SUBORDINATED SECURITY AGREEMENT
EXHIBIT
10.7
THIS
SUBORDINATED SECURITY AGREEMENT is made as of January 3, 2008, by Xxxxxxx
Drilling Corporation, a Nevada corporation (“Borrower”),
Xxxxxxx Drilling, Inc., a Texas corporation, Xxxxxxx Tool & Supply, Inc., a
Nevada corporation, and Xxxxxxx Exploration & Production, Inc., a Nevada
corporation, each a wholly-owned subsidiary of Borrower (the “Subsidiaries”; and
collectively with the Borrower, “Grantor”),
in
favor of Bank of the Ozarks (“Trustee”).
WHEREAS,
concurrently herewith, Grantor and Trustee have entered into that certain
Indenture, of even date herewith (the “Indenture”).
WHEREAS,
the Subsidiaries shall derive substantial benefit and advantage from the
financial accommodations to Borrower set forth in the Indenture, and it shall
be
to Subsidiaries direct interest and economic benefit to assist Borrower in
processing such financial accommodation.
WHEREAS,
the Indenture requires that Grantor shall have executed and delivered to Trustee
this Agreement to secure Borrower’s obligations to Trustee and the holders of
the notes to be issued under the Indenture (individually, a “Note”
and,
collectively, the “Notes”
in
the
manner set forth herein.
WHEREAS,
Borrower and Trustee, together with First Security Bank, Searcy, Arkansas have
entered into an Intercreditor Agreement (the “Intercreditor
Agreement”)
of
even date herewith and all provisions herein are subject to such
agreement.
WHEREAS,
Grantor desires to secure Borrower’s obligations to Trustee and the holders of
the Notes in the manner set forth herein.
NOW,
THEREFORE, in consideration of the Secured Obligations (as hereinafter defined)
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by Borrower, and to induce Trustee to enter into the
Indenture and for the holders of the Notes to purchase the Notes, the parties
hereto agree as follows:
1. Definitions.
Capitalized terms not otherwise defined herein which are defined in the
Indenture shall have the meanings set forth therein or which are defined in
the
UCC shall have the meanings set forth therein. In addition to any other terms
defined elsewhere in this Agreement, the following terms shall have the
following meanings:
“Accounts”
shall
mean all accounts as that term is defined in the UCC related to the Tangible
Collateral and all rights of Grantor now existing and hereafter acquired to
payment for goods sold or leased or for services rendered which are not
evidenced by an Instrument or Chattel Paper, that relate to the Tangible
Collateral, whether or not earned by performance, together with (a) all security
interests or other security held by or granted to Grantor to secure such rights
to payment,
(b) all other rights related thereto (including rights of stoppage in transit)
and (c) all rights in any of such sold or leased goods which are returned or
repossessed.
Signature
Page
“Chattel
Paper”
shall
mean all chattel paper as that term is defined in the UCC related to the
Tangible Collateral and any document or documents that relates to the Tangible
Collateral and evidence both a monetary obligation and a security interest
in,
or a lease or consignment of, specific goods; provided that when a transaction
is evidenced both by a security agreement or a lease and by an Instrument or
series of Instruments, the group of documents taken together constitute Chattel
Paper.
“Collateral”
shall
mean Tangible Collateral wherever located, in which Grantor now has any right
or
interest and the Accounts, Chattel Paper, Contract Rights, Documents, Equipment,
General Intangibles, Instruments, Inventory, Stock Rights, cash, bank accounts,
special collateral accounts, uncertificated securities (as that term is defined
in the UCC), insurance policies, all books and records (in whatever form or
medium), customer lists, credit files, computer files, programs, printouts,
source codes, software and other computer materials and records (related to
any
of the foregoing) and all Proceeds (including without limitation proceeds as
that term is defined in the UCC), insurance proceeds, unearned premiums, tax
refunds, rents, profits, offspring and products thereof related to the Tangible
Collateral.
“Contract
Rights”
shall
mean any right to payment under a contract not yet earned by performance and
not
evidenced by an Instrument or Chattel Paper which relates to the
Collateral.
“Documents”
shall
mean all documents as that term is defined in the UCC and all documents of
title
and goods evidenced thereby (including, without limitation, all bills of lading,
dock warrants, dock receipts, warehouse receipts and orders for the delivery
of
goods), together with any other document which in the regular course of business
or financing is treated as adequately evidencing that the Person in possession
of it is entitled to receive, hold and dispose of such document and the goods
it
covers which relate to the Collateral.
“Equipment”
shall
mean the equipment listed on Schedule I. “Secondary Equipment” shall mean that
certain subset of the Equipment identified on Schedule I as to which the Trustee
is herein granted an initial security interest which Trustee shall release
upon
request of the Borrower in the event Expansion Debt (as defined in the
Indenture) is issued in accordance with the terms of Section 4.09 of the
Indenture.
“Event
of Default”
shall
mean any Event of Default as defined in the Indenture.
