REOSTAR ENERGY CORP - Exhibit 10.2






EXHIBIT 10.2



   

SECURITY AGREEMENT

  

  

   

                 THIS
SECURITY AGREEMENT dated as of October 30, 2008 (this "Security Agreement") is
by and among REOSTAR ENERGY, CORPORATION, a Nevada corporation ("Borrower"), each
subsidiary of the Borrower signatory hereto (together with the Borrower, the "Grantors"
and individually, each a "Grantor") and Union Bank of California, N.A. as administrative
agent (in such capacity the "Administrative Agent") under the Credit Agreement
(as hereinafter defined), for its benefit and the benefit of the Secured Parties
(as hereinafter defined). 



RECITALS 



                 A.
The Borrower, the lenders party thereto from time to time (the "Lenders"), Union
Bank of California, N.A., as issuing lender (in such capacity, the "Issuing Lender")
and as Administrative Agent for such Lenders, have entered into that certain Credit
Agreement dated of even date herewith (as it may be amended, restated, supplemented
or otherwise modified from time to time, the "Credit Agreement"). 



                 B.
In connection with the Credit Agreement, the Borrower or any of its subsidiaries
may from time to time enter into one or more Hedge Contracts (as defined in the
Credit Agreement) with Swap Counterparties (as defined in the Credit Agreement,
such Swap Counterparties, the Administrative Agent, the Issuing Lender and the
Lenders, being collectively referred to herein as the "Secured Parties"). 



                 C.
It is a condition precedent to the extension of credit to the Borrower under the
Credit Agreement that the Grantors and the Administrative Agent, on behalf of
the Secured Parties, execute and deliver this Security Agreement. 



                 D.
Each Grantor (other than the Borrower) is a subsidiary of the Borrower, and therefore
shall derive direct and indirect benefits from the transactions contemplated by
the Credit Agreement. 



AGREEMENT 



                 NOW,
THEREFORE, in consideration of the foregoing and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged and confessed, each
Grantor hereby agrees with the Administrative Agent for its benefit and the benefit
of the Secured Parties as follows: 



                 Section
1. Definitions; Interpretation. (a) All capitalized terms not otherwise defined
in this Security Agreement that are defined in the Credit Agreement shall have
the meanings assigned to such terms by the Credit Agreement. Any terms used in
this Security Agreement that are defined in the UCC (as defined below) and not
otherwise defined herein or in the Credit Agreement, shall have the meanings assigned
to those terms by the UCC. All meanings to defined terms, unless otherwise indicated,
are to be equally applicable to both the singular and plural forms of the terms
defined. The following terms shall have the meanings specified below: 

 



1







"Accounts" means an "account" as defined in the UCC, including,
without limitation, all of any Grantor's rights to payment for goods sold or leased,
services performed, or otherwise, whether now in existence or arising from time
to time hereafter, including, without limitation, rights arising under any of
the Contracts or evidenced by an account, note, contract, security agreement,
Chattel Paper (including, without limitation, tangible Chattel Paper and electronic
Chattel Paper), or other evidence of indebtedness or security, together with all
of the right, title and interest of any Grantor in and to (i) all security pledged,
assigned, hypothecated or granted to or held by any Grantor to secure the foregoing,
(ii) all of any Grantor's right, title and interest in and to any goods or services,
the sale of which gave rise thereto, (iii) all guarantees, endorsements and indemnifications
on, or of, any of the foregoing, (iv) all powers of attorney granted to any Grantor
for the execution of any evidence of indebtedness or security or other writing
in connection therewith, (v) all books, correspondence, credit files, records,
ledger cards, invoices, and other papers relating thereto, including without limitation
all similar information stored on a magnetic medium or other similar storage device
and other papers and documents in the possession or under the control of any Grantor
or any computer bureau from time to time acting for any Grantor, (vi) all evidences
of the filing of financing statements and other statements granted to any Grantor
and the registration of other instruments in connection therewith and amendments
thereto, notices to other creditors or secured parties, and certificates from
filing or other registration officers, (vii) all credit information, reports and
memoranda relating thereto, and (viii) all other writings related in any way to
the foregoing. 



"Cash Collateral" means all amounts from time to time held in any checking, savings,
deposit or other account of such Grantor, all monies, proceeds or sums due or
to become due therefrom or thereon and all documents (including, but not limited
to passbooks, certificates and receipts) evidencing all funds and investments
held in such accounts. 



"Chattel Paper" has the meaning set forth in the UCC. 



"Collateral" has the meaning set forth in Section 2 of this Security Agreement.




"Contracts" means all contracts to which any Grantor now is, or hereafter will
be bound, or to which such Grantor is or hereafter will be a party, beneficiary
or assignee, all Insurance Contracts, and all exhibits, schedules and other attachments
to such contracts, as the same may be amended, supplemented or otherwise modified
or replaced from time to time. 



"Contract Documents" means all Instruments, Chattel Paper, letters of credit,
bonds, guarantees or similar documents evidencing, representing, arising from
or existing in respect of, relating to, securing or otherwise supporting the payment
of, the Contract Rights. 



"Contract Rights" means (i) all (A) of any Grantor's rights to payment under any
Contract or Contract Document and (B) payments due and to become due to any Grantor
under any Contract or Contract Document, in each case whether as contractual obligations,
damages or otherwise; (ii) all of any Grantor's claims, rights, powers, or privileges
and 



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remedies under any Contract or Contract Document; and (iii) all
of any Grantor's rights under any Contract or Contract Document to make determinations,
to exercise any election (including, but not limited to, election of remedies)
or option or to give or receive any notice, consent, waiver or approval together
with full power and authority with respect to any Contract or Contract Document
to demand, receive, enforce or collect any of the foregoing rights or any property
which is the subject of any Contract or Contract Document, to enforce or execute
any checks, or other instruments or orders, to file any claims and to take any
action which, in the opinion of the Administrative Agent, may be necessary or
advisable in connection with any of the foregoing. 



"Document" means a bill of lading, dock warrant, dock receipt, warehouse receipt
or order for the delivery of goods, and also any other document which in the regular
course of business or financing is treated as adequately evidencing that the person
in possession of it is entitled to receive, hold and dispose of the document and
the goods it covers. 



"Equipment" means any equipment now or hereafter owned or leased by any Grantor,
or in which any Grantor holds or acquires any other right, title or interest,
constituting "equipment" under the UCC, including, without limitation, all surface
or subsurface machinery, equipment, facilities, supplies, or other tangible personal
property, including tubing, rods, pumps, pumping units and engines, pipe, pipelines,
meters, apparatus, boilers, compressors, liquid extractors, connectors, valves,
fittings, power plants, poles, lines, cables, wires, transformers, starters and
controllers, machine shops, tools, machinery and parts, storage yards and equipment
stored therein, buildings and camps, telegraph, telephone, and other communication
systems, loading docks, loading racks, and shipping facilities, and any manuals,
instructions, blueprints, computer software (including software that is imbedded
in and part of the equipment), and similar items which relate to the above, and
any and all additions, substitutions and replacements of any of the foregoing,
wherever located together with all improvements thereon and all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto. 



