GUARANTEE AGREEMENT

Exhibit 10.3

MICROGY HOLDINGS, LLC

and the

SUBSIDIARY GUARANTORS

named herein

as guarantors

GULF COAST INDUSTRIAL DEVELOPMENT AUTHORITY

ENVIRONMENTAL FACILITIES REVENUE BONDS

(Microgy Holdings Project)

Series 2006

and Other Guaranteed Obligations

 

GUARANTEE AGREEMENT

Dated as of October 1, 2006

 

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Trustee

TABLE OF CONTENTS

 

 

i

 

ii

EXHIBITS

Exhibit A Form of Supplemental Guarantee Agreement

 

iii

GUARANTEE AGREEMENT dated as of October 1, 2006, by and among Microgy Holdings, LLC, a Delaware limited liability company (the “ Company ”), the Subsidiary Guarantors (as defined herein) and Wells Fargo Bank, National Association, as trustee (the “ Trustee ”), under the Indenture (as defined herein).

The Company, the Subsidiary Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined herein) of the Guaranteed Obligations (as defined herein), which, on the date hereof consist of the Gulf Coast Industrial Development Authority’s (“ GCIDA ”) Environmental Facilities Revenue Bonds (Microgy Holdings Project), Series 2006, in the original aggregate principal amount of $60,000,000 (the “ Bonds ”):

ARTICLE 1.

DEFINITIONS

Section 1.01 Definitions.

“ Acquired Debt ” means, with respect to any specified Person:

(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary Guarantor of, such specified Person; and

(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

“ Act of Guaranteed Debtholders ” means, as to any matter, a direction in writing delivered to the Collateral Trustee by or with the written consent of the Required Guaranteed Debtholders.

“ Affiliate ” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.

“ Asset Percentage ” means with respect to any specified Person as of any date, 5% of the Tangible Assets of such Person as of the end of the most recent fiscal quarter.

“ Asset Sale ” means:

(1) the sale, lease, conveyance or other disposition of any assets; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiary Guarantors taken as a whole or of a Subsidiary Guarantor shall be governed by the provisions of Section 4.01; and

 

1

(2) the issuance of Equity Interests in any of the Subsidiary Guarantors.

Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:

(3) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than 5% of Tangible Assets of the Company;

(4) a transfer of assets between or among the Company and the Subsidiary Guarantors;

(5) an issuance of Equity Interests by a Subsidiary Guarantor to the Company or to a Subsidiary Guarantor;

(6) the sale or lease of products (including environmental attributes) or services in the ordinary course of business and any sale or other disposition of damaged, worn out or obsolete assets or assets no longer used or useful in the Company’s or any Subsidiary Guarantor’s business;

(7) the sale or other disposition of cash or Cash Equivalents;

(8) a Permitted Investment;

(9) a disposition resulting from any condemnation or other taking, or temporary or permanent requisition of, any property, any interest therein or right appurtenant thereto, or any change of grade affecting any property, in each case, as the result of the exercise of any right of condemnation or eminent domain, including any sale or other transfer to a Governmental Authority in lieu of, or in anticipation of, any of the foregoing events;

(10) a disposition of assets (other than any assets securing this Guarantee Agreement) in connection with a foreclosure, transfer or deed in lieu of foreclosure or other exercise of remedial action; and

(11) a disposition of a contract relating to any Hedging Obligation or any collateral delivered under a Hedging Obligation.

“ Attributable Debt ” in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however , that if such sale and

 

2

leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of “Capital Lease Obligation.”

“ Bankruptcy Law ” means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.

“ Board of Directors ” means:

(12) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;

(13) with respect to a partnership, the Board of Directors of each general partner of the partnership;

(14) with respect to a limited liability company, the managing member or members or any controlling committee of managing members or Board of Directors thereof; and

(15) with respect to any other Person, the board or committee of such Person serving a similar function.

“ Business Day ” means any day other than a Legal Holiday.

“ Capital Lease Obligation ” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.

“ Capital Stock ” means:

(16) in the case of a corporation, corporate stock;

(17) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

(18) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and

(19) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

 

3

“ Cash Collateral Fund ” means a deposit account at all times under the sole dominion and control of the Collateral Trustee (acting on its own or through its agent, sub-agent, or co-trustee) that is being held by the Collateral Trustee or such agent, sub-agent or co-trustee for the benefit of the Holders of the Bonds.

