Exhibit 10.4

SECURITY AGREEMENT
 
dated as of April 1, 2014
 
between
 
SUMMER ENERGY, LLC
 
and
 
DTE ENERGY TRADING, INC.
 

 
 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS*
 

 

  Page
ARTICLE I DEFINITIONS
Section 1.1                        Defined Terms
Section 1.2                        UCC Definitions
ARTICLE II SECURITY INTERESTS 
Section 2.1                        Grant of Security Interests
Section 2.2                        Continuing Liability of the Client
Section 2.3                        Sales and Collections.
Section 2.4                        Verification of Receivables
Section 2.5                        Release of Collateral.
ARTICLE III REPRESENTATIONS AND WARRANTIES 
Section 3.1                        Validity of Security Agreement; Consents
Section 3.2                        Title to Collateral
Section 3.3                        Validity, Perfection and Priority of Security
Interests.
Section 3.4                        Enforceability of Receivables and Other
Intangibles
Section 3.5                        Place of Business; Location of Collateral
Section 3.6                        Patents and Trademarks
ARTICLE IV COVENANTS 
Section 4.1                        Perfection of Security Interests
Section 4.2                        Further Actions.
Section 4.3                        Change of Name, Identity or Structure
Section 4.4                        Place of Business and Collateral;
Jurisdiction of Incorporation
Section 4.5                        Fixtures
Section 4.6                        Maintenance of Records
Section 4.7                        Compliance with Laws, etc.
Section 4.8                        Payment of Taxes, etc.
Section 4.9                        Compliance with Terms of Accounts, Contracts
and Licenses
Section 4.10                        Limitation on Liens on Collateral
Section 4.11                        Limitations on Modifications of Receivables
and Other Intangibles; No Waivers or Extensions
Section 4.12                        Maintenance of Insurance
Section 4.13                        Limitations on Dispositions of Collateral
Section 4.14                        Further Identification of Collateral
Section 4.15                        Notices
Section 4.16                        Right of Inspection
Section 4.17                        Maintenance of Equipment
Section 4.18                        Reimbursement Obligation
ARTICLE V REMEDIES; RIGHTS UPON DEFAULT 
Section 5.1                        UCC Rights
Section 5.2                        Payments on Collateral
Section 5.3                        Possession of Collateral
1
1
3
3
3
4
4
5
5
6
6
6
6
7
7
7
7
7
7
8
8
9
9
9
9
9
10
10
10
10
11
11
11
11
11
12
12
12
12

 

--------------------------------------------------------------------------------

 
*The Table of Contents is not a part of the Security Agreement.

 
 

--------------------------------------------------------------------------------

 

 
 
Section 5.4 Sale of Collateral.
Section 5.5 Rights of Purchasers
Section 5.6 Additional Rights of the Provider.
Section 5.7 Remedies Not Exclusive.
Section 5.8 Waiver and Estoppel.
Section 5.9 Power of Attorney
Section 5.10 Application of Proceeds
ARTICLE VI MISCELLANEOUS
Section 6.1 Notices
Section 6.2 No Waivers
Section 6.3 Compensation and Expenses of the Provider
Section 6.4 Indemnification
Section 6.5 Amendments, Supplements and Waivers
Section 6.6 Successors and Assigns
Section 6.7 Limitation of Law; Severability
Section 6.8 Governing Law
Section 6.9 Counterparts; Effectiveness
Section 6.10 Termination; Survival
 
Schedule 1 - Location of Records of Receivables and Other Intangibles
Schedule 2 - Location of Equipment and Inventory
Schedule 3 - Required Filings and Recordings
12
13
13
14
14
15
15
16
16
16
16
16
17
17
17
17
17
18

 

 
 

--------------------------------------------------------------------------------

 

SECURITY AGREEMENT
 
This SECURITY AGREEMENT (as amended, supplemented or modified from time to time,
this “Security Agreement”) is dated as of April 1, 2014 and is between SUMMER
ENERGY, LLC, a Texas limited liability company (the “Client”), and DTE ENERGY
TRADING, INC., a Michigan corporation (the “Provider”).
 
The Client and the Provider have entered into the Credit Agreement and Base
Agreement dated as of the date hereof (as the same may be amended, supplemented
or modified from time to time, the “Credit Agreement”).  To induce the Provider
to enter into the Credit Agreement and Base Agreement and to secure its
obligations thereunder and hereunder, the Client hereby agrees with the Provider
as follows:
 
ARTICLE I
 
DEFINITIONS
 
Section 1.1                      Defined Terms
 
As used in this Security Agreement, terms defined in the Credit Agreement or in
the Base Agreement (as defined in the Credit Agreement) shall have their defined
meanings when used herein, and the following terms shall have the following
meanings:
 
“Account Debtor” means, with respect to any Receivable or Other Intangible, any
Person obligated to make payment thereunder, including without limitation any
account debtor thereon.
 
“Base Agreement” shall have the meaning set forth in the Credit Agreement.
 
“Base Documents” means the Base Agreement, the ISDA Master Agreement, the
Purchase Contracts, the Sale Contracts, the Pledge Agreement and all other
documents executed by the Client in connection with the transactions
contemplated by the Base Agreement.
 
“Collateral” has the meaning assigned to it in Section 2.1 of this Security
Agreement.
 
“Commercial Tort Claims” shall have the meaning set forth in the UCC.
 
“Equipment” means all equipment now owned or hereafter acquired by the Client,
including all items of machinery, equipment, furnishings and fixtures of every
kind, whether affixed to real property or not, as well as all automobiles,
trucks and vehicles of every description, trailers, handling and delivery
equipment, all additions to, substitutions for, replacements of or accessions to
any of the foregoing, all attachments, components, parts (including spare parts)
and accessories whether installed thereon or affixed thereto and all fuel for
any thereof.
 

 
 

--------------------------------------------------------------------------------

 

“Inventory” means all inventory now owned or hereafter acquired by the Client,
including (i) personal property which are held for sale or lease or are
furnished or are to be furnished under a contract of service or which constitute
raw materials, work in process or materials used or consumed or to be used or
consumed in the Client’s business, (ii) all inventory, wherever located,
evidenced by negotiable and non-negotiable documents of title, warehouse
receipts and bills of lading, (iii) all of the Client’s rights in, to and under
all purchase orders now owned or hereafter received or acquired by it for goods
or services and (iv) all rights of the Client as an unpaid seller, including
rescission, replevin, reclamation and stopping in transit.
 
