UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

[X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014
 
[   ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 001-35496

   
Summer Energy Holdings, Inc.
(Exact name of registrant as specified in charter)
   
Nevada
20-2722022
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
800 Bering Drive, Suite 260, Houston, Texas
77057
(Address of principal executive offices)
(Zip Code)
   
(713) 375-2790
(Issuer’s telephone number, including area code)
   
N/A
 
(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
Accelerated filer                     o
Non-accelerated filer    o
Smaller reporting company   þ

Indicate by check mark whether the registrant is a shell company (as defined by Section 12b-2 of the Exchange Act).   Yes o     No þ .

The number of shares of the issuer’s common stock, $0.001 par value, outstanding as of May 14, 2014 was 14,060,408.

 
 
 

Summer Energy Holdings, Inc.
FORM 10-Q

 
FOR THE QUARTER ENDED MARCH 31, 2014
 
     
 
INDEX
 
      Page
     
3
     
3
4
5
6
     
14
     
17
     
17
     
18
     
 
18
Item 2   Unregistered Sales of Equity Securities and Use of Proceeds 18
     
Item 5 Other Information 18
     
19
     
21

 
2
 

PART I – FINANCIAL INFORMATION
 
ITEM 1.                       FINANCIAL STATEMENTS
 
SUMMER ENERGY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Unaudited)
 
   
March 31, 2014
   
December 31, 2013
 
             
 ASSETS
           
  Current Assets
           
    Cash
  $ 637,580     $ 739,966  
    Restricted cash
    345,332       367,385  
    Accounts receivable, net
    3,305,637       3,875,745  
    Prepaid and other current assets
    941,990       755,299  
                 
        Total current assets
    5,230,539       5,738,395  
                 
    Property and Equipment, net
    448,251       437,984  
                 
    Certificates of Deposit – Restricted
    15,044       15,025  
                 
    Deferred Financing Costs, net
    696,488       785,389  
                 
                     Total assets
  $ 6,390,322     $ 6,976,793  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
  Current Liabilities
               
    Accounts payable
  $ 195,004     $ 57,731  
    Accrued wholesale power purchased
    2,514,591       4,127,420  
    Accrued expenses
    1,911,801       2,015,205  
    Advances related party     219,000        -   
                 
        Total current liabilities
    4,840,396       6,200,356  
                 
                 
    Commitments
               
                 
  Stockholders' Equity
               
    Series A Preferred Stock - $.001 par value, 2,000,000 shares authorized, 826,000
    issued and outstanding at March 31, 2014 and December 31, 2013, respectively   
     826        826  
    Series B Preferred Stock - $.001 par value, 3,000,000 authorized, 1,799,000 shares
    issued and outstanding at March 31, 2014 and 0 at December 31, 2013, respectively
       1,799       -   
    Common Stock - $.001 par value, 100,000,000 shares authorized, 14,009,339 and
    13,963,445 shares issued and outstanding at March 31, 2014 and December 31, 2013,
    respectively
    14,009       13,963  
    Subscription receivable
    (52,000 )     (52,000 )
    Additional paid in capital
    6,992,806       5,183,261  
    Accumulated deficit
    (5,407,514 )     (4,369,613 )
                 
         Total stockholders’ equity
    1,549,926       776,437  
                 
                    Total liabilities and stockholders' equity
  $ 6,390,322     $ 6,976,793  
 
See the accompanying notes to the consolidated financial statements.
 
 
3
 


SUMMER ENERGY HOLDINGS, INC.
AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(UNAUDITED)
 
   
For the Three Months Ended March 31, 2014
   
 
For the Three Months Ended March 31, 2013
 
             
 Electricity Revenue
  $ 7,175,580     $ 2,890,845  
                 
 Cost of Goods Sold
               
    Power purchases and balancing/ancillary
    3,930,906       1,223,185  
    Transportation and distribution providers charge
    2,749,380       1,111,592  
                 
        Total cost of goods sold
    6,680,286       2,334,777  
                 
 Gross Profit
    495,294       556,068  
                 
 General and Administrative
    1,368,148       865,836  
                 
 Operating Loss
    (872,854 )     (309,768 )
                 
 Other Income (Expense)
               
    Financing costs
    (88,901 )     (16,668 )
    Interest expense
    (76,207 )     -  
    Interest income
    61       515  
                 
        Total other income (expense)
    (165,047 )     (16,153 )
                 
 Net Loss Before Income Taxes
    (1,037,901 )     (325,921 )
                 
 Income Taxes
    -       -  
                 
 Net Loss
  $ (1,037,901 )   $ (325,921 )
                 
 Series A Preferred shares dividend
    (24,440 )     -  
 Series B Preferred shares dividend
    (20,996 )     -  
                 
 Net Loss applicable to common shareholders
  $ (1,083,337 )     (325,921 )
                 
 Basic and diluted loss per share available to common shareholders
  $ (0.08 )   $ (0.03 )
 Weighted average number of shares - Basic and Diluted
    14,004,240       12,968,196  
 
See the accompanying notes to the consolidated financial statements.
 
 
4
 
 
SUMMER ENERGY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2014
 AND MARCH 31, 2013
 (UNAUDITED)
 
   
For the Three Months Ended March 31, 2014
   
For the Three Months Ended March 31, 2013
 
             
 Cash Flows from Operating Activities
           
    Net loss
  $ (1,037,901 )   $ (325,921 )
    Adjustments to reconcile net loss to net cash provided by (used) in operating
    activities:
               
        Stock compensation expense
    11,932       6,893  
        Interest earned on restricted cash
    (19 )     (495 )
        Depreciation of property and equipment
    50,885       28,762  
        Amortization of deferred financing costs
    88,901       16,668  
        Bad debt expense
    143,512       86,725  
        Changes in operating assets and liabilities:
               
             Accounts receivable
    426,596       34,077  
             Prepaid and other current assets
    (186,691 )     (88,279 )
             Accounts payable
    137,273       96,087  
             Accrued wholesale power purchases
    (1,612,829 )     205,681  
             Accrued expenses
    (57,510 )     6,974  
             Advances related party     219,000        -   
                 
                  Net cash provided by (used) in operating activities
    (1,816,851 )     67,172  
                 
 Cash Flows from Investing Activities
               
    Sale of restricted cash
    22,053       (2,000 )
    Purchase of property and equipment
    (61,152 )     (203,674 )
                 
                  Net cash used in investing activities
    (39,099 )     (205,674 )
                 
 Cash Flows from Financing
               
    Dividends on Series A preferred stock
    (24,440 )     -  
    Dividends on Series B preferred stock
    (20,996 )     -  
    Proceeds from issuance of Series B preferred stock
    1,799,000       -  
                 
                 Net cash provided by financing activity
    1,753,564       -  
                 
 Net Change in Cash
    (102,386 )     (138,502 )
                 
 Cash at Beginning of Period
    739,966       281,269  
                 
 Cash at End of Period
  $ 637,580     $ 142,767  
                 
  Supplemental Disclosure of Cash Flow Information:
               
    Income taxes paid
  $ -     $ -  
    Interest paid
  $ 76,207     $ 794  
                 
 Non-Cash Transactions                
    Issuance of common stock for dividend payable on Series A preferred stock   $ 45,894        -   
 
See the accompanying notes to the consolidated financial statements.
 
 
5
 
 
SUMMER ENERGY HOLDINGS, INC.
AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(UNAUDITED)
 
NOTE 1 - ORGANIZATION

The consolidated financial statements include the accounts of Summer Energy Holdings, Inc. and its wholly-owned subsidiaries Summer Energy, LLC (“Summer LLC”), and Summer EM Marketing, LLC (“Marketing LLC”) (collectively referred to as the “Company,” “we,” “us,” or “our”).  All significant intercompany transactions and balances have been eliminated in these consolidated financial statements.

Summer LLC is a retail electric provider in the state of Texas under a license with the Public Utility Commission of Texas (“PUCT”).  Summer LLC procures wholesale energy and resells it to commercial and residential customers.  Summer LLC was organized on April 6, 2011, under the laws of the state of Texas.  The operations of Summer LLC are the Company’s sole line of business.  

Marketing LLC was formed in the state of Texas on November 6, 2012, to provide certain marketing services to Summer LLC.

NOTE 2 - BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed with the Securities and Exchange Commission (“SEC”) on April 15, 2014.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period.  Actual results may differ from these estimates.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Our electricity revenue is recognized by our Company upon delivery of electricity to a customer’s meter.  This method of revenue recognition is commonly referred to as the flow method.  The flow method of revenue relies upon Electric Reliability Council of Texas (“ERCOT”) settlement statements to determine the estimated revenue for a given month. Supply delivered to customers for the month, measured on a daily basis, provides the basis for revenues.  Electricity revenue consists of proceeds from energy sales, including, pass through charges from the Transmission and Distribution Providers (“TDSPs”) billed to the customer at cost.
 
Unbilled Revenue and Accounts Receivable

Electric services not billed by month-end are accrued based upon estimated deliveries to customers as tracked and recorded by ERCOT multiplied by our  average billing rate per kilowatt hour (“kWh”) in effect at the time.  At the end of each calendar month, revenue is accrued to unbilled receivables based on the estimated amount of power delivered to customers using the flow technique.  Unbilled revenue also includes accruals for estimated TDSP charges and monthly service charges applicable to the estimated electricity usage for the period.  All charges that were physically billed to customers in the calendar month are recorded from the unbilled account to the customer receivable account.  Unbilled accounts as of March 31, 2014, were estimated at $1,597,108.
 
 
6
 
 
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts receivable are customer obligations billed at the customer’s monthly meter read date for that period’s electricity usage and due within 16 days of the date of the invoice.  Balances past due are subject to a late fee that is assessed on that billing.

Cost Recognition

Direct energy costs are recorded when the electricity is delivered to the customer’s meter.

Cost of Goods Sold (“COGS”) include electric power purchased and pass through charges from the TDSP’s in the areas serviced by the Company.  TDSP charges are costs for metering services and maintenance of the electric grid.  TDSP charges are established by regulation of the PUCT.

The energy portion of our COGS is comprised of two components:  bilateral wholesale costs and balancing/ancillary costs.  These two cost components are incurred and recognized differently as follows:

Bilateral wholesale costs are incurred through contractual arrangements with wholesale power suppliers for firm delivery of power at a fixed volume and fixed price.  We are invoiced for these wholesale volumes at the end of each calendar month for the volumes purchased for delivery during the month, with payment due 20 days after the end of the month.

Balancing/ancillary costs are based on the customer load and are determined by ERCOT through a multiple step settlement process.  Balancing costs/revenues are related to the differential between supply that we provided through our bilateral wholesale supply and the supply required to serve our customer load.  The Company endeavors to minimize the amount of balancing/ancillary costs through our load forecasting and forward purchasing programs.

NOTE 4 – 2012 STOCK OPTION AND STOCK AWARD PLAN

During the three months ended March 31, 2014, the Company granted stock options to purchase up to 25,000 shares of the Company’s common stock to a certain key officer. The options covering a total of 12,500 shares vested at the date of grant and 12,500 shares will vest in August 2014.  The stock options have an exercise price of $1.00 per share and will expire ten (10) years from the date of grant.  The fair value of the options of $4,242 was determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the options of 5 years.   Approximately $2,827 was expensed during the three months March 31, 2014 with regards to stock options granted to a certain key employee.

In addition, the officer is eligible to receive a future grant of 25,000 of options to purchase common stock of the Company upon reaching certain milestones related to the number of retail electricity customers and financial performance of the Company.

Also during the three months ended March 31, 2014, the Company granted 4,000 employee stock options to certain key employees.   Options covering a total of 4,000 shares will vest over two years from the date of grant.   The stock options have an exercise price of $1.50 per share and will expire ten (10) years from the date of grant.   The options covering 4,000 shares that were granted during the three months ended March 31, 2014, are estimated to have had a value of approximately $164 on the date of grant.  The options vest ratably over the vesting period of two years and stock compensation expense of approximately $6 was expensed during the three months ended March 31, 2014.

NOTE 5 - 2011 CREDIT FACILITY AGREEMENTS AND ADVANCES RELATED PARTY

On November 30, 2011,  the Company entered into separate Credit Facility Agreements (2011 Credit Facility Agreements) with two individuals pursuant to which such individuals agreed to act as sureties in connection with a combined $500,000 line of credit from a financial institution and certain extensions of credit by critical vendors which are necessary for our business.  Pursuant to such agreements, in consideration of the assisting parties’ extension of credit thereunder, we agreed to pay a total of $200,000 to the assisting parties or, at the assisting parties’ election, the assisting parties may each elect to receive 757,576 shares of common stock.  The assisting parties agreed to make assistance available to us within 10 business days of our written request and provide a guaranty to a financial institution.  On November 15, 2012, the two individuals irrevocably elected the option to receive payment in equity pursuant to the terms of the Credit Facility Agreements and on December 3, 2012, each such individual received 757,576 shares of common stock.  The Company recorded a $200,000 deferred financing cost that is being amortized over the three (3) year life of the agreements, the balance net of amortization as of March 31, 2014 is $44,431.

On March 31, 2014, Neil Leibman advanced the Company $219,000 cash as part of the 2011 Credit Facility Agreement.
 
 
7
 
 
NOTE 6 – 2013 CREDIT FACILITY AGREEMENTS AND SERIES A PREFERRED SHARES
 
On August 29, 2013, Summer Energy Holdings, Inc. entered into two separate but identical Agreements to Assist with Credit Facility (each an “Agreement” and collectively the “Agreements”) with two directors of the Company, one of whom is also an officer of the Company, whereby these two individuals (each individual is referred to as an “Assisting Party” and, together as the “Assisting Parties”) agreed to act as sureties and personal guarantors with respect to $826,000 ($413,000 each) of the Company’s depository requirements, consisting of a line of credit from a financial institution and certain extensions of credit by critical vendors that are necessary for the Company to carry out its business (“2013 Credit Facility Agreements”).
 
The 2013 Credit Facility Agreements each have a term of five (5) years.   Given that each of the Assisting Parties entering into the 2013 Credit Facility Agreements is a member of the Company’s board of directors, the transaction was approved by the disinterested members of the board of directors.
 
As consideration for each Assisting Party agreeing to act as surety and personal guarantor of $413,000 of the Company’s critical depository requirements, the Company agreed that each Assisting Party would be issued 413,000 shares of a newly authorized Series A Preferred Stock (the “Series A Preferred”).
 
On August 28, 2013, the Company filed a Certificate of Designation of Rights, Preferences, Privileges and Restrictions with respect to a class of preferred stock designated as Series A Preferred Stock (the “Series A Preferred”) with the Nevada Secretary of State.  The Series A Preferred was issued in association with the Agreements to Assist with Credit Facility dated August 29, 2013. Dividends due to holders of such Series A Preferred may be paid at the option of the Company in shares of the Company’s $0.001 par value common stock valued at the fair market value of such shares of common stock as determined in good faith by the Board of Directors on the record date of the dividend.   On January 10, 2014, the Company issued 22,947 shares of common stock to Neil Leibman and 22,947 shares of common stock to Tom O’Leary as payment of dividends relating to the Series A Preferred accrued through December 31, 2013.
 
The 2013 Credit Facility Agreements have been recorded as of March 31, 2014 as a deferred financing asset in the amount of $826,000 to be amortized monthly through August 31, 2018.  The balance net of amortization as of March 31, 2014 is $652,057.

 
8
 
 
NOTE 7 – LETTER OF CREDIT

On February 26, 2014, the Company signed a Master Revolving Note with Comerica Bank in the amount of $500,000.  The Master Revolving Note has a maturity date of August 25, 2014 with interest thereon at a per annum rate equal to the “Prime Referenced Rate” plus the “Applicable Margin”.   The “Prime Referenced Rate” means, for any day, a per annum interest rate which is equal to the “Prime Rate” in effect on such day, but in no event and at no time shall the “Prime Referenced Rate” be less than the sum of the Daily Adjusting LIBOR Rate for such day plus two and one-half percent (2.5%) per annum.   “Prime Rate” means the per annum rate established by Comerica Bank as its prime rate for its borrowers, as such rate may vary from time to time, which rate is not necessarily the lowest rate on loans made by Comerica Bank at any such time.  “Applicable Margin” means 1% per annum.   The Master Revolving Note is collateralized by $250,000 pledged in cash held in account with Comerica Bank and $250,000 of the Master Revolving Note is unsecured.

The Master Revolving Note secures an irrevocable stand-by letter of credit in the amount of $500,000 with a financial institution for the benefit of the PUCT.   The letter of credit was previously secured by the 2011 Credit Facility Agreements entered into by the Company on November 30, 2011 (see Note 5). The letter of credit for the benefit of the PUCT was automatically renewed on February 1, 2014, for one year.

NOTE 8 – PRIVATE PLACEMENT OF SERIES B PREFERRED SHARES

On February 19, 2014, the Company filed a Certificate of Designation of Rights, Preferences, Privileges and Restrictions (the “Series B Designation”) with respect to a class of preferred stock designated as Series B Preferred Stock (the “Series B Preferred”).   The Series B Preferred entitles holders thereof to receive a dividend payable in cash or common stock, at the election of the holder, at an annual rate of 12% of the Deemed Original Issue Price. The “Deemed Original Issue Price” of the Series B Preferred for purposes of calculating the Series B Preferred dividend is $1.00 per share, which the board of directors of the Company determined represents the estimated fair market value as of the date of grant.   The Series B Preferred dividends are payable in cash or by the issuance of common stock ten (10) days following the end of each month, or portion thereof.   The number of shares to be paid as a dividend shall be determined based on the fair market value of the shares of common stock on the record date for the dividend.  On February 21, 2014, the Company entered into Series B Preferred Stock Purchase Agreements (each an “Agreement” and collectively the “Agreements”) with several investors.  Pursuant to the Agreements, the Company sold an aggregate of 1,799,000 shares of the Series B Preferred, for an aggregate purchase price of $1,799,000 as of March 31, 2014.  Several members of the Company’s board of directors directly or indirectly participated in the offering.

Additional terms, conditions, rights, and privileges of the Series B Preferred include:
 
Voting :  Each holder of Series B Preferred is entitled to the number of votes equal to the number of shares of the Company’s common stock into which such shares of Series B Preferred held by such holder could then be converted.  The initial conversion price is $1.00 per share, and the per-share purchase price was $1.00.  As such, the initial conversion ratio is 1-1.

Conversion :   Optional Conversion .  The Series B Preferred is convertible into common stock at the election of the holder, with an initial conversion price of $1.00 per share.  The Certificate of Designation provides certain adjustments to the conversion price to adjust for stock splits, adjustments, and issuance of additional shares of stock.   Mandatory Conversion .  Additionally, the Series B Preferred will automatically be converted upon the earlier to occur of (A) the affirmative election of the holders of fifty percent (50%) of the outstanding shares of Series B Preferred, voting as a separate class, or (B) the affirmative vote of the board of directors upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, which values the Company at least $50 million and in which the gross proceeds to the Company (after underwriting discounts, commissions and fees) are at least $10 million.
 
Liquidation . Upon the occurrence of any “Liquidation Event” (including a liquidation of the Company or a sale of the Company), before any distribution or payment will be made to the holders of common stock, the holders of Series B Preferred will be entitled to be paid out of the assets of the Company an amount equal to the amount of cash paid for the shares of Series B Preferred and accumulated but unpaid dividends. The Series B Preferred ranks pari passu with the Series A Preferred Stock with regard to liquidation payments, as well as to any subsequent series of preferred stock.
 
Redemption . The Company may, at any time, redeem all or a portion of the Series B Preferred upon 20 days’ notice at a price of $1.20 per share.
 
 
9
 
 
NOTE 8 – PRIVATE PLACEMENT OF SERIES B PREFERRED SHARES – (CONTINUED)

The foregoing is only a brief description of the material terms of the Series B Designation and the offering of the Series B Preferred, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the full text of the Certificate of Designation which was filed as Exhibit 3.1 to our Form 8-K filed on February 24, 2014.

In accordance with the Series B Designation, dividends due to holders of Series B Preferred may be paid at the option of the holder in shares of the Company’s $0.001 par value common stock valued at the fair market value of such shares of common stock as determined in good faith by the Board of Directors on the record date of the dividend.    On April 10, 2014, several holders of Series B Preferred opted to be paid dividends of common stock as opposed to cash, including members of the Company’s board of directors who had directly or indirectly participated in the Series B offering.   Holders of Series B Preferred not electing to be paid dividends with shares of common stock were paid cash dividends.

NOTE 9 – MASTER MARKETING AGREEMENT AND ISSUANCE OF WARRANTS

On March 11, 2014, the Company entered into a Master Marketing Agreement with an entity which provides marketing services. The Marketer is in the business of using its multi-level marketing network to broker the services of electric providers to potential residential customers .
 
The Company issued a warrant to the Marketer to purchase up to 275,000 shares (“Warrant Shares”) of the Company’s common stock at an exercise price of $1.00 per share (the “Warrant”).   The Warrant has a term of ten (10) years and vests as follows: (in) as to one Warrant Share for each customer introduced by the Marketer that enters into a relationship with Summer LLC in a one year contract; (ii) as to two (2) Warrant Shares for each customer introduced by the Marketer that enters into a contract with Summer LLC with a two (2) year term; and (iii) in the event that the Marketer meets certain other milestones related to the number of customers introduced to the Company by the Marketer, the Warrant becomes exercisable with respect to an additional 75,000 shares of the Company’s common stock.

The fair value of the warrants of $46,656 was determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the warrant of 10 years.  No stock compensation expense recorded for the period as no warrants have vested.

 
10
 


NOTE 10 – WHOLESALE POWER PROVIDER LETTER AGREEMENT

The Company’s original wholesale power purchase agreement provides, in addition to certain collateral calls, that the Company will provide additional credit to cover mark to market risk in connection with the purchase and sale of long term power.  A mark to market credit risk occurs when the price of power purchased is greater than the current market price.  While the Company believes it has purchased its current power at the lowest prices, should a collateral call occur, this could limit the Company’s working capital and potentially cause liquidation of power positions should the Company fail to meet the collateral call.   

The Company and its wholesale power provider entered into a letter agreement dated February 19, 2014, whereby the wholesale power provider granted the Company additional time to meet certain outstanding payment obligations totaling $2,665,723 for wholesale power and interest at March 31, 2014. The Company fully complied with such obligations.

See Note 11 for a discussion on the Company’s wholesale power purchase agreement entered into subsequent to March 31, 2014.

NOTE 11 – SUBSEQUENT EVENTS

Wholesale Power Purchase and Energy Marketing Agreement
On April 25, 2014, the Company closed a transaction with DTE Energy Trading, Inc. (“DTE”), with an effective date of April 1, 2014.  As part of the transaction, the Company and DTE entered into an Energy Marketing Agreement for Electric Power (the “Energy Marketing Agreement”). Pursuant to the terms of the Energy Marketing Agreement, the Company agreed to purchase its electric power and associated services requirements from DTE, and DTE agreed to provide the Company with certain credit facilities to assist the Company in the purchase of its electric power and associated service requirements.  The Company also agreed to pay DTE a fixed monthly fee, as well as certain fees based on megawatt hours purchased.  The terms of the Energy Marketing Agreement are governed by the ISDA 2002 Master Agreement, as well as a Schedule and Power Annex thereto (the “2002 Master Agreement”).    In conjunction therewith, the Company and DTE also entered into a Credit Agreement, a Security Agreement and a Membership Interest Pledge Agreement.
 
 
11
 
 
NOTE 11 – SUBSEQUENT EVENTS – (CONTINUED)

Pursuant to the Credit Agreement, among other things DTE agreed to (i) provide a guaranty (a “Credit Guaranty”) to the Electric Reliability Council of Texas (“ERCOT”) for the benefit of the Company, and (ii) provide commodity loans for the purchase of electricity (“Commodity Loans”).  Each Commodity Loan and any Credit Guaranty shall bear interest on the outstanding principal amount thereof, from the date such Commodity Loan or Credit Guaranty is issued until it becomes due or is revoked, respectively, at a rate per annum equal to the Prime Rate (as reported by the Wall Street Journal) plus two percent (2%).  The Company covenanted not to, among other things, (a) merge or consolidate with any other person, (b) acquire all or substantially all of the capital stock or property of another person, (c) create, assume or suffer to exist any lien on any property now owned or hereafter acquired by the Company except for permitted liens (as set forth in the Credit Agreement) or (d) become liable for any indebtedness (other than permitted indebtedness, as set forth in the Credit Agreement).  

In consideration of the services and credit support provided by DTE to the Company, and pursuant to the Security Agreement, the Company is required to, among other things (i) grant a priority security interest to DTE in all of its assets, equipment and inventory; (ii) require its customers to remit monthly payments into a lockbox account over which DTE has a security interest; and (iii) deliver monthly and annual forecasted and audited statements to DTE.

Pursuant to the Membership Interest Pledge Agreement, the Company pledged to DTE, and granted to DTE a security interest in all of the membership interests of Summer Energy, LLC owned by the Company, as well as all additional membership interests of Summer Energy, LLC from time to time acquired by the Company.

As part of the transaction, the Company, DTE and BP Energy Company (the Company’s prior wholesale energy provider) entered into a Novation Agreement (the “Novation Agreement”), whereby the Company transferred by novation, with an effective novation date of May 1, 2014, to DTE, and DTE accepted, the rights, liabilities, duties and obligations of the Company under and in respect of each transaction entered into pursuant to that certain Master Power Purchase and Sale Agreement dated as of August 9, 2011, between BP Energy Company and Summer Energy, LLC, thereby effectively terminating the BP Energy Company agreement as of May 1, 2014.
 
Letter of Credit Released by Wholesale Provider

Pursuant to the Credit Facility Agreements entered into by and between the Company and Neil Leibman and Tom O’Leary on August 29, 2013 (the “2013 Credit Facility Agreements”), the Company had an irrevocable stand-by letter of credit which was secured with a financial institution for the benefit of its wholesale energy provider in the amount of $826,000 (see Note 5).

The Company and its wholesale power provider entered into a letter agreement dated February 19, 2014, whereby the wholesale power provider granted the Company additional time to meet certain outstanding payment obligations totaling $2,665,732 at March 31, 2014 (see Note 9).

On April 24, 2014, the Company fully complied with the terms of the letter agreement dated February 19, 2013, and at such time, the wholesale provider released back to the financial institution the irrevocable stand-by letter of credit in the amount of $826,000.

2013 Credit Facility Agreements and Call Right of Series A Preferred Stock

Pursuant to the 2013 Credit Facility Agreements, the Company, upon the earliest to occur of the following:  (i) five (5) years from the date of the 2013 Credit Facility Agreements, or (ii) at such time as the Assisting Party (as defined in the 2013 Credit Facility Agreements) is fully released from its obligations under any credit facility obtained by the Company pursuant to the Assisting Party’s guarantee, the Company shall have the right to purchase all outstanding shares of Series A Preferred held by such Assisting Party in exchange for the granting of a five (5) year option to purchase shares of the Company’s common stock at an exercise price of $1.50 per share.   The number of shares shall be calculated on the basis on an option to purchase one (1) share of common stock for each 2.733 shares of Series A Preferred purchased by the Company.
 