“ Cash Equivalents ” means:

(20) United States dollars;

(21) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government ( provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition;

(22) deposit accounts with any bank that has a long-term debt rating at the time of investment of A+ or better by S&P and A1 or better by Moody’s (an “Approved Bank”);

(23) time deposits, certificates of deposit, acceptances or prime commercial paper issued by an Approved Bank at the time acquired or issued (as applicable and whichever is latest), in each case, having a maturity of not more than one year from the date of acquisition;

(24) repurchase obligations for underlying securities of the types described in clause (2) entered into with an Approved Bank at the time acquired, issued or entered into (as applicable and whichever is latest), in each case, having a maturity of not more than one year from the date of acquisition and secured by securities of the type described in clause (2), the market value of which (including accrued interest) is not less than the amount of the applicable repurchase agreement;

(25) commercial paper with a rating at the time of investment of A-1 by S&P and P-1 by Moody’s and, in each case, maturing within one year after the date of acquisition; and

(26) money market funds which invest primarily in Cash Equivalents of the kinds described in clauses (1) through (6) of this definition.

“ Collateral ” means the Collateral described in Section 8.02.

“ Collateral Trust Agreement ” means the Collateral Trust Agreement dated November 1, 2006, executed and delivered by the Company, the Subsidiary Guarantors and the Collateral Trustee, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time in accordance with its terms.

 

4

“C ollateral Trustee ” means Wells Fargo Bank, National Association or one of its affiliates, in its capacity as Collateral Trustee under the Collateral Trust Agreement, together with its successors in such capacity.

“ Commercial Operation ” means, when used with respect to a Facility, the placing into service of such Facility for the production of the outputs for which it was designed at its design capacity.

“ Company ” means Microgy Holdings, LLC, and any and all successors thereto.

“ Consolidated Cash Flow ” means, for any period, the Consolidated Net Income of the Company for such period, without duplication:

(27) plus depreciation, depletion, amortization (including amortization of intangibles) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period) of the Company and its Subsidiary Guarantors for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income;

(28) less any non-cash items of income to the extent such non-cash items of income were included in computing such Consolidated Net Income;

(29) plus cash received during such period related to mark-to-market activities;

(30) less cash paid during such period related to mark-to-market activities;

(5) less cash paid during such period into the Major Maintenance Fund.

provided, however , that for purposes of this definition, any mark-to-market earnings or losses shall be excluded from the calculation of Consolidated Cash Flow to the extent taken into account in calculating Consolidated Net Income for such period.

“ Consolidated Net Income ” means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiary Guarantors for such period, on a consolidated basis, determined in accordance with GAAP; provided that:

(31) the Net Income of any Person that is not a Subsidiary Guarantor or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or similar distributions (including pursuant to other intercompany payments) paid in cash to the specified Person;

(32) the cumulative effect of a change in accounting principles shall be excluded; and

 

5

(33) any non-cash impairment charges incurred subsequent to the Issue Date shall be excluded.

“ Consolidated Net Worth ” means, with respect to any specified Person as of any date, the assets of such Person less the liabilities of such Person all as determined on a consolidated basis in accordance with GAAP.

“ Corporate Trust Office of the Trustee ” means the office of the Trustee at which at any particular time the trust created by the Indenture shall be principally administered (which address at the date of this Guarantee Agreement is as set forth in Section 11.01.

“ Default ” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

“ Default Period ” means a period that commences on the date a Notice of Default is delivered to the Collateral Trustee and continues until the date (if ever) on which all Notices of Default are withdrawn or deemed withdrawn under the Collateral Trust Agreement.

“ Description of the Guarantee ” means the section titled “The Guarantee” in the Limited Offering Memorandum, dated November 7, 2006, related to the issuance and sale of the Bonds.

“ Disqualified Stock ” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the latest date on which any Indebtedness guaranteed hereby matures. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Guarantee Agreement shall be equal to the maximum amount that the Company and its Subsidiary Guarantors may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.

“ Environmental Claim ” means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Material or any actual or alleged Hazardous Materials Activity; or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment.

