Unassociated Document


    SECURITY
AGREEMENT

    


    1.           Identification.

    


    This
Security Agreement (the “Agreement”), dated as of August 31, 2009, is
entered into by and between Mesa Energy Holdings, Inc., a
Delaware corporation (“Parent”), Mesa Energy, Inc., a Nevada
corporation, Mesa Energy Operating, LLC, a Texas limited liability
company (each a “Guarantor” and together with Parent, each a “Debtor” and
collectively the “Debtors”), the Subscribers party to the Subscription
Agreement dated as of August 31, 2009  (the “Subscription Agreement”), by
and between Parent, and the subscribers set forth on the signature pages affixed
thereto (the “Subscribers”) and Collateral Agents, LLC (“Collateral
Agent”).

    


    2.           Recitals.

    


    2.1           At
or about the date hereof, each of the Subscribers is making a loan (the
“Loan”) to Parent.  Each Guarantor is a direct or indirect Subsidiary
(as defined in Section 6.12) of Parent.  It is beneficial to each
Debtor that the Loan is made.  Guarantor has or will deliver a
“Guaranty” of Parent’s obligations to Subscribers.

    


    2.2           The
Loan will be evidenced by one or more promissory notes (each a
“Note”) issued by Parent on or about the date of this Agreement
pursuant to the Subscription Agreement.  The Note was or
will be executed by Parent as “Borrower” or “Debtor” for the benefit of each
Subscriber as the “Holder” or “Subscriber” thereof.

    


    2.3           In
consideration of the Loans made and to be made by Subscribers to Parent and for
other good and valuable consideration, and as security for the performance by
Parent of its obligations under the Note, by Guarantor of its obligations under
the Guaranty, and as security for the repayment of the Loan and all other sums
due from Debtor to Subscribers arising under the Transaction Documents (as
defined in the Subscription Agreement) and any other agreement between or among
them (collectively, the “Obligations”), each Debtor, for good and valuable
consideration, receipt of which is acknowledged, has agreed to grant to the
Subscribers and to the Collateral Agent on behalf of the Subscribers a security
interest in the Collateral (as such term is hereinafter defined), on the terms
and conditions hereinafter set forth.  Obligations include all future
advances and loans by Subscribers to Debtor that may be made pursuant to the
Subscription Agreement.

    


    2.4           The
following defined terms which are defined in the Uniform Commercial Code in
effect in the State of New York on the date hereof are used herein as so
defined:  Accounts, Chattel Paper, Documents, Equipment, General
Intangibles, Instruments, Inventory and Proceeds.  Other capitalized
terms employed herein shall have the meanings attributed to them in the
Subscription Agreement.

    


    3.           Grant of General Security
Interest in Collateral.

    


    3.1           As
security for the Obligations of Debtors, each Debtor hereby grants each of the
Subscribers, a security interest in the Collateral.

    


    3.2           “Collateral”
shall mean all of the following property of Debtors:

    


    (A)           All
now owned and hereafter acquired right, title and interest of Debtors in, to and
in respect of all Accounts, Goods, real or personal property, all present and
future books and records relating to the foregoing and all products and Proceeds
of the foregoing, and as set forth below:

     

    
      
        
        

      

      
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    (i)         All
now owned and hereafter acquired right, title and interest of Debtors in, to and
in respect of all: Accounts, interests in goods represented by Accounts,
returned, reclaimed or repossessed goods with respect thereto and rights as an
unpaid vendor; contract rights; Chattel Paper; investment property; General
Intangibles (including but not limited to, tax and duty claims and refunds,
registered and unregistered patents, trademarks, service marks, certificates,
copyrights trade names, applications for the foregoing, trade secrets, goodwill,
processes, drawings, blueprints, customer lists, licenses, whether as licensor
or licensee, choses in action and other claims, and existing and future
leasehold interests and claims in and to equipment, real estate and fixtures);
Documents; Instruments; letters of credit, bankers’ acceptances or guaranties;
cash moneys, deposits; securities, bank accounts, deposit accounts, credits and
other property now or hereafter owned or held in any capacity by Debtors, as
well as agreements or property securing or relating to any of the items referred
to above;

    


    (ii)         Goods:  All
now owned and hereafter acquired right, title and interest of Debtors in, to and
in respect of goods, including, but not limited to:

    


