Document:

$2,500,000

     

    SECURED
      CREDIT AGREEMENT

     

    Between

     

    UNITED
      HERITAGE CORPORATION

    as
      Borrower

     

    and

     

    LOTHIAN
      OIL INC.,

    as
      Lender

     

    Dated
      as of March
      31, 2006

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF
      CONTENTS

     

    
      	ARTICLE
              I DEFINITIONS	 	
              1

            
	
              Section
                1.1.

            	 	
              Specific
                Defined Terms

            	 	
              1

            
	
              Section
                1.2.

            	 	
              Other
                Capitalized Terms

            	 	
              8

            
	
              Section
                1.3.

            	 	
              Exhibits
                and Schedules

            	 	
              8

            
	
              Section
                1.4.

            	 	
              Amendment
                of Defined Instruments

            	 	
              8

            
	
              Section
                1.5.

            	 	
              References
                and Titles

            	 	
              8

            
	 	 	 
	
              ARTICLE
                II THE TERM LOAN

            	 	
              8

            
	
              Section
                2.1.

            	 	
              Term
                Loan.

            	 	
              8

            
	
              Section
                2.2.

            	 	
              Term
                Note

            	 	
              9

            
	
              Section
                2.3.

            	 	
              Interest.

            	 	
              9

            
	
              Section
                2.4.

            	 	
              Outstanding
                Payments

            	 	
              9

            
	
              Section
                2.5.

            	 	
              Taxes.

            	 	
              10

            
	 	 	 
	
              ARTICLE
                III SECURITY

            	 	
              11

            
	
              Section
                3.1.

            	 	
              Grant
                of Security Interests

            	 	
              11

            
	 	 	 
	
              ARTICLE
                IV REPRESENTATIONS AND WARRANTIES

            	 	
              11

            
	
              Section
                4.1.

            	 	
              Formation
                and Existence

            	 	
              11

            
	
              Section
                4.2.

            	 	
              Ownership
                of Collateral; Interests

            	 	
              12

            
	
              Section
                4.3.

            	 	
              Leases,
                etc

            	 	
              12

            
	
              Section
                4.4.

            	 	
              Authorization;
                Non-Contravention

            	 	
              12

            
	
              Section
                4.5.

            	 	
              Solvency

            	 	
              13

            
	
              Section
                4.6.

            	 	
              Omissions
                and Misstatements

            	 	
              13

            
	
              Section
                4.7.

            	 	
              USA
                Patriot Act Representation

            	 	
              13

            
	 	 	 
	
              ARTICLE
                V COVENANTS

            	 	
              13

            
	
              Section
                5.1.

            	 	
              Debt

            	 	
              13

            
	
              Section
                5.2.

            	 	
              Use
                of Advance

            	 	
              14

            
	 	 	 
	
              ARTICLE
                VI FURTHER RIGHTS OF LENDER

            	 	
              14

            
	
              Section
                6.1.

            	 	
              Indemnification

            	 	
              14

            
	 	 	 
	
              ARTICLE
                VII CLOSING; CONDITIONS PRECEDENT TO CLOSING

            	 	
              16

            
	
              Section
                7.1.

            	 	
              Closing

            	 	
              16

            
	
              Section
                7.2.

            	 	
              Conditions
                to Making the Initial Advance

            	 	
              16

            
	 	 	 
	
              ARTICLE
                VIII EVENTS OF DEFAULT

            	 	
              16

            
	
              Section
                8.1.

            	 	
              Events
                of Default

            	 	
              16

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              ARTICLE
                IX REMEDIES OF LENDER

            	 	
              17

            
	
              Section
                9.1.

            	 	
              Remedies

            	 	
              17

            
	
              Section
                9.2.

            	 	
              Collateral

            	 	
              17

            
	
              Section
                9.3.

            	 	
              Set-Off
                Rights

            	 	
              18

            
	
              Section
                9.4.

            	 	
              Rights
                Under Operating Agreements

            	 	
              18

            
	 	 	 
	
              ARTICLE
                X MISCELLANEOUS

            	 	
              18

            
	
              Section
                10.1.

            	 	
              Remedies
                Cumulative

            	 	
              18

            
	
              Section
                10.2.

            	 	
              Assignment

            	 	
              18

            
	
              Section
                10.3.

            	 	
              Notices

            	 	
              18

            
	
              Section
                10.4.

            	 	
              Waivers;
                Amendments

            	 	
              19

            
	
              Section
                10.5.

            	 	
              Confidentiality

            	 	
              20

            
	
              Section
                10.6.

            	 	
              Final
                Agreement

            	 	
              20

            
	
              Section
                10.7.

            	 	
              WAIVER
                OF JURY TRIAL, PUNITIVE DAMAGES, ETC

            	 	
              20

            
	
              Section
                10.8.

            	 	
              GOVERNING
                LAW

            	 	
              21

            
	
              Section
                10.9.

            	 	
              No
                Third-Party Beneficiaries

            	 	
              21

            
	
              Section
                10.10.

            	 	
              Fees,
                Costs and Expenses; Indemnification

            	 	
              21

            
	
              Section
                10.11.

            	 	
              Compliance
                with Law

            	 	
              22

            
	
              Section
                10.12.

            	 	
              Power
                of Attorney; Etc

            	 	
              23

            
	
              Section
                10.13.

            	 	
              Payment
                of Borrower Debt

            	 	
              23

            
	
              Section
                10.14.

            	 	
              Severability

            	 	
              23

            
	
              Section
                10.15.

            	 	
              Captions;
                Headings

            	 	
              23

            
	
              Section
                10.16.

            	 	
              Construction

            	 	
              23

            
	
              Section
                10.17.

            	 	
              Additional
                Documents

            	 	
              23

            
	
              Section
                10.18.

            	 	
              Counterpart
                Execution

            	 	
              24

            
	
              Section
                10.19.

            	 	
              EXCULPATION
                PROVISIONS

            	 	
              24

            
	
               

            	 	 	 	 
	
              Exhibit
                A

            	 	
              Description
                of Properties; Interests

            	 	 
	
              Exhibit
                B

            	 	
              Form
                of Term Note

            	 	 
	 	 	 	 	 
	
              Schedule
                2.1

            	 	
              Use
                of Funds at Closing

            	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    CREDIT
      AGREEMENT

     

    This
      $4,000,000 Secured Credit Agreement (this “Agreement”) is dated as of March 31,
      2006, between United
      Heritage Corporation, having
      its principal executive office and place of business at 405 N. Marienfeld,
      Suite
      200, Midland, TX 79701 (the “Borrower”), and Lothian
      Oil Inc., with
      offices at 500 5th Avenue, Suite 2600, New York, NY 10110
      (Lender”).

     

    Background:

     

    A. Borrower
      and Lender desire to enter into this Agreement to set forth the terms and
      conditions pursuant to which Lender will make available to Borrower a secured
      term loan on a non-revolving basis for the purposes set forth in this
      Agreement.

     

    B. In
      connection with Lender making available to Borrower the financial accommodations
      described in this Agreement, Borrower will grant to Lender a mortgage lien
      and a
      perfected security interest in the Texas real and personal property of Borrower
      that are referred to as Borrower’s “Wardlaw Property”; and

     

    C. This
      Credit Agreement is entered into coincidental with Borrower and Lender entering
      into a Development and Exploration Agreement affecting Borrower’s “Wardlaw
      Property.” Any conflicts between the terms of this Agreement and that Agreement
      shall be governed by the terms of the Development and Exploration
      Agreement.

     

    Agreements:

     

    In
      consideration of the terms, covenants, provisions and conditions set forth
      in
      this Agreement, Borrower and Lender agree as follows:

     

    ARTICLE
      I

    Definitions

     

    Section
      1.1.  Specific
      Defined Terms. 

     

    As
      used
      herein, the following terms shall have the following meanings and, as the
      context requires, the singular shall include the plural:

     

    “Advance”
means
      an advance of funds under the Term Loan by Lender at the Contract Rate pursuant
      to Article II
      of this
      Agreement.

     

    “Affiliate”
means
      as to any Person (a) any other Person who directly or indirectly controls,
      is under common control with, or is controlled by such Person, (b) any
      director or officer of such Person or of any Person referred to in clause (a)
      above, or (c) if any Person in clause (a) above is an individual, any
      member of the immediate family (including parents, spouse and children) of
      such
      individual and any trust whose principal beneficiary is such individual or
      one
      or more members of such immediate family and any Person who is controlled by
      any
      such member or trust. As used in this definition, “control” (including, with its
      correlative meanings, “controlled
      by”
and
      “under
      common control with”)
      means
      possession, directly or indirectly, of power to direct or cause the direction
      of
      management or policies (whether through ownership of Equity Interests, by
      contract or otherwise); provided
      that, in
      any event, (i)
      any
      Person who owns directly or indirectly ten percent (10%) or more of the Equity
      Interests having ordinary voting power for the election of directors or other
      governing body of a corporation or ten percent (10%) or more of the Equity
      Interests of any other Person (other than as a limited partner of such other
      Person) will be deemed to control such corporation or other Person, and
      (ii)
      any
      Subsidiary of any Borrower shall be deemed to be an Affiliate of
      Borrower.

    
      
        
        

      

      
        1

        
          

        

      

       

    

     

    “Agreement”
has
      the
      meaning assigned to that term in the introductory paragraph hereof.

     

    “Basic
      Documents”
means
      Leases, Operating Agreements, Hydrocarbon purchase, sales, exchange, processing,
      gathering, treatment, compression and transportation agreements; farmout or
      farm-in agreements; unitization agreements; joint venture, exploration, limited
      or general partnership, dry hole, bottom hole, acreage contribution, purchase
      and acquisition agreements; area of mutual interest agreements; salt water
      disposal agreements, servicing contracts; easement and/or pooling agreements;
      surface leases, permits, licenses, rights-of-way, servitudes or other interests
      appertaining to the Properties and all other executory contracts and agreements
      relating to the Properties.

     

    “Borrower”
has
      the
      meaning assigned to that term in the first paragraph of this
      Agreement.

     

    “Business
      Day”
means
      any day other than a Saturday, Sunday or other day in which banking institutions
      in the city of New York are authorized or obligated by law or executive order
      to
      close.

     

    “Closing”
means
      the date of execution by Borrower and other applicable parties and the delivery
      to Lender of this Agreement, the Term Note (as hereinafter defined), the
      Security Agreements, the Mortgage, the Overriding Royalty Interest Conveyance,
      the other Security Documents (as hereinafter defined) and all other documents
      contemplated by this Agreement and necessary to satisfy the conditions described
      in Article VII.