"Fixtures" means any fixtures now or hereafter owned or leased by any Grantor,
or in which any Grantor holds or acquires any other right, title or interest,
constituting "fixtures" under the UCC, including without limitation any and all
additions, substitutions and replacements of any of the foregoing, wherever located
together with all improvements thereon and all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto. 



"General Intangibles" means all general intangibles now or hereafter owned by
any Grantor, or in which any Grantor holds or acquires any other right, title
or interest, constituting "general intangibles" or "payment intangibles" under
the UCC, including, but not limited to, all trademarks, trademark applications,
trademark registrations, tradenames, fictitious business names, business names,
company names, business identifiers, prints, labels, trade styles and service
marks (whether or not registered), trade dress, including logos and/or designs,
copyrights, patents, patent applications, goodwill of any Grantor's business symbolized
by any of the foregoing, trade secrets, license 



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rights, license agreements, permits, franchises, and any rights
to tax refunds to which any Grantor is now or hereafter may be entitled. 



"Hedge Contract" has the meaning set forth in the Credit Agreement. 



"Instrument" means an "instrument" as defined in the UCC, including, without limitation,
any Negotiable Instrument, or any other writing which evidences a right to the
payment of money and is not itself a security agreement or lease and is of a type
which is in the ordinary course of business transferred by delivery with any necessary
endorsement or assignment (other than Instruments constituting Chattel Paper).




"Insurance Contracts" means all contracts and policies of insurance and re-insurance
maintained or required to be maintained by or on behalf of any Grantor under the
Loan Documents. 



"Inventory" means all of the inventory of any Grantor, or in which any Grantor
holds or acquires any right, title or interest, of every type or description,
now owned or hereafter acquired and wherever located, whether raw, in process
or finished, and all materials usable in processing the same and all documents
of title covering any inventory, including, without limitation, work in process,
materials used or consumed in any Grantor's business, now owned or hereafter acquired
or manufactured by any Grantor and held for sale in the ordinary course of its
business, all present and future substitutions therefor, parts and accessories
thereof and all additions thereto, all Proceeds thereof and products of such inventory
in any form whatsoever, and any other item constituting "inventory" under the
UCC. 



"Investment Property" means "investment property" as defined in the UCC, including,
without limitation, all securities (whether certificated or uncertificated), security
entitlements, securities accounts, commodity contracts, and commodity accounts.




"Negotiable Instrument" means a "negotiable instrument" as defined in the UCC.




"Proceeds" means all proceeds (as defined in the UCC) of any or all of the Collateral,
including without limitation (i) any and all proceeds of, all claims for, and
all rights of any Grantor to receive the return of any premiums for, any insurance,
indemnity, warranty or guaranty payable from time to time with respect to any
of the Collateral, (ii) any and all payments (in any form whatsoever) made or
due and payable from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color of any Governmental Authority),
(iii) all proceeds received or receivable when any or all of the Collateral is
sold, exchanged or otherwise disposed, whether voluntarily, involuntarily, in
foreclosure or otherwise, (iv) all claims of any Grantor for damages arising out
of, or for breach of or default under, any Collateral, (v) all rights of any Grantor
to terminate, amend, supplement, modify or waive performance under any Contracts,
to perform thereunder and to compel performance and otherwise exercise all remedies
thereunder, and (vi) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral. 



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"Secured Obligations" means, collectively, all of the following:
(i) all Obligations now or hereafter owed by the Borrower, any Guarantor, or any
of their respective Subsidiaries to the Secured Parties, (ii) all amounts now
or hereafter owed by the Borrower, any Debtor, or any of their respective Subsidiaries
under this Security Agreement or the other Loan Documents to the Secured Parties,
and (iii) any increases, extensions, modifications, substitutions, amendments
and renewals thereof, whether for principal, interest, fees, expenses, indemnification,
or otherwise, including any post-petition interest in the event of a bankruptcy,
to the extent such interest is enforceable by law. All such obligations shall
be referred to in this Security Agreement as the "Secured Obligations". 



"Security Agreement" means this Security Agreement, as the same may be modified,
supplemented or amended from time to time in accordance with its terms. 



"UCC" shall mean the Uniform Commercial Code as the same may, from time to time,
be in effect in the State of Texas; provided, however, in the event that, by reason
of mandatory provisions of law, any or all of the attachment, perfection or priority
of the security interest in any Collateral is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than the State of Texas, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection
or priority and for purposes of definitions related to such provisions. 



                 (b)
All meanings to defined terms, unless otherwise indicated, are to be equally applicable
to both the singular and plural forms of the terms defined. Article, Section,
Schedule, and Exhibit references are to Articles and Sections of and Schedules
and Exhibits to this Security Agreement, unless otherwise specified. All references
to instruments, documents, contracts, and agreements are references to such instruments,
documents, contracts, and agreements as the same may be amended, supplemented,
and otherwise modified from time to time, unless otherwise specified. The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Security Agreement shall refer to this Security Agreement as a whole and not to
any particular provision of this Security Agreement. As used herein, the term
"including" means "including, without limitation,". Paragraph headings have been
inserted in this Security Agreement as a matter of convenience for reference only
and it is agreed that such paragraph headings are not a part of this Security
Agreement and shall not be used in the interpretation of any provision of this
Security Agreement. 



                 Section
2. Assignment, Pledge and Grant of Security Interest. 



                 (a)
As collateral security for the prompt and complete payment and performance when
due of all Secured Obligations, each Grantor hereby assigns, pledges, and grants
to the Administrative Agent for the benefit of the Secured Parties a lien on and
continuing security interest in all of such Grantor's right, title and interest
in, to and under, all items described in this Section 2, whether now owned or
hereafter acquired by such Grantor and wherever located and whether now owned
or hereafter existing or arising (collectively, the "Collateral"): 



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                                  (i)
all Contracts, all Contract Rights, Contract Documents and Accounts associated
with such Contracts and each and every document granting security to such Grantor
under any such Contract; 



                                  (ii)
all Accounts; 



                                  (iii)
all Inventory; 



                                  (iv)
all Equipment; 



                                  (v)
all General Intangibles; 



                                  (vi)
all Investment Property; 



                                  (vii)
all Fixtures; 



                                  (viii)
all checking, savings, deposit or other account of such Grantor and all other
accounts held in the name of such Grantor with any Lender; 



                                  (ix)
all Cash Collateral; 