“ISDA Master Agreement” shall have the meaning set forth in the Base Agreement.
 
“Letter of Credit Rights” shall have the meaning set forth in the UCC.
 
“Obligations” means (i) all amounts now or hereafter payable by the Client to
the Provider on the Commodity Loans, (ii) all other obligations or liabilities
now or hereafter payable by the Client pursuant to the Credit Agreement, (iii)
all obligations and liabilities now or hereafter payable by the Client under,
arising out of or in connection with this Security Agreement, the Base
Agreement, the Pledge Agreement, or any other Collateral Document and (iv) all
other indebtedness, obligations and liabilities of the Client to the Provider,
now existing or hereafter arising or incurred, whether or not evidenced by notes
or other instruments, and whether such indebtedness, obligations and liabilities
are direct or indirect, fixed or contingent, liquidated or unliquidated, due or
to become due, secured or unsecured, joint, several or joint and several,
arising out of or in connection the Base Agreement, the Master Power Purchase
and Sale Agreement or any Purchase Contract.
 
“Other Intangibles” means all accounts, accounts receivable, contract rights,
documents, instruments, chattel paper, money and general intangibles now owned
or hereafter acquired by the Client including, without limitation, all customer
lists, permits, federal and state tax refunds, reversionary interests in pension
plan assets, trademarks, patents, licenses, copyrights and other rights in
intellectual property, other than Receivables.
 
“Pledge Agreement” shall have the meaning set forth in the Credit Agreement.
 
“Proceeds” means all proceeds, including (i) whatever is received upon any
collection, exchange, sale or other disposition of any of the Collateral and any
property into which any of the Collateral is converted, whether cash or
non-cash, (ii) any and all payments or other property (in any form whatsoever)
made or due and payable on account of any insurance, indemnity, warranty or
guaranty payable to the Client with respect to any of the Collateral, (iii) any
and all payments (in any form whatsoever) made or due and payable in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental body, authority, bureau or
agency (or any person, corporation, agency, authority or other entity acting
under color of any governmental authority), (iv) any claim of the Client against
third parties for past, present or future infringement of any patent or for
past, present or future infringement or dilution of any trademark or for injury
to the goodwill associated with any trademark or for the breach of any license
and (v) any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
 

 
2

--------------------------------------------------------------------------------

 

“Purchase Contract” shall have the meaning set forth in the Base Agreement.
 
“Receivables” means all accounts now or hereafter owing to the Client under the
Sale Contracts, and all other accounts receivable, contract rights, documents,
instruments or chattel paper representing amounts payable or monies due or to
become due to the Client, arising from the sale of Inventory or the rendition of
services in the ordinary course of business or otherwise (whether or not earned
by performance), together with all Inventory returned by or reclaimed from
customers wherever such Inventory is located, and all guaranties, securities and
liens held for the payment of any such account, account receivable, contract
right, document, instrument or chattel paper.
 
“Sale Contract” shall have the meaning set forth in the Base Agreement.
 
“UCC” means at any time the Uniform Commercial Code as the same may from time to
time be in effect in the State of New York, provided that, if, by reason of
mandatory provisions of law, the validity or perfection of any security interest
granted herein is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than New York then, as to the validity or perfection of such
security interest, “UCC” shall mean the Uniform Commercial Code in effect in
such other jurisdiction.
 
Section 1.2                      UCC Definitions
 
The uncapitalized terms “account”, “account debtor”, “chattel paper”, “contract
right”, “document”, “warehouse receipt”, “bill of lading”, “document of title”,
“instrument”, “inventory”, “equipment” “general intangible”, “money”, “proceeds”
and “purchase money security interest” as used in Section 1.1 or elsewhere in
this Security Agreement have the meanings of such terms as defined in the UCC.
 
ARTICLE II
 
SECURITY INTERESTS
 
Section 2.1                      Grant of Security Interests
 
To secure the due and punctual payment of all Obligations, howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent, now or
hereafter existing or due or to become due, in accordance with the terms thereof
and to secure the due and punctual performance of all of the obligations of the
Client contained in the Credit Documents and the Base Documents to which it is a
party and in order to induce the Provider to enter into the Base Agreement and
to enter into the Credit Agreement and make the loans and extend the credit
provided for therein in accordance with the terms thereof, the Client hereby
grants to the Provider a security interest in all of the Client’s right, title
and interest in, to and under the following, whether now existing or hereafter
acquired (all of which are herein collectively called the “Collateral”):
 
(i)           all Receivables;
 

 
3

--------------------------------------------------------------------------------

 

(ii)           all Other Intangibles;
 
(iii)           all Equipment;
 
(iv)           all Inventory;
 
(v)           all Letter of Credit Rights;
 
(vi)           Commercial Tort Claims;
 
(vii)           to the extent not included in the foregoing, all other personal
property, whether tangible or intangible, and wherever located, including, but
not limited to, the balance of every deposit account now or hereafter existing
of the Client with any bank and all monies of the Client and all rights to
payment of money of the Client;
 
(viii)           to the extent not included in the foregoing, all books, ledgers
and records and all computer programs, tapes, discs, punch cards, data
processing software, transaction files, master files and related property and
rights (including computer and peripheral equipment) necessary or helpful in
enforcing, identifying or establishing any item of Collateral; and
 
(ix)           to the extent not otherwise included, all Proceeds and products
of any or all of the foregoing, whether existing on the date hereof or arising
hereafter.
 
Section 2.2                      Continuing Liability of the Client
 
Anything herein to the contrary notwithstanding, the Client shall remain liable
to observe and perform all the terms and conditions to be observed and performed
by it under any contract, agreement, warranty or other obligation with respect
to the Collateral, and shall do nothing to impair the security interests herein
granted.  The Provider shall not have any obligation or liability under any such
contract, agreement, warranty or obligation by reason of or arising out of this
Security Agreement or the receipt by the Provider of any payment relating to any
Collateral, nor shall the Provider be required to perform or fulfill any of the
obligations of the Client with respect to the Collateral, to make any inquiry as
to the nature or sufficiency of any payment received by it or the sufficiency of
the performance of any party’s obligations with respect to any
Collateral.  Furthermore, the Provider shall not be required to file any claim
or demand to collect any amount due or to enforce the performance of any party’s
obligations with respect to, the Collateral.
 