     

    “Closing
      Date”
has
      the
      meaning assigned to that term in Section 7.1.

     

    “Collateral”
means
      the Properties and all Personal Property.

     

    “Contract
      Rate”
means
      a
      rate per annum equal to Citibank’s Prime Lending Rate plus
      1%.

     

    “Crude
      Oil”
means
      all crude oil, condensate and other liquid hydrocarbon substances.

     

    “Debtor
      Relief Laws”
means
      the Bankruptcy Code and all other applicable liquidation, conservatorship,
      bankruptcy, insolvency, rearrangement, moratorium, reorganization, or similar
      debtor relief laws affecting the rights of creditors generally from time to
      time
      in effect.

     

    “Default
      Rate”
has
      the
      meaning assigned to that term in Section 2.3(a).

     

    “Defensible
      Title”
means
      with respect to each Property, title that (i)
      entitles Borrower to receive (free and clear of all royalties appearing or
      not
      appearing of record, all overriding royalties, and all net profits interests
      or
      other burdens on or measured by production of Hydrocarbons) not less than the
      Net Revenue Interest of Borrower set forth on Exhibit A
      in all
      Hydrocarbons produced, saved and marketed from the Property for the productive
      life of the Property, free and clear of any security interest, lien,
      encumbrance, mortgage, claim, security agreement or other charge, other than
      the
      Permitted Encumbrances and any liens, mortgages and security interests and
      property interests which are in favor of Lender and its Affiliates or are
      permitted hereunder; and (ii)
      obligates Borrower to bear costs and expenses relating to the maintenance,
      development and operation of such Property in an amount not greater than the
      Working Interest of Borrower set forth on Exhibit A
      for the
      productive life of such Property.

    
      
        
        

      

      
        2

        
          

        

      

       

    

     

    “Equipment”
has
      the
      meaning assigned to that term in the UCC and includes all surface or subsurface
      machinery, goods, equipment, fixtures, inventory, facilities, supplies or other
      personal or moveable property of whatsoever kind or nature (excluding property
      rented by Borrower or taken to the premises for temporary uses) now owned or
      hereafter acquired by Borrower which are now or hereafter located on or under
      any of the lands attributable to the Properties which are used for the
      production, gathering, treatment, processing, storage or transportation of
      Hydrocarbons and whether or not attributable to the Properties (together with
      all accessions, additions and attachments to any thereof), including, without
      limitation, all Wells, casing, tubing, tubular goods, rods, pumping units and
      engines, Christmas trees, platforms, derricks, separators, compressors, gun
      barrels, flow lines, water injection lines, tanks, gas systems (for gathering,
      treating and compression), pipelines (including gathering lines, laterals and
      trunklines), chemicals, solutions, water systems (for treating, disposal and
      injection), power plants, poles, lines, transformers, starters and controllers,
      machine shops, tools, storage yards and equipment stored therein, telegraph,
      telephone and other communication systems, loading docks, loading racks,
      shipping facilities, platforms, well equipment, wellhead valves, meters, motors,
      pumps, tankage, regulators, furniture, fixtures, automotive equipment,
      forklifts, storage and handling equipment, together with all additions and
      accessions thereto, all replacements and all accessories and parts therefor,
      all
      manuals, blueprints, documentation and processes, warranties and records in
      connection therewith including, without limitation, any and, to the extent
      permitted, all seismic data, geological data, geophysical data and
      interpretation of any of the foregoing, all rights against suppliers,
      warrantors, manufacturers, sellers or others in connection therewith, and
      together with all substitutes for any of the foregoing.

     

    “Event
      of Default”
has
      the
      meaning assigned to that term in Section 8.1.

     

    “Governmental
      Authority”
means
      the government of the United States of America, any other nation or any
      political subdivision thereof, whether state, local or tribal, and any agency,
      authority, instrumentality, regulatory body, court, central bank or other entity
      exercising executive, legislative, judicial, taxing, regulatory or
      administrative powers or functions of or pertaining to government over Borrower,
      any Affiliate, any of their properties or Lender.

     

    “Highest
      Lawful Rate”
means,
      with respect to Lender, the maximum nonusurious interest rate, if any, that
      at
      any time or from time to time may be contracted for, taken, reserved, charged
      or
      received on the Term Note or on other Obligations under laws applicable to
      such
      Lender which are presently in effect or, to the extent allowed by law, under
      such applicable laws which may hereafter be in effect and which allow a higher
      maximum nonusurious interest rate than applicable laws allow as of the date
      hereof.

    
      
        
        

      

      
        3

        
          

        

      

       

    

     

    “Hydrocarbons”
means
      all Crude Oil and Natural Gas.

     

    “Lease”
or
      “Leases”
means,
      whether one or more, (i)
      those
      certain oil and gas leases set forth in the descriptions of the Properties
      attached as Exhibit A
      hereto,
      and any other interests in the Leases or any other lease of real property,
      whether now owned or hereafter acquired by Borrower, and any extension,
      renewals, corrections, modifications, elections or amendments (such as those
      relating to unitization) of any such Lease or Leases, or (ii)
      other
      oil, gas and/or mineral leases or other interests pertaining to the Properties,
      whether now owned or later acquired, which may now and hereafter be made subject
      to the lien of any of the Security Documents and any extension, renewals,
      corrections, modifications, elections or amendments (such as those relating
      to
      unitization) of any such lease or leases.

     

    “Lender”
has
      the
      meaning assigned to that term in the first paragraph of this Agreement, and
      includes the initial Lender identified in this Agreement and its successors
      and
      one or more assignees to the extent any of them is a holder of the Term Note
      or
      any interest in the Term Note.

     

    “Liabilities
      and Costs”
has
      the
      meaning assigned to such term in Section 10.10(b).

     

    “Lien”
means
      any interest in property (real or personal) securing an obligation owed to,
      or a
      claim by, a Person other than the owner of the Property, whether such interest
      is based on the common law, statute or contract, and whether such obligation
      or
      claim is fixed or contingent, and including but not limited to (a) the lien
      or
      security interest arising from a mortgage, encumbrance, pledge, security
      agreement, conditional sale or trust receipt or a lease, consignment or bailment
      for security purposes or (b) production payments and the like payable out of
      oil
      and gas properties and the Properties. The term “Lien”
shall
      include easements, restrictions, servitudes, permits, conditions, covenants,
      exceptions or reservations. For the purposes of this Agreement, Borrower shall
      be deemed to be the owner of any Property which it has acquired or holds subject
      to a conditional sale agreement, or leases under a financing lease or other
      arrangement pursuant to which title to the Property has been retained by or
      vested in some other Person in a transaction intended to create a
      financing.

     

    “Loan
      Documents”
means
      this Agreement, the Term Note, the Security Documents, the Development and
      Exploration Agreement, and all other agreements, certificates, documents,
      instruments and writings at any time delivered in connection herewith or
      therewith (exclusive of term sheets, commitment letters, correspondence and
      similar documents used in the negotiation hereof, except to the extent the
      same
      contain information about Borrower or its Affiliates, properties, business
      or
      prospects).

     

    “Material
      Adverse Effect”
means
      a
      material adverse effect on (a) the business, operations, Property, condition
      (financial or otherwise) or prospects of Borrower, (b) the ability of Borrower
      to perform any of its obligations under any Loan Document, (c) the validity
      or
      enforceability of any Loan Document or (d) the rights and remedies of or
      benefits available to Lender under any Loan Document.

    

    “Maturity
      Date”
means
      a
      date not to exceed ten (10) years from the date of Closing.

     

    “Maximum
      Commitment”
has
      the
      meaning assigned such term in Section 2.1.

    
      
        
        

      

      
        4

        
          

        

      

       

    

     

    “Mortgage”
means
      a
      mortgage, deed of trust, assignment of production, security agreement and
      financing statement and act of mortgage and security agreement securing future
      advances executed by Borrower and granting a first and prior lien to or for
      the
      benefit of Lender in the Properties described therein subject only to the
      Permitted Encumbrances, and otherwise in form and substance satisfactory to
      Lender, as the same may be modified, amended or supplemented pursuant to the
      terms of this Agreement.

     

    “Natural
      Gas”
means
      all natural gas, and any natural gas liquids and all products recovered in
      the
      processing of natural gas (other than condensate) including, without limitation,
      natural gasoline, casinghead gas, iso-butane, normal butane, propane and ethane
      (including such methane allowable in commercial ethane) produced from or
      attributable to the Properties.

     

    “Net
      Revenue Interest”
means,
      with respect to any Property, the decimal or percentage share of Hydrocarbons
      produced and saved from or allocable to such Property, after deduction of all
      lessor and overriding royalties and other burdens on or paid out of such
      production.

     

    “Obligations”
means
      and include all loans and advances (including the Term Loan), debts,
      liabilities, obligations, covenants, duties and amounts owing or to be owing
      by
      Borrower or any Affiliate of Borrower to Lender or any Affiliate of Lender
      of
      any kind or nature, present or future, whether or not evidenced by any note,
      guaranty, letter of credit or other instrument, arising directly or indirectly,
      under this Agreement, the Term Note, the Security Documents, the Swap Agreement
      or other Hedging Agreement, or under any Loan Documents, and all renewals,
      extensions and/or rearrangements of any of the foregoing. The term includes,
      but
      is not limited to, all interest, reasonable charges, expenses, consultants’ and
      attorneys’ fees and any other sum chargeable to Borrower under this Agreement,
      the Term Note, the Security Documents, or any of the Loan Documents.

     

    “Operating
      Agreement”
means
      (a) any operating agreements covering or relating to any one or more of the
      Properties and (b) any subsequently executed operating agreement covering or
      relating to any one or more of the Properties that is approved in writing by
      Lender.

     

    “Operator”
means
      with respect to the Properties, Borrower and any other operators, including
      contract operators, of the Properties.

