Exhibit 10.5
COMMERCIAL SECURITY AGREEMENT
This Commercial Security Agreement (herein called this "Agreement") is
entered into this 3rd day of May, 2005, by and among XXXXXX PETROLEUM, INC., a
Tennessee corporation ("Debtor"), with a mailing address of 0000 Xxxxx
Xxxxxxx, Xxxxxxxxxx, XX 00000, and PROSPECT ENERGY CORPORATION, a Maryland
corporation ("Secured Party"), as administrative agent for the Lenders (herein
defined), whose address is 00 Xxxx 00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX;
WHEREAS, Debtor, Secured Party and Petro Capital III, L.P. (together with
Secured Party, the "Lenders") have entered into that certain Credit Agreement
of even date herewith (the "Credit Agreement"), which requires as a condition
thereto, that Debtor enter into this Agreement;
NOW, THEREFORE, for value received, the receipt and sufficiency of which
is hereby acknowledged, Debtor grants to Secured Party the security interest
(and the pledges and assignments as applicable) hereinafter set forth and
agrees with Secured Party as follows:
A. OBLIGATIONS SECURED.
(i) Any and all present or future indebtedness, obligations and
liabilities of Debtor incurred under, arising out of or in connection with (i)
that certain promissory note executed by Debtor, payable to the order of
Secured Party, and being in the principal amount of $3,150,000, with final
maturity on or before June 30, 2006, (ii) that certain promissory note
executed by Debtor, payable to the order of Petro Capital III, L.P., and being
in the principal amount of $1,000,000, with final maturity on or before June
30, 2006, and (iii) all other notes given in substitution thereof or in
modification, renewal or extension thereof, in whole or in part (such notes,
as from time to time supplemented, amended or modified and all other notes
given in substitution thereof or in modification, renewal or extension
thereof, in whole or in part, being hereafter called the "Notes"); the Notes
containing usual provisions for increased interest rates after maturity or
default, and acceleration and attorneys' fees in the event of a default under
the terms thereof;
(ii) Any and all renewals and extensions, in whole or in part,
amendments, modifications (including increases, if any) and rearrangements of
the Notes;
(iii) Any and all present or future indebtedness, obligations
and
liabilities of Debtor or any Guarantor incurred under, arising out of or in
connection with (i) the Credit Agreement and (ii) all other documents executed
in connection with the Credit Agreement, as the same may be modified, renewed
and extended from time to time.
B. USE OF COLLATERAL. Debtor represents, warrants and covenants that
the Collateral will be used by the Debtor primarily for business use.
C. DESCRIPTION OF COLLATERAL. Debtor hereby grants to Secured Party
a security interest in (and hereby pledges and assigns as applicable) and
agrees that Secured Party shall continue to have a security interest in (and a
pledge and assignment as applicable), the following property related to the
Collateral defined in the Credit Agreement, to wit:
Contract Rights. All Debtor's rights and interests in and to all
presently existing and hereafter created contracts and agreements.
All Accounts. A security interest in all accounts now owned or
existing as well as any and all that may hereafter arise or be acquired by
Debtor, and all the proceeds and products thereof, including without
limitation, all notes, drafts, acceptances, instruments and chattel paper
arising therefrom, and all returned or repossessed goods arising from or
relating to any such accounts.
General Intangibles. A security interest in all general
intangibles and other personal property, including but not limited to
intellectual property and all trade names, trademarks, service marks, logos,
all internet addresses and designations, and all other internet name, website
and fileserver location, and computer programs now owned or hereafter acquired
by Debtor.
Interest Reserve Account. A security interest in a Debt Service
Account (as defined in the Credit Agreement), and all cash and other assets
held in the account, provided that (i) such account has not been established
as of the date of this Agreement and shall constitute Collateral only after it
has been established in accordance with the Credit Agreement and (ii) the
execution of the Deposit Account Control Agreement (as defined in the Credit
Agreement) by the Borrower and the Lenders shall be deemed to be sufficient to
establish the bank account identified therein as the Deposit Service Account
and an acknowledgement by the parties that such account shall constitute
Collateral in accordance with the terms of this Agreement.
