Document:

Exhibit 10.4

 

PROMISSORY
NOTE

 

	
  $25,000,000.00

  	
  Houston, Texas

  	
  August 5, 2008

  

 

FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned (“Makers”)
jointly and severally promise to pay to the order of TEXAS CAPITAL BANK, N.A. (“Payee”),
at its banking quarters in Houston, Harris County, Texas, the sum of TWENTY
FIVE MILLION DOLLARS ($25,000,000.00), or so much thereof as may be advanced
against this Note pursuant to the Second Amended and Restated Credit Agreement
dated of even date herewith by and between Makers and Payee (as amended,
restated or supplemented from time to time, the “Credit Agreement”),
together with interest at the rates and calculated as provided in the Credit
Agreement.

 

Reference is hereby made to the Credit Agreement for matters governed
thereby, including, without limitation, the availability of Makers to receive
advances under this Note and certain events which will entitle the holder
hereof to accelerate the maturity of all amounts due hereunder. Capitalized
terms used but not defined in this Note shall have the meanings assigned to
such terms in the Credit Agreement.

 

This Note is issued pursuant to and is payable as provided in the
Credit Agreement. Subject to compliance with applicable provisions of the
Credit Agreement, Makers may at any time pay the full amount or any part of
this Note without the payment of any premium or fee, but such payment shall
not, until this Note is fully paid and satisfied, excuse the payment as it
becomes due of any payment on this Note provided for in the Credit Agreement.

 

Without being limited thereto or thereby, this Note is secured by the
Security Instruments.

 

THIS NOTE SHALL BE GOVERNED AND
CONTROLLED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT
CHAPTER 345 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT
LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY TO THIS NOTE.

 

[Signatures on the following page]

 

Signature Page to Promissory
Note

 

 

	
   

  	
   

  	
  MAKERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CYMRI, L.L.C. (F/K/A THE CYMRI

  
	
   

  	
   

  	
  CORPORATION)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Larry M.
  Wright

  
	
   

  	
   

  	
   

  	
  Larry M. Wright

  
	
   

  	
   

  	
   

  	
  Chief Executive
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TRIUMPH
  ENERGY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Larry M.
  Wright

  
	
   

  	
   

  	
   

  	
  Larry M. Wright

  
	
   

  	
   

  	
   

  	
  Chief Executive
  OfficerExhibit 10.5

 

SECURITY AGREEMENT

(All Personal Property)

 

THIS SECURITY AGREEMENT is made and entered
into effective as of August 5, 2008 (this “Agreement”) among CYMRI, L.L.C., a Nevada limited liability company (F/K/A THE
CYMRI CORPORATION, a Texas corporation) and TRIUMPH ENERGY, INC., a Louisiana corporation, each
individually, a “Debtor” and collectively, “Debtors”) in favor of
TEXAS CAPITAL BANK, N.A. (“Secured
Party”), for the benefit of itself and any counterparty under a Permitted
Commodity Hedge Agreement and party to an Intercreditor Agreement.

 

Background:

 

A.            On the
same date as this Agreement, Debtors, as Borrowers, and Secured Party, as
Lender, executed that certain Second Amended and Restated Credit Agreement (as
amended, restated, or supplemented, the “Credit Agreement”) pursuant to
which Secured Party agreed to make loans to Debtors from time to time on the
conditions set out in the Credit Agreement.

 

B.            Secured
Party has conditioned its obligations under the Credit Agreement upon, among
other things, the execution and delivery by Debtors of this Agreement, and
Debtors have agreed to enter into this Agreement.

 

Agreements:

 

In order to comply with the terms and
conditions of the Credit Agreement and for and in consideration of the premises
and the agreements herein contained, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, each Debtor
hereby agrees with Secured Party as follows:

 

ARTICLE I

DEFINITIONS

 

Section 1.1             Terms Defined
Above; Other Defined Terms.  As used
in this Agreement, the terms “Credit Agreement,” “Debtor,” “Debtors,”
and “Secured Party,” shall have the meanings indicated above.  Unless otherwise defined herein or the
context otherwise requires, all capitalized terms used but not defined in this
Agreement have the respective meanings given them in the Credit Agreement.

 

Section 1.2             Certain
Definitions.  As used in this
Agreement, the following terms shall have the following meanings, unless the
context otherwise requires:

 

“Accounts” has the meaning indicated
in subsection 2.1(a) hereof.

 

“Agreement” is defined in the preamble
and means this Security Agreement, as the same may from time to time be amended
or supplemented.

 

 

“Code” means (a) the Uniform
Commercial Code as presently in effect in the State of Texas, as amended from
time to time, and (b) with respect to rights in states other than Texas,
the Uniform Commercial Code as enacted in the applicable state, as amended from
time to time.

 

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

 

“Controlled Foreign Entity” means a “controlled
foreign corporation” as defined in the Tax Code.

 

“Default”
any event, circumstance, or condition which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default.

 

“Equipment” has the meaning indicated
in subsection 2.1(c) hereof.

 

“Event of Default” means the
occurrence of any of the events specified in Section 5.3 hereof; provided
that any requirement for notice or lapse of time or other condition precedent
has been satisfied.

 

“General Intangibles” has the meaning
indicated in subsection 2.1(d) hereof.

 

“Inventory” has the meaning indicated
in subsection 2.1(e) hereof.

 

“Other Liable Party” means any person,
other than a Debtor, who is or becomes primarily or secondarily liable for any
of the Secured Obligations or who grants Secured Party a lien on any property
as security for the Secured Obligations.