     

    “Permitted
      Encumbrances”
means
      (i)
      Liens
      for property taxes and assessments or governmental charges or levies, provided
      that payment thereof is not at the time required hereunder; (ii) (a) deposits
      to
      secure the performance of bids, tenders, trade contracts or leases or to secure
      statutory obligations, surety or appeal bonds or other Liens of like general
      nature incurred in the ordinary course of business and not in connection with
      the borrowing of money or the acquisition of inventory or other property and
      (b)
      Liens, other than any Liens imposed by ERISA, arising in the ordinary course
      of
      business or incidental to the ownership of Properties and assets (including
      Liens in connection with worker’s compensation, unemployment insurance and other
      like laws, carrier’s, mechanic’s, materialmen’s, repairmen’s, vendor’s,
      warehousemen’s, attorneys’ liens, and Liens of operators and non-operators
      arising under Operating Agreements) for sums not past due or being contested
      in
      good faith by appropriate action promptly initiated and diligently conducted,
      if
      such reserves as may be required by generally accepted accounting principles
      have been made; (iii)
      survey
      exceptions, issues with regard the merchantability of title, easements or
      reservations, or rights of others for rights-of-way, servitudes, utilities
      and
      other similar purposes, or zoning or other restrictions as to the use of real
      properties, which could not reasonably be expected to have a Material Adverse
      Effect; (iv)
      Liens
      permitted by Lender in writing; (v)
      Liens
      on Properties in respect of judgments or awards, the Indebtedness with respect
      to which it is permitted hereunder; (vi)
      Liens
      against specific equipment securing Debt permitted hereunder; and (vii)
      the
      specific exceptions and encumbrances affecting one or more of the Properties
      as
      described in the Mortgages and/or the summaries and opinions delivered to Lender
      prior to the Closing Date BUT ONLY INSOFAR as those exceptions and encumbrances
      are valid and subsisting and are enforceable against the particular Lease which
      is made subject to those exceptions and encumbrances.

    
      
        
        

      

      
        5

        
          

        

      

       

    

     

    “Person”
means
      an individual, corporation, partnership, limited liability company, joint
      venture, trust or unincorporated organization, joint stock company or other
      similar organization, government or any political subdivision thereof, a court,
      or any other legal entity, whether acting in an individual, fiduciary or other
      capacity.

     

    “Personal
      Property”
means
      all personal property of every kind, whether now owned or later acquired,
      including all goods (including Equipment), documents, accounts, chattel paper
      (whether tangible or electronic), money, deposit accounts, letters of credit
      and
      letter-of-credit rights (without regard to whether the letter of credit is
      evidenced by a writing), documents, securities and all other investment
      property, supporting obligations, any other contract rights (including all
      rights in transportation agreements, processing agreements, delivery agreements
      and seismic agreements related to the Properties) or rights to the payment
      of
      money, insurance claims and proceeds, all general intangibles (including all
      payment intangibles and rights to seismic and other geophysical data) and all
      permits, licenses, books and records related to the Properties or the business
      of Borrower as it relates to the Properties in any way whatsoever.

     

    “Production
      Volumes”
mean
      the sum of Borrower’s Net Revenue Interest of Hydrocarbons.

     

    “Property”
or
      “Properties”
means,
      collectively, the Leases and all other real and personal property of Borrower,
      whether now owned or later acquired and without regard to whether such property
      is related to any of the Leases, including but not limited to all Personal
      Property and all Basic Documents associated therewith.

     

    “Related
      Costs”
means
      the fees and expenses of counsel for Lender and other consultants for Lender
      and
      Lender’s other out-of-pocket expenses incurred in connection with the due
      diligence, negotiation and preparation of documents relating to the Term Loan
      and execution, delivery and filing and/or recording of the Loan Documents
      together with any amendments, supplements or modifications thereto or
      administration or enforcement thereof.

     

    “Royalty
      Interest”
means
      the Production Volumes from or allocable to any particular Property or proceeds
      thereto, as applicable, which the owners of royalty rights, including but not
      limited to lessor and overriding royalty rights, and other rights to receive
      production, other than by virtue of ownership of Working Interests, in any
      particular Property are entitled to take in kind or for which they are entitled
      to be paid.

    
      
        
        

      

      
        6

        
          

        

      

       

    

     

    “Security
      Agreements”
means
      any security agreement executed by Borrower, as debtor, in favor of Lender,
      as
      secured party, substantially in the form and substance as attached as
Exhibit E
      and
      otherwise satisfactory to Lender in its sole and absolute
      discretion.

     

    “Security
      Documents”
means
      this Agreement, the Mortgage, financing statements and any other agreement
      or
      writing evidencing any assignment, lien, encumbrance or security interest
      executed in favor of Lender or any of its Affiliates in or on the Collateral
      and
      any other documents relevant thereto; provided,
      however,
      that
“Security Documents” shall not include the Assignment and Bill of
      Sale.

     

    “Solvent”
means
      that, as of the date on which a Person’s solvency is to be measured:
(a)
      the fair
      saleable value of its assets is in excess of the total amount of its liabilities
      (including income tax liabilities) as they become absolute and matured; and
      (b)
      it is
      able to meet its debts as they mature.

     

    “Taxes”
has
      the
      meaning assigned to that term in Section 2.5(a).

     

    “Taxing
      Authorities”
means
      any and all federal, state, local or tribal governmental or quasi-governmental
      agencies that have the power to impose taxes upon Borrower or any of the
      Collateral.

     

    “Term
      Loan”
has
      the
      meaning assigned to that term in Section
      2.1.

     

    “Term
      Note”
means,
      collectively, one or more promissory notes substantially in the form of
Exhibit B
      executed
      by Borrower and delivered to Lender (including any successors to and assignees
      of the initial Lender identified in this Agreement) pursuant to Section 2.2,
      together with all renewals, extensions and rearrangements.

     

    “UCC”
means
      the Uniform Commercial Code presently in effect in the State of Texas or other
      applicable jurisdiction.

     

    “USA
      Patriot Act”
means
      the Uniting and Strengthening America by Producing Appropriate Tools Required
      to
      Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, Pub. L. 707-56,
      as
      amended, and regulations promulgated thereunder as in effect from time to
      time.

     

    “USD”
or
      “$”
or
      “dollars”
shall
      mean currency of the United States of America.

     

    “Well”
means
      any existing oil or gas well, salt water disposal well, injection well, water
      supply well or any other well located on or related to the Properties or any
      well which may hereafter be drilled and/or completed on any of the Properties,
      or any facility or equipment in addition to or replacement of any
      well.

     

    “Working
      Interest”
means
      the property interest which entitles the owner thereof to explore and develop
      certain land for oil and gas production purposes, whether under an oil and
      gas
      lease or unit, a compulsory pooling order or otherwise.

    
      
        
        

      

      
        7

        
          

        

      

       

    

     

    Section
      1.2.  Other
      Capitalized Terms.
      Capitalized terms not otherwise defined in Section 1.1 shall have the
      meanings given them elsewhere in this Agreement.

     

    Section
      1.3.  Exhibits
      and Schedules.
      All exhibits and schedules attached to this Agreement are part of this Agreement
      for all purposes.

     

    Section
      1.4.  Amendment
      of Defined Instruments.
      Unless the context otherwise requires or unless otherwise provided herein,
      the
      terms defined in this Agreement which refer to a particular agreement,
      instrument or document also refer to and include all renewals, extensions,
      modifications, amendments and restatements of such agreement, instrument or
      document. Nothing contained in this Section 1.4 will be construed to
      authorize any renewal, extension, modification, amendment or
      restatement.

     

    Section
      1.5.  References
      and Titles.
      All references in this Agreement to exhibits, schedules, articles, sections,
      subsections and other subdivisions refer to the exhibits, schedules, articles,
      sections, subsections and other subdivisions of this Agreement unless expressly
      provided otherwise. Titles appearing at the beginning of any subdivisions are
      for convenience only, do not constitute any part of those subdivisions and
      will
      be disregarded in construing the language contained in those subdivisions.
      The
      words “this Agreement,” “this instrument,” “herein,” “hereof,” “hereby,”
“hereunder” and words of similar import refer to this Agreement as a whole and
      not to any particular subdivision unless expressly so limited. The phrases
“this
      section” and “this subsection” and similar phrases refer only to the sections or
      subsections of this Agreement in which those phrases occur. The word “or” is not
      exclusive; the word “including” (in its various forms) means “including without
      limitation.” Pronouns in masculine, feminine and neuter genders shall be
      construed to include any other gender, and words in the singular form shall
      be
      construed to include the plural and vice versa, unless the context otherwise
      requires. The word “will” shall be construed to have the same meaning and effect
      as the word “shall.” Unless the context requires otherwise (a) any reference
      herein to any law shall be construed as referring to such law as amended,
      modified, codified or reenacted, in whole or in part, and in effect from time
      to
      time, (b) any reference herein to any Person shall be construed to include
      such
      Person’s successors and assigns (subject to the restrictions contained herein),
      (c) with respect to the determination of any time period, the word “from” means
“from and including” and the word “to” means “to and including.” No provision of
      this Agreement or any other Loan Document shall be interpreted or construed
      against any Person solely because such Person or its legal representative
      drafted such provision.

     

    ARTICLE
      II

    The
      Term Loan

     

    Section
      2.1.  Term
      Loan.

     

    (a)  Subject
      to the terms and conditions of this Agreement, Lender agrees to make a secured,
      multiple advance term loan (the “Term Loan”) to Borrower not to exceed Two
      Million Five Hundred Thousand Dollars ($2,500,000) (the “Maximum Commitment”)
      for the purposes set forth on Schedule 2.1. Borrower acknowledges that Lender
      does not intend to advance Borrower any amount which would at any point in
      time
      exceed the Maximum Commitment; provided, however, if the obligations of Borrower
      under the Term Loan exceed the Maximum Commitment, all obligations will
      nevertheless constitute Obligations under this Agreement, become a part of
      the
      Term Loan and be entitled to the benefit of all of Lender’s security interests
      in, and mortgage liens on, the Collateral.

    
      
        
        

      

      
        8

        
          

        

      

       

    

     

    Section
      2.2.  Term
      Note.
      Borrower’s obligation to repay the Term Loan will be evidenced by a Term Note in
      favor of Lender. The Term Note will be dated as of and delivered to Lender
      on
      the Closing Date.

     

    Section
      2.3.  Interest.

     

    (a)  Outstanding
      borrowed and unpaid principal amounts of the Term Loan shall bear interest
      at
      the Contract Rate for the period commencing on the date of each Advance until
      all Obligations are paid in full in accordance with this Agreement. Upon the
      occurrence and during the continuation of an Event of Default, the rate of
      interest applicable to the Obligation will be equal to the lesser of
      (i)
      the
      Highest Lawful Rate and (ii)
      four
      percent (4.0%) over the Contract Rate (the “Default Rate”). In addition, if any
      principal of or interest on any Advance or any fee or other amount payable
      by
      Borrower or any other obligor hereunder or under any other Loan Document is
      not
      paid when due, whether at stated maturity, upon acceleration or otherwise,
      such
      overdue amount shall bear interest, after as well as before judgment, at a
      rate
      per annum equal to the Default Rate.