    (a)           All
Inventory, wherever located, whether now owned or hereafter acquired, of
whatever kind, nature or description, including all raw materials,
work-in-process, finished goods, and materials to be used or consumed in
Debtors’ business; finished goods, timber cut or to be cut, oil, gas,
hydrocarbons, and minerals extracted or to be extracted, and all names or marks
affixed to or to be affixed thereto for purposes of selling same by the seller,
manufacturer, lessor or licensor thereof and all Inventory which may be returned
to any Debtor by its customers or repossessed by any Debtor and all of Debtors’
right, title and interest in and to the foregoing (including all of a Debtor’s
rights as a seller of goods);

    


    (b)           All
Equipment and fixtures, wherever located, whether now owned or hereafter
acquired, including, without limitation, all machinery, furniture and fixtures,
and any and all additions, substitutions, replacements (including spare parts),
and accessions thereof and thereto (including, but not limited to Debtors’
rights to acquire any of the foregoing, whether by exercise of a purchase option
or otherwise);

    


    (iii)         Property:  All
now owned and hereafter acquired right, title and interests of Debtors in, to
and in respect of any other personal property in or upon which a Debtor has or
may hereafter have a security interest, lien or right of setoff;

    


    (iv)         Books and
Records:  All present and future books and records relating to
any of the above including, without limitation, all computer programs, printed
output and computer readable data in the possession or control of the Debtors,
any computer service bureau or other third party; and

    


    (v)         Products and
Proceeds:  All products and Proceeds of the foregoing in
whatever form and wherever located, including, without limitation, all insurance
proceeds and all claims against third parties for loss or destruction of or
damage to any of the foregoing.

    


    (B)         All
now owned and hereafter acquired right, title and interest of Debtors in, to and
in respect of the following:

    


    (i)         the
shares of stock of each Guarantor, which the Debtor represents, equal 100% of
the equity ownership and right to receive equity of each Guarantor, the
certificates representing such shares together with an executed stock power, and
other rights, contractual or otherwise, in respect thereof and all dividends,
distributions, cash, instruments, investment property and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares;

     

    
      
        
        

      

      
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    (ii)           all
additional shares of stock, partnership interests, member interests or other
equity interests from time to time acquired by Debtor, in any Subsidiary that is
not a Subsidiary of the Debtor on the date hereof (“Future Subsidiaries”), the
certificates representing such additional shares, and other rights, contractual
or otherwise, in respect thereof and all dividends, distributions, cash,
instruments, investment property and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such additional shares, interests or equity; and

    


    (iii)           all
security entitlements of Debtor in, and all Proceeds of any and all of the
foregoing in each case, whether now owned or hereafter acquired by Debtor and
howsoever its interest therein may arise or appear (whether by ownership,
security interest, lien, claim or otherwise).

    


    3.3           The
Subscribers are hereby specifically authorized, after the Maturity Date
(defined in the Note) accelerated or otherwise, and after the occurrence of an
Event of Default (as defined herein) and the expiration of any applicable cure
period, to transfer any Collateral into the name of the Subscriber and to take
any and all action deemed advisable to the Subscriber to remove any transfer
restrictions affecting the Collateral.

    


    4.           Perfection of Security
Interest.

    


    4.1           Each
Debtor shall prepare, execute and deliver to the Subscribers UCC-1 Financing
Statements.  The Subscribers are instructed to prepare and file at
each Debtor’s cost and expense, financing statements in such jurisdictions
deemed advisable to Subscribers, including but not limited to the States of
Nevada, Delaware, New York and Oklahoma.

    


    4.2           Upon
the execution of this Agreement, Parent shall deliver to Subscribers stock
certificates representing all of the shares of outstanding capital stock of each
Guarantor (the “Securities”).  All such certificates shall be held by
or on behalf of Subscribers pursuant hereto and shall be delivered in suitable
form for transfer by delivery, and shall be accompanied by duly executed
instruments of transfer or assignment or undated stock powers executed in blank,
all in form and substance satisfactory to Subscribers.

    


    4.3           All
other certificates and instruments constituting Collateral from time to time
required to be pledged to Subscribers pursuant to the terms hereof (the
“Additional Collateral”) shall be delivered to Subscribers promptly upon receipt
thereof by or on behalf of Debtors.  All such certificates and
instruments shall be held by or on behalf of Subscribers pursuant hereto and
shall be delivered in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment or undated
stock powers executed in blank, all in form and substance satisfactory to
Subscribers.  If any Collateral consists of uncertificated securities,
unless the immediately following sentence is applicable thereto, Debtors shall
cause Subscribers (or its custodian, nominee or other designee) to become the
registered holder thereof, or cause each issuer of such securities to agree that
it will comply with instructions originated by Subscribers with respect to such
securities without further consent by Debtors.  If any Collateral
consists of security entitlements, Debtors shall transfer such security
entitlements to Subscribers (or its custodian, nominee or other designee) or
cause the applicable securities intermediary to agree that it will comply with
entitlement orders by Subscribers without further consent by
Debtors.