 

“Related Rights” means all chattel
paper, electronic chattel paper, payment intangibles, promissory notes, letter
of credit rights, supporting obligations, documents and instruments relating to
the Accounts or the General Intangibles and all rights now or hereafter
existing in and to all security agreements, leases, and other contracts
securing or otherwise relating to any Accounts or General Intangibles or any
such chattel paper, electronic chattel paper, payment intangibles, promissory
notes, letter of credit rights, documents and instruments.

 

“Secured Obligations” has the meaning
indicated in Section 2.3 hereof.

 

“Security Documents” means this
Agreement together with all financing statements filed in connection with this
Agreement.

 

“Tax Code” means the Internal Revenue
Code of 1986, as the same may be amended or supplemented from time to time, and
any successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.

 

Section 1.3             Terms Defined in
Code.  Unless otherwise defined
herein, all terms used herein which are defined in the Code shall have the same
meaning herein.

 

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ARTICLE II

SECURITY
INTEREST

 

Section 2.1             Grant of Security
Interest.  As collateral security for
all of the Secured Obligations, each Debtor hereby grants to Secured Party a
security interest in, a general lien upon, and a right of set-off against all
of such Debtor’s right, title and interest in all of its personal and fixture
property of every kind and nature, whether tangible or intangible, including
but not limited to the following, and whether now owned or later acquired:

 

(a)           all
of such Debtor’s accounts (as is defined in the Code) of any kind (the “Accounts”),
and all rights in and to all security agreements, leases, and other contracts
securing or otherwise relating to any Accounts;

 

(b)           all
of such Debtor’s goods, chattel paper, electronic chattel paper, payment
intangibles, promissory notes, letters of credit and letter-of-credit rights,
documents and instruments, in each case as defined in the Code, and all rights
in and to all security agreements, leases, and other contracts securing or
otherwise relating to any such goods, chattel paper, electronic chattel paper,
payment intangibles, promissory notes, letters of credit and letter-of-credit
rights, documents and instruments;

 

(c)           all
of such Debtor’s equipment (as defined in the Code) in all of its forms, and
wherever located, together with all parts thereof and all accessions or
additions thereto, including all of such Debtor’s vehicles (collectively, the “Equipment”);

 

(d)           all
of such Debtor’s general intangibles (as defined in the Code) of any kind (the “General
Intangibles”), and all rights in and to all security agreements, leases,
and other contracts securing or otherwise relating to any General Intangibles;

 

(e)           all
of such Debtor’s inventory (as defined in the Code) in all of its forms, and
wherever located, together with all accessions or additions thereto and
products thereof (collectively the “Inventory”);

 

(f)            all
of such Debtor’s investment property (as defined in the Code) wherever located;

 

(g)           all
of such Debtor’s deposit accounts (as defined in the Code) wherever located;

 

(h)           all
of such Debtor’s as-extracted collateral and fixtures, in each case as defined
in the Code;

 

(i)            all
of such Debtor’s insurance claims and proceeds and commercial tort claims;

 

(j)            any
other contract rights of such Debtor or rights to the payment of money;

 

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(k)           any
additional tangible or intangible property from time to time delivered to or
deposited with Secured Party as security for the Secured Obligations or
otherwise pursuant to the terms of this Agreement; and

 

(l)            the
proceeds, products, supporting obligations, Related Rights, additions to,
substitutions for and accessions of any and all Collateral described in
subsections (a)-(k) in this Section 2.1.

 

Section 2.2             Certain Limited
Exclusions.  Notwithstanding anything
herein to the contrary, in no event shall the Collateral include (nor shall any
component definition of Collateral include), or the security interest granted
under Section 2.1 hereof attach to (a) any contract right or
general intangible that prohibits or creates a termination right with respect
to any grant or attempt to grant a security interest therein, or (b) any
of the outstanding Equity Interests of, a Controlled Foreign Entity in excess
of sixty-five percent (65%) of the voting power of all classes of Equity
Interests of such Controlled Foreign Entity entitled to vote.

 

Section 2.3             Secured
Obligations.  The security interest
in, general lien upon, and right of set-off against the Collateral is granted
to secure the following (collectively, the “Secured Obligations”):

 

(a)           the
payment of all the Obligations (as defined in the Credit Agreement) of Debtors
to Secured Party now or hereafter existing including, without limitation, the
Indebtedness of Debtors under the Note, and any and all renewals, extensions
for any period or rearrangement of the Obligations;

 

(b)           the
performance of all obligations of Debtors under this Agreement and the other
Loan Documents; and

 

(c)           all
obligations of Debtors owed to a counterparty under a Permitted Commodity Hedge
Agreement defined in or arising pursuant to the terms of the Credit Agreement,
including without limitation, any ISDA Master Agreement executed pursuant to
the Credit Agreement between any Debtor and such counterparty (together with
all schedules and confirmations in respect thereof, as ratified, amended,
supplemented, restated, extended or replaced from time to time).

 

ARTICLE III

REPRESENTATIONS
AND WARRANTIES

 

In order to induce Secured Party to accept
this Agreement, each Debtor represents and warrants to Secured Party (which
representations and warranties will survive the creation of any Secured
Obligations and the extension of any credit under the Credit Agreement) that:

 

Section 3.1             Ownership and
Liens.  Except for the security
interest of Secured Party granted in this Agreement and except for liens,
security interests and other encumbrances permitted under the Credit Agreement
(“Permitted Encumbrances”), each Debtor owns defensible title to the
Collateral free and clear of any other liens, adverse claims or options other
than Permitted Encumbrances.  Each Debtor
has rights in or the right, power and authority to grant a security interest in
the Collateral to Secured Party in the manner provided herein, free and 

 

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clear of any other liens, adverse claims and options other than
Permitted Encumbrances.  No other lien,
adverse claim or option has been created by any Debtor or is known by any
Debtor to exist with respect to any Collateral other than Permitted
Encumbrances.  No financing statement or
other security instrument is on file in any jurisdiction covering any part of
the Collateral other than those in favor of Secured Party other than Permitted
Encumbrances.  At the time the security
interest in favor of Secured Party attaches to any after-acquired property
included within the Collateral, defensible title to such after-acquired
property, free and clear of any other liens, adverse claims or options (other
than Permitted Encumbrances) will be vested in a Debtor.

