Exhibit 10.2

 

SECURITY AGREEMENT

(General)

 

BY

 

REEF OIL & GAS DRILLING AND INCOME FUND, L.P.

 

IN FAVOR OF

 

TEXAS CAPITAL BANK, N.A.

 

OCTOBER 14, 2014

 

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TABLE OF CONTENTS

 

 

 

Page

ARTICLE I GENERAL TERMS

1

1.1

Terms Defined Above

1

1.2

Definitions Contained in Credit Agreement

1

1.3

Terms Defined in Code

1

1.4

Certain Definitions

1

1.5

References

3

ARTICLE II SECURITY INTEREST

4

2.1

Grant of Security Interest

4

2.2

Obligations Secured

4

ARTICLE III REPRESENTATIONS AND WARRANTIES

4

3.1

Ownership and Liens

4

3.2

Location

5

3.3

Secured Party’s Security Interest

5

3.4

Legal Name; State of Organization

5

ARTICLE IV COVENANTS AND AGREEMENTS

5

4.1

Prohibited Liens and Filings

5

4.2

Taxes, Charges, Liens and Assessments

5

4.3

Inspection of Collateral

6

4.4

Further Assurances

6

4.5

Delivery of Information

6

4.6

Compromise of Collateral

6

4.7

Expenses

6

4.8

Financing Statement Filings; Notifications

6

4.9

Proceeds

7

ARTICLE V RIGHTS, REMEDIES AND WARRANTIES

7

5.1

With Respect to Collateral

7

5.2

Default Events

8

5.3

Default Remedies

8

5.4

Right of Set-Off

8

5.5

Proceeds

9

5.6

Secured Party’s Duties

9

5.7

Secured Party’s Actions

9

5.8

Transfer of Obligations and Collateral

10

5.9

Cumulative Security

10

5.10

Continuing Agreement

10

5.11

Cumulative Rights

10

5.12

Exercise of Rights

10

5.13

Remedy and Waiver

11

5.14

Non-Judicial Remedies

11

ARTICLE VI MISCELLANEOUS

11

6.1

Preservation of Liability

11

6.2

Notices

11

6.3

Governing Law

11

6.4

Amendment and Waiver

11

 

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6.5

Invalidity

11

6.6

Survival of Agreements

11

6.7

Successors and Assigns

11

6.8

Titles of Articles, Sections and Subsections

12

6.9

Counterparts

12

 

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SECURITY AGREEMENT

(General)

 

This SECURITY AGREEMENT is made and entered into as of October 14, 2014, by Reef
Oil & Gas Drilling and Income Fund, L.P., a Texas limited partnership
(“Debtor”), with its address at 1901 N. Central Expressway, Suite 300, Dallas,
Texas 75080, in favor of Texas Capital Bank, N.A., a national banking
association (“Secured Party”), with its address at 2000 McKinney Avenue,
Suite 1800, Dallas, Texas 75201. Certain terms used herein are defined in
Article I hereof

 

W I T N E S S E T H:

 

WHEREAS, Debtor and Secured Party are parties to the Credit Agreement; and

 

WHEREAS, to secure the Obligations, Debtor has agreed to grant to Secured Party
a security interest in, all right, title and interest of Debtor in the property
hereinafter described;

 

NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of all of which are hereby
acknowledged, Debtor hereby agrees with and covenants and represents to Secured
Party as follows:

 

ARTICLE I

 

GENERAL TERMS

 

1.1                               Terms Defined Above. As used in this Security
Agreement, each of the terms “Debtor” and “Secured Party” shall have the meaning
assigned to such term above.

 

1.2                               Definitions Contained in Credit Agreement.
Each term which is defined in the Credit Agreement shall have the same meaning
herein as therein defined unless otherwise defined herein or the context hereof
otherwise requires.