Unless otherwise defined, the term "Collateral" as used in this Agreement
shall mean and include, and the security interest (and pledge and assignment
as applicable) shall cover, all of the foregoing property, as well as any
accessions, additions and attachments thereto and the proceeds and products
thereof, including without limitation, all cash, general intangibles,
accounts, inventory, equipment, fixtures, farm products, notes, drafts,
acceptances, securities, instruments, chattel paper, insurance proceeds
payable because of loss or damage, or other property, benefits or rights
arising therefrom, and in and to all returned or repossessed goods arising
from or relating to any of the property described herein or other proceeds of
any sale or other disposition of such property.
As additional security for the punctual payment and performance of the
Obligations, and as part of the Collateral, Debtor hereby grants to Secured
Party a security interest in, and a pledge and assignment of, any and all
money, property, deposit accounts, accounts, securities, documents, chattel
paper, claims, demands, instruments, items or deposits of the Debtor, now held
or hereafter coming within Secured Party's custody or control, including
without limitation, all certificates of deposit and other depository accounts,
whether such have matured or the exercise of Secured Party's rights results in
loss of interest or principal or other penalty on such deposits, but excluding
deposits subject to tax penalties if assigned. Without prior notice to or
demand upon the Debtor, Secured Party may exercise its rights granted above at
any time when a default has occurred or Secured Party deems itself insecure.
Secured Party's rights and remedies under this paragraph shall be in addition
to and cumulative of any other rights or remedies at law and equity,
including, without limitation, any rights of setoff to which Secured Party may
be entitled.
D. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor
represents and warrants as follows:
1. Ownership; No Encumbrances. Except for the security interest (and
pledges and assignments as applicable) granted hereby, the Debtor is, and as
to any property acquired after the date hereof which is included within the
Collateral, Debtor will be, the owner of all such Collateral free and clear
from all charges, liens, security interests, adverse claims and encumbrances
of any and every nature whatsoever.
2. No Financing Statements. Except for a financing statement in
favor of Xxxxxxx Xxxxxx Xxx and/or Xxxxxx Xxx Xxxxxx Xxx, there is no
financing statement or similar filing now on file in any public office
covering any part of the Collateral, and Debtor will not execute and there
will not be on file in any public office any financing statement or similar
filing except the financing statements filed or to be filed in favor of
Secured Party.
3. Accuracy of Information. All information furnished to Secured
Party concerning Debtor, the Collateral and the Obligations, or otherwise for
the purpose of obtaining or maintaining credit, is or will be at the time the
same is furnished, accurate and complete in all material respects.
4. Authority. Debtor has full right and authority to execute and
perform this Agreement and to create the security interest (and pledges and
assignment as applicable) created by this Agreement. The making and
performance by Debtor of this Agreement will not violate any articles of
incorporation, bylaws or similar document respecting Debtor, any provision of
law, any order of court or governmental agency, or any indenture or other
agreement to which Debtor is a party, or by which Debtor or any of Debtor's
property is bound, or be in conflict with, result in a breach of or constitute
(with due notice and/or lapse of time) a default under any such indenture or
other agreement, or result in the creation or imposition of any charge, lien,
security interest, claim or encumbrance of any and every nature whatsoever
upon the Collateral, except as contemplated by this Agreement and except for
those certain promissory notes dated August 13, 2003 in the aggregate
principal amount of $2,000,000 in favor of Xxxxxxx Xxxxxx Xxx and Xxxxxx Xxx
Xxxxxx Xxx.
5. Addresses. The address of Debtor designated at the beginning of
this Agreement is Debtor's place of business if Debtor has only one place of
business; Debtor's chief executive office if Debtor has more than one place of
business; or Debtor's residence if Debtor has no place of business. Debtor
agrees not to change such address without advance written notice to Secured
Party.
E. GENERAL COVENANTS. Debtor covenants and agrees as follows and,
where Debtor is not directly responsible for the operation, maintenance or
condition of the Collateral, with respect to Sections E(1), E(2) and E(3)
below, Debtor shall use its best efforts to cause such persons with direct
responsibility to perform as therein provided:
1. Operation of the Collateral. Debtor agrees to maintain and use
the Collateral solely in the conduct of its own business, in a careful and
proper manner, and in conformity with all applicable permits or licenses.
