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EXHIBIT 99.3
SECURITY AGREEMENT
dated as of September 27, 1996
Between
▇▇▇▇▇▇▇▇▇ DRILLING COMPANY
and
THE CIT GROUP/EQUIPMENT FINANCING, INC.
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INDEX
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . 1
---------------------
1.02. Terms Defined in Loan Agreement . . . . . . . . . . . . . . . . . 2
-------------------------------
SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.01. The Rigs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--------
2.02. Continued Priority of Security Interest . . . . . . . . . . . . . 2
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2.03. Maintenance of Status of Security Interest . . . . . . . . . . . . 2
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2.04. Evidence of Status of Security Interest . . . . . . . . . . . . . 2
---------------------------------------
2.05. Authorized Action . . . . . . . . . . . . . . . . . . . . . . . . 3
-----------------
2.06. The Debtor Remains Obligated: the Secured Party Not Obligated . . 3
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MAINTENANCE: USE AND OPERATION:
INSPECTION: IDENTIFICATION MARKS . . . . . . . . . . . . . . . . . . . . . . 3
3.01. Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
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3.02. Use and Operation . . . . . . . . . . . . . . . . . . . . . . . . 3
-----------------
3.03. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
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3.04. Identification Marks . . . . . . . . . . . . . . . . . . . . . . . 3
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REPLACEMENT OF PARTS: ALTERATIONS,
MODIFICATIONS AND ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.01. Replacement of Parts . . . . . . . . . . . . . . . . . . . . . . . 4
--------------------
4.02. Alterations, Modifications and Additions . . . . . . . . . . . . . 4
----------------------------------------
INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.01. Insurance Against Loss or Damage to Rigs . . . . . . . . . . . . . 4
----------------------------------------
5.02. Insurance Against Public Liability and Property Damage . . . . . . 5
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5.03. Delivery of Policies . . . . . . . . . . . . . . . . . . . . . . . 5
--------------------
5.04. Notice of Cancellation . . . . . . . . . . . . . . . . . . . . . . 5
----------------------
5.05. No Act Impairing Insurance . . . . . . . . . . . . . . . . . . . . 6
--------------------------
5.06. Proof of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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5.07. Insurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------
5.08. Payment to Secured Party . . . . . . . . . . . . . . . . . . . . . 6
------------------------
5.09. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . 7
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EVENT OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.01. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------
6.02. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . 7
-----------------------
6.03. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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6.04. Power of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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6.05. Power of Attorney - Sale . . . . . . . . . . . . . . . . . . . . . 9
------------------------
6.06. Secured Party to Discharge Liens . . . . . . . . . . . . . . . . . 9
--------------------------------
6.07. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . 10
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6.08. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . 10
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6.09. Cure of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------------
6.10. Discontinuance of Proceedings . . . . . . . . . . . . . . . . . . 11
-----------------------------
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.01. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---------
7.02. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . 11
-----------------
7.03. Irrevocability . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------------
7.04. Further Documents . . . . . . . . . . . . . . . . . . . . . . . . 11
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7.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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7.06. Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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7.07. Severability of Provisions . . . . . . . . . . . . . . . . . . . . 12
--------------------------
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SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of September 27, 1996, between ▇▇▇▇▇▇▇▇▇
DRILLING COMPANY, a Delaware corporation, its successors and assigns (the
"Debtor"), and THE CIT GROUP/EQUIPMENT FINANCING, INC., a New York corporation,
together with its successors and assigns (the "Secured Party").
R E C I T A L S
WHEREAS, the Secured Party has agreed to loan to the Debtor up to USD
22,000,000 (the "Loan") to assist the Debtor with the refinancing of existing
debt and the purchase of additional drilling equipment pursuant to the Loan
Agreement dated the date hereof (the "Loan Agreement") between the Debtor and
the Secured Party; and
WHEREAS, the Secured Party requires, as a condition to the Loan, that
the Debtor execute and deliver this Security Agreement to the Secured Party as
security for its obligations under the Loan Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, 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) "Insurances" shall mean: (i) all insurances in respect of the
Rigs whether now or hereafter to be effected and all renewals
of or replacements for the same, (ii) all claims and other
moneys and claims for moneys due and to become due under said
insurances and (iii) all other rights of the Debtor under or
in respect of said insurances.
