SUBORDINATION AGREEMENT
THIS
SUBORDINATION AGREEMENT (this “Agreement”)
is
executed by and among LOTHIAN OIL INC. (“Subordinated
Lender”)
and
UNITED HERITAGE CORPORATION and UHC NEW MEXICO CORPORATION (collectively,
“Borrower”)
and
Sterling Bank, a Texas state chartered bank (“Senior
Lender”),
dated
June 16, 2006, to be effective as of March 31, 2006.
RECITALS:
A. Borrower
executed a promissory note dated October 7, 2005, made payable to the order
of
Subordinated Lender in the original principal amount of $4,000,000.00 (the
“Subordinated
Note”).
The
Subordinated Note evidences a $4,000,000.00 extension of credit from
Subordinated Lender to Borrower pursuant to that certain Secured Credit
Agreement dated effective October 7, 2005 (the “Subordinated
Credit Agreement”).
B. Borrower,
Subordinated Lender, and certain other affiliates of Borrower and Senior Lender
entered into an Amended and Restated Credit Agreement dated the same date as
this Agreement (as amended, restated, or supplemented, the “Credit
Agreement”)
under
which Senior Lender has agreed to extend credit to Borrower and certain other
affiliates of Borrower in the form of a revolving credit facility.
C. As
an
inducement and a condition to Senior Lender extending credit to Borrower, Senior
Lender has required that Subordinated Lender agrees to the terms and conditions
of and execute and deliver, this Agreement.
AGREEMENTS:
In
consideration of the mutual covenants and promises of this Agreement, and for
other consideration, the receipt and adequacy of which are hereby acknowledged,
Borrower, Subordinated Lender and Senior Lender agree as follows:
1. Definitions.
Unless
otherwise defined in this Agreement or unless the context requires otherwise,
each capitalized term used in this Agreement has the meaning given such term
in
the Credit Agreement. As used in this Agreement:
Debt
means
(without duplication), for any Person, (a) all obligations required by GAAP
to be classified upon such Person’s balance sheet as liabilities,
(b) liabilities to the extent secured (or for which and to the extent the
holder of the Debt has an existing right, contingent or otherwise, to be so
secured) by any Lien existing on property owned or acquired by that Person,
(c) capital leases and other obligations that have been (or under GAAP
should be) capitalized for financial reporting purposes, and (d) all
guaranties, endorsements, letters of credit, and other contingent liabilities
with respect to Debt or obligations of others. For purposes hereof, the Debt
of
any Person shall include the Debt of any partnership or joint venture (other
than a joint venture that is itself a corporation or limited liability company)
in which such Person is a general partner or a joint venturer, unless such
Debt
is expressly made non-recourse to such Person.
Debtor
Relief Laws
means
Title 11 of the United States Code, as amended from time to time, and any and
all applicable laws regarding liquidation, conservatorship, bankruptcy,
assignment for the benefit of creditors, moratorium, rearrangement,
receivership, suspension of payments, insolvency, reorganization, or similar
laws affecting the rights of creditors generally, as in effect from time to
time
and as hereafter amended.
Event
of Default
means an
“Event of Default” under and as defined in the Credit Agreement.
GAAP
means
generally accepted accounting principles of the Accounting Principles Board
of
the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board that are applicable from time to time.
Governmental
Authority
means
nation or government, any state or other political subdivision thereof, any
agency, authority, instrumentality, regulatory body, court, administrative
tribunal, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of, or
pertaining to, government.
Person
means
any individual, partnership, limited partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, syndicate, Governmental Authority or other entity or organization
of whatever nature.
Senior
Debt
means
the “Obligations” under and as defined in the Credit Agreement.
Senior
Loan Documents
means
the Credit Agreement, the Senior Security Documents, the promissory note
evidencing the Senior Debt, and all related agreements, documents and
instruments.
Senior
Security Documents
is
defined in Section
2.
Subordinated
Debt
means
the principal of and interest on the Subordinated Note and all other Debt of
Borrower to Subordinated Lender, whether direct, indirect, fixed, contingent,
liquidated, unliquidated, joint, several, or joint and several, now or hereafter
existing, due or to become due whether evidenced in writing or not, together
with all costs, expenses, and attorneys’ fees incurred in the enforcement or
collection thereof, and including, without limitation, interest thereon after
the commencement of any proceedings under any Debtor Relief Laws.
Subordinated
Loan Documents
means
the Subordinated Credit Agreement, the Subordinated Note and the Subordinated
Security Documents.
