SECURITY AND PLEDGE AGREEMENT
THIS AGREEMENT, dated December 16, 2011, is made by SOUTH UINTAH GAS
PROPERTIES, INC., a Colorado corporation ("Pledgor"), HINTO ENERGY, INC. a
Wyoming corporation ("Maker") to MICROALLOYED STEEL INSTITUTE, INC., a Texas
corporation ("Lender").
PRELIMINARY STATEMENTS:
Maker and Lendor have entered into a Secured Commercial Promissory Note
dated as of even date herewith in the amount of Five Hundred Thousand Dollars
($500,000.00) (said Agreement, as it may hereafter be amended or otherwise
modified from time to time, being the "Loan," "Loan Agreement," or "Note" as
used interchangeably herein) attached hereto as Exhibit A. It is a condition
precedent to the making of the Loan by that Pledgor shall have made the pledge
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lender to make the Loan to Maker, Pledgor hereby agrees as follows:
SECTION 1. Pledge. Pledgor hereby pledges, transfers and assigns to Lender
and assigns and grants
to Lender a security interest in, the following (the "Pledged Collateral"):
All of the leases, farmouts, and assignments of leases and assets
of property known as the Natural Buttes Property (the "Natural
Buttes Property") and any proceeds thereof, as further described
in attached Exhibit B made a part hereof by this reference.
SECTION 2. Security for Obligations. This Agreement secures the payment of
all obligations present or future, direct or indirect, absolute or contingent,
matured or not, of Maker to Lender under the Note evidencing the loan made
thereunder, whether for principal, interest, fees, expenses or otherwise, and
all obligations present or future, direct or indirect, absolute or contingent,
matured or not of Maker to Lender under this Agreement or the Loan Agreement and
Promissory Note (all such obligations of Maker being the "Obligations").
SECTION 3. Delivery of Pledged Collateral.
(a) All certificates, titles, invoices, purchase orders, or instruments
representing or evidencing any Pledged Collateral (as necessary hereafter) shall
be delivered to and held by or on behalf of Lender pursuant hereto and shall be
in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer, pledge, or assignment, all in form and
substance satisfactory to Lender. Lender shall have the right, at any time in
its discretion and without notice to Pledgor, to transfer to or to register in
the name of Lender or any of its nominees any or all of the instruments
necessary to adequately pledge and secure the Pledged Collateral.
(b) Pledgor shall upon the request of Lender deliver, or cause to be
delivered to Lender any or all of the Pledged Collateral not referred to in
Section 3(a) if Lender determines in its sole discretion that such delivery will
enhance, protect, maintain, create or otherwise aid Lender in the perfection or
maintenance of the security interests created hereby.
SECTION 4. Perfecting Security Interest.
(a) Pledgor shall cause a UCC-1 to be filed with the Secretary of State
of Colorado and Secretary of State of Utah evidencing the pledge of Pledgor's
assets as described in Section 1 and Pledgor shall cause any other filings to be
made and assist Lender in giving any notice as may be required to perfect or
maintain Lender's security interest in Pledgor's assets.
SECTION 5. Representations and Warranties. Pledgor represents and warrants
as follows:
(a) Pledgor is the full and legal owners of the Pledged Collateral, and
no other person has or will have any superior right, title, interest or claim in
or to the Pledged Collateral or to the proceeds thereof, or any part thereof.
(b) Pledgor is, and as to any Pledged Collateral acquired after the
date hereof, will be, the legal and beneficial owner of the Pledged Collateral
free and clear of any lien, security interest, option or other charge or
encumbrance, except for the security interest created by this Agreement.
(c) The pledge of the Pledged Collateral pursuant to this Agreement
creates a valid and perfected first priority security interest in the Pledged
Collateral securing the payment of the Obligations.
(d) Maker and Pledgor are duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power, capacity and authority (i) to own, lease and operate
its assets, properties and business and to carry on its business as now being
conducted, and (ii) to execute, deliver and perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement, the Loan
Agreement and the Promissory Note and the consummation of the transactions
contemplated hereby and therein have been duly authorized by all necessary
corporate action by Maker and Pledgor.
(e) The execution, delivery and performance by Pledgor of this
Agreement do not and will not violate or conflict with or result in a breach of
or constitute (or with notice or lapse of time or both constitute) a default
under (a) the incorporating documents or by-laws, (b) any indenture, mortgage,
bond, license, permit or loan or credit agreement or any other agreement or
instrument to which Pledgor is a party or by which Pledgor or any of its
properties may be bound or affected or (c) any statute or law or judgment,
decree, order, writ, injunction, regulation or rule of any court or governmental
authority of any state or of the United States or any political subdivision of
the foregoing. The execution, performance and delivery by Pledgor of this
Agreement will not result in the creation of any lien with respect to the assets
of Pledgor except for the lien created hereby with respect to the Pledged
Collateral.