(b) "Rigs" shall mean: (i) the forty (40) land drilling rigs as
more particularly described in Schedule 1 attached hereto,
(ii) all land drilling rigs and drilling equipment acquired
with the proceeds of the Loan, and (iii) all metal products,
machinery, equipment, materials or other goods of any
description whatsoever, used or acquired for use by the Debtor
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 whatsoever
installed in or affixed to or to be used in connection with
any Rig (except the rig hauling trucks owned by the Debtor) or
acquired for installation on, affixation to, or use in
connection with any Rig.
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Section 1.02. Terms Defined in Loan Agreement. All capitalized terms
used in this Security Agreement without definition are used as defined in the
Loan Agreement.
ARTICLE 2 - SECURITY
Section 2.01. The Rigs. (a) In consideration of the Loan made pursuant
to the Loan Agreement and evidenced by the Note and by way of security for
payment of all amounts due thereunder and hereunder, the Debtor does hereby
sell, assign, transfer and set over unto, and grant a security interest in
favor of the Secured Party and unto the Secured Party's successors' and
assigns' for the Secured Party's own proper use and benefit, as security for
all amounts due and owing under the Loan Agreement and the Note, all of the
Debtor'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.
(b) The rights and equipment referred to in this Section 2.01 are
collectively referred to herein as the "Collateral".
Section 2.02. Continued Priority of Security Interest. The Debtor
agrees that it will not, without the prior written consent of the Secured
Party, create or suffer to exist any lien or security interest upon or in the
Collateral or any part thereof other than the lien and security interests
created hereby.
Section 2.03. Maintenance of Status of Security Interest. The Debtor
shall take all action that may be necessary or desirable, or that the Secured
Party reasonably may request, 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 Secured Party therein and hereunder and of the
Secured Party under the Loan Agreement and the Note, including but not limited
to (1) immediately discharging all security interests, liens, charges, claims
and encumbrances ("Liens") on the Collateral other than the security interest
and lien created or permitted hereby, (2) executing and delivering Uniform
Commercial Code financing statements, continuation statements, notices,
instructions and assignments, in each case in form and substance reasonably
satisfactory to the Secured Party and not inconsistent with the terms hereof.
The Debtor shall ▇▇▇▇ its books and records as may be necessary or appropriate
to evidence, protect and perfect the security interest in the Collateral and
shall cause its financial statements to reflect such security interests.
Section 2.04. Evidence of Status of Security Interest. The Debtor
shall from time to time upon request of the Secured Party promptly deliver to
the Secured Party such file search reports from such Uniform Commercial Code
and other filing and recording offices as may be applicable from time to time
as the Secured Party may reasonably designate in order to establish that the
perfection and priority of the interest granted hereby are maintained.
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Section 2.05. Authorized Action. The Secured Party is hereby
authorized to file one or more financing or continuation statements (including
statements of assignment and renewals thereof) or amendments thereto without
the signature of, or in the name of, the Debtor. A carbon, photographic or
other reproduction of this Security Agreement or of any financing statement
filed in connection with this Security Agreement shall be sufficient as a
financing statement.
Section 2.06. The Debtor Remains Obligated: the Secured Party Not
Obligated. The grant by the Debtor to the Secured Party of the security
interest granted hereby shall not relieve the Debtor 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 of
the Collateral or impose any obligation on the Secured Party to perform or
observe any such term, covenant, condition or agreement on the Debtor's part to
be so performed or observed or impose any liability on the Secured Party for
any act or omission on the part of the Debtor relating thereto.
ARTICLE 3 - MAINTENANCE: USE AND OPERATION:
INSPECTION: IDENTIFICATION MARKS
Section 3.01. Maintenance. The Debtor, at its sole cost and expense
(whether or not applicable insurance proceeds are adequate for the purpose),
shall (i) maintain and refurbish the Rigs, so as to keep them in good operating
condition, order and repair in the manner of other first class operators of
similar drilling rigs, 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. So long as no Event of Default shall
occur and be continuing, the Debtor shall have the full use of the Rigs;
provided, however, that the Debtor covenants and agrees that it will not permit
the Rigs to be incorporated or installed in or attached to any building or real
property in such manner as to become part of or subject to any Liens on such
building or real property or so as to preclude the removal thereof without
material injury to the Rigs (it being the intention of the parties that the
Rigs are, and shall be and remain, personal property throughout the term of the
Loan Agreement); and provided, further, that the Rigs shall not be used or
operated in any manner contrary to any applicable law, treaty or convention, or
any rule or regulation issued thereunder.
