Exhibit 10.18
SECURITY AGREEMENT
1. Date: July 14, 2004
2. Borrower: Maverick Basin Exploration, LLC
3. Borrower's Mailing Address (including county):
000 Xxxxxxxxxxxx Xxxx, Xxxxx 000
Xxxx Xxxxxx XX 00000
4. Secured Party's Mailing Address (including county):
Trident Growth Fund, LP
000 Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
5. Classification of Collateral: Accounts, cash, inventory, contract
rights, property, equipment, general intangibles, instruments, deposit
accounts, chattel paper, leases, mineral rights, securities and all
other assets.
6. Collateral (including all accessions): Accounts, cash, inventory,
contract rights, property, equipment, general intangibles,
instruments, deposit accounts, chattel paper, leases, mineral rights,
securities and all other assets.
a) All attachments, accessions accessories, tools, parts supplies,
increases, and additions to and all replacements of and
substitutions for any property described above.
b) All products and produce of any of the property described in this
Collateral section.
c) All accounts, contracts rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a
sale, lease, or other disposition of any of the property
described in this Collateral section.
d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other deposition of any of the property
described in this Collateral section.
7. Obligation: Secured Promissory Notes ("Notes"), and all other
indebtedness, liabilities and obligations of the Borrower to the
Secured Party now owing or hereinafter incurred.
a) Date: July 14, 2004
b) Amount: $2,050,000
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SECURITY AGREEMENT - Page 1
c) Maker: The Borrower
d) Payee: The Secured Party
e) Final Maturity Date: As therein provided
f) Terms of Payment (optional): As therein provided
Borrower grants to Secured Party a security interest in the Collateral
and all its proceeds to secure payment and performance of Borrower's
Obligation and all renewals and extensions of any of the Obligation.
8. Borrower's Warranties:
a) Ownership. Borrower owns the Collateral and has the authority to
grant this security interest.
b) Financial Statements. All information about Borrower's financial
condition provided to Secured Party was accurate when submitted,
as will be any information subsequently provided.
9. Borrower's Covenants:
a) Protection of Collateral. Borrower will defend the Collateral
against all claims and demands adverse to Secured Party's
interest in it and will keep it free from all liens except those
for taxes not yet due and from all security interests except this
one and Permitted Liens which are only liens granted to secure
senior indebtedness consented to by Secured Party. The Collateral
will remain in Borrower's possession or control at all times,
except as otherwise provided in this agreement. Borrower will
maintain the Collateral in good condition and protect it against
misuse, abuse, waste and deterioration except for ordinary wear
and tear resulting from its intended use.
b) Insurance. Borrower, in the ordinary course of business, will
insure the Collateral in accord with Secured Party's reasonable
requirements.
c) Secured Party's Costs. Borrower will pay all expenses incurred by
Secured Party in obtaining, preserving, perfecting, defending and
enforcing this security interest or the Collateral and in
collecting or enforcing the Obligation. Expenses for which
Borrower is liable include, but are not limited to, taxes,
assessments, reasonable attorney's fees, and other legal
expenses. These expenses will bear interest from the dates of
payments at the highest rate stated in notes that are part of the
Obligation, and Borrower will pay Secured Party this interest on
demand at a time and place reasonably specified by Secured Party.
These expenses and interest will be part of the Obligation and
will be recovered as such in all respects.
d) Additional Documents. Borrower will sign any papers that Secured
Party considers necessary to obtain, maintain, and perfect this
security interest or to comply with any relevant law.
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SECURITY AGREEMENT - Page 2
e) Notice of Changes. Borrower will immediately notify Secured Party
of any material change in the Collateral other than in the
ordinary course of business; change in Borrower's name, address,
or location; change in any matter warranted or represented in
this agreement; change that may affect this security interest;
and any Event of Default.
f) Use and Removal of Collateral. Borrower will use the Collateral
primarily according to the stated classification unless Secured
Party consents otherwise in writing. Borrower will not allow the
Collateral to become an accession to any goods, to be commingled
with other goods, or to become a fixture, accession, or part of a
product or mass with other goods except as expressly provided in
this agreement or in the ordinary course of business.
g) Sale. Borrower will not sell, transfer, or encumber any of the
Collateral without the prior written consent of Secured Party
other than in the ordinary course of business except the Borrower
may sell, transfer or encumber Collateral secured by Permitted
Liens.
