FIRST LIEN SECURITY AGREEMENT

 

THIS FIRST LIEN SECURITY AGREEMENT (“Agreement”), dated as of July 3, 2012,
among AMERICAN PETRO-HUNTER INC., a Nevada corporation (“Company”; Company,
together with each other Person who becomes a party to this Agreement by
execution of a joinder in the form of Exhibit A attached hereto, is referred to
individually as a “Debtor” and, collectively, as the “Debtors”), and ASYM ENERGY
OPPORTUNITIES LLC, a Delaware limited liability company, in its capacity as
collateral agent for the holders of the Obligations (together with its
successors and assigns in such capacity, the “Secured Party”).

 

WITNESSETH:

 

WHEREAS, the Secured Party has entered into that certain Purchase Agreement
dated as of July 3, 2012, by and among Secured, and as the same may be further
amended, restated, modified or supplemented and in effect from time to time, the
“Purchase Agreement”).

 

WHEREAS, to induce Secured Party to enter into the Purchase Agreement, Company
has agreed to pledge and grant a security interest in the Collateral (as
hereinafter defined) as security for the Obligations (as hereinafter defined).

 

NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

Section 1. Definitions. Capitalized terms used herein without definition and
defined in the Purchase Agreement are used herein as defined therein. In
addition, as used herein:

 

“Accounts” means any “account,” as such term is defined in the Uniform
Commercial Code, and, in any event, shall include, without limitation,
“supporting obligations” as defined in the Uniform Commercial Code.

 

“As-extracted Collateral” means any “as-extracted collateral,” as such term is
defined in the Uniform Commercial Code.

 

“Chattel Paper” means any “chattel paper,” as such term is defined in the
Uniform Commercial Code.

 

“Collateral” shall have the meaning ascribed thereto in Section 3 hereof.

 

“Collateral Agent” shall have the meaning ascribed thereto in Section 5.12
hereof.

 

“Commercial Tort Claims” means “commercial tort claims”, as such term is defined
in the Uniform Commercial Code.

 

 

 

 

“Contracts” means all contracts, undertakings, or other s (other than rights
evidenced by Chattel Paper, Documents or Instruments) in or under which a Debtor
may now or hereafter have any right, title or interest, including without
limitation with respect to an Account, any agreement relating to the terms of
payment or the terms of performance thereof.

 

“Copyrights” means any copyrights, rights and interests in copyrights, works
protectable by copyrights, copyright registrations and copyright applications,
including, without limitation, the copyright registrations and applications
listed on Schedule III attached hereto, and all renewals of any of the
foregoing, all income, royalties, damages and payments now and hereafter due
and/or payable under or with respect to any of the foregoing, including without
limitation damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing.         

 

“Deposit Accounts” means all “deposit accounts” as such term is defined in the
Uniform Commercial Code, now or hereafter held in the name of a Debtor.

 

“Documents” means any “documents,” as such term is defined in the Uniform
Commercial Code, and shall include without limitation all documents of title (as
defined in the Uniform Commercial Code), bills of lading or other receipts
evidencing or representing Inventory or Equipment.

 

“Equipment” means any “equipment,” as such term is defined in the Uniform
Commercial Code and, in any event, shall include, Motor Vehicles.

 

“Excluded Deposit Accounts” means none.

 

“General Intangibles” means any “general intangibles,” as such term is defined
in the Uniform Commercial Code, and, in any event, shall include without
limitation all right, title and interest in or under any Contract, models,
drawings, materials and records, claims, literary rights, goodwill, rights of
performance, Copyrights, Trademarks, Patents, warranties, rights under insurance
policies and rights of indemnification.

 

“Goods” means any “goods”, as such term is defined in the Uniform Commercial
Code, including without limitation fixtures and embedded Software to the extent
included in “goods” as defined in the Uniform Commercial Code .

 

“Governmental Authority” means the government of the United States of America or
any other nation, or any political subdivision thereof, whether state or local,
or any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administration powers or functions of or pertaining to government or any
Debtor of any of their Subsidiaries, or any of their respective properties,
assets or undertakings.

 

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“Instruments” means any “instrument,” as such term is defined in the Uniform
Commercial Code, and shall include without limitation promissory notes, drafts,
bills of exchange, trade acceptances, letters of credit, letter of credit rights
(as defined in the Uniform Commercial Code), and Chattel Paper.

 

“Inventory” means any “inventory,” as such term is defined in the Uniform
Commercial Code.

 

“Investment Property” means any “investment property”, as such term is defined
in the Uniform Commercial Code.

 

“Motor Vehicles” shall mean motor vehicles, tractors, trailers and other like
property, whether or not the title thereto is governed by a certificate of title
or ownership.

 

“Note or Notes” shall mean that certain promissory note(s) of Company, of even
date herewith, in the maximum amount of $10,000,000, payable to the Purchaser,
and any and all renewals, extensions, modifications, replacements,
substitutions, increases, and rearrangements thereof.

 “Obligations” shall mean all obligations, liabilities and indebtedness of every
nature of Debtors from time to time owed or owing under or in respect of this
Agreement, the Note, the Mortgages and any other Security Instrument, as the
case may be, including without limitation the principal amount of all debts,
claims and indebtedness, accrued and unpaid interest and all fees, costs and
expenses, whether primary, secondary, direct, contingent, fixed or otherwise,
heretofore, now and/or from time to time hereafter owing, due or payable whether
before or after the filing of a bankruptcy, insolvency or similar proceeding
under applicable federal, state, foreign or other law and any other amounts that
may be loaned from time to time by the Secured Party to the Debtors.

 

“Patents” means any patents and patent applications, including without
limitation the inventions and improvements described and claimed therein, all
patentable inventions and those patents and patent applications listed on
Schedule IV attached hereto, and the reissues, divisions, continuations,
renewals, extensions and continuations-in-part of any of the foregoing, and all
income, royalties, damages and payments now or hereafter due and/or payable
under or with respect to any of the foregoing, including, without limitation,
damages and payments for past, present and future infringements of any of the
foregoing and the right to sue for past, present and future infringements of any
of the foregoing.

 

“Proceeds” means “proceeds,” as such term is defined in the Uniform Commercial
Code and, in any event includes without limitation, (a) any and all proceeds of
any insurance, indemnity, warranty or guaranty payable with respect to any of
the Collateral, (b) any and all payments (in any form whatsoever) made or due
and payable from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental body, authority, bureau or agency (or any person acting under color
of governmental authority), and (c) any and all other amounts from time to time
paid or payable under, in respect of or in connection with any of the
Collateral.

 

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“Purchaser Transaction Documents” means The Agreement, First Lien Security
Agreement, Third Amendment to Promissory Notes, Control Agreement, Note and
Warrant Agreement.

 

“Representative” means any Person acting as agent, representative or trustee on
behalf of the Secured Party from time to time.

 

“Security Instrument” means any and all agreements or instruments now or
hereafter executed and delivered by Borrower as security for the payment or
performance of the Obligations, in form and substance satisfactory to Lender, as
such agreements may be amended or otherwise modified from time to time.

 

“Software” means all “software” as such term is defined in the Uniform
Commercial Code, now owned or hereafter acquired by a Debtor, other than
software embedded in any category of Goods, including without limitation all
computer programs and all supporting information provided in connection with a
transaction related to any program.

 

“Event of Default” shall have the meaning set forth in the Purchase Agreement.

 

“Trademarks” means any trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos,
other business identifiers, prints and labels on which any of the foregoing have
appeared or appear, all registrations and recordings thereof, and all
applications in connection therewith, including without limitation the
trademarks and applications listed in Schedule V attached hereto and renewals
thereof, and all income, royalties, damages and payments now or hereafter due
and/or payable under or with respect to any of the foregoing, including without
limitation damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing.