Section 3.03. Inspection. The Debtor shall permit representatives of
the Secured Party at any reasonable time, on reasonable notice, to inspect the
Rigs, provided that any such inspection will not materially interfere with the
normal operation of the Rigs.
Section 3.04. Identification Marks. The Debtor will cause each Rig to
be kept numbered with the identifying number therefor as set forth in Schedule
1 hereto. The Debtor will not change the identifying number of any Rig except
in accordance with a statement of new identifying number to be substituted
therefor, which statement previously shall have been filed with the Secured
Party.
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ARTICLE 4 - REPLACEMENT OF PARTS: ALTERATIONS,
MODIFICATIONS AND ADDITIONS
Section 4.01. Replacement of Parts. (a) The Debtor, at its sole cost
and expense, will as necessary promptly replace all parts on the Rigs which may
from time to time become worn out, lost, destroyed, seized, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever. All
parts at any time removed from the Rigs shall remain subject to the security
interest granted herein until such time as such parts shall be replaced by
parts which meet the requirements for replacement parts specified below. All
replacement parts incorporated or installed in or attached to any of the Rigs
as provided by this Section 4.01 shall, without necessity of further act,
become part of such 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 Loan 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 such replaced part to be maintained in
accordance with the terms of this Security Agreement.
Section 4.02. Alterations, Modifications and Additions. The Debtor, at
its sole expense, will make such alterations and modifications in and additions
to the Rigs as may be required from time to time by any relevant governmental
authority or as may be deemed necessary from time to time by the Debtor,
whether upon the recommendation of any manufacturer or otherwise, for the
purpose of the safe operation of the Rigs (any such alteration, modification or
addition as may be so required or so deemed necessary being herein called a
"Required Modification"). In addition, the Debtor, at its sole expense, may
from time to time make such other alterations and modifications in and
additions to the Rigs as the Debtor may deem desirable in the proper conduct of
its business (any such alteration, modification or addition as may be so deemed
desirable being herein called an "Optional Modification"); provided, however,
that (i) any Required Modification shall be expeditiously completed in a good
and workmanlike manner, in compliance with all legal requirements applicable
thereto, and (ii) no Optional Modification shall diminish the value or utility
of any Rig or impair the operating condition thereof below the value, utility
and operating condition thereof immediately prior to such Optional
Modification, assuming that such Rig was then of the value or utility and in
the operating condition required to be maintained by the terms of 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 such Rig shall, without necessity of further act,
become part of such Rig for all purposes hereof and subject to the security
interests granted herein.
ARTICLE 5 - INSURANCE
Section 5.01. Insurance Against Loss or Damage to Rigs. The Debtor
covenants and agrees that it will, without cost to the Secured Party, maintain
or cause to be maintained in effect with respect to the Rigs throughout the
term of this Security Agreement with such underwriters against such risks and
with deductibles under the broadest policy forms currently available from time
to time and carried by prudent owners of similar equipment engaged in
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similar drilling operations (at the time of issue of the policies in
question) and approved by the Secured Party in accordance with applicable law,
an all risk physical damage insurance policy insuring the Rigs against, among
other things, loss, damage or destruction thereof from fire, explosion,
windstorm, theft, breakage, and such other risks as the Debtor may deem
necessary or desirable in an amount in U.S. dollars equal to, except as
otherwise approved or required in writing by the Secured Party, the greater of
the full replacement cost of the Rigs or the outstanding balance of the Loan.
Each policy of insurance with respect to the Rigs shall provide that the
Secured Party shall be the 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 Secured Party and shall contain provisions waiving underwriters' rights
of subrogation thereunder against the Secured Party and any assured named in
such policy and any assignee of the Secured Party and any assured.
Section 5.02. Insurance Against Public Liability and Property Damage.