 

1.3                               Terms Defined in Code. All terms used herein
which are defined in the Code shall have the same meaning herein, unless the
context otherwise requires. Without limiting the generality of the foregoing
sentence, the following terms shall have the respective meanings given each such
term in the Code and when used herein, each such term shall include such item
whether now existing or hereafter arising or acquired: accession, account,
as-extracted collateral, chattel paper, consumer goods, deposit account,
document, equipment, farm products, fixtures, general intangible, goods,
instrument, inventory, investment property, letter of credit rights, money,
payment intangible, proceeds, record, securities account, software, standing
timber and supporting obligation.

 

1.4                               Certain Definitions. As used in this Security
Agreement, each of the following terms shall have the meaning set forth for such
term below, unless the context otherwise requires:

 

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“Borrower” means Debtor.

 

“Credit Agreement” shall mean that certain Credit Agreement dated October 14,
2014, as amended from time to time, by and among Borrower and the Secured Party,
as the same may be subsequently amended or restated from time to time.

 

“Code” or “UCC” shall mean the Uniform Commercial Code as in effect in the State
of Texas from time to time.

 

“Collateral” shall mean the property and rights, including, without limitation,
cash or other proceeds, in which Secured Party shall have a security interest
pursuant to Section 2.1 of this Security Agreement.

 

“Collateral Records” means books, records, ledger cards, files, correspondence,
customer lists, blueprints, technical specifications, manuals, computer
software, computer printouts, tapes, disks and related data processing software
and similar items that at any time evidence or contain information relating to
any of the Collateral or are otherwise necessary or helpful in the collection
thereof or realization thereupon.

 

“Collateral Support” means all property (real or personal) assigned,
hypothecated or otherwise securing any Collateral and shall include any security
agreement or other agreement granting a lien or security interest in such real
or personal property.

 

“Default” shall mean the occurrence of any of the events specified in
Section 5.2 hereof, whether or not any requirement for notice or lapse of time
or other condition precedent has been satisfied.

 

“Event of Default” shall mean the occurrence of any of the events specified in
Section 5.2 hereof, provided that any requirement for notice or lapse of time or
other condition precedent has been satisfied.

 

“Notes” shall mean, whether one or more, the promissory note or notes issued by
the Debtor under the Credit Agreement.

 

“Obligations” has the meaning given such term in the Credit Agreement.

 

“Personal Property Collateral” means all of the Debtor’s accounts, goods,
documents, equipment, general intangibles, Hedging Agreements, inventory,
investment property, letter of credit rights, money, payment intangibles,
Receivables and Receivable Records, insurance, software, supporting obligations,
Collateral Records, Collateral Support, and all deposit accounts at Secured
Party; together with proceeds of any and all of the foregoing.

 

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“Receivables” means all rights to payment, whether or not earned by performance,
for goods or other property sold, leased, licensed, assigned or otherwise
disposed of, or services rendered or to be rendered, including without
limitation all such rights constituting or evidenced by any account, chattel
paper, instrument, general intangible or investment property, together with all
of Debtor’s rights, if any, in any goods or other property giving rise to such
right to payment and all Collateral Support and supporting obligations related
thereto and all Receivables Records.

 

“Receivables Records” means (i) all original copies of all documents,
instruments or other writings or electronic records or other Records evidencing
the Receivables, (ii) all books, correspondence, credit or other files, Records,
ledger sheets or cards, invoices, and other papers relating to Receivables,
including all tapes, cards, computer tapes, computer discs, record keeping
systems and other papers and documents relating to the Receivables, whether in
the possession or under the control of the Debtor or any computer bureau or
agent from time to time acting for the Debtor or otherwise; (iii) all evidences
of the filing of financing statements and the registration of other instruments
in connection therewith, and amendments, supplements or other modifications
thereto, notices to other creditors, and certificates, acknowledgements, or
other writings, including lien search reports, from filing or other registration
officers, (iv) all credit information, reports and memoranda relating thereto
and (v) all other written or non-written forms of information related in any way
to the foregoing or any Receivable.

 

“Secured Obligation” has the meaning assigned to such term in Section 2.2
hereof.

 

“Security Agreement” or “Agreement” shall mean this Security Agreement, as the
same may from time to time be amended, supplemented, restated or otherwise
modified.