 
12
 
 
NOTE 11 – SUBSEQUENT EVENTS (CONTINUED)
 
On May 6, 2014, the Company exercised the Call Right reflected within each Credit Facility Agreement and on May 13, 2014 granted a stock option to Neil Leibman to purchase 151,115 shares of common stock at an exercise price of $1.50 per share, and a stock option to Tom O’Leary to purchase 151,115 shares of common stock at an exercise price of $1.50 per share.

The deferred financing costs associated with the 2013 Credit Facility Agreements will be removed from the consolidated financial statements in the June 30, 2014 Form 10-Q filing.
 
Issuance of Common Stock as Dividend Payment on Series A Preferred Stock

On April 10, 2014, the Company issued 12,220 shares of common stock to Neil Leibman and 12,220 shares of common stock to Tom O’Leary as payment on dividends accrued for the quarter ended March 31, 2014.

On May 6 2014, the Company issued 4,888 shares of common stock to Neil Leibman and 4,888 shares of common stock to Tom O’Leary as payment on dividends accrued from April 1, 2014 through May 6, 2014.

Advance to Loan Amount Note

On April 18, 2014, the Company signed an Advance to Loan Amount Note with Comerica Bank in the amount of $1,500,000.  The Note has a maturity date of December 22, 2014 with interest thereon at a per annum rate equal to the “Prime Referenced Rate” plus the “Applicable Margin”.   The “Prime Referenced Rate” means, for any day, a per annum interest rate which is equal to the “Prime Rate” in effect on such day, but in no event and at no time shall the “Prime Reference Rate” be less than the sum of the Daily Adjusting LIBOR Rate for such day plus two and one-half percent (2.5%) per annum.   “Prime Rate” means the per annum rate established by Comerica Bank as its prime rate for its borrowers at any such time.  “Applicable Margin” means 2% per annum.   Accrued and unpaid interest on the unpaid principal balance outstanding shall be payable monthly, in arrears, on the first Business Day of each month.

Guaranty of the Advance to Loan Amount Note has been made by four members of the Company’s board of directors (“Guarantors”).  The Company shall issue the four Guarantors a total of 120,000 shares of the Company’s common stock per month (30,000 shares of commons stock per month per Guarantor) reduced accordingly as the loan is reduced for agreeing to act as a Guarantor of the Advance to Loan Amount. The Advance to Loan Note is included with this Quarterly Report on Form 10-Q as Exhibit 10.7.

Private Placement of Series B Preferred Shares

On April 7, 2014, the Company entered into Series B Preferred Stock Purchase Agreement with an investor for 51,000 shares for an aggregate purchase price of $51,000.

On April 15, 2014, the Company entered into Series B Preferred Stock Purchase Agreement with an investor for 50,000 shares for an aggregate purchase price of $50,000.

Issuance of Common Stock as Dividend Payment on Series B Preferred Stock

The holders of outstanding shares of Series B Preferred Stock are entitled to receive, out of funds legally available for the payment of dividends, cumulative monthly dividends at the annual rate of 12% of the Deemed Original Issue Price per share, in preference to and in priority over any dividends with respect to Common Stock.  At the option of the holders of Series B Preferred Stock, dividends may be paid to holders of Series B Preferred Stock in shares of the Company’s common stock valued at fair market value of such shares of common stock as determined in good faith by the board of directors.

On April 10, 2014, the Company paid $20,996 of cumulative monthly dividends on Series B Preferred Stock.  Four holders elected to be paid in shares of the Company common stock totaling 16,853 shares and the remaining holders were paid a total of $4,143 in cash.

Issuance of Stock Options to Non-Employee Members of the Board of Directors from the 2012 Stock Option and Stock Award Plan

On April 30, 2014, the Company granted a total of 31,250 stock options to non-employee members of the Company’s Board of Directors under the Plan as compensation for service on the Company’s Board. The director stock options were fully vested on the date of grant, have an exercise price of $1.50 per share, will expire ten (10) years from the date of the grant and are estimated to have a fair value of approximately $1,282 on the date of grant determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.77% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the options of 5 years.
 
 
13
 
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.  This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act, and is subject to the safe harbors created by those sections.  Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements.  In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.  These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict.  Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors.  We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements.

Due to possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Quarterly Report, which speak only as of the date of this Quarterly Report, or to make predictions about future performance based solely on historical financial performance.  We disclaim any obligation to update forward-looking statements contained in this Quarterly Report.

Readers should carefully review the risk factors described below under the heading “Risk Factors”  and in other documents we file from time to time with the SEC, including our Form 10-K for the fiscal year ended December 31, 2013.  Our filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those filings, pursuant to Sections 13(a) and 15(d) of the Exchange Act, are available free of charge at www.summerenergy.com, when such reports are available via the EDGAR system maintained by the SEC at www.sec.gov.

Recent Developments

The consolidated financial statements include the accounts of Summer Energy Holdings, Inc., a Nevada corporation and its wholly-owned subsidiaries Summer Energy, LLC, a Texas limited liability company (“Summer LLC”) and Summer EM Marketing (“Marketing LLC”) (collectively referred to as the “Company,” “we,” “our,” or “us”).

On March 27, 2012, Summer LLC became a wholly-owned subsidiary of Summer Energy Holdings, Inc. (formerly known as Castwell Precast Corporation) through a reverse acquisition transaction, which resulted in the former members of Summer LLC owning approximately 92.3% of the Summer Energy Holdings, Inc. outstanding common stock.  Our sole operations are conducted through Summer LLC.

Marketing, LLC was formed in the state of Texas on November 6, 2012 to provide marketing services to Summer LLC.

Plan of Operation

Our wholly owned subsidiary, Summer LLC, is a licensed Retail Electricity Provider (REP) in the State of Texas.  In general, Texas regulatory structure permits REPs, such as Summer LLC, to procure and sell electricity at unregulated prices.  REPs pay the local transmission and distribution utilities a regulated tariff rate for delivering electricity to their customers.  As a REP, we sell electricity and provide the related billing, customer service, collections and remittance services to residential and commercial customers.  We offer retail electricity to commercial and residential customers in designated target markets within the State of Texas.  In the commercial market, the primary target is small to medium-sized customers (less than one megawatt of peak usage), but we will also selectively pursue larger commercial customers through management’s existing, historical relationships.  Residential customers are a secondary target market.  We anticipate that a majority of our customers will be located in the Houston and Dallas-Fort Worth metropolitan areas; although, we anticipate a growing number will be located in a variety of other metropolitan and rural areas within Texas.

We began delivering electricity to customers in mid-February 2012.
 
 
14
 
 
Results of Operations

Quarter Ended March 31, 2014, compared to the Quarter ended March 31, 2013

Revenue – For the quarter ended March 31, 2014, we generated $7,007,513 in electricity revenue primarily from commercial customers, and from the addition of various long and short-term residential customers.  The majority of our revenue comes from the flow of electricity to customers.  However, we also generated revenues from contract cancellation fees, disconnection fees and late fees of $168,067.  Revenues for the quarter ended March 31, 2013 were $2,746,242 from electricity revenue and $144,603 from disconnection and late fees.

Management plans to continue to execute on its sales and marketing program to solicit individual commercial and residential customers.   Management also plans to continue to acquire portfolios of commercial and residential customers when offered at reasonable prices.

Cost of Goods Sold and Gross Margin – For the quarter ended March 31, 2014, cost of goods sold and gross profit totaled $6,680,286 and $495,294, respectively.  Cost of goods sold and gross profit recorded in the quarter ended March 31, 2013 were $2,334,777 and $556,068, respectively.

We experienced extreme weather events in February 2014 and March 2014 that added significantly to our energy costs and negatively affected our gross margin for the three months ended March 31, 2014.
 
Operating expenses – Operating expenses for the quarter ended March 31, 2014 totaled $1,368,148, consisting primarily of general and administrative expenses of $1,094,497, stock compensation of $11,932, bank service fees of $99,372, collection fees/sales and verification fees of $1,591, professional fees of $73,846, and $86,911 of billing fees.  Billing fees are primarily costs paid to third party Electronic Data Inter-Chain (EDI) provider to handle transactions between us, ERCOT and the TDSPs in order to produce customer bills.

Operating expenses for the quarter ended March 31, 2013 totaled $865,836, consisting of general and administrative expenses of $662,701, stock compensation expense of $6,893, bank service fees of $44,342, collection fees/sales and verification fees of $12,587, professional fees of $95,507 and $43,806 of billing fees.

Net loss – Net loss for the quarter ended March 31, 2014 and 2013, totaled $1,037,901 and $325,921, respectively, relating primarily to operating expenses and cost of goods sold incurred in excess of revenue as we attempt to obtain economies of scale.
 
 
15
 
 
Liquidity and Capital Resources

At March 31, 2014 and December 31, 2013, our cash totaled $637,580 and $739,966, respectively.  Our principal cash requirements for the quarter ended March 31, 2014, were for operating expenses and cost of goods sold (including power purchases, employee cost, and customer acquisition) and capital expenditures. During the quarter ended March 31, 2014, the primary source of cash was from electricity revenues, and $1,799,000 from the issuance of Series B Preferred Shares.  During the quarter ended March 31, 2013, the primary source of cash was from electricity revenues.

General – The Company’s decrease in net cash flow during the first three months of 2014 is attributable to $1,816,851 cash used by operating activities $39,099 cash used in investing activities which includes $61,152 for the purchase of property and equipment and $1,753,564 provided by financing activity.  In 2013, the net cash decrease was a result in net cash provided by operations of $67,172 and $205,674 cash used in investing activities which includes $203,674 for the purchase of property and equipment.

The Company has no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all.  If we are able to obtain additional financing, such financing may result in restrictions on our operations, in the case of debt financing, or substantial dilution for stockholders, in the case of equity financing.

Cash Outflows for Capital Assets, Customer Acquisition and Deposits

We expect to expend funds for   capital assets, customer acquisition and deposits in connection with the expansion of our business during the remainder of the current fiscal year.  The anticipated source of funds will be cash on hand and the capital raised through the year ended December 31, 2014.

Future Financing Needs

The Company did not commence operations and the generation of revenue until middle of the three month period ended March 31, 2012.  Our cash position may not be significant enough to support daily operations.  Management believes that we have adequate liquidity to support operations during the short-term, but this belief is based upon many assumptions and is subject to numerous risks.  However, we may require additional capital in order to meet minimum capital standards imposed by licensing authorities.  Those capital standards required us to maintain stockholders’ equity, determined in accordance with generally accepted accounting principles in the United States, of not less than one million dollars and to maintain an irrevocable stand-by letter of credit with a face value of $500,000.  We remained subject to such minimum capital standards until February 2014.  Beginning in February 2014, the Company is required by the licensing authorities to maintain an irrevocable stand-by letter of credit with a face value of $500,000.

While we believe in the viability of our plan of operations and strategy to generate revenues and in our ability to obtain additional funds, there can be no assurances that our plan of operations or ability to raise capital will be successful.  The ability to grow is dependent upon our ability to further implement our business plan, generate revenues, and obtain additional financing, as needed.

Off-Balance Sheet Arrangements

Our existing wholesale power purchase agreement provides that we will provide additional credit support to cover mark-to-market risk in connection with the purchase of long term power.  A mark-to-market credit risk occurs when the price of previously purchased long term power is greater than the current market price for power purchased for the same term.  While we believe that the current environment of historically low power prices limits our exposure to risk, a collateral call, should it occur, could limit our working capital and, if we fail to meet the collateral call, could cause liquidation of power positions.
 
 
16
 
 
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a “small reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

ITEM 4.   CONTROLS AND PROCEDURES .

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report, were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the period of time covered by this Quarterly Report has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.
 
 
17
 

PART II – OTHER INFORMATION

ITEM 1A.   RISK FACTORS

As of the date of this filing, there have been no material changes to the Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on April 15, 2014 (the “2013 Form 10-K”).  The Risk Factors set forth in the 2013 Form 10-K should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q.  Any of the risks described in the 2013 Form 10-K could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made.  These are not the only risks we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
 
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
Pursuant to an offering of Series B Preferred Stock (“Series B Preferred”) which commenced on February 21, 2014, on April 7 and April 15, 2014, the Company entered into Series B Preferred Stock Purchase Agreements (each an “Agreement” and collectively the “Agreements”) with two (2) investors.  Pursuant to the Agreements, the Company sold an aggregate of 101,000 shares of the Series B Preferred Stock, for an aggregate purchase price of $101,000.  The Company intends to use the proceeds from these investments for general corporate and working capital purposes.
 
The Series B Preferred was issued and sold to accredited investors in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated thereunder.
 
The Company’s reliance on Regulation D under the Securities Act was based in part upon written representations made by each party investing in the offering that: (a) such party is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the party agrees not to sell or otherwise transfer the securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption from such registration is available, (c) the party has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in the Company, (d) the party had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the offering or issuance and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (e) the party has no need for liquidity in its investment and could afford the complete loss of such investment.  In any instant in which we relied upon Rule 506 of Regulation D promulgated under the Securities Act, management made the determination, based upon written representations, that each investor was an “accredited investor” as defined in Rule 501 of Regulation D. In addition, there was no general solicitation or advertising for securities issued in reliance upon Regulation D.
 
The Company’s reliance upon Section 4(a)(2) of the Securities Act was based in part upon the following factors: (a) the issuance of the securities was in connection with isolated private transactions which did not involve any public offering; (b) there were a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the securities took place directly between the offeree and the Company.
 
ITEM 5.  OTHER INFORMATION
 
On April 18, 2014, Summer LLC borrowed $1,500,000 (the “Loan”) from Comerica Bank pursuant to that certain Advance-to-Loan Amount Note (the “Note”).  Pursuant to the Note, accrued but unpaid interest, which is accrued at the Prime Rate (as defined in the Note) plus 2.0%, is payable monthly, with all accrued but unpaid interest, together with issued but unpaid principal, being due on or before December 22, 2014.  Four members of the Company’s Board of Directors provided personal guaranties for the Loan. The foregoing description of the Loan is qualified in its entirety by reference to the Note, which is included herewith as Exhibit 10.7 and is incorporated herein by reference.
 
 
18
 
 
ITEM 6.    EXHIBITS

No.
Item
10.1
Energy Marketing Agreement by and between Summer Energy, LLC and DTE Energy Trading, Inc., dated as of April 1, 2014.  Portions of this exhibit were redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission.
10.2
ISDA Master Agreement, Part 7 Power Annex to ISDA Master Agreement and Schedule to ISDA Master Agreement, by and between Summer Energy, LLC and DTE Energy Trading, Inc., dated as of April 1, 2014.
10.3
Credit Agreement by and between Summer Energy, LLC and DTE Energy Trading, Inc., dated as of April 1, 2014.  Portions of this exhibit were redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission.
10.4
Security Agreement by and between Summer Energy, LLC and DTE Energy Trading, Inc., dated as of April 1, 2014.
10.5
Membership Interest Pledge Agreement made by Summer Energy Holdings, Inc. in favor of DTE Energy Trading, Inc., dated as of April 1, 2014.  
10.6
Novation Agreement by and among BP Energy Company, Summer Energy, LLC and DTE Energy Trading, Inc., as of May 1, 2014.
10.7
Advance to Loan Amount Note by Summer Energy, LLC in favor of Comerica Bank, dated as of April 18, 2014.
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2
Certification  of the Chief Financial Officer  pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1*
Certification of the CEO and CFO pursuant to Rule 13a-14(b) and Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INS**
XBRL Instance Document
101.SCH**
XBRL Taxonomy Extension Schema Document
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document

 
19
 
 
* In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

** Pursuant to Rule 406T of Regulation S-T, this XBRL information will not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor will it be deemed filed or made a part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or otherwise subject to liability under those sections.
 
 
20
 

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
SUMMER ENERGY HOLDINGS, INC.
 
       
Date: May 14, 2014
By:
/s/ Neil Leibman  
    Neil Leibman  
    Chief Executive Officer  
    (Principal Executive Officer)  
 
       
Date: May 14, 2014
By:
/s/ Jaleea P. George  
    Jaleea P. George  
    Chief Financial Officer  
    (Principal Accounting Officer)  
 
 
 
21
 
 
Exhibit 10.1
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
 
 
ENERGY MARKETING AGREEMENT
for
Electric Power
 
 
Between
 
 
DTE ENERGY TRADING, INC.
a Michigan corporation with offices at
414 South Main Street, Suite 200
Ann Arbor, MI 48104
Telephone:  (734) 887 - 2121
Fax:  (734) 887 - 2235
 
 
and
 
 
SUMMER ENERGY, LLC
a Texas LLC with an office at
800 Bering Drive, Ste. 250
Houston, TX 77057
Telephone: 713-375-2789
Fax: 713-493-7269
 
 
 
 
CONFIDENTIAL
 
 
 
 
Effective Date:  April 1, 2014
 
 
 
 

 
 
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


TABLE OF CONTENTS
 
 
Article 1 Definitions
Article 2 Nature of Relationship
Article 3 Purchase Contracts
Article 4 Sale Contracts 
Article 5 Lockbox Agreement, Lockbox Account and Minimum balance 
Article 6 Reporting Obligations / Audit Rights 
Article 7 Fees                              
Article 8 Credit Support 
Article 9 Insurance  
Article 10  Master Netting Agreement 
Article 11 New Opportunities and Non-Solicitation 
Article 12 Licensing of Trademarks and Copyrighted Materials 
Article 13 Representations and Warranties 
Article 14 Indemnification 
Article 15 Limitation of Liability 
Article 16 Events of Default; Remedies 
Article 17 Miscellaneous 
1
4
8
10
11
14
16
17
17
19
19
20
20
21
21
21
23

 
Exhibits
 
   
Exhibit 1
ISDA Master Agreement
Exhibit 2
Pledge Agreement
Exhibit 3
Sale Contracts – End-user Base Agreement & Ordering Exhibit
Exhibit 4
Credit Agreement
Exhibit 5
Lockbox Agreement
Exhibit 6
Security Agreement
Exhibit 7
Approved Service Territories
Exhibit 8
Notices
Exhibit 9
Transfer Price Schedule

 
 
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


THIS ENERGY MARKETING AGREEMENT together with all exhibits and any written supplements hereto (collectively, the “Agreement”) is made and entered into as of this 1st day of April 2014 (the “Effective Date”), by and between DTE ENERGY TRADING, INC., a Michigan corporation (“Provider”), and SUMMER ENERGY, LLC, a Texas limited liability company (“Client”).  Each of Provider and Client may be referred to herein individually as a “Party” or collectively as “Parties”.
 
WHEREAS , Provider is engaged in the business of purchasing and selling electricity and ancillary services; and
 
WHEREAS , the Parties desire to enter into an arrangement whereby Client will purchase its electric power and associated services requirements from Provider, and Provider will provide to Client certain credit facilities to assist Client in the purchase of its electric power and associated services requirements from Provider and in Client’s sale of electric power and associated services to its various Customers, subject to the terms and conditions hereinafter set forth.
 
NOW, THEREFORE , in consideration of the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
 
ARTICLE 1
DEFINITIONS
 
1.1
“ Affiliate ” means, with respect to a Party, any other entity that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Party.  For this purpose, “control” means the direct or indirect ownership of fifty percent (50%) or more of the outstanding capital stock or other equity interests having ordinary voting power.
 
1.2
“ Bad Debt ” means “bad debt” as set forth in Section 166 of the Internal Revenue Code of 1986, as amended, along with Internal Revenue Service publication 535 entitled “Business Expenses.”
 
1.3
“ Bank ” means the third party financial institution or other institution legally permitted to administer lockbox and demand accounts that is a party to any lockbox agreement in place between the Parties.
 
1.4
“ Bankrupt ” or “ Bankruptcy ” means, with respect to a Person, (i) the commencement of any voluntary or involuntary case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to such Person, or seeking to adjudicate such Person a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to such Person or its debts, or (B) seeking
 

 
1
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
appointment of a receiver, trustee, custodian or other similar official for it, or for all or any substantial part of its assets, (ii)  the making of a general assignment for the benefit of such Person’s creditors; (iii) the inability of such Person to, or the admission by such Person of its inability to, pay its debts as they become due.
 
1.5
“ Business Day ” means any day except a Saturday, Sunday, or a Federal Reserve Bank holiday.  A Business Day shall open at 8:00 a.m. and close at 5:00 p.m. local time for the relevant Party’s principal place of business.  The relevant Party, in each instance unless otherwise specified, shall be the Party to whom the notice, Payment or delivery is being sent and by whom the notice or Payment or delivery is to be received.
 
1.6
“ Credit Agreement ” means the Credit Agreement dated as of the date hereof between Provider and Client in the form of the credit agreement attached hereto as Exhibit 4.
 
1.7
“ Credit Documents ” has the meaning set forth in the Credit Agreement.
 
1.8
“ Customer ” means as the context may require any of the following: (1) Residential Customer; (2) Small Commercial Customer; (3) Industrial Customer; (4) Governmental Entity and (5) Third-Party Purchaser.
 
1.9
“ Event of Default ” has the meaning set forth in Sectio n 16.1 .
 
1.10
“ Full Requirements Service ” means the full electricity requirements (including, without limitation, energy, resource adequacy requirements under the applicable independent system operator’s FERC accepted tariff, ancillary services and firm transmission service) of Client’s Customers.
 
1.11
“ Governmental Entity ” means any federal, state, local or foreign government or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign.
 
1.12
“ Gross Margin ” means all Client revenues, less cost of goods sold, for any one month.  For the purposes of this definition, cost of goods sold shall mean all commodity charges and related commodity charges, transmission charges and related transmission charges and any other services provided under this Agreement.
 
1.13
“ Industrial Customer ” means any entity that is a purchaser of energy in excess of a total aggregate amount of eight thousand seven hundred and sixty (8,760) MWh per year, which has one or more operations sites located within the Specified Geographic Region and which agrees to purchase energy from Client.
 
1.14
“ ISDA Master Agreement ” means the International Swaps and Derivatives Association, Inc.’s pre-printed terms for the 2002 Master Agreement, the Schedule thereto and the ISDA published Physically Settled Power Transactions Annex thereto as modified by the Parties and to be executed concurrently herewith and attached hereto as Exhibit 1 .
 
1.15
“ Lockbox Account ” has the meaning set forth in Section 5.1.
 

 
2
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


1.16
“ Load Serving Entity ” or “ LSE ” means an entity that provides electric service to retail customers and wholesale customers.  Load Serving Entities include REPs.
 
1.17
“ Monthly Purchase Obligations ” means, with respect to a specified calendar month, the aggregate Purchase Obligations incurred for such month.
 
1.18
“ Monthly Sale Obligations ” means, with respect to a specified calendar month, the aggregate Sale Obligations incurred for such month.
 
1.19
“ MWh ” means one megawatt hour.
 
1.20
“ Payment ” or “ Payment Obligations ” means, as the context may require, (i) any and all obligations incurred by a Party to transfer cash to the other Party, whether by netting or otherwise, under this Agreement and (ii) any and all obligations incurred by a Party to transfer cash to a third party in connection with its obligations under this Agreement.
 
1.21
“ Pledge Agreement ” has the meaning set forth in the Credit Agreement.
 
1.22
“ Purchase Contract ” means an agreement for the purchase of Full Requirements Service by Client from Provider, which such agreement has been entered into pursuant to and is governed by the ISDA Master Agreement solely for Client’s Customers.
 
1.23
“ Purchase Obligation ” means an obligation to purchase Full Requirements Service incurred by Client pursuant to a Purchase Contract.  Such obligations may be expressed in MWhs, in dollars or as a percentage of monthly delivery.
 
1.24
“ Qualified Scheduling Entity ” or “ QSE ” means a market participant that is qualified by ERCOT to submit Balanced Schedules and Ancillary Services (as defined in ERCOT’s tariff) bids and settle payments with ERCOT.
 
1.25
“ REP ” means an unregulated retail electric provider that is qualified by the Public Utility Commission of Texas (“PUCT”) and then certified by The Electric Reliability Council of Texas (“ERCOT”), or other utility in whose territory the energy services company will participate, to provide end-use consumption of natural gas and/or electric energy.
 
1.26
“ Residential Customer ” means any purchaser of Full Requirements Service for personal, non-commercial, non-industrial consumption from Client in the Specified Geographic Region.
 
1.27
“ Sale Contract ” means an agreement for the sale of Full Requirements Service by Client to a Customer, which has been entered into pursuant to and is governed by a contract substantially similar to Exhibit 3 .
 
1.28
“ Sale Obligation ” means an obligation to sell Full Requirements Service incurred by Client pursuant to a Sale Contract.  Such obligations may be expressed in MWhs or in dollars.
 

 
3
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


1.29
“ Security Agreement ” has the meaning set forth in the Credit Agreement and is attached here to as Exhibit 6 .
 
1.30
“ Service Territory ” means any of the approved NERC regions, ISOs and electric utilities listed in Exhibit 7 .
 
1.31
“ Small Commercial Customer ” means an entity that is neither a residential nor industrial purchaser of Full Requirements Service up to a total aggregate of seven hundred and thirty (730) MWh per month or eight thousand seven hundred and sixty (8,760) MWh per year, which has one or more commercial operations located within the Specified Geographic Region and which agrees to purchase Full Requirements Service from Client.
 
1.32
“ Specified Geographic Region ” means the geographic service area that encompasses the Service Territory listed in Exhibit 7 .
 
1.33
“ Speculative Trading ” means (i) any and all Trading, whether exchange based or over-the-counter, engaged in for the purpose of financial gain only or (ii) any and all Trading (a) not directly related to hedging, mitigating or locking in risks or (b) that creates a risk position with regard to market price or volume.
 
1.34
“ Third-Party Purchaser ” means an entity that agrees to purchase electric power and/or associated services from Client other than a Residential Customer; Small Commercial Customer or Governmental Entity.
 
1.35
“ Third-Party Seller ” means an entity other than Provider that agrees to sell electric power and/or associated services and/or transmission to Client through Provider.
 
1.36
“ Trading ” means the buying or selling of electric power and related products, including without limitation ancillary services and incurring any obligation to buy or sell electric power whether contingent or actual.
 
ARTICLE 2
NATURE OF RELATIONSHIP
 
The purpose of this Agreement is to establish a relationship between the Parties whereby (i) Provider will (a) sell Full Requirements Service to Client and (b) provide credit support to Client and, in exchange, (ii) Client will (b) purchase all of its Full Requirements Service from Provider, and (b) pay Provider fees for such services.  Without limiting the generality of the foregoing, the Parties agree to the following:
 
2.1
It is expressly understood and agreed that the relationship between Provider and Client described herein or established hereby is not a joint venture or a partnership.
 
2.2
Client agrees that it will be solely responsible for conducting and managing its day-to-day business activities, including without limitation Customer enrollments and de-enrollments, customer service, ERCOT settlements, transmission and distribution charge
 

 
4
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
payments, and Customer collection activities and shall use commercially reasonable efforts to market electric power and associated services under this Agreement in the Service Territory.
 
2.3
Client shall be named as the purchaser in all Purchase Contracts and the seller in all Sale Contracts, and Client shall be solely responsible for the performance of its obligations under such contracts.  Except for obligations undertaken by Provider pursuant to Purchase Contracts between Provider and Client, Provider specifically disclaims any and all liability under such contracts and Client acknowledges and agrees that Provider shall have no liability under such contracts.
 
