EXECUTION COPY
SECURITY AGREEMENT
To: Lakewood Group, LLC
000 0xx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Gentlemen:
1. To secure the payment of all Obligations (as hereafter defined), we
hereby grant to you a continuing security interest in all of the following
property now owned or at any time hereafter acquired by us, or in which we now
have or at any time in the future may acquire any right, title or interest (the
"Collateral"): all accounts, inventory, equipment, goods, documents, instruments
(including, without limitation, promissory notes), contract rights, general
intangibles (including, without limitation, payment intangibles), chattel paper,
supporting obligations, investment property, letter-of-credit rights, trademarks
and tradestyles in which we now have or hereafter may acquire any right, title
or interest, all proceeds and products thereof (including, without limitation,
proceeds of insurance) and all additions, accessions and substitutions thereto
or therefor.
2. The term "Obligations" as used herein shall mean and include all debts,
liabilities and obligations owing by (a) us to you hereunder and under the
Senior Secured Debenture dated as of the date hereof made by us in favor of you
in the original principal amount of $1,700,000, as amended, modified and
supplemented from time to time.
3. We hereby warrant and covenant to you that: (a) we are a company
validly existing, in good standing and formed under the laws of the State of
Nevada and we will provide you thirty days prior written notice of any change in
our state of formation; (b) we are the lawful owner of the Collateral and have
the sole right to grant a security interest therein and will defend the
Collateral against all claims and demands of all persons and entities; (c) we
will keep the Collateral free and clear of all attachments, levies, taxes,
liens, security interests and encumbrances of every kind and nature; (d) we will
at our own cost and expense keep the Collateral in good state of repair and will
not waste or destroy the same or any part thereof; (e) we will not without your
prior written consent, sell, exchange, lease or otherwise dispose of the
Collateral or any of our rights therein or permit any lien or security interest
to attach to same, except that created by this Agreement; (f) we will insure the
Collateral in your name against loss or damage by fire, theft, burglary,
pilferage, loss in transit and such other hazards as you shall specify in
amounts and under policies by insurers acceptable to you and all premiums
thereon shall be paid by us and the policies delivered to you. If we fail to do
so, you may procure such insurance and the cost thereof shall constitute
Obligations; (g) we will at all times allow you or your representatives free
access to and the right of inspection of the Collateral; and (h) we hereby
indemnify and save you harmless from all loss, costs, damage, liability and/or
expense, including reasonable attorneys' fees, that you may sustain or incur to
enforce payment, performance or fulfillment of any of the Obligations and/or in
the enforcement of this Agreement or the Guaranty or in the prosecution or
defense of any action or proceeding either against you or us concerning any
matter growing out of or in connection with this Agreement, the Guaranty and/or
any of the Obligations and/or any of the Collateral.
4. We shall be in default under this Agreement upon the happening of any
of the following events or conditions, each such event or condition an "Event of
Default" (a) we shall fail to pay when due or punctually perform any of the
Obligations; (b) any covenant, warranty, representation or statement made or
furnished to you by us or on our behalf was false in any material respect when
made or furnished; (c) the loss, theft, substantial damage, destruction, sale or
encumbrance to or of any of the Collateral or the making of any levy, seizure or
attachment thereof or thereon; (d) we shall become insolvent, cease operations,
dissolve, terminate our business existence, make an assignment for the benefit
of creditors, suffer the appointment of a receiver, trustee, liquidator or
custodian of all or any part of our property; (e) any proceedings under any
bankruptcy or insolvency law shall be commenced by or against us; or (f) we
shall repudiate, purport to revoke or fail to perform any of our obligations
under the Guaranty or any individual guarantor of any or all of the Obligations
shall die.
