SECURITY AGREEMENT, PLEDGE AND FINANCING STATEMENT
SECURITY
AGREEMENT, PLEDGE AND FINANCING STATEMENT
This
Security Agreement, Pledge and Financing Statement (this “Agreement”)
is
made and entered into June 16, 2006, effective as of March 31, 2006, by UNITED
HERITAGE CORPORATION, a Utah corporation, and UHC NEW MEXICO CORPORATION, a
New
Mexico corporation (individually and collectively, the “Debtor”),
in
favor of Sterling Bank (the “Secured
Party”).
RECITALS
WHEREAS,
Debtor, Lothian Oil, Inc., Lothian Oil (USA) Inc., and Lothian Oil Texas I,
Inc.
(collectively, “Borrower”)
executed and delivered to Secured Party that certain revolving promissory note
dated as of even date herewith in the face amount of $20,000,000.00 (whether
one
or more and as the same may be amended, restated, rearranged or modified, the
“Note”);
and
WHEREAS,
the Note evidences a loan more particularly described in that certain Amended
and Restated Credit Agreement dated as of even date herewith by and between
Borrower and Secured Party as the same may be modified or amended, from time
to
time (the “Credit
Agreement”);
and
WHEREAS,
the Debtor has executed and delivered this Agreement pursuant to the Credit
Agreement for the purpose of securing and providing for the repayment of all
of
its obligations to Secured Party under the Credit Agreement;
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of
which are hereby acknowledged, the Debtor and Secured Party hereby agree as
follows:
Section
1. Definitions.
(a) As
used
in this Agreement, the following terms shall have the respective meanings set
forth below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
“Collateral”
shall
have the meaning assigned to that term in Section 2 of this
Agreement.
“Event
of Default”
shall
have the meaning assigned to that term in Section 6(a) of this
Agreement.
“Indebtedness”
means
all amounts due or owing to Secured Party by the Debtor under the Credit
Agreement.
“Obligations”
means
the Obligations defined in the Credit Agreement, including without limitation,
the Indebtedness.
“Permitted
Liens”
has
the
meaning ascribed thereto in the Credit Agreement.
“Security
Documents”
shall
have the meaning set forth in the Credit Agreement.
“UCC”
means
the Uniform Commercial Code as in effect in the State of Texas as of the date
hereof.
(b) All
terms
used in this Agreement which are defined in the UCC, other than those which
are
specifically defined in Section l(a) above or under the Credit Agreement, shall
have the same meaning herein as in the UCC.
Section
2. Grant
of Security Interest.
The
Debtor hereby grants to Secured Party, to secure the payment and performance
in
full of all of the Obligations, a security interest in and a lien on and so
pledges and assigns to Secured Party all of the Debtor’s right, title and
interest in, to and under the following properties, assets and rights, in each
case, wherever located, all accessions and additions thereto, all substitutions
and replacements therefor, and all proceeds and products thereof (all of the
same being hereinafter called the “Collateral”):
All
improvements and all personal property of any kind or character defined in
and
subject to the provisions of the UCC, including the proceeds and products from
any and all of such improvements and personal property, including, but not
limited to, the improvements and personal property situated on, incident,
appurtenant or belonging to and used in connection with, any of the Oil and
Gas
Properties as described in the other Security Instruments executed in connection
with the Credit Agreement, a copy of such descriptions being attached hereto
on
Exhibit “A” and incorporated herein by reference, including, but not limited to,
pipe, casing, tubing, rods, storage tanks, boilers, loading racks, pumps,
foundations, warehouses, furniture, fixtures, equipment, raw materials,
inventory, goods, contract rights, accounts receivable, receivables, rights
to
the payment of money, insurance refund claims and all other insurance claims
and
proceeds, deposit accounts, all tax refund claims, license fees, computer
programs, computer software, engineering drawings, and all recorded data of
any
kind or nature, regardless of the medium of recording including, without
limitation, all software, writings, plans, specifications and schematics, and
all other personal property and equipment of every kind and
character.
Section
3. Representations
and Warranties.
The
Debtor represents and warrants, as of the date hereof, to Secured Party as
follows:
(a) The
chief
executive office and principal place of business of the Debtor is located at
▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
(b) The
Debtor is the owner of all of the Collateral free and clear of any lien,
security interest, charge or encumbrance of any kind or nature, except as
permitted under the Credit Agreement. Except as permitted under the Credit
Agreement, all of the Collateral is free from any material credit, deduction,
allowance, defense, dispute, setoff or counterclaim and there is no material
extension or indulgence with respect thereto.