2.4
Provider shall not be subject to margining with respect to fixed-price hedges or physical fixed price supply with Client.  Provider shall provide applicable credit support in the bi-lateral market for transactions entered into to support this Agreement.  Client acknowledges that Provider and/or Provider’s Affiliates conduct all risk management activities on their own behalf.  Client further recognizes that neither Provider nor any of its Affiliates is currently registered as an “investment advisor” with the Securities and Exchange Commission or any state or federal regulatory agency or as a “commodity trading advisor” with the Commodity Futures Trading Commission or the National Futures Association, and neither Provider nor any of its Affiliates holds itself out generally to the public or to Client as such.
 
2.5
Client agrees not to misrepresent to third parties its relationship with Provider, as such relationship is described in this Agreement.  Provider shall have the right to review and approve any and all Client press releases mentioning or making reference to Provider or implying that Provider is associated with Client.  In the event that Provider determines in its sole, reasonably exercised discretion that Client has misrepresented its relationship with Provider under this Agreement, such misrepresentation shall be deemed to be an Event of Default.
 
2.6
It is expressly understood and agreed that nothing in this Agreement changes the employment relationship between Client and its employees, nor does it change the employment relationship between Provider and its employees.  Client’s employees, contractors, and agents are not employees, contractors and agents of Provider, and it is the Parties’ intent that nothing in this Agreement or in any other agreement shall be deemed to constitute or be construed as making Client’s employees, contractors and agents, employees, contractors or agents of Provider.  In addition, nothing in this Agreement or any other agreement shall be construed to create a joint or co-employment relationship between the Parties.  Client is solely responsible for any employment related costs and expenses associated with its employees including, but not limited to, recruiting, taxes, benefits, workers compensation, unemployment insurance, equipment, tools, materials, and supplies.
 
2.7
As a condition precedent to the effectiveness of this Agreement, Client shall have in
 

 
5
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
place an acceptable statement of trading as determined in Provider’s sole and reasonable discretion and Client will have provided to Provider a copy of such statement of trading.
 
2.8
Client shall provide to Provider the right and shall request its bank to permit Provider such right, and documentation, including detail on account(s) transactions, requested, so as to view and monitor Client’s main or operational account(s) that Client will use to pay its debt obligations, including without limitation salaries and benefits allocations.
 
2.9
Provider will register a QSE account with ERCOT on Client’s behalf.  The QSE account will be used for scheduling daily bi-lateral transactions for Energy and Ancillary Services as well as financial settlements with ERCOT.
 
2.10
Provider will provide Client the opportunity to purchase financial and physical hedges, including New York Mercantile Exchange (“NYMEX”) futures, basis, call options, put options and ERCOT Market Clearing Price for Energy transactions, only for the benefit of Customers and potential Customers and as further provided for herein pursuant to the terms of the ISDA Master
 
Agreement.  Client shall purchase all of its financial and physical hedges through Provider.  Client shall not engage in any Speculative Trading and any such transaction shall be an Event of Default.  Pursuant to Article 6, Client shall provide to Provider documentation on a monthly basis to demonstrate and/or substantiate that all Purchase Obligations are aligned with offsetting Sales Contracts, provided, however, that from time to time Client may enter into such Purchase Obligations for the purpose of supplying potential Sales Contracts, which Client has a reasonable likelihood of signing and supplying during such time period.  Notwithstanding anything in this Agreement to the contrary, Client shall not carry any net long or short position in excess of XXXXX of its load obligations to its Customers.  Such net long or short position shall be an Event of Default.
 
2.11
Provider acknowledges that, with respect to hedging, Client, for its Customers, will require odd lots, as well as small quantities, and Client agrees that such odd lots and small quantities will be priced, accordingly.
 
2.12
Client agrees that, upon Provider’s request, Client shall transfer Client’s deposit accounts and all funds held therein to an account at a financial institution approved by Provider and Client, which such approval shall not be unreasonably withheld by either Party, from time to time during the term of this Agreement, but in no event more frequently than once per year commencing on the date Provider first requests such transfer.  Upon such request by Provider, Client represents and warrants that the deposit accounts the funds were transferred from are closed and that no other deposit account is opened other than the Provider requested accounts.
 
2.13
Client has entered into the third party billing service agreement, as may be amended from time to time (“XXXXX Agreement”), between Client and XXXXX.
 
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.
 
6
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


2.14
Client shall immediately provide written notice to Provider in the event of any material change in Client’s business, including without limitation, any litigation and/or regulation proceeding and/or threat of litigation and/or regulation proceeding, any Customer of Client that is involved in Bankruptcy or threat of Bankruptcy or any event obligating Client to file a claim or notice under its insurance policies as set forth in such policies.
 
2.15
Provider may request, and Client shall accommodate Provider during a Business Day and upon reasonable notice, to perform site visits to Client’s offices as part of Provider’s audit rights under this Agreement.
 
2.16
Provider may review and provide comments to Client with respect to the pro forma “Sale Contract” – End-user Base Agreement & Ordering Exhibit to be attached as Exhibit 3 hereto no later than thirty (30) days after the execution of this Agreement and such agreed to form shall be inserted as Exhibit 3.
 
2.17
Provider and Client will enter into the applicable ERCOT agreement(s) that transfer qualified scheduling entity rights and obligations to Provider, on terms acceptable to Provider, for the provision by Provider under this Agreement of credit support with the ERCOT.  Provider will not be required to provide any form of collateral other than a guaranty to ERCOT and such guaranty obligations shall not exceed XXXXX.  The foregoing is a condition precedent to the obligations of Provider under this Agreement.  Provider will pass through to Client all costs related to ERCOT, including without limitation all reserve requirements, other ancillary services and uplift charges.  The Parties agree that pass through costs are not a part of the Transfer Price.
 
2.18
Client’s anticipated capacity and energy requirements for the first two contract years are:
 
Contract Year
Capacity
Nominal Energy
1
XXXXX MW
XXXXX MWh
2
XXXXX MW
XXXXX MWh
3
XXXXX MW
XXXXX MWh

 
2.19
Client shall have a minimum take-or-pay load requirement of XXXXX MWh/yr.
 
2.20
All capacity to be charged by Provider to Client is embedded in the Transfer Price; provided however , that in the event the required capacity ever exceeds one hundred and twenty percent (120%) of energy demands, Provider will pass through the incremental cost.
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.

 
7
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]

 
ARTICLE 3
PURCHASE CONTRACTS
 
3.1
In order to obtain supply Full Requirements Service, Client shall enter into Purchase Contracts with Provider.  Client shall purchase directly from Provider one hundred percent (100%) of the Monthly Sale Obligations pursuant to the terms of a confirmation and the ISDA Master Agreement attached hereto as Exhibit 1 .
 
3.2
Client will purchase its electric power and associated services requirements to service the Customers (i) directly from Provider pursuant to the ISDA Master Agreement to serve Customers of Client in respect of Full Requirements Service, (ii) indirectly from an Approved Third Party Seller through Provider pursuant to the arrangement described in this Section 3.2 below and (iii) directly from Provider, upon mutual agreement and pursuant to the ISDA Master Agreement, to serve customers of Client which are not in the Specified Geographic Region.
 
 
A.
If Client elects to purchase from Third Party Sellers, (which, for purposes of this Section 3.2, must be designated by Provider as “Approved Third Party Sellers”, as defined in Section 3.2(C), Client will be limited to a transaction that contains the same quantity, delivery point(s), delivery period and services as provided by Provider to Client.  Client will do so through Provider pursuant to the procedure described in this Section 3.2 and subject to a pass through fee of XXXXX per MWh in addition to the Transfer Price set forth in Section 7.2.  In such event, Client shall negotiate the terms and conditions of such purchase transactions with such Approved Third Party Seller and the Approved Third Party Seller must agree that Provider and not Client will actually purchase the electric power and if applicable associated services from the Approved Third Party Seller.  Such transactions shall be executed pursuant to the agreed upon terms of the transaction and shall be governed by the master agreement then in place between such Approved Third Party Seller and Provider.  No third party will be approved as an Approved Third Party Seller unless a master agreement exist between such third party and Provider and adequate credit is available.  If the Approved Third Party Seller so agrees to such transaction, then as the Approved Third Party Seller performs, Provider will simultaneously provide such performance to Client under the same or similar commercial terms previously negotiated with the Approved Third Party Seller and under the terms and conditions of this Agreement and the ISDA Master Agreement, including without limitation the XXXXX per MWh pass through fee and the Transfer Price set forth in Section 7.2.
 
 
B.
The following additional conditions shall apply to the purchase of electric power and/or associated services from an Approved Third Party Seller by Client:
 
 
(i)
any transaction with an Approved Third Party Seller shall be purchased on a cost plus basis for a term not to exceed the term of
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.

 
 
8
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
the Agreement, provided that such request is made by one of Client’s principals;
 
 
(ii)
in connection with Section 3.2(A), no Approved Third Party Seller transaction will be entered into for a quantity of greater than an overall limit of XXXXX MWh per month without the consent of Provider;
 
 
(iii)
Provider will verbally confirm the quantity under a transaction after Client provides notice to Provider that such transaction terms are agreed to.  Provider will then enter into the transaction and will be the confirming party in such transaction;
 
 
(iv)
all transactions must be communicated in writing to Provider from Client within two (2) hours of entering into the respective transaction and no later than two (2) hours prior to the scheduling deadline;
 
 
(v)
no real-time electric power and/or associated services will be provided by Provider for Client if the Approved Third Party Seller’s electric power and/or associated services is curtailed by Force Majeure (as defined in the ISDA Master Agreement), unless Provider, at its sole option, agrees to perform this service; and
 
 
(vi)
Client shall not enter into transactions for the purchase of electric power and/or associated services Service with more than XXXXX   Approved Third Party Seller’s outstanding at any one time.
 
 
C.
Prior to negotiating a purchase with any Third-Party Seller, Client shall provide the name of such Third-Party Seller to Provider.  Provider may investigate the creditworthiness of each such Third-Party Seller and shall notify Client in writing of those Third-Party Sellers that satisfy Provider’s credit requirements (the “Approved Third Party Sellers”) and those that do not satisfy Provider’s credit requirements (the “Unapproved Third Party Sellers”).  Provider shall have the right to change its credit requirements at any time and such right shall be exercisable by Provider in its sole discretion and without prior notice to Client.  Provider shall have the right, upon written notice to Client, to change the status of any Third-Party Seller from an Approved Third Party Seller to an Unapproved Third Party Seller or vice versa.  There will be no Approved Third Party Seller electric power and/or associated services purchase unless a fully executed master agreement exists between Provider and Third Party Seller.
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.

 
9
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
D.
Provider shall use reasonable efforts to notify Client of the initial status of any Third-Party Seller within two (2) Business Days of Client’s first providing the name of such Third-Party Seller to Provider; provided, however, that failure of Provider to notify Client within such period shall not constitute or be construed as a designation of such Third-Party Seller as an Approved Third Party Seller.
 
3.3
Unless Client has obtained the prior written approval of Provider, the Monthly Purchase Obligations relating to any one (1) calendar month (exclusive of any Purchase Obligations incurred in any prior calendar month) shall not exceed XXXXX MWh per month (the “ Monthly Purchase Limit ”).  If, at any time, Client exceeds the then current Monthly Purchase Limit without Provider’s prior written approval, such occurrence shall be an Event of Default; provided, however, that Provider may, in its sole discretion, waive its rights that arise from such Event of Default and negotiate with Client to increase the Monthly Purchase Limit.  The Monthly Purchase Limit may be reviewed from time-to-time by Provider.  Provider and Client will negotiate in good faith to, increase the Monthly Purchase Limit as requested by Client; provided, however, that no such increase shall be effective unless it is evidenced in a writing signed by Provider and Client.
 
ARTICLE 4
SALE CONTRACTS
 
4.1
In order to sell Full Requirements Service, Client will enter into Sale Contracts with its Customers, subject to the terms and conditions relating to Sales Contracts set forth below.
 
4.2
With respect to Sale Contracts between Client and its Customers:
 
 
a.
Client shall use the form of agreement depicted in Exhibit 3 (this form of agreement shall have been approved by Provider prior to the execution of this Agreement).  If, at any time, Client desires to change the form of agreement it offers to its Customers, Client shall request that Provider review and approve the new proposed form and shall obtain approval from the applicable regulatory body having jurisdiction over such agreement.  Upon agreement of both Parties as to the new agreement form, the Parties shall execute a written amendment to this Agreement whereby the new form shall replace the form of agreement currently depicted in Exhibit 3 .  Notwithstanding the foregoing, Provider may request changes to the form of agreement that Client offers to its Customers and subject to applicable regulatory approval, Client shall use its best efforts to accommodate Provider’s request.
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.
 
 
10
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
b.
Provider shall have review and approval rights of all Sale Contracts for Customers purchasing the equivalent of, or greater than, XXXXX   MWh per day.
 
 
c.
Client shall be responsible for ensuring that all amounts due from Customers in connection with any Sale Contract are invoiced.  Client shall ensure that all payments from Customers shall be delivered to the Lockbox Account.
 
ARTICLE 5
LOCKBOX AGREEMENT, LOCKBOX ACCOUNT AND MINIMUM
BALANCE
 
5.1
Provider, Client and Bank have executed a Lockbox and Security Agreement dated [____________], a copy of which is attached hereto as Exhibit 5 (the “Lockbox Agreement”).  Such Lockbox Agreement shall be incorporated by reference in, and made part of, this Agreement.  Pursuant to the terms of the Lockbox Agreement, Client has established a demand deposit account (account number XXXXX ) (the “Lockbox Account”) for the deposit of funds received by Client pursuant to Sale Contracts and for the disbursement of such funds to Client and to Provider as described in Section 5.5 below.  The Parties agree that the execution of the Lockbox Agreement and the establishment of the Lockbox Account shall be conditions precedent to the execution of this Agreement.
 
5.2
All references in this Agreement to the “Lockbox Account” shall be deemed to be references to the account established pursuant to the Lockbox Agreement, irrespective of any differences in the terminology between this Agreement and the Lockbox Agreement.
 
5.3
The Lockbox Account shall be maintained during the entire term of this Agreement.  Notwithstanding anything to the contrary in any other agreement between the Parties, Client shall be responsible for all fees and service charges relating to the Lockbox Account.
 
5.4
As stated in Section 4.2(c), all Sale Contracts must specify that all payments due to Client thereunder must be deposited into the Lockbox Account.  No other accounts will be maintained by Client for deposit of funds.
 
5.5
Disbursements from the Lockbox Account shall be made pursuant to the following, subject to the terms and conditions of the Credit Agreement:
 
 
a.
All disbursements shall require a written request from an authorized representative of Client and a written approval of such request by Provider.  However, upon the occurrence of an Event of Default, Provider may authorize the Bank to disburse funds from the Lockbox Account to satisfy any outstanding obligations of Client to Provider.
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.

 
11
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
b.
Provider shall invoice Client for all fees under this Agreement each month during the term of this Agreement.  Provider may net all fees due Provider from the Lockbox Account.  If the Lockbox Account contains insufficient funds to completely satisfy any such Provider invoice, Provider may extend Client’s Payment due date with interest accruing at the commencement of such extension in accordance with the Credit Agreement or Client may request a Commodity Loan in accordance with the Credit Agreement.
 
 
c.
Client shall have the obligation to initiate with Provider the request for disbursements from the Lockbox Account to Client’s transmission and distribution utility providers and any other entities to which Client owes Payment.  Client shall notify Provider of any such request no later than 12:00 p.m. CST three (3) Business Days prior to the requested date of Payment.
 
 
d.
Client shall issue to Provider an estimate of Client’s Gross Margin before or on XXXXX .  Such estimate shall request disbursement of Client’s monthly Gross Margin generated from the previous month’s billed revenue and be accompanied by supporting documentation.  The estimate shall also include a reconciliation of the previous month’s estimated Gross Margin, or the amount authorized by Provider, and the actual Gross Margin received into the Lockbox.  Provider shall approve the requested disbursement at such time Provider satisfies itself that the documentation provided by Client supports such estimate.  Provider shall decide
 
whether such documentation supports the estimate by the close of business on the 30 th of the month Client issues such estimate to Provider or no less than ten (10) calendar days after receipt of such estimate, whichever provides Provider the longer period of review.  Should Provider decide that the supporting documentation does not support the estimated amount, Provider shall agree to authorize disbursement, in its sole discretion, to Client in an amount that the documentation does support on the Business Day following the 30 th of such month or ten (10) days from receipt of the applicable estimate, whichever period is longer or, in the event that Provider is satisfied, in its sole and reasonable discretion, that the documentation supports such requested amount, such amount shall be authorized for disbursement to Client.
 
 
e.
Notwithstanding the foregoing Section 5.5d., on a monthly basis, after all Payments referenced in Sections 5.5b. and c. above have been paid, and to the extent there exist no other claims by Provider related to amounts owed by Client to Provider or by third parties, then all remaining Gross Margin shall be distributed to Client.  Provider agrees to authorize the release and disbursement of such funds to Client as requested by Client pursuant to this subsection 5.5e.
 
5.6
In the event interest accrues on the amounts held in the Lockbox Account and/or against
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.

 
12
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
the Minimum Balance (as defined below), Client shall be entitled to such interest and Provider agrees to authorize disbursements of such accrued interest to Client from time to time upon request by Client only so long as (i) Client has no current outstanding Payment Obligations to Provider not covered by the Lockbox Account balance, (ii) neither Party anticipates aggregate Payment Obligations by Client to Provider beyond the Lockbox Account and Minimum Balance balances for the subsequent month and (iii) Client is maintaining the Minimum Balance and no future draw or sweep on such account is anticipated by Provider.
 
5.7
Neither Party shall make any modifications to the Lockbox Account or the Lockbox Agreement without the prior written consent of the other Party.  This provision shall survive the termination of this Agreement until all payment obligations, including, without limitation, all obligations, whether paid or released, under all Credit Guaranties due to Provider from Client, have been fully and finally paid.  Failure to adhere to this provision shall be deemed to be an Event of Default.
 
5.8
Client shall be responsible for all volumetric and financial accounting with respect to the transactions entered into pursuant to this Agreement.  Within ten (10) days after the end of each calendar month during the term of this Agreement, Client shall deliver to Provider an accounting setting forth the beginning and ending balances in the Lockbox Account, together with a description (including amount) of each transaction conducted in connection with this Agreement for the period referenced.
 
5.9
Client shall maintain a cash reserve in the Lockbox Account.  Client shall be responsible for maintaining a minimum balance cash reserve (“Minimum Balance”) as determined from time to time in the sole and absolute discretion of Provider.  On the date Provider provides notice to Client for the initial Minimum Balance, Client shall fund the Minimum Balance in the amount required by Provider no later than two Business Days after such request.  As of the Effective Date, the Minimum Balance required to be funded is XXXXX of Client’s annual estimated levelized receivables for the first XXXXX following the Effective Date and Provider, in its sole discretion, may reset such percentage for each rolling three month period 1 following the Effective Date to account for load, Customer payment and price volatility.  Any reset shall be based on an annual levelized estimate of receivables from such reset date.  In order to assist Provider in calculating any reset, on or before the twentieth (20th) day of each month, Client shall provide Provider an annual estimate of billed and unbilled receivables broken down by month to be reviewed by Provider.  Such estimate shall commence with the month 2 following the provision of the estimate.  Should Provider adjust the Minimum Balance upward, Client shall have ten
 
1  By way of example only, if the Effective Date is January 1, 2014, then each calendar quarter would equal a three month rolling period.  
2 By way of example only, if such estimate is provided on March 20th, then the estimate will commence with April and the estimate will represent April 1st through March 30th.
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
13
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
(10) days to fund the incremental amount.  Should Provider adjust the Minimum Balance downward, Client may request such decreased amount in a Gross Margin request.   XXXXX “Qualified Institution” means a commercial bank or trust company organized
 
under the laws of the United States or a political subdivision thereof or foreign bank with a US branch office, with (i) a Credit Rating of at least (a) “A-” by S&P and “A3” by Moody’s, if such entity is rated by both S&P and Moody’s or (b) “A-” by S&P or “A3” by Moody’s, if such entity is rated by either S&P and Moody’s, but not both, and (ii) having a capital and surplus of at least $1,000,000,000.   “Credit Rating” shall mean with respect to an entity, the respective ratings then assigned to its unsecured, senior long-term debt or deposit obligations, not supported by third party credit enhancement, by S&P or by Moody’s or if such entity does not have a rating for its unsecured, long-term debt, then the rating assigned to such entity as its issuer credit rating (corporate credit rating) by S&P or issuer rating by Moody’s.   “Moody’s” means Moody’s Investors Service, Inc. or a successor (if any).   “S&P” means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. or a successor (if any).
 
5.10
Client shall be allowed to withdraw funds from the Minimum Balance solely to cover Bad Debt write-offs by Client after receiving approval and authorization from Provider.  Any funds for the Minimum Balance used to cover such Bad Debt write-offs shall be replenished in the account during the next billing period between Provider and Client.
 
ARTICLE 6
REPORTING OBLIGATIONS / AUDIT RIGHTS
 
6.1
By 5:00 p.m. Eastern Prevailing Time on the 10th Business Day of each calendar month during the term of this Agreement, Client shall submit to Provider electronically (in Excel format or other acceptable format to Provider), a report containing the following information, expressed in both dollars and applicable units, with respect to obligations Client incurred in the immediately preceding month:
 
 
a.
the Monthly Sale Obligations (including, the markets, market volumes, prices, and aggregate monetary obligations associated therewith); and
 
 
b.
the Monthly Purchase Obligations (including, the suppliers, supply volumes, prices, and aggregate monetary obligations associated therewith).
 
6.2
By 5:00 p.m. Eastern Prevailing Time on the 10th Business Day of each calendar month or within two (2) Business Days of a request by Provider during the term of this Agreement, Client shall submit to Provider electronically (in Excel format or other acceptable format to Provider), a position report containing net short or long open
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.

 
14
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
positions in MWhs for fixed priced transactions, including ancillary services, which can be hedged.
 
6.3
If applicable, at the request of Provider, Client shall grant Provider access to Client’s electronic bulletin board nomination ERCOT Market Data scheduling account with utilities or other entities; provided, however, that such access shall be only for purposes of allowing Provider to monitor and review activity by Client on such electronic bulletin boards, unless Provider is providing scheduling services for Client in which case Provider
 

 
15
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]

 
shall have full rights to schedule deliveries and receipts of electric power or manage associated services in respect of such electric power.
 
6.4
Client hereby grants to Provider the right to audit and review Client’s contracts, books and records, together with any supporting documentation from time to time during the term of this Agreement and thereafter for the applicable period of time in which Provider is subject to a tax audit by applicable federal, state or local taxing authorities.
 
6.5
Client shall provide to Provider, at Provider’s request, any and all other information with respect to Client’s business that Provider may request from time to time and Client shall provide such information in a format and on a schedule acceptable to Provider in its sole discretion.
 
6.6
The reporting obligations under this Article are in addition to any and all reporting obligations that may be set forth in the Credit Agreement.
 
ARTICLE 7
FEES
 
Provider shall invoice Client for the fees described in Sections 7.1 and 7.2 on or about the eighth day of each calendar month during the term of this Agreement.  All other Client Payment Obligations to Provider shall be invoiced in accordance with their respective Payment provisions or provisions herein.  Payment of such fees by Client shall be due on the XXXXX day of the month in which such invoice is received; or if such day is not a Business Day, then the next following Business Day.  All amounts invoiced to Client by Provider or any part thereof that falls past due shall accrue interest at the default rate of interest set forth in the Credit Agreement.
 
7.1
Administrative Fee
 
The Parties acknowledge that Provider will incur significant administrative costs in connection with providing services to Client pursuant to this Agreement.  In consideration for Provider providing such services to Client, Client agrees to pay Provider an administrative fee in the amount of XXXXX per month (“Administrative Fee”) for each calendar month or partial calendar month during the term of this Agreement.
 
7.2
Transfer Price
 
The Parties shall be subject to transfer pricing as set forth in Exhibit 9 with respect to Full Requirements Service invoices from Provider to Client.
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.
 
 
16
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]

 
 
ARTICLE 8
CREDIT SUPPORT
 
In order to assist Client in the purchase of Full Requirements Service pursuant to this Agreement and its sale to Customers, Provider may, in its sole and absolute discretion, provide certain credit facilities to Client in accordance with, and subject to the terms and conditions of, the Credit Agreement.  All of Client’s obligations with respect to such credit facilities and all of its obligations hereunder shall be secured by a first lien and security interest on all of Client’s assets pursuant to the Security Agreement and by a first priority pledge of all of the outstanding interest of Client pursuant to the Pledge Agreement.  In the event of any conflict or inconsistency between the provisions of this Agreement on the one hand and the Credit Agreement and other Credit Documents on the other, the provisions of the Credit Agreement and other Credit Documents shall control.
 
 
ARTICLE 9
INSURANCE
 
A.           Insurance Disclosure Obligations by Client.
 
Client shall obtain and maintain in effect during the term of this Agreement and the obligations therein the insurance coverages specified below.  All insurance obtained by Client pursuant to this Article 9 shall conform to the requirements and conditions specified below.
 
(1)       Disclosure .
 
Client shall ensure that full and timely   disclosure is made to Provider and its insurance brokers of:
 
 
a.
all information which may be material to the insurers providing insurance coverage in respect of any risk relating to the Client’s business or this Agreement (the “Insurers”), and where Client is an insured, all information specifically requested to be disclosed from time to time;
 
 
b.
all material information which insurance brokers, in relation to the relevant policy, request for disclosure to the Insurers; and
 
 
c.
all other information, including any changes in the information previously provided, which Client acting in accordance with good trading and marketing practices, good business practices and in good faith could reasonably consider to be material to the relevant insurance coverage.
 
(2)            Deductibles .  Client shall be liable for any and all deductibles for insurance required by it under this Section 9(A).
 

 
17
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]



B.            Insurance Obtained and Maintained By Client .
 
Client shall provide and maintain in full force and effect, at Client’s expense, the following insurance coverages, which shall be effective within ten (10) calendar days following the execution of this Agreement, and shall continue throughout the term of this Agreement and completion of any outstanding obligations under this Agreement.
 
(1)       Third Party Liability .
 
Client shall obtain and maintain third party liability insurance written on either (i) an occurrence basis, or (ii) a claims made basis under coverage that is reasonably satisfactory to the Parties, with a combined single limit of $2,000,000 per occurrence.
 
The terms of the policy coverage shall include premises/operations, collapse, blanket contractual liability, and personal injury.  Provider shall be named as an additional insured under such policy.
 
(2)       Worker’s Compensation and Employer’s Liability .
 
To the extent required by law, Client shall provide and maintain at all times workers’ compensation with statutory limits and employer’s liability insurance with limits not less than $1 million with respect to any of its employees.
 
(3)       Automobile Liability .
 
To the extent required by law, Client shall maintain automobile liability insurance for its owned (if any), hired and non-owned automotive equipment.  For hired and non-owned automobile liability, Client shall obtain and maintain coverage written on either (i) an occurrence basis, or (ii) a claims made basis, that is reasonably satisfactory to the Parties, with a combined single limit of $2,000,000 per occurrence.
 
(4)       Employee Dishonesty .
 
