Document:

Exhibit 10.6

 

Execution Version

 

 

 

AMENDED AND RESTATED SECOND LIEN

 

GUARANTEE AND COLLATERAL AGREEMENT

 

 

made by

 

each of the Grantors (as defined herein)

 

in favor of

 

 

WELLS FARGO ENERGY CAPITAL, INC.,

 

as Administrative Agent

 

 

Dated as of October 28, 2011

 

 

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE I
    	
DEFINITIONS
    	
1
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   1.01
    	
Definitions
    	
1
    
	
 
    	
Section   1.02
    	
Other   Definitional Provisions; References
    	
3
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE II
    	
GUARANTEE
    	
4
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   2.01
    	
Guarantee
    	
4
    
	
 
    	
Section   2.02
    	
Payments
    	
5
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE III
    	
GRANT   OF SECURITY INTEREST
    	
5
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   3.01
    	
Grant   of Security Interest
    	
5
    
	
 
    	
Section   3.02
    	
Transfer   of Pledged Securities
    	
6
    
	
 
    	
Section   3.03
    	
Grantors   Remains Liable under Accounts, Chattel Paper and Payment Intangibles
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE IV
    	
ACKNOWLEDGMENTS,   WAIVERS AND CONSENTS
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   4.01
    	
Acknowledgments,   Waivers and Consents
    	
7
    
	
 
    	
Section   4.02
    	
No   Subrogation, Contribution or Reimbursement
    	
10
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE V
    	
REPRESENTATIONS   AND WARRANTIES
    	
10
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   5.01
    	
Representations   in Credit Agreement
    	
10
    
	
 
    	
Section   5.02
    	
Benefit   to the Guarantor
    	
11
    
	
 
    	
Section   5.03
    	
Solvency
    	
11
    
	
 
    	
Section   5.04
    	
Title;   No Other Liens
    	
11
    
	
 
    	
Section   5.05
    	
Perfected   Second Priority Liens
    	
11
    
	
 
    	
Section   5.06
    	
Legal   Name, Organizational Status, Chief Executive Office
    	
11
    
	
 
    	
Section   5.07
    	
Prior   Names, Addresses, Locations of Tangible Assets
    	
12
    
	
 
    	
Section   5.08
    	
Pledged   Securities
    	
12
    
	
 
    	
Section   5.09
    	
Goods
    	
12
    
	
 
    	
Section   5.10
    	
Instruments   and Chattel Paper
    	
12
    
	
 
    	
Section   5.11
    	
Truth   of Information; Accounts
    	
12
    
	
 
    	
Section   5.12
    	
Governmental   Obligors
    	
12
    
	
 
    	
Section   5.13
    	
Patents   and Trademarks
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VI
    	
COVENANTS
    	
13
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   6.01
    	
Covenants   in Credit Agreement
    	
13
    
	
 
    	
Section   6.02
    	
Maintenance   of Perfected Security Interest; Further Documentation
    	
13
    
	
 
    	
Section   6.03
    	
Maintenance   of Records
    	
14
    
	
 
    	
Section   6.04
    	
Right   of Inspection
    	
14
    
	
 
    	
Section   6.05
    	
Further   Identification of Collateral
    	
15
    
	
 
    	
Section   6.06
    	
Changes   in Locations, Name, etc
    	
15
    
	
 
    	
Section   6.07
    	
Compliance   with Contractual Obligations
    	
15
    

 

i

 

TABLE OF CONTENTS

(continued)

 

	
 
    	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   6.08
    	
Limitations   on Dispositions of Collateral
    	
15
    
	
 
    	
Section   6.09
    	
Pledged   Securities
    	
15
    
	
 
    	
Section   6.10
    	
Limitations   on Modifications, Waivers, Extensions of Agreements Giving Rise to Accounts
    	
17
    
	
 
    	
Section   6.11
    	
Analysis   of Accounts, Etc
    	
17
    
	
 
    	
Section   6.12
    	
Instruments   and Tangible Chattel Paper
    	
17
    
	
 
    	
Section   6.13
    	
Maintenance   of Equipment
    	
17
    
	
 
    	
Section   6.14
    	
Patents   and Trademarks
    	
17
    
	
 
    	
Section   6.15
    	
Commercial   Tort Claims
    	
19
    
	
 
    	
Section   6.16
    	
Letter-of-Credit   Rights
    	
19
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VII
    	
REMEDIAL   PROVISIONS
    	
20
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   7.01
    	
Pledged   Securities
    	
20
    
	
 
    	
Section   7.02
    	
Collections   on Accounts, Etc
    	
21
    
	
 
    	
Section   7.03
    	
Proceeds
    	
21
    
	
 
    	
Section   7.04
    	
New   York UCC and Other Remedies
    	
22
    
	
 
    	
Section   7.05
    	
Private   Sales of Pledged Securities
    	
23
    
	
 
    	
Section   7.06
    	
Waiver;   Deficiency
    	
23
    
	
 
    	
Section   7.07
    	
Non-Judicial   Enforcement
    	
24
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VIII
    	
THE   ADMINISTRATIVE AGENT
    	
24
    
	
 
    	
 
    	
 
    
	
 
    	
Section   8.01
    	
Administrative   Agent’s Appointment as Attorney-in-Fact, Etc
    	
24
    
	
 
    	
Section   8.02
    	
Duty   of Administrative Agent
    	
25
    
	
 
    	
Section   8.03
    	
Execution   of Financing Statements
    	
26
    
	
 
    	
Section   8.04
    	
Authority   of Administrative Agent
    	
26
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE IX
    	
SUBORDINATION   OF INDEBTEDNESS
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   9.01
    	
Subordination   of All Guarantor Claims
    	
27
    
	
 
    	
Section   9.02
    	
Claims   in Bankruptcy
    	
27
    
	
 
    	
Section   9.03
    	
Payments   Held in Trust
    	
27
    
	
 
    	
Section   9.04
    	
Liens   Subordinate
    	
27
    
	
 
    	
Section   9.05
    	
Notation   of Records
    	
28
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE X
    	
MISCELLANEOUS
    	
28
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   10.01
    	
Waiver
    	
28
    
	
 
    	
Section   10.02
    	
Notices
    	
28
    
	
 
    	
Section   10.03
    	
Payment   of Expenses, Indemnities, Etc
    	
28
    
	
 
    	
Section   10.04
    	
Amendments   in Writing
    	
29
    
	
 
    	
Section   10.05
    	
Successors   and Assigns
    	
29
    
	
 
    	
Section   10.06
    	
Invalidity
    	
29
    
	
 
    	
Section   10.07
    	
Counterparts
    	
29
    
	
 
    	
Section   10.08
    	
Survival
    	
29
    
	
 
    	
Section   10.09
    	
Captions
    	
30
    

 

ii

 

TABLE OF CONTENTS

(continued)

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Section   10.10
    	
No   Oral Agreements
    	
30
    
	
 
    	
Section   10.11
    	
Governing   Law; Submission to Jurisdiction
    	
30
    
	
 
    	
Section   10.12
    	
Acknowledgments
    	
31
    
	
 
    	
Section   10.13
    	
Additional   Grantors
    	
32
    
	
 
    	
Section   10.14
    	
Set-Off
    	
32
    
	
 
    	
Section   10.15
    	
Releases
    	
32
    
	
 
    	
Section   10.16
    	
Reinstatement
    	
33
    
	
 
    	
Section   10.17
    	
Acceptance
    	
33
    
	
 
    	
Section   10.18
    	
Amended   and Restated Intercreditor Agreement
    	
33
    
	
 
    	
Section   10.19
    	
Existing   Guarantee and Collateral Agreement
    	
33
    

 

SCHEDULES:

 

1.                                       Notice Addresses of Guarantors

 

2.                                       Description of Pledged Securities

 

3.                                       Filings and Other Actions Required to Perfect Security Interests

 

4.                                       Legal Name, Location of Jurisdiction of Organization, Organizational Identification Number, Taxpayor Identification Number and Chief Executive Office

 

5.                                       Prior Names, Prior Chief Executive Office, Location of Tangible Assets

 

6.                                       Patents and Patent Licenses

 

7.                                       Trademarks and Trademark Licenses

 

ANNEX:

 

1.                                       Form of Assumption Agreement

 

iii

 

This AMENDED AND RESTATED SECOND LIEN GUARANTEE AND COLLATERAL AGREEMENT, dated as of October 28, 2011, is made by KODIAK OIL & GAS (USA) INC., a Colorado corporation (the “Borrower”) and each of the other signatories hereto other than the Administrative Agent (the Borrower and each of the other signatories hereto other than the Administrative Agent, together with any other Subsidiary of the Borrower that becomes a party hereto from time to time after the date hereof, the “Grantors”), in favor of WELLS FARGO ENERGY CAPITAL, INC., as administrative agent (in such capacity, together with its successors in such capacity, the “Administrative Agent”), for the banks and other financial institutions (the “Lenders”) from time to time parties to that certain Amended and Restated Second Lien Credit Agreement, dated as of even date herewith (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the Lenders, the Administrative Agent, and the other Agents party thereto.

 

R E C I T A L S

 

A.                                   The Borrower, as borrower, the lenders thereto, Wells Fargo Energy Capital, Inc., as administrative agent for the lenders thereto and others, are parties to that certain Second Lien Credit Agreement dated as of November 30, 2010, as amended by that certain First Amendment dated as of July 15, 2011 (as amended, the “Existing Credit Agreement”), pursuant to which the Lenders have made certain credit available to and on behalf of the Borrower.

 

B.                                     Pursuant to the Existing Credit Agreement, the Borrower, the Grantors, Wells Fargo Bank Energy Capital, Inc., as administrative agent for the lenders party to the Existing Credit Agreement and others, heretofore executed that certain Guarantee and Collateral Agreement, dated as of November 30, 2010 (as amended, supplemented, or otherwise modified, the “Existing Guaranty”).

 

C.                                     The Borrower has requested, and Wells Fargo Energy Capital, Inc., as administrative agent for the lenders party to the Existing Credit Agreement, and the lenders thereto have agreed, to amend and restate the Existing Credit Agreement and the Existing Guaranty.

 

D.                                    The Borrower, as borrower, the Lenders, the Administrative Agent, as administrative agent for the Lenders and others, executed the Credit Agreement pursuant to which, upon the terms and conditions stated therein, the Lenders agreed to make loans and other extensions of credit to the Borrower.

 

NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby agrees with the Administrative Agent, for the ratable benefit of the Lenders and the other Secured Parties, as follows:

 

1

 

ARTICLE I
 Definitions

 

Section 1.01  Definitions.

 

(a)           As used in this Agreement, each term defined above shall have the meaning indicated above.  Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms as well as all uncapitalized terms that are defined in the New York UCC on the date hereof are used herein as so defined:  Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Electronic Chattel Paper, Equipment, Fixtures, General Intangibles, Goods, Instruments, Inventory, Investment Property, Letter-of-Credit Rights, Payment Intangibles, Proceeds, Supporting Obligations, and Tangible Chattel Paper.

 

(b)           The following terms shall have the following meanings:

 

“Account Debtor” shall mean a Person (other than any Grantor) obligated on an Account, Chattel Paper, or General Intangible.

 

“Agreement” shall mean this Guarantee and Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time.

 

“Collateral” shall have the meaning assigned such term in Section 3.01.

 

“New York UCC” shall mean the Uniform Commercial Code, as it may be amended, from time to time in effect in the State of New York.

 

“Discharge of First Lien Obligations” shall have the meaning assigned to such term in the Intercreditor Agreement.

 

“First Lien Administrative Agent” has the meaning assigned to such term in the Intercreditor Agreement.

 

“First Lien Guarantee and Collateral Agreement” means that certain Amended and Restated Guarantee and Collateral Agreement, dated as of even date herewith, made by each of the Grantors party thereto in favor of First Lien Administrative Agent.

 

“First Lien Obligations” has the meaning assigned to such term in the Intercreditor Agreement.

 

“Guarantors” shall mean, collectively, each Grantor other than the Borrower.

 

“Intercreditor Agreement” shall have the meaning assigned to such term in Section 10.18.

 

“Issuers” shall mean, collectively, each issuer of a Pledged Security.

 

“Obligations” shall mean, collectively, all Indebtedness, liabilities and obligations of the Borrower and each Guarantor to the Secured Parties, of whatsoever nature and howsoever 

 

2

 

evidenced, due or to become due, now existing or hereafter arising, whether direct or indirect, absolute or contingent, which may arise under, out of, or in connection with the Credit Agreement, the other Loan Documents and all other agreements, guarantees, notes and other documents entered into by any party in connection therewith, and any amendment, restatement or modification of any of the foregoing, including, but not limited to, the full and punctual payment when due of any unpaid principal of the Loans, interest (including, without limitation, interest accruing at any post-default rate and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, reimbursement obligations, guaranty obligations, penalties, indemnities, legal and other fees, charges and expenses, and amounts advanced by and expenses incurred in order to preserve any collateral or security interest, whether due after acceleration or otherwise.

 

“Patents” shall mean: (i) all letters patent of the United States and all reissues and extensions thereof, including, without limitation, any thereof referred to in Schedule 6 hereto, and (ii) all applications for letters patent of the United States and all divisions, continuations and continuations-in-part thereof or any other country, including, without limitation, any thereof referred to in Schedule 6 hereto.

 

“Patent License” shall mean all agreements, whether written or oral, providing for the grant by any Grantor of any right to manufacture, use or sell any invention covered by a Patent, including, without limitation, any thereof referred to in Schedule 6 hereto.

 

“Pledged Securities” shall mean: (i) the equity interests described or referred to in Schedule 2; and (ii) (a) the certificates or instruments, if any, representing such equity interests, (b) all dividends (cash, stock or otherwise), cash, instruments, rights to subscribe, purchase or sell and all other rights and property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such equity interests, (c) all replacements, additions to and substitutions for any of the property referred to in this definition, including, without limitation, claims against third parties, (d) the proceeds, interest, profits and other income of or on any of the property referred to in this definition and (e) all books and records relating to any of the property referred to in this definition.

 

“Secured Parties” shall mean, collectively, the Administrative Agent and the Lenders.

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

“Trademarks” shall mean:  (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and the goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, including, without limitation, any thereof referred to in Schedule 7 hereto, and (ii) all renewals thereof.

 

3

 

“Trademark License” shall mean any agreement, written or oral, providing for the grant by any Grantor of any right to use any Trademark, including, without limitation, any thereof referred to in Schedule 7 hereto.

 

Section 1.02  Other Definitional Provisions; References.  The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.  The gender of all words shall include the masculine, feminine, and neuter, as appropriate.  The words “herein,” “hereof,” “hereunder” and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection.  Any reference herein to a Section shall be deemed to refer to the applicable Section of this Agreement unless otherwise stated herein.  Any reference herein to an exhibit, schedule or annex shall be deemed to refer to the applicable exhibit, schedule or annex attached hereto unless otherwise stated herein.  Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof.

 

ARTICLE II
 Guarantee

 

Section 2.01  Guarantee.

 

(a)           Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Administrative Agent, for the ratable benefit of the Secured Parties and each of their respective successors, endorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower and the Guarantors when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.  This is a guarantee of payment and not collection and the liability of each Guarantor is primary and not secondary.

 

(b)           Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors.

 

(c)           Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Article II or affecting the rights and remedies of the Administrative Agent or any Secured Party hereunder.

 

(d)           Each Guarantor agrees that if the maturity of any of the Obligations is accelerated by bankruptcy or otherwise, such maturity shall also be deemed accelerated for the purpose of this guarantee without demand or notice to such Guarantor.  The guarantee contained in this Article II shall remain in full force and effect until all the Obligations shall have been satisfied by payment in full, and the Credit Agreement and the total Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement, no Obligations may be outstanding.

 

(e)           No payment made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any other 

 

4

 

Secured Party from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are paid in full, and the Credit Agreement and the total Commitments are terminated.

 

Section 2.02  Payments.  Each Guarantor hereby agrees and guarantees that payments hereunder will be paid to the Administrative Agent without set-off or counterclaim in United States dollars at the Administrative Agent’s principal office in Denver, Colorado.

 

ARTICLE III
 Grant of Security Interest

 

Section 3.01  Grant of Security Interest.  Each Grantor hereby pledges, assigns and transfers to the Administrative Agent, and grants to the Administrative Agent, for the ratable benefit of the Secured Parties, a security interest in all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest and whether now existing or hereafter coming into existence (collectively, the “Collateral”), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations:

 

(1)           all Accounts;

 

(2)           all Chattel Paper (whether Tangible Chattel Paper or Electronic Chattel Paper);

 

(3)           all Commercial Tort Claims;

 

(4)           all Deposit Accounts other than payroll, withholding tax and other fiduciary Deposit Accounts;

 

(5)           all Documents;

 

(6)           all General Intangibles (including, without limitation, rights in and under any Swap Agreements);

 

(7)           all Goods (including, without limitation, all Inventory and all Equipment, but excluding all Fixtures);

 

(8)           all Instruments;

 

(9)           all Investment Property;

 

5

 

(10)         all Letter-of-Credit Rights (whether or not the letter of credit is evidenced by a writing);

 

(11)         all Patents;

 

(12)         all Patent Licenses;

 

(13)         all Pledged Securities;

 

(14)         all Supporting Obligations;

 

(15)         all Trademarks;

 

(16)         all books and records pertaining to the Collateral; and

 

(17)         to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security, guarantees and other Supporting Obligations given with respect to any of the foregoing.

 

Notwithstanding anything herein to the contrary, in no event shall the security interest granted pursuant to this Article II attach to, or the term “Collateral” be deemed to include, (a) any of the outstanding equity interests in a Subsidiary of any Grantor organized under the laws of a jurisdiction not located in the United States of America ( a “Foreign Subsidiary”) (i) in excess of 65% of the voting power of all classes of equity interests of such Foreign Subsidiary entitled to vote in the election of directors or other similar body of such Foreign Subsidiary or (ii) to the extent that the pledge thereof is prohibited by the laws of the jurisdiction of such Foreign Subsidiary’s organization; (b) any equity interest in any Foreign Subsidiary that is not a first-tier Subsidiary of any Grantor; (c) any lease, license, contract, property rights or agreement to which a Grantor is a party or any of such Grantor’s rights or interests thereunder, if, and for so long as and to the extent that, the grant of the security interest hereunder would constitute or result in (i) the abandonment, invalidation or unenforceability of any material right, title or interest of such Grantor therein or (ii) a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract, property rights or agreement (other than to the extent that any such breach, termination or default would be rendered ineffective pursuant to Section 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction, any other applicable law or principles of equity), provided, however, that the security interest granted hereunder (x) shall attach immediately when the condition causing such abandonment, invalidation or unenforceability is remedied, (y) shall attach immediately to any severable term of such lease, license, contract, property rights or agreement to the extent that such attachment does not result in any of the consequences specified in (i) or (ii) above and (z) shall attach immediately to any such lease, license, contract, property rights or agreement to which the account debtor or such Grantor’s counterparty has consented to such attachment; and (d) any application to register any Trademark prior to the filing under applicable law of a verified statement of use (or the equivalent) for such Trademark to the extent the creation of a security interest therein or the grant of a mortgage thereon would void or invalidate such Trademark (collectively, the “Excluded Property”); provided, however, that any Collateral (or any portion thereof) that ceases to satisfy the criteria for Excluded Property (whether as a result of a Grantor obtaining any necessary consent, any change in any rule of law, statute or regulation or

 

6

 

otherwise) shall no longer be Excluded Property and the security interest granted hereunder shall attach immediately to such Collateral (or portion thereof) at such time.

 

Section 3.02  Transfer of Pledged Securities.  All certificates and instruments representing or evidencing the Pledged Securities shall be delivered to and held pursuant hereto by the First Lien Administrative Agent or a Person designated by the First Lien Administrative Agent, in either case, which shall act as the Administrative Agent’s bailee and agent in accordance with the terms of the Intercreditor Agreement, and, in the case of an instrument or certificate in registered form, shall be duly indorsed to the First Lien Administrative Agent or in blank by an effective indorsement (whether on the certificate or instrument or on a separate writing), and accompanied by any required transfer tax stamps to effect the pledge of the Pledged Securities to the First Lien Administrative Agent.  As required by and in compliance with the Intercreditor Agreement, upon the Discharge of First Lien Obligations, (i) the First Lien Administrative Agent shall transfer the possession and control of all certificates and instruments representing or evidencing the Pledged Securities, together with any necessary endorsements but without recourse or warranty, and (ii) all Pledged Securities must be delivered or transferred in such manner, and each Grantor shall take all such further action as may be requested by the Administrative Agent, as to permit the Administrative Agent to be a “protected purchaser” to the extent of its security interest as provided in Section 8-303 of the New York UCC (if the Administrative Agent otherwise qualifies as a protected purchaser).