Section 2.3                      Sales and Collections.
 
(a)           The Client is authorized (i) to sell in the ordinary course of its
business for fair value and on an arm’s-length basis any of its Inventory
normally held by it for such purpose, subject to the terms and conditions of the
Base Documents, and (ii) to use and consume, in the ordinary course of its
business, any raw materials, supplies and materials normally held by it for such
purpose.  The Provider may upon the occurrence of any Event of Default, without
cause or notice, curtail or terminate such authority at any time.
 

 
4

--------------------------------------------------------------------------------

 

(b)           The Client shall cause all cash Proceeds collected by it to be
deposited into an account designated by Provider upon receipt, in the original
form in which received (with such endorsements or assignments as may be
necessary to permit collection, if applicable, thereof by the Provider), and for
such purpose the Client hereby irrevocably authorizes and empowers the Provider,
its officers, employees and authorized agents to endorse and sign the name of
the Client on all checks, drafts, money orders or other media of payment so
delivered, and such endorsements or assignments shall, for all purposes, be
deemed to have been made by the Client prior to any endorsement or assignment
thereof by the Provider.  The Provider may use any convenient or customary means
for the purpose of collecting such checks, drafts, money orders or other media
of payment.
 
(c)           The Client shall, and the Provider may at any time, regardless of
whether an Event of Default shall have occurred, notify Account Debtors
obligated to make payments under any or all Receivables or Other Intangibles
that the Provider has a security interest in such Collateral and that payments
shall be made directly to Provider.  Upon the request of the Provider at any
time, the Client will so notify such account debtors.  The Client will use all
reasonable efforts to cause each account debtor to comply with the foregoing
instruction.  In furtherance of the foregoing, the Client authorizes the
Provider (i) to ask for, demand, collect, receive and give acquittances and
receipts for any and all amounts due and to become due under any Collateral and,
in the name of the Client or its own name or otherwise, (ii) to take possession
of, endorse and collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due under any Collateral and (iii) to file
any claim or take any other action in any court of law or equity or otherwise
which it may deem appropriate for the purpose of collecting any amounts due
under any Collateral.  The Provider shall have no obligation to obtain or record
any information relating to the source of such funds or the obligations in
respect of which payments have been made.
 
Section 2.4                      Verification of Receivables
 
The Provider shall have the right to make test verifications of Receivables in
any manner and through any medium that it considers advisable, and the Client
agrees to furnish all such assistance and information as the Provider may
require in connection therewith.  The Client at its expense will cause its chief
financial officer to furnish to the Provider at any time and from time to time
promptly upon the Provider’s request, the following reports:  (i) a
reconciliation of all Receivables, (ii) an aging of all Receivables, (iii) trial
balances and (iv) a test verification of such Receivables as the Provider may
request.
 
Section 2.5                      Release of Collateral.
 
(a)           The Client may sell or realize upon or transfer or otherwise
dispose of Collateral as permitted by Section 4.13, and the security interests
of the Provider in such Collateral so sold, realized upon or disposed of (but
not in the Proceeds arising from such sale, realization or disposition) shall
cease immediately upon such sale, realization or disposition, without any
further action on the part of the Provider.  The Provider, if requested in
writing by the Client but at the expense of the Client, is hereby authorized and
instructed to deliver to the Account Debtor or the purchaser or other transferee
of any such Collateral a certificate stating that the Provider no longer has a
security interest therein, and such Account Debtor or such
 

 
5

--------------------------------------------------------------------------------

 

purchaser or other transferee shall be entitled to rely conclusively on such
certificate for any and all purposes.
 
(b)           Upon the payment in full of all of the Obligations and if there is
no commitment by the Provider to make further advances, incur obligations or
otherwise give value, the Provider will (as soon as reasonably practicable after
receipt of notice from the Client requesting the same but at the expense of the
Client) send the Client, for each jurisdiction in which a UCC financing
statement is on file to perfect the security interests granted to the Provider
hereunder, a termination statement to the effect that the Provider no longer
claims a security interest under such financing statement.
 
ARTICLE III
 
REPRESENTATIONS AND WARRANTIES
 
The Client represents and warrants that:
 
Section 3.1                      Validity of Security Agreement; Consents
 
The execution, delivery and performance of this Security Agreement and the
creation of the security interests provided for herein (i) are within the
Client’s corporate power, (ii) have been duly authorized by all necessary
corporate action, including the consent of interest holders where required, on
behalf of the Client, (iii) are not in contravention of any provision of the
Client’s articles of formation or by-laws, (iv) do not violate any law or
regulation or any order or decree of any court or governmental instrumentality
applicable to the Client, (v) do not conflict with or result in a breach of, or
constitute a default under, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which the Client is a party or by which it or
any of its properties is bound, (vi) do not result in the creation or imposition
of any Lien upon any property of the Client other than in favor of the Provider
and (vii) do not require the consent or approval of any governmental body,
agency or official or other person other than those that have been
obtained.  This Security Agreement has been duly executed and delivered by the
Client and constitutes the legal, valid and binding obligation of the Client,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable Bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforceability of creditors’ rights generally and by general provisions of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
 
Section 3.2                      Title to Collateral
 
Except for the security interests granted to the Provider pursuant to this
Security Agreement, the Client is the sole owner of each item of the Collateral,
having good and marketable title thereto, free and clear of any and all Liens,
except for Permitted Liens.
 
Section 3.3                      Validity, Perfection and Priority of Security
Interests.
 
(a)           By complying with Section 4.1, the Client will have created a
valid security interest in favor of the Provider in all existing Collateral and
in all identifiable Proceeds
 

 
6

--------------------------------------------------------------------------------

 

of such Collateral, which security interest (except in respect of motor vehicles
for which the exclusive manner of perfecting a security interest therein is by
noting such security interest in the certificate of title in accordance with
local law) would be prior to the claims of a trustee in bankruptcy under Section
544(a) of the United States federal bankruptcy Code.  Continuing compliance by
the Client with the provisions of Section 4.2 will also (i) create valid
security interests in all Collateral acquired after the date hereof and in all
identifiable Proceeds of such Collateral and (ii) cause such security interests
in all Collateral and in all Proceeds which are (A) identifiable cash Proceeds
of Collateral covered by financing statements required to be filed hereunder,
(B) identifiable Proceeds in which a security interest may be perfected by such
filing under the UCC and (C) any Proceeds in the Cash Collateral Account to be
duly perfected under the UCC, in each case prior to the claims of a trustee in
Bankruptcy under the United States federal Bankruptcy Code.
 