Subordinated
Note
means
that certain promissory described in the first recital above.
Subordinated
Security Documents
is
defined in Section
2.
2
2. Subordination.
Until
the Senior Debt is paid in full and the Credit Agreement has been irrevocably
terminated, (a) any payment or distribution in respect of the Subordinated
Debt
is and shall be expressly junior and subordinated in right of payment to all
amounts due and owing upon all Senior Debt outstanding from time to time, (b)
except as expressly provided in Section
3
hereof,
Subordinated Lender may not receive or accept any payment in any form with
respect to the Subordinated Debt and (c) any liens or security interests now
or
hereafter securing payment of any and all Subordinated Debt, including, without
limitation, in connection with those certain security instruments securing
the
Subordinated Debt described on Exhibit B attached hereto (collectively the
“Subordinated
Security Documents”),
are
expressly subordinated to the liens and security interests now or hereafter
securing the Senior Debt, including, without limitation, in connection with
that
certain Deed of Trust and other security instruments securing the Senior Debt
described on Exhibit A attached hereto (collectively the “Senior
Security Documents”),
which
Senior Security Documents cover all assets now owned and hereafter-acquired
of
Borrower; in each case, including all other notes and security instruments
executed in connection therewith, and each amendment, extension, refinancing,
restatement or other modification thereof. The Subordinated Lender hereby agrees
that they will not obtain additional liens or security interests on assets
of
any Borrower to secure the Subordinated Debt other than pursuant to the
Subordinated Security Documents described on Exhibit B attached hereto. The
scheduled maturity date under the Subordinated Note may not be sooner than
three
(3) months after the maturity date of the Senior Debt.
3. Payment
on Subordinated Debt.
(a) If,
but
only if, the Interest Payment Conditions (as hereinafter defined in this
Section
3)
are
satisfied, Borrower may pay Subordinated Lender accrued interest payments (but
not payments of principal) on the Subordinated Note pursuant to the terms
thereof (the “Permitted
Interest Payments”).
The
term, “Interest
Payment Conditions,”
as
used herein, means that: (i) no Default or Event of Default (as such terms
are
defined in the Credit Agreement) has occurred and is continuing, and (ii) no
Default or Event of Default would result from the making of any such Permitted
Interest Payment. If the Interest Payment Conditions are not satisfied with
respect to any calendar month, such that the Permitted Interest Payments
attributable to such calendar month may not be made pursuant to this Agreement,
then such Permitted Interest Payments shall continue to be an obligation of
Borrower to Subordinated Lender subject to the terms of this Agreement. If
the
Interest Payment Conditions are not satisfied with respect to any calendar
month, resulting in the Permitted Interest Payments for that month not being
made, then at the end of any subsequent calendar month, if the Interest Payment
Conditions are satisfied based on a cumulative calculation that includes all
unpaid Permitted Interest Payments, then the sum of the unpaid Permitted
Interest Payments for all such previous calendar months may be paid. Principal
payments may not be made until the Senior Debt is paid in full and the Senior
Credit Agreement has been irrevocably terminated.
(b) If
Subordinated Lender receives any payment or distribution in respect of the
Subordinated Debt, or any part thereof, in violation of this Agreement,
Subordinated Lender shall hold any amount so received in trust for Senior Lender
and will promptly turn over such payment to Senior Lender, in the form received
(with any necessary endorsements), to be applied to the Senior
Debt.
3
4. Proceedings
Against Borrower or any Guarantor.
Until
the Senior Debt is paid in full and the Credit Agreement irrevocably terminated,
Subordinated Lender may not, without the consent of the Senior Lender (which
consent will not reasonable withheld),
(a) exercise
any remedies, or commence any action or proceeding (or join with any other
creditor in commencing any action or proceeding, including an action or
proceeding under any Debtor Relief Law) to recover all or any part of the
Subordinated Debt from Borrower or from any guarantor of the Subordinated Debt
or any Subsidiary of Borrower or
(b) exercise
any remedies, or
commence
any action or proceeding against Borrower
or any
assets of Borrower
to
foreclose, levy or realize against any assets of Borrower,
including, without limitation, pursuant to the Subordinated Security Documents,
or otherwise take any action or pursue any remedies which are available to
the
Senior Lender under Senior Security Documents.
5. Waiver
and Subrogation.
Subordinated Lender hereby waives and agrees not to assert against Senior Lender
any rights which a guarantor or surety of Debt of any Borrower could assert.