The Debtor covenants and agrees that it will, without cost to the Secured
Party, maintain or cause to be maintained in effect with respect to the Rigs
throughout the term of this Security Agreement with such underwriters and under
the broadest policy forms currently available from time to time and carried by
prudent owners of similar equipment engaged in similar drilling operations (at
the time of issue of the policies in question) and approved by the Secured
Party in accordance with applicable law, commercial general liability and
pollution liability insurance policies insuring against liabilities for any
injury to the person of others and any damage to the property of others arising
from such risks, with such reasonable deductibles (not in excess of USD 100,000
including any self-insurance) and in such amounts (but not less than a total
general liability coverage of USD 10,000,000). Any insurance policies
maintained in accordance with this Section 5.02 shall include the Secured Party
as an additional insured without liability for the payment of premiums. Each
such policy shall also include effective waivers by the insurer of all claims
for insurance premiums against the Secured Party. All provisions of the
liability insurance policies, except for the limits of liability, shall operate
in the same manner as if there were a separate policy of insurance covering
each insured. Furthermore, each such policy shall provide or be endorsed to
provide that violation of the terms, conditions or warranties of any policy of
insurance by the Debtor shall not invalidate any such insurance coverage
insofar as the interests of the Secured Party are concerned.
Section 5.03. Delivery of Policies. The Debtor will deliver to the
Secured Party original cover notes and true and correct copies of all policies
and binders and all endorsements and riders amendatory thereof, evidencing
insurance required to be carried and maintained by this Article 5. The Secured
Party shall not be responsible for any representations or warranties made to
the underwriters by the Debtor in connection with any policy of insurance
referred to herein.
Section 5.04. Notice of Cancellation. At the Debtor's expense the
Debtor will cause the relevant insurance brokers to agree to, and the Debtor
hereby covenants and agrees that it will, advise the Secured Party of any
expiration, termination, nonrenewal, alteration or cancellation of any policy,
any default in the payment of any premium and of any other act or omission on
the part of the Debtor 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 hereby shall
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provide for not less than thirty (30) days prior written notice to be
received by the Secured Party of the termination or cancellation of the
insurance evidenced thereby, unless such termination or cancellation is a
result of non-payment of premiums in which case ten (10) days prior written
notice shall be given to the Secured Party. The Debtor agrees that, unless the
Insurances by their terms provide that they cannot cease (by reason of
nonrenewal or otherwise) without the Secured Party being informed and having
the right to continue the insurance by paying any premiums not paid by the
Debtor, receipts showing payment of premiums for required insurance and also of
demands from underwriters shall be in the hands of the Secured Party at least
fourteen (14) days before the risk in question commences.
Section 5.05. No Act Impairing Insurance. The Debtor will not do or
omit any act, nor voluntarily suffer or permit any act to be done or omitted,
whereby the Insurance required to be carried or maintained hereunder shall or
may be suspended, impaired or canceled, and will not use or operate, or permit
the Rigs to be used or operated for purposes more hazardous than permitted by
the terms of the insurance policies carried by the Debtor pursuant to this
Article 5, without having previously notified the Secured Party in writing and
insured the Rigs by additional coverage to extend to such uses, operations or
risks.
Section 5.06. Proof of Loss. The Debtor 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 make collections from the underwriters
of insurance required to be carried and maintained by this Article 5.
Section 5.07. Insurances. It is expressly agreed that anything herein
contained to the contrary notwithstanding, the Debtor shall remain liable under
the Insurances referred to in Sections 5.01 and 5.02 above to perform all of
the obligations assumed by it thereunder and the Secured Party shall have no
obligation or liability under the Insurances by reason of or arising out of
this Security Agreement nor shall the Secured Party be required or obligated in
any manner to perform or fulfill any obligations of the Debtor under or
pursuant to the Insurances or to make any payment or to make any inquiry as to
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 or times.
Section 5.08. Payment to Secured Party. Unless the Secured Party shall
otherwise agree, all amounts of whatsoever nature payable under any Insurances
must be payable to the Secured Party for distribution first to itself under
this Security Agreement and thereafter to the Debtor or others as their
interests may appear. Nevertheless, until an Event of Default shall have
occurred and be continuing, (i) amounts payable under any insurance on the Rigs
with respect to public liability and property damage may be paid directly to
the Debtor to reimburse it for any loss, damage or expense incurred by it and
covered by such insurance or to the person to whom any liability covered by
such insurance has been incurred provided that the underwriter shall have first
received evidence that the liability insured against has been discharged, and
(ii) amounts payable under any Insurances with respect to the Rigs involving
any damage to the Rigs not constituting an actual or constructive total loss,
may be paid by underwriters directly for the
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repair, salvage or other charges involved or, if the Debtor shall have first
fully repaired the damage or paid all of the salvage or other charges, may be
paid to the Debtor as reimbursement therefor; provided, however, that if such
amounts (including any franchise or deductible) are in excess of USD 100,000,
the underwriters shall not make such payment without first obtaining the
written consent of the Secured Party.
