Document:

Unassociated Document

 

EXHIBIT 10.4

 

SECURITY AGREEMENT

(in favor of New EarthShell Corporation)

 

THIS SECURITY AGREEMENT (the “Agreement”) is entered into as of August 17, 2010, by and among (i) Carbonics Capital Corporation, a Delaware corporation (“Carbonics” or the “Issuer”), (ii) Westport Energy Acquisition Inc., a Delaware corporation (“Acquisition Sub”), (iii) Westport Energy, LLC, a Delaware limited liability company (“Westport”; and together with Carbonics and Acquisition Sub, collectively, the “Companies”), and (iv) any subsidiary and affiliate of the Companies listed on Schedule 1 attached hereto either now or joined in the future (the “Subsidiaries”; and jointly, severally, and collectively with the Companies, the “Grantors”) in favor of New EarthShell Corporation, a Delaware corporation (the “Secured Party”).

 

WHEREAS, in connection with the LLC Membership Interest Purchase Agreement dated August __, 2010 among the Secured Party and the Companies (as amended, supplemented and restated from time to time, the “Purchase Agreement”), the Issuer has agreed, upon the terms and subject to the conditions of the Purchase Agreement, to issue to the Secured Party the a secured convertible debenture as set forth in the Purchase Agreement (collectively along with all other debentures or loan instruments listed on Schedule 2 attached hereto, as each may be amended, supplemented and restated from time to time, the “Convertible Debentures”);

 

WHEREAS, (i) each of Westport and Acquisition Sub has executed and delivered a Guaranty Agreement, dated as of the date hereof, in favor of the Secured Party pursuant to which each of Westport and Acquisition Sub absolutely and unconditionally guarantee to the Secured Party the payment and performance of all now existing and hereafter arising Obligations (as amended, supplemented and restated from time to time, the “Guaranty”), and (ii) each of the Grantors, Secured Party and the escrow agent named therein has executed and delivered a Pledge and Escrow Agreement, dated as of the date hereof, in favor of the Secured Party pursuant to which each Grantor absolutely and unconditionally pledged and granted to the Secured Party certain securities set forth therein to secure the payment and performance of all now existing and hereafter arising Obligations (as amended, supplemented and restated from time to time, the “Pledge Agreement”); and

 

WHEREAS, certain Grantors that are owners of Real Estate have executed and delivered, or agreed to execute and deliver, certain real property mortgages in favor of the Secured Party (as may be amended, supplemented and restated from time to time, collectively, the “Mortgages”) to be filed in the local land records offices in the States in which such Real Estate resides.

 

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

 

  

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ARTICLE 1.

 

DEFINITIONS AND INTERPRETATIONS

 

1.1           Recitals.

 

The above recitals are true and correct and are incorporated herein, in their entirety, by this reference.

 

1.2           Interpretations.

 

Nothing herein expressed or implied is intended or shall be construed to confer upon any person other than the Secured Party any right, remedy or claim under or by reason hereof.

 

1.3           Definitions.

 

(a)           To the extent used in this Agreement and not defined herein, terms defined in the UCC shall have the meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined) ascribed to such terms in the UCC.  To the extent the definition of any category or type of Collateral is expanded by any amendment, modification or revision to the UCC, such expanded definition will apply automatically as of the date of such amendment, modification or revision.

 

(b)           As used in this Agreement, the following terms shall have the meanings indicated below (such meanings to be equally applicable to both the singular and plural forms of such terms):

 

“Collateral” has the meaning set forth in Section 2.1.

 

“Deposit Account” has the meaning set forth in Section 6.16.

 

“Event of Default” shall mean a Grantor breaching any provision of, or defaulting in any of its obligations under (i) the Convertible Debentures; (ii) the Purchase Agreement; (iii) the Loan Instruments; and (iv) any Transaction Document or any other agreement or document related to any of the foregoing.

 

“GAAP” shall mean generally accepted accounting principles in the United States of America.

 

“Intellectual Property” shall mean all present and future trade secrets, know-how and other proprietary information; trademarks, trademark applications, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights and copyright applications; (including copyrights for computer programs) and all tangible and intangible property embodying the copyrights, unpatented inventions (whether or not patentable); patents and patent applications; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing.  Schedule 4 attached hereto sets forth all Intellectual Property of the Grantors (as such Schedule may be amended, modified or supplemented from time to time).

 

  

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“Intercreditor Agreement” shall mean that certain Intercreditor Agreement dated on or about the date hereof between the Secured Party and YA Global Investments, L.P.

 

“Lien” has the meaning set forth in Section 4.2.

 

“Loan Instruments” has the meaning set forth in Section 6.1.

 

“Material Adverse Effect” shall mean any material and adverse affect as determined by the Secured Party in its reasonable discretion upon (a) the Grantors’ assets, business, operations, properties or condition, financial or otherwise; (b) the Grantors’ ability to make payment as and when due of all or any part of the Obligations; or (c) the Collateral.

 

“Obligations” shall mean and include any and all debts, liabilities, obligations, covenants and duties owing by any Grantor to the Secured Party, now existing or hereafter arising of every nature, type, and description, whether liquidated, unliquidated, primary, secondary, secured, unsecured, direct, indirect, absolute, or contingent, and whether or not evidenced by a note, guaranty or other instrument, and any amendments, extensions, renewals or increases thereof, including, without limitation, all those under (i) the Transaction Documents; (ii) any agreement or document related to the Transaction Documents; or (iii) any other or related documents, and including any interest accruing thereon after insolvency, reorganization or like proceeding relating to the Grantors, whether or not a claim for post-petition interest is allowed in such proceeding, and all costs and expenses of the Secured Party incurred in the enforcement, collection or otherwise in connection with any of the foregoing, including, but not limited to, reasonable attorneys’ fees and expenses and all obligations of the Grantors to the Secured Party to perform acts or refrain from taking any action.

 

“Other Loan Documents” shall mean any credit agreement or other facility, warrant, mortgage, other debenture agreements or instruments, by and among the Secured Party and the Grantors, under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money, including, without limitation, the Convertible Debentures.

 

“Permitted Indebtedness” shall mean: (i) indebtedness evidenced by the Convertible Debentures; (ii) indebtedness described on Schedule 7.3 attached hereto; (iii) indebtedness incurred solely for the purpose of financing the acquisition or lease of any equipment by the Grantors, including capital lease obligations with no recourse other than to such equipment; (iv) indebtedness (A) the repayment of which has been subordinated to the payment of the Obligations on terms and conditions acceptable to the Secured Party, including with regard to interest payments and repayment of principal, (B) which does not mature or otherwise require or permit redemption or repayment prior to or on the 91st day after the maturity date of any Convertible Debenture then outstanding; and (C) which is not secured by any assets of the Grantors; (v) indebtedness solely between a Grantor and/or one of its domestic subsidiaries, on the one hand, and a Grantor and/or one of its domestic subsidiaries, on the other which indebtedness is not secured by any assets of such Grantor or any of its subsidiaries, provided that (x) in each case a majority of the equity of any such domestic subsidiary is directly or indirectly owned by a Grantor, such domestic subsidiary is controlled by a Grantor and such domestic subsidiary has executed a security agreement in the form of this Agreement and (y) any such loan shall be evidenced by an intercompany note that is pledged by such Grantor or its subsidiary, as applicable, as collateral pursuant to a Collateral Assignment Agreement in form and substance satisfactory to Secured Party in its sole discretion; (vi) reimbursement obligations in respect of letters of credit issued for the account of a Grantor or any of its subsidiaries for the purpose of securing performance obligations of such Grantor or its subsidiaries incurred in the ordinary course of business so long as the aggregate face amount of all such letters of credit does not exceed $100,000 at any one time; and (vii) renewals, extensions and refinancing of any indebtedness described in clause (i) or (iii) of this subsection.

 

  

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“Permitted Liens” shall mean (1) the security interest created by this Agreement, (2) any prior security interest granted to the Secured Party, (3) existing Liens disclosed by each Grantor on Schedule 4.2; (4) inchoate Liens for taxes, assessments or governmental charges or levies not yet due, as to which the grace period, if any, related thereto has not yet expired, or being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (5) Liens of carriers, materialmen, warehousemen, mechanics and landlords and other similar Liens which secure amounts which are not yet overdue by more than 60 days or which are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (6) licenses, sublicenses, leases or subleases granted to other persons not materially interfering with the conduct of the business of the Grantors; (7) Liens securing capitalized lease obligations and purchase money indebtedness incurred solely for the purpose of financing an acquisition or lease; (8) easements, rights-of-way, restrictions, encroachments, municipal zoning ordinances and other similar charges or encumbrances, and minor title deficiencies, in each case not securing debt and not materially interfering with the conduct of the business of the Grantors and not materially detracting from the value of the property subject thereto; (9) Liens arising out of the existence of judgments or awards which judgments or awards do not constitute an Event of Default; (10) Liens incurred in the ordinary course of business in connection with workers compensation claims, unemployment insurance, pension liabilities and social security benefits and Liens securing the performance of bids, tenders, leases and contracts in the ordinary course of business, statutory obligations, surety bonds, performance bonds and other obligations of a like nature (other than appeal bonds) incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money); (11) Liens in favor of a banking institution arising by operation of law encumbering deposits (including the right of set-off) and contractual set-off rights held by such banking institution and which are within the general parameters customary in the banking industry and only burdening deposit accounts or other funds maintained with a creditor depository institution; (12) usual and customary set-off rights in leases and other contracts; and (13) escrows in connection with acquisitions and dispositions.

