MORTGAGE AND SECURITY AGREEMENT

 

 

THIS MORTGAGE AND SECURITY AGREEMENT (“Mortgage”) is made on September 28, 2007, between DIRT MOTOR SPORTS, INC., with an address of 7575 West Winds Boulevard, Suite D, Concord, North Carolina 28027 (the “Mortgagor”) and NORTH SOUND LEGACY INTERNATIONAL, LTD, NORTH SOUND LEGACY INSTITUTIONAL FUND LLC, VICIS CAPITAL MASTER FUND, L.P., C.E. UNTERBERG, TOWBIN CAPITAL PARTNERS I, L.P., BASSO FUND LTD, BASSO MULTI-STRATEGY HOLDING FUND LTD., ROCKMORE INVESTMENT MASTER FUND LTD., TRELLUS PARTNERS, LP, TRELLUS PARTNERS II, LP, TRELLUS OFFSHORE FUND LIMITED, TRELLUS SMALL CAP OPPORTUNITY FUND, LP, TRELLUS SMALL CAP OPPORTUNITY OFFSHORE FUND LIMITED, and IROQUOIS MASTER FUND LTD, with an address of c/o Burnham Hill Partners, 590 Madison Avenue, 5 ^th Floor, New York, NY 10022 (collectively, the “Mortgagee”).

 

WHEREAS, Mortgagor has borrowed certain funds from the Mortgagee pursuant to the Note Purchase Agreement dated as of the date hereof (the “Note Purchase Agreement”; capitalized terms used herein and not defined herein have the meanings set forth in the Note Purchase Agreement) as evidenced by the Notes in the aggregate principal sum of up to FIFTEEN MILLION DOLLARS ($15,000,000) (collectively, the “Loan”) upon such terms and conditions as therein provided;

 

WHEREAS, Mortgagor and Mortgagee agree and acknowledge that the total value of the Mortgaged Property (as hereinafter defined) is equal to THREE MILLION ONE HUNDRED THOUSAND DOLLARS ($3,100,000) and that the amount secured by this Mortgage is hereby limited to said amount.

 

The Mortgagor has agreed to enter into this mortgage (the “Mortgage”) to grant to Mortgagee a mortgage lien on and security interest in and to the Mortgaged Property (as hereinafter defined) as security for the payment and performance of all Obligations (as hereinafter defined) of the Mortgagor to the Mortgagee hereunder and under the Note Purchase Agreement, the Notes and the other Transaction Documents (collectively, the “Loan Documents”), and intending to be legally bound, Mortgagor does hereby grant, sell, bargain, mortgage, assign, transfer, pledge and convey to the Mortgagee, and does hereby grant a security interest (the “Security Interest”) to the Mortgagee in Mortgagor's right, title, and interest in and to the following described property, whether now owned or hereafter acquired (collectively, the “Mortgaged Property”):

 

a.           all of the tract or parcel of land and premises known described in Exhibit “A” attached hereto and made a part of hereof ;

 

b.           all improvements, material, property rights and interests including but not limited to:

 

i.           all buildings and other improvements now or hereafter located on the Mortgaged Property (the “Improvements”);

 

 

 

ii.           all streets, lanes, alleys, passages, ways, water courses, easements and appurtenances whatsoever thereunto belonging in or in any way made appurtenant hereafter, and the reversions and remainder, with respect thereto;

 

 

iv.           all building materials, building machinery and building equipment delivered on site to the Mortgaged Property during the course of, or in connection with, the construction of, or reconstruction of, or remodeling of any building and improvements from time to time during the term of this Mortgage;

 

v.           all awards or payments, including interest thereon, which may be made with respect to the Mortgaged Property, whether from the exercise of the right of eminent domain (including any transfer made in lieu of the exercise of said right), or for any other injury to or decrease in the value of the Mortgaged Property, including without limitation, all awards or payments of estimated compensation, all damages to the Premises or Improvements resulting from any taking, all machinery and equipment dislocation  expenses, all settlement amounts and apportionment of taxes;

 

vi.           all insurance policies covering the Mortgaged Property and all proceeds of any unearned premiums on any such insurance policies including, without limitation, the right to receive and apply the proceeds of any insurance judgments, or settlements made in lieu thereof, for damage to the Mortgaged Property;

 

vii.           all future leases and other agreements affecting the use and occupancy of the Mortgaged Property now or hereafter entered into, and all licenses, permits and agreements with or from all boards, public utilities, agencies, departments, governmental or otherwise, relating to or affecting the Mortgaged Property or the use and occupancy thereof, whether heretofore or hereafter issued or executed;