     

    
      
        
        

      

      
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    4.4           Within
five (5) business days after the receipt by a Debtor of any Additional
Collateral, a Pledge Amendment, duly executed by such Debtor, in substantially
the form of Annex I hereto (a “Pledge Amendment”), shall be delivered to
Subscribers in respect of the Additional Collateral to be pledged pursuant to
this Agreement. Each Debtor hereby authorizes Subscribers to attach each Pledge
Amendment to this Agreement and agrees that all certificates or instruments
listed on any Pledge Amendment delivered to Subscribers shall for all purposes
hereunder constitute Collateral.

    


    4.5           If
Debtor shall receive, by virtue of Debtor being or having been an owner of any
Collateral, any (i) stock certificate (including, without limitation, any
certificate representing a stock dividend or distribution in connection with any
increase or reduction of capital, reclassification, merger, consolidation, sale
of assets, combination of shares, stock split, spin-off or split-off),
promissory note or other instrument, (ii) option or right, whether as an
addition to, substitution for, or in exchange for, any Collateral, or otherwise,
(iii) dividends payable in cash (except such dividends permitted to be retained
by Debtor pursuant to Section 5.2 hereof) or in securities or other property or
(iv) dividends or other distributions in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus, Debtor shall receive such stock certificate,
promissory note, instrument, option, right, payment or distribution in trust for
the benefit of Subscribers, shall segregate it from Debtor’s other property and
shall deliver it forthwith to Subscribers, in the exact form received, with any
necessary endorsement and/or appropriate stock powers duly executed in blank, to
be held by Subscribers as Collateral and as further collateral security for the
Obligations.

    


    5.           Distribution.

    


    5.1           So
long as an Event of Default does not exist, Debtors shall be entitled to
exercise all voting power pertaining to any of the Collateral, provided such
exercise is not contrary to the interests of the Subscribers and does
not impair the Collateral.

    


    5.2.          At
any time an Event of Default exists or has occurred and is continuing, all
rights of Debtors, upon notice given by Subscribers, to exercise the voting
power and receive payments, which it would otherwise be entitled to pursuant to
Section 5.1, shall cease and all such rights shall thereupon become vested in
Subscribers, which shall thereupon have the sole right to exercise such voting
power and receive such payments.

    


    5.3           All
dividends, distributions, interest and other payments which are received by
Debtors contrary to the provisions of Section 5.2 shall be received in trust for
the benefit of Subscribers as security and Collateral for payment of the
Obligations shall be segregated from other funds of Debtors, and shall be
forthwith paid over to Subscribers as Collateral in the exact form received
with any necessary endorsement and/or appropriate stock powers duly executed in
blank, to be held by Subscribers as Collateral and as further collateral
security for the Obligations.

    


    6.           Further Action By Debtors;
Covenants and Warranties.

    


    6.1           Subscribers at
all times shall have a perfected security interest in the
Collateral.  Each Debtor represents that, other than the security
interests described on Schedule
6.1, it has and will continue to have full title to the Collateral free
from any liens, leases, encumbrances, judgments or other claims.  The
Subscribers’ security interest in the Collateral constitutes and will
continue to constitute a first, prior and indefeasible security interest in
favor of Subscribers, subject only to the security interests described on Schedule 6.1.  Each
Debtor will do all acts and things, and will execute and file all instruments
(including, but not limited to, security agreements, financing statements,
continuation statements, etc.) reasonably requested by Subscribers to establish,
maintain and continue the perfected security interest of Subscribers in the
perfected Collateral, and will promptly on demand, pay all costs and expenses of
filing and recording, including the costs of any searches reasonably deemed
necessary by Subscribers from time to time to establish and determine the
validity and the continuing priority of the security interest of Subscribers,
and also pay all other claims and charges that, in the opinion of
Subscribers are reasonably likely to materially prejudice, imperil or
otherwise affect the Collateral or Subscribers’ security interests
therein.

