SECURITY AGREEMENT (All Personal Property)
Exhibit
4.3
(All
Personal Property)
THIS
SECURITY AGREEMENT is made and entered into as of ___________, 2008,
by
KY
USA ENERGY, INC., a
Kentucky corporation, with an address at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇ (“Debtor”),
in
favor of NSES
12, LLC,
a
Delaware limited liability company, with an address at ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (“Secured
Party”).
Background:
1. On
even
date herewith, Debtor, as Borrower and Secured Party, as Lender, executed that
certain Senior Secured Credit Agreement (as amended, supplemented or modified
from time to time, the “Credit
Agreement”)
pursuant to which, Secured Party agreed to make loans to Debtor from time to
time on the conditions set forth in the Credit Agreement; and
2. Secured
Party has conditioned its obligations under the Credit Agreement upon, among
other things, the execution and delivery by Debtor of this Security Agreement,
and Debtor has agreed to enter into this Security Agreement.
Agreements:
In
order
to comply with the terms and conditions of the Credit Agreement and for and
in
consideration of the premises and the agreements herein contained and other
good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor hereby agrees with Secured Party as follows:
ARTICLE
I
DEFINITIONS
Section
1.1 Terms
Defined Above.
As used
in this Security Agreement, the terms “Debtor,”
“Secured
Party,”
and
“Credit
Agreement”
shall
have the meanings indicated above.
Section
1.2 Definitions
Contained in the Credit Agreement.
Unless
otherwise defined herein or the context otherwise requires, all capitalized
terms used but not defined in this Security Agreement have the meanings given
to
those terms in the Credit Agreement.
Section
1.3 Certain
Definitions.
As used
in this Security Agreement, the following terms shall have the following
meanings, unless the context otherwise requires:
“Accounts”
has
the
meaning indicated in subsection
2.1(a)
hereof.
“Code”
means
the Uniform Commercial Code as presently in effect in the State of New York,
and
as amended from time to time.
“Collateral”
means
all property, including without limitation cash or other proceeds, in which
Secured Party shall have a security interest pursuant to Section
2.1
of this
Security Agreement.
“Default”
means
the occurrence of any of the events specified in Section
5.3
hereof,
whether or not any requirement for notice or lapse of time or other condition
precedent has been satisfied.
“Equipment”
has
the
meaning indicated in subsection
2.1(b)
hereof.
“Event
of Default”
means
the occurrence of any of the events specified in Section 5.3
hereof;
provided
that any
requirement for notice or lapse of time or other condition precedent has been
satisfied.
“General
Intangibles”
has
the
meaning indicated in subsection
2.1(c)
hereof.
“Inventory”
has
the
meaning indicated in subsection
2.1(d)
hereof.
“Other
Liable Party”
means
any person, other than Debtor, who is or becomes primarily or secondarily liable
for any of the Secured Obligations or who grants Secured Party a lien on any
property as security for the Secured Obligations.
“Related
Rights”
means
all chattel papers, electronic chattel papers, payment intangibles, promissory
notes, letter of credit rights, supporting obligations, documents and
instruments relating to the Accounts or the General Intangibles and all rights
now or hereafter existing in and to all security agreements, leases, and other
contracts securing or otherwise relating to any Accounts or General Intangibles
or any such chattel papers, electronic chattel papers, payment intangibles,
promissory notes, letter of credit rights, documents and
instruments.
“Secured
Obligations”
has
the
meaning indicated in Section
2.2
hereof.
“Security
Agreement”
means
this Security Agreement, as the same may from time to time be amended or
supplemented.
“Security
Documents”
means
this Security Agreement together with all financing statements filed in
connection with this Security Agreement.
Section
1.4 Terms
Defined in Code.
Unless
otherwise defined herein, all terms used herein which are defined in the Code
shall have the same meaning herein.
ARTICLE
II
SECURITY
INTEREST
Section
2.1 Grant
of Security Interest.
As
collateral security for all of the Secured Obligations, Debtor hereby grants
to
Secured Party a security interest in, a general lien upon, and a right of
set-off against all of Debtor’s right, title and interest in its assets,
tangible or intangible, including but not limited to the following and whether
now owned or later acquired:
(a) all
of
Debtor’s accounts (as is defined in the Code) of any kind (the “Accounts”);
all
chattel papers, electronic chattel papers, payment intangibles, promissory
notes, letter of credit rights, documents and instruments relating to the
Accounts; and all rights in and to all security agreements, leases, and other
contracts securing or otherwise relating to any Accounts or any such chattel
papers, documents and instruments; and
2
(b) all
of
Debtor’s equipment (as defined in the Code) in all of its forms, and wherever
located, together with all parts thereof and all accessions or additions
thereto, (collectively, the “Equipment”);
and
(c) all
of
Debtor’s general intangibles (as defined in the Code) of any kind (the
“General
Intangibles”);
all
chattel papers, electronic chattel papers, payment intangibles, promissory
notes, letter of credit rights, documents and instruments relating to the
General Intangibles; and all rights in and to all security agreements, leases,
and other contracts securing or otherwise relating to any General Intangibles
or
any such chattel papers, documents and instruments; and
(d) all
of
Debtor’s inventory (as defined in the Code) in all of its forms, and wherever
located, together with all accessions or additions thereto and products thereof
(collectively the “Inventory”);
and
(e) all
of
Debtor’s investment property (as defined in the Code) wherever
located;
(f) all
of
Debtor’s deposit accounts (as defined in the Code) wherever
located;
(g) any
additional tangible or intangible property from time to time delivered to or
deposited with Secured Party as security for the Secured Obligations or
otherwise pursuant to the terms of this Security Agreement; and
(h) the
proceeds, products, supporting obligations, Related Rights, additions to,
substitutions for and accessions of any and all Collateral described in
subparagraphs (a)–(g) in this Section
2.1.
