|
SECURITY AGREEMENT
(All Personal Property)
THIS SECURITY AGREEMENT is made and entered into as
of July 3, 2008 (this “ Agreement ”) among
ENERJEX RESOURCES, INC. , a Nevada corporation, ENERJEX
KANSAS, INC . ( f/k/a Midwest Energy, Inc.), a
Nevada corporation and DD ENERGY,
INC., a Nevada corporation (collectively,
“ Debtors ”) in favor of TEXAS CAPITAL
BANK, N.A , a national banking
association, as Administrative Agent for the Banks (“
Secured Party ”).
Background:
1. On the
same date as this Agreement, Debtors, as Borrowers, and Secured
Party and the Banks executed that certain Credit Agreement (as
amended, restated, supplemented, or otherwise modified from time to
time, the “ Credit
Agreement ”) pursuant to which the
Banks agreed to make loans to Debtors from time to time on the
conditions set out in the Credit Agreement.
2. Borrowers,
Secured Party and an Approved Counterparty (as defined in the
Credit Agreement) entered into, or may enter into from time to
time, an Intercreditor Agreement (as defined in the Credit
Agreement).
3. Lender
has conditioned its obligations under the Credit Agreement upon,
among other things, the execution and delivery by Debtors of this
Agreement, and Debtors have agreed to enter into this
Agreement.
Agreements:
In order to comply with the terms and conditions of
the Credit Agreement and for and in consideration of the premises
and the agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtors hereby agree with Secured Party as
follows:
ARTICLE I
DEFINITIONS
Section
1.1 Terms Defined Above . As used in this
Agreement, the terms “ Debtors ,” “
Secured Party ,”
and “ Credit Agreement
” shall have the meanings indicated
above.
Section
1.2 Definitions Contained in the Credit Agreement
. Unless otherwise defined herein or the context
otherwise requires, all capitalized terms used but not defined in
this Agreement have the respective meanings given them in the
Credit Agreement.
Section
1.3 Certain Definitions . As used in this
Agreement, the following terms shall have the following meanings,
unless the context otherwise requires:
“ Accounts
” has the meaning indicated in
subsection 2.1(a) hereof.
1346459v5
“ Agreement ” is defined in the
preamble and means this Security Agreement, as the same may from
time to time be amended or supplemented.
“ Code
” means (a) the Uniform Commercial Code
as presently in effect in the State of Texas, as amended from time
to time, and (b) with respect to rights in states other than
Texas, the Uniform Commercial Code as enacted in the applicable
state, as amended from time to time.
“ Collateral ” means all
property, including without limitation cash or other proceeds, in
which Secured Party shall have a security interest pursuant
to Section 2.1 of this Agreement.
“ Controlled Foreign
Entity ” means a “controlled
foreign corporation” as defined in the Tax Code.
“ Default
” means the occurrence of any of the events
specified in Section 5.3
hereof, whether or not any requirement for notice or
lapse of time or other condition precedent has been
satisfied.
“ Equipment ” has the meaning
indicated in subsection 2.1(c)
hereof.
“ Event of
Default ” means the occurrence of
any of the events specified in Section 5.3 hereof;
provided that any requirement for notice or
lapse of time or other condition precedent has been
satisfied.
“ General
Intangibles ” has the meaning
indicated in subsection 2.1(d)
hereof.
“ Inventory ” has the meaning
indicated in subsection 2.1(e)
hereof.
“ Other Liable
Party ” means any person, other
than a Debtor, who is or becomes primarily or secondarily liable
for any of the Secured Obligations or who grants Secured Party a
lien on any property as security for the Secured
Obligations.
“ Related
Rights ” means all chattel paper,
electronic chattel paper, payment intangibles, promissory notes,
letter of credit rights, supporting obligations, documents and
instruments relating to the Accounts or the General Intangibles and
all rights now or hereafter existing in and to all security
agreements, leases, and other contracts securing or otherwise
relating to any Accounts or General Intangibles or any such chattel
paper, electronic chattel paper, payment intangibles, promissory
notes, letter of credit rights, documents and
instruments.
“ Secured
Obligations ” has the meaning
indicated in Section 2.3
hereof.
“ Security
Documents ” means this Agreement
together with all financing statements filed in connection with
this Agreement.
“ Tax Code
” means the Internal Revenue Code of 1986, as
the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
Section
1.4 Terms Defined in Code . Unless
otherwise defined herein, all terms used herein which are defined
in the Code shall have the same meaning herein.
