Exhibit 10.2

SECURITY AGREEMENT

This SECURITY AGREEMENT (this “Agreement”), dated as of October 1, 2007, among
the Grantors listed on the signature pages hereof and those additional entities
that hereafter become parties hereto by executing the form of Supplement
attached hereto as Annex 1 (collectively, jointly and severally, the “Grantors”
and each, individually a “Grantor”), and WELLS FARGO FOOTHILLS, INC., a
California corporation, in its capacity as administrative agent for the Lender
Group and the Bank Product Providers (together with its successors and assigns
in such capacity, the “Agent”).

W I T N E S S E T H:

WHEREAS, pursuant to that certain Credit Agreement of even date herewith (as
amended, restated, supplemented, renewed, extended, replaced or otherwise
modified from time to time, including all schedules thereto, the “Credit
Agreement”) by and among Baseline Oil & Gas Corp., a Nevada corporation
(“Borrower”), the lenders from time to time party thereto as “Lenders”
(“Lenders”), and Agent, the Lender Group has agreed to make certain financial
accommodations available to Borrower from time to time pursuant to the terms and
conditions thereof;

WHEREAS, Agent has agreed to act as agent for the benefit of the Lender Group
and the Bank Product Providers in connection with the transactions contemplated
by the Credit Agreement, this Agreement, and the other Loan Documents; and

WHEREAS, in order to induce the Lender Group to enter into the Credit Agreement
and the other Loan Documents and to induce the Lender Group to make and extend
financial accommodations to Borrower as provided for in the Credit Agreement,
Grantors have agreed to grant a continuing security interest in and to the
Collateral in order to secure the prompt and complete payment, observance and
performance of, among other things, the Secured Obligations, and

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

1. Defined Terms. All capitalized terms used herein (including in the preamble
and recitals hereof) without definition shall have the meanings ascribed thereto
in the Credit Agreement. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein or in the Credit Agreement; provided, however, that if
the Code is used to define any term used herein and if such term is defined
differently in different Articles of the Code, the definition of such term
contained in Article 9 of the Code shall govern. In addition to those terms
defined elsewhere in this Agreement, as used in this Agreement, the following
terms shall have the following meanings:

(a) “Account” means an account (as that term is defined in the Code).

(b) “Account Debtor” means an account debtor (as that term is defined in the
Code).

(c) “Agent’s Lien” has the meaning specified therefor in the Credit Agreement.

(d) “Bank Product Obligations” has the meaning specified therefor in the Credit
Agreement.

(e) “Bank Product Provider” has the meaning specified therefor in the Credit
Agreement.

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(f) “Books” means books and records (including each Grantor’s Records
indicating, summarizing, or evidencing such Grantor’s assets (including the
Collateral) or liabilities, each Grantor’s Records relating to such Grantor’s
business operations or financial condition, and each Grantor’s goods or General
Intangibles related to such information).

(g) “Borrower” has the respective meanings specified therefor in the recitals to
this Agreement.

(h) “Cash Equivalents” has the meaning specified therefor in the Credit
Agreement.

(i) “Chattel Paper” means chattel paper (as that term is defined in the Code)
and includes tangible chattel paper and electronic chattel paper.

(j) “Code” means the New York Uniform Commercial Code, as in effect from time to
time; provided, however, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, priority, or
remedies with respect to Agent’s Lien on any Collateral is governed by the
Uniform Commercial Code as enacted and in effect in a jurisdiction other than
the State of New York, the term “Code” shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority, or
remedies.

(k) “Collateral” has the meaning specified therefor in Section 2.

(l) “Commercial Tort Claims” means commercial tort claims (as that term is
defined in the Code), and includes those commercial tort claims listed on
Schedule 1 attached hereto (“Commercial Tort Claims”).

(m) “Copyrights” means works of authorship (whether or not published, and
whether or not copyrightable), copyrights and copyright registrations, including
the copyright registrations and recordings thereof and all applications in
connection therewith listed on Schedule 2 attached hereto and made a part
hereof, and (i) all reissues, restorations, reversions, continuations,
extensions or renewals thereof, (ii) all income, royalties, damages and payments
now and hereafter due and/or payable under and with respect thereto, including,
payments under all licenses entered into in connection therewith and damages and
payments for past or future infringements or dilutions thereof, (iii) the right
to sue for past, present and future infringements and dilutions thereof,
(iv) the goodwill of each Grantor’s business symbolized by the foregoing and
connected therewith, and (v) all of each Grantor’s rights corresponding thereto
throughout the world.

(n) “Copyright Security Agreement” means each Copyright Security Agreement among
Grantors, or any of them, and Agent, for the benefit of the Lender Group and the
Bank Product Providers, in substantially the form of Exhibit A attached hereto,
pursuant to which Grantors have granted to Agent, for the benefit of the Lender
Group and the Bank Product Providers, a security interest in all their
respective Copyrights.

(o) “Credit Agreement” has the meaning specified therefor in the recitals to
this Agreement.

(p) “Deposit Account” means a deposit account (as that term is defined in the
Code).

(q) “Equipment” means equipment (as that term is defined in the Code).

(r) “Event of Default” has the meaning specified therefor in the Credit
Agreement.

(s) “General Intangibles” means general intangibles (as that term is defined in
the Code) and, in any event, includes, payment intangibles, contract rights,
rights to payment, rights arising under

 

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common law, statutes, or regulations, choses or things in action, goodwill
(including the goodwill associated with any Trademark, Patent, or Copyright),
Patents, Trademarks, Copyrights, URLs and domain names, industrial designs,
other industrial or Intellectual Property or rights therein or applications
therefor, whether under license or otherwise, rights in programs, programming
materials, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, including Intellectual Property
Licenses, infringement claims, rights in computer programs, information
contained on computer disks or tapes, software, literature, reports, catalogs,
pension plan refunds, pension plan refund claims, insurance premium rebates, tax
refunds, and tax refund claims, interests in a partnership or limited liability
company which do not constitute a security under Article 8 of the Code, and any
other personal property other than Commercial Tort Claims, money, Accounts,
Chattel Paper, Deposit Accounts, goods, Investment Related Property, and
Negotiable Collateral.

(t) “Grantor” and “Grantors” have the meanings specified therefor in the
recitals to this Agreement.

(u) “Insolvency Proceeding” has the meaning specified therefor in the Credit
Agreement.

(v) “Intellectual Property” means any and all Intellectual Property Licenses,
Patents, Copyrights, Trademarks, the goodwill associated with such Trademarks,
confidential and proprietary information, trade secrets and know-how (including
processes, schematics, databases, formulae, drawings, prototypes, models,
designs, technical data, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), all
computer software, Internet web sites, and all other intellectual property or
proprietary rights and claims or causes of action arising out of or related to
an infringement, misappropriation or other violation of any of the foregoing,
including rights to recover for past, present and future violations thereof.

(w) “Intellectual Property Licenses” means all rights under or interests in any
patent, trademark, copyright or other intellectual property, including software
license agreements with any other party, whether the applicable Grantor is a
licensee or licensor under any such license agreement, including the license
agreements listed on Schedule 3 attached hereto and made a part hereof, and the
right to use the foregoing in connection with the enforcement of the Lender
Group’s rights under the Loan Documents, including the right to prepare for sale
and sell any and all Inventory and Equipment now or hereafter owned by any
Grantor and now or hereafter covered by such licenses.

(x) “Inventory” means inventory (as that term is defined in the Code).

(y) “Investment Related Property” means (i) investment property (as that term is
defined in the Code), and (ii) all of the following regardless of whether
classified as investment property under the Code: all Pledged Interests, Pledged
Operating Agreements, and Pledged Partnership Agreements.

(z) “Lender Group” has the meaning specified therefor in the Credit Agreement.