Section
2.2 Secured
Obligations.
The
security interest in, general lien upon, and right of set-off against the
Collateral is granted to secure the following (collectively, the “Secured
Obligations”):
(a) the
payment of all the Obligations (as defined in the Credit Agreement) of Debtor
to
Secured Party now or hereafter existing including, without limitation, the
Indebtedness of Debtor under the Note, and any and all renewals, extensions
for
any period or rearrangement of the Obligations; and
(b) the
performance of all obligations of Debtor under this Security Agreement, the
Permitted Swap Agreements and the other Loan Documents.
Section
2.3 Ordinary
Course of Business.
Secured
Party hereby authorizes and permits Debtor to hold, process, sell, or otherwise
dispose of Inventory for fair consideration, all in the ordinary course of
Debtor’s business.
3
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
In
order
to induce Secured Party to accept this Security Agreement, Debtor represents
and
warrants to Secured Party (which representations and warranties will survive
the
creation of any Secured Obligations and the extension of any credit under the
Credit Agreement) that:
Section
3.1 Ownership
and Liens.
Except
for the security interest of Secured Party granted in this Security Agreement
and except for liens, security interests and other encumbrances permitted under
the Credit Agreement (“Permitted
Encumbrances”),
Debtor owns good and valid title to the Collateral free and clear of any other
liens, adverse claims or options other than Permitted Encumbrances. Debtor
has
rights in or the right, power and authority to grant a security interest in
the
Collateral to Secured Party in the manner provided herein, free and clear of
any
other liens, adverse claims and options other than Permitted Encumbrances.
No
other lien, adverse claim or option has been created by Debtor or is known
by
Debtor to exist with respect to any Collateral other than Permitted
Encumbrances. No financing statement or other security instrument is on file
in
any jurisdiction covering any part of the Collateral other than those in favor
of Secured Party other than Permitted Encumbrances. At the time the security
interest in favor of Secured Party attaches, good and valid title to all
after-acquired property included within the Collateral, free and clear of any
other Liens, adverse claims or options (other than those permitted by the first
sentence of this Section 3.1)
will be
vested in Debtor.
Section
3.2 Status
of Accounts.
Each
Account hereafter arising will represent and to the best knowledge of Debtor,
each Account now existing represents, the valid and legally enforceable
obligations of a bona fide account debtor and is not and will not be subject
to
contra accounts, set-offs, defenses or counterclaims by or available to account
debtors obligated on the Accounts except as disclosed to Secured Party in
writing; and the amount shown as to each Account on Debtor’s books will be the
true and undisputed amount owing and unpaid thereon, subject to any discounts,
allowances, rebates, credits and adjustments to which the account debtor has
a
right and which have arisen in Debtor’s ordinary course of business or which
have otherwise been disclosed to Secured Party in writing.
Section
3.3 Status
of Related Rights.
All
Related Rights are, and those hereafter arising will be, valid and
genuine.
Section
3.4 Inventory
Not Covered by Other Documents.
None of
the Inventory is, and at the time the security interest in favor of Secured
Party attaches none of the Inventory hereafter acquired will be, covered by
any
document (as defined in the Code).
Section
3.5 Name;
Organization; Authority.
The
exact legal name of Debtor is set forth in the opening paragraph of this
Security Agreement. Debtor is a corporation, duly organized, validly existing,
and in good standing under the laws of the Commonwealth of Kentucky. Debtor
is
qualified to do business and in good standing in each other state in which
the
nature of its business requires it to be so qualified, except where the failure
to so qualify could not reasonably be expected to cause a Material Adverse
Effect on the Collateral or Debtor’s ability to satisfy its obligations under
the Credit Agreement or the legality, validity or enforceability of this
Security Agreement. The execution, delivery and performance of this Security
Agreement has been duly authorized by all corporate action, and this Security
Agreement constitutes the valid and binding obligation of Debtor, enforceable
against Debtor in accordance with its terms, except as the enforceability
thereof may be limited or affected by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors rights
generally and by general equitable principles.
4
Section
3.6 Location.
Debtor’s chief executive office and chief place of business is located at the
address set forth in the opening paragraph of this Security Agreement. The
office where Debtor keeps its records concerning the Accounts and the General
Intangibles and the original of all the Related Rights has the same address
as
Debtor’s chief executive office and chief place of business. Debtor’s Inventory
and Equipment (other than mobile goods) is located in the Commonwealth of
Kentucky and such other states as Debtor shall have from time to time given
notice of to Secured Party.
Section
3.7 Secured
Party’s Security Interest.
This
Security Agreement creates a valid and binding security interest in the
Collateral securing the Secured Obligations. Upon filing the financing
statements described in Section 4.10 of this Security Agreement covering the
Collateral in the Office of the Secretary of State for the Commonwealth of
Kentucky, Secured Party will have a fully perfected security interest in that
Collateral in which a security interest may be perfected by filing, subject
only
to Permitted Encumbrances. No further or subsequent filing, recording,
registration or other public notice of such security interest is necessary
in
any office or jurisdiction in order to perfect such security interest or to
continue, preserve or protect such security interest except for continuation
statements or for filings upon the occurrence of any of the events stated in
Section 4.10
of this
Security Agreement. Such perfected security interest in the Collateral
constitutes a first-priority security interest under the Code, subject only
to
Permitted Encumbrances.