Debtor shall comply in all respects with all applicable statutes, laws,
ordinances and regulations. Debtor shall not use the Collateral in any
unlawful manner or for any unlawful purposes, or in any manner or for any
purpose that would expose the Collateral to unusual risk, or to penalty,
forfeiture or capture, or that would render inoperative any insurance in
connection with the Collateral.
2. Condition. Debtor shall maintain, service and repair the
Collateral so as to keep it in good operating condition. Debtor shall replace
within a reasonable time all parts that may be worn out, lost, destroyed or
otherwise rendered unfit for use, with appropriate replacement parts. Debtor
shall obtain and maintain in good standing at all times all applicable
permits, licenses, registrations and certificates respecting the Collateral.
3. Assessments. Debtor shall promptly pay when due all taxes,
assessments, license fees, registration fees, and governmental charges levied
or assessed against Debtor or with respect to the Collateral or any part
thereof.
4. No Encumbrances. Debtor agrees not to suffer or permit any
charge, lien, security interest, adverse claim or encumbrance of any and every
nature whatsoever against the Collateral or any part thereof.
5. Reserved.
6. No Transfer. Except as otherwise provided in the Credit Agreement
with respect to inventory, Debtor shall not, without the prior written consent
of Secured Party, sell, assign, transfer, lease, charter, encumber,
hypothecate or dispose of the Collateral, or any part thereof, or interest
therein, or offer to do any of the foregoing.
7. Notices and Reports. Debtor shall promptly notify Secured Party
in writing of any change in the name, identity or structure of Debtor, any
charge, lien, security interest, claim or encumbrance asserted against the
Collateral, any litigation against Debtor or the Collateral, any theft, loss,
injury or similar incident involving the Collateral, and any other material
matter adversely affecting Debtor or the Collateral. Debtor shall furnish
such other reports, information and data regarding Debtor's financial
condition and operations, the Collateral and such other matters as Secured
Party may request from time to time.
8. Reserved.
9. Reserved.
10. Additional Filings. Debtor agrees to execute and deliver such
financing statement or statements, or amendments thereof or supplements
thereto, or other documents as Secured Party may from time to time require in
order to comply with the Tennessee Uniform Commercial Code (or other
applicable state law of the jurisdiction where any of the Collateral is
located) and to preserve and protect the Secured Party's rights to the
Collateral.
11. Protection of Collateral. Secured Party, at its option, whether
before or after default, but without any obligation whatsoever to do so, may
(a) discharge taxes, claims, charges, liens, security interests, assessments
or other encumbrances of any and every nature whatsoever at any time levied,
placed upon or asserted against the Collateral, (b) place and pay for
insurance on the Collateral, including insurance that only protects Secured
Party's interest, (c) pay for the repair, improvement, testing, maintenance
and preservation of the Collateral, (d) pay any filing, recording,
registration, licensing or certification fees or other fees and charges
related to the Collateral, or (e) take any other action to preserve and
protect the Collateral and Secured Party's rights and remedies under this
Agreement as Secured Party may deem necessary or appropriate. Debtor agrees
that Secured Party shall have no duty or obligation whatsoever to take any of
the foregoing action. Debtor agrees to promptly reimburse Secured Party upon
demand for any payment made or any expense incurred by the Secured Party
pursuant to this authorization. These payments and expenditures, together with
interest thereon from date incurred until paid by Debtor at the contract rate,
or the maximum contract rate allowed under applicable laws if not paid within
thirty (30) days from the date incurred, which Debtor agrees to pay, shall
constitute additional Obligations and shall be secured by and entitled to the
benefits of this Agreement.
12. Inspection. Debtor shall at all reasonable times allow Secured
Party by or through any of its officers, agents, attorneys or accountants, to
examine the Collateral, wherever located, and to examine and make extracts
from Debtor's books and records.
13. Further Assurances. Debtor shall do, make, procure, execute and
deliver all such additional and further acts, things, deeds, interests and
assurances as Secured Party may require from time to time to protect, assure
and enforce Secured Party's rights and remedies.