                                  (x)
any Legal Requirements now or hereafter held by such Grantor (except that any
Legal Requirement which would by its terms or under applicable law become void,
voidable, terminable or revocable by being subjected to the Lien of this Security
Agreement or in which a Lien is not permitted to be granted under applicable law,
is hereby excluded from such Lien to the extent necessary so as to avoid such
voidness, voidability, terminability or revocability); 



                                  (xi)
any right to receive a payment under any Hedge Contract in connection with a termination
thereof;



                                  
(xii) (A) all policies of insurance and Insurance Contracts, now or hereafter
held by or on behalf of such Grantor, including casualty and liability, business
interruption, and any title insurance, (B) all Proceeds of insurance, and (C)
all rights, now or hereafter held by such Grantor to any warranties of any manufacturer
or contractor of any other Person; 



                                  (xiii)
any and all liens and security interests (together with the documents evidencing
such security interests) granted to such Grantor by an obligor to secure such
obligor's obligations owing under any Instrument, Chattel Paper, or Contract which
is pledged hereunder or with respect to which a security interest in such Grantor's
rights in such Instrument, Chattel Paper, or Contract is granted hereunder; 



                                  (xiv)
any and all guaranties given by any Person for the benefit of such Grantor which
guarantees the obligations of an obligor under any Instrument, Chattel Paper or
Contract, which are pledged hereunder; 



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                                  (xv)
without limiting the generality of the foregoing, all other personal property,
goods, Instruments, Chattel Paper, Documents, Fixtures, credits, claims, demands
and assets of such Grantor whether now existing or hereafter acquired from time
to time; and 



                                  (xvi)
any and all additions, accessions and improvements to, all substitutions and replacements
for and all products and Proceeds of or derived from all of the items described
above in this Section 2. 



                 (b)
Notwithstanding anything contained herein to the contrary, it is the intention
of each Grantor, the Administrative Agent, and the other Secured Parties that
the amount of the Secured Obligation secured by each Grantor's interests in any
of its Property shall be in, but not in excess of, the maximum amount permitted
by fraudulent conveyance, fraudulent transfer and other similar law, rule or regulation
of any Governmental Authority applicable to such Grantor. Accordingly, notwithstanding
anything to the contrary contained in this Security Agreement in any other agreement
or instrument executed in connection with the payment of any of the Secured Obligations,
the amount of the Secured Obligations secured by each Grantor's interests in any
of its Property pursuant to this Security Agreement shall be limited to an aggregate
amount equal to the largest amount that would not render such Grantor's obligations
hereunder or the liens and security interest granted to the Administrative Agent
hereunder subject to avoidance under Section 548 of the United States Bankruptcy
Code or any comparable provision of any other applicable law. 



                 Section
3. Representations and Warranties. Each Grantor hereby represents and warrants
the following to the Administrative Agent and the other Secured Parties: 



                 (a)
Records. Such Grantor's sole jurisdiction of formation and type of organization
are as set forth in Schedule 1 attached hereto. All records concerning the Accounts,
General Intangibles, or any other Collateral applicable to such Grantor are located
at the address for such Grantor on such Schedule 1. None of the Accounts is evidenced
by a promissory note or other instrument. 



                 (b)
Other Liens. Such Grantor is, and will be the record, legal, and beneficial owner
of all of the Collateral pledged by such Grantor free and clear of any Lien, except
for the Permitted Liens. No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is, or will be, on
file in any recording office, except such as may be filed in connection with this
Security Agreement or in connection with other Permitted Liens or for which satisfactory
releases have been received by the Administrative Agent. 



                 (c)
Lien Priority and Perfection. 



                                  (i)
Subject only to Permitted Liens, this Security Agreement creates valid and continuing
security interests in the Collateral, securing the payment and performance of
all the Secured Obligations. Upon the filing of financing statements with the
jurisdictions listed in Schedule 1, the security interests granted to the Administrative
Agent hereunder will constitute valid first-priority perfected security interests
in all Collateral with respect to which a security interest can be perfected by
the filing of a financing statement, subject only to Permitted Liens. 



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                                  (ii)
No consent of any other Person and no authorization, approval, or other action
by, and no notice to or filing with any Governmental Authority is required (A)
for the grant by such Grantor of the pledge, assignment, and security interest
granted hereby or for the execution, delivery, or performance of this Security
Agreement by such Grantor, (B) for the validity, perfection, or maintenance of
the pledge, assignment, lien, and security interest created hereby (including
the first-priority (subject to Permitted Liens) nature thereof), except for security
interests that cannot be perfected by filing under the UCC, or (C) for the exercise
by the Administrative Agent of the rights provided for in this Security Agreement
or the remedies in respect of the Collateral pursuant to this Security Agreement,
except (1) those consents to assignment of licenses, permits, approvals, and other
rights that are as a matter of law not assignable, (2) those consents, approvals,
authorizations, actions, notices or filings which have been duly obtained or made
and, in the case of the maintenance of perfection, the filing of continuation
statements under the UCC, and (3) those filings and actions described in Section
3(c)(i). 



                 (d)
Tax Identification Number and Organizational Number. The federal tax identification
number of such Grantor and the organizational number of such Grantor are as set
forth in Schedule 1. 



                 (e)
Tradenames; Prior Names. Except as set forth on Schedule 1, such Grantor has not
conducted business under any name other than its current name during the last
five years prior to the date of this Security Agreement. 



                 (f)
Exclusive Control. Such Grantor has exclusive possession and control of its respective
Equipment and Inventory. 



                 Section
4. Covenants. 



                 (a)
Further Assurances. 



                                  (i)
Each Grantor agrees that from time to time, at its expense, such Grantor shall
promptly execute and deliver all instruments and documents, and take all action,
that may be reasonably necessary or desirable, or that the Administrative Agent
may reasonably request, in order to perfect and protect any pledge, assignment,
or security interest granted or intended to be granted hereby or to enable the
Administrative Agent to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the foregoing,
each Grantor (A) at the request of the Administrative Agent, shall execute such
instruments, endorsements or notices, as may be reasonably necessary or desirable
or as the Administrative Agent may reasonably request, in order to perfect and
preserve the assignments and security interests granted or purported to be granted
hereby, (B) shall, at the reasonable request of the Administrative Agent, mark
conspicuously each material document included in the Collateral, each Chattel
Paper included in the Accounts, and each of its records pertaining to the Collateral
with a legend, in form and substance satisfactory to the Administrative Agent,
including that such document, Chattel Paper, or record is subject to the pledge,
assignment, and security interest granted hereby, (C) shall, if any Collateral
shall be evidenced by a promissory note or other instrument or chattel paper,
deliver and pledge to the Administrative Agent hereunder such note or instrument
or chattel paper duly endorsed and accompanied by duly 



8





executed instruments of transfer or assignment, all in form and
substance satisfactory to the Administrative Agent, and (D) authorizes the Administrative
Agent to file any financing statements, amendments or continuations without the
signature of such Grantor to the extent permitted by applicable law in order to
perfect or maintain the perfection of any security interest granted under this
Security Agreement (including, without limitation, financing statements using
an "all assets" or "all personal property" collateral description). 