 

1.5                               References. References in this Security
Agreement to Exhibits, Schedules, Annexes, Appendixes, Attachments, Articles,
Sections, Recitals or clauses shall be to exhibits, schedules, annexes,
appendixes, attachments, articles, sections, recitals or clauses of this
Security Agreement, unless expressly stated to the contrary. References in this
Security Agreement to “hereby,” “herein,” “hereinafter,” “hereinabove,”
“hereinbelow,” “hereof,” “hereunder” and words of similar import shall be to
this Security Agreement in its entirety and not only to the particular Exhibit,
Schedule, Annex, Appendix, Attachment, Article, or Section in which such
reference appears. References to any document, instrument, or agreement
(a) shall include all exhibits, schedules, and other attachments thereto, and
(b) shall include all documents, instruments, or agreements issued or executed
in replacement thereof. This Security Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections. The phrases “this Section” and “this

 

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clause” and similar phrases refer only to the sections or clauses hereof in
which such phrases occur. Whenever the context requires, reference herein made
to the single number shall be understood to include the plural; and likewise,
the plural shall be understood to include the singular. Definitions of terms
defined in the singular or plural shall be equally applicable to the plural or
singular, as the case may be, unless otherwise indicated. Words denoting sex
shall be construed to include the masculine, feminine and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative; the word “or” is not exclusive;
the word “including” (in its various forms) shall mean “including, without
limitation”; in the computation of periods of time, the word “from” means “from
and including” and the words “to” and “until” mean “to but excluding”; and all
references to money refer to the legal currency of the United States of America.
The Exhibits, Schedules, Annexes, Appendixes and Attachments attached to this
Security Agreement and items referenced as being attached to this Security
Agreement are incorporated herein and shall be considered a part of this
Security Agreement for all purposes.

 

ARTICLE II

 

SECURITY INTEREST

 

2.1                               Grant of Security Interest. Debtor hereby
grants to Secured Party a security interest in, and a right of set-off against,
the following described property and rights, whether now owned or existing or
hereafter acquired (collectively, the “Collateral”):

 

(a)                                 all of Debtor’s rights in, to and under the
Personal Property Collateral; and

 

(b)                                 the proceeds, products, additions to,
substitutions for and accessions of and to any of the foregoing.

 

2.2                               Obligations Secured. The security interest in,
and right of set-off against, the Collateral is granted to secure the
Obligations (the “Secured Obligations”).

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

Debtor represents and warrants to Secured Party (which representations and
warranties will survive the creation of the Secured Obligations) that:

 

3.1                               Ownership and Liens. Except for the security
interest of Secured Party granted in this Security Agreement, Debtor owns good
and indefeasible title to the Collateral, free and clear of any other liens,
adverse claims or options other than Permitted Liens. Debtor has full right,
power and authority to grant a security interest in the Collateral to Secured
Party in the manner provided herein, free and clear of any other liens, adverse
claims and options. No other lien, adverse claim or option has been created by
Debtor or is known by Debtor to exist with respect to any Collateral; and to the
best of Debtor’s information and belief, no financing statement or

 

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other security instrument is on file in any jurisdiction covering such
Collateral, other than those in favor of Secured Party.

 

3.2                               Location. Debtor’s chief executive office is
located at the address set forth in the opening paragraph of this Security
Agreement. The office where Debtor keeps its records concerning the Collateral
has the same address as Debtor’s chief place of business. Debtor’s jurisdiction
of organization is as set forth in the opening paragraph of this Security
Agreement.

 

3.3                               Secured Party’s Security Interest. This
Security Agreement creates a valid and binding security interest in the
Collateral securing the Secured Obligations. All filings (which filings are
described in Section 4.9 of this Security Agreement) and other actions necessary
or desirable to perfect or protect such security interest have been duly or will
be promptly taken. No further or subsequent filing, recording, registration or
other public notice of such security interest is necessary in any office or
jurisdiction in order to perfect such security interest or to continue, preserve
or protect such security interest except for continuation statements or for
filings upon the occurrence of any of the events stated in Section 4.9 of this
Security Agreement. Such perfected security interest in the Collateral
constitutes a security interest under the Code senior to all other security
interests.

