EXECUTION VERSION

 

PLEDGE AND SECURITY AGREEMENT

 

This PLEDGE AND SECURITY AGREEMENT is executed as of August 19, 2013 by and
among AMERICAN EAGLE ENERGY CORPORATION, a Nevada corporation (the “Borrower”),
AMZG, Inc., a Nevada corporation (“AMZG”), AEE Canada Inc., an Alberta, Canada
corporation (“AEE Canada”), and EERG Energy ULC, an Alberta, Canada unlimited
liability company (“EERG”, and together with Borrower, AMZG and AEE Canada, each
a “Debtor” and, collectively, the “Debtors”), whose mailing addresses are set
forth on Annex A hereto, and MORGAN STANLEY CAPITAL GROUP INC., as
administrative agent for the Lenders (in such capacity, “Administrative Agent”)
under the Credit Agreement (defined below)(in such capacity, including its
successors and assigns in such capacity, the “Secured Party”), for the benefit
of itself and the Secured Parties (as defined in the Credit Agreement; together
with the Secured Party, the “Beneficiaries”), whose address is set forth on
Annex A hereto.

 

RECITALS

 

A.           WHEREAS, Borrower previously entered into that certain ISDA Master
Agreement dated as of December 27, 2012 with Macquarie Bank Limited (“Prior
Secured Party”), (together with any Confirmations, Schedules, Annexes or other
amendments or modifications thereto, the “Assigned ISDA”).

 

B.           WHEREAS, in connection with the Assigned ISDA, Debtors and Prior
Secured Party entered into that certain Security Agreement dated as of December
27, 2012 (“Assigned Security Agreement”);

 

C.           WHEREAS, pursuant to that certain Assignment of Liens and Security
Interests (the “Assignment”) dated as of August 19, 2013, by and among the Prior
Secured Party, as assignor, Secured Party, as assignee, and Debtors, Prior
Secured Party will assign to Secured Party, and Secured Party will assume from
Prior Secured Party, the Assigned ISDA and all of the Credit Support Documents
(as defined in the Assigned ISDA), and all of the rights and obligations of
Prior Secured Party thereunder, including, without limitation, the Assigned
Security Agreement and the other liens and security interests securing the
Assigned ISDA (collectively the “Assigned Liens”);

 

D.           WHEREAS, after giving effect to the Assignment, the Borrower,
Secured Party, in its capacity as administrative agent thereunder, and the
financial institutions now or hereafter party thereto (the “Lenders”) have
entered into that certain Credit Agreement dated as of even date herewith (as
may be amended, restated or modified from time to time, the “Credit Agreement”),
which amends and restates, but does not novate or discharge, the Assigned ISDA;

 

E.           WHEREAS, Debtors have agreed to amend and restate the Assigned
Security Agreement in its entirety by entering into this Security Agreement,
which amends and restates, but does not novate or discharge the Assigned
Security Agreement; notwithstanding the foregoing, in the event any liens or
security interests granted by the Assigned Security Agreement have been
terminated, lapsed or otherwise invalidated, this Security Agreement shall be a
new grant of lien according to the terms provided herein and the parties hereto
have agreed that, from and after the Closing Date, this Security Agreement shall
supersede and replace the Assigned Security Agreement in its entirety;

 

F.           WHEREAS, this Security Agreement is integral to the transactions
contemplated by the Credit Agreement, and the execution and delivery hereof is a
condition precedent to Lenders’ obligations to extend credit under the Credit
Agreement; and

 

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EXECUTION VERSION

 

G.           WHEREAS, each of the Debtors will receive substantial benefits from
the execution, delivery and performance of the Credit Agreement and the
transactions contemplated thereby.

 

ACCORDINGLY, for valuable consideration, the receipt and adequacy of which are
hereby acknowledged, each of the Debtors and Secured Party hereby agrees as
follows:

 

1.          CERTAIN DEFINITIONS. Unless otherwise defined herein, or the context
hereof otherwise requires, each term defined in either of the Credit Agreement
or in the UCC is used in this Security Agreement with the same meaning; provided
that, if the definition given to such term in the Credit Agreement conflicts
with the definition given to such term in the UCC, the Credit Agreement
definition shall control to the extent legally allowable; and if any definition
given to such term in Chapter 9 of the UCC conflicts with the definition given
to such term in any other chapter of the UCC, the Chapter 9 definition shall
prevail. As used herein, the following terms have the meanings indicated:

 

“Additional Commercial Tort Claim” has the meaning set forth in Paragraph 5(k)
hereof.

 

“Assigned Agreements” shall mean all agreements and contracts to which a Debtor
is a party as of the date hereof, or to which such Debtor becomes a party after
the date hereof, as each such agreement may be amended, supplemented or
otherwise modified from time to time.

 

“Cash Collateral Account” has the meaning set forth in Paragraph 7(h) hereof.

 

“Collateral” has the meaning set forth in Paragraph 3 hereof.

 

“Companies” shall mean (a) any partnerships and limited liability companies,
including, without limitation, those set forth on Annex C attached hereto and
incorporated herein by reference, as such partnerships or limited liability
companies exist or may hereinafter be restated, amended, or restructured,
(b) any partnership, joint venture, or limited liability company in which any
Debtor shall, at any time, become a limited or general partner, venturer, or
member, or (c) any partnership, joint venture, or corporation formed as a result
of the restructure, reorganization, or amendment of the Companies.

 

“Company Agreements” shall mean those agreements governing the Companies.

 

“Company Interests” shall mean all of each Debtor’s Right, title and interest
now or hereafter accruing under the Company Agreements with respect to all
distributions, allocations, proceeds, fees, preferences, payments, or other
benefits, which such Debtor now is or may hereafter become entitled to receive
with respect to such interests in the Companies and with respect to the
repayment of all loans now or hereafter made by each Debtor to the Companies.

 

“Copyrights” has the meaning set forth in Paragraph 3(f) hereof.

 

“Deposit Accounts” has the meaning set forth in Paragraph 3(l) hereof.

 

“Excluded Assets” means (i) all Excluded Oil and Gas Properties, (ii) any lease,
license, contract, property right, agreement or other document to which any
Debtor is a party and any of its rights or interests thereunder if, and only for
so long as, (a) the grant of a security interest hereunder shall constitute or
result in a breach, termination or default under any such lease, license,
contract, property right or agreement (other than to the extent that any such
term would be rendered ineffective pursuant to Section 9.406, 9.407, 9.408 or
9.409 of the UCC) or (b) such Debtor is prohibited from granting a security
interest in, pledge of, or charge, mortgage or lien upon such lease, license,
contract, property right, agreement or other document by reason of applicable
Law to which such Debtor is subject, , and (iii) any property now owned or
hereafter acquired by any Debtor that is subject to a purchase money Lien or a
capital lease permitted under Section 6.01(b) or Section 6.01(c) of the Credit
Agreement if the contractual obligation pursuant to which such Lien is granted
(or the documentation providing for such purchase money Lien or capital lease)
prohibits the creation by such Debtor of a Lien thereon or requires the consent
of any third party which consent has not been obtained as a condition to the
creation of any other Lien on such property.

 

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“Hydrocarbon Interests” means the “Hydrocarbon Interests” as defined in the
Credit Agreement.

 

“Hydrocarbons” means the “Hydrocarbons” as defined in the Credit Agreement.

 

“Intellectual Property” has the meaning set forth in Paragraph 3(h) hereof.

 

“Investment Accounts” has the meaning set forth in Paragraph 3(m) hereof.

 

“Investment Account Control Agreement” means an agreement among a broker holding
an Investment Account, a Debtor, and Secured Party, in form and substance
reasonably satisfactory to Secured Party, evidencing that Secured Party has
“control” (as defined in the UCC) of such Investment Account.

 

“Laws” means, as to any Person, all applicable statutes, laws, treaties,
ordinances, tariffs requirements, rules, regulations, orders, writs,
injunctions, decrees, judgments, opinions, or interpretations of any
Governmental Authority, in each case, applicable to or binding upon the Person
or any of its property or to which the Person or any of its property is subject.

 

“Obligations” means the “Secured Obligations” as defined in the Credit
Agreement.

 

“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.

“Patents” has the meaning set forth in Paragraph 3(g) hereof.

 

“Pledged Securities” mean, collectively, the Pledged Shares and any other
Collateral consisting of securities.

 

“Pledged Shares” has the meaning set forth in Paragraph 3(c) hereof.

 

“Rights” means rights, remedies, powers, privileges, and benefits.

 

“Security Agreement” means this Pledge and Security Agreement dated as of the
date first written above, as this agreement may be amended, modified or
restated.

 

“Security Interest” means the security interest granted and the pledge and
assignment made under Paragraph 2 hereof.

 

“Security Termination” has the meaning set forth in Paragraph 10(a) hereof.

 

“Trademarks” has the meaning set forth in Paragraph 3(h) hereof.

 

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“UCC” means the Uniform Commercial Code, including each such provision as it may
subsequently be renumbered, as enacted in the State of New York or other
applicable jurisdiction, as amended at the time in question.

 

2.          SECURITY INTEREST. In order to secure the full and complete payment
and performance of the Obligations when due, each Debtor hereby grants to
Secured Party, for its benefit and the benefit of the Beneficiaries, a security
interest in and a lien on all of such Debtor’s Rights, titles, and interests in
and to the Collateral and pledges, collaterally transfers, and collaterally
assigns the Collateral to Secured Party, for Secured Party’s benefit and the
benefit of the Beneficiaries, all upon and subject to the terms and conditions
of this Security Agreement. Such Security Interest is granted and such pledge
and assignment are made as security only and shall not subject Secured Party 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. If the grant, pledge, or collateral transfer or assignment of any
specific item of the Collateral is expressly prohibited by any contract, then
the Security Interest created hereby nonetheless remains effective to the extent
allowed by the UCC or other applicable Law, but is otherwise limited by that
prohibition.