                                  (ii)
Each Grantor shall pay all filing, registration and recording fees and all refiling,
re-registration and re-recording fees, and all other reasonable expenses incident
to the execution and acknowledgment of this Security Agreement, any assurance,
and all federal, state, county and municipal stamp taxes and other taxes, duties,
imports, assessments and charges arising out of or in connection with the execution
and delivery of this Security Agreement, any agreement supplemental hereto, any
financing statements, and any instruments of further assurance. 



                                  (iii)
Each Grantor shall promptly provide to the Administrative Agent all information
and evidence the Administrative Agent may reasonably request concerning the Collateral
to enable the Administrative Agent to enforce the provisions of this Security
Agreement. 



                 (b)
Change of Name; State of Formation. Each Grantor shall give the Administrative
Agent at least 30 days' prior written notice before it (i) in the case of any
Grantor that is not a "registered organization" (as such term is defined in Section
9-102 of the UCC), changes the location of its principal place of business and
chief executive office, (ii) changes the location of its jurisdiction of formation
or organization, (iii) changes the location of the Equipment, Inventory, or original
copies of any Chattel Paper evidencing Accounts, or (iv) uses a trade name other
than its current name used on the date hereof. Other than as permitted by Section
6.11 of the Credit Agreement, no Grantor shall amend, supplement, modify or restate
its articles or certificate of incorporation, bylaws, limited liability company
agreements, or other equivalent organizational documents, nor amend its name or
change its jurisdiction of incorporation, organization or formation. 



                 (c)
Right of Inspection. Each Grantor shall hold and preserve, at its own cost and
expense satisfactory and complete records of the Collateral, including, but not
limited to, Instruments, Chattel Paper, Contracts, and records with respect to
the Accounts, and will permit representatives of the Administrative Agent, upon
reasonable advance notice, at any time during normal business hours to inspect
and copy them. Upon the occurrence and during the continuation of any Event of
Default, at the Administrative Agent's request, each Grantor shall promptly deliver
copies of any and all such records to the Administrative Agent. 



                 (d)
Liability Under Contracts and Accounts. Notwithstanding anything in this Security
Agreement to the contrary, (i) the execution of this Security Agreement shall
not release any Grantor from its obligations and duties under any of the Contract
Documents, or any other contract or instrument which are part of the Collateral
and Accounts included in the Collateral, (ii) the exercise by the Administrative
Agent of any of its rights hereunder shall not release any Grantor from any of
its duties or obligations under any Contract Documents, or any other Contract
or Instrument which are part of the Collateral and Accounts included in the Collateral,




9





and (iii) the Administrative Agent shall not have any obligation
or liability under any Contract Documents, or any other contract or instrument
which are part of the Collateral and Accounts included in the Collateral by reason
of the execution and delivery of this Security Agreement, nor shall the Administrative
Agent 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.



                 (e)
Transfer of Certain Collateral; Release of Certain Security Interest. Each Grantor
agrees that it shall not sell, assign, or otherwise dispose of any Collateral,
except as otherwise permitted under the Credit Agreement. The Administrative Agent
shall promptly, at the Grantors' expense, execute and deliver all further instruments
and documents, and take all further action that a Grantor may reasonably request
in order to release its security interest in any Collateral which is disposed
of in accordance with the terms of the Credit Agreement. 



                 (f)
Accounts. Each Grantor agrees that it will use commercially reasonable efforts
to ensure that each Account (i) is and will be, in all material respects, the
genuine, legal, valid, and binding obligations of the account debtor in respect
thereof, representing an unsatisfied obligation of such account debtor, (ii) is
and will be, in all material respects, enforceable in accordance with its terms,
(iii) is not and will not be subject to any setoffs, defenses, taxes, counterclaims,
except in the ordinary course of business, (iv) is and will be, in all material
respects, in compliance with all applicable laws, whether federal, state, local
or foreign, and (v) which if evidenced by Chattel Paper, will not require the
consent of the account debtor in respect thereof in connection with its assignment
hereunder. 



                 (g)
Negotiable Instrument. If any Grantor shall at any time hold or acquire any Negotiable
Instruments, including promissory notes, such Grantor shall forthwith endorse,
assign and deliver the same to the Administrative Agent, accompanied by such instruments
of transfer or assignment duly executed in blank as the Administrative Agent may
from time to time reasonably request. 



                 (h)
Other Covenants of Grantor. Each Grantor agrees that (i) any action or proceeding
to enforce this Security Agreement may be taken by the Administrative Agent either
in such Grantor's name or in the Administrative Agent's name, as the Administrative
Agent may deem necessary, and (ii) such Grantor will, until the indefeasible payment
in full in cash of the Secured Obligations (including all Letter of Credit Obligations),
the termination or expiration of all Letters of Credit and the termination of
all obligations of the Issuing Lender and the Lenders in respect of Letters of
Credit, the termination of the Hedge Contracts with the Secured Parties and the
termination or expiration of the Commitments, warrant and defend its title to
the Collateral and the interest of the Administrative Agent in the Collateral
against any claim or demand of any Persons (other than Permitted Liens) which
could reasonably be expected to materially adversely affect such Grantor's title
to, or the Administrative Agent's right or interest in, such Collateral. 



                 Section
5. Termination of Security Interest. Upon the indefeasible payment in full in
cash of the Secured Obligations (including all Letter of Credit Obligations),
the termination or expiration of all Letters of Credit and the termination of
all obligations of the Issuing Lender and the Lenders in respect of Letters of
Credit, the termination of all Hedge Contracts with the Swap 



10





Counterparties (other than Hedge Contracts with any Swap Counterparty
with respect to which other arrangements satisfactory to the Swap Counterparty
and the Borrower have been made or have been deemed to have to been made under
Section 8.08(b) of the Credit Agreement) and the termination of all obligations
of the Swap Counterparties in respect of such Hedge Contracts, and the termination
or expiration of the Commitments, the security interest granted hereby shall terminate
and all rights to the Collateral shall revert to the applicable Grantor to the
extent such Collateral shall not have been sold or otherwise applied pursuant
to the terms hereof. Upon any such termination, the Administrative Agent will,
at the Grantors' expense, execute and deliver to the applicable Grantor such documents
(including, without limitation, UCC-3 termination statements) as such Grantor
shall reasonably request to evidence such termination. 