(aa) “Loan Document” has the meaning specified therefor in the Credit Agreement.

(bb) “Negotiable Collateral” means letters of credit, letter of credit rights,
instruments, promissory notes, drafts and documents (as that term is defined in
the Code) and, in any event, including payment intangibles, contract rights,
rights to payment, rights arising under common law, statutes, or regulations,
choses or things in action, goodwill (including the goodwill associated with any
Trademark, Patent, or Copyright), Patents, Trademarks, Copyrights, URLs and
domain names, industrial designs, other industrial or Intellectual Property or
rights therein or applications therefor, whether under license or otherwise,
programs, programming materials, blueprints, drawings, purchase orders, customer
lists, monies due or recoverable from pension funds, route lists, rights to
payment and other rights under any royalty or licensing agreements, including
Intellectual Property Licenses, infringement claims, computer programs,
information

 

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contained on computer disks or tapes, software, literature, reports, catalogs,
pension plan refunds, pension plan refund claims, insurance premium rebates, tax
refunds, and tax refund claims, uncertificated securities, and any other
personal property other than Commercial Tort Claims, money, Accounts, Chattel
Paper, Deposit Accounts, goods, Investment Related Property, and Negotiable
Collateral.

(cc) “Obligations” has the meaning specified therefor in the Credit Agreement.

(dd) “Patents” means inventions, discoveries and ideas, whether patentable or
not, and all patents, registrations and applications therefor, including the
patents and patent applications listed on Schedule 4 attached hereto and made a
part hereof, and (i) all reissues, continuations, continuations-in-part,
substitutes, extensions or renewals thereof and improvements thereon, (ii) all
income, royalties, damages and payments now and hereafter due or payable under
and with respect thereto, including payments under all licenses entered into in
connection therewith and damages and payments for past or future infringements
or dilutions thereof, (iii) the right to sue for past, present and future
infringements and dilutions thereof, and (iv) all of each Grantor’s rights
corresponding thereto throughout the world.

(ee) “Patent Security Agreement” means each Patent Security Agreement among
Grantors, or any of them, and Agent, for the benefit of the Lender Group and the
Bank Product Providers, in substantially the form of Exhibit B attached hereto,
pursuant to which Grantors have granted to Agent, for the benefit of the Lender
Group and the Bank Product Providers, a security interest in all their
respective Patents.

(ff) “Permitted Discretion” has the meaning specified therefor in the Credit
Agreement.

(gg) “Permitted Liens” has the meaning specified therefor in the Credit
Agreement.

(hh) “Person” has the meaning specified therefor in the Credit Agreement.

(ii) “Pledged Companies” means, each Person listed on Schedule 5 hereto as a
“Pledged Company”, together with each other Person, all or a portion of whose
Stock, is acquired or otherwise owned by a Grantor after the Closing Date.

(jj) “Pledged Interests” means all of each Grantor’s right, title and interest
in and to all of the Stock now or hereafter owned by such Grantor, regardless of
class or designation, including all substitutions therefor and replacements
thereof, all proceeds thereof and all rights relating thereto, also including
any certificates representing the Stock, the right to request after the
occurrence and during the continuation of an Event of Default that such Stock be
registered in the name of Agent or any of its nominees, the right to receive any
certificates representing any of the Stock and the right to require that such
certificates be delivered to Agent together with undated powers or assignments
of investment securities with respect thereto, duly endorsed in blank by such
Grantor, all warrants, options, share appreciation rights and other rights,
contractual or otherwise, in respect thereof and of all dividends, distributions
of income, profits, surplus, or other compensation by way of income or
liquidating distributions, in cash or in kind, and cash, instruments, and other
property from time to time received, receivable, or otherwise distributed in
respect of or in addition to, in substitution of, on account of, or in exchange
for any or all of the foregoing.

(kk) “Pledged Interests Addendum” means a Pledged Interests Addendum
substantially in the form of Exhibit C to this Agreement.

(ll) “Pledged Note Addendum” means a Pledged Note Addendum substantially in the
form of Exhibit E to this Agreement.

(mm) “Pledged Notes” has the meaning specified therefor in Section 5(h).

 

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(nn) “Pledged Operating Agreements” means all of each Grantor’s rights, powers,
and remedies under the limited liability company operating agreements of each of
the Pledged Companies that are limited liability companies.

(oo) “Pledged Partnership Agreements” means all of each Grantor’s rights,
powers, and remedies under the partnership agreements of each of the Pledged
Companies that are partnerships.

(pp) “Proceeds” has the meaning specified therefor in Section 2.

(qq) “Real Property” means any estates or interests in real property now owned
or hereafter acquired by any Grantor and the improvements thereto.

(rr) “Records” means information that is inscribed on a tangible medium or which
is stored in an electronic or other medium and is retrievable in perceivable
form.

(ss) “Security Interest” has the meaning specified therefor in Section 2.

(tt) “Secured Obligations” means each and all of the following: (a) all of the
present and future obligations of Grantors arising from this Agreement, the
Credit Agreement, or the other Loan Documents (including any guaranty), (b) all
Bank Product Obligations, and (c) all Obligations of Grantors, including, in the
case of each of clauses (a), (b) and (c), reasonable attorneys fees and expenses
and any interest, fees, or expenses that accrue after the filing of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or in
part as a claim in any Insolvency Proceeding.

(uu) “Securities Account” means a securities account (as that term is defined in
the Code).

(vv) “Stock” has the meaning specified therefor in the Credit Agreement

(ww) “Supporting Obligations” means Supporting Obligations (as such term is
defined in the Code), and includes letters of credit and guaranties issued in
support of Accounts, Chattel Paper, documents, General Intangibles, instruments,
or Investment Related Property.

(xx) “Trademarks” means trademarks, trade names, registered trademarks,
trademark applications, service marks, registered service marks and service mark
applications, brand names, certification marks, collective marks, d/b/a’s,
Internet domain names, logos, symbols, trade dress, assumed names, fictitious
names, and other indicia of origin, including the trade names, registered
trademarks, trademark applications, registered service marks and service mark
applications listed on Schedule 6 attached hereto and made a part hereof, and
(i) all extensions, modifications and renewals thereof, (ii) all income,
royalties, damages and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in
connection therewith and damages and payments for past or future infringements
or dilutions thereof, (iii) the right to sue for past, present and future
infringements and dilutions thereof, (iv) the goodwill of each Grantor’s
business symbolized by the foregoing and connected therewith, and (v) all of
each Grantor’s rights corresponding thereto throughout the world.

(yy) “Trademark Security Agreement” means each Trademark Security Agreement
among Grantors, or any of them, and Agent, for the benefit of the Lender Group
and the Bank Product Providers, in substantially the form of Exhibit D attached
hereto, pursuant to which Grantors have granted to Agent, for the benefit of the
Lender Group and the Bank Product Providers, a security interest in all their
respective Trademarks.

(zz) “URL” means “uniform resource locator,” an internet web address.

 

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2. Grant of Security.