ARTICLE
IV
COVENANTS
AND AGREEMENTS
A
deviation from the provisions of this Article
IV
shall
not constitute a Default under this Security Agreement if such deviation is
consented to in writing (in the manner provided in the Credit Agreement) in
advance by Secured Party. Without the prior written consent of Secured Party,
Debtor will at all times comply with the covenants contained in this
Article
IV,
from
the date hereof and for so long as any part of the Secured Obligations (other
than indemnity obligations and similar obligations that survive the termination
of the Loan Documents for which no notice of a claim has been received by
Debtor) or the commitment of Secured Party to make loans under the Credit
Agreement is outstanding.
Section
4.1 Title;
Prohibited Liens and Filings.
Debtor
agrees to protect the title to the Collateral. Debtor will not pledge, mortgage,
otherwise encumber, create or suffer a lien to exist on any of the Collateral
(other than in favor of Secured Party or as permitted by the Credit Agreement)
or sell, assign or otherwise transfer any of the Collateral (other than as
permitted by the Credit Agreement) to or in favor of any person other than
Secured Party. Debtor will not file or, to the extent it is able, permit to
be
filed or recorded any financing statement or other security instrument with
respect to the Collateral other than in favor of Secured Party or as permitted
by the Credit Agreement.
5
Section
4.2 Taxes,
Etc.
Debtor
agrees to pay prior to delinquency all taxes, charges, liens and assessments
against the Collateral which, if unpaid, might result in the imposition of
a
lien on the Collateral; provided,
however,
Debtor
shall not be required to pay any tax, charge, lien or assessment that is not
yet
past due or is being contested in good faith by appropriate proceedings
diligently conducted by or on behalf of Debtor and if Debtor shall have set
up
reserves therefor adequate under generally accepted accounting
principles.
Section
4.3 Possession
of Collateral.
Secured
Party shall be deemed to have possession of any of the Collateral in transit
to
it or set apart for it. Otherwise, the Collateral shall remain in Debtor’s
possession or control at all times (except (i) where Secured Party chooses
to
perfect its security interest by possession in addition to the filing of a
financing statement and (ii) with respect to Inventory that Debtor may sell
in
the ordinary course of its business) at Debtor’s risk of loss and shall (except
for temporary removal consistent with its normal use) be kept at locations
owned
or leased by Borrowers.
Section
4.4 Inspection
of Collateral.
Upon
reasonable notice, Secured Party may from time to time during normal business
hours, inspect Debtor’s records concerning the Accounts and the General
Intangibles, the originals of the Related Rights, the Equipment, the Inventory
and other Collateral but not as to unreasonably interfere with the business
of
Debtor.
Section
4.5 Further
Assurances.
Debtor
will from time to time sign, execute, deliver and file, alone or with Secured
Party, upon reasonable request, any financing statements, security agreements
or
other documents necessary or convenient to perfect or continue in favor of
Secured Party a first-priority security interest in the Collateral; procure
any
necessary instruments or documents as may be reasonably requested by Secured
Party; and take all further action that may be necessary or desirable, or that
Secured Party may reasonably request, to confirm, perfect, preserve and protect
the security interests intended to be granted hereby. Notwithstanding the
previous sentence, however, Debtor hereby authorizes Secured Party to execute
and deliver on behalf of Debtor and to file such financing statements, security
agreements and other documents without the signature of Debtor either in Secured
Party’s name or in the name of Debtor and as attorney-in-fact for Debtor. Debtor
shall do all such additional and further acts or things, give such assurances
and execute such documents or instruments as Secured Party reasonably requires
to vest more completely in and assure to Secured Party its rights under this
Security Agreement, including, without limiting the generality of the foregoing,
(a) marking conspicuously each chattel paper or electronic chattel paper
included in the Collateral and, at the request of Secured Party, each of
Debtor’s records pertaining to the Collateral with a legend, in form and
substance satisfactory to Secured Party, indicating that such chattel paper
or
Collateral is subject to the security interest granted by this Security
Agreement and (b) if any Account, General Intangible or Related Right is
evidenced by a promissory note, chattel paper, electronic chattel paper or
other
instrument, transferring, delivering, assigning to Secured Party such promissory
note, chattel paper, electronic chattel paper or other instrument duly endorsed
and authenticated and accompanied by duly executed instruments of transfer
and
assignment, all in form and substance reasonably satisfactory to Secured Party,
to be held by Secured Party as Collateral under this Security
Agreement.
6
Section
4.6 Filing
Reproductions.
At the
option of Secured Party, a photographic or other reproduction of this Security
Agreement or of a financing statement covering the Collateral shall be
sufficient as a financing statement and may be filed as a financing
statement.
Section
4.7 Delivery
of Information.
Debtor
will transmit promptly to Secured Party all information that Debtor may have
or
receive with respect to (a) the Collateral or (b) account debtors or obligors
in
respect of the Accounts, the General Intangibles and the Related Rights, in
each
case which could reasonably be expected to materially and adversely affect
the
aggregate value of the Collateral or Secured Party’s rights or remedies with
respect thereto.
Section
4.8 Compromise
of Collateral.
Debtor
will not adjust, settle or compromise any of the Accounts, the General
Intangibles or the Related Rights without the prior written consent of Secured
Party, other than in a manner that does not materially affect the aggregate
value of the Collateral and is in the ordinary course of business.