“ Environmental Laws ” means any and all current or future foreign or domestic, federal or state (or any subdivision of either of them), statutes, ordinances, orders, rules, regulations, judgments or any other requirements of Governmental Authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity; (ii) the generation, use, storage, transportation or disposal of Hazardous Materials; or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to the Company or any of its Subsidiary Guarantors or any Facility.

 

6

“ Equally and Ratably ” means, after allowing for the payment priorities in the Order of Application, that such Liens or proceeds shall be allocated and distributed to the Trustee for account of the holders of the Bonds and to the Secured Debt Representative for any other Guaranteed Obligations for account of the Holders of such Guaranteed Obligations, ratably in proportion to the principal, interest and premium (if any) outstanding, when the allocation or distribution is made, on the Bonds and all other Guaranteed Obligations (allocated proportionately to the Secured Debt Representatives for other Guaranteed Obligations if there is more than one), respectively.

For this purpose, all amounts apportioned and distributed to the Trustee or the Secured Debt Representative for any other Guaranteed Obligations may be allocated, apportioned and distributed by it in accordance with the applicable provisions of the indentures, guarantee agreements or other agreement governing such Bonds and other Guaranteed Obligations, including to give effect to any payment priorities provided for therein as among the Holders.

“ Equity Interests ” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Facility ” means any real property (including all buildings, fixtures or other improvements located thereon) now or hereafter owned or leased by the Company or any of its Subsidiary Guarantors.

“ Fair Market Value ” means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the chief financial officer or Board of Directors of the Company (unless otherwise provided in this Guarantee Agreement).

“Fixed Charge Coverage Ratio” means for any period, the ratio of the Consolidated Net Income without taking into account any unrealized gain or loss on mark-to-market hedging activities, plus depreciation plus interest expense plus income taxes of the Company and its Subsidiary Guarantors for such period to the interest expense plus the principal payments related to the Guaranteed Obligations.

“ GAAP ” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time.

“ Governmental Authority ” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government.

 

7

“ Government Securities ” means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit.

“g uarantee ” means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).

“ Guarantee ” means the guarantee of the Guaranteed Obligations by the Company and the Subsidiary Guarantors.

“ Guaranteed Obligations ” means:

(34) Bonds; and

(35) Obligations that are designated by the Company, in an Officer’s Certificate delivered to the Collateral Trustee, as Guaranteed Obligations hereunder, entitled to share Equally and Ratably in this Guarantee and the benefits and proceeds of all Liens held by the Collateral Trustee in the Collateral.

“ Hazardous Materials ” means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment.

“ Hazardous Materials Activity ” means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, release, threatened release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing.

“ Hedging Obligations ” means the net obligations of the Company or any Subsidiary Guarantor under:

(36) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;

(37) other agreements or arrangements designed to manage interest rate risk; and

(38) other agreements or arrangements designed to protect the Company or any Subsidiary Guarantor against fluctuations in currency

 

8

exchange rates or fluctuations in the prices of commodities which are inputs to or products of the Facilities, including without limitation any Gas Price Protection Arrangements.

“ Holder ” means a Person in whose name a Guaranteed Obligation is registered.

“ Indebtedness ” means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses or trade payables), whether or not contingent (without duplication):

(39) in respect of borrowed money;

(40) evidenced by bonds, debentures or similar instruments or letters of credit or reimbursement agreements in respect thereof or guarantees thereof;

(41) in respect of banker’s acceptances;

(42) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions;

(43) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or

(44) representing or entered into in connection with any Hedging Obligations,

if and to the extent any of the preceding items (other than guarantees, letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the guarantee by the specified Person of any Indebtedness of any other Person.

The amount of any Indebtedness outstanding as of any date will be:

(45) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;

(46) the principal amount of and premium (if any) on the Indebtedness, in the case of any other Indebtedness; and

(47) in respect of Indebtedness of other Persons secured by a Lien on the assets of the specified Person, the lesser of:

(a) the Fair Market Value of such asset at such date of determination, and

 

9

(b) the amount of such Indebtedness of such other Persons.

“ Indemnified Liabilities ” means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on Environmental Laws, on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of the Company or any of its Subsidiary Guarantors.

“ Indenture ” means, with respect to the Bonds, the Trust Indenture between the GCIDA and the Trustee, dated October 1, 2006, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and, with respect to any other Guaranteed Obligations, the indenture or similar instrument under which such Guaranteed Obligations are issued.