(a) Each Grantor hereby unconditionally grants, assigns and pledges to Agent,
for the benefit of the Lender Group and the Bank Product Providers, a continuing
security interest (hereinafter referred to as the “Security Interest”) in all
personal property of such Grantor whether now owned or hereafter acquired or
arising and wherever located, including such Grantor’s right, title, and
interest in and to the following, whether now owned or hereafter acquired or
arising and wherever located (the “Collateral”):

(i) all of such Grantor’s Accounts;

(ii) all of such Grantor’s Books;

(iii) all of such Grantor’s Chattel Paper;

(iv) all of such Grantor’s interest with respect to any Deposit Account;

(v) all of such Grantor’s Equipment and fixtures;

(vi) all of such Grantor’s General Intangibles;

(vii) all of such Grantor’s Inventory;

(viii) all of such Grantor’s Investment Related Property;

(ix) all of such Grantor’s Negotiable Collateral;

(x) all of such Grantor’s rights in respect of Supporting Obligations;

(xi) all of such Grantor’s interest with respect to any Commercial Tort Claims;

(xii) all of such Grantor’s money, Cash Equivalents, or other assets of such
Grantor that now or hereafter come into the possession, custody, or control of
Agent (or its agent or designee) or any other member of the Lender Group;

(xiii) all of such Grantor’s Hydrocarbons and Hydrocarbon Interests;

(xiv) all of such Grantor’s Oil and Gas Properties; and

(xv) all of the proceeds and products, whether tangible or intangible, of any of
the foregoing, including proceeds of insurance or commercial tort claims
covering or relating to any or all of the foregoing, and any and all Accounts,
Books, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Equipment,
General Intangibles, Inventory, Investment Related Property, Negotiable
Collateral, Supporting Obligations, money, or other tangible or intangible
property resulting from the sale, lease, license, exchange, collection, or other
disposition of any of the foregoing, the proceeds of any award in condemnation
with respect to any of the property of Grantors, any rebates or refunds, whether
for taxes or otherwise, and all proceeds of any such proceeds, or any portion
thereof or interest therein, and the proceeds thereof, and all proceeds of any
loss of, damage to, or destruction of the above, whether insured or not insured,
and, to the extent not otherwise included, any indemnity, warranty, or guaranty
payable by reason of loss or damage to, or otherwise with respect to any of the
foregoing (the “Proceeds”). Without limiting the generality of the foregoing,
the term “Proceeds” includes whatever is receivable or received when Investment
Related Property or proceeds are sold, exchanged, collected, or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes
proceeds of any indemnity or guaranty payable to any Grantor or Agent from time
to time with respect to any of the Investment Related Property.

 

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Notwithstanding anything herein to the contrary, the term “Collateral” shall not
include, and no Grantor is pledging, nor granting a security interest hereunder
in, any of such Grantor’s right, title or interest in (A) any license, contract
or agreement to which such Grantor is a party as of the date hereof or any of
its right, title or interest thereunder to the extent, but only to the extent,
that such a grant would, under the express terms of such license, contract or
agreement on the date hereof result in a breach of the terms of, or constitute a
default under, such license, contract or agreement (other than to the extent
that any such term (i) has been waived or (ii) would be rendered ineffective
pursuant to Sections 9-406, 9-408, 9-409 of the Code or other applicable
provisions of the Uniform Commercial Code of any relevant jurisdiction or any
other applicable law (including the Bankruptcy Code) or principles of equity);
provided, that (x) immediately upon the ineffectiveness, lapse or termination of
any such provision, the Collateral shall include, and such Grantor shall be
deemed to have granted a security interest in, all such right, title and
interest as if such provision had never been in effect and (y) the foregoing
exclusion shall in no way be construed so as to limit, impair or otherwise
affect Agent’s unconditional continuing security interest in and liens upon any
rights or interest of a Grantor in or to the proceeds of, or any monies due or
to become due under, any such license, contract or agreement or (B) all
intent-to-use United States trademark applications for which an amendment to
allege use or statement of use has not been filed under 15 U.S.C. § 1051(c) or
15 U.S.C. § 1051(d), respectively, or if filed, has not been deemed in
conformance with 15 U.S.C. § 1051(a) or examined and accepted, respectively, by
the United States Patent and Trademark Office, provided that, upon such filing
and acceptance, such intent-to-use applications shall be included in the
definition of Collateral.

Notwithstanding anything herein to the contrary, the term “Collateral” shall not
include (A) in the case of a first tier foreign Subsidiary, more than 65% (or
such greater percentage that, due to a change in applicable law after the date
hereof, (i) would not reasonably be expected to cause the undistributed earnings
of such foreign Subsidiary as determined for United States federal income tax
purposes to be treated as a deemed dividend to such foreign Subsidiary’s United
States parent and (ii) would not reasonably be expected to cause any adverse tax
consequences) of the issued and outstanding shares of Stock entitled to vote
(within the meaning of Treas. Reg. Section 1.956-2(c)(2)) (it being understood
and agreed that the Collateral shall include 100% of the issued and outstanding
shares of Stock not entitled to vote (within the meaning of Treas. Reg.
Section 1.956-2(c)(2)) or other equity interest of such foreign Subsidiary) or
(B) in the case of all other foreign Subsidiaries, any of the issued and
outstanding shares of Stock.

The Grantors agree that the pledge of the shares of Stock of any Subsidiary of a
Grantor who is a foreign Subsidiary may be supplemented by one or more separate
pledge agreements, deeds of pledge, share charges, or other similar agreements
or instruments, executed and delivered by the relevant Grantors in favor of the
Agent, which pledge agreements will provide for the pledge of such shares of
Stock in accordance with the laws of the applicable foreign jurisdiction subject
to the limitations set forth above regarding the pledge of Stock securing the
payment and performance of the Secured Obligations of the Grantors. With respect
to such shares of Stock, the Agent may, at any time and from time to time, in
its sole discretion, take actions in such foreign jurisdictions that will result
in the perfection of the Lien created in such shares of Stock.

3. Security for Obligations. This Agreement and the Security Interest created
hereby secures the payment and performance of all the Secured Obligations,
whether now existing or arising hereafter. Without limiting the generality of
the foregoing, this Agreement secures the payment of all amounts which
constitute part of the Secured Obligations and would be owed by Grantors, or any
of them, to Agent, the Lender Group, the Bank Product Providers or any of them,
but for the fact that they are unenforceable or not allowable due to the
existence of an Insolvency Proceeding involving any Grantor.

4. Grantors Remain Liable. Anything herein to the contrary notwithstanding,
(a) each of the Grantors shall remain liable under the contracts and agreements
included in the Collateral, including the Pledged Operating Agreements and the
Pledged Partnership Agreements, to perform all of the duties and obligations
thereunder to the same extent as if this Agreement had not been executed,
(b) the exercise by Agent or any other member of the Lender Group of any of the
rights hereunder shall not release any Grantor from any of its duties or
obligations under such contracts and agreements included in the Collateral, and
(c) none of the

 

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members of the Lender Group shall have any obligation or liability under such
contracts and agreements included in the Collateral by reason of this Agreement,
nor shall any of the members of the Lender Group be obligated to perform any of
the obligations or duties of any Grantor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder. Until an Event of
Default shall occur and be continuing, except as otherwise provided in this
Agreement, the Credit Agreement, or any other Loan Document, Grantors shall have
the right to possession and enjoyment of the Collateral for the purpose of
conducting the ordinary course of their respective businesses, subject to and
upon the terms hereof and of the Credit Agreement and the other Loan Documents.
Without limiting the generality of the foregoing, it is the intention of the
parties hereto that record and beneficial ownership of the Pledged Interests,
including all voting, consensual, and dividend rights, shall remain in the
applicable Grantor until the occurrence of an Event of Default and until Agent
shall notify the applicable Grantor of Agent’s exercise of voting, consensual,
or dividend rights with respect to the Pledged Interests pursuant to Section 15
hereof.

5. Representations and Warranties. Each Grantor hereby represents and warrants
as follows:

(a) The exact legal name of each of the Grantors is set forth on the signature
pages of this Agreement or a written notice provided to Agent pursuant to
Section 6.5 of the Credit Agreement.

(b) Schedule 7 attached hereto sets forth all Real Property owned by Grantors as
of the Closing Date.