14. Insurance. Debtor shall have and maintain insurance at all time
with respect to all Collateral insuring against risks of fire (including
so-called extended coverage), theft and other risks as Secured Party may
require, containing such terms, in such form and amounts and written by such
companies as may be satisfactory to Secured Party, all of such insurance to
contain loss payable clauses in favor of Secured Party as its interest may
appear. Secured Party is hereby authorized to act as attorney for Debtor in
obtaining, adjusting, settling and canceling such insurance and endorsing any
drafts or instruments. Secured Party shall be authorized to apply the
proceeds from any insurance to the Obligations secured hereby whether or not
such Obligations are then due and payable, provided however, that Debtor may
retain the proceeds from any insurance to the extent such proceeds are used
entirely to repair or replace any damaged property. Debtor specifically
authorizes Secured Party to disclose information from the policies of
insurance to prospective insurers regarding the Collateral.
15. Additional Collateral. If Secured Party should at any time be of
the reasonable opinion that the Collateral is impaired, not sufficient or has
declined or may decline in value, or should Secured Party deem payment of the
Obligations to be insecure, then Secured Party may call for additional
security satisfactory to Secured Party, and Debtor promises to furnish such
additional security forthwith. The call for additional security may be oral,
by telegram, or United States mail addressed to Debtor, and shall not affect
any other subsequent right of Secured Party to exercise the same.
F. ADDITIONAL PROVISIONS REGARDING ACCOUNTS. The following
provisions shall apply to all accounts included within the Collateral:
1. Definitions. The term "account" as used in this Agreement,
shall have the same meaning as set forth in the Uniform Commercial Code of
Texas in effect as of the date of execution hereof, and as set forth in any
amendment to the Uniform Commercial Code of Texas to become effective after
the date of execution hereof, and also shall include all present and future
note, instruments, general intangibles, drafts, acceptances and chattel paper
of Debtor, and the proceeds thereof.
2. Additional Warranties. As of the time any account becomes
subject to the security interest granted hereby, Debtor shall be deemed
further to have warranted as to each and all of such accounts as follows: (a)
each account and all papers and documents relating thereto are genuine and in
all respects what they purport to be; (b) each account is valid and subsisting
and arises out of a bona fide sale of goods sold and delivered to, or out of
and for services theretofore actually rendered by the Debtor to, the account
debtor named in the account; (c) the amount of the account represented as
owing is, to the best knowledge of Borrower, the correct amount actually and
unconditionally owing except for normal cash discounts and is not subject to
any setoffs, credits, defenses, deductions or countercharges; and (d) Debtor
is the owner thereof free and clear of any charges, liens, security interests,
adverse claims and encumbrances of any and every nature whatsoever.
3. Collection of Accounts. Secured Party shall have the right
in its own name or in the name of the Debtor, after default, to require Debtor
forthwith to transmit all proceeds of collection of accounts to Secured Party,
to notify any and all account debtors to make payments of the accounts
directly to Secured Party, to demand, collect, receive, receipt for, xxx for,
compound and give acquittal for, any and all amounts due or to become due on
the accounts and to endorse the name of the Debtor on all commercial paper
given in payment or part payment hereof, and in Secured Party's discretion to
file any claim or take any other action or proceeding that Secured Party may
reasonably deem necessary or appropriate to protect and preserve and realize
upon the accounts and related Collateral. Unless and until an event of default
has occurred and Secured Party elects to collect accounts and the privilege of
Debtor to collect accounts is revoked by Secured Party in writing, Debtor
shall continue to collect accounts. Secured Party shall have no duty or
obligation whatsoever to collect any account, or to take any other action to
preserve or protect the Collateral; however, should Secured Party elect to
collect any account or take possession of any Collateral after an event of
default has occurred, Debtor releases Secured Party from any claim or claims
for loss or damage arising from any act or omission in connection therewith,
except loss or damage resulting from the gross negligence or willful
misconduct of Secured Party.
