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EXHIBIT 10.3
SECURITY AGREEMENT
DATED AS OF DECEMBER 9, 1997
BETWEEN
▇▇▇▇▇▇▇▇▇ DRILLING COMPANY
AND
NORWEST BANK TEXAS, NATIONAL ASSOCIATION
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TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . 1
Section 1.02. Terms Defined in Credit Agreement . . . . . . . . . . . 2
ARTICLE 2 - SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.01. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A. The Rigs . . . . . . . . . . . . . . . . . . . . . . . 2
B. The Accounts . . . . . . . . . . . . . . . . . . . . . 2
C. Collateral . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.02. Continued Priority of Security Interest. . . . . . . . 2
Section 2.03. Maintenance of Status of Security Interest . . . . . . 3
Section 2.04. Evidence of Status of Security Interest . . . . . . . . 3
Section 2.05. Authorized Action . . . . . . . . . . . . . . . . . . . 3
Section 2.06. Grantors Each Remain Obligated; the Bank Not Obligated. 3
ARTICLE 3 - MAINTENANCE, USE AND OPERATION, INSPECTION,
IDENTIFICATION MARKS . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.01. Maintenance . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.02. Use and Operation . . . . . . . . . . . . . . . . . . . 4
Section 3.03. Inspection . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.04. Identification Marks . . . . . . . . . . . . . . . . . 4
ARTICLE 4 - REPLACEMENT OF PARTS; ALTERATIONS,
MODIFICATIONS, AND ADDITIONS . . . . . . . . . . . . . . . . . . 4
Section 4.01. Replacement of Parts . . . . . . . . . . . . . . . . . 4
Section 4.02. Alterations, Modifications, and Additions . . . . . . . 5
ARTICLE 5 - INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5.01. Insurance Against Loss or Damage to Rigs . . . . . . . 5
Section 5.02. Insurance Against Public Liability and Property Damage 5
Section 5.03. Delivery of Policies . . . . . . . . . . . . . . . . . 6
Section 5.04. Notice of Cancellation . . . . . . . . . . . . . . . . 6
Section 5.05. No Act Impairing Insurance . . . . . . . . . . . . . . 6
Section 5.06. Proof of Loss . . . . . . . . . . . . . . . . . . . . . 6
Section 5.07. Insurance . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5.08. Payment to Bank. . . . . . . . . . . . . . . . . . . . 7
Section 5.09. Application of Proceeds . . . . . . . . . . . . . . . . 7
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ARTICLE 6 - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.01. Default . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.02. Application of Proceeds . . . . . . . . . . . . . . . . 7
Section 6.03. Remedies . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.04. Power of Sale . . . . . . . . . . . . . . . . . . . . . 9
Section 6.05. Power of Attorney - Sale . . . . . . . . . . . . . . . 9
Section 6.06. Bank to Discharge Liens . . . . . . . . . . . . . . . . 9
Section 6.07. Payment of Expenses . . . . . . . . . . . . . . . . . . 10
Section 6.08. Remedies Cumulative. . . . . . . . . . . . . . . . . . 10
Section 6.09. Cure of Defaults . . . . . . . . . . . . . . . . . . . 10
Section 6.10. Discontinuance of Proceedings . . . . . . . . . . . . . 10
ARTICLE 7 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.01. Contracts . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.02. Power of Attorney . . . . . . . . . . . . . . . . . . . 11
Section 7.03. Irrevocable Nature of Power . . . . . . . . . . . . . . 11
Section 7.04. Further Documents . . . . . . . . . . . . . . . . . . . 11
Section 7.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.06 Notice of Acquisition or Substitution . . . . . . . . . 11
Section 7.07. Choice of Law . . . . . . . . . . . . . . . . . . . . . 12
Section 7.08. Severability of Provisions . . . . . . . . . . . . . . 12
Section 7.09 Release of Lien . . . . . . . . . . . . . . . . . . . . 12
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SECURITY AGREEMENT
SECURITY AGREEMENT, dated December 9, 1997, is between ▇▇▇▇▇▇▇▇▇
DRILLING COMPANY, A DELAWARE CORPORATION ("PDC"), and NORWEST BANK TEXAS,
NATIONAL ASSOCIATION, with its successors and assigns (THE "BANK").
WHEREAS, the Bank has agreed to lend ▇▇▇▇▇▇▇▇▇ Energy, Inc., a Delaware
corporation, (the "Borrower"), up to $60,000,000 (the "Loan") to permit the
Borrower and its subsidiaries to acquire or make improvements to drilling rigs,
rolling stock, and related drilling equipment, to pay all amounts due under the
Existing Agreement, and to acquire other drilling companies or the assets
related to their drilling operations pursuant to the Credit Agreement dated the
date hereof (the "Agreement") among the Borrower, PDC, ▇▇▇▇▇▇▇▇▇ Petroleum,
Inc. ("PPI"), ▇▇▇▇▇▇▇▇▇ Petroleum Trading Company, Inc., a Texas corporation
("PPTC"), and the Bank; and
WHEREAS, PDC, PPI, and PPTC jointly and severally have guaranteed the
Obligations arising under the Agreement; and
WHEREAS, Bank requires, as a condition to the Loan, that PDC execute and
deliver this Security Agreement to Bank as security for its obligations under
the Guaranty.
NOW, THEREFORE, in consideration of the premises herein and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto agree and covenant as follows:
ARTICLE 1 - DEFINITIONS
Section 1.01. Certain Defined Terms. For purposes of this Security
Agreement:
(a) "Insurance" shall mean: (i) all insurance for the Rigs, whether
now or hereafter in effect, owned by PDC and all renewals of or
replacements for them; (ii) all claims and other moneys and
claims for moneys due and to become due under the insurance; and
(iii) all other rights of PDC under or for the insurance.
(b) "Rigs" shall mean the 99 land drilling rigs owned by PDC as more
particularly described in Schedule 1 attached hereto; (ii) all
land drilling rigs and drilling equipment acquired with the
proceeds of the Loan in the name of PDC; and (iii) all metal
products, machinery, equipment, materials, or other goods of any
description used or acquired for use by PDC or any other party
using or operating the Rigs, and all pumps, drilling equipment,
drill pipe, machinery, equipment, supplies, parts, and other
goods of any description installed in or affixed to or to be used
in connection with any Rig (except the rig hauling trucks owned
by PDC, or others) or acquired for installation on, affixation
to, or use in connection with any Rig (except the rig hauling
trucks owned by PDC or others).
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Section 1.02. Terms Defined in Credit Agreement. All capitalized
terms used in this Security Agreement and not otherwise defined herein
are used with the meanings attributed to them in the Agreement.
ARTICLE 2 - SECURITY
Section 2.01.
A. The Rigs:
In consideration of the Loan made pursuant to the Agreement and
evidenced by the Note and by way of security for payment of all amounts
due under its Guaranty, PDC does hereby sell, assign, transfer, and set
over unto, and grant a security interest in favor of, the Bank and the
Bank's successors and assigns for the Bank's own proper use and benefit,
as security for all amounts due and owing under its Guaranty, all of
PDC's right, title, and interest in and to the Rigs, whether now owned
or hereafter acquired and wherever located, and including, without
limitation, all parts, additions, alterations, or modifications thereto
or replacements of any part thereof, whenever made or performed or
acquired, and all removed parts until replaced, and any proceeds and
products of the foregoing with all attachments, accessions, tools,
parts, supplies, increases, and additions to and replacements of and
substitutions for the Rigs or any portion thereof.
B. The Accounts:
PDC grants a security interest in favor of the Bank and the
Bank's successors and assigns for the Bank's own proper use and benefit,
as security for all amounts due and owing under the Guaranty in all
accounts now or hereafter owned by PDC. The term "accounts" shall have
the meaning attributed to them in Section 9.106 of the Texas Business
and Commerce Code.
C. Collateral:
The rights, equipment, and accounts referred to in this Section
2.01 are collectively referred to herein as the "Collateral."
Section 2.02. Continued Priority of Security Interest. PDC agrees that
it will not, without the prior written consent of the Bank, create or suffer to
exist any lien or security interest upon or in the Collateral or any part
thereof other than (a) the lien and security interest created hereby (b) any
other Liens of the Bank (or any of its predecessors-in-interest), and (C) Liens
of The CIT Group/Equipment Financing, Inc., securing obligations that have been
paid in full and for which a termination statement has been executed and
forwarded to the Office of Secretary of State of Texas for filing.
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Section 2.03. Maintenance of Status of Security Interest. PDC agrees
that it shall take all action that may be necessary or desirable, or that the
Bank reasonably requests, so as at all times (a) to grant and perfect the
security interest in the Collateral intended to be granted hereby and to
maintain the validity, enforceability, perfection, and priority of the security
interest in the Collateral; (b) to protect or preserve the security interest
created by this Security Agreement; and (C) to protect, preserve, exercise, or
enforce the rights of the Bank therein and hereunder and of the Bank under the
Guaranty, including but not limited to (1) immediately discharging all Liens on
the Collateral other than the security interest and any lien created or
permitted hereby; (2) executing and delivering financing statements under the
Uniform Commercial Code of Texas (the "UCC"), continuation statements, notices,
instructions, and assignments in each case in form and substance reasonably
satisfactory to the Bank and not inconsistent with the terms hereof. PDC agrees
to ▇▇▇▇ its books and records as necessary or appropriate to evidence, protect,
and perfect the security interest in the Collateral and cause their financial
statements to reflect the security interest.
Section 2.04. Evidence of Status of Security Interest. PDC shall upon
the reasonable request of the Bank promptly deliver to the Bank any file-search
reports from the UCC and other filing and recording offices applicable from
time to time as the Bank reasonably designates to establish that the perfection
and priority of the interest granted hereby are maintained.
Section 2.05. Authorized Action. The Bank is hereby authorized to file
one or more financing or continuation statements (including statements of
assignment and renewals thereof) or amendments thereto reflecting the Liens
created hereby without the signature of, or in the name of, PDC. A carbon,
photographic, or other reproduction of this Security Agreement shall be
sufficient as a financing statement.
Section 2.06. Grantors Each Remain Obligated; the Bank Not Obligated.
The grant by PDC to the Bank of the security interest granted hereby shall not
relieve it from the performance of any term, covenant, condition, or agreement
on its part to be performed or observed, or from any liability to any person,
under or in respect of any Collateral or impose any obligation on the Bank to
perform or observe any term, covenant, condition, or agreement on the part of
PDC to be so performed or observed or impose any liability on the Bank for any
act or omission on the part of PDC relating thereto.
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ARTICLE 3 - MAINTENANCE, USE AND OPERATION,
INSPECTION, IDENTIFICATION MARKS
Section 3.01. Maintenance. PDC shall, at its sole cost and expense
(whether or not applicable insurance proceeds are adequate for the purpose),
(I) maintain and refurbish the Rigs and to keep them in good operating
condition, order, and repair, normal wear and tear excepted; and (ii) keep the
Rigs in compliance with all applicable laws, regulations, and orders of any
governmental authority having jurisdiction with respect thereto.
Section 3.02. Use and Operation. As long as no Default occurs and is
continuing, PDC shall have the full use of the Rigs, but it covenants that it
will not permit the Rigs to be incorporated or installed in or attached to any
building or real property so that they become part of or subject to any Liens
on the building or real property and cannot be removed without material injury
to the Rigs (it is the parties' intention that the Rigs are, and remain,
personal property throughout the term of the Agreement); and, further, the Rigs
shall not be used or operated contrary to any applicable law, treaty, or
convention, or any rule or regulation issued thereunder.
Section 3.03. Inspection. PDC shall permit representatives of the Bank
at any reasonable time, on reasonable notice, to inspect the Rigs, but the
inspection may not materially interfere with their normal operations.
Section 3.04. Identification Marks. PDC will cause each Rig to be kept
numbered with its identifying number as shown in Schedule 1 hereto as
appropriate. PDC will not change the identifying number of any Rig except in
accordance with a statement of the new identifying number, which statement
previously has been filed with the Bank.
ARTICLE 4 - REPLACEMENT OF PARTS; ALTERATIONS,
MODIFICATIONS, AND ADDITIONS
Section 4.01. Replacement of Parts. (a) PDC shall, at its sole cost and
expense, as necessary, promptly replace all parts on the Rigs which become worn
out, lost, destroyed, seized, damaged beyond repair, or permanently rendered
unfit for any reason. All parts removed from the Rigs shall remain subject to
the security interest granted herein until the parts are replaced by parts
which meet the requirements for replacement parts specified below. All
replacement parts incorporated or installed in or attached to any Rig as
provided by this Section 4.01 shall, without necessity of further act, become
part of the Rig for all purposes hereof and subject to the security interest
granted herein.
(b) All replacement parts shall be free and clear of all Liens (other
than Liens created or permitted by the Agreement) and shall be in as good
operating condition as, and shall have a value and utility at least equal to,
the parts replaced, assuming the replaced part is maintained in accordance with
this Security Agreement.
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Section 4.02. Alterations, Modifications, and Additions. PDC shall, at
its sole expense, make any alterations and modifications in and additions to
the Rigs as required by any relevant governmental authority or as deemed
necessary by PDC, whether upon the recommendation of any manufacturer or
otherwise, for the safe operation of the Rigs (any alteration, modification, or
addition required or deemed necessary is herein called a "Required
Modification"). In addition, PDC shall, at its sole expense, make other
alterations and modifications in and additions to the Rigs as it deems
necessary or prudent to properly conduct its business (any alteration,
modification, or addition deemed desirable is herein called an "Optional
Modification"); but (I) any Required Modification shall be expeditiously
completed in a good and workmanlike manner, in compliance with all applicable
legal requirements; and (ii) no Optional Modification shall diminish the value
or utility of any Rig or impair its operating condition below its value,
utility, and operating condition immediately before the Optional Modification,
assuming that the Rig was then of the value or utility and in the operating
condition required under this Security Agreement. All parts incorporated or
installed in or attached to any Rig as a result of any alteration,
modification, or addition which are not readily removable without damage to the
Rig shall, without necessity of further act, become part of the Rig for all
purposes hereof and subject to the security interest granted herein.
ARTICLE 5 - INSURANCE
Section 5.01. Insurance Against Loss or Damage to Rigs. PDC covenants
that it will, without cost to the Bank, maintain or cause to be maintained in
effect for the Rigs throughout the term of this Security Agreement adequate
insurance by reputable and solvent insurance companies against loss or damages
customarily insured against by Persons operating similar properties and
similarly situated, and carry other insurance as usually carried by Persons
engaged in the same or similar business and similarly situated (when the
policies are issued) in accordance with applicable law, an all-risk physical
damage insurance policy insuring the Rigs against, among other things, loss,
damage, or destruction from fire, explosion, windstorm, theft, breakage, and
other risks as it deems necessary or desirable in an amount in U.S. dollars
equal to, except as otherwise approved or required in writing by the Bank, the
outstanding balance of the Loan. Each policy of insurance for the Rigs shall
name the owner thereof as the insured and shall, subject to Section 5.08
hereof, provide that the Bank shall be a sole loss payee without liability for
the payment of premiums. All insurance maintained under this Article 5 shall be
primary insurance without right of contribution against any other insurance
maintained by the Bank and shall contain provisions waiving underwriters'
rights of subrogation thereunder against the Bank and any insured named in the
policy and any assignee of the Bank.
Section 5.02. Insurance Against Public Liability and Property Damage.
PDC covenants that it will, without cost to the Bank, maintain or cause to be
maintained in effect for the Rigs throughout the term of this Security
Agreement commercial general liability and pollution liability insurance
policies with reputable and solvent insurance companies, insuring against
liabilities for any injury to the person of others and any damage to the
property of others arising from those risks, with reasonable deductibles (not
in excess of $100,000 including any self-insurance) and in
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amounts affording coverage for personal injuries of $1,000,000 per occurrence,
$3,000,000 in the aggregate, and $20,000,000 excess coverage. Each policy shall
also include effective waivers by the insurer of all claims for insurance
premiums against the Bank.
Section 5.03. Delivery of Policies. PDC agrees that it will deliver to
the Bank original cover notes and true and correct copies of all policies,
binders, endorsements, and riders amending them, evidencing insurance required
by this Section 5.01 hereof. The Bank shall not be responsible for any
representations or warranties made to the underwriters by the insured in
connection with any policy of insurance referred to herein.
Section 5.04. Notice of Cancellation. At its expense, PDC agrees that it
will cause the relevant insurance brokers to agree to, and it hereby covenants
that it will, advise the Bank of any expiration, termination, non-renewal,
alteration, or cancellation of any policy required under Section 5.01 hereof;
of any default in the payment of any premium; and of any other act or omission
on the part of the insured of which it has knowledge and which might invalidate
or render unenforceable, in whole or in part, any insurance on the Rigs. All
policies required under Section 5.01 hereof shall provide for not less than 30
days prior written notice to be received by the Bank of the termination or
cancellation of the insurance evidenced thereby, unless the termination or
cancellation is a result of non-payment of premiums, in which case 10 days
prior written notice shall be given to the Bank.
Section 5.05. No Act Impairing Insurance. PDC agrees that it will not do
or omit any act, or voluntarily suffer or permit any act to be done or omitted,
whereby the insurance required hereunder shall or may be suspended, impaired,
or canceled, and will not use or operate the Rigs, or permit the Rigs to be
used or operated, for purposes more hazardous than allowed by the insurance
policies carried by them pursuant to this Article 5, without having previously
notified the Bank in writing and insured the Rigs by additional coverage to
extend to those uses, operations, or risks.
Section 5.06. Proof of Loss. PDC agrees that it will, at its own
expense, make, or cause to be made, all proofs of loss and take, or cause to be
taken, all other action necessary or appropriate to collect from the
underwriters of insurance required by this Article 5 in case of a loss
affecting the Rigs.
Section 5.07. Insurance. It is expressly agreed that anything herein to
the contrary notwithstanding, PDC shall remain liable under the insurance
referred to in Sections 5.01 and 5.02 above to perform all obligations assumed
by it thereunder, and the Bank shall have no obligation or liability under such
insurance because of or rising out of this Security Agreement, nor shall the
Bank be required to perform or fulfill any obligations of either under or
pursuant to the insurance or to make any payment or any inquiry about the
nature or sufficiency of any payment received by it or to present or file any
claim, or to take any other action to collect or enforce the payment of any
amounts which may have been assigned to it or to which it may be entitled
hereunder at any time.
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Section 5.08. Payment to Bank. Unless the Bank otherwise agrees, all
amounts payable under any policies required under Section 5.01 hereof must be
payable to the Bank for distribution first to itself under this Security
Agreement and thereafter to the insured or others as their interests appear.
Nevertheless, until a Default has occurred and is continuing, amounts payable
under any insurance for the Rigs involving damage to the Rigs not constituting
an actual or constructive total loss may be paid by underwriters directly to
PDC for the repair, salvage, or other charges involved or, if PDC has first
fully repaired the damage or paid all salvage or other charges, paid to the
insured as reimbursement therefor.
Section 5.09. Application of Proceeds. All amounts paid to the Bank from
insurance on the Rigs shall be disposed of as follows (after deducting the
reasonable expenses of the Bank in collecting the amounts):
(i) any amount which might have been paid at the time, in accordance
with Sections 5.01 and 5.02 above, directly to the owner of a Rig or others
shall be paid by the Bank to, or as directed by, PDC to be applied toward the
repair or replacement of the damaged Rig; and
(ii) all amounts paid to the Bank for an actual or constructive total
loss of a Rig shall be applied by the Bank to the payment of amounts due under
the Agreement pursuant to its terms.
ARTICLE 6 - DEFAULT
Section 6.01. Default. Default hereunder shall have the meaning given in
Article VII of the Agreement.
Section 6.02. Application of Proceeds. Any sums recovered hereunder
after a Default has occurred and is continuing shall be applied as follows:
First: To the payment of all reasonable expenses and charges, including
the expenses of any sale or retaking, reasonable attorney's fees, court costs,
and any other expenses or advances made or incurred by the Bank to protect its
rights or to pursue its remedies hereunder;
Second: To the payment of the amounts outstanding under the Agreement,
the Note, and this Security Agreement, whether due or not, including interest
thereon to the date of the payment and, if applicable, compensatory interest to
the date of the payment; and
Third: To the payment of any surplus thereafter remaining to the owner
of the Collateral or whoever is entitled thereto.
Section 6.03. Remedies. Upon the occurrence and during the continuance
of a Default, the security interest created by this Security Agreement shall
become immediately enforceable, and, without limitation, the enforcement
remedies specified can be exercised irrespective of
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whether the Bank has exercised the right of acceleration under the Agreement,
and the Bank shall have the following rights:
(i) Upon the declaration by the Bank that all the then unpaid
Obligations of Borrower are due and payable immediately, they shall become
immediately due and payable.
(ii) The Bank may demand, ▇▇▇ for, collect, or receive any money or
property at any time payable or receivable because of or in exchange for, or
make any compromise or settlement deemed desirable for, any Collateral, but the
Bank has no obligation so to do, or the Bank may extend the time of payment,
arrange for payment in installments, or otherwise modify the terms of, or
release any Collateral, without hereby incurring responsibility to, or
discharging or otherwise affecting any liability of PDC. Except for the
exercise of reasonable care, the Bank has no duty to protect, secure, perfect,
or insure the Collateral.
(iii) The Bank may require that all policies, contracts, certificates
of entry, and other records relating to the insurance provided for in Article 5
hereof (the "Insurance") (including details of and correspondence concerning
outstanding claims) be forthwith delivered to or to the order of the Bank.
(iv) The Bank may collect, recover, compromise, and give a good
discharge for any and all moneys and claims for moneys then outstanding or
thereafter arising under the Insurance and permit any brokers through whom
collection or recovery is effected to charge their usual brokerage fee.
(v) The Bank may require PDC to assemble the Collateral owned by it
and all books and record relating thereto and to make them available to the
Bank at a location designated by the Bank.
(vi) The Bank shall have the rights and remedies with respect to the
Collateral of a secured party under the UCC, whether or not the UCC is in
effect in the jurisdiction where the rights and remedies are then asserted, and
any other rights granted pursuant to the applicable law. In addition, the Bank
is hereby granted the right to sell or cause to be sold in Wichita Falls,
Texas, or elsewhere, in one or more sales or parcels, at any price or prices it
deems best and for cash or on credit or for future delivery, without assumption
of any credit risks, all or any of the Collateral, at any broker's board or at
public or private sale, without demand of performance or notice of its
intention to sell, or of time or place of sale (except for 10 Business Days'
prior written notice to PDC at its address in the Agreement, and PDC waives all
other notice of the sale), and the Bank may purchase any or all Collateral so
sold and thereafter hold it absolutely free from any claim or right, including
any right or equity or redemption of the owner thereof, any such demand,
notice, right, or equity being hereby expressly waived and released (to the
extent permitted by applicable statute). PDC shall pay to the Bank all expenses
(including reasonable fees and disbursements of counsel) of, or incidental to,
the enforcement of any provisions hereof or of any obligations of PDC of any
actual or attempted sale, or any exchange, enforcement, collection,
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compromise, or settlement of any Collateral or receipt of the proceeds thereof
and for the care or preservation of the Collateral before any sale of the
Collateral, including expenses of insurance; and all such expenses shall be
obligations of PDC owning the Collateral within the terms of this Security
Agreement and the Agreement. All proceeds from the sale or other disposition of
the Collateral shall be held and applied by the Bank as provided in Section
6.02 hereof. PDC agrees that any sale in accordance with this Section 6.03
shall be deemed made in a commercially reasonable manner insofar as it is
concerned.
(vii) If a Default has occurred and is continuing hereunder, PDC hereby
appoints the Bank its true and lawful attorney-in-fact, with full power of
substitution, to enforce their rights under any drilling contracts or leases
concerning the Rigs, and to take any action the Bank deems necessary or
appropriate to protect and preserve the security interest in the Collateral
granted herein.
Section 6.04. Power of Sale. Any sale of the Collateral made pursuant to
this Security Agreement, whether under the power of sale hereby granted or any
judicial proceedings, shall divest all right, title, and interest of PDC
therein and thereto, and shall bar PDC and all persons claiming by, through, or
under PDC. No purchaser shall be bound to inquire whether notice has been
given, or whether any default has occurred, or as to the propriety of the sale,
or as to the application of the proceeds thereof. In case of any such sale, the
Bank, if it is the purchaser, shall be entitled to make settlement or payment
for the property purchased, and to use and apply it to the Obligations under
the Agreement, so that there may be credited against the amount remaining due
and unpaid thereon the sums payable out of the net proceeds of the sale to the
Bank after allowing for the costs of sale and other charges. At any such sale,
the Bank may bid for and purchase the property and, upon compliance with the
terms of sale, may hold, retain, and dispose of the Collateral without further
accountability therefor.
Section 6.05. Power of Attorney - Sale. The Bank is hereby irrevocably
appointed attorney-in-fact of PDC upon the happening and during the continuance
of a Default to execute and deliver to any purchaser aforesaid, and is hereby
vested with full power and authority to make, in the name and on behalf of PDC,
a good conveyance of the title to the Collateral so sold. Any person dealing
with the Bank or its attorney-in-fact need not inquire whether the power of
attorney herein has become exercisable. In the event of any sale of any
Collateral under any power herein, PDC will, if required by the Bank, execute
any form of conveyance of the Collateral as the Bank directs or approves.
Section 6.06. Bank to Discharge Liens. If a Default has occurred, PDC
authorizes and empowers the Bank or its appointees or any of them to appear in
their names in any court of any country where a suit is pending against any
Collateral because of any alleged Lien against any Collateral from which the
Collateral has not been released and to take reasonable steps towards the
defense of the suit and the purchase or discharge of the Lien. All reasonable
expenditures made or incurred by them in the defense or purchase or discharge
shall be a debt due to the Bank from
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PDC on whose account the Bank appeared and shall be secured by the lien of this
Security Agreement in like manner and extent as if the amount and description
thereof were written herein.
Section 6.07. Payment of Expenses. PDC covenants that upon the happening
and during the continuance of a Default, then, upon written demand of the Bank,
PDC will pay to the Bank the whole amount due and payable for the Obligations
of the Borrower under the Agreement; and if the Borrower fails to pay them
forthwith upon demand, the Bank shall be entitled to recover judgment for the
whole amount so due and unpaid, together with any further amounts sufficient to
cover the reasonable compensation to the Bank or its agents and counsel and any
necessary advances, expenses, and liabilities made or incurred by them
hereunder. All moneys collected by the Bank under this Section 6.07 shall be
applied according to Section 6.02 above.
Section 6.08. Remedies Cumulative. Each and every power and remedy
herein given to the Bank shall be cumulative and shall be in addition to every
other power and remedy herein given or now or hereafter existing at law, in
equity, or by statute, and each and every power and remedy whether herein given
or otherwise existing may be exercised whenever deemed expedient by the Bank,
and the exercise or the beginning of the exercise of any power or remedy shall
not be construed as a waiver of the right to exercise at the same time or
thereafter any other power or remedy. The Bank shall not be required or bound
to enforce any other rights under any other agreement or instrument securing
the Obligations before enforcing its rights under this Security Agreement. No
delay or omission by the Bank in exercising any right or power, or in pursuing
any remedy accruing upon a Default, shall impair the right, power, or remedy or
be construed as a waiver of the Default or an acquiescence therein; nor shall
the Bank's acceptance of any security or payment of or on account of the
Obligations of the Borrower under the Agreement maturing after a Default or of
any payment for any past default be construed as a waiver of any right to
exercise any remedies for any future Default or any past Default not completely
cured thereby. No consent, waiver, or approval of the Bank shall be deemed
effective unless it is in writing and duly signed by the Bank; any waiver by
the Bank of any terms of this Security Agreement or any consent given under
this Security Agreement shall be effective only for the purpose and on the
terms for which it is given and shall be without prejudice to the right to give
or withhold consent for future matters.