     

    
      
        
        

      

      
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    6.2           Except
in connection with sales of Collateral, in the ordinary course of business, for
fair value and in cash, and except for Collateral which is substituted by assets
of identical or greater value (subject to the consent of the Subscribers) or
which is inconsequential in value, each Debtor will not sell, transfer, assign
or pledge those items of Collateral (or allow any such items to be sold,
transferred, assigned or pledged), without the prior written consent of
Subscribers other than a transfer of the Collateral to a wholly-owned
United States formed and located subsidiary or to another Debtor on prior notice
to Subscribers, and provided the Collateral remains subject to the security
interest herein described.  Although Proceeds of Collateral are
covered by this Agreement, this shall not be construed to mean that
Subscribers consents to any sale of the Collateral, except as provided
herein.  Sales of Collateral in the ordinary course of business as
described above shall be free of the security interest of Subscribers and
Subscribers shall promptly execute such documents (including without limitation
releases and termination statements) as may be required by Debtors to evidence
or effectuate the same.

    


    6.3           Each
Debtor will, at all reasonable times during regular business hours and upon
reasonable notice, allow Subscribers or its representatives free and
complete access to the Collateral and all of such Debtor’s records that in any
way relate to the Collateral, for such inspection and examination as Subscribers
reasonably deem necessary.

    


    6.4           Each
Debtor, at its sole cost and expense, will protect and defend this Security
Agreement, all of the rights of Subscribers hereunder, and the Collateral
against the claims and demands of all other persons.

    


    6.5           Debtors
will promptly notify Subscribers of any levy, distraint or other seizure by
legal process or otherwise of any part of the Collateral, and of any threatened
or filed claims or proceedings that are reasonably likely to affect or impair
any of the rights of Subscribers under this Security Agreement in any
material respect.

    


    6.6           Each
Debtor, at its own expense, will obtain and maintain in force insurance policies
covering losses or damage to those items of Collateral which constitute physical
personal property, which insurance shall be of the types customarily insured
against by companies in the same or similar business, similarly situated, in
such amounts (with such deductible amounts) as is customary for such companies
under the same or similar circumstances, similarly situated.  Debtors
shall make the Subscribers loss payee thereon to the extent of its interest
in the Collateral. Subscribers are hereby irrevocably (until the
Obligations are indefeasibly paid in full) appointed each Debtor’s
attorney-in-fact to endorse any check or draft that may be payable to such
Debtor so that Subscribers may collect the proceeds payable for any loss
under such insurance.  The proceeds of such insurance, less any costs
and expenses incurred or paid by Subscribers in the collection thereof,
shall be applied either toward the cost of the repair or replacement of the
items damaged or destroyed, or on account of any sums secured hereby, whether or
not then due or payable.

    


    6.7           In
order to protect the Collateral and Subscribers’ interest therein,
Subscribers may, at Subscribers’s option, and without any obligation to do
so, pay, perform and discharge any and all amounts, costs, expenses and
liabilities herein agreed to be paid or performed by Debtor upon Debtor’s failure to do so.  All amounts
expended by Subscribers in so doing shall become part of the Obligations
secured hereby, and shall be immediately due and payable by Debtor to
Subscribers upon demand and shall bear interest at the lesser of 15% per
annum or the highest legal amount allowed from the dates of such expenditures
until paid.

     

    
      
        
        

      

      
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    6.8           Upon
the request of Subscribers, Debtors will furnish to Subscribers within five
(5) business days thereafter, or to any proposed assignee of this Security
Agreement, a written statement in form reasonably satisfactory to Subscribers,
duly acknowledged, certifying the amount of the principal and interest and any
other sum then owing under the Obligations, whether to its knowledge any claims,
offsets or defenses exist against the Obligations or against this Security
Agreement, or any of the terms and provisions of any other agreement of Debtors
securing the Obligations.  In connection with any assignment by
Subscribers of this Security Agreement, each Debtor hereby agrees to cause
the insurance policies required hereby to be carried by such Debtor, if any, to
be endorsed in form satisfactory to Subscribers or to such assignee, with
loss payable clauses in favor of such assignee, and to cause such endorsements
to be delivered to Subscribers within ten (10) calendar days after request
therefor by Subscribers.

    


    6.9           Each
Debtor will, at its own expense, make, execute, endorse, acknowledge, file
and/or deliver to the Subscribers from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other reasonable assurances or instruments and take further steps relating to
the Collateral and other property or rights covered by the security interest
hereby granted, as the Subscribers may reasonably require to perfect its
security interest hereunder.

    


    6.10         Debtors
represent and warrant that they are the true and lawful exclusive owners of the
Collateral, free and clear of any liens, encumbrances and claims other than
those listed on Schedule 6.1.