(b)           The security interests of the Provider in the Collateral rank
first in priority, except that the priority of the security interests may be
subject to Permitted Liens.  Other than financing statements or other similar
documents perfecting the security interests or deed of trust liens of the
Provider, no financing statements, deeds of trust, mortgages or similar
documents covering all or any part of the Collateral are on file or of record in
any government office in any jurisdiction in which such filing or recording
would be effective to perfect a security interest in such Collateral, nor is any
of the Collateral in the possession of any Person (other than the Client)
asserting any claim thereto or security interest therein.
 
Section 3.4                      Enforceability of Receivables and Other
Intangibles
 
To the best knowledge of the Client, each Receivable and Other Intangible is a
valid and binding obligation of the related Account Debtor in respect thereof,
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable Bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors’ rights generally and by
general provisions of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law), and complies with any
applicable legal requirements.
 
Section 3.5                      Place of Business; Location of Collateral
 
Schedule 1 correctly sets forth the offices of the Client where records
concerning Receivables and Other Intangibles are kept.  Schedule 2 correctly
sets forth the location of all Equipment and Inventory, other than rolling
stock, aircraft, goods in transit and Inventory sold in the ordinary course of
business as permitted by Section 4.13 of this Security Agreement.  All Inventory
has been and will be produced in compliance with the Fair Labor Standards Act,
29 U.S.C. §§ 201-219.  No Inventory is evidenced by a negotiable document of
title, warehouse receipt or bill of lading.  No non-negotiable document of
title, warehouse receipt or bill of lading has been issued to any person other
than the Client, and the Client has retained possession  of all of such
non-negotiable documents, warehouse receipts and bills of lading.  No amount
payable under or in connection with any of the Collateral is evidenced by
promissory notes or other instruments.
 
Section 3.6                       Patents and Trademarks
 
As of the date hereof the Client does not have any patents, patent licenses,
trademarks or trademarks licenses.
 
 
 
7

--------------------------------------------------------------------------------

 
 
ARTICLE IV
 
COVENANTS
 
The Client covenants and agrees with the Provider that until the payment in full
of all Obligations and until there is no commitment by the Provider to make
further advances, incur obligations or otherwise give value, the Client will
comply with the following.
 
Section 4.1                      Perfection of Security Interests
 
The Client will, at its expense, cause all filings and recordings and other
actions specified on Schedule 3 to have been completed on or prior to the date
of the first Commodity Loan under the Credit Agreement.
 
Section 4.2                      Further Actions.
 
(a)           At all times after the date of the first Commodity Loan under the
Credit Agreement, the Client will, at its expense, comply with the following:
 
(i)           as to all Receivables, Other Intangibles, Equipment and Inventory,
it will cause UCC financing statements and continuation statements to be filed
and to be on file in all applicable jurisdictions as required to perfect the
security interests granted to the Provider hereunder, to the extent that
applicable law permits perfection of a security interest by filing under the
UCC;
 
(ii)           as to all Proceeds, it will cause all UCC financing statements
and continuation statements filed in accordance with clause (i) above to include
a statement or a checked box indicating that Proceeds of all items of Collateral
described therein are covered;
 
(iii)           upon the request of the Provider, it will ensure that the
provisions of Section 2.4 are complied with; and
 
(iv)           as to any amount payable under or in connection with any of the
Collateral which shall be or shall become evidenced by any promissory note or
other instrument, the Client will immediately pledge and deliver such note or
other instrument to the Provider as part of the Collateral, duly endorsed in a
manner satisfactory to the Provider.
 
(b)           The Client will, from time to time and at its expense, execute,
deliver, file or record such financing statements pursuant to the UCC,
applications for certificates of title and such other statements, assignments,
instruments, documents, agreements or other papers and take any other action
that may be necessary or desirable, or that the Provider may reasonably request,
in order to create, preserve, perfect, confirm or validate the security
interests, to enable the
 

 
8

--------------------------------------------------------------------------------

 

Provider to obtain the full benefits of this Security Agreement or to enable it
to exercise and enforce any of its rights, powers and remedies hereunder,
including, without limitation, its right to take possession of the Collateral,
and will use its best efforts to obtain such waivers from landlords and
mortgagees as the Provider may request.
 
(c)           To the fullest extent permitted by law, the Client authorizes the
Provider to sign and file financing and continuation statements and amendments
thereto with respect to the Collateral without its signature thereon.
 
Section 4.3                      Change of Name, Identity or Structure
 
The Client will not change its name, identity or corporate structure in any
manner unless it shall have given the Provider at least thirty days’ prior
written notice thereof and shall have taken all action (or made arrangements to
take such action substantially simultaneously with such change if it is
impossible to take such action in advance) necessary or reasonably requested by
the Provider to amend any financing statement or continuation statement relating
to the security interests granted hereby in order to preserve such security
interests and to effectuate or maintain the priority thereof against all
Persons.
 
Section 4.4                      Place of Business and Collateral; Jurisdiction
of Incorporation
 
The Client will not change the location of the office or other locations where
it keeps or holds any Collateral or any records relating thereto from the
applicable location listed on Schedule 1 hereto unless, prior to such change, it
notifies the Provider of such change, makes all UCC filings required by Section
4.2 and takes all other action necessary or that the Provider may reasonably
request to preserve, perfect, confirm and protect the security interests granted
hereby.  The Client will in no event change the location of any Collateral if
such change would cause the security interest granted hereby in such Collateral
to lapse or cease to be perfected.  The Client will not change the state in
which it is incorporated.
 
Section 4.5                      Fixtures
 
The Client will not permit any Equipment to become a fixture unless it shall
have given the Provider at least ten days’ prior written notice thereof and
shall have taken all such action and delivered or caused to be delivered to the
Provider all instruments and documents, including, without limitation, waivers
and subordination agreements by any landlords and mortgagees, and filed all
financing statements necessary or reasonably requested by the Provider, to
preserve and protect the security interest granted herein and to effectuate or
maintain the priority thereof against all Persons.
 
