SECURITY
AGREEMENT
1.
Identification .
This Security Agreement (the
“Agreement”), dated as of August 31, 2009, is
entered into by and between Mesa Energy Holdings, Inc., a
Delaware corporation (“Parent”), Mesa Energy,
Inc., a Nevada corporation, Mesa Energy Operating, LLC, a
Texas limited liability company (each a
“Guarantor” and together with Parent, each a
“Debtor” and collectively the
“Debtors”), the Subscribers party to the
Subscription Agreement dated as of August 31, 2009 (the
“Subscription Agreement”), by and between Parent, and
the subscribers set forth on the signature pages affixed
thereto (the “Subscribers”) and Collateral Agents,
LLC (“Collateral Agent”).
2.
Recitals .
2.1 At
or about the date hereof, each of the Subscribers is making a
loan (the “Loan”) to Parent. Each Guarantor
is a direct or indirect Subsidiary (as defined in Section 6.12) of
Parent. It is beneficial to each Debtor that the Loan is
made. Guarantor has or will deliver a
“Guaranty” of Parent’s obligations to
Subscribers.
2.2 The
Loan will be evidenced by one or more promissory notes (each a
“Note”) issued by Parent on or about the date
of this Agreement pursuant to the Subscription
Agreement. The Note was or will be executed by
Parent as “Borrower” or “Debtor” for the
benefit of each Subscriber as the “Holder” or
“Subscriber” thereof.
2.3 In
consideration of the Loans made and to be made by Subscribers to
Parent and for other good and valuable consideration, and as
security for the performance by Parent of its obligations under the
Note, by Guarantor of its obligations under the Guaranty, and as
security for the repayment of the Loan and all other sums due from
Debtor to Subscribers arising under the Transaction Documents (as
defined in the Subscription Agreement) and any other agreement
between or among them (collectively, the
“Obligations”), each Debtor, for good and valuable
consideration, receipt of which is acknowledged, has agreed to
grant to the Subscribers and to the Collateral Agent on behalf of
the Subscribers a security interest in the Collateral (as such term
is hereinafter defined), on the terms and conditions hereinafter
set forth. Obligations include all future advances and
loans by Subscribers to Debtor that may be made pursuant to the
Subscription Agreement.
2.4 The
following defined terms which are defined in the Uniform Commercial
Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper,
Documents, Equipment, General Intangibles, Instruments, Inventory
and Proceeds. Other capitalized terms employed herein
shall have the meanings attributed to them in the Subscription
Agreement.
3.
Grant of General Security Interest in Collateral
.
3.1 As
security for the Obligations of Debtors, each Debtor hereby grants
each of the Subscribers, a security interest in the
Collateral.
3.2 “Collateral”
shall mean all of the following property of Debtors:
(A) All
now owned and hereafter acquired right, title and interest of
Debtors in, to and in respect of all Accounts, Goods, real or
personal property, all present and future books and records
relating to the foregoing and all products and Proceeds of the
foregoing, and as set forth below:
(i) All
now owned and hereafter acquired right, title and interest of
Debtors in, to and in respect of all: Accounts, interests in goods
represented by Accounts, returned, reclaimed or repossessed goods
with respect thereto and rights as an unpaid vendor; contract
rights; Chattel Paper; investment property; General Intangibles
(including but not limited to, tax and duty claims and refunds,
registered and unregistered patents, trademarks, service marks,
certificates, copyrights trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or
licensee, choses in action and other claims, and existing and
future leasehold interests and claims in and to equipment, real
estate and fixtures); Documents; Instruments; letters of credit,
bankers’ acceptances or guaranties; cash moneys, deposits;
securities, bank accounts, deposit accounts, credits and other
property now or hereafter owned or held in any capacity by Debtors,
as well as agreements or property securing or relating to any of
the items referred to above;
(ii)
Goods: All now owned and hereafter acquired
right, title and interest of Debtors in, to and in respect of
goods, including, but not limited to:
(a) All
Inventory, wherever located, whether now owned or hereafter
acquired, of whatever kind, nature or description, including all
raw materials, work-in-process, finished goods, and materials to be
used or consumed in Debtors’ business; finished goods, timber
cut or to be cut, oil, gas, hydrocarbons, and minerals extracted or
to be extracted, and all names or marks affixed to or to be affixed
thereto for purposes of selling same by the seller, manufacturer,
lessor or licensor thereof and all Inventory which may be returned
to any Debtor by its customers or repossessed by any Debtor and all
of Debtors’ right, title and interest in and to the foregoing
(including all of a Debtor’s rights as a seller of
goods);
(b) All
Equipment and fixtures, wherever located, whether now owned or
hereafter acquired, including, without limitation, all machinery,
furniture and fixtures, and any and all additions, substitutions,
replacements (including spare parts), and accessions thereof and
thereto (including, but not limited to Debtors’ rights to
acquire any of the foregoing, whether by exercise of a purchase
option or otherwise);
(iii)
Property: All now owned and hereafter acquired
right, title and interests of Debtors in, to and in respect of any
other personal property in or upon which a Debtor has or may
hereafter have a security interest, lien or right of
setoff;
(iv)
Books and Records: All present and future books
and records relating to any of the above including, without
limitation, all computer programs, printed output and computer
readable data in the possession or control of the Debtors, any
computer service bureau or other third party; and
(v)
Products and Proceeds: All products and Proceeds
of the foregoing in whatever form and wherever located, including,
without limitation, all insurance proceeds and all claims against
third parties for loss or destruction of or damage to any of the
foregoing.
(B) All
now owned and hereafter acquired right, title and interest of
Debtors in, to and in respect of the following:
(i) the
shares of stock of each Guarantor, which the Debtor represents,
equal 100% of the equity ownership and right to receive equity of
each Guarantor, the certificates representing such shares together
with an executed stock power, and other rights, contractual or
otherwise, in respect thereof and all dividends, distributions,
cash, instruments, investment property and other property from time
to time received, receivable or otherwise distributed in respect of
or in exchange for any or all of such shares;
(ii) all
additional shares of stock, partnership interests, member interests
or other equity interests from time to time acquired by Debtor, in
any Subsidiary that is not a Subsidiary of the Debtor on the date
hereof (“Future Subsidiaries”), the certificates
representing such additional shares, and other rights, contractual
or otherwise, in respect thereof and all dividends, distributions,
cash, instruments, investment property and other property from time
to time received, receivable or otherwise distributed in respect of
or in exchange for any or all of such additional shares, interests
or equity; and
(iii) all
security entitlements of Debtor in, and all Proceeds of any and all
of the foregoing in each case, whether now owned or hereafter
acquired by Debtor and howsoever its interest therein may arise or
appear (whether by ownership, security interest, lien, claim or
otherwise).
3.3 The
Subscribers are hereby specifically authorized, after the
Maturity Date (defined in the Note) accelerated or otherwise, and
after the occurrence of an Event of Default (as defined herein) and
the expiration of any applicable cure period, to transfer any
Collateral into the name of the Subscriber and to take any and all
action deemed advisable to the Subscriber to remove any transfer
restrictions affecting the Collateral.
4.
Perfection of Security Interest .
4.1 Each
Debtor shall prepare, execute and deliver to the Subscribers UCC-1
Financing Statements. The Subscribers are instructed to
prepare and file at each Debtor’s cost and expense, financing
statements in such jurisdictions deemed advisable to Subscribers,
including but not limited to the States of Nevada, Delaware, New
York and Oklahoma.
4.2 Upon
the execution of this Agreement, Parent shall deliver to
Subscribers stock certificates representing all of the shares of
outstanding capital stock of each Guarantor (the
“Securities”). All such certificates shall
be held by or on behalf of Subscribers pursuant hereto and shall be
delivered in suitable form for transfer by delivery, and shall be
accompanied by duly executed instruments of transfer or assignment
or undated stock powers executed in blank, all in form and
substance satisfactory to Subscribers.
4.3 All
other certificates and instruments constituting Collateral from
time to time required to be pledged to Subscribers pursuant to the
terms hereof (the “Additional Collateral”) shall be
delivered to Subscribers promptly upon receipt thereof by or on
behalf of Debtors. All such certificates and instruments
shall be held by or on behalf of Subscribers pursuant hereto and
shall be delivered in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or
assignment or undated stock powers executed in blank, all in form
and substance satisfactory to Subscribers. If any
Collateral consists of uncertificated securities, unless the
immediately following sentence is applicable thereto, Debtors shall
cause Subscribers (or its custodian, nominee or other designee) to
become the registered holder thereof, or cause each issuer of such
securities to agree that it will comply with instructions
originated by Subscribers with respect to such securities without
further consent by Debtors. If any Collateral consists
of security entitlements, Debtors shall transfer such security
entitlements to Subscribers (or its custodian, nominee or other
designee) or cause the applicable securities intermediary to agree
that it will comply with entitlement orders by Subscribers without
further consent by Debtors.
4.4 Within
five (5) business days after the receipt by a Debtor of any
Additional Collateral, a Pledge Amendment, duly executed by such
Debtor, in substantially the form of Annex I hereto (a
“Pledge Amendment”), shall be delivered to Subscribers
in respect of the Additional Collateral to be pledged pursuant to
this Agreement. Each Debtor hereby authorizes Subscribers to attach
each Pledge Amendment to this Agreement and agrees that all
certificates or instruments listed on any Pledge Amendment
delivered to Subscribers shall for all purposes hereunder
constitute Collateral.
4.5 If
Debtor shall receive, by virtue of Debtor being or having been an
owner of any Collateral, any (i) stock certificate (including,
without limitation, any certificate representing a stock dividend
or distribution in connection with any increase or reduction of
capital, reclassification, merger, consolidation, sale of assets,
combination of shares, stock split, spin-off or split-off),
promissory note or other instrument, (ii) option or right,
whether as an addition to, substitution for, or in exchange for,
any Collateral, or otherwise, (iii) dividends payable in cash
(except such dividends permitted to be retained by Debtor pursuant
to Section 5.2 hereof) or in securities or other property or
(iv) dividends or other distributions in connection with a
partial or total liquidation or dissolution or in connection with a
reduction of capital, capital surplus or paid-in surplus, Debtor
shall receive such stock certificate, promissory note, instrument,
option, right, payment or distribution in trust for the benefit of
Subscribers, shall segregate it from Debtor’s other property
and shall deliver it forthwith to Subscribers, in the exact form
received, with any necessary endorsement and/or appropriate stock
powers duly executed in blank, to be held by Subscribers as
Collateral and as further collateral security for the
Obligations.
5.
Distribution .
5.1 So
long as an Event of Default does not exist, Debtors shall be
entitled to exercise all voting power pertaining to any of the
Collateral, provided such exercise is not contrary to the
interests of the Subscribers and does not impair the
Collateral.
5.2. At
any time an Event of Default exists or has occurred and is
continuing, all rights of Debtors, upon notice given by
Subscribers, to exercise the voting power and receive payments,
which it would otherwise be entitled to pursuant to Section 5.1,
shall cease and all such rights shall thereupon become vested in
Subscribers, which shall thereupon have the sole right to exercise
such voting power and receive such payments.
5.3 All
dividends, distributions, interest and other payments which are
received by Debtors contrary to the provisions of Section 5.2 shall
be received in trust for the benefit of Subscribers as
security and Collateral for payment of the Obligations shall be
segregated from other funds of Debtors, and shall be forthwith paid
over to Subscribers as Collateral in the exact form received
with any necessary endorsement and/or appropriate stock powers duly
executed in blank, to be held by Subscribers as Collateral and
as further collateral security for the Obligations.
6.
Further Action By Debtors; Covenants and Warranties
.
6.1 Subscribers at
all times shall have a perfected security interest in the
Collateral. Each Debtor represents that, other than the
security interests described on Schedule 6.1, it has and
will continue to have full title to the Collateral free from any
liens, leases, encumbrances, judgments or other
claims. The Subscribers’ security interest in
the Collateral constitutes and will continue to constitute a first,
prior and indefeasible security interest in favor of Subscribers,
subject only to the security interests described on Schedule
6.1 . Each Debtor will do all acts and things, and
will execute and file all instruments (including, but not limited
to, security agreements, financing statements, continuation
statements, etc.) reasonably requested by Subscribers to establish,
maintain and continue the perfected security interest of
Subscribers in the perfected Collateral, and will promptly on
demand, pay all costs and expenses of filing and recording,
including the costs of any searches reasonably deemed necessary by
Subscribers from time to time to establish and determine the
validity and the continuing priority of the security interest of
Subscribers, and also pay all other claims and charges that, in the
opinion of Subscribers are reasonably likely to materially
prejudice, imperil or otherwise affect the Collateral or
Subscribers’ security interests therein.
6.2 Except
in connection with sales of Collateral, in the ordinary course of
business, for fair value and in cash, and except for Collateral
which is substituted by assets of identical or greater value
(subject to the consent of the Subscribers) or which is
inconsequential in value, each Debtor will not sell, transfer,
assign or pledge those items of Collateral (or allow any such items
to be sold, transferred, assigned or pledged), without the prior
written consent of Subscribers other than a transfer of the
Collateral to a wholly-owned United States formed and located
subsidiary or to another Debtor on prior notice to Subscribers, and
provided the Collateral remains subject to the security interest
herein described. Although Proceeds of Collateral are
covered by this Agreement, this shall not be construed to mean that
Subscribers consents to any sale of the Collateral, except as
provided herein. Sales of Collateral in the ordinary
course of business as described above shall be free of the security
interest of Subscribers and Subscribers shall promptly execute such
documents (including without limitation releases and termination
statements) as may be required by Debtors to evidence or effectuate
the same.
6.3 Each
Debtor will, at all reasonable
