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This
Security Agreement (this “ Agreement
”)
is executed as of October 5, 2007, by and among TATONKA OIL AND GAS
COMPANY, INC., a Colorado corporation (the “
Company
”), TATONKA
OIL AND GAS, INC., a Colorado corporation (the “
Parent
”
and together with the Company, the “ Debtors
”
and individually, a “ Debtor
”), and
ENERGY CAPITAL SOLUTIONS, L.P., a Texas limited partnership, as
collateral agent for the Secured Parties (the “
Collateral
Agent ”).
FOR
VALUABLE CONSIDERATION, the receipt and adequacy of which are
hereby acknowledged, each Debtor hereby covenants and agrees with
the Collateral Agent, for the benefit of the Secured Parties, as
follows:
1.
Reference to
Purchase Agreement and Notes . This Agreement is
being executed and delivered in connection with that certain
Securities Purchase Agreement (the “ Purchase
Agreement ”), of even
date herewith, by and among the Parent, the Company and the
Purchasers named therein (each, together with their successors and
permitted assigns, a “ Secured
Party ” and
collectively, the “ Secured
Parties ”), and in
connection with the issuance by the Company of the Notes pursuant
to the Purchase Agreement. Capitalized terms used in this Agreement
but not otherwise defined herein shall have the meanings ascribed
to such terms in the Purchase Agreement.
2.
Incorporation of
Purchase Agreement and Notes . The terms,
conditions, and provisions of the Purchase Agreement and the Notes
are incorporated herein by reference, the same as if set forth
herein verbatim, which terms, conditions, and provisions shall
continue to be in full force and effect hereunder until each Note
is paid and performed in full.
3.
Certain
Definitions . As used herein,
the following terms have the meanings indicated:
Collateral
shall
mean all of the following property (including all right, title and
interest of the Debtors therein):
(i) All
present and future accounts, chattel paper, documents, instruments,
deposit accounts, general intangibles (including any right to
payment for goods sold or services rendered arising out of the sale
or delivery of personal property or work done or labor performed by
the Debtors) and investment property, now or hereafter owned, held
or acquired by the Debtors, together with any and all books of
account, customer lists and other records relating in any way to
the foregoing (including, without limitation, computer software,
whether on tape, disk, card, strip, cartridge or any other form),
and in any case where an account arises from the sale of goods, the
interest of the Debtors in such goods;
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(ii) All
present and hereafter acquired inventory (including, without
limitation, all raw materials, work in process and finished goods)
held, possessed, owned, held on consignment or held for sale,
lease, return or to be furnished under contracts of services, in
whole or in part, by the Debtors wherever located, and all records
relating in any way to the foregoing (including, without
limitation, any computer software, whether on tape, disk, card,
strip, cartridge or any other form);
(iii)
All equipment and fixtures of whatsoever kind and character now or
hereafter possessed, held, acquired, leased or owned by the Debtors
and used or usable in the Debtors’ business, together with
all replacements, accessories, additions, substitutions and
accessions to all of the foregoing, all records relating in any way
to the foregoing (including, without limitation, any computer
software, whether on tape, disk, card, strip, cartridge or any
other form). To the extent that the foregoing property is located
on, attached to, annexed to, related to, or used in connection
with, or otherwise made a part of, and is or shall become fixtures
upon, real property, such real property and the record owner
thereof is described on Exhibit
“A” attached hereto and
made a part hereof; and
(iv) All
interest, increase, additions, renewals, substitutions, products
and proceeds, in cash or otherwise, of any of the property
described in the foregoing clauses (i) through (iii) and all liens,
security, rights, remedies and claims of the Debtors with respect
thereto.
The term
Collateral, as used herein, shall also include all PRODUCTS and
PROCEEDS of all of the foregoing (including, without limitation,
insurance payable by reason of loss or damage to the foregoing
property) and any property, securities, guaranties or monies of the
Debtors which may at any time come into the possession of the
Secured Party (as hereinafter defined). The designation of proceeds
does not authorize the Debtors to sell, transfer or otherwise
convey any of the foregoing property except hydrocarbons or
finished goods intended for sale in the ordinary course of the
Debtors’ business or as otherwise provided herein.
Default
means
the occurrence of any one or more of the following events, which in
the case of clause (ii) below continues for a period of 5 days
after the Collateral Agent gives written notice thereof: (i) an
Event of Default (as defined in the Notes); (ii) except as
otherwise provided in this definition, the failure of any Debtor to
perform any material covenant, agreement, or condition contained
herein; (iii) the levy against the Collateral, or any part thereof,
or any execution, attachment, sequestration, or other writ; (iv)
the appointment of a receiver with respect to the Collateral, or
any part thereof; (v) the filing by any Debtor, by way of petition
or answer, of any petition or other pleading seeking relief as a
debtor, or an adjustment of any Debtor’s debts, or any other
relief under any bankruptcy, reorganization, or insolvency laws now
or hereafter existing; or (vi) the receipt by the Collateral Agent
of information establishing that any representation or warranty
made by any Debtor herein is false, misleading, or erroneous in any
material respect.
Obligations
means
each Debtor’s payment and performance under this Agreement,
the Purchase Agreement and the Notes, together with any and all
renewals,
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extensions, and
modifications of the same, whether on account of principal,
interest, fees, indemnities, costs, expenses, costs of collection
thereunder or otherwise.
Obligor
means
any person obligated with respect to any of the Collateral, whether
as an account debtor, obligor on an instrument, issuer of
securities, or otherwise.
Security
Interest means the security
interest granted and the pledge and assignment made under Paragraph
4.