 

Section 3.2             Status of Accounts.  Each Account hereafter arising will
represent, and to the best knowledge of such Debtor each Account now existing
represents, the valid and legally enforceable obligations of a bona fide
account debtor and is not and will not be subject to contra accounts, set-offs,
defenses or counterclaims by or available to account debtors obligated on the
Accounts except as disclosed to Secured Party in writing; and the amount shown
as to each Account on such Debtor’s books will be the true and undisputed
amount owing and unpaid thereon, subject to any discounts, allowances, rebates,
credits and adjustments to which the account debtor has a right and which have
arisen in such Debtor’s ordinary course of business, or which have otherwise
been disclosed to Secured Party in writing.

 

Section 3.3             Status of Related
Rights.  All Related Rights are, and
those hereafter arising will be, valid and genuine.

 

Section 3.4             Inventory Not
Covered by Other Documents.  None of
the Inventory is, and at the time the security interest in favor of Secured
Party attaches none of the Inventory hereafter acquired will be, covered by any
document (as defined in the Code).

 

Section 3.5             Name;
Organization; Authority.  The exact
legal name of each Debtor is set out in the opening paragraph of this
Agreement.  Each Debtor is a corporation
or a limited liability company as noted in the preamble hereof, duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its organization.  The execution,
delivery and performance of this Agreement has been duly authorized by all
company action, and this Agreement constitutes the valid and binding obligation
of each Debtor, enforceable against each Debtor in accordance with its terms,
except as the enforceability thereof may be limited or affected by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors rights generally and by general equitable principles.

 

Section 3.6             Location.  As of the date hereof, the chief executive
office and chief place of business of each Debtor that is a Borrower is located
at the address set out in Section 8.3 of the Credit Agreement.  The office where such Debtor keeps its
records concerning the Accounts and the General Intangibles and the originals
of all the Related Rights has the same address as such Debtor’s chief executive
office and chief place of business. 
Debtors’ Inventory and Equipment (other than mobile goods) are located
in the States of Texas and Louisiana and such other states as Debtors shall
have, from time to time, given written notice of to Secured Party.

 

Section 3.7             Secured Party’s
Security Interest.  This Agreement
creates a valid and binding security interest in the Collateral securing the
Secured Obligations, subject to the Permitted Encumbrances.  Upon filing the financing statements
described in Section 4.9 of this Agreement covering the Collateral
in the Office of the Secretary of State for the state in which 

 

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each Debtor is organized (and such other jurisdictions as Secured Party
may deem appropriate), Secured Party will have a perfected security interest in
that Collateral in which a security interest may be perfected by filing,
subject only to Permitted Encumbrances. 
No further or subsequent filing, recording, registration or other public
notice of such security interest is necessary in any office or jurisdiction in
order to perfect such security interest or to continue, preserve or protect
such security interest except for continuation statements or for filings upon
the occurrence of any of the events stated in Section 4.9 of this
Agreement.  Such perfected security
interest in the Collateral shall constitute a first-priority security interest
under the Code, subject only to Permitted Encumbrances.

 

ARTICLE IV

COVENANTS
AND AGREEMENTS

 

Each Debtor will at all times comply with the
covenants contained in this Article IV, from the date hereof and
for so long as any part of the Secured Obligations or the commitment of Lenders
to make loans under the Credit Agreement is outstanding.

 

Section 4.1             Title; Prohibited
Liens and Filings.  Each Debtor
agrees to protect the title to the Collateral. 
Debtors will not pledge, mortgage, otherwise encumber, create or suffer
a lien to exist on any of the Collateral (other than Permitted Encumbrances)
or, subject to Section 4.12 hereof, sell, assign, dispose or
otherwise transfer any of the Collateral (other than as expressly permitted by
the Credit Agreement) to or in favor of any person other than Secured
Party.  Debtors will not file or permit
to be filed or recorded any financing statement or other security instrument
with respect to the Collateral other than in favor of Secured Party or as permitted
by the Credit Agreement.

 

Section 4.2             Taxes, Etc.  Each Debtor agrees to pay prior to
delinquency all taxes, charges, liens and assessments against the Collateral
which, if unpaid, might result in the imposition of a lien on the Collateral; provided,
however, Debtors shall not be required to pay any tax, charge, lien or
assessment that is not yet past due or is being contested in good faith by
appropriate proceedings diligently conducted by or on behalf of Debtors and if
Debtors shall have set up reserves therefor adequate under generally accepted
accounting principles.

 

Section 4.3             Possession of
Collateral.  Except (i) as
otherwise contemplated in the Credit Agreement with regard to cash proceeds, (ii) where
Secured Party chooses to perfect its security interest by possession in
addition to the filing of a financing statement, or (iii) the Collateral
is in transit in the ordinary course of business, the Collateral shall remain
in Debtors’ possession or control at all times at Debtors’ risk of loss and shall
(except for temporary removal consistent with its normal use) be kept at
locations owned or leased by Debtors.