Client shall obtain and maintain employee dishonesty insurance coverage written on either (i) an occurrence basis, or (ii) a claims made basis under coverage that is reasonably satisfactory to the Parties, with a combined single limit of $250,000 per occurrence.
 
(5)      Other Covereage .
 
Client shall provide any other insurance required by any law or regulation.
 
C.            Notice of Cancellation .
 
All such policies shall provide, except as noted elsewhere herein, sixty (60) days’ written notice by the insurance carrier to Client and Provider in the event of cancellation, material change, or non-renewal, with the exception of nonpayment of premium, in which case no less than thirty (30) days written notice shall be provided.
 

 
18
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
D.            Severability of Interest .
 
All insurance required under this Agreement shall include a requirement that substantially states:
 
Each of the several insureds or named insureds covered by a policy shall have the same protection as if the policy had been issued individually to the insured or named insured; provided, that the inclusion under the policy of more than one insured shall not operate to increase the total liability of the insurer beyond the limit of liability stated in the policy.
 
E.           Evidence of Insurance/Rights to Inspect, Review and Compliance.
 
 
a.
Prior to the execution of this Agreement, Client shall provide Provider with certificates of insurance, executed by an authorized representative of Client’s insurance carrier or broker, evidencing the coverages obtained by Client as required in this Agreement.  Provider shall have the right but not the duty to inspect and review any policies provided pursuant to this Agreement.
 
 
b.
If Client fails to comply with its obligations under this Article 9, Provider shall have the right, but not the duty, to furnish or arrange, at its own expense, all or any part of the insurance required of Client and recover all associated costs from sums due or which may become due.  Failure to comply with this Article 9 shall be an Event of Default.
 
 
ARTICLE 10
MASTER NETTING AGREEMENT
 
It is explicitly understood that this Agreement constitutes a master netting agreement as defined within the meaning of the United States Bankruptcy Code, as amended.
 
 
ARTICLE 11
NEW OPPORTUNITIES AND NON-SOLICITATION
 
To the extent the Parties agree that they want additional services to be provided under this Agreement, the terms and conditions related to the provision of such additional services shall be included in a written amendment to this Agreement, which shall be executed by both Parties.  Further, in consideration for the prices and fees quoted for provision of the services described herein, Client agrees that during the term of this Agreement, Client shall not solicit or enter into any similar arrangements or agreements with any third party for services substantially similar to those described in this Agreement.  Provider may enter into arrangements or agreements related to services substantially similar to those described in this Agreement with other third parties that conduct a similar business.
 

 
19
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


ARTICLE 12
LICENSING OF TRADEMARKS AND COPYRIGHTED MATERIALS
 
Provider does not permit Client to use any trademarks and/or copyrighted materials relating to this Agreement, Provider and Provider’s Affiliates; provided, however, that Client may request use of such material in writing and Provider will review such request and make a determination as to any use of such material in its sole and absolute discretion.  It is understood and agreed that if Provider provides a license to use such materials, Provider will maintain full and complete ownership of all such trademarks and copyrighted materials.  Further, Client agrees to enter into trademark license agreements or other agreements as may be necessary or appropriate to protect Provider’s and/or its Affiliates trademark ownership, rights and interests.
 
 
ARTICLE 13
REPRESENTATIONS AND WARRANTIES
 
Each Party represents and warrants to the other Party that:  (i) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation; (ii) it has all regulatory authorizations necessary for it to legally perform its obligations under this Agreement and each transaction contemplated hereunder; (iii) the execution, delivery and performance of this Agreement is within its powers, have been duly authorized by all necessary action and do not violate any of the terms and conditions in its governing documents, any contracts to which it is a party or any law, rule, regulation, order or the like applicable to it; (iv) this Agreement and each other document executed and delivered in accordance with this Agreement constitutes its legally valid and binding obligation enforceable against it in accordance with its terms; subject to any defenses pertaining to Bankruptcy, insolvency, reorganization, and other laws affecting creditors’ rights generally; (v) it is not Bankrupt and there are no proceedings pending or being contemplated by it or, to its knowledge, threatened against it which would result in it being or becoming Bankrupt; (vi) there is not pending or, to its knowledge, threatened against it or any of its Affiliates any legal proceedings that could materially adversely affect its ability to perform its obligations under this Agreement; (vii) no Event of Default with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement; (viii) it is acting for its own account, has made its own independent decision to enter into this Agreement and as to whether this Agreement is appropriate or proper for it based upon its own judgment, is not relying upon the advice or recommendations of the other Party in so doing, and is capable of assessing the merits of, and understands and accepts, the terms, conditions and risks of this Agreement; and (ix) that all other representations and warranties in the Exhibits with respect to, in connection with and arising out of this Agreement are true and are hereby incorporated by reference into this Agreement.
 
Client represents and warrants to Provider that it is, and at all times, has been and will be in compliance with all applicable federal, state, and local laws, orders, ordinances, rules and regulations in its operations and in performing its obligations under this Agreement.  Client agrees to take all reasonable actions to ensure its and its employees’ compliance with all applicable federal, state and local employment laws and employee benefit laws.  Client also agrees it will take all reasonable actions to ensure its and its employees’ compliance with all applicable federal, state and local employment laws with regard to Client’s employees.
 

 
20
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
ARTICLE 14
INDEMNIFICATION
 
Each Party (the “ Indemnifying Party ”) shall indemnify, defend and hold harmless the other Party, its Affiliates, and their respective directors, officers, agents and employees against any and all third party claims, actions, damages, and expenses (including reasonable attorneys’ fees) arising out of or relating to the actions or inactions of the Indemnifying Party or its personnel in connection with this Agreement, except to the extent caused by the other Party’s willful misconduct or gross negligence.
 
 
ARTICLE 15
LIMITATION OF LIABILITY
 
FOR BREACH OF ANY PROVISION OF THIS AGREEMENT FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, THE OBLIGOR’S LIABILITY SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED.  IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY PROVIDED HEREIN, THE OBLIGOR’S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY, SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED.  UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT OR WARRANTY.  IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE.
 
 
ARTICLE 16
EVENTS OF DEFAULT; REMEDIES
 
16.1
An “Event of Default” shall mean, with respect to a Party (the “Defaulting Party”), the occurrence of any of the following or as otherwise provided in this Agreement:
 
 
a.
the failure of a Party to perform any of its material covenants or obligations set forth in this Agreement, any Purchase Contract or Sale Contract or any other agreement between the Parties entered into pursuant to or otherwise related to this
 
 
 
21
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]

 
b.
Agreement, other than as expressly provided elsewhere in this Section 16.1, and the continuation of such failure for two (2) Business Days after notice thereof is given by the other Party to the Defaulting Party;
 
 
c.
the occurrence of an event described as an “event of default” in this Energy Marketing Agreement, in any Purchase Contract or Sale Contract, in the ISDA Master Agreement, in the Credit Agreement or in any other agreement between the Parties entered into pursuant to or otherwise related to this Agreement;
 
 
d.
the failure to make, when due, any Payment required pursuant to this Agreement if such failure is not remedied within two (2) Business Days after receipt of written notice;
 
 
e.
any representation or warranty made by a Party herein is false or misleading in any material respect when made or when deemed made;
 
 
f.
the Party files a petition or otherwise commences, authorizes, or acquiesces in the commencement of a proceeding or cause under any Bankruptcy or similar law for the protection of creditors or has such petition filed or proceeding commenced against it, the Party otherwise becomes Bankrupt or insolvent (however evidenced), the Party makes an assignment or any general arrangement for the benefit of creditors or the Party is dissolved or has a resolution passed for its winding up or liquidation;
 
 
g.
such Party consolidates with, or merges with or into, or transfers all or substantially all of its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer, the resulting, surviving or transferee entity fails to assume all the obligations of such Party under this Agreement to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other Party;
 
 
h.
if Client fails to provide adequate security for or assurance of its ability to perform its obligations under any transaction within two (2) Business Days of a written request by Provider;
 
 
i.
if Client fails to comply with Section 2.8 of this Agreement;
 
 
j.
a Party defaults under any contract between the Parties, including but not limited to, the ISDA Master Agreement or otherwise;
 
 
k.
if Client undertakes any Speculative Trading;
 
 
l.
if Client fails to maintain its REP status; and
 

 
22
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


m.           if Client defaults under the XXXXX Agreement is otherwise terminated for any reason whatsoever.
 
16.2
If an Event of Default with respect to a Defaulting Party shall have occurred and be continuing, then the other Party (the “Non-Defaulting Party”), shall have the right, at its option, to (i) designate a day (“Early Termination Date”), no earlier than the day such notice is effective and no later than twenty (20) days after such notice is effective, on which date this Agreement and all agreements between the Parties entered into pursuant hereto shall be terminated, without, however, affecting any liabilities of the Parties accrued hereunder or thereunder before the Early Termination Date, (ii) to accelerate all amounts owing between the Parties under this Agreement and all agreements between the Parties entered into pursuant hereto, (iii) withhold any Payments due to the Defaulting Party under this Agreement and all agreements between the Parties entered into pursuant hereto, (iv) suspend further performance under this Agreement and all agreements between the Parties entered into pursuant hereto and (v) exercise any and all rights and remedies provided in the Credit Agreement or the other Credit Documents.
 
 
ARTICLE 17
MISCELLANEOUS
 
17.1
Term
 
Unless terminated earlier pursuant to Section 16.2, this Agreement shall remain in full force and effect from the Effective Date through three “contract years”, and shall be automatically extended an additional six (6) months every six (6) months commencing six (6) months following the Effective Date, until terminated by either Party with no less than ninety (90) days and no greater than one hundred and twenty (120) days written notice to the other Party prior to the beginning of each contract year.  Such termination shall not affect or excuse the performance of either Party under any provision of this Agreement that by its terms survives such termination.  Further, such termination shall not affect or excuse the performance by either Party under this Agreement or any agreement between the Parties entered into pursuant hereto related to obligations which were undertaken prior to such termination and which remain unperformed at the time of such termination.  For the purpose of a “contract year” under this Agreement, a contract year will commence on the first day of the prompt month following the Effective Date.
 
17.2
Return of Documents and Information
 
Upon the termination or expiration of this Agreement pursuant to Sections 16.2 and 17.1, respectively, each Party shall return or destroy, and certify such destruction, all documents, data, and Information belonging to the other Party and shall cooperate fully to ensure that the termination of this Agreement and the transition is accomplished in an efficient and businesslike manner.  One copy of all such documents, data and Information
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
23
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


belonging to a disclosing Party may be retained for record-keeping purposes by the other Party’s counsel and may be retained to maintain compliance with any regulatory record keeping requirements.
 
17.3
Notices
 
Except as otherwise provided herein, all notices to be served under this Agreement shall be in writing and shall be deemed effectively given (i) when personally delivered, (ii) when received by documented overnight delivery service, (iii) when received by facsimile or other electronic means (to the extent that receipt is confirmed), or (iv) on the US Postal Service date stamp indicated on the return receipt for notices deposited as certified or registered mail, return receipt requested, in the United States mail, with postage prepaid thereon, to the individual(s) designated by each Party on Exhibit 8 with respect to the activities specified thereon.
 
17.4
Assignment
 
The provisions of this Agreement will be binding upon and inure to the benefit of the successors and assigns of each of the Parties hereto.  Client may not assign this Agreement to any other person or entity without the prior written consent of Provider.
 
Client hereby represents and warrants that all Purchase Contracts and Sale Contracts along with all other applicable agreements related to Client’s business are and shall be freely assignable to Provider upon the occurrence of an Event of Default.  The foregoing representation and warranty is a material provision to this Agreement.
 
17.5
Entire Agreement; Amendments
 
Except for additional agreements between the Parties expressly referenced herein (the execution of which the Parties acknowledge will occur sometime after the execution of this Agreement), this Agreement contains the entire understanding and agreement of the Parties   and shall form a single integrated agreement between the Parties .   This Agreement may be modified, altered or amended only by an agreement in writing, signed by both Parties.
 
17.6
Waiver
 
No waiver of any provision of this Agreement shall be valid or enforceable unless in writing and signed by the Party against whom enforcement of the waiver is sought.  The waiver of any provision of this Agreement, at any time, by either Party, shall not constitute a waiver of future compliance with such provision or a waiver of compliance with any other provision of this Agreement.
 
17.7
Governing Law ; Jurisdiction; Jury Trial
 
This Agreement and all disputes arising hereunder shall be subject to, governed by, and construed in accordance with the laws of the State of New York or the laws of the United

 
24
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


States, as applicable, as if executed and to be performed wholly within the State of New York.  The Parties hereby agree to exclusive jurisdiction in the state and federal courts (“Courts”) of Detroit, Michigan and irrevocably waive any objections which they may have now or hereafter to (i) the personal or subject matter jurisdiction of the Courts, (ii) the venue of any proceedings brought in the Courts, and (iii) that such proceedings have been brought in a non-convenient forum.  Any final judgment (after appeal or expiration of time for appeal) entered by such Court shall be conclusive and binding upon the Parties and may be enforced in the Courts or any other jurisdiction to the fullest extent permitted by law.  THE CLIENT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

17.8
Severability
 
Except as otherwise set forth herein, in the event that any of the provisions hereof are held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, all other provisions of this Agreement shall remain enforceable to the fullest extent permitted by law.
 
17.9
Confidentiality
 
Each Party acknowledges that during the term of this Agreement, it will have access to and receive oral and written information concerning the other Party and the transactions entered into pursuant to or otherwise related to this Agreement (collectively, the “Information”).  Each Party hereby agrees that it will use the Information solely for the purposes related to this Agreement.  Each Party hereby further agrees that, unless required by applicable law, order, or rule or unless required to enforce or protect its rights under this Agreement, it will not disclose any of the Information to any third party other than such Party’s employees, Affiliates, lenders, counsel, accountants, or other advisors.  Each Party further agrees that it will notify the other Party of any proceeding of which it is aware that may result in disclosure of Information and shall use reasonable efforts to prevent or limit such disclosure.
 
Provider and Client agree that from time to time and at Provider’s sole discretion, Provider may provide to Client certain reports, analyses, projections, forecasts or other similar information in whatever form prepared, summarized or compiled by third parties (“Reports”).  Client acknowledges and understands that:
 
 
a.
in the event Provider provides any Reports, such service is performed at no cost to Client and if a Report is provided, it is provided outside the scope of any and all Provider obligations under this Agreement or any other agreement and done so strictly on a pass through basis;
 

 
25
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
b.
Provider has not read, reviewed or commented on the Reports and is merely passing on the Reports;
 
 
c.
the Reports simply represent another source of information that Client will, in its own business discretion, use and analyze as it sees fit;
 
 
d.
Provider does not make any warranties or representations as to the accuracy or correctness of any information contained in the Reports and hereby provides all Reports, if any, on an “AS IS” , “WHERE IS” basis “WITH ALL FAULTS” and hereby disclaims any and all express and implied warranties and NO IMPLIED STATUTORY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY;
 
 
e.
Provider hereby disclaims any and all liability, including without limitation, loss of profit or revenues, cost of capital, cost of substitute services, facilities, downtime costs, claims of Client’s Customers for such damages, or for any other consequential, incidental, indirect, exemplary or punitive damages whether a claim is brought in contract, indemnity, warranty, tort (including without limitation simple and/or gross negligence), strict liability or otherwise arising from the Reports; and
 
 
f.
Client agrees to indemnify, defend and hold harmless Provider for any and all claims brought with respect to, or related to, the Reports.
 
17.10
Good Faith and Further Assurances
 
The Parties expressly accept their respective responsibility of good faith and for fair dealing with regard to their obligations under this Agreement and agree to take such further actions and execute such further documents as may be reasonably necessary or appropriate to complete the transactions contemplated hereunder.  Further, the Parties agree to execute such additional documents, instruments, or agreements, (including amendments to this Agreement), and take such further action as Provider may deem reasonably necessary to cure any error or omission, to perfect any security interest granted by Client, to comply with applicable law or regulation or otherwise effectuate the provisions or purposes of this Agreement.
 
17.11
Headings, Exhibits
 
The headings used for the sections and articles herein are for convenience and reference purposes only and shall in no way affect the meaning or interpretation of the provisions of this Agreement.  Any and all Exhibits referenced in this Agreement shall be incorporated herein by reference and shall be deemed to be an integral part hereof.
 
17.12
Counterparts
 
This Agreement may be executed and acknowledged in multiple counterparts and by different Parties in separate counterparts, each of which shall be an original and all of
 

 
26
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


which when taken together shall be and constitute one and the same instrument.
 
17.13
Singular/Plural
 
Words importing the singular only also include the plural, and vice versa, where the context requires.
 
17.14
Ambiguities, Conflicts and Inconsistencies

Client shall promptly notify Provider in writing of any apparent ambiguity or conflict or inconsistency among any of the documents within the Agreement or parts thereof.  The Parties will then meet to resolve such conflict, ambiguity or inconsistency.  For purposes of resolution of any ambiguity, conflict or inconsistency, the order of precedence of the documents in the Agreement shall be as follows unless otherwise specified in this Agreement:

 
(i)
Credit Agreement

 
(ii)
Energy Marketing Agreement;

(ii)           ISDA Master Agreement;

 
(iii)
Transfer Price Schedule; and

 
(iv)
Agreement


IN WITNESS WHEREOF , the Parties hereto have executed this Agreement as of the day and year set forth above.
 

DTE ENERGY TRADING, INC.
SUMMER ENERGY, LLC
By:       /s/ Michael Hunt
By:       /s/ Neil Leibman
Name: Michael Hunt
Name:   Neil Leibman
Title:   Vice President
Title:     CEO –Summer Energy

4/23/2014

 
27
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


Exhibit 1

ISDA Master Agreement



 
28
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


Exhibit 2

Pledge Agreement

 
29
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


Exhibit 3

“Sale Contract” – End-user Base Agreement & Ordering Exhibit

 
30
 

Exhibit 4

Credit Agreement

 
31
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


Exhibit 5
 
Lockbox Agreement
 
 

 
32
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


Exhibit 6

Security Agreement

 
33
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


Exhibit 7

Approved Service Territories

Approved NERC Regions / ISOs
and Utilities
States
1.      ERCOT
Texas
   
   
   
   
   
   


 
34
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


Exhibit 8

Notices
 

 
35
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 

Exhibit 9

Transfer Price Schedule

Provider’s offer price plus XXXXX /MWh for all Full Requirements Service.

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.
 
 
36
 



Exhibit 10.2

ISDA â
International Swap Dealers Association, Inc.

2002 MASTER AGREEMENT

dated as of  April 1, 2014

between
 
 
DTE Energy Trading, Inc.
(“Party A”)
 
and
 
 
Summer Energy, LLC
(“Party B”)
 
 
have entered and/or anticipate entering into one or more transactions (each a “Transaction”) that are or will be governed by this 2002 Master Agreement, which includes the schedule (the “Schedule”), and the documents and other confirming evidence (each a “Confirmation”) exchanged between the parties or otherwise effective for the purpose of confirming or evidencing those Transactions.  This 2002 Master Agreement and the Schedule are together referred to as this “Master Agreement”.

Accordingly, the parties agree as follows:

1.        Interpretation

(a)           Definitions .   The   terms defined in Section 14 and elsewhere in this Master Agreement will have the meanings therein specified for the purpose of this Master Agreement.

(b)           Inconsistency .   In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement, such Confirmation will prevail for the purpose of the relevant Transaction.

(c)           Single Agreement .   All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the parties would not otherwise enter into any Transactions.

2.        Obligations

(a)        General Conditions .

(i)             Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement.

(ii)             Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency.   Where settlement is  by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement.


Copyright © by International Swaps and Derivatives Association, Inc.

 
1
 

compensation in respect of that obligation or deferred obligation, as the case may be, pursuant to Section 9(h)(ii)(1) or (2), as appropriate.  The fair market value of any obligation referred to in clause (b) above will be determined as of the originally scheduled date for delivery, in good faith and using commercially reasonable procedures, by the party obliged to make the determination under Section 6(er) or, if each party is so obliged, it will be the average of the Termination Currency Equivalents of the fair market values so determined by both parties.

“Waiting Period” means:--

(a)      in respect of an event or circumstance under Section 5(b)(i), other than in the case of Section 5(b)(i)(2) where the relevant payment, delivery or compliance is actually required on the relevant day (in which case no Waiting Period will apply), a period of three Local Business Days (or days that would have been Local Business Days but for the occurrence of that event or circumstance) following the occurrence of that event or circumstance; and
 
(b)     in respect of an event or circumstance under Section 5(b)(ii), other than in the case of Section 5(b)(i)(2) where the relevant payment, delivery or compliance is actually required on the relevant day (in which case no Waiting Period will apply), a period of eight Local Business Days (or days that would have been Local Business Days but for the occurrence of that event or circumstance) following the occurrence of that event or circumstance.



 
IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document.

   
DTE Energy Trading, Inc.
Summer Energy, LLC
   
   
   
By:   /s/ Michael Hunt
By:   /s/ Neil Leibman  
 
 
Name: Michael Hunt
Name: Neil Leibman  
   
Title: Vice President
 
Title: CEO-Summer Energy  
 
Date:   4/23/2014
Date: 4/1/2014  


ISDA â 2002
 
2
 

ISDA ®
International Swaps and Derivatives Association, Inc.
 
SCHEDULE
 
to the
 
2002 Master Agreement
 
dated as of April 1, 2014
between
  DTE Energy Trading, Inc.
(“Party A”)
 
and Summer Energy, LLC
(“Party B”)
established as a corporation
  under the laws of the State of Michigan
 
 
established as a limited liability company
under the laws of Texas
 

Part 1.    Termination Provisions.
 
(a)           “ Specified Entity ”   means in relation to Party A for the purpose of:
Section 5(a)(v), Not Applicable
Section 5(a)(vi), Not Applicable
Section 5(a)(vii), Not Applicable
Section 5(b)(v), Not Applicable
 
 
and in relation to Party B for the purpose of:
Section 5(a)(v), Not Applicable
Section 5(a)(vi), Not Applicable
Section 5(a)(vii), Not Applicable
Section 5(b)(v), Not Applicable
 
 (b)
“ Specified Transaction ” will have the meaning specified in Section 14 of this Agreement, except that such term is amended by adding in the eleventh line after “commodity” the words “(including without limitation, physical commodities such as electric power, electric power capacity, emission allowances, petroleum, crude oil, coal, natural gas, and byproducts thereof)”.
 
(c)
The “ Cross-Default ” provisions of Section 5(a)(vi), as amended, will apply to Party A and, as amended, will apply to Party B.
 
 
(i)
Section 5(a)(vi) is hereby amended by deleting in the seventh line thereof the words “, or becoming capable at such time of being declared,”.
 
“ Specified Indebtedness ” will have the meaning specified in Section 14 of this Agreement.


ISDA â 2002
 
3
 

“ Threshold Amount ” Not Applicable to Party A; and means with respect to Party B, two percent (2%) of Party B’s shareholders’ equity, (determined in accordance with generally accepted accounting principles) as at the end of its most recently completed fiscal year.
 
(d)
The “ Credit Event Upon Merger ” provisions of Section 5(b)(v), as amended, will not apply to Party A and, as amended, will apply to Party B.
 
The “Credit Event Upon Merger” provisions of Section 5(b)(v), will not apply to Party A and will apply to Party B; provided, however, that “materially weaker” means (i) that the Credit Rating assigned by Standard & Poor's Financial Services LLC or a successor (if any) (“S&P”) and Moody's Investors Service, Inc. or a successor (if any) (“Moody’s”) of the resulting, surviving or transferee entity is less than BBB- by S&P or Baa3 by Moody’s or (ii) in the event the resulting, surviving or transferee entity is not rated, the Internal Policies (as defined below) of Party A in effect at the time, would lead Party A, solely as a result of a change in the nature, character, identity or condition of Party B from its state (as a party to the Agreement) prior to such consolidation, amalgamation, merger or transfer, to decline to make an extension of credit to, or enter into a Transaction with, the resulting, surviving or transferee entity.
 
“ Credit Rating ” shall mean with respect to an entity, the respective ratings then assigned to its unsecured, senior long-term debt, not supported by third party credit enhancement, by S&P or by Moody’s.
 
“ Internal Policies ” shall mean a party’s (1) internal credit limits applicable to individual entities, (2) other limits on doing business with entities domiciled in certain jurisdictions or engaging in certain activities, or (3) internal restrictions on doing business with entities with whom such party has had prior adverse business relations.
 
(e)
The “ Automatic Early Termination ” provision of Section 6(a) will not apply to Party A and will not apply to Party B.
 
(f)
“ Termination Currency ” means United States Dollars.
 
(g)            Additional Termination Event will not apply.
 
(h)
Definitions.    Section 14 shall be amended by deleting the definition of “Potential Event of Default” along with all reference to Potential Event of Default in Section 2(a)(iii), Section 3(b) and Sections 9(h)(i)(3)(B) and (C) and any other references throughout all ISDA documents.

 
Part 2.  Tax Representations.
 
(a)
Payer Representations.   For the purpose of Section 3(e) of this Agreement
 
 
(i)
Party A and Party B each make the following representation:
 
 
It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 9(h) of this Agreement) to be made by it to the other party under this Agreement.  In making this representation, it may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, except that it will not be a breach of this representation where reliance is placed on clause (ii) above and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position.
 


ISDA â 2002
 
4
 

(b)     Payee Tax Representations.   For the purpose of Section 3(f) of this Agreement
 
 
(i)
Party A and Party B each make the following representation:
 
Party A is a corporation created or organized in the United States or under the laws of the United States and its U.S. taxpayer identification number is 38-3323526.  It is “exempt” within the meaning of Treasury Regulation sections 1.6041-3(p) and 1.6049-4(c) from information reporting on Form 1099 and backup withholding.
 
Party B is a Texas LLC created or organized in the United States or under the laws of the United States and its U.S. taxpayer identification number is 26-0206262 .  It is “exempt” within the meaning of Treasury Regulation sections 1.6041-3(p) and 1.6049-4(c) from information reporting on Form 1099 and backup withholding.

 
Part 3.  Agreement to Deliver Documents.
 
For the purpose of Sections 4(a)(i) and 4(a)(ii) of this Agreement, each party agrees to deliver the following documents, as applicable:
 
(a)           Tax forms, documents or certificates to be delivered are: [none]

Party required to deliver document
Form/Document/
Certificate
Date by which
to be delivered
     
     

(b) Other documents to be delivered are:―

Party required to deliver document
Form/Document/
Certificate
Date by which
to be delivered
Covered by Section 3(d) Representation
       
Party A and Party B
Certified copies of resolutions of authorized body authorizing execution, delivery, and performance of this Agreement
 
Execution of Agreement
Yes
Party A and Party B
Evidence of authority of signatories in a form acceptable to the other party
 
Execution of Agreement
Yes
Party B
Completed W-9 (or other relevant tax form) and completed DTE’s EFT Form
 
Execution of Agreement
Yes
Party A and Party B
Annual audited and quarterly unaudited financial statements for such party or its Credit Support Provider, as applicable, containing consolidated financial statements for the relevant period and prepared in accordance with generally accepted accounting principles
 
If requested, and as soon as available, and in any event within 60 days after the end of each fiscal year and within 35 days after the end of each fiscal quarter of the delivering party, if such statements are not available on “EDGAR” or such party’s internet home page
 
Yes
Party A and Party B
Guarantee of Credit Support Provider in a form agreed between the parties
 
Execution of Agreement
Yes


ISDA â 2002
 
5
 
 
Part 4.  Miscellaneous.
 