 

“Real Estate” means all leases and all land, together with the buildings, structures, parking areas, and other improvements thereon, now or hereafter owned by any Grantor, including all easements, rights-of-way, and similar rights relating thereto and all leases, tenancies, and occupancies thereof.  Schedule 5 attached hereto sets forth all Real Estate of the Grantors (as such Schedule may be amended, modified or supplemented from time to time).

 

  

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“Transaction Documents” shall mean (i) the Convertible Debentures, (ii) the Purchase Agreement, (iii) the Mortgages, (iv) the Loan Instruments, (v) the Other Loan Documents, and (vi) any other or related documents.

 

“UCC” or “Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of New Jersey; provided, however, that if a term is defined in Article 9 of the Uniform Commercial Code differently than in another Article thereof, the term shall have the meaning set forth in Article 9 of the UCC; provided further that, if by reason of mandatory provisions of law, perfection, or the effect of perfection or non-perfection, of a security interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New Jersey, “Uniform Commercial Code” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy, as the case may be.

 

ARTICLE 2.

 

SECURITY INTEREST

 

2.1           Grant of Security Interest.

 

(a)           As security for the payment or performance in full of the Obligations and subject to the terms and provisions of the Intercreditor Agreement, each Grantor hereby pledges to the Secured Party, its successors and assigns, and hereby grants to the Secured Party, its successors and assigns, a security interest in and to all assets and personal property of each Grantor, wherever located and whether now or hereinafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible, including without limitation, all Real Estate, Goods, Inventory, Equipment, Fixtures, Instruments, Documents, Accounts, Contracts and Contract Rights, Chattel Paper, Deposit Accounts, Money, Letters of Credit and Letter-of-Credit Rights, Commercial Tort Claims, Securities and all other Investment Property, General Intangibles, Farm Products, all books and records and information relating to any of the foregoing, all Supporting Obligations, and any and all Proceeds and products of any and all of the foregoing, and as more particularly described on Exhibit A attached hereto (collectively, the “Collateral”).

 

(b)           Simultaneously with the execution and delivery of this Agreement, each Grantor shall make, execute, acknowledge, file, record and deliver to the Secured Party such documents, instruments, and agreements, including, without limitation, financing statements, mortgages, certificates, affidavits and forms as may, in the Secured Party’s reasonable judgment, be necessary to effectuate, complete or perfect, or to continue and preserve, the security interest of the Secured Party in the Collateral.

 

2.2           No Assumption of Liability.

 

The security interest in the Collateral is granted as security only and shall not subject the Secured Party to, or in any way alter or modify any obligation or liability of any Grantor with respect to or arising out of the Collateral.

 

  

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ARTICLE 3.

 

ATTORNEY-IN-FACT; PERFORMANCE

 

3.1           Secured Party Appointed Attorney-In-Fact.

 

Each Grantor hereby appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of each Grantor or otherwise, from time to time in the Secured Party’s discretion to take any action and to execute any instrument which the Secured Party may reasonably deem necessary to accomplish the purposes of this Agreement or for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest in the Collateral, including, without limitation, to (a) file one or more financing statements, continuing statements, filings with the United States Patent and Trademark Office or United States Copyright Office (or any successor office) or other documents; (b) receive and collect all instruments made payable to a Grantor representing any payments in respect of the Collateral or any part thereof and to give full discharge for the same; and (c) demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as and when the Secured Party may determine.  To facilitate collection, the Secured Party may notify account debtors and obligors on any Collateral to make payments directly to the Secured Party.  The foregoing power of attorney is a power coupled with an interest and shall be irrevocable until all Obligations are paid and performed in full.  The Grantors agree that the powers conferred on the Secured Party hereunder are solely to protect the Secured Party’s interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers.

 

3.2           Secured Party May Perform.

 

If a Grantor fails to perform any agreement contained herein, the Secured Party, at its option, may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be included in the Obligations secured hereby and payable by the Grantors under Section 8.4.

 

ARTICLE 4.

 

REPRESENTATIONS AND WARRANTIES

 

4.1           Authorization: Enforceability.

 

Each of the parties hereto represents and warrants that it has taken all action necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and binding obligation of the respective party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights or by the principles governing the availability of equitable remedies.

 

  

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4.2           Ownership of Collateral; Priority of Security Interest.

 

Each Grantor represents and warrants that it is the legal and beneficial owner of the Collateral free and clear of any lien, security interest, option or other charge or encumbrance (each, a “Lien”) except for the Permitted Liens.  Except for the Permitted Liens, (i) the security interest granted to the Secured Party hereunder shall be a first priority security interest subject to no other Liens, and (ii) no financing statement covering any of the Collateral or any proceeds thereof is on file in any public office.

 

4.3           Location of Collateral.

 

The Collateral is or will be kept at the address(es) of each Grantor set forth on Schedule 4.3 attached hereto.  Unless otherwise provided herein, the Grantors will not remove any Collateral from such locations without the prior written consent of the Secured Party.

 

4.4           Location, State of Incorporation and Name of Grantors.

 

Each Grantor’s principal place of business; state of incorporation, organization or formation; organization id; and exact legal name is set forth on Schedule 4.4 attached hereto.

 

4.5           Solvency.

 

Each of the Companies is able to pay its debts as they mature, has capital sufficient to carry on its business, and the fair present saleable value of its assets, calculated on a going concern basis, is in excess of the amount of its liabilities (except for certain derivative liabilities related to the Convertible Debentures).

 

4.7           SEC Documents; Financial Statements.

 

Carbonics has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the two years preceding the date hereof (or such shorter period as such Grantor was required by law or regulation to file such material) (all of the foregoing filed prior to the date hereof or amended after the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the “SEC Documents”) on timely basis or has received a valid extension of such time of filing and has filed any such SEC Document prior to the expiration of any such extension.  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  As of their respective dates, the financial statements of each Grantor included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of Carbonics as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

 

  

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ARTICLE 5.

 

DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL

 

5.1           Method of Realizing Upon the Collateral: Other Remedies.

 

If any Event of Default shall have occurred and be continuing (and subject to the terms and provisions of the Intercreditor Agreement):

 

(a)           The Secured Party may exercise in respect of the Collateral, in addition to any other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected Collateral), and also may (i) take absolute control of the Collateral, including, without limitation, transfer into the Secured Party's name or into the name of its nominee or nominees (to the extent the Secured Party has not theretofore done so) and thereafter receive, for the benefit of the Secured Party, all payments made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act with respect thereto as though it were the outright owner thereof, (ii) require each Grantor to assemble all or part of the Collateral as directed by the Secured Party and make it available to the Secured Party at a place or places to be designated by the Secured Party that is reasonably convenient to both parties, and the Secured Party may enter into and occupy any premises owned or leased by a Grantor where the Collateral or any part thereof is located or assembled for a reasonable period in order to effectuate the Secured Party’s rights and remedies hereunder or under law, without obligation to such Grantor in respect of such occupation, and (iii) without notice except as specified below and without any obligation to prepare or process the Collateral for sale, (A) sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Secured Party’s offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Secured Party may deem commercially reasonable and/or (B) lease, license or dispose of the Collateral or any part thereof upon such terms as the Secured Party may deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale or any other disposition of the Collateral shall be required by law, at least ten (10) days’ notice to such Grantor of the time and place of any public sale or the time after which any private sale or other disposition of the Collateral is to be made shall constitute reasonable notification. The Secured Party shall not be obligated to make any sale or other disposition of any Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Grantor hereby waives any claims against the Secured Party arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree, and waives all rights that such Grantor may have to require that all or any part of such Collateral be marshaled upon any sale (public or private) thereof. Each Grantor hereby acknowledges that (x) any such sale of the Collateral by the Secured Party may be made without warranty, (y) the Secured Party may specifically disclaim any warranties of title, possession, quiet enjoyment or the like, and (z) such actions set forth in clauses (x) and (y) above shall not adversely affect the commercial reasonableness of any such sale of Collateral.

 

  

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(b)           Any cash held by the Secured Party as Collateral and all cash proceeds received by the Secured Party in respect of any sale of or collection from, or other realization upon, all or any part of the Collateral shall be applied (after payment of any amounts payable to the Secured Party pursuant to Section 8.3 hereof) by the Secured Party against, all or any part of the Obligations in such order as the Secured Party shall elect, consistent with the provisions of the Convertible Debentures. Any surplus of such cash or cash proceeds held by the Secured Party and remaining after the indefeasible payment in full in cash of all of the Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct.

 

(c)           In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Secured Party is legally entitled, the Grantors shall be liable for the deficiency, together with interest thereon at the rate specified in the Convertible Debentures for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Secured Party to collect such deficiency.

 

(d)           Each Grantor hereby acknowledges that if the Secured Party complies with any applicable state, provincial, or federal law requirements in connection with a disposition of the Collateral, such compliance will not adversely affect the commercial reasonableness of any sale or other disposition of the Collateral.