     

    (b)  All
      interest will be computed on the actual number of days elapsed over a year
      comprised of 360 days. Interest will be due and payable in immediately available
      funds on the Maturity Date.

     

    (c)  The
      applicable interest rate shall be determined by Lender, and its determination
      shall be conclusive absent manifest error and binding upon the parties
      hereto.

     

    Section
      2.4.  Outstanding
      Payments.
      

     

    (a)  All
      outstanding principal and accrued interest shall be due and payable as provided
      in the Development and Exploration Agreement, and in no event later than the
      Maturity Date. All payments shall be applied first to accrued interests and
      the
      balance to outstanding principal.

     

    (b)  All
      payments (whether of principal, interest, legal expenses, fees, costs,
      indemnities or otherwise) to be made by Borrower to Lender at:

    

    Lothian
      Oil Inc.

    500
      5th Avenue, Suite 2600

    New
      York, NY 10110

    

    or
      to any
      other account Lender may designate in writing to Borrower from time to time.
      If
      any payment to be made under this Agreement falls due on a day that is not
      a
      Business Day, the payment will be payable on the next succeeding Business
      Day.

    
      
        
        

      

      
        9

        
          

        

      

       

    

     

    Section
      2.5.  Taxes.

     

    (a)  Taxes
      Not Deducted from Payments to Lender.
      All
      payments made by Borrower under this Agreement will be made free and clear
      of
      and without deduction for any and all present or future taxes, levies, imposts,
      deductions, charges or withholdings, and all similar liabilities excluding,
      in
      the case of Lender, taxes imposed on its income, and franchise or similar taxes
      imposed on it, by any jurisdiction (or political subdivision thereof) of which
      Lender is a citizen or resident, in which Lender is organized, or in which
      Lender is presently doing business (collectively, “Taxes”). If Borrower is
      required by law to deduct any Taxes from any sum payable to Lender,
      (i)
      the sum
      payable will be increased by an amount so that, after making all required
      deductions (including deductions applicable to additional sums payable under
      this Section 2.5) Lender will receive an amount equal to the sum it would
      have received had no deductions been made, (ii)
      Borrower will deduct from the sum payable to Lender an amount sufficient to
      pay
      the Taxes and pay the balance to Lender, and (iii)
      Borrower will promptly pay the full amount deducted to the relevant Taxing
      Authority or other Governmental Authority in accordance with applicable
      law.

     

    (b)  Other
      Taxes. In addition, and to the fullest extent permitted by applicable law,
      Borrower agrees to pay any present or future stamp, documentary, mortgage
      registration, or similar taxes or any other excise or property taxes, charges
      or
      similar levies that arise from any payment made or from the execution, delivery,
      or registration of, or otherwise with respect to, this Agreement, or any
      Security Documents (collectively, the “Other Taxes”).

     

    (c)  INDEMNIFICATION.
      TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, AND PROVIDED THAT THERE
      IS NO
      DEFAULT OF THE LENDER REPRESENTATIONS CONTAINED IN THIS AGREEMENT, BORROWER
      WILL
      INDEMNIFY LENDER FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT
      NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY
      ON AMOUNTS PAYABLE UNDER THIS SECTION 2.5 AND PAID BY LENDER) PAID BY
      LENDER (ON BEHALF OF BORROWER), AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST
      AND REASONABLE EXPENSES) ARISING FROM OR WITH RESPECT TO THOSE AMOUNTS, WHETHER
      OR NOT THE TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. ANY PAYMENT
      PURSUANT TO THE INDEMNIFICATION DESCRIBED IN THIS SECTION 2.5(c) WILL BE
      MADE BY BORROWER WITHIN THIRTY (30) DAYS AFTER THE DATE LENDER MAKES WRITTEN
      DEMAND FOR THOSE PAYMENTS. SUCH LENDER’S DEMAND WILL STATE WITH SPECIFICITY THE
      BASIS FOR THE TAX, IDENTIFY THE TAXING AUTHORITY ASSERTING THE TAX AND CERTIFY
      THAT LENDER HAS PAID THE TAX.

     

    (d)  Certification
      of Tax Status By Lender. Lender agrees that it will, not more than thirty
      (30) Business Days after the date of this Agreement, deliver to Borrower a
      United States Internal Revenue Service Form W-8 or W-9, as the case may be,
      and
      certify that it is entitled to an exemption from United States backup
      withholding tax. 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      III

    Security

     

    Section
      3.1.  Grant
      of Security Interests

     

    (a)  Mortgage
      and Security Interest.
      As
      collateral security for all of its Obligations to Lender under this Agreement
      and the other Loan Documents, Borrower shall and hereby grants, assigns,
      transfers and conveys to Lender a mortgage lien on and perfected security
      interest in the Collateral.

     

    (b)  Further
      Assurances. Borrower will, upon request, execute and deliver to Lender any
      and all documents necessary or desirable, in the reasonable opinion of Lender,
      to create, perfect, maintain, and preserve the priority of Lender’s security
      interests in and mortgage liens on the Collateral. Borrower will, at its own
      expense, cause searches of the Uniform Commercial Code filing records or similar
      public records to be conducted at the reasonable request of Lender from time
      to
      time in order to evidence, perfect, maintain or continue perfection, or confirm
      the rights and remedies, of Lender in and to the Collateral granted by Borrower,
      perfect those security interests in after-acquired property, continue the
      perfection of all security interests granted by Borrower and file financing
      statements against Borrower relating to the security interests securing any
      Obligations. Borrower irrevocably authorizes Lender to prepare and file at
      any
      time and from time to time in any filing office initial financings statements
      and amendments to them necessary or convenient to the perfection or continuation
      of the security interests granted by Borrower.

     

    (c)  Release
      of Financing Statements. Upon the indefeasible payment in cash and
      performance in full of all Obligations under this Agreement (other than
      indemnity obligations and similar obligations that survive the termination
      of
      this Agreement), Lender will deliver to Borrower, at Borrower’s expense,
      releases of all financing statements and all other Security Documents with
      an
      acknowledgment that the same have been terminated, and Borrower shall deliver
      to
      Lender a general release of all of Lender’s liabilities and obligations under
      this Agreement and the other Loan Documents. The obligations of Borrower under
      the Assignment and Bill of Sale will survive the termination of this Agreement
      and the release of the security interests.

     

    ARTICLE
      IV

    Representations
      and Warranties

     

    In
      order
      to induce Lender to make the Term Loan, Borrower makes the following
      representations and warranties to Lender as of the Closing Date, each and all
      of
      which will survive the execution and delivery of this Agreement and continue
      until all Obligations (other than indemnity obligations and similar obligations
      that survive the termination of this Agreement) have been satisfied and Lender
      has no further commitment to make Advances under this Agreement.

     

    Section
      4.1.  Formation
      and Existence.
      Borrowers are corporations duly organized, validly existing and in good standing
      under the laws of the State of their incorporation. Borrowers are qualified
      to
      do business in every other jurisdiction where the nature of its business or
      the
      ownership of its property requires it to be so qualified and where failure
      to so
      qualify could reasonably be expected to have a Material Adverse
      Effect.

    
      
        
        

      

      
        11

        
          

        

      

       

    

     

    Section
      4.2.  Ownership
      of Collateral; Interests.
      All Collateral is owned of record by Borrower and the Working Interests will
      be
      conveyed to Lender or its designee by Borrower, free and clear of any security
      interest, lien, encumbrance, mortgages, security agreement or other charge.
      Borrower has Defensible Title to the Properties, including each Lease related
      to
      the Properties. Except for the liens and security interests contemplated by
      this
      Agreement and the Security Documents, to Borrower’s knowledge there are no
      unrecorded documents or agreements which may result in the impairment or loss
      of
      Borrower’s ability to mortgage the Properties or of Lender’s ability to enforce
      the Mortgage and convey the Properties. Borrower has all beneficial rights,
      titles and interests in and to the Net Revenue Interest in all production from
      or allocable to Borrower’s interest in the Properties (including each Lease) and
      has the exclusive right to sell or mortgage the Properties subject to any right
      in the owners of Royalty Interests to take their royalty interest in
      kind.

     

    Section
      4.3.  Leases,
      etc.
      All leases and agreements referenced in the reports or other title materials
      delivered in connection with the Closing are valid and subsisting, in full
      force
      and effect and there exists no default or event or circumstance which with
      the
      giving of notice or the passage of time or both would give rise to a default
      under any such lease or leases, which would adversely affect in any material
      respect the conduct of the business of Borrower. All of the assets of Borrower
      which are reasonably necessary for the operation of its business are in good
      working condition (ordinary wear and tear excepted) and are maintained in
      accordance with prudent business standards.

     

    Section
      4.4.  Authorization;
      Non-Contravention.
      The execution, delivery and performance of Borrower’s obligations under this
      Agreement, the Term Note, the Assignment and Bill of Sale, the Security
      Documents and all and any other Loan Documents and the creation of all liens,
      mortgages and security interests provided for in those agreements:

     

    (a)  are
      within the corporate power and authority of Borrower;

     

    (b)  have
      been
      duly authorized by all necessary company action of Borrower;

     

    (c)  are
      not
      in contravention of (i)
      any
      agreement or indenture to which Borrower is a party or by which it or its
      property is bound, (ii)
      the
      charter documents of Borrower, or (iii)
      to
      Borrower’s knowledge any provision of law applicable to Borrower;

     

    (d)  do
      not
      require the consent or approval of any governmental body, agency, authority
      or
      any other Person which has not been obtained and a correct and complete copy
      of
      each of those approvals has been furnished to Lender; and

     

    (e)  are
      legal, valid, and binding obligations of Borrower, enforceable against Borrower
      in accordance with their respective terms, except as enforceability may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium or
      similar laws affecting the enforcement of creditors rights generally and by
      general equitable principles.

    
      
        
        

      

      
        12

        
          

        

      

       

    

     

    Section
      4.5.  Solvency.
      Borrower
      is Solvent and will continue to be Solvent after giving effect to the
      transactions contemplated by this Agreement.

