Exhibit 10.7
EQUITY PLEDGE
AGREEMENT
THIS EQUITY PLEDGE AGREEMENT (this
“ Agreement ”) is entered into as of
July 24, 2009 among LV Administrative Services, Inc., as
administrative and collateral agent for the Creditor Parties (as
defined below) (the “ Pledgee ”) and PetroAlgae
Inc., a Delaware corporation (the “ Pledgor
”).
RECITALS
WHEREAS, pursuant to that certain
(i) Second Amended and Restated Secured Term Note dated as of
the date hereof, issued by PA LLC (f/k/a PetroAlgae, LLC), a
Delaware limited liability company (the “ Company
”) to PetroTech Holdings, Corp. (“ PetroTech
” and together with the Pledgee, each a “ Creditor
Party ” and collectively, the “ Creditor
Parties ”) (as further amended, restated, modified and/or
supplemented from time to time, the “ PetroTech Term
Note ”) which combines and amends and restates each of
(a) that certain Amended and Restated Demand Note issued as of
August 25, 2008 (and dated August 21, 2008) by the
Company to PetroTech which further amended and restated that Demand
Note dated August 21, 2008 made by the Company in favor of
PetroTech (as amended, restated, modified and/or supplemented from
time to time), (b) that certain Demand Note dated as of
September 3, 2008 issued by Company to PetroTech (as amended,
restated, modified and/or supplemented from time to time),
(c) that certain Demand Note dated as of September 18,
2008 issued by Company to PetroTech (as amended, restated, modified
and/or supplemented from time to time) and (d) that certain
Demand Note dated as of September 25, 2008 issued by Company
to PetroTech (as amended, restated, modified and/or supplemented
from time to time), (ii) Amended and Restated Secured
Convertible Note dated as of the date hereof issued by the Company
to Petrotech (as further amended, restated, modified and/or
supplemented from time to time, the “ PetroTech
Convertible Note ” and together with the PetroTech Term
Note, the “ PetroTech Notes ”) which combines
and amends and restates each of (a) that certain Convertible
Demand Note dated as of April 24, 2009 issued by Company to
PetroTech (as amended, restated, modified and/or supplemented from
time to time), and (b) that certain Secured Convertible Demand
Note dated as of May 11, 2009 issued by Company to PetroTech
(as amended, restated, modified and/or supplemented from time to
time), (iii) that certain Promissory Note dated June 12,
2008 and effective as of September 22, 2006 issued by the
Company in favor of XL Techgroup, Inc., a Delaware corporation
(“ XLT ”) and assigned in full by XLT to
PetroTech (as amended, restated, modified and/or supplemented from
time to time, the “ Promissory Note ”)
(iv) Amended and Restated Master Security Agreement dated as
of the date hereof by the Company in favor of Agent (as defined
below) (as further amended, restated, modified and/or supplemented
from time to time, the “ PetroTech Master Security
Agreement ”) which amends and restates that certain
Master Security Agreement dated as of August 21, 2008 by the
Company in favor of the Agent on behalf of PetroTech (as amended,
restated, modified and/or supplemented from time to time),
(v) that certain Guaranty dated as of the date hereof by
Pledgor in favor of Pledgee (as amended, restated, modified and/or
supplemented from time to time, the “ Guaranty ”
and together with the PetroTech Notes, the Promissory Note, the
PetroTech Master Security Agreement, all other guaranties, security
agreements, other agreements, instruments and documents executed
and/or delivered in connection therewith collectively and as the
same may be amended or otherwise modified from time to time, the
“ Documents ” and each a “ Document
”), the Pledgee and the other Creditor Parties provide or
will provide certain financial accommodations to PA and/or the
Pledgor.
WHEREAS, in order to induce the
Pledgee and the other Creditor Parties to provide or continue to
provide the financial accommodations described in the Documents,
the Pledgor has agreed to pledge and grant a security interest in
the collateral described herein to the Pledgee on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of
these premises and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions . Unless
otherwise defined herein, capitalized terms used herein shall have
the meanings ascribed to such terms in the Documents.