Section
4.9 Expenses.
Debtor
agrees to pay to Secured Party at Secured Party’s offices, all advances,
charges, costs and expenses (including reasonable attorneys’ fees and legal
expenses) incurred by Secured Party in connection with the transaction which
gives rise to this Security Agreement, in connection with confirming, perfecting
and preserving the security interest created under this Security Agreement,
in
connection with protecting Secured Party against the claims or interests of
any
Person against the Collateral, and in exercising any right, power or remedy
conferred by this Security Agreement or by law or in equity (including, but
not
limited to, reasonable attorneys’ fees and legal expenses incurred by Secured
Party in the collection of instruments deposited with or purchased by Secured
Party and amounts incurred in connection with the operation, maintenance or
foreclosure of any or all of the Collateral). The amount of all such advances,
charges, costs and expenses shall be due and payable by Debtor to Secured Party
upon ten (10) days after invoice or demand by Secured Party together with
interest thereon from the due date at the Default Rate as provided in the Credit
Agreement.
Section
4.10 Financing
Statement Filings; Notifications.
Debtor
recognizes that financing statements pertaining to the Collateral will be filed
with the Office of the Secretary of State for the Commonwealth of Kentucky.
Debtor will promptly notify Secured Party of any condition or event that may
change the proper location for the filing of any financing statements or other
public notice or recordings for the purpose of perfecting a security interest
in
the Collateral. Without limiting the generality of the foregoing, Debtor will
(a) promptly notify Secured Party of any change to a jurisdiction other than
as
represented in Section
3.5
or
Section 3.6
(i)
in the
location of Debtor’s chief executive office or chief place of business;
(ii)
in the
location of the Inventory (other than Inventory sold or leased in the ordinary
course of business); (iii)
in the
location of the Equipment (other than Equipment removed in the ordinary course
of business for not more than thirty (30) days) or disposed of as permitted
by
the Credit Agreement; (iv)
in the
location of the office where Debtor keeps its records concerning the Accounts;
or (v)
in the
“location” of Debtor within the meaning of the Code; (b) prior to any of the
Collateral becoming so related to any particular real estate so as to become
a
fixture on such real estate, notify Secured Party of the description of such
real estate and the name of the record owner thereof; and (c) promptly notify
Secured Party of any change in Debtor’s name, identity or limited liability
company structure. In any notice furnished pursuant to this section, Debtor
will
expressly state that the notice is required by this Security Agreement and
contains facts that will or may require additional filings of financing
statements or other notices for the purpose of continuing perfection of Secured
Party’s security interest in the Collateral.
7
Section
4.11 Maintenance
of Collateral Generally.
Except
as otherwise provided in the Credit Agreement, (A) Debtor will maintain all
the Collateral in good condition, repair, and working order (ordinary wear
and
tear excepted), and substantially in accordance with any manufacturer’s manual
if applicable; (B) Debtor will not misuse, abuse, waste, destroy, endanger
or allow the Collateral to deteriorate, except, with respect to the Equipment
only, for ordinary wear and tear from its intended use; (C) Debtor will
promptly, or in the case of any loss or damage to any goods included in the
Collateral as soon as practicable, make or cause to be made all repairs,
replacements or other improvements to the Collateral as are necessary or
desirable to accomplish the foregoing; and (D) Debtor will not use any
Collateral in violation of any law, statute, ordinance or regulation or allow
it
to be so used.
Section
4.12 Account
Obligations.
The
Debtor will duly perform or cause to be performed all obligations of Debtor
with
respect to the goods or services, the sale or lease or rendition of which gave
rise or will give rise to each Account relating thereto.
Section
4.13 Use
of
Inventory.
If an
Event of Default has occurred and is continuing, Debtor may use its Inventory
in
any lawful manner not inconsistent with this Security Agreement and with the
terms of insurance thereon and may sell, lease or otherwise dispose of its
Inventory in the ordinary course of business. Debtor will not and shall not
be
permitted to use any item of Inventory in a manner inconsistent with the holding
thereof for sale, lease or disposition in the ordinary course of business or
in
contravention of the terms of any agreement. A sale, lease or disposition in
the
ordinary course of business does not include the exchange of items of Inventory
for goods in kind or otherwise or transfers of items of Inventory made in
satisfaction of present or future Secured Obligations.
Section
4.14 Proceeds.
Upon
the terms and conditions set forth in the Credit Agreement and at the request
of
Secured Party, Debtor will deliver to Secured Party promptly upon receipt,
all
proceeds received by Debtor from the sale or disposition of the Collateral
in
the exact form in which they are received. To evidence Secured Party’s rights in
this regard, Debtor will assign or endorse proceeds to Secured Party as Secured
Party reasonably requests. Secured Party may, from time to time, in its
discretion, hold non-cash proceeds as part of the Collateral or apply cash
proceeds received by Secured Party in the manner set forth in Section
5.2
of this
Security Agreement. Upon the terms and conditions set forth in the Credit
Agreement and at the request of Secured Party, Debtor will notify obligors
on
all of the Collateral to make payments directly to Secured Party, and thereafter
Secured Party may endorse as Debtor’s agent any checks, instruments, chattel
paper or other documents connected with the Collateral, take control of proceeds
of the Collateral and may hold the non-cash proceeds as part of the Collateral
and may apply cash proceeds received by Secured Party in the manner set forth
in
Section
5.2
of this
Security Agreement and may take any action necessary to obtain, preserve and
enforce the liens granted hereunder and maintain and preserve the
Collateral.