(c) Such Grantor is the sole legal and beneficial owner, or exclusive or
non-exclusive licensee, of all Intellectual Property rights that are necessary
or desirable to the conduct of its business as currently conducted. As of the
Closing Date, (i) such Grantor has no ownership interest in, or title to, any
Copyrights, Patents or Trademarks that are registered or the subject of pending
applications for registrations, except as set forth on Schedules 2(a), 4(a) and
6(a), respectively, attached hereto; (ii) such Grantor has no ownership interest
in, or title to, any Copyrights, Patents or Trademarks that are material to such
Grantor’s businesses as currently conducted and that are not registered or the
subject of pending applications for registrations, except as set forth in
Schedules 2(b), 4(b) and 6(b), respectively, attached hereto; and (iii) such
Grantor is not a party to any Intellectual Property Licenses, except as set
forth on Schedule 3 attached hereto. This Agreement is effective to create a
valid and continuing Lien on such Grantor’s Copyrights, Patents and Trademarks
and all of its rights and interests in and to any Intellectual Property
Licenses. Upon the filing of the Copyright Security Agreement with the United
States Copyright Office and the filing of the Patent Security Agreement and the
Trademark Security Agreement with the United States Patent and Trademark Office,
and the filing of appropriate financing statements in the jurisdictions listed
on Schedule 8 hereto, all action necessary or desirable to protect and perfect
the Security Interest in and to each Grantor’s Patents, Trademarks, or
Copyrights has been taken and such perfected Security Interests are enforceable
as such as against any and all creditors of and purchasers from any Grantor. No
Grantor has any interest in any Copyright that is necessary in connection with
the operation of such Grantor’s business, except for those Copyrights identified
on Schedule 2(a) attached hereto which have been registered with the United
States Copyright Office.

(d) This Agreement creates a valid security interest in the Collateral of each
Grantor, to the extent a security interest therein can be created under the
Code, securing the payment and performance of the Secured Obligations. Except to
the extent a security interest in the Collateral cannot be perfected by the
filing of a financing statement under the Code, all filings and other actions
necessary or desirable to perfect and protect such security interest have been
duly taken or will have been taken upon the filing of financing statements
listing each applicable Grantor, as a debtor, and Agent, as secured party, in
the jurisdictions listed next to such Grantor’s name on Schedule 8 attached
hereto. Upon the making of such filings, Agent shall have a first priority
perfected security interest in the Collateral of each Grantor to the extent such
security interest can be perfected by the filing of a financing statement. All
action by any Grantor necessary to protect and perfect such security interest on
each item of Collateral has been duly taken.

 

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(e) (i) Except for the Security Interest created hereby, each Grantor is and
will at all times be the sole holder of record and the legal and beneficial
owner, free and clear of all Liens other than Permitted Liens, of the Pledged
Interests indicated on Schedule 5 as being owned by such Grantor and, when
acquired by such Grantor, any Pledged Interests acquired after the Closing Date;
(ii) all of the Pledged Interests are duly authorized, validly issued, fully
paid and nonassessable and the Pledged Interests constitute or will constitute
the percentage of the issued and outstanding Stock of the Pledged Companies of
such Grantor identified on Schedule 5 hereto as supplemented or modified by any
Pledged Interests Addendum or any Supplement to this Agreement; (iii) such
Grantor has the right and requisite authority to pledge, the Investment Related
Property pledged by such Grantor to Agent as provided herein; (iv) all actions
necessary or desirable to perfect, establish the first priority of, or otherwise
protect, Agent’s Liens in the Investment Related Property, and the proceeds
thereof, have been duly taken, (A) upon the execution and delivery of this
Agreement; (B) upon the taking of possession by Agent (or its agent or designee)
of any certificates constituting the Pledged Interests, to the extent such
Pledged Interests are represented by certificates, together with undated powers
endorsed in blank by the applicable Grantor; (C) upon the filing of financing
statements in the applicable jurisdiction set forth on Schedule 8 attached
hereto for such Grantor with respect to the Pledged Interests of such Grantor
that are not represented by certificates, and (D) with respect to any Securities
Accounts, upon the delivery of Control Agreements with respect thereto; and
(v) each Grantor has delivered to and deposited with Agent (or, with respect to
any Pledged Interests created or obtained after the Closing Date, will deliver
and deposit in accordance with Sections 6(a) and 8 hereof) all certificates
representing the Pledged Interests owned by such Grantor to the extent such
Pledged Interests are represented by certificates, and undated powers endorsed
in blank with respect to such certificates. None of the Pledged Interests owned
or held by such Grantor has been issued or transferred in violation of any
securities registration, securities disclosure or similar laws of any
jurisdiction to which such issuance or transfer may be subject.

(f) No consent, approval, authorization, or other order or other action by, and
no notice to or filing with, any Governmental Authority or any other Person is
required (i) for the grant of a Security Interest by such Grantor in and to the
Collateral pursuant to this Agreement or for the execution, delivery, or
performance of this Agreement by such Grantor, or (ii) for the exercise by Agent
of the voting or other rights provided for in this Agreement with respect to the
Investment Related Property or the remedies in respect of the Collateral
pursuant to this Agreement, except as may be required in connection with such
disposition of Investment Related Property by laws affecting the offering and
sale of securities generally.

(g) Schedule 9 attached hereto sets forth all motor vehicles owned by Grantors
as of the Closing Date, by model, model year and vehicle identification number
(“VIN”).

(h) There is no default, breach, violation or event of acceleration existing
under any promissory note (as defined in the Code) constituting Collateral and
pledged hereunder (the “Pledged Notes”) and no event has occurred or
circumstance exists which, with the passage of time or the giving of notice, or
both, would constitute a default, breach, violation or event of acceleration
under the Pledged Notes. Such Grantor, if it is an obligee under a Pledged Note,
has not waived any default, breach, violation or event of acceleration under
such Pledged Notes. The proceeds of the loans evidenced by the Pledged Notes
have been fully disbursed and such Grantor has no obligation to make any future
advances or other disbursements under or in respect of the Pledged Notes. A
true, correct and complete list of the Pledged Notes is set forth on Schedule
10.

(i) Each Grantor has made in good faith and in accordance with the procedures
and regulations of the United States Copyright Office and the United States
Patent and Trademark Office, as applicable, all payments, filings and
recordations necessary to protect and maintain its interest in the Intellectual
Property rights identified on Schedules 2(a), 4(a) and 6(a) in the United States
in a manner sufficient to claim in the public record such Grantor’s ownership
thereof, including (i) making all necessary registration, maintenance, and
renewal fee payments; and (ii) filing all necessary documents, including all
applications for registration of such Intellectual Property rights.

 

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(j) Except as set forth on Schedules 2, 4 or 6, no claim has been made in
writing and is continuing or, to the best of each Grantor’s knowledge,
threatened that the use by any Grantor of any Intellectual Property rights that
are material to the conduct of its business does or may violate the Intellectual
Property rights of any Person. To the best of each Grantor’s knowledge, there is
currently no infringement or unauthorized use of any item of Intellectual
Property rights contained on Schedules 2, 4 or 6.

6. Covenants. Each Grantor, jointly and severally, covenants and agrees with
Agent and the Lender Group that from and after the date of this Agreement and
until the date of termination of this Agreement in accordance with Section 22
hereof:

(a) Possession of Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Investment
Related Property, or Chattel Paper, and if and to the extent that perfection or
priority of Agent’s Security Interest is dependent on possession, the applicable
Grantor, immediately upon the request of Agent and in accordance with Section 8
hereof, shall execute such other documents and instruments as shall be requested
by Agent or, if applicable, endorse and deliver physical possession of such
Negotiable Collateral, Investment Related Property, or Chattel Paper to Agent,
together with such undated powers endorsed in blank as shall be requested by
Agent.

(b) Chattel Paper.