ARTICLE II
SECURITY INTEREST
Section
2.1 Grant of Security Interest . As
collateral security for all of the Secured Obligations, Debtors
hereby grant to Secured Party a security interest in, a general
lien upon, and a right of set-off against all of Debtors’
right, title and interest in all of its personal and fixture
property of every kind and nature, whether tangible or intangible,
including but not limited to the following, and whether now owned
or hereafter acquired:
(a) all of
Debtors’ accounts (as defined in the Code) of any kind (the
“ Accounts ”), and all rights in and to all security agreements,
leases, and other contracts securing or otherwise relating to any
Accounts;
(b) all of
Debtors’ goods, chattel paper, electronic chattel paper,
payment intangibles, promissory notes, letters of credit and
letter-of-credit rights, documents and instruments, in each case as
defined in the Code, and all rights in and to all security
agreements, leases, and other contracts securing or otherwise
relating to any such chattel paper, documents and
instruments;
(c) all of
Debtors’ equipment (as defined in the Code) in all of its
forms, and wherever located, together with all parts thereof and
all accessions or additions thereto, including all of
Debtors’ vehicles (collectively, the “
Equipment ”);
(d) all of
Debtors’ general intangibles (as defined in the Code) of any
kind (the “ General
Intangibles ”), and all rights in
and to all security agreements, leases, and other contracts
securing or otherwise relating to any General
Intangibles;
(e) all of
Debtors’ inventory (as defined in the Code) in all of its
forms, and wherever located, together with all accessions or
additions thereto and products thereof (collectively the
“ Inventory ”);
(f) all of
Debtors’ investment property (as defined in the Code)
wherever located;
(g) all of
Debtors’ deposit accounts (as defined in the Code) wherever
located (other than trust accounts and joint operating
accounts);
(h) all of
Debtors’ as-extracted collateral and fixtures, in each case
as defined in the Code;
(i) all of
Debtors’ insurance claims and proceeds and commercial tort
claims;
(j) any other
contract rights of Debtors or rights to the payment of
money;
(k) any
additional tangible or intangible property from time to time
delivered to or deposited with Secured Party as security for the
Secured Obligations or otherwise pursuant to the terms of this
Security Agreement; and
(l) the
proceeds, products, supporting obligations, Related Rights,
additions to, substitutions for and accessions of any and all
Collateral described in subsections (a)-(k) in this
Section 2.1 .
Section
2.2 Certain Limited Exclusions .
Notwithstanding anything herein to the contrary, in no event shall
the Collateral include (nor shall any component definition of
Collateral include), or the security interest granted under
Section 2.1 hereof
attach to any of the outstanding Equity Interest of, a Controlled
Foreign Entity in excess of sixty-five percent (65%) of the voting
power of all classes of Equity Interest of such Controlled Foreign
Entity entitled to vote.
Section
2.3 Secured Obligations . The security
interest in, general lien upon, and right of set-off against the
Collateral is granted to secure the following (collectively, the
“ Secured Obligations
”):
(a) the
payment of all the Obligations (as defined in the Credit Agreement)
of Debtors to Secured Party and the Banks now or hereafter existing
including, without limitation, the Indebtedness of Debtors under
the Note, and any and all renewals, extensions for any period or
rearrangement of the Obligations;
(b) the
performance of all obligations of Debtors under this Agreement, the
Permitted Swap Contracts (as defined in the Credit Agreement) and
the other Loan Documents; and
(c) all
obligations of Debtors owed to an Approved Counterparty, as
counterparty under those certain Permitted Swap Contracts defined
in or arising pursuant to the terms of the Credit Agreement,
including without limitation, any Master Swap Agreement executed
pursuant to the Credit Agreement between any Debtor and an Approved
Counterparty (together with all schedules and confirmations in
respect thereof, as ratified, amended, supplemented, restated,
extended or replaced from time to time).
ARTICLE III
REPRESENTATIONS AND
WARRANTIES
In order to induce Secured Party to accept this
Agreement, each Debtor represents and warrants to Secured Party
(which representations and warranties will survive the creation of
any Secured Obligations and the extension of any credit under the
Credit Agreement) that:
Section
3.1 Ownership and Liens . Except for the
security interest of Secured Party granted in this Agreement and
except for liens, security interests and other encumbrances
permitted under the Credit Agreement (“ Permitted Encumbrances ”), each
Debtor owns title to the Collateral free and clear of any other
liens, security interests and other encumbrances other than
Permitted Encumbrances. Each Debtor has rights in or the 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 other liens, security interests and other encumbrances other
than Permitted Encumbrances. No other lien, security interest or
other encumbrance has been created by any Debtor or is known by any
Debtor to exist with respect to any Collateral other than Permitted
Encumbrances. No financing statement or other security instrument
is on file in any jurisdiction
covering any part of the Collateral other than those
in favor of Secured Party and those filed with respect to Permitted
Encumbrances. At the time the security interest in favor of Secured
Party attaches to any after-acquired property included within the
Collateral, title to such after-acquired property, free and clear
of any other liens, security interests and other encumbrances
(other than Permitted Encumbrances) will be vested in the
applicable Debtor.