 

Section 4.4             Inspection of
Collateral.  Secured Party may from
time to time during normal business hours and upon two (2) Business Days
written notice, inspect any Debtor’s records concerning the Accounts and the
General Intangibles, the originals of the Related Rights, the Equipment, the
Inventory and other Collateral.

 

Section 4.5             Filing
Reproductions.  At the option of
Secured Party, a photographic or other reproduction of this Agreement or of a
financing statement covering the Collateral may be filed as a financing
statement.

 

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Section 4.6             Delivery of
Information.  Each Debtor will
transmit promptly to Secured Party all information that such Debtor may have or
receive with respect to (a) the Collateral, or (b) account debtors or
obligors in respect of the Accounts, the General Intangibles and the Related
Rights, in each case which could reasonably be expected to materially and
adversely affect the value of the Collateral or Secured Party’s rights or
remedies with respect thereto.

 

Section 4.7             Compromise of
Collateral.  Debtors will not adjust,
settle or compromise any of the Accounts, the General Intangibles or the
Related Rights without the prior written consent of Secured Party, or other
than in a manner that does not materially affect the aggregate value of the
Collateral and is in the ordinary course of business.

 

Section 4.8             Expenses.  Each Debtor agrees to pay to Secured Party at
Secured Party’s offices, all advances, charges, costs and expenses (including
reasonable attorneys’ fees and legal expenses) incurred by Secured Party in
connection with the transaction which gives rise to this Agreement, in
connection with confirming, perfecting and preserving the security interest
created under this Agreement, in connection with protecting Secured Party
against the claims or interests of any Person against the Collateral, and in
exercising any right, power or remedy conferred by this Agreement or by law or
in equity (including, but not limited to, reasonable attorneys’ fees and legal
expenses incurred by Secured Party in the collection of instruments deposited
with or purchased by Secured Party and amounts incurred in connection with the
operation, maintenance or foreclosure of any or all of the Collateral).  The amount of all such advances, charges,
costs and expenses shall be due and payable by each Debtor to Secured Party
thirty (30) days after invoice or demand by Secured Party together with
interest thereon from the due date at the Default Rate as provided in the
Credit Agreement.

 

Section 4.9             Financing
Statement Filings; Notifications. 
Each Debtor recognizes that financing statements pertaining to the
Collateral will be filed with the Office of the Secretary of State for the
state in which each Debtor is organized and a mortgage will be filed in each
county in each state in which any real property of any Debtor is located.  Debtors will promptly notify Secured Party of
any condition or event that may change the proper location for the filing of
any financing statements or other public notice or recordings for the purpose
of perfecting a security interest in the collateral.  Without limiting the generality of the
foregoing, Debtors will (a) promptly notify Secured Party of any change to
a jurisdiction other than as represented in Section 3.5 or Section 3.6:
(i) in the location of such Debtor’s registered office; (ii) in the
location of the Inventory (other than Inventory sold or leased in the ordinary
course of business); (iii) in the location where the Equipment is kept
(other than Equipment removed in the ordinary course of business for not more
than thirty (30) days) or disposed of as permitted by the Credit Agreement; (iv) in
the location of the office where any Debtor keeps its records concerning the
Accounts; or (v) in the “location” of any Debtor within the meaning of the
Code; (b) prior to any of the Collateral becoming so related to any particular
real estate so as to become a fixture on such real estate, notify Secured Party
of the description of such real estate and the name of the record owner
thereof; and (c) promptly notify Secured Party of any change in any Debtor’s
name, identity or organizational structure. 
In any notice furnished pursuant to this section, Debtors will expressly
state that the notice is required by this Agreement and contains facts that
will or may require additional filings of financing statements or other notices
for the purpose of continuing perfection of Secured Party’s security interest
in the Collateral.

 

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Section 4.10           Maintenance of
Collateral Generally.  Except for
matters which could not reasonably be expected to have a Material Adverse
Effect, Debtors will (a) maintain all the Collateral in good condition,
repair, and working order (ordinary wear and tear excepted); (b) not
misuse, abuse, waste, destroy or allow the Collateral to deteriorate, except,
with respect to the Equipment only, for ordinary wear and tear from its
intended use; (c) promptly, or in the case of any loss or damage to any
goods included in the Collateral as soon as practicable, make or cause to be
made all repairs, replacements or other improvements to the Collateral as are
necessary or desirable to accomplish the foregoing; and (d) not use any
Collateral in violation of any law, statute, ordinance or regulation or allow
it to be so used.

 

Section 4.11           Account Obligations.  Debtors will duly perform or cause to be
performed all material obligations of Debtors with respect to the goods or
services, the sale or lease or rendition of which gave rise or will give rise
to each Account relating thereto.

 

Section 4.12           Use of Inventory.  Until an Event of Default has occurred and is
continuing, each Debtor may use its Inventory in any lawful manner not
inconsistent with this Agreement, the Credit Agreement and with the terms of
insurance thereon and may sell, lease or otherwise dispose of its Inventory in
the ordinary course of business.  Each
Debtor will not and shall not be permitted to use any item of Inventory in a
manner inconsistent with the holding thereof for sale, lease or disposition in
the ordinary course of business or in contravention of the terms of any
agreement.  A sale, lease or disposition
in the ordinary course of business does not include the exchange of items of
Inventory for goods in kind or otherwise or transfers of items of Inventory
made in satisfaction of present or future Secured Obligations.