2. Pledge and Grant of Security
Interest . To secure the prompt payment and performance in full
when due, whether by lapse of time or otherwise, of the Secured
Obligations (as defined below), the Pledgor hereby pledges, assigns
and grants to the Pledgee, for the ratable benefit of the Creditor
Parties, a first priority security interest (the “
Security Interest ”) in any and all right, title and
interest of the Pledgor in and to the following, whether now owned
or existing or owned, acquired, or arising hereafter (collectively,
the “ Collateral ”):
(a) Equity Interests . One
hundred percent of the units, shares of stock and other equity
interests as set forth on Schedule 1 attached hereto
together with the certificates (or other agreements or
instruments), if any, representing such equity interests, and all
options and other rights, contractual or otherwise, with respect
thereto (collectively, together with the units, shares of stock and
membership or partnership interests and/or proceeds described in
Sections 2(b) and 2(c) below, the “ Equity Interests
”), including, but not limited to, the following:
(i) all units, shares or securities
representing a dividend on any of the Equity Interests, or
representing a distribution or return of capital upon or in respect
of the Equity Interests, or resulting from a stock-split, revision,
reclassification or other exchange therefor, and any subscriptions,
warrants, rights or options issued to the holder of, or otherwise
in respect of, the Equity Interests; and
(ii) without affecting the
obligations of the Pledgor under any provision prohibiting such
action hereunder or under any Document, in the event of any
consolidation or merger involving the issuer of any Equity
Interests and in which such issuer is not the surviving entity, all
units, shares of each class of the stock or one hundred percent
(100%) of the membership or partnership interests, as
applicable, of the successor entity formed by or resulting from
such consolidation or merger.
(b) Additional Interests .
One hundred percent (100%) of the units, each class of the
issued and outstanding stock and/or membership or partnership
interests owned by the Pledgor of any Person which hereafter
becomes a Subsidiary, including, without limitation, the
certificates, if any, representing such units, stock and/or
membership or partnership interests.
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(c) Proceeds . All proceeds
and products of the foregoing, however and whenever acquired and in
whatever form.
Without limiting the generality of
the foregoing, it is hereby specifically understood and agreed that
the Pledgor may from time to time hereafter deliver additional
units, shares of stock and/or membership or partnership interests,
as applicable, to the Pledgee as collateral security for the
Secured Obligations. Upon delivery to the Pledgee, for the ratable
benefit of the Creditor Parties, such additional units, shares of
stock and/or membership or partnership interests shall be deemed to
be part of the Collateral and shall be subject to the terms of this
Agreement whether or not Schedule 1 is amended to refer
to such additional units, additional shares of stock or membership
or partnership interests.
3. Security for Secured
Obligations . The security interest created hereby in the
Collateral of the Pledgor constitutes continuing collateral
security for (the “ Secured Obligations ”):
(a) the Obligations (as defined in the Master Security
Agreement) and (b) all other obligations and liabilities of
the Pledgor and its subsidiaries to the Pledgee and the other
Creditor Parties under any Document and otherwise whether now
existing or hereafter arising, direct or indirect, liquidated or
unliquidated, absolute or contingent, due or not due and whether
under, pursuant to or evidenced by a note, agreement, guaranty,
instrument or otherwise (in each case, irrespective of the
genuineness, validity, regularity or enforceability of such Secured
Obligations, or of any instrument evidencing any of the Secured
Obligations or of any collateral therefor or of the existence or
extent of such collateral, and irrespective of the allowability,
allowance or disallowance of any or all of such in any case
commenced by or against the Pledgor under Title 11, United States
Code, including, without limitation, obligations of the Pledgor for
post-petition interest, fees, costs and charges that would have
accrued or been added to the Secured Obligations but for the
commencement of such case).