                 Section
6. Reinstatement. If, at any time after payment in full of all Secured Obligations
and termination of the Administrative Agent's security interest, any payments
on the Secured Obligations previously made must be disgorged by any Secured Party
for any reason whatsoever, including, without limitation, the insolvency, bankruptcy
or reorganization of any Grantor or any other Person, this Security Agreement
and the Administrative Agent's security interests herein shall be reinstated as
to all disgorged payments as though such payments had not been made, and each
Grantor shall sign and deliver to the Administrative Agent all documents, and
shall do such other acts and things, as may be necessary to reinstate and perfect
the Administrative Agent's security interest. EACH GRANTOR SHALL DEFEND AND INDEMNIFY
THE ADMINISTRATIVE AGENT AND EACH OTHER SECURED PARTY FROM AND AGAINST ANY CLAIM,
DAMAGE, LOSS, LIABILITY, COST OR EXPENSE UNDER THIS SECTION 6 (INCLUDING REASONABLE
ATTORNEYS' FEES AND EXPENSES) IN THE DEFENSE OF ANY SUCH ACTION OR SUIT INCLUDING
SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE ARISING AS A RESULT OF THE
INDEMNIFIED SECURED PARTY'S OWN NEGLIGENCE BUT EXCLUDING SUCH CLAIM, DAMAGE, LOSS,
LIABILITY, COST, OR EXPENSE THAT IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT
BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED SECURED
PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. 



                 Section
7. Remedies upon Event of Default. 



                 (a)
If any Event of Default has occurred and is continuing, the Administrative Agent
may (and shall at the written request of the Required Lenders given in accordance
with the Credit Agreement), (i) proceed to protect and enforce the rights vested
in it by this Security Agreement or otherwise available to it, including but not
limited to, the right to cause all revenues and other moneys pledged hereby as
Collateral to be paid directly to it, and to enforce its rights hereunder to such
payments and all other rights hereunder by such appropriate judicial proceedings
as it shall deem most effective to protect and enforce any of such rights, either
at law or in equity or otherwise, whether for specific enforcement of any covenant
or agreement contained in any of the Contract Documents, or in aid of the exercise
of any power therein or herein granted, or for any foreclosure hereunder and sale
under a judgment or decree in any judicial proceeding, or to enforce any other
legal or equitable right vested in it by this Security Agreement or by law; (ii)
cause any action at law or suit in equity or other proceeding to be instituted
and prosecuted and enforce any rights hereunder or included in the Collateral,
subject to the provisions and 



11





requirements thereof; (iii) sell or otherwise dispose of any or
all of the Collateral or cause the Collateral to be sold or otherwise disposed
of in one or more sales or transactions, at such prices and in such manner as
may be commercially reasonable, and for cash or on credit or for future delivery,
without assumption of any credit risk, at public or private sale, without demand
of performance or notice of intention to sell or of time or place of sale (except
such notice as is required by applicable statute and cannot be waived), it being
agreed that the Administrative Agent may be a purchaser on behalf of the Secured
Parties or on its own behalf at any such sale and that the Administrative Agent,
any other Secured Party, or any other Person who may be a bona fide purchaser
for value and without notice of any claims of any or all of the Collateral so
sold shall thereafter hold the same absolutely free from any claim or right of
whatsoever kind, including any equity of redemption of any Grantor, any such demand,
notice or right and equity being hereby expressly waived and released to the extent
permitted by law; (iv) incur expenses, including attorneys' fees, reasonable consultants'
fees, and other costs appropriate to the exercise of any right or power under
this Security Agreement; (v) perform any obligation of any Grantor hereunder and
make payments, purchase, contest or compromise any encumbrance, charge or lien,
and pay taxes and expenses, without, however, any obligation to do so; (vi) in
connection with any acceleration and foreclosure, take possession of the Collateral
and render it usable and repair and renovate the same, without, however, any obligation
to do so, and enter upon any location where the Collateral may be located for
that purpose, control, manage, operate, rent and lease the Collateral, collect
all rents and income from the Collateral and apply the same to reimburse the Secured
Parties for any cost or expenses incurred hereunder or under any of the Loan Documents
or under any Hedge Contracts with Swap Counterparties and to the payment or performance
of any Grantor's obligations hereunder or under any of the Loan Documents or any
Hedge Contracts with a Swap Counterparties, and apply the balance to the other
Secured Obligations and any remaining excess balance to whomsoever is legally
entitled thereto; (vii) secure the appointment of a receiver for the Collateral
or any part thereof; (viii) require any Grantor to, and each Grantor hereby agrees
that it will at its expense and upon request of the Administrative Agent forthwith,
assemble all or part of the Collateral as directed by the Administrative Agent
and make it available to the Administrative Agent at a place to be designated
by the Administrative Agent which is reasonably convenient to both parties; (ix)
exercise any other or additional rights or remedies granted to a secured party
under the UCC; or (x) occupy any premises owned or leased by any Grantor where
the Collateral or any part thereof is assembled for a reasonable period in order
to effectuate its rights and remedies hereunder or under law, without obligation
to any Grantor in respect of such occupation. If, pursuant to applicable law,
prior notice of sale of the Collateral under this Section is required to be given
to any Grantor, each Grantor hereby acknowledges that the minimum time required
by such applicable law, or if no minimum time is specified, 10 days, shall be
deemed a reasonable notice period. The Administrative Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale having been given.
The Administrative 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)
All costs and expenses (including attorneys' fees and expenses) incurred by the
Administrative Agent in connection with any suit or proceeding in connection with
the performance by the Administrative Agent of any of the agreements contained
in any of the Contract Documents, or in connection with any exercise of its rights
or remedies hereunder





12





pursuant to the terms of this Security Agreement, shall constitute
additional indebtedness secured by this Security Agreement and shall be paid on
demand by the Grantors to the Administrative Agent on behalf of the Secured Parties.




                 Section
8. Remedies Cumulative; Delay Not Waiver. 



                 (a)
No right, power or remedy herein conferred upon or reserved to the Administrative
Agent is intended to be exclusive of any other right, power or remedy and every
such right, power and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right, power and remedy given hereunder or now
or hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder or otherwise shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy. Resort to any
or all security now or hereafter held by the Administrative Agent may be taken
concurrently or successively and in one or several consolidated or independent
judicial actions or lawfully taken nonjudicial proceedings, or both. 



                 (b)
No delay or omission of the Administrative Agent to exercise any right or power
accruing upon the occurrence and during the continuance of any Event of Default
as aforesaid shall impair any such right or power or shall be construed to be
a waiver of any such Event of Default or an acquiescence therein; and every power
and remedy given by this Security Agreement may be exercised from time to time,
and as often as shall be deemed expedient, by the Administrative Agent. 