8
Section
4.15 Insurance.
Debtor
shall have and maintain, with financially sound and reputable insurers,
insurance (subject to customary deductible and retention) satisfactory in all
respects to Secured Party covering the goods included in the Collateral against
such liabilities, risks and contingencies, by such methods and in such amounts
as provided in the Credit Agreement. Policies evidencing any such property
insurance will name Secured Party as an additional insured and loss payee and
provide for a minimum of thirty (30) days prior written notice to Secured Party
of any cancellation. Debtor shall furnish Secured Party with certificates or
other evidence of compliance with the foregoing insurance provisions as provided
in the Credit Agreement. Secured Party may act as attorney-in-fact for Debtor
and Debtor hereby irrevocably appoints Secured Party as Debtor’s true and lawful
attorney-in-fact, with full power of substitution, in Secured Party’s name or
Debtor’s name or otherwise, but at Debtor’s cost and expense and without notice
to Debtor upon the occurrence and during the continuance of an Event of Default,
to obtain, adjust, sell and cancel such insurance and endorse any draft drawn
by
insurers of the goods included in the Collateral. If any insurance policy
covering the goods included in the Collateral expires or is canceled before
the
Secured Obligations are paid in full or before the termination of the Secured
Party’s commitment to make loans as provided in the Credit Agreement, at Secured
Party’s option, Secured Party may, at Debtor’s expense, obtain replacement
insurance which may, but need not, be single interest insurance in favor of
Secured Party.
Section
4.16 Collateral
not to be Fixture or Accession.
Debtor
will not permit any Collateral to become so related to any particular real
estate so as to become a fixture on such real estate or to be installed in
or
affixed to other goods so as to become an accession to such other goods unless
such other goods are included in the Collateral; in the event that any
Collateral is to become so related to any particular real estate or so installed
or affixed to other goods, prior thereto Debtor will (i)
notify
Secured Party of such fact and (ii)
upon
demand of Secured Party furnish written consents to Secured Party’s security
interest and disclaimers of any interest in such Collateral signed by any Person
having an interest in such real estate or such other goods, if
applicable.
Section
4.17 Delivery
of Certificate of Title to Equipment.
In the
case of Equipment now owned constituting goods in which a security interest
is
perfected by a notation on the certificate of title or similar evidence of
the
ownership of such goods, Debtor shall, as soon as practicable after a request
by
Secured Party, deliver to Secured Party any and all certificates of title,
applications for title or similar evidence of ownership of such Equipment and
shall cause Secured Party to be named as lienholder on any such certificate
of
title or other evidence of ownership. In the case of such Equipment hereafter
acquired, other than Equipment with respect to which purchase money liens are
required and allowed as Permitted Encumbrances, Debtor shall provide evidence
of
ownership within ten (10) days of its acquisition of such Equipment. Debtor
shall provide notice to Secured Party of any material loss or damage to any
Equipment and shall not permit any such Equipment to become a fixture to real
estate or an accession to other personal property other than as permitted in
the
Credit Agreement.
Section
4.18 Third-Party
Acknowledgments; Control Agreements.
If any
of the Collateral is in the possession of a third-party, Debtor will join with
Secured Party in notifying the third-party of Secured Party’s security interest
and obtaining an acknowledgment in form and substance reasonably satisfactory
to
Secured Party from such third-party that it is holding the Collateral for the
benefit of the Secured Party. Debtor will fully cooperate with Secured Party
in
obtaining a control agreement in form and substance reasonably satisfactory
to
Secured Party with respect to any Collateral consisting of deposit accounts,
investment property, electronic chattel paper or letter of credit
rights.
9
ARTICLE
V
RIGHTS,
REMEDIES AND DEFAULT
Section
5.1 With
Respect to Collateral.
Secured
Party is hereby fully authorized and empowered (without the necessity of any
further consent or authorization from Debtor) and the right is expressly granted
to Secured Party, and Debtor hereby constitutes, appoints and makes Secured
Party as Debtor’s true and lawful attorney-in-fact and agent for Debtor and in
Debtor’s name, place and stead with full power of substitution, in Secured
Party’s name or Debtor’s name or otherwise, for Secured Party’s sole use and
benefit, but at Debtor’s cost and expense, to exercise, without notice, all or
any of the following powers at any time following the occurrence and during
the
continuation of an Event of Default hereunder with respect to all or any of
the
Collateral:
(a) notify
account debtors or the obligors on the Accounts, the General Intangibles and
the
Related Rights to make and deliver payment to Secured Party;
(b) to
demand, ▇▇▇ for, collect, receive and give acquittance for any and all monies
due or to become due by virtue thereof and otherwise deal with
proceeds;
(c) to
receive, take, endorse, assign and deliver any and all checks, notes, drafts,
documents and other negotiable and non-negotiable instruments and chattel paper
taken or received by Secured Party in connection therewith;
(d) to
settle, compromise, compound, prosecute or defend any action or proceeding
with
respect thereto;
(e) to
sell,
transfer, assign or otherwise deal in or with the same or the proceeds or avails
thereof or the relative goods, as fully and effectively as if Secured Party
were
the absolute owner thereof; and
(f) to
extend
the time of payment of any or all thereof and to grant waivers and make any
allowance or other adjustment with reference thereto;
provided,
however,
Secured
Party shall be under no obligation or duty to exercise any of the powers hereby
conferred upon it and shall be without liability for any act or failure to
act
in connection with the collection of, or the preservation of any rights under,
any Collateral.
Section
5.2 Application
of Cash Sums.
All
cash sums paid to and received by Secured Party on account of the Collateral
will be (a) released to Debtor for use in Debtor’s business or, at the
option of Secured Party pursuant to the terms and conditions of the Credit
Agreement, (b) applied by Secured Party on the Secured Obligations whether
or not such Secured Obligations shall have by its terms matured, in accordance
with the Credit Agreement; provided,
however,
Secured
Party need not apply or give credit for any item included in such sums until
Secured Party has received final payment thereof at its banking quarters or
solvent credits accepted as such by Secured Party; and provided further
that
Secured Party’s failure to so apply any such sums shall not be a waiver of
Secured Party’s right to so apply such sums or any other sums at any
time.
