This SECURITY
AGREEMENT (this “ Agreement ”), dated as of
January 1, 2009, is entered into by and between RENEGY
HOLDINGS, INC., a Delaware corporation (“ Debtor
”), and AZ BIOMASS LLC, a Delaware limited liability company
(“ Secured Party ”). Debtor and Secured Party
may be referred to herein individually as a “ Party
,” and collectively as the “ Parties
.”
A. The
Parties have entered into that certain Membership Interest Purchase
Agreement, dated as of the date hereof (the “ Purchase
Agreement ”), pursuant to which Secured Party purchased
from Debtor the all of the authorized Class A Membership
Interests of Snowflake White Mountain Power, LLC, an Arizona
limited liability company (“SWMP”).
B. Pursuant
to the Purchase Agreement, Secured Party has transferred the amount
of $12,300,000 (the “ Purchase Amount ”) to that
certain deposit account (the “ Deposit Account
”), entitled “Renegy Holdings, Inc.,” account
number 103690226750, maintained by Debtor with US Bank National
Association as the depository bank (the “ Depository
Bank ”). In connection with such transfer, the Parties
and the Depository Bank have entered into that certain Blocked
Account Control Agreement, dated as of the date hereof (the “
Deposit Account Control Agreement ”). Secured Party
has agreed to instruct the Depository Bank to allow Debtor to
withdraw the funds contained in the Deposit Account in accordance
with Section 2.02 of the Purchase Agreement subject to
Debtor’s contingent obligations to refund to Secured Party
the Purchase Amount, or portions thereof, pursuant to
Section 2.02 and Section 12.03 of the Purchase
Agreement.
C. In order
to induce Secured Party to transfer the full amount of the Purchase
Amount to the Deposit Account as of the date hereof and as security
for Debtor’s contingent obligations to refund to Secured
Party the Purchase Amount, or portions thereof, pursuant to
Section 2.02 and Section 12.03 of the Purchase Agreement,
Debtor has agreed to grant Secured Party a security interest in all
of its right, title and interest in, to and under the Collateral
(defined below).
D. Debtor has
determined that it is in its best interests to execute this
Agreement inasmuch as Debtor will derive substantial direct and
indirect benefits from (i) the transfer of the full amount of
the Purchase Amount to the Deposit Account as of the date hereof
and (ii) the release of portions thereof in accordance with
Section 2.02 of the Purchase Agreement, and Debtor understands
and agrees that Secured Party has relied on this representation in
connection with entering into the Purchase Agreement and
transferring the Purchase Amount to the Deposit Account as of the
date hereof.
NOW, THEREFORE, in
consideration of the mutual covenants and agreements herein
contained, and other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto covenant and agree as follows:
1.
Definitions . Any term used or defined in the Code (as
defined below) that is not defined in this Agreement has the
meaning given to that term in the Code, as in effect from time to
time, when used in this Agreement. Other capitalized terms used but
not defined herein have the respective meanings assigned to them in
the Purchase Agreement. As used herein the terms
“Debtor,” “Secured Party,”
“Party,” “Parties,” “Purchase
Agreement,” “Deposit Account,” “Depository
Bank,” and “Deposit Account Control Agreement”
shall have the meanings specified above, and the following terms
shall have the following meanings, respectively, unless the context
hereof otherwise clearly requires:
A “
Bankruptcy Event ” shall be deemed to have occurred
with respect to Debtor upon the occurrence of any of the events set
forth under the definition of “Bankruptcy” contained in
that certain Amended and Restated Limited Liability Company
Agreement of SWMP dated as of the date hereof .
“
Bankruptcy Law ” means Title 11, United States Code,
and any other existing or future law (or any successor law or
statute) of any jurisdiction, domestic (including state and
federal) or foreign, relating to bankruptcy, insolvency,
reorganization, conservatorship, moratorium or similar law for the
relief of debtors.
“
Code ” means the Uniform Commercial Code as in effect
in the State of New York from time to time, or in any jurisdiction
the laws of which may be applicable to or in connection with the
creation, perfection or priority of any security interest created
or purported to be created under this Agreement.
“
Collateral ” means all of Debtor’s right, title
and interest in, to and under the following described property of
Debtor: (i) the Deposit Account; (ii) all money,
investments, interest and other funds on deposit in or credited to
the Deposit Account; and (iii) all proceeds of any of the
foregoing.