 

3.4                               Legal Name; State of Organization. The full
legal name of the Debtor is as set forth on the signature page hereto, and since
the Debtor’s formation the Debtor has not done, and does not do, business under
any other name (including any trade name or fictitious name). The Borrower is
organized, and has at all times been organized, under the laws of the state of
Texas.

 

ARTICLE IV

 

COVENANTS AND AGREEMENTS

 

A deviation from the provisions of this Article IV shall not constitute a
Default under this Security Agreement if such deviation is consented to in
writing by Secured Party. Without the prior written consent of Secured Party,
Debtor will at all times comply with the covenants contained in this Article IV,
from the date hereof and for so long as any Secured Obligations are outstanding.

 

4.1                               Prohibited Liens and Filings. Debtor will not
pledge, mortgage, grant a security interest in, otherwise encumber, create or
suffer a lien to exist on any of the Collateral (other than in favor of Secured
Party or as otherwise permitted under the Credit Agreement) or sell, assign or
otherwise transfer any of the Collateral to or in favor of any Person other than
Secured Party. Debtor will not file or permit to be filed or recorded any
financing statement or other security instrument with respect to the Collateral
other than in favor of Secured Party or as otherwise permitted under the Credit
Agreement.

 

4.2                               Taxes, Charges, Liens and Assessments. Debtor
agrees to pay prior to delinquency all taxes, charges, liens and assessments
against the Collateral and, upon the failure of Debtor to do so, Secured Party
at its option may pay any of them and shall be entitled to reimbursement from
the Debtor therefor.

 

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4.3                               Inspection of Collateral. Secured Party may
from to time, upon request, inspect Debtor’s records concerning the Collateral.

 

4.4                               Further Assurances. Debtor will from time to
time sign, execute, deliver and file, alone or with Secured Party, any financing
statements, security agreements or other documents; procure any instruments or
documents as may be requested by Secured Party; and take all further action that
may be necessary or desirable, or that Secured Party may request, to confirm,
perfect, preserve and protect the security interests intended to be granted
hereby.

 

4.5                               Delivery of Information. Debtor will transmit
to Secured Party promptly, and in any event within seven (7) days of the receipt
or identification thereof, all information that Debtor may have or receive with
respect to the Collateral which might in any way affect Secured Party’s rights
or remedies with respect thereto.

 

4.6                               Compromise of Collateral. Debtor will not
adjust, settle or compromise any of the Collateral without the prior written
consent of the Secured Party.

 

4.7                               Expenses. Debtor agrees to pay to Secured
Party at Secured Party’s business address, all advances, charges, costs and
expenses (including attorneys’ fees and legal expenses) incurred by Secured
Party in connection with perfecting and preserving the security interest created
under this Security Agreement, protecting Secured Party against the claims or
interests of any Person against the Collateral, and exercising any right, power,
or remedy conferred by this Security Agreement or by law or in equity
(including, but not limited to, amounts incurred in connection with the
foreclosure of any or all of the Collateral). The amount of all such advances,
charges, costs and expenses shall be due and payable by Debtor to Secured Party
upon demand.

 

4.8                               Financing Statement Filings; Notifications.
Debtor recognizes that financing statements pertaining to the Collateral will be
filed with the office of the Secretary of State of the state of Debtor’s
organization and any other location Secured Party deems necessary or advisable
in its sole discretion, and Debtor hereby authorizes the filing of such
financing statements and any amendments, corrections or continuations thereto as
Secured Party may deem appropriate. Debtor will immediately notify Secured Party
of any condition or event that may change the proper location for the filing of
any financing statements or other public notice or recordings for the purpose of
perfecting a security interest in the Collateral. Without limiting the
generality of the foregoing, Debtor will (a) immediately notify Secured Party of
any change (i) in the location of Debtor’s chief executive office or chief place
of business; (ii) in the location of the office where Debtor keeps its records
concerning the Collateral, or (iii) in the state of organization of Debtor; and
(b) immediately notify Secured Party of any change in Debtor’s name, identity or
corporate structure. In any notice furnished pursuant to this paragraph, Debtor
will expressly state that the notice is required by this Security Agreement and
contains facts that will or may require additional filings of financing
statements or other notices for the purpose of continuing perfection of the
Secured Party’s security interest in the Collateral. The Secured Party shall be
entitled at any time to file a photographic or other reproduction of this
Security Agreement as a financing statement or to complete and file a financing
statement covering the Collateral.