“ Investment Grade Rating ” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s or BBB- (or the equivalent) by S&P or BBB or higher by Fitch Ratings.

“ Investments ” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including guarantees or similar obligations), advances or capital contributions (excluding payroll, commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. “Investment” shall exclude extensions of trade credit by the Company and its Subsidiary Guarantors in the ordinary course of business and Guaranteed Obligations. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company’s Investments in such Subsidiary that were not sold or disposed of. The acquisition by the Company or any Subsidiary of the Company of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company or such Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person. Except as otherwise provided in this Guarantee Agreement, the amount of an Investment shall be its Fair Market Value at the time the Investment is made and without giving effect to subsequent changes in value.

 

10

“ Issue Date ” means November 9, 2006.

“ Legal Holiday ” means a Saturday, a Sunday or legal holiday or a day on which banking institutions in the City of New York, or in the cities in which the Principal Offices of the Trustee or Paying Agent are located are required or authorized by law, or executive order to close or (ii) a day on which the New York Stock Exchange is closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period.

“ Lien ” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement and any lease that constitutes a security interest.

“ Loan Agreement ” means the Loan Agreement between the Company and GCIDA relating to the Bonds, dated as of October 1, 2006, as the same may be amended, modified, restated, renewed, extended, refinanced, or replaced, in whole or in part.

“ Major Maintenance Fund” means the fund by that name established under the Collateral Trust Agreement.

“ Moody’s ” means Moody’s Investors Service, Inc.

“ Net Income ” means the net income (loss) of the Company, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:

(48) any gain (or loss), together with any related provision for taxes on such gain (or loss), realized in connection with:

(a) any Asset Sale;

(b) the disposition of any securities by the Company or any of its Subsidiary Guarantors or the extinguishment of any Indebtedness of the Company or any of its Subsidiary Guarantors; and

(49) any extraordinary gain (or loss), together with any related provision for taxes on such extraordinary gain (or loss).

“ Net Proceeds ” means the aggregate cash proceeds received by the Company or any of its Subsidiary Guarantors in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts reserved for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP.

 

11

“ Notice of Default ” means a written notice given to the Collateral Trustee by the Required Guaranteed Debtholders or any Secured Debt Representative, stating that a Default has occurred and is continuing.

“ Obligations ” means any principal, interest, premium, fees, indemnifications, reimbursements, expenses, damages and other liabilities payable under the documentation governing any Indebtedness.

“ Officer ” means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, Assistant Secretary, or any Vice-President of such Person.

“ Officer’s Certificate ” means a certificate signed on behalf of the Company by an Officer of the Company, who must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 11.03 hereof.

“ Opinion of Counsel ” means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 11.03 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee.

“ Order of Application ” has the meaning assigned to it in the Collateral Trust Agreement.

“ Permitted Business ” means the business of recycling solid waste for the production of gas, energy and potentially tradeable environmental attributes such as renewable energy credits and carbon sequestration credits and providing related services and products in the energy market and any businesses incidental or reasonably related thereto, and such other business as would not be material to the Company and the Subsidiary Guarantors taken as a whole.

“ Permitted Investments ” means:

(50) any Investment in the Company or in a Subsidiary Guarantor;

(51) any Investment in Cash Equivalents;

(52) any Investment by the Company or any Subsidiary Guarantor in a Person, if as a result of such Investment:

(a) such Person becomes a Subsidiary Guarantor; or

(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Subsidiary Guarantor;

 

12

(53) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale;

(54) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company;

(55) any Investments received in compromise or resolution of (A) Obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Subsidiary Guarantors, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates;

(56) Investments represented by or entered into in connection with Hedging Obligations;

(57) any Investment acquired by the Company or any of its Subsidiary Guarantors on account of any claim against, or interest in, any other Person (A) acquired in good faith in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of such other Person or (B) as a result of a bona fide foreclosure by the Company or any of its Subsidiary Guarantors with respect to any claim against any other Person;

(58) repurchases of the Bonds or pari passu Indebtedness;

(59) any Investments in the Debt Service Reserve Fund and the Cash Collateral Fund;

(60) payment of consolidated taxes pursuant to the Tax Sharing Agreement among the Company and its Subsidiaries named therein, as amended, supplemented or modified from time to time and any other tax allocation agreements among the Company and its Subsidiaries;

(61) receivables owing to the Company or a Subsidiary Guarantor, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however , that such trade terms may include such concessionary trade terms as the Company or such Subsidiary Guarantor deems reasonable under the circumstances; and

(62) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (13) that are at the time outstanding not in excess of the Asset Percentage.