10
Section
5.3 Events
of Default.
An
“Event
of Default”
under
this Security Agreement shall occur upon the occurrence of an “Event of Default”
under the Credit Agreement.
Section
5.4 Default
Remedies.
Upon
the occurrence and during the continuation of any Event of Default, Secured
Party may then, or at any time thereafter and from time to time after giving
any
notice required under the Credit Agreement, if any notice is required with
respect to such Event of Default, apply, set-off, collect, sell in one or more
sales, lease, or otherwise dispose of, any or all of the Collateral, in its
then
condition or, at Secured Party’s option, following any commercially reasonable
preparation or processing, in such order as Secured Party may elect, and any
such sale may be made either at public or private sale at its place of business
or elsewhere, or at any brokers’ board or securities exchange, either for cash
or upon credit or for future delivery, and Secured Party may be the purchaser
of
any or all Collateral so sold and may hold the same thereafter in its own right
free from any claim of Debtor or right of redemption. No such purchase or
holding by Secured Party shall be deemed a retention by Secured Party in
satisfaction of the Secured Obligations. All demands, notices and
advertisements, and the presentment of property at sale are hereby waived except
to the extent reasonably necessary to conduct a commercially reasonable sale.
If, notwithstanding the foregoing provisions, any applicable provision of the
Code or other law requires Secured Party to give reasonable notice of any such
sale or disposition or other action, Debtor hereby agrees ten (10) days prior
written notice shall constitute reasonable notice. Secured Party may require
Debtor to assemble the Collateral and make it available to Secured Party at
a
place designated by Secured Party which is reasonably convenient to Secured
Party and Debtor. Any sale hereunder may be conducted by an auctioneer or any
officer or agent of Secured Party.
Section
5.5 Proceeds.
Upon
the occurrence of any Event of Default, the proceeds of any sale or other
disposition of the Collateral and all sums received or collected by Secured
Party from or on account of the Collateral shall be applied by Secured Party
in
the manner set forth in the Code.
Section
5.6 Deficiency.
Debtor
shall remain liable to Secured Party for any unpaid Secured Obligations,
advances, costs, charges and expenses, together with interest thereon and shall
pay the same immediately to Secured Party as set forth in the Credit
Agreement.
Section
5.7 Secured
Party’s Duties.
The
powers conferred upon Secured Party by this Security Agreement are solely to
protect the interest of Secured Party in the Collateral and shall not impose
any
duty upon Secured Party to exercise any such powers. Secured Party shall be
under no duty whatsoever to make or give any presentment, demand for
performance, notice of nonperformance, protest, notice of protest, notice of
dishonor, or other notice or demand in connection with any Collateral or the
Secured Obligations, or to take any steps necessary to preserve any rights
against prior parties. Secured Party shall not be liable for failure to collect
or realize upon any or all of the Secured Obligations or Collateral, or for
any
delay in so doing, nor shall Secured Party be under any duty to take any action
whatsoever with regard thereto. Secured Party shall use reasonable care in
the
custody and preservation of any Collateral in its possession but need not take
any steps to keep the Collateral identifiable. Secured Party shall have no
duty
to comply with any recording, filing, or other legal requirements necessary
to
establish or maintain the validity, priority or enforceability of, or Secured
Party’s rights in or to, any of the Collateral.
11
Section
5.8 Secured
Party’s Actions.
Debtor
waives any right to require Secured Party to proceed against any Person, exhaust
any Collateral, or have any Other Liable Party joined with Debtor in any suit
arising out of the Secured Obligations or this Security Agreement or pursue
any
other remedy in Secured Party’s power; waives any and all notice of acceptance
of this Security Agreement or of creation, modification, rearrangement, renewal
or extension for any period of any of the Secured Obligations from time to
time;
and waives any defense arising by reason of any disability or other defense
of
any Other Liable Party, or by reason of the cessation from any cause whatsoever
of the liability of any Other Liable Party. All dealings between Debtor and
Secured Party, whether or not resulting in the creation of the Secured
Obligations, shall conclusively be presumed to have been had or consummated
in
reliance upon this Security Agreement. Until all the Secured Obligations shall
have been paid in full (other than indemnity obligations and similar obligations
that survive the termination of the Loan Documents for which no notice of a
claim has been received by Debtor), Debtor shall have no right to subrogation,
and Debtor waives until all the Secured Obligations shall have been paid in
full
(other than indemnity obligations and similar obligations that survive the
termination of the Loan Documents for which no notice of a claim has been
received by Debtor) any right to enforce any remedy which Secured Party now
has
or may hereafter have against Other Liable Party and waives any benefit of
and
any right to participate in any Collateral or security whatsoever now or
hereafter held by Secured Party. Debtor authorizes Secured Party, without notice
or demand and without any reservation of rights against Debtor and without
affecting Debtor’s liability hereunder or on the Secured Obligations, from time
to time to (a) take and hold any other property as collateral, other than the
Collateral, for the payment of any or all of the Secured Obligations, and
exchange, enforce, waive and release any or all of the Collateral or such other
property; (b) apply the Collateral or such other property and direct the order
or manner of sale thereof as Secured Party in its discretion may determine;
(c)
renew, extend for any period, accelerate, modify, compromise, settle or release
the obligation of any Other Liable Party with respect to any or all of the
Secured Obligations or Collateral; (d) waive, enforce, modify, amend or
supplement any of the provisions of any of the Security Documents, the Credit
Agreement or the Note or any other promissory note or document evidencing any
of
the Secured Obligations (except for an amendment or supplement to any of the
foregoing to which Debtor is a party to the extent such amendment or supplement
requires the consent of Debtor); and (e) release or substitute any Other Liable
Party.