4. Delivery of the Collateral
. The Pledgor hereby agrees that:
(a) Delivery of Certificates
. The Pledgor shall deliver to the Pledgee or its designee
(i) simultaneously with or prior to execution and delivery of
this Agreement, all certificates representing the Equity Interests
and (ii) promptly upon the receipt thereof by or on behalf of
the Pledgor, all other certificates and instruments constituting
the Collateral. Prior to delivery to the Pledgee or its designee,
all such certificates and instruments constituting the Collateral
shall be held in trust by the Pledgor for the benefit of the
Creditor Parties pursuant hereto. All such certificates shall be
delivered in suitable form for transfer by delivery or shall be
accompanied by duly executed instruments of transfer or assignment
in blank, substantially in the form provided in
Exhibit 1 attached hereto.
(b) Additional Securities .
If the Pledgor shall receive by virtue of its being or having been
the owner of any Collateral, any (i) unit certificate, stock
certificate, membership certificate or other certificate
representing units, stock, or a membership or partnership interest,
including without limitation, any certificate representing a
dividend
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or distribution in connection with
any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares of stock,
units or membership or equity or partnership interests, stock
splits, spin-off or split-off, promissory notes or other
instrument; (ii) option or right, whether as an addition to,
substitution for, or an exchange for, any Collateral or otherwise;
(iii) dividends payable in securities; or
(iv) distributions of securities in connection with a partial
or total liquidation, dissolution or reduction of capital, capital
surplus or paid-in surplus, then the Pledgor shall receive such
certificate, instrument, option, right, dividend or distribution in
trust for the benefit of the Creditor Parties, shall segregate it
from the Pledgor’s other property and shall deliver it
forthwith to the Pledgee in the exact form received together with
any necessary endorsement and/or appropriate stock power, unit
power, membership interest power or partnership interest power, as
applicable, duly executed in blank, substantially in the form
provided in Exhibit 1 , to be held by the Pledgee as
Collateral and as further collateral security for the Secured
Obligations.
(c) Financing Statements .
The Pledgor authorizes the Pledgee to file such UCC (as defined in
Section 5(b) below) or other applicable financing statements
as may be reasonably requested by the Pledgee in order to perfect
and protect the Security Interest created hereby in the
Collateral.
5. Representations and
Warranties . The Pledgor hereby represents and warrants to the
Pledgee (which representations and warranties shall be deemed to
continue to be made until all of the Secured Obligations have been
paid in full in cash and each Document and each agreement and
instrument entered into in connection therewith has been
irrevocably terminated) that:
(a) Authorization of the Equity
Interests . The Equity Interests are duly authorized and
validly issued, are fully paid and nonassessable and are not
subject to the preemptive rights of any Person. All other shares of
stock, units or membership or partnership interests constituting
Collateral will be duly authorized and validly issued, fully paid
and nonassessable and not subject to the preemptive rights of any
Person.
(b) Title . The Pledgor has
good and indefeasible title to the Collateral and will at all times
be the legal and beneficial owner of such Collateral free and clear
of any attachments, levies, taxes, liens, security interests and
encumbrances of every kind and nature (“ Liens
”), except for Permitted Encumbrances. Except with respect to
Permitted Encumbrances, there exists no “adverse claim”
within the meaning of Section 8-102 of the Uniform Commercial
Code as in effect in the State of New York (the “ UCC
”) with respect to the Equity Interests.
(c) Exercising of Rights . To
the best of the Pledgor’s knowledge, other than as set forth
on Schedule 5 hereto, the exercise by the Pledgee of its rights and
remedies hereunder will not violate any law or governmental
regulation or any material contractual restriction binding on or
affecting the Pledgor or any of its property.
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(d) Pledgor’s Authority
. No authorization, approval or action by, and no notice or filing
with any governmental authority or with the issuer of any Equity
Interests is required either (i) for the pledges made by the
Pledgor or for the granting of the security interests by the
Pledgor pursuant to this Agreement or (ii) to the best of the
Pledgor’s knowledge, for the exercise by the Pledgee of its
rights and remedies hereunder (except as may be required by laws
affecting the offering and sale of securities).