 

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

 

5.2           Duties Regarding Collateral.

 

The Secured Party shall have no duty as to the collection or protection of the Collateral or any income thereon or as to the preservation of any rights pertaining thereto, beyond the safe custody and reasonable care of any of the Collateral actually in the Secured Party’s possession.

 

  

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ARTICLE 6.

 

AFFIRMATIVE COVENANTS

 

So long as any of the Obligations shall remain outstanding, unless the Secured Party shall otherwise consent in writing:

 

6.1           Existence, Properties, Etc.

 

Each Grantor shall do, or cause to be done, all things, or proceed with due diligence with any actions or courses of action, that may be reasonably necessary (i) to maintain such Grantor’s due organization, valid existence and good standing under the laws of its state of incorporation, and (ii) to preserve and keep in full force and effect all qualifications, licenses and registrations in those jurisdictions in which the failure to do so could have a Material Adverse Effect; and (b) a Grantor shall not do, or cause to be done, any act impairing the Grantor’s corporate power or authority (i) to carry on such Grantor’s business as now conducted, and (ii) to execute or deliver this Agreement or any other agreement or document delivered in connection herewith, including, without limitation, the Guaranty, the Pledge Agreement, the Mortgages, and any other mortgages, pledges, or other collateral documents, and any UCC-1 Financing Statement required by the Secured Party (which documents, instruments, and agreements shall be collectively referred to as the “Loan Instruments”) to which it is or will be a party, or perform any of its obligations hereunder or thereunder.

 

6.2           Financial Statements and Reports.

 

Each Grantor shall furnish to the Secured Party within a reasonable time such financial data as the Secured Party may reasonably request.

 

6.3           Accounts and Reports.

 

Each Grantor shall maintain a standard system of accounting in accordance with GAAP and provide, at its sole expense, to the Secured Party the following:

 

(a)           as soon as available, a copy of any notice or other communication alleging any nonpayment or other material breach or default, or any foreclosure or other action respecting any material portion of its assets and properties, received respecting any of the indebtedness of such Grantor in excess of $100,000 (other than the Obligations), or any demand or other request for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement respecting the indebtedness or obligations of others in excess of $100,000; and

 

(b)           within fifteen (15) days after the making of each submission or filing, a copy of any report, financial statement, notice or other document, whether periodic or otherwise, submitted to the shareholders of the Grantors, or submitted to or filed by the Grantors with any governmental authority involving or affecting (i) the Grantors that could reasonably be expected to have a Material Adverse Effect; (ii) the Obligations; (iii) any part of the Collateral; or (iv) any of the transactions contemplated in this Agreement or the Loan Instruments (except, in each case, to the extent any such submission, filing, report, financial statement, notice or other document is posted on EDGAR Online).

 

  

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6.4           Maintenance of Books and Records: Inspection.

 

Each Grantor shall maintain its books, accounts and records in accordance with GAAP, and permit the Secured Party, its officers and employees and any professionals designated by the Secured Party in writing, at any time during normal business hours and upon reasonable notice to visit and inspect any of its properties (including, but not limited to, the collateral security described in the Transaction Documents and/or the Loan Instruments), corporate books and financial records, and to discuss its accounts, affairs and finances with any employee, officer or director thereof (it being agreed that, unless an Event of Default shall have occurred and be continuing, there shall be no more than two (2) such visits and inspections in any fiscal year).

 

6.5           Maintenance and Insurance.

 

(a)           Each Grantor shall maintain or cause to be maintained, at its own expense, all of its material assets and properties in good working order and condition, ordinary wear and tear excepted, making all necessary repairs thereto and renewals and replacements thereof.

 

(b)           The Grantors shall maintain or cause to be maintained, at their own expense, insurance in form, substance and amounts (including deductibles), which the Grantors deem reasonably necessary to the Grantors’ business, (i) adequate to insure all assets and properties of the Grantors of a character usually insured by persons engaged in the same or similar business against loss or damage resulting from fire or other risks included in an extended coverage policy; (ii) against public liability and other tort claims that may be incurred by the Grantors; (iii) as may be required by the Transaction Documents and/or applicable law and (iv) as may be reasonably requested by Secured Party, all with financially sound and reputable insurers.

 

6.6           Contracts and Other Collateral.

 

Each Grantor shall perform all of its obligations under or with respect to each instrument, receivable, contract and other intangible included in the Collateral to which such Grantor is now or hereafter will be party on a timely basis and in the manner therein required, including, without limitation, this Agreement, except to the extent the failure to so perform such obligations would not reasonably be expected to have a Material Adverse Effect.

 

6.7           Defense of Collateral, Etc.

 

Each Grantor shall defend and enforce (a) its right, title and interest in and to any part of the Collateral; and (b) if not included within the Collateral, those assets and properties whose loss would reasonably be expected to have a Material Adverse Effect, each against all manner of claims and demands on a timely basis to the full extent permitted by applicable law (other than any such claims and demands by holders of Permitted Liens).

 

6.8           Taxes and Assessments.

 

Each Grantor shall (a) file all material tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency (taking into account any extensions of the original due date), (b) pay and discharge all material taxes, assessments and governmental charges or levies imposed upon a Grantor, upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all material taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; provided, however, that the Grantors in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and (c) so long as appropriate reserves are maintained with respect thereto if and to the extent required by GAAP.

 

  

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6.9           Compliance with Law and Other Agreements.

 

Each Grantor shall maintain its business operations and property owned or used in connection therewith in compliance with (a) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (b) all agreements, licenses, franchises, indentures and mortgages to which a Grantor is a party or by which such Grantor or any of its properties is bound, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect.

 

6.10           Notice of Default.

 

The Grantors will immediately notify the Secured Party of any event causing a substantial loss or diminution in the value of all or any material part of the Collateral and the amount or an estimate of the amount of such loss or diminution. The Grantors shall promptly notify the Secured Party of any condition or event which constitutes, or would constitute with the passage of time or giving of notice or both, an Event of Default, and promptly inform the Secured Party of any events or changes in the financial condition of any Grantor occurring since the date of the last financial statement of such Grantor delivered to the Secured Party, which individually or cumulatively when viewed in light of prior financial statements, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of the Grantors.

 

6.11           Notice of Litigation.

 

Each Grantor shall give notice, in writing, to the Secured Party of (a) any actions, suits or proceedings wherein the amount at issue is in excess of $100,000, instituted by any persons against a Grantor, or affecting any of the assets of such Grantor, and (b) any dispute, not resolved within fifteen (15) days of the commencement thereof, between a Grantor on the one hand and any governmental or regulatory body on the other hand, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of such Grantor.

 

6.12           Future Subsidiaries.

 

Schedule 6.12 attached hereto lists all currently existing subsidiaries of the Grantors.  If any Grantor shall hereafter create or acquire any subsidiary, simultaneously with the creation or acquisition of such subsidiary, such Grantor shall cause such subsidiary to become a party to this Agreement as an additional "Grantor" hereunder, and to duly execute and deliver a guaranty of the Obligations in favor of the Secured Party in form and substance reasonably acceptable to the Secured Party, and to duly execute and/or deliver such other documents, in form and substance reasonably acceptable to the Secured Party, as the Secured Party shall reasonably request with respect thereto, including, without limitation, a mortgage to the extent such subsidiary owns any Real Estate.

 

  

12

 

 

6.13         Changes to Identity.

 

Each Grantor will (a) give the Secured Party at least 30 days' prior written notice of any change in such Grantor's name, identity or organizational structure, (b) maintain its jurisdiction of incorporation, organization or formation as set forth on Schedule 4.4 attached hereto, (c) immediately notify the Secured Party upon obtaining an organizational identification number, if on the date hereof such Grantor did not have such identification number.

 

6.14         Perfection of Security Interests.

 

(a)           Financing Statements.  The Grantors hereby irrevocably authorize the Secured Party, at the sole cost and expense of the Grantors, at any time and from time to time to file in any filing office in any jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of the Grantors or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC of such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether such Grantor is an organization, the type of organization and any organization identification number issued to such Grantor, and (ii) in the case of a financing statement filed as a fixture filing, a sufficient description of real property to which the Collateral relates.  The Grantors agree to furnish any such information to the Secured Party promptly upon request.  The Grantors also ratify their authorization for the Secured Party to have filed in any jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof.  The Grantors acknowledge that they are not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the prior written consent of the Secured Party and agree that they will not do so without the prior written consent of the Secured Party.  The Grantors acknowledge and agree that this Agreement constitutes an authenticated record.

 

(b)           Possession.  The Grantors (i) shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where the Secured Party chooses to perfect its security interest by possession in addition to the filing of a financing statement; and (ii) will, where the Collateral is in the possession of a third party, join with the Secured Party in notifying the third party of the Secured Party’s security interest and obtaining an acknowledgment from the third party that it is holding the Collateral for the benefit of the Secured Party.

 

(c)           Control.  In addition to the provisions set forth in Section 6.16, the Grantors will cooperate with the Secured Party in obtaining control with respect to the Collateral consisting of (i) Investment Property, (ii) Letters of Credit and Letter-of-Credit Rights and (iii) electronic Chattel Paper.

 

(d)           Marking of Chattel Paper.  The Grantors will not create any Chattel Paper without placing a legend on the Chattel Paper acceptable to the Secured Party indicating that the Secured Party has a security interest in the Chattel Paper.