 

“Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect
from time to time in the State of New York; provided, that to the extent that
the Uniform Commercial Code is used to define any term herein and such term is
defined differently in different Articles or Divisions of the Uniform Commercial
Code, the definition of such term contained in Article or Division 9 shall
govern.

 

Section 2. Representations, Warranties and Covenants of Debtors. Each Debtor
represents and warrants to, and covenants with, the Secured Party as follows:

 

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(a)          Such Debtor has or will have rights in and the power to transfer
the Collateral in which it purports to grant a security interest pursuant to
Section 3 hereof (subject, with respect to after acquired Collateral, to such
Debtor acquiring the same) and no Lien (other than Permitted Liens) exists or
will exist upon such Collateral at any time;

 

(b)          This Agreement is effective to create in favor of the Secured Party
a valid security interest in any Lien upon all of such Debtor’s right, title and
interest in and to the Collateral, and, upon (i) the filing of appropriate
Uniform Commercial Code financing statements in the jurisdictions listed on
Schedule I attached hereto, and (ii) each Deposit Account (other than the
Excluded Deposit Accounts) being subject to an Account Control Agreement (as
hereinafter defined) between the applicable Debtor and depositary institution
and the Secured Party on behalf of the Secured Party, such security interest
will be a duly perfected first priority perfected security interest in all the
Collateral (other than Instruments not constituting Chattel Paper), and upon
delivery of the Instruments to the Secured Party or its Representative, duly
endorsed by such Debtor or accompanied by appropriate instruments of transfer
duly executed by such Debtor, the security interest in the Instruments will be
duly perfected;

 

(c)          All of the Equipment, Inventory and Goods owned by such Debtor is
located at the places as specified on Schedule I attached hereto. Except as
disclosed on Schedule I, none of the Collateral is in the possession of any
bailee, warehousemen, processor or consignee. Schedule I discloses such Debtor’s
name as of the date hereof as it appears in official filings in the state of its
incorporation, formation or organization, the type of entity of such Debtor
(including corporation, partnership, limited partnership or limited liability
company), organizational identification number issued by such Debtor’s state of
incorporation, formation or organization (or a statement that no such number has
been issued), such Debtor’s state or province, as applicable, of incorporation,
formation or organization and the chief place of business, chief executive
office and the office where such Debtor keeps its books and records. Such Debtor
has only one state of incorporation, formation or organization. Such Debtor
(including any Person acquired by such Debtor) does not do business and has not
done business during the past five (5) years under any trade name or fictitious
business name, except as disclosed on Schedule II attached hereto;

 

(d)          No Copyrights, Patents or Trademarks listed on Schedules III, IV
and V, respectively, if any, have been adjudged invalid or unenforceable or have
been canceled, in whole or in part, or are not presently subsisting. Each of
such Copyrights, Patents and Trademarks is valid and enforceable. Such Debtor is
the sole and exclusive owner of the entire and unencumbered right, title and
interest in and to each of such Copyrights, Patents and Trademarks, identified
on Schedules III, IV and V, as applicable, as being owned by such Debtor, free
and clear of any liens, charges and encumbrances (other than Permitted Liens),
including without limitation licenses, shop rights and covenants by such Debtor
not to sue third persons. Such Debtor has adopted, used and is currently using,
or has a current bona fide intention to use, all of such Trademarks and
Copyrights. Such Debtor has no notice of any suits or actions commenced or
threatened with reference to the Copyrights, Patents or Trademarks owned by it;

 

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(e)          Each Debtor agrees to deliver to the Secured Party an updated
Schedule I, II, III, IV and/or V within five (5) Business Days of any change
thereto;

 

(f)          All depositary and other accounts including, without limitation,
Deposit Accounts, securities accounts, brokerage accounts and other similar
accounts, maintained by each Debtor are described on Schedule VI hereto, which
description includes for each such account the name of the Debtor maintaining
such account, the name, address and telephone and telecopy numbers of the
financial institution at which such account is maintained, the account number
and the account officer, if any, of such account. No Debtor shall open any new
Deposit Accounts, securities accounts, brokerage accounts or other accounts
unless such Debtor shall have given the Secured Party ten (10) Business Days’
prior written notice of its intention to open any such new accounts. Each Debtor
shall deliver to the Secured Party a revised version of Schedule VI showing any
changes thereto within five (5) Business Days of any such change. Each Debtor
hereby authorizes the financial institutions at which such Debtor maintains an
account to provide the Secured Party with such information with respect to such
account (other than an Excluded Deposit Account) as the Secured Party from time
to time reasonably may request, and each Debtor hereby consents to such
information being provided to the Secured Party. In addition, all of Debtor’s
depositary, brokerage, security and other accounts including without limitation
Deposit Accounts shall be subject to the provisions of Section 4.5 hereof;

 

(g)          Such Debtor does not own any Commercial Tort Claim except for those
disclosed on Schedule VII hereto;

 

(h)          Such Debtor does not have any interest in real property or mining
rights with respect to real property except as disclosed on Schedule VIII. Each
Debtor shall deliver to the Secured Party a revised version of Schedule VIII
showing any material changes thereto within twenty (20) Business Days of any
such change. Except as otherwise agreed to by the Secured Party, all such
interests in real property or mining rights with respect to such real property
are subject to a mortgage, deed of trust and assignment of production proceeds
(in form and substance satisfactory to the Secured Party) in favor of the
Secured Party (hereinafter, a “Mortgage”). Each Debtor acknowledges that each
such Mortgage contains an Exhibit A (or other applicable Exhibit) listing the
properties in which Debtor has an interest, and to the extent that Schedule VIII
is updated pursuant to this Section 2(h), the applicable Debtor shall be
obligated to execute an amendment to the applicable Exhibit to the applicable
Mortgage such that, after giving effect to such Mortgage amendment, the Secured
Party will have a first priority perfected security interest in such new real
property or mining rights;

 

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(i)          Each Debtor shall duly and properly record each interest in real
property held by such Debtor except with respect to easements, rights of way,
access agreements, surface damage agreements, surface use agreement or similar
agreements that such Debtor, using prudent customs and practices in the industry
in which it operates, does not believe are of material value or material to the
operation of such Debtor’s business or, with respect to certain local, state and
federal rights of way, are not capable of being recorded as a matter of local,
state or federal law; and

 

(j)          All Equipment (including without limitation Motor Vehicles) owned
by a Debtor and subject to a certificate of title or ownership statute is
described on Schedule IX hereto.

 

Section 3.            Pledge of Collateral. As collateral security for the
prompt performance and payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the Obligations, each Debtor hereby pledges and
grants to the Secured Party, for its benefit, a Lien on and security interest in
and to all of such Debtor’s right, title and interest in the personal property
and assets of such Debtor, whether now owned by such Debtor or hereafter
acquired and whether now existing or hereafter coming into existence and
wherever located (all being collectively referred to herein as “Collateral”),
including, without limitation:

 

(a)          all Instruments, together with all payments thereon or thereunder:

 

(b)          all Accounts;

 

(c)          all Inventory;

 

(d)          all General Intangibles (including payment intangibles (as defined
in the Uniform Commercial Code) and Software);

 

(e)          all Equipment;

 

(f)          all Documents;

 

(g)          all Contracts;

 

(h)          all Goods;

 

(i)          all Investment Property;

 

(j)          all Deposit Accounts, including, without limitation, the balance
from time to time in all bank accounts maintained by such Debtor (excluding,
however, the Excluded Deposit Accounts);

 

(k)          Commercial Tort Claims specified on Schedule VII;

 

(l)          all As-extracted Collateral;

 

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(m)         all Trademarks, Patents and Copyrights; and

 

(n)          all other tangible and intangible property of such Debtor,
including, without limitation, all interests in real property, Proceeds, tort
claims, products, accessions, rents, profits, income, benefits, substitutions,
additions and replacements of and to any of the property of such Debtor
described in the preceding clauses of this Section 3 (including, without
limitation, any proceeds of insurance thereon, insurance claims and all rights,
claims and benefits against any Person relating thereto), other rights to
payments not otherwise included in the foregoing, and all books, correspondence,
files, records, invoices and other papers, including without limitation all
tapes, cards, computer runs, computer programs, computer files and other papers,
documents and records in the possession or under the control of such Debtor or
any computer bureau or service company from time to time acting for such Debtor.