 

Section 3.03  Grantors Remains Liable under Accounts, Chattel Paper and Payment Intangibles.  Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of the Accounts, Chattel Paper and Payment Intangibles to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account, Chattel Paper or Payment Intangible.  Neither the Administrative Agent nor any other Secured Party shall have any obligation or liability under any Account, Chattel Paper or Payment Intangible (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Administrative Agent or any such other Secured Party of any payment relating to such Account, Chattel Paper or Payment Intangible, pursuant hereto, nor shall the Administrative Agent or any other Secured Party be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Account, Chattel Paper or Payment Intangible (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account, Chattel Paper or Payment Intangible (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

 

ARTICLE IV
 Acknowledgments, Waivers and Consents

 

Section 4.01  Acknowledgments, Waivers and Consents.

 

(a)                                  Each Guarantor acknowledges and agrees that the obligations undertaken by it under this Agreement involve the guarantee and each Grantor acknowledges and agrees that the obligations undertaken by it involve the provision of collateral security for the obligations of

 

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Persons other than such Grantor (other than the Borrower) and that such Guarantor’s guarantee and such Grantor’s provision of collateral security for the Obligations are absolute, irrevocable and unconditional under any and all circumstances.  In full recognition and furtherance of the foregoing, each Grantor understands and agrees, to the fullest extent permitted under applicable law and except as may otherwise be expressly and specifically provided in the Loan Documents, that each Grantor shall remain obligated hereunder (including, without limitation, with respect to the guarantee made by such Guarantor hereby and the collateral security provided by such Grantor herein) and the enforceability and effectiveness of this Agreement and the liability of such Grantor, and the rights, remedies, powers and privileges of the Administrative Agent and the other Secured Parties under this Agreement and the other Loan Documents shall not be affected, limited, reduced, discharged or terminated in any way:

 

(i)                                     notwithstanding that, without any reservation of rights against any Grantor and without notice to or further assent by any Grantor, (A) any demand for payment of any of the Obligations made by the Administrative Agent or any other Secured Party may be rescinded by the Administrative Agent or such other Secured Party and any of the Obligations continued; (B) the Obligations, the liability of any other Person upon or for any part thereof or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by, or any indulgence or forbearance in respect thereof granted by, the Administrative Agent or any other Secured Party; (C) the Credit Agreement, the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Majority Lenders or all Lenders, as the case may be) may deem advisable from time to time; (D) the Borrower, any Grantor or any other Person may from time to time accept or enter into new or additional agreements, security documents, guarantees or other instruments in addition to, in exchange for or relative to, any Loan Document, all or any part of the Obligations or any Collateral now or in the future serving as security for the Obligations; (E) any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any other Secured Party for the payment of the Obligations may be sold, exchanged, waived, surrendered or released; and (F) any other event shall occur which constitutes a defense or release of sureties generally; and

 

(ii)                                  without regard to, and each Grantor hereby expressly waives to the fullest extent permitted by law any defense now or in the future arising by reason of, (A) the illegality, invalidity or unenforceability of the Credit Agreement, any other Loan Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any other Secured Party, (B) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Grantor or any other Person against the Administrative Agent or any other Secured Party, (C) the insolvency, bankruptcy arrangement, reorganization, adjustment, composition, liquidation, disability, dissolution or lack of power of any Grantor or any other Person at any time liable for the payment of all or part of the Obligations or the failure of the Administrative Agent or any other Secured Party to file or enforce a claim in bankruptcy or other proceeding with respect to any Person; or any sale, lease or transfer of any or all of the assets of the any Grantor, or any changes in the shareholders of any Grantor; (D) the fact that any Collateral or Lien contemplated or

 

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intended to be given, created or granted as security for the repayment of the Obligations shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other Lien, it being recognized and agreed by each of the Grantors that it is not entering into this Agreement in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectability or value of any of the Collateral for the Obligations; (E) any failure of the Administrative Agent or any other Secured Party to marshal assets in favor of any Grantor or any other Person, to exhaust any collateral for all or any part of the Obligations, to pursue or exhaust any right, remedy, power or privilege it may have against any Grantor or any other Person or to take any action whatsoever to mitigate or reduce any Grantor’s liability under this Agreement or any other Loan Document; (F) any law which provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety’s or guarantor’s obligation in proportion to the principal obligation; (G) the possibility that the Obligations may at any time and from time to time exceed the aggregate liability of such Grantor under this Agreement; or (H) any other circumstance or act whatsoever (with or without notice to or knowledge of any Grantor), which constitutes, or might be construed to constitute, an equitable or legal discharge or defense of the Borrower for the Obligations, or of such Grantor under the guarantee contained in Article II or with respect to the collateral security provided by such Grantor herein, or which might be available to a surety or guarantor, in bankruptcy or in any other instance.

 

(b)                                 Each Grantor hereby waives to the extent permitted by law:  (i) except as expressly provided otherwise in any Loan Document, all notices to such Grantor, or to any other Person, including but not limited to, notices of the acceptance of this Agreement, the guarantee contained in Article II or the provision of collateral security provided herein, or the creation, renewal, extension, modification, accrual of any Obligations, or notice of or proof of reliance by the Administrative Agent or any other Secured Party upon the guarantee contained in Article II or upon the collateral security provided herein, or of default in the payment or performance of any of the Obligations owed to the Administrative Agent or any other Secured Party and enforcement of any right or remedy with respect thereto; or notice of any other matters relating thereto; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in Article II and the collateral security provided herein and no notice of creation of the Obligations or any extension of credit already or hereafter contracted by or extended to the Borrower need be given to any Grantor; and all dealings between the Borrower and any of the Grantors, on the one hand, and the Administrative Agent and the other Secured Parties, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in Article II and on the collateral security provided herein; (ii) diligence and demand of payment, presentment, protest, dishonor and notice of dishonor; (iii) any statute of limitations affecting any Grantor’s liability hereunder or the enforcement thereof; (iv) all rights of revocation with respect to the Obligations, the guarantee contained in Article II and the provision of collateral security herein; and (v) all principles or provisions of law which conflict with the terms of this Agreement and which can, as a matter of law, be waived.

 

(c)                                  When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Grantor, the Administrative Agent or any other Secured Party may, but shall be under no obligation to, join or make a similar demand on or otherwise pursue or exhaust such rights and remedies as it may have against the Borrower, any other Grantor or

 

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any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any other Secured Party to make any such demand, to pursue such other rights or remedies or to collect any payments from the Borrower, any other Grantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower, any Grantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Grantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any other Secured Party against any Grantor.  For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.  Neither the Administrative Agent nor any other Secured Party shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for the guarantee contained in Article II or any property subject thereto.

 

Section 4.02  No Subrogation, Contribution or Reimbursement.  Notwithstanding any payment made by any Grantor hereunder or any set-off or application of funds of any Grantor by the Administrative Agent or any other Secured Party, no Grantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any other Secured Party against the Borrower or any other Grantor or any collateral security or guarantee or right of offset held by the Administrative Agent or any other Secured Party for the payment of the Obligations, nor shall any Grantor seek or be entitled to seek any indemnity, exoneration, participation, contribution or reimbursement from the Borrower or any other Grantor in respect of payments made by such Grantor hereunder, and each Grantor hereby expressly waives, releases, and agrees not to exercise any all such rights of subrogation, reimbursement, indemnity and contribution.  Each Grantor further agrees that to the extent that such waiver and release set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement, indemnity and contribution such Grantor may have against the Borrower, any other Grantor or against any collateral or security or guarantee or right of offset held by the Administrative Agent or any other Secured Party shall be junior and subordinate to any rights the Administrative Agent and the other Secured Parties may have against the Borrower and such Grantor and to all right, title and interest the Administrative Agent and the other Secured Parties may have in any collateral or security or guarantee or right of offset.  The Administrative Agent, for the benefit of the Secured Parties, may use, sell or dispose of any item of Collateral or security as it sees fit without regard to any subrogation rights any Grantor may have, and upon any disposition or sale, any rights of subrogation any Grantor may have shall terminate.

 

ARTICLE V
 Representations and Warranties

 

To induce the Administrative Agent and the other Secured Parties to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby represents and warrants to the Administrative Agent and each other Secured Party that:

 

Section 5.01  Representations in Credit Agreement.  In the case of each Guarantor, the representations and warranties set forth in Article VII of the Credit Agreement as they relate to

 

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such Guarantor (in its capacity as a Subsidiary of the Borrower) or to the Loan Documents to which such Guarantor is a party are true and correct in all material respects, provided that each reference in each such representation and warranty to the Borrower’s knowledge shall, for the purposes of this Section 5.01, be deemed to be a reference to such Guarantor’s knowledge.

 

Section 5.02  Benefit to the Guarantor.  The Borrower is a member of an affiliated group of companies that includes each Guarantor, and the Borrower and the Guarantors are engaged in related businesses.  Each Guarantor is a Subsidiary of the Borrower and its guaranty and surety obligations pursuant to this Agreement reasonably may be expected to benefit, directly or indirectly, it; and it has determined that this Agreement is necessary and convenient to the conduct, promotion and attainment of the business of such Guarantor and the Borrower.

 

Section 5.03  Solvency.  Such Guarantor (i) is not insolvent as of the date hereof and will not be rendered insolvent as a result of this Agreement (after giving effect to Section 2.01(a)), (ii) is not engaged in a business or a transaction, or about to engage in a business or a transaction, for which any Property or assets remaining with it constitute unreasonably small capital, and (iii) does not intend to incur, or believe it will incur, debts that will be beyond its ability to pay as such debts mature.

 

Section 5.04  Title; No Other Liens.  Except for the security interest granted to the Administrative Agent for the ratable benefit of the Secured Parties pursuant to this Agreement and Excepted Liens, such Grantor is the legal and beneficial owner of its respective items of the Collateral free and clear of any and all Liens.  No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, pursuant to this Agreement, the Security Instruments or as are filed to secure Liens permitted by Section 9.03 of the Credit Agreement.

 

Section 5.05  Perfected Second Priority Liens.  The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on Schedule 3 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Administrative Agent in completed and duly executed form), will constitute valid perfected security interests in all of the Collateral (other than trucks, trailers and other motor vehicles covered by a certificate of title law of any state, Commercial Tort Claims subject to Section 6.15, Letter-of-Credit Rights less than $500,000 and Deposit Accounts not maintained with the Administrative Agent or its Affiliates) in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, as collateral security for such Grantor’s obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor (except for the First Lien Administrative Agent and the First Lenders prior to the Discharge of First Lien Obligations) and any Persons purporting to purchase any Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for Liens granted in connection with the Senior Revolving Credit Documents and Excepted Liens which have priority over the Liens on the Collateral by operation of law.  No effective financing statement or other registration or instrument similar in effect covering any Collateral is on file in any recording office except any that has been filed in favor of the Senior Administrative Agent or the Senior Lenders in connection with the Senior Revolving Credit Documents, those in favor

 

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of the Secured Parties relating to this Agreement and any that has been filed to perfect or protect any Excepted Lien.

 

Section 5.06  Legal Name, Organizational Status, Chief Executive Office.  On the date hereof, the correct legal name of such Grantor, such Grantor’s jurisdiction of organization, organizational number, taxpayor identification number and the location of such Grantor’s chief executive office or sole place of business are specified on Schedule 4.

 

Section 5.07  Prior Names, Addresses, Locations of Tangible Assets.  Schedule 5 correctly sets forth (a) all names and trade names that such Grantor has used in the last five years and (b) the chief executive office of such Grantor over the last five years (if different from that which is set forth in Section 5.06 above).

 

Section 5.08  Pledged Securities.  The shares (or such other interests) of Pledged Securities pledged by such Grantor hereunder constitute all the issued and outstanding shares (or such other interests) of all classes of the capital stock or other equity interests of each Issuer owned by such Grantor.  All the shares (or such other interests) of the Pledged Securities have been duly authorized and validly issued and are fully paid and nonassessable; and such Grantor is the record and beneficial owner of, and has good title to, the Pledged Securities pledged by it hereunder, free of any and all Liens except Excepted Liens or options in favor of, or claims of, any other Person, except the security interest created by this Agreement or any other Security Instrument, Liens on Property securing the Debt under the Senior Revolving Credit Documents, and Excepted Liens.

 

Section 5.09  Goods.  No portion of the Collateral constituting Goods is in the possession of a bailee that has issued a negotiable or non-negotiable document covering such Collateral.

 

Section 5.10  Instruments and Chattel Paper.  Such Grantor has delivered to the First Lien Administrative Agent, as bailee and agent for the Administrative Agent in accordance with the Intercreditor Agreement, all Collateral constituting Instruments and Chattel Paper.  No Collateral constituting Chattel Paper or Instruments contains any statement therein to the effect that such Collateral has been assigned to an identified party other than the First Lien Administrative Agent (in its own capacity for the benefit of the Senior Lenders or in its capacity as bailee for the Administrative Agent for the benefit of the Lenders, or in both capacities), and the grant of a security interest in such Collateral in favor of the First Lien Administrative Agent hereunder does not violate the rights of any other Person as a secured party.

 

Section 5.11  Truth of Information; Accounts.  All information with respect to the Collateral set forth in any schedule, certificate or other writing at any time heretofore or hereafter furnished by such Grantor to the Administrative Agent or any other Secured Party, and all other written information heretofore or hereafter furnished by such Grantor to the Administrative Agent or any other Secured Party is and will be true and correct in all material respects as of the date furnished.  The amount represented by such Grantor to the Administrative Agent and the Lenders from time to time as owing by each Account Debtor or by all Account Debtors in respect of the Accounts, Chattel Paper and Payment Intangibles will at such time be the correct amount actually owing by such Account Debtor or Account Debtors thereunder.  The place

 

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where each Grantor keeps its records concerning the Accounts, Chattel Paper and Payment Intangibles is as set forth on Schedule 4.

 

Section 5.12  Governmental Obligors.  None of the Account Debtors on such Grantor’s Accounts, Chattel Paper or Payment Intangibles is a Governmental Authority.

 

Section 5.13  Patents and Trademarks.  Schedule 6 hereto includes all Patents and Patent Licenses owned by such Grantor in its own name as of the date hereof.  Schedule 7 hereto includes all Trademarks and Trademark Licenses owned by such Grantor in its own name as of the date hereof.  To the best of each such Grantor’s knowledge, each Patent and Trademark is valid, subsisting, unexpired, enforceable and has not been abandoned.  Except as set forth in either such Schedule, none of such Patents and Trademarks is the subject of any licensing or franchise agreement.  No holding, decision or judgment has been rendered by any Governmental Authority which would limit, cancel or question the validity of any Patent or Trademark.  No action or proceeding is pending (i) seeking to limit, cancel or question the validity of any Patent or Trademark, or (ii) which, if adversely determined, would Material Adverse Effect on the value of any Patent or Trademark.

 

ARTICLE VI
 Covenants

 

Each Grantor covenants and agrees with the Administrative Agent and the other Secured Parties that, from and after the date of this Agreement until the Obligations shall have been paid in full and the total Commitments shall have terminated:

 

Section 6.01  Covenants in Credit Agreement.  In the case of each Guarantor, such Guarantor shall take, or shall refrain from taking, as the case may be, each action that is necessary to be taken or not taken, as the case may be, so that no Default or Event of Default is caused by the failure to take such action or to refrain from taking such action by such Guarantor or any of its Subsidiaries.

 

Section 6.02  Maintenance of Perfected Security Interest; Further Documentation.

 

(a)                                  Such Grantor shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 5.05 and shall, in accordance with the terms of the Intercreditor Agreement, defend such security interest against the claims and demands of all Persons whomsoever except for Excepted Liens.

 

(b)                                 At any time and from time to time, upon the request of the Administrative Agent or any other Secured Party, and at the sole expense of such Grantor, such Grantor will promptly and duly give, execute, deliver, indorse, file or record any and all financing statements, continuation statements, amendments, notices (including, without limitation, notifications to financial institutions and any other Person), contracts, agreements, assignments, certificates, stock powers or other instruments, obtain any and all governmental approvals and consents and take or cause to be taken any and all steps or acts that may be necessary or advisable or as the Administrative Agent may reasonably request to create, perfect, establish the priority of, or to preserve the validity, perfection or priority of, the Liens granted by this Agreement or to enable the Administrative Agent or any other Secured Party to enforce its rights, remedies, powers and

 

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privileges under this Agreement with respect to such Liens or to otherwise obtain or preserve the full benefits of this Agreement and the rights, powers and privileges herein granted .

 

(c)                                  Without limiting the obligations of the Grantors under Section 6.02(b):  (i) upon the request of the Administrative Agent or any other Secured Party, such Grantor shall take or cause to be taken all actions (other than any actions required to be taken by the Administrative Agent or any Lender) requested by the Administrative Agent to cause the Administrative Agent to (A) have “control” (within the meaning of Sections 9-104, 9-105, 9-106, and 9-107 of the New York UCC) over any Collateral constituting Deposit Accounts, Electronic Chattel Paper, Investment Property (including the Pledged Securities), except to the extent that any such Collateral is subject to the “control” of the First Lien Administrative Agent, or Letter-of-Credit Rights, including, without limitation, executing and delivering any agreements, in form and substance satisfactory to the Administrative Agent, with securities intermediaries, issuers or other Persons in order to establish “control”, and each Grantor shall promptly notify the Administrative Agent and the other Secured Parties of such Grantor’s acquisition of any such Collateral, and (B) be a “protected purchaser” (as defined in Section 8-303 of the New York UCC); (ii) with respect to Collateral other than certificated securities and goods covered by a document in the possession of a Person other than such Grantor, the Administrative Agent or the First Lien Administrative Agent (as bailee for the Administrative Agent), such Grantor shall obtain written acknowledgment that such Person holds possession for the Administrative Agent’s benefit; and (iii) with respect to any Collateral constituting Goods that are in the possession of a bailee, such Grantor shall provide prompt notice to the Administrative Agent and the other Secured Parties of any such Collateral then in the possession of such bailee, and such Grantor shall take or cause to be taken all actions (other than any actions required to be taken by the Administrative Agent or any other Secured Party) necessary or requested by the Administrative Agent to cause the Administrative Agent to have a perfected security interest in such Collateral under applicable law.

 

(d)                                 This Section 6.02 and the obligations imposed on each Grantor by this Section 6.02 shall be interpreted as broadly as possible in favor of the Administrative Agent and the other Secured Parties in order to effectuate the purpose and intent of this Agreement.

 

Section 6.03  Maintenance of Records.  Such Grantor will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Accounts.  For the Administrative Agent’s and the other Secured Parties’ further security, the Administrative Agent, for the ratable benefit of the Secured Parties, shall have a security interest in all of such Grantor’s books and records pertaining to the Collateral, and such Grantor shall turn over any such books and records to the Administrative Agent or to its representatives during normal business hours at the request of the Administrative Agent and shall provide such clerical and other assistance as may be reasonably requested with regard thereto.

 

Section 6.04  Right of Inspection.  The Administrative Agent and its respective representatives shall at all times have full and free access during normal business hours to all the books, correspondence and records of such Grantor, and the Administrative Agent and its respective representatives may examine the same, take extracts therefrom and make photocopies thereof and shall at all times also have the right to enter into and upon any premises where any of

 

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the Collateral (including, without limitation, Inventory or Equipment) is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein, and such Grantor agrees to render to the Administrative Agent and its respective representatives, at such Grantor’s sole cost and expense, such clerical and other assistance as may be reasonably requested with regard to any of the foregoing; provided, that so long as no Event of Default has occurred and is continuing, such Grantor shall only be responsible to reimburse the fees and expenses of the Administrative Agent for two visits per calendar year, notwithstanding anything to the contrary in this Agreement.