 

  

13

 

 

6.15           Notice of Commercial Tort Claims.  Attached as Schedule 6.15 is a list of all Commercial Tort Claims of the Grantors (as such Schedule may be amended, modified or supplemented from time to time). If any Grantor shall at any time acquire a Commercial Tort Claim, such Grantor shall immediately notify the Secured Party in a writing signed by such Grantor which shall (a) provide brief details of said claim and (b) grant to the Secured Party a security interest in said claim and in the proceeds thereof, all upon the terms of this Agreement, in such form and substance satisfactory to the Secured Party.

 

6.16           Establishment of Deposit Account, Account Control Agreements.

 

(a)           In connection with the execution of this Agreement, each Grantor, the Secured Party, and each applicable bank or other depository institution shall enter into an account control agreement (the “Account Control Agreement”) in the form of Exhibit B attached hereto with respect to each of the Grantor’s deposit accounts, including, without limitation, all savings, passbook, money market or other depository accounts, and all certificates of deposit, maintained by each Grantor with any bank, savings and loan association, credit union or other depository institution maintained or used by each Grantor (the “Deposit Accounts”) providing dominion and control over such accounts to the Secured Party such that upon notice by the Secured Party to such bank or other depository institution of the occurrence of an Event of Default all actions under such account shall be taken solely at the Secured Party’s direction.  Each Grantor’s current Deposit Accounts are set forth on Schedule 6.16 (a) attached hereto.

 

(b)           Each Grantor shall cause all cash, all collections and proceeds from accounts receivable, all receipts from credit card payments, and all proceeds from the sale of any Collateral to be deposited only into its Deposit Accounts in the ordinary course of business and consistent with past practices.

 

(c)           With respect to each Deposit Account, from an after the occurrence of an Event of Default, the Secured Party shall have the right, at any time and from time to time, to exercise its rights under such Account Control Agreement, including, for the avoidance of any doubt, the exclusive right to give instructions to the financial institution at which such Deposit Account is maintained as to the disposition of funds or other property on deposit therein or credited thereto.  The Secured Party hereby covenants and agrees that it will not send any such notice to a financial institution at which any such Deposit Account is maintained directing the disposition of funds or other property therein unless and until the occurrence of an Event of Default.

 

(d)           In connection with the foregoing, each Grantor hereby authorizes and directs each bank or other depository institution which maintains any Deposit Account to pay or deliver to the Secured Party upon the Secured Party’s written demand thereof made at any time after the occurrence of an Event of Default has occurred all balances in each Deposit Account with such depository for application to the Obligations then outstanding.

 

ARTICLE 7.

 

NEGATIVE COVENANTS

 

So long as any of the Obligations shall remain outstanding, unless the Secured Party shall otherwise consent in writing, each Grantor covenants and agrees that it shall not:

 

  

14

 

 

7.1           Transfers; Liens and Encumbrances.

 

(a)           Sell, assign (by operation of law or otherwise), lease, license, exchange or otherwise transfer or dispose of any of the Collateral, except the Grantors may (i) sell or dispose of Inventory in the ordinary course of business, and (ii) sell or dispose of assets the Grantors have determined, in good faith, not to be useful in the conduct of its business, and (iii) sell or dispose of accounts in the course of collection in the ordinary course of business consistent with past practice.

 

(b)           Directly or indirectly make, create, incur, assume or permit to exist any Lien in, to or against any part of the Collateral, other than Permitted Liens.

 

7.2           Restriction on Redemption and Cash Dividends

 

Directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on its capital stock without the prior express written consent of the Secured Party.

 

7.3           Incurrence of Indebtedness.

 

Directly or indirectly, incur or guarantee, assume or suffer to exist any indebtedness, other than the indebtedness evidenced by the Convertible Debentures and other Permitted Indebtedness.

 

7.4           Places of Business.

 

Change its state of organization or its principal place of business without the prior written consent of the Secured Party, as more specifically set forth in Section 6.13 hereof.

 

ARTICLE 8.

 

MISCELLANEOUS

 

8.1           Notices.

 

All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as duly given on: (a) the date of delivery, if delivered in person or by nationally recognized overnight delivery service or (b) five (5) days after mailing if mailed from within the continental United States by certified mail, return receipt requested to the party entitled to receive the same:

 

	
If to the Secured Party:

	
New EarthShell Corporation

	  	
101 Hudson Street-Suite 3700

	  	
Jersey City, New Jersey 07302

	  	
Attention: Mark Angelo

	  	Telephone:	
(201) 985-8300

	  	Facsimile:	
(201) 985-8266

 

  

15

 

 

	
With a copy to:

	
Yorkville Advisors, LLC

	  	
101 Hudson Street, Suite 3700

	  	
Jersey City, NJ 07302

	  	Attn:	
David Gonzalez. Esq.

	  	Telephone:	
(201) 985-8300

	  	Facsimile:	
(201) 985-1964

	 	 
	
And if to any Grantor:

	
c/o Carbonics Capital Corporation

	  	
One Penn Plaza, Suite 1612

	  	
New York, New York 10119

	  	Attention:	
Chief Executive Officer

	  	Telephone:	
(212) 994-5374

	  	Facsimile:	
(646) 572-6336

 

Any party may change its address by giving notice to the other party stating its new address. Commencing on the tenth (10th) day after the giving of such notice, such newly designated address shall be such party’s address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement.

 

8.2           Security Interest Absolute.  All rights of the Secured Party hereunder, the security interest in the Collateral and all obligations of the Grantors hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Convertible Debentures, the Loan Instruments, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Convertible Debentures, the Loan Instruments or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations, or (d) the existence of any claim, set-off or other right which any Grantor may have at any time against any other Grantor or the Secured Party, whether in connection herewith or any unrelated transaction.

 

8.3           Severability.

 

If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein.

 

8.4           Expenses.

 

In the event of an Event of Default, the Grantors will pay to the Secured Party the amount of any and all reasonable out-of-pocket expenses, including the reasonable fees and expenses of its counsel, which the Secured Party may incur in connection with: (i) the custody or preservation of, or the sale, collection from, or other realization upon, any of the Collateral; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by a Grantor to perform or observe any of the provisions hereof.

 

  

16

 

 

8.5           Waivers, Amendments, Etc.

 

The Secured Party’s delay or failure at any time or times hereafter to require strict performance by a Grantor of any undertakings, agreements or covenants shall not waive, affect, or diminish any right of the Secured Party under this Agreement to demand strict compliance and performance herewith. Any waiver by the Secured Party of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of a Grantor contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Secured Party, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Secured Party in the case of any such waiver, and signed by the Secured Party and the Grantors in the case of any such amendment, change or modification.

 

8.6           Continuing Security Interest.  This Agreement shall create a continuing security interest in the Collateral and shall: (i) remain in full force and effect so long as any of the Obligations shall remain outstanding; (ii) be binding upon each Grantor and its successors and assigns; and (iii) inure to the benefit of the Secured Party and its successors and assigns. Upon the indefeasible payment or satisfaction in full of the Obligations, this Agreement and the security interest created hereby shall terminate, and, in connection therewith, each Grantor shall be entitled to the return, at its expense, of such of the Collateral as shall not have been sold in accordance with this Agreement or otherwise applied pursuant to the terms hereof and the Secured Party shall deliver to the Grantors such documents as the Grantors shall reasonably request to evidence such termination.

 

8.7           Independent Representation.

 

Each party hereto acknowledges and agrees that it has received or has had the opportunity to receive independent legal counsel of its own choice and that it has been sufficiently apprised of its rights and responsibilities with regard to the substance of this Agreement.

 

8.8           Indemnification.  The Grantors shall indemnify, defend, and hold the Secured Party, or any agent, employee, officer, attorney, or representative of the Secured Party, harmless of and from any claim brought or threatened against the Secured Party or any such person so indemnified by: any Grantor, any other obligor or endorser of the Obligations or any other person (as well as from attorneys' fees and expenses in connection therewith) on account of the Secured Party's relationship with the Grantors, or any other obligor or endorser of the Obligations (each of which may be defended, compromised, settled, or pursued by the Secured Party with counsel of the Secured Party's selection, but at the expense of the undersigned).

 

  

17

 

 

8.9           Applicable Law: Jurisdiction.

 

This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph, provided, however, that nothing herein shall prevent the Secured Party from enforcing its rights and remedies (including, without limitation, by filing a civil action) with respect to the Collateral and/or the Grantors in any other jurisdiction in which the Collateral and/or the Grantors may be located.

 

8.10           Waiver of Jury Trial.

 

AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO MAKE FINANCIAL ACCOMMODATIONS TO THE COMPANIES OR ANY GRANTOR, EACH GRANTOR HEREBY WAIVES, TO THE FULLEST PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

 

8.11           Right of Set Off.

 

The Grantors hereby grant to the Secured Party, a lien, security interest and right of setoff as security for all liabilities and obligations to the Secured Party, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Secured Party or any of its affiliates, or any entity under the control of the Secured Party, or in transit to any of them. At any time, without demand or notice, the Secured Party may set off the same or any part thereof and apply the same to any liability or obligation of the Grantors even though unmatured and regardless of the adequacy of any other collateral securing the Obligations.  ANY AND ALL RIGHTS TO REQUIRE THE SECURED PARTY TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE GRANTORS, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

8.12           Liability of Grantors.  Notwithstanding any provision herein or in any other Loan Instrument, the Grantors, and each of them, are and shall be jointly and severally liable for any and all Obligations (whether any such Obligation is specified as an obligation of the Grantors or of any of them).