 

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4.9                               Proceeds. Debtor, following any request from
Secured Party, will deliver to Secured Party, promptly upon receipt, all
proceeds received by Debtor from the sale or disposition of the Collateral in
the exact form in which they are received. To evidence Secured Party’s rights in
this regard, Debtor will assign or endorse proceeds to Secured Party as Secured
Party requests. Secured Party may, from time to time, in its discretion, hold
non-cash proceeds as part of the Collateral. Following a request by the Secured
Party, Debtor will notify obligors on all of the Collateral to make payments
directly to Secured Party, and Secured Party may endorse as Debtor’s agent any
checks, instruments, chattel paper or other documents connected with the
Collateral, take control of proceeds of the Collateral, hold non-cash proceeds
as part of the Collateral, and take any other action necessary to obtain,
preserve and enforce the security interests granted hereunder and maintain and
preserve the Collateral.

 

ARTICLE V

 

RIGHTS, REMEDIES AND WARRANTIES

 

5.1                               With Respect to Collateral. Secured Party is
hereby fully authorized and empowered (without the necessity of any further
consent or authorization from Debtor) and the right is expressly granted to
Secured Party, and Debtor hereby constitutes, appoints and makes Secured Party,
as Debtor’s true and lawful attorney-in-fact and agent for Debtor and in
Debtor’s name, place and stead with full power of substitution, in Secured
Party’s name or Debtor’s name or otherwise, for Secured Party’s sole use and
benefit, but at Debtor’s cost and expense, to exercise, without notice, all or
any of the following powers at any time with respect to all or any of the
Collateral (regardless of whether any Default has occurred or not):

 

(a)                                 notify the obligors on the accounts, general
intangibles and payment intangibles that are a part of the Collateral to make
and deliver payment to Secured Party;

 

(b)                                 to demand, sue for, collect, receive and
give acquittance for any and all monies due or to become due by virtue thereof
and otherwise deal with proceeds;

 

(c)                                  to receive, take, endorse, assign and
deliver any and all checks, notes, drafts, documents and other negotiable and
non-negotiable instruments and chattel paper taken or received by Secured Party
in connection therewith;

 

(d)                                 to settle, compromise, compound, prosecute
or defend any action or proceeding with respect thereto;

 

(e)                                  to sell, transfer, assign or otherwise deal
in or with the same or the proceeds or avails thereof, as fully and effectively
as if Secured Party were the absolute owner thereof; and

 

(f)                                   to extend the time of payment of any or
all thereof and to grant waivers and make any allowance or other adjustment with
reference thereto;

 

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provided, however, Secured Party shall be under no obligation or duty to
exercise any of the powers hereby conferred upon it and shall be without
liability for any act or failure to act in connection with the collection of, or
the preservation of any rights under, any Collateral.

 

5.2                               Default Events. Any of the following events
shall be considered an “Event of Default” under this Security Agreement:

 

(a)                                 the failure of the Debtor to pay the
principal and interest of the Notes when due and payable.

 

(b)                                 any Event of Default under the Credit
Agreement.