Notwithstanding the immediately preceding sentence, nothing in this Agreement
shall cause Subordinated Lender to be deemed or treated as a guarantor or
surety. Subordinated Lender shall be subrogated, to the extent of any amounts
required to be paid over to Senior Lender pursuant to the terms of this
Agreement, to all rights of Senior Lender to receive any payments or
distributions applicable to the Senior Debt; provided,
however,
that
Subordinated Lender may not enforce such rights until all of the Senior Debt
has
been paid in full and the Credit Agreement has been irrevocably
terminated.
6. Debtor
Relief Laws.
In the
event of any proceedings under any Debtor Relief Laws involving Borrower (other
than in the capacity of a creditor), Subordinated Lender may, to the extent
applicable, and at Senior Lender’s request shall, file any claims, proofs of
claim, or other instruments of similar character necessary to (a) have its
claim
allowed, or (b) enforce the obligation of Borrower, in each case with respect
to
the Subordinated Debt. If Subordinated Lender does not file such claim, proof
of
claim or other instrument of similar character within 20 days prior to the
bar
date or other deadline for filing such claim, proof of claim, or instrument,
Senior Lender may, as attorney-in-fact for Subordinated Lender, with full power
of substitution, and Subordinated Lender hereby appoints Senior Lender
attorney-in-fact for Subordinated Lender, file any such claim, proof of claim,
or other instrument of similar character on behalf of Subordinated Lender.
7. Acceleration.
Without
limiting in any manner the subordination as set forth in Section
2,
if any
Senior Debt becomes due and payable by acceleration or upon its final maturity,
no payment or distribution shall thereafter be made on account of the
Subordinated Debt until all Senior Debt has been paid in full and the Credit
Agreement has been irrevocably terminated.
8. No
Impairment.
Senior
Lender may, at any time and from time to time, without the consent of or notice
to Subordinated Lender, without incurring responsibility to Subordinated Lender,
and without impairing or releasing any of Senior Lender’s rights, or any of the
obligations of Subordinated Lender under this Agreement:
4
(a) change
the amount, manner, place, or terms of payment, or change or extend the time
of
payment of or renew or alter all or any part of the Senior Debt or amend,
modify, supplement, or restate, any of the Loan Documents in any manner
whatsoever;
(b) sell,
exchange, release, or otherwise deal with all or any part of any property
pledged or mortgaged to secure all or any part of the Senior Debt;
(c) release
anyone liable in any manner for the payment or collection of all or any part
of
the Senior Debt;
(d) exercise
or refrain from exercising any rights against the Borrower, any of it
Subsidiaries and others; and
(e) apply
any
sums, by whomsoever paid or however realized, to the Senior Debt.
Subordinated
Lender agrees that if Senior Lender agrees to any sale, exchange, release,
or
transfer of all or any part of any property pledged or mortgaged to secure
all
or any part of the Senior Debt, such sale, exchange, release, or transfer shall
be made free of any liens or security interests securing the Subordinated Debt.
Subordinated Lender further agrees to execute any and all documents or
instruments requested by Borrower or Senior Lender to evidence the release
of
any such liens and security interests of Subordinated Lender.
9. Evidence
of Subordination.
The
Subordinated Lender will:
(a) cause
all
Subordinated Debt to be evidenced by a note, debenture or other instrument
evidencing the Subordinated Debt;
(b) cause
any
such note, debenture, or instrument evidencing the Subordinated Debt to include
a conspicuous written statement or legend to the effect that such note,
debenture, or other instrument is subordinated to the Senior Debt in favor
of
Senior Lender in the manner and to the extent set forth in this
Agreement;
(c) any
and
all security instruments securing the Subordinated Debt to include a conspicuous
written statement or legend to the effect that such security instrument is
subordinated to the Senior Security Documents in favor of Senior Lender in
the
manner and to the extent set forth in this Agreement; and
(d) xxxx
the
books of Subordinated Lender to show that the Subordinated Debt is subordinated
to the Senior Debt in the manner and to the extent set forth in this Agreement.
The Subordinated Lender and Borrower may not amend, extend, refinance or
otherwise modify the Subordinated Note without Senior Lender’s prior written
consent and will execute any and all other instruments necessary as required
by
the Senior Lender to subordinate the Subordinated Debt to the Senior Debt as
herein provided.
10. Other
Agreement.