 

8.13           Counterparts; Facsimile Signatures.  This Agreement may be executed and delivered by exchange of facsimile signatures of the Secured Party and the Grantors, and those signatures need not be affixed to the same copy.  This Agreement may be executed in any number of counterparts.

 

  

18

 

 

8.14           Entire Agreement.

 

This Agreement and the other documents or agreements delivered in connection herewith contain the entire understanding among the parties and supersede any prior agreement or understanding among them with respect to the subject matter hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

  

19

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the date first above written.

 

	
GRANTORS:

	  	  
	
CARBONICS CAPITAL CORPORATION

	  	  
	
By

	/s/ Stephen Schoepfer
	
Name: 

	
Stephen Schoepfer

	
Title:

	
Chief Executive Officer

	  	  
	
WESTPORT ENERGY ACQUISITION

INC.

	  	  
	
By

	/s/ Stephen Schoepfer
	
Name: 

	
Stephen Schoepfer

	
Title:

	
Chief Executive Officer

	  	  
	
WESTPORT ENERGY, LLC

	  	  
	
By

	/s/ Stephen Schoepfer
	
Name: 

	
Stephen Schoepfer

	
Title:

	
Manager

 

  

  

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the date first above written.

 

	
SECURED PARTY:

	  	  
	
NEW EARTHSHELL CORPORATION

	  	  
	
By

	
/s/ Troy Rillo

	
Name: 

	
Troy Rillo

	
Title:

	
President

 

  

  

 

 

EXHIBIT A

DEFINITION OF COLLATERAL

 

For the purpose of securing prompt and complete payment and performance by the Grantors of all of the Obligations, each Grantor unconditionally and irrevocably hereby grants to the Secured Party a continuing security interest in and to, and lien upon, the following “Collateral” of the Grantors (all capitalized terms used herein and not defined in the Agreement shall have the respective meanings ascribed thereto in the UCC):

 

A.           All Real Estate owned by any Grantor, wherever located and whether now or hereinafter existing and whether now owned or hereafter acquired.

 

B.           All personal property of each Grantor, wherever located and whether now or hereinafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible, including without limitation, all:

 

1.           Goods;

 

2.           Inventory, including, without limitation, all goods, merchandise and other personal property which are held for sale or lease, or are furnished or to be furnished under any contract of service or are raw materials, work-in-process, supplies or materials used or consumed in any Grantor’s business, and all products thereof, and all substitutions, replacements, additions or accessions therefor and thereto; and any cash or non-cash Proceeds of all of the foregoing;

 

3.           Equipment, including, without limitation, all machinery, equipment, furniture, parts, tools and dies, of every kind and description (including automotive equipment and motor vehicles), now owned or hereafter acquired by any Grantor, and used or acquired for use in the business of any Grantor, together with all accessions thereto and all substitutions and replacements thereof and parts therefor and all cash or non-cash Proceeds of the foregoing;

 

4.           Fixtures, including, without limitation, all goods which are so related to particular real estate that an interest in them arises under real estate law and all accessions thereto, replacements thereof and substitutions therefor, including, but not limited to, plumbing, heating and lighting apparatus, mantels, floor coverings, furniture, furnishings, draperies, screens, storm windows and doors, awnings, shrubbery, plants, boilers, tanks, machinery, stoves, gas and electric ranges, wall cabinets, appliances, furnaces, dynamos, motors, elevators and elevator machinery, radiators, blinds and all laundry, refrigerating, gas, electric, ventilating, air-refrigerating, air-conditioning, incinerating and sprinkling and other fire prevention or extinguishing equipment of whatsoever kind and nature and any replacements, accessions and additions thereto, Proceeds thereof and substitutions therefor;

 

5.           Instruments (including promissory notes);

 

6.           Documents;

 

  

  

 

 

7.           Accounts, including, without limitation, all Contract Rights and accounts receivable, health-care-insurance receivables, and license fees; any other obligations or indebtedness owed to any Grantor from whatever source arising; all rights of any Grantor to receive any payments in money or kind; all guarantees of Accounts and security therefor; all cash or non-cash Proceeds of all of the foregoing; all of the right, title and interest of any Grantor in and with respect to the goods, services or other property which gave rise to or which secure any of the accounts and insurance policies and proceeds relating thereto, and all of the rights of any Grantor as an unpaid seller of goods or services, including, without limitation, the rights of stoppage in transit, replevin, reclamation and resale and all of the foregoing, whether now existing or hereafter created or acquired;

 

8.           Contracts and Contract Rights, including, to the extent not included in the definition of Accounts, all rights to payment or performance under a contract not yet earned by performance and not evidenced by an Instrument or Chattel Paper;

 

9.           Chattel Paper (whether tangible or electronic);

 

10.         Deposit Accounts (and in and to any deposits or other sums at any time credited to each such Deposit Account);

 

11.         Money, cash and cash equivalents;

 

12.         Letters of Credit and Letter-of-Credit Rights (whether or not the Letter of Credit is evidenced by a writing);

 

13.         Commercial Tort Claims;

 

14.         Securities Accounts, Security Entitlements, Securities, Financial Assets and all other Investment Property, including, without limitation, all ownership or membership interests in any subsidiaries or affiliates (whether or not controlled by any Grantor);

 

15.         General Intangibles, including, without limitation, all Payment Intangibles and Intellectual Property, tax refunds and other claims of any Grantor against any governmental authority, and all choses in action, insurance proceeds, goodwill customer lists, formulae, permits, research and literary rights, and franchises.

 

16.         Farm Products;

 

17.         All books and records and information (including all ledger sheets, files, computer programs, tapes and related data processing software) evidencing an interest in or relating to any of the foregoing and/or to the operation of any Grantor’s business, and all rights of access to such books and records, and information, and all property in which such books and records, and information are stored, recorded and maintained.

 

18.         To the extent not already included above, all Supporting Obligations, and any and all cash and non-cash Proceeds, products, accessions, and/or replacements of any of the foregoing, including proceeds of insurance covering any or all of the foregoing.

 

  

  

 

 

 

EXHIBIT B

(Account Control Agreement)

 

 

None

 

  

  

 

 

SCHEDULE 1

(Subsidiaries and Affiliates)

None as of the date of this Agreement.

 

  

  

 

 

SCHEDULE 2

(Convertible Debentures)

Secured Convertible Debenture (No. CICS-6) dated on August 17, 2010 issued by Carbonics in favor of the Secured Party in the original principal amount of $650,000.

 

  

  

 

 

 

SCHEDULE 3

(Purchase Agreement)

 

See LLC Membership Interest Purchase Agreement

 

  

  

 

 

 

SCHEDULE 4

(Intellectual Property)

 

 

None Provided

 

  

  

 

 

SCHEDULE 4.2

(Permitted Liens)

Liens granted to YA Global Investments, L.P. pursuant to the Security Agreement of even date herewith.

 

  

  

 

 

 

SCHEDULE 4.3

(Addresses)

 

 

None Provided

 

  

  

 

 

SCHEDULE 4.4

(Location, State of Incorporation, Name)

	
Legal Name:

	
Carboncis Capital Corporation

	
State of Inc.

	
Delaware

	
Organization ID:

	  
	  	  
	  	  
	
Legal Name:

	
Westport Energy Acquisition, Inc.

	
State of Inc.

	
Delaware

	
Organization ID:

	  
	  	  
	
Legal Name:

	
Westport Energy, LLC

	
State of Inc.

	
Delaware

	
Organization ID:

	  

 

  

  

 

 

 

SCHEDULE 5

(Real Estate)

 

 

None Provided

 

  

  

 

 

SCHEDULE 6.12

(Current Subsidiaries)

Carbonics Capital Corporation (Parent)

Westport Energy Acquisition, Inc. (Wholly owned subsidiary of the Parent)

Westport Energy, LLC (Wholly owned by Westport Energy Acquisition, Inc.)

 

  

  

 

 

SCHEDULE 6.15

(Commercial Tort Claims)

 

 

None

 

 

  

  

 

 

 

SCHEDULE 6.16 (a)

(Deposit Accounts)

 

 

None Provided

 

  

  

 

 

 

SCHEDULE 7.3

(Permitted Indebtedness)

 

 

None ProvidedUnassociated Document

 

EXHIBIT 10.5

 

PLEDGE AND ESCROW AGREEMENT

(in favor of New EarthShell Corporation)

 

PLEDGE AND ESCROW AGREEMENT (the “Agreement”) dated as of August 17, 2010, by 4 Sea-Sons LLC a Delaware limited liability company (the “Preferred Shareholder”), Westport Energy Acquisition Inc., a Delaware corporation (the “Acquisition Sub”), Carbonics Capital Corporation, a Delaware corporation (the “Parent”) and each subsidiary, direct and indirect, of the Parent or Acquisition Sub listed on Schedule I attached hereto or joined to this agreement in the future (the “Subsidiary Pledgors,” collectively with the Preferred Shareholder, Parent and Acquisition Sub, the “Pledgors”) in favor of New EarthShell Corporation (the “Pledgee”).