                 Section
9. Contract Rights. The Administrative Agent may exercise any of the Contract
Rights and remedies of any Grantor under or in connection with the Instruments,
Chattel Paper, or Contracts which represent Accounts, the General Intangibles,
or which otherwise relate to the Collateral, including, without limitation, any
rights of any Grantor to demand or otherwise require payment of any amount under,
or performance of any provisions of, the Instruments, Chattel Paper, or Contracts
which represent Accounts, or the General Intangibles. 



                 Section
10. Accounts.



                 (a)
The Administrative Agent may, or may direct any Grantor to, take any action the
Administrative Agent deems necessary or advisable to enforce collection of the
Accounts, including, without limitation, notifying the account debtors or obligors
under any Accounts of the assignment of such Accounts to the Administrative Agent
and directing such account debtors or obligors to make payment of all amounts
due or to become due directly to the Administrative Agent. Upon such notification
and direction, and at the expense of the Grantors, the Administrative Agent may
enforce collection of any such Accounts, and adjust, settle, or compromise the
amount or payment thereof in the same manner and to the same extent as any Grantor
might have done. 



                 (b)
After receipt by any Grantor of the notice referred to in Section 10(a) above
that an Event of Default has occurred and is continuing, all amounts and Proceeds
(including instruments) received by such Grantor in respect of the Accounts shall
be received in trust for the benefit of the Administrative Agent hereunder, shall
be segregated from other funds of such 





13





Grantor, and shall promptly be paid over to the Administrative
Agent in the same form as so received (with any necessary indorsement) to be held
as Collateral. No Grantor shall adjust, settle, or compromise the amount or payment
of any Account, nor release wholly or partly any account debtor or obligor thereof,
nor allow any credit or discount thereon other than in the ordinary course of
business and consistent with past practices. 



                 Section
11. Application of Collateral. The proceeds of any sale, or other realization
(other than that received from a sale or other realization permitted by the Credit
Agreement) upon all or any part of the Collateral pledged by any Grantor shall
be applied by the Administrative Agent as set forth in Section 7.06 of the Credit
Agreement. 



                 Section
12. Administrative Agent as Attorney-in-Fact for Grantor. Each Grantor hereby
constitutes and irrevocably appoints the Administrative Agent, acting for and
on behalf of itself and the Secured Parties and each successor or assign of the
Administrative Agent and the other Secured Parties, the true and lawful attorney-in-fact
of such Grantor, with full power and authority in the place and stead of such
Grantor and in the name of such Grantor, the Administrative Agent or otherwise
to take any action and execute any instrument at the written direction of the
Secured Parties and enforce all rights, interests and remedies of such Grantor
with respect to the Collateral, including the right: 



                 (a)
to ask, require, demand, receive and give acquittance for any and all moneys and
claims for moneys due and to become due under or arising out of any of the other
Collateral, including without limitation, any Insurance Contracts; 



                 (b)
to elect remedies thereunder and to endorse any checks or other instruments or
orders in connection therewith; 



                 (c)
to file any claims or take any action or institute any proceedings in connection
therewith which the Administrative Agent may deem to be necessary or advisable;




                 (d)
to pay, settle or compromise all bills and claims which may be or become liens
or security interests against any or all of the Collateral, or any part thereof,
unless a bond or other security satisfactory to the Administrative Agent has been
provided; and 



                 (e)
upon foreclosure, to do any and every act which any Grantor may do on its behalf
with respect to the Collateral or any part thereof and to exercise any or all
of such Grantor's rights and remedies under any or all of the Collateral; provided,
however, that the Administrative Agent shall not exercise any such rights except
upon the occurrence and continuation of an Event of Default. This power of
attorney is a power coupled with an interest and shall be irrevocable. 



                 Section
13. Administrative Agent May Perform. The Administrative Agent may from time-to-time
perform any act which any Grantor has agreed hereunder to perform and which such
Grantor shall fail to perform after being requested in writing so to perform (it
being understood that no such request need be given after the occurrence and during
the continuance of any Event of Default and after notice thereof by the Administrative
Agent to any Grantor) and the Administrative Agent may from time-to-time take
any other action which the Administrative 





14





Agent deems necessary for the maintenance, preservation or protection
of any of the Collateral or of its security interest therein, and the expenses
of the Administrative Agent incurred in connection therewith shall be part of
the Secured Obligations and shall be secured hereby. 



                 Section
14. Administrative Agent Has No Duty. The powers conferred on the Administrative
Agent hereunder are solely to protect its interest in the Collateral and shall
not impose any duty on it to exercise any such powers. Except for reasonable care
of any Collateral in its possession and the accounting for moneys actually received
by it hereunder, the Administrative Agent shall have no duty as to any Collateral
or responsibility for taking any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. 



                 Section
15. Reasonable Care. The Administrative Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its possession
if the Collateral is accorded treatment substantially equal to that which the
Administrative Agent accords its own Property. 



                 Section
16. Payments Held in Trust. During the continuance of an Event of Default, all
payments received by any Grantor under or in connection with any Collateral shall
be received in trust for the benefit of the Administrative Agent, and shall be
segregated from other funds of such Grantor and shall be forthwith paid over to
the Administrative Agent in the same form as received (with any necessary endorsement).




                 Section
17. Miscellaneous. 



                 (a)
Expenses. Each Grantor will upon demand pay to the Administrative Agent for its
benefit and the benefit of the Secured Parties the amount of any out-of-pocket
expenses, including the fees and disbursements of its counsel and of any experts,
which the Administrative Agent and the other Secured Parties may incur in connection
with (i) the custody, preservation, use, or operation of, or the sale, collection,
or other realization of, any of the Collateral, (ii) the exercise or enforcement
of any of the rights of the Administrative Agent or any other Secured Party hereunder,
and (iii) the failure by any Grantor to perform or observe any of the provisions
hereof. 



                 (b)
Amendments; Etc. No amendment or waiver of any provision of this Security Agreement
nor consent to any departure by any Grantor herefrom shall be effective unless
the same shall be in writing and executed by the affected Grantor and the Administrative
Agent (acting upon the written direction of the Required Lenders and given in
accordance with the Credit Agreement), and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. 



                 (c)
Addresses for Notices. All notices and other communications provided for hereunder
shall be made in the manner and to the addresses set forth in the Credit Agreement
or on the signature page hereto. 