 

5.3                               Default Remedies. Upon the happening and
during the continuance of any Event of Default specified in Section 5.2 hereof,
Secured Party may then, or at any time thereafter and from time to time, apply,
set-off, collect, sell in one or more sales, lease, or otherwise dispose of, any
or all of the Collateral, in its then condition or following any commercially
reasonable preparation or processing, in such order as Secured Party may elect,
and any such sale may be made either at public or private sale at its place of
business or elsewhere, or at any brokers’ board or securities exchange, either
for cash or upon credit or for future delivery, at such price as Secured Party
may deem fair, and Secured Party may be the purchaser of any or all Collateral
so sold and may hold the same thereafter in its own right free from any claim of
Debtor or right of redemption. No such purchase or holding by Secured Party
shall be deemed a retention by Secured Party in satisfaction of the Secured
Obligations. All demands, notices and advertisements, and the presentment of
property at sale are hereby waived. If, notwithstanding the foregoing
provisions, any applicable provision of the Code or other law requires Secured
Party to give reasonable notice of any such sale or disposition or other action,
Debtor hereby agrees five (5) business days’ prior written notice shall
constitute reasonable notice. Secured Party may require Debtor to assemble the
Collateral and make it available to Secured Party at a place designated by
Secured Party, which is reasonably convenient to Secured Party and Debtor. Any
sale hereunder may be conducted by an auctioneer or any officer or agent of
Secured Party. Notwithstanding any provision or requirement herein to the
contrary, compliance by the Secured Party with the minimum requirements of the
Code in the exercise of the remedies under the Code afforded a secured party
after default, shall be deemed compliance with the terms of this Security
Agreement, and the Debtor and Secured Party agree that the parties intend that
the Secured Party have, and is hereby granted, each of the remedies conferred by
the Code on a secured party after default to the same extent as if set forth
herein.

 

5.4                               Right of Set-Off. Upon the happening and
during the continuance of any Event of Default specified in Section 5.2 hereof,
Secured Party is hereby authorized to then, or at any time thereafter and from
time to time, without notice to Debtor (any such notice being expressly waived
by Debtor), apply and set-off (i) any and all funds of Debtor at any time held
by Secured Party; (ii) any and all other claims of Debtor against Secured Party,
now or hereafter existing, (iii) any and all other indebtedness or other
obligations at any time owing by Secured Party to or for the account of Debtor;
(iv) any and all money, instruments, securities, documents, chattel paper,
credits, claims, demands and other property, rights or interests of Debtor which
at any time shall come into the possession or custody or under the control of
Secured Party, for any

 

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purpose; and (v) the proceeds of any of the foregoing property against the
Secured Obligations as if the same were included in the Collateral, and Debtor
hereby grants to Secured Party a security interest in, a general lien upon, and
a right of set-off against the foregoing described property as security for the
Secured Obligations. Secured Party shall have the right to so set-off and apply
such property against the Secured Obligations regardless of whether or not
Secured Party shall have made any demand for payment of the Secured Obligations
or shall have given any other notice. Secured Party agrees to promptly notify
Debtor after any such set-off and application, provided, however, the failure of
Secured Party to give any such notice shall not affect the validity of such
set-off and application. The rights of Secured Party under this Section 5.4 are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) which Secured Party may have.

 

5.5                               Proceeds. After the happening of any Event of
Default specified in Section 5.2 hereof, the proceeds of any sale or other
disposition of the Collateral, and all sums received or collected by Secured
Party from or on account of the Collateral, shall be applied by Secured Party in
the manner set forth in the Code.

 

5.6                               Secured Party’s Duties. The powers conferred
upon Secured Party by this Security Agreement are solely to protect its interest
in the Collateral and shall not impose any duty upon Secured Party to exercise
any such powers. Secured Party shall be under no duty whatsoever to make or give
any presentment, demand for performance, notice of nonperformance, protest,
notice of protest, notice of dishonor, or other notice or demand in connection
with any Collateral or the Secured Obligations, or to take any steps necessary
to preserve any rights against prior parties. Secured Party shall not be liable
for failure to collect or realize upon any or all of the Secured Obligations or
Collateral, or for any delay in so doing, nor shall Secured Party be under any
duty to take any action whatsoever with regard thereto. Secured Party shall use
reasonable care in the custody and preservation of any Collateral in its
possession but need not take any steps to keep the Collateral identifiable.
Secured Party shall have no duty to comply with any recording, filing, or other
legal requirements necessary to establish or maintain the validity, priority or
enforceability of, or Secured Party’s rights in or to, any of the Collateral.