(i) Each Grantor shall take all steps reasonably necessary to grant Agent
control of all electronic Chattel Paper in accordance with the Code and all
“transferable records” as that term is defined in Section 16 of the Uniform
Electronic Transaction Act and Section 201 of the federal Electronic Signatures
in Global and National Commerce Act as in effect in any relevant jurisdiction;
and

(ii) If any Grantor retains possession of any Chattel Paper or instruments
(which retention of possession shall be subject to the extent permitted hereby
and by the Credit Agreement), promptly upon the request of Agent, such Chattel
Paper 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 Wells Fargo Foothills, Inc., as Agent for the benefit of the Lender
Group and the Bank Product Providers”.

(c) Control Agreements.

(i) Except to the extent otherwise permitted by the Credit Agreement, each
Grantor shall obtain an authenticated Control Agreement, from each bank
maintaining a Deposit Account for such Grantor; and

(ii) Except to the extent otherwise permitted by the Credit Agreement, each
Grantor shall obtain authenticated Control Agreements, from each issuer of
uncertificated securities, securities intermediary, or commodities intermediary
issuing or holding any financial assets or commodities to or for any Grantor.

(d) Letter of Credit Rights. Each Grantor that is or becomes the beneficiary of
a letter of credit shall promptly (and in any event within 5 Business Days after
becoming a beneficiary), notify Agent thereof and, upon the request by Agent,
enter into a tri-party agreement with Agent and the issuer or confirmation bank
with respect to letter-of-credit rights (as that term is defined in the Code)
assigning such letter-of-credit rights to Agent and directing all payments
thereunder to Agent’s Account, all in form and substance satisfactory to Agent.

(e) Commercial Tort Claims. Each Grantor shall promptly (and in any event within
5 Business Days of receipt thereof), notify Agent in writing upon incurring or
otherwise obtaining a Commercial Tort Claim after the date hereof and, upon
request of Agent, promptly amend Schedule 1 to this Agreement to describe such
after-acquired Commercial Tort Claim in a manner that reasonably identifies such
Commercial

 

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Tort Claim, and hereby authorizes the filing of additional financing statements
or amendments to existing financial statements describing such Commercial Tort
Claims, and agrees to do such other acts or things deemed necessary or desirable
by Agent to give Agent a first priority, perfected security interest in any such
Commercial Tort Claim.

(f) Government Contracts. If any Account or Chattel Paper arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, Grantors shall promptly (and in any event
within 5 Business Days of the creation thereof) notify Agent thereof in writing
and execute any instruments or take any steps reasonably required by Agent in
order that all moneys due or to become due under such contract or contracts
shall be assigned to Agent, for the benefit of the Lender Group and the Bank
Product Providers, and shall provide written notice thereof under the Assignment
of Claims Act or other applicable law.

(g) Intellectual Property.

(i) Upon request of Agent, in order to facilitate filings with the United States
Patent and Trademark Office and the United States Copyright Office, each Grantor
shall execute and deliver to Agent one or more Copyright Security Agreements,
Trademark Security Agreements, or Patent Security Agreements to further evidence
Agent’s Lien on such Grantor’s Patents, Trademarks, or Copyrights, and the
General Intangibles of such Grantor relating thereto or represented thereby;

(ii) Each Grantor shall have the duty, to the extent material to or economically
desirable in the operation of such Grantor’s business, (A) to promptly sue for
infringement, misappropriation, or dilution and to recover any and all damages
for such infringement, misappropriation, or dilution, (B) to prosecute
diligently any trademark application or service mark application that is part of
the Trademarks pending as of the date hereof or hereafter until the termination
of this Agreement, (C) to prosecute diligently any patent application that is
part of the Patents pending as of the date hereof or hereafter until the
termination of this Agreement, and (D) to take reasonable and necessary action
to preserve and maintain all of such Grantor’s Trademarks, Patents, Copyrights,
Intellectual Property Licenses, and its rights therein, including the filing of
applications for renewal, affidavits of use, affidavits of noncontestability and
opposition and interference and cancellation proceedings. Each Grantor shall
promptly file an application with the United States Copyright Office for any
Copyright that has not been registered with the United States Copyright Office
if such Copyright is necessary in connection with the operation of such
Grantor’s business. Any expenses incurred in connection with the foregoing shall
be borne by the appropriate Grantor. Each Grantor further agrees not to abandon
any Trademark, Patent, Copyright, or Intellectual Property License that is
material or economically desirable to the operation of such Grantor’s business
without the prior written consent of Agent;

(iii) Grantors acknowledge and agree that the Lender Group shall have no duties
with respect to the Trademarks, Patents, Copyrights, or Intellectual Property
Licenses. Without limiting the generality of this Section 6(g), Grantors
acknowledge and agree that no member of the Lender Group shall be under any
obligation to take any steps necessary to preserve rights in the Trademarks,
Patents, Copyrights, or Intellectual Property Licenses against any other Person,
but any member of the Lender Group may do so at its option from and after the
occurrence and during the continuance of an Event of Default, and all expenses
incurred in connection therewith (including reasonable fees and expenses of
attorneys and other professionals) shall be for the sole account of Borrower and
shall be chargeable to the Loan Account;

(iv) In no event shall any Grantor, either itself or through any agent,
employee, licensee, or designee, file an application for the registration of any
Patent, Trademark, or Copyright with the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency
without giving Agent prior written notice thereof. Promptly upon any such
filing, each Grantor shall comply with Section 6(g)(i) hereof; and

 

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(v) With respect to the Intellectual Property rights that are material to the
conduct of Grantors’ businesses, each Grantor agrees to take all necessary steps
to protect each such Intellectual Property right. Each Grantor hereby agrees to
take corresponding steps with respect to each new or acquired Intellectual
Property right to which it or any of its Subsidiaries is now or later becomes
entitled that are material to the conduct of their businesses. Any expenses
incurred in connection with such activities shall be borne solely by such
Grantor.

(h) Investment Related Property.

(i) If any Grantor shall receive or become entitled to receive any Pledged
Interests after the Closing Date, it shall promptly (and in any event within 2
Business Days of receipt thereof) deliver to Agent a duly executed Pledged
Interests Addendum identifying such Pledged Interests;

(ii) All sums of money and property paid or distributed in respect of the
Investment Related Property which are received by any Grantor shall be held by
such Grantor in trust for the benefit of Agent segregated from such Grantor’s
other property, and such Grantor shall promptly deliver it forthwith to Agent’s
in the exact form received;

(iii) Each Grantor shall promptly deliver to Agent a copy of each notice or
other communication received by it in respect of any Pledged Interests;

(iv) No Grantor shall make or consent to any amendment or other modification or
waiver with respect to any Pledged Interests, Pledged Operating Agreement, or
Pledged Partnership Agreement, or enter into any agreement or permit to exist
any restriction with respect to any Pledged Interests other than pursuant to the
Loan Documents;

(v) Each Grantor agrees that it will cooperate with Agent in obtaining all
necessary approvals and making all necessary filings under federal, state,
local, or foreign law in connection with the Security Interest in the Investment
Related Property or any sale or transfer thereof; and

(vi) As to all limited liability company or partnership interests, issued under
any Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor
hereby represents, warrants and covenants that the Pledged Interests issued
pursuant to any such agreement (A) are not and shall not be dealt in or traded
on securities exchanges or in securities markets, (B) do not and will not
constitute investment company securities, and (C) are not and will not be held
by such Grantor in a securities account. In addition, none of the Pledged
Operating Agreements, the Pledged Partnership Agreements, or any other
agreements governing any of the Pledged Interests issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, provide or shall provide
that such Pledged Interests are securities governed by Article 8 of the Uniform
Commercial Code as in effect in any relevant jurisdiction.