                 (d)
Continuing Security Interest; Transfer of Interest. This Security Agreement shall
create a continuing security interest in the Collateral and, unless expressly
released by the Administrative Agent, shall (i) remain in full force and effect
until the indefeasible payment in 





15





full in cash of the Secured Obligations (including all Letter of
Credit Obligations), the termination or expiration of all Letters of Credit and
the termination of all obligations of the Issuing Lender and the Lenders in respect
of Letters of Credit, the termination of all Hedge Contracts with the Swap Counterparties
(other than Hedge Contracts with any Swap Counterparty with respect to which other
arrangements satisfactory to the Swap Counterparty and the Borrower have been
made or have been deemed to have to been made under Section 8.08(b) of the Credit
Agreement) and the termination of all obligations of the Swap Counterparties in
respect of such Hedge Contracts, and the termination or expiration of the Commitments,
(ii) be binding upon each Grantor and its successors, transferees and assigns,
and (iii) inure, together with the rights and remedies of the Administrative Agent
hereunder, to the benefit of and be binding upon, each Secured Party (other than
the Swap Counterparties) and each of its successors, transferees, and assigns,
and to the benefit of and be binding upon, the Swap Counterparties and each successor,
transferee, and assign of the Swap Counterparties to the extent such successor,
transferee, and assign is a Lender or an Affiliate of a Lender. Without limiting
the generality of the foregoing clause, when any Lender assigns or otherwise transfers
any interest held by it under the Credit Agreement or other Loan Document to any
other Person pursuant to the terms of the Credit Agreement or such other Loan
Document, that other Person shall thereupon become vested with all the benefits
held by such Lender under this Security Agreement. Furthermore, when any Swap
Counterparty assigns or otherwise transfers any interest held by it under a Hedge
Contract to any other Person pursuant to the terms of such agreement, that other
Person shall thereupon become vested with all the benefits held by such Secured
Party under this Security Agreement only if such Person is also then a Lender
or an Affiliate of a Lender. 



                 (e)
Severability. Wherever possible each provision of this Security Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Security Agreement shall be prohibited by or invalid
under such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the remaining
provisions of this Security Agreement. 



                 (f)
Choice of Law. This Security Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas, except to the extent
that the validity or perfection of the security interests hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of
a jurisdiction other than the state of Texas. 



                 (g)
Counterparts. The parties may execute this Security Agreement in counterparts,
each of which constitutes an original, and all of which, collectively, constitute
only one agreement. Delivery of an executed counterpart signature page by facsimile
is as effective as executing and delivering this Security Agreement in the presence
of the other parties to this Security Agreement. In proving this Security Agreement,
a party must produce or account only for the executed counterpart of the party
to be charged. 



(h) Headings. Paragraph headings have been inserted in this Security Agreement
as a matter of convenience for reference only and it is agreed that such paragraph
headings are not a part of this Security Agreement and shall not be used in the
interpretation of any provision of this Security Agreement. 



16





                 (i)
Conflicts. In the event of any explicit or implicit conflict between any provision
of this Security Agreement and any provision of the Credit Agreement, the terms
of the Credit Agreement shall be controlling. 



                 (j)
Additional Grantors. Pursuant to Section 6.16 of the Credit Agreement, each Subsidiary
of the Borrower that was not in existence on the date of the Credit Agreement
is required to enter into this Security Agreement as a Grantor upon becoming a
Subsidiary of the Borrower. Upon execution and delivery after the date hereof
by the Administrative Agent and such Subsidiary of an instrument in the form of
Annex 1, 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 Security Agreement
shall not require the consent of any other Grantor hereunder. The rights and obligations
of each Grantor hereunder shall remain in full force and effect notwithstanding
the addition of any new Grantor as a party to this Security Agreement. 



                 (k)
Entire Agreement. THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT, AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. 



                 THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. 



[SIGNATURE PAGES FOLLOW]






17





                 The
parties hereto have caused this Security Agreement to be duly executed as of the
date first above written. 




	 	 GRANTORS: 

      

      REOSTAR ENERGY, CORPORATION 

      

      

      By:     /s/   Mark S. Zouvas                                         

               Mark S. Zouvas 

               Chief Executive Officer
      

      

      

      REOSTAR GATHERING, INC. 

      

      

      By:     /s/   Mark S. Zouvas                                         

               Mark S. Zouvas 

               President 

      

      

      REOSTAR LEASING, INC. 

      

      

      By:     /s/   Mark S. Zouvas                                         

               Mark S. Zouvas 

               President 

      

      

      REOSTAR OPERATING INCORPORATED 

      

      

      By:     /s/   Mark S. Zouvas                                          

               Mark S. Zouvas 

               President 
	 	 
	 	 






Signature Page to Security Agreement





	 	 ADMINISTRATIVE AGENT: 

      UNION BANK OF CALIFORNIA, N.A., as 

      Administrative Agent 

      

       

      By:   /s/ Randall Osterberg                                          

               Randall Osterberg
      

               Senior Vice President
      

      

      

      
	 	 
	 	 










Signature Page to Security Agreement






SCHEDULE 1 

  to Security Agreement 

  

  GRANTOR INFORMATION



	Grantor: 

      

      Sole Jurisdiction of Formation / Filing: 

      

      Type of Organization: 

      

      Address where records for Collateral are kept: 

      

      

      Organizational Number: 

      

      Federal Tax Identification Number: 

      

      Prior Names: 	ReoStar Energy, Corporation 

      

      Nevada 

      

      Corporation 

      

      3880 Hulen St., Suite 500 

      Fort Worth, TX 76107 

      

      C31758-2004 

      

      20-8428738 

      

      Goldrange Resources, Inc. 




	Grantor: 

      

      Sole Jurisdiction of Formation / Filing: 

      

      Type of Organization: 

      

      Address where records for Collateral are kept: 

      

      

      Organizational Number: 

      

      Federal Tax Identification Number: 

      

      Prior Names: 	ReoStar Gathering, Inc. 

      

      Texas

      

      Corporation 

      

      5416 Birchman Avenue 

      Fort Worth, TX 76107 

      800834771 

      

      26-0480775

      

      None Grantor: 




	Grantor: 

      

      Sole Jurisdiction of Formation / Filing: 

      

      Type of Organization: 

      

      Address where records for Collateral are kept: 

      

      

      Organizational Number: 

      

      Federal Tax Identification Number: 

      

      Prior Names: 	ReoStar Leasing, Inc. 

      

      Texas 

      

      Corporation 

      

      5416 Birchman Avenue 

      Fort Worth, TX 76107 

      

      800838454 

      

      26-0749912 

      

      None 






Schedule 1 to Security Agreement





	Grantor: 

      

      Sole Jurisdiction of Formation / Filing: 

      

      Type of Organization: 

      

      Address where records for Collateral are kept: 

      

      

      Organizational Number: 

      

      Federal Tax Identification Number: 

      

      Prior Names: 	ReoStar Operating Incorporated 

      

      Texas 

      

      Corporation 

      

      5416 Birchman Avenue 

      Fort Worth, TX 76107 

      

      801017988

      

      26-3194507

      

      None 








Schedule 1 to Security Agreement





Annex 1 to the 

Security Agreement 



                 SUPPLEMENT
NO. [ ] dated as of [ ] (the "Supplement"), to the Security Agreement dated as
of October [___], 2008 (as amended, supplemented or otherwise modified from time
to time, the "Security Agreement"), by and among REOSTAR ENERGY CORPORATION, a
Nevada corporation ("Borrower"), each subsidiary of Borrower signatory thereto
(together with the Borrower, the "Grantors" and individually, a "Grantor") and
Union Bank of California, N.A. as Administrative Agent under the Credit Agreement
(as hereinafter defined) for the benefit of itself and the Secured Parties (as
hereinafter defined). 