 

Section 4.13           Proceeds.  All proceeds received by any Debtor from the
sale or disposition of any portion of the Collateral, all proceeds received by
any Debtor in the ordinary course of business and all other proceeds of the
Collateral shall be delivered or paid to Secured Party as provided in and
subject to the terms of the Credit Agreement. 
To evidence Secured Party’s rights in this regard, each Debtor will
assign or endorse proceeds to Secured Party as Secured Party reasonably
requests.  Secured Party may, from time
to time so long as an Event of Default exists, in its discretion, hold non-cash
proceeds as part of the Collateral or apply cash proceeds of the Collateral
received by Secured Party in the manner set out in Section 5.2 of
this Agreement.  Subject to the terms and
conditions set out in the Credit Agreement, if an Event of Default exists each
Debtor will notify obligors on all of the Collateral to make payments directly
to Secured Party, and thereafter Secured Party may endorse as any Debtor’s
agent any checks, instruments, chattel paper or other documents connected with
the Collateral, take control of the Collateral and may hold the non-cash
proceeds as part of the Collateral and may apply cash proceeds received by
Secured Party in the manner set out in Section 5.2 of this
Agreement.  Secured Party may take any
action reasonably necessary to obtain, preserve and enforce the liens granted
hereunder and maintain and preserve the Collateral.

 

Section 4.14           Delivery of
Certificate of Title to Equipment. 
In the case of Equipment now owned constituting goods in which a
security interest is perfected by a notation on the certificate of title or
similar evidence of the ownership of such goods, Debtors shall, as soon as
practicable after a request by Secured Party, deliver to Secured Party any and
all certificates of title, applications for title or similar evidence of
ownership of such Equipment and shall cause Secured Party to be named as
lienholder on any such certificate of title or other evidence of
ownership.  In the case of such Equipment
hereafter acquired, Debtors shall provide evidence of 

 

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ownership within ten (10) days of its acquisition of such
Equipment.  Debtors shall provide notice
to Secured Party of any material loss or damage to any Equipment and shall not
permit any such Equipment.

 

Section 4.15           Third-Party
Acknowledgments; Control Agreements. 
Upon the request of Secured Party, if any of the Collateral is in the
possession of a third-party, Debtors will join with Secured Party in notifying
the third-party of Secured Party’s security interest and obtaining an
acknowledgment in form and substance reasonably satisfactory to Secured Party
from such third-party that it is holding the Collateral for the benefit of the
Secured Party.  Upon the request of
Secured Party, Debtors will fully cooperate with Secured Party in obtaining a
control agreement in form and substance reasonably satisfactory to Secured
Party with respect to any Collateral consisting of deposit accounts, investment
property, electronic chattel paper or letter of credit rights.

 

Section 4.16           Further Assurances.  Debtors will from time to time sign, execute,
deliver and file, alone or with Secured Party, upon reasonable request, any
financing statements, security agreements or other documents necessary to
perfect or continue in favor of Secured Party a first-priority security
interest (subject to the Permitted Encumbrances) in the Collateral; procure any
necessary instruments or documents as may be reasonably requested by Secured
Party; and take all further action that may be necessary, or that Secured Party
may reasonably request, to confirm, perfect, preserve and protect the security
interests intended to be granted hereby. 
Notwithstanding the previous sentence, however, each Debtor hereby
authorizes Secured Party to execute and deliver on behalf of such Debtor and to
file such financing statements, security agreements and other documents without
the signature of such Debtor either in Secured Party’s name or in the name of
such Debtor and as attorney-in-fact for such Debtor.  Each Debtor shall do all such additional and
further acts or things, give such assurances and execute such documents or
instruments as Secured Party reasonably requires to vest more completely in and
assure to Secured Party its rights under this Agreement, including, without
limiting the generality of the foregoing, (a) marking conspicuously each
chattel paper or electronic chattel paper included in the Collateral and, at
the request of Secured Party, each of such Debtor’s records pertaining to the
Collateral with a legend, in form and substance reasonably satisfactory to
Secured Party, indicating that such chattel paper or Collateral is subject to
the security interest granted by this Agreement, and (b) if any Account,
General Intangible or Related Right is evidenced by a promissory note, chattel
paper, electronic chattel paper or other instrument, transferring, delivering,
assigning to Secured Party such promissory note, chattel paper, electronic
chattel paper or other instrument duly endorsed and authenticated and
accompanied by duly executed instruments of transfer and assignment, all in
form and substance reasonably satisfactory to Secured Party, to be held by
Secured Party as Collateral under this Agreement.

 

ARTICLE V

RIGHTS,
REMEDIES AND DEFAULT

 

Section 5.1             With Respect to
Collateral.  Secured Party is hereby
fully authorized and empowered (without the necessity of any further consent or
authorization from any Debtor) and the right is expressly granted to Secured
Party, and each Debtor hereby constitutes, appoints and makes Secured Party as
such Debtor’s true and lawful attorney-in-fact and agent for such Debtor and in
such Debtor’s name, place and stead with full power of substitution, in Secured
Party’s name or such Debtor’s name or otherwise, for Secured Party’s sole use
and benefit, but at such 

 

9

 

Debtor’s cost and expense.  With
regard to such rights, Secured Party may exercise, without notice, all or any
of the following powers at any time following the occurrence and during the
continuation of an Event of Default hereunder with respect to all or any of the
Collateral:

 

(a)           notify
account debtors or the obligors on the Accounts, the General Intangibles and
the Related Rights to make and deliver payment to Secured Party;

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 5.2             Application of
Proceeds.  All proceeds paid to and
received by Secured Party on account of the Collateral will be, at the option
of Secured Party, applied by Secured Party to the Secured Obligations in
accordance with the terms and provisions of the Credit Agreement, whether or
not such Secured Obligations shall have by its terms matured; provided, however,
Secured Party need not apply or give credit for any item included in such sums
until Secured Party has received final payment thereof as required under the
Credit Agreement or solvent credits accepted as such by Secured Party; and provided
further that Secured Party’s failure to so apply any such sums shall not
be a waiver of Secured Party’s right to so apply such sums or any other sums at
any time.