4. Identification and Assignment of Accounts. Upon Secured
Party's request, after an event of default, Debtor shall take such action and
execute and deliver such documents as Secured Party may reasonably request in
order to identify, confirm, xxxx, segregate and assign accounts and to
evidence Secured Party's interest in same. Without limitation of the
foregoing, Debtor, upon an event of default, agrees to assign all of its
accounts to Secured Party, identify and xxxx accounts as being subject to the
security interest granted hereby, xxxx Debtor's books and records to reflect
such assignments, and forthwith to transmit to Secured Party in the form as
received by Debtor any and all proceeds of collection of such accounts.
G. EVENTS OF DEFAULT. Any Event of Default under the Credit
Agreement shall constitute an "event of default" hereunder.
H. REMEDIES. Upon the occurrence of an event of default, Secured
Party, at its option, shall be entitled to exercise any one or more of the
following remedies (all of which are cumulative):
1. Declare Obligations Due. Secured Party, at its option, may
declare the Obligations or any part thereof immediately due and payable,
without demand, notice of intention to accelerate, notice of acceleration,
notice of nonpayment, presentment, protest, notice of dishonor, or any other
notice whatsoever, all of which are hereby waived by Debtor and any maker,
endorser, guarantor, surety or other party liable in any capacity for any of
the Obligations.
2. Remedies. Secured Party shall have all of the rights and remedies
provided for in this Agreement, the Mortgage (as defined in the Credit
Agreement), and the Credit Agreement, the rights and remedies in the Uniform
Commercial Code of Texas, and any and all of the rights and remedies at law
and equity, all of which shall be deemed cumulative. Without limiting the
foregoing, Debtor agrees that Secured Party shall have the right to (a)
require Debtor to assemble the Collateral and make it available to Secured
Party at a place designated by Secured Party that is reasonably convenient to
both parties, which Debtor agrees to do; (b) take possession of the
Collateral, with or without process of law, and, in this connection, enter any
premises where the Collateral is located to remove same, to render it
unusable, or to dispose of same on such premises; (c) sell, lease or otherwise
dispose of the Collateral, by public or private proceedings, for cash or
credit, without assumption of credit risk; and/or (d) whether before of after
default, collect and receipt for, compound, compromise, and settle, and give
releases, discharges and acquittances with respect to, any and all amounts
owned by any person or entity with respect to the Collateral. Unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Secured Party will send Debtor
reasonable notice of the time and place of any public sale or of the time
after which any private sale or other disposition will be made. Any
requirement of reasonable notice to Debtor shall be met if such notice is
mailed, postage prepaid, to Debtor at the address of Debtor designated at the
beginning of this Agreement, at least five (5) days before the day of any
public sale or at least five (5) days before the time after which any private
sale or other disposition will be made.
3. Expenses. Debtor shall be liable for and agrees to pay the
reasonable expenses incurred by Secured Party in enforcing its rights and
remedies, in retaking, holding, testing, repairing, improving, selling,
leasing or disposing of the Collateral, or like expenses, including, without
limitation, attorneys' fees and legal expenses incurred by Secured Party.
These expenses, together with interest thereon from the date incurred until
paid by Debtor at the maximum contract rate allowed under applicable laws,
which Debtor agrees to pay, shall constitute additional Obligations and shall
be secured by and entitled to the benefits of this Agreement.
4. Proceeds; Surplus; Deficiencies. Proceeds received by Secured
Party from disposition of the Collateral shall be applied toward Secured
Party's expenses and other Obligations in such order or manner as Secured
Party may elect. Debtor shall be entitled to any surplus if one results after
lawful application of the proceeds. Debtor shall remain liable for any
deficiency.
5. Remedies Cumulative. The rights and remedies of Secured Party are
cumulative and the exercise of any one or more of the rights or remedies shall
not be deemed an election of rights or remedies or a waiver of any other right
or remedy. Secured Party may remedy any default and may waive any default
without waiving the default remedied or without waiving any other prior or
subsequent default.