(i) Real Property; Fixtures. Each Grantor covenants and agrees that upon the
acquisition of any fee interest in Real Property it will promptly (and in any
event within 2 Business Days of acquisition) notify Agent of the acquisition of
such Real Property and will grant to Agent, for the benefit of the Lender Group
and the Bank Product Providers, a first priority Mortgage on each fee interest
in Real Property now or hereafter owned by such Grantor and shall deliver such
other documentation and opinions, in form and substance satisfactory to Agent,
in connection with the grant of such Mortgage as Agent shall request in its
Permitted Discretion, including title insurance policies, financing statements,
fixture filings and environmental audits and such Grantor shall pay all
recording costs, intangible taxes and other fees and costs (including reasonable
attorneys fees and expenses) incurred in connection therewith. Each Grantor
acknowledges and agrees that, to the extent permitted by applicable law, all of
the Collateral shall remain personal property regardless of the manner of its
attachment or affixation to real property.

 

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(j) Transfers and Other Liens. Grantors shall not (i) sell, assign (by operation
of law or otherwise) or otherwise dispose of, or grant any option with respect
to, any of the Collateral, except as expressly permitted by the Credit
Agreement, or (ii) create or permit to exist any Lien upon or with respect to
any of the Collateral, except for Permitted Liens. The inclusion of Proceeds in
the Collateral shall not be deemed to constitute Agent’s consent to any sale or
other disposition of any of the Collateral except as expressly permitted in this
Agreement or the other Loan Documents.

(k) Other Actions as to Any and All Collateral. Each Grantor shall promptly (and
in any event within 2 Business Days of acquiring or obtaining such Collateral)
notify Agent in writing upon (i) acquiring or otherwise obtaining any Collateral
after the date hereof consisting of Trademarks, Patents, Copyrights,
Intellectual Property Licenses, Investment Related Property, Chattel Paper
(electronic, tangible or otherwise), documents (as defined in Article 9 of the
Code), promissory notes (as defined in the Code), or instruments (as defined in
the Code) or (ii) any amount payable under or in connection with any of the
Collateral being or becoming evidenced after the date hereof by any Chattel
Paper, documents, promissory notes, or instruments and, in each such case upon
the request of Agent and in accordance with Section 8 hereof, promptly execute
such other documents and instruments, or if applicable, deliver such Chattel
Paper, other documents, promissory notes, instruments or certificates evidencing
any Investment Related Property in accordance with Section 6 hereof and do such
other acts or things deemed necessary or desirable by Agent to protect Agent’s
Security Interest therein.

(l) Pledged Notes.

(i) If any Grantor shall receive or become entitled to receive any Pledged Note
after the Closing Date, it shall promptly (and in any event within 2 Business
Days of receipt thereof) deliver to Agent a duly executed Pledged Note Addendum
identifying such Pledged Note;

(ii) No Grantor will waive or release any obligation of any party to the Pledged
Notes without the prior consent of Agent;

(iii) No Grantor will take or omit to take any action or suffer or permit any
action to be omitted or taken, the taking or omission of which would result in
any right of offset against sums payable under the Pledged Notes;

(iv) Each Grantor shall give Agent copies of all notices (including notices of
default) given or received with respect to the Pledged Notes promptly after
giving or receiving such notice; and

(v) Without Agent’s prior written consent, each Grantor shall not, and shall not
agree to, assign or surrender its rights and interests under the Pledged Notes
nor terminate, cancel, modify, change, supplement or amend the Pledged Notes.

(m) Motor Vehicles. Upon request of Agent, with respect to all motor vehicles
owned by any Grantor, Grantor shall deliver to Agent, a certificate of title for
all such motor vehicles and shall cause those title certificates to be filed
(with the Agent’s Lien noted thereon) in the appropriate state motor vehicle
filing office.

7. Relation to Other Security Documents. The provisions of this Agreement shall
be read and construed with the other Loan Documents referred to below in the
manner so indicated.

(a) Credit Agreement. In the event of any conflict between any provision in this
Agreement and a provision in the Credit Agreement, such provision of the Credit
Agreement shall control.

(b) Patent, Trademark, Copyright Security Agreements. The provisions of the
Copyright Security Agreements, Trademark Security Agreements, and Patent
Security Agreements are supplemental to

 

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the provisions of this Agreement, and nothing contained in the Copyright
Security Agreements, Trademark Security Agreements, or the Patent Security
Agreements shall limit any of the rights or remedies of Agent hereunder.

8. Further Assurances.

(a) Each Grantor agrees that from time to time, at its own expense, such Grantor
will promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or that Agent may reasonably
request, in order to perfect and protect any Security Interest granted or
purported to be granted hereby or to enable Agent to exercise and enforce its
rights and remedies hereunder with respect to any of the Collateral.

(b) Each Grantor hereby authorizes the filing by Agent of financing or
continuation statements, or amendments thereto, and such Grantor will execute
and deliver to Agent such other instruments or notices, as may be necessary or
as Agent may reasonably request, in order to perfect and preserve the Security
Interest granted or purported to be granted hereby.

(c) Each Grantor hereby authorizes Agent at any time and from time to time to
file, transmit, or communicate, as applicable, financing statements and
amendments (i) describing the Collateral as “all personal property of debtor” or
“all assets of debtor” or words of similar effect, (ii) describing the
Collateral as being of equal or lesser scope or with greater detail, or
(iii) that contain any information required by part 5 of Article 9 of the Code
for the sufficiency or filing office acceptance. Each Grantor also hereby
ratifies any and all financing statements or amendments previously filed by
Agent in any jurisdiction.

(d) Each Grantor acknowledges that it is not authorized to file any financing
statement or amendment or termination statement with respect to any financing
statement filed in connection with this Agreement without the prior written
consent of Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of
the Code.

9. Agent’s Right to Perform Contracts, Exercise Rights, etc. Upon the occurrence
and during the continuance of an Event of Default, Agent (or its designee)
(a) may proceed to perform any and all of the obligations of any Grantor
contained in any contract, lease, or other agreement and exercise any and all
rights of any Grantor therein contained as fully as such Grantor itself could,
(b) shall have the right to use any Grantor’s rights under Intellectual Property
Licenses in connection with the enforcement of the Agent’s rights hereunder,
including the right to prepare for sale and sell any and all Inventory and
Equipment now or hereafter owned by any Grantor and now or hereafter covered by
such licenses, and (c) shall have the right to request that any Stock is pledged
hereunder be registered in the name of Agent or any of its nominees.

10. Agent Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints
Agent its attorney-in-fact, with full authority in the place and stead of such
Grantor and in the name of such Grantor or otherwise, at such time as an Event
of Default has occurred and is continuing under the Credit Agreement, to take
any action and to execute any instrument which Agent may reasonably deem
necessary or advisable to accomplish the purposes of this Agreement, including:

(a) to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in connection
with the Accounts or any other Collateral of such Grantor;

(b) to receive and open all mail addressed to such Grantor and to notify postal
authorities to change the address for the delivery of mail to such Grantor to
that of Agent;

(c) to receive, endorse, and collect any drafts or other instruments, documents,
Negotiable Collateral or Chattel Paper;

 

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(d) to file any claims or take any action or institute any proceedings which
Agent may deem necessary or desirable for the collection of any of the
Collateral of such Grantor or otherwise to enforce the rights of Agent with
respect to any of the Collateral;

(e) to repair, alter, or supply goods, if any, necessary to fulfill in whole or
in part the purchase order of any Person obligated to such Grantor in respect of
any Account of such Grantor;

(f) to use any labels, Patents, Trademarks, trade names, URLs, domain names,
industrial designs, Copyrights, advertising matter or other industrial or
intellectual property rights, in advertising for sale and selling Inventory and
other Collateral and to collect any amounts due under Accounts, contracts or
Negotiable Collateral of such Grantor; and

(g) Agent on behalf of the Lender Group and the Bank Product Providers shall
have the right, but shall not be obligated, to bring suit in its own name to
enforce the Trademarks, Patents, Copyrights and Intellectual Property Licenses
and, if Agent shall commence any such suit, the appropriate Grantor shall, at
the request of Agent, do any and all lawful acts and execute any and all proper
documents reasonably required by Agent in aid of such enforcement.