(f) This Agreement constitutes a legal, valid and binding obligation of
Pledgor enforceable against Pledgor in accordance with its terms except as
enforceability may be limited by (i) any applicable bankruptcy, insolvency,
reorganization, winding up, moratorium or other similar laws now or hereafter in
effect relating to the enforcement of creditors' rights and (ii) general
equitable principles including rules governing the granting of specific
performance and injunctive relief, which are within the discretion of the court
having jurisdiction.
(g) No authorization, consent, validation, approval, license,
qualification or formal exemption from, and no filing, declaration or
registration with, any court, governmental agency or regulatory authority or any
securities exchange or any other person, whether located in the United States or
elsewhere, is required (i) in connection with the authorization, execution,
delivery or performance by Maker and Pledgor of this Agreement, Promissory Note
and the transactions contemplated thereby, (ii) for the pledge by Pledgor of the
Pledged Collateral pursuant to this Agreement or for the execution, delivery or
performance by Maker and Pledgor of this Agreement and Promissory Note (ii) for
the pledge by Pledgor of the Collateral pursuant to this Agreement or for the
execution, delivery or performance of the Promissory Note by Maker or (iii) for
the exercise by Lender of any other rights provided for in this Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Agreement.
(h) Complete and correct copies of the incorporating documents and
by-laws of Maker and Pledgor as of the date hereof have been provided to the
Lender on or prior to the date hereof and are in full force and effect.
(i) Except as disclosed herein there is no action, suit, inquiry,
litigation, arbitration or administrative or legal proceeding presently pending
or, to the best knowledge of Maker or Pledgor, threatened against Maker of
Pledgor before any court or administrative agency of any country or subdivision
thereof.
(j) Neither Pledgor nor any portion of Pledgor's property is immune or
exempt from the exercise of jurisdiction, whether arising through service or
notice of judicial process, attachment or seizure prior to judgment, attachment
or seizure in aid of execution following judgment or otherwise, by the courts of
the States of Colorado or Utah or any other state, province, country, nation or
other territorial jurisdiction in which any portion of Pledgor's property is
located or business is conducted except to the extent, if any, that jurisdiction
may be limited by bankruptcy, insolvency, reorganization and other similar laws
now or hereinafter in effect relating to the enforcement of creditors' rights
generally.
(k) Pledgor (i) is not an "investment company" as that term is defined
in the Investment Company Act of 1940, as amended, (ii) does not directly or
indirectly control and is not controlled by a company which is an "investment
company" as that term is defined in such Act and (iii) is not otherwise subject
to regulation under such Act.
(l) The representations and warranties set forth herein hereof shall
survive the execution of this Agreement and shall continue as long as there
shall be any Indebtedness outstanding under this Agreement as if repeated and
given again to Lender on each day during the term hereof.
SECTION 6. Further Assurances. Pledgor agrees that at any time and from
time to time, at the expense of Pledgor, Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that Lender may request, in order to perfect
and protect any security interest granted or purported to be granted hereby or
to enable Lender to exercise and enforce its rights and remedies hereunder with
respect to any Pledged Collateral, including without limitation filing one or
more UCC-1s to protect Lender's security interest in Pledgor Rights and making
any filing statement or appearance before or with any insurance commission or
other regulatory authority. Pledgor authorizes Lender to file, in jurisdictions
where this authorization will be given effect, a financing statement signed only
by Lender covering the Pledged Collateral. Maker and Pledgor will join Lender at
its request in executing all financial statements in form satisfactory to Lender
and Maker or Pledgor will pay the cost of filing or recording any such financial
statement or of this Agreement if it is deemed by Lender to be necessary or
desirable.
SECTION 7. Transfers and Other Liens
Pledgor agree that it will not (i) sell or otherwise dispose of, or
grant any option with respect to, any of the Pledged collateral, except in the
ordinary course of production of gas into a pipeline, or (ii) create or permit
to exist any lien, security interest or other charge or encumbrance upon or with
respect to any of the Pledged Collateral, except for the security interest under
this Agreement.
SECTION 8. Lender Appointed Attorney-in-Fact. Pledgor hereby appoint
Lender as Pledgor's attorney-in-fact, with full authority in the place and stead
of Pledgor and in the name of Pledgor or otherwise, from time to time in
Lender's discretion to take any action and to execute any instrument which
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to receive, endorse and collect all
instrument made payable to Pledgor representing any dividend or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same.
SECTION 9. Lender May Perform. If Maker or Pledgor fail to perform any
agreement contained herein, Lender may itself perform, or cause performance of,
such agreement, and the expenses of Lender incurred in connection therewith
shall be payable by Maker or Pledgor under Section 11.