 

Section 5.3             Events of Default.  Any of the following events shall be
considered an Event of Default under this Agreement:

 

(a)           The
occurrence and continuation of an “Event of Default” under the Credit
Agreement; or

 

(b)           Any
Debtor defaults in its performance of any covenants or agreements contained in
this Agreement and such default continues unremedied after the expiration of
thirty (30) days after receipt of notice from Secured Party of such default.

 

10

 

Section 5.4             Default Remedies.  Upon the occurrence and during the
continuation of any Event of Default, Secured Party may then, or at any time
thereafter and from time to time after giving any notice required under the
Credit Agreement, if any notice is required with respect to such Event of
Default, apply, set-off, collect, sell in one or more sales, lease, or
otherwise dispose of, any or all of the Collateral, in its then condition or,
at Secured Party’s option, following any commercially reasonable preparation or
processing, in such order as Secured Party may elect, and any such sale may be
made either at public or private sale at its place of business or elsewhere, or
at any brokers’ board or securities exchange, either for cash or upon credit or
for future delivery, and Secured Party may be the purchaser of any or all
Collateral so sold and may hold the same thereafter in its own right free from
any Debtor or right of redemption.  No
such purchase or holding by Secured Party shall be deemed a retention by
Secured Party in satisfaction of the Secured Obligations.  All demands, notices and advertisements, and
the presentment of property at sale are hereby waived except to the extent
reasonably necessary to conduct a commercially reasonable sale.  If, notwithstanding the foregoing provisions,
any applicable provision of the Code or other law requires Secured Party to
give reasonable notice of any such sale or disposition or other action, Debtors
hereby agree ten (10) days prior written notice shall constitute
reasonable notice.  Upon the occurrence
and during the continuation of any Event of Default, Secured Party may require
Debtors to assemble the Collateral and make it available to Secured Party at a
place designated by Secured Party which is reasonably convenient to Secured
Party and Debtors.  Any sale hereunder
may be conducted by an auctioneer or any officer or agent of Secured Party.

 

Section 5.5             Deficiency.  Each Debtor shall remain liable to Secured
Party for any unpaid Secured Obligations, advances, costs, charges and
expenses, together with interest thereon and shall pay the same immediately to
Secured Party as set out in the Credit Agreement.

 

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

 

Section 5.7             Secured Party’s
Actions.  Each Debtor waives any
right to require Secured Party to proceed against any Person, exhaust any
Collateral, or have any Other Liable Party joined with any Debtor in any suit arising
out of the Secured Obligations or this Agreement or pursue any other remedy in
Secured Party’s power; waives any and all notice of acceptance of this
Agreement or of creation, modification, rearrangement, renewal or extension for
any period of any of the Secured Obligations from time to time; and waives any
defense arising by reason of any disability or other defense of any Other
Liable Party, or by reason of the cessation from any 

 

11

 

cause whatsoever of the liability of any Other Liable Party.  All dealings between any Debtor and Secured
Party, whether or not resulting in the creation of the Secured Obligations,
shall conclusively be presumed to have been had or consummated in reliance upon
this Agreement.  Until all the Secured
Obligations shall have been paid in full or otherwise fully performed, each
Debtor shall have no right to subrogation, and each Debtor waives until all the
Secured Obligations shall have been paid in full or otherwise fully performed
any right to enforce any remedy which Secured Party now has or may hereafter
have against Other Liable Party and waives any benefit of and any right to
participate in any Collateral or security whatsoever now or hereafter held by
Secured Party.  Each Debtor authorizes
Secured Party, without notice or demand and without any reservation of rights
against any Debtor and without affecting any Debtor’s liability hereunder or on
the Secured Obligations, from time to time to (a) take and hold any other
property as collateral, other than the Collateral, for the payment of any or
all of the Secured Obligations, and exchange, enforce, waive and release any or
all of the Collateral or such other property; (b) upon the occurrence and
during the continuation of any Event of Default, apply the Collateral or such
other property and direct the order or manner of sale thereof as Secured Party
in its discretion may determine; (c) renew, extend for any period,
accelerate, modify, compromise, settle or release the obligation of any Other
Liable Party with respect to any or all of the Secured Obligations or
Collateral; (d) waive, enforce, modify, amend or supplement any of the
provisions of any of the Security Documents, the Credit Agreement or the Note
or any other promissory note or document evidencing any of the Secured
Obligations (except for an amendment or supplement to any of the foregoing to
which a Debtor is a party to the extent such amendment or supplement requires
the consent of such Debtor); and (e) release or substitute any Other
Liable Party.

 

Section 5.8             Transfer of
Secured Obligations and Collateral. 
Secured Party may transfer any or all of Secured Party’s interest in the
Secured Obligations, and upon any such transfer Secured Party may transfer its
security interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability with respect to the Collateral transferred, and
the transferee shall be vested with all rights, powers and remedies of Secured
Party hereunder with respect to Collateral so transferred; provided, however,
with respect to any security interest in the Collateral not so transferred,
Secured Party shall retain all rights, powers and remedies provided under this
Agreement.  Secured Party may at any time
deliver any or all of the Collateral to Debtors whose receipt shall be a
complete and full acquittance for the Collateral so delivered, and Secured
Party shall thereafter be discharged from any liability therefor.