(c) This
Agreement has been duly executed and delivered by the Debtor and creates a
valid
security interest in, and lien on, the Collateral securing the payment of the
Indebtedness. Upon the making of the filings and the taking of all other actions
necessary to perfect the security interests created hereby, including, without
limitation, those actions specified in Section 4, the security interests created
by this Agreement will be duly perfected security interests, subject to no
equal
or prior lien, security interest or encumbrance of any kind or nature other
than
as permitted under the Credit Agreement.
Section
4. Covenants.
During
the term of this Agreement and until all the obligations with respect to the
Indebtedness have been fully and finally paid and discharged in full, the Debtor
covenants and agrees with Secured Party that:
(a) Except
in
the ordinary coarse of business, the Debtor will not make any compromise or
settlement with respect to any material portion of the Collateral without notice
to and consent of Secured Party.
(b) From
time
to time, the Debtor shall, at its own expense, promptly give, execute, deliver,
file and/or otherwise formalize any such notice, statement, instrument,
document, agreement or other papers, and do all such other acts and things,
as
may be necessary or desirable, or as Secured Party may reasonably request,
in
order to create, evidence, preserve, perfect, validate or continue any lien
or
security interest created pursuant to this Agreement or to enable Secured Party
to exercise or enforce its rights hereunder with respect to such lien or
security interest, or otherwise further to effect the purposes of this
Agreement. Without limiting the generality of the foregoing, the Debtor shall,
at any time or from time to time upon the request of Secured Party and at the
Debtor’s own expense, execute, acknowledge, witness, deliver, file and/or record
such financing and continuation statements, notices, additional assignments
and
other documents or instruments (all of which shall be in form and substance
satisfactory to Secured Party and its counsel) as Secured Party may from time
to
time reasonably request for the perfection of the liens and security interests
created hereby.
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(c) The
Debtor shall promptly notify Secured Party (i) of any material changes in any
fact or circumstance represented or warranted by the Debtor with respect to
any
material portion of the Collateral, (ii) of any material impairment of the
Collateral and (iii) of any claim, action or proceeding affecting title to
all
or any material portion of the Collateral.
(d) Except
for the liens and security interests created by this Agreement and the Permitted
Liens in the Collateral, the Debtor shall at its own expense defend the
Collateral against any and all liens, claims, security interests and other
encumbrances or interests, howsoever arising.
(e) The
Debtor shall at all times keep accurate and complete records with respect to
the
Collateral, including, without limitation, records of all payments made, credit
granted and proceeds received in connection therewith.
(f) The
Debtor shall not relocate its principal place of business or chief executive
office to a county or state other than that specified in Section 3(a) of this
Agreement. The Collateral will be kept at Debtor’s principal place of business,
its chief executive office or those locations listed on Exhibit “A” hereto, and
the Debtor will not remove the Collateral from such locations.
(g) The
Debtor will keep the Collateral in good condition, repair and working order
(reasonable wear and tear excepted) and will not use the same in violation
of
law or any policy of insurance thereon. Secured Party, or its designee, may
inspect the Collateral at any reasonable time, wherever located. The Debtor
has
at all times operated, and the Debtor will continue to operate, its business
in
compliance with all applicable provisions of the federal Fair Labor Standards
Act, as amended and with all applicable provisions of federal, state and local
statutes and ordinances dealing with the control, shipment, storage or disposal
of hazardous materials or substances.
Section
5. Powers
of the Secured Party.
(a) The
Debtor hereby irrevocably designates and appoints Secured Party as its
attorney-in-fact, with full power of substitution, for the purposes of carrying
out the provisions of this Agreement and taking any action and executing any
instrument that Secured Party may reasonably request pursuant to this Agreement,
which appointment as attorney-in-fact is irrevocable and coupled with an
interest.
(b) Without
limiting the generality of Section 5(a) hereof, the Debtor hereby irrevocably
authorizes and empowers Secured Party, after the occurrence and during the
continuance of any Event of Default, at the expense of the Debtor, either in
Secured Party’s own name or in the name of the Debtor, at any time and from time
to time:
(i) to
ask,
demand, receive, issue a receipt for, give acquittance for, settle and
compromise any and all monies which may be or become due or payable or remain
unpaid at any time or times to the Debtor, and any and all other property which
may be or become deliverable at any time or times to the Debtor, under or with
respect to the Collateral;
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(ii) to
endorse any drafts, checks, orders or other instruments for the payment of
money
payable to the Debtor on account of the Collateral (including any such draft,
check, order or instrument issued by any insurance company payable jointly
to
the Debtor and Secured Party); and
(iii) to
settle, compromise, prosecute or defend any action, claim or proceeding, or
take
any other action, all either in its own name or in the name of the Debtor or
otherwise, which Secured Party may deem to be necessary or advisable for the
purpose of exercising and enforcing its powers and rights under this Agreement
or in furtherance of the purposes hereof, including any action which by the
terms of this Agreement is to be taken by the Debtor.