Section
3.2 Status of Accounts . Each Account
hereafter arising will represent, and to the best knowledge of
Debtors each Account now existing represents, the valid and legally
enforceable obligations of a bona fide account debtor and is not
and will not be subject to contra accounts, set-offs, defenses or
counterclaims by or available to account debtors obligated on the
Accounts except contra accounts, set-offs, defenses or
counterclaims that, in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect or as disclosed to
Secured Party in writing; and the amount shown as to each Account
on each Debtor’s books will be the true and undisputed amount
owing and unpaid thereon, subject to any discounts, allowances,
rebates, credits and adjustments to which the account debtor has a
right and immaterial errors and omissions that, in the aggregate,
could not reasonably be expected to result in a Material Adverse
Effect, and which have arisen in each Debtor’s ordinary
course of business, or which have otherwise been disclosed to
Secured Party in writing.
Section
3.3 Status of Related Rights . All
Related Rights are, and those hereafter arising will be, valid and
genuine, except to the extent that any invalidity or lack of
genuineness thereof could reasonably be expected to result in a
Material Adverse Effect.
Section
3.4 Inventory Not Covered by Other Documents . No material portion of the Inventory is, and at the time the
security interest in favor of Secured Party attaches no material
portion of the Inventory hereafter acquired will be, covered by any
document (as defined in the Code).
Section
3.5 Name; Organization; Authority . The
exact legal name of each Debtor is set out in the preamble of this
Agreement. Each Debtor is a corporation and is duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its organization. The execution, delivery and
performance of this Agreement has been duly authorized by all
Corporate Action, and this Agreement constitutes the valid and
binding obligation of each Debtor, enforceable against each Debtor
in accordance with its terms, except as the enforceability thereof
may be limited or affected by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors rights generally and by general equitable
principles.
Section
3.6 Location . As of the date hereof,
each Debtor’s chief executive office and chief place of
business is located at the address set out in Schedule 10.02 of the
Credit Agreement. The office where each Debtor keeps its records
concerning the Accounts and the General Intangibles and the
originals of the Related Rights, if any, has the same address as
such Debtor’s chief executive office and chief place of
business. Debtors’ Inventory and Equipment (other than mobile
goods) are located in the State of Kansas and such other states as
Debtor shall have, from time to time, given written notice of to
Secured Party.
Section
3.7 Secured Party’s Security Interest . This Agreement creates a valid and binding security interest
in the Collateral securing the Secured Obligations, subject to
the
Permitted Encumbrances. Upon filing the financing
statements described in Section
4.9 of this Agreement covering the
Collateral in the Office of the Secretary of State for the state in
which each Debtor is organized and in the applicable filing offices
of such other jurisdictions as are described in Section 4.9,
Secured Party will have a perfected security interest in that
Collateral in which a security interest may be perfected by filing,
subject only to Permitted Encumbrances. No further or subsequent
filing, recording, registration or other public notice of such
security interest is necessary in any office or jurisdiction in
order to perfect such security interest or to continue, preserve or
protect such security interest except for continuation statements
or for filings upon the occurrence of any of the events stated
in Section 4.9 of this Agreement. Such perfected security interest in the
Collateral shall constitute a first-priority security interest
under the Code, subject only to Permitted Encumbrances.
ARTICLE IV
COVENANTS AND AGREEMENTS
Debtors will at all times comply with the covenants
contained in this Article IV
, from the date hereof and for so long as any part
of the Secured Obligations are outstanding and until the Credit
Agreement is terminated.
Section
4.1 Title; Prohibited Liens and Filings .
Debtors agree to protect Debtors’ title to the Collateral.