 

RECITALS:

 

A.           Reference is made to (a) the LLC Membership Interest Purchase Agreement dated as of August 17, 2010 among the Secured Party and the Pledgors (as amended, supplemented and restated from time to time, the “Purchase Agreement”), pursuant to which the Parent has agreed, upon the terms and subject to the conditions set forth in the Purchase Agreement, to issue to the Pledgee the convertible debentures as set forth therein (the “Debentures”); (b) the Security Agreement, dated as of the date hereof, among the Parent, Acquisition Sub, and Westport Energy, LLC, a Delaware limited liability company (“Westport”), as grantors, and the Pledgee, as secured party (as may be amended and supplemented from time to time, the “Security Agreement”); and (c) the Guaranty Agreement, dated as of the date hereof, among Acquisition Sub, and Westport, as guarantors, and the Pledgee, as secured party (as may be amended and supplemented from time to time, the “Guaranty”).  Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Security Agreement.

 

B.           The Security Agreement and the Guaranty contemplate the execution, delivery and implementation of this Agreement.

 

C.           The Pledgee has extended financial accommodations to certain Pledgors, pursuant to the Convertible Debentures or otherwise, and each Pledgor will directly benefit from the extension of such financial accommodation as part of the affiliated business operations of the Pledgors; each Pledgor acknowledges that without this Agreement, the Pledgee would not be willing to enter into the transaction documents related to such financial accommodations.

 

D.           Each Pledgor has determined that the execution, delivery and performance of this Agreement directly benefits, and is in the best interest of, such Pledgor.

 

E.           The parties to this Agreement desire to appoint DAVID GONZALEZ, ESQ., as escrow agent (the “Escrow Agent”) to hold in escrow the certificates, documents and other property related to the Pledged Securities (as defined below) pursuant to the terms and conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants, agreements, warranties, and representations herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

  

1

 

 

TERMS AND CONDITIONS

 

1.           Pledge and Security Interest.

 

(a)           As collateral security for the prompt payment and performance in full of the Obligations (as defined below) and subject to the terms and provisions of that certain Intercreditor Agreement dated as of the date hereof between Pledgee and YA Global Investments, L.P. (the “Intercreditor Agreement”), each Pledgor hereby delivers, pledges and grants to the Pledgee, its successors and assigns, an irrevocable, first priority security interest in (i) all the securities, membership, partnership or other ownership interests or rights to purchase set forth on Schedule II attached hereto, and (ii) all securities, membership, partnership or other ownership interests obtained in the future by a Pledgor (collectively, the “Pledged Securities”), including, without limitation: (A) all of the Pledgors’ interests in respect of the Pledged Securities and Pledgors’ interests in all profits and distributions to which the Pledgors shall at any time be entitled in respect of such Pledged Securities and (B) to the extent not otherwise included, all proceeds, dividends, warrants, options, rights, instruments, and other property from time to time received or otherwise distributable in respect of or in exchange of any or all of the foregoing (collectively, the “Pledged Collateral”).

 

(b)           The term “Obligations” shall mean and include (i) any and all debts, liabilities, obligations, covenants and duties owing by any Pledgor (except for the Preferred Shareholder) to the Pledgee, including without limitation, pursuant to this Agreement or the Guaranty, and (ii) with respect to the Preferred Shareholder all amounts owed by the Parent to the Pledgee under the Debentures, in each case now existing or hereafter arising of every nature, type, and description, whether liquidated, unliquidated, primary, secondary, secured, unsecured, direct, indirect, absolute, or contingent, and whether or not evidenced by a note, guaranty or other instrument, and any amendments, extensions, renewals or increases thereof, and including any interest accruing thereon after insolvency, reorganization or like proceeding relating to the Pledgors, whether or not a claim for post-petition interest is allowed in such proceeding, and all costs and expenses of the Pledgee incurred in the enforcement, collection or otherwise in connection with any of the foregoing, including, but not limited to, reasonable attorneys’ fees and expenses and all obligations of the Pledgors to the Pledgee to perform acts or refrain from taking any action.

 

2.           Delivery of Pledged Securities.

 

(a)           Simultaneously with the execution of this Agreement, each Pledgor shall deliver to the Escrow Agent, and the Escrow Agent shall hold in escrow pursuant to the terms of this Agreement, stock certificates, membership interest certificates or other certificated securities made out in favor of such Pledgor representing the Pledged Securities together with stock powers or membership interest powers duly executed in blank and with medallion bank guarantees or other instruments and documents as the Pledgee may reasonably request the (“Transfer Documents”).

 

  

2

 

 

(b)           After the execution of this Agreement, promptly upon any Pledgor acquiring any Pledged Securities, and any original certificates or other instruments or documents representing such Pledged Securities, such Pledgor shall deliver or cause to be delivered to the Escrow Agent the Pledged Securities and related Transfer Documents.

 

(c)           Each delivery of Pledged Securities shall be accompanied by a schedule describing the Pledged Securities theretofore and then being pledged hereunder, which schedule shall be attached hereto as Schedule II and made a part hereof.  Each schedule so delivered shall supplement any prior schedules so delivered.

 

(d)           If a Pledgor receives, or become entitled to receive any other property (whether by reclassification, readjustment, or other change in the capital structure of such Pledgor, or in any other manner), such additional or other property shall constitute Pledged Collateral, and such additional interest shall be recorded in the name of the Pledgee and delivered directly to the Escrow Agent to be held as Pledged Collateral.  If, notwithstanding the foregoing, a Pledgor receives any distribution or other property which should have been paid or delivered directly to the Pledgee or which was paid to such Pledgor in violation of this Section 2, such Pledgor shall receive the distribution or property in trust for the benefit of the Pledgee, shall segregate such distribution or property form the other property or funds of such Pledgor, and deliver it immediately to the Escrow Agent in the form received (with any necessary endorsement).

 

(e)           Such stock certificates, membership interest certificates, other property and Transfer Documents shall be held by the Escrow Agent until the satisfaction in full of all the Obligations.

 

3.           Voting Rights Relating to Pledged Securities. During the term of this Agreement, so long as no Event of Default shall have occurred, each Pledgor shall have the right to vote the Pledged Securities, to the extent such right exists, on all questions for all purposes not inconsistent with the terms of this Agreement.  Upon the occurrence of an Event of Default, the Pledgee shall thereafter have, at its discretion and upon written notice to the Pledgors, the option to exercise all voting and/or other consensual rights and powers pertaining to the Pledged Securities, subject to the Ownership Limitation set forth below.

 

4.           Dividends and Other Income.  All cash and non-cash distributions and dividends related to the Pledged Securities shall be delivered to the Escrow Agent.  Upon the occurrence of an Event of Default, the Pledgee shall be entitled to receive dividends and other distributions (cash or non-cash) related to the Pledged Securities.

 

5.           Release of Pledged Securities from Pledge. Upon the indefeasible payment or satisfaction in full of all the Obligations, the parties hereto shall notify the Escrow Agent to such effect in writing. Promptly upon receipt of such written notice, the Escrow Agent shall return to each Pledgor the Transfer Documents and the certificates representing the Pledged Securities (collectively the “Pledged Materials”), whereupon any and all rights of the Pledgee in the Pledged Materials shall be terminated.

 

6.           Event of Default. An “Event of Default” shall be deemed to have occurred under this Agreement upon an Event of Default under any of (i) the Guaranty, (ii) the Debenture, (iii) the Purchase Agreement, (iv) the Security Agreement, or (v) any documents or agreements relating to the foregoing.  .

 

  

3

 

 

7.           Remedies.  Subject to the terms and provisions of the Intercreditor Agreement:

 

a.           Upon and anytime after the occurrence of an Event of Default, the Pledgee shall have the right to require the Escrow Agent to deliver the Pledged Securities to the Pledgee in accordance with the following procedure: (a) the Pledgee shall provide written notice of such Event of Default (the “Default Notice”) to the Escrow Agent, with a copy to the Pledgors; (b) in a Default Notice the Pledgee shall specify the number of Pledged Securities to be delivered to the Pledgee (subject to the Ownership Limitation set forth below); and (c) as soon as practicable after receipt of a Default Notice, the Escrow Agent shall deliver the Pledged Securities along with the applicable Transfer Documents to the Pledgee.

 

b.           Whenever an Event of Default occurs, the Pledgee shall have, and may exercise with respect to the Pledged Collateral, in such order and manner as it determines, all rights and remedies of a secured party under the Uniform Commercial Code as in effect in the State of New Jersey (the “UCC”) and under any other applicable law, as the same may from time to time be in effect, as well as those rights granted herein, under the Security Agreement and any other agreement now or hereafter in effect between the Pledgee and the Pledgors.  Without limiting the generality of the foregoing, whenever an Event of Default exists, the Pledgee may sell or otherwise dispose of all or part of the Pledged Collateral upon prior notice to the Pledgors, by public or private sale, in one or more transactions, and in such order as the Pledgee determines. Proceeds realized from such sales and dispositions shall be applied first to the Pledgee’s costs and expenses in connection therewith and then to the Obligations in such order as the Pledgee determines.