 

Section 4. Covenants; Remedies. In furtherance of the grant of the pledge and
security interest pursuant to Section 3 hereof, each Debtor hereby agrees with
the Secured Party as follows:

 

4.1. Delivery and Other Perfection; Maintenance, etc.

 

(a)          Delivery of Instruments, Documents, Etc. Each Debtor shall deliver
and pledge to the Secured Party or its Representative any and all Instruments,
negotiable Documents, Chattel Paper and certificated securities (accompanied by
stock powers executed in blank) duly endorsed and/or accompanied by such
instruments of assignment and transfer executed by such Debtor in such form and
substance as the Secured Party or its Representative may request; provided, that
so long as no Event of Default shall have occurred and be continuing, each
Debtor may retain for collection in the ordinary course of business any
Instruments, negotiable Documents and Chattel Paper received by such Debtor in
the ordinary course of business, and the Secured Party or its Representative
shall, promptly upon request of a Debtor, make appropriate arrangements for
making any other Instruments, negotiable Documents and Chattel Paper pledged by
such Debtor available to such Debtor for purposes of presentation, collection or
renewal (any such arrangement to be effected, to the extent deemed appropriate
by the Secured Party or its Representative, against a trust receipt or like
document). If a Debtor retains possession of any Chattel Paper, negotiable
Documents or Instruments pursuant to the terms hereof, such Chattel Paper,
negotiable Documents and Instruments shall be marked with the following legend:
“This writing and the obligations evidenced or secured hereby are subject to the
security interest of [____________] in its capacity as collateral agent for the
benefit of the holders of the Obligations, as secured party.”

 

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(b)          Other Documents and Actions. Each Debtor shall give, execute,
deliver, file and/or record any financing statement, notice, instrument,
document, agreement or other papers that may be necessary or desirable (in the
reasonable judgment of the Secured Party or its Representative) to create,
preserve, perfect or validate the security interest granted pursuant hereto (or
any security interest or mortgage contemplated or required hereunder, including
with respect to Section 2(h) of this Agreement) or to enable the Secured Party
or its Representative to exercise and enforce the rights of the Secured Party
hereunder with respect to such pledge and security interest, provided that
notices to account debtors in respect of any Accounts or Instruments shall be
subject to the provisions of clause (e) below. Notwithstanding the foregoing,
each Debtor hereby irrevocably authorizes the Secured Party at any time and from
time to time to file in any filing office in any jurisdiction any initial
financing statements and amendments thereto that (a) indicate the Collateral (i)
as all assets of such Debtor or words of similar effect, regardless of whether
any particular asset comprised in the Collateral falls within the scope of
Article 9 of the Uniform Commercial Code of the State of New York or such
jurisdiction, or (ii) as being of an equal or lesser scope or with greater
detail, and (b) contain any other information required by part 5 of Article 9 of
the Uniform Commercial Code of the State of New York or any other State for the
sufficiency or filing office acceptance of any financing statement or amendment,
including (i) whether such Debtor is an organization, the type of organization
and any organization identification number issued to such Debtor, and (ii) in
the case of a financing statement filed as a fixture filing or indicating
Collateral as As-extracted Collateral or timber to be cut, a sufficient
description of real property to which the Collateral relates. Each Debtor agrees
to furnish any such information to the Secured Party promptly upon request. Each
Debtor also ratifies its authorization for the Secured Party to have filed in
any jurisdiction any like initial financing statements or amendments thereto if
filed prior to the date hereof.

 

(c)          Books and Records. Each Debtor shall maintain, at its own cost and
expense, complete and accurate books and records of the Collateral, including
without limitation a record of all payments received and all credits granted
with respect to the Collateral and all other dealings with the Collateral. Upon
the occurrence and during the continuation of any Event of Default, each Debtor
shall deliver and turn over any such books and records (or true and correct
copies thereof) to the Secured Party or its Representative at any time on
demand. Each Debtor shall permit any representative of the Secured Party to
inspect such books and records at any time during reasonable business hours and
will provide photocopies thereof at such Debtor’s expense to the Secured Party
upon request of the Secured Party.

 

(d)          Motor Vehicles. Each Debtor shall, promptly upon the request of the
Secured Party or its Representative, cause the Secured Party to be listed as the
lienholder on each certificate of title or ownership covering any items of
Equipment, including Motor Vehicles having a value in excess of $100,000 in the
aggregate for all such items of Equipment of the Debtors, or otherwise comply
with the certificate of title or ownership laws of the relevant jurisdiction
issuing such certificate of title or ownership in order to properly evidence and
perfect the Secured Party’s security interest in the assets represented by such
certificate of title or ownership.

 

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(e)          Notice to Account Debtors; Verification. (i) Upon the occurrence
and during the continuance of any Event of Default (or if any rights of set-off
(other than set-offs against an Account arising under the Contract giving rise
to the same Account) or contra accounts may be asserted), upon request of the
Secured Party or its Representative, each Debtor shall promptly notify (and each
Debtor hereby authorizes the Secured Party and its Representative so to notify)
each account debtor in respect of any Accounts or Instruments or other Persons
obligated on the Collateral that such Collateral has been assigned to the
Secured Party hereunder, and that any payments due or to become due in respect
of such Collateral are to be made directly to the Secured Party, and (ii) the
Secured Party and its Representative shall have the right at any time or times
to make direct verification with the account debtors or other Persons obligated
on the Collateral of any and all of the Accounts or other such Collateral.

 

(f)          Intellectual Property. Each Debtor represents and warrants that the
Copyrights, Patents and Trademarks listed on Schedules III, IV and V,
respectively, constitute all of the registered Copyrights and all of the Patents
and Trademarks now owned by such Debtor. If such Debtor shall (i) obtain rights
to any new patentable inventions, any registered Copyrights or any Patents or
Trademarks, or (ii) become entitled to the benefit of any registered Copyrights
or any Patents or Trademarks or any improvement on any Patent, the provisions of
this Agreement above shall automatically apply thereto and such Debtor shall
give to the Secured Party prompt written notice thereof. Each Debtor hereby
authorizes the Secured Party to modify this Agreement by amending Schedules III,
IV and V, as applicable, to include any such registered Copyrights or any such
Patents and Trademarks. Each Debtor shall have the duty (i) to prosecute
diligently any patent, trademark, or service mark applications pending as of the
date hereof or hereafter, (ii) to make application on unpatented but patentable
inventions and on trademarks, copyrights and service marks, as appropriate,
(iii) to preserve and maintain all rights in the Copyrights, Patents and
Trademarks, to the extent material to the operations of the business of such
Debtor and (iv) to ensure that the Copyrights, Patents and Trademarks are and
remain enforceable, to the extent material to the operations of the business of
such Debtor. Any expenses incurred in connection with such Debtor’s obligations
under this Section 4.1(f) shall be borne by such Debtor. Except for any such
items that a Debtor reasonably believes (using prudent industry customs and
practices) are no longer necessary for the on-going operations of its business,
no Debtor shall abandon any right to file a patent, trademark or service mark
application, or abandon any pending patent, application or any other Copyright,
Patent or Trademark without the written consent of the Secured Party, which
consent shall not be unreasonably withheld.

 

(g)          Further Identification of Collateral. Each Debtor will, when and as
often as requested by the Secured Party or its Representative, furnish to the
Secured Party or such Representative, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Secured Party or its Representative may reasonably
request, all in reasonable detail.