 

3.          COLLATERAL. As used herein, the term “Collateral” means the
following items and types of property, wherever located, now owned or in the
future existing or acquired by any and all Debtors, and all proceeds and
products thereof, and any substitutes or replacements therefor; provided
however, that the term “Collateral” expressly excludes the Excluded Assets:

 

(a)          All personal property and fixture property of every kind and nature
including, without limitation, all goods (including equipment, and any
accessions thereto) software, investment property, money, cash, letters of
credit or letter-of-credit rights, supporting obligations, Tax refunds,
accounts, any and all contract rights, chattel paper (whether tangible or
electronic), instruments, documents, general intangibles (including payment
intangibles), and other Rights of any kind (including all rights to receive
Hydrocarbons or petroleum products, to receive payments of money or to receive
other value pursuant to contracts, agreements or other arrangements with other
Persons, for the trading, lending, borrowing, or exchanging of Hydrocarbons or
petroleum products in the ordinary course of business) relating thereto, now or
hereafter existing;

 

(b)          Hydrocarbons, Hydrocarbon Interests and all inventory, including
without limitation all (A) Hydrocarbons that have been partially processed or
refined as isomerate, cat feed, gasoline components or naptha (together,
“Intermediate Products”) and (B) gasoline, diesel, aviation fuel, fuel oil,
propane, ethanol, transmix and other products processed, refined or blended from
Hydrocarbons and Intermediate Products, and all accessions to and products of
any of the foregoing, and documents relating to any of the foregoing, now owned
or in the future existing or acquired by each Debtor;

 

(c)          All Rights, titles, and interests of each Debtor in and to all
outstanding stock, equity, or other investment securities owned by such Debtor,
including, without limitation, all capital stock of any Subsidiary of such
Debtor set forth on Annex C (the “Pledged Shares”);

 

(d)          All Rights, titles, and interests of each Debtor in and to
all promissory notes and other instruments payable to such Debtor and all
Rights, titles, interests, and Liens such Debtor may have, be, or become
entitled to under all present and future loan agreements, security agreements,
pledge agreements, deeds of trust, mortgages, guarantees, or other documents
assuring or securing payment of or otherwise evidencing such promissory notes
and other instruments;

 

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(e)          The Company Interests and all Rights of each Debtor with respect
thereto, including, without limitation, all Company Interests set forth on Annex
C and all of each Debtor’s distribution rights, income rights, liquidation
interest, accounts, contract rights, general intangibles, notes, instruments,
drafts, and documents relating to the Company Interests;

 

(f)          (i) All copyrights (whether statutory or common law, registered or
unregistered), works protectable by copyright, copyright registrations,
copyright licenses, and copyright applications of each Debtor, including,
without limitation, all of such Debtor’s Right, title, and interest in and to
all copyrights registered in the United States Copyright Office or anywhere else
in the world; (ii) all renewals, extensions, and modifications thereof;
(iii) all income, licenses, royalties, damages, profits, and payments relating
to or payable under any of the foregoing; (iv) the Right to sue for past,
present, or future infringements of any of the foregoing; and (v) all other
rights and benefits relating to any of the foregoing throughout the world; in
each case, whether now owned or hereafter acquired by each Debtor (collectively,
the “Copyrights”);

 

(g)          (i) All patents, patent applications, patent licenses, and
patentable inventions of each Debtor, including, without limitation,
registrations, recordings, and applications thereof in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any state thereof or any other country or any political subdivision thereof, and
all of the inventions and improvements described and claimed therein; (ii) all
continuations, divisions, renewals, extensions, modifications, substitutions,
reexaminations, continuations-in-part, or reissues of any of the foregoing;
(iii) all income, royalties, profits, damages, awards, and payments relating to
or payable under any of the foregoing; (iv) the Right to sue for past, present,
and future infringements of any of the foregoing; and (v) all other Rights and
benefits relating to any of the foregoing throughout the world; in each case,
whether now owned or hereafter acquired by each Debtor (collectively, the
“Patents”);

 

(h)          (i) All trademarks, trademark licenses, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, certification marks, collective marks, logos, other business
identifiers, all registrations, recordings, and applications thereof, including,
without limitation, registrations, recordings, and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any state thereof or any other country or any political
subdivision thereof; (ii) all reissues, extensions, and renewals thereof;
(iii) all income, royalties, damages, and payments now or hereafter relating to
or payable under any of the foregoing, including, without limitation, damages or
payments for past or future infringements of any of the foregoing; (iv) the
Right to sue for past, present, and future infringements of any of the
foregoing; (v) all Rights corresponding to any of the foregoing throughout the
world; and (vi) all goodwill associated with and symbolized by any of the
foregoing, in each case, whether now owned or hereafter acquired by each Debtor
(collectively, the “Trademarks”, and collectively with the Copyrights and the
Patents, the “Intellectual Property”);

 

(i)          All present and future automobiles, trucks, truck tractors,
trailers, semi-trailers, or other motor vehicles or rolling stock, now owned or
hereafter acquired by each Debtor;

 

(j)          (i) All of each Debtor’s Rights, titles, and interests in, to, and
under the Assigned Agreements, including, without limitation, all Rights of each
Debtor to receive moneys due and to become due under or pursuant to the Assigned
Agreements, (ii) all Rights of each Debtor to receive proceeds of any insurance,
indemnity, warranty, or guaranty with respect to the Assigned Agreements,
(iii) all claims of each Debtor for damages arising out of or for breach of or
default under the Assigned Agreements, and (iv) all Rights of each Debtor to
compel performance and otherwise exercise all rights and remedies under the
Assigned Agreements;

 

(k)          All commercial tort claims described on Annex B;

 

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(l)          Any and all deposit accounts and bank accounts, now owned or
hereafter acquired or opened by each Debtor, together with all monies,
instruments, certificates, checks, drafts, wire transfer receipts, and other
property deposited therein and all balances therein (the “Deposit Accounts”);

 

(m)          Any and all investment accounts, commodity accounts, and securities
accounts, now owned or hereafter acquired or opened by each Debtor, together
with all securities, securities entitlements, monies, instruments, certificates,
checks, drafts, wire transfer receipts, and other property deposited therein and
all balances therein (the “Investment Accounts”);

 

(n)          All present and future distributions, income, increases, profits,
combinations, reclassifications, improvements, and products of, accessions,
attachments, and other additions to, tools, parts, and equipment used in
connection with, and substitutes and replacements for, all or part of the
Collateral described above;

 

(o)          All present and future accounts, contract rights, general
intangibles, chattel paper, documents, instruments, cash and noncash proceeds,
and other Rights arising from or by virtue of, or from the voluntary or
involuntary sale or other disposition of, or collections with respect to, or
insurance proceeds payable with respect to, or proceeds payable by virtue of
warranty or other claims against the manufacturer of, or claims against any
other Person with respect to, all or any part of the Collateral heretofore
described in this paragraph or otherwise;

 

(p)          All present and future security for the payment to each Debtor of
any of the Collateral described above and goods which gave or will give rise to
any such Collateral or are evidenced, identified, or represented therein or
thereby; and

 

(q)          To the extent not otherwise included herein, all payments under any
indemnity, warranty, or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the Collateral.

 

The description of the Collateral contained in this Paragraph 3 shall not be
deemed to permit any action prohibited by this Security Agreement or by the
terms incorporated in this Security Agreement.

 

4.          REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants and
each other Debtor represents and warrants solely as to itself and not to any
other Debtor, to Secured Party and each Lender as of the Closing Date that:

 

(a)          Binding Obligation/Perfection. This Security Agreement creates a
legal, valid, and binding Security Interest in and to the Collateral of such
Debtor in favor of Secured Party and enforceable against such Debtor, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors’ rights generally and subject to general principals of
equity, regardless of whether considered in a proceeding in equity or at law.
For Collateral in which the Security Interest may be perfected by the filing of
financing statements, once financing statements in appropriate form have been
properly filed in the jurisdictions described on Annex A hereto, the Security
Interest in that Collateral will be fully perfected and the Security Interest
will constitute a first-priority Lien on such Collateral, subject only to Liens
permitted by Section 6.01 of the Credit Agreement. None of the Collateral has
been delivered to nor has control with respect thereto been given to any other
Person. Other than the financing statements with respect to this Security
Agreement and the Deposit Account Control Agreements and Investment Account
Control Agreements created in connection herewith (if any), there are no other
financing statements or control agreements covering any Collateral, other than
those evidencing Liens permitted by Section 6.01 of the Credit Agreement. The
creation of the Security Interest in and to the Collateral does not require the
consent of any Person that has not been obtained.

 

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(b)          Debtor Information. Such Debtor’s exact legal name, mailing
address, jurisdiction of organization, type of entity, and state issued
organizational identification number are as set forth on Annex A hereto. Such
Debtor’s place of business and chief executive office is where such Debtor is
entitled to receive notices hereunder; the present and foreseeable location of
such Debtor’s books and records concerning any of the Collateral is as set forth
on Annex A hereto.

 

(c)          Liens. Such Debtor owns, leases or has valid rights to use all
currently existing Collateral pledged by such Debtor, and will acquire such
rights in all hereafter-acquired Collateral, free and clear of all Liens, except
Liens permitted by Section 6.01 of the Credit Agreement.

 

(d)          Deposit Accounts. With respect to the Deposit Accounts, such Debtor
has the legal right to pledge and collaterally assign to Secured Party the funds
deposited and to be deposited in each Deposit Account and each Deposit Account
is subject to a Deposit Account Control Agreement.

 

(e)          Investment Accounts. With respect to the Investment Accounts, such
Debtor has the legal right to pledge and collaterally assign to Secured Party
the securities and security entitlements deposited and to be deposited in such
Investment Account.

 

(f)          Commercial Tort Claims. On the Closing Date, no Debtor, to its
knowledge, holds any commercial tort claims having a value individually or in
the aggregate in excess of $250,000 except as described on Annex B.

 

(g)          Governmental Authority. No authorization, approval, or other action
by, and no notice to or filing with, any Governmental Authority is required
either (i) for the pledge by such Debtor of the Collateral pursuant to this
Security Agreement or for the execution, delivery, or performance of this
Security Agreement by such Debtor, or (ii) for the exercise by Secured Party of
the voting or other Rights provided for in this Security Agreement or the
remedies in respect of the Collateral pursuant to this Security Agreement,
except (1) as may be required in connection with the disposition of the Pledged
Securities by Laws affecting the offering and sale of securities generally, (2)
those consents to assignment of licenses, permits, approvals, and other rights
that are as a matter of Law not assignable, (3) those authorizations, approvals,
actions, notices or filings that have been duly obtained or made and, in the
case of the maintenance of perfection, the filing of continuation statements
under the UCC, and (4) those filings and actions described in Paragraph 4(a).