h) Borrower agrees not to commingle the Rights to Payment, proceeds
or collections thereunder with other property.
i) Borrower agrees, with regard to the Collateral and proceeds, from
time to time when reasonably requested by Secured Party, to
prepare and deliver a schedule of all Collateral and proceeds
subject to this agreement and to assign in writing and deliver to
secured party all accounts, contracts, leases and other chattel
paper, instruments, documents and other evidences thereof.
j) Borrower agrees with regard to the Collateral and proceeds in the
event Secured Party elects to receive payments of rights to
payment or proceeds hereunder, to pay all reasonable expenses
incurred by secured party in connection therewith, including
reasonable expenses of accounting, correspondence, collection
efforts, reporting to account or contract Borrowers, filing,
recording, record keeping and expenses incidental thereto.
10. Rights and Remedies of Secured Party:
a) Generally. Secured Party may exercise the following rights and
remedies after the occurrence and continuance of an Event of
Default:
i. take control of any proceeds of the Collateral;
ii. release any Collateral in Secured Party's possession to
any Borrower, temporarily or otherwise;
iii. take control of any funds generated by the Collateral,
such as refunds from and proceeds of insurance, and
reduce any part of the Obligation accordingly or permit
Borrower to use such funds to repair or replace damaged
or destroyed Collateral covered by insurance; and
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SECURITY AGREEMENT - Page 3
iv. demand, collect, convert, redeem, settle, compromise,
receipt for, realize on, adjust, xxx for, and foreclose
on the Collateral as Secured Party desires.
v. exercise any of the other remedies available to the
Secured Party under the Loan Agreement.
b) Insurance. If Borrower fails to maintain insurance as required by
this agreement or otherwise by Secured Party, then after written
notice to Borrower, Secured Party may purchase single-interest
insurance coverage up to the replacement value of the Collateral
that is insurable that will protect only Secured Party. If
Secured Party purchases this insurance, its premiums will become
part of the Obligation.
11. Events of Default: Each of the following conditions is an Event of
Default if not cured within an applicable cure period:
a) if Borrower defaults in timely payment or performance of any
obligation, covenant, or liability in any written agreement
between Borrower and Secured Party or in any other transaction
secured by this agreement;
b) if any warranty, covenant or representation made to Secured Party
by or on behalf of Borrower proves to have been false in any
material respect when made;
c) if a receiver is appointed for Borrower or any of the Collateral;
d) if any financing statement regarding the Collateral but not
related to this security interest and not favoring Secured Party
is filed other than financing statements for the purpose of
noticing Permitted Liens;
e) if any lien, other than Permitted Liens, attaches to any of the
Collateral;
f) if any material amount of the Collateral is lost, stolen,
damaged, or destroyed, unless it is promptly replaced with
Collateral of like quality or restored to its former condition.
g) Secured party, in good faith, believes that any or all of the
Collateral and/or proceeds to be in danger of misuse,
dissipation, commingling, loss, theft, damage or destruction, or
otherwise in jeopardy or unsatisfactory in character or value.
h) A Default shall occur and be continuing under the Notes.
12. Remedies of Secured Party on Default:
During the existence of any Event of Default and subject to any
applicable cure periods, Secured Party may declare the unpaid
principal and earned interest of the Obligation immediately due in
whole or part, enforce the Obligation, and exercise any rights and
remedies granted by the Uniform Commercial Code or by this agreement,
including the following:
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SECURITY AGREEMENT - Page 4
a) require Borrower to deliver to Secured Party all books and
records relating to the Collateral;
b) require Borrower to assemble the Collateral and make it available
to Secured Party at a place reasonably convenient to both
parties;
c) take possession of any of the Collateral and for this purpose
enter any premises where it is located if this can be done
without breach of the peace;
d) sell, lease, or otherwise dispose of any of the Collateral in
accord with the rights, remedies, and duties of a secured party
under chapters 2 and 9 of the Texas Uniform Commercial Code after
notice as required by those chapters; unless the Collateral
threatens to decline speedily in value, is perishable, or would
typically be sold on a recognized market, Secured Party will give
Borrower reasonable notice of any public sale of the Collateral
or of a time after which it may be otherwise disposed of without
further notice to Borrower; in this event, notice will be deemed
reasonable if it is mailed, postage prepaid, to Borrower at the
address specified in this agreement at least ten days before any
public sale or ten days before the time when the Collateral may
be otherwise disposed of without further notice to Borrower; in
this event, notice will be deemed reasonable if it is mailed,
postage prepaid, to Borrower at the address specified in this
agreement at least ten days before any private sale or ten days
before any public sale or ten days before time when the
Collateral may be otherwise disposed of without further notice to
Borrower;
e) surrender any insurance policies covering the Collateral and
receive the unearned premium;
f) apply any proceeds from disposition of the Collateral after
default in the manner specified in chapter 9 of the Uniform
Commercial Code, including payment of Secured Party's reasonable
attorney's fees and court expenses; and
g) if disposition of the Collateral leaves the Obligation
unsatisfied, collect the deficiency from Borrower.