 

13

“ Permitted Liens ” means:

(63) Liens held by the Collateral Trustee Equally and Ratably securing all Indebtedness in respect of Guaranteed Obligations;

(64) Liens on assets of a Subsidiary Guarantor in existence on the date on which such Person becomes a Subsidiary Guarantor;

(65) Liens securing obligations under sale leaseback transactions permitted by the provisions of Section 3.13 hereof;

(66) Liens in favor of the Company or the Subsidiary Guarantors;

(67) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;

(68) Liens imposed by law, such as carriers’, warehousemen’s, landlord’s and mechanics’ Liens, in each case, incurred in the ordinary course of business;

(69) survey exceptions, encumbrances, easements or reservations, including those for licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines, other utilities, mineral reservations and rights and leases, zoning restrictions and other restrictions as to the use of real property or other exceptions to title that were not incurred in connection with Indebtedness and that (A) exist on the Issue Date and are recorded on such date, (B) are permitted under the terms of the security documents or (C) do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of the Company or a Subsidiary Guarantor;

(70) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under this Guarantee Agreement if such Permitted Refinancing Indebtedness is incurred by the same obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded (except as provided in clause (4) of the definition of Permitted Refinancing Indebtedness); provided, however, that:

(a) the new Lien shall be limited to all or part of the same categories of property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof);

(b) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (i) the outstanding principal amount or, if greater, committed amount of the Permitted Refinancing Indebtedness and (ii) an amount

 

14

necessary to pay any fees and expenses, including premiums, related to such refinancings, refunding, extension, renewal or replacement and (iii) any protective advances with respect to the property and assets that secure such Permitted Refinancing Indebtedness;

(71) financing statements (including precautionary statements) filed in connection with a Capital Lease Obligation or an operating lease, in each case, not prohibited hereunder; provided that no such financing statement extends to, covers or refers to as collateral, any property or assets of the Company or a Subsidiary Guarantor, other than the property or assets which are subject to such Capital Lease Obligation or such operating lease;

(72) Liens arising out of or in connection with any judgment that does not constitute an Event of Default or in connection with any litigation or other legal proceeding as to which an appeal to contest or review is timely commenced in good faith by appropriate proceedings and as to which adequate reserves have been established in accordance with GAAP; provided that any right to levy, seizure, attachment, sequestration, foreclosure or garnishment of any property and assets of the Company or a Subsidiary Guarantor thereof arising out of or in connection with any such Lien has been and continues to be enjoined or effectively stayed;

(73) inchoate statutory Liens arising under ERISA;

(74) Liens (A) on cash and short-term investments (i) deposited by the Company or any of its Subsidiaries in margin accounts with or on behalf of futures contract brokers or paid over to other counterparties or (ii) pledged or deposited as collateral to a contract counterparty or issuer of surety bonds by the Company or any of its Subsidiaries, in the case of clause (i) or (ii), to secure obligations with respect to (a) contracts for commercial and trading activities in the ordinary course of business and contracts (including without limitation, physical delivery, option (whether cash or financial), exchange, swap and futures contracts) for the purchase, transmission, distribution, sale, lease or hedge of any energy-related commodity or service or (b) interest rate, commodity price, or currency rate management contracts or derivatives and (B) encumbering assets other than accounts or receivables arising out of contracts or agreements relating to the generation, distribution or transmission of energy; provided that all such agreements or contracts are entered into in the ordinary course of business;

(75) Liens arising by virtue of any statutory or common law provision relating to banker’s liens, rights of set off or similar rights, contractual rights of setoff or netting arrangements entered into in the ordinary course of business and similar rights with respect to deposit accounts, commodity accounts and/or securities accounts;

 

15

(76) Liens arising under Section 9.343 of the Texas Uniform Commercial Code or similar statutes of states other than Texas;

