Exhibit 99.2
SECURITY
AGREEMENT
THIS SECURITY AGREEMENT (this
“ Agreement ”) is made as of September 29,
2006 by and between
(together with its successors and permitted assigns, the “
Secured Party ”); Heartland Oil and Gas Corp.
(together with its successors and permitted assigns, the “
Borrower ”); and the subsidiaries of Borrower set
forth on (together with their successors and permitted assigns,
collectively and jointly and severally, the “ Subsidiary
Guarantors ”, and together with the Borrower,
collectively and jointly and severally, the “ Grantors
”).
Background
On the date hereof, Secured Party is
extending a loan to Borrower, and Borrower is issuing to Secured
Party a Convertible Senior Secured Note in the principal amount of
$
(as the same may be amended, restated, modified, supplemented
and/or replaced from time to time, the “ Note
”).
In order to secure the prompt
payment, performance and discharge in full of all of
Borrower’s obligations under the Note, Borrower and the
Subsidiary Guarantors have agreed to execute and deliver to the
Secured Party this Agreement and to grant the Secured Party a
perfected first priority security interest in certain property of
each Grantor.
Accordingly, each Grantor, intending
to be legally bound, hereby agrees with the Secured Party as
follows:
1. DEFINITIONS . Capitalized
terms used but not otherwise defined herein shall have the meanings
assigned to such terms in the Note. The following terms, as used
herein, shall have the following meanings:
“ Account
” shall be used herein as defined in the Uniform Commercial
Code, but in any event shall include, but not be limited to, credit
card receivables, lottery winnings, health-care-insurance
receivables, any right to payment arising out of goods or other
property (including, without limitation, intellectual property)
sold or leased, licensed, assigned or disposed of or for services
rendered which is not evidenced by an instrument or chattel paper,
whether or not it has been earned by performance including all
rights to payment of rents under a lease or license and payment
under a charter or other contract and all rights incident to such
lease, charter or contract.
“ As-Extracted
Collateral ” shall be used herein as defined in the
Uniform Commercial Code, but in any event shall include, but not be
limited to, oil, gas and other minerals and mineral
rights.
“ Chattel Paper
” shall be used herein as defined in the Uniform Commercial
Code, but in any event shall include, but not be limited to, a
writing or writings which evidence both a monetary obligation and a
security interest in, or a lease of, specific goods.
“ Collateral
” shall have the meaning ascribed to such term in
Section 2.
“ Commercial Tort
Claims ” shall be used herein as defined in the
Uniform Commercial Code and shall include those claims listed
(including plaintiff, defendant and a description of the claim) on
Schedule 10 attached hereto.
“ Deposit
Account ” shall be used herein as defined in the
Uniform Commercial Code, but in any event shall include, but not be
limited to, any demand, time, savings, passbook or similar
account.
“ Document
” shall be used herein as defined in the Uniform Commercial
Code, but in any event shall include, but not be limited to, a bill
of lading, dock warrant, dock receipt, warehouse receipt or order
for the delivery of goods, and also any other document which in the
regular course of business or financing is treated as adequately
evidencing that the Person in possession of it is entitled to
receive, hold and dispose of the document and the goods it
covers.
“ Equipment
” shall be used herein as defined in the Uniform Commercial
Code, but in any event shall include, but not be limited to,
tangible personal property held by any Grantor for use primarily in
business and shall include equipment, machinery, furniture,
vehicles, fixtures, furnishings, dyes, tools, and all accessories
and parts now or hereafter affixed thereto as well as all
attachments, replacements, substitutes, accessories, additions and
improvements to any of the foregoing, but Equipment shall not
include Inventory.
“ Event of
Default ” shall be used herein as defined in the
Note.
“ Fixtures
” shall be used herein as defined in the Uniform Commercial
Code.
“ General
Intangibles ” shall be used herein as defined in the
Uniform Commercial Code but in any event shall include, but not be
limited to, all personal property of every kind and description of
any Grantor other than Goods, Accounts, Fixtures, Documents,
Letter-of-Credit Rights, Chattel Paper, Deposit Accounts,
Instruments, Investment Property, Commercial Tort Claims and
Supporting Obligations, and shall include, without limitation,
payment intangibles, contract rights (other than Accounts),
franchises, licenses, leases, all rights related to oil, gas,
minerals, choses in action, books, records, customer lists, tax,
insurance and other kinds of refunds, patents, trademarks, trade
names, service marks, slogans, trade dress, copyrights, other
intellectual property rights and applications for intellectual
property rights, goodwill, plans, licenses, software (to the extent
it does not constitute Goods) and other rights in personal property
and all rights related to all of the foregoing.