     

    Section
      4.6.  Omissions
      and Misstatements.
      Borrower has disclosed to Lender all agreements, instruments and corporate
      or
      other restrictions to which it is subject, and all other matters known to it,
      that, individually or in the aggregate, would reasonably be expected to result
      in a Material Adverse Effect. None of the other reports, financial statements,
      certificates or other information furnished by or on behalf of Borrower or
      any
      Affiliate to Lender or any of their Affiliates in connection with the
      negotiation of this Agreement or any other Loan Document or delivered hereunder
      or under any other Loan Document (as modified or supplemented by other
      information so furnished) contains any material misstatement of fact or omits
      to
      state any material fact necessary to make the statements therein, in the light
      of the circumstances under which they were made, not misleading; provided that,
      with respect to projected financial information, Borrower represents only that
      such information was prepared in good faith based upon assumptions believed
      to
      be reasonable at the time. There is no fact peculiar to Borrower or any
      Affiliate which would reasonably be expected to have a Material Adverse Effect
      or in the future would be likely to have a Material Adverse Effect and which
      has
      not been set forth in this Agreement or the Loan Documents or the other
      documents, certificates and statements furnished to Lender by or on behalf
      of
      Borrower or any Affiliate prior to, or on, the date hereof in connection with
      the transactions contemplated hereby. There are no statements or conclusions
      in
      any reserve report which are based upon or include misleading information or
      fail to take into account material information regarding the matters reported
      therein.

     

    Section
      4.7.  USA
      Patriot Act Representation.
      Neither Borrower nor any of its Affiliates is a country, individual or entity
      named on the Specifically Designated National and Blocked Persons list issued
      by
      the Office of Foreign Asset Control of the Department of the Treasury of the
      United States of America.

     

    ARTICLE
      V

    Covenants

     

    So
      long
      as there are any Obligations owing to Lender under this Agreement, and unless
      Lender has previously consented in writing to Borrower’s non-compliance,
      Borrower will comply with the following covenants:

     

    Section
      5.1.  Debt.
      With
      respect to the properties on which Lender is granted a mortgage and lien, as
      collateral, Borrower shall not create, incur, assume, or suffer to exist any
      Debt, except:

     

    (i)  the
      Obligations; and

     

    (ii) Debt
      of
      Borrower existing on the Closing Date reflected in Borrower’s financial
      statements provided to Lender (including renewals and extensions of
      same).

     

    
      
        
        

      

      
        13

        
          

        

      

       

    

     

    Section
      5.2.  Use
      of
      Advance.
      Borrower
      shall use the Advance(s) of the Term Loan solely for the purposes specified
      in
      Section 2.1(a). 

     

    ARTICLE
      VI

    Further
      Rights of Lender

     

    Section
      6.1.  Indemnification

     

    (a)  BORROWER
      WILL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, INDEMNIFY LENDER AND
      ITS OFFICERS, DIRECTORS, EMPLOYEES AND AUTHORIZED AGENTS (COLLECTIVELY, THE
      “INDEMNIFIED PARTIES”) AND HOLD EACH OF THEM HARMLESS FROM AND AGAINST ANY AND
      ALL INJURIES, CLAIMS, DAMAGES, JUDGMENTS, LIABILITIES, COSTS AND EXPENSES
      (INCLUDING, WITHOUT LIMITATION, FEES AND DISBURSEMENTS OF COUNSEL), CHARGES
      AND
      ENCUMBRANCES WHICH MAY BE INCURRED BY OR ASSERTED AGAINST ANY OF THE INDEMNIFIED
      PARTIES IN CONNECTION WITH OR ARISING OUT OF ANY ASSERTION, DECLARATION OR
      DEFENSE OF LENDER’S RIGHTS OR SECURITY INTERESTS UNDER THE PROVISIONS OF THIS
      AGREEMENT, ANY SECURITY DOCUMENT OR ANY OTHER LOAN DOCUMENT OR IN CONNECTION
      WITH:

     

    (i)  THE
      REALIZATION, REPOSSESSION, SAFEGUARDING, INSURING OR OTHER PROTECTION OF THE
      COLLATERAL WHILE AN EVENT OF DEFAULT IS CONTINUING;

     

    (ii)  THE
      COLLECTING, PERFECTING OR PROTECTING OF LENDER’S LIENS AND SECURITY INTERESTS
      UNDER THIS AGREEMENT AND THE OTHER SECURITY DOCUMENTS; AND

     

    (iii)  ANY
      INVESTIGATION, LITIGATION, OR PROCEEDING RELATED TO ANY PRESENT OR FUTURE
      ACQUISITION OR PROPOSED ACQUISITION BY BORROWER. BORROWER WAIVES, TO THE FULLEST
      EXTENT PERMITTED BY APPLICABLE LAW, ALL RIGHTS IT MIGHT HAVE IN CONNECTION
      WITH
      ANY SUIT OR ACTION AGAINST LENDER TO CLAIM SPECIAL, INDIRECT, CONSEQUENTIAL
      OR
      PUNITIVE DAMAGES TO IT, ITS BUSINESS OR ITS PROSPECTS. BORROWER HAS CONSULTED
      WITH ITS COUNSEL WITH RESPECT TO THE PROVISIONS OF THIS SECTION 6.1 AND
      UNDERSTANDS THAT IT IS TO BE INTERPRETED BROADLY AGAINST
      BORROWER.

    
      
        
        

      

      
        14

        
          

        

      

       

    

     

    (b)  BORROWER
      SHALL INDEMNIFY LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS
      (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH
      INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES
      AND
      RELATED EXPENSES, INCLUDING REASONABLE FEES, CHARGES AND DISBURSEMENTS OF ANY
      COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE
      ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE
      EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
      AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY
      THE
      PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE
      OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS
      CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii) THE
      FAILURE OF BORROWER OR ANY OTHER PERSON TO COMPLY WITH THE TERMS OF ANY LOAN
      DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT,
      (iii) ANY
      INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT
      OF
      BORROWER SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS
      OR
      CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv) ANY
      LOAN OR ADVANCE OR THE USE OF THE PROCEEDS THEREFROM, (v) THE
      OPERATIONS OF THE BUSINESS OF BORROWER AND ITS AFFILIATES BY BORROWER AND ITS
      AFFILIATES, (vi) ANY
      ASSERTION THAT LENDER WAS NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT
      TO THE SECURITY INSTRUMENTS (AFTER GIVING EFFECT TO THE PERMITTED ENCUMBRANCES),
      (vii) ANY
      ENVIRONMENTAL LAW APPLICABLE TO BORROWER OR ANY AFFILIATE OR ANY OF THEIR
      PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE,
      RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL
      OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES
      ON
      ANY OF THEIR PROPERTIES, (viii) THE
      BREACH OR NON-COMPLIANCE BY BORROWER OR ANY AFFILIATE WITH ANY ENVIRONMENTAL
      LAW
      APPLICABLE TO BORROWER OR ANY AFFILIATE, (ix) THE
      PAST OWNERSHIP BY BORROWER OR ANY AFFILIATE OF ANY OF THEIR PROPERTIES OR PAST
      ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE
      AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (x) THE
      PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED
      RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF
      OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY
      OF
      THE PROPERTIES OWNED OR OPERATED BY BORROWER OR ANY AFFILIATE OR ANY ACTUAL
      OR
      ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY
      OWNED
      OR OPERATED BY BORROWER OR ANY OF ITS AFFILIATES, (xi) ANY
      ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO BORROWER OR ANY OF ITS AFFILIATES,
      OR (xii) ANY
      OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN
      DOCUMENTS, OR (xiii) ANY
      ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING
      TO
      ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
      REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
      SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT
      NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE,
      WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL
      TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS
      OF
      ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT
      FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL
      NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS,
      DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
      JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE
      GROSS
      NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

    
      
        
        

      

      
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    (c)  All
      amounts due under this Section 6.1 shall be payable not later than ten (10)
      days after written demand therefor.

     

    ARTICLE
      VII

    Closing;
      Conditions Precedent to Closing

     

    Section
      7.1.  Closing.
      Subject
      to the conditions stated in this Agreement, Closing of the Term Loan will occur
      at a mutually agreeable time on or before March
      31,
      2006.
      The
      dates on which the Loan Documents are executed and each of the conditions in
      Section 7.2 are satisfied will be known as the “Closing Date.” Closing will
      occur at the offices of Borrower on the Closing Date, or at any other place
      and
      time as Borrower and Lender may agree in writing.

     

    Section
      7.2.  Conditions
      to Making the Initial Advance.
      As conditions to the making of the Advance under the Term Loan, Borrower
      will:

     

    (a)  execute
      and deliver to Lender each of the Loan Documents to which Borrower is a party,
      deliver the Basic Documents to Lender, each in form and substance satisfactory
      to Lender in its sole and absolute discretion.

     

    ARTICLE
      VIII

    Events
      of Default

     

    Section
      8.1.  Events
      of Default.
      The
      occurrence and continuance of any of the following at any time during the term
      of this Agreement will be an event of default (“Event of Default”):

     

    (a)  Borrower
      fails to make any payment under this Agreement, the Term Note or any Security
      Document on the date due; 

     

    (b)  Borrower
      fails to perform any of its obligations under the Loan Documents or Development
      and Exploration Agreement;

     

    (c)  Borrower
      (i)
      executes an assignment for the benefit of its creditors, (ii)
      becomes
      or is adjudicated bankrupt or insolvent, (iii)
      admits
      in writing its inability to pay its debts generally as they become due,
      (iv)
      applies
      for or consents to the appointment of a conservator, receiver, trustee, or
      liquidator of Borrower or of all or any substantial part of its assets,
      (v)
      files a
      voluntary petition seeking reorganization or an arrangement with creditors,
      or
      to take advantage of or seek any other relief under any Debtor Relief Laws,
      (vi)
      files
      an answer admitting the material allegations of or consenting to, or defaults
      in, a petition filed against it in any proceeding under any Debtor Relief Laws,
      or (vii)
      institutes or voluntarily becomes a party to any other judicial proceedings
      intended to effect a discharge of its debts, in whole or in part, or seeking
      to
      postpone the maturity or the collection of any of its debts or to suspend any
      of
      the rights of Lender or any of its Affiliates under any of the Loan Documents;
      or

    
      
        
        

      