(e) Security
Interest/Priority . This Agreement creates a valid first
priority security interest in favor of the Pledgee, for the ratable
benefit of the Creditor Parties, in the Collateral. The taking
possession by the Pledgee of the certificates, if any, representing
the Equity Interests and all other certificates and instruments
constituting Collateral and/or the execution and delivery of a
Control Acknowledgment (as defined in Section 6(e) below) with
regard to uncertificated Equity Interests consisting of membership
or partnership interests will perfect and establish the first
priority of the Pledgee’s security interest, for the ratable
benefit of the Creditor Parties, in the Equity Interests and, when
properly perfected by filing or registration, in all other
Collateral represented by such Equity Interests and instruments
securing the Secured Obligations. Except as set forth in this
Section 5(e), no action is necessary to perfect or otherwise
protect such security interest.
(f) Litigation . There are no
pending or, to the best of Pledgor’s knowledge, threatened
actions or proceedings before any court, judicial body,
administrative agency or arbitrator which may materially adversely
affect the Collateral;
(g) Power and Authority .
Other than as set forth on Schedule 5 hereto,the Pledgor has the
requisite power and authority to enter into this Agreement and to
pledge and assign the Collateral to the Pledgee, for the ratable
benefit of the Creditor Parties, in accordance with the terms of
this Agreement;
(h) Transfer Restrictions .
Other than as set forth on Schedule 5 hereto, there are no
restrictions on transfer of the Equity Interests contained in the
certificate of incorporation or by-laws (or equivalent
organizational documents) of the issuer or otherwise which have not
otherwise been enforceably and legally waived by the necessary
parties;
(i) Securities Laws . None of
the Equity Interests has been issued or transferred in violation of
the securities registration, securities disclosure or similar laws
of any jurisdiction to which such issuance or transfer may be
subject;
(j) Grant of Security
Interest . The pledge and assignment of the Collateral and the
grant of a security interest under this Agreement vest in the
Pledgee, for the ratable benefit of the Creditor Parties, all
rights of the Pledgor in the Collateral as contemplated by this
Agreement; and
(k) Equity Percentage . The
Equity Interests constitute 81.51% of the issued and outstanding
units or membership interests owned by the Pledgor of such issuer
as set forth on Schedule I hereto, as applicable.
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6. Covenants . The Pledgor
hereby covenants, that so long as any of the Secured Obligations
remain outstanding or any Document is in effect, the Pledgor,
shall:
(a) Books and Records . Mark
its books and records (and shall cause each issuer of the Equity
Interests of the Pledgor to mark its books and records) to reflect
the security interest granted to the Pledgee, for the ratable
benefit of the Creditor Parties, pursuant to this Agreement and the
other Documents.
(b) Defense of Title .
Warrant and defend title to and ownership of the Collateral at its
own expense against the claims and demands of all other parties
claiming an interest therein, keep the Collateral free from all
Liens, except for Permitted Liens, and not sell, exchange,
transfer, convey, assign, lease or otherwise dispose of its rights
in or to the Collateral or any interest therein nor create, incur
or permit to exist any Lien whatsoever with respect to any of the
Collateral or the proceeds thereof other than that created
hereby.
(c) Defend Against Claims .
The Pledgor will, at its expense, defend the Pledgee’s right,
title and security interest in and to the Collateral against the
claims of any other party.
(d) Additional Equity
Interests . Not consent to or approve the issuance of
(i) any additional shares of any class of capital stock, units
or other equity interests of any issuer of such Equity Interests;
or (ii) any securities convertible either voluntarily by the
holder thereof or automatically upon the occurrence or
nonoccurrence of any event or condition into, or any securities
exchangeable for, any such shares or units, unless, in either case,
such shares or units are pledged as Collateral pursuant to this
Agreement.
(e) Further Assurances .
