such party's right to rely on and enforce the terms of this Agreement.

 

	
12.  

	
Relative Rights.  This Agreement shall define the relative rights of Senior Lender and Subordinated Creditors. Nothing in this Agreement shall (a) impair, as among the Credit Parties, and Senior Lender and as between the Credit Parties and Subordinated Creditors, the obligation of the Credit Parties with respect to the payment of the Senior Debt and the Subordinated Debt in accordance with their respective terms or (b) affect the relative rights of Senior Lender or Subordinated Creditors with respect to any other creditors of the Credit Parties.  The terms of this Agreement shall govern even if all or any part of the Senior Debt or the Liens in favor of Senior Lender are avoided, disallowed, unperfected, set aside or otherwise invalidated in any judicial proceeding or otherwise.

 

	
13.  

	
Conflict.  In the event of any conflict between any term, covenant or condition of this Agreement and any term, covenant or condition of any of the Subordinated Debt Documents or the Senior Debt Documents, the provisions of this Agreement shall control and govern.

 

	
14.  

	
Headings.  The paragraph headings used in this Agreement are for convenience only and shall not affect the interpretation of any of the provisions hereof.

 

	
15.  

	
Counterparts/Electronic Signatures.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement.

 

	
16.  

	
Severability.  In the event that any provision of this Agreement is deemed to be invalid, illegal or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and the affected provision shall be modified to the minimum extent permitted by law so as most fully to achieve the intention of this Agreement.

 

  

11

  

 

	
17.  

	
Continuation of Subordination; Termination of Agreement.  This Agreement shall remain in full force and effect until Payment in Full of the Senior Debt, on which date this Agreement shall automatically terminate without the necessity of further action on the part of the parties hereto; provided, that if any payment is, subsequent to such termination, recovered from any holder of Senior Debt, this Agreement shall be reinstated; provided, further, that a Permitted Refinancing shall not be deemed to be Payment in Full of the Senior Debt.

 

	
18.  

	
GOVERNING LAW; SUBMISSION TO JURISDICTION.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK.  EACH SUBORDINATED CREDITOR AND EACH  CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY U.S. FEDERAL OR STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.  EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 9.  NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

 

	
19.  

	
WAIVER OF JURY TRIAL.  EACH SUBORDINATED CREDITOR AND EACH  CREDIT PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH SUBORDINATED CREDITOR AND EACH  CREDIT PARTY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

[SIGNATURE PAGE FOLLOWS]

 

  

12

  

 

IN WITNESS WHEREOF, Subordinated Creditors, the Credit Parties and Senior Lender have caused this Agreement to be executed as of the date first above written.

 

	 	SUBORDINATED CREDITORS:	 
	 	 	 
	 	 	 
	 	Richard Galterio, as agent for the Subordinated Creditors	 
	 	 	 	 
	 	 	 	 
	 	
CREDIT PARTIES:

 

MIDWEST ENERGY EMISSIONS CORP.,

a Delaware corporation                                                                  

	 
	 	 	 	 
	 	By:  	 	 
	 	Name:	 	 
	 	Title:  	 	 
	 	 	 	 
	 	 	 	 
	 	
MES, INC., a North Dakota corporation

	 
	 	 	 	 
	 	By:	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 
	 	 	 
	 	
SENIOR LENDER:

AC ENERGY MIDWEST LLC

	 
	 	By: 	 	 
	 	Name:    	 	 
	 	Title:  	 	 

 

13

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