Section 6.09. Cure of Defaults. If, at any time after a Default occurs
and before the actual sale of any Collateral by the Bank or before any
enforcement or foreclosure proceedings, the Borrower or PDC offer to cure
completely all Defaults and to pay all expenses, advances, and damages to the
Bank for the Default, with interest at the rate stated in the Agreement (but
subject to the limitations in the Agreement), then the Bank may (but need not)
accept the offer and payment and restore the Borrower and PDC to its and their
former position, but this action, if taken, shall not affect any subsequent
Default or impair any rights consequent thereon.
Section 6.10. Discontinuance of Proceedings. If the Bank has enforced
any right, power, or remedy under this Security Agreement by foreclosure,
entry, or otherwise, and the proceedings have been discontinued or abandoned or
determined adversely to the Bank, then PDC and the Bank
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shall be restored to their former positions and rights hereunder with respect
to the property subject or intended to be subject to this Security Agreement,
and all rights, remedies, and powers of the Bank shall continue as if no
proceedings had been taken.
ARTICLE 7 - MISCELLANEOUS
Section 7.01. Contracts. It is expressly agreed that anything herein to
the contrary notwithstanding, the Bank shall have no obligation or liability
under any drilling contract, lease, or other contract concerning the use or
operation of the Rigs because of or arising out of this Security Agreement, nor
shall the Bank be required to perform or fulfill any obligations of PDC under
or pursuant to any drilling contract, lease, or other contract concerning the
use or operation of the Rigs or to make any payment or inquiry as to the nature
or sufficiency of any payment received by it or to present or file any claim,
or to take other action to collect or enforce the payment of any amounts which
may have been assigned to it or to which it may be entitled hereunder at any
time.
Section 7.02. Power of Attorney. PDC hereby constitutes the Bank, its
successors, and assigns, as its true and lawful attorney, irrevocably, with
full power (in the name of PDC or otherwise), if a Default has occurred and is
continuing, to ask, require, demand, receive, compound, and give acquittance
for any moneys, claims, property, and rights hereby assigned, and claims for
moneys due and to become due under or arising out of the Collateral hereby
assigned, to endorse any checks or other instruments or orders in connection
therewith, and to file any claims or take any action or institute any
proceedings which the Bank reasonably deems necessary or advisable in the
premises.
Section 7.03. Irrevocable Nature of Power. The powers and authority
granted to the Bank herein have been given for a valuable consideration and are
hereby declared irrevocable.
Section 7.04. Further Documents. PDC agrees that upon the written
request of the Bank, it will promptly and duly execute and deliver any further
instruments and documents the Bank reasonably deems desirable in obtaining the
full benefits of this Security Agreement and of the rights and powers herein
granted.
Section 7.05. Notices. All notices or other communications required it
be made hereunder to PDC shall be made in the manner and to the address for it
in the Agreement and if to the Bank in the manner and to the address for the
Bank in the Agreement.
Section 7.06. Notice of Acquisition or Substitution: Within ten days of
the acquisition of a new rig or the substitution of a new rig for an old, PDC
covenants that it will notify the Bank of the acquisition or substitution and
will provide a description of the new or substituted Rig as the Bank requires.
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Section 7.07. Choice of Law. This Security Agreement shall be governed
by the laws of Texas and may not be amended or changed except by an instrument
in writing signed by all parties hereto.
Section 7.08. Severability of Provisions. Any provision of this Security
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of the prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of the provision in any other
jurisdiction. To the extent permitted by applicable law, PDC hereby waives any
law that renders any provision hereof prohibited or unenforceable in any
respect.
Section 7.09. Release of Lien. Upon the payment in full of all
Obligations, the Bank shall release PDC of all of its obligations under this
Security Agreement and file all appropriate statements pursuant to the UCC.
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed by their duly authorized officers all as of the date
noted above.
▇▇▇▇▇▇▇▇▇ DRILLING COMPANY
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Title: C.F.O.
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NORWEST BANK TEXAS, NATIONAL ASSOCIATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Senior Vice President