UCC
means
the Uniform Commercial Code as enacted in the State of Colorado, or
other applicable jurisdiction, as amended at the time in
question.
4.
Security
Interest . In order to
secure the full and complete payment and performance of the
Obligations when due, each Debtor hereby grants to the Collateral
Agent, for the ratable benefit of the Secured Parties, a security
interest in and to the Collateral and pledges and assigns the
Collateral to the Collateral Agent, for the ratable benefit of the
Secured Parties. Such security interest is granted and such pledge
and assignment are made as security only and shall not subject the
Collateral Agent to, or transfer or in any way affect or modify,
any obligation of any Debtor with respect to any of the Collateral
or any transaction involving or giving rise thereto.
5.
Representations,
Warranties and Covenants of Debtors
(a)
Representations and
Warranties with Respect to the Collateral . Each Debtor
represents and warrants that (i) it has all requisite power and
authority to enter into this Agreement; (ii) except for any
financing statement that may be filed by the Collateral Agent, for
the ratable benefit of the Secured Parties, with respect to the
Collateral, no financing statement covering the Collateral, or any
part thereof, has been filed with any filing officer or agency;
(iii) no other security agreement covering the Collateral, or any
part thereof, has been made and other than (A) a statement of lien
filed by James T. Priestley d/b/a Black Diamond Mud in the books
and records of Moffat County, Colorado (Ref. No. 20073107), and (B)
the one created herein, no security interest has attached to or
been perfected in the Collateral or in any part thereof; (iv) on
the date hereof each Debtor’s business address, jurisdiction
of organization and identification number from such jurisdiction of
organization is specified on Schedule
1 hereto, and (v) no
dispute, right of setoff, counterclaim, or defense exists with
respect to any part of the Collateral.
(b)
Affirmative
Covenants of Debtors . Each Debtor
covenants and agrees to each and all of the following: (i) to
execute and deliver promptly to the Collateral Agent all such other
assignments, certificates, and supplemental writings, and to do all
other acts or things, as the Collateral Agent may reasonably
request in order more fully to evidence and perfect the security
interest created herein; (ii) to furnish the Collateral Agent
promptly with any information or writing that the Collateral Agent
may reasonably request concerning the Collateral; (iii) to allow
the Collateral Agent to inspect all books and records of any Debtor
relating to the Collateral or the Notes; (iv) to notify the
Collateral Agent promptly of any change in any material fact or
circumstance warranted or represented by any Debtor in this
Agreement or in any other writings furnished by any Debtor to the
Collateral Agent in connection with the Collateral; (v) to notify
the Collateral Agent promptly of any claim, action, or
proceeding
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affecting title to
the Collateral, or any part thereof, or the security interest
therein, and at the request of the Collateral Agent, to appear in
and defend, at Debtors’ sole cost and expense, any such
action or proceeding; (vi) to maintain insurance customarily
obtained by similar businesses and (vii) to pay to the Collateral
Agent promptly the amount of all costs and expenses (including
reasonable attorney’s fees) incurred by the Collateral Agent
in the enforcement of their rights hereunder.
(c)
Negative Covenants
of Debtors . Each Debtor
covenants and agrees that, without the prior written consent of the
Collateral Agent (which consent may be granted or withheld in the
sole and absolute discretion of the Collateral Agent), such Debtor
will not (i) except for sales of inventory in the ordinary course
of business consistent with past practice, sell, assign, or
transfer the Collateral or any of its rights therein, (ii) create
any other security interest in, mortgage, or otherwise encumber the
Collateral or any part thereof, or permit the Collateral to be or
become subject to any lien, attachment, execution, sequestration,
other legal or equitable process, or any encumbrance of any kind or
character, except the security interest created herein or disclosed
herein, or (iii) change its jurisdiction of organization, name or
corporate structure.
6.
Default;
Remedies . Should a Default
occur and be continuing, the Collateral Agent may, at its election,
exercise any and all rights available to the Collateral Agent and
the Secured Parties under the UCC, in addition to any and all other
rights afforded by this Agreement, at law, in equity, or otherwise,
including, without limitation, (a) to the extent practicable,
requiring any Debtor to assemble all or part of the Collateral and
make it available to the Collateral Agent at a place to be
designated by the Collateral Agent which is reasonably convenient
to such Debtor and the Collateral Agent, (b) applying by
appropriate judicial proceedings for appointment of an independent
receiver for all or part of the Collateral (and each Debtor hereby
consents to any such appointment), and (d) applying to the
Obligations any cash held by the Collateral Agent under this
Agreement.
(a)
Notice
.
Reasonable notification of the time and place of any public sale of
the Collateral, or reasonable notification of the time after which
any private sale or other intended disposition of the Collateral is
to be made, shall be sent to Debtors and to any other person
entitled to notice under the UCC; provided
that if any of the
Collateral threatens to decline speedily in value or is of the type
customarily sold on a recognized market, the Collateral Agent may
sell or otherwise dispose of the Collateral in a commercially
reasonable transaction without notification, advertisement, or
other notice of any kind. It is agreed that notice sent or given
not less than five calendar days prior to the taking of the action
to which the notice relates is reasonable notification and notice
for the purposes of this subparagraph.
(b)
Sales
of Securities . In connection
with the sale of any Collateral that is securities, the Collateral
Agent is authorized, but not obligated, to limit prospective
purchasers to the extent deemed necessary or desirable by the
Collateral Agent to render such sale exempt from the registration
requirements of the Securities Act of 1933, as amended, and any
applicable state securities laws, and no sale so made in good faith
by the Collateral Agent shall be deemed not to be “
commerc
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