Section 5.09. Application of Proceeds. All amounts paid to the Secured
Party in respect of any Insurance on the Rigs shall be disposed of as follows
(after deduction of the reasonable expenses of the Secured Party in collecting
such amounts):
(i) any amount which might have been paid at the time, in
accordance with the provisions of Sections 5.01 and 5.02 above, directly to the
Debtor or others shall be paid by the Secured Party to, or as directed by, the
Debtor to be applied toward the repair or replacement of the damaged Rigs; and
(ii) all amounts paid to the Secured Party in respect of an actual
or constructive total loss of the Rigs shall be applied by the Secured Party to
the payment of amounts due under the Loan Agreement pursuant to Section 1.05(c)
of the Loan Agreement.
ARTICLE 6 - EVENT OF DEFAULT
Section 6.01. Event of Default. Event of Default hereunder shall have
the meaning set forth in Article IV of the Loan Agreement.
Section 6.02. Application of Proceeds. Any sums recovered hereunder
after an Event of Default shall have occurred and be continuing shall be
applied as follows:
First: To the payment of all reasonable expenses and charges,
including the expenses of any sale, the expenses of any retaking, attorney's
fees, court costs, and any other expenses or advances made or incurred by the
Secured Party in the protection of its rights or the pursuance of its remedies
hereunder;
Second: To the payment of the amounts outstanding under the Loan
Agreement, the Note and this Security Agreement, whether due or not, including
interest thereon to the date of such payment and, if applicable, compensatory
interest to the date of such payment; and
Third: To the payment of any surplus thereafter remaining to the
Debtor or to whomsoever may be entitled thereto.
Section 6.03. Remedies. Upon the occurrence and during the continuance
of an Event of 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 whether or not
the Secured Party has exercised the right of acceleration under the Loan
Agreement and the Secured Party shall have the right to:
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(i) Upon the declaration by the Secured Party that all the then
unpaid obligations of the Debtor under the Loan Agreement and the Note are due
and payable immediately, the same shall become and be immediately due and
payable (provided no declaration shall be required if an Event of Default shall
have occurred under Article IV (F) or (G) of the Loan Agreement).
(ii) Demand, ▇▇▇ for, collect or receive any money or property at
any time payable or receivable on account of or in exchange for, or make any
compromise or settlement deemed desirable with respect to, any of the
Collateral, but the Secured Party shall be under no obligation so to do, or the
Secured Party may extend the time of payment, arrange for payment in
installments or otherwise modify the terms of, or release any of the
Collateral, without hereby incurring responsibility to, or discharging or
otherwise affecting any liability of the Debtor. The Secured Party shall be
under no duty to protect, secure, perfect or insure the Collateral.
(iii) Require that all policies, contracts, certificates of entry
and other records relating to the Insurances (including details of and
correspondence concerning outstanding claims) be forthwith delivered to or to
the order of the Secured Party.
(iv) Collect, recover, compromise and give a good discharge for any
and all moneys and claims for moneys then outstanding or thereafter arising
under the Insurances and to permit any brokers through whom collection or
recovery is effected to charge the usual brokerage therefor.
(v) Require the Debtor to assemble the Collateral and all books
and records relating thereto and to make the same available to the Secured
Party at a location designated by the Secured Party.
(vi) The Secured Party shall have the rights and remedies with
respect to the Collateral of a secured party under the Texas Uniform Commercial
Code, whether or not such code is in effect in the jurisdiction where the
rights and remedies are then asserted and any other rights granted pursuant to
applicable law. In addition, the Secured Party is hereby granted the right to
sell or cause to be sold in Houston, Texas or elsewhere, in one or more sales
or parcels, at such price or prices as it may deem 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 intention to sell, or of time or
place of sale (except ten (10) Business Days prior written notice to the Debtor
at the Debtor's address set forth in the Loan Agreement and the Debtor waives
all other notice of such sale), and the Secured Party may be the purchaser of
any or all the Collateral so sold and thereafter hold the same absolutely free
from any claim or right of whatsoever kind, including any right or equity or
redemption of Debtor, any such demand, notice, right or equity being hereby
expressly waived and released (to the extent permitted by applicable statute).