 

c.           Pledgors recognize that the Pledgee may be unable to effect a public sale of all or a part of the Pledged Collateral by reason of certain provisions contained in the Securities Act of 1933, as amended (the “Securities Act”) and the securities laws of various states, and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire the Pledged Collateral for their own account, for investment and without a view to the distribution or resale thereof.  The Pledgors understand that private sales so made may be at prices and other terms less favorable than if the Pledged Collateral were sold at public sales, and agree that the Pledgee has no obligation to delay the sale of the Pledged Collateral for the period of time necessary to permit the Pledgee to register the Pledged Collateral for sale under the Securities Act or such state laws.  Pledgors agree that private sales under the foregoing circumstances shall be deemed to have been made in a commercially reasonable manner.

 

d.           At any public (or, to the extent permitted by applicable law, private) sale made pursuant to this Section 7, the Pledgee may bid for or purchase, free from any right of redemption, stay or appraisal on the part of any Pledgor (all said rights being also hereby waived and released), the Pledged Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to it from such Pledgor as a credit against the purchase price, and it may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to such Pledgor therefor.  As an alternative to exercising the power of sale herein conferred upon it, the Pledgee may proceed by a suit or suits at law or in equity to foreclose upon the Pledged Collateral and to sell the Pledged Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver.  Any sale pursuant to the provisions of this Section 7 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-627 of the UCC.

 

  

4

 

 

e.           To the extent that the net proceeds received by the Pledgee are insufficient to satisfy the Obligations in full, the Pledgee shall be entitled to a deficiency judgment against each Pledgor for such amount.  The Pledgee shall have the absolute right to sell or dispose of the Pledged Securities in any manner it sees fit and shall have no liability to any Pledgor or any other party for selling or disposing of such Pledged Securities even if other methods of sales or dispositions would or allegedly would result in greater proceeds than the method actually used.  Each Pledgor shall remain liable for shortfalls, if any, that may exist after the Pledgee has exhausted all remedies hereunder.

 

f.           Each right, power and remedy of the Pledgee provided for in this Agreement, any Loan Instruments or any Other Loan Documents shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee of any one or more of the rights, powers or remedies provided for in this Agreement, any Loan Instrument or any Other Loan Document or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee to exercise any such right, power or remedy shall operate as a waiver thereof.  No notice to or demand on any Pledgor in any case shall entitle any Pledgor to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Pledgee to any other further action in any circumstances without demand or notice.  The Pledgee shall have the full power to enforce or to assign or contract its rights under this Agreement to a third party.

 

g.           All costs and expenses incurred by the Pledgee in enforcing this Agreement, in realizing upon or protecting any Pledged Collateral and in enforcing and collecting any Obligations or any guaranty thereof (including, without limitation, if the Pledgee retains counsel for advice, suit, appeal, insolvency or other proceedings under the Bankruptcy Code (11 U.S.C. §§ 101 et seq.) or otherwise, or for any of the above purposes, the actual attorneys’ fees incurred by Pledgee), shall constitute part of the Obligations, and all such costs and expenses are secured by the Pledged Collateral, as well as by all other property serving as security for the Obligations.

 

h.           Notwithstanding anything to the contrary, in no event shall the Pledgee have the right to acquire, vote, or receive from the Escrow Agent such number of Pledged Securities which would cause the Pledgee, together with its affiliates, to beneficially own or have the right to convert into (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 and the rules promulgated thereunder (the “Exchange Act”) in excess of 4.99% of any class of equity securities registered pursuant to Section 12 of the Exchange Act (the “Ownership Limitation”) unless the Pledgee waives such limitation by providing 65 days’ advance written notice.

 

  

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8.           Representations, Warranties and Covenants.  Each Pledgor represents, warrants and covenants that:

 

(a)           each Pledgor (i) is and will at all times continue to be the legal, beneficial and record owner of, the Pledged Securities indicated on Schedule II; (ii) has good and valid title to all Pledged Securities pledged by it hereunder, except for the prior pledges and liens set forth on Schedule 4.2 of the Security Agreement, subject to no pledge, lien, mortgage, hypothecation, security interest, charge, option or other encumbrance whatsoever (collectively, the “Liens”); and (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, other than pursuant hereto.

 

(b)           Each Pledgor has full power, authority and legal right to pledge all the Pledged Collateral pledged pursuant to this Agreement.

 

(c)           all the Pledged Securities have been duly authorized and validly issued, are fully paid and (to the extent representing the capital stock of a corporation) non-assessable and are subject to no options to purchase or similar rights.

 

(d)           Each Pledgor covenants and agrees to take all reasonable steps to defend the Pledgee’s right, title and security interest in and to the Pledged Securities and the proceeds thereof against the claims and demands of all persons whomsoever (other than the Pledgee and the Escrow Agent); and each Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as collateral hereunder and will likewise take all reasonable steps to defend the right thereto and security interest therein of the Pledgee.

 

(e)           Each Pledgor covenants and agrees to take no action which would violate or be inconsistent with any of the terms of this Agreement, any Loan Instruments or any Other Loan Documents, or which would have the effect of impairing the position or interests of the Pledgee under this Agreement, any Loan Instruments or any Other Loan Documents.

 

(f)           The Pledgors will, promptly upon request, provide to the Pledgee all information and evidence it may reasonably request concerning the Pledged Collateral to enable the Pledgee to enforce the provisions of this Agreement.

 

(g)           Upon the filing of all appropriate financing statements under the UCC, all steps necessary to create and perfect the security interest created by this Agreement as a valid and continuing first lien on and first perfected security interest in the Pledged Collateral in favor of the Pledgee prior to all other Liens will have been taken. With respect to membership interests, each Pledgor represents and warrants that such issuer Pledgor has opted into Article 8 of the UCC; provided, however, that the membership interests hereunder shall be deemed “securities” for purposes of UCC compliance only and Pledgor acknowledges and agrees that the act of opting into Article 8 of the UCC alone does not categorize said interests as “securities” under any federal investment company laws or federal or state securities laws.

 

9.           Concerning the Escrow Agent.

 

a.           The Escrow Agent undertakes to perform only such duties as are expressly set forth herein and no implied duties or obligations shall be read into this Agreement against the Escrow Agent.

 

  

6

 

 

b.           Subject to the terms and conditions of this Agreement and the Intercreditor Agreement with respect to delivering the Pledged Collateral to the Pledgee, the Escrow Agent agrees to hold the Pledged Collateral that are in its “possession” or “control” (as defined in the UCC) (or in the possession or control of its agents or bailees) as agent or as bailee, as the case may be, and on behalf of and for the Pledgee for the purpose of perfecting the security interest granted to the Pledgee in such Pledged Collateral by possession or control.

 

c.           The Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes to be genuine, may assume the validity and accuracy of any statement or assertion contained in such a writing or instrument, and may assume that any person purporting to give any writing, notice, advice or instructions in connection with the provisions hereof has been duly authorized to do so. The Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner, and execution, or validity of any instrument deposited in this escrow, nor as to the identity, authority, or right of any person executing the same; and its duties hereunder shall be limited to the safekeeping of such certificates, monies, instruments, or other document received by it as such escrow holder, and for the disposition of the same in accordance with the written instruments accepted by it in the escrow.

 

d.           The Pledgee and the Pledgors hereby agree, to defend and indemnify the Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits, or proceedings at law or in equity, or any other expenses, fees, or charges of any character or nature which it may incur or with which it may be threatened by reason of its acting as Escrow Agent under this Agreement; and in connection therewith, to indemnify the Escrow Agent against any and all expenses, including attorneys’ fees and costs of defending any action, suit, or proceeding or resisting any claim in connection with this Agreement.  The Escrow Agent shall be vested with a lien on all property deposited hereunder, for indemnification of attorneys’ fees and court costs regarding any suit, proceeding or otherwise, or any other expenses, fees, or charges of any character or nature, which may be incurred by the Escrow Agent by reason of disputes arising between the makers of this escrow as to the correct interpretation of this Agreement and instructions given to the Escrow Agent hereunder, or otherwise, with the right of the Escrow Agent, regardless of the instructions aforesaid, to hold said property until and unless said additional expenses, fees, and charges shall be fully paid. Any fees and costs charged by the Escrow Agent for serving hereunder shall be paid by the Pledgors.

 

e.           If any of the parties shall be in disagreement about the interpretation of this Agreement, or about the rights and obligations, or the propriety of any action contemplated by the Escrow Agent hereunder, the Escrow Agent may, at its sole discretion deposit the Pledged Materials with the Clerk of the United States District Court of New Jersey, sitting in Newark, New Jersey, and, upon notifying all parties concerned of such action, all liability on the part of the Escrow Agent shall fully cease and terminate. The Escrow Agent shall be indemnified by the Pledgors, and the Pledgee for all costs, including reasonable attorneys’ fees in connection with the aforesaid proceeding, and shall be fully protected in suspending all or a part of its activities under this Agreement until a final decision or other settlement in the proceeding is received.

 

  

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f.           The Escrow Agent may consult with counsel of its own choice (and the costs of such counsel shall be paid by the Pledgors and the Pledgee) and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. The Escrow Agent shall not be liable for any mistakes of fact or error of judgment, or for any actions or omissions of any kind, unless caused by its willful misconduct or gross negligence.

 

g.           The Escrow Agent may resign upon ten (10) days’ written notice to the parties in this Agreement. If a successor Escrow Agent is not appointed within this ten (10) day period, the Escrow Agent may petition a court of competent jurisdiction to name a successor.