Section
5.9 Transfer
of Secured Obligations and Collateral.
Secured
Party may transfer any or all of Secured Party’s interest in the Secured
Obligations, and upon any such transfer Secured Party may transfer its security
interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability with respect to the Collateral transferred, and
the transferee shall be vested with all rights, powers and remedies of Secured
Party hereunder with respect to Collateral so transferred; provided,
however,
with
respect to any security interest in the Collateral not so transferred, Secured
Party shall retain all rights, powers and remedies provided under this Security
Agreement. Secured Party may at any time deliver any or all of the Collateral
to
Debtor whose receipt shall be a complete and full acquittance for the Collateral
so delivered, and Secured Party shall thereafter be discharged from any
liability therefor.
12
Section
5.10 Cumulative
Security.
The
execution and delivery of this Security Agreement in no manner shall impair
or
affect any other security (by endorsement or otherwise) for the Secured
Obligations. No security taken hereafter as security for the Secured Obligations
shall impair in any manner or affect this Security Agreement. All such present
and future additional security is to be considered as cumulative
security.
Section
5.11 Continuing
Agreement.
This is
a continuing Security Agreement and the grant of a security interest hereunder
shall remain in full force and effect and all the rights, powers and remedies
of
Secured Party hereunder shall continue to exist until (a) the Secured
Obligations are paid in full (other than indemnity obligations and similar
obligations that survive the termination of the Loan Documents for which no
notice of a claim has been received by Debtor), (b) Secured Party has no
further obligation to advance monies to Debtor under the Credit Agreement and
(c) Secured Party, upon written request of Debtor, has executed a written
termination statement, reassigned to Debtor, without recourse, the Collateral
and all rights conveyed hereby and returned possession of the Collateral to
Debtor. Furthermore, it is contemplated by the parties hereto that there may
be
times when no Secured Obligations are owing; notwithstanding such occurrences,
however, this Security Agreement shall remain valid and shall be in full force
and effect as to subsequent Secured Obligations provided Secured Party has
not
executed a written termination statement and returned possession of the
Collateral to Debtor. Otherwise this Security Agreement shall continue
irrespective of the fact that the liability of any Other Liable Party may have
ceased, or irrespective of the validity or enforceability of the Note or any
of
the Security Documents, including the Credit Agreement, to which any Other
Liable Party may be a party, and notwithstanding the reorganization, death,
incapacity or bankruptcy of any Other Liable Party, and notwithstanding the
reorganization or bankruptcy of Debtor, or any other event or proceeding
affecting Debtor or any Other Liable Party.
Section
5.12 Cumulative
Rights.
The
rights, powers and remedies of Secured Party hereunder shall be in addition
to
all rights, powers and remedies given by statute or rule of law and are
cumulative. The exercise of any one or more of the rights, powers and remedies
provided herein shall not be construed as a waiver of any other rights, powers
and remedies of Secured Party. Furthermore, regardless of whether or not the
Uniform Commercial Code is in effect in the jurisdiction where such rights,
powers and remedies are asserted, Secured Party shall have the rights, powers
and remedies of a secured party under the Code. Secured Party may exercise
its
bankers’ lien or right of set-off with respect to the Secured Obligations in the
same manner as if the Secured Obligations were unsecured.
Section
5.13 Exercise
of Rights, Etc.
Time
shall be of the essence for the performance of any act under this Security
Agreement or the Secured Obligations by Debtor or Other Liable Party, but
neither Secured Party’s acceptance of partial or delinquent payments nor any
forbearance, failure or delay by Secured Party in exercising any right, power
or
remedy shall be deemed a waiver of any obligation of Debtor or of Other Liable
Party or of any right, power or remedy of Secured Party or preclude any other
or
further exercise thereof; and no single or partial exercise of any right, power
or remedy shall preclude any other or further exercise thereof, or the exercise
of any other right, power or remedy.
13
Section
5.14 Remedy
and Waiver.
Secured
Party may remedy any Default or Event of Default without waiving the Default
or
Event of Default or waiving any prior or subsequent Default or Event of
Default.
Section
5.15 Non-Judicial
Remedies.
Secured
Party may enforce its rights hereunder without prior judicial process or
judicial hearing, and Debtor expressly waives, renounces and knowingly
relinquishes any and all legal rights which might otherwise require Secured
Party to enforce its rights by judicial process. In so providing for
non-judicial remedies, Debtor recognizes and concedes that such remedies are
consistent with the usage of the trade, are responsive to commercial necessity,
and are the result of bargain at arm’s length. Nothing herein is intended to
prevent Secured Party or Debtor from resorting to judicial process at any
party’s option.
Section
5.16 Compliance
with Other Laws.
Secured
Party may comply with the requirements of any applicable state or federal law
in
connection with the disposition of all or any part of the Collateral, and
compliance with such laws will not be considered to adversely affect the
commercial reasonableness of any sale of all or any part of the
Collateral.
Section
5.17 Disclaimer
of Warranties.
Secured
Party may sell the Collateral without giving any warranties as to the
Collateral. Secured Party may specifically disclaim any warranties of title
or
similar warranties. The disclaimer of any such warranties will not be considered
to adversely affect the commercial reasonableness of any sale of all or any
part
of the Collateral.
Section
5.18 Sales
on Credit.