 

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(h)          Investment Property. Each Debtor will take any and all actions
required or requested by the Secured Party, from time to time, to (i) cause the
Secured Party to obtain exclusive control of any Investment Property owned by
such Debtor in a manner acceptable to the Secured Party and (ii) obtain from any
issuers of Investment Property and such other Persons, for the benefit of the
Secured Party, written confirmation of the Secured Party’s control over such
Investment Property. For purposes of this Section 4.1(h), the Secured Party
shall have exclusive control of Investment Property if (A) such Investment
Property consists of certificated securities and a Debtor delivers such
certificated securities to the Secured Party (with appropriate endorsements if
such certificated securities are in registered form); (B) such Investment
Property consists of uncertificated securities and either (x) a Debtor delivers
such uncertificated securities to the Secured Party or (y) the issuer thereof
agrees, pursuant to documentation in form and substance satisfactory to the
Secured Party, that it will comply with instructions originated by the Secured
Party without further consent by such Debtor, and (C) such Investment Property
consists of security entitlements and either (x) the Secured Party becomes the
entitlement holder thereof or (y) the appropriate securities intermediary
agrees, pursuant to the documentation in form and substance satisfactory to the
Secured Party, that it will comply with entitlement orders originated by the
Secured Party without further consent by any Debtor.

 

(i)          Equipment. No Debtor shall, nor shall any Subsidiary, (i) permit
any Equipment to become a fixture to Real Property unless such Real Property is
owned or leased by such Person and is subject to a mortgage in favor of the
Secured Party and if such Real Property is leased, is subject to a landlord’s
agreement in favor of the Secured Party on terms acceptable to the Secured
Party, or (ii) permit any Equipment to become an accession to any other personal
property unless such personal property is subject to a first priority perfected
Lien (subject only to Permitted Liens) in favor of the Secured Party.

 

(j)          Commercial Tort Claims. Each Debtor shall promptly notify the
Secured Party of any Commercial Tort Claim acquired by it that concerns a claim
in excess of $50,000 and, unless otherwise consented to by the Secured Party,
such Debtor shall enter into a supplement to this Agreement granting to the
Secured Party a Lien on and security interest in such Commercial Tort Claim.

 

(k)          Excluded Deposit Accounts. The Excluded Deposit Accounts shall be
used for the sole purpose of holding cash for the benefit of third parties and
shall not contain nor be used for any other deposits of any kind.

 

4.2 Other Liens. Debtors will not create, permit or suffer to exist, and will
defend the Collateral against and take such other action as is necessary to
remove, any Lien on the Collateral (other than Permitted Liens), and will defend
the right, title and interest of the Secured Party in and to the Collateral and
in and to all Proceeds thereof against the claims and demands of all Persons
whatsoever.

 

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4.3 Preservation of Rights. Whether or not any Event of Default has occurred or
is continuing, the Secured Party and its Representative may, but shall not be
required to, take any steps the Secured Party or its Representative deems
necessary or appropriate to preserve any Collateral or any rights against third
parties to any of the Collateral, including obtaining insurance for the
Collateral at any time when a Debtor has failed to do so, and Debtors shall
promptly pay, or reimburse the Secured Party for, all expenses incurred in
connection therewith.

 

4.4 Formation of Subsidiaries; Name Change; Location; Bailees.

 

(a)          No Debtor shall form any Subsidiary unless such Subsidiary becomes
a party to this Agreement, all other applicable Ancillary Documents and such
other documents as the Secured Party shall request (including, without
limitation, proof of corporate (or comparable) action, incumbency of officers,
opinions of counsel and other documents as the Secured Party shall have
reasonably required or requested), and such take such other action (including
authorizing the filing of such UCC financing statements and delivering
certificates in respect of the equity securities of such subsidiary), as shall
be necessary or appropriate to establish, create, preserve, protect and perfect
a first priority Lien (subject only to Permitted Liens) in favor of the Secured
Party on all assets, both real and personal, in which such new Subsidiary has or
may thereafter acquire any interest. Each Debtor shall, and each Debtor shall
cause each of its Subsidiaries to, take such action from time to time as shall
be necessary to ensure that each of the Subsidiaries is a wholly-owned
Subsidiary, and that the Secured Party shall have a first priority Lien (subject
only to Permitted Liens) on all equity securities of each of the Subsidiaries
concurrently with acquisition or formation of such Subsidiary and each Debtor
shall, or shall cause each of the Subsidiaries to deliver promptly to the
Secured Party the certificates evidencing such securities, accompanied by
undated powers executed in blank and to take such other action as the Secured
Party shall request to perfect the security interest created therein pursuant to
such documents. Each Debtor shall, and shall cause each of the Subsidiaries to,
(A) refrain from engaging to any extent in any business other than the ownership
and operation of oil, gas and other hydrocarbon drilling, exploration and
development rights, concessions, working interests and participation interests
and hydrocarbon transportation facilities and businesses reasonably related
thereto or in furtherance thereof, and (B) preserve, renew and keep in full
force and effect their respective material rights, privileges and franchises
necessary or desirable in the normal conduct of their business.

 

(b)          No Debtor shall (i) reincorporate or reorganize itself under the
laws of any jurisdiction other than the jurisdiction in which it is incorporated
or organized as of the date hereof without the prior written consent of the
Secured Party, which shall not be unreasonably withheld, or (ii) otherwise
change its name, identity or corporate structure, in each case, without the
prior written consent of the Secured Party. Each Debtor will notify the Secured
Party promptly in writing prior to any such change in the proposed use by such
Debtor of any trade name or fictitious business name other than any such name
set forth on Schedule II attached hereto.

 

12

 

 

(c)          Except for the sale of Inventory in the ordinary course of business
and other sales of assets expressly permitted in the Purchase Agreement, each
Debtor will keep the Collateral at the locations specified in Schedule I. Each
Debtor will give the Secured Party thirty (30) day’s prior written notice of any
change in such Debtor’s chief place of business, any new location for any of the
Collateral, the closing of any existing place of business or location of books,
records, accounts (or copies thereof) and any other Collateral.

 

(d)          If any Collateral is at any time in the possession or control of
any warehousemen, bailee, consignee or processor, such Debtor shall, upon the
request of the Secured Party or its Representative, notify such warehousemen,
bailee, consignee or processor of the Lien and security interest created hereby
and shall instruct such Person to hold all such Collateral for the Secured
Party’s account, subject to the Secured Party’s instructions.

 

(e)          Each Debtor acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to any
financing statement without the prior written consent of the Secured Party and
each Debtor agrees that it will not do so without the prior written consent of
the Secured Party, subject to such Debtor’s rights under Section 9-509(d)(2) to
the Uniform Commercial Code.

 

(f)          No Debtor shall enter into any Contract that restricts or prohibits
the grant to the Secured Party of a security interest in Accounts, Chattel
Paper, Instruments or payment intangibles or the proceeds of the foregoing to
the Uniform Commercial Code.

 

4.5           Bank Accounts and Securities Accounts. On or prior to the date
hereof, the Secured Party and each Debtor shall enter into an account control
agreement or securities account control agreement, as applicable, (each an
“Account Control Agreement”), in a form specified by the Secured Party, with
each financial institution with which such Debtor maintains from time to time
any Deposit Accounts (general or special (but specifically excluding the
Excluded Deposit Accounts), securities accounts, brokerage accounts or other
similar accounts, which financial institutions are set forth on Schedule VI
attached hereto; provided, however, that notwithstanding the foregoing, the
Secured Party acknowledges and agrees that it may not be possible for the
Debtors to obtain duly executed Account Control Agreements prior to the date
hereof, and the Secured Party hereby agrees that it shall not constitute a
breach of the Purchase Agreement, this Agreement or any other Security
Instrument executed pursuant thereto or hereto if any Debtor fails to obtain
such executed Account Control Agreements in a timely fashion so long as any
Debtor, as the case may be, undertakes commercially reasonable efforts to obtain
such executed agreements as soon as practicable after the date hereof from the
applicable financial institutions.