 

5.7                               Secured Party’s Actions. Debtor waives any
right to require Secured Party to proceed against any Person, exhaust any
Collateral or pursue any other remedy in Secured Party’s power, and waives any
and all notice of acceptance of this Security Agreement or of creation,
modification, rearrangement, renewal or extension for any period of any of the
Secured Obligations from time to time. All dealings between Debtor and Secured
Party, whether or not resulting in the creation of the Secured Obligations,
shall conclusively be presumed to have been had or consummated in reliance upon
this Security Agreement. Until all the Secured Obligations shall have been paid
or performed in full, Debtor shall have no right to subrogation, and Debtor
waives any benefit of and any right to participate in any Collateral or security
whatsoever now or hereafter held by Secured Party. Debtor authorizes Secured
Party, without notice or demand and without any reservation of rights against
Debtor and without affecting Debtor’s liability hereunder or on the Secured
Obligations, from time to time to (a) take and hold any other property as
collateral, other than the Collateral, as security for any or all of the Secured
Obligations, and exchange, enforce, waive and release any or all of the
Collateral or such other

 

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property; and (b) apply the Collateral or such other property and direct the
order or manner of sale thereof as Secured Party in its discretion may
determine.

 

5.8                               Transfer of Obligations and Collateral.
Secured Party may transfer any or all of the Secured Obligations, and upon any
such transfer Secured Party may transfer any or all of the Collateral or its
security interest therein, and shall be fully discharged thereafter from all
liability with respect to the Collateral so transferred, and the transferee
shall be vested with all rights, powers and remedies of Secured Party hereunder
with respect to Collateral or the security interest in Collateral so
transferred; but with respect to any Collateral not so transferred Secured Party
shall retain all rights, powers and remedies hereby given. Secured Party may at
any time deliver any or all of the Collateral to Debtor whose receipt shall be a
complete and full acquittance for the Collateral so delivered, and Secured Party
shall thereafter be discharged from any liability therefor.

 

5.9                               Cumulative Security. The execution and
delivery of this Security Agreement in no manner shall impair or affect any
other security (by endorsement or otherwise) for the Secured Obligations. No
security taken hereafter as security for the Secured Obligations shall impair in
any manner or affect this Security Agreement. All such present and future
additional security is to be considered as cumulative security.

 

5.10                        Continuing Agreement. This is a continuing Security
Agreement and the grant of a security interest hereunder shall remain in full
force and effect and all the rights, powers and remedies of Secured Party
hereunder shall continue to exist until the Secured Obligations are paid or
performed in full as the same become due and Secured Party, upon request of
Debtor, has executed a written termination statement, reassigned to Debtor,
without recourse, the Collateral and all rights conveyed hereby and returned
possession of the Collateral to Debtor.

 

5.11                        Cumulative Rights. The rights, powers and remedies
of Secured Party hereunder shall be in addition to all rights, powers and
remedies given by statute or rule of law and are cumulative. The exercise of any
one or more of the rights, powers and remedies provided herein shall not be
construed as a waiver of any other rights, powers and remedies of Secured Party.
Furthermore, regardless of whether or not the Code is in effect in the
jurisdiction where such rights, powers and remedies are asserted, Secured Party
shall have the rights, powers and remedies of a secured party under the Code.
Secured Party may exercise its right of set-off with respect to the Secured
Obligations in the same manner as if the Secured Obligations were unsecured.

 

5.12                        Exercise of Rights. Time shall be of the essence for
the performance of any act under this Security Agreement or the Secured
Obligations by Debtor, but neither Secured Party’s acceptance of partial or
delinquent payments nor any forbearance, failure or delay by Secured Party in
exercising any right, power or remedy shall be deemed a waiver of any obligation
of Debtor or of any right, power or remedy of Secured Party or preclude any
other or further exercise thereof; and no single or partial exercise of any
right, power or remedy shall preclude any other or further exercise thereof, or
the exercise of any other right, power or remedy.