To the extent permitted by law, each Grantor hereby ratifies all that such
attorney-in-fact shall lawfully do or cause to be done by virtue hereof. This
power of attorney is coupled with an interest and shall be irrevocable until
this Agreement is terminated.

11. Agent May Perform. If any Grantor fails to perform any agreement contained
herein, Agent may itself perform, or cause performance of, such agreement, and
the reasonable expenses of Agent incurred in connection therewith shall be
payable, jointly and severally, by Grantors.

12. Agent’s Duties. The powers conferred on Agent hereunder are solely to
protect Agent’s interest in the Collateral, for the benefit of the Lender Group
and the Bank Product Providers, and shall not impose any duty upon Agent to
exercise any such powers. Except for the safe custody of any Collateral in its
actual possession and the accounting for moneys actually received by it
hereunder, Agent shall have no duty as to any Collateral or as to the taking of
any necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral. Agent shall be deemed to have exercised reasonable
care in the custody and preservation of any Collateral in its actual possession
if such Collateral is accorded treatment substantially equal to that which Agent
accords its own property.

13. Collection of Accounts, General Intangibles and Negotiable Collateral. At
any time upon the occurrence and during the continuation of an Event of Default,
Agent or Agent’s designee may (a) notify Account Debtors of any Grantor that
such Grantor’s Accounts, General Intangibles, Chattel Paper or Negotiable
Collateral have been assigned to Agent, for the benefit of the Lender Group and
the Bank Product Provider, or that Agent has a security interest therein, and
(b) collect such Grantor’s Accounts, General Intangibles and Negotiable
Collateral directly, and any collection costs and expenses shall constitute part
of such Grantor’s Secured Obligations under the Loan Documents.

14. Disposition of Pledged Interests by Agent. None of the Pledged Interests
existing as of the date of this Agreement are, and none of the Pledged Interests
hereafter acquired on the date of acquisition thereof will be, registered or
qualified under the various federal or state securities laws of the United
States and disposition thereof after an Event of Default may be restricted to
one or more private (instead of public) sales in view of the lack of such
registration. Each Grantor understands that in connection with such disposition,
Agent may approach only a restricted number of potential purchasers and further
understands that a sale under such circumstances may yield a lower price for the
Pledged Interests than if the Pledged Interests were registered and qualified
pursuant to federal and state securities laws and sold on the open market. Each
Grantor, therefore, agrees that: (a) if Agent shall, pursuant to the terms of
this Agreement, sell or cause the Pledged Interests or any portion thereof to be
sold at a private sale, Agent shall have the right

 

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to rely upon the advice and opinion of any nationally recognized brokerage or
investment firm (but shall not be obligated to seek such advice and the failure
to do so shall not be considered in determining the commercial reasonableness of
such action) as to the best manner in which to offer the Pledged Interest or any
portion thereof for sale and as to the best price reasonably obtainable at the
private sale thereof; and (b) such reliance shall be conclusive evidence that
Agent has handled the disposition in a commercially reasonable manner.

15. Voting Rights.

(a) Upon the occurrence and during the continuation of an Event of Default,
(i) Agent may, at its option, and with prior notice (unless such Event of
Default is an Event of Default specified in Sections 7.4 or 7.5 of the Credit
Agreement, in which case no such notice need be given) to any Grantor, and in
addition to all rights and remedies available to Agent under any other
agreement, at law, in equity, or otherwise, exercise all voting rights, and all
other ownership or consensual rights in respect of the Pledged Interests owned
by such Grantor, but under no circumstances is Agent obligated by the terms of
this Agreement to exercise such rights, and (ii) if Agent duly exercises its
right to vote any of such Pledged Interests, each Grantor hereby appoints Agent,
such Grantor’s true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote
such Pledged Interests in any manner Agent deems advisable for or against all
matters submitted or which may be submitted to a vote of shareholders, partners
or members, as the case may be. The power-of-attorney granted hereby is coupled
with an interest and shall be irrevocable.

(b) For so long as any Grantor shall have the right to vote the Pledged
Interests owned by it, such Grantor covenants and agrees that it will not,
without the prior written consent of Agent, vote or take any consensual action
with respect to such Pledged Interests which would adversely affect the rights
of Agent and the other members of the Lender Group or the value of the Pledged
Interests.

16. Remedies. Upon the occurrence and during the continuance of an Event of
Default:

(a) Agent may exercise in respect of the Collateral, in addition to other rights
and remedies provided for herein, in the other Loan Documents, or otherwise
available to it, all the rights and remedies of a secured party on default under
the Code or any other applicable law. Without limiting the generality of the
foregoing, each Grantor expressly agrees that, in any such event, Agent, without
demand of performance or other demand, advertisement or notice of any kind
(except a notice specified below of time and place of public or private sale) to
or upon any of Grantors or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent
permitted by the Code or any other applicable law), may take immediate
possession of all or any portion of the Collateral and (i) require Grantors to,
and each Grantor hereby agrees that it will at its own expense and upon request
of Agent forthwith, assemble all or part of the Collateral as directed by Agent
and make it available to Agent at one or more locations where such Grantor
regularly maintains Inventory, and (ii) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any of Agent’s offices or elsewhere, for cash, on credit,
and upon such other terms as Agent may deem commercially reasonable. Each
Grantor agrees that, to the extent notice of sale shall be required by law, at
least 10 days notice to any of Grantors of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification and specifically such notice shall constitute a
reasonable “authenticated notification of disposition” within the meaning of
Section 9-611 of the Code. Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.

(b) Agent is hereby granted a license or other right to use, without liability
for royalties or any other charge, each Grantor’s labels, Patents, Copyrights,
rights of use of any name, trade secrets, trade names, Trademarks, service marks
and advertising matter, URLs, domain names, industrial designs, other industrial
or intellectual property or any property of a similar nature, whether owned or
licensable by any of Grantors or with respect to which any of Grantors have
sublicensable rights under license, sublicense, or other agreements, as it
pertains to the Collateral, in preparing for sale, advertising for sale and
selling any Collateral, and each Grantor’s rights under all licenses and all
franchise agreements shall inure to the benefit of Agent.

 

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(c) Any cash held by Agent as Collateral and all cash proceeds received by Agent
in respect of any sale of, collection from, or other realization upon all or any
part of the Collateral shall be applied against the Secured Obligations in the
order set forth in the Credit Agreement. In the event the proceeds of Collateral
are insufficient to satisfy all of the Secured Obligations in full, each Grantor
shall remain jointly and severally liable for any such deficiency.

(d) Each Grantor hereby acknowledges that the Secured Obligations arose out of a
commercial transaction, and agrees that if an Event of Default shall occur and
be continuing Agent shall have the right to an immediate writ of possession
without notice of a hearing. Agent shall have the right to the appointment of a
receiver for the properties and assets of each Grantor, and each Grantor hereby
consents to such rights and such appointment and hereby waives any objection
such Grantor may have thereto or the right to have a bond or other security
posted by Agent.

17. Remedies Cumulative. Each right, power, and remedy of Agent as provided for
in this Agreement or in the other Loan Documents or now or hereafter existing at
law or in equity or by statute or otherwise shall be cumulative and concurrent
and shall be in addition to every other right, power, or remedy provided for in
this Agreement or in the other Loan Documents or now or hereafter existing at
law or in equity or by statute or otherwise, and the exercise or beginning of
the exercise by Agent, of any one or more of such rights, powers, or remedies
shall not preclude the simultaneous or later exercise by Agent of any or all
such other rights, powers, or remedies.