(c) Nothing
in this Agreement shall be construed as requiring or obligating Secured Party
to
make any demand or to make any inquiry as to the nature or sufficiency of any
payment received by it or to present or file any claim or notice, or to take
any
other action with respect to any of the Collateral or the amounts due or to
become due under any thereof, or to collect or enforce the payment of any
amounts assigned to it or to which it may otherwise be entitled hereunder at
any
time or times other than to account for amounts or Collateral
received.
(d) Secured
Party shall be entitled at any time to file this Agreement, or a carbon,
photographic or any other reproduction of this Agreement, as a financing
statement, but the failure of Secured Party to do so shall not impair the
validity or enforceability of this Agreement. Secured Party shall have no duty
to comply with any recording, filing or other legal requirements necessary
to
establish or maintain the validity, priority or enforceability of, or Secured
Party’s rights in or to, any of the Collateral.
(e) In
its
discretion, Secured Party may discharge taxes and other encumbrances not timely
paid by Debtor as provided in the Credit Agreement at any time levied or placed
on any of the Collateral, make repairs thereto and pay any necessary filing
fees. The Debtor agrees to reimburse Secured Party on demand for any and all
reasonable expenditures so made with interest on unpaid amounts at the maximum
rate permitted by law. Secured Party shall have no obligation to the Debtor
to
make any such expenditures, nor shall the making thereof relieve the Debtor
of
any Event of Default.
(f) Anything
herein to the contrary notwithstanding, the Debtor shall remain liable under
each contract or agreement comprised in the Collateral to be observed or
performed by the Debtor thereunder. Secured Party shall not have any obligation
or liability under any such contract or agreement by reason of or arising out
of
this Agreement or the receipt by Secured Party of any payment relating to any
of
the Collateral, nor shall Secured Party be obligated in any manner to perform
any of the obligations of the Debtor under or pursuant to any such contract
or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by Secured Party in respect of the Collateral or as to the sufficiency
of any performance by any party under any such contract or agreement, to present
or file any claim, to take any action to or force any performance or to collect
the payment of any amounts which may have been assigned to Secured Party or
to
which Secured Party may be entitled at any time or times other than to account
for amounts or Collateral received. Secured Party’s sole duty with respect to
the custody, safekeeping and physical preservation of the Collateral in its
possession, under §9-207 of the UCC or otherwise, shall be to deal with such
Collateral in the same manner as Secured Party deals with similar property
for
its own account.
(g) After
the
occurrence and during the continuance of an Event of Default, Secured Party
may
demand, ▇▇▇ for, collect, or make any settlement or compromise which it deems
desirable with respect to the Collateral. After the occurrence of an Event
of
Default regardless of the adequacy of Collateral or any other security for
the
Indebtedness, any deposits or other sums at any time credited by or due from
Secured Party to the Debtor may at any time be applied to or set off against
any
of the Indebtedness.
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(h) If
an
Event of Default shall have occurred and is continuing, the Debtor shall, at
the
request of Secured Party, notify obligors on chattel paper and general
intangibles of the Debtor and obligors on instruments for which the Debtor
is an
obligee of the security interest of Secured Party in any chattel paper, general
intangible or instrument and that payment thereof is to be made directly to
Secured Party or to any financial institution designated by Secured Party as
Secured Party’s agent therefor, and Secured Party may itself, if an Event of
Default shall have occurred and is continuing, without notice to or demand
upon
the Debtor, so notify said obligors. After the making of such a request or
the
giving of any such notification, the Debtor shall hold any proceeds of
collection of chattel paper, general intangibles and instruments received by
the
Debtor as trustee for Secured Party without commingling the same with other
funds of the Debtor and shall turn the same over to Secured Party in the
identical form received, together with any necessary endorsements or
assignments. Secured Party shall apply the proceeds of collection of chattel
paper, general intangibles and instruments received by Secured Party to the
Indebtedness, such proceeds to be immediately entered after final payment in
cash of the items giving rise to them.
Section
6. Default.
(a) It
shall
constitute an Event of Default under this Agreement if an “Event of Default”
shall occur under the Credit Agreement, any Guarantor defaults under the
Guaranty (as defined in the Credit Agreement) or if Debtor shall default in
any
of its obligations under this Agreement.