“ Event
of Default ” means any one or more of the following:
(i) a Bankruptcy Event shall have occurred; (ii) Debtor
shall have failed to timely pay in full any of the Secured
Obligations on or before the date such payment is due;
(iii) this Agreement or the Deposit Account Control Agreement
at any time and for any reason shall cease to create a valid and
perfected first priority security interest in and to the Collateral
or ceases to be in full force and effect or is declared null and
void, or the validity or enforceability of this Agreement, the
Deposit Account Control Agreement or the obligations of Debtor
under Section 2.02 or Section 12.03 of the Purchase
Agreement is contested by Debtor or Debtor denies it has any
further liability for the Secured Obligations prior to the
fulfillment thereof; and (iv) Debtor shall create, incur,
assume or permit to exist any Lien, upon or with respect to any
Collateral, other than the Liens created pursuant to this
Agreement.
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“
Person ” means any natural person, corporation,
limited liability company, general partnership, limited
partnership, proprietorship, other business organization, trust,
union, association or governmental or regulatory
authority.
“ Secured
Obligations ” means collectively, the full, prompt and
complete payment to Secured Party of (i) all funds in the
Deposit Account upon notice of Secured Party’s decision to
exercise its right to rescind the Purchase Agreement following a
Rescission Event (as defined under and in accordance with the
provisions of Section 12.03 of the Purchase Agreement) and
(ii) funds in an amount equal to the Holdback Amount upon a
the occurrence of a Holdback Return Event (as defined under and in
accordance with the provisions of Section 2.02 of the Purchase
Agreement).
2. Grant
of Security Interest . As security for the due and punctual
payment and performance of the Secured Obligations in full, Debtor
hereby agrees that Secured Party shall have, and Debtor hereby
grants to and creates in favor of Secured Party, a continuing first
priority Lien on and security interest in and to the Collateral.
The intent of the parties hereto is that the Collateral secures all
Secured Obligations of the Debtor, whether or not such Secured
Obligations exist under this Agreement or the Purchase Agreement;
provided, however, that if Debtor is permitted to withdraw funds
from the Deposit Account pursuant to the Deposit Account Control
Agreement and Debtor withdraws such funds in compliance with the
terms of the Deposit Account Control Agreement, Secured
Party’s security interest shall automatically terminate as to
such properly withdrawn funds.
3.
Representations and Warranties . Debtor represents and
warrants to Secured Party that on the date hereof:
(a) Debtor
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Debtor has full
power and authority to execute and deliver this Agreement and the
Deposit Account Control Agreement and to perform its obligations
hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby including to own, hold, sell,
transfer and grant a security interest in the
Collateral.
(b) The
execution and delivery by Debtor of this Agreement and the Deposit
Account Control Agreement, and the performance by Debtor of its
obligations hereunder and thereunder have been duly and validly
authorized by all appropriate action in accordance with the
organizational and governing documents of Debtor and applicable
Law. This Agreement and the Deposit Account Control Agreement have
been duly and validly executed and delivered by Debtor and,
assuming valid execution and delivery by Secured Party and, solely
with respect to the Deposit Account Control Agreement, the
Depository Bank, constitute the legal, valid and binding
obligations of Debtor enforceable against Debtor in accordance with
their terms.
(c) The
execution and delivery by Debtor of this Agreement and the Deposit
Account Control Agreement and the performance by Debtor of its
obligations under this Agreement and the Deposit Account Control
Agreement and the consummation of the transactions contemplated
hereby and thereby will not:
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(i) conflict
with or result in a violation or breach of any of the terms,
conditions or provisions of the organizational documents of
Debtor;
(ii) conflict
with or result in a violation or breach of any term or provision of
any Law or Order applicable to Debtor; or
(iii) conflict
with or result in a violation or breach of, constitute (with or
without notice or lapse of time or both) a default under, require
Debtor to obtain any consent, approval or action of, make any
filing with or give any notice to any Person as a result or under
the terms of, result in or give to any Person any right of
termination, cancellation, acceleration or modification in or with
respect to, or result in the creation or imposition of any Lien
(other than liens created under this Agreement and the Deposit
Account Control Agreement) upon Debtor or any of its Assets and
Properties under any Material Contract or Permit to which Debtor is
a party or by which any of its Assets and Properties is
bound.
(d)
Collateral Ownership . After deposit by Secured Party of the
Purchase Amount into the Deposit Account Debtor shall be the sole
legal and beneficial owner of the Collateral, and Debtor has, and
at all times during the term of this Agreement will have, good and
marketable title to the Collateral, free and clear of all pledges,
Liens, claims, or encumbrances, and will have at all times full
right, power and authority to grant a security interest in the
Collateral to Secured Party in the manner provided herein, free and
clear of any lien, security interest, adverse claims or other
charges or encumbrances, subject in all respects to the rights of
Secured Party under this Agreement and the Deposit Account Control
Agreement.
(e)
Security Interest Perfection . Debtor has taken all actions
necessary or desirable to establish Secured Party’s
“control” (pursuant to and within the meaning of
Section 9-104(a)(2) of the Code) over the Deposit Account.
Upon the execution and
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