EXHIBIT "B"
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT, dated as of July 30, 2004, is between U.S.
Energy Corp. (the "Borrower"), and Rocky Mountain Gas, Inc., ("RMG"), both
Wyoming corporations, and Geddes and Company, (the "Lender") an Arizona
corporation, and is executed pursuant to the Credit Agreement dated of even
date herewith (as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement"), among Borrower and Lender.
RECITALS
WHEREAS, the Borrower and RMG have requested that the Lender provide a loan
of up to $3,000,000 to the Borrower (the "Loan"); and
WHEREAS, the Lender has agreed to make such Loan subject to the terms of
the Credit Agreement; and
WHEREAS, the Borrower and RMG, will receive direct and indirect benefits
from the Loan under the Credit Agreement; and
WHEREAS, it is a condition precedent to the obligations of the Lender to
make the Loan under the Credit Agreement that the Borrower and RMG execute and
deliver this Agreement;
NOW, THEREFORE, in consideration of the promises herein and to induce the
Lenders to enter into the Credit Agreement and to make the Loan thereunder, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; TERMS GENERALLY
Section 1.01 Definitions. As used herein:
(a) terms defined above have the meanings given such terms above;
(b) unless otherwise defined herein, terms defined in the Credit Agreement
and used herein have the meanings given to them in the Credit
Agreement;
(c) unless otherwise defined herein, terms defined in the Uniform
Commercial Code (as defined herein) and used herein have the same
meanings herein as specified therein; provided, however, that if a
term is defined in Article 9 of the Uniform Commercial Code
differently than in another Article of the Uniform Commercial Code,
then such term has the meaning specified in Article 9; and
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(d) the following terms have the following meanings:
"Agreement" means this Pledge and Security Agreement, as the same may
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be amended, supplemented or otherwise modified from time to time.
"Collateral" has the meaning given such term in Section 2.01.
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"Obligations" means the collective reference to the payment and
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performance when
due of all indebtedness, liabilities, obligations and undertakings of
the Borrower (including, without limitation, all Indebtedness) of
every kind or description arising out of or outstanding under,
advanced or issued pursuant to, or evidenced by, the Loan Documents.
"Pledged Property" means:
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1. That certain promissory note dated August 14, 2003, issued by The
Cactus Group, LLC to Plateau Resources Limited (and subsequently
assigned to the Borrower) (the "Ticaboo Note") and the related
mortgage securing such note, copies of which are attached hereto
as Exhibit B-1; and
2. A 1981 Citation II jet, 550 S/N #550-0264, FAA # N777WY, and
3. RMG's working mineral interests in all Castle Rock CBM leases,
consisting of all Acquired Assets (as such term is defined in
that certain Agreement for Purchase and Sale of Assets between
RMG and Quantum Energy, LLC, dated January 3, 2000, as modified
by that certain Purchase and Sale Agreement between RMG and CCBM,
Inc. dated June 29, 2001), which leases are more specifically
described on Exhibit B-2 attached hereto (the "Mineral
Interests"); and
4. Four million shares of Rocky Mountain Gas, Inc. ("RMG") Common
Stock (the "RMG Stock") .
"Secured Party" means the Lender.
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"Loan Documents" means the collective reference to the Credit
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Agreement, the Secured Convertible Note, the Warrant Agreement, this
Agreement and any other document made, delivered or given in
connection with any of the foregoing.
"Uniform Commercial Code" means the Uniform Commercial Code as from
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time to time in effect in the State of Arizona.
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Section 1.02 Terms Generally; Rules of Construction. The definitions of
terms herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.
ARTICLE II
GRANT OF SECURITY INTEREST
Section 2.01 Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations, the Borrower and RMG
hereby pledge to the Secured Party, and hereby grant to the Secured Party, a
first priority (second priority as to the Citation aircraft) continuing security
interest in, lien on and right of setoff against, all of the Pledged Property
and all proceeds thereof (the "Collateral").