(a)            Addresses for Notices.   Notwithstanding anything to the contrary in Section 12(a) of this Agreement, parties may communicate by e-mail for informational purposes only, but e-mail does not constitute a binding legal notice for the purpose of Section 12(a) of this Agreement.  For the purpose of Section 12(a) of this Agreement:
 
Notices or Communications (other than with respect to confirmations and/or payments) to Party A:
 
Address:     DTE Energy Trading, Inc.
     414 South Main Street, Suite 200
     Ann Arbor, MI  48104

Attention:    Contract Administration, Jim Buck, Director (734-887-4039)
 
Telephone:  (734) 887-2042 (Marcia L. Hissong); or
      (734) 887-2171 (Cynthia Klots)
Fax:               (734) 887-2235
E-mail:           hissongm@dteenergy.com ; or
                       klotsc@dteenergy.com

With additional Notices of an Event of Default to:
Attention:   Gregory V. Staton, General Counsel & Vice President-Corporate Services
Phone:     (734) 887-2121
Fax:      (734) 887-2235
Email:          statong@dteenergy.com
 

Specific Instructions:
 
Confirmations to Party A:
Attention:     Judy VonBoncel
Telephone:   (734) 887-2025
Fax:                (734) 887-2056
Email:             DTE_CONFIRMS@dteenergy.com

Payments to Party A:
Attention:     Boyd Smith, Staff Accountant
Telephone:   (734) 887-2023
Fax:                (734) 887-2140
Email:             DTE_PWR_STTLMTS@dteenergy.com

Contact Information for Dodd-Frank for Party A:
Name: Michael Seischab
Title: Manager-Enterprise Risk Management
Phone: 734-887-4124
 
Email: seischabm@dteenergy.com
 


ISDA â 2002
 
6
 

 
Notices or Communications (other than with respect to confirmations and/or payments) to Party B:
 
Address:  Summer Energy, LLC
Address 1  800 Bering Dr., Suite 260
City, State, Zip  Houston, TX  77057
Attention:  Contract Administration  Jaleea George
Facsimile:                      713-481-8470
Telephone:  713-375-2793
E-mail:  jgeorge@summerenergy.com
 
Specific Instructions:
 
Confirmations to Party B:
 
Telephone:  713-375-2789
Facsimile:    713-493-7269
 
Payments to Party B:
 
Telephone:  713-375-2793
Facsimile:    713-481-8470
 
(b)            Process Agent.   For the purpose of Section 13(c) of this Agreement:
 
 
(i)
Party A appoints as its Process Agent:  Not applicable.
 
(ii)
Party B appoints as its Process Agent:  Not applicable.
 
(c)            Offices.   The provisions of Section 10(a) will apply to this Agreement.
 
(d)            Multibranch Party.   For the purpose of Section 10(b) of this Agreement:
 
 
(i)
Party A is not a Multibranch Party.
 
 
(ii)
Party B is not a Multibranch Party.
 
(e)
Calculation Agent.   The Calculation Agent is Party A.  All determinations by the Calculation Agent shall be made in good faith and in a commercially reasonable manner.
 
(f)
Credit Support Document.   Details of any Credit Support Document:
 
 
With respect to Party A and Party B, the Credit Agreement entered into on the same date herewith, which is incorporated by reference in, and made a part of, the Energy Marketing Agreement for Electric Power.
 
 
The obligations of Party B will be collateralized by the Security Agreement and Membership Interest Pledge Agreement as both are defined either directly or indirectly in the Energy Marketing Agreement for Electric Power.
 
(g)
Credit Support Provider.
 
 
(i)
Credit Support Provider means in relation to Party A:  Not Applicable
 
 
(ii)
Credit Support Provider means in relation to Party B:  Pledgor as defined under the Membership Interest Pledge Agreement
 

 

ISDA â 2002
7
 

 
(h)
Governing Law.   This Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine that would apply the laws of another jurisdiction).
 
(i)
Jurisdiction .   Jurisdiction is subject to the Energy Marketing Agreement for Electric Power.
 
(j)
Netting of Payments .  “Multiple Transaction Payment Netting” will apply for the purpose of Section 2(c) of this Agreement; therefore , the netting specified in Section 2(c) of this Agreement will apply across all Transactions with effect from the effective date of this Agreement.  For avoidance of doubt, the parties hereby acknowledge and agree that the provisions of Section 2(c) shall not apply to any transaction or agreement not covered by this Agreement.   Notwithstanding the foregoing and the netting of payments pursuant hereto , each party will provide the other party with separate invoices and documentation sufficient to permit the other party to comply with its internal accounting and record keeping procedures concerning the payment of individual Transactions.

(k)
“ Affiliate ” will have the meaning specified in Section 14 of this Agreement, except that with respect to Party A, DTE Electric Company, DTE Gas Company and Citizens Gas Fuel Company are hereby excluded for all purposes.
 
(l)            No Agency.   The provisions of Section 3(g) will apply to this Agreement.
 
(m)
Recording of Conversations.   Each party (i) consents to the recording of telephone conversations between the trading, marketing and other relevant personnel of the parties in connection with this Agreement or any potential Transaction, (ii) agrees to obtain any necessary consent of, and give any necessary notice of such recording to, its relevant personnel and (iii) agrees, to the extent permitted by applicable law, that recordings may be submitted in evidence in any Proceedings.  Neither party shall have an obligation to make such recordings or keep copies of such recordings; provided, however, that no party may knowingly destroy, erase or otherwise tamper with a recording once the possessing party becomes aware of a dispute in which the recording may reasonably be anticipated to be evidence.
 
Part 5.  Other Provisions.
 
(a)
Prior Transactions.   Upon the effectiveness of this Agreement, all Transactions then outstanding between the parties shall be subject to the terms hereof.  To the extent the terms hereof conflict with the terms of the relevant agreement governing the Transactions, the terms of this Agreement shall control.
 
(b)
Set-off.   The first paragraph of Section 6 (f) shall be deleted and replaced with the following:
 
 
"(f)
Set-off.   Any Early Termination Amount payable to one party by the other party, in circumstances where there is a Defaulting Party or where there is one Affected Party in the case where either a Credit Event Upon Merger has occurred or an Additional Termination Event in respect of which all outstanding transactions are Affected Transactions has occurred, will, at the option of the Non-defaulting Party or Non-affected Party, as the case may be (“X”) (and without prior notice to the Defaulting Party or Affected Party, as the case may be (“Y”)) be reduced by set-off against any other amounts (“Other Amounts”) payable by X and, at X’s option, Affiliates of X, to Y (whether or not arising under this Agreement or any other agreement) and whether matured or unmatured, whether or not contingent and irrespective of the currency, place of payment or place of booking of the obligation.  To the extent that any Other Amounts are so set off, those Other Amounts will be discharged promptly and in all respects.  X will give notice to the other party of any set-off effected under this Section 6(f),   provided that failure to give such notice shall not affect the validity of the setoff.”
 
(c)
Confirmations and Procedures for Entering into Transactions.   On or promptly following the date on which the parties reach agreement on the terms of a Transaction as contemplated by Section 9(e)(i), Party A will send to Party B a Confirmation.  Party B will promptly thereafter confirm the accuracy of, or request the correction of, such Confirmation (in the latter case, indicating how it believes the terms of such Confirmation should be correctly stated and such other terms which should be added to or deleted from such Confirmation to make it correct).  If any dispute shall arise as to whether an error exists in a
 


ISDA â 2002
 
8
 

 
Confirmation, the parties shall in good faith make reasonable efforts to resolve the dispute.  If Party B has not accepted or disputed the Confirmation in the manner set forth above within two (2) Local Business Days after it was sent to Party B, the Confirmation shall be deemed binding as sent absent manifest error.   W hen a Confirmation contains provisions, other than those provisions relating to the commercial terms of the Transaction (e.g., price, quantity), which modify or supplement the general terms and conditions of this Agreement (including without limitation Events of Default or Termination Events, or calculation of damages, settlement, netting, set-off or termination payments), any material changes to such terms shall not be deemed accepted unless made in a written amendment to this Agreement that is signed by duly authorized representatives of both parties.
 
(d)
Accuracy of Specified Information.   Section 3(d) is hereby amended by adding in the third line thereof after the word “respect” and before the period the words “or, in the case of audited or unaudited financial statements, a fair presentation of the financial condition of the relevant party.”
 
(e)
Section 3 Representations.   Section 3 is hereby amended by adding at the end thereof the following Subparagraphs (h), (i), (j), and (k):
 
(h)            Eligible Contract Participant.   It is an “eligible contract participant” (“ECP”) within the meaning of Section 1a(18) of the Commodity Exchange Act, as amended (7 U.S.C. § 1a(18)) (“CEA”).
 
(i)            Trading Excluded Commodities or Exempt Commodities on an Electronic Trading Facility.   (i) In connection with trading any “excluded commodity” (as such term is defined in section 1a(19) of the CEA (7 U.S.C. §1a(19))) on an “electronic trading facility” (“ETF”) (as such term is defined in section 1a(16) of the CEA (7 U.S.C. §1a(16))), it is an ECP other than solely because it is acting as a broker or performing an equivalent agency function on behalf of a person described in section 1a(18)(A) or (C) of the CEA (7 U.S.C. §1a(18)(A) and (C)) and otherwise satisfies the terms of section 1a(18)(B)(i) of the CEA (7 U.S.C. §1a(18)(B)(i)); and (ii) in connection with trading any “exempt commodity” (as such term is defined in section 1a(20) of the CEA (7 U.S.C. §1a(20))) on an ETF, it is an “eligible commercial entity” (as such term is defined in section 1a(17) of the CEA (7 U.S.C. §1a(17))).
 
(j)            Relationship Between Parties.   Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):
 
(1)            Non-Reliance.   It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary.  It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction, it being understood that information and explanations related to the terms and conditions of a Transaction will not be considered investment advice or a recommendation to enter into that Transaction.  No communication (written or oral) received from the other party will be deemed to be an assurance or guarantee as to the expected results of that Transaction.
 
(2)            Assessment and Understanding.   It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction.  It is also capable of assuming, and assumes, the risks of that Transaction.
 
(3)            Status of Parties.   The other party is not acting as a fiduciary for or an adviser to it in respect of that Transaction.
 
(k)            Bankruptcy Matters.

(1)           Each party acknowledges and agrees that: (1) the Agreement and all Transactions entered into hereunder constitutes a “forward contract” or a “swap agreement” within the meaning of the United States Bankruptcy Code (11 U.S.C. Section 101 (2000)); (2) each Party A and Party B is a “swap participant” within the meaning of the United States Bankruptcy Code
 


ISDA â 2002
 
9
 

with respect to any Transaction that constitutes a “swap agreement”, (3) each of Party A and Party B is a “forward contract merchant” within the meaning of the United States Bankruptcy Code with respect to any Transactions that constitute “forward contracts”; (4) all payments made or to be made by one party to the other party pursuant to this Agreement constitute “settlement payments” within the meaning of the United States Bankruptcy Code; (5) all transfers of Eligible Credit Support by one party to the other party under this Agreement constitute “margin payments” within the meaning of the United States Bankruptcy Code; (6) each party’s rights under Section 6, “Early Termination”, of this Agreement constitutes a “contractual right to liquidate” the Transactions within the meaning of the United States Bankruptcy Code; and (7) this Agreement constitutes a master netting agreement as defined within the meaning of the United States Bankruptcy Code, as amended.
 

 
(2)
To secure its obligations under this Agreement, each party hereby grants the other party a present and continuing security interest in, lien on, and right to setoff against, its respective payment obligations to the other party under this Agreement.  Each party acknowledges and agrees that the pledge of its payment obligations to the other party under this Agreement shall serve to “margin”, guaranty” or “secure” such obligations within the meaning of the Bankruptcy Code.

(f)
LIMITATION OF LIABILITY.  NO PARTY SHALL BE REQUIRED TO PAY OR BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, OR INDIRECT DAMAGES (WHETHER OR NOT ARISING FROM ITS NEGLIGENCE) TO ANY OTHER PARTY; PROVIDED, HOWEVER, THAT NOTHING IN THIS PROVISION SHALL AFFECT THE ENFORCEABILITY OF SECTION 6(e) OF THIS AGREEMENT.  IF AND TO THE EXTENT ANY PAYMENT REQUIRED TO BE MADE PURSUANT TO THIS AGREEMENT IS DEEMED TO CONSTITUTE LIQUIDATED DAMAGES, THE PARTIES ACKNOWLEDGE AND AGREE THAT SUCH DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE AND THAT SUCH PAYMENT IS INTENDED TO BE A REASONABLE APPROXIMATION OF THE AMOUNT OF SUCH DAMAGES AND NOT A PENALTY.
 
(g)
Confidentiality.   The terms of this Agreement, its contents, and the terms and contents of all Transactions under this Agreement (including but not limited to any Credit Support Documents and any Confirmations), and any information made available by one party or its Credit Support Provider to the other party or its Credit Support Provider (if any) with respect to the Agreement or any Transaction hereunder is confidential and shall not be discussed with or disclosed to any third party (nor shall any public announcement or press release be made by either party, except with the prior written consent of the other party hereto), except for such information (i) as may become generally available to the public, (ii) as may be required or appropriate in response to any summons, subpoena, or otherwise in connection with any litigation or to comply with any applicable law, order, regulation, or ruling, (iii) as may be obtained from a non-confidential source that disclosed such information in a manner that did not violate its obligations to the other party or its Credit Support Provider (if any) if making such disclosure, or (iv) as may be furnished to that party’s Affiliates, auditors, attorneys, advisors, or financial institutions with which the party has a written agreement or which are otherwise required to keep the information that is disclosed in confidence.
 
(h)
WAIVER OF JURY TRIAL.  EACH PARTY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY TRANSACTION, OR ANY CREDIT SUPPORT DOCUMENT.
 
(i)
Severability.   Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction in respect of any Transaction shall, as to such Transaction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of the Agreement or affecting the validity or enforceability of such provision as to any other jurisdiction or Transaction unless such severance shall substantially impair the benefits of the remaining portions of this Agreement or changes the reciprocal obligations of the parties.  The parties hereto shall endeavor in good faith negotiations to replace the prohibited or unenforceable provision with a valid provision, the economic effect of which comes as close as possible to that of the prohibited or unenforceable provision.
 


ISDA â 2002
 
10
 


 
Part 6.    Additional Terms for Commodity Derivative Transactions.

(a)
ISDA Definitions.   This Agreement, each Confirmation, and each Transaction are subject to the 2006 ISDA Definitions (the “Swap Definitions”), the 2005 ISDA Commodity Definitions (the “Commodity Definitions”) each as published by the International Swaps and Derivatives Association, Inc. (collectively the “ISDA Definitions”).  The ISDA Definitions are incorporated by reference herein, and made part of, this Agreement and each Confirmation as if set forth in full in this Agreement and such Confirmations.  Unless otherwise specified in a Confirmation, any capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to them in the Swap Definitions, and the Commodity Definitions (except that references to “Swap Transactions” in the definitions will be deemed to be references to “Transactions”).  In the event of any inconsistency between the provisions of the Swap Definitions and the Commodity Definitions, the Commodity Definitions will prevail.  In the event of any inconsistency between the provisions of this Agreement and the ISDA Definitions, this Agreement will prevail.  In the event of any inconsistency between the provisions of the Credit Support Documents, if any, and the ISDA Definitions, the Credit Support Documents will prevail.  Subject to Section 1(b) of this Agreement, in the event of any inconsistency between the provisions of any Confirmation and this Agreement or the ISDA Definitions, the Confirmation will prevail for the purpose of the relevant Transaction; provided however , a Confirmation may not amend or conflict with any provisions of this Agreement, except as provided under Part 5 (c) above of the Schedule.

(b)
Commodity Definition Amendments.   Unless otherwise specified in a Confirmation, the Commodity Definitions are amended as follows:

 
(i)
The “ Market Disruption Events ” specified in Section 7.4(d)(i) of the Commodity Definitions shall apply, except as otherwise specifically provided in the Confirmation.

 
(ii)
“ Additional Market Disruption Events ” shall apply only if so specified in the relevant Confirmation.


 
(iii)
The following “ Disruption Fallbacks ” specified in Section 7.5(c) of the Commodity Definitions shall apply, in the following order, except as otherwise specified in the relevant Confirmation:

 
(1)
“ Fallback Reference Price ”;

 
(2)
“ Postponement ”, with five (5) Commodity Business Days as the Maximum Days of disruption;

 
(3)
“ Negotiated Fallback ” (provided that the reference in Section 7.5(c)(ii) to “fifth Business Day” shall be amended to be “twelfth Business Day”); and

 
(4)
“ Fallback Reference Dealers ”

 
(5)
“ No Fault Termination ”.



ISDA â 2002
 
11
 



IN WITNESS WHEREOF, the parties have executed this Schedule by their duly authorized officers as of the date hereof
DTE Energy Trading, Inc. (Party A)
 
Summer Energy, LLC (Party B)
 
 
By:           /s/ Michael Hunt  
 
 
 
By:     /s/ Neil Leibman
Name:
Michael Hunt
 
Name:
Neil Leibman
Title:
Vice President
 
Title:
CEO-Summer Energy
Date:
4/23/2014
 
Date:
4/1/2014



ISDA â 2002
 
12
 

ISDA ®
International Swaps and Derivatives Association, Inc.
 
SCHEDULE
 
to the
 
2002 Master Agreement
 
dated as of April 1, 2014
 
between
 

  DTE Energy Trading, Inc.
(“Party A”)
 
and Summer Energy, LLC
 (“Party B”)
established as a corporation
  under the laws of the State of Michigan
 
 
established as a limited liability company
under the laws of Texas
 

Part 1.    Termination Provisions.
 
(a)           “ Specified Entity ”   means in relation to Party A for the purpose of:
Section 5(a)(v), Not Applicable
Section 5(a)(vi), Not Applicable
Section 5(a)(vii), Not Applicable
Section 5(b)(v), Not Applicable
 
 
and in relation to Party B for the purpose of:
Section 5(a)(v), Not Applicable
Section 5(a)(vi), Not Applicable
Section 5(a)(vii), Not Applicable
Section 5(b)(v), Not Applicable
 
 (b)
“ Specified Transaction ” will have the meaning specified in Section 14 of this Agreement, except that such term is amended by adding in the eleventh line after “commodity” the words “(including without limitation, physical commodities such as electric power, electric power capacity, emission allowances, petroleum, crude oil, coal, natural gas, and byproducts thereof)”.
 
(c)
The “ Cross-Default ” provisions of Section 5(a)(vi), as amended, will apply to Party A and, as amended, will apply to Party B.
 
 
(i)
Section 5(a)(vi) is hereby amended by deleting in the seventh line thereof the words “, or becoming capable at such time of being declared,”.
 
“ Specified Indebtedness ” will have the meaning specified in Section 14 of this Agreement.


ISDA â 2002
 
13
 

“ Threshold Amount ” Not Applicable to Party A; and means with respect to Party B, two percent (2%) of Party B’s shareholders’ equity, (determined in accordance with generally accepted accounting principles) as at the end of its most recently completed fiscal year.
 
(d)
The “ Credit Event Upon Merger ” provisions of Section 5(b)(v), as amended, will not apply to Party A and, as amended, will apply to Party B.
 
The “Credit Event Upon Merger” provisions of Section 5(b)(v), will not apply to Party A and will apply to Party B; provided, however, that “materially weaker” means (i) that the Credit Rating assigned by Standard & Poor's Financial Services LLC or a successor (if any) (“S&P”) and Moody's Investors Service, Inc. or a successor (if any) (“Moody’s”) of the resulting, surviving or transferee entity is less than BBB- by S&P or Baa3 by Moody’s or (ii) in the event the resulting, surviving or transferee entity is not rated, the Internal Policies (as defined below) of Party A in effect at the time, would lead Party A, solely as a result of a change in the nature, character, identity or condition of Party B from its state (as a party to the Agreement) prior to such consolidation, amalgamation, merger or transfer, to decline to make an extension of credit to, or enter into a Transaction with, the resulting, surviving or transferee entity.
 
“ Credit Rating ” shall mean with respect to an entity, the respective ratings then assigned to its unsecured, senior long-term debt, not supported by third party credit enhancement, by S&P or by Moody’s.
 
“ Internal Policies ” shall mean a party’s (1) internal credit limits applicable to individual entities, (2) other limits on doing business with entities domiciled in certain jurisdictions or engaging in certain activities, or (3) internal restrictions on doing business with entities with whom such party has had prior adverse business relations.
 
(e)
The “ Automatic Early Termination ” provision of Section 6(a) will not apply to Party A and will not apply to Party B.
 
(f)
“ Termination Currency ” means United States Dollars.
 
(g)            Additional Termination Event will not apply.
 
(h)
Definitions.    Section 14 shall be amended by deleting the definition of “Potential Event of Default” along with all reference to Potential Event of Default in Section 2(a)(iii), Section 3(b) and Sections 9(h)(i)(3)(B) and (C) and any other references throughout all ISDA documents.

Part 2.  Tax Representations.
 
(a)
Payer Representations.   For the purpose of Section 3(e) of this Agreement
 
 
(i)
Party A and Party B each make the following representation:
 
 
It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 9(h) of this Agreement) to be made by it to the other party under this Agreement.  In making this representation, it may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, except that it will not be a breach of this representation where reliance is placed on clause (ii) above and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position.
 


                                                            ISDA â 2002
 
14
 

(b)     Payee Tax Representations.   For the purpose of Section 3(f) of this Agreement
 
 
(i)
Party A and Party B each make the following representation:
 
Party A is a corporation created or organized in the United States or under the laws of the United States and its U.S. taxpayer identification number is 38-3323526.  It is “exempt” within the meaning of Treasury Regulation sections 1.6041-3(p) and 1.6049-4(c) from information reporting on Form 1099 and backup withholding.
 
Party B is a Texas LLC created or organized in the United States or under the laws of the United States and its U.S. taxpayer identification number is 26-0206262 .  It is “exempt” within the meaning of Treasury Regulation sections 1.6041-3(p) and 1.6049-4(c) from information reporting on Form 1099 and backup withholding.

 
Part 3.  Agreement to Deliver Documents.
 
For the purpose of Sections 4(a)(i) and 4(a)(ii) of this Agreement, each party agrees to deliver the following documents, as applicable:
 
(a)           Tax forms, documents or certificates to be delivered are: [none]

Party required to deliver document
Form/Document/
Certificate
Date by which
to be delivered
     
     

(b) Other documents to be delivered are:―

Party required to deliver document
Form/Document/
Certificate
Date by which
to be delivered
Covered by Section 3(d) Representation
       
Party A and Party B
Certified copies of resolutions of authorized body authorizing execution, delivery, and performance of this Agreement
 
Execution of Agreement
Yes
Party A and Party B
Evidence of authority of signatories in a form acceptable to the other party
 
Execution of Agreement
Yes
Party B
Completed W-9 (or other relevant tax form) and completed DTE’s EFT Form
 
Execution of Agreement
Yes
Party A and Party B
Annual audited and quarterly unaudited financial statements for such party or its Credit Support Provider, as applicable, containing consolidated financial statements for the relevant period and prepared in accordance with generally accepted accounting principles
 
If requested, and as soon as available, and in any event within 60 days after the end of each fiscal year and within 35 days after the end of each fiscal quarter of the delivering party, if such statements are not available on “EDGAR” or such party’s internet home page
 
Yes
Party A and Party B
Guarantee of Credit Support Provider in a form agreed between the parties
 
Execution of Agreement
Yes


ISDA â 2002
 
15
 
 
Part 4.  Miscellaneous.
 
(a)            Addresses for Notices.   Notwithstanding anything to the contrary in Section 12(a) of this Agreement, parties may communicate by e-mail for informational purposes only, but e-mail does not constitute a binding legal notice for the purpose of Section 12(a) of this Agreement.  For the purpose of Section 12(a) of this Agreement:
 
Notices or Communications (other than with respect to confirmations and/or payments) to Party A:
 
Address:    DTE Energy Trading, Inc.
    414 South Main Street, Suite 200
    Ann Arbor, MI  48104

Attention:    Contract Administration, Jim Buck, Director (734-887-4039)
 
Telephone:  (734) 887-2042 (Marcia L. Hissong); or
      (734) 887-2171 (Cynthia Klots)
Fax:               (734) 887-2235
E-mail:            hissongm@dteenergy.com ; or
          klotsc@dteenergy.com
 
With additional Notices of an Event of Default to:
Attention: Gregory V. Staton, General Counsel & Vice President-Corporate Services
Phone: (734) 887-2121
Fax: (734) 887-2235
Email: statong@dteenergy.com
 
Specific Instructions:
 
Confirmations to Party A:
Attention:    Judy VonBoncel
Telephone:  (734) 887-2025
Fax:               (734) 887-2056
Email:            DTE_CONFIRMS@dteenergy.com

Payments to Party A:
Attention:      Boyd Smith, Staff Accountant
Telephone:    (734) 887-2023
Fax:                 (734) 887-2140
Email:              DTE_PWR_STTLMTS@dteenergy.com

Contact Information for Dodd-Frank for Party A:
Name: Michael Seischab
Title: Manager-Enterprise Risk Management
Phone: 734-887-4124
 
Email: seischabm@dteenergy.com
 


                                      ISDA â 2002
 
16
 

 
Notices or Communications (other than with respect to confirmations and/or payments) to Party B:
 
Address:  Summer Energy, LLC
Address 1  800 Bering Dr., Suite 260
City, State, Zip  Houston, TX  77057
Attention:  Contract Administration  Jaleea George
Facsimile:                      713-481-8470
Telephone:  713-375-2793
E-mail:  jgeorge@summerenergy.com

 
Specific Instructions:
 
Confirmations to Party B:
 
Telephone:  713-375-2789
Facsimile:    713-493-7269
 
Payments to Party B:
 
Telephone:  713-375-2793
Facsimile:    713-481-8470
 
(b)            Process Agent.   For the purpose of Section 13(c) of this Agreement:
 
 
(i)
Party A appoints as its Process Agent:  Not applicable.
 
(ii)
Party B appoints as its Process Agent:  Not applicable.
 
(c)            Offices.   The provisions of Section 10(a) will apply to this Agreement.
 
(d)            Multibranch Party.   For the purpose of Section 10(b) of this Agreement:
 
 
(i)
Party A is not a Multibranch Party.
 
 
(ii)
Party B is not a Multibranch Party.
 
(e)
Calculation Agent.   The Calculation Agent is Party A.  All determinations by the Calculation Agent shall be made in good faith and in a commercially reasonable manner.
 
(f)
Credit Support Document.   Details of any Credit Support Document:
 
 
With respect to Party A and Party B, the Credit Agreement entered into on the same date herewith, which is incorporated by reference in, and made a part of, the Energy Marketing Agreement for Electric Power.
 
 
The obligations of Party B will be collateralized by the Security Agreement and Membership Interest Pledge Agreement as both are defined either directly or indirectly in the Energy Marketing Agreement for Electric Power.
 
(g)
Credit Support Provider.
 