 

viii.           all income, rents, issues, profits, revenues, royalties, proceeds, credits, deposits and options arising out of, under or relating to the use and operation of the Mortgaged Property and all leases, chattels real, subleases, subtenancies, occupancy agreements, licenses or concessions affecting the Mortgaged Property, including, without limitation, the right, power and authority given to and conferred upon Mortgagor under any assignment of leases to collect and apply such income, rents, issues, profits and proceeds;

 

 

ix.           all general intangibles arising from, used or held in connection with, or relating to the Mortgaged Property or the ownership, use, occupancy, enjoyment, operation, management, development or improvement thereof, including, without limitation, all governmental permits relating to construction, all subdivision maps and applications therefor, all subdivision public reports and applications therefor, all architectural and engineering drawings, plans and specifications, soil tests, feasibility studies, engineering reports, environmental, building and other permits, certificates of occupancy, construction, management and other contracts, franchises, licenses and all names under or by which the Mortgaged Property or any present or future improvements on the Mortgaged Property may at any time be operated or known, and all rights to carry on business under any such names, or any variant thereof, and all trademarks and goodwill in any way relating to the Mortgaged Property.

 

 

TOGETHER WITH all substitutions therefore, all additions (including without limitation all cash and dividends and other distributions and all rights, privileges and options relating to, declared or granted in connection with property) and all proceeds thereof and products of each of the foregoing in any form whatsoever.

 

 

 

HABENDUM CLAUSE

 

TO HAVE AND TO HOLD all of the Mortgaged Property unto Mortgagee and its successors and assigns, forever, upon the terms and conditions herein set forth.

 

AND IT IS AGREED AND UNDERSTOOD that until an Event of Default, (as such term is defined herein), shall have occurred and the Required Mortgagees (as hereinafter defined) have elected to foreclose as detailed herein, Mortgagor may retain possession of the Mortgaged Property.

 

COVENANTS, REPRESENTATIONS AND WARRANTIES

 

IT IS HEREBY COVENANTED by the parties hereto that the Mortgaged Property is to be held and applied subject to the further terms herein set forth; and Mortgagor, for itself and its successors and assigns, hereby covenants, agrees, represents and warrants with and to Mortgagee as follows:

 

 

1.            Title to Mortgaged Property .  Mortgagor represents, warrants, covenants and agrees Mortgagor shall at all times remain the legal and beneficial owner of good and marketable indefeasible title in fee simple absolute to all of the Mortgaged Property.; Mortgagor has full power and authority to grant the Mortgaged Property as provided in this Mortgage and will forever warrant and defend its grant made herein against any and all claims and demands whatsoever, except as specifically provided in this Mortgage.

 

2.            Definition of Obligations .  This Mortgage secures the payment and performance of the following indebtedness, liabilities and obligations (collectively referred to herein as the “Obligations”):

 

a.           the Obligations of the Mortgagor set forth in the Note Purchase Agreement, the Notes and the other Transaction Documents; and

 

b.           all other sums due or to become due under the Notes and this Mortgage including all extensions, renewals, modifications or reamortizations of the debt evidenced by the Notes, all increases or additions to such debt, and all other debts, obligations and liabilities of every kind and character of  Mortgagor now or hereafter existing in favor of Mortgagee whether such debts, obligations or liabilities be direct or indirect, primary or secondary, joint or several, fixed or contingent, and whether originally payable to Mortgagee or to a third party and subsequently acquired by Mortgagee.

 

 

 

3.            Responsibility and Preservation of Mortgaged Property; Compliance with Laws.   Mortgagor assumes all liability and responsibility in connection with all Mortgaged Property acquired by Mortgagor and the obligation of Mortgagor to pay all Obligations shall in no way be affected or diminished by reason of the fact that any such Mortgaged Property may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to Mortgagor.  Mortgagor shall keep the Mortgaged Property protected and in good order, condition and repair at all times and shall not: (a) commit, permit or suffer any waste, damage, disfigurement or injury to or upon the Mortgaged Property or any portion thereof; or (b) demolish, destroy, or remove any buildings, fixtures, structures or improvements thereafter erected on or annexed or affixed to the Mortgaged Property.   Mortgagor further agrees and covenants to comply with and perform at its own expense any and all present or future, ordinary or extraordinary, foreseen or unforeseen laws, regulations, ordinances or requirements concerning the Mortgaged Property or any portion thereof, or the use thereof, or the streets adjacent thereto, of the federal, state or municipal governments, or of any departments, subdivisions, bureaus or offices thereof, or of any governmental, public or quasi-public authorities now created or hereafter created or of the National Board of Fire Underwriters, any local Board of Fire Underwriters, or other body having similar functions, or of any liability, fire or other insurance company having policies outstanding with respect to the Mortgaged Property or any part thereof (including, without limitation, all laws, regulations, ordinances and requirements relating to environmental issues and hazardous substances) (said laws, regulations, ordinances and requirements hereafter collectively referred to as the “Laws”).