 

13

 

 

Pursuant to the Account Control Agreements and pursuant hereto, each such Debtor
grants and shall grant to the Secured Party a continuing lien upon, and security
interest in all such accounts and all funds at any time paid, deposited,
credited or held in such accounts (whether for collection, provisionally or
otherwise) or otherwise in the possession of such financial institutions, and
each such financial institution shall act as the Secured Party’s agent in
connection therewith. Following the date hereof, no Debtor shall establish any
Deposit Account, securities account, brokerage account or other similar account
with any financial institution, unless the Secured Party and such Debtor shall
have previously entered into an Account Control Agreement with such financial
institution which purports to cover such account. Other than petty cash not
exceeding $10,000 in the aggregate for all Debtors and funds deposited in an
Excluded Deposit Account, each Debtor shall deposit and keep on deposit all of
its funds into a Deposit Account which is subject to an Account Control
Agreement.

 

4.6 Events of Default, Etc. During the period during which a Event of Default
shall have occurred and be continuing:

 

(a)          Each Debtor shall, at the request of the Secured Party or its
Representative, assemble the Collateral and make it available to the Secured
Party or its Representative at a place or places designated by the Secured Party
or its Representative which are reasonably convenient to the Secured Party or
its Representative, as applicable, and such Debtor;

 

(b)          The Secured Party or its Representative may make any reasonable
compromise or settlement deemed desirable in its discretion with respect to any
of the Collateral and may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of any of the Collateral;

 

(c)          The Secured Party shall have all of the rights and remedies with
respect to the Collateral of a secured party under the Uniform Commercial Code
(whether or not said Uniform Commercial Code is in effect in the jurisdiction
where the rights and remedies are asserted) and such additional rights and
remedies to which a secured party is entitled under the laws in effect in any
jurisdiction where any rights and remedies hereunder may be asserted, including
without limitation the right, to the maximum extent permitted by law, to: (i)
exercise all voting, consensual and other powers of ownership pertaining to the
Collateral as if the Secured Party were the sole and absolute owner thereof (and
each Debtor agrees to take all such action as may be appropriate to give effect
to such right) and (ii) to the appointment of a receiver or receivers for all or
any part of the Collateral or business of a Debtor, whether such receivership is
incident to a proposed sale or sales of such Collateral or otherwise and without
regard to the value of the Collateral or the solvency of any person or persons
liable for the payment of the Obligations secured by such Collateral. Each
Debtor hereby consents to the appointment of such receiver or receivers, waives
any and all defenses to such appointment, and agrees that such appointment shall
in no manner impair, prejudice or otherwise affect the rights of the Secured
Party under this Agreement. Each Debtor hereby expressly waives notice of a
hearing for appointment of a receiver and the necessity for bond or an
accounting by the receiver;

 

14

 

 

(d)          The Secured Party or its Representative in their discretion may, in
the name of the Secured Party or in the name of a Debtor or otherwise, demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but shall be
under no obligation to do so;

 

(e)          The Secured Party or its Representative may take immediate
possession and occupancy of any premises owned, used or leased by a Debtor and
may exercise all other rights and remedies of an assignee which may be available
to the Secured Party;

 

(f)          The Secured Party may, upon ten (10) Business Days’ prior written
notice to Debtors of the time and place (which notice Debtors hereby agree is
commercially reasonable notification for purposes hereof), with respect to the
Collateral or any part thereof which shall then be or shall thereafter come into
the possession, custody or control of the Secured Party or its Representative,
sell, lease, license, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Secured Party deems best, and for
cash or for credit or for future delivery (without thereby assuming any credit
risk), at public or private sale, without demand of performance or notice of
intention to effect any such disposition or of the time or place thereof (except
such notice as is required above or by applicable statute and cannot be waived),
and the Secured Party or anyone else may be the purchaser, lessee, licensee,
assignee or recipient of any or all of the Collateral so disposed of at any
public sale (or, to the extent permitted by law, at any private sale) and
thereafter hold the same absolutely, free from any claim or right of whatsoever
kind, including any right or equity of redemption (statutory or otherwise), of
Debtors, any such demand, notice and right or equity being hereby expressly
waived and released. The 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 sale may be so adjourned;

 

(g)          The Company shall promptly notify the Secured Party if such Event
of Default, or any litigation or third-party claim, would be reasonably likely
to expose the Company or Operating to an uninsured liability of $100,000 or
more; and

 

15

 

 

(h)          The rights, remedies and powers conferred by this Section 4.6 are
in addition to, and not in substitution for, any other rights, remedies or
powers that the Secured Party may have under the Purchase Agreement, this
Agreement, the Note or any other Security Instrument (collectively, the
“Purchaser Transaction Documents”), at law, in equity or by or under the Uniform
Commercial Code or any other statute or agreement. The Secured Party may proceed
by way of any action, suit or other proceeding at law or in equity and no right,
remedy or power of the Secured Party will be exclusive of or dependent on any
other. The Secured Party may exercise any of its rights, remedies or powers
separately or in combination and at any time.

 

The proceeds of each collection, sale or other disposition under this Section
4.6 shall be applied in accordance with Section 4.9 hereof.

 

4.7 Deficiency. If the proceeds of sale, collection or other realization of or
upon the Collateral are insufficient to cover the costs and expenses of such
realization and the payment in full of the Obligations, Debtors shall remain
liable for any deficiency.

 

4.8 Private Sale. Each Debtor recognizes that the Secured Party may be unable to
effect a public sale of any or all of the Collateral consisting of securities by
reason of certain prohibitions contained in the Securities Act of 1933, as
amended (the “Act”), and applicable state securities laws, but may be compelled
to resort to one or more private sales thereof to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account for investment and not with a view to the
distribution or resale thereof. Each Debtor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Secured Party shall be under no
obligation to delay a sale of any of the Collateral to permit a Debtor to
register such Collateral for public sale under the Act, or under applicable
state securities laws, even if Debtors would agree to do so. The Secured Party
shall not incur any liability as a result of the sale of any such Collateral, or
any part thereof, at any private sale provided for in this Agreement conducted
in a commercially reasonable manner, and each Debtor hereby waives any claims
against the Secured Party arising by reason of the fact that the price at which
the Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Secured Party accepts the first offer
received and does not offer the Collateral to more than one offeree.

 

Each Debtor further agrees to do or cause to be done all such other acts and
things as may be necessary to make such sale or sales of any portion or all of
any such Collateral valid and binding and in compliance with any and all
applicable laws, regulations, orders, writs, injunctions, decrees or awards of
any and all courts, arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sale or sales, all at such Debtor’s
expense, provided that Debtors shall be under no obligation to take any action
to enable any or all of such Collateral to be registered under the provisions of
the Act. Each Debtor further agrees that a breach by any Debtor of any of the
covenants contained in this Section 4.8 will cause irreparable injury to the
Secured Party, that the Secured Party has no adequate remedy at law in respect
of such breach and, as a consequence, agrees that each and every covenant
contained in this Section 4.8 shall be specifically enforceable against Debtors,
and each Debtor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense that no
Event of Default has occurred and is continuing.

 

16

 

 

4.9 Application of Proceeds. The proceeds of any collection, sale or other
realization of all or any part of the Collateral, and any other cash at the time
held by the Secured Party under this Agreement, shall be applied in the manner
set forth in the Purchase Agreement (or, if not so set forth, in a manner
acceptable to, and at the election of, the Secured Party).