 

Section 6.05  Further Identification of Collateral.  Such Grantor will furnish to the Administrative Agent and the Lenders from time to time, at such Grantor’s sole cost and expense, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail.

 

Section 6.06  Changes in Locations, Name, etc.  Such Grantor recognizes that financing statements pertaining to the Collateral have been or may be filed where such Grantor maintains any Collateral or is organized.  Without limitation of any other covenant herein, such Grantor will not cause or permit (a) any change to be made in its name, identity or corporate structure or (b) any change to the identity of any warehouseman, common carrier, other third-party transporter, bailee or any agent or processor in possession or control of any Collateral or (c) such Grantor’s jurisdiction of organization or (d) the location of any Collateral, unless such Grantor shall have first (i) notified the Administrative Agent and the other Secured Parties of such change at least thirty (30) days prior to the effective date of such change, and (ii) taken all action reasonably requested by the Administrative Agent or any other Secured Party for the purpose of maintaining the perfection and priority of the Administrative Agent’s security interests under this Agreement.  In any notice furnished pursuant to this Section 6.06, such Grantor will expressly state in a conspicuous manner that the notice is required by this Agreement and contains facts that may require additional filings of financing statements or other notices for the purposes of continuing perfection of the Administrative Agent’s security interest in the Collateral.

 

Section 6.07  Compliance with Contractual Obligations.  Such Grantor will perform and comply in all material respects with all its contractual obligations relating to the Collateral (including, without limitation, with respect to the goods or services, the sale or lease or rendition of which gave rise or will give rise to each Account).

 

Section 6.08  Limitations on Dispositions of Collateral.  The Administrative Agent and the other Secured Parties do not authorize, and such Grantor agrees not to sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer or contract to do so except to the extent expressly permitted by the Credit Agreement.

 

Section 6.09  Pledged Securities.

 

(a)                                  If such Grantor shall become entitled to receive or shall receive any stock certificate or other instrument (including, without limitation, any certificate or instrument representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate or instrument issued in connection with any

 

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reorganization), option or rights in respect of the capital stock or other equity interests of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares (or such other interests) of the Pledged Securities, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Administrative Agent and the other Secured Parties, hold the same in trust for the Administrative Agent and the other Secured Parties and deliver the same forthwith to the Administrative Agent in the exact form received, duly indorsed by such Grantor to the Administrative Agent, if required, together with an undated stock power or other equivalent instrument of transfer acceptable to the Administrative Agent covering such certificate or instrument duly executed in blank by such Grantor and with, if the Administrative Agent so requests, signature guaranteed, to be held by the Administrative Agent, subject to the terms hereof, as additional collateral security for the Obligations; provided, however, that if the foregoing occurs prior to the Discharge of First Lien Obligations, such Grantor shall accept the same as the agent of the First Lien Administrative Agent (for itself and as bailee for the Administrative Agent) and the Senior Secured Parties, hold the same in trust for the First Lien Administrative Agent (for itself and as bailee for the Administrative Agent) and the Senior Secured Parties and deliver the same forthwith to the First Lien Administrative Agent, for itself and as bailee for the Administrative Agent, in the exact form received, duly indorsed by such Grantor to the First Lien Administrative Agent, if required, together with an undated stock power or other equivalent instrument of transfer acceptable to the Administrative Agent covering such certificate or instrument duly executed in blank by such Grantor and with, if the Administrative Agent so requests, signature guaranteed, to be held by the First Lien Administrative Agent, for itself and as bailee for the Administrative Agent, subject to the terms hereof, as additional collateral security for the Obligations.

 

(b)                                 Subject to the terms of the Intercreditor Agreement, without the prior written consent of the Administrative Agent, such Grantor will not (i) unless otherwise permitted hereby, vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity interests of any nature or to issue any other securities or interests convertible into or granting the right to purchase or exchange for any stock or other equity interests of any nature of any Issuer, (ii) sell, assign, transfer, exchange or otherwise dispose of, or grant any option with respect to, the Pledged Securities or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement), (iii) create, incur or permit to exist any Lien except for Excepted Liens or option in favor of, or any claim of any Person with respect to, any of the Pledged Securities or Proceeds thereof, or any interest therein, except for the security interests created by this Agreement or any other Security Instrument, Liens on Property securing the Debt under the Senior Revolving Credit Documents or (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Administrative Agent to sell, assign or transfer any of the Pledged Securities or Proceeds thereof.

 

(c)                                  In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Pledged Securities issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Administrative Agent promptly in writing of the occurrence of any of the events described in Section 6.09(a) with respect to the Pledged Securities issued by it and (iii) the terms of Section 7.01(c) and Section 7.05 shall apply to it, mutatis mutandis, with respect to all actions that may be required of it pursuant to Section 7.01(c) or Section 7.05 with respect to the Pledged Securities issued by it.

 

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(d)                                 Such Grantor shall furnish to the Administrative Agent or the First Lien Administrative Agent, as the case may be, such stock powers and other equivalent instruments of transfer as may be required by the Administrative Agent to assure the transferability of and the perfection of the security interest in the Pledged Securities when and as often as may be reasonably requested by the Administrative Agent.

 

(e)                                  The Pledged Securities will at all times constitute not less than 100% of the capital stock or other equity interests of the Issuer thereof owned by any Grantor.  Each Grantor will not permit any Issuer of any of the Pledged Securities to issue any new shares (or other interests) of any class of capital stock or other equity interests of such Issuer without the prior written consent of the Administrative Agent.

 

Section 6.10  Limitations on Modifications, Waivers, Extensions of Agreements Giving Rise to Accounts.  Such Grantor will not (i) amend, modify, terminate or waive any provision of any Chattel Paper, Instrument or any agreement giving rise to an Account or Payment Intangible in any manner which could reasonably be expected to have a Material Adverse Effect on the value of such Chattel Paper, Instrument, Payment Intangible or Account as Collateral, or (ii) fail to exercise promptly and diligently each and every material right which it may have under any Chattel Paper, Instrument and each agreement giving rise to an Account or Payment Intangible (other than any right of termination).  Such Grantor shall deliver to the Administrative Agent a copy of each material demand, notice or document received by it relating in any way to any Chattel Paper, Instrument or any agreement giving rise to an Account or Payment Intangible.

 

Section 6.11  Analysis of Accounts, Etc.  The Administrative Agent shall have the right from time to time to make test verifications of the Accounts, Chattel Paper and Payment Intangibles in any manner and through any medium that it reasonably considers advisable, and each Grantor, at such Grantor’s sole cost and expense, shall furnish all such assistance and information as the Administrative Agent may require in connection therewith.  At any time and from time to time, upon the Administrative Agent’s request and at the expense of each Grantor, such Grantor shall furnish to the Administrative Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts, Chattel Paper and Payment Intangibles, and all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Accounts, Chattel Paper and Payment Intangibles, including, without limitation, all original orders, invoices and shipping receipts.

 

Section 6.12  Instruments and Tangible Chattel Paper.  If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Tangible Chattel Paper, such Instrument or Tangible Chattel Paper shall be immediately delivered to the First Lien Administrative Agent, as bailee for the Administrative Agent, duly endorsed in a manner satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Agreement.

 

Section 6.13  Maintenance of Equipment.  Such Grantor will maintain each item of Equipment in good operating condition, ordinary wear and tear and immaterial impairments of value and damage by the elements excepted, and will provide all maintenance, service and repairs necessary for such purpose.

 

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Section 6.14  Patents and Trademarks.

 

(a)                                  Such Grantor (either itself or through licensees) will, except with respect to any Trademark that such Grantor shall reasonably determine is of negligible economic value to it, (i) continue to use each Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) employ such Trademark with the appropriate notice of registration, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Administrative Agent, for the ratable benefit of the Secured Parties, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any Trademark may become invalidated.

 

(b)                                 Such Grantor will not, except with respect to any Patent that such Grantor shall reasonably determine is of negligible economic value to it, do any act, or omit to do any act, whereby any Patent may become abandoned or dedicated.

 

(c)                                  Such Grantor will notify the Administrative Agent and the other Secured Parties immediately if it knows, or has reason to know, that any application or registration relating to any Patent or Trademark that is material to the business or operations of such Grantor or the Grantors taken as a whole may become abandoned or dedicated, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office or any court or tribunal in any country) regarding such Grantor’s ownership of any such Patent or Trademark or its right to register the same or to keep and maintain the same.

 

(d)                                 Whenever a Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Patent or Trademark with the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Administrative Agent and the other Secured Parties in connection with the delivery by the Borrower of the compliance certificates required pursuant to Section 8.01(c) of the Credit Agreement.  Upon request of the Administrative Agent, such Grantor shall execute and deliver any and all agreements, instruments, documents, and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent’s and the other Secured Parties’ security interest in any Patent or Trademark and the goodwill and General Intangibles of such Grantor relating thereto or represented thereby, and such Grantor hereby constitutes the Administrative Agent its attorney-in-fact to execute and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power being coupled with an interest is irrevocable until the Obligations are paid in full and the Commitments are terminated.

 

(e)                                  Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each

 

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registration of the Patents and Trademarks that are material to the business or operations of such Grantor or the Grantors taken as a whole, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability.

 

(f)                                    In the event that any Patent or Trademark included in the Collateral is infringed, misappropriated or diluted by a third party, such Grantor shall promptly notify the Administrative Agent and the other Secured Parties after it learns thereof and shall, unless such Grantor shall reasonably determine that such Patent or Trademark is of negligible economic value to such Grantor which determination such Grantor shall promptly report to the Administrative Agent and the other Secured Parties, promptly sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution, or take such other actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Patent or Trademark.

 

Section 6.15  Commercial Tort Claims.  If such Grantor shall at any time hold or acquire a Commercial Tort Claim that satisfies the requirements of the following sentence, such Grantor shall, within thirty (30) days after such Commercial Tort Claim satisfies such requirements, notify the Administrative Agent and the other Secured Parties in a writing signed by such Grantor containing a brief description thereof, and granting to the Administrative Agent in such writing (for the benefit of the Secured Parties) a security interest therein and in the Proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Administrative Agent and the other Secured Parties.  The provisions of the preceding sentence shall apply only to a Commercial Tort Claim that satisfies the following requirements:  (i) the monetary value claimed by or payable to the relevant Grantor in connection with such Commercial Tort Claim shall exceed $500,000, and either (ii) (A) such Grantor shall have filed a law suit or counterclaim or otherwise commenced legal proceedings (including, without limitation, arbitration proceedings) against the Person against whom such Commercial Tort Claim is made, or (B) such Grantor and the Person against whom such Commercial Tort Claim is asserted shall have entered into a settlement agreement with respect to such Commercial Tort Claim.  In addition, to the extent that the existence of any Commercial Tort Claim held or acquired by any Grantor is disclosed by such Grantor in any public filing with the Securities Exchange Commission or any successor thereto or analogous Governmental Authority, or to the extent that the existence of any such Commercial Tort Claim is disclosed in any press release issued by any Grantor, then, upon the request of the Administrative Agent, the relevant Grantor shall, within thirty (30) days after such request is made, transmit to the Administrative Agent and the other Secured Parties a writing signed by such Grantor containing a brief description of such Commercial Tort Claim and granting to the Administrative Agent in such writing (for the benefit of the Secured Parties) a security interest therein and in the Proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Administrative Agent and the other Secured Parties.

 

Section 6.16  Letter-of-Credit Rights.  If any Grantor shall at any time be entitled to Letter-of-Credit Rights in excess of $500,000, such Grantor shall notify the Administrative Agent of such rights in connection with the delivery by the Borrower of the compliance certificates required pursuant to Section 8.01(c) of the Credit Agreement.

 

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ARTICLE VII
 Remedial Provisions

 

Section 7.01  Pledged Securities.

 

(a)                                  Unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given notice to the relevant Grantor of the Administrative Agent’s intent to exercise its corresponding rights pursuant to Section 7.01(b), each Grantor shall be permitted to receive all cash dividends paid in respect of the Pledged Securities paid in the normal course of business of the relevant Issuer, to the extent permitted in the Credit Agreement, and to exercise all voting and corporate rights with respect to the Pledged Securities.

 

(b)                                 If an Event of Default shall occur and be continuing (and subject to the Intercreditor Agreement), then at any time in the Administrative Agent’s discretion without notice, (i) the Administrative Agent shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Pledged Securities and make application thereof to the Obligations in accordance with Section 10.02 of the Credit Agreement, and (ii) any or all of the Pledged Securities shall be registered in the name of the Administrative Agent or its nominee, and the Administrative Agent or its nominee may thereafter exercise (x) all voting, corporate and other rights pertaining to such Pledged Securities at any meeting of shareholders (or other equivalent body) of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Pledged Securities as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the organizational structure of any Issuer, or upon the exercise by any Grantor or the Administrative Agent of any right, privilege or option pertaining to such Pledged Securities, and in connection therewith, the right to deposit and deliver any and all of the Pledged Securities with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Administrative Agent may determine), all without liability except to account for property actually received by it, but the Administrative Agent shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.

 

(c)                                  Each Grantor hereby authorizes and instructs each Issuer of any Pledged Securities pledged by such Grantor hereunder (and each Issuer party hereto hereby agrees) to, upon the Discharge of First Lien Obligations, (i) comply with any instruction received by it from the Administrative Agent in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying, and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to the Pledged Securities directly to the Administrative Agent.

 

(d)                                 After the occurrence and during the continuation of an Event of Default, if the Issuer of any Pledged Securities is the subject of bankruptcy, insolvency, receivership, custodianship or other proceedings under the supervision of any Governmental Authority, then

 

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all rights of the Grantor in respect thereof to exercise the voting and other consensual rights which such Grantor would otherwise be entitled to exercise with respect to the Pledged Securities issued by such Issuer shall cease, and all such rights shall thereupon become vested in the Administrative Agent (subject to the Intercreditor Agreement) who shall thereupon have the sole right to exercise such voting and other consensual rights, but the Administrative Agent shall have no duty to exercise any such voting or other consensual rights and shall not be responsible for any failure to do so or delay in so doing.

 

Section 7.02  Collections on Accounts, Etc.  The Administrative Agent hereby authorizes each Grantor to collect upon the Accounts, Instruments, Chattel Paper and Payment Intangibles, provided that the Administrative Agent may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default.  Upon the request of the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall notify the Account Debtors that the applicable Accounts, Chattel Paper and Payment Intangibles have been assigned to the First Lien Administrative Agent, as bailee for the Administrative Agent, and for the ratable benefit of the Senior Lenders and the Secured Parties and that payments in respect thereof shall be made directly to (a) the First Lien Administrative Agent prior to the Discharge of First Lien Obligations and (b) the Administrative Agent after the Discharge of First Lien Obligations.  After the occurrence and during the continuation of an Event of Default, the Administrative Agent may in its own name or in the name of others communicate with the Account Debtors to verify with them to its satisfaction the existence, amount and terms of any Accounts, Chattel Paper or Payment Intangibles.

 

Section 7.03  Proceeds.  If required by the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Accounts, Instruments, Chattel Paper and Payment Intangibles, when collected or received by each Grantor, and any other cash or non-cash Proceeds received by each Grantor upon the sale or other disposition of any Collateral, shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the First Lien Administrative Agent, as agent or bailee of the Administrative Agent, if required, in a special collateral account maintained by the First Lien Administrative Agent, subject to withdrawal by the First Lien Administrative Agent (for itself and as bailee for the Administrative Agent) for the ratable benefit of the Senior Lenders prior to the Discharge of First Lien Obligations and thereafter to withdrawal by the Administrative Agent for the ratable benefit of the Secured Parties only, as hereinafter provided, and, until so turned over, shall be held by such Grantor in trust for the First Lien Administrative Agent for the ratable benefit of the Senior Lenders or the Administrative Agent for the ratable benefit of the Secured Parties (as applicable) segregated from other funds of any such Grantor.  Each deposit of any such Proceeds shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit.  All Proceeds (including, without limitation, Proceeds constituting collections of Accounts, Chattel Paper, Instruments) while held by the First Lien Administrative Agent or the Administrative Agent (or by any Grantor in trust for the First Lien Administrative Agent for the ratable benefit of the Senior Lenders or the Administrative Agent for the ratable benefit of the Secured Parties (as applicable)) shall continue to be collateral security for all of the Obligations and shall not constitute payment thereof until applied as hereinafter provided.  At such intervals as may be agreed upon by each Grantor and the Administrative Agent (subject to the Intercreditor Agreement), or, if an Event of Default shall have occurred and be continuing, at

 

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any time at the Administrative Agent’s election (subject to the Intercreditor Agreement), the Administrative Agent shall apply all or any part of the funds on deposit in said special collateral account on account of the Obligations in such order as the Administrative Agent may elect, and any part of such funds which the Administrative Agent elects not so to apply and deems not required as collateral security for the Obligations shall be paid over from time to time by the Administrative Agent to each Grantor or to whomsoever may be lawfully entitled to receive the same.

 

Section 7.04  New York UCC and Other Remedies.

 

(a)                                  If an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Secured Parties, may exercise in its discretion, in addition to all other rights, remedies, powers and privileges granted to them in this Agreement, the other Loan Documents and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights, remedies, powers and privileges of a secured party under the New York UCC (whether the New York UCC is in effect in the jurisdiction where such rights, remedies, powers or privileges are asserted) or any other applicable law or otherwise available at law or equity.  Without limiting the generality of the foregoing, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Administrative Agent or any other Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk.  The Administrative Agent or any other Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released.  If an Event of Default shall occur and be continuing, each Grantor further agrees, at the Administrative Agent’s request (subject to the Intercreditor Agreement), to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at such Grantor’s premises or elsewhere.  Any such sale or transfer by the Administrative Agent either to itself or to any other Person shall be absolutely free from any claim of right by Grantor, including any equity or right of redemption, stay or appraisal which Grantor has or may have under any rule of law, regulation or statute now existing or hereafter adopted.  Upon any such sale or transfer, the Administrative Agent shall have the right to deliver, assign and transfer to the purchaser or transferee thereof the Collateral so sold or transferred.  The Administrative Agent shall apply the net proceeds of any action taken by it pursuant to this Section 7.04, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the other Secured Parties hereunder, including, without limitation, reasonable attorneys’ fees and disbursements, to the payment in whole or in part of the Obligations, in accordance with Section 10.02 of the Credit Agreement,

 

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and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, including, without limitation, Section 9-615 of the New York UCC, need the Administrative Agent account for the surplus, if any, to any Grantor.  To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Administrative Agent or any other Secured Party arising out of the exercise by them of any rights hereunder.  If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

 

(b)                                 In the event that the Administrative Agent elects not to sell the Collateral, the Administrative Agent retains its rights to dispose of or utilize the Collateral or any part or parts thereof in any manner authorized or permitted by law or in equity, and to apply the proceeds of the same towards payment of the Obligations.  Each and every method of disposition of the Collateral described in this Agreement shall constitute disposition in a commercially reasonable manner.  The Administrative Agent may appoint any Person as agent to perform any act or acts necessary or incident to any sale or transfer of the Collateral.

 

Section 7.05  Private Sales of Pledged Securities.  Each Grantor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Pledged Securities, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof.  Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner.  The Administrative Agent shall be under no obligation to delay a sale of any of the Pledged Securities for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so.  Each Grantor agrees to use its commercially reasonable efforts to do or cause to be done all such other acts as may reasonably be necessary to make such sale or sales of all or any portion of the Pledged Securities pursuant to this Section 7.05 valid and binding and in compliance with any and all other applicable Governmental Requirements.  Each Grantor further agrees that a breach of any of the covenants contained in this Section 7.05 will cause irreparable injury to the Administrative Agent and the other Secured Parties, that the Administrative Agent and the other Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 7.05 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants.

 

Section 7.06  Waiver; Deficiency.  To the extent permitted by applicable law, each Grantor waives and agrees not to assert any rights or privileges which it may acquire under the New York UCC or any other applicable law.  Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the Administrative Agent or any other Secured Party to collect such deficiency.

 

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Section 7.07  Non-Judicial Enforcement.  The Administrative Agent may enforce its rights hereunder without prior judicial process or judicial hearing, and to the extent permitted by law, each Grantor expressly waives any and all legal rights which might otherwise require the Administrative Agent to enforce its rights by judicial process.