 

(h)          Pledged Securities; Pledged Shares. All Collateral of such Debtor
that is Pledged Shares is duly authorized, validly issued, fully paid, and
non-assessable, and the transfer thereof is not subject to any restrictions,
other than restrictions imposed by applicable securities and corporate Laws or
set forth in the applicable organizational documents. Annex C contains an
accurate description as of the Closing Date of the Equity Interests owned by
such Debtor. Such Debtor has good title to the Pledged Securities of such
Debtor, free and clear of all Liens and encumbrances thereon (except for Liens
permitted by Section 6.01 of the Credit Agreement), and has delivered to Secured
Party (i) all stock certificates, or other instruments or documents representing
or evidencing such Pledged Securities in accordance with Section 5.16 of the
Credit Agreement, together with corresponding assignment or transfer powers duly
executed in blank by such Debtor, and such powers have been duly and validly
executed and are binding and enforceable against such Debtor in accordance with
their terms or (ii) to the extent such Pledged Securities are uncertificated and
constitute securities for purposes of Article 8 of the UCC, or if otherwise
required by the Secured Party, an executed Acknowledgment of Pledge
substantially in the form of Annex D. The pledge of the Pledged Securities owned
by such Debtor in accordance with the terms hereof creates a valid and perfected
first priority security interest in such Pledged Securities securing payment of
the Obligations, subject only to Liens permitted by Section 6.01 of the Credit
Agreement. In the event an uncertificated Pledged Security is certificated,
Debtor shall promptly thereafter deliver the certificate with an undated
executed irrevocable stock power and such other documents as the Secured Party
may reasonably require in connection therewith. Debtor shall not permit an
uncertificated Pledged Security to constitute a “security” under Article 8 of
the UCC unless Debtor has delivered to Secured Party a fully executed
Acknowledgment of Pledge substantially in the form of Annex D. Secured Party
agrees that it shall not deliver instructions or make any demand under any
Acknowledgment of Pledge unless an Event of Default has occurred and is
continuing.

 

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(i)          Company Interests. Each Company listed on Annex C for which such
Debtor owns or holds any Company Interests is duly organized, currently
existing, and in good standing under all applicable Laws; there have been no
amendments, modifications, or supplements to any agreement or certificate
creating any such Company that in any way adversely affects the perfection of
the security interest of the Secured Party in the Company Interests pledged by
such Debtor hereunder; and no approval or consent of the partners or members of
any such Company is required as a condition to the validity and enforceability
of the Security Interest created hereby or the consummation of the transactions
contemplated hereby that has not been duly obtained by the relevant Debtor. Each
Debtor has good title to the Company Interests owned by such Debtor free and
clear of all Liens and encumbrances (except for Liens permitted by Section 6.01
of the Credit Agreement). The Company Interests owned by such Debtor are validly
issued, fully paid, and nonassessable and are not subject to statutory,
contractual, or other restrictions governing their transfer, ownership, or
control, except as set forth in the applicable Company Agreements or applicable
securities Laws. All capital contributions required to be made by the terms of
such Company Agreements for each Company have been made, except where failure to
do so would not reasonably be expected to have a material adverse effect on the
value of the Collateral. In the event an uncertificated Company Interest is
certificated, Debtor shall promptly thereafter deliver the certificate with an
undated executed irrevocable stock power and such other documents as the Secured
Party may reasonably require in connection therewith. Debtor shall not permit an
uncertificated Company Interest to constitute a “security” under Article 8 of
the UCC unless Debtor has delivered to Secured Party a fully executed
Acknowledgment of Pledge substantially in the form of Annex D. Secured Party
agrees that it shall not deliver instructions relating or make any demand under
any Acknowledgment of Pledge unless an Event of Default has occurred and is
continuing.

 

5.          COVENANTS. So long as Security Termination has not occurred, each
Debtor covenants and agrees with Secured Party that such Debtor will:

 

(a)          Information/Record of Collateral. Maintain a current record of
where all material Collateral of such Debtor is located.

 

(b)          Perform Obligations. Notwithstanding anything to the contrary
contained herein, (i) such Debtor shall remain liable under the contracts,
agreements, documents, and instruments included in the Collateral to the extent
set forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Security Agreement had not been executed, (ii) the
exercise by Secured Party of any of its rights or remedies hereunder shall not
release such Debtor from any of its duties or obligations under the contracts,
agreements, documents, and instruments included in the Collateral, (iii) such
Debtor shall not waive or terminate any provision of the contracts, agreements,
documents, and instruments included in the Collateral if the effect of such
waiver or termination would be materially adverse to Secured Party, including
but not limited to rights of payment and enforcement, and (iv) Secured Party
shall not have any indebtedness, liability, or obligation under any of the
contracts, agreements, documents, and instruments included in the Collateral by
reason of this Security Agreement, and Secured Party shall not be obligated to
perform any of the obligations or duties of such Debtor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.

 

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(c)          Annexes; Notices. (i) As soon as reasonably possible, update all
annexes hereto of such Debtor if any information therein shall become inaccurate
or incomplete in any material respect; provided, that notwithstanding any other
provision herein, such Debtor’s failure to describe any Collateral required to
be listed on any annex hereto shall not impair Secured Party’s Security Interest
in the Collateral; (ii) promptly notify Secured Party of the occurrence of any
event(s) or condition(s) (including, without limitation, matters as to Lien
priority, except with respect to the priority of Liens permitted pursuant to
Section 6.01 of the Credit Agreement) that would reasonably be expected to have
a material adverse effect on the aggregate value of the Collateral or on the
security interest created hereby; and (iii) give Secured Party twenty five (25)
days’ written notice before (or such other time period as may be agreed by
Secured Party) any proposed (A) relocation of its principal place of business or
chief executive office, (B) change of its name, identity, or corporate
structure, (C) relocation of the place where its books and records concerning
the Collateral are kept, (D) change of its jurisdiction of organization or
organizational identification number, as applicable. Prior to making any of the
changes contemplated in the preceding clause (iii), such Debtor shall execute
and deliver all such additional documents and perform all additional acts as
Secured Party may reasonably request in order to continue or maintain the
existence and priority of the Security Interests in all of the Collateral of
such Debtor.

 

(d)          Collateral in Trust. During the continuance of an Event of Default,
(i) hold in trust for Secured Party all Collateral that is chattel paper,
instruments, or documents at any time received by such Debtor, and (ii) upon
Secured Party’s request, promptly deliver to Secured Party all collateral of the
type described in this Paragraph (d), and (iii) upon Secured Party’s request,
mark any chattel paper, instruments, or documents retained by such Debtor to
state that they are assigned to Secured Party, and (iv) upon Secured Party’s
request, endorse each such instrument to the order of Secured Party (but the
failure of same to be so marked or endorsed shall not impair the Security
Interest thereon).

 

(e)          Control. Execute all documents and take any action reasonably
required by Secured Party in order for Secured Party to obtain “control” (as
defined in the UCC) with respect to Collateral of such Debtor consisting of
investment property (other than Deposit Accounts and Investment Accounts) and
letter-of-credit rights. If such Debtor at any time holds or acquires an
interest in any electronic chattel paper or any “transferable record,” as that
term is defined in the federal Electronic Signatures in Global and National
Commerce Act, or in the Uniform Electronic Transactions Act as in effect in any
relevant jurisdiction, promptly notify Secured Party thereof and, at the request
of Secured Party, take such action as Secured Party may reasonably request to
vest in Secured Party control under the UCC of such electronic chattel paper or
control under the federal Electronic Signatures in Global and National Commerce
Act or, as the case may be, the Uniform Electronic Transactions Act, as so in
effect in such jurisdiction, of such transferable record.

 

(f)          Transfers; Encumbrances. Not sell, assign, transfer, lease, charter
or otherwise dispose of the Collateral or any part thereof or any interest
therein, or offer to do any of the foregoing, except as expressly permitted by
the Credit Agreement; and not create, permit, or suffer to exist, and shall
defend the Collateral against, any Lien or other encumbrance on the Collateral
(other than Liens permitted by Section 6.01 of the Credit Agreement), and shall
defend such Debtor’s rights in the Collateral and Secured Party’s Security
Interest in the Collateral against the claims and demands of all Persons except
those holding or claiming Liens permitted by Section 6.01 of the Credit
Agreement. Such Debtor shall do nothing to impair the rights of Secured Party in
the Collateral.

 

(g)          Deposit Accounts. With respect to any Deposit Account, obtain an
executed Deposit Account Control Agreement from each such bank (if such bank is
not a Lender) with respect to each such Deposit Account pursuant to Section
5.08(d) of the Credit Agreement.

 

 Security AgreementPage 9

 

 

(h)          Investment Accounts. With respect to any Investment Account, if
requested by Secured Party, obtain an executed Investment Account Control
Agreement from each such broker (if such broker is not a Lender or a Lender
Affiliate) with respect to each such Investment Account.

 

(i)          Delivery of Chattel Paper and Instruments. At the request of
Secured Party, deliver all of such Debtor’s instruments and chattel paper to
Secured Party, together with corresponding endorsements duly executed by the
relevant Debtor in favor of Secured Party.

 

(j)          Further Assurances. From time to time promptly execute and deliver
to Secured Party all such assignments, certificates, supplemental documents, and
financing statements, and do all other acts or things as Secured Party may
reasonably request in order to create, evidence, perfect, continue, and preserve
the priority of the Security Interest and to carry out the provisions of this
Security Agreement; and pay all filing fees in connection with any financing,
continuation, or termination statement or other instrument with respect to the
Security Interests granted by such Debtor.

 

(k)          Commercial Tort Claims. If such Debtor shall at any time hold or
acquire a commercial tort claim other than or in addition to those set forth on
Annex B relating to any of the Collateral and having a value individually or in
the aggregate in excess of $250,000 (each such commercial tort claim, an
“Additional Commercial Tort Claim”), such Debtor shall promptly notify the
Secured Party in a writing authenticated by such Debtor of the brief details of
such Additional Commercial Tort Claim. Such Debtor shall grant to the Secured
Party in such writing a security interest in such Additional Commercial Tort
Claim and in the proceeds thereof, all in accordance with and subject to the
terms of this Security Agreement and such writing shall be in form and substance
reasonably satisfactory to the Secured Party. Each Debtor hereby agrees to
execute and deliver any additional documents or instruments, including any
financing statements or amendments to any then existing financing statements,
that the Secured Party reasonably deems necessary to create, perfect, and
protect the Secured Party’s Lien on and security interest in such Additional
Commercial Tort Claim.

 

(l)          Securities. Except as permitted by the Credit Agreement, not sell,
exchange, or otherwise dispose of, or grant any option, warrant, or other Right
with respect to, any of the Pledged Securities owned by it; to the extent any
issuer of any Pledged Securities is controlled by such Debtor and/or its
Subsidiaries, not permit such issuer to issue any additional shares of stock or
other securities in addition to or in substitution for such Pledged Securities,
except issuances to such Debtor; pledge hereunder, immediately upon such
Debtor’s acquisition (directly or indirectly) thereof, any and all additional
shares of stock or other securities of each Subsidiary of such Debtor; and take
any action necessary, required, or requested by Secured Party to allow Secured
Party to fully enforce its Security Interest in the Pledged Securities,
including, without limitation, the filing of any claims with any court,
liquidator, trustee, custodian, receiver, or other like person or party.

 

(m)          Companies and Company Interests. (i) notify Secured Party of the
occurrence of any default or breach or event of default under any contract or
agreement creating or relating to the Companies owned by such Debtor if such
default, breach or event of default would reasonably be expected to have a
Material Adverse Change or to have a material adverse effect on the aggregate
value of the Collateral or on the security interest created hereby; (ii) to the
extent any Company is controlled by such Debtor and/or its Subsidiaries, cause
such Company to refrain from granting any Company Interests in addition to or in
substitution for the Company Interests granted by the Companies, except to a
Debtor; (iii) pledge hereunder, immediately upon such Debtor’s acquisition
(directly or indirectly) thereof, any and all additional Company Interests of
any Company granted to such Debtor; and any and all additional shares of stock
or other securities of each; (iv) deliver to Secured Party a fully-executed
Acknowledgment of Pledge, substantially in the form of Annex D with respect of
any Company Interests unless otherwise agreed by the Secured Party, for each
Company Interest; and (v) take any action necessary, required, or requested by
Secured Party to allow Secured Party to fully enforce its Security Interest in
the Company Interests, including, without limitation, the filing of any claims
with any court, liquidator, trustee, custodian, receiver, or other like person
or party. In the event an uncertificated Company Interest is certificated,
Debtor shall promptly thereafter deliver the certificate with an undated
executed irrevocable stock power and such other documents as the Secured Party
may require in connection therewith. Debtor shall not permit an uncertificated
Company Interest to constitute a “security” under Article 8 of the UCC unless
Debtor has delivered to Secured Party a fully executed Acknowledgment of Pledge
substantially in the form of Annex D.

 

 Security AgreementPage 10

 

 

6.          DEFAULT; REMEDIES. If an Event of Default exists and is continuing,
Secured Party may, at its election (but subject to the terms and conditions of
the Credit Agreement), exercise any and all rights available to a secured party
under the UCC, in addition to any and all other rights afforded by the Loan
Documents, at Law, in equity, or otherwise, including, without limitation, (a)
requiring any and all Debtors to assemble all or part of the Collateral owned by
it and make it available to Secured Party at a place to be designated by Secured
Party, (b) surrendering any policies of insurance on all or part of the
Collateral owned by it and receiving and applying the unearned premiums as a
credit on the Obligations, (c) applying by appropriate judicial proceedings for
appointment of a 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 Secured Party under this Security Agreement, including, without
limitation, cash in the Cash Collateral Account.

 

(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 the relevant Debtor 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,
Secured Party may sell or otherwise dispose of the Collateral without
notification, advertisement, or other notice of any kind. It is agreed that
notice sent or given not less than ten (10) days prior to the taking of the
action to which the notice relates is reasonable notification and notice for the
purposes of this Paragraph 6(a).

 

(b)          Condition of Collateral; Warranties. Secured Party has no
obligation to clean up or otherwise prepare the Collateral for sale. Secured
Party may sell the Collateral without giving any warranties as to the
Collateral. Secured Party may specifically disclaim any warranties of title or
the like. This procedure will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral.

 

(c)          Sales of Pledged Securities.

(i)          Each Debtor agrees that, because of the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder (collectively, the
“Securities Act”), or any other Laws or regulations, and for other reasons,
there may be legal or practical restrictions or limitations affecting Secured
Party in any attempts to dispose of certain portions of the Pledged Securities
and for the enforcement of its Rights. For these reasons, Secured Party is
hereby authorized by each Debtor, but not obligated, upon the occurrence and
during the continuation of an Event of Default, to sell all or any part of the
Pledged Securities at private sale, subject to investment letter or in any other
manner which will not require the Pledged Securities, or any part thereof, to be
registered in accordance with the Securities Act or any other Laws or
regulations, at a reasonable price at such private sale or other distribution in
the manner mentioned above. Each Debtor understands that Secured Party may in
its discretion approach a limited number of potential purchasers and that a sale
under such circumstances may yield a lower price for the Pledged Securities, or
any part thereof, than would otherwise be obtainable if such Collateral were
either afforded to a larger number or potential purchasers, registered under the
Securities Act, or sold in the open market. Secured Party is hereby expressly
permitted by each Debtor, but not obligated, to purchase the Pledged Securities.
Each Debtor agrees that any such private sale made under this Paragraph 6(c) and
otherwise in compliance with applicable Law shall be deemed to have been made in
a commercially reasonable manner, and that Secured Party has no obligation to
delay the sale of any Pledged Securities to permit the issuer thereof to
register it for public sale under any applicable federal or state securities
Laws.

 

 Security AgreementPage 11

 

 

(ii)         Secured Party is authorized, in connection with any such sale, (A)
to restrict the prospective bidders on or purchasers of any of the Pledged
Securities to a limited number of sophisticated investors who will represent and
agree that they are purchasing for their own account for investment and not with
a view to the distribution or sale of any of such Pledged Securities, and (B) to
impose such other limitations or conditions in connection with any such sale as
Secured Party reasonably deems necessary in order to comply with applicable Law.
Each Debtor covenants and agrees that it will execute and deliver such documents
and take such other action as Secured Party reasonably deems necessary in order
that any such sale may be made in compliance with applicable Law. Upon any such
sale Secured Party shall have the right to deliver, assign, and transfer to the
purchaser thereof the Pledged Securities so sold. Each purchaser at any such
sale shall hold the Pledged Securities so sold absolutely free from any claim or
Right of any Debtor of whatsoever kind, including any equity or right of
redemption of any Debtor. Each Debtor, to the extent permitted by applicable
Law, hereby specifically waives all rights of redemption, stay, or appraisal
which it has or may have under any Law now existing or hereafter enacted.

 

(iii)        Each Debtor agrees that ten (10) days’ written notice from Secured
Party to such Debtor of Secured Party’s intention to make any such public or
private sale or sale of such Debtor’s Pledged Securities at a broker’s board or
on a securities exchange shall constitute reasonable notice under the UCC. Such
notice shall (A) in case of a public sale, state the time and place fixed for
such sale, (B) in case of sale at a broker’s board or on a securities exchange,
state the board or exchange at which such a sale is to be made and the day on
which such Pledged Securities, or the portion thereof so being sold, will first
be offered to sale at such board or exchange, and (C) in the case of a private
sale, state the day after which such sale may be consummated. Any such public
sale shall be held at such time or times within ordinary business hours and at
such place or places as Secured Party may fix in the notice of such sale. At any
such sale, all Pledged Securities may be sold in one lot as an entirety or in
separate parcels, as Secured Party may reasonably determine. Secured Party shall
not be obligated to make any such sale pursuant to any such notice. Secured
Party may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned.

 

(iv)        In case of any sale of all or any part of the Pledged Securities on
credit or for future delivery, the Pledged Securities so sold may be retained by
Secured Party until the selling price is paid by the purchaser thereof, but
Secured Party shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Pledged Securities so sold and in case of
any such failure, such Pledged Securities may again be sold upon like notice.
Secured Party, instead of exercising the power of sale herein conferred upon it,
may proceed by a suit or suits at Law or in equity to foreclose the Security
Interests and sell the Pledged Securities, or any portion thereof, under a
judgment or decree of a court or courts of competent jurisdiction.

 

 Security AgreementPage 12

 

 

(v)         Without limiting the foregoing, or imposing upon Secured Party any
obligations or duties not required by applicable Law, each Debtor acknowledges
and agrees that, in foreclosing upon any of the Pledged Securities, or
exercising any other Rights or remedies provided Secured Party hereunder or
under applicable Law, Secured Party may, but shall not be required to,
(A) qualify or restrict prospective purchasers of the Pledged Securities by
requiring evidence of sophistication or creditworthiness, and requiring the
execution and delivery of confidentiality agreements or other documents and
agreements as a condition to such prospective purchasers’ receipt of information
regarding the Pledged Securities or participation in any public or private
foreclosure sale process, (B) provide to prospective purchasers business and
financial information regarding any or all Debtors available in the files of
Secured Party at the time of commencing the foreclosure process, without the
requirement that Secured Party obtain, or seek to obtain, any updated business
or financial information or verify, or certify to prospective purchasers, the
accuracy of any such business or financial information, or (C) offer for sale
and sell the Pledged Securities with, or without, first employing an appraiser,
investment banker, or broker with respect to the evaluation of the Pledged
Securities, the solicitation of purchasers for Pledged Securities, or the manner
of sale of Pledged Securities.

 

(d)          Compliance with Other Laws. Secured Party may comply with any
applicable state or federal law requirements in connection with a disposition of
the Collateral and compliance will not be considered to adversely affect the
commercial reasonableness of any sale of the Collateral.

 

(e)          Application of Proceeds. Secured Party shall apply the proceeds of
any sale or other disposition of the Collateral under this Paragraph 6 first, to
the payment of expenses incurred in retaking, holding, and preparing any of the
Collateral for sale(s) or other disposition, in arranging for such sale(s) or
other disposition, and in actually selling or disposing of the same (all of
which are part of the Obligations); second, toward repayment of amounts expended
by Secured Party under Paragraph 7; and third, toward payment of the balance of
the Obligations in the order and manner specified in the Credit Agreement. If
the proceeds are insufficient to pay the Obligations in full, each Debtor shall
remain liable for any deficiency in accordance with the terms and provisions of
the Credit Agreement and the Guaranty.

 

(f)          Sales on Credit. If Secured Party sells any of the Collateral upon
credit, Debtors will be credited only with payments actually made by the
purchaser, received by the Secured Party, and applied to the indebtedness of the
purchaser. In the event the purchaser fails to pay for the Collateral, Secured
Party may resell the Collateral and Debtors shall be credited with the proceeds
of the sale.

 

7.          OTHER RIGHTS OF SECURED PARTY.

 

(a)          Performance. If any Debtor fails to pay when due all Taxes on any
of the Collateral in the manner required by the Loan Documents, or fails to
preserve the priority of the Security Interest in any of the Collateral, or
fails to keep the Collateral insured as required by the Loan Documents, or
otherwise fails to perform any of its obligations under the Loan Documents with
respect to the Collateral, in each case, within the applicable grace periods,
then Secured Party may, at its option, but without being required to do so, pay
such Taxes, prosecute or defend any suits in relation to the Collateral, or
insure and keep insured the Collateral to the extent required under the Loan
Documents, or take all other action which such Debtor is required, but has
failed or refused, to take under the Loan Documents. Any sum which may be
expended or paid by Secured Party under this Paragraph (a) (including, without
limitation, court costs and reasonable attorneys’ fees) shall bear interest from
the dates of expenditure or payment at the Default Rate until paid and, together
with such interest, shall be payable by such Debtor to Secured Party upon demand
and shall be part of the Obligations.

 

 Security AgreementPage 13

 

 

(b)          Collection. If an Event of Default exists and is continuing and
upon notice from Secured Party, each Obligor with respect to any payments on any
of the Collateral (including, without limitation, insurance proceeds payable by
reason of loss or damage to any of the Collateral and payments or distributions
with respect to Deposit Accounts and Investment Accounts) is hereby authorized
and directed by each Debtor to make payment directly to Secured Party,
regardless of whether any Debtor was previously making collections thereon.
Subject to Paragraphs 7(c) and 7(g) hereof, until such notice is given, each
Debtor is authorized to retain and expend all payments made on Collateral. If an
Event of Default exists and is continuing, Secured Party shall have the Right in
its own name or in the name of any Debtor to compromise or extend time of
payment with respect to all or any portion of the Collateral for such amounts
and upon such terms as Secured Party may determine; to notify any and all
account debtors to make payments of the accounts directly to Secured Party; to
demand, collect, receive, receipt for, sue for, compound, and give acquittances
for any and all amounts due or to become due with respect to Collateral; to
exercise exclusive control over Deposit Accounts and Investment Accounts, or to
take control of cash and other proceeds of any Collateral; to endorse the name
of the relevant Debtor on any notes, acceptances, checks, drafts, money orders,
or other evidences of payment on Collateral that may come into the possession of
Secured Party; to sign the name of the relevant Debtor on any invoice or bill of
lading relating to any Collateral, on any drafts against Obligors or other
Persons making payment with respect to Collateral, on assignments and
verifications of accounts or other Collateral and on notices to Obligors making
payment with respect to Collateral; to send requests for verification of
obligations to any Obligor; and to do all other acts and things necessary to
carry out the intent of this Security Agreement. If an Event of Default exists
and is continuing and any Obligor fails or refuses to make payment on any
Collateral when due, Secured Party is authorized, in its sole discretion, either
in its own name or in the name of any Debtor, to take such action as Secured
Party shall deem appropriate for the collection of any amounts owed with respect
to Collateral or upon which a delinquency exists. Regardless of any other
provision hereof, however, Secured Party shall never be liable for its failure
to collect, or for its failure to exercise diligence in the collection of, any
amounts owed with respect to Collateral, nor shall it be under any duty
whatsoever to anyone except the relevant Debtor to account for funds that it
shall actually receive hereunder. The receipt of Secured Party to any Obligor
shall be a full and complete release, discharge, and acquittance to such
Obligor, to the extent of any amount so paid to Secured Party. During the
continuance of an Event of Default, all amounts and proceeds (including
instruments) received by any Debtor in respect of the Collateral shall be
received in trust for the benefit of Secured Party, shall be segregated from
other funds of such Debtor and shall be forthwith paid over to Secured Party in
the same form as so received (with any necessary endorsement). The rights of
Secured Party in this Paragraph 7(b) shall be in addition to those set forth in
Paragraph 7(c), and the provisions of this Paragraph 7(b) shall not in any way
be construed to limit Secured Party’s rights under Paragraph 7(c).

 

(c)          Intellectual Property. For purposes of enabling Secured Party to
exercise its rights and remedies under this Security Agreement and enabling
Secured Party and its successors and permitted assigns to enjoy the full
benefits of the Collateral, each Debtor hereby grants to Secured Party an
irrevocable, nonexclusive license or other right (exercisable without payment of
royalty or other compensation to such Debtor) to use any of such Debtor’s
Intellectual Property, or any property of a similar nature, as it pertains to
the Collateral, in advertising for sale and selling any Collateral and such
Debtor’s rights under all licenses and all franchise agreements shall inure to
Secured Party’s benefit, which license or right may only be exercised during the
continuance of an Event of Default. During the continuance of an Event of
Default, each Debtor shall provide Secured Party with reasonable access to all
media in which any of the Intellectual Property may be recorded or stored and
all computer programs used for the completion or printout thereof. This license
or other right shall also inure to the benefit of all successors, permitted
assigns, and permitted transferees of Secured Party. With respect to
Intellectual Property that is not owned by the Debtors, the license and other
rights contained in this Paragraph 7 shall be subject to the terms of any
licenses or other agreements that create and govern any Debtor’s right in such
Intellectual Property.

 

 Security AgreementPage 14

 

 

(d)          Record Ownership of Securities. If an Event of Default exists and
is continuing, Secured Party at any time may have any Collateral that is Pledged
Securities and that is in the possession of Secured Party, or its nominee or
nominees, registered in its name, or in the name of its nominee or nominees, as
Secured Party; and, as to any Collateral that is Pledged Securities so
registered, Secured Party shall execute and deliver (or cause to be executed and
delivered) to the relevant Debtor all such proxies, powers of attorney, dividend
coupons or orders, and other documents as such Debtor may reasonably request for
the purpose of enabling such Debtor to exercise the voting Rights and powers
which it is entitled to exercise under this Security Agreement or to receive the
dividends and other distributions and payments in respect of such Collateral
that is Pledged Securities or proceeds thereof which it is authorized to receive
and retain under this Security Agreement.

 

(e)          Voting of Securities. As long as no Event of Default exists and is
continuing, each Debtor is entitled to exercise all voting Rights pertaining to
its Pledged Securities and Company Interests; provided, however, that no vote
shall be cast or consent, waiver, or ratification given or action taken without
the prior written consent of Secured Party which would (x) be inconsistent with
or violate any provision of this Security Agreement or any other Loan Document
or (y) amend, modify, or waive any term, provision or condition of the
certificate of incorporation, bylaws, certificate of formation, or other charter
document, or other agreement relating to, evidencing, providing for the issuance
of, or securing any Collateral in any way that adversely affects the perfection
of the security interest of the Secured Party in the Pledged Securities or the
Company Interests pledged by such Debtor hereunder; and provided further that
such Debtor shall give Secured Party at least five (5) Business Days’ prior
written notice in the form of an officers’ certificate of the manner in which it
intends to exercise, or the reasons for refraining from exercising, any voting
or other consensual Rights pertaining to the Collateral or any part thereof
which might have a material adverse effect on the aggregate value of the
Collateral. If an Event of Default exists and is continuing and if Secured Party
elects to exercise such Right, the Right to vote any Pledged Securities shall be
vested exclusively in Secured Party. To this end, each Debtor hereby irrevocably
constitutes and appoints Secured Party the proxy and attorney-in-fact of such
Debtor, with full power of substitution, to vote, and to act with respect to,
any and all Collateral that is Pledged Securities standing in the name of such
Debtor or with respect to which such Debtor is entitled to vote and act, subject
to the understanding that such proxy may not be exercised unless an Event of
Default exists and is continuing. The proxy herein granted is coupled with an
interest, is irrevocable, and shall continue until the Obligation has been paid
and performed in full.

 

(f)          Certain Proceeds.

 

(i) Any and all dividends, interest, or other distributions paid or payable in
cash or other than in cash in respect of, and instruments and other property
received, receivable, or otherwise distributed in respect of, or in exchange
for, any Collateral shall be part of the Collateral hereunder, and during the
continuance of an Event of Default, (A) shall, if received by any Debtor, be
held in trust for the benefit of Secured Party, and (B) if requested by Secured
Party, shall forthwith be delivered to Secured Party (accompanied by proper
instruments of assignment executed by such Debtor in accordance with Secured
Party’s instructions) to be held subject to the terms of this Security
Agreement. Any cash proceeds of Collateral which come into the possession of
Secured Party during the continuance of an Event of Default (including, without
limitation, insurance proceeds) may, at Secured Party’s option, be applied in
whole or in part to the Obligations (to the extent then due), be released in
whole or in part to or on the written instructions of the relevant Debtor for
any general or specific purpose, or be retained in whole or in part by Secured
Party as additional Collateral.

 

 Security AgreementPage 15

 

 

(ii) Whether or not a Default or Event of Default exists (A) any cash Collateral
in the possession of Secured Party may be invested by Secured Party in deposit
accounts and certificates of deposit issued by Secured Party (if Secured Party
issues such certificates) or by any state or national bank having combined
capital and surplus greater than $100,000,000 with a rating from Moody’s and S&P
of P-1 and A-1+, respectively, or in securities issued or guaranteed by the
United States of America or any agency thereof and Secured Party shall never be
obligated to make any such investment and shall never have any liability to any
Debtor for any loss which may result therefrom and (B) all interest and other
amounts earned from any investment of Collateral may be dealt with by Secured
Party in the same manner as other cash Collateral.

 

(g)          Use and Operation of Collateral. Should any Collateral come into
the possession of Secured Party, Secured Party may use such Collateral for the
purpose of preserving it or its value pursuant to the order of a court of
appropriate jurisdiction or in accordance with any other rights held by Secured
Party in respect of such Collateral. Each Debtor covenants to promptly reimburse
and pay to Secured Party, at Secured Party’s request, the amount of all
reasonable expenses (including, without limitation, the cost of any insurance
and payment of Taxes or other charges) incurred by Secured Party in connection
with its custody and preservation of Collateral, and all such expenses, costs,
Taxes, and other charges shall bear interest at the Default Rate until repaid
and, together with such interest, shall be payable by such Debtor to Secured
Party upon demand and shall become part of the Obligations. However, the risk of
accidental loss or damage to, or diminution in value of, Collateral is on
Debtors, and Secured Party shall have no liability whatsoever for failure to
obtain or maintain insurance, nor to determine whether any insurance ever in
force is adequate as to amount or as to the risks insured. With respect to
Collateral that is in the possession of Secured Party, Secured Party shall have
no duty to fix or preserve rights against prior parties to such Collateral and
shall never be liable for any failure to use diligence to collect any amount
payable in respect of such Collateral, but shall be liable only to account to
the relevant Debtors for what it may actually collect or receive thereon. The
provisions of this Paragraph (g) are applicable whether or not a Default or
Event of Default exists.

 

(h)          Cash Collateral Account. If an Event of Default exists and is
continuing, Secured Party shall have, and each Debtor hereby grants to Secured
Party, the Right and authority to transfer, all funds on deposit in the Deposit
Accounts to one or more “Cash Collateral Accounts” (herein so called) maintained
with a depository institution acceptable to Secured Party and subject to the
exclusive direction, domain, and control of Secured Party, and no disbursements
or withdrawals shall be permitted to be made by any Debtor from such Cash
Collateral Accounts. Such Cash Collateral Accounts shall be subject to the
Security Interest and Liens in favor of Secured Party herein created, and each
Debtor hereby grants a security interest to Secured Party on behalf of Lenders
in and to, such Cash Collateral Accounts and all checks, drafts, and other items
ever received by such Debtor for deposit therein. Furthermore, if an Event of
Default exists and is continuing, Secured Party shall have the right at any time
in its sole discretion without notice to any Debtor, (i) to transfer to or to
register in the name of Secured Party or any Lender or nominee any certificates
of deposit or deposit instruments constituting Deposit Accounts and shall have
the right to exchange such certificates or instruments representing Deposit
Accounts for certificates or instruments of smaller or larger denominations and
(ii) to take and apply against the Obligations any and all funds then or
thereafter on deposit in the Cash Collateral Accounts or otherwise constituting
Deposit Accounts.

 

 Security AgreementPage 16

 

 

(i)          Power of Attorney. Each Debtor hereby irrevocably constitutes and
appoints 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 name of such Debtor or in its own name, to take
during the continuance of an Event of Default, any and all action and to execute
any and all documents and instruments which Secured Party at any time and from
time to time deems necessary or reasonably desirable to accomplish the purposes
of this Security Agreement and, without limiting the generality of the
foregoing, each Debtor hereby gives Secured Party the power and right on behalf
of such Debtor and in its own name to do any of the following during the
continuance of an Event of Default, without notice to or the consent of such
Debtor: (i) to transfer any and all funds on deposit with Secured Party in one
or more deposit accounts, and any certificates of deposit or deposit instruments
constituting deposit accounts, to the Cash Collateral Account as set forth in
herein; (ii) to receive, endorse, and collect any drafts or other instruments or
documents in connection with Paragraph 7(b) above and this Paragraph 7(i); (iii)
to use such Debtor’s Intellectual Property as provided in Paragraph 7(d); (iv)
to demand, sue for, collect, or receive, in the name of such Debtor or in its
own name, any money or property at any time payable or receivable on account of
or in exchange for any of the Collateral and, in connection therewith, endorse
checks, notes, drafts, acceptances, money orders, documents of title or any
other instruments for the payment of money under the Collateral or any policy of
insurance; (v) to pay or discharge taxes, Liens, or other encumbrances levied or
placed on or threatened against the Collateral; and (vi) (A) to direct account
debtors and any other parties liable for any payment under any of the Collateral
to make payment of any and all monies due and to become due thereunder directly
to Secured Party or as Secured Party shall direct; (B) to receive payment of and
receipt for any and all monies, claims, and other amounts due and to become due
at any time in respect of or arising out of any Collateral; (C) to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, proxies, stock powers,
verifications, and notices in connection with accounts and other documents
relating to the Collateral; (D) to commence and prosecute any suit, action, or
proceeding at Law or in equity in any court of competent jurisdiction to collect
the Collateral or any part thereof and to enforce any other Right in respect of
any Collateral; (E) to defend any suit, action, or proceeding brought against
such Debtor with respect to any Collateral; (F) to settle, compromise, or adjust
any suit, action, or proceeding described above and, in connection therewith, to
give such discharges or releases as Secured Party may deem appropriate; (G) to
exchange any of the Collateral for other property upon any merger,
consolidation, reorganization, recapitalization, or other readjustment of the
issuer thereof and, in connection therewith, deposit any of the Collateral with
any committee, depositary, transfer agent, registrar, or other designated agency
upon such terms as Secured Party may determine; (H) to add or release any
guarantor, indorser, surety, or other party to any of the Collateral; (I) to
renew, extend, or otherwise change the terms and conditions of any of the
Collateral; (J) to endorse such Debtor’s name on all applications, documents,
papers, and instruments necessary or reasonably desirable in order for Secured
Party to use any of the Intellectual Property; (K) to make, settle, compromise
or adjust any claims under or pertaining to any of the Collateral (including
claims under any policy of insurance); (L) to execute on behalf of such Debtor
any financing statements or continuation statements with respect to the Security
Interests created hereby, and to do any and all acts and things to protect and
preserve the Collateral, including, without limitation, the protection and
prosecution of all rights included in the Collateral; and (M) to sell, transfer,
pledge, convey, make any agreement with respect to or otherwise deal with any of
the Collateral as fully and completely as though Secured Party were the absolute
owner thereof for all purposes, and to do, at Secured Party’s option and such
Debtor’s expense, at any time, or from time to time, all acts and things which
Secured Party deems necessary to protect, preserve, maintain, or realize upon
the Collateral and Secured Party’s security interest therein.

 

This power of attorney is a power coupled with an interest and shall be
irrevocable. Secured Party shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to Secured Party in this Security Agreement, and shall not be
liable for any failure to do so or any delay in doing so. Neither Secured Party
nor any Person designated by Secured Party shall be liable for any act or
omission or for any error of judgment or any mistake of fact or Law. This power
of attorney is conferred on Secured Party solely to protect, preserve, maintain,
and realize upon its Security Interest in the Collateral. Secured Party shall
not be responsible for any decline in the value of the Collateral and shall not
be required to take any steps to preserve rights against prior parties or to
protect, preserve, or maintain any Lien given to secure the Collateral.

 

 Security AgreementPage 17

 

 

(j)          Purchase Money Collateral. To the extent that Secured Party or any
Lender has advanced or will advance funds to or for the account of any Debtor to
enable such Debtor to purchase or otherwise acquire Rights in Collateral,
Secured Party or such Lender, at its option, may pay such funds (i) directly to
the Person from whom such Debtor will make such purchase or acquire such Rights,
or (ii) to such Debtor, in which case such Debtor covenants to promptly pay the
same to such Person, and forthwith furnish to Secured Party evidence
satisfactory to Secured Party that such payment has been made from the funds so
provided.

 

(k)          Subrogation. If any of the Obligations is given in renewal or
extension or applied toward the payment of indebtedness secured by any Lien,
Secured Party shall be, and is hereby, subrogated to all of the Rights, titles,
interests, and Liens securing the indebtedness so renewed, extended, or paid.

 

(l)          Indemnification. Each Debtor hereby assumes all liability for the
Collateral, for the Security Interest, and for any use, possession, maintenance,
and management of, all or any of the Collateral, including, without limitation,
any Taxes arising as a result of, or in connection with, the transactions
contemplated herein, and agrees to assume liability for, and to indemnify and
hold each Beneficiary harmless from and against, any and all claims, causes of
action, or liability, for injuries to Persons and damage to property, howsoever
arising from or incident to such use, possession, maintenance, and management,
whether such Persons be agents or employees of such Debtor or of third parties,
or such damage be to property of such Debtor or of others, provided, however,
that DOES NOT ASSUME ANY LIABILITY FOR, AND shall not be required to indemnify,
HOLD HARMLESS, OR DEFEND anY BENEFICIARY for, ANY losses, damages, claims,
costs, penalties, liabilities, and expenses caused by the gross negligence or
willful misconduct of such BENEFICIARY DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY A FINAL NON-APPEALABLE JUDGMENT. each Debtor agrees to
indemnify, save, and hold each Beneficiary (each, an “indemnified person”),
harmless from and against, and covenants to defend each indemnified person
against, any and all losses, damages, claims, costs, penalties, liabilities, and
expenses (collectively, “Claims”), including, without limitation, court costs
and reasonable attorneys’ fees, and any of the foregoing arising from the
negligence of an indemnified person, or any of their respective officers,
employees, agents, advisors, employees, or representatives, howsoever arising or
incurred because of, incident to, or with respect to Collateral or any use,
possession, maintenance, or management thereof; provided, however, that such
Debtor shall not be required to indemnify an indemnified person for Claims
caused by the gross negligence or willful misconduct of such indemnified person
DETERMINED BY A COURT OF COMPETENT JURISDICTION BY A FINAL NON-APPEALABLE
JUDGMENT.

 

 Security AgreementPage 18

 

 

8.          Additional Debtors. From time to time subsequent to the time hereof,
additional Subsidiaries of Borrower may become parties hereto as additional
Debtors (each an “Additional Debtor”) by executing a Security Agreement
Supplement in the form attached hereto (or such other form as may be reasonably
satisfactory to the Secured Party). Upon delivery of any such supplement to the
Secured Party, notice of which is hereby waived by Debtors, each such Additional
Debtor shall be a Debtor hereunder and shall be a party hereto as if such
Additional Debtor were an original signatory hereof. Each Debtor expressly
agrees that its obligations arising hereunder shall not be affected or
diminished by the addition or release of any other Debtor hereunder, or by any
election by Secured Party or any Lenders not to cause any Subsidiary of Borrower
to become an Additional Debtor hereunder. This Security Agreement shall be fully
effective as to any Debtor that is or becomes a party hereto regardless of
whether any such Person becomes or fails to become or ceases to be a Debtor
hereunder.

 

9.          Execution by Secured Party. The Secured Party has executed this
Security Agreement as directed under and in accordance with the Credit Agreement
and will perform this Security Agreement solely in its capacity as Secured Party
for the Beneficiaries. In performing under this Agreement, the Secured Party
shall have all such rights, protections and immunities granted it under the
Credit Agreement and shall not be personally liable under any circumstances.
Subject to the terms of the Credit Agreement, the Secured Party shall have no
obligation to perform or exercise any discretionary act.

 

10.         MISCELLANEOUS.

 

(a)          Continuing Security Interest. This Security Agreement creates a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until such time at which each of the following events shall
have occurred on or prior to such time (such time being referred to herein as
“Security Termination”): (A) all Obligations are paid in full in cash (other
than indemnities and other contingent obligations not then due and payable and
as to which no claim has been made as of the time of determination); and (B) the
Commitments of the Lenders under the Credit Agreement and the other Loan
Documents are terminated; (ii) inure to the benefit of and be enforceable by the
Beneficiaries and their respective successors, permitted transferees, and
permitted assigns; and (iii) be binding on each Debtor and such Debtor’s
successors and assigns. No Debtor may, without the prior written consent of
Secured Party, assign any rights, duties, or obligations hereunder. Without
limiting the generality of the foregoing clause (ii), Secured Party and Lenders
may assign or otherwise transfer any of their respective rights under this
Security Agreement to any other Person in accordance with the terms and
provisions of the Credit Agreement, and to the extent of such assignment or
transfer such Person shall thereupon become vested with all the rights and
benefits in respect thereof granted herein or otherwise to Secured Party or
Lenders, as the case may be. Upon satisfaction of the conditions set forth in
clause (i) of this Paragraph 10(a), the Collateral shall be released from the
Security Interest and Liens created hereby, and this Security Agreement and all
obligations (other than those expressly stated to survive such termination) of
the Secured Party and each Debtor hereunder shall terminate, all without
delivery of any instrument or any further action by any party, and all rights to
the Collateral shall revert to the Debtors. At the request and expense of any
Debtor following any such release and termination, the Secured Party shall
deliver to such Debtor any Collateral held by the Secured Party hereunder, and
execute and deliver to such Debtor such documents as such Debtor shall
reasonably request to evidence such release and termination. No Obligor, if any,
on any of the Collateral shall ever be obligated to make inquiry as to the
termination of this Security Agreement, but shall be fully protected in making
payment directly to Secured Party until actual notice of such total payment of
the Obligations is received by such Obligor. If any of the Collateral shall be
sold, transferred, or otherwise disposed of by any Debtor in a transaction
permitted by the Credit Agreement, then the Security Interest and Lien created
pursuant to this Security Agreement in such Collateral shall be released, and
the Secured Party, at the request and expense of such Debtor, shall execute and
deliver to such Debtor all releases and other documents reasonably necessary or
advisable for the release of the Security Interest and Liens created hereby on
such Collateral; provided that the Borrower shall provide to the Secured Party
evidence of such transaction’s compliance with the Credit Agreement and the
other Loan Documents as the Secured Party shall reasonably request.

 

 Security AgreementPage 19

 

 

(b)          Actions Not Releases. The Security Interest and each Debtor’s
obligations and Secured Party’s rights hereunder shall not be released,
diminished, impaired, or adversely affected by the occurrence of any one or more
of the following events: (i) the taking or accepting of any other security or
assurance for any or all of the Obligations; (ii) any release, surrender,
exchange, subordination, or loss of any security or assurance at any time
existing in connection with any or all of the Obligations; (iii) the
modification of, amendment to, or waiver of compliance with any terms of any of
the other Loan Documents without the notification or consent of such Debtor,
except as required therein (the right to such notification or consent (except as
specifically being required therein) being specifically waived by each Debtor);
(iv) the insolvency, bankruptcy, or lack of corporate or trust power of any
party at any time liable for the payment of any or all of the Obligations,
whether now existing or hereafter occurring; (v) any renewal, extension, or
rearrangement of the payment of any or all of the Obligations, either with or
without notice to or consent of any Debtor, or any adjustment, indulgence,
forbearance, or compromise that may be granted or given by Secured Party or any
Lender to any Debtor; (vi) any neglect, delay, omission, failure, or refusal of
Secured Party or any Lender to take or prosecute any action in connection with
any other agreement, document, guaranty, or instrument evidencing, securing, or
assuring the payment of all or any of the Obligations; (vii) any failure of
Secured Party or any Lender to notify any Debtor of any renewal, extension, or
assignment of the Obligations or any part thereof, or the release of any
Collateral or other security, or of any other action taken or refrained from
being taken by Secured Party or any Lender against any Debtor or any new
agreement between or among Secured Party or one or more Lenders and any Debtor,
in each case except as required by any Loan Document, it being understood that
except as expressly provided herein, or any other Loan Document, neither Secured
Party nor any Lender shall be required to give any Debtor any notice of any kind
under any circumstances whatsoever with respect to or in connection with the
Obligations, including, without limitation, notice of acceptance of this
Security Agreement or any Collateral ever delivered to or for the account of
Secured Party hereunder; (viii) the illegality, invalidity, or unenforceability
of all or any part of the Obligations against any party obligated with respect
thereto by reason of the fact that the Obligations, or the interest paid or
payable with respect thereto, exceeds the amount permitted by Law, the act of
creating the Obligations, or any part thereof, is ultra vires, or the officers,
partners, or trustees creating same acted in excess of their authority, or for
any other reason; or (ix) if any payment by any party obligated with respect
thereto is held to constitute a preference under applicable Laws or for any
other reason Secured Party or any Lender is required to refund such payment or
pay the amount thereof to someone else.

 

(c)          Waivers. Except to the extent expressly otherwise provided herein
or in other Loan Documents and to the fullest extent permitted by applicable
Law, each Debtor waives (i) any right to require Secured Party or any Lender to
proceed against any other Person, to exhaust its rights in Collateral, or to
pursue any other right which Secured Party or any Lender may have; (ii) with
respect to the Obligations, presentment and demand for payment, protest, notice
of protest and nonpayment, and notice of the intention to accelerate and notice
of acceleration; and (iii) all rights of marshaling in respect of any and all of
the Collateral.

 

(d)          Financing Statement; Authorization. Secured Party shall be entitled
at any time to file this Security Agreement or a carbon, photographic, or other
reproduction of this Security Agreement, as a financing statement, but the
failure of Secured Party to do so shall not impair the validity or
enforceability of this Security Agreement. Each Debtor hereby irrevocably
authorizes Secured Party at any time and from time to time prior to Security
Termination to file in any UCC jurisdiction any initial financing statements and
amendments thereto (without the requirement for such Debtor’s signature thereon)
containing any information required by Article 9 of the UCC of the state or such
jurisdiction for the sufficiency or filing office acceptance of any financing
statement or amendment, including whether the Company is an organization, the
type of organization, and any organization identification number issued to such
Debtor. Each Debtor agrees to furnish any such information to Secured Party
promptly upon request.

 

 Security AgreementPage 20

 

 

(e)          Amendments. This Security Agreement may be amended only by an
instrument in writing executed jointly by each Debtor and Secured Party, and
supplemented only by documents delivered or to be delivered in accordance with
the express terms hereof.

 

(f)          Multiple Counterparts. This Security Agreement has been executed in
a number of identical counterparts, each of which shall be deemed an original
for all purposes and all of which constitute, collectively, one agreement; but,
in making proof of this Security Agreement, it shall not be necessary to produce
or account for more than one such counterpart. Delivery of an executed
counterpart by facsimile or other electronic transmission shall be effective as
delivery of a manually executed counterpart.

 

(g)          Secured Party’s Right to Act for Benefit of Beneficiaries. Secured
Party may, without the joinder of any other Beneficiary, exercise any and all
rights in favor of the Beneficiaries hereunder, including, without limitation,
conducting any foreclosure sales hereunder, and executing full or partial
releases hereof, amendments or modifications hereto, or consents or waivers
hereunder. The rights of each Beneficiary vis-a-vis Secured Party and each other
Beneficiary may be subject to one or more separate agreements between or among
such parties, but no Debtor need inquire about any such agreement or be subject
to any terms thereof unless such Debtor specifically joins therein; and
consequently, no Debtor and none of such Debtor’s heirs, personal
representatives, successors, and assigns shall be entitled to any benefits or
provisions of any such separate agreements or be entitled to rely upon or raise
as a defense, in any manner whatsoever, the failure or refusal of any party
thereto to comply with the provisions thereof.

 

(h)          Loan Documents. This Security Agreement is a Loan Document.

 

(i)          Governing Law. This security Agreement and the other Loan Documents
(unless otherwise expressly provided therein) shall be deemed a contract under,
and shall be governed by, and construed and enforced in accordance with, the
INTERNAL laws (AND NOT THE LAW OF CONFLICTS) of the State of New York.

 

(j)          Notices. . All notices, requests and other communications provided
for hereunder shall be in writing and given to Secured Party as provided in
Section 9.02 of the Credit Agreement. All communications and notices hereunder
to the Debtors shall be given to the Debtors at the address of Borrower as set
forth on Appendix B of the Credit Agreement or at such other address as shall be
designated by any Debtor in a written notice to Secured Party.

 

(k)          Jurisdiction;Waiver of Jury Trial. Each Debtor agrees to the
provisions of Sections 9.14 and 9.17 of the Credit Agreement AND SUCH PROVISIONS
ARE INCORPORATED HEREIN, MUTATIS MUTANDIS, AS A PART HEREOF.

 

11.         ENTIRE AGREEMENT. THIS SECURITY AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.

 

12.         Amendment and Restatement. Each Debtor and Secured Party acknowledge
and agree that insofar as to any portion of the Security Interests covered under
the Assigned Security Agreement, this Security Agreement amends and restates the
Assigned Security Agreement and all security interests, liens, claims, rights,
titles, and benefits created and granted by each such Debtor thereunder shall
continue to exist, remain valid and subsisting, shall not be impaired or
released hereby, shall remain in full force and effect and are hereby renewed,
extended, carried forward and conveyed as security for the indebtedness. The
parties hereto acknowledge and agree that, from and after the Closing Date and
this Security Agreement shall supersede and replace the Assigned Security
Agreement in its entirety.

 

 Security AgreementPage 21

 

 

13.         Carry and Farmout Agreements. Specific reference is hereby made to
that certain Carry Agreement (the “Carry Agreement”) and that certain Farm-Out
Agreement (the “Farmout Agreement”) each dated August 12, 2013, but effective as
of June 1, 2013, by and between Borrower, AMZG and USG Properties Bakken I, LLC
(“USG”). Debtors and Secured Party hereby acknowledge that the Carry Agreement
and Farmout Agreement each relate to and affect certain portions of Mortgagor’s
interest in certain wellbore interests (the “Subject Wellbores”) that are part
of the Collateral covered by this Security Agreement (collectively, the “Carried
Interests”). Secured Party acknowledges that, from time to time, Debtors’
Working Interests and the Net Revenue Interests in and to the Carried Interests
insofar as they relate to the Subject Wellbores will be subject to fluctuation
based on the before payout and after payout status pursuant to the terms and
provisions of the Carry Agreement and Farmout Agreement. Secured Party also
acknowledges that Debtors will be required to assign a portion of Debtors’
Working Interest and Net Revenue Interest to USG in and to the Subject
Wellbores, subject in each case to after payout reversions of the Carried
Interests insofar as they relate to such Subject Wellbores to Debtors.  To the
extent any Debtor is required to make any such assignment to USG pursuant to the
express terms of the Carry Agreement or Farmout Agreement, Secured Party
disclaims any Lien, Security Interest or other interest under this Security
Agreement in and to, and only insofar as to, any such assigned interest in the
Subject Wellbores, but only if and to the extent set forth in and as required by
the Carry Agreement and Farmout Agreement; provided that automatically upon
reversion of any interest in each Subject Wellbore such interest shall
automatically be subject to and covered by the Security Interest and other
grants under this Security Agreement, and further provided that Secured Party
does not consent to Debtors amending or otherwise modifying any terms under the
Carry Agreement or Farmout Agreement in their form as of the date of this
Security Agreement or any assignment or conveyance not required by such Carry
Agreement and Farmout Agreement, and any amendment or modification, or
assignment or conveyance not as required by such Carry Agreement and Farmout
Agreement without Secured Party’s consent, shall be null and void as to Secured
Party. For the sake of further clarity, Annex E attached hereto specifies the
Subject Wellbores and Debtors’ before and after payout interests in those
wellbores after giving effect to the terms of the Carry Agreement and Farmout
Agreement.

 

Remainder of Page Intentionally Blank.

Signature Pages to Follow.

 

 Security AgreementPage 22

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
executed as of the day first above written.