Section 4.6                      Maintenance of Records
 
The Client will keep and maintain at its own cost and expense complete books and
records relating to the Collateral which are satisfactory to the Provider
including, without limitation, a record of all payments received and all credits
granted with respect to the Collateral and all of its other dealings with the
Collateral.  The Client will mark its books and records pertaining to the
Collateral to evidence this Security Agreement and the security interests
granted hereby.  For the Provider’s further security, the Client agrees that the
Provider shall have a special property
 

 
9

--------------------------------------------------------------------------------

 

interest in all of the Client’s books and records pertaining to the Collateral
and the Client shall deliver and turn over any such books and records to the
Provider or to its representatives at any time on demand of the Provider.
 
Section 4.7                      Compliance with Laws, etc.
 
The Client will comply, in all material respects, with all acts, rules,
regulations, orders, decrees and directions of any governmental body, agency or
official applicable to the Collateral or any part thereof or to the operation of
the Client’s business except to the extent that the failure to comply would not
have a material adverse effect on the financial or other condition of the
Client; provided, however, that the Client may contest any act, regulation,
order, decree or direction in any reasonable manner which shall not in the sole
opinion of the Provider adversely affect the Provider’s rights or the first
priority of its security interest in the Collateral.
 
Section 4.8                      Payment of Taxes, etc.
 
The Client will pay promptly when due, all taxes, assessments and governmental
charges or levies imposed upon the Collateral or in respect of its income or
profits therefrom, as well as all claims of any kind (including claims for
labor, materials and supplies), except that no such charge need be paid if (i)
the validity thereof is being contested in good faith by appropriate proceedings
and (ii) such charge is adequately reserved against in accordance with GAAP.
 
Section 4.9                      Compliance with Terms of Accounts, Contracts
and Licenses
 
The Client will perform and comply in all material respects with all of its
obligations under and, all agreements relating to the Collateral to which it is
a party or by which it is bound.
 
Section 4.10                      Limitation on Liens on Collateral
 
The Client will not create, permit or suffer to exist, and will defend the
Collateral and the Client’s rights with respect thereto against and take such
other action as is necessary to remove, any Lien, security interest,
encumbrance, or claim in or to the Collateral other than the security interests
created hereunder, except for Permitted Liens.
 
Section 4.11                      Limitations on Modifications of Receivables
and Other Intangibles; No Waivers or Extensions
 
The Client will not (i) amend, modify, terminate or waive any provision of any
material Receivable or Other Intangible in any manner which might have a
materially adverse effect on the value of such Receivable or Other Intangible as
Collateral, (ii) fail to exercise promptly and diligently each and every
material right which it may have under each Receivable and Other Intangible or
(iii) fail to deliver to the Provider a copy of each material demand, notice or
document received by it relating in any way to any Receivable or Other
Intangible.  The Client will not, without the Provider’s prior written consent,
grant any extension of the time of payment of any Receivable or amounts due
under any material Other Intangible, compromise, compound or settle the same for
less than the full amount thereof, release, wholly or partly, any person liable
for the payment thereof or allow any credit or discount whatsoever thereon other
than trade
 

 
10

--------------------------------------------------------------------------------

 

discounts granted in the normal course of business, except such as in the
reasonable judgment of the Client are advisable to enhance the collectibility
thereof.
 
Section 4.12                      Maintenance of Insurance
 
The Client will maintain with financially sound insurance companies licensed to
do business in Texas insurance policies (i) insuring the Inventory and Equipment
against loss by fire, explosion, theft and such other casualties as are usually
insured against by companies engaged in the same or similar business for an
amount satisfactory to the Provider and (ii) insuring the Client and the
Provider against liability for personal injury arising from, and property damage
relating to, such Inventory and Equipment, such policies to be in such form and
to cover such amounts as may be satisfactory to the Provider, with losses
payable to the Client and the Provider as their respective interests may
appear.  The Client shall, if so requested by the Provider, deliver to the
Provider as often as the Provider may reasonably request a report of the Client
or, if requested by the Provider, of an insurance broker satisfactory to the
Provider of the insurance on the Inventory and Equipment.  All insurance with
respect to the Inventory and the Equipment shall (i) contain a standard
mortgagee clause in favor of the Provider, (ii) provide that any loss shall be
payable in accordance with the terms thereof notwithstanding any act of the
Client which might otherwise result in forfeiture of such insurance and that the
insurer waives all rights of set-off, counterclaim, deduction or subrogation
against the Client, (iii) provide that no cancellation, reduction in amount or
change in coverage therefor shall be effective until at least 30 days after
receipt by the Provider of written notice thereof and (iii) provide that the
Provider may, but shall not be obligated to, pay premiums in respect thereof.
 
Section 4.13                      Limitations on Dispositions of Collateral
 
The Client will not directly or indirectly (through the sale of company
interest, merger or otherwise) without the prior written consent of the Provider
sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt,
offer or contract to do so except for (i) sales of Inventory in the ordinary
course of its business for fair value in arm’s-length transactions in accordance
with the Base Documents and (ii) so long as no Default has occurred and is
continuing, dispositions in a commercially reasonable manner of Equipment which
has become redundant, worn out or obsolete or which should be replaced so as to
improve productivity, so long as the proceeds of any such disposition are (i)
used to acquire replacement equipment which has comparable or better utility and
equivalent or better value and which is subject to a first priority security
interest in favor of the Provider therein, except as permitted by Section 4.9
and except for Permitted Liens or (ii) applied to repay the Obligations.  The
inclusion of Proceeds of the Collateral under the security interests granted
hereby shall not be deemed a consent by the Provider to any sale or disposition
of any Collateral other than as permitted by this Section 4.13.
 
Section 4.14                      Further Identification of Collateral
 
The Client will furnish to the Provider from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Provider may reasonably
request.
 
Section 4.15                      Notices
 

 
11

--------------------------------------------------------------------------------

 

The Client will advise the Provider promptly and in reasonable detail, (i) of
any Lien, security interest, encumbrance or claim made or asserted against any
of the Collateral, (ii) of any material change in the composition of the
Collateral, and (iii) of the occurrence of any other event which would have a
material effect on the aggregate value of the Collateral or on the security
interests granted to the Provider in this Security Agreement.
 