(77) pledges and deposits to secure the payment of worker’s compensation, unemployment insurance, social security benefits or obligations under similar laws, or to secure the payment or performance of statutory or public obligations (including environmental, municipal and public utility commission obligations and requirements), reimbursement or indemnity obligations arising out of surety, performance, or other similar bonds, and other obligations of a like nature, in each case incurred in the ordinary course of business;

(78) Liens granted by a Person in favor of a commercial trading counterparty pursuant to a netting agreement, which Liens encumber rights under agreements that are subject to such netting agreement and which Liens secure such Person’s obligations to such counterparty under such netting agreement; provided, that any such agreements and netting agreements are entered into in the ordinary course of business; and provided, further, that the Liens are incurred in the ordinary course of business and when granted, do not secure obligations which are past due;

(79) Liens on proceeds from the issuance of Guaranteed Obligations and Liens on Indebtedness of the Company held by a trustee securing the Guaranteed Obligations;

(80) Liens created in connection with the indemnity and contribution obligations in favor of underwriters or Bond purchasers in connection with the Bonds;

(81) Liens incurred in the ordinary course of business of the Company or any Subsidiary Guarantor of the Company securing obligations that in the aggregate at any one time outstanding do not exceed the Asset Percentage;

(82) Liens securing any working capital line of credit required by Section 3.19 hereof; and

(83) Liens granted in support of any Hedging Obligations.

“ Permitted Prior Liens ” means (1) Liens described in clauses (2), (3), (4), (5), (6), (7), (9), (12), (13), (14), (15), (18) and (20) of the definition of “Permitted Liens,” (2) Liens refinancing or replacing any of the Liens contemplated in clause (1) of this definition and (3) Liens that arise by operation of law and are not voluntarily granted, to the extent entitled by law to priority over the security interests created by the security documents.

“ Permitted Refinancing Indebtedness ” means any Indebtedness of the Company or any of its Subsidiary Guarantors issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiary Guarantors (other than intercompany Indebtedness); provided that:

 

16

(84) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses, costs and fees and premiums incurred in connection therewith);

(85) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;

(86) such Indebtedness is incurred either by the Company or by the Subsidiary Guarantor who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and

(87) if incurred by the Company, such Indebtedness may be guaranteed by the Subsidiary Guarantors.

“ Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

“ Required Guaranteed Debtholders ” means, at any time, the Holders of a majority in aggregate principal amount of all Guaranteed Obligations then outstanding, voting together as a single class. For this purpose only, Guaranteed Obligations registered in the name of, or beneficially owned by, the Company or any of its Subsidiaries shall be deemed not to be outstanding.

“ Responsible Officer, ” when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

“ SEC ” means the Securities and Exchange Commission.

“ Secured Debt Representative ” means:

(88) in the case of the Bonds, the Trustee;

(89) in the case of any other Guaranteed Obligations, the trustee, agent or representative of the Holders of such Guaranteed Obligations who maintains, or on whose behalf is maintained, the transfer register for or who acts as administrative agent for such Guaranteed Obligations and is appointed as Secured Debt Representative (for purposes related to the administration of the security documents) pursuant to the indenture or agreement governing such Guaranteed Obligations.

 

17

“s ecurity documents ” means the Collateral Trust Agreement, and all security agreements, pledge agreements, control agreements, collateral assignments, mortgages, deed of trust or other grants or transfers for security or agreements related thereto executed and delivered by the Company or any Subsidiary Guarantor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Trustee to secure this Guarantee Agreement, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.

“ S&P ” means Standard & Poor’s Ratings Services.

“ Stated Maturity ” means, with respect to any installment of interest or principal on Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Issue Date, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.

“ Subsidiary ” means, with respect to any specified Person:

(90) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and

(91) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).

“ Subsidiary Guarantors ” means each of:

(92) the Subsidiary entities signatory hereto; and

(93) any other Subsidiary of the Company that executes a supplement to this Guarantee Agreement in accordance with the provisions of this Guarantee Agreement,

and their respective successors and assigns.

“ Tangible Assets ” means as of any date with respect to a Subsidiary Guarantor the tangible assets of that Subsidiary Guarantor, and with respect to the Company, the combined tangible assets of the Company and the Subsidiary Guarantors, in each case as determined in accordance with GAAP.