 
(i)
Credit Support Provider means in relation to Party A:  Not Applicable
 
 
(ii)
Credit Support Provider means in relation to Party B:  Pledgor as defined under the Membership Interest Pledge Agreement
 


                                              ISDA â 2002
 
17
 

(h)     Governing Law.   This Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine that would apply the laws of another jurisdiction).
 
(i)
Jurisdiction .   Jurisdiction is subject to the Energy Marketing Agreement for Electric Power.
 
(k)
Netting of Payments .  “Multiple Transaction Payment Netting” will apply for the purpose of Section 2(c) of this Agreement; therefore , the netting specified in Section 2(c) of this Agreement will apply across all Transactions with effect from the effective date of this Agreement.  For avoidance of doubt, the parties hereby acknowledge and agree that the provisions of Section 2(c) shall not apply to any transaction or agreement not covered by this Agreement.   Notwithstanding the foregoing and the netting of payments pursuant hereto , each party will provide the other party with separate invoices and documentation sufficient to permit the other party to comply with its internal accounting and record keeping procedures concerning the payment of individual Transactions.

(k)
“ Affiliate ” will have the meaning specified in Section 14 of this Agreement, except that with respect to Party A, DTE Electric Company, DTE Gas Company and Citizens Gas Fuel Company are hereby excluded for all purposes.
 
(l)            No Agency.   The provisions of Section 3(g) will apply to this Agreement.
 
(m)
Recording of Conversations.   Each party (i) consents to the recording of telephone conversations between the trading, marketing and other relevant personnel of the parties in connection with this Agreement or any potential Transaction, (ii) agrees to obtain any necessary consent of, and give any necessary notice of such recording to, its relevant personnel and (iii) agrees, to the extent permitted by applicable law, that recordings may be submitted in evidence in any Proceedings.  Neither party shall have an obligation to make such recordings or keep copies of such recordings; provided, however, that no party may knowingly destroy, erase or otherwise tamper with a recording once the possessing party becomes aware of a dispute in which the recording may reasonably be anticipated to be evidence.
 
Part 5.  Other Provisions.
 
(a)
Prior Transactions.   Upon the effectiveness of this Agreement, all Transactions then outstanding between the parties shall be subject to the terms hereof.  To the extent the terms hereof conflict with the terms of the relevant agreement governing the Transactions, the terms of this Agreement shall control.
 
(b)
Set-off.   The first paragraph of Section 6 (f) shall be deleted and replaced with the following:
 
 
“(f)
Set-off.   Any Early Termination Amount payable to one party by the other party, in circumstances where there is a Defaulting Party or where there is one Affected Party in the case where either a Credit Event Upon Merger has occurred or an Additional Termination Event in respect of which all outstanding transactions are Affected Transactions has occurred, will, at the option of the Non-defaulting Party or Non-affected Party, as the case may be (“X”) (and without prior notice to the Defaulting Party or Affected Party, as the case may be (“Y”)) be reduced by set-off against any other amounts (“Other Amounts”) payable by X and, at X’s option, Affiliates of X, to Y (whether or not arising under this Agreement or any other agreement) and whether matured or unmatured, whether or not contingent and irrespective of the currency, place of payment or place of booking of the obligation.  To the extent that any Other Amounts are so set off, those Other Amounts will be discharged promptly and in all respects.  X will give notice to the other party of any set-off effected under this Section 6(f),   provided that failure to give such notice shall not affect the validity of the setoff.”
 
(c)
Confirmations and Procedures for Entering into Transactions.   On or promptly following the date on which the parties reach agreement on the terms of a Transaction as contemplated by Section 9(e)(i), Party A will send to Party B a Confirmation.  Party B will promptly thereafter confirm the accuracy of, or request the correction of, such Confirmation (in the latter case, indicating how it believes the terms of such Confirmation should be correctly stated and such other terms which should be added to or deleted from such Confirmation to make it correct).  If any dispute shall arise as to whether an error exists in a
 


                                              ISDA â 2002
 
18
 

 
Confirmation, the parties shall in good faith make reasonable efforts to resolve the dispute.  If Party B has not accepted or disputed the Confirmation in the manner set forth above within two (2) Local Business Days after it was sent to Party B, the Confirmation shall be deemed binding as sent absent manifest error.   W hen a Confirmation contains provisions, other than those provisions relating to the commercial terms of the Transaction (e.g., price, quantity), which modify or supplement the general terms and conditions of this Agreement (including without limitation Events of Default or Termination Events, or calculation of damages, settlement, netting, set-off or termination payments), any material changes to such terms shall not be deemed accepted unless made in a written amendment to this Agreement that is signed by duly authorized representatives of both parties.
 
(d)
Accuracy of Specified Information.   Section 3(d) is hereby amended by adding in the third line thereof after the word “respect” and before the period the words “or, in the case of audited or unaudited financial statements, a fair presentation of the financial condition of the relevant party.”
 
(e)
Section 3 Representations.   Section 3 is hereby amended by adding at the end thereof the following Subparagraphs (h), (i), (j), and (k):
 
(h)            Eligible Contract Participant.   It is an “eligible contract participant” (“ECP”) within the meaning of Section 1a(18) of the Commodity Exchange Act, as amended (7 U.S.C. § 1a(18)) (“CEA”).
 
(i)            Trading Excluded Commodities or Exempt Commodities on an Electronic Trading Facility.   (i) In connection with trading any “excluded commodity” (as such term is defined in section 1a(19) of the CEA (7 U.S.C. §1a(19))) on an “electronic trading facility” (“ETF”) (as such term is defined in section 1a(16) of the CEA (7 U.S.C. §1a(16))), it is an ECP other than solely because it is acting as a broker or performing an equivalent agency function on behalf of a person described in section 1a(18)(A) or (C) of the CEA (7 U.S.C. §1a(18)(A) and (C)) and otherwise satisfies the terms of section 1a(18)(B)(i) of the CEA (7 U.S.C. §1a(18)(B)(i)); and (ii) in connection with trading any “exempt commodity” (as such term is defined in section 1a(20) of the CEA (7 U.S.C. §1a(20))) on an ETF, it is an “eligible commercial entity” (as such term is defined in section 1a(17) of the CEA (7 U.S.C. §1a(17))).
 
(j)            Relationship Between Parties.   Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):
 
(1)            Non-Reliance.   It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary.  It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction, it being understood that information and explanations related to the terms and conditions of a Transaction will not be considered investment advice or a recommendation to enter into that Transaction.  No communication (written or oral) received from the other party will be deemed to be an assurance or guarantee as to the expected results of that Transaction.
 
(2)            Assessment and Understanding.   It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction.  It is also capable of assuming, and assumes, the risks of that Transaction.
 
(3)            Status of Parties.   The other party is not acting as a fiduciary for or an adviser to it in respect of that Transaction.
 
(k)            Bankruptcy Matters.

(2)           Each party acknowledges and agrees that: (1) the Agreement and all Transactions entered into hereunder constitutes a “forward contract” or a “swap agreement” within the meaning of the United States Bankruptcy Code (11 U.S.C. Section 101 (2000)); (2) each Party A and Party B is a “swap participant” within the meaning of the United States Bankruptcy Code
 


                                                           ISDA â 2002
 
19
 

with respect to any Transaction that constitutes a “swap agreement”, (3) each of Party A and Party B is a “forward contract merchant” within the meaning of the United States Bankruptcy Code with respect to any Transactions that constitute “forward contracts”; (4) all payments made or to be made by one party to the other party pursuant to this Agreement constitute “settlement payments” within the meaning of the United States Bankruptcy Code; (5) all transfers of Eligible Credit Support by one party to the other party under this Agreement constitute “margin payments” within the meaning of the United States Bankruptcy Code; (6) each party’s rights under Section 6, “Early Termination”, of this Agreement constitutes a “contractual right to liquidate” the Transactions within the meaning of the United States Bankruptcy Code; and (7) this Agreement constitutes a master netting agreement as defined within the meaning of the United States Bankruptcy Code, as amended.
 

 
(2)
To secure its obligations under this Agreement, each party hereby grants the other party a present and continuing security interest in, lien on, and right to setoff against, its respective payment obligations to the other party under this Agreement.  Each party acknowledges and agrees that the pledge of its payment obligations to the other party under this Agreement shall serve to “margin”, guaranty” or “secure” such obligations within the meaning of the Bankruptcy Code.

(f)
LIMITATION OF LIABILITY.  NO PARTY SHALL BE REQUIRED TO PAY OR BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, OR INDIRECT DAMAGES (WHETHER OR NOT ARISING FROM ITS NEGLIGENCE) TO ANY OTHER PARTY; PROVIDED, HOWEVER, THAT NOTHING IN THIS PROVISION SHALL AFFECT THE ENFORCEABILITY OF SECTION 6(e) OF THIS AGREEMENT.  IF AND TO THE EXTENT ANY PAYMENT REQUIRED TO BE MADE PURSUANT TO THIS AGREEMENT IS DEEMED TO CONSTITUTE LIQUIDATED DAMAGES, THE PARTIES ACKNOWLEDGE AND AGREE THAT SUCH DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE AND THAT SUCH PAYMENT IS INTENDED TO BE A REASONABLE APPROXIMATION OF THE AMOUNT OF SUCH DAMAGES AND NOT A PENALTY.
 
(g)
Confidentiality.   The terms of this Agreement, its contents, and the terms and contents of all Transactions under this Agreement (including but not limited to any Credit Support Documents and any Confirmations), and any information made available by one party or its Credit Support Provider to the other party or its Credit Support Provider (if any) with respect to the Agreement or any Transaction hereunder is confidential and shall not be discussed with or disclosed to any third party (nor shall any public announcement or press release be made by either party, except with the prior written consent of the other party hereto), except for such information (i) as may become generally available to the public, (ii) as may be required or appropriate in response to any summons, subpoena, or otherwise in connection with any litigation or to comply with any applicable law, order, regulation, or ruling, (iii) as may be obtained from a non-confidential source that disclosed such information in a manner that did not violate its obligations to the other party or its Credit Support Provider (if any) if making such disclosure, or (iv) as may be furnished to that party’s Affiliates, auditors, attorneys, advisors, or financial institutions with which the party has a written agreement or which are otherwise required to keep the information that is disclosed in confidence.
 
(h)
WAIVER OF JURY TRIAL.  EACH PARTY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY TRANSACTION, OR ANY CREDIT SUPPORT DOCUMENT.
 
(i)
Severability.   Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction in respect of any Transaction shall, as to such Transaction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of the Agreement or affecting the validity or enforceability of such provision as to any other jurisdiction or Transaction unless such severance shall substantially impair the benefits of the remaining portions of this Agreement or changes the reciprocal obligations of the parties.  The parties hereto shall endeavor in good faith negotiations to replace the prohibited or unenforceable provision with a valid provision, the economic effect of which comes as close as possible to that of the prohibited or unenforceable provision.
 


                                                                    ISDA â 2002
 
20
 


 
Part 6.    Additional Terms for Commodity Derivative Transactions.

(a)
ISDA Definitions.   This Agreement, each Confirmation, and each Transaction are subject to the 2006 ISDA Definitions (the “Swap Definitions”), the 2005 ISDA Commodity Definitions (the “Commodity Definitions”) each as published by the International Swaps and Derivatives Association, Inc. (collectively the “ISDA Definitions”).  The ISDA Definitions are incorporated by reference herein, and made part of, this Agreement and each Confirmation as if set forth in full in this Agreement and such Confirmations.  Unless otherwise specified in a Confirmation, any capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to them in the Swap Definitions, and the Commodity Definitions (except that references to “Swap Transactions” in the definitions will be deemed to be references to “Transactions”).  In the event of any inconsistency between the provisions of the Swap Definitions and the Commodity Definitions, the Commodity Definitions will prevail.  In the event of any inconsistency between the provisions of this Agreement and the ISDA Definitions, this Agreement will prevail.  In the event of any inconsistency between the provisions of the Credit Support Documents, if any, and the ISDA Definitions, the Credit Support Documents will prevail.  Subject to Section 1(b) of this Agreement, in the event of any inconsistency between the provisions of any Confirmation and this Agreement or the ISDA Definitions, the Confirmation will prevail for the purpose of the relevant Transaction; provided however , a Confirmation may not amend or conflict with any provisions of this Agreement, except as provided under Part 5 (c) above of the Schedule.

(b)
Commodity Definition Amendments.   Unless otherwise specified in a Confirmation, the Commodity Definitions are amended as follows:

 
(ii)
The “ Market Disruption Events ” specified in Section 7.4(d)(i) of the Commodity Definitions shall apply, except as otherwise specifically provided in the Confirmation.

 
(ii)
“ Additional Market Disruption Events ” shall apply only if so specified in the relevant Confirmation.


 
(iii)
The following “ Disruption Fallbacks ” specified in Section 7.5(c) of the Commodity Definitions shall apply, in the following order, except as otherwise specified in the relevant Confirmation:

 
(1)
“ Fallback Reference Price ”;

 
(2)
“ Postponement ”, with five (5) Commodity Business Days as the Maximum Days of disruption;

 
(3)
“ Negotiated Fallback ” (provided that the reference in Section 7.5(c)(ii) to “fifth Business Day” shall be amended to be “twelfth Business Day”); and

 
(4)
“ Fallback Reference Dealers ”

 
(5)
“ No Fault Termination ”.
 


                                                                    ISDA â 2002
 
21
 
 

IN WITNESS WHEREOF, the parties have executed this Schedule by their duly authorized officers as of the date hereof.


DTE Energy Trading, Inc. (Party A)
 
Summer Energy, LLC (Party B)
 
 
 
By: /s/ Michael Hunt   By: /s/ Neil Leibman
Name:
Michael Hunt
 
Name:
Neil Leibman
Title:
Vice President
 
Title:
CEO-Summer Energy
Date:
4/23/2014
 
Date:
4/1/2014




                                                                  ISDA â 2002
 
22
 

Exhibit 10.3

 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 

 

 

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




 
 
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


TABLE OF CONTENTS *
 
 
  Page
ARTICLE I GENERAL DEFINITIONS
Section 1.1                        Definitions
Section 1.2                        Accounting Terms and Determinations
 
ARTICLE II THE CREDITS 
Section 2.1                        Commodity Loans.
Section 2.2                        Notice of Borrowing
Section 2.3                        No Note
Section 2.4                      Request for Credit Guaranty 
Section 2.5                        Interest Rates
Section 2.6                        Repayment of Loans
Section 2.7                        Optional Prepayments
Section 2.8                        General Provisions as to Payments
Section 2.9                        Computation of Interest and Fee
 
ARTICLE III CONDITIONS TO COMMODITY LOANS 
Section 3.1                        Commodity Loans
Section 3.2                        First Commodity Loan or Credit Guaranty
Section 3.3                        Working Capital Restriction
 
ARTICLE IV REPRESENTATIONS AND WARRANTIES 
Section 4.1                        Corporate Existence and Power
Section 4.2                        Corporate and Governmental Authorization; Contravention
Section 4.3                        Binding Effect
Section 4.4                        Financial Information.
Section 4.5                        Litigation
Section 4.6                        Marketable Title
Section 4.7                        Filings
Section 4.8                        Taxes
Section 4.9                        Compliance with Laws.
Section 4.10                        Public Utility Holding Company Act
Section 4.11                        Disclosure
 
ARTICLE V AFFIRMATIVE COVENANTS 
Section 5.1                        Information
Section 5.2                        Payment of Obligations
Section 5.3                        Maintenance of Property; Insurance.
1
1
3
 
3
3
3
4
4
4
4
4
5
5
 
5
5
5
7
 
7
7
7
8
8
8
8
8
8
9
9
9
 
9
9
9
10
 

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

 
ii
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


 
 
Section 5.4 Conduct of Business and Maintenance of Existence
Section 5.5 Compliance with Laws
Section 5.6 Reduction of Need for Commodity Loans
Section 5.7 Accounting; Inspection of Property, Books and Records
 
 
ARTICLE VI NEGATIVE COVENANTS
Section 6.1 Certain Definitions
Section 6.2 Debt
Section 6.3 Restriction on Liens
Section 6.4 Consolidations, Mergers and Sales of Assets
Section 6.5 Transactions with Affiliates
Section 6.6 Restricted Payments
Section 6.7 Investments
Section 6.8 Transactions with Other Persons
Section 6.9 Use of Proceeds
Section 6.10 Independence of Covenants
 
 
ARTICLE VII DEFAULTS
Section 7.1 Events of Default
Section 7.2 Remedies
 
 
ARTICLE VIII MISCELLANEOUS
Section 8.1 Notices
Section 8.2 No Waivers
Section 8.3 Expenses
Section 8.4 Amendments and Waivers
Section 8.5 Successors and Assigns
Section 8.6 Governing Law
Section 8.7 Counterparts; Effectiveness
Section 8.8 Entire Agreement
 
Exhibit A – Membership Interest Pledge Agreement
10
10
10
10
 
10
11
11
11
12
12
13
13
13
13
13
 
14
14
15
 
16
16
16
16
16
16
16
17
17
 
 
 

 
iii
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


THIS CREDIT AGREEMENT (as amended, supplemented or modified from time to time, this “Agreement”) is dated as of April 1, 2014 and is between DTE ENERGY TRADING, INC. , a Michigan corporation (the “Provider”), and SUMMER ENERGY, LLC , a Texas limited liability company (the “Client”).
 
RECITALS
 
1.           Pursuant to the Energy Marketing Agreement dated as of the date hereof (as amended, modified or supplemented from time to time, the “Base Agreement”) between the Provider and the Client, the Provider agreed to sell to the Client and the Client agreed to purchase from Provider all of Client’s requirements for Full Requirements Service upon the terms and conditions set forth therein.
 
2.           As provided in the Base Agreement, the Provider also agreed to provide to the Client certain credit to assist the Client in its purchase of Full Requirements Service from the Provider and in its sale of Full Requirements Service to Customers.
 
3.           This Agreement sets forth the terms and conditions under which the Provider will provide such credit facility to the Client.
 
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, the parties hereto agree as follows:
 
 
ARTICLE I
GENERAL DEFINITIONS
 
Section 1.1                       Definitions
 
Unless otherwise defined herein, all capitalized terms used in this Agreement which are defined in the Base Agreement shall have the respective meanings set forth in the Base Agreement.  In addition, the following terms, as used herein, have the following meanings:
 
“Affiliate” means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Client (a “Controlling Person”) or (ii) any Person (other than the Client) which is controlled by or is under common control with a Controlling Person.  As used herein, the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
 
“Base Agreement Termination Date” means the date on which the term of the Base Agreement expires or is otherwise terminated, whichever occurs first.
 

 
1
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


“Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in the State of Michigan are authorized by law to close.
 
“Code” means the Internal Revenue Code of 1986, as amended.
 
“Collateral” means all of the property which is subject or is to be subject to the Liens granted by the Collateral Documents.
 
“Collateral Documents” means the Security Agreement, the Pledge Agreement and all other documents delivered or to be delivered pursuant thereto.
 
“Commodity Loan” means any of the loans made by the Provider to the Client pursuant to Section 2.1.
 
“Credit Documents” means this Agreement, the Collateral Documents, and all other agreements and documents executed in connection with any of the transactions contemplated in this Agreement and the Base Agreement.
 
“Credit Guaranty” means a guaranty agreement provided by DTE Energy Company or other guarantor to ERCOT for the benefit of Client; provided however, that any obligations under such guaranty agreement may be up to but shall not exceed XXXXX .
 
“Debt” has the meaning set forth in Section 6.1.
 
“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.
 
“Default Rate” means the rate of interest equal to nine percent (9%) plus the Prime Rate.
 
“Effective Date” means the date of this Agreement.
 
“Event of Default” has the meaning set forth in Section 7.1.
 
“GAAP” means generally accepted accounting principles in the United States.
 
“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset.  For the purposes of this Agreement, the Client shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
2
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]

 
“Permitted Liens” means the Liens referred to in clauses (i) through (vii) of Section 6.3.
 
“Person” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
 
“Pledge Agreement” means the Membership Interest Pledge Agreement dated as of the date hereof between the Pledgor and the Provider, substantially in the form of Exhibit A hereto, as the same may be amended, supplemented or modified from time to time.
 
“Pledgor” means Summer Holdings, Inc.
 
“Prime Rate” means the prime rate of interest reported for large U.S. money center commercial banks as published under “Money Rates” by The Wall Street Journal (Eastern Edition).  Any change in the Prime Rate shall take effect on the opening of business on the day specified in the announcement of such change.
 
“Security Agreement” means the Security Agreement dated as of the date hereof between the Client and the Provider, substantially in the form of Exhibit 6 to the Base Agreement, as may be amended, supplemented or modified from time to time.
 
Section 1.2                       Accounting Terms and Determinations
 
Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Client’s independent public accountants) with the most recent audited financial statements of the Client delivered to the Provider.
 
 
ARTICLE II
THE CREDITS
 
Section 2.1                       Commodity Loans.
 
If Client has accrued insufficient cash to satisfy its invoice from Provider for Full Requirements Service, Provider will extend additional credit to Client for the period set forth in Section 2.5 of this Agreement for Full Requirements Service sold to Client pursuant to the Base Agreement, the amount of each such extension of credit shall constitute a “Commodity Loan” under this Agreement, which Commodity Loan shall be deemed to have been made on the original invoice due date as set forth in the ISDA Master Agreement for such Full Requirements Services provided to Client.
 
Section 2.2                       Notice of Borrowing
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
3
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


If the Client desires the Provider to extend a Commodity Loan in accordance with this Agreement, the Client will give the Provider a notice of borrowing not less than three (3) Business Days in advance of the date of each requested borrowing hereunder, specifying the date on which it proposes to borrow (which shall be the Business Day in which a Provider invoice is due) and the amount of the Commodity Loan proposed to be borrowed, which amount will not exceed the amount for the Full Requirements Service provided by Provider for the applicable billing period.  Not later than 2:00 P.M. (Eastern Time) one Business Day prior to the date Payment is due for Provider’s invoice to Client, the Provider will (unless it determines that any applicable condition specified in the Base Agreement has not been satisfied) make a Commodity Loan to Client.
 
Section 2.3                       No Note
 
The Commodity Loans shall not be evidenced by a note, it being the intention that the records of the Provider with respect to the transaction giving rise to the Commodity Loan shall be conclusive and binding as to the amount, term and due date of each Commodity Loan.
 
Section 2.4
 
If the Client desires the Provider to provide a Credit Guaranty, the Client shall give the Provider a written request for Credit Guaranty not less than five (5) days in advance of the date on which the Credit Guaranty is needed, specifying such date (which shall be a Business Day) and the amount of the Credit Guaranty requested.  If the Provider agrees to provide the requested Credit Guaranty, then, not later than 2:00 P.M. (Eastern Time) on the date so specified, the Provider shall (unless it determines that any applicable condition specified in this Agreement has not been satisfied) provide a Credit Guaranty.
 
Section 2.5                       Interest Rates
 
Each Commodity Loan and any Credit Guaranty shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made or Credit Guaranty is issued until it becomes due or is revoked, respectively, at a rate per annum equal to the Prime Rate plus two percent (2%).
 
Any overdue principal of and, to the extent permitted by law, overdue interest on any Commodity Loan and/or Credit Guaranty shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate.
 
Section 2.6                       Repayment of Loans
 
The principal of and interest on the Commodity Loans and interest on any Credit Guaranty shall be payable by the Client as follows:
 
(i)             The entire principal amount of each Commodity Loan and all accrued and unpaid interest thereon shall be due and payable no later than twenty (20) days from the
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
4
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


date that Provider has extended the due date for such payment of the Full Requirements Service, the sale of which formed the basis for the Commodity Loan.
 
(ii)             All accrued and unpaid interest on a Credit Guaranty shall be due and payable on a monthly basis.
 
(iii)             Interest shall accrue on a daily basis and shall be invoiced on a monthly basis.  All amounts received by Provider from Client in payment in respect of a Commodity Loan shall first be applied to interest and then applied to principal.
 
Section 2.7                       Optional Prepayments
 
The Client may prepay a Commodity Loan in whole or in part at any time, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment.
 
Section 2.8                       General Provisions as to Payments
 
The Client shall make each payment of principal of, and interest on, the Commodity Loans not later than 11:00 A.M. (Eastern Time) on the date when due, in Federal funds immediately available to the Provider at its address referred to on the cover page of the ISDA Master Agreement; provided, however , that if Provider has control of the funds to be used for such payment, Provider may transfer such funds to a different deposit account or account for such funds in any manner it deems appropriate to satisfy Client’s Payment Obligations.  Whenever any payment of principal of, or interest on, the Commodity Loans shall be due on a day that is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day.  If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.
 
Section 2.9                       Computation of Interest and Fee
 
Interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed.
 
ARTICLE III
CONDITIONS TO COMMODITY LOANS
 
The Commodity Loans that Provider extends to Client, are subject to the satisfaction of the following conditions:
 
Section 3.1                       Commodity Loans
 
In the case of each Commodity Loan and a Credit Guaranty:
 
(i)           receipt by the Provider of a notice of borrowing as required by Section 2.2 and 2.4;
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
5
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


(ii)           the fact that no Event of Default has occurred and is continuing or would result from such Commodity Loan;
 
(iii)           the fact that the representations and warranties of the Client contained in this Agreement, the Base Agreement and in the other Credit Documents shall be true on and as of the date of such Commodity Loan.
 
Each borrowing hereunder shall be deemed to be a representation and warranty by the Client on the date thereof that the facts hereinabove set forth in clauses (ii) and (iii) of this Section are true as of such date.
 
Section 3.2                       First Commodity Loan or Credit Guaranty
 
In the case of the first Commodity Loan or Credit Guaranty:
 
(i)           all legal matters incident to this Agreement, the other Credit Documents and the transactions contemplated hereby and thereby shall be reasonably satisfactory to counsel for the Provider;
 
(ii)           receipt by the Provider of (A) a copy of the Client’s articles of formation, as amended, certified by the Secretary of State or other appropriate office in which the Client is formed; (B) a certificate of such office, dated as of a recent date, as to the good standing and charter documents of the Client on file; and (C) a certificate of the Secretary or an Assistant Secretary of the Client dated the date of such Commodity Loan or Credit Guaranty and certifying (1) that the certificate of formation of the Client has not been amended since the date of the last amendment thereto indicated on the certificate furnished pursuant to clause (B) above, (2) as to the absence of dissolution or liquidation proceedings by or against the Client, (3) that attached thereto is a true and complete copy of the by-laws of the Client as in effect on the date of such certification, (4) that attached thereto is a true, correct and complete copy of resolutions adopted by the board of directors of the Client authorizing the execution, delivery and performance of this Agreement and the other Credit Documents to which the Client is a party and that said resolutions have not been amended and are in full force and effect on the date of such certificate and (5) as to the incumbency and specimen signatures of each officer of the Client executing this Agreement and the other Credit Documents to which it is a party, or any other document delivered in connection herewith or therewith;
 
(iii)           receipt by the Provider of executed copies of the Collateral Documents granting to the Provider a first Lien in all the Collateral described therein;
 
(iv)           receipt by the Provider of an opinion of counsel for the Client, covering such matters relating to the transactions contemplated hereby as the Provider may reasonably request;
 
(v)           each document (including, without limitation, each Uniform Commercial Code financing statement) required by law or reasonably requested by the Provider to be
 
(vi)           filed, registered or recorded in order to create in favor of the Provider a perfected first priority security interest in the Collateral shall have been properly filed, registered or recorded in each jurisdiction in which the filing, registration or recordation thereof is so required or requested, and the Provider shall have received an acknowledgment copy, or other evidence satisfactory to it, of each such filing, registration or recordation;
 
(vii)           receipt by the Provider of certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports from an independent search service satisfactory to the Provider, listing the financing statements referred to in clause (v) above and all other effective financing statements that name the Client (under its present name and any previous names) as debtor and that are filed in the jurisdictions referred to in clause (v) above, together with copies of such other financing statements (none of which shall cover the Collateral, except as otherwise disclosed in writing to, and accepted by, the Provider);
 
(viii)           receipt by the Provider of any and all landlord’s waivers Provider may deem necessary and evidence of the completion of all recordings and filings of the Collateral Documents as may be necessary or, in the opinion of the Provider, desirable to perfect the Liens created by the Collateral Documents;
 
(ix)           receipt by the Provider of evidence of the insurance required by the Base Agreement or any of the Credit Documents; and
 
(x)           receipt by the Provider of all documents it may reasonably request relating to the existence of the Client and its corporate authority to execute, deliver and perform this Agreement and the other Credit Documents and the validity of this Agreement and the other Credit Documents and any other matters relevant hereto or thereto, all in form and substance satisfactory to the Provider.
 