18. Marshaling. Agent shall not be required to marshal any present or future
collateral security (including but not limited to the Collateral) for, or other
assurances of payment of, the Secured Obligations or any of them or to resort to
such collateral security or other assurances of payment in any particular order,
and all of its rights and remedies hereunder and in respect of such collateral
security and other assurances of payment shall be cumulative and in addition to
all other rights and remedies, however existing or arising. To the extent that
it lawfully may, each Grantor hereby agrees that it will not invoke any law
relating to the marshaling of collateral which might cause delay in or impede
the enforcement of Agent’s rights and remedies under this Agreement or under any
other instrument creating or evidencing any of the Secured Obligations or under
which any of the Secured Obligations is outstanding or by which any of the
Secured Obligations is secured or payment thereof is otherwise assured, and, to
the extent that it lawfully may, each Grantor hereby irrevocably waives the
benefits of all such laws.

19. Indemnity and Expenses.

(a) Each Grantor agrees to indemnify Agent and the other members of the Lender
Group from and against all claims, lawsuits and liabilities (including
reasonable attorneys fees) growing out of or resulting from this Agreement
(including enforcement of this Agreement) or any other Loan Document to which
such Grantor is a party, except claims, losses or liabilities resulting from the
gross negligence or willful misconduct of the party seeking indemnification as
determined by a final non-appealable order of a court of competent jurisdiction.
This provision shall survive the termination of this Agreement and the Credit
Agreement and the repayment of the Secured Obligations.

(b) Grantors, jointly and severally, shall, upon demand, pay to Agent (or Agent,
may charge to the Loan Account) all the Lender Group Expenses which Agent may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or, upon an Event of Default, the
sale of, collection from, or other realization upon, any of the Collateral in
accordance with this Agreement and the other Loan Documents, (iii) the exercise
or enforcement of any of the rights of Agent hereunder or (iv) the failure by
any of Grantors to perform or observe any of the provisions hereof.

 

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20. Merger, Amendments; Etc. THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. No waiver
of any provision of this Agreement, and no consent to any departure by any of
Grantors herefrom, shall in any event be effective unless the same shall be in
writing and signed by Agent, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
amendment of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by Agent and each of Grantors to which such
amendment applies.

21. Addresses for Notices. All notices and other communications provided for
hereunder shall be given in the form and manner and delivered to Agent at its
address specified in the Credit Agreement, and to any of the Grantors at their
respective addresses specified in the Credit Agreement or guaranty, as
applicable, or, as to any party, at such other address as shall be designated by
such party in a written notice to the other party.

22. Continuing Security Interest: Assignments under Credit Agreement. This
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the Obligations have been paid
in full in cash in accordance with the provisions of the Credit Agreement and
the Commitments have expired or have been terminated, (b) be binding upon each
Grantor, and their respective successors and assigns, and (c) inure to the
benefit of, and be enforceable by, Agent, and its successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), any Lender
may, in accordance with the provisions of the Credit Agreement, assign or
otherwise transfer all or any portion of its rights and obligations under the
Credit Agreement to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to such Lender
herein or otherwise. Upon payment in full in cash of the Obligations in
accordance with the provisions of the Credit Agreement and the expiration or
termination of the Commitments, the Security Interest granted hereby shall
terminate and all rights to the Collateral shall revert to Grantors or any other
Person entitled thereto. At such time, Agent will file or authorize the filing
of appropriate termination statements to terminate such Security Interest. No
transfer or renewal, extension, assignment, or termination of this Agreement or
of the Credit Agreement, any other Loan Document, or any other instrument or
document executed and delivered by any Grantor to Agent nor any additional
Advances or other loans made by any Lender to Borrower, nor the taking of
further security, nor the retaking or re-delivery of the Collateral to Grantors,
or any of them, by Agent, nor any other act of the Lender Group or the Bank
Product Providers, or any of them, shall release any of Grantors from any
obligation, except a release or discharge executed in writing by Agent in
accordance with the provisions of the Credit Agreement. Agent shall not by any
act, delay, omission or otherwise, be deemed to have waived any of its rights or
remedies hereunder, unless such waiver is in writing and signed by Agent and
then only to the extent therein set forth. A waiver by Agent of any right or
remedy on any occasion shall not be construed as a bar to the exercise of any
such right or remedy which Agent would otherwise have had on any other occasion.

23. Governing Law.

(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.

 

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(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN
THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED
IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT
SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING
SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND
EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO
THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 23(b).

(c) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH GRANTOR
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.

24. New Subsidiaries. Pursuant to Section 5.16 of the Credit Agreement, any new
direct or indirect Subsidiary (whether by acquisition or creation) of Borrower
or any other Grantor is required to enter into this Agreement by executing and
delivering in favor of Agent a supplement to this Agreement in the form of Annex
1 attached hereto. Upon the execution and delivery of Annex 1 by such new
Subsidiary, such Subsidiary shall become a Grantor hereunder with the same force
and effect as if originally named as a Grantor herein. The execution and
delivery of any instrument adding an additional Grantor as a party to this
Agreement shall not require the consent of any Grantor hereunder. The rights and
obligations of each Grantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Grantor hereunder.

25. Agent. Each reference herein to any right granted to, benefit conferred upon
or power exercisable by the “Agent” shall be a reference to Agent, for the
benefit of the Lender Group and the Bank Product Providers.

26. Miscellaneous.

(a) This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile or other electronic
method of transmission shall be equally as effective as delivery of an original
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile or other electronic method of
transmission also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement. The
foregoing shall apply to each other Loan Document mutatis mutandis.

(b) Any provision of this Agreement which is prohibited or unenforceable shall
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof in that jurisdiction or affecting
the validity or enforceability of such provision in any other jurisdiction.

(c) Headings used in this Agreement are for convenience only and shall not be
used in connection with the interpretation of any provision hereof.

 

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(d) The pronouns used herein shall include, when appropriate, either gender and
both singular and plural, and the grammatical construction of sentences shall
conform thereto.

(e) Unless the context of this Agreement or any other Loan Document clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the terms “includes” and “including” are not
limiting, and the term “or” has, except where otherwise indicated, the inclusive
meaning represented by the phrase “and/or.” The words “hereof,” “herein,”
“hereby,” “hereunder,” and similar terms in this Agreement or any other Loan
Document refer to this Agreement or such other Loan Document, as the case may
be, as a whole and not to any particular provision of this Agreement or such
other Loan Document, as the case may be. Section, subsection, clause, schedule,
and exhibit references herein are to this Agreement unless otherwise specified.
Any reference in this Agreement or in any other Loan Document to any agreement,
instrument, or document shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions on
such alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). Any
reference herein or in any other Loan Document to the satisfaction or repayment
in full of the Obligations shall mean the repayment in full in cash (or cash
collateralization in accordance with the terms hereof) of all Obligations other
than unasserted contingent indemnification Obligations and other than any Bank
Product Obligations that, at such time, are allowed by the applicable Bank
Product Provider to remain outstanding and that are not required by the
provisions of the Credit Agreement to be repaid or cash collateralized. Any
reference herein to any Person shall be construed to include such Person’s
successors and assigns. Any requirement of a writing contained herein or in any
other Loan Document shall be satisfied by the transmission of a Record and any
Record so transmitted shall constitute a representation and warranty as to the
accuracy and completeness of the information contained therein.

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EXECUTION VERSION

IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement
by and through their duly authorized officers, as of the day and year first
above written.

 

GRANTORS:

    BORROWER:         BASELINE OIL & GAS CORP., a Nevada corporation     By:  

/s/ Thomas Kaetzer

    Name:   Thomas Kaetzer     Title:   Chief Executive Officer AGENT:     WELLS
FARGO FOOTHILLS, INC., as Agent     By:  

/s/ David A. Ernst

    Title:   Vice President