 

18

“ Trustee ” means, with respect to the Bonds, the party named as such in the preamble to this Guarantee Agreement until a successor replaces it in accordance with the applicable provisions of the Indenture and thereafter means the successor serving thereunder and hereunder and, with respect to any other Guaranteed Obligations, the Person acting in a similar capacity under the Indenture relating to such Guaranteed Obligations.

“ Weighted Average Life to Maturity ” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:

(94) the sum of the products obtained by multiplying (A) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (B) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by

(95) the then outstanding principal amount of such Indebtedness.

Section 1.02 Other Definitions.

 

Section 1.03 Rules of Construction.

Unless the context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

(3) “or” is not exclusive;

(4) words in the singular include the plural, and in the plural include the singular;

(5) “will” shall be interpreted to express a command;

(6) provisions apply to successive events and transactions;

 

19

(7) references to sections of or rules under the Exchange Act will be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time.

ARTICLE 2.

COMPANY GUARANTEE

Section 2.01 Guarantee.

(a) Subject to this Article 2, the Company hereby unconditionally guarantees to each Holder of a Bond and any other Guaranteed Obligation and to the Trustee and its successors and assigns, and any Person in a similar capacity with respect to any other Guaranteed Obligation irrespective of the validity and enforceability of this Guarantee Agreement, the Indenture, the Bonds or any other Guaranteed Obligation or the obligations of the Company hereunder or thereunder, that:

(1) the principal and premium and interest on the Bonds and all other Guaranteed Obligations shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Bonds and all other Guaranteed Obligations, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and

(2) in case of any extension of time of payment or renewal of any Bonds or any of such other obligations, that same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.

Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Company will be obligated to pay the same immediately. The Company agrees that this is a guarantee of payment and not a guarantee of collection.

(b) The Company hereby agrees that its obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of the Bonds or any other Guaranteed Obligations, the Indenture or this Guarantee Agreement, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. The Company hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy, any right to require a proceeding first against a Subsidiary Guarantor, protest, notice and all demands whatsoever and covenant that this Guarantee Agreement will not be discharged except by complete performance of the obligations contained in the Bonds, any other Guaranteed Obligations, the Indenture and this Guarantee Agreement. Notwithstanding the foregoing, nothing in this Agreement shall be construed as a waiver by the Company or any Subsidiary Guarantor of any right to enforce the obligations of the Trustee or the Issuer arising under this Agreement, the Loan Agreement, the Indenture, the Collateral Trust Agreement or any other agreement related thereto.

 

20

(c) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Subsidiary Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Subsidiary Guarantors, any amount paid by either to the Trustee or such Holder, this Guarantee Agreement, to the extent theretofore discharged, shall be reinstated in full force and effect.

(d) The Company agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. The Company further agrees that, as between the Company, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in the Indenture for the purposes of this Guarantee Agreement, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in the Indenture, such obligations (whether or not due and payable) will forthwith become due and payable by the Company for the purpose of this Guarantee Agreement. The Company will have the right to seek contribution from any non-paying Subsidiary Guarantor so long as the exercise of such right does not impair the rights of the Holders under this Guarantee.

Section 2.02 Execution and Delivery of Guarantee Agreement.

To evidence its Guarantee set forth in Section 2.01, the Company hereby agrees that this Guarantee Agreement shall be executed on behalf of the Company by one of its Officers.

Section 2.03 Releases.

(a) This Guarantee of the Company shall be released with respect to the Guaranteed Obligations automatically upon satisfaction and discharge or defeasance of the Bonds pursuant to the Indenture.

(b) Upon delivery by the Company to the Trustee of an Officer’s Certificate and an Opinion of Counsel to the effect that the action or event giving rise to the release of this Guarantee pursuant to Section 2.03(a) has occurred or was made by the Company in accordance with the provisions of this Guarantee Agreement, the Trustee shall execute any documents reasonably required in order to evidence the release of the Company from its obligations under this Guarantee.

ARTICLE 3.

COVENANTS

Section 3.01 Reports and Financial Information.

So long as any Bonds are outstanding, the Company shall comply with its Continuing Disclosure Agreement.

 

21

Section 3.02 Compliance Certificate.

(a) The Company and each Subsidiary Guarantor shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officer’s Certificate stating that a review of the activi