If
Secured Party sells all or any part of the Collateral upon credit, Debtor will
be credited only with payments actually made by the purchaser, received by
the
Secured Party and applied against the Secured Obligations. In the event the
purchaser fails to pay for the Collateral, Secured Party may resell the
Collateral and Debtor shall be credited with the proceeds of such
sale.
ARTICLE
VI
MISCELLANEOUS
Section
6.1 Preservation
of Liability.
Neither
this Security Agreement nor the exercise by Secured Party of (or the failure
to
so exercise) any right, power or remedy conferred herein or by law shall be
construed as relieving any Person liable on the Secured Obligations from
liability on the Secured Obligations and for any deficiency
thereon.
Section
6.2 Notices.
Any
record, notice, demand or document which either party is required or may desire
to give hereunder shall be given as provided in the Credit Agreement.
Section
6.3 Choice
of Law.
THIS
SECURITY AGREEMENT HAS BEEN MADE IN AND THE SECURITY INTEREST GRANTED HEREBY
IS
GRANTED IN AND EACH SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(EXCEPT TO THE EXTENT THAT THE LAWS OF ANY OTHER JURISDICTION GOVERN THE
PERFECTION AND PRIORITY OF THE SECURITY INTEREST GRANTED HEREBY) WITHOUT REGARD
TO ITS CONFLICTS OF LAWS PRINCIPLES.
14
Section
6.4 Amendment
and Waiver.
This
Security Agreement may not be amended (nor may any of its terms be waived)
except in the manner provided in the Credit Agreement.
Section
6.5 Severability.
If any
provision of this Security Agreement is rendered or declared invalid, illegal
or
unenforceable by reason of any existing or subsequently enacted legislation
or
by a judicial decision which shall have become final, Debtor and Secured Party
shall promptly meet and discuss substitute provisions for those rendered
invalid, illegal or unenforceable, but all of the remaining provisions shall
remain in full force and effect
Section
6.6 Survival
of Agreements.
All
representations and warranties of Debtor herein, and all covenants and
agreements herein not fully performed before the effective date of this Security
Agreement, shall survive such date.
Section
6.7 Counterparts.
This
Agreement may be executed in two or more counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained on any one
counterpart hereof. Each counterpart shall be deemed an original, but all such
counterparts taken together shall constitute one and the same instrument.
Section
6.8 Successors
and Assigns.
The
covenants and agreements herein contained by or on behalf of Debtor shall bind
Debtor, Debtor’s legal representatives, successors and assigns and all persons
who become bound as a debtor to this Security Agreement and shall inure to
the
benefit of Secured Party, its successors and permitted assigns under the Credit
Agreement.
Section
6.9 Titles
of Articles, Sections and Subsections.
All
titles or headings to articles, sections, subsections or other divisions of
this
Security Agreement are only for the convenience of the parties and shall not
be
construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
Section
6.10 WAIVER
OF JURY TRIAL.
TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, EACH OF THE UNDERSIGNED HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT WHICH IT MAY HAVE TO A TRIAL
BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING
OUT
OF, UNDER OR IN CONNECTION WITH THE NOTE, THIS AGREEMENT OR THE OTHER SECURITY
DOCUMENTS, OR ANY TRANSACTION CONTEMPLATED THEREBY, BEFORE OR AFTER
MATURITY.
15
Section
6.11 Interest.
It is
the intention of the parties hereto to comply strictly to usury laws applicable
to the Secured Party. Interest on the indebtedness is expressly limited so
that
in no contingency or event whatsoever, whether by acceleration of the maturity
of the Note or otherwise, shall the interest taken, reserved, contracted for,
charged or received by the Secured Party exceed the maximum amount permissible
under applicable law. If from any circumstances whatsoever fulfillment of any
provisions of the Credit Agreement, this Agreement, any of the other Security
Documents or of any other document evidencing, securing or pertaining to the
indebtedness evidenced by the Note, at the time performance of such provision
shall be due, would be usurious under applicable law, then, ipso facto, the
obligation to be fulfilled shall be reduced to the limit of such validity so
that the aggregate consideration which constitutes interest that is contracted
for, taken, reserved, charged for, or received shall not exceed the maximum
amount allowed by applicable law and such amount that would otherwise be
excessive interest shall be applied to the reduction of the principal amount
owing under the Note or on account of any other indebtedness of the Debtor
to
the Secured Party, or if principal of the Note and such other indebtedness
has
been paid in full, refunded to the Debtor. In determining whether or not the
interest paid or agreed to be paid for the use, forbearance, or detention of
sums hereunder exceeds the highest lawful rate, the Debtor and the Secured
Party
shall, to the maximum extent permitted by applicable law, (a) characterize
any
non-principal payment as an expense, fee or premium rather than as interest,
(b)
exclude voluntary prepayments and the effects thereof, (c) amortize, prorate,
allocate and spread the total amount of interest throughout the full term of
such indebtedness so that the actual rate of interest on account of such
indebtedness does not exceed the highest lawful rate, and/or (d) allocate
interest between portions of such indebtedness, to the end that no such portion
shall bear interest at a rate greater than that permitted by applicable
law.
THIS
SECURITY AGREEMENT, THE CREDIT AGREEMENT, THE NOTE AND THE SECURITY DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS
ADDRESSED HEREIN AND THEREIN AND WILL NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Signatures
On The Following Page]
16
IN
WITNESS WHEREOF, the Debtor and Secured Party have caused this instrument to
be
executed as of __________ ,
2008.
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Debtor:
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KY
USA ENERGY, INC.,
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a
Kentucky corporation
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By:
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Name:
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Title:
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Secured
Party:
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NSES
12, LLC,
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a
Delaware limited liability company
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By:
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Title:
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