(b) If
an
Event of Default shall have occurred, in addition to any other rights and
remedies that may be available to Secured Party under the UCC or under Section
5(a) or 5(b) of this Agreement or otherwise under this Agreement or at law,
Secured Party shall also have the following rights and powers:
(i) Secured
Party may, without being required to give any notice except as hereinafter
provided, sell the Collateral, or any part thereof, at public or private sale,
for cash, upon credit or for future delivery and at such price or prices as
Secured Party deems satisfactory, and Secured Party and/or its collateral agent
may be the purchaser of any or all of the Collateral so sold and thereafter
hold
the same absolutely free from any right or claim of whatsoever kind, and the
Indebtedness or any portion of the Indebtedness may be applied as a credit
against the purchase price.
(ii) upon
any
such sale, Secured Party shall have the right to deliver, assign and transfer
to
the purchaser thereof the Collateral so sold. Each purchaser at any such sale
shall hold the property sold absolutely free from any claim or right of
whatsoever kind by or on behalf of the Debtor, including any equity or rights
of
redemption of the Debtor and the Debtor hereby specifically waives, to the
extent permitted by applicable law, all rights of redemption, stay or appraisal
which it has or may have under any rule or law or statute now existing or
hereafter adopted.
(iii) Secured
Party shall give the Debtor five (5) business days’ written notice (which the
Debtor agrees is reasonable notification within the meaning of §9.611 of the
UCC) of its intention to make any such public or private sale. Such notice,
in
case of a public sale, shall state the time and place fixed for such sale and,
in case of a private sale, shall state the date after which such sale is to
be
made.
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(iv) any
such
public sale shall be held at such time or times within ordinary business hours
and at such places as Secured Party may fix in the notices of such sale. At
any
such sale the Collateral may be sold in one lot as an entirety or in separate
parcels, as Secured Party may determine.
(v) Secured
Party shall not be obligated to make any sale pursuant to any such notice.
Secured Party may, without notice or publication, 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 shall be so adjourned.
(vi) in
case
of any sale of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by Secured Party until the
selling price is paid by the purchaser thereof, but Secured Party shall not
incur any liability in case of the failure of such purchaser to take up and
pay
for the Collateral so sold and, in case of any such failure, such Collateral
may
again be sold upon like notice.
(vii) Secured
Party instead of exercising the power of sale herein conferred upon it, may
proceed by a suit or suits at law or in equity to foreclose the liens and
security interests granted in this Agreement and sell the Collateral, or any
portion thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(viii) Secured
Party shall have the right to take possession of the Collateral, and for that
purpose Secured Party may, so far as the Debtor can give authority therefor,
enter upon any premises on which the Collateral may be situated and remove
the
same therefrom. The Debtor waives any and all rights that it may have to a
judicial hearing in advance of the enforcement of any of Secured Party’s rights
hereunder, including, without limitation, its right following an Event of
Default to take immediate possession of the Collateral and to exercise its
rights with respect thereto. To the extent that any of the Indebtedness is
to be
paid or performed by a person other than the Debtor, the Debtor waives and
agrees not to assert any rights or privileges which it may have under the
UCC.
(c) Secured
Party shall incur no liability as a result of the sale of the Collateral, or
any
part thereof, at any private sale other than for its own gross negligence,
willful misconduct or bad faith. The Debtor hereby waives, to the maximum extent
permitted by applicable law, any claims against Secured Party arising by reason
of the fact that the price at which the Collateral may have been sold at such
private sale was less than the price which might have been obtained at a public
sale or was less than the aggregate amount of the Indebtedness, even if Secured
Party accepts the first offer received and does not offer such Collateral to
more than one offeree.
(d) Secured
Party shall not be obligated to pursue or exhaust its rights and remedies
against any particular Collateral or other security for the Indebtedness before
pursuing or enforcing its rights and remedies against any other Collateral
or
other security for the Indebtedness.
(e) To
the
extent permitted by law, the Debtor hereby waives (i) any rights to require
Secured Party to proceed first against any other Person, to exhaust its rights
in the Collateral or other security for the Indebtedness or to pursue any other
right that Secured Party might have, and (ii) all rights of marshalling in
respect of any and all of the Collateral.
(f) Without
precluding any other methods of sale, the Debtor acknowledges that the sale
of
the Collateral shall have been made in a commercially reasonable manner if
conducted in conformity with reasonable commercial practices of banks disposing
of similar property. Secured Party shall not be liable for any depreciation
in
the value of the Collateral.
6
(g) Remedies
of Secured Party are cumulative and the exercise of any one or more of the
remedies provided herein shall not be construed as a waiver of any of the other
remedies of Secured Party.