Notwithstanding anything to the contrary set forth in this Agreement, the
Subordinated Security Instruments or in the Senior Loan Documents, the junior
liens and security interests evidenced by the Subordinated Security Documents
are hereby approved by Senior Lender as a “Permitted Lien” under the Credit
Agreement.
5
11. Attorneys’
Fees.
If
either Subordinated Lender or Senior Lender employs an attorney or attorneys
to
enforce or defend its rights under this Agreement, such Lender shall be entitled
to recover from Borrower its court costs, reasonable attorneys’ fees, and other
costs of enforcement.
12. Acceptance
Waiver.
Notice
of acceptance of this Agreement is hereby waived.
13. Amendment.
Neither
the Subordinated Note, Subordinated Credit Agreement nor the Subordinated
Security Documents may be amended, extended, renewed, or replaced without the
prior written consent of the Senior Lender.
14. Counterparts.
This
Agreement may be executed in any number of counterparts with the same effect
as
if all signatories had signed the same document. All counterparts must be
construed together to constitute one and the same instrument. This Agreement
may
be transmitted and signed by facsimile and shall have the same effect as
manually-signed originals and shall be binding on all parties. In making proof
of this Agreement, it shall not be necessary to produce or account for more
than
one such counterpart.
15. Binding
Effect.
This
Agreement is binding upon Senior Lender and Subordinated Lender and their
respective successors and assigns.
16. Assignment.
Until
all the Senior Debt is paid in full and the Credit Agreement irrevocably
terminated, Subordinated Lender covenants and agrees that it will not sell,
assign, or otherwise transfer its security interests under the Subordinated
Security Documents executed in favor of Subordinated Lender nor sell, assign
or
otherwise transfer or further encumber the Subordinated Debt, any part thereof,
or any interest therein unless the assignee agrees to be bound by this
Agreement. Senior Lender’s rights under this Agreement may be assigned in whole
or in part in connection with any partial or complete assignment or transfer
of
the Senior Debt.
17. Choice
of Law.
THIS
AGREEMENT MUST BE CONSTRUED, AND ITS PERFORMANCE ENFORCED, UNDER TEXAS
LAW.
[Signatures
appear on the following page.]
6
EXECUTED
as of the date set out in the Preamble.
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STERLING
BANK,
a
Texas state chartered bank
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| By: | /s/ Xxxxxx X. Xxxxxx | |
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Xxxxxx X. Xxxxxx |
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|
Senior
Vice President
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LOTHIAN
OIL INC.
|
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By:
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/s/
C.
Xxxxx Xxxxxx
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C.
Xxxxx Xxxxxx
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|
|
Chief Financial Officer | |
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UNITED
HERITAGE CORPORATION
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By:
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/s/
C. Xxxxx Xxxxxx
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C.
Xxxxx Xxxxxx
|
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|
Chief
Executive Officer and
President
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UHC
NEW MEXICO CORPORATION
|
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By:
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/s/
C.
Xxxxx Xxxxxx
|
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|
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C.
Xxxxx Xxxxxx
|
|
|
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Chief
Executive Officer and
President
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EXHIBIT
A
Amended
and Restated Credit Agreement dated June 16, 2006, effective as of March 31,
2006
Revolving
Note in the amount of $20,000,000 dated June 16, 2006, effective as of March
31,
2006
Security
Agreement, Pledge and Financing Statement dated June 16, 2006, effective as
of
March 31, 2006
Amendment
to and Ratification of Security Agreement, Pledge and Financing Statement dated
June 16, 2006, effective as of March 31, 2006
Deed
of
Trust, Mortgage, Assignment of Production, Security Agreement and Financing
Statement dated June 16, 2006, effective as of March 31, 2006
Ratification
of and Amendment to Deed of Trust, Mortgage, Assignment of Production, Security
Agreement and Financing Statement dated June 16, 2006, effective as of March
31,
2006
Stock
Pledge Agreement from United Heritage Corporation dated June 16, 2006, effective
as of March 31, 2006
Stock
Pledge Agreement from Lothian Oil (USA) Inc. dated June 16, 2006, effective
as
of March 31, 2006
Amendment
and Ratification to Stock Pledge Agreement from Lothian Oil Inc. dated June
16,
2006, effective as of March 31, 2006
Exhibit
A
EXHIBIT
B
Secured
Credit Agreement dated October 7, 2005
Term
Note
in the face amount of $4,000,000 dated October 7, 2005
Deed
of
Trust, Mortgage, Assignment of Production, Security Agreement and Financing
Statement dated October 7, 2005
Exhibit
B