 

Section 5.9             Cumulative
Security and Rights.  The execution
and delivery of this Agreement in no manner shall impair or affect any other
security (by endorsement or otherwise) for the Secured Obligations.  No security taken hereafter as security for
the Secured Obligations shall impair in any manner or affect this
Agreement.  All such present and future
additional security is to be considered as cumulative security.  The rights, powers and remedies of Secured
Party hereunder shall be in addition to all rights, powers and remedies given
by statute or rule of law and are cumulative.  The exercise of any one or more of the
rights, powers and remedies provided herein shall not be construed as a waiver
of any other rights, powers and remedies of Secured Party.  Furthermore, regardless of whether or not the
Uniform Commercial Code is in effect in the jurisdiction where such rights,
powers and remedies are asserted, Secured Party shall have the rights, powers
and remedies of a secured party under the Code. 
Secured Party may 

 

12

 

exercise its bankers’ lien or right of set-off with respect to the
Secured Obligations in the same manner as if the Secured Obligations were
unsecured.

 

Section 5.10           Continuing Agreement.  This is a continuing Agreement and the grant
of a security interest hereunder shall remain in full force and effect and all
the rights, powers and remedies of Secured Party hereunder shall continue to
exist until (a) the Secured Obligations are paid in full or otherwise
fully performed, and (b) Secured Party has no further obligation to
advance monies to Debtors under the Credit Agreement, at which time Secured
Party shall deliver or cause to be delivered to Debtors, at Debtors’ expense,
releases and satisfactions, or transfers without warranty, of all Collateral,
including releases of deeds of trust and mortgages, financing statements, and
other registrations of security with respect to the Collateral, and Debtors
shall deliver to Secured Party a general release of all of Secured Party’s
liabilities and obligations including under the Loan Documents and an
acknowledgment that the same have been terminated.  Furthermore, it is contemplated by the
parties hereto that there may be times when no Secured Obligations are owing;
notwithstanding such occurrences, however, this Agreement shall remain valid
and shall be in full force and effect as to subsequent Secured Obligations
provided Secured Party has not executed a written termination statement and
returned possession of the Collateral to Debtors.  Otherwise this Agreement shall continue
irrespective of the fact that the liability of Other Liable Party may have
ceased, or irrespective of the validity or enforceability of the Note or any of
the Security Documents, including the Credit Agreement, to which Other Liable
Party may be a party, and notwithstanding the reorganization, death, incapacity
or bankruptcy of Other Liable Party, and notwithstanding the reorganization or
bankruptcy of any Debtor, or any other event or proceeding affecting any Debtor
or Other Liable Party.

 

Section 5.11           Exercise of Rights,
Etc.  Time shall be of the essence
for the performance of any act under this Agreement or the Secured Obligations
by any Debtor or Other Liable Party, but neither Secured Party’s acceptance of
partial or delinquent payments nor any forbearance, failure or delay by Secured
Party in exercising any right, power or remedy shall be deemed a waiver of any
obligation of any Debtor or of Other Liable Party or of any right, power or
remedy of Secured Party or preclude any other or further exercise thereof; and
no single or partial exercise of any right, power or remedy shall preclude any
other or further exercise thereof, or the exercise of any other right, power or
remedy.

 

Section 5.12           Remedy and Waiver.  Secured Party may remedy any Default or Event
of Default without waiving the Default or Event of Default or waiving any prior
or subsequent Default or Event of Default.

 

Section 5.13           Non-Judicial
Remedies. Secured Party may enforce its rights hereunder without prior
judicial process or judicial hearing, and each Debtor expressly waives,
renounces and knowingly relinquishes any and all legal rights which might
otherwise require Secured Party to enforce its rights by judicial process.  In so providing for non-judicial remedies,
each Debtor recognizes and concedes that such remedies are consistent with the
usage of the trade, are responsive to commercial necessity, and are the result
of bargain at arm’s length.  Nothing
herein is intended to prevent Secured Party or any Debtor from resorting to
judicial process at any party’s option.

 

13

 

Section 5.14           Compliance with
Other Laws.  Secured Party may comply
in all material respects with the requirements of any applicable state or federal
law in connection with the disposition of all or any part of the Collateral,
and compliance with such laws will not be considered to adversely affect the
commercial reasonableness of any sale of all or any part of the Collateral.

 

Section 5.15           Disclaimer of
Warranties.  Secured Party may sell
the Collateral without giving any warranties as to the Collateral.  Secured Party may specifically disclaim any
warranties of title or similar warranties. 
The disclaimer of any such warranties will not be considered to
adversely affect the commercial reasonableness of any sale of all or any part
of the Collateral.

 

Section 5.16           Sales on Credit.  If Secured Party sells all or any part of the
Collateral upon credit, Debtors will be credited only with payments actually
made by the purchaser, received by the Secured Party and applied against the
Secured Obligations.  In the event the
purchaser fails to pay for the Collateral, Secured Party may resell the
Collateral and Debtors shall be credited with the proceeds of such sale.

 

ARTICLE VI

MISCELLANEOUS

 

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

 

Section 6.2             Notices. Any
record, notice, demand or document which either party is required or may desire
to give hereunder shall be given as provided in the Credit Agreement.