 

4.10 Attorney-in-Fact. Each Debtor hereby irrevocably constitutes and appoints
the Secured Party, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Debtor and in the name of such Debtor or in its own name, from
time to time in the discretion of the Secured Party, for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action, and to
execute and deliver any and all documents and instruments which may be necessary
or desirable to perfect or protect any security interest granted hereunder, to
maintain the perfection or priority of any security interest granted hereunder
and to otherwise accomplish the purposes of this Agreement and, without limiting
the generality of the foregoing, hereby gives the Secured Party the power and
right, on behalf of such Debtor, without notice to or assent by such Debtor, to
do the following upon the occurrence and during the continuation of any Event of
Default:

 

(a)          to take any and all appropriate action and to execute and deliver
any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement;

 

(b)          to ask, demand, collect, receive and give acquittance and receipts
for any and all moneys due and to become due under any Collateral and, in the
name of such Debtor or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts, notes, acceptances or other Instruments
for the payment of moneys due under any Collateral and to file any claim or to
take any other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Secured Party for the purpose of collecting any and
all such moneys due under any Collateral whenever payable and to file any claim
or to take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Secured Party for the purpose of collecting
any and all such moneys due under any Collateral whenever payable;

 

(c)          to pay or discharge charges or liens levied or placed on or
threatened against the Collateral, to effect any insurance called for by the
terms of this Agreement and to pay all or any part of the premiums therefor;

 

(d)          to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due, and to become due
thereunder, directly to the Secured Party or as the Secured Party shall direct,
and to receive payment of and receipt for any and all moneys, claims and other
amounts due, and to become due at any time, in respect of or arising out of any
Collateral;

 

17

 

 

(e)          to sign and indorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts and other Documents
constituting or relating to the Collateral;

 

(f)          to commence and prosecute any suits, actions or proceedings at law
or in equity in any court of competent jurisdiction to collect the Collateral or
any part thereof and to enforce any other right in respect of any Collateral;

 

(g)          to defend any suit, action or proceeding brought against a Debtor
with respect to any Collateral;

 

(h)          to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges or
releases as the Secured Party may deem appropriate;

 

(i)          to the extent that a Debtor’s authorization given in Section 4.1(b)
of this Agreement is not sufficient to file such financing statements with
respect to this Agreement, with or without such Debtor’s signature, or to file a
photocopy of this Agreement in substitution for a financing statement, as the
Secured Party may deem appropriate and to execute in such Debtor’s name such
financing statements and amendments thereto and continuation statements which
may require such Debtor’s signature; and

 

(j)          generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though the Secured Party were the absolute owners thereof for all purposes,
and to do, at the Secured Party’s option and at such Debtor’s expense, at any
time, or from time to time, all acts and things which the Secured Party
reasonably deems necessary to protect, preserve or realize upon the Collateral
and the Secured Party’s lien therein, in order to effect the intent of this
Agreement, all as fully and effectively as such Debtor might do.

 

Each Debtor hereby ratifies, to the extent permitted by law, all that such
attorneys lawfully do or cause to be done by virtue hereof. The power of
attorney granted hereunder is a power coupled with an interest and shall be
irrevocable until the Obligations are indefeasibly paid in full in cash.

 

Each Debtor also authorizes the Secured Party, at any time from and after the
occurrence and during the continuation of any Event of Default, (x) to
communicate in its own name with any party to any Contract with regard to the
assignment of the right, title and interest of such Debtor in and under the
Contracts hereunder and other matters relating thereto and (y) to execute, in
connection with any sale of Collateral provided for in Section 4.5 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.

 

18

 

 

4.11 Perfection. Prior to or concurrently with the execution and delivery of
this Agreement, each Debtor shall:

 

(a)          file such financing statements, assignments for security and other
documents in such offices as may be necessary or as the Secured Party or the
Representative may request to perfect the security interests granted by Section
3 of this Agreement;

 

(b)          at the Secured Party’s request, deliver to the Secured Party or its
Representative the originals of all Instruments, together with, in the case of
Instruments constituting promissory notes, allonges attached thereto showing
such promissory notes to be payable to the order of a blank payee; and

 

(c)          at the Secured Party’s request, deliver to the Secured Party or its
Representative the originals of all Motor Vehicle titles, duly endorsed
indicating the Secured Party’s interest therein as lienholder.

 

4.12 Termination. This Agreement and the Liens and security interests granted
hereunder shall not terminate until the termination of the Purchase Agreement
and the Note and the full and complete performance and indefeasible satisfaction
of all of the Obligations, whereupon the Secured Party shall forthwith cause to
be assigned, transferred and delivered, against receipt but without any
recourse, warranty or representation whatsoever, any remaining Collateral to or
on the order of Summerline so long as any Summerline Notes remain outstanding
and thereafter to Debtors. The Secured Party shall also execute and deliver to
Debtors upon such termination and at Debtors’ expense such Uniform Commercial
Code termination statements, certificates for terminating the liens on the Motor
Vehicles (if any), and such other documentation as shall be reasonably requested
by Debtors to effect the termination and release of the Liens and security
interests in favor of the Secured Party affecting the Collateral.

 

Notwithstanding anything to the contrary contained in the Purchase Agreement,
any Loan Document or in this Agreement, each Debtor acknowledges and agrees
that, solely for purposes of this Agreement, the parties hereby acknowledge and
agree that the Liens created by the Purchase Agreement and Loan Documents shall
survive the acquisition by the Company and Operating of, and continue to apply
to, the Assets (as defined in the Purchase Agreement).

 

4.13 Further Assurances. (a) At any time and from time to time, upon the written
request of the Secured Party or its Representative, and at the sole expense of
Debtors, Debtors will promptly and duly execute and deliver any and all such
further instruments, documents and agreements and take such further actions as
the Secured Party or its Representative may reasonably require in order for the
Secured Party to obtain the full benefits of this Agreement and of the rights
and powers herein granted in favor of the Secured Party, including, without
limitation, using Debtors’ best efforts to secure all consents and approvals
necessary or appropriate for the assignment to the Secured Party of any
Collateral held by Debtors or in which a Debtor has any rights not heretofore
assigned, the filing of any financing or continuation statements under the
Uniform Commercial Code with respect to the liens and security interests granted
hereby, transferring Collateral to the Secured Party’s possession (if a security
interest in such Collateral can be perfected by possession), placing the
interest of the Secured Party as lienholder on the certificate of title of any
Motor Vehicle and obtaining waivers of liens from landlords and mortgagees. Each
Debtor also hereby authorizes the Secured Party and its Representative to file
any such financing or continuation statement without the signature of such
Debtor to the extent permitted by applicable law.

 

19

 

 

(b)          Upon the request of the Secured Party, each Debtor shall procure
insurers’ acknowledgments of any assignments of key man life insurance policies
which may be assigned to the Secured Party as additional security for the
Obligations (if any) and will take all such further action as required by any
insurer or the Secured Party in connection with any such assignment.

 

4.14 Limitation on Duty of the Secured Party. The powers conferred on the
Secured Party under this Agreement are solely to protect the Secured Party’s
interest on behalf of itself in the Collateral and shall not impose any duty
upon it to exercise any such powers. The Secured Party shall be accountable only
for amounts that it actually receives as a result of the exercise of such powers
and neither the Secured Party nor its Representative nor any of their respective
officers, directors, employees or agents shall be responsible to Debtors for any
act or failure to act, except for willful misconduct. Without limiting the
foregoing, the Secured Party and any Representative shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
their possession if such Collateral is accorded treatment substantially
equivalent to that which the relevant Secured Party or any Representative, in
its individual capacity, accords its own property consisting of the type of
Collateral involved, it being understood and agreed that neither the Secured
Party nor any Representative shall have any responsibility for taking any steps
to preserve rights against any Person with respect to any Collateral.