      
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    (d)  (i)
      an
      order, judgment, or decree is entered by any court of competent jurisdiction
      approving a petition seeking reorganization of Borrower or appointing a
      conservator, receiver, trustee, or liquidator of Borrower, or of all or any
      substantial part of its assets, and the order, judgment, or decree is not
      permanently stayed or reversed within sixty (60) days after its entry, or
      (ii)
      a
      petition is filed against Borrower seeking reorganization, an arrangement with
      creditors, or any other relief under any Debtor Relief Laws, and the petition
      is
      not discharged within ninety (90) days after its filing

     

    ARTICLE
      IX

    Remedies
      of Lender

     

    Section
      9.1.  Remedies.
      Upon the
      occurrence of any Event of Default other than under Sections 8.1(c) or
      8.1(d), Lender shall, by written notice to Borrower, take either or both of
      the
      following actions, at the same or different times: (i) terminate
      the commitments and thereupon the commitments shall terminate immediately and
      (ii) declare
      the Term Note and the Term Loan due and payable in whole (or in part, in which
      case any principal not so declared to be due and payable may thereafter be
      declared to be due and payable), and thereupon the principal of the Term Loan
      so
      declared to be due and payable, together with accrued interest thereon and
      all
      fees and other obligations of Borrower accrued hereunder and under the Term
      Note
      and the other Loan Documents, shall become due and payable immediately, without
      presentment, demand, protest, notice of intent to accelerate, notice of
      acceleration or other notice of any kind, all of which are hereby waived by
      Borrower. Upon the occurrence of an Event of Default described in
      Section 8.1(c) or Section 8.1(d), the commitments to make additional
      Advances shall automatically terminate and the Term Note and the principal
      of
      the Term Loan then outstanding, together with accrued interest thereon and
      all
      fees and the other obligations of Borrower accrued hereunder and under the
      Notes
      and the other Loan Documents, shall automatically become due and payable,
      without presentment, demand, protest or other notice of any kind, all of which
      are hereby waived by Borrower. Upon a termination of its commitments following
      an Event of Default, Lender will have, in addition to all of its other rights
      arising under any of the Loan Documents or by operation of law or otherwise
      (which rights shall be cumulative), all of the rights and remedies of a secured
      party under the Uniform Commercial Code and will have the right to enter upon
      any premises where the Collateral is kept and peacefully retake
      possession.

     

    Section
      9.2.  Collateral.
      Lender will have no obligation to preserve rights to any Collateral against
      prior parties or to proceed first against any Collateral or to marshal any
      Collateral of any kind for the benefit of any other creditor of Borrower or
      any
      other Person. Borrower grants to Lender a license or other right to use, without
      charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade
      secrets, trade names, trademarks and advertising matter, or any property of
      a
      similar nature related to the Collateral and necessary or convenient in
      correction with Lender completing production of, advertising for sale and
      selling any Collateral, and Borrower’s rights under all licenses and any
      franchise, sales or distribution agreements will inure to Lender’s
      benefit.

    
      
        
        

      

      
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    Section
      9.3.  Set-Off
      Rights.
      Upon the occurrence and during the continuation of an Event of Default, Lender
      will have the right, at any time and from time to time, to set-off and apply
      against the Obligations, in any manner Lender may determine, any and all
      deposits (general or special, time or demand, provisional or final) or other
      amounts at any time credited by or owing from Lender or any depositary to
      Borrower whether or not the Obligations are then due; provided, however, that
      this sentence will not apply to any amounts owing to third-party Working
      Interest and Royalty Interest previously identified in writing to Lender. Lender
      will provide notice to Borrower not later than ten (10) days following the
      application of any funds under this Section 9.3. As further security for
      the Obligations, Borrower grants to Lender a security interest in and lien
      on
      all money, instruments, and other property of Borrower now or at any time held
      by Lender, including property held in safekeeping. In addition to Lender’s right
      of set-off and as further security for the Obligations, Borrower grants to
      Lender a security interest in and lien on all deposits (general or special,
      time
      or demand, provisional or final) and other accounts of Borrower now or at any
      time on deposit with or held by Lender together with all other amounts at any
      time credited by or owing from Lender to Borrower. The rights and remedies
      of
      Lender under this Section 9.3 are in addition to other rights and remedies
      (including other rights of set-off) that Lender may have.

     

    Section
      9.4.  Rights
      Under Operating Agreements.
      Upon the occurrence and during the continuation of an Event of Default, Lender
      will have the right to exercise Borrower’s rights under any Operating Agreement
      or any other Basic Document.

     

    ARTICLE
      X

    Miscellaneous

     

    Section
      10.1.  Remedies
      Cumulative.
      Lender’s
      rights and remedies under this Agreement are cumulative and non-exclusive of
      any
      other rights or remedies it may have under any other agreement or instrument,
      or
      by operation of law or otherwise.

     

    Section
      10.2.  Assignment.
      This Agreement is entered into for the benefit of Borrower and Lender and their
      respective successors and assigns. It will be binding on and inure to the
      benefit of those parties and their respective successors and assigns. The rights
      and obligations of Borrower under this Agreement, the Term Note, the other
      Security Documents, and the Development and Exploration Agreement, or any other
      Loan Document to which Borrower is a party may not be assigned without Lender’s
      prior written consent. Lender may assign, transfer or otherwise dispose of
      any
      of its rights or obligations under this Agreement or any of the other Loan
      Documents on the prior written consent of Borrower, such consent to not be
      unreasonably withheld. To the extent Lender assigns to any other Person an
      interest in the Term Note, Borrower shall execute and deliver to Lender any
      documents reasonably necessary in connection with such transaction, including
      the issuance by Borrower of one or more Term Notes. Additionally, so long as
      Borrower’s rights and obligations hereunder are not adversely affected, Lender
      will be entitled to grant and assign a security interest in its rights, titles,
      and interests in and to the Term Note, the Security Documents and all other
      Loan
      Documents to its lender or lenders as security for indebtedness of the
      Lender.

     

    Section
      10.3.  Notices.
      Any notice, demand or document which either party is required or may desire
      to
      give to the other will be in writing and, except as otherwise provided in this
      Agreement, given by messenger, nationally recognized courier, overnight
      delivery, facsimile or other electronic transmission, or United States certified
      mail, postage prepaid, return receipt requested, addressed to the recipient
      at
      the location shown below, or at any other address as either party may furnish
      to
      the other by notice given in accordance with this provision.

    
      
        
        

      

      
        18

        
          

        

      

       

    

     

    If
      to
      Lender, to:

    

    Lothian
      Oil Inc.

    500
      5th Avenue, Suite 2600

    New
      York, NY 10110

    

    If
      to
      Borrower, to:

    

    United
      Heritage Corporation

    405
      N. Marienfeld, Suite 200

    Midland,
      TX 79701

     

    If
      to any
      other obligor party, the notice will be sent to the Borrower and to the address
      set forth in the Security Document or other Loan Document to which the recipient
      is a party.

     

    Any
      notice delivered or made by messenger, telecopy, electronic mail or United
      States mail will be deemed to be given on the date of actual delivery as shown
      by messenger receipt, the sender’s facsimile machine confirmation or other
      verifiable electronic receipt, or the registry or certification receipt.
      Notwithstanding the previous sentence, if either party receives from the other
      any message via electronic mail that purports to be a notice under this
      Agreement but that contains information that is syntactically incorrect, garbled
      or otherwise unintelligible, the recipient will notify the sender and the
      message containing the unintelligible information will not be deemed to be
      given
      until it is successfully delivered (including redelivery by electronic mail)
      pursuant to this Section 10.3. If Lender receives oral notice of any event
      from
      an authorized officer of Borrower, Lender will not be required to delay the
      exercise of any rights arising from the occurrence of that event until it
      receives written confirmation of the oral notice. In the event that a
      discrepancy exists between the notice received by Lender orally and the written
      confirmation, or in the absence of a written confirmation, the oral notice,
      as
      understood by Lender will be deemed the controlling and proper
      notice.

     

    Section
      10.4.  Waivers;
      Amendments.
      Neither
      the failure nor any delay on the part of any party to exercise any right,
      remedy, power, privilege or option under this Agreement will operate as a waiver
      of that or any other right, remedy, power, privilege or option. No single or
      partial exercise of any right, remedy, power, privilege or option under this
      Agreement will preclude any other or further exercise or the exercise of any
      other right, remedy, power, privilege or option. No waiver of any right, remedy,
      power, privilege or option with respect to any occurrence will be construed
      as a
      waiver of that right, remedy, power, privilege or option with respect to any
      subsequent or other occurrence. No waiver will be valid unless in writing and
      signed by an officer of the waiving party and then only to the extent provided
      in the written waiver.

    
      
        
        

      

      
        19

        
          

        

      

       

    

     

    Section
      10.5.  Confidentiality.
      Except as may be required in the Bankruptcy Proceedings or by law or in response
      to or in connection with arbitration proceedings or legal process or in any
      legal proceeding to enforce or interpret the Security Documents (including
      a
      sale by foreclosure) or any other document or instrument executed in connection
      with the Security Documents, and in any filings necessary or appropriate to
      create, maintain, and perfect liens and security interests contemplated by
      this
      Agreement, neither party will release this Agreement or any other document,
      agreement, or instrument relating to or executed in conjunction with this
      Agreement, or disclose the substantive terms of any of them except to its
      attorneys, accountants or engineers on a need-to-know basis, without the prior
      written consent of the other party. Notwithstanding the previous sentence,
      Lender may disclose the substantive terms of or furnish its lenders and
      potential lenders and investment bankers and their respective attorneys,
      accountants or engineers with copies of this Agreement or any Security Document
      or any other document agreement or instrument relating to or executed or
      delivered to Lender in conjunction with this Agreement without the consent
      of
      Borrower. Neither party or any of their respective Affiliates will issue any
      press release or make any other public announcement relating to this Agreement
      without the prior written consent of the other party; provided, however, Lender
      and Borrower may each publish a “tombstone” announcement regarding this
      Agreement. 

     

    Section
      10.6.  Final
      Agreement.
      This Agreement and the other agreements to which this Agreement refers, together
      with all exhibits, schedules and annexes attached to any of them, constitute
      the
      final, entire agreement among the parties and supersede any prior oral or
      written and all contemporaneous oral proposals, commitments, promises,
      agreements and understandings between the parties with respect to the subject
      matter of this Agreement and the other Loan Documents, all of which are merged
      into and replaced by the Loan Documents.