Debtor will pay to the Secured Party all expenses (including fees and
disbursements of counsel) of, or incidental to, the enforcement of any of the
provisions hereof or of any of the obligations of the Debtor, of any actual or
attempted sale, or any exchange, enforcement, collection, compromise or
settlement of any of the Collateral or receipt of the proceeds thereof and for
the care or preservation of the Collateral, including expenses of insurance;
and all such expenses shall be
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obligations of the Debtor within the terms of this Security Agreement and the
Loan Agreement. All proceeds from the sale or other disposition of the
Collateral shall be held and applied by the Secured Party in the manner
provided for in Section 6.02 hereof. The Debtor agrees that any sale made in
accordance with the provisions of this Section 6.03 shall be deemed made in a
commercially reasonable manner insofar as it is concerned.
(vii) If an Event of Default shall have occurred and be continuing
hereunder, the Debtor hereby appoints the Secured Party its true and lawful
attorney-in-fact, with full power of substitution, to enforce its rights under
any drilling contracts or leases concerning the Rigs, and to take any action
which the Secured Party may deem necessary or appropriate to protect and
preserve the security interest in the Rigs granted herein.
Section 6.04. Power of Sale. Any sale of the Collateral made pursuant
to the terms of this Security Agreement, whether under the power of sale hereby
granted or any judicial proceedings, shall operate to divest all right, title
and interest of any nature whatsoever of the Debtor therein and thereto, and
shall bar the Debtor and all persons claiming by, through or under the Debtor.
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 Secured
Party, if it is the purchaser, shall be entitled, for the purpose of making
settlement or payment for the property purchased, to use and apply the
obligations of the Debtor under the Loan Agreement and the Note in order that
there may be credited against the amount remaining due and unpaid thereon the
sums payable out of the net proceeds of such sale to the Secured Party after
allowing for the costs and expense of sale and other charges. At any such sale,
the Secured Party may bid for and purchase such property and upon compliance
with the terms of sale may hold, retain and dispose of such property without
further accountability therefor.
Section 6.05. Power of Attorney - Sale. The Secured Party is hereby
irrevocably appointed attorney-in-fact of the Debtor upon the happening and
during the continuance of any Event of Default to execute and deliver to any
purchaser aforesaid, and is hereby vested with full power and authority to
make, in the name and in behalf of the Debtor, a good conveyance of the title
to the Collateral so sold. Any person dealing with the Secured Party or its
attorney in-fact shall not be put on enquiry as to whether the power of
attorney contained herein has become exercisable. In the event of any sale of
any of the Collateral, under any power herein contained, the Debtor will, if
and when required by the Secured Party, execute such form of conveyance of the
Collateral as the Secured Party may direct or approve.
Section 6.06. Secured Party to Discharge Liens. The Debtor authorizes
and empowers the Secured Party or its appointees or any of them to appear in
the name of the Debtor in any court of any country or nation of the world where
a suit is pending against any of the Collateral because of or on account of any
alleged lien against any of the Collateral from which the Collateral has not
been released and to take such reasonable steps towards the defense of such
suit and the purchase or discharge of such lien. All reasonable expenditures
made or incurred by them or any of them for the purpose of such defense or
purchase or discharge shall be a debt due from the Debtor to the Secured Party
and shall be secured by the lien of this Security
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Agreement in like manner and extent as if the amount and description thereof
were written herein.
Section 6.07. Payment of Expenses. The Debtor covenants that upon the
happening and during the continuance of any Event of Default, then, upon
written demand of the Secured Party, the Debtor will pay to the Secured Party
the whole amount due and payable in respect of the obligations of the Debtor
under the Loan Agreement and the Note; and in case the Debtor shall fail to pay
the same forthwith upon such demand, the Secured Party shall be entitled to
recover judgment for the whole amount so due and unpaid, together with such
further amounts as shall be sufficient to cover the reasonable compensation to
the Secured Party or its agents, attorneys and counsel and any necessary
advances, expenses and liabilities made or incurred by it or them hereunder.
All moneys collected by the Secured Party under this Section 6.07 shall be
applied in accordance with the provisions of Section 6.02 above.