 

ARTICLE VIII
 The Administrative Agent

 

Section 8.01  Administrative Agent’s Appointment as Attorney-in-Fact, Etc.

 

(a)                                  Each Grantor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all reasonably appropriate action and to execute any and all documents and instruments which may be reasonably necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Administrative Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following:

 

(i)                                     pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

 

(ii)                                  execute, in connection with any sale provided for in Section 7.04 or Section 7.05, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and

 

(iii)                               (A) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (B) take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account, Instrument, General Intangible, Chattle Paper or Payment Intangible or with respect to any other Collateral, and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Administrative Agent for the purpose of collecting any all such moneys due under any Account, Instrument or  General Intangible or with respect to any other Collateral whenever payable; (C) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (D) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (E) receive, change the address for delivery, open and dispose of mail addressed to any Grantor, and to execute, assign and indorse negotiable and other instruments for the payment of money, documents of title or other evidences of payment, shipment or storage for any form of Collateral on behalf of and in the name of any Grantor; (F) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other

 

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right in respect of any Collateral; (G) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (H) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Administrative Agent may deem appropriate; (I) assign any Patent or Trademark (along with the goodwill of the business to which any such Trademark pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Administrative Agent shall in its sole discretion determine; and (J) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and do, at the Administrative Agent’s option and such Grantor’s expense, at any time, or from time to time, all acts and things which the Administrative Agent deems necessary to protect, preserve or realize upon the Collateral and the Administrative Agent’s and the other Secured Parties’ security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

 

Anything in this Section 8.01(a) to the contrary notwithstanding, the Administrative Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 8.01(a) unless an Event of Default shall have occurred and be continuing and in accordance with the Intercreditor Agreement.

 

(b)                                 If any Grantor fails to perform or comply with any of its agreements contained herein within the applicable grace periods, the Administrative Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement.

 

(c)                                  The expenses of the Administrative Agent incurred in connection with actions undertaken as provided in this Section 8.01, together with interest thereon at the post-default rate specified in Section 3.02(c) of the Credit Agreement from the date of payment by the Administrative Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Administrative Agent on demand.

 

(d)                                 Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue and in compliance hereof.  All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released.

 

Section 8.02  Duty of Administrative Agent.  The Administrative Agent’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account and shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which comparable secured parties accord comparable collateral.  Neither the Administrative Agent, any other Secured Party nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof.  The powers conferred on the Administrative Agent and the other

 

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Secured Parties hereunder are solely to protect the Administrative Agent’s and the other Secured Parties’ interests in the Collateral and shall not impose any duty upon the Administrative Agent or any other Secured Party to exercise any such powers.  The Administrative Agent and the other Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.  To the fullest extent permitted by applicable law, the Administrative Agent shall be under no duty whatsoever to make or give any presentment, notice of dishonor, protest, demand for performance, notice of non-performance, notice of intent to accelerate, notice of acceleration, or other notice or demand in connection with any Collateral or the Obligations, or to take any steps necessary to preserve any rights against any Grantor or other Person or ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not it has or is deemed to have knowledge of such matters.  Each Grantor, to the extent permitted by applicable law, waives any right of marshaling in respect of any and all Collateral, and waives any right to require the Administrative Agent or any other Secured Party to proceed against any Grantor or other Person, exhaust any Collateral or enforce any other remedy which the Administrative Agent or any other Secured Party now has or may hereafter have against each Grantor, any Grantor or other Person.

 

Section 8.03  Execution of Financing Statements.  Pursuant to the New York UCC and any other applicable law, each Grantor authorizes the Administrative Agent, its counsel or its representative, at any time and from time to time, to file or record financing statements, continuation statements, amendments thereto and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as the Administrative Agent reasonably determines appropriate to perfect the security interests of the Administrative Agent under this Agreement.  Additionally, each Grantor authorizes the Administrative Agent, its counsel or its representative, at any time and from time to time, to file or record such financing statements that describe the collateral covered thereby as “all assets of the Grantor”, “all personal property of the Grantor” or words of similar effect.  A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction.

 

Section 8.04  Authority of Administrative Agent.  Each Grantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Administrative Agent and the other Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Grantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority.

 

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ARTICLE IX

Subordination of Indebtedness

 

Section 9.01  Subordination of All Guarantor Claims.  As used herein, the term “Guarantor Claims” shall mean all debts and obligations of the Borrower or any other Grantor to any Grantor, whether such debts and obligations now exist or are hereafter incurred or arise, or whether the obligation of the debtor thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or obligations be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or obligations may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by. After and during the continuation of an Event of Default, no Grantor shall receive or collect, directly or indirectly, from any obligor in respect thereof any amount upon the Guarantor Claims.

 

Section 9.02  Claims in Bankruptcy.  In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief or other insolvency proceedings involving any Grantor, the Administrative Agent on behalf of the Secured Parties shall have the right to prove their claim in any proceeding, so as to establish their rights hereunder and receive directly from the receiver, trustee or other court custodian, dividends and payments which would otherwise be payable upon Guarantor Claims.  Each Grantor hereby assigns such dividends and payments to the Administrative Agent for the benefit of the Secured Parties for application against the Obligations as provided under Section 10.02 of the Credit Agreement.  Should any Agent or Secured Party receive, for application upon the Obligations, any such dividend or payment which is otherwise payable to any Grantor, and which, as between such Grantor, shall constitute a credit upon the Guarantor Claims, then upon payment in full of the Obligations, the intended recipient shall become subrogated to the rights of the Administrative Agent and the other Secured Parties to the extent that such payments to the Administrative Agent and the other Secured Parties on the Guarantor Claims have contributed toward the liquidation of the Obligations, and such subrogation shall be with respect to that proportion of the Obligations which would have been unpaid if the Administrative Agent and the other Secured Parties had not received dividends or payments upon the Guarantor Claims.

 

Section 9.03  Payments Held in Trust.  In the event that notwithstanding Section 9.01 and Section 9.02, any Grantor should receive any funds, payments, claims or distributions which is prohibited by such Sections, then it agrees: (a) to hold in trust prior to the Discharge of First Lien Obligations for the First Lien Administrative Agent and the Senior Lenders and after the Discharge of First Lien Obligations for the Administrative Agent and the other Secured Parties an amount equal to the amount of all funds, payments, claims or distributions so received, and (b) that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions except to pay them promptly to the First Lien Administrative Agent for the benefit of the Senior Lenders or to the Administrative Agent, for the benefit of the Secured Parties (as applicable); and each Grantor covenants promptly to pay the same to the First Lien Administrative Agent or the Administrative Agent (as applicable).

 

Section 9.04  Liens Subordinate.  Each Grantor agrees that, until the Obligations are paid in full and the total Commitments terminated, any Liens securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any Liens securing payment of the Obligations, regardless of whether such encumbrances in favor of such Grantor, the Administrative Agent or any other Secured Party presently exist or are hereafter created or attach.  Without the prior written consent of the Administrative Agent, no Grantor, during the

 

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period in which any of the Obligations are outstanding or the total Commitments are in effect, shall (a) exercise or enforce any creditor’s right it may have against any debtor in respect of the Guarantor Claims, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceeding (judicial or otherwise, including without limitation the commencement of or joinder in any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any Lien held by it.

 

Section 9.05  Notation of Records.  Upon the request of the Administrative Agent, all promissory notes and all accounts receivable ledgers or other evidence of the Guarantor Claims accepted by or held by any Grantor shall contain a specific written notice thereon that the indebtedness evidenced thereby is subordinated under the terms of this Agreement and the First Lien Guarantee and Collateral Agreement.

 

ARTICLE X

Miscellaneous

 

Section 10.01  Waiver.  No failure on the part of the Administrative Agent or any other Secured Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, remedy, power or privilege under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges provided herein are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.  The exercise by the Administrative Agent of any one or more of the rights, powers and remedies herein shall not be construed as a waiver of any other rights, powers and remedies, including, without limitation, any rights of set-off.

 

Section 10.02  Notices.  All notices and other communications provided for herein shall be given in the manner and subject to the terms of Section 12.01 of the Credit Agreement; provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 1.

 

Section 10.03  Payment of Expenses, Indemnities, Etc.

 

(a)                                  Each Grantor agrees to pay or promptly reimburse the Administrative Agent and each other Secured Party for all advances, charges, costs and expenses (including, without limitation, all costs and expenses of holding, preparing for sale and selling, collecting or otherwise realizing upon the Collateral and all attorneys’ fees, legal expenses and court costs) incurred by any Secured Party in connection with the exercise of its respective rights and remedies hereunder, including, without limitation, any advances, charges, costs and expenses that may be incurred in any effort to enforce any of the provisions of this Agreement or any obligation of any Grantor in respect of the Collateral or in connection with (i) the preservation of the Lien of, or the rights of the Administrative Agent or any other Secured Party under this Agreement, (ii) any actual or attempted sale, lease, disposition, exchange, collection, compromise, settlement or other realization in respect of, or care of, the Collateral, including all such costs and expenses incurred in any bankruptcy, reorganization, workout or other similar proceeding, or (iii) collecting against such Grantor under the guarantee contained in Article II or

 

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otherwise enforcing or preserving any rights under this Agreement and the other Loan Documents to which such Grantor is a party.

 

(b)                                 Each Grantor agrees to pay, and to save the Administrative Agent and the other Secured Parties harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, reasonable costs, reasonable expenses or disbursements of any kind or nature whatsoever (including, without limitation, court costs and reasonable attorneys’ fees, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement) incurred because of, incident to, or with respect to, the Collateral (including, without limitation, any exercise of rights or remedies in connection therewith) or the execution, delivery, enforcement, performance and administration of this Agreement, to the extent the Borrower would be required to do so pursuant to Section 12.03 of the Credit Agreement.  All amounts for which any Grantor is liable pursuant to this Section 10.03 shall be due and payable by such Grantor to the Secured Parties upon demand.

 

Section 10.04  Amendments in Writing.  None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 12.02 of the Credit Agreement.

 

Section 10.05  Successors and Assigns.  This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Administrative Agent and the other Secured Parties and their successors and assigns permitted under the Credit Agreement; provided that except as set forth in Section 9.11 of the Credit Agreement, no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and the Lenders.

 

Section 10.06  Invalidity.  In the event that any one or more of the provisions contained in this Agreement or in any of the Loan Documents to which a Grantor is a party shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or such other Loan Document and the remaining provisions hereof shall remain in full force and effect and shall be liberally construed to carry out the provisions and intent hereof; provided, if any one or more of the provisions contained in this Agreement shall be determined or held to be invalid or unenforceable because such provision is overly broad as to duration, geographic scope, activity, subject or otherwise, such provision shall be deemed amended (and any court or other tribunal shall be entitled to reform this Agreement accordingly) by limiting and reducing it to the extent necessary to make such provision valid and enforceable

 

Section 10.07  Counterparts.  This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart.

 

Section 10.08  Survival.  The obligations of the parties under Section 10.03 shall survive the repayment of the Loans and the termination of the Credit Agreement and total Commitments.  To the extent that any payments on the Obligations or proceeds of any Collateral are

 

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subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Obligations so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Administrative Agent’s and the other Secured Parties’ Liens, security interests, rights, powers and remedies under this Agreement and each Security Instrument shall continue in full force and effect.  In such event, each Security Instrument shall be automatically reinstated and each Grantor shall take such action as may be reasonably requested by the Administrative Agent and the other Secured Parties to effect such reinstatement.

 

Section 10.09  Captions.  Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.

 

Section 10.10  No Oral Agreements.  The Loan Documents (other than the Letters of Credit) embody the entire agreement and understanding between the parties and supersede all other agreements and understandings between such parties relating to the subject matter hereof and thereof.  The Loan Documents represent 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 oral agreements between the parties.

 

Section 10.11  Governing Law; Submission to Jurisdiction.

 

(a)                                  This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

(b)                                 Any legal action or proceeding with respect to this Agreement or any other Loan Documents to which a Grantor is a party shall be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and each of the Lenders, the Administrative Agent and each Grantor hereby accepts for itself and (to the extent permitted by law) in respect of its Property, generally and unconditionally, the jurisdiction of the aforesaid courts.  Each of the Lenders, the Administrative Agent and the Grantors hereby irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions.  This submission to jurisdiction is non-exclusive and does not preclude the Administrative Agent or any Lender from obtaining jurisdiction over such Grantor in any court otherwise having jurisdiction.

 

(c)                                  Each of the Lenders, the Administrative Agent and the Grantors irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Person at the address specified on its signature page of this Agreement or the Credit Agreement, as applicable, such service to become effective thirty (30) days after such mailing.  Nothing herein shall affect the right of the Administrative Agent or any Lender or any holder of a Note or Grantor to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against such Grantor in any other jurisdiction.

 

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(d)                                 Each Grantor and each Lender hereby (i) irrevocably and unconditionally waive, to the fullest extent permitted by law, trial by jury in any legal action or proceeding relating to this Agreement or any other Loan Document and for any counterclaim therein; (ii) irrevocably waive, to the maximum extent not prohibited by law, any right it may have to claim or recover in any such litigation any special, exemplary, punitive or consequential damages, or damages other than, or in addition to, actual damages; (iii) certify that no party hereto nor any representative or agent of counsel for any party hereto has represented, expressly or otherwise, or implied that such party would not, in the event of litigation, seek to enforce the foregoing waivers, and (iv) acknowledge that it has been induced to enter into this Agreement, the Loan Documents and the transactions contemplated hereby and thereby by, among other things, the mutual waivers and certifications contained in this Section 10.11.

 

Section 10.12  Acknowledgments.  Each Grantor hereby acknowledges that:

 

(a)                                  it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party;

 

(b)                                 neither the Administrative Agent nor any other Secured Party has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Administrative Agent and the other Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

 

(c)                                  no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Secured Parties or among the Grantors and the Lenders.

 

(d)                                 each of the parties hereto specifically agrees that it has a duty to read this Agreement and the Security Instruments and agrees that it is charged with notice and knowledge of the terms of this Agreement and the Security Instruments; that it has in fact read this Agreement and is fully informed and has full notice and knowledge of the terms, conditions and effects of this Agreement; that it has been represented by independent legal counsel of its choice throughout the negotiations preceding its execution of this Agreement and the Security Instruments; and has received the advice of its attorney in entering into this Agreement and the Security Instruments; and that it recognizes that certain of the terms of this Agreement and the Security Instruments result in one party assuming the liability inherent in some aspects of the transaction and relieving the other party of its responsibility for such liability.  Each party hereto agrees and covenants that it will not contest the validity or enforceability of any exculpatory provision of this Agreement and the Security Instruments on the basis that the party had no notice or knowledge of such provision or that the provision is not “conspicuous.”

 

(e)                                  each Grantor warrants and agrees that each of the waivers and consents set forth in this Agreement are made voluntarily and unconditionally after consultation with outside legal counsel and with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights which such Grantor otherwise may have against the Borrower, any other Grantor, the Secured Parties or any other Person or against any collateral.  If,

 

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notwithstanding the intent of the parties that the terms of this Agreement shall control in any and all circumstances, any such waivers or consents are determined to be unenforceable under applicable law, such waivers and consents shall be effective to the maximum extent permitted by law.

 

Section 10.13  Additional Grantors.  Each Subsidiary of the Borrower that is required to become a party to this Agreement pursuant to Section 8.14 of the Credit Agreement and is not a signatory hereto shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex I hereto.

 

Section 10.14  Set-Off.  Each Grantor agrees that, in addition to (and without limitation of) any right of set-off, bankers’ lien or counterclaim a Secured Party may otherwise have, each Secured Party shall have the right and be entitled (after consultation with the Administrative Agent), at its option, to offset balances held by it or by any of its Affiliates for account of any Grantor or any Subsidiary at any of its offices, in United States dollars or in any other currency against any principal of or interest on any of such Secured Party’s Loans, or any other amount due and payable to such Secured Party hereunder, which is not paid when due (regardless of whether such balances are then due to such Person), in which case it shall promptly notify the Borrower and the Administrative Agent thereof, provided that such Secured Party’s failure to give such notice shall not affect the validity thereof.

 

Section 10.15  Releases.

 

(a)                                  Release Upon Payment in Full.  The grant of a security interest hereunder and all of rights, powers and remedies in connection herewith shall remain in full force and effect until the Administrative Agent has (i) retransferred and delivered all Collateral in its possession to the Grantors, and (ii) executed a written release or termination statement and reassigned to the Grantors without recourse or warranty any remaining Collateral and all rights conveyed hereby.  Upon the sale, transfer or other disposition of Collateral permitted pursuant to the terms of Section 9.12 of the Credit Agreement, the Administrative Agent, at the written request and expense of the Borrower, will promptly release such Collateral to the Grantors.  Additionally, upon the complete payment of the Obligations, the termination of the Credit Agreement and the total Commitments and the compliance by the Grantors with all covenants and agreements hereof, the Administrative Agent, at the written request and expense of the Borrower, will promptly release, reassign and transfer the Collateral to the Grantors and declare this Agreement to be of no further force or effect.

 

(b)                                 Further Assurances.  If any of the Collateral shall be sold, transferred or otherwise disposed of by any Grantor in a transaction permitted by the Credit Agreement, then the Administrative Agent, at the request and sole expense of such Grantor, shall promptly execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral and the capital stock of such Grantor.  At the request and sole expense of the Borrower, a Grantor shall be released from its obligations hereunder in the event that all the capital stock of such Grantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement; provided that the Borrower shall have delivered to the Administrative Agent, at least ten Business Days prior to the date of the proposed release, a written request for release identifying

 

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the relevant Grantor and the terms of the sale or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Borrower stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents.

 

(c)                                  Retention in Satisfaction.  Except as may be expressly applicable pursuant to Section 9-620 of the New York UCC, no action taken or omission to act by the Administrative Agent or the other Secured Parties hereunder, including, without limitation, any exercise of voting or consensual rights or any other action taken or inaction, shall be deemed to constitute a retention of the Collateral in satisfaction of the Obligations or otherwise to be in full satisfaction of the Obligations, and the Obligations shall remain in full force and effect, until the Administrative Agent and the other Secured Parties shall have applied payments (including, without limitation, collections from Collateral) towards the Obligations in the full amount then outstanding or until such subsequent time as is provided in Section 10.15(a).

 

Section 10.16  Reinstatement.  The obligations of each Grantor under this Agreement (including, without limitation, with respect to the guarantee contained in Article II and the provision of collateral herein) shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any other Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Grantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Grantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

 

Section 10.17  Acceptance.  Each Grantor hereby expressly waives notice of acceptance of this Agreement, acceptance on the part of the Administrative Agent and the other Secured Parties being conclusively presumed by their request for this Agreement and delivery of the same to the Administrative Agent.

 

Section 10.18  Amended and Restated Intercreditor Agreement.  Reference is made to the Amended and Restated Intercreditor Agreement dated as of even date herewith (as amended, restated, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), among the Company, Wells Fargo Bank, National Association, as First Lien Administrative Agent (as defined therein), and Wells Fargo Energy Capital, Inc., as Second Lien Administrative Agent (as defined therein). Notwithstanding anything herein to the contrary, the lien and security interest granted to the Administrative Agent, for the benefit of the Secured Parties, pursuant to this Agreement and the exercise of any right or remedy by the Administrative Agent and the other Secured Parties hereunder are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict or inconsistency between the provisions of the Intercreditor Agreement and this Agreement, the provisions of the Intercreditor Agreement shall control.

 

Section 10.19  Existing Guarantee and Collateral Agreement.  The Credit Agreement and any Notes issued in connection therewith have been given in renewal, extension, rearrangement and increase, and not in extinguishment of the obligations under the Existing Credit Agreement and the notes and other documents related thereto.  All Liens, deeds of trust, mortgages, assignments and security interests securing the Existing Credit Agreement and the obligations

 

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relating thereto, including the Liens, assignments and security interests of the Existing Guaranty, are hereby ratified, confirmed, renewed, extended, brought forward and rearranged as security for such Grantor’s Obligations in addition to and cumulative of the Liens, assignments and security interests of this Agreement.  None of the Liens and security interests created pursuant to the Existing Guaranty are released.  Additionally, the substantive rights and obligations of the parties hereto shall be governed by this Agreement, rather than the Existing Guaranty.

 

[Reminder of Page Intentionally Left Blank.

 

Signature Page of Borrower and Administrative Agent Follows.]

 

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IN WITNESS WHEREOF, each of the undersigned has caused this Amended and Restated Guarantee and Collateral Agreement to be duly executed and delivered as of the date first above written.

 

 

	
BORROWER:
    	
KODIAK   OIL & GAS (USA) INC., a Colorado
   corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ James P.   Henderson
    
	
 
    	
 
    	
James   P. Henderson
    
	
 
    	
 
    	
Chief   Financial Officer
    

 

SIGNATURE PAGE

GUARANTEE AND COLLATERAL AGREEMENT

 

 

Acknowledged and Agreed to as
 of the date hereof by:

 

 

	
ADMINISTRATIVE   AGENT:
    	
WELLS   FARGO ENERGY CAPITAL, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Bryan McDavid
    
	
 
    	
 
    	
Bryan   McDavid
    
	
 
    	
 
    	
Director
    

 

SIGNATURE PAGE

GUARANTEE AND COLLATERAL AGREEMENT

 

 

Schedule 1

 

NOTICE ADDRESSES OF GRANTORS

 

	
1.
    	
 
    	
Kodiak   Oil & Gas (USA) Inc.

 

Notice   Address:

 

1625   Broadway, Suite 250

Denver,   Colorado 80202

Attention:   James P. Henderson

Telephone:   303-592-8030

Facsimile:   303-592-8071
    

 

GUARANTEE AND COLLATERAL AGREEMENT

 

 

Schedule 2

 

DESCRIPTION OF PLEDGED SECURITIES

 

None.

 

GUARANTEE AND COLLATERAL AGREEMENT

 

 

Schedule 3

 

FILINGS AND OTHER ACTIONS

REQUIRED TO PERFECT SECURITY INTERESTS

 

Uniform Commercial Code Filings

 

1.                                       Filing of UCC-1 financing statement with the Secretary of State of the State of New York

 

Actions with respect to Pledged Securities

 

1.                                       Delivery to the Senior Administrative Agent of all Pledged Securities consisting of certificated securities, in each case properly endorsed for transfer in blank.

 

Description of Commercial Tort Claims

 

None

 

Actions with respect to Letter-of-Credit Rights in excess of $500,000

 

None

 

Actions with respect to Equipment Covered by a Certificate of Title

 

Notation of the Administrative Agent’s security interest on the certificate of title of each item of Equipment

 

GUARANTEE AND COLLATERAL AGREEMENT

 

 

Schedule 4

 

CORRECT LEGAL NAME, LOCATION OF JURISDICTION OF

ORGANIZATION, ORGANIZATIONAL IDENTIFICATION

NUMBER, TAXPAYOR IDENTIFICATION NUMBER AND

CHIEF EXECUTIVE OFFICE

 

	
1.
    	
 
    	
Kodiak   Oil & Gas (USA) Inc., a Colorado corporation
    
	
 
    	
 
    	
Organizational   Identification Number: 20031303362
    
	
 
    	
 
    	
Taxpayer   Identification Number: 57-1191218
    
	
 
    	
 
    	
Chief   Executive Office:  
    	
1625   Broadway, Suite 250
    
	
 
    	
 
    	
 
    	
Denver,   Colorado 80202
    

 

GUARANTEE AND COLLATERAL AGREEMENT

 

 

Schedule 5

 

PRIOR NAMES AND PRIOR CHIEF EXECUTIVE OFFICE

 

	
1.
    	
 
    	
Kodiak   Oil & Gas (USA) Inc., a Colorado corporation
    
	
 
    	
 
    	
Prior   Names: None
    
	
 
    	
 
    	
Prior   Chief Executive Office:
    	
1625   Broadway, Suite 330
    
	
 
    	
 
    	
 
    	
Denver,   Colorado 80202
    

 

GUARANTEE AND COLLATERAL AGREEMENT

 

 

Schedule 6

 

PATENTS AND PATENT LICENSES

 

None.

 

GUARANTEE AND COLLATERAL AGREEMENT

 

 

Schedule 7

 

TRADEMARKS AND TRADEMARK LICENSES

 

None.

 

GUARANTEE AND COLLATERAL AGREEMENT

 

 

ACKNOWLEDGMENT AND CONSENT

 

The undersigned hereby acknowledges receipt of a copy of the Amended and Restated Guarantee and Collateral Agreement dated as of October [ ], 2011 (the “Agreement”), made by the Grantors parties thereto for the benefit of Wells Fargo Energy Capital, Inc., as Administrative Agent.  The undersigned agrees for the benefit of the Administrative Agent and the Lenders as follows:

 

1.                                       The undersigned will be bound by the terms of the Agreement and will comply with such terms insofar as such terms are applicable to the undersigned.

 

2.                                       The terms of Sections 6.02(c) and 6.03 of the Agreement shall apply to it, mutatis  mutandis, with respect to all actions that may be required of it pursuant to Sections 6.02(c) and 6.03 of the Agreement.

 

	
 
    	
[NAME OF ISSUER]
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Address   for Notices:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Fax:
    	
 
    
				

 

*This consent is necessary only with respect to any Issuer which is not also a Grantor.  This consent may be modified or eliminated with respect to any Issuer that is not controlled by a Grantor.

 

GUARANTEE AND COLLATERAL AGREEMENT

 

 

Annex I

 

ASSUMPTION AGREEMENT

 

ASSUMPTION AGREEMENT, dated as of                     , 201    , made by                                                                                              , a                              corporation (the “Additional Grantor”), in favor of WELLS FARGO ENERGY CAPITAL, INC., as administrative agent (in such capacity, the “Administrative Agent”) for the banks and other financial institutions (the “Lenders”) parties to the Credit Agreement referred to below.  All capitalized terms not defined herein shall have the meaning ascribed to them in such Credit Agreement.

 

W I T N E S S E T H:

 

WHEREAS, KODIAK OIL & GAS (USA) INC. (the “Borrower”), the Lenders, the Administrative Agent and the other Agents, have entered into an Amended and Restated Second Lien Credit Agreement, dated as of October [ ], 2011 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”);

 

WHEREAS, in connection with the Credit Agreement, the Borrower and certain of its Subsidiaries have entered into the Amended and Restated Guarantee and Collateral Agreement, dated as of October [ ], 2011 (as amended, supplemented or otherwise modified from time to time, the “Guarantee and Collateral Agreement”) in favor of the Administrative Agent for the benefit of the Lenders and Affiliates of the Lenders;

 

WHEREAS, the Credit Agreement requires the Additional Grantor to become a party to the Guarantee and Collateral Agreement; and

 

WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee and Collateral Agreement;

 

NOW, THEREFORE, IT IS AGREED:

 

1.                                       Guarantee and Collateral Agreement.  By executing and delivering this Assumption Agreement, the Additional Grantor, as provided in Section 10.13 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder and expressly grants to the Administrative Agent, for the benefit of the Secured Parties (as defined in the Guarantee and Collateral Agreement), a security interest in all Collateral owned by such Additional Grantor to secure all of such Additional Grantor’s obligations and liabilities thereunder.  The information set forth in Annex 1-A hereto is hereby added to the information set forth in Schedules 1 through 5 to the Guarantee and Collateral Agreement.  The Additional Grantor hereby represents and warrants that each of the representations and warranties contained in Article V of the Guarantee and Collateral Agreement is true and correct on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date.

 

GUARANTEE AND COLLATERAL AGREEMENT

 

 

2.                                       Governing Law.  THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

 

	
 
    	
[ADDITIONAL GRANTOR]
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
					

 

Annex I - 2Exhibit 10.1

 

CONVERSION AND LOAN MODIFICATION AGREEMENT

 

THIS CONVERSION AND LOAN MODIFICATION AGREEMENT (this “Agreement”) is made and entered into as of, but not necessarily on, the 1st day of October, 2011, by and between Arkanova Acquisition Corporation, a Nevada corporation (the “Company”), and Aton Select Funds Limited (the “Investor”).

 

Background

 

A.            The Company is currently indebted to the Investor in the principal amount of Twelve Million and No/100 United States Dollars (US $12,000,000.00) under that certain Secured Promissory Note from the Company to Investor dated October 1, 2009 (the “Old Note”); and

 

B.            The Company and the Investor have reached an agreement whereby the Investor shall (i) convert Six Million and No/100 United States Dollars (US $6,000,000.00) of the principal of the Old Note into a ten percent (10%) working interest in the oil and gas leases comprising the Company’s Two Medicine Cut Bank Sand Unit in Pondera and Glacier Counties, Montana, (ii) loan to the Company an additional One Million and No/100 United States Dollars (US $1,000,000.00) (the “Additional Loan Amount”), (iii) consolidate the outstanding principal balance under the Old Note and the Additional Loan Amount into one new promissory note in the principal amount of Seven Million and No/100 United States Dollars (US $7,000,000.00) (the “New Note”) with a new maturity date of September 30, 2012, and

 

C.            The Company and the Investor now desire to formalize the terms and conditions of their agreement.

 

Terms and Conditions

 

In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.             Purchase and Sale of Working Interest.  The Investor hereby agrees to purchase from the Company, and the Company hereby agrees to sell to the Investor, a ten percent (10%) of eight/eighths (8/8ths) working interest in the oil and gas leases comprising the Company’s Two Medicine Cut Bank Sand Unit in Pondera and Glacier Counties, Montana.  The purchase price shall be paid by conversion of Six Million and No/100 United States Dollars (US $6,000,000.00) of the principal of the Old Note into the acquired interest simultaneous with the conveyance of such working interest to the Investor, at which time the outstanding principal amount of the Old Note shall be reduced to Six Million and No/100 United States Dollars (US $6,000,000.00).  The conveyance of the working interest herein described shall be in recordable form, signed by a duly authorized representative of the Company and witnessed by a duly licensed notary public.

 

2.             Modified Loan.  At the time of the consummation of the purchase and sale transaction described in Section 1 above, (i) the Company shall pay all accrued interest on the Old Note in stock of Arkanova Energy Corporation (“AEC”) as provided in the Old Note, and (ii) the Investor shall increase the outstanding principal balance of its loan to the Company under the Old Note from Six Million and No/100 United States Dollars (US $6,000,000.00) to Seven Million and No/100 United States Dollars(US $7,000,000.00) by wire transfer to the account of the Company at its bank in Austin, Texas, an additional

 

 

One Million and No/100 United States Dollars (US $1,000,000.00), and extend the loan maturity date to September 30, 2012.  The combined new principal balance of the loan from the Investor to the Company shall be evidenced by a restated secured promissory note in substantially the form attached hereto as Annex “A” made a part hereof for all purposes.

 

3.             Amended Loan Documents.  At the time of the consummation of the purchase and sale transaction described in Section 1 hereof, the Company and the Investor shall enter into, or cause to be entered into, amendments to the loan documents presently securing the Old Note, specifically the Note Purchase Agreement dated October 1, 2009, the Pledge Agreement dated October 1, 2009 and the Guaranty Agreement dated October 1, 2009, in substantially the form of Amended Note Purchase Agreeement, Amended Pledge Agreement and Amended Guaranty Agreement attached hereto as Annexes “B,” “C’” and “D” respectively (the “Amended Loan Documents”).  At the time of signing of the Restated Secured Promissory Note and the issuance of shares of AEC in payment in full of the accrued interest on the Old Note, the Old Note shall be deemed cancelled and the then currently outstanding principal balance under the Old Note, together with the amount of the Additional Loan, shall be reflected in the Restated Secured Promissory Note.

 

4.             General Provisions.  The following general terms and provisions shall apply to this Agreement:

 

(a)           Amendment.  This Agreement may not be modified, altered, amended, or terminated except by the mutual written agreement of the parties hereto.

 

(b)           Severability.  If a court of competent jurisdiction determines that any provision contained in this Agreement is void, illegal or unenforceable, the other provisions shall remain in full force and effect and the provision held to be void, illegal or unenforceable shall be limited so that it shall remain in effect to the extent permissible by law.

 

(c)           Choice of Law and Venue.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.  ANY LITIGATION, SPECIAL PROCEEDING OR OTHER PROCEEDING AS BETWEEN THE PARTIES THAT MAY BE BROUGHT, OR ARISE OUT OF, IN CONNECTION WITH OR BY REASON OF THIS AGREEMENT SHALL BE BROUGHT IN THE APPLICABLE FEDERAL OR STATE COURT IN AND FOR TRAVIS COUNTY, TEXAS, WHICH COURTS SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND VENUE.

 

(d)           Preparation of Agreement.  Each party to this Agreement acknowledges that:  (i) the party had the advice of, or sufficient opportunity to obtain the advice of, legal counsel separate and independent of legal counsel for any other party hereto; (ii) the terms of the transactions contemplated by this Agreement are fair and reasonable to such party; and (iii) such party has voluntarily entered into the transactions contemplated by this Agreement without duress or coercion.  Each party further acknowledges that such party was not represented by the legal counsel of any other party hereto in connection with the transactions contemplated by this Agreement, nor was he or it under any belief or understanding that such legal counsel was representing his or its interests.  Each party agrees that no conflict, omission or ambiguity in this Agreement, or the interpretation thereof, shall be presumed, implied or otherwise construed against any other party to this Agreement on the basis that such party was responsible for drafting this Agreement.

 

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(e)           Nonwaiver.  Unless otherwise expressly provided herein, no waiver by a party of any provision hereof shall be deemed to have been made unless expressed in writing and signed by the other party.  No delay or omission in the exercise of any right or remedy accruing to a party upon any breach under this Agreement by the other party shall impair such right or remedy or be construed as a waiver of any such breach theretofore or thereafter occurring.  The waiver by a party of any breach of any term, covenant or condition herein stated shall not be deemed to be a waiver of any other breach, or of a subsequent breach of the same or any other term, covenant or condition herein contained.

 

(f)            Entire Agreement.  This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous representations, understandings and agreements, oral or written, made between the parties effecting the subject matter hereof, and all such prior or contemporaneous representations, understandings and agreements are hereby terminated.

 

(g)           Parties Bound.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, assigns, heirs and personal representatives.

 

(h)           Counterpart Execution.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

 

Signatures

 

To evidence the binding effect of the foregoing terms and condition, the parties have executed and delivered this Agreement as of, but not necessarily on, the date first above written.

 

 

	
 
    	
ARKANOVA   ACQUISITION CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/Pierre   Mulacek
    
	
 
    	
 
    	
Pierre Mulacek, President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
ATON   SELECT FUNDS LIMITED
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/David   Dawes
    
	
 
    	
 
    	
David Dawes, Director
    

 

3

 

ANNEX “A”

 

Restated Secured Promissory Note

 

Attached

 

 

 

THIS INSTRUMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933 ACT) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES TO WHICH THIS INSTRUMENT RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.

 

	
USD $7,000,000.00
    	
October 1, 2011
    

 

ARKANOVA ACQUISITION CORPORATION

 

SECURED PROMISSORY NOTE

 

FOR VALUE RECEIVED, Arkanova Acquisition Corporation, a corporation organized and existing under the laws of the State of Nevada (the “Company”), promises to pay to Aton Select Funds Limited, the registered holder hereof (the “Holder”), the principal sum of Seven Million and No/100 United States Dollars (US $7,000,000.00) on the Maturity Date (as defined below) and to pay interest on the principal sum outstanding from time to time in arrears at the rate of six percent (6.0 %) per annum (computed on the basis of the actual number of days elapsed and a year of 365 days), accruing from the date of initial issuance of this Note, until payment in full of the principal sum has been made or duly provided for (whether before or after the Maturity Date).  This Note is being issued by the Company in exchange for the loan by the Holder to the Company of an additional One Million and No/100 United States Dollars (US $1,000,000.00) plus the cancellation of that certain Secured Promissory Note from the Company to Investor dated October 1, 2009, with a currently outstanding principal amount of Six Million and No/100 United States Dollars (US $6,000,000.00).

 

This Note is also being issued pursuant to the terms of a Note Purchase Agreement of even date herewith (the “NPA”), to which the Company and the Holder (or the Holder’s predecessor in interest) are parties.  Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the NPA.

 

This Note is subject to the following additional provisions:

 

1.                                      Maturity Date.  The term “Maturity Date” means September 30, 2012.

 

2.                                      Security.  The payment when due of this Note is secured by a pledge of all of the membership interests in the Company’s wholly owned subsidiary, Provident Energy of Montana, LLC, a Montana limited liability company, in accordance with the terms and conditions of a Pledge Agreement of even date herewith.

 

 

3.                                      Manner of Payments of Principal.  All payments of principal on this Note shall be made “in cash” in immediately available good funds of United States of America currency by wire transfer to an account designated in writing by the Holder to the Company (which account may be changed by notice similarly given).  For purposes of this Note, the phrase “date of payment” means the date good funds are received in the account designated by the notice which is then currently effective.

 

4.                                      Payment of Interest.  Interest on this Note shall be paid within ten (10) Business Days following the Maturity Date in shares of common stock of Arkanova Energy Corporation, the publicly traded parent corporation of the Company (“AEC”).  The number of shares of common stock of AEC payable as interest on the Note shall be determined by dividing Four Hundred Twenty Thousand and No/100 United States Dollars (US $420,000.00) by the average stock price for AEC’s common stock over the fifteen (15) Business Day period immediately preceding the Maturity Date.

 

5.                                      Prepayment Provisions.  This Note may be prepaid in whole or in part at any time prior to the Maturity Date, without penalty, so long as all accrued interest is paid in shares of common stock AEC as determined in Section 3 above with the date of payment (as such term is defined in Section 7 hereof) being substituted for the Maturity Date in making the calculation of the number of shares to be delivered to the Holder by the Company.

 

6.                                      Default.  The Company shall be in default hereunder if payment is not made by the end of the Holder’s close of business on the tenth (10th) Business Day following the Maturity Date.

 

7.                                      No Impairment; Direct Obligation.  Subject to the terms of the NPA, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or currency, as herein prescribed. This Note is a direct obligation of the Company.

 

8.                                      Limited Recourse.  No recourse shall be had for the payment of the principal of, or the interest on, this Note, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released.

 

9.                                      Restrictions on Resale.  The Holder of the Note, by acceptance hereof, agrees that this Note is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Note except under circumstances which will not result in a violation of the Securities Act of 1933, as amended, or any applicable state blue sky or foreign laws or similar laws relating to the sale of securities.

 

10.                               Notices.  Any notice given by any party to the other with respect to this Note shall be given in the manner contemplated by the NPA in the Section entitled “Notices.”

 

11.                               Applicable Laws.  This Note shall be governed by and construed in accordance with the laws of the State of Texas.  Each of the parties consents to the exclusive jurisdiction of the Courts of the State of Texas in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum  non coveniens, to the bringing of any such proceeding in such jurisdictions.  To the extent determined by such court, the Company shall reimburse the Holder for any reasonable legal fees and disbursements incurred by the Holder in enforcement of or protection of any of its rights under any of this Note.

 

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12.                               Jury Trial Waiver. The Company and the Holder hereby waive a trial by jury in any action, proceeding or counterclaim brought by either of the Parties hereto against the other in respect of any matter arising out of or in connection with this Note.

 

13.                               Events of Default.  Each of he following shall constitute an “Event of Default”:

 

(a)                                 Default in Payment.  The Company shall default in the payment of principal or interest on this Note or any other amount due; or

 

(b)                                 Breach of Representation or Warranty.  Any of the representations or warranties made by the Company herein, in the NPA or any of the other Transaction Agreements shall be false or misleading in any material respect at the time made; or

 

(c)                                  Change of Management.  The occurrence of any event which results in the current executive officers of the Company no longer serving in their respective current capacities with the Company; or

 

(d)                                 Assignment for Creditors.  The Company shall (i) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (ii) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or

 

(e)                                  Appointment of Trustee.  A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent; or

 

(f)                                   Court Control.  Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or

 

(g)                                  Bankruptcy Proceedings. Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company.