 

10.           Conflict Waiver. Each Pledgor hereby acknowledges that the Escrow Agent is general counsel to the Pledgee and its parent company, a partner in the general partner of the parent of the Pledgee, and counsel to the Pledgee in connection with the transactions contemplated and referred herein. The Pledgors agree that in the event of any dispute arising in connection with this Agreement or otherwise in connection with any transaction or agreement contemplated and referred herein, the Escrow Agent shall be permitted to continue to represent the Pledgee and the Pledgors will not seek to disqualify such counsel and waives any objection the Pledgors might have with respect to the Escrow Agent acting as the Escrow Agent pursuant to this Agreement.

 

11.           Appointed Attorney-in-Fact.  Each Pledgor hereby appoints the Pledgee and any other officer or agent thereof as the true and lawful attorney-in-fact of such Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument that Pledgee may deem reasonably necessary or advisable (in its reasonable judgment) to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest.  Without limiting the generality of the foregoing, the Pledgee shall have the right, (i) upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in any Pledgee’s name or in the name of such Pledgor, to endorse checks, drafts, orders and other instruments for the payment of money payable to a Pledgor representing any interest or dividend or other distribution payable in respect of the Pledged Collateral or any part thereof or on account thereof and to give full discharge for the same; and (ii) upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Pledgee’s name or in the name of such Pledgor, to ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due under and by virtue of any Pledged Collateral, to settle, compromise, prosecute or defend any action, claim or proceeding with respect thereto, and to sell, assign, endorse, pledge, transfer and to make any agreement respecting, or otherwise deal with, the same.

 

12.           Additional Pledgors. Pursuant to Section 6.12 of the Security Agreement, each subsidiary of the Pledgors that was not in existence or not a subsidiary on the date of the Security Agreement is required to become a Pledgor and to enter in this Agreement as a Pledgor upon becoming a subsidiary. Such subsidiary shall become a Pledgor hereunder with the same force and effect as if originally named as a Pledgor herein.  The rights and obligations of each Pledgor hereunder shall remain in full force and effect notwithstanding the addition of any new Pledgor as a party to this Agreement.

 

13.           Notices. Unless otherwise provided herein, all demands, notices, consents, service of process, requests and other communications hereunder shall be in writing and shall be delivered in person or by overnight courier service, or mailed by certified mail, return receipt requested, addressed:

 

  

8

 

 

	
If to the Pledgee:

	
New EarthShell Corporation

	  	
101 Hudson Street-Suite 3700

	  	
Jersey City, New Jersey 07302

	  	
Attention: Mark Angelo

	  	
Telephone:

	
(201) 985-8300

	  	
Facsimile:

	
(201) 985-8266

	  	  
	
With a copy to:

	
David Gonzalez, Esq.

	  	
101 Hudson Street, Suite 3700

	  	
Jersey City, NJ 07302

	  	
Telephone:

	
(201) 985-8300

	  	
Facsimile:

	
(201) 985-1964

	  	  
	
And if to any Pledgor:

	
c/o Carbonics Capital Corporation

	  	
One Penn Plaza, Suite 1612

	  	
New York, New York 10119

	  	
Attention:

	
Chief Executive Officer

	  	
Telephone:

	
(212) 994-5374

	  	
Facsimile:

	
(646) 572-6336

 

Any such notice shall be effective (a) when delivered, if delivered by hand delivery or overnight courier service, or (b) five (5) days after deposit in the United States mail, as applicable.

 

14.           Binding Effect. All of the covenants and obligations contained herein shall be binding upon and shall inure to the benefit of the respective parties, their successors and assigns.

 

15.           Governing Law; Venue; Service of Process. The validity, interpretation and performance of this Agreement shall be determined in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Hudson County, New Jersey or Federal district courts located in Newark, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph, provided, however, that nothing herein shall prevent the Pledgee from enforcing its rights and remedies (including, without limitation, by filing a civil action) with respect to the Collateral and/or the Pledgors in any other jurisdiction in which the Collateral and/or the Pledgors may be located.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

 

  

9

 

 

16.           JURY TRIAL. AS A MATERIAL INDUCEMENT FOR THE PLEDGEE TO MAKE FINANCIAL ACCOMMODATIONS TO ANY PLEDGOR, EACH PLEDGOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.

 

17.           Enforcement Costs. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys’ fees, court costs and all expenses even if not taxable as court costs (including, without limitation, all such fees, costs and expenses incident to appeals), incurred in that action or proceeding, in addition to any other relief to which such party or parties may be entitled.

 

18.           No Penalties. No provision of this Agreement is to be interpreted as a penalty upon any party to this Agreement.

 

19.           Remedies Cumulative. No remedy herein conferred upon any party is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law, in equity, by statute, or otherwise. No single or partial exercise by any party of any right, power or remedy hereunder shall preclude any other or further exercise thereof.

 

20.           Severability. If any provision of this Agreement is, for any reason, invalid or unenforceable, the remaining provisions of this Agreement will nevertheless be valid and enforceable and will remain in full force and effect.  Any provision of this Agreement that is held invalid or unenforceable by a court of competent jurisdiction will be deemed modified to the extent necessary to make it valid and enforceable and as so modified will remain in full force and effect.

 

21.           Amendment and Waiver. This Agreement may be amended, or any provision of this Agreement may be waived, provided that any such amendment or waiver will be binding on a party hereto only if such amendment or waiver is set forth in a writing executed by the parties hereto. The waiver by any such party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other breach.  The Pledgee’s failure to exercise any right, remedy or option under this Agreement or other agreement between the Pledgee and the Pledgors or delay by Pledgee in exercising the same will not operate as a waiver.  No waiver by Pledgee shall affect its right to require strict performance of this Agreement.

 

22.           Further Assurances. Each party will execute all documents and take such other actions as the other parties may reasonably request in order to consummate the transactions provided for herein and to accomplish the purposes of this Agreement.

 

23.           Liability of Pledgors.  Notwithstanding any provision herein, the Pledgors, and each of them, are and shall be jointly and severally liable for any and all Obligations (whether any such Obligation is specified as an obligation of the Pledgors or of any of them).

 

  

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24.           Entire Agreement. This Agreement and the other documents or agreements delivered in connection herewith set forth the entire understanding of the parties with respect to the subject matter hereof, and shall not be modified or affected by any offer, proposal, statement or representation, oral or written, made by or for any party in connection with the negotiation of the terms hereof, and may be modified only by instruments signed by all of the parties hereto.

 

25.           Counterparts. This Agreement may be executed and delivered by exchange of facsimile signatures of the Pledgee and the Pledgors, and those signatures need not be affixed to the same copy.  This Agreement may be executed in any number of counterparts.

 

26.           Pledged Collateral Under Security Agreement.  This Agreement is supplemental to, and not in limitation of, the Security Agreement. In the event of a conflict between the terms of this Agreement and of the Security Agreement related to the Pledged Collateral, the terms of this Agreement shall control.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

  

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IN WITNESS WHEREOF, each Pledgor has caused this Pledge and Escrow Agreement to be executed by its respective duly authorized officer, as of the date first above written.

 

	
CARBONICS CAPITAL CORPORATION

	  	  
	
By:

	/s/ Stephen Schoepfer
	
Name: 

	
Stephen Schoepfer

	
Title:

	
Chief Executive Officer

	  	  
	
WESTPORT ENERGY ACQUISITION, INC.

	  	  
	
By:

	/s/ Stephen Schoepfer
	
Name: 

	
Stephen Schoepfer

	
Title:

	
Chief Executive Officer

	  	  
	
WESTPORT ENERGY, LLC

	  	  
	
By:

	/s/ Stephen Schoepfer
	
Name: 

	
Stephen Schoepfer

	
Title:

	
Manager

	  	  
	
4 SEA-SONS LLC

	  	  
	
By:

	/s/ Stephen Schoepfer
	
Name: 

	
Stephen Schoepfer

	
Title:

	
President

 

  

  

 

 

IN WITNESS WHEREOF, the undersigned acknowledge and agree to the terms and conditions of this Pledge and Escrow Agreement as of the date first above written.

 

	
NEW EARTHSHELL CORPORATION

	  	  
	
By:

	/s/ Troy Rillo
	
Name: 

	
Troy Rillo

	
Title:

	
President

	  	  
	
ESCROW AGENT

	 	 
	
By:

	/s/ David Gonzalez  
	
Name: 

	
David Gonzalez, Esq.

 

  

  

 

 

SCHEDULE I

(Subsidiary Pledgors)

Westport Energy, LLC, a Delaware limited liability company

  

  

 

 

SCHEDULE II

(Pledged Securities)

Pledged by 4 Sea-Sons LLC:

	
  

	
1.

	
972,032 Series C Preferred Shares of Carbonics Capital Corporation.

Pledged by Carbonics Capital Corporation:

1,000 shares of common stock representing 100% of the issued and outstanding capital stock of Westport Energy Acquisition, Inc.  (Certificate Number WEA 001)

Pledged by Westport Energy Acquisition, Inc.:

100 LLC membership interests representing 100% of the issued and outstanding membership interests in Westport Energy, LLC.  (Certificate number 1)

 

  

  

 

 

 

SCHEDULE III

(Disclosure Schedule)

 

 

None Provided

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