I. OTHER AGREEMENTS.
1. Savings Clause. Notwithstanding any provision to the contrary
herein, or in any of the documents evidencing the Obligations or otherwise
relating thereto, no such provision shall require the payment or permit the
collection of interest in excess of the maximum permitted by applicable usury
laws. If any such excessive interest is so provided for, then in such event
(i) the provisions of this paragraph shall govern and control, (ii) neither
the Debtor nor his heirs, legal representatives, successors of assigns or any
other party liable for the payment thereof, shall be obligated to pay the
amount of such interest to the extent that is in excess of the maximum amount
permitted by law, (iii) any such excess interest that may have been collected
shall be, at the option of the holder of the instrument evidencing the
Obligations, either applied as a credit against the then unpaid principal
amount thereof or refunded to the maker thereof, and (iv) the effective rate
of interest shall be automatically reduced to the maximum lawful rate under
applicable usury laws as now or hereafter construed by the courts having
jurisdiction.
2. Joint and Several Responsibility. If this Security Agreement is
executed by more than one Debtor, the obligations of all such Debtors shall be
joint and several.
3. Waivers. Debtor and any maker, endorser, guarantor, surety or
other party liable in any capacity respecting the Obligations hereby waive
demand, notice of intention to accelerate, notice of acceleration, notice of
nonpayment, presentment, protest, notice of dishonor and any other similar
notice whatsoever.
4. Severability. Any provision hereof found to be invalid by courts
having jurisdiction shall be invalid only with respect to such provision (and
then only to the extent necessary to avoid such invalidity). The offending
provision shall be modified to the maximum extent possible to confer upon
Secured Party the benefits intended thereby. Such provision as modified and
the remaining provisions hereof shall be construed and enforced to the same
effect as if such offending provision (or portion thereof) had not been
contained herein, to the maximum extent possible.
5. Use of Copies. Any carbon, photographic or other reproduction of
this Agreement or any financing statement signed by Debtor is sufficient as a
financing statement for all purposes, including without limitation, filing in
any state as may be permitted by the provisions of the Uniform Commercial Code
of such state.
6. Relationship to Other Agreements. This Security Agreement and the
security interests (and pledges and assignments as applicable) herein granted
are in addition to (and not in substitution, novation or discharge of) any and
all prior or contemporaneous security agreements, security interests, pledges,
assignments, liens, rights, titles or other interests in favor of Secured
Party or assigned to Secured Party by others in connection with the
Obligations. All rights and remedies of Secured Party in all such agreements
are cumulative, but in the event of actual conflict in terms and conditions,
the terms and conditions of the latest security agreement shall govern and
control.
7. Notices. Any notice or demand given by Secured Party to Debtor in
connection with this Agreement, the Collateral or the Obligations shall be
deemed given and effective upon deposit in the United States mail, postage
prepaid, addressed to Debtor at the address of Debtor designated at the
beginning of this Agreement. Actual notice to Debtor shall always be
effective no matter how given or received.
8. Headings and Gender. Paragraph headings in this Agreement are for
convenience only and shall be given no meaning or significance in interpreting
this Agreement. All words used herein shall be construed to be of such gender
or number as the circumstances require.
9. Amendments. Neither this Agreement nor any of its provisions may
be changed, amended, modified, waived or discharged orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, amendment, modification, waiver or discharge is sought.
10. Continuing Agreement. The security interest (and pledges and
assignments as applicable) hereby granted and all of the terms and provisions
in this Agreement shall be deemed a continuing agreement. They shall continue
in full force and effect and remain effective between the parties until the
expiration of four (4) years after repayment in full of all Obligations.
11. Binding Effect. The provisions of this Security Agreement shall
be binding upon the heirs, personal representatives, successors and assigns of
Debtor and the rights, powers and remedies of Secured Party hereunder shall
inure to the benefit of the successors and assigns of Secured Party.
12. Governing Law. This Security Agreement shall be governed by the
laws of the State of Texas and applicable federal law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE TO FOLLOW]
EXECUTED as of the date first written above.
DEBTOR:
XXXXXX PETROLEUM, INC.,
a Tennessee corporation
By:___________________________
Xxxxx Xxxxxx
Chief Executive Officer
SECURED PARTY:
PROSPECT ENERGY CORPORATION,
a Maryland corporation
By:_______________________________
Xxxxx X. Xxxxxx
Principal