 

  DEBTOR:         American eagle energy corporation,   a Nevada corporation    
    By:       Bradley M. Colby     President and Chief Executive Officer        
AMZG, INC.,   a Nevada corporation         By:       Bradley M. Colby    
President         AEE Canada Inc.,   an Alberta, Canada corporation         By:
      Bradley M. Colby     President         EERG Energy ULC,   an Alberta,
Canada unlimited liability company         By:       Bradley M. Colby    
President

 

Signature Page to Security Agreement

 

 

  SECURED PARTY:         MORGAN STANLEY CAPITAL GROUP INC.,   as the
Administrative Agent         By:       Nancy King     Vice President

 

Signature Page to Security Agreement

 

 

ATTACHMENT

TO SECURITY AGREEMENT

 

SECURITY AGREEMENT SUPPLEMENT

 

This SECURITY AGREEMENT SUPPLEMENT, dated [_______________], is delivered by
[Name of Debtor] a [Name of State of Incorporation/Formation]
[Corporation/limited liability company/partnership] (the “Debtor”) pursuant to
the Pledge and Security Agreement dated as of August 19, 2013 (as it may be from
time to time amended, restated, modified or supplemented, the “Security
Agreement”), among AMERICAN EAGLE ENERGY CORPORATION, the other debtors named
therein or party thereto, and MORGAN STANLEY CAPITAL GROUP INC., as Secured
Party. Capitalized terms used herein not otherwise defined herein shall have the
meanings ascribed thereto in the Security Agreement.

 

By executing and delivering this Security Agreement Supplement, Debtor hereby
becomes a party to the Security Agreement with the same force and effect as if
originally named a “Debtor” therein, and without limiting the generality of the
foregoing, (a) Debtor hereby expressly assumes all obligations and liabilities
of a Debtor thereunder and agrees to be bound by the terms thereof, and (b)
confirms the grant to Secured Party set forth in the Security Agreement of, and
in order to secure the full and complete payment and performance of the
Obligations when due, Debtor hereby grants to Secured Party, for the benefit of
the Beneficiaries, a security interest in and lien on, all of Debtor’s right,
title and interest in and to all Collateral, whether now or hereafter existing
or in which Debtor now has or hereafter acquires an interest and wherever the
same may be located, and Debtor hereby pledges, collaterally transfers, and
assigns the Collateral (whether now or hereafter existing or in which Debtor now
has or hereafter acquires an interest and wherever the same may be located), to
Secured Party, for the benefit of the Beneficiaries, as security for the
Obligations, all upon and subject to the terms and conditions of the Security
Agreement.

 

Debtor represents and warrants that the attached supplements to the Annexes to
the Security Agreement accurately and completely set forth all information
required pursuant to the Security Agreement with respect to Debtor and its
properties and assets, and hereby agrees that such supplements to the Annexes to
the Security Agreement shall constitute part of the Annexes to the Security
Agreement. Debtor hereby represents and warrants solely as to itself and not to
any other debtor that each of the representations and warranties set forth in
the Security Agreement is true and correct on and as of the date hereof (after
giving effect to this Supplement) as if made on and as of such date.

 

IN WITNESS WHEREOF, Debtor has caused this Security Agreement Supplement to be
duly executed and delivered by its duly authorized officer as of the date first
set forth above.

 

  [NAME OF DEBTOR]         By:             Name:      Title:  

 

Page 1
Security Agreement
Security Agreement Supplement

 

 

ANNEX A TO SECURITY AGREEMENT

 

DEBTOR INFORMATION

 

A.   Exact Legal Name of Debtor:   American Eagle Energy Corporation          
B.   Mailing Address of Debtor:   2549 W. Main Street, Suite 202        
Littleton, Colorado 80120         Attention:  Chief Executive Officer          
C.   Type of Entity:   Corporation           D.   Jurisdiction of Organization:
  Nevada           E.   State Issued Organizational         Identification
Number:   C17822-2003           F.   Location of Books and Records:   2549 W.
Main Street, Suite 202         Littleton, Colorado 80120           G.   Trade
Names and Assumed         Business Names   None           A.   Exact Legal Name
of Debtor:   AMZG, Inc.           B.   Mailing Address of Debtor:   c/o American
Eagle Energy Corporation         2549 W. Main Street, Suite 202        
Littleton, Colorado 80120         Attention:  Chief Executive Officer          
C.   Type of Entity:   Corporation           D.   Jurisdiction of Organization:
  Nevada           E.   State Issued Organizational         Identification
Number:   E0181062007-5           F.   Location of Books and Records:   2549 W.
Main Street, Suite 202         Littleton, Colorado 80120           G.   Trade
Names and Assumed         Business Names   None

 

Page 2
Security Agreement
Annex A to Security Agreement

 

 

A.   Exact Legal Name of Debtor:   AEE Canada Inc.           B.   Mailing
Address of Debtor:   c/o American Eagle Energy Corporation         2549 W. Main
Street, Suite 202         Littleton, Colorado 80120         Attention:  Chief
Executive Officer           C.   Type of Entity:   Named Alberta Corporation    
      D.   Jurisdiction of Organization:   Alberta           E.   State Issued
Organizational         Identification Number:   2015432582           F.  
Location of Books and Records:   2549 W. Main Street, Suite 202        
Littleton, Colorado 80120           G.   Trade Names and Assumed        
Business Names   None

 

A.   Exact Legal Name of Debtor:   EERG Energy ULC           B.   Mailing
Address of Debtor:   c/o American Eagle Energy Corporation         2549 W. Main
Street, Suite 202         Littleton, Colorado 80120         Attention:  Chief
Executive Officer           C.   Type of Entity:   Named Alberta unlimited
liability company           D.   Jurisdiction of Organization:   Alberta        
  E.   State Issued Organizational         Identification Number:   2013563941  
        F.   Location of Books and Records:   2549 W. Main Street, Suite 202    
Littleton, Colorado 80120               G.   Trade Names and Assumed        
Business Names   None

 

Page 3
Security Agreement
Annex A to Security Agreement

 

 

Secured Party Information

 

MORGAN STANLEY CAPITAL GROUP INC., as administrative agent

 

Morgan Stanley Capital Group Inc.

2000 Westchester Ave., Floor 01

Purchase, New York 10577-2530

Attention: Keith Cackowsky, Executive Director

Facsimile: (212) 507-3587

Telephone: (914) 225-1548

ms_vinland_loan@morganstanley.com

 

With a copy to:

 

Morgan Stanley Capital Group Inc.

2000 Westchester Ave., Floor 01

Purchase, New York 10577-2530

Attention: Oscar Gutierrez, Vice President

Facsimile: (212) 507-0189

Telephone: (914) 225-4847

ms_vinland_loan@morganstanley.com

 

Page 4
Security Agreement
Annex A to Security Agreement

 

 

ANNEX B TO SECURITY AGREEMENT

 

INFORMATION REGARDING CERTAIN COLLATERAL

 

I.COMMERCIAL TORT CLAIMS: NONE

 

Page 5
Security Agreement
Annex B to Security Agreement

 

 

ANNEX C TO SECURITY AGREEMENT

 

DESCRIPTION OF PLEDGED SHARES AND COMPANY INTERESTS

 

Pledged Stock:

 

Issuer   Owner of Stock   Class of Stock   Stock Certificate No.   No. of Shares
AMZG, Inc.   American Eagle
Energy Corporation   Common   1001   100 EERG Energy, ULC   American Eagle
Energy Corporation   Class “A” Common   A-2   100 AEE Canada, Inc.   AMZG, Inc.
  Class “A” Common   A-2   100

 

Pledged LLC Interests:

 

Name of LLC   Owner of Interests   Class of Interest   Certificate No.  
Percentage Interest                  

 

Pledged Partnership Interests:

 

Name of
Partnership   Owner of Interests   Class of Interest   Certificate No.  
Percentage Interest                      

 

Page 6
Security Agreement
Annex C to Security Agreement

 

 

ANNEX D TO SECURITY AGREEMENT

 

ACKNOWLEDGMENT OF PLEDGE

 

CORPORATION/PARTNERSHIP/LIMITED LIABILITY COMPANY: _______________________ (the
“Company”)

 

INTEREST OWNER:                                                  (the “Interest
Owner”)

 

SECURITY AGREEMENT: Pledge and Security Agreement dated as of August 19, 2013
among American Eagle Energy Corporation, certain other Debtors named therein,
and Morgan Stanley Capital Group Inc., as Secured Party (as amended, modified,
supplemented, or restated from time to time, the “Security Agreement”).
Capitalized terms not defined herein have the meanings assigned thereto in the
Security Agreement.

 

DATE: _______________

 

BY THIS ACKNOWLEDGMENT OF PLEDGE dated as of the date first above written, the
Company hereby acknowledges the pledge in favor of Morgan Stanley Capital Group
Inc., in its capacity as Secured Party under the Security Agreement (in such
capacity, the “Pledgee”), against, and a security interest in favor of Pledgee
in, all of the Interest Owner’s rights in connection with any equity interest in
the Company now and hereafter owned by the Interest Owner (“Company Interest”).

 

A.           Pledge Records. The Company has identified Pledgee’s interest in
all of the Interest Owner’s right, title, and interest in and to all of the
Interest Owner’s Company Interest as subject to a pledge and security interest
in favor of Pledgee in the Company’s books and records.

 

B.           Company Distributions, Accounts, and Correspondence. The Company
hereby agrees and acknowledges that if at any time the Company receives
instructions originated by Pledgee relating to the Company Interest, the Company
shall comply with such instructions without further consent by the Interest
Owner or any other person. Without limiting the foregoing, the Company hereby
acknowledges that upon demand of Pledgee (i) all proceeds, distributions, and
other amounts payable to the Interest Owner, including, without limitation, upon
the termination, liquidation, and dissolution of the Company, shall be paid and
remitted to the Pledgee, (ii) all funds in deposit accounts held for the account
of, or otherwise payable to, the Interest Owner shall be held for the benefit of
Pledgee, and (iii) all future correspondence, accountings of distributions, and
tax returns of the Company shall be provided to the Pledgee. The Company
acknowledges and accepts such direction and hereby agrees that it shall, upon
the written demand by the Pledgee, pay directly to the Pledgee to its offices as
shall be specified by the Pledgee any and all distributions, income, and cash
flow arising from the Company Interests whether payable in cash, property or
otherwise, subject to and in accordance with the terms and conditions of the
organizational documents of the Company. The Pledgee may from time to time
notify the Company of any change of address to which such amounts are to be
paid.

 

Remainder of Page Intentionally Blank.

Signature Page to Follow.

 

Page 7
Security Agreement
Annex D to Security Agreement

 

 

EXECUTED as of the date first stated in this Acknowledgment of Pledge.

 

  [COMPANY]               By:     ,     as [General Partner] [Manager]          
    By:           Name:         Title:    

 

Page 8
Security Agreement
Annex F to Security Agreement

 

 

ANNEX E TO SECURITY AGREEMENT

 

Subject Wellbores and Debtors’ before and after payout interests

 

Page 9
Security Agreement
Annex E to Security Agreement