 

Section 6.3             Choice of Law.  THIS AGREEMENT HAS BEEN MADE IN AND THE
SECURITY INTEREST GRANTED HEREBY IS GRANTED IN AND EACH SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS (EXCEPT TO THE EXTENT THAT THE LAWS OF ANY OTHER
JURISDICTION GOVERN THE PERFECTION AND PRIORITY OF THE SECURITY INTEREST
GRANTED HEREBY) WITHOUT REGARD TO ITS CONFLICTS OF LAWS PRINCIPLES.  SUBJECT TO THE TERMS OF THE CREDIT AGREEMENT,
COURTS WITHIN THE STATE OF TEXAS SHALL HAVE JURISDICTION OVER ANY AND ALL
DISPUTES BETWEEN DEBTORS AND SECURED PARTY, WHETHER IN LAW OR EQUITY, INCLUDING
ANY AND ALL DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
RELATED DOCUMENT; AND VENUE IN ANY SUCH DISPUTE WHETHER IN FEDERAL OR STATE
COURT SHALL BE LAID IN HARRIS COUNTY, TEXAS.

 

Section 6.4             Amendment and
Waiver.  This Agreement may not be
amended (nor may any of its terms be waived) except in the manner provided in
the Credit Agreement.

 

Section 6.5             Severability.  If any provision of this Agreement is
rendered or declared invalid, illegal or unenforceable by reason of any
existing or subsequently enacted legislation or by a judicial decision which
shall have become final, Debtors and Secured Party shall promptly 

 

14

 

meet and discuss substitute provisions for those rendered invalid,
illegal or unenforceable, but all of the remaining provisions shall remain in
full force and effect.

 

Section 6.6             Survival of
Agreements.  All representations and
warranties of each Debtor herein, and all covenants and agreements herein not
fully performed before the effective date of this Agreement, shall survive such
date.

 

Section 6.7             Counterparts.  This Agreement may be executed in two or more
counterparts, and it shall not be necessary that the signatures of all parties
hereto be contained on any one counterpart hereof.  Each counterpart shall be deemed an original,
but all such counterparts taken together shall constitute one and the same
instrument.

 

Section 6.8             Successors and
Assigns.  The covenants and
agreements herein contained by or on behalf of each Debtor shall bind each
Debtor, each Debtor’s legal representatives, successors and assigns and all
persons who become bound as a debtor to this Agreement and shall inure to the
benefit of Secured Party, its successors and permitted assigns, in each case as
provided under the Credit Agreement.

 

Section 6.9             Titles of
Articles, Sections and Subsections. 
All titles or headings to articles, sections, subsections or other
divisions of this Agreement are only for the convenience of the parties and
shall not be construed to have any effect or meaning with respect to the other
content of such articles, sections, subsections or other divisions, such other
content being controlling as to the agreement between the parties hereto.

 

Section 6.10           WAIVER OF JURY TRIAL.  TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
EACH OF THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT WHICH IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN
CONNECTION WITH THE NOTE, THIS AGREEMENT OR THE OTHER SECURITY DOCUMENTS, OR
ANY TRANSACTION CONTEMPLATED THEREBY, BEFORE OR AFTER MATURITY.

 

Section 6.11           Interest.  It is the intention of the parties hereto to
comply strictly to usury laws applicable to the Secured Party.  Interest on the indebtedness is expressly
limited so that in no contingency or event whatsoever, whether by acceleration
of the maturity of the Note or otherwise, shall the interest taken, reserved,
contracted for, charged or received by the Secured Party exceed the maximum
amount permissible under applicable law. 
If from any circumstances whatsoever fulfillment of any provisions of
the Credit Agreement, this Agreement, any of the other Security Documents or of
any other document evidencing, securing or pertaining to the indebtedness
evidenced by the Note, at the time performance of such provision shall be due,
would be usurious under applicable law, then, ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity so that the aggregate
consideration which constitutes interest that is contracted for, taken,
reserved, charged for, or received shall not exceed the maximum amount allowed
by applicable law and such amount that would otherwise be excessive interest
shall be applied to the reduction of the principal amount owing under the Note
or on account of any other indebtedness of Debtors to the Secured Party, or if
principal of the Note and such other indebtedness has been paid in full,
refunded to the Debtors.  In determining
whether or not the interest paid or agreed to be paid for the use, forbearance,
or detention of sums hereunder 

 

15

 

exceeds the highest lawful rate, Debtors and the Secured Party shall,
to the maximum extent permitted by applicable law, (a) characterize any
non-principal payment as an expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, (c) amortize, prorate,
allocate and spread the total amount of interest throughout the full term of
such indebtedness so that the actual rate of interest on account of such
indebtedness does not exceed the highest lawful rate, and/or (d) allocate
interest between portions of such indebtedness, to the end that no such portion
shall bear interest at a rate greater than that permitted by applicable law.

 

Section 6.12           Entire Agreement.  THIS AGREEMENT, THE CREDIT AGREEMENT, THE
NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES WITH RESPECT TO THE MATTERS ADDRESSED HEREIN AND THEREIN AND WILL NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

(Signatures on the following pages)

 

16

 

IN
WITNESS WHEREOF, the undersigned hereby execute this Agreement to be effective
as of the date first set out above.

 

 

	
   

  	
  DEBTORS:

  
	
   

  	
   

  
	
   

  	
  CYMRI,
  L.L.C. (F/K/A THE CYMRI

  CORPORATION)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry M. Wright

  
	
   

  	
   

  	
  Larry M. Wright

  
	
   

  	
   

  	
  Chief Executive
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TRIUMPH
  ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry M. Wright

  
	
   

  	
   

  	
  Larry M. Wright

  
	
   

  	
   

  	
  Chief Executive
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECURED
  PARTY:

  
	
   

  	
   

  	
   

  
	
   

  	
  TEXAS
  CAPITAL BANK, N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Gregory

  
	
   

  	
   

  	
  Jonathan Gregory

  
	
   

  	
   

  	
  Executive Vice
  President

  

 

Signature Page to
Security Agreement

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