 

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5.13                        Remedy and Waiver. Secured Party may remedy any
Default and may waive any Default without waiving the Default remedied or
waiving any prior or subsequent Default.

 

5.14                        Non-Judicial Remedies. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and Debtor
expressly waives, renounces and knowingly relinquishes any and all legal rights
which might otherwise require Secured Party to enforce its rights by judicial
process. In so providing for non-judicial remedies, Debtor recognizes and
concedes that such remedies are consistent with the usage of the trade, are
responsive to commercial necessity, and are the result of bargain at arm’s
length. Nothing herein is intended to prevent Secured Party or Debtor from
resorting to judicial process at either party’s option.

 

ARTICLE VI

 

MISCELLANEOUS

 

6.1                               Preservation of Liability. Neither this
Security Agreement nor the exercise by Secured Party of (or the failure to so
exercise) any right, power or remedy conferred herein or by law shall be
construed as relieving any person or entity liable on the Secured Obligations
from liability on the Secured Obligations or for any deficiency thereon.

 

6.2                               Notices. Any notice or demand under this
Security Agreement or in connection with this Security Agreement may be given as
provided in the Credit Agreement, but actual notice, however given or received,
shall always be effective.

 

6.3                               Governing Law. This Security Agreement, the
entire relationship of the parties hereto, and any litigation between the
parties (whether grounded in statute, law, contract, tort or equity) shall be
governed by, and construed, interpreted and enforced in accordance with, the
laws of the State of Texas, without regard to conflicts of laws principles.

 

6.4                               Amendment and Waiver. This Security Agreement
may not be amended (nor may any of its terms be waived) without the written
consent of the Debtor and the Secured Party or as may be provided in the Credit
Agreement. Delivery of an executed counterpart of such written instrument (or
the signature page thereto) by telecopy, e-mail, facsimile or other electronic
means shall be effective delivery of a manually executed counterpart of such
written instrument.

 

6.5                               Invalidity. If any provision of this Security
Agreement is rendered or declared invalid, illegal or unenforceable by reason of
any existing or subsequently enacted legislation or by a judicial decision which
shall have become final, Debtor and Secured Party shall promptly meet and
negotiate substitute provisions for those rendered invalid, illegal or
unenforceable, but all of the remaining provisions shall remain in full force
and effect.

 

6.6                               Survival of Agreements. All covenants and
agreements of Debtor herein not fully performed before the date of this Security
Agreement shall survive such date.

 

6.7                               Successors and Assigns. All representations
and warranties of Debtor herein, and the covenants and agreements herein
contained by or on behalf of Debtor shall bind Debtor, and

 

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Debtor’s legal representatives, successors and assigns and shall inure to the
benefit of Secured Party, its successors and assigns. Secured Party may assign
this Security Agreement and any and all of its rights or obligations hereunder
without need of consent from Debtor. Debtor may not assign its obligations under
this Security Agreement.

 

6.8                               Titles of Articles, Sections and Subsections.
All titles or headings to articles, sections, subsections or other divisions of
this Security Agreement are only for the convenience of the parties and shall
not be construed to have any effect or meaning with respect to the other content
of such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.

 

6.9                               Counterparts. This Security Agreement may be
executed in two or more counterparts, and it shall not be necessary that the
signatures of all parties hereto be contained on any one counterpart hereof;
each counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument. Delivery of an executed counterpart of a
signature page of this Security Agreement by telecopy, e-mail, facsimile or
other electronic means shall be effective as a delivery of a manually executed
counterpart of this Security Agreement.

 

[Signature page follows]

 

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IN WITNESS HEREOF, the Debtor has caused this instrument to be duly executed as
of the date first above written.

 

 

DEBTOR:

 

 

 

REEF OIL & GAS DRILLING AND INCOME FUND, L.P.

 

By:

Reef Oil & Gas Partners, L.P., its General Partner

 

By:

Reef Oil & Gas Partners, GP, LLC, its General Partner

 

 

 

 

 

 

 

 

By:

/s/ Michael J. Mauceli

 

 

 

Michael J. Mauceli, Manager

 

Signature Page — Security Agreement

 

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