 

Also without limiting the generality of the foregoing, neither the Secured Party
nor any Representative shall have any obligation or liability under any Contract
or license by reason of or arising out of this Agreement or the granting to the
Secured Party of a security interest therein or assignment thereof or the
receipt by the Secured Party or any Representative of any payment relating to
any Contract or license pursuant hereto, nor shall the Secured Party or any
Representative be required or obligated in any manner to perform or fulfill any
of the obligations of Debtors under or pursuant to any Contract or license, or
to make any payment, or to make any inquiry as to the nature or the sufficiency
of any payment received by it or the sufficiency of any performance by any party
under any Contract or license, or to present or file any claim, or to take any
action to collect or enforce any performance or the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.

 

20

 

 

Section 5. Miscellaneous.

 

5.1 No Waiver. No failure on the part of the Secured Party or any of its
Representatives to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Secured Party or
any of its Representatives of any right, power or remedy hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law.

 

5.2 Governing Law. All questions concerning the construction, validity
enforcement and interpretation of this Agreement shall be governed by and
construed in accordance with the internal laws and decisions of the State of New
York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
New York.

 

5.3 Notices. All notices, approvals, requests, demands and other communications
hereunder shall be delivered or made in the manner set forth in, and shall be
effective in accordance with the terms of, the Purchase Agreement; provided,
that, to the extent any such communication (i) is being made or sent to a Debtor
that is not the Company, such communication shall be effective as to such Debtor
if made or sent to the Company in accordance with the foregoing or (ii) is being
made or sent to the Secured Party, such communication shall be made to the
Secured Party at the address set forth below the Secured Party’s signature
hereto. Debtors and the Secured Party may change their respective notice
addresses by written notice given to each other party five (5) Business Days
prior to the effectiveness of such change.

 

5.4 Amendments, Etc. The terms of this Agreement may be waived, altered or
amended only by an instrument in writing duly executed by the Debtor sought to
be charged or benefited thereby and the Secured Party. Any such amendment or
waiver shall be binding upon the Secured Party and the Debtor sought to be
charged or benefited thereby and their respective successors and assigns.

 

5.5 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of each of the parties
hereto, provided, that no Debtor shall assign or transfer its rights hereunder
without the prior written consent of the Secured Party. The Secured Party, in
such capacity as collateral agent, may assign its rights hereunder without the
consent of the Debtors, in which event such assignee shall be deemed to be the
Secured Party hereunder with respect to such assigned rights.

 

5.6 Counterparts; Headings. This Agreement may be authenticated in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may authenticate this Agreement by
signing any such counterpart. This Agreement may be authenticated by manual
signature, facsimile or, if approved in writing by the Secured Party, electronic
means, all of which shall be equally valid. The headings in this Agreement are
for convenience of reference only and shall not alter or otherwise affect the
meaning hereof.

 

21

 

 

5.7 Severability. If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Secured Party and its
Representative in order to carry out the intentions of the parties hereto as
nearly as may be possible and (b) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.

 

5.9 SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS. (A) EACH
DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT AND EACH DEBTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF
SECURED PARTY TO BRING PROCEEDINGS AGAINST ANY DEBTOR IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY A DEBTOR AGAINST THE SECURED PARTY OR
ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT
ONLY IN A COURT IN NEW YORK, NEW YORK .

 

(B)         EACH DEBTOR DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SUCH
OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY IT (AFTER PRIOR WRITTEN NOTICE TO
THE SECURED PARTY) WHICH IRREVOCABLY AGREES IN WRITING TO SO SERVE AS ITS AGENT
TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY
SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY EACH DEBTOR TO BE
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO
SERVED SHALL BE MAILED BY REGISTERED MAIL TO SUCH DEBTOR AT ITS ADDRESS PROVIDED
IN THIS AGREEMENT EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY
FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.
IF ANY AGENT APPOINTED BY A DEBTOR REFUSES TO ACCEPT SERVICE, SUCH DEBTOR HEREBY
AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING
HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW.

 

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5.10 WAIVER OF RIGHT TO TRIAL BY JURY. EACH DEBTOR AND THE SECURED PARTY EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH DEBTOR AND THE
SECURED PARTY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.

 

5.11         Joint and Several. The obligations, covenants and agreements of
Debtors hereunder shall be the joint and several obligations, covenants and
agreements of each Debtor, whether or not specifically stated herein.

 

5.12         Collateral Agent. (a) The Secured Party is appointed and authorized
to act as collateral agent hereunder (the “Collateral Agent”), to enter into
each of the instruments, documents and agreements, including any pledge
agreement, guaranty, financing statements, mortgage, Account Control Agreement
or any other Loan Document (collectively with this Agreement, the “Financing
Documents”), to which it is a party as agent (including as a collateral agent)
on behalf of any holders of the Obligations (collectively, the “Holders”) and to
take such actions as Collateral Agent on the Holders’ behalf under the Financing
Documents and to exercise such powers under the Financing Documents as are
delegated to the Collateral Agent (as agent, secured party or otherwise) by the
terms thereof, together with all such powers as are reasonably incidental
thereto. The Collateral Agent shall take such action under this Agreement and/or
any other Loan Documents as the Collateral Agent shall reasonably be directed by
the Holders in accordance with the terms of the Purchaser Transaction Documents.
The Secured Party is authorized and empowered to amend, modify, or waive any
provisions of this Agreement or the other Financing Documents to which it is a
party or which run in its favor on behalf of the Holders; provided, however,
that the parties hereto hereby agree that no such amendment, modification or
waiver shall be effective without the unanimous written consent of the Holders.

 

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(b)          Whether or not the transactions contemplated hereby shall be
consummated, upon demand therefor, the Holders shall indemnify the Collateral
Agent (to the extent not reimbursed by or on behalf of the Company and without
limiting the obligation of the Company to do so), ratably (based on the ratio of
the amount of Obligations a Holder holds to the aggregate Obligations held by
all Holders) from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
of any kind whatsoever, including, for purposes of clarification, all taxes,
which may at any time (including at any time following the payment in full of
the Note and the termination or resignation of the Collateral Agent) be imposed
on, incurred by or asserted against the Collateral Agent in any way relating to
or arising out of this Agreement, any other Transaction Document or any document
contemplated hereby or referred to herein or the transactions contemplated
hereby or thereby or any action taken or omitted by the Collateral Agent under
or in connection with any of the foregoing; provided, however, that the Holders
shall not be liable for the payment to the Collateral Agent of any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting solely from the Collateral
Agent’s gross negligence or willful misconduct. In addition, the Holders shall
reimburse the Collateral Agent upon demand for its ratable share (based on the
ratio of the amount of Obligations a Holder holds to the aggregate Obligations
held by all Holders) of any costs or out-of-pocket expenses (including attorney
costs) incurred by the Collateral Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, any other
Transaction Document, or any document contemplated hereby or referred to herein
to the extent that the Collateral Agent is not reimbursed for such expenses by
or on behalf of the Company. Without limiting the generality of the foregoing,
if any Governmental Authority of any jurisdiction asserts a claim that the
Collateral Agent did not properly withhold tax from amounts paid to or for the
account of a Holder (because the appropriate form was not delivered, was not
properly executed, or because such Holder failed to notify the Collateral Agent
of a change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason), the Holders shall
indemnify the Collateral Agent fully for all amounts paid, directly or
indirectly, by the Collateral Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Collateral Agent under this Section 5.12(b), together with all
related costs and expenses (including attorney costs). The obligation of the
Holders in this Section 5.12(b) shall survive the payment of all Obligations.