Section 4.16                      Right of Inspection
 
The Provider shall at all times have full and free access during normal business
hours to all the books, correspondence and records of the Client, and the
Provider or its representatives may examine the same, take extracts therefrom,
make photocopies thereof and have such discussions with officers, employees and
public accountants of the Client as the Provider may deem necessary, and the
Client agrees to render to the Provider, at the Client’s cost and expense, such
clerical and other assistance as may be reasonably requested with regard
thereto.  The Provider and its representatives shall at all times also have the
right to enter into and upon any premises where any of the Inventory or
Equipment is located for the purpose of inspecting the same, observing its use
or protecting interests of the Provider therein.
 
Section 4.17                      Maintenance of Equipment
 
The Client will, at its expense, generally maintain the Equipment in good
operating condition, ordinary wear and tear excepted.
 
Section 4.18                      Reimbursement Obligation
 
Should the Client fail to comply with the provisions of Credit Document or any
Base Document to which it is a party or any other agreement relating to the
Collateral such that the value of any Collateral or the validity, perfection,
rank or value of any security interest granted to the Provider hereunder or
thereunder is thereby diminished or potentially diminished or put at risk (as
reasonably determined by the Provider), the Provider on behalf of the Client
may, but shall not be required to, effect such compliance on behalf of the
Client, and the Client shall reimburse the Provider for the cost thereof on
demand, and interest shall accrue on such reimbursement obligation from the date
the relevant costs are incurred until reimbursement thereof in full.
 
 
 

 
12

--------------------------------------------------------------------------------

 

ARTICLE V

 
REMEDIES; RIGHTS UPON DEFAULT
 
Section 5.1                      UCC Rights
 
If any Event of Default shall have occurred, the Provider may in addition to all
other rights and remedies granted to it in this Security Agreement and in any
other instrument or agreement securing, evidencing or relating to the
Obligations, exercise all rights and remedies of a secured party under the UCC
and all other rights available to the Provider at law or in equity.
 
Section 5.2                      Payments on Collateral
 
Without limiting the rights of the Provider under any other provision of this
Security Agreement, if an Event of Default shall occur and be continuing:
 
(i)           all payments received by the Client under or in connection with
any of the Collateral shall be held by the Client in trust for the Provider,
shall be segregated from other funds of the Client and shall forthwith upon
receipt by the Client be turned over to the Provider, in the same form as
received by the Client (duly indorsed by the Client to the Provider, if required
to permit collection thereof by the Provider); and
 
(ii)           all such payments received by the Provider (whether from the
Client or otherwise) may, in the sole discretion of the Provider, be held by the
Provider as collateral security for, and/or then or at any time thereafter
applied in whole or in part by the Provider to the payment of the expenses and
Obligations as set forth in Section 5.10.
 
Section 5.3                      Possession of Collateral
 
In furtherance of the foregoing, the Client expressly agrees that, if an Event
of Default shall occur and be continuing, the Provider may (i) by judicial
powers, or without judicial process if it can be done without breach of the
peace, enter any premises where any of such Collateral is or may be located, and
without charge or liability to the Provider seize and remove such Collateral
from such premises and (ii) have access to and use of the Client’s books and
records relating to such Collateral.
 
Section 5.4                      Sale of Collateral.
 
(a)           The Client expressly agrees that if an Event of Default shall
occur and be continuing, the Provider, without demand of performance or other
demand or notice of any kind (except the notice specified below of the time and
place of any public or private sale) to the Client or any other Person (all of
which demands and/or notices are hereby waived by the Client), may forthwith
collect, receive, appropriate and realize upon the Collateral and/or forthwith
sell, lease, assign, give an option or options to purchase or otherwise dispose
of and deliver the Collateral (or contract to do so) or any part thereof in one
or more parcels at public or private sale, at any exchange, broker’s board or at
any office of the Provider or elsewhere in such manner as is commercially
reasonable and as the Provider may deem best, for cash or on credit
 

 
13

--------------------------------------------------------------------------------

 

or for future delivery without assumption of any credit risk.  The Provider
shall have the right upon any such public sale, and, to the extent permitted by
law, upon any such private sale, to purchase the whole or any part of the
Collateral so sold.  The Client further agrees, at the Provider’s request, to
assemble the Collateral, and to make it available to the Provider at places
which the Provider may reasonably select.  To the extent permitted by applicable
law, the Client waives all claims, damages and demands against the Provider
arising out of the foreclosure, repossession, retention or sale of the
Collateral.
 
(b)           Unless the Collateral threatens to decline speedily in value or is
of a type customarily sold in a recognized market, the Provider shall give the
Client ten days’ written notice of its intention to make any such public or
private sale or sale at a broker’s board or on a securities exchange.  Such
notice shall (i) in the case of a public sale, state the time and place fixed
for such sale, (ii) in the case of a sale at a broker’s board or on a securities
exchange, state the board or exchange at which such sale is to be made and the
day on which the Collateral, or any portion thereof being sold, will first be
offered for sale and (iii) in the case of a private sale, state the day after
which such sale may be consummated.  The Provider shall not be required or
obligated to make any such sale pursuant to any such notice.  The Provider may
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the same may be so adjourned.  In the
case of any sale of all or any part of the Collateral for credit or for future
delivery, the Collateral so sold may be retained by the Provider until the
selling price is paid by the purchaser thereof, but the Provider shall not incur
any liability in case of failure of such purchaser to pay for the Collateral so
sold and, in the case of such failure, such Collateral may again be sold upon
like notice.
 
Section 5.5                      Rights of Purchasers
 
Upon any sale of the Collateral (whether public or private), the Provider shall
have the right to deliver, assign and transfer to the purchaser thereof the
Collateral so sold.  Each purchaser (including the Provider) at any such sale
shall hold the Collateral so sold free from any claim or right of whatever kind,
including any equity or right of redemption of the Client, and the Client, to
the extent permitted by law, hereby specifically waives all rights of
redemption, including, without limitation, the right to redeem the Collateral
under Sections 9-623 and 9-624 of the UCC, and any right to a judicial or other
stay or approval which it has or may have under any law now existing or
hereafter adopted.
 
Section 5.6                      Additional Rights of the Provider.
 