     

    Section
      10.7.  WAIVER
      OF JURY TRIAL, PUNITIVE DAMAGES, ETC.
      EACH OF BORROWER AND LENDER KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND
      IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
      IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS
      AGREEMENT, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN
      CONNECTION WITH THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED OR ASSOCIATED
      WITH ANY OF THEM, BEFORE OR AFTER MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT
      NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
      LITIGATION ANY “SPECIAL DAMAGES”, AS DEFINED BELOW; (C) CERTIFIES THAT NEITHER
      IT NOR ANY OF ITS REPRESENTATIVES, AGENTS OR COUNSELORS HAS REPRESENTED,
      EXPRESSLY OR OTHERWISE, OR IMPLIED THAT THE CERTIFYING PARTY WOULD NOT, IN
      THE
      EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (D) ACKNOWLEDGES
      THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS
      AND THE TRANSACTIONS CONTEMPLATED THEREBY, AMONG OTHER THINGS, THE MUTUAL
      WAIVERS AND CERTIFICATIONS IN THIS SECTION. AS USED IN THIS SECTION, “SPECIAL
      DAMAGES” INCLUDES ALL SPECIAL, CONSEQUENTIAL, INDIRECT, EXEMPLARY, OR PUNITIVE
      DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS
      WHICH ANY PARTY HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER
      PARTY.

    
      
        
        

      

      
        20

        
          

        

      

       

    

     

    Section
      10.8.  GOVERNING
      LAW.
      THIS AGREEMENT, THE TERM NOTE, THE OVERRIDING ROYALTY INTEREST CONVEYANCE AND
      EACH OF THE OTHER LOAN DOCUMENTS ARE TO BE PERFORMED IN THE STATE OF TEXAS.
      THIS
      AGREEMENT, THE TERM NOTE AND ALL OF THE OTHER LOAN DOCUMENTS, TOGETHER WITH
      ALL
      TRANSACTIONS PROVIDED FOR IN THEM WILL BE GOVERNED BY, INTERPRETED AND CONSTRUED
      UNDER AND ENFORCED PURSUANT TO THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD
      TO
      ITS CONFLICTS OF LAWS PROVISIONS.

     

    Section
      10.9.  No
      Third-Party Beneficiaries.
      Subject to Section 10.2, the benefits of this Agreement will not inure to
      any third party. Notwithstanding anything contained in this Agreement or the
      other Loan Documents, or any conduct or course of conduct by the parties, before
      or after signing this Agreement or the Loan Documents, this Agreement will
      not
      be construed as creating any rights, claims or causes of action against Lender,
      or any of its officers, directors, agents or employees by any Person other
      than
      Borrower.

     

    Section
      10.10.  Fees,
      Costs and Expenses; Indemnification

     

    (a)  Fees,
      Costs and Expenses.
      Borrower
      will promptly pay (within thirty (30) days after receipt of invoice or other
      statement or notice) (i)
      all
      transfer, stamp, mortgage, documentary or other similar taxes, assessments
      or
      charges levied by any governmental or revenue authority in respect of this
      Agreement or any of the other Loan Documents or any other document referred
      to
      herein or therein, (ii)
      all
      reasonable costs and expenses incurred by or on behalf of Lender (including
      attorneys’ fees, consultants’ fees and engineering fees, travel costs and
      miscellaneous expenses) in connection with (A) the negotiation, preparation,
      execution and delivery of any and all consents, waivers and amendments to any
      of
      the Loan Documents, (B) the filing, recording, refiling and re-recording of
      any
      Loan Documents and any other documents or instruments or further assurances
      required to be filed or recorded or refiled or re-recorded by the terms of
      any
      Loan Document, (C) the borrowings hereunder and other action reasonably required
      in the course of administration hereof, and (D) monitoring or confirming (or
      preparation or negotiation of any documents related to) Borrower’s compliance
      with any covenants or conditions contained in this Agreement or in any other
      Loan Document, and (iii)
      all
      reasonable costs and expenses incurred by or on behalf of Lender (including
      attorneys’ fees, consultants’ fees and accounting fees) in connection with the
      defense or enforcement of any of the Loan Documents (including this section)
      or
      the defense of Lender’s exercise of its rights thereunder. In addition, except
      as otherwise provided herein, until all Obligations are paid in full, Borrower
      shall also pay or reimburse Lender for all reasonable out-of-pocket costs and
      expenses of Lender or its agents or employees in connection with the continuing
      administration of the Term Loan and the related due diligence of Lender,
      including travel and miscellaneous expenses and fees and expenses of Lender’s
      outside counsel, reserve engineers and consultants engaged in connection with
      the Loan Documents.

     

    (b)  Indemnification.
      BORROWER AGREES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW TO DEFEND,
      RELEASE AND INDEMNIFY LENDER, UPON DEMAND, FROM AND AGAINST ANY AND ALL
      LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS,
      JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING
      REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND
      OR
      NATURE WHATSOEVER (IN THIS SECTION, COLLECTIVELY CALLED “LIABILITIES AND COSTS”)
      WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR
      ASSERTED AGAINST LENDER ARISING OUT OF, RESULTING FROM OR IN ANY OTHER WAY
      ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN DOCUMENTS AND THE TRANSACTIONS
      AND EVENTS (INCLUDING THE ENFORCEMENT OR DEFENSE THEREOF) AT ANY TIME ASSOCIATED
      THEREWITH OR CONTEMPLATED THEREIN (INCLUDING ANY VIOLATION OR NONCOMPLIANCE
      WITH
      ANY ENVIRONMENTAL LAWS BY ANY RESTRICTED PERSON OR ANY LIABILITIES OR DUTIES
      OF
      ANY RESTRICTED PERSON OR LENDER WITH RESPECT TO HAZARDOUS MATERIALS FOUND IN
      OR
      RELEASED INTO THE ENVIRONMENT).

    
      
        
        

      

      
        21

        
          

        

      

       

    

     

    THE
      FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS
      ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
      OR
      THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT
      ACT OR OMISSION OF ANY KIND BY LENDER, PROVIDED ONLY THAT LENDER SHALL NOT
      BE
      ENTITLED UNDER THIS SECTION TO RECEIVE INDEMNIFICATION FOR THAT PORTION, IF
      ANY,
      OF ANY LIABILITIES AND COSTS WHICH IS PROXIMATELY CAUSED BY ITS GROSS NEGLIGENCE
      OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL JUDGMENT. IF ANY PERSON
      (INCLUDING BORROWER OR ANY OF ITS AFFILIATES) EVER ALLEGES SUCH GROSS NEGLIGENCE
      OR WILLFUL MISCONDUCT BY LENDER, THE INDEMNIFICATION PROVIDED FOR IN THIS
      SECTION SHALL NONETHELESS BE PAID UPON DEMAND, SUBJECT TO LATER ADJUSTMENT
      OR
      REIMBURSEMENT, UNTIL SUCH TIME AS A COURT OF COMPETENT JURISDICTION ENTERS
      A
      FINAL JUDGMENT AS TO THE EXTENT AND EFFECT OF THE ALLEGED GROSS NEGLIGENCE
      OR
      WILLFUL MISCONDUCT. AS USED IN THIS SECTION THE TERM “LENDER” SHALL REFER NOT
      ONLY TO THE PERSONS DESIGNATED AS SUCH IN SECTION 1.1 BUT ALSO TO EACH DIRECTOR,
      OFFICER, AGENT, ATTORNEY, EMPLOYEE, REPRESENTATIVE AND AFFILIATE OF SUCH
      PERSONS.

     

    Section
      10.11.  Compliance
      with Law.
      It is
      the intention of the parties to comply with applicable usury laws (now or later
      enacted). Accordingly, and notwithstanding any provision to the contrary in
      this
      Agreement, the other Security Documents or any other Loan Document, in no event
      will this Agreement or any other Loan Document require the payment or permit
      the
      collection of interest in excess of the maximum amount permitted by those laws.
      If, under any circumstances, the fulfillment of any provision of this Agreement
      or of any other Loan Document will involve exceeding the limit prescribed by
      applicable law for the contracting for or charging or collecting interest,
      then
      the obligation to be fulfilled will, ipso facto, be reduced to the allowable
      limit, and if, under any circumstances, Lender ever receives pursuant to any
      of
      the Loan Documents anything of value as interest or that is deemed to be
      interest under applicable law that would exceed the highest lawful rate, the
      amount that would otherwise be excessive interest will be applied to the
      reduction of the principal amount owing under the Term Note or on account of
      any
      other indebtedness owed by Borrower to Lender, and not to the payment of
      interest; or, if any portion of the excessive interest exceeds the unpaid
      balance of principal of that indebtedness, then the excess amount will be
      refunded to Borrower. In determining whether or not the interest paid or payable
      with respect to any indebtedness owed by Borrower to Lender exceeds the highest
      lawful rate, Borrower and Lender will, to the maximum extent permitted by
      applicable law, (a) characterize any non-principal payment as an expense, fee
      or
      premium rather than as interest, (b) exclude voluntary prepayments and the
      effects of them, (c) amortize, prorate, allocate and spread the total amount
      of
      interest throughout the full term of the indebtedness so that the actual rate
      of
      interest on account of the indebtedness does not exceed the maximum amount
      permitted by applicable law, and (d) allocate interest between portions of
      the
      indebtedness so that no portion will bear interest at a rate greater than that
      permitted by applicable law.

    
      
        
        

      

      
        22

        
          

        

      

       

    

     

    Section
      10.12.  Power
      of
      Attorney; Etc.
      Borrower
      grants to Lender a power of attorney for the purpose of executing on behalf
      of
      Borrower documents related to the enforcement of Lender’s rights under the
      Security Documents, including but not limited to the execution of any instrument
      to be filed with or approved by any applicable state regulatory agency in the
      event of a foreclosure on any of the Property. The power of attorney granted
      to
      Lender by Borrower under this Section 10.12 is a right coupled with an interest
      and will be irrevocable for as long as any of the Obligations remain outstanding
      provided, however that Lender agrees not to exercise the power of attorney
      described in this Section 10.12 prior to the occurrence of an Event of
      Default. 

     

    Section
      10.13.  Payment
      of Borrower Debt.
      Lender may, at its sole option, but without any obligation, pay on behalf of
      Borrower any Debt of Borrower giving rise to Liens which have priority ahead
      of
      the Liens of Lender in and to the Collateral or any part thereof and any amounts
      so paid by Lender shall become a part of the Obligations considered an Advance
      on the Term Note hereunder and shall accrue interest at the Contract Rate or
      Default Rate, as applicable.