    


    6.11         Each
Debtor hereby agrees not to divest itself of any right under the Collateral
except as permitted herein absent prior written approval of the Subscribers,
except to a subsidiary organized and located in the United States on prior
notice to Subscribers provided the Collateral remains subject to the
security interest herein described.

    


    6.12         Each
Debtor shall cause each Subsidiary of such Debtor in existence on the date
hereof and each future Subsidiary to execute and deliver to
Subscribers promptly and in any event within ten (10) days after the
formation, acquisition or change in status thereof (A) a guaranty guaranteeing
the Obligations and (B) if requested by Subscribers, a security and pledge
agreement substantially in the form of this Agreement together with (x)
certificates evidencing all of the capital stock of each Subsidiary of and any
entity owned by such Subsidiary, (y) undated stock powers executed in blank with
signatures guaranteed, and (z) such opinion of counsel and such approving
certificate of such Subsidiary as Subscribers may reasonably request in respect
of complying with any legend on any such certificate or any other matter
relating to such shares and (C) such other agreements, instruments, approvals,
legal opinions or other documents reasonably requested by Subscribers in order
to create, perfect, establish the first priority of or otherwise protect any
lien purported to be covered by any such pledge and security agreement or
otherwise to effect the intent that all property and assets of such Subsidiary
shall become Collateral for the Obligations.  For purposes of this
Agreement, “Subsidiary” means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 30% of (A) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (B) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (C) in the case of a trust, estate, association, joint
venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such
entity.  Schedule
6.12 annexed
hereto contains a list
of all Subsidiaries of the Debtors as of the date of this
Agreement.

     

    
      
        
        

      

      
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    6.13           Debtor
will notify Subscribers within ten days of the occurrence of any change of
Debtor’s name, domicile, address or jurisdiction of
incorporation.  The timely giving of this notice is a material
obligation of Debtor.

    


    7.           Power of
Attorney.

    


    At any
time an Event of Default has occurred, and only after the applicable cure period
as set forth in this Agreement and the other Transaction Documents, and is
continuing, each Debtor hereby irrevocably constitutes and appoints Subscribers
as the true and lawful attorney of such Debtor, with full power of substitution,
in the place and stead of such Debtor and in the name of such Debtor or
otherwise, at any time or times, in the discretion of the Subscribers, to take
any action and to execute any instrument or document which the Subscribers may
deem necessary or advisable to accomplish the purposes of this
Agreement.  This power of attorney is coupled with an interest and is
irrevocable until the Obligations are satisfied.

    


    8.           Performance By The
Subscribers.

    


    If a
Debtor fails to perform any material covenant, agreement, duty or obligation of
such Debtor under this Agreement, Subscribers may, after any applicable cure
period, at any time or times in its discretion, take action to effect
performance of such obligation.  All reasonable expenses of the
Subscribers incurred in connection with the foregoing authorization shall be
payable by Debtors as provided in Paragraph 12.1 hereof.  No
discretionary right, remedy or power granted to the Subscribers under any part
of this Agreement shall be deemed to impose any obligation whatsoever on the
Subscribers with respect thereto, such rights, remedies and powers being solely
for the protection of the Subscribers.

    


    9.           Event of
Default.

    


    An event
of default (“Event of Default”) shall be deemed to have occurred hereunder upon
the occurrence of any event of default as defined and described in this
Agreement, in the Note, the Subscription Agreement, Transaction Documents (as
defined in the Subscription Agreement), and any other agreement to which one or
more Debtors and Subscribers are parties.   Upon and after any
Event of Default, after the applicable cure period, if any, any or all of the
Obligations shall become immediately due and payable at the option of the
Subscribers, and the Subscribers may dispose of Collateral as provided
below.  A default by Debtor of any of its material obligations
pursuant to this Agreement and any of the Transaction Documents shall be an
Event of Default hereunder and an “Event of Default” as defined in the Note, and
Subscription Agreement.

    


    10.         Disposition of
Collateral.

    


    Upon and
after any Event of Default which is then continuing,

    


    10.1           The
Subscribers may exercise its rights with respect to each and every component of
the Collateral, without regard to the existence of any other security or source
of payment for, in order to satisfy the Obligations.  In addition to
other rights and remedies provided for herein or otherwise available to it, the
Subscribers shall have all of the rights and remedies of a Subscriber on default
under the Uniform Commercial Code then in effect in the State of New
York.