(a)           The Provider shall have the right and power to institute and
maintain such suits and proceedings as it may deem appropriate to protect and
enforce the rights vested in it by this Security Agreement and may proceed by
suit or suits at law or in equity to enforce such rights and to foreclose upon
and sell the Collateral or any part thereof pursuant to the judgment or decree
of a court of competent jurisdiction.
 
(b)           The Provider shall, to the extent permitted by law and without
regard to the solvency or insolvency at the time of any Person then liable for
the payment of any of the Obligations or the then value of the Collateral, and
without requiring any bond from any party to
 

 
14

--------------------------------------------------------------------------------

 

such proceedings, be entitled to the appointment of a special receiver or
receivers (who may be the Provider) for the Collateral or any part thereof and
for the rents, issues, tolls, profits, royalties, revenues and other income
therefrom, which receiver shall have such powers as the court making such
appointment shall confer, and to the entry of an order directing that the rents,
issues, tolls, profits, royalties, revenues and other income of the property
constituting the whole or any part of the Collateral be segregated, sequestered
and impounded for the benefit of the Provider, and the Client irrevocably
consents to the appointment of such receiver or receivers and to the entry of
such order.
 
Section 5.7                      Remedies Not Exclusive.
 
(a)           No remedy conferred upon or reserved to the Provider in this
Security Agreement is intended to be exclusive of any other remedy or remedies,
but every such remedy shall be cumulative and shall be in addition to every
other remedy conferred herein or now or hereafter existing at law, in equity or
by statute.
 
(b)           If the Provider shall have proceeded to enforce any right, remedy
or power under this Security Agreement and the proceeding for the enforcement
thereof shall have been discontinued or abandoned for any reason or shall have
been determined adversely to the Provider, the Client and the Provider shall,
subject to any determination in such proceeding, severally and respectively be
restored to their former positions and rights under this Security Agreement, and
thereafter all rights, remedies and powers of the Provider shall continue as
though no such proceedings had been taken.
 
(c)           All rights of action under this Security Agreement may be enforced
by the Provider without the possession of any instrument evidencing any
Obligation or the production thereof at any trial or other proceeding relative
thereto, and any suit or proceeding instituted by the Provider shall be brought
in its name and any judgment shall be held as part of the Collateral.
 
Section 5.8                      Waiver and Estoppel.
 
(a)           The Client, to the extent it may lawfully do so, agrees that it
will not at any time in any manner whatsoever claim or take the benefit or
advantage of any appraisement, valuation, stay, extension, moratorium, turnover
or redemption law, or any law now or hereafter in force permitting it to direct
the order in which the Collateral shall be sold which may delay, prevent or
otherwise affect the performance or enforcement of this Security Agreement and
the Client hereby waives the benefits or advantage of all such laws, and
covenants that it will not hinder, delay or impede the execution of any power
granted to the Provider in this Security Agreement but will permit the execution
of every such power as though no such law were in force; provided that nothing
contained in this Section 5.8 shall be construed as a waiver of any rights of
the Client under any applicable federal bankruptcy law.
 
(b)           The Client, to the extent it may lawfully do so, on behalf of
itself and all who may claim through or under it, including without limitation
any and all subsequent creditors, vendees, assignees and lienors, waives and
releases all rights to demand or to have any marshalling of the Collateral upon
any sale, whether made under any power of sale granted herein or pursuant to
judicial proceedings or upon any foreclosure or any enforcement of this
 

 
15

--------------------------------------------------------------------------------

 

Security Agreement and consents and agrees that all the Collateral may at any
such sale be offered and sold as an entirety.
 
(c)           The Client, to the extent it may lawfully do so, waives
presentment, demand, protest and any notice of any kind (except notices
explicitly required hereunder) in connection with this Security Agreement and
any action taken by the Provider with respect to the Collateral.
 
Section 5.9                      Power of Attorney
 
The Client hereby irrevocably constitutes and appoints the Provider, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Client and in the
name of the Client or in its own name, from time to time in the Provider’s
reasonable discretion for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement and, without limiting the generality of the
foregoing, hereby gives the Provider the power and right, on behalf of the
Client, without notice to or assent by the Client to do the following:
 
(i)           to pay or discharge taxes, liens, security interests or other
encumbrances levied or placed on or threatened against the Collateral;
 
(ii)           to effect any repairs or any insurance called for by the terms of
this Security Agreement and to pay all or any part of the premiums therefor and
the costs thereof; and
 
(iii)           upon the occurrence and continuance of any Event of Default and
otherwise to the extent provided in this Security Agreement, (A) to direct any
party liable for any payment under any of the Collateral to make payment of any
and all moneys due and to come due thereunder directly to the Provider or as the
Provider shall direct; (B) to receive payment of and receipt for any and all
moneys, claims and other amounts due and to become due at any time in respect of
or arising out of any Collateral; (C) to sign and indorse any invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with accounts and
other documents relating to the Collateral; (D) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any thereof and to enforce any other
right in respect of any Collateral; (E) to defend any suit, action or proceeding
brought against the Client with respect to any Collateral; (F) to settle,
compromise and adjust any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as the Provider may
deem appropriate; (G) to assign any patent or trademark (along with the goodwill
of the business to which such trademark pertains), for such term or terms, on
such conditions, and in such manner, as the Provider shall in its sole
discretion determine; and (H) generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Provider were the absolute owner thereof for all
purposes, and to do, at the Provider’s
 

 
16

--------------------------------------------------------------------------------

 

option and the Client’s expense, at any time, or from time to time, all acts and
things which the Provider deems necessary to protect, preserve or realize upon
the Collateral and the Provider’s security interest therein, in order to effect
the intent of this Security Agreement, all as fully and effectively as the
Client might do.
 
The Client hereby ratifies all that said attorneys shall lawfully do or cause to
be done by virtue hereof.  This power of attorney is a power coupled with an
interest and shall be irrevocable.
 
Section 5.10                      Application of Proceeds
 
The Provider shall retain the net proceeds of any collection, recovery, receipt,
appropriation, realization or sale of the Collateral and, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care and safekeeping of any or all of the Collateral or in any way relating
to the rights of the Provider hereunder, including reasonable attorneys’ fees
and legal expenses, apply such net proceeds to the payment in whole or in part
of the Obligations in such order as the Provider may elect, the Client remaining
liable for any amount remaining unpaid (and any attorneys fees paid by the
Provider in collecting such deficiency) after such application.  Only after
applying such net proceeds and after the payment by the Provider of any other
amount required by any provision of law, including Sections 9-610 and 9-615 of
the UCC, need the Provider account for the surplus, if any, to the Client or to
whomsoever may be lawfully entitled to the same.
 