Section 2.02 Authorization to File Financing Statements. The Borrower and
RMG hereby irrevocably authorize the Secured Party at any time and from time to
time to file in any filing office in any relevant jurisdiction any initial
financing statements and amendments thereto indicating the Collateral in such
form as may be required by the Secured Party. The Borrower agrees to furnish any
information reasonably requested by the Secured Party for such purposes promptly
upon the Secured Party's request. The Borrower and RMG also ratify their
authorization for the Secured Party to have filed in any relevant jurisdiction
any like initial financing statements or amendments thereto if filed prior to
the date hereof. In addition, to perfect security interests by Secured Party's
possession, Borrower or RMG will deliver to Secured Party the original Ticaboo
Note, with a separate endorsement signed in blank, and a certificate
representing the RMG Stock, together with stock powers endorsed in blank
sufficient to effect a transfer of such stock. Upon payment in full of the
Obligations, Secured Party shall return possession of all Collateral to Borrower
and release all filed and recorded financing statements or other evidence of the
security interests arising hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower and RMG hereby represent and warrant to Secured Party, as of
the date hereof and at all times during the terms of this Agreement, as follows:
Section 3.01 Organization. The Borrower and RMG are duly organized, validly
existing and in good standing under the laws of Wyoming, have all requisite
power and authority, and have all material governmental licenses,
authorizations, consents and approvals necessary, to own their respective assets
and to carry on their business as now conducted.
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Section 3.02 Authority; Enforceability. The execution and delivery by the
Borrower and RMG of this Agreement and the other Loan Documents and the
performance of their obligations hereunder and thereunder are within the powers
of the Borrower and RMG and have been duly authorized by all necessary corporate
Board approval, and do not contravene any law, regulation, or order applicable
to the Borrower or RMG or any of its properties or assets or any contractual
restriction which may, individually or in the aggregate have a material adverse
effect on the business, prospects or condition (financial or otherwise) of the
Pledgor.
Section 3.03 Perfected First Priority Liens. The security interests granted
pursuant to this Agreement (a) upon the filing of a financing statement
describing the Collateral with the Secretary of State of Wyoming and delivery of
possession of the Ticaboo Note and the RMG Stock, shall constitute valid
perfected security interests of the Collateral in favor of the Secured Party as
collateral security for the Obligations, enforceable in accordance with the
terms hereof against all creditors of the Borrower and any Persons purporting to
purchase any Collateral from the Borrower and (b) except for the Citation II
aircraft there are no prior or other Liens on the Collateral in existence on the
date hereof.
Section 3.04 Solvency. The Borrower is not insolvent as of the date hereof
and will not be rendered insolvent as a result of this Agreement.
ARTICLE IV
AFFIRMATIVE COVENANTS
The Borrower and RMG hereby unconditionally covenant and agree with the
Secured Party, until the entire Obligation shall have been paid in full as
follows:
Section 4.01 Maintenance of Perfected Security Interest; Further
Documentation.
(a) The Borrower and RMG shall maintain the security interest and
lien created by this Agreement as a perfected security interest
and lien having at least the priority described in Section 3.03;
and
(b) The Borrower shall promptly give notice to the Secured Party of,
and shall defend against, any suit, action, proceeding or lien
that involves the Collateral or that could adversely affect the
security interest and lien granted by it hereunder, and the
Borrower shall defend the security interest and lien created by
this Agreement
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against the claims and demands of all Persons whomsoever; and
(c) The Borrower and RMG will furnish to the Secured Party from time
to time statements and schedules further identifying and
describing the Collateral and such other reports in connection
with the Collateral as the Secured Party may reasonably request.
(d) The Borrower and RMG shall timely perform and comply with all
provisions of the Loan Documents.
ARTICLE V
NEGATIVE COVENANTS
Section 5.01 Restrictions on Sales and other Dispositions. The Borrower
shall not sell, assign, convey, pledge, encumber, transfer, redeem, exchange,
substitute, replace or otherwise dispose of or abandon all or any part of the
Collateral without the prior written consent of the Secured Party, provided
however, the Borrower shall have the right to exercise good business judgment in
the management of the Mineral Interests including lease cancellation or
expiration so long as 75% of the value is not diminished.