(h) If
an
Event of Default shall have occurred, the proceeds of any sale of or other
realization upon all or any part of the Collateral and any other amounts held
by
Secured Party under this Agreement shall be applied by Secured Party as provided
in the Credit Agreement.
Any
amounts remaining after such applications shall be remitted to the Debtor,
its
successors or assigns, or as a court of competent jurisdiction may otherwise
direct.
Section
7. General
Provisions.
(a) This
Agreement shall remain in full force and effect until all of the Indebtedness
shall have been satisfied in full.
(b) The
lien
and security interest created hereunder and the Debtor’s obligations hereunder
and Secured Party’s rights hereunder shall not be released, diminished, impaired
or adversely affected by the occurrence of any one or more of the following
events:
(i) the
taking or accepting of any other security or assurance for any or all of the
Indebtedness;
(ii) any
release, surrender, exchange, subordination or loss of any security or assurance
at any time existing in connection with any or all of the
Indebtedness;
(iii) the
modification of, amendment to, or waiver of compliance with any terms of the
Credit Agreement;
(iv) any
renewal, extension and/or rearrangement of the payment of any or all of the
Indebtedness or any statement, indulgence, forbearance or compromise that may
be
granted or given by Secured Party to the Debtor or any other
Person;
(v) any
neglect, delay, omission, failure or refusal of Secured Party to take or
prosecute any action in connection with any agreement, document or other
instrument evidencing, securing or assuring the payment of any or all of the
Indebtedness; or
(vi) the
illegality, invalidity or unenforceability of all or any part of the
Indebtedness.
(c) This
Agreement or any term hereof may be amended or changed only by an instrument
in
writing executed jointly by the Debtor and Secured Party.
(d) Each
right, power and remedy herein specifically granted to Secured Party or
otherwise available to it shall be cumulative, and shall be in addition to
every
other right, power and remedy herein specifically given or now or hereafter
existing at law, in equity, or otherwise (including, without limitation, all
rights, powers and remedies granted to a secured party under the UCC), and
each
such right, power and remedy, whether specifically granted herein or otherwise
existing, may be exercised at any time and from time to time as often and in
such order as may be deemed expedient by Secured Party in its sole and complete
discretion. The provisions of this Agreement may only be waived by an instrument
in writing signed by Secured Party, and no failure on the part of Secured Party
to exercise, and no delay in exercising, and no course of dealing with respect
to, any such right, power or remedy, shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other
right.
7
(e) The
manner and place of service of all notices, requests, demands or other
communications to be sent hereunder shall be sent as set forth in Section 8.3
of
the Credit Agreement.
(f) This
Agreement shall be binding upon the Debtor and its successors and assigns and
shall inure to the benefit of Secured Party and its successors and assigns.
The
Debtor may not, without the prior written consent of Secured Party, assign
any
of its rights, duties or obligations hereunder.
(g) This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Texas.
(h) The
descriptive headings of the several sections of this Agreement are inserted
for
convenience only and shall not control or affect the meaning or construction
of
any of the provisions hereof.
(i) Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity of enforceability or such provision
in any other jurisdiction.
(j) This
Agreement may be executed in any number of counterparts and by different parties
in separate counterparts, each of which when so executed and delivered shall
be
deemed to be an original, but all of which when taken together shall constitute
one and the same instrument.
(k) In
the
event of any conflict or inconsistency between the terms, covenants, conditions
and provisions set forth in this Agreement and the terms, covenants, conditions
and provisions set forth in the Credit Agreement, the terms, covenants,
conditions and provisions of the Credit Agreement shall prevail.
[signature
page follows]
8
IN
WITNESS WHEREOF, the Debtor and Secured Party have executed this Agreement
as of
the date first above written.
| “Debtor” | ||
| UNITED HERITAGE CORPORATION | ||
| |
|
|
| By: | /s/ C. ▇▇▇▇▇ ▇▇▇▇▇▇ | |
|
C. ▇▇▇▇▇ ▇▇▇▇▇▇, |
||
| Chief Executive Officer and President | ||
| UHC NEW MEXICO CORPORATION | ||
| |
|
|
| By: | /s/ C. ▇▇▇▇▇ ▇▇▇▇▇▇ | |
|
C. ▇▇▇▇▇ ▇▇▇▇▇▇, |
||
| Chief Executive Officer and President | ||
| “Secured Party” | ||
| STERLING BANK | ||
| |
|
|
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ | |
|
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, |
||
| Senior Vice President | ||
EXHIBIT
“A”
A-1