“ Goods ”
shall be used herein as defined in the Uniform Commercial Code, but
in any event shall include, but not be limited to, all computer
programs imbedded in goods and any supporting information provided
in connection with the transaction relating to the program and all
other things that are movable, and all rights related to all of the
foregoing.
“ Instruments
” shall be used herein as defined in the Uniform Commercial
Code, but in any event shall include, but not be limited to,
promissory notes, negotiable certificates of deposit, a negotiable
instrument or a security or any other writing which evidences a
right to the payment of money and is not itself a security
agreement or lease and is of a type which is, in the ordinary
course of business, transferred by delivery with any necessary
endorsement or assignment.
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“ Inventory
” shall be used herein as defined in the Uniform Commercial
Code but in any event shall include, but not be limited to,
tangible personal property held by or on behalf of any Grantor (or
in which any Grantor has an interest in mass or a joint or other
interest) for sale or lease or to be furnished under contracts of
service, tangible personal property which any Grantor has so leased
or furnished, and raw materials, work in process and materials
used, produced or consumed in any Grantor’s business, and
shall include tangible personal property returned to such Grantor
by the purchaser following a sale thereof by such Grantor and
tangible personal property represented by Documents. All equipment,
accessories and parts at any time attached or added to items of
Inventory or used in connection therewith shall be deemed to be
part of the Inventory.
“ Investment
Property ” shall be used herein as defined in the
Uniform Commercial Code but in any event shall include, but not be
limited to, all securities, whether certificated or uncertificated,
all financial assets, all security entitlements, all securities
accounts, all commodity contracts and all commodity
accounts.
“ Letter-of-Credit
Right ” shall be used herein as defined in the
Uniform Commercial Code, but in any event shall include, but not be
limited to, any right to payment or performance under a letter of
credit, whether or not the beneficiary has demanded or is at the
time entitled to demand payment or performance.
“ Proceeds
” shall be used herein as defined in the Uniform Commercial
Code but, in any event, shall include, but not be limited to,
(a) any and all proceeds of any insurance (whether or not the
Secured Party is named as the loss payee thereof), indemnity,
warranty or guaranty payable to any Grantor or the Secured Party
from time to time with respect to any of the Collateral,
(b) any and all payments (in any form whatsoever) made or due
and payable to any Grantor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of
all or any part of the Collateral by any Governmental Authority (or
any person acting under color of Governmental Authority),
(c) any and all amounts received when Collateral is sold,
leased, licensed, exchanged, collected or disposed of, (d) any
rights arising out of Collateral, and (e) any and all other
amounts from time to time paid or payable under or in connection
with any of the Collateral.
“ Secured
Obligations ” shall mean any obligation of the
Borrower under the Note (including any amounts payable to Payee
thereunder), any additional notes issued after the date hereof to
the Secured Party pursuant to Section 6 of the Note, and any
other indebtedness of Borrower to Secured Party whether now
existing or hereafter arising.
“ Software
” shall be used herein as defined in the Uniform Commercial
Code but in any event, shall include, but not be limited to, any
computer program or supporting information provided in connection
with the transaction relating to the program.
“ Supporting
Obligations ” shall be used herein as defined in the
Uniform Commercial Code but in any event shall include, but not be
limited to, guarantees and letters of credit that support payment
of another obligation.
- 3 -
“ Uniform Commercial
Code ” shall mean the Uniform Commercial Code in
effect on the date hereof and as amended from time to time, and as
enacted in the State of Nevada or in any state or states which,
pursuant to the Uniform Commercial Code as enacted in the State of
Nevada, has jurisdiction with respect to all, or any portion of,
the Collateral or this Agreement, from time to time. It is the
intent of the parties that the definitions set forth above should
be construed in their broadest sense so that Collateral will be
construed in its broadest sense. Accordingly if there are, from
time to time, changes to defined terms in the Uniform Commercial
Code that broaden the definitions, they are incorporated herein and
if existing definitions in the Uniform Commercial Code are broader
than the amended definitions, the existing ones shall be
controlling. Similarly, where the phrase “as defined in the
Uniform Commercial Code, but in any event shall include, but not be
limited to . . .” is used above, it means as defined in the
Uniform Commercial Code except that if any of the enumerated types
of items specified thereafter would not fall within the Uniform
Commercial Code definition, they shall nonetheless be included in
the applicable definition for purposes of this
Agreement.