Section 5.02 Impairment of Security Interest. The Borrower will not take or
fail to take any action which would in any manner impair the enforceability or
priority of the Secured Party's security interest in any Collateral, impair the
Collateral or the rights, remedies, powers and privileges conferred on the
Secured Party pursuant to this Agreement or by operation of law or otherwise.
ARTICLE VI
EVENT OF DEFAULT
Section 6.01 Event of Default. One or more of the following events or
circumstances shall constitute an "Event of Default" hereunder:
A. An "Event of Default" under the Credit Agreement or any other
Loan Document shall occur and be continuing; or
B. The Borrower shall fail to pay any amount hereunder or under any
other Loan Document to which it is a party when and as the same
shall become due and payable.
ARTICLE VII
RIGHTS AND REMEDIES
Section 7.01 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, the Secured Party may exercise, in addition
to all other rights and remedies granted to it in the Secured Documents and in
any other
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instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Uniform Commercial Code or any
other applicable law or otherwise available at law or equity. All proceeds of
sale of any Collateral shall be applied to the Obligations, and Borrower shall
be entitled to any surplus proceeds or Collateral remaining after the
Obligations are paid in full.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Notices. All notices and other communications provided for
herein shall be given in the manner and subject to the terms of Section 13.01 of
the Credit Agreement (including provisions regarding a change of address or
telecopy number of a party). The address and telecopy number for notices and
communications with respect to the parties is as follows:
U.S. Energy Corp. Rocky Mountain Gas, Inc.
Attn: Xxxxx Xxxxxxx Attn: Xxxxx Xxxxxxx
000 Xxxxx 0xx Xxxx 000 Xxxxx 0xx Xxxx
Xxxxxxxx, Xxxxxxx 00000 Xxxxxxxx, Xxxxxxx 00000
(000) 000-0000 (000) 000-0000
(000) 000-0000 (facsimile) (000) 000-0000 (facsimile)
Geddes and Company
Attn: F. Xxxxxxx Xxxxxx
0000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
(000) 000-0000
(000) 000-0000 (facsimile)
Section 8.02 Amendments. No amendment, supplement or modification of this
Agreement, and no waiver of any provision of this Agreement or consent to any
departure by the Borrower there from, shall in any event be effective unless the
same has been agreed to in writing by the parties.
Section 8.03 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 permitted hereby, except that any assignment
must be approved in writing by the other party. Such written consent shall not
be unreasonably withheld by either party.
Section 8.04 Governing Law; Consent to Jurisdiction.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Arizona.
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(b) Any legal action or proceeding with respect to this Agreement or
any other loan document shall be brought in the Courts of the
State of Arizona.
Section 8.05 Entire Agreement. This written Agreement and the other Loan
Documents represent the entire agreement among the parties as to the subject
matter hereof.
IN WITNESS WHEREOF, intending to be legally bound, the Borrower has caused
this Agreement to be duly executed as of the date first above written.
U.S. ENERGY CORP.
By: /s/ Xxxxx X. Xxxxxx
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Xxxxx X. Xxxxxx
Title: President
ROCKY MOUNTAIN GAS, INC.
By: /s/ Xxxx X. Xxxxxx
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Xxxx X. Xxxxxx
President
Accepted:
GEDDES AND COMPANY
By: /s/ F. Xxxxxxx Xxxxxx
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F. Xxxxxxx Xxxxxx
President
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EXHIBIT "B - 1"
TO THE
PLEDGE AND SECURITY AGREEMENT
Ticaboo Note and Related Mortgage
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EXHIBIT "B - 2"
TO THE
PLEDGE AND SECURITY AGREEMENT
RMG Working Interest in
Castle Rock Coal Bed Methane Leases
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