    


    10.2           If
any notice to Debtors of the sale or other disposition of Collateral is required
by then applicable law, five (5) business days prior written notice (which
Debtors agree is reasonable notice within the meaning of Section 9.612(a) of the
Uniform Commercial Code) shall be given to Debtors of the time and place of any
sale of Collateral which Debtors hereby agree may be by private
sale.  The rights granted in this Section are in addition to any and
all rights available to Subscribers under the Uniform Commercial
Code.

     

    
      
        
        

      

      
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    10.3           The
Subscribers is authorized, at any such sale, if the Subscribers deems it
advisable to do so, in order to comply with any applicable securities laws, to
restrict the prospective bidders or purchasers to persons who will represent and
agree, among other things, that they are purchasing the Collateral for their own
account for investment, and not with a view to the distribution or resale
thereof, or otherwise to restrict such sale in such other manner as the
Subscribers deem advisable to ensure such compliance.  Sales made
subject to such restrictions shall be deemed to have been made in a commercially
reasonable manner.

    


    10.4           All
proceeds received by the Subscribers in respect of any sale, collection or other
enforcement or disposition of Collateral, shall be applied (after deduction of
any amounts payable to the Subscribers pursuant to Paragraph 12.1 hereof)
against the Obligations.   Upon payment in full of all
Obligations, Debtors shall be entitled to the return of all Collateral,
including cash, which has not been used or applied toward the payment of
Obligations or used or applied to any and all costs or expenses of the
Subscribers incurred in connection with the liquidation of the Collateral
(unless another person is legally entitled thereto).  Any assignment
of Collateral by the Subscribers to Debtors shall be without representation or
warranty of any nature whatsoever and wholly without recourse.  To the
extent allowed by law, Subscribers may purchase the Collateral and pay for such
purchase by offsetting the purchase price with sums owed to Subscribers by
Debtors arising under the Obligations or any other source.

    


    10.5           Rights of Subscribers to Appoint
Receiver.   Without limiting, and in addition to, any
other rights, options and remedies Subscribers has under the Transaction
Documents, the UCC, at law or in equity, or otherwise, upon the occurrence and
continuation of an Event of Default, Subscribers shall have the right to apply
for and have a receiver appointed by a court of competent
jurisdiction.  Debtors expressly agrees that such a receiver will be
able to manage, protect and preserve the Collateral and continue the operation
of the business of Debtors to the extent necessary to collect all revenues and
profits thereof and to apply the same to the payment of all expenses and other
charges of such receivership, including the compensation of the receiver, until
a sale or other disposition of such Collateral shall be finally made and
consummated.  Debtors waive any right to require a bond to be posted
by or on behalf of any such receiver.

    


    11.           Waiver of Automatic
Stay.   Debtor acknowledges and agrees that should a
proceeding under any bankruptcy or insolvency law be commenced by or against
Debtor, or if any of the Collateral should become the subject of any bankruptcy
or insolvency proceeding, then the Subscribers should be entitled to, among
other relief to which the Subscribers may be entitled under the Note,
Subscription Agreement, Transaction Documents, and any other agreement to which
the Debtor and Subscribers are parties, (collectively “Loan Documents”) and/or
applicable law, an order from the court granting immediate relief from the
automatic stay pursuant to 11 U.S.C. Section 362 to permit the Subscribers to
exercise all of its rights and remedies pursuant to the Loan Documents and/or
applicable law.  DEBTOR EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC
STAY IMPOSED BY 11 U.S.C. SECTION 362.  FURTHERMORE, DEBTOR EXPRESSLY
ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION
OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION,
11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN
ANY WAY THE ABILITY OF THE SUBSCRIBERS TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES
UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW.   Debtor
hereby consents to any motion for relief from stay which may be filed by the
Subscribers in any bankruptcy or insolvency proceeding initiated by or against
Debtor, and further agrees not to file any opposition to any motion for relief
from stay filed by the Subscribers.  Debtor represents, acknowledges
and agrees that this provision is a specific and material aspect of this
Agreement, and that the Subscribers would not agree to the terms of this
Agreement if this waiver were not a part of this Agreement.  Debtor
further represents, acknowledges and agrees that this waiver is knowingly,
intelligently and voluntarily made, that neither the Subscribers nor any person
acting on behalf of the Subscribers has made any representations to induce this
waiver, that Debtor has been represented (or has had the opportunity to be
represented) in the signing of this Agreement and in the making of this waiver
by independent legal counsel selected by Debtor and that Debtor has had the
opportunity to discuss this waiver with counsel.   Debtor further
agrees that any bankruptcy or insolvency proceeding initiated by Debtor will
only be brought in the Federal Court within the Southern District of New
York.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    12.           Miscellaneous.