Promptly execute and deliver at its expense all further instruments
and documents and take all further action that may be reasonably
necessary and desirable or that the Pledgee may reasonably request
in order to (i) perfect and protect the security interest
created hereby in the Collateral (including, without limitation,
any and all action necessary to satisfy the Pledgee that the
Pledgee has obtained a first priority perfected Security Interest
in any units, shares of stock and/or membership or partnership
interest; (ii) enable the Pledgee to exercise and enforce its
rights and remedies hereunder in respect of the Collateral; and
(iii) otherwise effect the purposes of this Agreement,
including, without limitation, and if requested by the Pledgee,
(A) delivering to the Pledgee irrevocable proxies in respect
of the Collateral, which irrevocable proxies will be strictly and
only for the purpose of allowing the Pledgee to perfect and protect
the Security Interest granted or purported to be granted hereby or
to enable the Pledgee to exercise and enforce its rights and
remedies hereunder with respect to the Collateral and
(B) executing and delivering, and causing the issuer of such
Equity Interests to execute and deliver, to each issuer that is a
limited liability company or a limited partnership a control
acknowledgment (“ Control Acknowledgement ”)
substantially in the form of Exhibit 2 hereto. The
Pledgor shall cause each such issuer to acknowledge in writing its
receipt and acceptance thereof. Such Control Acknowledgement shall
instruct such issuer to follow instructions from the Pledgee
without the Pledgor’s consultation or consent.
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(f) Amendments . Not make or
consent to any amendment or other modification or waiver with
respect to any of the Collateral or enter into any agreement or
allow to exist any restriction with respect to any of the
Collateral other than pursuant hereto, including, without
limitation, any amendment that would (i) impair the Collateral
or adversely affect in any respect the rights, privileges, benefits
and security interests provided to or intended to be provided to
the Pledgee or (ii) that in any way adversely affects the
perfection of the Security Interest of the Pledgee, for the ratable
benefit of the Creditor Parties, in the Collateral, including,
without limitation, any amendment electing to no longer treat any
membership or partnership interest as a security under
Section 8-103 of the UCC, or any election to turn any
previously certificated membership or partnership interest into an
uncertificated membership or partnership interest.
(g) Compliance with Securities
Laws . File all reports and other information now or hereafter
required to be filed by the Pledgor with the United States
Securities and Exchange Commission and any other state, federal or
foreign agency in connection with the ownership of the
Collateral.
7. Advances by the Pledgee .
Upon the occurrence and during the continuance of an Event of
Default, the Pledgee may, at its sole option and in its sole
discretion, perform the same and in so doing may expend such sums
as the Pledgee may reasonably deem advisable in the performance
thereof, including, without limitation, the payment of any
insurance premiums, the payment of any taxes, a payment to obtain a
release of a Lien or potential Lien (other than a Permitted Lien),
expenditures made in defending against any adverse claim (other
than a Permitted Lien) and all other expenditures which the Pledgee
may make for the protection of the Collateral hereof or which may
be compelled to make by operation of law. All such sums and amounts
so expended shall be repayable by the Pledgor promptly upon timely
notice thereof and demand therefor, shall constitute additional
Secured Obligations and shall bear interest from the date said
amounts are expended at the highest interest rate set forth in the
PetroTech Notes. No such performance of any covenant or agreement
by the Pledgee on behalf of the Pledgor, and no such advance or
expenditure therefor, shall relieve the Pledgor of any default
under the terms of this Agreement or the other Documents. The
Pledgee may make any payment hereby authorized in accordance with
any bill, statement or estimate procured from the appropriate
public office or holder of the claim to be discharged without
inquiry into the accuracy of such bill, statement or estimate or
into the validity of any tax assessment, sale, forfeiture, tax
lien, title or claim except to the extent such payment is being
contested in good faith by the Pledgor in appropriate proceedings
and against which adequate reserves are being maintained in
accordance with GAAP.
8. Events of Default . Each
of the following shall constitute an event of default (“
Event of Default ”) hereunder:
(a) An “Event of
Default” under any Document or any agreement or note related
to any Document shall have occurred and be continuing beyond any
applicable cure period;
(b) The Pledgor shall default in the
performance of any of its obligations under any Document or any
agreement between the Pledgor and the Pledgee, including, without
limitation, this Agreement, and such default shall not be cured
during any applicable cure period;
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(c) Any representation or warranty
of the Pledgor made herein, in any Document or in any agreement,
statement or certificate given in writing pursuant hereto or
thereto or in connection herewith or therewith shall be false or
misleading in any material respect;
(d) Any portion of the Collateral is
subjected to a levy of execution, attachment, distraint or other
judicial process or any portion of the Collateral is the subject of
a claim (other than by the Pledgee) of a Lien or othe