5. Upon the occurrence of any Event of Default and at any time thereafter,
you may declare all Obligations immediately due and payable and you shall have
the remedies of a secured party provided in the Uniform Commercial Code as in
effect in the State of New Jersey, this Agreement and other applicable law. You
will at all times have the right to take possession of the Collateral and to
maintain such possession on our premises or to remove the Collateral or any part
thereof to such other premises as you may desire. Upon your request, we shall
assemble the Collateral and make it available to you at a place designated by
you. If any notification of intended disposition of any Collateral is required
by law, such notification, if mailed, shall be deemed properly and reasonably
given if mailed at least ten days before such disposition, postage prepaid,
addressed to us either at our address shown herein or at any address appearing
on your records for us. Any proceeds of any disposition of any of the Collateral
shall be applied by you to the payment of all expenses in connection with the
sale of the Collateral, including reasonable attorneys' fees and other legal
expenses and disbursements and the reasonable expense of retaking, holding,
preparing for sale, selling, and the like, and any balance of such proceeds may
be applied by you toward the payment of the Obligations in such order of
application as you may elect, and we shall be liable for any deficiency.
6. If we default in the performance or fulfillment of any of the terms,
conditions, promises, covenants, provisions or warranties on our part to be
performed or fulfilled under or pursuant to this Agreement, you may, at your
option without waiving your right to enforce this Agreement according to its
terms, immediately or at any time thereafter and without notice to us, perform
or fulfill the same or cause the performance or fulfillment of the same for our
account and at our sole cost and expense, and the cost and expense thereof
(including reasonable attorneys' fees) shall be added to the Obligations and
shall be payable on demand with interest thereon at the highest rate permitted
by law.
7. We appoint you, any of your officers, employees or any other person or
entity whom you may designate as our attorney, with power to execute such
documents in our behalf and to supply any omitted information and correct patent
errors in any documents executed by us or on our behalf; to sign our name on
financing statements and other public records; and to do all other things you
deem necessary to carry out this Agreement. We hereby ratify and approve all
acts of the attorney and neither you nor the attorney will be liable for any
acts of commission or omission, nor for any error of judgment or mistake of fact
or law. This power being coupled with an interest, is irrevocable so long as any
Obligations remains unpaid.
8. No delay or failure on your part in exercising any right, privilege or
option hereunder shall operate as a waiver of such or of any other right,
privilege, remedy or option, and no waiver whatever shall be valid unless in
writing, signed by you and then only to the extent therein set forth, and no
waiver by you of any default shall operate as a waiver of any other default or
of the same default on a future occasion. Your books and records containing
entries with respect to the Obligations shall be admissible in evidence in any
action or proceeding, shall be binding upon us for the purpose of establishing
the items therein set forth and shall constitute prima facie proof thereof. You
shall have the right to enforce any one or more of the remedies available to
you, successively, alternately or concurrently. We agree to join with you in
executing financing statements or other instruments to the extent required by
the Uniform Commercial Code in form satisfactory to you and in executing such
other documents or instruments as may be required or deemed necessary by you for
purposes of affecting or continuing your security interest in the Collateral.
9. This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey and cannot be terminated orally. All of the
rights, remedies, options, privileges and elections given to you hereunder shall
enure to the benefit of your successors and assigns. The term "you" as herein
used shall include your company, any parent of your company, any of your
subsidiaries and any co-subsidiaries of your parent, whether now existing or
hereafter created or acquired, and all of the terms, conditions, promises,
covenants, provisions and warranties of this Agreement shall enure to the
benefit of and shall bind the representatives, successors and assigns of each of
us and them. You and we hereby (a) waive any and all right to trial by jury in
litigation relating to this Agreement and we agree not to assert any
counterclaim in such litigation, (b) submit to the nonexclusive jurisdiction of
any New Jersey State court sitting in Essex County, New Jersey, and (c) waive
any objection you or we may have as to the bringing or maintaining of such
action with any such court.
[CONTINUED ON FOLLOWING PAGE]
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10. All notices from you to us shall be sufficiently given if mailed or
delivered to us at our address set forth below.
Very truly yours,
BASELINE OIL & GAS CORP.
By:
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Name:
Title:
Address:
Dated as of: March 15, 2007
ACKNOWLEDGED:
LAKEWOOD GROUP, LLC
By:
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Name:
Title:
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