2. GUARANTY AND GRANT OF SECURITY
INTEREST .
(a) As security for the payment and
performance of the Secured Obligations, each Grantor hereby
pledges, hypothecates, delivers and assigns to the Secured Party,
and creates in favor of the Secured Party, a first priority
security interest in and to, all of such Grantor’s right,
title and interest in and to all the following property, in all its
forms, in each case whether now or hereafter existing, whether now
owned or hereafter acquired, created or arising, and wherever
located (collectively, but without duplication, the “
Collateral ”):
(i) All Equipment;
(ii) All Inventory and other
Goods;
(iii) All Accounts;
(iv) All General
Intangibles;
(v) All Fixtures;
(vi) All Documents, Letter-of-Credit
Rights, and Chattel Paper ;
(vii) All Deposit
Accounts;
(viii) All Instruments and
Investment Property;
(ix) All Commercial Tort
Claims;
(x) All Supporting
Obligations;
(xi) All As-Extracted Collateral;
and
(xii) All Proceeds of any and all of
the foregoing.
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Notwithstanding the foregoing, nothing herein
shall be deemed to constitute an assignment of any asset which, in
the event of an assignment, becomes void by operation of applicable
Law or the assignment of which is otherwise prohibited by
applicable Law (in each case to the extent that such applicable Law
is not overridden by Sections 9-406, 9-407 and/or 9-408 of the
Uniform Commercial Code or other similar applicable Law);
provided , however, that to the extent permitted by
applicable Law, this Agreement shall create a valid security
interest in such asset and, to the extent permitted by applicable
Law, this Agreement shall create a valid security interest in the
Proceeds of such asset.
(b) For the avoidance of doubt, the
Subsidiary Guarantors hereby jointly and severally agree to act as
surety for the Borrower’s obligations under the Notes, and
irrevocably and unconditionally guaranty to the Secured Party that
the Notes shall be paid in full when due and payable, whether at
the stated or accelerated maturity thereof or upon any mandatory or
voluntary prepayment or otherwise. Notwithstanding the foregoing,
the liability of each Subsidiary Guarantor hereunder is limited to
an amount equal to (x) the amount that would render this
guaranty void, voidable or unenforceable against such Subsidiary
Guarantor’s creditors or creditors’ representatives
under any applicable fraudulent conveyance, fraudulent transfer or
similar act or under Section 544 or 548 of the Bankruptcy Code
of 1978, as amended, minus (y) $1.00 (one U.S.
Dollar).
(c) Secured Party acknowledges that
Borrower is seeking to sell, to an unaffiliated third party on
arms-length terms, certain assets (the “ Sold Assets
”) located in the counties set forth on Schedule 2 .
Secured Party shall, prior to or upon the closing of any sale of
Sold Assets to an unaffiliated party, and without requiring any
payment on the Notes in connection therewith, release the security
interest granted to Secured Party hereby with respect to the
Collateral included in the Sold Assets sold by Borrower in such
transaction(s). In connection therewith, Secured Party shall file,
or authorize the party acquiring such Sold Assets to file,
termination statements and/or amendments to financing statements
(as appropriate) under the Uniform Commercial Code and take such
other action as may be appropriate to evidence the release of such
Collateral from the security interest granted hereby. For the
avoidance of doubt, no such sale shall require or result in the
release of any security interest of the Secured Party of Collateral
not included in such sale, including any Sold Assets not included
in such sale.
3. REPRESENTATIONS AND WARRANTIES
OF THE GRANTORS . Each Grantor represents and warrants as
follows. The following representations and warranties shall survive
execution of this Agreement and shall not be affected or waived by
any examination or inspection made by the Secured Party:
(a) Status . Each Grantor is
duly organized and validly existing as a corporation in the State
of Nevada. The organizational identification number of Borrower is
C16136-98, and the organizational identification numbers of the
other Grantors are set forth on Exhibit A . Each Grantor has
perpetual existence and the power and authority to own its property
and assets and to transact the business in which it is engaged or
presently proposes to engage. Each Grantor has qualifie