 

If an Event of Default shall have occurred, then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately due and payable (and the Maturity Date shall be accelerated accordingly), without presentment, demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and interest shall accrue on the total amount due (the “Default Amount”) on the date of the Event of Default (the “Default Date”) at the rate of 12% per annum or the maximum rate allowed by law, whichever is lower, from the Default Date until the date payment is made, and the Holder may immediately enforce any and all of the Holder’s rights and remedies provided herein or any other rights or remedies afforded by law.

 

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14.                               Covenants of the Company.  The Company covenants and agrees that, so long as any principal of, or interest on, this Note shall remain unpaid, unless the Holder shall otherwise consent in writing, it will comply with the following terms:

 

(a)                                 Reporting Requirements. The Company will furnish to the Holder or make publicly available:

 

(i)                                     as soon as possible, and in any event within ten (10) days after obtaining knowledge of the occurrence of (A) an Event of Default, (B) an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, or (C) a material adverse change in the condition or operations, financial or otherwise, of the Company, taken as whole, the written statement of the Chief Executive Officer or the Chief Financial Officer of the Company, setting forth the details of such Event of Default, event or material adverse change; and

 

(ii)                                  promptly after the commencement thereof, notice of each action, suit or proceeding before any court or other governmental authority or other regulatory body or any arbitrator as to which there is a reasonable possibility of a determination that would (A) materially impact the ability of the Company to conduct its business, (B) materially and adversely affect the business, operations or financial condition of the Company, or (C) impair the validity or enforceability of the Note or the ability of the Company to perform their obligations under the Note.

 

(b)                                 Compliance with Laws. The Company will comply, in all material respects with all applicable laws, rules, regulations and orders, except to the extent that noncompliance would not have a Material Adverse Effect upon the business, operations or financial condition of the Company taken as a whole.

 

(c)                                  Preservation of Existence. The Company will maintain and preserve its existence.

 

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

 

(e)                                  Maintenance of Insurance. The Company will maintain, with responsible and reputable insurers, insurance with respect to its properties and business, in such amounts and covering such risks, as is carried generally in accordance with sound business practice by companies in similar businesses in the same localities in which the Company is situated.

 

(f)                                   Keeping of Records and Books of Account. The Company will keep adequate records and books of account, with complete entries made in accordance with generally accepted accounting principles, reflecting all of its financial and other business transactions.

 

15.                               Qualification.  In the event for any reason, any payment by or act of the Company or the Holder shall result in payment of interest which would exceed the limit authorized by or be in violation of the law of the jurisdiction applicable to this Note, then ipso facto the obligation of the Company to pay interest or perform such act or requirement shall be reduced to the limit authorized under such law, so that in no event shall the Company be obligated to pay any such interest, perform any such act or be bound by any requirement which would result in the payment of interest in excess of the limit so authorized. In the

 

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event any payment by or act of the Company shall result in the extraction of a rate of interest in excess of a sum which is lawfully collectible as interest, then such amount (to the extent of such excess not returned to the Company) shall, without further agreement or notice between or by the Company or the Holder, be deemed applied to the payment of principal, if any, hereunder immediately upon receipt of such excess funds by the Holder, with the same force and effect as though the Company had specifically designated such sums to be so applied to principal and the Holder had agreed to accept such sums as an interest-free prepayment of this Note. If any part of such excess remains after the principal has been paid in full, whether by the provisions of the preceding sentences of this Section or otherwise, such excess shall be deemed to be an interest-free loan from the Company to the Holder, which loan shall be payable immediately upon demand by the Company. The provisions of this Section shall control every other provision of this Note.

 

Signature

 

To evidence the binding effect of the foregoing provisions, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized as of, but not necessarily on, the date first above written.

 

 

	
 
    	
ARKANOVA   ACQUISITION CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Pierre   Mulacek, President
    

 

5

 

ANNEX “B”

 

Amended Note Purchase Agreement

 

Attached

 

 

 

THIS AGREEMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATIONS UNDER THE 1933 ACT) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), NONE OF THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS, IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.

 

NOTE PURCHASE AGREEMENT

 

THIS NOTE PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of, but not necessarily on, the 1st day of October, 2011, by and between Arkanova Acquisition Corporation, a Nevada corporation (the “Company”), and Aton Select Funds Limited (the “Investor”).

 

Background

 

A.                                   The Company and the Investor are executing and delivering this Agreement in reliance upon the exemptions from securities registration afforded by the provisions of Regulation S (“Regulation S”), as promulgated by the U.S. Securities and Exchange Commission under the Securities Act of 1933, as amended; and

 

B.                                     The Investor wishes to purchase from the Company, and the Company wishes to sell and issue to the Investor, upon the terms and conditions stated in this Agreement, a Secured Promissory Note (the “Note”) in the aggregate principal amount of Seven Million and No/100 United States Dollars (US $7,000,000.00) (the “Principal Amount”), bearing interest at the rate of six percent (6.0%) per annum, in the form attached to the Loan Conversion and Modification Agreement as Annex “A”.

 

C.                                     The Note is being issued by the Company in exchange for the loan by the Holder to the Company of an additional One Million and No/100 United States Dollars (US $1,000,000.00) plus the cancellation of that certain Secured Promissory Note from the Company to Investor dated October 1, 2009, with a currently outstanding principal amount of Six Million and No/100 United States Dollars (US $6,000,000.00).

 

 

Terms and Conditions

 

In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.                                       Definitions. In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set forth below:

 

(a)                                  “Affiliate” means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries Controls, is controlled by, or is under common control with, such Person;

 

(b)                                 “Business Day” means a day, other than a Saturday or Sunday, on which banks in Houston, Texas, are open for the general transaction of business;

 

(c)                                  “Company’s Knowledge” means the actual knowledge of the executive officers (as defined in Rule 405 under the 1933 Act) of the Company;

 

(d)                                 “Control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise;

 

(e)                                  “Guaranty” has the meaning set forth in Section 2 hereof;

 

(f)                                    “Material Adverse Effect” means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise), business, or prospects of the Company and its Subsidiaries taken as a whole, or (ii) the ability of the Company to perform its obligations under the Transaction Documents;

 

(g)                                 “Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein;

 

(h)                                 “Pledge Agreement” has the meaning set forth in Section 2 hereof;

 

(i)                                     “Purchase Price” means the Principal Amount payable as set forth in Subparagraph C of the Background section of this Agreement;

 

(j)                                     “SEC” means the United States Securities and Exchange Commission;

 

(k)                                  “Subsidiaries” means the wholly-owned or majority owned subsidiaries of the Company;

 

(l)                                     “Transaction Documents” means this Agreement, the Note, the Pledge Agreement and the Guaranty;

 

(m)                               “1933 Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder; and

 

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(n)                                 “1934 Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

2.                                       Purchase and Sale of the Note; Security.  Subject to the terms and conditions of this Agreement, on the Closing Date, the Company shall sell and issue to the Investor, the Note in the Principal Amount in exchange for the Purchase Price. The Company shall also pledge to the Investor, pursuant to terms of the form of Pledge Agreement attached to the Conversion and Loan Modification Agreement as Annex “C”, all of the membership interests in the Company’s wholly-owned subsidiary, Provident Energy of Montana, LLC, a Montana limited liability corporation that owns the Two Medicine Cut Bank Sand Unit in Pondera and Glacier Counties, Montana, to secure payment of the indebtedness evidenced by the Note (the “Security Interest”).  As an indirect beneficiary of the Investor’s purchase of the Note and as further security for payment of the indebtedness evidenced by the Note, the Company’s parent corporation, Arkanova Energy Corporation (“AEC”), has agreed to guarantee the payment of the Note by the execution and delivery to the Investor at the Closing of the form of Guaranty attached to the Conversion and Loan Modification Agreement as Annex “D”.

 

3.                                       Closing. There shall be no formal closing ceremony with respect to the transactions contemplated by this Agreement.   Instead, the parties shall execute and exchange the Transaction Documents by facsimile and email and the closing of the transactions contemplated by this Agreement shall be deemed to have occurred (the “Closing”) on the date (the “Closing Date”) that the Company receives the Purchase Price in full.

 

4.                                       Representations and Warranties of the Company. The Company hereby represents and warrants to the Investor that, except as set forth in any schedules delivered herewith (collectively, the “Disclosure Schedules”):

 

(a)                                  Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and to own its properties. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification or leasing necessary unless the failure to so qualify has not and could not reasonably be expected to have a Material Adverse Effect.

 

(b)                                 Authorization. The Company has full power and authority and, has taken all requisite action on the part of the Company, its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of the Transaction Documents, (ii) authorization of the performance of ail obligations of the Company hereunder or thereunder, and (iii) the authorization, issuance and delivery of the Note.  The Transaction Documents constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

 

(c)                                  Valid Issuance. The Note has been duly and validly authorized and, when issued and paid for pursuant to this Agreement, shall be free and clear of all encumbrances and restrictions (other than those created by the Investor), except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws.

 

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(d)                                 Consents. The execution, delivery and performance by the Company of the Transaction Documents, and the offer, issuance and sale of the Note requires no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than filings that have been made pursuant to applicable state securities laws, and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file within the applicable time periods.

 

(e)                                  Use of Proceeds. The Additional Loan Amount shall be primarily used by the Company for the maintenance and development of the Two Medicine Cut Bank Sand Unit in Pondera and Glacier Counties, Montana.

 

(f)                                    No Conflict, Breach, Violation or Default. The execution, delivery and performance of the Transaction Documents by the Company and the issuance and sale of the Note will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company’s Certificate of Incorporation or the Company’s Bylaws, both as in effect on the date hereof, or (ii)(a) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any of its assets or properties, or (b) any agreement or instrument to which the Company is a party or by which the Company is bound or to which any of its assets or properties is subject.

 

(g)                                 Litigation. To the Company’s knowledge, there are no disputes or actions pending or threatened against the Company or its properties.

 

(h)                                 No Directed Selling Efforts or General Solicitation. Neither the Company nor any Person acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation S) in connection with the offer or sale of the Note.

 

(i)                                     No Integrated Offering. Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any Company security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Company on Regulation S for the exemption from registration for the transactions contemplated hereby or would require registration of the Note under the 1933 Act.

 

(j)                                     Private Placement. The offer and sale of the Note to the Investor as contemplated hereby is exempt from the registration requirements of the 1933 Act.

 

5.                                       Representations and Warranties of the Investor. The Investor hereby represents and warrants to the Company that:

 

(a)                                  Power.  The Investor has the necessary legal capacity (in the case of an individual person), or has the power and authority (if other than an individual person) to execute and deliver this Agreement and to perform such Investor’s obligations hereunder and to consummate all of the transactions contemplated hereby, including but not limited to, purchase of the Note.

 

(b)                                 Binding Obligation.  This Agreement has been duly executed and delivered by the Investor and constitutes the legal, valid and binding obligation of such Investor, enforceable against such Investor in accordance with its terms, except as such enforceability may be limited

 

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by the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally.

 

(c)                                  Absence of Breaches and Defaults.  The execution, delivery and performance by the Investor of this Agreement and the consummation of the transactions contemplated hereby do not breach or constitute a default under any loan or purchase agreement, indenture, mortgage, deed of trust, lease, instrument, contract or other agreement binding on or affecting either such Investor or any of his property or assets, the breach of which, either individually or in the aggregate, could reasonably be expected to have a material adverse effect on the Investor.

 

(d)                                 Purchase Entirely for Own Account. The Note to be received by the Investor hereunder will be acquired for such Investor’s own account, not as nominee or agent, and not with a view t the resale or distribution of any part thereof in violation of the 1933 Act, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the 1933 Act without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of the Note in compliance with applicable federal and state securities laws.  Nothing contained herein shall be deemed a representation or warranty by the Investor to hold the Note for any period of time. The Investor is not a broker-dealer registered with the SEC under the 1934 Act or an entity engaged in a business that would require it to be so registered.

 

(e)                                  Investment Experience.  The Investor acknowledges that it can bear the economic risk and complete loss of its investment in the Note and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby.

 

(f)                                    Disclosure of Information. The Investor has had an opportunity to receive all information related to the Company requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Note.

 

(g)                                 No Reliance.  The Investor has not relied upon the Company or its directors and officers, or the Company’s legal counsel or advisors for investment, legal or tax advice, including advice with respect to the hold periods and resale restrictions imposed upon the Note by the securities legislation in the jurisdiction in which the Investor resides, and has, if desired, in all cases sought the advice of the Investor’s own personal investment advisor, legal counsel and tax advisors, and the Investor is either experienced in or knowledgeable with regard to the affairs of the Company or, either alone or with its professional advisors, is capable by reason of knowledge and experience in financial and business matters in general, and investments in particular, of evaluating the merits and risks of an investment in the Note, and it is able to bear the economic risk of an investment in the Note and can otherwise be reasonably assumed to have the capacity to protect its own interest in connection with the investment.

 

(h)                                 Further Representations and Acknowledgements.  The Investor further represents and acknowledges that:

 

(i)                                     The Investor is not a “U.S. Person” as that term is defined in Regulation S.

 

(ii)                                  The Investor is located outside the United States.

 

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(iii)                               The Investor is not aware of any advertisement of any of the Note to be issued hereunder.

 

(iv)                              The Investor will not acquire the Note as a result of, and will not itself engage in, any “directed selling efforts” (as defined in Regulation S under the 1933 Act) in the United States in respect of the Note which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of the Note; provided, however, that the Investor may sell or otherwise dispose of the Note pursuant to registration under the 1933 Act and any applicable state securities laws or under an exemption from such registration requirements and as otherwise provided herein.

 

(v)                                 The Investor agrees that the Company will refuse to register any transfer of the Note not made in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the 1933 Act or pursuant to an available exemption from the registration requirements of the 1933 Act and in accordance with applicable state securities laws.

 

(vi)                              The Investor understands and agrees that offers and sales of any Note prior to the expiration of a period of one year after the date of transfer of the Note (the “Distribution Compliance Period”), shall only be made in compliance with the safe harbor provisions set forth in Regulation S, pursuant to the registration provisions of the 1933 Act or an exemption therefrom, and that all offers and sales after the Distribution Compliance Period shall be made only in compliance with the registration provisions of the 1933 Act or an exemption therefrom and in each case only in accordance with all applicable securities laws.

 

(i)                                     Restricted Securities. The Investor understands that the Note is characterized as “restricted securities” under the U.S. federal securities laws and have not been registered under the 1933 Act or under any state or “blue sky” laws of the United States, and is being offered in a transaction not involving any public offering within the meaning of the 1933 Act, and unless so registered, may not be offered or sold in the United States or to U.S. Persons as defined in Regulation S promulgated under the 1933 Act, and in each case only in accordance with applicable securities laws.

 

(j)                                     No Hedging Transactions.  The Investor understands and agrees not to engage in any hedging transactions involving the Note prior to the end of the Distribution Compliance Period unless such transactions are in compliance with the provisions of the 1933 Act.

 

(k)                                  Restrictions on Transfer.  The Investor hereby acknowledges and agrees to the Company making a notation on its records or giving instructions to the registrar and transfer agent of the Company in order to implement the restrictions on transfer set forth and described herein.

 

(l)                                     Legends.  It is understood that, except as provided below, certificates evidencing the Note will bear the following or any similar legend, as well as the legend required by any state authority if required in connection with the issuance of sale of the Note:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR OTHER APPLICABLE

 

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SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH THE PROVISIONS OF REGULATIONS S, RULE 901 THROUGH RULE 905, AND PRELIMINARY NOTE UNDER THE U.S. SECURITIES ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT. HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE U.S. SECURITIES ACT.

 

(m)                               No General Solicitation.  The Investor did not learn of the investment in the Note as a result of any public advertising or general solicitation.

 

(n)                                 Brokers and Finders.  No Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company or the Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Investor.

 

6.                                       Conditions to Closing:

 

(a)                                  Conditions to the Investor’s Obligations.  The obligation of the Investor to purchase the Note at the Closing is subject to the fulfillment to such Investor’s satisfaction, on or prior to the Closing Date, of the following conditions, any of which may be waived by the Investor:

 

(i)                                     The representations and warranties made by the Company in Section 4. hereof qualified as to materiality shall be true and correct at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or Warranty shall be true and correct as of such earlier date, and, the representations and warranties made by the Company in Section 4 hereof not qualified as to materiality shall be true and correct in all material respects at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date.  The Company shall have performed in all material respects all obligations and conditions herein required to be performed or observed by it on or prior to the Closing Date.

 

(ii)                                  The Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the purchase and sale of the Note, and the consummation of the other transactions contemplated by the Transaction Documents, all of which shall be in full force and effect.

 

(iii)                               No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby or in the other Transaction Documents.

 

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(iv)                              Payment in full of all accrued interest under the Old Note as provided in the Old Note.

 

(b)                                 Conditions to Obligations of the Company.  The Company’s obligation to sell and issue the Note at the Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the Closing Date of the following conditions, any of which may be waived by the Company:

 

(i)                                     The representations and warranties made by the Investor in Section 5 hereof shall be true and correct in all respects on the Closing Date with the same force and effect as if they had been made on and as of said date.  The Investor shall have performed in all material respects all obligations and conditions herein required to be performed or observed by them on or prior to the Closing Date.

 

(ii)                                  The Investor shall have paid the Purchase Price to the Company.

 

(c)                                  Termination of Obligations to Effect Closing; Effects.

 

(i)                                     The obligations of the Company, on the one hand, and the Investor, on the other hand, to effect the Closing shall terminate as follows:

 

(A)                              Upon the mutual written consent of the Company and the Investor;

 

(B)                                By the Company if any of the conditions set forth in Paragraph 6(b) shall have become incapable of fulfillment, and shall not have been waived by the Company;

 

(C)                                By an Investor (with respect to itself only) if any of the conditions set forth in Paragraph 6(a) shall have become incapable of fulfillment, and shall not have been waived by the Investor; or

 

(D)                               By either the Company or the Investor if the Closing has not occurred on or prior to October 15, 2009; provided, however, that, except in the case of clause (i) above, the party seeking to terminate its obligation to effect the Closing shall not then be in breach of any of its representations, warranties, covenants or agreements contained in this Agreement or the other Transaction Documents if such breach has resulted in the circumstances giving rise to such party’s seeking to terminate its obligation to effect the Closing.

 

7.                                       Covenants and Agreements of the Company:

 

(a)                                  Reports. The Company will furnish to the Investor and/or their assignees such information relating to the Company and its Subsidiaries as from time to time may reasonably be requested by the Investor and/or their assignees; provided, however, that the Company shall not disclose material nonpublic information to the Investor, or to advisors to or representatives of the Investor, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Investor, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic

 

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information for review and the Investor wishing to obtain such information enters into an appropriate confidentiality agreement with the Company with respect thereto.

 

(b)                                 No Conflicting Agreements. The Company will not take any action, enter into any agreement or make any commitment that would conflict or interfere in any material respect with the Company’s obligations to the Investor under the Transaction Documents.

 

(c)                                  Compliance with Laws. The Company will comply in all material respects with all applicable laws, rules, regulations, orders and decrees of all governmental authorities.

 

(d)                                 Security Interest. The Company shall cooperate with the Investor in all reasonable respects in connection with the establishment and maintenance of the Security Interest.  The Company agrees to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of the  Security Agreement.  The Company shall be responsible for the payment of all costs and expenses reasonably incurred by the Investor in connection with the preparation of any documents, instruments or agreements required to create or perfect the Security Interest and for all filing fees related thereto.

 

(e)                                  Termination of Covenants. The provisions of Sections 8(a), (b), (c) and (d) above shall terminate and be of no further force and effect on the date on which the Company’s obligations under the Note terminate.

 

8.                                       Survival and Indemnification:

 

(a)                                  Survival. The representations, warranties, covenants and agreements contained in this Agreement shall survive the Closing of the transactions contemplated by this Agreement until the repayment in full of the Note.

 

(b)                                 Indemnification. The Company agrees to indemnify and hold harmless each Investor and its Affiliates and their respective directors, officers, employees and agents from and against any and all losses, claims, damages, liabilities and expenses (including without limitation reasonable attorney fees and disbursements and other expenses incurred in connection with investigating, preparing or defending any action, claim or proceeding, pending or threatened and the costs of enforcement thereof) (collectively, “Losses”) to which such Person may become subject as a result of any breach of representation, warranty, covenant or agreement made by or to be performed on the part of the Company under the Transaction Documents, and will reimburse any such Person for all such amounts as they are incurred by such Person.