 

4.            Taxes .  Mortgagor shall pay, before the same becomes delinquent, all taxes, assessments and charges of every nature (collectively, “Taxes”) and by whomever assessed that may now or hereafter be levied or assessed against, or that by reason of nonpayment may become a lien upon, the Mortgaged Property, or any part thereof, and, if requested by Mortgagee, Mortgagor shall, prior to the date each Tax would become delinquent by reason of nonpayment, submit to Mortgagee official Tax payment receipts or other evidence acceptable to Mortgagee of the due and punctual payment thereof.  Mortgagor shall not claim on demand or be entitled to any credit on account of the Obligations for any part of the taxes paid with respect to the Mortgaged Property or any part thereof and no deduction shall otherwise be made or claimed from the taxable value of the Mortgaged Property, or any part thereof, by reason of this Mortgage.

 

5.            Insurance .  In the event Mortgager shall improve the Mortgaged Property thereby constructing buildings or other improvements thereon, then Mortgagor shall carry adequate insurance against all liability and hazards, including without limitation, fire and casualty insurance for the mortgaged property as are usually carried by entities engage in the same or a similar business situated as Mortgagor.  In the event of a casualty loss, Mortgagor shall utilize the insurance proceeds to rebuild the premises or apply the proceeds to the outstanding mortgaged sums due pursuant to the terms of this mortgage to satisfy any outstanding indebtedness hereunder.  The aforesaid liability insurance shall be in an amount satisfactory to Mortgagee and shall name Mortgagee as an additional insured.

 

6.            Tenant’s Compliance with Laws .  Mortgagor shall cause all future tenants, if any, under any leases to comply, with all Laws affecting the Mortgaged Property.

 

7.            Right to Inspect and Cure .  The Mortgagee shall, upon reasonable advance written notice to Mortgagor, have the right to conduct or have conducted by its agents or contractors, such inspections as the Mortgagee shall deem necessary or advisable from time to time.

 

8.            Estoppel Certificate .                                                      Mortgagor will certify, by a writing duly acknowledged, to Mortgagee or to any proposed assignee of this Mortgage, the amount of principal and interest then owing on the Obligations and whether, to Mortgagor's best knowledge, any offsets or defenses exist against the Obligations, within five (5) days after a request therefor is received by Mortgagor.

 

 

 

9.            Prohibition on Transfers .  Mortgagor shall not at any time (i) sell, assign, transfer, convey, lease with option of sale, or dispose of all or any part of or interest in the Mortgaged Property, or (ii) suffer or permit transfer by operation of law of the Mortgaged Property, or any part thereof or interest therein, without the prior written consent thereto of Mortgagee unless the then remaining balance due under this Mortgage and Notes is satisfied.  In the event that the ownership of the Mortgaged Property or any portion thereof becomes vested in a person other than Mortgagor, Mortgagee may, without notice to Mortgagor, deal with such successor or successors in interest with reference to this Mortgage, and the indebtedness hereby secured, in the same manner as with Mortgagor, without in any way vitiating or discharging Mortgagor's liability hereunder or upon the indebtedness hereby secured.  No sale of the Mortgaged Property shall operate to release, discharge, modify, change or affect the original liability of Mortgagor herein, either in whole or in part.  Any violation of the foregoing limitations shall be deemed an Event of Default hereunder.

 

10.            Reports and Notices .  Mortgagor will furnish Mortgagee with copies of reports and notices pertaining to the Mortgaged Property or any portion thereof, its value or its operations, and which are submitted by Mortgagor to, or received by Mortgagor from, any legally constituted authority having jurisdiction of operations conducted on the Mortgaged Property, including, but without limitation, any licensing agency, or which deal with any imposition, condemnation of all or any portion of the Mortgaged Property or default under any mortgage or security agreement encumbering the Mortgaged Property or any portion thereof.