    


    12.1         Expenses.  Debtors
shall pay to the Subscribers, on demand, the amount of any and all reasonable
expenses, including, without limitation, attorneys’ fees, legal expenses and
brokers’ fees, which the Subscribers may incur in connection with (a) sale,
collection or other enforcement or disposition of Collateral; (b) exercise or
enforcement of any the rights, remedies or powers of the Subscribers hereunder
or with respect to any or all of the Obligations upon breach or threatened
breach; or (c) failure by Debtors to perform and observe any agreements of
Debtors contained herein which are performed by Subscribers.

    


    12.2         Waivers, Amendment and
Remedies.  No course of dealing by the Subscribers and no
failure by the Subscribers to exercise, or delay by the Subscribers in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, and no single or partial exercise thereof shall preclude any other or
further exercise thereof or the exercise of any other right, remedy or power of
the Subscribers.  No amendment, modification or waiver of any
provision of this Agreement and no consent to any departure by Debtors therefrom
shall, in any event, be effective unless contained in a writing signed by the
Subscribers, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. The rights,
remedies and powers of the Subscribers, not only hereunder, but also under any
instruments and agreements evidencing or securing the Obligations and under
applicable law are cumulative, and may be exercised by the Subscribers from time
to time in such order as the Subscribers may elect.

    


    12.3         Notices.  All
notices or other communications given or made hereunder shall be in writing and
shall be personally delivered or deemed delivered the first business day after
being faxed (provided that a copy is delivered by first class mail) to the party
to receive the same at its address set forth below or to such other address as
either party shall hereafter give to the other by notice duly made under
this Section:

    


    
      	  	
              To
      Debtors:

            	
              Mesa
      Energy Holdings, Inc.

            


    

    5220 Spring Valley Road, Suite
525

    Dallas, TX 75254

    Attn: Randy M. Griffin, CEO

    Fax: (760) ___________

     

    With a copy by facsimile

    
      	 	
              only
      to:

            	
              Gottbetter
      & Partners, LLP

            


    

    488 Madison Avenue, 12th
Floor

    New York, NY 10022

    Attn: Adam S. Gottbetter,
Esq.

    Fax: (212) 400-6901

     

    
      	 	
              To
      Subscribers:

            	
              As
      specified in the Subscription
Agreement

            


    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      	 	
              To
      Collateral Agent:

            	
              Collateral
      Agents, LLC

            


    

    111 West
57th
Street, Suite 1416

    New York,
NY 10019

    Attn:
General Counsel

    Fax:
(212) 245-9101

    


    If to
Debtors or Subscribers,

    or
Collateral Agent

    with a
copy by telecopier only to:

    


    Grushko
& Mittman, P.C.

    551 Fifth
Avenue, Suite 1601

    New York,
New York 10176

    Fax:
(212) 697-3575

    


    Any party
may change its address by written notice in accordance with this
paragraph.

    


    12.4         Term; Binding
Effect.  This Agreement shall (a) remain in full force and
effect until payment and satisfaction in full of all of the Obligations; (b) be
binding upon each Debtor, and its successors and permitted assigns; and (c)
inure to the benefit of the Subscribers and its successors and
assigns.

    


    12.5         Captions.  The
captions of Paragraphs, Articles and Sections in this Agreement have been
included for convenience of reference only, and shall not define or limit the
provisions of this agreement and have no legal or other significance
whatsoever.

    


    12.6         Governing Law; Venue;
Severability.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
conflicts of laws principles that would result in the application of the substantive
laws of another jurisdiction, except to the extent that the perfection of
the security interest granted hereby in respect of any item of Collateral may be
governed by the law of another jurisdiction.  Any legal action or
proceeding against a Debtor with respect to this Agreement must be brought only
in the courts in the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, each
Debtor hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid
courts.  Each Debtor hereby irrevocably waives any objection which
they may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Agreement brought in the aforesaid courts and hereby further irrevocably waives
and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient
forum.  If any provision of this Agreement, or the application thereof
to any person or circumstance, is held invalid, such invalidity shall not affect
any other provisions which can be given effect without the invalid provision or
application, and to this end the provisions hereof shall be severable and the
remaining, valid provisions shall remain of full force and effect.

    


    12.7         Entire
Agreement.  This Agreement contains the entire agreement of the
parties and supersedes all other agreements and understandings, oral or written,
with respect to the matters contained herein.