 

(c)                                  Conduct of Indemnification Proceedings. Promptly after receipt by a Person (the “Indemnified Person”) of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 8(b), such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall assume the payment of all fees and expenses; provided, however, that the failure of any Indemnified Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel;

 

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or (ii) in the reasonable judgment of counsel to such Indemnified Person representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them.  The Company shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not he unreasonably withheld, but if settled with such consent, or if there be a final judgment for the plaintiff, the Company shall indemnify and hold harmless such Indemnified Person from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment.  Without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such proceeding.

 

9.                                       Miscellaneous.  The following miscellaneous provisions shall apply to this Agreement:

 

(a)                                  Successors and Assigns. This Agreement may not be assigned by a party hereto without the prior written consent of the Company or the Investor, as applicable, provided, however, that an investor may assign its rights and delegate its duties hereunder in whole or in part to an Affiliate or to a third party acquiring the Note in a private transaction without the prior written consent of the Company, after notice duly given by such Investor to the Company.  The provisions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

(b)                                 Counterparts: Faxes. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  This Agreement may also be executed via facsimile, which shall be deemed an original.

 

(c)                                  Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

(d)                                 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier. All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days’ Loan written notice to the other party:

 

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If to the Company:

 

Arkanova Acquisition Corporation

305 Camp Craft Rd., Suite 525

Austin, TX 78746

Fax: 888-329-7716

Attention: Pierre Mulacek, President

 

If to the Investor:

 

To the Address for Notice as provided on the signature page hereof.

 

(e)                                  Expenses. The parties hereto shall pay their own costs and expenses in connection herewith. In the event that legal proceedings are commenced by any party to this Agreement against another party to this Agreement in connection with this Agreement or the other Transaction Documents, the party or parties which do not prevail in such proceedings shall severally, but not jointly, pay their pro rata share of the reasonable attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred by the prevailing party in such proceedings.

 

(f)                                    Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor. Any amendment or waiver effected in accordance with this Paragraph shall be binding upon each holder of any Note purchased under this Agreement at the time outstanding, each future holder of all such Note, and the Company.

 

(g)                                 Publicity. Except as set forth below, no public release or announcement concerning the transactions contemplated hereby shall be issued by the Company or the Investor without the prior consent of the Company (in the case of a release or announcement by the Investor) or the Investor (in the case of a release or announcement by the Company) (which consents shall not be unreasonably withheld), except as such release or announcement may be required by law or the applicable rules or regulations of any securities exchange or securities market, in which case the Company or the Investor, as the case may be, shall allow the Investor or the Company, as applicable, to the extent reasonably practicable in the circumstances, reasonable time to comment on such release or announcement in Loan of such issuance.

 

(h)                                 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

 

(i)                                     Entire Agreement. This Agreement, including the exhibits and any disclosure schedules, and the other Transaction Documents constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior

 

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agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof.

 

(j)                                     Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

 

(k)                                  Governing Law: Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the Courts of the State of Texas for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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Signatures

 

To evidence the binding effect of the terms and conditions set forth above, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.

 

 

	
ARKANOVA   ACQUISITION CORPORATION
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:   
    	
 
    	
 
    	
 
    
	
 
    	
Pierre Mulacek, President
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
ATON SELECT FUNDS LIMITED
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:   
    	
 
    	
 
    	
 
    
	
 
    	
David Dawes, Director
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
ADDRESS FOR NOTICE
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
C/o:
    	
 
    	
 
    	
 
    
	
Street:
    	
 
    	
 
    	
 
    
	
City/State/Zip:
    	
 
    	
 
    	
 
    
	
Attention:
    	
 
    	
 
    	
 
    
	
Tel:
    	
 
    	
 
    	
 
    
	
Fax:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
DELIVERY INSTRUCTIONS
    	
 
    	
 
    
	
(if different from above)
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
C/o:
    	
 
    	
 
    	
 
    
	
Street:
    	
 
    	
 
    	
 
    
	
City/State/Zip:
    	
 
    	
 
    	
 
    
	
Attention:
    	
 
    	
 
    	
 
    
	
Tel:
    	
 
    	
 
    	
 
    
					

 

13

 

 

ANNEX “C”

 

Amended Pledge Agreement

 

Attached

 

 

THIS AGREEMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933 ACT) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.

 

PLEDGE AGREEMENT

 

THIS PLEDGE AGREEMENT (this “Agreement”) is made and entered into as of, but not necessarily on, the 1st day of October, 2011, by and between Arkanova Acquisition Corporation, a Nevada corporation, (“Pledgor”), and Aton Select Funds Limited (“Secured Party”).

 

Background

 

A.                                    On even date herewith, Pledgor and the Secured Party entered into a Note Purchase Agreement (the “NPA”)”) pursuant to which Pledgor issued to Secured Party a Secured Promissory Note (the “Note”) and agreed to pledge Interests of the membership interests of the Pledgor’s wholly owned subsidiary, Provident Energy of Montana, LLC, a Montana limited liability company (“Provident”), to secure payment of the indebtedness evidenced by the Note; and

 

B.                                    The parties desire to set forth in writing their agreement as to the terms and conditions of the administration and disposition of the pledge of the membership interests of Provident and certain other matters as set forth herein;

 

Terms and Conditions

 

In consideration of the mutual benefits to be derived from the covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

1.                                      Pledge.  As collateral security for the payment and performance of the Obligations (as defined in Section 2 hereof) by Pledgor, Pledgor hereby pledges to the Secured Party, and grants, transfers, assigns and hypothecates to the Secured Party a continuing security interest in, the following property owned by Pledgor (the “Pledged Collateral”):

 

 

 

 

(a)                                 Pledged Interests.  All of the issued and outstanding membership interests in Provident (the “Pledged Interests”).

 

(b)                                 Dividends and Proceeds.  Except as provided in Section 10(b) hereof, all dividends, cash, products, proceeds, securities, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Interests, including, but not limited to, all distributions or payments in partial or complete liquidation or redemption of the Pledged Interests.

 

(c)                                  Additional Interests.  All additional membership interests in Provident from time to time hereafter acquired by Pledgor arising from the Pledged Interests as a result of any reclassification, readjustment, split, dividend, or reorganization and the certificates representing such additional Interests, and all dividends, cash, products, proceeds, securities, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Interests.

 

2.                                      Obligations Secured.  This Agreement secures the payment and performance of (i) all obligations of Pledgor to the Secured Party now or hereafter existing under the Note whether for indebtedness (principal and interest), fees, damages, expenses or otherwise, and whether evidenced by any instrument, agreement or book account, (ii) all obligations of Pledgor to the Secured Party now or hereafter existing under the NPA, and (iii) all obligations of Pledgor to the Secured Party now or hereafter existing under this Agreement, regardless of whether the amounts referred to in clause (i), (ii) or (iii) above are due or to become due, direct or indirect, primary or secondary, joint, several, or joint and several, or fixed or contingent obligations of Pledgor.  All of such obligations are collectively referred to herein as the “Obligations”.

 

3.                                      Delivery of  Pledged Collateral.  (a)  Upon the execution of this Agreement, Pledgor shall deliver and deposit with the Secured Party the certificate or certificates or other instruments evidencing the Pledged Interests, along with such assignments, financing statements, endorsements, and transfer powers duly executed by Pledgor in blank as will enable the Secured Party to register the Pledged Interests in the Secured Party’s name or in the name of the Secured Party’s nominee in the appropriate record books of Provident in the Event of Default (as such term is herein after defined).

 

4.                                      Return of Pledged Collateral.  Secured Party shall return the Pledged Collateral or the balance thereof, if any, in its possession to Pledgor upon payment in full of the Obligations.

 

5.                                      Further Assurances and Documentation.  Pledgor agrees that at any time and from time to time, at the expense of Pledgor, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action that the Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Party to exercise and enforce the Secured Party’s rights and remedies hereunder with respect to any Pledged Collateral.

 

6.                                      Responsibility for Pledged Collateral.  Secured Party shall exercise reasonable care in the custody and preservation of the Pledged Collateral.  The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in the Secured Party’s possession if the Pledged Collateral is accorded treatment substantially equal to that which the Secured Party accords the Secured Party’s own property of similar nature.  The Secured Party shall be under no duty or responsibility to (i) fix or preserve the rights of Pledgor with respect to the Pledged Collateral against prior parties, (ii) fix or preserve rights against any parties to any instrument or chattel paper which

 

2

 

may be a part of the Pledged Collateral, (iii) sell or otherwise realize upon the Pledged Collateral, or (iv) seek payment from any particular source.  Without limiting the generality of the foregoing, the Secured Party shall not have any responsibility or obligation for any action in connection with any conversion, call, exchange, maturity, redemption, retirement, tender or any other event relating to any of the Pledged Collateral whether or not the Secured Party has or is deemed to have knowledge of such matters.  The Secured Party shall never be liable for the Secured Party’s failure to use diligence to collect any amount payable with respect to the Pledged Collateral, but shall be liable only to account to Pledgor for what the Secured Party may actually collect or receive thereon.  After payment of part of the Obligations, the Secured Party may, at the Secured Party’s option, retain all or any portion of the Pledged Collateral as security for any remaining Obligations and retain this Agreement as evidence of such security.

 

7.                                      Representations and Warranties.  Pledgor represents and warrants to Secured Party as follows:

 

(a)                                 Authorization.  The execution, delivery and performance of this Agreement are within Pledgor’s powers and are not in contravention of any applicable law.

 

(b)                                 Absence of Conflicts.  Pledgor is not obligated under any contract or agreement, which materially or adversely affects Pledgor’s properties or assets, or Pledgor’s financial condition, and neither the execution nor delivery of this Agreement nor the consummation of any transaction contemplated hereby will conflict with or result in any breach of the terms, conditions, or provisions of, or constitute a default under any agreement or instrument relative thereto to which Pledgor is subject.

 

(c)                                  Authorized Interests.  The Pledged Interests have been duly authorized and validly issued by Provident and are fully paid and non-assessable.

 

(d)                                 Unencumbered Title to Pledged Collateral.  Pledgor is the legal and beneficial owner of the Pledged Collateral owned by Pledgor, free and clear of any lien, security interest, option or other charge or encumbrance whatsoever except for the security interest created by this Agreement.  Until such time as the Obligations have been paid in full, Pledgor, at Pledgor’s sole expense, will keep the Pledged Collateral free from other liens, security interests, encumbrances or claims; and Pledgor will defend the Pledged Collateral against the claims and demands of all persons claiming the Pledged Collateral or any part thereof or interest therein.

 

(e)                                  Perfected Security Interest.  The pledge of the Pledged Interests and the delivery thereof to the Secured Party pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment of the Obligations.

 

(f)                                   No Approval Required.  No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of the Agreement by Pledgor or (ii) for the exercise by the Secured Party of the rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally).

 

(g)                                  Accurate Information.  All information contained in statements furnished or to be furnished to the Secured Party by or on behalf of Pledgor in connection with the Pledged Collateral or the Obligations is complete and accurate in all material respects.

 

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8.                                      Affirmative Covenants of Pledgor.  For and during such period of time as any portion of the Obligations shall remain unpaid or Pledgor shall have any commitment or obligation hereunder, Pledgor shall comply with each of the following provisions of this Section, unless the Secured Party shall otherwise consent in writing:

 

(a)                                 Performance of Obligations.  Pledgor will duly and punctually pay and perform each of the Obligations to the extent such party is liable therefor, including, without limitation, its obligations under this Agreement and each of the other documents securing the Obligations, as the same may at any time be amended or modified.

 

(b)                                 Preservation of Existence and Franchises and Conduct of Business.  Pledgor will do , and will cause  Provident to do, or cause to be done, all things necessary to preserve and keep in full force and effect its company existence, rights, leases (including oil and gas leases), agreements, and all other licenses or rights necessary to comply with all laws, regulations, rules, statutes, or other provisions applicable to the respective entity in the operation of their respective business, noncompliance with which would materially and adversely affect either the business or credit of Provident.

 

(c)                                  Confidential Information.   Pledgor will, and will cause its subsidiaries to, furnish to the Secured Party any information which the Secured Party may from time to time reasonably request concerning any covenant, provision or condition of the Agreement or any matter in connection with the business and operations of Pledgor and its subsidiaries.  Secured Party agrees that, until the occurrence of an Event of Default, it will take all reasonable steps to keep confidential any proprietary information given to it by Pledgor, provided, however, that this restriction shall not apply to information which (i) has at the time in question entered the public domain through no default of this provision, or (ii) is required to be disclosed by law or by any order, rule or regulation (whether valid or invalid) of any court or governmental agency, or authority.

 

(d)                                 Notice of Material Events and Defense of Action.  Pledgor will promptly notify Secured Party of:  (i) any material adverse change in Pledgor’s or any subsidiary’s financial condition, (ii) the occurrence of any Event of Default, (iii) the acceleration of the maturity of any debt owed by Pledgor or subsidiary or of any default by Pledgor or any subsidiary under any indenture, mortgage, agreement, contract or other instrument to which Pledgor or any subsidiary is a party or by which any of them or any of the properties is bound; (iv) any material adverse claim (or any claim of $25,000 or more) asserted against Pledgor or any subsidiary or with respect to Pledgor’s or any subsidiary’s properties, or (v) the filing of any suit or proceeding against Pledgor or any subsidiary.  Upon the occurrence of any of the foregoing, Pledgor will take, or cause to be taken, all reasonably necessary or appropriate steps to remedy promptly any such material adverse change or default, to protect against any such adverse claim, to appear in and defend any such suit or proceeding, and to resolve all controversies on account of any of the foregoing at Pledgor’s expense.

 

(e)                                  Reporting Requirements.  Within ten (10) days of the end of each calendar quarter, Pledgor shall furnish Secured Party with a sworn statement of Pledgor, stating that Pledgor has no knowledge that an Event of Default has occurred, or such event has occurred and is continuing as of the date of such statement and a statement as to the nature thereof and the action which Pledgor proposes to take with respect thereto.

 

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9.                                      Expenses.  Pledgor will upon demand pay to Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of the Secured Party’s counsel and of any experts and agents, which the Secured Party may incur after the occurrence of an Event of Default (as hereinafter defined) in connection with (i) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, or (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder.

 

10.                               Voting Rights and Dividends.  So long as no Event of Default or event that, with the giving of notice or the lapse of time, or both, would become an Event of Default shall have occurred and be continuing:

 

(a)                                 Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement; provided, however, Pledgor may not exercise such voting rights so as to impair the value of the Pledged Collateral or to dilute the Secured Party’s ownership percentage represented by the Pledged Collateral and Secured Party shall not be required to exercise preemptive rights.

 

(b)                                 Pledgor shall be entitled to receive and retain any and all dividends and interest paid in respect of the Pledged Collateral; provided, however, that any and all (A) dividends and interest paid or payable other than cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral; (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral, shall be, and shall be forthwith delivered to the Secured Party to hold as, Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of the Secured Party, be segregated from the other property or funds of Pledgor, and be forthwith delivered to Secured Party as Pledged Collateral in the same form as so received (with any necessary endorsements); and provided further, that Pledgor shall promptly notify the Secured Party of the occurrence of any of the above matters upon the occurrence thereof.

 

(c)                                  Secured Party shall execute and deliver (or cause to be executed and delivered) to Pledgor all such proxies and other instruments as Pledgor may reasonably request for the purpose of enabling Pledgor to exercise the voting and other rights which Pledgor is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which Pledgor is authorized to receive and retain pursuant to Subsection (b) above.

 

11.                               Events of Default.  The occurrence of any one or more of the following events shall constitute an Event of Default hereunder:

 

(a)                                 Default Under Obligations.  Pledgor shall be in default under the terms of the Obligations, including the Note, the NPA and this Agreement.

 

(b)                                 Defaults Under Other Instruments.  Pledgor shall be in default under the terms of any other documents and instruments relating to the Aggregate Offering, as such term is defined in the NPA.

 

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(c)                                  Insolvency.   Pledgor or any subsidiary shall admit in writing Pledgor’s or subsidiary’s inability to pay its debts, or shall make a general assignment of Pledgor’s or any subsidiary’s assets or property rights for the benefit of Pledgor’s or any subsidiary’s creditors; or any proceeding shall be instituted by or against Pledgor or any subsidiary seeking to adjudicate Pledgor or any subsidiary as a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of Pledgor or any subsidiary or Pledgor’s or any subsidiary’s debts under any law relating to bankruptcy, insolvency or reorganization or release of debtors, or seeking appointment of a receiver, custodian, trustee, or other similar official for Pledgor or any subsidiary or for any substantial part of the property of Pledgor or any subsidiary and in the case of any such proceeding instituted against Pledgor or any subsidiary shall remain undismissed for a period of ninety (90) days.

 

(d)                                 Failure to Perform Obligations.  Pledgor shall fail to perform any of Pledgor’s covenants or obligations set forth in this Agreement.

 

(e)                                  Falsity of Representation.  Any warranty, representation or statement made or furnished to Secured Party by Pledgor pursuant to this Agreement shall prove to have been false in any material respect when made or furnished.

 

(f)                                   Levy Against Collateral.  The levy against the Pledged Collateral, or any part thereof, of any execution, attachment, sequestration or other writ.

 

12.                               Remedies Upon Default.

 

(a)                                 Remedies.  Upon the occurrence of an Event of Default, and in addition to any and all other rights and remedies which Secured Party may then have hereunder, or under the Texas Business and Commerce Code or any comparable uniform commercial code applicable to Pledgor (the “Code”), or otherwise, Secured Party may at Secured Party’s option (i) declare the entire unpaid balance of principal of, and all accrued interest on, the Obligations immediately due and payable without demand, presentment, notice of default, notice of intent to accelerate or notice of acceleration of maturity, all of which are hereby expressly waived; (ii) notify any person obligated on any of the Pledged Collateral of the security interest of Secured Party therein and request such person to make payment directly to the Secured Party, (iii) demand, sue for, collect or otherwise reduce Secured Party’s claims to judgment, foreclose or otherwise enforce the Secured Party’s security interest through judicial procedure or make any settlement or compromise Secured Party deems desirable with respect to any of the Pledged Collateral; (iv) after notification, expressly provided for herein, if any, sell or otherwise dispose of, at the office of Secured Party, or elsewhere, as chosen by Secured Party, all or any part of the Pledged Collateral, and any such sale or other disposition may be as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale of any part of the Pledged Collateral shall not exhaust the power of sale granted hereunder, but sales may be made from time to time until all of the Pledged Collateral has been sold or until the Obligations have been paid in full) and at such sale it shall not be necessary to exhibit the Pledged Collateral; (v) at Secured Party’s discretion, retain the Pledged Collateral in satisfaction of the Obligations whenever the circumstances are such that Secured Party is entitled to do so under the Code; (vi) apply by appropriate judicial proceedings for appointment of a receiver for the Pledged Collateral, or any part thereof; (vii) purchase the Pledged Collateral at any public sale; (viii) purchase the Pledged Collateral at any private sale; and/or (ix) exercise the rights set forth in Section 13(b) hereof.  The foregoing remedies shall be cumulative and except for the provisions

 

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of Section 13(a)(v) above without prejudice to the Secured Party’s right to recover any deficiency including reasonable attorneys’ fees and costs permitted by this Agreement.