SECTION 10. Remedies upon Default. An Event of Default shall be any
breach or default under the Maker's Note secured hereby or this Agreement. If
any Event of Default shall have occurred and be continuing:
(a) Lender may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code (the "Code") in effect in the State of Colorado, except
as required by mandatory provisions of law and except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Pledged Collateral are governed by the
laws of a jurisdiction other than the State of Colorado at that time, and Lender
may also, without notice except as specified below, exercise any voting or other
consensual rights with respect to the Pledged Collateral, sell the Pledged
Collateral or any part thereof in one or more parcels at public or private sale,
at any exchange, broker's board or at any of Lender's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as Lender may
deem commercially reasonable. Pledgor agrees that, to the extent notice of sale
shall be required by law, at least ten days' notice to Pledgor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. Lender shall not be obligated to make
any sale of Pledged Collateral regardless of notice of sale having been given.
Lender may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefore, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(b) Any cash held by Lender as Pledged Collateral and all cash proceeds
received by Lender in respect of any sale of, collection from or other
realization upon all or any part of the Pledged Collateral may, in the
discretion of Lender, be held by Lender as collateral for, and then or at any
time thereafter applied in whole or in part by Lender against, all or any part
of the Maker's Obligations in such order as Lender shall elect. Any surplus of
such cash or cash proceeds and interest accrued thereon, if any, held by Lender
and remaining after payment in full of all the Obligations shall be paid over to
Pledgor or to whomsoever may be lawfully entitled to receive such surplus,
provided that Lender shall have no obligation to invest or otherwise pay
interest on any amounts held by it in connection with or pursuant to this
Agreement.
(c) All rights and remedies of Lender expressed herein are in addition
to all other rights and remedies possessed by Lender in the Loan Agreement, all
third party guaranties and any other agreement or instrument relating to the
Obligations.
SECTION 11. Expenses. Maker and/or Pledgor will upon demand pay to
Lender the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, which Lender may
incur in connection with (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of Lender hereunder of (iv) the failure by
Pledgor to perform or observe any of the provisions hereof.
SECTION 12. Security Interest Absolute. All rights of Lender and security
interests hereunder, and all obligations of Pledgor hereunder, shall be absolute
and unconditional irrespective of:
(i) any lack of validity or enforceability of the
Promissory Note, or any other agreement or instrument relating thereto;
(ii) any change in the time, manner, place or terms of payment
of, or in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the Promissory Note;
(iii) any sale, exchange, release, surrender or nonperfection
of any other collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Maker's Obligations or any
setoff against all or any of the Maker's Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Maker or a third-party Pledgor.
SECTION 13. Amendments, etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by Pledgor herefrom, shall in any
event be effective unless the same shall be in writing and signed by Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
SECTION 14. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telegraphic communication,
which includes facsimile), mailed or telegraphed or delivered to it, addressed
to it at such party's address specified in the Loan Agreement; or as to either
party at such other address as shall be designated by such party in a written
notice to each other party complying as to delivery with the terms of this
Section. All such notices and other communications shall, when mailed or
telegraphed, respectively, be effective when deposited in the mails or delivered
to the telegraph company, respectively, addressed as aforesaid.
SECTION 15. Continuing Security Interest; Transfer of Note. This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (i) remain in full force and effect until payment in full of the
Obligations, (ii) be binding upon Pledgor, its successors and assigns and (iii)
inure to the benefit of Lender and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause (iii), Lender may assign
or otherwise transfer the Loan Agreement to any other person or entity, and such
other person or entity shall thereupon become vested with all the benefits in
respect thereof granted to Lender herein or otherwise. Upon the payment in full
of the Obligations, Pledgor shall be entitled to the return, upon its request
and at its expense, of such of the Pledged Collateral as shall not have been
sold or otherwise applied pursuant to the terms hereof.
SECTION 16. Governing Law; Terms. This Agreement shall be governed by
and construed in accordance with the laws of the State of Colorado, except as
required by mandatory provisions of law and except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Pledged Collateral are governed by the
laws of a jurisdiction other than the State of Colorado. Unless otherwise
defined herein or in the Note, terms defined in the Uniform Commercial Code in
the State of Colorado are used herein as therein defined. Jurisdiction in any
action involving this Agreement shall be in the State of Colorado.
IN WITNESS WHEREOF, Maker and Pledgor have caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
South Uintah Gas Properties, Inc. - Pledgor
A Colorado Corporation
By:/s/Xxxxxx Xxxxxx
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Xxxxxx Xxxxxx, Chief Financial Officer
HINTO ENERGY, INC., - Maker
a Wyoming Corporation
By:/s/Xxxxxx Xxxxxx
----------------
Xxxxxx Xxxxxx, Chief Financial Officer