                 A.
Reference is made to the following documents related to extension of credit to
the Borrower or any Subsidiary thereof: 



                 (i)
that certain Credit Agreement dated as of October 30, 2008 (as it may be amended,
restated or otherwise modified from time to time, the "Credit Agreement") by and
among the Borrower, the lenders party thereto from time to time (the "Lenders"),
and Union Bank of California, N.A., as Administrative Agent for such Lenders;




                 (ii)
those Hedge Contracts (as defined in the Credit Agreement) that the Borrower or
any of its Subsidiaries that are Guarantors (as defined in the Credit Agreement)
may from time to time enter into one or more with a Swap Counterparty (as defined
in the Credit Agreement, and such Swap Counterparties, the Administrative Agent,
the Issuing Lender and the Lenders, being collectively referred to herein as the
"Secured Parties"). 



                 B.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Security Agreement and the Credit Agreement.




                 C.
The Grantors have entered into the Security Agreement in order to induce the Lenders
to make loans and the Issuing Lender to issue letters of credit under the Credit
Agreement. Pursuant to Section 6.16 of the Credit Agreement, each Subsidiary of
the Borrower that was not in existence on the date of the Credit Agreement is
required to enter into the Security Agreement as a Grantor upon becoming a Subsidiary.
Section 17(j) of the Security Agreement provides that additional Subsidiaries
of the Borrower may become Grantors under the Security Agreement by execution
and delivery of an instrument in the form of this Supplement. The undersigned
Subsidiary of the Borrower (the "New Grantor") is executing this Supplement in
accordance with the requirements of the Credit Agreement to become a Grantor under
the Security Agreement in order to induce the Lenders to make additional loans
and the Issuing Lender to issue additional letters of credit and as consideration
for loans previously made and letters of credit previously issued. 



                 Accordingly,
the Administrative Agent and the New Grantor agree as follows: 



                 SECTION
1. In accordance with Section 17(j) of the Security Agreement, the New Grantor
by its signature below becomes a Grantor under the Security Agreement with the
same force and effect as if originally named therein as a Grantor and the New
Grantor hereby agrees (a) to all the terms and provisions of the Security Agreement
applicable to it as a Grantor thereunder and (b) represents and warrants that
the representations and warranties made by it as a 





Annex 1 to Security Agreement





Grantor thereunder are true and correct on and as of the date hereof
in all material respects. In furtherance of the foregoing, the New Grantor, as
security for the payment and performance in full of the Secured Obligations (as
defined in the Security Agreement), does hereby create and grant to the Administrative
Agent, its successors and assigns, for the benefit of the Secured Parties, their
successors and assigns, a continuing security interest in and lien on all of the
New Grantor's right, title and interest in and to the Collateral (as defined in
the Security Agreement) of the New Grantor. Each reference to a "Grantor" in the
Security Agreement shall be deemed to include the New Grantor. The Security Agreement
is hereby incorporated herein by reference. 



                 SECTION
2. The New Grantor represents and warrants to the Administrative Agent and the
other Secured Parties that this Supplement has been duly authorized, executed
and delivered by it and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general application
(regardless of whether enforcement is sought in a proceeding in equity or at law)).




                 SECTION
3. This Supplement may be executed in counterparts, each of which shall constitute
an original, but all of which when taken together shall constitute a single contract.
This Supplement shall become effective when the Administrative Agent shall have
received counterparts of this Supplement that, when taken together, bear the signatures
of the New Grantor and the Administrative Agent. Delivery of an executed signature
page to this Supplement by facsimile transmission shall be as effective as delivery
of a manually signed counterpart of this Supplement. 



                 SECTION
4. The New Grantor hereby represents and warrants that set forth on Schedule 1
attached hereto are (a) its sole jurisdiction of formation and type of organization,
(b) the location of all records concerning its Accounts, General Intangibles,
or any other Collateral, (c) its federal tax identification number and the organizational
number, and (d) all names used by it during the last five years prior to the date
of this Supplement. 



                 SECTION
5. Except as expressly supplemented hereby, the Security Agreement shall remain
in full force and effect. 



                 SECTION
6. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF TEXAS. 



                 SECTION
7. In case any one or more of the provisions contained in this Supplement should
be held invalid, illegal or unenforceable in any respect, neither party hereto
shall be required to comply with such provision for so long as such provision
is held to be invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein and in the Security
Agreement shall not in any way be affected or impaired. The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or 





Annex 1 to Security Agreement





unenforceable provisions with valid provisions the economic effect
of which comes as close as possible to that of the invalid, illegal or unenforceable
provisions. 



                 SECTION
8. All communications and notices hereunder shall be in writing and given as provided
in the Security Agreement. All communications and notices hereunder to the New
Grantor shall be given to it at the address set forth under its signature hereto.




                 SECTION
9. The New Grantor agrees to reimburse the Administrative Agent for its out-of-pocket
expenses in connection with this Supplement, including the fees, other charges
and disbursements of counsel for the Administrative Agent. 



                 THIS
SUPPLEMENT, THE SECURITY AGREEMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS,
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.




                 THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. 



                 IN
WITNESS WHEREOF, the New Grantor and the Administrative Agent have duly executed
this Supplement to the Security Agreement as of the day and year first above written.





	 	 [Name of New Grantor], 

      

      

      By:                                                                                  

      Name:                                                                             

      Title:                                                                               

      

      Address:                                                                        

                                                                                              
      

       

      

      

      

      

      [ADMINISTRATIVE AGENT] 

      

      

      By:                                                                                  

      Name:                                                                             

      Title:                                                                               

      

      
	 	 
	 	 


 





Annex 1 to Security Agreement





Schedule 1 

Supplement No. ____ 

to the Security Agreement


	New Grantor:

      

      Jurisdiction of Formation / Filing: 

      

      Type of Organization: 

      

      Address where records for 

      Collateral are kept: 

      

      Organizational Number: 

      

      Federal Tax Identification Number: 

      

      Prior Names: 

      

      	 [GRANTOR] 

      

      [STATE]

      

      [ENTITY TYPE]

      

      [ADDRESS] 

      [CITY, STATE ZIP] 

      

                                                                                  

      

                                                                                  

      

                                                                                  






Annex 1 to Security Agreement