All documents and opinions referred to in this Article shall be in form and substance satisfactory to the Provider and its counsel.
 
Section 3.3                       Working Capital Restriction
 
For any period commencing after the Effective Date, Client will not carry a Commodity Loan balance of greater than XXXXX (“Credit Limit”) and Provider will not be obligated to extend Client Commodity Loans beyond the Credit Limit.
 
 
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION. XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
6
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]

 
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
 
The Client represents and warrants that:
 
Section 4.1                       Corporate Existence and Power
 
The Client is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Texas, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now and will be conducted.  The Client is duly qualified as a foreign limited liability company, licensed and in good standing in each jurisdiction where qualification or licensing is required by the nature of its business or the character and location of its property, business or customers and in which the failure to so qualify or be licensed, as the case may be, in the aggregate, could have a material adverse effect on the business, financial position, results of operations, properties or prospects of the Client.
 
Section 4.2                       Corporate and Governmental Authorization; Contravention
 
The execution, delivery and performance by the Client of this Agreement and the other Credit Documents to which it is a party are within its corporate power, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute (with or without the giving of notice or lapse of time or both) a default under, any provision of applicable law or of the articles of formation or by-laws of the Client or of any agreement, judgment, injunction, order, decree or other instrument binding upon or affecting the Client or result in the creation or imposition of any Lien (other than the Lien of the Collateral Documents) on any of its assets.
 
Section 4.3                       Binding Effect
 
This Agreement constitutes a valid and binding agreement of the Client except as (i) the enforceability hereof and thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability.
 
Section 4.4                       Financial Information .
 
(a)           The balance sheet of the Client as of March 1, 2014 and the related statements of operations for the fiscal year then ended, copies of which have been delivered to the Provider, fairly present, in conformity with GAAP, the financial position of the Client as of such date and its results of operations and cash flows for such fiscal year.  As of the date of such financial statements, the Client did not have any material contingent obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment, which is not reflected in any of such financial statements or notes thereto.
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
7
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


(b)           The unaudited balance sheet of the Client as of January 1, 2014 and the related unaudited statements of operations for the three (3) months then ended, copies of which have been delivered to the Provider, fairly present, in conformity with GAAP applied on a basis consistent with the financial statements referred to in subparagraph (a) of this Section, the financial position of the Client as of such date and its results of operations and changes in financial position for such three-month period (subject to normal year-end adjustments).]
 
(c)           Since July 1, 2013 there has been no material adverse change in the business, financial position, results of operations or prospects of the Client.
 
Section 4.5                       Litigation
 
There is no action, suit or proceeding pending against, or to the knowledge of the Client threatened against or affecting, the Client before any court, governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, financial position or results of operations of the Client or which in any manner draws into question the validity of this Agreement or any of the other Credit Document and there is no basis known to the Client for any such action, suit or proceeding.
 
Section 4.6                       Marketable Title
 
The Client has good and marketable title to all its properties and assets subject to no Lien, except Permitted Liens.
 
Section 4.7                       Filings
 
All actions by or in respect of, and all filing with, any governmental body, agency or official required in connection with the execution, delivery and performance of this Agreement and the other Credit Documents, or necessary for the validity or enforceability thereof or for the protection or perfection of the rights and interests of the Provider thereunder, will, prior to the date of delivery thereof, have been duly taken or made, as the case may be, and will at all times thereafter remain in full force and effect.
 
Section 4.8                       Taxes
 
United States Federal income tax returns of the Client have been examined and closed through the fiscal year ended 2014.  The Client has filed all United States Federal income tax returns and all other material tax returns which are required to be filed by it and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Client.  The charges, accruals and reserves on the books of the Client in respect of taxes or other governmental charges are, in the opinion of the Client, adequate.
 
Section 4.9                       Compliance with Laws .
 
The Client is in material compliance with all applicable laws, rules, regulations and orders of all governmental authorities, agencies and officials having jurisdiction over the Client, its assets and its business.
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
8
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


Section 4.10                       Public Utility Holding Company Act
 
The Client is not a public-utility company within the meaning of the Public Utility Holding Company Act of 1935, as amended, and is engaged solely in the aggregation and marketing of Full Requirements Service in the United States or other activities in which energy-related companies are permitted to engage pursuant to 17 CFR §250.58.
 
Section 4.11                       Disclosure
 
None of this Agreement, any of the other Credit Documents, any schedule or exhibit thereto or document, certificate, report, statement or other information furnished to the Provider in connection herewith or therewith or with the consummation of the transactions contemplated hereby or thereby contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.  There is no fact materially adversely affecting the assets, business, financial position, results of operations or prospects of the Client which has not been set forth in a footnote included in the financial statements referred to in Section 4.4 or in an exhibit or schedule thereto.
 
 
ARTICLE V
AFFIRMATIVE COVENANTS
 
The Client agrees that so long as Client has Payment Obligations to Provider and/or the Base Agreement is in effect:
 
Section 5.1                       Information
 
The Client will deliver or cause to be delivered to the Provider all of the information required to be delivered under Article 6 of the Base Agreement.
 
Section 5.2                       Payment of Obligations
 
The Client will pay and discharge, as the same shall become due and payable, (i) all its obligations and liabilities, including all claims or demands of material men, mechanics, carriers, warehousemen, landlords and other like persons which, in any such case, if unpaid, might by law give rise to a Lien upon any of its property or assets, and (ii) all lawful taxes, assessments and charges or levies made upon it or its property or assets, by any governmental body, agency or official except where any of the items in clause (i) or (ii) of this Section may be diligently contested in good faith by appropriate proceedings, and the Client shall have set aside on its books, if required under GAAP, appropriate reserves for the accrual of any such items.
 
Section 5.3                       Maintenance of Property; Insurance .
 
(a)           The Client will keep all property useful and necessary in its business in good working order and condition, subject to ordinary wear and tear; will maintain (either in the name of the Client or in the name of the Provider if required by the Security Agreement) with
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
9
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


financially sound and reputable insurance companies, insurance on all its properties in at least such amounts and against at least such risks (and with such risk retentions) as are usually insured against by companies engaged in the same or a similar business; and will furnish to the Provider upon request full information as to the insurance carried.
 
(b)           In addition to the general requirements of subparagraph (a), the Client will keep the Collateral in such condition and will maintain in effect such insurance on the Collateral as is required by the terms of the Base Agreement and the Collateral Documents.
 
Section 5.4                       Conduct of Business and Maintenance of Existence
 
The Client will continue to engage in business of the same general type as now conducted by the Client and any of its affiliates, if any, and will preserve, renew and keep in full force and effect its corporate existence and its rights, privileges and franchises necessary or desirable in the normal conduct of business.
 
Section 5.5                       Compliance with Laws
 
The Client will comply with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities except where the necessity of compliance therewith is contested in good faith by appropriate proceedings.
 
Section 5.6                        Reduction of Need for Commodity Loans   The Client shall use commercially reasonable efforts to modify, optimize and improve its business practices in order to realize and recognize efficiency gains, resulting in reduction and/or elimination of the need for the Commodity Loans.
 
Section 5.7                       Accounting; Inspection of Property, Books and Records
 
The Client will keep proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities, will maintain its fiscal reporting periods on the present basis and will permit representatives of the Provider to visit and inspect any of its properties, to examine and make abstracts from any of its books and records and to discuss its affairs, finances and accounts with its officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired.
 
 
ARTICLE VI
NEGATIVE COVENANTS
 
The Client agrees that so long as the Provider obligated to extend Commodity Loans or any Credit Guaranty hereunder or any amount remains unpaid hereunder or under the Base Agreement or any Credit Document:
 
Section 6.1                       Certain Definitions
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
10
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


As used in this Article VI and hereafter in this Agreement, the following terms have the following meanings:
 
“Capital Lease” means a lease that should be capitalized on the balance sheet of the lessee prepared in accordance with GAAP.
 
“Debt” of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business), (iv) all obligations of such Person as lessee under Capital Leases, (v) all obligations of such Person to purchase securities or other property which arise out of or in connection with the sale of the same or substantially similar securities or property, (vi) all non-contingent obligations of such Person to reimburse Provider or any other person in respect of amounts paid under a letter of credit or similar instrument, (vii) all obligations of others secured by a Lien on any asset of such Person, whether or not such obligation is assumed by such Person and (viii) all obligations of others Guaranteed by such Person.
 
“Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.  The term “Guarantee” used as a verb has a corresponding meaning.
 
Section 6.2                       Debt
 
The Client will not incur or at any time be liable with respect to any Debt except (i) Debt outstanding under this Agreement and the other Credit Documents and (ii) Debt secured by a Lien pursuant to Section 6.3(iii).
 
Section 6.3                       Restriction on Liens
 
The Client will not at any time create, assume or suffer to exist any Lien on any property or asset now owned or hereafter acquired by it or assign or subordinate any present or future right to receive assets except:
 
(i)           Liens existing on the date of this Agreement not exceeding $0;
 
(ii)           any Liens created by the Collateral Documents;
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
11
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


(iii)           any purchase money security interest on any capital asset of the Client if such purchase money security interest attaches to such capital asset concurrently with the acquisition thereof and if the Debt secured by such purchase money security interest does not exceed the lesser of the cost or fair market value as of the time of acquisition of the asset covered thereby to the Client; provided , that the aggregate amount of Debt secured by all such Liens does not exceed five thousand dollars ($5,000) in the aggregate at any one time outstanding and provided , that no such purchase money security interest shall extend to or cover any property or asset of the Client other than the related asset;
 
(iv)           Liens securing taxes, assessments or governmental charges or levies or the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons; provided (A) with respect to Liens securing state and local taxes, such taxes are not yet payable, (B) with respect to Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and the like, such Liens are unfiled and no other action has been taken to enforce the same, or (C) with respect to taxes, assessments or governmental charges or levies or claims or demands secured by such Liens, payment of which is not at the time required by Section 5.2;
 
(v)           Liens not securing Debt which are incurred in the ordinary course of business in connection with workmen’s compensation, unemployment insurance, social security and other like laws;
 
(vi)           any Lien arising pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings; and
 
(vii)           zoning restrictions, easements, licenses, reservations, covenants, conditions, waivers, restrictions on the use of property or other minor encumbrances or irregularities of title which do not materially impair the use of any property in the operation or business of the Client or the value of such property for the purpose of such business.
 
Section 6.4                       Consolidations, Mergers and Sales of Assets
 
The Client will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer all or any substantial part of its assets to any other Person.
 
Section 6.5                       Transactions with Affiliates
 
The Client will not, directly or indirectly, pay any funds to or for the account of, make any investment in, engage in any transaction with or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate of the Client, except that the Client may make payment or provide compensation (including without limitation the establishment of customary employee benefit plans) for personal services rendered by employees and other
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
12
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


Persons on terms fair and reasonable in light of the circumstances under which such services were or are to be rendered.
 
Nothing in this Section shall prohibit the Client from making sales to or purchases from any Affiliate and, in connection therewith, extending credit or making payments, or from making payments for services rendered by any Affiliate, if such sales or purchases are made or such services are rendered in the ordinary course of business and on terms and conditions at least as favorable to the Client as the terms and conditions which would apply in a similar transaction with a Person not an Affiliate, or prohibit the Client from participating in, or effecting any transaction in connection with, any joint enterprise or other joint arrangement with any Affiliate if the Client participates in the ordinary course of its business and on a basis no less advantageous than on the basis on which such Affiliate participates.
 
Section 6.6                       Restricted Payments
 
The Client will not (i) declare or pay any dividend or other distribution on any shares of the Client’s capital interest, (except dividends payable solely in shares of its capital interest), (ii) make any payment on account of the purchase, redemption, retirement or acquisition of (A) any shares of the Client’s capital interest (except shares acquired upon the conversion thereof into other shares of its capital interest) or (B) any option, warrant or other right to acquire shares of the Client’s capital interest.
 
Section 6.7                       Investments
 
The Client will not make or acquire any investment in any Person (whether by share purchase, capital contribution, loan, time deposit or otherwise) other than (i) in direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) in commercial paper rated in the highest grade by a nationally recognized credit rating agency, (iii) in time deposits with, including certificates of deposit issued by, any office located in the United States of any Provider or trust company which is organized under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $200,000,000, provided in each case that such investment matures within one year from the date of acquisition thereof by the Client and (iv) loans and advances to employees for travel in the ordinary course of business and in an amount consistent with past practice.
 
Section 6.8                       Transactions with Other Persons
 
The Client shall not enter into any agreement with any Person whereby any of them shall agree to any restriction on the Client’s right to amend or waive any of the provisions of this Agreement.
 
Section 6.9                       Use of Proceeds
 
The extension of Commodity Loans and any Credit Guaranty will be used by the Client solely for the purposes provided in this Agreement.  Client shall not request a Commodity Loan or
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
13
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


Credit Guaranty in order to defer cash liquidity to other commitments or potential commitments of Client, including without limitation, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any “margin stock” within the meaning of Regulation U promulgated by the Federal Reserve Board.
 
Section 6.10                       Independence of Covenants
 
All covenants contained herein shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that such action or condition would be permitted by an exception to, or otherwise be within the limitations of another covenant shall not avoid the occurrence of a Default if such action is taken or condition exists.
 
 
ARTICLE VII
DEFAULTS
 
Section 7.1                       Events of Default
 
The occurrence of any one or more of the following events shall be an Event of Default under this Agreement:
 
(i)           the Client shall fail to pay when due (a) any principal of or interest on any Commodity Loan or interest on any Credit Guaranty;
 
(ii)           the Client shall fail to observe or perform any covenant contained in Article V or in Article VI;
 
(iii)           the Client shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clauses (i) or (ii) above) for 30 days after written notice thereof has been given to the Client by the Provider;
 
(iv)           any representation, warranty, certification or statement made by the Client in this Agreement or any other Credit Document to which it is a party or by the Pledgor in the Pledge Agreement to which it is a party or by the Client or Pledgor in any certificate, financial statement or other document delivered pursuant hereto or thereto shall prove to have been incorrect in any material respect when made;
 
(v)           the Client or the Pledgor shall fail to make any payment in respect of any Debt exceeding five thousand dollars ($5,000) individually or in the aggregate for all such Debt when due and after the lapse of any applicable grace period;
 
(vi)           any event or condition shall occur which results in the acceleration of the maturity of any Debt of the Client or the Pledgor or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person acting on such holder’s behalf to accelerate the maturity thereof;
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
14
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


(vii)           the Client or the Pledgor shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;
 
(viii)           an involuntary case or other proceeding shall be commenced against the Client or the Pledgor seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Client or the Pledgor under the federal bankruptcy laws as now or hereafter in effect;
 
(ix)           one or more judgments or orders for the payment of money in excess of fifty thousand dollars ($50,000) shall be rendered against the Client and such judgment or order shall continue unsatisfied for a period of 21 days during which execution shall not be effectively stayed;
 
(x)           (A) any Collateral Document shall cease for any reason to be in full force and effect or shall cease to be effective to grant a perfected security interest in the Collateral with the priority stated to be created thereby or such security interest shall cease to be in full force and effect or shall be declared null and void, or the validity or enforceability of such security interest or any Collateral Document shall be contested by the Client or the Pledgor, or the Client or the Pledgor shall deny that it has any further liability or obligation under a Collateral Document to which it is a party, or the Client or the Pledgor shall fail to perform any of its obligations under the Collateral Documents, or (B) any creditor of the Client or the Pledgor (other than a creditor having a purchase money security interest permitted by Section 6.3(iii) and then solely with respect to the related asset) shall obtain possession of any of the Collateral by any means, including, without limitation, levy, distraint, replevin or self-help, or any such creditor shall establish or obtain any right in the Collateral which is equal to or senior to the security interests of the Provider in such Collateral; or
 
(xi)           the occurrence of an “Event of Default” under the Base Agreement with respect to the Client.
 
Section 7.2                       Remedies
 
Upon the occurrence of an Event of Default, and in every such event, the Provider, at its option, may exercise any one or more of the following remedies:
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
15
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


(i)           By notice to the Client declare the Commodity Loan(s) and/or any Credit Guaranty (together with accrued interest thereon) to be, and the Commodity Loan(s) and any Credit Guaranty shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Client;
 
(ii)           Exercise any other right or remedy available under this Agreement, the Collateral Documents, the Base Agreement or any other Credit Document or otherwise available at law or in equity; and
 
(iii)           By notice to the Client terminate the commitment to make Commodity Loans.
 
Notwithstanding anything contained herein to the contrary, in the case of any of the Events of Default specified in Section 7.1(vii) or (viii) above, without any notice to the Client or any other act by the Provider, amounts due under the Credit Documents shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Client.
 
 
ARTICLE VII
MISCELLANEOUS
 
Section 8.1                       Notices
 
All notices, requests and other communications to a party hereunder shall be in writing and shall be given to such party at its address set forth on the cover page of the Base Agreement, Exhibit 8 of the Base Agreement or such other address as such party may hereafter specify for the purpose by notice to the other, as applicable.  Each such notice, request or other communication shall be effective (i) if given by mail, 48 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Provider under Section 2.1 shall not be effective until received.
 
Section 8.2                       No Waivers
 
No failure or delay by the Provider in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
 
Section 8.3                       Expenses
 
The Client shall pay (i) all out-of-pocket expenses of the Provider, including the reasonable fees and disbursements of special counsel for the Provider, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
16
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Provider, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection and other enforcement proceedings resulting therefrom.  The Client shall indemnify the Provider against any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Agreement.
 
Section 8.4                       Amendments and Waivers
 
Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Client and the Provider.
 
Section 8.5                       Successors and Assigns
 
The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Client may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of the Provider.
 
Section 8.6                       Governing Law
 
This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except as otherwise provided herein.
 
Section 8.7                       Counterparts; Effectiveness
 
This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement shall become effective when the Provider shall have received counterparts hereof signed by both parties.
 
Section 8.8                       Entire Agreement
 
This Agreement, the Collateral Documents and the other Credit Documents set forth the entire agreement of the parties with respect to the subject matter hereof and thereof and supersede all previous understandings, written or oral, in respect thereof.
 

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
17
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


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

 
DTE ENERGY TRADING, INC.
 
By: /s/ Michael Hunt                                                                 
Title: President
 


PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE US SECURITIES AND EXCHANGE COMMISSION.  XXXXX INDICATES REDACTED LANGUAGE.

 
4820-6093-8267.1
 
18
 
[ PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]


EXHIBIT A

FORM OF MEMBERSHIP INTEREST PLEDGE AGREEMENT

4820-6093-8267.1
 
19
 

Exhibit 10.4

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

 
 
 

TABLE OF CONTENTS*
 

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

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

 
 
 

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


 



 
 
 

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

 
 
 

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

 
2
 

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

 
3
 

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

 
4
 

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

 
5
 

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

 
6
 

of such Collateral, which security interest (except in respect of motor vehicles for which the exclusive manner of perfecting a security interest therein is by noting such security interest in the certificate of title in accordance with local law) would be prior to the claims of a trustee in bankruptcy under Section 544(a) of the United States federal bankruptcy Code.  Continuing compliance by the Client with the provisions of Section 4.2 will also (i) create valid security interests in all Collateral acquired after the date hereof and in all identifiable Proceeds of such Collateral and (ii) cause such security interests in all Collateral and in all Proceeds which are (A) identifiable cash Proceeds of Collateral covered by financing statements required to be filed hereunder, (B) identifiable Proceeds in which a security interest may be perfected by such filing under the UCC and (C) any Proceeds in the Cash Collateral Account to be duly perfected under the UCC, in each case prior to the claims of a trustee in Bankruptcy under the United States federal Bankruptcy Code.
 
(b)           The security interests of the Provider in the Collateral rank first in priority, except that the priority of the security interests may be subject to Permitted Liens.  Other than financing statements or other similar documents perfecting the security interests or deed of trust liens of the Provider, no financing statements, deeds of trust, mortgages or similar documents covering all or any part of the Collateral are on file or of record in any government office in any jurisdiction in which such filing or recording would be effective to perfect a security interest in such Collateral, nor is any of the Collateral in the possession of any Person (other than the Client) asserting any claim thereto or security interest therein.
 
Section 3.4                       Enforceability of Receivables and Other Intangibles
 
To the best knowledge of the Client, each Receivable and Other Intangible is a valid and binding obligation of the related Account Debtor in respect thereof, enforceable in accordance with its terms, except as such enforceability may be limited by applicable Bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general provisions of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and complies with any applicable legal requirements.
 
Section 3.5                       Place of Business; Location of Collateral
 
Schedule 1 correctly sets forth the offices of the Client where records concerning Receivables and Other Intangibles are kept.  Schedule 2 correctly sets forth the location of all Equipment and Inventory, other than rolling stock, aircraft, goods in transit and Inventory sold in the ordinary course of business as permitted by Section 4.13 of this Security Agreement.  All Inventory has been and will be produced in compliance with the Fair Labor Standards Act, 29 U.S.C. §§ 201-219.  No Inventory is evidenced by a negotiable document of title, warehouse receipt or bill of lading.  No non-negotiable document of title, warehouse receipt or bill of lading has been issued to any person other than the Client, and the Client has retained possession  of all of such non-negotiable documents, warehouse receipts and bills of lading.  No amount payable under or in connection with any of the Collateral is evidenced by promissory notes or other instruments.
 
Section 3.6                         Patents and Trademarks
 
As of the date hereof the Client does not have any patents, patent licenses, trademarks or trademarks licenses.
 
 
 
7
 
 
ARTICLE IV
 
COVENANTS
 
The Client covenants and agrees with the Provider that until the payment in full of all Obligations and until there is no commitment by the Provider to make further advances, incur obligations or otherwise give value, the Client will comply with the following.
 
Section 4.1                       Perfection of Security Interests
 
The Client will, at its expense, cause all filings and recordings and other actions specified on Schedule 3 to have been completed on or prior to the date of the first Commodity Loan under the Credit Agreement.
 
Section 4.2                        Further Actions .
 
(a)           At all times after the date of the first Commodity Loan under the Credit Agreement, the Client will, at its expense, comply with the following:
 
(i)           as to all Receivables, Other Intangibles, Equipment and Inventory, it will cause UCC financing statements and continuation statements to be filed and to be on file in all applicable jurisdictions as required to perfect the security interests granted to the Provider hereunder, to the extent that applicable law permits perfection of a security interest by filing under the UCC;
 
(ii)           as to all Proceeds, it will cause all UCC financing statements and continuation statements filed in accordance with clause (i) above to include a statement or a checked box indicating that Proceeds of all items of Collateral described therein are covered;
 
(iii)           upon the request of the Provider, it will ensure that the provisions of Section 2.4 are complied with; and
 
(iv)           as to any amount payable under or in connection with any of the Collateral which shall be or shall become evidenced by any promissory note or other instrument, the Client will immediately pledge and deliver such note or other instrument to the Provider as part of the Collateral, duly endorsed in a manner satisfactory to the Provider.
 
(b)           The Client will, from time to time and at its expense, execute, deliver, file or record such financing statements pursuant to the UCC, applications for certificates of title and such other statements, assignments, instruments, documents, agreements or other papers and take any other action that may be necessary or desirable, or that the Provider may reasonably request, in order to create, preserve, perfect, confirm or validate the security interests, to enable the
 

 
8
 

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

 
9
 

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

 
10
 

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

 
11
 

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

 
12
 

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

 
13
 

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

 
14
 

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

 
15
 

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

 
16
 

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

 
17
 

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

 
18
 

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

 
19
 

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

 
DTE ENERGY TRADING, INC.
 

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


 
20
 

Schedule 1


LOCATIONS OF RECORDS OF RECEIVABLES
AND OTHER INTANGIBLES

 
21
 

Schedule 2
 
LOCATIONS OF EQUIPMENT AND INVENTORY

 
22
 

Schedule 3
 
REQUIRED FILINGS AND RECORDINGS
 

 
23
 

Exhibit 10.5

MEMBERSHIP INTEREST PLEDGE AGREEMENT
 
dated as of April 1 , 2014
 
by
 
SUMMER ENERGY, LLC
 
in favor of
 
DTE ENERGY TRADING, INC.
 

 
 
 

TABLE OF CONTENTS *

 
  Page
ARTICLE I DEFINITIONS
Section 1.01                         Definitions
Section 1.02                         UCC Terms
ARTICLE II THE SECURITY INTERESTS 
Section 2.01                         The Security Interests
Section 2.02                         Security for Obligations
Section 2.03                         Delivery of Pledged Collateral
Section 2.04                         Termination of Security Interests; Release of Pledged Collateral
Section 2.05                         Security Interests Absolute
ARTICLE III REPRESENTATIONS AND WARRANTIES 
Section 3.01                         Contravention
Section 3.02                         Binding Effect
Section 3.03                         Title to Pledged Membership Interests
Section 3.04                         Pledged Membership Interests
Section 3.05                         Validity, Perfection and Priority of Security Interests
Section 3.06                         Outstanding Shares
ARTICLE IV COVENANTS 
Section 4.01                         Filing; Further Assurances
Section 4.02                         Liens on Pledged Collateral
ARTICLE V DISTRIBUTIONS ON COLLATERAL; VOTING 
Section 5.01                         Right to Receive Distributions on Pledged Collateral; Voting
Section 5.02                         Exercise of Voting Rights upon Event of Default
ARTICLE VI GENERAL AUTHORITY; REMEDIES 
Section 6.01                         General Authority
Section 6.02                         UCC Rights
Section 6.03                         Application of Cash; Sale of Pledged Collateral.
Section 6.04                         Rights of Purchasers
Section 6.05                         Securities Act, etc.
Section 6.06                         Other Rights of the Provider
Section 6.07                         Waiver and Estoppel.
Section 6.08                         Application of Moneys.
ARTICLE VII MISCELLANEOUS 
Section 7.01                         Notices
Section 7.02                         Waivers, Non-Exclusive Remedies
Section 7.03                         Expenses; Documentary Taxes
Section 7.04                         Successors and Assigns
Section 7.05                         Amendments and Waivers
Section 7.06                         Delivery and New York Law
Section 7.07                         Limitation by Law; Severability
Section 7.08                       Counterparts; Effectiveness 
Section 7.09                         Joint and Several Liability
Schedule I – List of Pledged Membership Interests
1
1
1
1
1
2
2
2
2
3
3
4
4
4
4
4
4
4
4
5
5
6
6
6
7
7
7
8
9
9
10
10
10
11
11
11
11
11
11
12
12

 
* The Table of Contents is not a part of the Membership Interest Pledge Agreement.
 