Section 6.08. Remedies Cumulative. Each and every power and remedy
herein given to the Secured Party 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 from time to time and as
often and in such order as may be deemed expedient by the Secured Party, and
the exercise or the beginning of the exercise of any power or remedy shall not
be construed to be a waiver of the right to exercise at the same time or
thereafter any other power or remedy. The Secured Party shall not be required
or bound to enforce any other of its rights under any other agreement or
instrument securing the Loan prior to enforcing its rights under this Security
Agreement. No delay or omission by the Secured Party in the exercise of any
right or power or in the pursuance of any remedy accruing upon any Event of
Default shall impair any such right, power or remedy or be construed to be a
waiver of any such Event of Default or to be an acquiescence therein; nor shall
the acceptance by the Secured Party of any security or of any payment of or on
account of the obligations of the Debtor under the Loan Agreement or the Note
maturing after any Event of Default or of any payment on account of any past
default be construed to be a waiver of any right to exercise any remedies due
to any future Event of Default or of any past Event of Default not completely
cured thereby. No consent, waiver or approval of the Secured Party shall be
deemed to be effective unless in writing and duly signed by the Secured Party;
any waiver by the Secured Party of any of the terms of this Security Agreement
or any consent given under this Security Agreement shall only be effective for
the purpose and on the terms which it is given and shall be without prejudice
to the right to give or withhold consent in relation to future matters.
Section 6.09. Cure of Defaults. If at any time after an Event of
Default and prior to the actual sale of any of the Collateral by the Secured
Party or prior to any enforcement or foreclosure proceedings the Debtor offers
completely to cure all Events of Default and to pay all expenses, advances and
damages to the Secured Party consequent on such Events of Default, with
interest at the interest rate set forth in Section 1.04(c) of the Loan
Agreement (but subject in all cases to the limitations set forth in Section
1.04(d) of the Loan Agreement), then the Secured Party may (but shall not be
obligated to) accept such offer and payment and restore the
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Debtor to its former position, but such action, if taken, shall not affect any
subsequent Event of Default or impair any rights consequent thereon.
Section 6.10. Discontinuance of Proceedings. In case the Secured Party
shall have proceeded to enforce any right, power or remedy under this Security
Agreement by foreclosure, entry or otherwise, and such proceedings shall have
been discontinued or abandoned for any reason or shall have been determined
adversely to the Secured Party, then and in every such case the Debtor and the
Secured Party 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 Secured Party shall
continue as if no such proceedings had been taken.
ARTICLE 7 - MISCELLANEOUS
Section 7.01. Contracts. It is expressly agreed that anything herein
contained to the contrary notwithstanding, the Secured Party shall have no
obligation or liability under any drilling contract, lease or other contract
concerning the use or operation of the Rigs by reason of or arising out of this
Security Agreement nor shall the Secured Party be required or obligated in any
manner to perform or fulfill any obligations of the Debtor 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 to make any 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 to hereunder at any
time or times.
Section 7.02. Power of Attorney. The Debtor does hereby constitute the
Secured Party, its successors and assigns, the Debtor's true and lawful
attorney, irrevocably, with full power (in the name of the Debtor or
otherwise), if an Event of Default shall have occurred and be continuing, to
ask, require, demand, receive, compound and give acquittance for any and all
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 to take any action or institute any proceedings which the
Secured Party may deem to be necessary or advisable in the premises.
Section 7.03. Irrevocability. The powers and authority granted to the
Secured Party herein have been given for a valuable consideration and are
hereby declared to be irrevocable.
Section 7.04. Further Documents. The Debtor agrees that at any time
and from time to time, upon the written request of the Secured Party, it will
promptly and duly execute and deliver any and all such further instruments and
documents as the Secured Party may reasonably deem desirable in obtaining the
full benefits of this Security Agreement and of the rights and powers herein
granted.
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Section 7.05. Notices. All notices or other communications which are
required to be made hereunder to the Debtor shall be made in the manner and to
the address for the Debtor provided in Section 5.01 of the Loan Agreement and
if to the Secured Party in the manner and to the address for the Secured Party
provided in Section 5.01 of the Loan Agreement.
Section 7.06. Choice of Law. This Security Agreement shall be governed
by the internal laws of the State of Texas and may not be amended or changed
except by an instrument in writing signed by both parties hereto.
Section 7.07. Severability of Provisions. Any provision of this
Security Agreement that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction. To the extent permitted by applicable law, the Debtor
hereby waives any provision of law that renders any provision hereof prohibited
or unenforceable in any respect.
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/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Title: Vice President-Finance
-----------------------------
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ ▇▇▇▇▇▇ ▇. Pitch
--------------------------------
Name: ▇▇▇▇▇▇ ▇. Pitch
------------------------------
Title: Vice President
-----------------------------
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