 

(c)          The Collateral Agent shall not be deemed to have knowledge or
notice of the occurrence of any Event of Default or any event that with the
giving of notice or passage of time would constitute a Event of Default unless
the Collateral Agent shall have received written notice from the Holders
describing such Event of Default or event that with the giving of notice or
passage of time would constitute a Event of Default and stating that such notice
is a “notice of default”. Upon the occurrence and continuance of a Event of
Default, or an event that with the giving of notice or passage of time would
constitute a Event of Default, the Collateral Agent shall take such action under
this Agreement and/or any other Purchaser Transaction Documents with respect to
such Event of Default or event that with the giving of notice or passage of time
would constitute a Event of Default as the Collateral Agent shall reasonably be
directed by the Holders in accordance with the terms of the Purchaser
Transaction Documents; provided that, unless and until the Collateral Agent
shall have received such directions, the Collateral Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Event of Default or event that with the giving of notice or passage of
time would constitute a Event of Default as the Collateral Agent shall deem
advisable in the best interests of the Holders. In taking such action or
refraining from taking such action without specific direction from the Holders,
the Collateral Agent shall use the same degree of care and skill as a prudent
person would exercise or use under the circumstances in the conduct of such
person’s own affairs.

 

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(d)          Nothing in this Section 5.12 shall be deemed to limit or otherwise
affect the rights of the Secured Party or the Holders to exercise any remedy
provided in this Agreement or any other Transaction Document.

 

(e)          The Collateral Agent may resign from the performance of all of its
functions and duties hereunder and/or under the other Purchaser Transaction
Documents at any time by giving five (5) Business Days’ prior written notice to
the Holders. Such resignation shall take effect upon the appointment of a
successor Collateral Agent pursuant to Section 5.12(f) below or as otherwise
provided below.

 

(f)          Upon (i) Holders’ receipt of a notice of resignation by the
Collateral Agent in accordance with Section 5.12(e) above, or (ii) written
notice by the Holders to the Collateral Agent of Holders’ election to remove the
existing Collateral Agent and appoint a successor Collateral Agent, the Holders
shall have the right to appoint a successor Collateral Agent. Upon the
acceptance of a successor’s appointment as Collateral Agent hereunder and notice
of such acceptance to the retiring Collateral Agent, such successor shall
succeed to and become vested with all of the rights, powers, privileges and
duties of the retiring (or retired) Collateral Agent, the retiring Collateral
Agent’s resignation shall become immediately effective and the retiring
Collateral Agent shall be discharged from all of its duties and obligations
hereunder and under the other Purchaser Transaction Documents (if such
resignation was not already effective and such duties and obligations not
already discharged, as provided below in this paragraph). If no such successor
shall have been so appointed by the Holders and shall have accepted such
appointment within thirty (30) days after the retiring Collateral Agent gives
notice of its resignation or the Holders give notice of their election to
replace the retiring Collateral Agent, then the retiring Collateral Agent may,
on behalf of the Holders (but without any obligation) appoint a successor
Collateral Agent without the consent of the Holders. From and following the
expiration of such thirty (30) day period, the Collateral Agent shall have the
exclusive right without any Person’s consent, upon one (1) Business Days’ notice
to the Holders, to make its resignation or removal effective immediately. From
and following the effectiveness of such notice, (i) the retiring Collateral
Agent shall be discharged from its duties and obligations hereunder and under
the other Purchaser Transaction Documents and (ii) all actions, payments,
communications and determinations provided to be made by, to or through the
Collateral Agent shall instead be made by or to the Holders directly, until such
time as the Holders appoint a Collateral Agent as provided for above in this
paragraph. The provisions of this Agreement shall continue in effect for the
benefit of any retiring Collateral Agent and its sub-agents after the
effectiveness of its resignation or removal hereunder and under the other
Purchaser Transaction Documents in respect of any actions taken or omitted to be
taken by any of them while the retiring Collateral Agent was acting or was
continuing to act as Collateral Agent.

 

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(g)          If pursuant to any Financing Document the Collateral Agent is given
the discretion to allocate proceeds received by the Collateral Agent pursuant to
the exercise of remedies under the Financing Documents or at law or in equity
(including without limitation with respect to any secured creditor remedies
exercised against the Collateral and any other collateral security provided for
under any Financing Document), the Collateral Agent shall apply such proceeds to
the then outstanding Obligations in the following order of priority (with
amounts received being applied in the numerical order set forth below until
exhausted prior to the application to the next succeeding category and each of
the Holders or other Persons entitled to payment shall receive an amount equal
to its pro rata share of amounts available to be applied pursuant to clauses
second, third and fourth below):

 

first, to payment of fees, costs and expenses (including reasonable attorney’s
fees) owing to the Collateral Agent;

 

second, to payment of all accrued unpaid interest and fees (other than fees
owing to the Collateral Agent) on the Obligations;

 

third, to payment of principal of the Obligations;

 

fourth, to payment of any other amounts owing constituting Obligations; and

 

fifth, any remainder shall be for the account of and paid to whoever may be
lawfully entitled thereto.

 

5.13        No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

 

5.14        Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between each Debtor, the Secured Party, the
Holders and their affiliates and persons acting on their behalf with respect to
the matters discussed herein, and this Agreement and the Purchaser Transaction
Documents and instruments referenced herein and therein contain the entire
understanding of the parties with respect to the matters covered herein and
therein.

 

[Remainder of Page Intentionally Left Blank; Signature Pages Follow]

 

26

 

 

IN WITNESS WHEREOF, the parties hereto have caused this First Lien Security
Agreement to be duly executed and delivered as of the day and year first above
written.

 

  DEBTOR:       AMERICAN PETRO-HUNTER INC., a Nevada corporation       By:      
    Name:           Title:            FEIN:  

 

 

 

 

SECURED PARTY:

 

ASYM ENERGY OPPORTUNITIES LLC, a Delaware limited liability company

 

  By:       Greg Imbruce, President

 

Notice Address:

 

1055 Washington Blvd., Suite 410

Stamford, Connecticut 06901

Attention: Greg Imbruce

Telephone: (203) 595-5600 

Facsimile: (203) 742-1660

 

 

 

 

EXHIBIT A

 

Form of Joinder

Joinder to First Lien Security Agreement

 

The undersigned, ______________________________, hereby joins in the execution
of that certain First Lien Security Agreement dated as of July 3, 2012 (the
“Security Agreement”), by AMERICAN PETRO-HUNTER INC., a Nevada corporation and
each other Person that becomes a Debtor thereunder after the date thereof and
pursuant to the terms thereof, to and in favor of ASYM ENERGY OPPORTUNITIES LLC,
a Delaware limited liability company (the “Secured Party”). By executing this
Joinder, the undersigned hereby agrees that it is a Debtor thereunder and agrees
to be bound by all of the terms and provisions of the Security Agreement.

 

The undersigned represents and warrants to the Secured Party that:

 

(a)          all of the Equipment, Inventory and Goods owned by such Debtor is
located at the places as specified on Schedule I attached hereto;

 

(b)          except as disclosed on Schedule II, none of such Collateral is in
the possession of any bailee, warehousemen, processor or consignee;

 

(c)          the chief place of business, chief executive office and the office
where such Debtor keeps its books and records are located at the place specified
on Schedule III;

 

(d)          such Debtor (including any Person acquired by such Debtor) does not
do business or has not done business during the past five years under any
tradename or fictitious business name, except as disclosed on Schedule IV;

 

(e)          all Copyrights, Patents and Trademarks owned by the undersigned are
listed in Schedules V, VI and VII, respectively;

 

(f)          all Deposit Accounts, securities accounts, brokerage accounts and
other similar accounts maintained by such Debtor, and the financial institutions
at which such accounts are maintained, are listed on Schedule VIII;

 

(g)          all Commercial Tort Claims of such Debtor are listed on Schedule
IX;

 

(h)          all interests in real property and mining rights held by such
Debtor are listed on Schedule X;

 

(i)          all Equipment (including Motor Vehicles) owned by such debtors are
listed on Schedule XI; and

 

 

 

 

(j)          all other representations and warranties made by the Debtors in the
Security Agreement are true, complete and correct in all respects as of the date
hereof.

 

__________________________, a _____ _________________

 

  By:     Title:     FEIN: