Attached files
Exhibit 10.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "SECURITY AGREEMENT"), dated as of April 27,
2011, is between BARON ENERGY, INC., a Nevada corporation, whose address is 392
W. Mill Street, New Braunfels, Texas 78130 (the "Debtor"), as successor in
interest to Permian Legend Petroleum LP, and BASELINE CAPITAL, INC., a Texas
corporation, whose address is 310 W. Wall Street, Suite 803, Midland, Texas
79701 (the "SECURED PARTY").
WITNESSETH:
WHEREAS, pursuant to that certain First Amended and Restated Loan Agreement
dated of even date herewith among Debtor and Secured Party, as Lender (as the
same may be amended, restated, supplemented or otherwise modified from time to
time, the "LOAN AGREEMENT"), Secured Party has agreed to make loans to Debtor,
upon the terms and subject to the conditions set forth therein, to be evidenced
by the Note issued by Debtor thereunder;
WHEREAS, Debtor is the successor in interest to Permian Legend Petroleum LP
("PERMIAN") through a series of corporate transactions, and is the owner of
assets and liabilities previously owned by Permian; and
WHEREAS, Secured Party has conditioned its obligations under the Loan
Agreement upon the execution and delivery by Debtor of this Security Agreement,
and Debtor has agreed to make and deliver this Security Agreement.
NOW, THEREFORE, (i) in compliance with the terms and conditions of the Loan
Agreement, (ii) for and in consideration of the premises and the agreements
herein contained, and (iii) for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Debtor and the
Secured Party agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, terms which are defined in
the Loan Agreement and used herein are so used as so defined in the Loan
Agreement, and the following terms shall have the following meanings:
(a) "ACCOUNTS" has the meaning given to such term in Section
9.102(a)(2) of the UCC, and also means and includes all trade accounts,
accounts receivable, leases receivable, book debts, notes, drafts,
instruments, documents, acceptances and other forms of obligations now
owned or hereafter received or acquired by or belonging or owing to the
Debtor (including under any assumed or fictitious name, trade names, styles
or divisions thereof) whether arising out of goods sold or leased by it or
services rendered by it or from any other transaction, whether or not the
same involves the sale of goods or performance of services by the Debtor
(including, without limitation, any such obligation which would be
characterized as an account, general intangible or chattel paper under the
UCC) and all of the Debtor's rights in, to and under all purchase orders
now owned or hereafter received or acquired by it for goods or services,
and all of the Debtor's rights to any goods represented by any of the
foregoing (including returned or repossessed goods and unpaid seller's
rights) and all moneys due or to become due to the Debtor under all
1
contracts for the sale of goods and/or the performance of services by it
(whether or not yet earned by performance) or in connection with any other
transaction, now in existence or hereafter arising, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by
any Person with respect to any of the foregoing.
(b) "CONTRACTS" means the contracts (including without limitation all
licenses and leases) between any Person and the Debtor, as the same may
from time to time be amended, supplemented or otherwise modified,
including, without limitation, (i) all rights of the Debtor to receive
moneys due and to become due to it thereunder or in connection therewith,
(ii) all rights of the Debtor to damages arising out of, or from, breach or
default in respect thereof and (iii) all rights of the Debtor to perform
and to exercise all remedies thereunder.
(c) "DOCUMENTS" has the meaning assigned in Section 9.102(a)(30) of
the UCC.
(d) "EQUIPMENT" means all trailers, trucks, rolling stock and other
vehicles (which are not covered by a certificate of title law of any
state), machinery and equipment now owned or hereafter acquired by the
Debtor, or in which the Debtor now has or hereafter may acquire any right,
title or interest and any and all additions, substitutions and replacements
thereof, wherever located, together with all attachments, components,
parts, equipment and accessories installed therein or affixed thereto,
including, but not limited to, all equipment as defined in Section 9.102(a)
(33) of the UCC.
(e) "GENERAL INTANGIBLES" has the meaning assigned in Section
9.102(a)(42) of the UCC.
(f) "INSTRUMENT" has the meaning assigned in Section 9.102(a)(47) of
the UCC.
(g) "INTELLECTUAL PROPERTY" means all patents and applications for
patents, all copyrights, copyright registrations and copyright
applications, copyrightable works and all other corresponding rights, all
trade names, logos, Internet addresses and domain names, trademarks and
service marks and related registrations and applications, all inventions
(whether patentable or not and whether or not reduced to practice), know
how, technology, technical data, trade secrets, confidential business
information, all computer software, and all similar or related rights,
interests and claims.
(h) "INVENTORY" means all inventory, wherever located, now owned or
hereafter acquired by the Debtor or in which the Debtor now has or
hereafter may acquire any right, title or interest, including, without
limitation, all goods and other personal property now or hereafter owned by
the Debtor which are held for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials,
work in process or materials used or consumed or to be used or consumed in
the business of the Debtor, or in the processing, packaging or shipping of
2
the same, and all finished goods, including, but not limited to, all pipe
and other tabulars and all inventory as defined in Section 9.102(a)(48) of
the UCC.
(i) "MORTGAGED PROPERTY" means the oil and gas properties and related
assets described in that certain Subordinated Deed of Trust, Mortgage,
Security Agreement, Assignment of Production and Financing Statement dated
August 1, 2007 and executed by Debtor in favor of Secured Party, as
amended.
(j) "OBLIGATION" means the unpaid principal of and interest on
(including, without limitation, interest accruing after the maturity of the
Note and interest on or after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding,
relating to the Debtor, whether or not a claim for post-filing or
postpetition interest is allowed in such proceeding) the Note and all other
present and future indebtedness, obligations and liabilities of Debtor to
the Secured Party under the Loan Agreement, and all renewals, enlargements,
rearrangements and extensions thereof, or any part thereof, now or
hereafter owed to Secured Party by Debtor arising from, by virtue of, or
pursuant to any Loan Document, or otherwise, together with all interest
accruing thereon and all costs, expenses and attorneys' fees incurred in
the enforcement or collection thereof, whether such indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent,
liquidated, unliquidated, joint, several, or joint and several or were,
prior to acquisition thereof by Secured Party, owed to some other Person.
(k) "PERSON" means any natural person, corporation, company, limited
or general partnership, joint stock company, joint venture, association,
limited liability company, limited liability partnership, trust, bank,
trust company, land trust, business trust or other entity or organization.
(l) "PROCEEDS" means all "proceeds" as such term is defined in Section
9.102 (a) (65) of the UCC and, in any event, shall mean and include, but
not be limited to, the following at any time whatsoever arising or
receivable: (i) whatever is received upon any collection, exchange, sale or
other disposition of any of the Collateral, and any property into which any
of the Collateral is converted, whether cash or non-cash proceeds, (ii) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable
to the Debtor from time to time with respect to any of the Collateral, and
(iii) any and all payments (in any form whatsoever) made or due and payable
to the Debtor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any
Person acting under color of governmental authority).
(m) "UCC" means the Uniform Commercial Code as from time to time in
effect in the State of Texas.
(n) "VEHICLES" means all trucks, tractors, trailers and rolling
equipment and other vehicles, wherever located, which are covered by a
certificate of title law of any state, and any and all additions,
substitutions, and replacements thereof, wherever located, together with
all attachments, components, parts and accessories installed therein or
affixed thereto.
3
2. GRANT OF SECURITY INTEREST. As collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligation, the Debtor hereby grants to the
Secured Party a security interest and lien in all personal property assets of
Debtor previously owned by Permian (the "Permian Assets") and all Proceeds and
present or future increases, combinations, reclassifications, improvements and
products of, accessions, attachments and other additions to, and substitutes and
replacements for all or any part of the Permian Assets, whether now owned or
hereafter acquired by the Debtor, including, without limitation, the following
(collectively, the "COLLATERAL"):
(i) all Accounts;
(ii) all Contracts;
(iii) all Documents;
(iv) all Equipment;
(v) all General Intangibles;
(vi) all Instruments;
(vii) all Intellectual Property;
(viii) all Inventory;
(ix) all Vehicles; and
(x) all Proceeds and all present and future increases, combinations,
reclassifications, improvements and products of, accessions, attachments,
and other additions to, and substitutes and replacements for all or any
part of the foregoing.
3. DEBTOR'S REPRESENTATIONS AND WARRANTIES. The Debtor hereby represents
and warrants to Secured Party that:
(a) Title; No Other Liens. Except for the security interest and lien
granted to the Secured Party pursuant to this Security Agreement and the
other Loan Documents and the liens on the Mortgaged Property securing the
Senior Debt, the Debtor owns each item of the Collateral free and clear of
any and all Liens or claims of others. No security agreement, financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except such as may
have been filed in favor of the Secured Party, for the benefit of the
Secured Party, pursuant to this Security Agreement or any other Loan
Document (or in favor of Newton with respect to the Mortgaged Property
only). All Intellectual Property capable of registration has been (or will
be in accordance with the Loan Agreement) duly and properly registered in
the name of the Debtor and is valid and enforceable.
4
(b) Accounts. The amount represented by the Debtor to the Secured
Party from time to time as owing by each account debtor or by all account
debtors in respect of the Accounts will at such time be the correct amount
actually owing by such account debtor or debtors thereunder. The Debtor's
Accounts arose in the ordinary course of the Debtor's business from the
performance of services that the Debtor has fully and satisfactorily
performed or from the sale or lease of goods in which the Debtor had sole
and complete ownership. No such Account is subject to counterclaim or
defense (other than discount for prompt payment as shown on the invoices).
(c) Use and Protection of Collateral. The Collateral will be used for
business purposes only and certain of the Collateral is of a type normally
used in more than one state.
(d) Location of Collateral. The Collateral will remain in the Debtor's
possession or control at all times (at the Debtor's risk of loss) and will
be kept at the location specified in the notice required under Section
2(b), or such other locations as the Debtor notifies Secured Party in
writing, which notice shall be delivered to Secured Party from time to time
prior to the Collateral being moved.
(e) Governmental Obligors. None of the obligors on any Accounts, and
none of the parties to any Contracts, is a Governmental Authority.
(f) Consents. No consent of any party (other than the Debtor) to any
Contract or any obligor in respect of any Account is required, or purports
to be required, in connection with the execution, delivery and performance
of this Security Agreement. Each Account and each Contract is in full force
and effect and constitutes a valid and legally enforceable obligation of
the obligor in respect thereof or parties thereto, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditor's rights generally. No
consent or authorization of, filing with or other act by or in respect of
any governmental authority is required in connection with the execution,
delivery, performance, validity or enforceability of any of the Accounts or
Contracts by any party thereto other than those which have been duly
obtained, made or performed, are in full force and effect and do not
subject the scope of any such Account or Contract to any material adverse
limitation, either specific or general in nature. Neither the Debtor nor
(to the best knowledge of the Debtor) any other party to any Account or
Contract is in default or is likely to become in default in the performance
or observance of any of the terms thereof. The Debtor has fully performed
all its obligations under each Contract. The right, title and interest of
the Debtor in, to and under each Account or Contract are not subject to any
defense, offset, counterclaim, or claim which would materially adversely
affect the value of such Account or Contract as Collateral, nor have any of
the foregoing been asserted or alleged against the Debtor as to any of the
foregoing. Upon request by Secured Party, the Debtor will deliver to the
Secured Party a complete and correct copy of each Contract, including all
amendments, supplements and other modifications thereto.
(g) Power and Authority; Authorization. The Debtor has the power and
authority and the legal right to execute and deliver, to perform its
5
obligations under, and to grant the security interests and liens on the
Collateral pursuant to, this Security Agreement and has taken all necessary
corporate and other action to authorize its execution, delivery and
performance of, and grant of the security interests and liens on the
Collateral pursuant to, this Security Agreement.
(h) Enforceability. This Security Agreement constitutes a legal, valid
and binding obligation of the Debtor enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
(i) No Conflict. The execution, delivery and performance of this
Security Agreement will not violate or constitute a default under (i) any
provision of any agreement to which Debtor is a party or by which any of
its assets may be bound or subject to, or (ii) organizational documents of
the Debtor, and (iii) will not result in the creation or imposition of any
lien on any of the properties or revenues of the Debtor except as
contemplated hereby.
(j) No Consents, etc. No consent or authorization of, filing with, or
other act by or in respect of, any arbitrator or governmental authority and
no consent of any other Person (including, without limitation, any partner
or affiliate of the Debtor), is required in connection with the execution,
delivery, performance, validity or enforceability of this Security
Agreement.
(k) No Litigation. No litigation, investigation or proceeding of or
before any arbitrator or governmental authority is pending or, to the
knowledge of the Debtor, threatened by or against the Debtor or against any
of its properties or revenues.
4. DEBTOR'S COVENANTS. The Debtor covenants and agrees with the Secured
Party that, from and after the date of this Security Agreement until the
Obligation is paid in full and any obligation of Secured Party to make Advances
under the Loan Agreement has terminated:
(a) Obligations. Debtor shall pay the Obligation in accordance with
the terms thereof and shall otherwise perform all covenants and agreements
of Debtor contained in the Loan Agreement, this Security Agreement and in
all other Loan Documents.
(b) Debtor Remains Liable under Accounts and Contracts. Anything
herein to the contrary notwithstanding, the Debtor shall remain liable
under each of the Accounts and Contracts to observe and perform all the
conditions and obligations to be observed and performed by it thereunder,
all in accordance with the terms of any agreements giving rise to each such
Account or Contract in accordance with and pursuant to the terms and
provisions of each such Contract or agreement giving rise to an Account.
(c) Costs. The Debtor shall pay Secured Party on demand every expense
(including reasonable attorneys' fees and other legal expenses) incurred or
paid by Secured Party in exercising or protecting its interests, rights,
and remedies under this Security Agreement, plus interest at the highest
6
lawful rate on each such amount commencing on the date notice of such
expenses is given to the Debtor by Secured Party until paid by the Debtor.
(d) Further Documentation; Pledge of Instruments. At any time and from
time to time, upon the written request of the Secured Party, and at the
sole expense of the Debtor, the Debtor will promptly and duly execute and
deliver such further instruments and documents and take such further action
as the Secured Party may reasonably request for the purpose of obtaining or
preserving the full benefits of the Loan Agreement and this Security
Agreement and of the rights and powers therein and herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction
with respect to the security interests and liens created hereby, the
delivery to the Secured Party and appropriate regulatory authorities of the
titles to the Vehicles, the filing of evidence of Secured Party's security
interests and liens on all Intellectual Property of Debtor in the
appropriate governmental offices, and the taking of all such other actions
as may be necessary to establish, preserve and protect Secured Party's
security interests and liens in any of the Collateral. The Secured Party
shall have the right, without the consent or joinder of the Debtor, to
execute and file with any governmental authority such financing statements,
financing statement amendments and continuation statements as may, in the
sole discretion of the Secured Party, be necessary or advisable to
maintain, perfect or otherwise evidence the security interests and liens of
the Secured Party in and to any of the Collateral. In addition, and without
limiting the foregoing, this Security Agreement may be attached to and made
a part of any financing statement filed by the Secured Party. The Debtor
also hereby authorizes the Secured Party to file any such financing or
continuation statement without the signature of the Debtor to the extent
permitted by applicable law. A carbon, photographic or other reproduction
of this Security Agreement shall be sufficient as a financing statement for
filing in any jurisdiction. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any Instrument,
such Instrument shall be immediately delivered to the Secured Party, duly
endorsed in a manner satisfactory to the Secured Party, to be held as
Collateral pursuant to this Security Agreement.
(e) Indemnification. The Debtor agrees to pay, and to save the Secured
Party harmless from, any and all liabilities, costs and expenses
(including, without limitation, legal fees and expenses) (i) with respect
to, or resulting from, any delay in paying, any and all excise, sales or
other taxes which may be payable or determined to be payable with respect
to any of the Collateral, (ii) with respect to, or resulting from, any
delay in complying with any law applicable to any of the Collateral, (iii)
with respect to any claims against or losses of Secured Party concerning
any of the Collateral, or (iv) in connection with any of the transactions
contemplated by this Security Agreement. In any suit, proceeding or action
brought by the Secured Party under any Account or Contract for any sum
owing thereunder, or to enforce any provisions of any Account or Contract,
the Debtor will save, indemnify and keep the Secured Party harmless from
and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction or liability whatsoever of
the account debtor or obligor thereunder, arising out of a breach by the
Debtor of any obligation thereunder or arising out of any other agreement,
7
indebtedness or liability at any time owing to or in favor of such account
debtor or obligor or its successors from the Debtor.
(f) Maintenance of Records. The Debtor will keep and maintain at its
own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all
credits granted with respect to the Accounts and Contracts. The Debtor will
mark its books and records pertaining to the Collateral to evidence this
Security Agreement and the security interests granted hereby. For the
further security of the Secured Party, the Secured Party shall have a
security interest in all of the Debtor's books and records pertaining to
the Collateral, and the Debtor shall turn over any such books and records
to the Secured Party or to its representatives during normal business hours
at the request of the Secured Party. Upon request by the Secured Party from
time to time, the Debtor shall deliver to the Secured Party a report of all
Collateral then owned by the Debtor with a statement of the place where the
same may be located, which report shall be in form and detail satisfactory
to the Secured Party.
(g) Right of Inspection. The Secured Party shall at all times have
full and free access during normal business hours to all the books,
correspondence and records of the Debtor, and the Secured Party and its
representatives may examine the same, take extracts therefrom and make
photocopies thereof, and the Debtor agrees to render to the Secured Party,
at the Debtor's cost and expense, such clerical and other assistance as may
be reasonably requested with regard thereto. The Secured Party and its
representatives shall at all times also have the right to enter into and
upon any premises where any of the Collateral is located for the purpose of
inspecting the same, observing its use or otherwise protecting its
interests therein.
(h) Compliance with Laws, etc. The Debtor will comply in all material
respects with all laws, rules and regulations applicable to the Collateral
or any part thereof or to the operation of the Debtor's businesses;
provided, however, that the Debtor may contest any such laws, rules or
regulations in any reasonable manner which shall not, in the sole opinion
of the Secured Party, adversely affect the Secured Party's rights or the
priority of its security interests and liens on the Collateral.
(i) Compliance with Terms of Contracts, etc. The Debtor will perform
and comply in all material respects with all its obligations under the
Contracts and all its other contractual obligations relating to the
Collateral.
(j) Payment of Taxes. The Debtor will pay promptly when due all taxes,
assessments and governmental charges or levies imposed upon the Collateral
or in respect of its income or profits therefrom, as well as all claims of
any kind (including, without limitation, claims for labor, materials and
supplies) against or with respect to the Collateral, except that no such
charge need be paid if (i) the validity thereof is being contested in good
faith by appropriate proceedings, (ii) such proceedings do not involve any
material danger of the sale, forfeiture or loss of any of the Collateral or
any interest therein and (iii) such charge is adequately reserved against
on the Debtor's books.
8
(k) Limitation of Liens on Collateral. The Debtor will not create,
incur or permit to exist, will defend the Collateral against, and will take
such other action as is necessary to remove, any lien or claim on or to the
Collateral, other than the security interests and liens created hereby and
those on the Mortgaged Property in favor of the Secured Party and Newton,
and will defend the right, title and interest of the Secured Party in and
to any of the Collateral against the claims and demands of all Persons
whomsoever.
(l) Limitations on Dispositions of Collateral. The Debtor will not
sell, transfer, lease or otherwise dispose of any of the Collateral, or
attempt, offer or contract to do so, without the prior consent of Secured
Party.
(m) Limitations on Modifications, Waivers, Extensions of Contracts and
Agreements Giving Rise to Accounts. The Debtor will not (i) amend, modify,
terminate or waive any provision of any Contract or any agreement giving
rise to an Account in any manner which could reasonably be expected to
materially and adversely affect the value of such Contract or Account as
Collateral, (ii) fail to exercise promptly and diligently each and every
material right which it may have under each Contract and each agreement
giving rise to an Account (other than any right of termination) or (iii)
fail to deliver to the Secured Party a copy of each material demand, notice
or document received by it relating in any way to any Contract or any
agreement giving rise to an Account.
(n) Limitations on Discounts, Compromises, Extensions of Accounts.
Other than in the ordinary course of business as generally conducted by the
Debtor over a period of time, the Debtor will not grant any extension of
the time of payment of any of the Accounts, compromise, compound or settle
the same for less than the full amount thereof, release, wholly or
partially, any Person liable for the payment thereof, or allow any credit
or discount whatsoever thereon.
(o) Maintenance of Collateral. The Debtor will maintain each Vehicle
and each item of Equipment and Inventory in good operating condition,
ordinary wear and tear and immaterial impairments of value and damage by
the elements excepted, and will provide all maintenance, service and
repairs necessary for such purpose.
(p) Maintenance of Insurance. The Debtor will maintain, with
financially sound and reputable companies, insurance policies (i) insuring
the Equipment, Vehicles and Inventory against loss by fire, explosion,
theft and such other casualties as may be reasonably satisfactory to the
Secured Party and (ii) insuring the Debtor and the Secured Party against
liability for personal injury and property damage relating to such
Equipment, Vehicles and Inventory and Debtor's business, such policies to
be in such form and amounts and having such coverage as may be reasonably
satisfactory to the Secured Party, with losses payable to the Secured Party
as its interests may appear. All such insurance shall (i) provide that no
cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least thirty (30) days after receipt by
the Secured Party of written notice thereof, (ii) name the Secured Party as
insured party, and (iii) be reasonably satisfactory in all other respects
to the Secured Party. The Debtor shall deliver to the Secured Party a
report of a reputable insurance broker or agent with respect to such
9
insurance at such times as may be specified by the Secured Party in its
discretion and such supplemental reports with respect thereto as the
Secured Party may from time to time reasonably request.
(q) Further Identification of Collateral. The Debtor will furnish to
the Secured Party from time to time statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as the Secured Party may reasonably request,
all in reasonable detail.
(r) Notices. The Debtor will advise the Secured Party promptly, in
reasonable detail, at its address set forth in the Loan Agreement, (i) of
any security interest or lien (other than security interests and liens
created hereby) on, or claim asserted against, any of the Collateral and
(ii) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests and liens created hereunder.
(s) Changes in Locations, Name, etc. The Debtor will not (i) change
the location of its chief executive office/chief place of business from
that specified in Section 3, or (ii) change its name, identity or
organizational structure to such an extent that any financing statement
filed by the Secured Party in connection with this Security Agreement would
become misleading.
5. PERFORMANCE BY SECURED PARTY OF DEBTOR'S AGREEMENTS. If the Debtor fails
to perform or comply with any of the agreements contained herein and the Secured
Party, as provided for by the terms of this Security Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the expenses of the Secured Party incurred in connection with such
performance or compliance, together with interest thereon at the highest lawful
rate, shall be payable by the Debtor to the Secured Party on demand and shall
constitute part of the Obligation secured hereby.
6. SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) Attorney-in-Fact. Debtor hereby irrevocably constitutes and
appoints the Secured Party and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Debtor and in
the name of the Debtor or in its own name, from time to time in the Secured
Party's discretion, for the purpose of carrying out the terms of this
Security Agreement, to take any and all appropriate action and to execute
any and all documents and instruments which may be necessary or desirable
to accomplish the purposes of this Security Agreement, and, without
limiting the generality of the foregoing, the Debtor hereby gives the
Secured Party the power and right, on behalf of the Debtor, without notice
to or assent by the Debtor, to do the following:
(i) in the case of any Account, at any time when the authority of
the Debtor to collect the Accounts has been curtailed or terminated
pursuant to the first sentence of Section 8(c) hereof, or in the case
of any other Collateral, at any time when any Event of Default shall
have occurred and is continuing, in the name of the Debtor or its own
10
name, or otherwise, to take possession of and indorse and collect any
checks, drafts, notes, acceptances or other instruments for the
payment of moneys due under, or with respect to, any Collateral and to
file any claim or to take any other action or proceeding in any court
of law or equity or otherwise deemed appropriate by the Secured Party
for the purpose of collecting any and all such moneys due or with
respect to such Collateral whenever payable;
(ii) to pay or discharge taxes and liens levied or placed on or
threatened against the Collateral, to effect any repairs or any
insurance called for by the terms of this Security Agreement and to
pay all or any part of the premiums therefor and the costs thereof;
(iii) to maintain or protect the Intellectual Property (without
any obligation to do so), and to transfer and register the transfer of
any Intellectual Property upon the occurrence of an Event of Default;
and
(iv) upon the occurrence and during the continuance of any Event
of Default, (a) to direct any party liable for any payment under any
of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Secured Party or as the Secured
Party shall direct; (b) to ask for or demand, collect, receive payment
of and receipt for, any and all moneys, claims and other amounts due
or to become due at any time in respect of or arising out of any
Collateral; (c) to sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in
connection with any of the Collateral; (d) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any thereof and to
enforce any other right in respect of any Collateral; (e) to defend
any suit, action or proceeding brought against the Debtor with respect
to any Collateral; (f) to settle, compromise or adjust any suit,
action or proceeding described in the preceding clause and, in
connection therewith, to give such discharges or releases as the
Secured Party may deem appropriate; and (g) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though the
Secured Party were the absolute owner thereof for all purposes, and to
do, at the Secured Party's option and the Debtor's expense, at any
time, or from time to time, all acts and things which the Secured
Party deems necessary to protect, preserve or realize upon the
Collateral and the security interest and liens of the Secured Party
thereon and to effect the intent of this Security Agreement, all as
fully and effectively as the Debtor might do.
The Debtor hereby ratifies all that said attorneys shall lawfully
do or cause to be done by virtue hereof. This power of attorney is a
power coupled with an interest and shall be irrevocable.
11
(b) Other Powers. The Debtor also authorizes the Secured Party, at any
time and from time to time, to execute, in connection with the sale
provided for in Sections 6(a) and 8(d), any endorsements, assignments or
other instruments of conveyance or transfer with respect to the Collateral.
7. PROCEEDS. In addition to the rights of the Secured Party specified in
Section 8 with respect to payments of Accounts, it is agreed that if an Event of
Default shall occur and be continuing (i) all Proceeds received by the Debtor
consisting of cash, checks and other near-cash items shall be held by the
Debtor, in trust for the Secured Party, segregated from other funds of the
Debtor, and shall, forthwith upon receipt by the Debtor, be turned over to the
Secured Party in the exact form received by the Debtor (duly indorsed by the
Debtor to the Secured Party), and (ii) any and all such Proceeds received by the
Secured Party (whether from the Debtor or otherwise) may, in the sole discretion
of the Secured Party, be held by the Secured Party for the Secured Party as
collateral security for, and/or then or at any time thereafter may be applied by
the Secured Party against, the Obligation (whether matured or unmatured), such
application to be in such order as the Secured Party shall elect. Any balance of
such Proceeds remaining after the Obligation shall have been paid in full shall
be paid over to the Debtor or to whomsoever may be lawfully entitled to receive
the same.
8. SECURED PARTY'S RIGHTS, REMEDIES AND POWERS.
(a) Analysis of Accounts. The Secured Party shall have the right to
make test verifications of the Accounts in any manner and through any
medium that it reasonably considers advisable, and the Debtor shall furnish
all such assistance and information as the Secured Party may require in
connection therewith. At any time and from time to time, upon the Secured
Party's request and at the expense of the Debtor, the Debtor shall cause
independent public accountants or others satisfactory to the Secured Party
to furnish to the Secured Party reports showing reconciliations, aging and
test verifications of, and trial balances for, the Accounts.
(b) Notice to Account Debtors and Contracting Parties. At any time
after an Event of Default occurs and is continuing, upon the request of the
Secured Party at any time, the Debtor shall notify account debtors of the
Accounts and parties to the Contracts that the Accounts and the Contracts
have been assigned to the Secured Party and that payments in respect
thereof shall be made directly to the Secured Party. The Secured Party may
in its own name or in the name of others communicate with account debtors
on the Accounts and parties to the Contracts to verify with them to its
satisfaction the existence, amount and terms of any Accounts or Contracts.
(c) Collections on Accounts and Contracts. The Secured Party hereby
authorizes the Debtor to collect the Accounts and Contracts, subject to the
Secured Party's direction and control, and the Secured Party may curtail or
terminate said authority at any time. If required by the Secured Party at
any time, any payments of Accounts and Contracts, when collected by the
Debtor, shall be forthwith (and, in any event, within two Business Days)
deposited by the Debtor in the exact form received, duly indorsed by the
Debtor to the Secured Party if required, in a special collateral account
12
maintained by the Secured Party, subject to withdrawal by the Secured Party
for the account of the Secured Party only, as provided in this Security
Agreement, and, until so turned over, shall be held by the Debtor in trust
for the Secured Party, segregated from other funds of the Debtor. All
Proceeds while held by the Secured Party (or by the Debtor in trust for the
Secured Party) shall continue to be collateral security for all of the
Obligation and shall not constitute payment thereof until applied as
provided in this Security Agreement. At such intervals as may be agreed
upon by the Debtor and the Secured Party, or, if an Event of Default shall
have occurred and be continuing, at any time at the Secured Party's
election, the Secured Party shall apply all or any part of the funds on
deposit in said special collateral account on account of the Obligation in
such order as the Secured Party may elect, and any part of such funds which
the Secured Party elects not so to apply and deems not required as
collateral security for the Obligation shall be paid over from time to time
by the Secured Party to the Debtor or to whomsoever may be lawfully
entitled to receive the same. At the Secured Party's request, the Debtor
shall deliver to the Secured Party all original and other documents
evidencing, and relating to, the agreements and transactions which gave
rise to the Accounts and Contracts, including, without limitation, all
original orders, invoices and shipping receipts.
(d) Remedies; Acceleration of Maturity of Obligations; Repossession
and Sale of Collateral. At any time after an Event of Default occurs and is
continuing, Secured Party may declare every Obligation to be immediately
due and payable and may exercise, in addition to all other rights and
remedies granted to it in this Security Agreement, the Loan Agreement and
in any of the other Loan Documents securing, evidencing or relating to the
Obligation, all rights and remedies of a secured party under the UCC.
Without limiting the generality of the foregoing, the Secured Party,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law
referred to below) to or upon the Debtor or any other person (all and each
of which demands, defenses, advertisements and notices are hereby waived),
may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any party thereof, and/or may forthwith
sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to
do any of the foregoing), in one or more parcels at public or private sale
or sales, at any exchange, broker's board or office of the Secured Party or
elsewhere upon such terms and conditions as Secured Party may deem
advisable and at such prices as Secured Party may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The
Secured Party shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part-of the Collateral so sold, free of any right
or equity of redemption in the Debtor, which right or equity is hereby
waived or released. The Debtor further agrees, at the Secured Party's
request, to assemble the Collateral and make it available to the Secured
Party at places which the Secured Party shall reasonably select, whether at
the Debtor's premises or elsewhere. The Secured Party shall apply the net
proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of
every kind incurred therein or incidental to the care or safekeeping of any
of the Collateral or in any way relating to the Collateral or the rights of
the Secured Party hereunder, including, without limitation, reasonable
13
attorneys' fees and disbursements, to the payment in whole or in part of
the Obligation, in such order as the Secured Party may elect, and only
after such application and after the payment by the Secured Party of any
other amount required by any provision of law, need the Secured Party
account for the surplus, if any, to the Debtor. To the extent permitted by
applicable law, the Debtor waives all claims, damages and demands it may
acquire against the Secured Party arising out of the exercise by it of any
rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least ten (10) days before such sale or other
disposition. The Debtor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are
insufficient to pay the Obligation and the fees and disbursements of any
attorneys employed by the Secured Party to collect such deficiency.
(e) Right of Setoff. In addition to the security interest and lien
herein described, Debtor expressly recognizes and grants Secured Party upon
the occurrence of an Event of Default the right of setoff with respect to
any money, checks, certificates of deposit or instruments deposited with
Secured Party, whether in general or special deposits, which right may be
exercised concurrently with or separately from any and all other rights of
Secured Party against Debtor.
9. LIMITATIONS ON SECURED PARTY'S DUTIES AND OBLIGATIONS.
(a) Limitations on Secured Party's Obligations Under Accounts and
Contracts. The Secured Party shall not have any obligation or liability
under any Account (or any agreement giving rise thereto) or Contract by
reason of or arising out of this Security Agreement or the receipt by the
Secured Party of any payment relating to such Account or Contract pursuant
hereto, nor shall the Secured Party be obligated in any manner to perform
any of the obligations of the Debtor thereof under or pursuant to any
Account (or any agreement giving rise thereto) or under or pursuant to any
Contract, to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account (or any agreement giving rise
thereto) or under any Contract, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts
which may have been assigned to it or to which it may be entitled at any
time or times.
(b) Limitation on Duties Regarding Preservation of Collateral. The
Secured Party's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section
9.207 of the UCC or otherwise, shall be to deal with it in the same manner
as the Secured Party deals with similar property for its own account.
Neither the Secured Party nor any of its directors, officers, employees or
agents shall be liable for failure to demand, collect or realize upon all
or any part of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon
the request of the Debtor or otherwise. Without limiting the generality of
the foregoing, the Secured Party shall not have any obligation to take any
action with respect to the maintenance, protection, enforcement or validity
of any of the Collateral.
14
(c) No Duty on the Part of Secured Party. The powers conferred on the
Secured Party under this Security Agreement are solely to protect the
interests of the Secured Party in the Collateral and shall not impose any
duty upon the Secured Party to exercise any such powers. The Secured Party
shall be accountable only for amounts that it actually receives as a result
of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to the Debtor or its
officers, directors, employees, partners or agents for any act or failure
to act hereunder, except for its own gross negligence or willful
misconduct.
10. GENERAL PROVISIONS.
(a) Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
(b) Severabilitv. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
(c) Additional Definitions. The term "DEBTOR" as used in this Security
Agreement is to be construed as singular or plural to correspond with the
number of persons executing this instrument as Debtor. The pronouns used in
this instrument are in the masculine gender but shall be construed as
feminine or neuter as occasion may require. "SECURED PARTY" and "DEBTOR" as
used in this instrument include the heirs, executors or administrators,
successors, representatives, receivers, trustees, custodians, and assigns
of those parties.
(d) Captions. The section and paragraph headings appearing in this
instrument were inserted for convenience only and are not to be given any
substantive meaning or significance in construing this Security Agreement.
(e) Waivers and Amendments; Successors and Assigns. None of the terms
or provision of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed
by the Debtor and the Secured Party, provided that any provision of this
Security Agreement may be waived by the Secured Party in a written letter
or agreement executed by the Secured Party or by telex or facsimile
transmission from the Secured Party. This Security Agreement shall be
binding upon the permitted successors and assigns of the Debtor and shall
inure to the benefit of the Secured Party and its successors and assigns.
(f) No Waiver; Cumulative Remedies. The Secured Party shall not by any
act (except by a written instrument pursuant to Section 10(e) hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right
or remedy hereunder or to have acquiesced in any Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Secured Party, any right,
15
power or privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Secured Party of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Secured Party would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
(g) GOVERNING LAW. THE LAW GOVERNING THIS SECURED TRANSACTION SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF
TEXAS.
(h) Renewal, Extension or Rearrangement. All provisions of this
Security Agreement and of any other Loan Document shall apply with equal
force and effect to each and all promissory notes hereafter executed which
in whole or in part represent a renewal, extension for any period, increase
or rearrangement of any part of the Obligation originally represented by
the Note or any part of such other Obligation.
(i) Assignment. Secured Party may from time to time assign this
Security Agreement, Secured Party's rights under this Security Agreement,
or all or any of the Obligation. In any such case, the assignee will be
entitled to all rights, privileges, and remedies granted in this Security
Agreement to Secured Party, and Debtor will not assert against the assignee
any claims or defenses Debtor may have against Secured Party (except those
granted in this Security Agreement).
(j) Notices. Notices hereunder may be given and be effective as set
forth in the Loan Agreement.
(k) Counterpart Execution. This Security Agreement may be executed in
any number of counterparts with the same effect as if all of the parties
had signed the same document. All counterparts shall be construed together
and shall constitute one agreement. Signatures transmitted by fax or other
electronic means shall be treated as and deemed original signatures and
shall be binding for all purposes.
(l) Renewal and extension. This Security Agreement and the security
interest granted herein are, given the renewal and extension of that
curtain Security Agreement by and between Permian and Secured Party dated
as of August 1, 2007 and the security interests granted therein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
EXECUTED as of the date first above written.
DEBTOR: BARON ENERGY, INC.
By: /s/ Lisa P. Hamilton
----------------------------------------------
Name: Lisa P. Hamilton
Title: Executive Vice President and CFO
SECURED PARTY: BASELINE CAPITAL, INC.
By: /s/ Karl J. Reiter\
----------------------------------------------
Karl J. Reiter, President
1