 

11.            Further Assurances .  Mortgagor will execute, acknowledge and deliver, at Mortgagor's own cost and expense, all such further acts, deeds, conveyances, assignments, notices of assignment, transfers and assurances as Mortgagee shall form time to time reasonably require for the better granting, bargaining, selling, assigning and conveying to Mortgagee of the Mortgaged Property.

 

12.            Authorization to Make Payments .  Mortgagor hereby authorizes Mortgagee or its designee:

 

a.           To pay all taxes or other governmental charges, with all interest costs and charges accruing thereon, which may at any time be or become a lien on the Mortgaged Property, or any portion thereof;

 

b.           To effect any insurance required hereunder and to pay the premiums thereon; provided, however, that none of the above provisions shall be construed as obligatory upon Mortgagee or as making it liable for loss, damage or injury which may result from the non-insurance of the Mortgaged Property, or any portion thereof, or other failure;

 

c.           To incur or pay any claim, lien, encumbrance or other expense in protecting its rights hereunder and the security hereby granted;

 

d.           To do such things as may, in the judgment of Mortgagee, be necessary or advisable in order to perform and observe any present agreement affecting or restricting the use of, or pertaining to, the Mortgaged Property, or any portion thereof, including, without limitation, the making of such repairs and the taking of such steps as Mortgagee deems reasonably necessary to prevent or cure waste and the payment of any reasonable sums and the incurring of reasonable expenses, including attorneys' fees; and

 

e.           To appear or participate in any action or proceeding purporting to affect the security hereof, it being understood that Mortgagee shall have no obligation, expressed or implied, to advance any funds, incur any expense or liability, or take any action authorized by this provision or any other provision of this Mortgage.

 

 

 

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

 

a.           The failure of Mortgagor to make any payments required under the Notes or this Mortgage; or

 

b.           Mortgagor shall fail to perform or observe any other term, covenant, warranty, obligation, provision, representation, or agreement contained in this Mortgage or any other Obligation;

 

c.           Any representation, statement, or warranty made in this Mortgage shall prove to have been false or incorrect in any material respect when made;

 

d.           Mortgagor shall transfer all or a part of the Mortgaged Property in violation of this Mortgage;

 

e.           The holder of any lien shall commence foreclosure proceedings against the Mortgaged Property or any part thereof;

 

f.           Mortgagor shall be insolvent, or shall file a voluntary petition in bankruptcy or a voluntary petition seeking to effect a plan or other arrangement with creditors;

 

g.           Mortgagor shall be adjudicated bankrupt, or shall make an assignment for the benefit of creditors, or shall apply for or consent to the appointment of any receiver or trustee for itself, or for the Mortgaged Property or any part thereof, or for all or any substantial portion of its other property, or a suit shall be instituted against Mortgagor seeking to establish bankruptcy, insolvency, arrangement, debt adjustment, receivership, sequestration, liquidation or attachment of the Mortgagor, or of the Mortgaged Property or any part thereof, or of all or any substantial portion of its other property which is not dismissed within sixty (60) days thereafter;

 

h.           The Mortgaged Property or any part thereof is taken or damaged by eminent domain, alteration on the grade of any street, or other injury to or decrease in the value of the Mortgaged Property, by reason of any public or quasi-public improvement or condemnation proceeding or any other similar manner (“Condemnation”), regarding such condemnation or proposed condemnation;

 

i.           The Mortgaged Property is materially damaged by any fire or casualty not covered by insurance sufficient to provide for the material restoration thereof;

 

j.           The occurrence of an “Event of Default” under any Loan Document.

 

14.            Rights and Remedies on Default.

 

a.            Acceleration .  Upon the occurrence and during the continuance of any Event of Default, in addition to any other rights, powers or remedies conferred herein or by operation of law, the Required Mortgagees, in their sole judgment and discretion, may declare the then unpaid principal balance secured by this Mortgage (the “ Principal Balance ”), the accrued interest thereon and any other accrued but unpaid portion of the Obligations to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by Mortgagor. “Required Mortgagees” means any individual Mortgagee or group of Mortgagees where the sum of the principal amount of the Notes then outstanding held by such Mortgagee or Mortgagees aggregates at least sixty percent (60%) of the total principal amount of all of the Notes then outstanding.

 

 

 

 

b.            Foreclosure and Sale .  If an Event of Default shall occur and be continuing, Mortgagee shall have the right and option to take possession of the Mortgaged Property and/or proceed with foreclosure and to sell, to the extent and in the manner pe