 

(b)                                 Sale of Pledged Collateral.  Secured Party is authorized, at any sale of the Pledged Collateral, if Secured Party deems it advisable, to restrict the prospective bidders or purchasers to those persons who will represent and agree that they are purchasing for their own account, for investment, and not with a view to distribution or sale of any of the Pledged Collateral.  Upon any such sale, Secured Party shall have the right to deliver, assign, and transfer to the purchaser thereof the Pledged Collateral so sold.  Each purchaser at any such sale shall hold the property sold absolutely, free from any claim or right of whatsoever kind. Secured Party shall give Pledgor ten (10) days’ written notice of Secured Party’s intention to make any such public or private sales or sale at broker’s board or on a securities exchange.  Such notice, in case of sale at broker’s board or a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Pledged Collateral, or that portion thereof so being sold, will first be offered to sale at such board or exchange.  At any such sale, the Pledged Collateral may be sold in one lot as an entirety or in separate parcels, as the Secured Party may determine.  Secured Party shall not be obligated to make any such sale pursuant to any such notice.  Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned.  In case of any sale of all or any part of the Pledged Collateral on credit or for future delivery, the Pledged Collateral so sold may be retained by the Secured Party until the selling price is paid by the purchaser thereof, but the Secured Party shall not incur any liability in case of the failure of such purchaser to take up and pay such selling price, and such Pledged Collateral may again be sold upon like notice.  Secured Party may also, at Secured Party’s discretion, proceed by a suit or suits at law, or in equity to foreclose the pledge and sell the Pledged Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.  If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or other disposition of the Pledged Collateral, or any part thereof, Pledgor will execute all such applications and other instruments as may be required in connection with securing any such consent, approval or authorization, and will otherwise use its best efforts to secure the same.

 

(c)                                  Notification.  Reasonable notification of the time and place of any public sale of the Pledged Collateral, or any reasonable notification of the time after which any private sale or other intended disposition of the Pledged Collateral is to be made, shall be sent to Pledgor and to any other person entitled under the Code to notice; provided, however, that if the Pledged Collateral threatens to decline quickly in value, Secured Party may sell or otherwise dispose of the Pledged Collateral without notification, advertisement or other notice of any kind.  It is agreed that notice sent or given not less than ten (10) calendar days prior to the taking of the action to which the notice relates is reasonable notification and notice for the purpose of this Agreement.  Notice shall be deemed to be sent when it is deposited in the United States Mail, return receipt requested, bearing the proper postage and addressed to Pledgor and any other person entitled to receive notice, at their last known address according to the records of the Secured Party.

 

(d)                                 Application of Proceeds.  Upon the occurrence of an Event of Default or maturity of any instrument evidencing the Obligations or any part thereof, whether such maturity be by such terms of such instruments or through the exercise of any power of acceleration, Secured Party is authorized and empowered to apply any and all funds realized from the sale of the Pledged Collateral not previously credited against the Obligations first toward the payment of the

 

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costs, charges and expenses, if any, incurred in the collection of such funds hereunder, and then toward the payment of the Obligations, and shall pay any balance remaining to Pledgor in accordance with the written instructions executed by Pledgor or as prescribed by the Code.

 

(e)                                  Deficiency.  In the event that the proceeds of any sale, collection or realization upon the Pledged Collateral by Secured Party are insufficient to pay all amounts to which Secured Party is legally entitled, Pledgor shall be liable for the deficiency, together with interest thereon at such rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees of any attorneys employed by Secured Party to collect such deficiency.

 

13.                               Secured Party Appointed Attorney-in-Fact.  Pledgor hereby irrevocably appoints Secured Party as Pledgor’s attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time in the Secured Party’s discretion after the occurrence of an Event of Default to take any action and to execute any instrument which the Secured Party may deem necessary or advisable to accomplish the purpose of this Agreement, including, without limitation, (i) the right and power to execute and deliver any and all powers and other instruments, documents, certificates and agreements necessary or appropriate to transfer ownership of the Pledged Collateral, and (ii) the right and power to receive, endorse and collect all checks and other instruments made payable to Pledgor representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full acquittance for the same.  The foregoing appointment of the Secured Party as Pledgor’s attorney-in-fact is irrevocable and is coupled with an interest.

 

14.                               Certain Rights Before and After a Default.

 

(a)                                 Secured Party May Perform.  If Pledgor fails to perform any agreement contained herein, the Secured Party may perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be payable by Pledgor pursuant to the provisions of Section 9 hereof.

 

(b)                                 Notification of Issuer.  Secured Party shall have the right to notify the issuer of the Pledged Collateral that the Pledged Collateral has been pledged.

 

15.                               Cumulative Rights and Remedies.  All rights and remedies of Secured Party hereunder are cumulative of each other and of every other right or remedy which Secured Party may otherwise have at law or in equity or under any other contract or other writing for the enforcement of the security interest herein or the collection of the Obligations, and the exercise by Secured Party of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies.  Secured Party shall not be required to first endeavor to collect from Pledgor or any other party obligated for the Obligations or to proceed against or exhaust other collateral or security for the Obligations hereby secured before pursuing any of Secured Party’s rights pursuant to this Agreement against Pledgor.  Should Pledgor have theretofore executed or hereafter execute any other security agreement in favor of Secured Party in which a security interest is created as security for the debts of Pledgor or another or others, in respect of which Pledgor may not be personally liable, the security interest therein created and all other rights,  powers and privileges vested in Secured Party by the terms thereof shall exist concurrently with the security interest created herein, and, in addition, all property in which Secured Party holds a security interest under any such other security agreement shall also be part of the Pledged Collateral hereunder, and all or any part of the proceeds of the sale or other disposition of such property may, in the discretion of Secured Party, be applied by it in accordance with the terms hereof, and of such other security agreement, or agreements, or any of them.

 

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16.                               Surrender of Collateral.  Secured Party may surrender, release, exchange or alter any collateral or security for the Obligations without affecting the liability of Pledgor under this Agreement, and this Agreement shall continue effective notwithstanding any legal disability of Pledgor to incur any indebtedness or obligation incurred to Secured Party.

 

17.                               Effect of Other Agreements.  This Agreement shall in no way be construed as a limitation or extinguishment of any guaranty, security agreement, pledge agreement, assignment, or any other instrument, document or agreement granting an interest in collateral for or guaranteeing the payment or performance of the Obligations executed by any person prior to, or contemporaneously with, the execution of this Agreement, but all prior or contemporaneous guaranties, security agreements, pledge agreements, assignments, or any other instruments, documents, or agreement granting an interest in collateral for or guaranteeing the payment or performance of the Obligations shall remain in full force and effect in accordance with their terms.

 

18.                               General Provisions.

 

(a)                                 Amendment.  This Agreement may not be modified, altered, amended, or terminated except by the written agreement of the Secured Party and Pledgor.

 

(b)                                 Severability.  If a court of competent jurisdiction determines that any provision contained in this Agreement is void, illegal or unenforceable, the other provisions shall remain in full force and effect and the provision held to be void, illegal or unenforceable shall be limited so that it shall remain in effect to the extent permissible by law.

 

(c)                                  Choice of Law and Venue.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.  ANY LITIGATION, SPECIAL PROCEEDING OR OTHER PROCEEDING AS BETWEEN THE PARTIES THAT MAY BE BROUGHT, OR ARISE OUT OF, IN CONNECTION WITH OR BY REASON OF THIS AGREEMENT SHALL BE BROUGHT IN THE APPLICABLE FEDERAL OR STATE COURT IN AND FOR TRAVIS COUNTY, TEXAS, WHICH COURTS SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND VENUE.

 

(d)                                 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier. All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days’ advance written notice to the other party:

 

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If to Pledgor:

 

 

 

Arkanova Acquisition Corporation
  305 Camp Craft Rd., Suite 525

Austin, TX 78746

Fax: 888-329-7716

Attention: Pierre Mulacek, President

 

If to the Investor:

 

To the Address for Notice as provided on the signature page of the NPA.

 

(e)                                  Continuing Security Interest.  This Agreement shall create a continuing security interest in the Pledged Collateral and shall remain in full force and effect until payment in full of the Obligations.

 

(f)                                   Preparation of Agreement.  Each party to this Agreement acknowledges that:  (i) the party had the advice of, or sufficient opportunity to obtain the advice of, legal counsel separate and independent of legal counsel for any other party hereto; (ii) the terms of the transactions contemplated by this Agreement are fair and reasonable to such party; and (iii) such party has voluntarily entered into the transactions contemplated by this Agreement without duress or coercion.  Each party further acknowledges that such party was not represented by the legal counsel of any other party hereto in connection with the transactions contemplated by this Agreement, nor was he or it under any belief or understanding that such legal counsel was representing his or its interests.  Each party agrees that no conflict, omission or ambiguity in this Agreement, or the interpretation thereof, shall be presumed, implied or otherwise construed against any other party to this Agreement on the basis that such party was responsible for drafting this Agreement.

 

(g)                                  Nonwaiver.  Unless otherwise expressly provided herein, no waiver by the Secured Party of any provision hereof shall be deemed to have been made unless expressed in writing and signed by the Secured Party.  No delay or omission in the exercise of any right or remedy accruing to the Secured Party upon any breach under this Agreement shall impair such right or remedy or be construed as a waiver of any such breach theretofore or thereafter occurring.  The waiver by the Secured Party of any breach of any term, covenant or condition herein stated shall not be deemed to be a waiver of any other breach, or of a subsequent breach of the same or any other term, covenant or condition herein contained.

 

(h)                                 Entire Agreement.  This Agreement sets forth the entire understanding of the parties with respect to the Pledged Collateral and supersedes all prior or contemporaneous representations, understandings and agreements, oral or written, made between the parties effecting the subject matter hereof, and all such prior or contemporaneous representations, understandings and agreements are hereby terminated.

 

(i)                                     Parties Bound.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, assigns, heirs and personal representatives.

 

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(j)                                    Counterpart Execution.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

 

(k)                                 Effect on Prior Pledge Agreement.  This Agreement replaces that certain Pledge Agreement by and between Guarantor to Investor dated October 1, 2009 relating to the Pledged Collateral, which prior Pledge Agreement the parties hereby agree is cancelled and of no further force or effect.

 

 

 

 

 

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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Signatures

 

To evidence the binding effect of the foregoing terms and condition, the parties have executed and delivered this Agreement as of, but not necessarily on, the date first above written.

 

ARKANOVA ACQUISITION CORPORATION

 

 

	
By:
    	
 
    
	
 
    	
Pierre Mulacek, President
    

 

 

ATON SELECT FUNDS LIMITED

 

 

	
By:
    	
 
    
	
 
    	
David Dawes, Director
    

 

 

	
ADDRESS   FOR NOTICE
    
	
 
    
	
C/o:
    	
 
    
	
Street:
    	
 
    
	
City/State/Zip:
    	
 
    
	
Attention:
    	
 
    
	
Tel:
    	
 
    
	
Fax:
    	
 
    

 

12

ANNEX “D”

 

Amended Guaranty Agreement

 

Attached

 

 

 

THIS AGREEMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933 ACT) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.

 

GUARANTY AGREEMENT

 

THIS GUARANTY AGREEMENT (this “Guaranty”) is made and entered into as of, but not necessarily on, the 1st day of October, 2011, and between Arkanova Energy Corporation. a Nevada corporation (“Guarantor”),and Aton Select Funds Limited (the “Investor”)

 

Background

 

A.            On even date herewith Arkanova Acquisition Corporation, a Nevada corporation and a wholly-owned subsidiary of Guarantor (“Maker”), and the Investor (“Payee”), consummated the sale by Maker and the purchase by Payee of certain secured indebtedness of Maker (the “Indebtedness”), and to evidence the obligation of Maker to pay the Indebtedness Maker executed and delivered to Payee that certain Secured Promissory Note (the “Note”) evidencing Maker’s obligation to pay to Payee the principal and interest set forth therein; and

 

B.            As a material inducement to Payee purchase the Indebtedness and accept the Note as evidence of Maker’s obligation to pay for same, Guarantor, being the sole shareholder of Maker, has agreed to guarantee the payment of the indebtedness evidenced by the Note and the performance of the obligations of Maker under the Note pursuant to the terms and conditions set forth herein;

 

Terms and Conditions

 

In consideration of the mutual benefits to be derived from the covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, hereby agree as follows:

 

1.             Guarantee of Maker’s Obligations.  Guarantor, as primary obligor and not merely as surety and intending to be legally bound hereby, hereby absolutely, irrevocably, unequivocally and unconditionally, guarantees to Payee the due, prompt and faithful performance of, compliance with and

 

 

execution of all of the terms, provisions, conditions, covenants, warranties, obligations and agreements of Maker contained in, described in or pursuant to the Note and this Guaranty, including the prompt and full payment of all indebtedness of Maker to Payee arising pursuant to the Note and all renewals and extensions thereof, now existing or hereafter arising pursuant to the Note (the “Guaranteed Obligations”).  In the event of default by Maker in payment or performance of the indebtedness evidenced by the Note, or any part thereof, when such indebtedness or other obligations become due, whether by maturity, prepayment or by acceleration, Guarantor shall, on demand and without further notice of dishonor, pay the amount due thereon to Payee.  In the event of such payment is made by Guarantor, then Guarantor shall be subrogated to the rights then held by Payee with respect to the Guaranteed Obligations to the extent to which the Guaranteed Obligations were discharged by Guarantor.  Upon payment by Guarantor of any sums to Payee hereunder, all rights of Guarantor against Maker arising as a result therefrom by way of right of subrogation or otherwise, shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of all the obligations of Maker to Payee under the Note.  This Guaranty shall be irrevocable by Guarantor until all of the Guaranteed Obligations have been finally, completely and indefeasibly paid in full and completely performed.

 

2.             Nondischargeability of Guaranty.  Guarantor hereby agrees that Guarantor’s obligations under the terms of this Guaranty shall not be released, diminished, impaired, modified, affected or limited in any manner whatsoever by the occurrence of any reason or event, including without limitation, one or more of the following events:  (a) the taking or accepting of any other security for any or all of the Guaranteed Obligations; (b) any indulgence, compromise, settlement or release which may be extended by Payee to Maker, Guarantor or any one or more other parties liable in whole or in part for the Guaranteed Obligations for such consideration as Payee may deem proper; (c) the lack of corporate power of Maker, the insolvency or bankruptcy of Maker, or any party at any time liable for the payment of any or all of the Guaranteed Obligations, whether now existing or hereafter occurring; (d) any renewal, extension, and/or rearrangement of the payment of any or all of the Guaranteed Obligations with or without notice to or consent of Guarantor; (e) any neglect, delay, omissions, failure, or refusal of Payee to take or prosecute any action for the collection of any of the Guaranteed Obligations or to foreclose or take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations; (f) the enforceability of all or any part of the Guaranteed Obligations against Maker by reason of the fact that the Guaranteed Obligations exceed the amount permitted by law, the act of creating the Guaranteed Obligations, or any part thereof, is ultra vires, or the officers creating same acted in excess of their authority; (g) any payment by Maker to Payee is held to constitute a preference under the bankruptcy laws or if for any other reason Payee is required to refund such payment or pay the amount thereof to someone else; or (h) any impairment, modification, change, release or limitation of the liability of Maker or Guarantor, or of any remedy for the enforcement thereof, resulting from the operation of any present or future provision of the Federal Bankruptcy Code or any similar law or statute of the United States or the State of Texas.

 

3.             No Setoff.  The obligations, guaranties, covenants, agreements and duties of Guarantor under this Guaranty are primary obligations of Guarantor and shall not be subject to any counterclaim, setoff, deduction, diminution, abatement, recoupment, suspension, deferment, reduction or defense based upon any claim that Maker, Guarantor or any other person or entity may have against Payee.  The obligations of Guarantor set forth herein constitute recourse obligations of Guarantor enforceable against Guarantor to the full extent of Guarantor’s assets and properties.

 

4.             Continuation of Guaranty.  Guarantor covenants that this Guaranty will not be discharged except by complete performance of the Guaranteed Obligations contained in this Guaranty.  This Guaranty shall not be affected by, and shall remain in full force and effect notwithstanding, any bankruptcy, insolvency, liquidation, or reorganization of Maker or Guarantor.

 

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5.             Reliance on Guaranty.  Guarantor recognizes that Payee is relying upon this Guaranty and the undertakings of Guarantor hereunder in purchasing the Indebtedness and accepting the Note in connection therewith, and Guarantor further recognizes that the execution and delivery of this Guaranty is a material inducement to Payee in purchasing the Indebtedness and accepting the Note as evidence of Maker’s obligation to pay for same in accordance with the terms of the Note.

 

6.             Payments under Guaranty.  All amounts to be payable under this Guaranty shall be payable at the address of Payee set forth in the Note or at such other address as Payee may from time to time designate in writing.

 

7.             Representations of Guarantor.  Guarantor hereby represents, warrants and covenants to Payee as follows:

 

(a)           Authorization.  Guarantor has all requisite corporate power and authority to execute, deliver and perform this Guaranty.  The Guaranty constitutes the valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization or other laws or equitable principles relating to or affecting creditors’ rights generally.

 

(b)           Benefit to Guarantor.  Guarantor has derived, or expects to derive, financial and other advantage and benefit, directly or indirectly, from the consummation of the transactions contemplated by the Note and the making of this Guaranty.

 

8.             Waiver.  Guarantor hereby waives notice to Guarantor of the acceptance of this Guaranty, and of any default on the part of Maker of Maker’s obligations under the Note to Payee, and all other notices in connection herewith or in connection with the liabilities, obligations and duties guaranteed hereby.  Guarantor further waives diligence, presentment and suit on part of Payee in the enforcement of any liability, obligation or duty guaranteed by Guarantor hereunder.

 

9.             Enforcement of Guaranty.  Guarantor agrees that Payee shall not be first required to enforce against Maker or any other person any liability, obligation or duty guaranteed hereby before seeking enforcement thereof against Guarantor.  Suit may be brought and maintained against Guarantor by Payee to enforce any liability, obligation or duty guaranteed hereby without joinder of Maker or any other party or without Payee first exhausting Payee’s remedies against Maker or without Payee first exhausting Payee’s rights against any security which shall ever have been given to Payee to secure the payment or performance of the Guaranteed Obligations.

 

10.           Payment of Expenses and Attorneys’ Fees.  Guarantor agrees to pay, on demand, and to save Payee harmless against liability for, any and all costs and expenses (including reasonable fees and disbursements of counsel) incurred or expended by Payee in connection with the enforcement of or preservation of any rights under this Guaranty.

 

11.           Governing Law.  THIS GUARANTY IS MADE, ENTERED INTO AND PERFORMABLE IN HARRIS COUNTY, TEXAS, AND ALL PAYMENTS ARE DUE AND PAYABLE IN TRAVIS COUNTY, TEXAS.  CONSEQUENTLY, THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES AND ANY LITIGATION OR OTHER PROCEEDING AS BETWEEN GUARANTOR AND PAYEE THAT MAY BE BROUGHT, OR ARISE OUT OF, IN CONNECTION WITH OR BY REASON OF THIS GUARANTY SHALL BE BROUGHT IN THE APPLICABLE FEDERAL OR STATE COURT IN AND FOR HARRIS COUNTY,

 

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TEXAS WHICH COURTS SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND VENUE.

 

12.           Termination of Guaranty.  This Guaranty shall terminate and be of no further force or effect upon the payment of the Guaranteed Obligations in full.

 

13.           Reformation and Severability.  If any provision of this Guaranty is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof (i) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Guaranty a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable, and (ii) the legality, validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby.

 

14.           Successors and Assigns.  This Guaranty shall be binding upon Guarantor and its heirs, personal representatives, successors and permitted assigns.  Guarantor may not assign or transfer any of Guarantor’s rights or obligations hereunder without the prior written consent of Payee.  In the event of an assignment by Payee of its rights or interest in the Guaranteed Obligations including the Note, or any part thereof, the rights and benefits hereunder, to the extent applicable to the indebtedness so assigned shall automatically pass with a transfer or assignment of the Note or any interest therein to any holder thereof.

 

15.           Entire Agreement.  This Guaranty embodies the final, entire agreement of Guarantor with respect to the subject matter hereof and supersedes any and all prior or contemporaneous agreements, representations and understandings, whether written or oral, relating to this Guaranty.

 

16.           Effect on Prior Guaranty.  This Guaranty replaces that certain Guaranty issued by Guarantor to Investor dated October 1, 2009, which the parties hereby agree is cancelled and of no further force or effect.

 

 

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Guarantor Signature

 

To evidence the binding effect of the foregoing terms, Guarantor has executed and delivered this Guaranty as of, but not necessarily on, the date first above written.

 

 

	
ARKANOVA ENERGY CORPORATION
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
 
    	
Pierre Mulacek, President
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
ACCEPTED:
    	
 
    
	
 
    	
 
    
	
ATON SELECT FUNDS LIMITED
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
 
    	
David Dawes
    	
 
    
	
 
    	
Director
    	
 
    

 

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