13. General Provisions
a) Parties Bound. Secured Party's rights under this agreement shall
inure to the benefit of its successors and assigns. Assignment of
any part of the Obligation and delivery by Secured Party of any
part of the Collateral will fully discharge Secured Party from
responsibility for that part of the Collateral. If Borrower is
more than one, all their representations, warranties, and
agreements are joint and several. Borrower's obligations under
this agreement shall bind Borrower's personal representatives,
successors, and assigns.
b) Waiver. Neither delay in exercise nor partial exercise of any
Secured Party's remedies or rights shall waive further exercise
of those remedies or rights. Secured Party's failure to exercise
remedies or rights does not waive subsequent exercise of those
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SECURITY AGREEMENT - Page 5
remedies or rights. Secured Party's waiver of any default does
not waive further default. Secured Party's waiver of any right in
this agreement or of any default is binding only if it is in
writing. Secured Party may remedy any default without waiving it.
c) Reimbursement. If Borrower fails to perform any of Borrower's
obligations, Secured Party may perform those obligations and be
reimbursed by Borrower on demand at the place where the note is
payable for any sums so paid, including attorney's fees and other
legal expenses, plus interest on those sums from the dates of
payment at the rate stated in the note for matured, unpaid
amounts. The sum to be reimbursed shall be secured by this
security agreement.
d) Interest Rate. Interest included in the Obligation shall not
exceed the maximum amount of non-usurious interest that may be
contracted for, taken, reserved, charged, or received under law;
any interest in excess of that maximum amount shall be credited
to the principal of the obligation or, if that has been paid,
refunded. On any acceleration or required or permitted prepayment
of the Obligation, any such excess shall be canceled
automatically as of the acceleration or prepayment or, if already
paid, credited on the principal amount of the Obligation or, if
the principal amount has been paid, refunded. This provision
overrides other provisions in this and all other instruments
concerning the Obligation.
e) Modifications. No provisions of this agreement shall be modified
or limited except by written agreement.
f) Severability. The unenforceability of any provision of this
agreement will not effect the enforceability or validity of any
other provision.
g) After-Acquired Consumer Goods. This security interest shall
attach to after-acquired consumer goods only to the extent
permitted by law.
h) Applicable Law. This agreement will be construed according to
Texas laws.
i) Place of Performance. This agreement is to be performed in the
county of Secured Party's mailing address. In this case, the
agreement will be performed in Dallas county, Texas.
j) Financing Statement. A carbon, photographic, or other
reproduction of this agreement or any financing statement
covering the Collateral is sufficient as a financing statement.
k) Presumption of Truth and Validity. If the Collateral is sold
after default, recitals in the xxxx of sale or transfer will be
prima facie evidence of their truth, and all prerequisites to the
sale specified by this agreement and by the Texas Uniform
Commercial Code will be presumed satisfied.
l) Singular and Plural. When the context requires, singular nouns
and pronouns include the plural.
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SECURITY AGREEMENT - Page 6
m) Cumulative Remedies. Foreclosure of this security interest by
suit does not limit Secured Party's remedies, including the right
to sell the Collateral under the terms of this agreement. All
remedies of Secured Party may be exercised at the same or
different times, and no remedy shall be a defense to any other.
Secured Party's rights and remedies include all those granted by
law or otherwise, in addition to those specified in this
agreement.
n) Agency. Borrower's appointment of Secured Party as Borrower's
agent is coupled with an interest and will survive any disability
of Borrower.
Secured Party:
/s/ Xxxxxx Xxxx
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Trident Growth Fund, LP
By: Trident Management, LLC, its General Partner
By: Xxxxxx Xxxx, Authorized Member
Borrower:
Maverick Basin Exploration, LLC
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South Oil, Inc.
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SECURITY AGREEMENT - Page 7