 
 
 

MEMBERSHIP INTEREST PLEDGE AGREEMENT
 
THIS AGREEMENT (as amended, supplemented or modified from time to time, this “Agreement”) is dated as of April 1, 2014 and is by Summer Holdings, Inc. (the “Pledgor”), in favor of DTE ENERGY TRADING, INC., a Michigan corporation (the “Provider”).
 
SUMMER ENERGY, LLC, a limited liability company (the “Client”), proposes to enter into a Credit Agreement dated as of the date hereof with the Provider (as the same may be amended, supplemented or modified from time to time, the “Credit Agreement”).  In order to induce the Provider to enter into the Credit Agreement, the Pledgor desires to enter into this Agreement.  Accordingly, the parties hereto agree as follows:
 
ARTICLE I
DEFINITIONS
 
Section 1.01                       Definitions
 
As used herein, the term, “Base Agreement,” shall have the meaning set forth in the Credit Agreement.  In addition, all other terms defined in the Credit Agreement and not otherwise defined herein shall have, as used herein, the respective meanings provided for therein.
 
Section 1.02                       UCC Terms
 
Unless otherwise defined herein, or unless the context otherwise requires, all terms used herein which are defined in the Uniform Commercial Code as in effect in the State of New York (the “UCC”) shall have the meanings therein stated.
 
ARTICLE II
THE SECURITY INTERESTS
 
Section 2.01                       The Security Interests
 
The Pledgor hereby pledges to the Provider, and grants to the Provider a security interest in, the following (the “Pledged Collateral”):
 
(i)           the membership interests described on Schedule I hereto (the “Pledged Membership Interests”), and all dividends, distributions, cash, instruments and other property and proceeds from time to time received, receivable or otherwise made upon or distributed in respect of or in exchange for any or all of the Pledged Membership Interests;
 
(ii)           all additional membership interests of the Client from time to time acquired by the Pledgor in any manner, and the certificates or documents representing such additional membership interests, and all dividends, distributions, cash, instruments and other property from time to time received, receivable or otherwise made upon or distributed in respect of or in exchange for any or all of such membership interests; and
 

 
 
 

(iii)           to the extent not otherwise included in the foregoing, all cash and non-cash proceeds thereof.
 
Section 2.02                       Security for Obligations
 
This Agreement secures the payment of: (i) all amounts now or hereafter payable by the Client to the Provider on the Commodity Loans, (ii) all other obligations or liabilities now or hereafter payable by the Client pursuant to the Credit Agreement, (iii) all obligations and liabilities now or hereafter payable by the Client under, arising out of or in connection with the Security Agreement, this Agreement or any other Collateral Document and (iv) all other indebtedness, obligations and liabilities of the Client to the Provider, now existing or hereafter arising or incurred, whether or not evidenced by notes or other instruments, and whether such indebtedness, obligations and liabilities are direct or indirect, fixed or contingent, liquidated or unliquidated, due or to become due, secured or unsecured, joint, several or joint and several, arising out of or in connection the Base Agreement, the ISDA Master Agreement (as defined in the Base Agreement) or any Purchase Contract (as defined in the Base Agreement) (collectively, the “Obligations”).  The security interests granted by this Agreement are granted as security only and shall not subject the Provider to, or transfer or in any way affect or modify, any obligation or liability of the Pledgor with respect to any of the Pledged Collateral or any transaction in connection therewith.
 
Section 2.03                       Delivery of Pledged Collateral
 
All certificates or instruments representing or evidencing the Pledged Collateral, if any, shall be delivered to and held by or on behalf of the Provider pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied in each case by any required transfer tax stamps, all in form and substance satisfactory to the Provider.  The Provider shall have the right, at any time in its discretion and without notice to the Pledgor, to cause any or all of the Pledged Membership Interests or other Pledged Collateral to be transferred of record into the name of the Provider or its nominee.
 
Section 2.04                       Termination of Security Interests; Release of Pledged Collateral
 
Upon the full, final and irrevocable payment and performance of all the Obligations and the termination of the Commitments of the Provider under the Credit Agreement, the security interests in the Pledged Collateral shall terminate and all rights to the Pledged Collateral shall revert to the Pledgor.  In addition, at any time and from time to time prior to such termination of the security interests, the Provider may release any of the Pledged Collateral.  Upon any such termination of the security interests or any release of the Pledged Collateral, the Provider will, at the Pledgor’s expense, execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence the termination of the security interests or the release of the Pledged Collateral.  Any such documents shall be without recourse to or warranty by the Provider.
 
Section 2.05                       Security Interests Absolute
 

 
2
 

All rights of the Provider and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:
 
(i)           any extension, renewal, settlement, compromise, waiver or release in respect of any Obligation, the Commodity Loans or any other document evidencing or securing such Obligation, by operation of law or otherwise;
 
(ii)           any modification or amendment or supplement to the Credit Agreement, the Commodity Loans or any other document evidencing or securing any Obligation;
 
(iii)           any release, non-perfection or invalidity of any direct or indirect security for any Obligation;
 
(iv)           any change in the existence, structure or ownership of the Client, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Client or its assets or any resulting disallowance, release or discharge of all or any portion of the Obligations;
 
(v)           the existence of any claim, set-off or other right which the Pledgor may have at any time against the Client, the Provider or any other entity or person, whether in connection herewith or any unrelated transactions; provided , that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim;
 
(vi)           any invalidity or unenforceability relating to or against the Client for any reason of any Obligation, or any provision of applicable law or regulation purporting to prohibit the payment by the Client of the Obligations;
 
(vii)           any failure by the Provider (a) to file or enforce a claim against the Client or its estate (in a bankruptcy or other proceeding), (b) to give notice of the existence, creation or incurring by the Client of any new or additional indebtedness or obligation under or with respect to the Obligations, (c) to commence any action against the Client, (d) to disclose to the Pledgor any facts which the Provider may now or hereafter know with regard to the Client or (e) to proceed with due diligence in the collection, protection or realization upon any collateral securing the Obligations; or
 
(viii)           any other act or omission to act or delay of any kind by the Client or the Provider or any other entity or person or any other circumstance whatsoever which might, but for the provisions of this clause, constitute a legal or equitable discharge of the Pledgor’s obligations hereunder.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
The Pledgor represents and warrants as follows:
 

 
3
 

Section 3.01                         Contravention
 
The execution, delivery and performance by the Pledgor of this Agreement requires no action by or in respect of, or filing with, any governmental authority and do not contravene, or constitute (with or without the giving of notice or lapse of time or both) a default under, any provision of applicable law or of any agreement, judgment, injunction, order, decree or other instrument binding upon or affecting the Pledgor or result in the creation or imposition of any Lien (other than the Lien of this Agreement) upon any of its assets.
 
Section 3.02                       Binding Effect
 
This Agreement constitutes a valid and binding agreement of the Pledgor, enforceable against the Pledgor in accordance with its terms, except as the enforceability hereof may be limited by Bankruptcy, insolvency or similar laws affecting creditors’ rights generally and by equitable principles of general applicability (regardless of whether such enforceability is considered in a proceeding in equity or at law).
 
Section 3.03                       Title to Pledged Membership Interests
 
The Pledgor owns all of the Membership Interests free and clear of any Liens other than the security interests granted hereby.
 
Section 3.04                       Pledged Membership Interests
 
All Pledged Membership Interests have been duly authorized and validly issued, and are fully paid and non-assessable, and are subject to no options to purchase or similar rights of any Person.  The Pledgor is not and will not become a party to or otherwise bound by any agreement, other than this Agreement, which restricts in any manner the rights of any present or future holder of any of the Pledged Membership Interests with respect thereto.
 
Section 3.05                       Validity, Perfection and Priority of Security Interests
 
Upon filing of a financing statement with the Secretary of State of Texas, the Provider will have a valid and perfected security interest in the Pledged Collateral subject to no prior Lien.  Except for such filing of the financing statement, no registration, recordation or filing with any governmental authority is required in connection with the execution or delivery of this Agreement, or necessary for the validity or enforceability hereof or for the perfection of the security interests of the Provider granted hereby.  The Pledgor has not performed any acts which might prevent the Provider from enforcing any of the terms and conditions of this Agreement or which would limit the Provider in any such enforcement.
 
Section 3.06                       Outstanding Shares
 
The Pledged Membership Interests constitute 100% of the issued and outstanding membership interests of the Client.
 
ARTICLE IV
COVENANTS
 

 
4
 


The Pledgor agrees that so long as the Provider has any Commitment under the Credit Agreement or any Obligation remains unpaid:
 
Section 4.01                       Filing; Further Assurances
 
The Pledgor will, at its expense and in such manner and form as the Provider may require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action that may be necessary or desirable, or that the Provider may request, in order to create, preserve, perfect or validate the security interests granted hereby or to enable the Provider to exercise and enforce its rights hereunder with respect to any of the Pledged Collateral.  To the extent permitted by applicable law, the Pledgor hereby authorizes the Provider to execute and file, in the name of the Pledgor or otherwise, Uniform Commercial Code financing statements which the Provider in its sole discretion may deem necessary or appropriate to further perfect the security interests.
 
Section 4.02                       Liens on Pledged Collateral
 
The Pledgor will not sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral or create or suffer to exist any Lien (other than security interests in favor of the Provider) on any Pledged Collateral.  The Pledgor agrees that it will cause the Client not to issue any stock or other securities in addition to or in substitution for the Pledged Membership Interests, except to the Pledgor, and the Pledgor will pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of the Client.
 
ARTICLE V
DISTRIBUTIONS ON COLLATERAL; VOTING
 
Section 5.01                       Right to Receive Distributions on Pledged Collateral; Voting
 
(a)      So long as no Event of Default shall have occurred and be continuing:
 
(i)           The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement, the Base Agreement or the Credit Agreement; provided , however , that the Pledgor shall give the Provider at least five days’ written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right and the Pledgor shall not exercise or refrain from exercising any such right if, in the Provider’s judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof.
 
(ii)           The Pledgor shall be entitled to receive and retain any and all distributions, interest and other payments and distributions made upon or with respect to the Pledged Collateral, provided , however , that (A) any and all distributions and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) distributions paid or payable in cash in respect of any Pledged
 

 
5
 

Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) paid, payable or otherwise distributed in respect of principal of, in redemption of, or in exchange for, any Pledged Collateral, shall be, and shall be forthwith delivered to the Provider to hold as, Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Provider, be segregated from the other property or funds of the Pledgor and be forthwith delivered to the Provider as Pledged Collateral in the same form as so received (with any necessary endorsement).
 
(iii)           The Provider shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies, powers of attorney, consents, ratifications and waivers and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the distributions or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above.
 
(b)           Upon the occurrence and during the continuance of an Event of Default:
 
(i)           All rights of the Pledgor to receive the distributions and interest payments which it would otherwise be authorized to receive and retain pursuant to Section 5.01(a)(ii) shall cease, and all such rights shall thereupon become vested in the Provider which shall thereupon have the sole right to receive and hold as Pledged Collateral such distributions and interest payments.
 
(ii)           All distributions and interest payments which are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 5.01(b) shall be received in trust for the benefit of the Provider, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the Provider as Pledged Collateral in the same form as so received (with any necessary endorsement).
 
Section 5.02                        Exercise of Voting Rights upon Event of Default   Upon the occurrence and during the continuance of an Event of Default and upon notice by the Provider to the Pledgor, all rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 5.01(a)(i) shall cease, and all such rights shall thereupon become vested in the Provider who shall thereupon have the sole right to exercise such voting and other consensual rights.
 
ARTICLE VI
GENERAL AUTHORITY; REMEDIES
 
Section 6.01                       General Authority
 
The Pledgor hereby irrevocably appoints the Provider and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact, in the name of the Pledgor or its own name, for the sole use and benefit of the Provider, but at the Pledgor’s expense, at any time and from time to time, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to carry out the terms of this Agreement and, without limiting the foregoing, the Pledgor hereby gives the Provider the power and right on its behalf, without notice to or further assent by the Pledgor to do the following:
 

 
6
 
 
 
(i)           to receive, take, endorse, assign and deliver any and all checks, notes, drafts, acceptances, documents and other negotiable and non-negotiable instruments taken or received by the Pledgor as, or in connection with, the Pledged Collateral;
 
(ii)           to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due upon or in connection with the Pledged Collateral;
 
(iii)           to commence, settle, compromise, compound, prosecute, defend or adjust any claim, suit, action or proceeding with respect to, or in connection with, the Pledged Collateral;
 
(iv)           to sell, transfer, assign or otherwise deal in or with the Pledged Collateral or any part thereof, as fully and effectually as if the Provider were the absolute owner thereof; and
 
(v)           to do, at its option, but at the expense of the Pledgor, at any time or from time to time, all acts and things which the Provider deems necessary to protect or preserve the Pledged Collateral and to realize upon the Pledged Collateral.
 
Section 6.02                       UCC Rights
 
If an Event of Default shall have occurred, the Provider may in addition to all other rights and remedies granted to it in this Agreement and in any other agreement securing, evidencing or relating to the Obligations, exercise (i) all rights and remedies of a secured party under the UCC (whether or not in effect in the jurisdiction where such rights are exercised) and (ii) all other rights available to the Provider at law or equity.
 
Section 6.03                        Application of Cash; Sale of Pledged Collateral .
 
(a)      The Pledgor expressly agrees that if an Event of Default shall occur and be continuing, the Provider, without demand of performance or other demand or notice of any kind (except the notice specified below of the time and place of any public or private sale) to or upon the Pledgor or any other Person (all of which demands and/or notices are hereby waived by the Pledgor), may forthwith (i) apply the cash, if any, then held by it as Collateral as specified in Section 6.08 and (ii) if there shall be no such cash or if such cash shall be insufficient to pay the Obligations in full, to collect, receive, appropriate and realize upon the Pledged Collateral, and/or sell, assign, give an option or options to purchase or otherwise dispose of and deliver the Pledged Collateral (or contract to do so) or any part thereof in one or more parcels (which need not be in round lots) at public or private sale, at any office of the Provider or elsewhere in such manner is commercially reasonable and, as the Provider may deem best, for cash or on credit or for future delivery without assumption of any credit risk.  The Provider shall have the right upon any such public sale, and, if the Pledged Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, upon any such private sale or sales, to purchase the whole or any part of the Pledged Collateral so sold,
 

 
7
 

and thereafter to hold the same, absolutely and free from any right or claim of any kind.  To the extent permitted by applicable law, the Pledgor waives all claims, damages and demands against the Provider arising out of the foreclosure, repossession, retention or sale of the Pledged Collateral.
 
(b)      Unless the Pledged Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Provider shall give the Pledgor five days’ written notice of its intention to make any such public or private sale or sale at a broker’s board or on a securities exchange.  Such notice shall (i) in the case of a public sale, state the time and place fixed for such sale, (ii) in the case of sale at a broker’s board or on a securities exchange, state the board or exchange at which such sale is to be made and the day on which the Pledged Collateral, or the portion thereof being sold, will first be offered for sale and (iii) in the case of a private sale, state the day after which such sale may be consummated.  The Provider shall not be obligated to make any such sale pursuant to any such notice.  The Provider may adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned.  In the case of any sale of all or any part of the Pledged Collateral on credit or for future delivery, the Pledged Collateral so sold may be retained by the Provider until the selling price is paid by the purchaser thereof, but the Provider shall not incur any liability in case of the failure of such purchaser to take up and pay for the Pledged Collateral so sold and, in the case of such failure, such Pledged Collateral may again be sold upon like notice.
 
Section 6.04                       Rights of Purchasers
 
Upon any sale of the Pledged Collateral (whether public or private), the Provider shall have the right to deliver, assign and transfer to the purchaser thereof the Pledged Collateral so sold.  Each purchaser (including the Provider) at any such sale shall hold the Collateral so sold absolutely, free from any claim or right of whatever kind, including any equity or right of redemption of the Pledgor who, to the extent permitted by law, hereby specifically waives all rights of redemption, including, without limitation, any right to redeem the Pledged Collateral under the UCC, and any right to a judicial or other stay or approval which it has or may have under any law now existing or hereafter adopted.
 
Section 6.05                       Securities Act, etc.
 
In view of the position of the Pledgor in relation to the Pledged Securities, or because of other present or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being herein called the “Federal Securities Laws”) with respect to any disposition of the Pledged Collateral permitted hereunder.  The Pledgor understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Provider if the Provider were to attempt to dispose of all or any part of the Pledged Collateral, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could dispose of the same.  Similarly, there may be other legal restrictions or limitations affecting the Provider in any attempt to dispose of all or part of the Pledged Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect.  Under applicable law, in the absence of an
 

 
8
 

agreement to the contrary, the Provider may be held to have certain general duties and obligations to the Pledgor to make some effort toward obtaining a fair price even though the obligations of the Pledgor may be discharged or reduced by the proceeds of a sale at a lesser price.  The Pledgor clearly understands that the Provider is not to have any such general duty or obligation to the Pledgor, and the Pledgor will not attempt to hold the Provider responsible for selling all or any part of the Pledged Collateral at any inadequate price even if the Provider shall accept the first offer received or does not approach more than one possible purchaser.  Without limiting the generality of the foregoing, the provisions of this Section would apply if, for example, the Provider were to place all or any part of the Pledged Collateral for private placement by an investment banking firm, or if such investment Provider firm purchased all or any part of the Pledged Collateral for its own account, or if the Provider placed all or any part of the Pledged Collateral privately with a purchaser or purchasers.
 
Accordingly, the Pledgor expressly agrees that the Provider is authorized, in connection with any sale of the Pledged Collateral, if it deems it advisable so to do, (i) to restrict the prospective bidders on or purchasers of any of the Pledged Collateral to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such Pledged Collateral, (ii) to cause to be placed on certificates for any or all of the Pledged Collateral or on any other securities pledged hereunder a legend to the effect that such security has not been registered under the Federal Securities Laws and may not be disposed of in violation of the provision of said Federal Securities Laws and (iii) to impose such other limitations or conditions in connection with any such sale as the Provider deems necessary or advisable in order to comply with said Federal Securities Laws or any other law.  The Pledgor covenants and agrees that it will execute and deliver such documents and take such other action as the Provider deems necessary or advisable in order to comply with said Federal Securities Laws or any other law.  The Pledgor acknowledges and agrees that such limitations may result in prices and other terms less favorable to the seller than if such limitations were not imposed, and, notwithstanding such limitations, agrees that any such sale shall be deemed to have been made in a commercially reasonable manner, it being the agreement of the Pledgor and the Provider that the provisions of this Section 6.05 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Provider sells the Pledged Collateral.  The Provider shall under no obligation to delay a sale of any Pledged Collateral for a period of time necessary to permit the issuer of any securities contained therein to register such securities under the Federal Securities Laws, or under applicable state securities laws, even if the issuer would agree to it.
 
Section 6.06                       Other Rights of the Provider
 
The Provider (i) shall have the right and power to institute and maintain such suits and proceedings as it may deem appropriate to protect and enforce the rights vested in it by this Agreement and (ii) may proceed by suit or suits at law or in equity to enforce such rights and to foreclose upon the Pledged Collateral and to sell all, or from time to time, any of the Pledged Collateral under the judgment or decree of a court of competent jurisdiction.
 
(a)      The Provider shall, to the extent permitted by applicable law, without notice to the Pledgor or any party claiming through it, without regard to the solvency or insolvency at such
 

 
9
 

time of any Person then liable for the payment of any of the Obligations, without regard to the then value of the Pledged Collateral and without requiring any bond from any complainant in such proceedings, be entitled as a matter of right to the appointment of a receiver or receivers (who may be the Provider) of the Pledged Collateral or any part thereof, and of the profits, revenues and other income thereof, pending such proceedings, with such powers as the court making such appointment shall confer, and to the entry of an order directing that the profits, revenues and other income of the property constituting the whole or any part of the Pledged Collateral be segregated, sequestered and impounded for the benefit of the Provider, and the Pledgor irrevocably consents to the appointment of such receiver or receivers and to the entry of such order.
 
(b)      In no event shall the Provider have any duty to exercise any rights or take any steps to preserve the rights of the Provider in the Pledged Collateral, nor shall the Provider be liable to the Pledgor or any other Person for any loss caused by the Provider’s failure to meet any obligation imposed by the UCC.  Without limiting the foregoing, the Provider shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Provider accords its own property, it being understood that the Provider shall not have any duty or responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Provider has or is deemed to have knowledge of such matters or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral.
 
Section 6.07                        Waiver and Estoppel .
 
(a)      The Pledgor agrees, to the extent it may lawfully do so, that it will not at any time in any manner whatsoever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, moratorium, turnover or redemption law, or any law permitting it to direct the order in which the Pledged Collateral shall be sold, now or at any time hereafter in force which may delay, prevent or otherwise affect the performance or enforcement of this Agreement, and hereby waives all benefit or advantage of all such laws.  The Pledgor covenants that it will not hinder, delay or impede the execution of any power granted to the Provider in the Credit Agreement, the Base Agreement or this Agreement.
 
(b)      The Pledgor, to the extent it may lawfully do so, on behalf of itself and all who claim through or under it, including without limitation any and all subsequent creditors, vendees, assignees and lienors, waives and releases all rights to demand or to have any marshalling of the Pledged Collateral upon any sale, whether made under any power of sale granted herein or pursuant to judicial proceedings or under any foreclosure or any enforcement of this Agreement, and consents and agrees that all of the Pledged Collateral may at any such sale be offered and sold as an entirety.
 
(c)      The Pledgor waives, to the extent permitted by law, presentment, demand, protest and any notice of any kind (except the notices expressly required hereunder) in connection with this Agreement and any action taken by the Provider with respect to the Pledged Collateral.  The Pledgor waives and agrees not to assert any privileges which it may acquire under Section 9-112 of the UCC.
 

 
10
 

Section 6.08                       Application of Moneys .
 
The proceeds of any sale of, or other realization upon, all or any part of the Pledged Collateral shall be applied by the Provider in the following order of priority:
 
FIRST, to payment of the expenses of such sale or other realization, including reasonable compensation to the Provider and its agents and counsel, and all expenses, liabilities and advances incurred or made by the Provider, its agents and counsel in connection therewith or in connection with the care, safekeeping or otherwise of any or all of the Pledged Collateral, and any other unreimbursed expenses for which the Provider is to be reimbursed pursuant to Section 7.03;
 
SECOND, to payment of the Obligations; and
 
FINALLY, any surplus then remaining shall be paid to the Pledgor, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

ARTICLE VII
MISCELLANEOUS
 
Section 7.01                       Notices
 
All notices, requests and other communications to any party hereunder shall be in writing and shall be given to such party at its address set forth on the signature page hereof, on the cover sheet of the Base Agreement, Exhibit 8 of the Base Agreement or to such other address as such party may hereafter specify for the purpose by notice to the other.  Each such notice, request or other communication shall be effective (i) two days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means, when delivered at the address specified in this Section.  Rejection or refusal to accept, or the inability to deliver because of a changed address of which no notice was given shall not affect the validity of notice given in accordance with this Section.
 
Section 7.02                       Waivers, Non-Exclusive Remedies
 
No failure on the part of the Provider to exercise, and no delay in exercising, no course of dealing with respect to, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by the Provider of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right.  The rights of the Provider under this Agreement are cumulative and are not exclusive of any other remedies provided by law.
 
Section 7.03                       Expenses; Documentary Taxes
 
The Pledgor shall forthwith on demand pay all out-of-pocket expenses incurred by the Provider, including fees and disbursements of its counsel and agents, in connection with the preparation and administration of this Agreement or the administration, sale or other disposition of the Pledged Collateral or the preservation, protection or defense of the rights of the Provider in and
 

 
11
 

to the Pledged Collateral.  The Pledgor shall forthwith pay on demand the amount of any taxes which the Provider may have been required to pay by reason of the security interests granted in the Pledged Collateral (including any applicable transfer taxes) or to free any of the Pledged Collateral from the lien thereof.
 
Section 7.04                       Successors and Assigns
 
This Agreement is for the benefit of the Provider and its successors and assigns, and in the event of an assignment of all or any of the Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness.  This Agreement shall be binding upon the Pledgor and its successors and assigns.
 
Section 7.05                       Amendments and Waivers
 
Any provision of this Agreement may be amended or waived, if, but only if, such amendment or waiver is in writing and is signed by the Pledgor and the Provider.
 
Section 7.06                       Delivery and New York Law
 
THIS AGREEMENT HAS BEEN DELIVERED IN NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN NEW YORK ARE GOVERNED BY THE LAWS OF SUCH JURISDICTION.
 
Section 7.07                       Limitation by Law; Severability
 
All rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law.
 
If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Provider in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.
 
Section 7.08                       Counterparts; Effectiveness
 
This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement shall become effective when the Provider shall have received counterparts hereof signed by itself and the Pledgor.
 

 
12
 

Section 7.09                       Joint and Several Liability   The obligations hereunder of the persons constituting the Pledgor shall be joint and several.
 

 
13
 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
 
PLEDGOR:


/s/ Neil Leibman                                                                 
Name:  Summer Holdings, Inc.
Address:800 Bering Dr., Suite 260
Houston, TX  77057






PROVIDER:

DTE ENERGY TRADING, INC.

By: /s/ Michael Hunt                                                                 
Name: Michael Hunt                                                                 
Title: President                                                       
4/23/2014

 
14
 

Schedule I



Pledged Membership Interests
         
 
Issuer
State of Formation
   
Number of Membership Units
Summer Holdings, Inc.
Texas
   
100 percent
         
         


 
15
 

Exhibit 10.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit 10.7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Neil Leibman, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q of Summer Energy Holdings, Inc. (the “Registrant”);

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.           The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.           The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: May 14, 2014

/s/ Neil Leibman
Neil Leibman, 
Chief Executive Officer
(Principal Executive Officer)

 
 
 

 
Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Jaleea P. George, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q of Summer Energy Holdings, Inc. (the “Registrant”);

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.           The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.           The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:  May 14, 2014

/s/ Jaleea P. George
Jaleea P. George,
Chief Financial Officer
(Principal Financial Officer)


 
 
 

 
Exhibit 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(B) AND RULE 15D-14(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Summer Energy Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2014 as filed with the Securities and Exchange Commission (the “Report”), we, Neil M. Leibman, Chief Executive Officer and Jaleea P. George, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

(1)           The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition of the Company as of the dates presented and the results of operations of the Company for the periods presented.

Date:  May 14, 2014
   
By:  
/s/ Neil Leibman
 
Neil Leibman,
Chief Executive Officer 
 
   
By:  
/s/ Jaleea P. George
 
Jaleea P. George,
Chief Financial Officer
                                                                                          
A signed original of this written statement required by section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Quarterly Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.