    


    12.8         Counterparts/Execution.  This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but one
and the same instrument.  This Agreement may be executed by facsimile
signature and delivered by electronic transmission.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    13.           Termination;
Release.  When the Obligations have been indefeasibly paid and
performed in full or all outstanding Note have been converted to common stock
pursuant to the terms of the Note and the Subscription Agreements, this
Agreement shall terminated, and the Subscribers, at the request and sole expense
of the Debtors, will execute and deliver to the Debtors the proper instruments
(including UCC termination statements) acknowledging the termination of the
Security Agreement, and duly assign, transfer and deliver to the Debtors,
without recourse, representation or warranty of any kind whatsoever, such of the
Collateral, including, without limitation, Securities and any Additional
Collateral, as may be in the possession of the Subscribers.

    


    14.           Subscribers Powers.

    


    14.1         Subscribers
Powers.  The powers conferred on the Subscribers hereunder are
solely to protect Subscribers’ interest in the Collateral and shall not
impose any duty on it to exercise any such powers.

    


    14.2         Reasonable
Care.  The Subscribers is required to exercise reasonable
care in the custody and preservation of any Collateral in its possession;
provided, however, that the Subscribers shall be deemed to have exercised
reasonable care in the custody and preservation of any of the Collateral if it
takes such action for that purposes as any owner thereof reasonably requests in
writing at times other than upon the occurrence and during the continuance of
any Event of Default, but failure of the Subscribers, to comply with any such
request at any time shall not in itself be deemed a failure to exercise
reasonable care.

    


    14.3         Majority in
Interest.   The rights of the Subscribers hereunder,
except as otherwise set forth herein shall be exercised upon the approval of
Subscribers holding 70% of the outstanding Obligations (“Majority in Interest”)
at the time such approval is sought or given and must include each
of ____________________ and ____________________ for so long as such
Subscribers holds not less than $100,000 of Note Principal.  Any
tangible or physical Collateral shall be delivered to and be held by the
Collateral Agent pursuant to this Agreement and on behalf of all Subscribers as
to their respective rights.  The Collateral, to the extent it may be
transferred to Subscribers, may be held in the name of ____________________ or
in “street name”.  Unless agreed to otherwise by a Majority in
Interest, ____________________ is authorized to act on behalf of all the
Subscribers in connection with the Subscribers rights under this
Agreement.

    


    14.4         Authority of Collateral
Agent.  The Collateral Agent was appointed by the Subscribers
pursuant to a Collateral Agent Agreement of even date herewith.  All
of the rights and benefits granted to the Subscribers pursuant to this
Agreement, including the security interest and enforcement rights are also
granted to the Collateral Agent and may be exercised by Collateral Agent on
behalf of Subscribers.

     

    [THIS
SPACE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, the
undersigned have executed and delivered this Security Agreement, as of the date
first written above.

     

    
      
        
          	
                  “DEBTOR”

                	 
      	 
      
	
                  MESA
      ENERGY HOLDINGS, INC.

                	 
      	 
      
	
                  A
      Delaware corporation

                	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                  By:

                	
                  /s/ Randy M.
      Griffin

                	 
      	 
      
	
                  Its:

                	
                  Chief Executive Officer

                	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                  “SUBSIDIARY”

                	 
      	
                  “SUBSIDIARY”

                
	
                  MESA
      ENERGY, INC.

                	 
      	
                  MESA
      ENERGY OPERATING, LLC

                
	
                  a
      Nevada corporation

                	 
      	
                  a
      Texas limited liability company

                
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                  By:

                	
                   /s/
      Randy M. Griffin

                	 
      	
                  By:

                	
                  /s/ Randy
      M. Griffin

                
	 
      	 
      	 
      
	
                  Its:

                	
                  Chief Executive Officer

                	 
      	
                  Its:

                	
                  Chief Executive Officer

                
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                  Agreed
      and Accepted by:

                	 
      	 
      
	 
      	 
      	 
      
	
                  COLLATERAL
      AGENT:

                	 
      	 
      
	 
      	 
      	 
      
	
                  COLLATERAL
      AGENTS, LLC

                	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                  By:

                	
                     

                	 
      	 
      
	
                  Name:

                	 
      	 
      
	
                  Title:

                	 
      	 
      


        

      

    

     

    This
Security Agreement may be signed by facsimile signature and

    delivered
by confirmed facsimile transmission.

    


    
      
        
        

      

      
        12