ARTICLE VI
 
MISCELLANEOUS
 
Section 6.1                      Notices
 
Unless otherwise specified herein, all notices, requests or other communications
to any party hereunder shall be in writing and shall be given to such party at
its address set forth on the signature pages hereof, the cover page of the Base
Agreement, Exhibit 8 of the Base Agreement or any other address or which such
party shall have specified for the purpose of communications hereunder by notice
to the other parties hereunder.  Each such notice, request or other
communication shall be effective (i) if given by mail, three days after such
communication is deposited, certified or registered, in the mails with first
class postage prepaid, addressed as aforesaid or (ii) if given by other means,
when delivered at the address specified in this Section 6.1.
 
Section 6.2                      No Waivers
 
No failure on the part of the Provider to exercise, no course of dealing with
respect to, and no delay in exercising any right, power or privilege under this
Security Agreement or any document or agreement contemplated hereby shall
operate as a waiver thereof or shall any single or partial exercise of any such
right, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
 
Section 6.3                      Compensation and Expenses of the Provider
 

 
17

--------------------------------------------------------------------------------

 

The Client shall pay to the Provider from time to time upon demand, all of the
fees, costs and expenses incurred by the Provider (including, without
limitation, the reasonable fees and disbursements of counsel and any amounts
payable by the Provider to any of its agents, whether on account of fees,
indemnities or otherwise) (i) arising in connection with the preparation,
administration, modification, amendment, waiver or termination of this Security
Agreement or any document or agreement contemplated hereby or any consent or
waiver hereunder or thereunder or (ii) incurred in connection with the
administration of this Security Agreement, or any document or agreement
contemplated hereby, or in connection with the administration, sale or other
disposition of Collateral hereunder or under any document or agreement
contemplated hereby or the preservation, protection or defense of the rights of
the Provider in and to the Collateral.
 
Section 6.4                      Indemnification
 
The Client shall at all times hereafter indemnify, hold harmless and, on demand,
reimburse the Provider, its subsidiaries, affiliates, successors, assigns,
officers, directors, employees and agents, and their respective heirs,
executors, administrators, successors and assigns (all of the foregoing parties,
including, but not limited to, the Provider, being hereinafter collectively
referred to as the “Indemnities” and individually as an “Indemnitee”) from,
against and for any and all liabilities, obligations, claims, damages, actions,
penalties, causes of action, losses, judgments, suits, costs, expenses and
disbursements, including, without limitation, attorneys’ fees (any and all of
the foregoing being hereinafter collectively referred to as the “Liabilities”
and individually as a “Liability”) which the Indemnitees, or any of them, might
be or become subjected, by reason of, or arising out of the preparation,
execution, delivery, modification, administration or enforcement of, or
performance of the Provider’s rights under, this Security Agreement or any other
document, instrument or agreement contemplated hereby or executed in connection
herewith; provided that the Client shall not be liable to any Indemnitee for any
Liability caused solely by the gross negligence or willful misconduct of such
Indemnitee.  In no event shall any Indemnitee, as a condition to enforcing its
rights under this Section 6.4 or otherwise, be obligated to make a claim against
any other Person (including, without limitation, the Provider) to enforce its
rights under this Section 6.4.
 
Section 6.5                      Amendments, Supplements and Waivers
 
The parties hereto may, from time to time, enter into written agreements
supplemental hereto for the purpose of adding any provisions to this Security
Agreement, waiving any provisions hereof or changing in any manner the rights of
the parties.
 
Section 6.6                      Successors and Assigns
 
This Security Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and shall inure to the benefit of the Provider’s
successors and assigns.  Nothing herein is intended or shall be construed to
give any other Person any right, remedy or claim under, to or in respect of this
Security Agreement or any Collateral.
 
Section 6.7                      Limitation of Law; Severability
 

 
18

--------------------------------------------------------------------------------

 

(a)                      All rights, remedies and powers provided in this
Security Agreement may be exercised only to the extent that the exercise thereof
does not violate any applicable provision of law, and all the provisions of this
Security Agreement are intended to be subject to all applicable mandatory
provisions of law which may be controlling and to be limited to the extent
necessary so that they will not render this Security Agreement invalid,
unenforceable in whole or in part, or not entitled to be recorded, registered or
filed under the provisions of any applicable law.
 
(b)           If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in order to carry out the intentions of the parties
hereto as nearly as may be possible; and (ii) the invalidity or unenforceability
of any provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provisions in any other jurisdiction.
 
Section 6.8                      Governing Law
 
This Security Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
 
Section 6.9                      Counterparts; Effectiveness
 
This Security Agreement may be signed in any number of counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.  This Security Agreement shall become effective when the Provider
shall receive counterparts executed by itself and the Client.
 
Section 6.10                      Termination; Survival
 
This Security Agreement shall terminate when the security interests granted
hereunder have terminated and the Collateral has been released as provided in
Section 2.5, provided that the obligations of the Client under any of Sections
4.18, 6.3, and 6.4 shall survive any such termination.
 

 
19

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed by their respective authorized officers as of the day and year
first written above.
 
SUMMER ENERGY, LLC
 
By: /s/ Neil
Leibman                                                                       
Title: CEO-Summer Energy
 
800 Bering Drive, Suite 250
Houston, TX 77057

 
DTE ENERGY TRADING, INC.
 

By: /s/ Michael
Hunt                                                                       
Title: President
 
414 South Main St., Suite 200
Ann Arbor, Michigan 48104
 

 
20

--------------------------------------------------------------------------------

 

Schedule 1

LOCATIONS OF RECORDS OF RECEIVABLES
AND OTHER INTANGIBLES

 
21

--------------------------------------------------------------------------------

 

Schedule 2
 
LOCATIONS OF EQUIPMENT AND INVENTORY

 
22

--------------------------------------------------------------------------------

 

Schedule 3
 
REQUIRED FILINGS AND RECORDINGS
 

 
23

--------------------------------------------------------------------------------