Debtors will not pledge, mortgage, otherwise encumber, create or
suffer a lien to exist on any of the Collateral (other than
Permitted Encumbrances and other than as permitted by the Credit
Agreement) or, subject to Section
4.12 hereof, sell, assign, dispose or
otherwise transfer any of the Collateral to or in favor of any
Person other than Secured Party (other than as permitted by the
Credit Agreement). Debtors will not file or permit to be filed or
recorded any financing statement or other security instrument with
respect to the Collateral other than in favor of Secured Party, in
favor of other Persons with respect to Permitted Encumbrances, or
as permitted by the Credit Agreement.
Section
4.2 Taxes, Etc . Debtors agree to pay
prior to delinquency all taxes, charges, liens and assessments
against the Collateral which, if unpaid, might result in the
imposition of a lien on the Collateral; provided , however , Debtors shall not be
required to pay any tax, charge, lien or assessment that is not yet
past due or is being contested in good faith by appropriate
proceedings diligently conducted by or on behalf of Debtors and if
Debtors shall have set up reserves therefor adequate under
generally accepted accounting principles.
Section
4.3 Possession of Collateral . Except (i)
as otherwise contemplated in the Credit Agreement with regard to
cash proceeds, (ii) where Secured Party chooses to perfect its
security interest by possession in addition to the filing of a
financing statement, or (iii) the Collateral is in transit in the
ordinary course of business, the Collateral shall remain in
Debtors’ possession or control at all times at Debtors’
risk of loss and shall (except for temporary removal consistent
with its normal use) be kept at locations owned or leased by
Debtors.
Section
4.4 Inspection of Collateral . Secured
Party may inspect Debtors’ records concerning the Accounts
and the General Intangibles, the originals of the Related Rights,
if any, the Equipment, the Inventory and other Collateral in
accordance with Section 6.10
of the Credit Agreement.
Section
4.5 Filing Reproductions . At the option
of Secured Party, a photographic or other reproduction of this
Agreement or of a financing statement covering the Collateral may
be filed as a financing statement.
Section
4.6 Delivery of Information . Debtors
will transmit promptly to Secured Party all information that
Debtors may have or receive with respect to (a) the Collateral, or
(b) account debtors or obligors in respect of the Accounts, the
General Intangibles and the Related Rights, in each case which
could reasonably be expected to materially and adversely affect the
aggregate value of the Collateral or Secured Party’s rights
or remedies with respect thereto.
Section
4.7 Compromise of Collateral . Debtors
will not adjust, settle or compromise any of the Accounts, the
General Intangibles or the Related Rights without the prior written
consent of Secured Party, or other than in a manner that does not
materially and adversely affect the aggregate value of the
Collateral and in the ordinary course of business.
Section
4.8 Expenses . Debtors agree to pay to
Secured Party at Secured Party’s offices, all advances,
charges, costs and expenses (including reasonable attorneys’
fees and legal expenses) incurred by Secured Party in connection
with this Agreement, to the extent required by
Section 10.04 of the
Credit Agreement. The amount of all such advances, charges, costs
and expenses shall constitute Secured Obligations and shall be due
and payable by Debtors to Secured Party as provided in the Credit
Agreement.
Section
4.9 Financing Statement Filings; Notifications
. Debtors recognize that financing statements
pertaining to the Collateral will be filed with the Office of the
Secretary of State for the state in which Debtors are organized and
certain Collateral Documents (as defined in the Credit Agreement)
will be filed in each county in the State in which “Mortgaged
Property” (as defined in the Mortgage) is located. Debtors
will promptly notify Secured Party of any condition or event that
may change the proper location for the filing of any financing
statements or other public notice or recordings for the purpose of
perfecting a security interest in the Collateral. Without limiting
the generality of the foregoing, Debtors will (a) promptly notify
Secured Party of any change to a jurisdiction other than as
represented in Section 3.5
or Section 3.6 : (i) in the
location of any Debtor’s registered office; (ii) in the
location of the Inventory (other than Inventory sold or leased in
the ordinary course of business); (iii) in the location where the
Equipment is kept (other than Equipment removed in the ordinary
course of business for not more than thirty (30) days) or disposed
of as permitted by the Credit Agreement; (iv) in the location of
the office where any Debtor keeps its records concerning the
Accounts; or (v) in the “location” of any Debtor within
the meaning of the Code; (b) prior to any of the Collateral
becoming so related to any particular real estate so as to become a
fixture on such real estate, notify Secured Party of the
description of such real estate and the name of the record owner
thereof; and (c) promptly notify Secured Party of any change in any
Debtor’s name, identity or organizational structure. In any
notice furnished pursuant to this section, Debtors will expressly
state that the notice is required by this Agreement and contains
facts that will or may require additional filings of financing
statements or other notices for the purpose of continuin
| 