     

    Section
      10.14.  Severability.
      Any section, clause, subsection, sentence, paragraph, provision or term this
      Agreement held invalid, illegal, or ineffective by a court of competent
      jurisdiction will not impair, invalidate or nullify the remainder of this
      Agreement.

     

    Section
      10.15.  Captions;
      Headings.
      The headings, captions and arrangements contained in this Agreement have been
      inserted for convenience only and will not be deemed in any manner to modify,
      explain, enlarge or restrict any provision in this Agreement.

     

    Section
      10.16.  Construction.
      Borrower and Lender acknowledge that each of them has had the benefit of legal
      counsel of its own choice and has been afforded an opportunity to review this
      Agreement, the Term Note and each of the other Loan Documents with its legal
      counsel and that this Agreement and the other Security Documents will be
      construed as if jointly drafted by Borrower and Lender. In the event of a
      conflict between the terms of this Agreement and the Security Documents, the
      terms of this Agreement shall be controlling.

     

    Section
      10.17.  Additional
      Documents.
      From time to time after the date of this Agreement, each of the parties hereto
      agrees to execute and deliver or cause to be executed and delivered, all
      reasonable documents and instruments, and take any other reasonable and lawful
      action as the other party may deem necessary or desirable to perfect or evidence
      perfection of its security interest, to enforce its rights under this Agreement
      or to otherwise effectuate the purposes of this Agreement. Upon the full payment
      and complete discharge of Borrower’s Obligations under this Agreement and the
      other Loan Documents, Lender will, at the request and expense of Borrower,
      prepare and deliver documents evidencing the release and termination of the
      liens, security interests, and other interests of Lender under the Security
      Documents.

    
      
        
        

      

      
        23

        
          

        

      

       

    

     

    Section
      10.18.  Counterpart
      Execution.
      This Agreement may be executed simultaneously in one or more counterparts,
      each
      of which will be deemed an original, but all of which together will constitute
      one and the same instrument.

     

    Section
      10.19.  EXCULPATION
      PROVISIONS.
      EACH OF THE PARTIES AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND EACH
      OF
      THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE
      OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN
      FACT
      READ THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS AND IS FULLY INFORMED
      AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS AND CONDITIONS CONTAINED IN
      THEM;
      THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE
      THROUGHOUT THE NEGOTIATION OF EACH OF THE LOAN DOCUMENTS AND HAS RECEIVED THE
      ADVICE OF ITS LEGAL COUNSEL IN ENTERING INTO THE LOAN DOCUMENTS; AND THAT IT
      RECOGNIZES THAT CERTAIN TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
      RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE
      TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR THAT
      LIABILITY. EACH PARTY AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY
      OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT OR ANY OF
      THE
      OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE
      OF
      THE PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”

     

    THIS
      AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
      THE
      PARTIES WITH RESPECT TO THE MATTERS ADDRESSED IN THEM AND CANNOT AND WILL NOT
      BE
      CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
      AGREEMENTS OF THE PARTIES.

    

    THERE
      ARE NO UNWRITTEN ORAL AGREEMENTS.

     

    [SIGNATURES
      BEGIN ON THE FOLLOWING PAGE]

    
      
        
        

      

      
        24

        
          

        

      

       

    

    Borrower
      has caused this Agreement to be executed as of the 31st day of March,
      2006.

    

    BORROWER:

     

    
      	 	 	 
	 	UNITED
              HERITAGE CORPORATION
	 
 	 
 	 
 
	 	By:  	/s/ C.
              Scott Wilson
	 	
              
                

              

              C. Scott Wilson

              President / Chief Executive Officer

            
	 	 

    

    

    Signature
      page to the Secured Credit Agreement

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    Lender
      has caused this Agreement to be executed as of the 31st day of March,
      2006.

     

    LENDER: 

     

    
      	 	 	 
	 	LOTHIAN
              OIL INC.
	 
 	 
 	 
 
	: 	By:  	/s/ Ken
              Levy
	 	
              
                

              

              Ken Levy

              Secretary / Chief Financial Officer

            
	 	 

    

     

    Signature
      page to the Secured Credit Agreement

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    SCHEDULE
      2.1

    TO

    SECURED
      CREDIT AGREEMENT

     

    Between

     

    UNITED
      HERITAGE CORPORATION,

    as
      Borrower

     

    and

     

    LOTHIAN
      OIL INC.,

    as
      Lender

    

    Use
      of
      Funds at Closing

    

    The
      loan
      advances provided for in this Agreement and the Term Loan shall be used to
      pay
      for one hundred percent (100%) of the capital costs of drilling and equipping,
      and improving production from existing wells on leases in the Wardlaw Property,
      Edwards County, Texas, as provided for in the Development and Exploration
      Agreement between Borrower and Lender.

    

    Signature
      page to the Secured Credit AgreementTERM
      NOTE

     

    
      	US $2,500,000	 	
               March
                31,
                2006

            

    

          

    FOR
      VALUE
      RECEIVED, the undersigned, UNITED
      HERITAGE CORPORATION
      (the
“Borrower”), HEREBY PROMISES TO PAY in accordance with the Credit Agreement
      referred to below, to the order of LOTHIAN
      OIL INC. (the
      “Lender”), the principal sum of TWO
      MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000),
      or so
      much thereof as may be advanced from time to time in immediately available
      funds, together with interest on the unpaid principal balance of this Term
      Note
      (this “Note”) from time to time outstanding at the rate per annum and the manner
      set forth in the Credit Agreement (herein defined); provided that in no
      event shall interest on this Note ever be charged, paid, taken, or received
      at a
      rate greater than the highest lawful rate. Interest on the principal balance
      outstanding from time to time under this Note shall be calculated in accordance
      with the Credit Agreement and shall be due and payable as set forth in the
      Credit Agreement. Additionally, in the event of prepayment of the principal
      balance of this Note in whole or in part, accrued interest on the principal
      portion prepaid shall also be due and payable at the time of prepayment. Accrued
      interest on any principal balance outstanding hereunder post-maturity (whether
      brought about by acceleration or otherwise) shall be due and payable on demand.
      The final maturity of this Note, unless demanded or accelerated earlier, shall
      be as set forth in the Credit Agreement, at which time all principal and accrued
      interest then unpaid shall be due and payable in full.

     

    This
      Note
      is a Term Note as referred to in, and is subject to and is entitled to the
      benefits of that certain Credit Agreement dated to be effective March 31, 2006,
      by and between the Borrower, and the Lender (as amended, supplemented, or
      modified from time to time, the “Credit Agreement”). All capitalized terms used
      herein and not otherwise defined herein shall have the meanings given thereto
      in
      the Credit Agreement. The Credit Agreement, among other things,
      contains provisions for acceleration of the maturity hereof upon the happening
      of certain events. If this Note shall be collected by legal proceedings or
      through a bankruptcy court, or shall be placed in the hands of an attorney
      for
      collection after default or maturity (regardless of how maturity is brought
      about), the Borrower agrees to pay all costs of collection, including reasonable
      attorneys’ fees.

     

    It
      is the
      intention of the Borrower and the Lender to comply with applicable Texas and
      Federal usury laws now or hereafter enacted. Accordingly, and notwithstanding
      any provision to the contrary herein or in any Security Document or in any
      other
      document related thereto, in no event shall this Note, any Security Document
      or
      any other document related thereto require payment or permit the collection
      of
      interest in excess of the maximum amount permitted by such laws. If, for any
      reason whatsoever, the interest paid or received on this Note during its full
      term produces a rate which exceeds the highest lawful rate applicable to the
      holder, the holder of this Note shall refund to the Borrower or, at the holder’s
      option, credit against the principal of this Note such portion of said interest
      as shall be necessary to cause the interest paid on this Note to produce a
      rate
      equal to the highest lawful rate. All sums paid or agreed to be paid to the
      holder of this Note for the use, forbearance, or detention of the indebtedness
      evidenced hereby shall, to the extent permitted by applicable law, be amortized,
      prorated, allocated and spread in equal parts throughout the full term of this
      Note, so that the interest rate is uniform throughout the full term of this
      Note.

    
      
        
        

      

      
        
          Page
            1 of
            1

          ________

          Initials

        

        
          

        

      

      
        
        

      

    

     

    Interest
      shall be calculated on the unpaid principal balance of this Note from time
      to
      time outstanding from the date of each Advance of principal to the date of
      repayment in full of such Advance pursuant to the terms of the Credit
      Agreement.

     

    The
      Borrower hereby authorizes the Lender to enter into Lender’s records the date
      and principal amount of each Advance, and the rate of interest payable thereon,
      which shall be binding on the Borrower absent manifest error; provided that
      the
      failure of the Lender to make any such record entry shall not affect the
      obligation of the Borrower to repay each Advance and to pay interest accrued
      thereon and other sums payable hereunder.

     

    The
      Borrower waives notice (including, but not limited to, notice of protest, notice
      of dishonor, notice of intent to accelerate, and notice of acceleration) of
      presentment for payment and protest and any other notice of any kind except
      as
      specifically required by the Credit Agreement. No failure to exercise, and
      no
      delay in exercising any rights hereunder on the part of the holder hereof shall
      operate as a waiver of such rights. The Borrower agrees that its liability
      on or
      with respect to this Note shall not be affected by any release of or change
      in
      any security at any time existing or by any failure to perfect or maintain
      perfection of any lien against or security interest in any such security or
      the
      partial or complete unenforceability of any guaranty or other surety obligation,
      in each case in whole or in part, with or without notice and before or after
      maturity.

     

    This
      Term
      Note is given pursuant to and is subject to the terms of the Development and
      Exploration Agreement of March 31, 2006, between Borrow and Lender affecting
      Borrower’s Wardlaw Property in Edwards County, Texas.

     

    THE
      OBLIGATIONS OF BORROWER UNDER THIS NOTE ARE TO BE PERFORMED IN THE STATE OF
      TEXAS AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
      LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ITS PRINCIPLES OF CONFLICTS
      OF LAWS.

     

    BORROWER:

     

    
      	 	 	 
	 	UNITED
              HERITAGE CORPORATION
	 
 	 
 	 
 
	 	By:  	/s/ C.
              Scott Wilson
	 	
              
                

              

              C. Scott Wilson

              President / Chief Executive Officer

            
	 	 

    

    
      
        
        

      

      
        
          Page 2
            of 2

          ________

          Initials

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