“General
Intangibles”
shall
mean general intangibles as that term is defined in the UCC related to the
Collateral and all intangible personal property of every kind and nature which
relate to the Collateral (including, without limitation, all Contract Rights,
other rights to receive payments of money, chooses in action, security
interests, indemnification claims, judgments, tax refunds and tax refund claims,
royalty and product rights, inventions, work in progress, leasehold interests
in
real or personal property, rights to receive rentals of real or personal
property or payments under letters of credit, insurance proceeds and guarantee
claims other than Accounts); notwithstanding the foregoing, General Intangibles
does not include patents, patent applications, trademarks, trademark
applications, trade names, copyrights, copyright applications, permits,
licenses, franchises, know-how, trade secrets, other items of intellectual
property and proprietary rights, goodwill (whether or not associated with any
of
the foregoing), and computer software.
2
“Guaranty”
shall
mean the guaranty of the Subsidiaries in Article XI of the
Indenture.
“Instruments”
shall
mean all negotiable instruments as that term is defined in the UCC related
to
the Collateral, certificated securities (as that term is defined in the UCC)
and
any replacements therefor and Stock Rights related thereto, and other writings
which evidence rights to the payment of money (whether absolute or contingent)
and which are not themselves security agreements or leases and are of a type
which in the ordinary course of business are transferred by delivery with any
necessary endorsement or assignment (including, without limitation, all checks,
drafts, notes, bonds, debentures, government securities, certificates of
deposit, letters of credit, preferred and common stocks, options and warrants),
and that relates to the Collateral.
“Inventory”
shall
mean the inventory set forth on Schedule II. “Secondary Inventory” shall mean
that certain subset of the Inventory identified on Schedule II as to which
the
Trustee is herein granted an initial security interest which Trustee shall
release upon request of the Borrower in the event Expansion Debt (as defined
herein) is issued in accordance with the terms of Section 4.09 of the
Indenture.
“Permitted
Liens”
shall
mean all liens permitted under this Agreement or the Indenture.
“Pledge
Agreement”
shall
mean the Subordinated Pledge Agreement, dated as of the date hereof, between
Trustee and Borrower (as Pledgor thereunder).
“Proceeds”
shall
mean all proceeds as that term is defined in the UCC and, in addition, any
and
all amounts or items of property received when any Collateral or proceeds
thereof are sold, exchanged, collected or otherwise disposed of, both cash
and
non-cash, including proceeds of insurance, indemnity, warranty or guarantee
paid
or payable on or in connection with any Collateral.
“Receivables”
shall
mean all Accounts, Chattel Paper and Contract Rights and all Instruments
representing rights to receive payments.
“Rigs”
shall
mean the rigs set forth on Schedule III.
“Secured
Obligations”
shall
mean, collectively, (a) all liabilities, obligations and indebtedness (whether
actual or contingent, whether owed jointly or severally, whether for the payment
of money and, if for the payment of money, whether for principal, interest,
premium, fees, expenses or otherwise) now existing or hereafter incurred of
Borrower to Trustee or the holders of Notes under the Notes, the Indenture,
this
Agreement and the Pledge Agreement and of the Subsidiaries to Trustee or the
holders of Notes under this Agreement, the Indenture and the Guaranty, as the
same may be amended, modified or supplemented from time to time, together with
any and all extensions, renewals, refinancings or refundings thereof in whole
or
in part, (b) all other liabilities, obligations and indebtedness (whether actual
or contingent, whether owed jointly or severally, whether for the payment of
money and, if for the payment of money, whether for principal,
interest, premium, fees, expenses or otherwise) of Borrower or any of its
Subsidiaries to Trustee or the holders of Notes now existing or hereafter
incurred, whether under other financing arrangements or otherwise, whether
related to the Notes, whether contemplated by Trustee or Borrower at the date
hereof and whether direct, indirect, matured or contingent, joint or several,
or
otherwise, together with any and all extensions, renewals, refinancings or
refundings thereof in whole or in part, (c) all costs and expenses
(including, without limitation, to the extent permitted by law, reasonable
attorneys’ fees and other legal expenses) incurred by Trustee in the enforcement
and collection of any of the liabilities, obligations and indebtedness referred
to in clause (a) or (b) above, and (d) all payments and advances made by
Trustee for the maintenance, preservation, protection or enforcement of, or
realization upon, any property or assets now or hereafter made subject to any
lien granted pursuant to the Indenture or this Agreement or pursuant to any
other agreement, instrument or note relating to any of the Secured Obligations
(including, without limitation, advances for taxes, insurance, storage,
transportation, repairs and the like).
3
“SEC
Filings”
shall
include all reports filed since June 2006 by the Borrower pursuant to the 1934
Act.
“Senior
Security Agreement”
shall
mean the agreement of even date hereof by and among the Borrow, the Subsidiaries
and First Security Bank.
“Stock
Rights”
shall
mean any stock, any dividend or other distribution and any other right or
property which Grantor shall receive
or shall become entitled to receive pursuant to the Pledge
Agreement.
“Tangible
Collateral”
shall
mean the Equipment and Inventory.
“UCC”
shall
mean the Uniform Commercial Code as in effect in any applicable
jurisdiction.
2. Grant
of the Security Interest.
(a) Grantor
hereby grants to and creates in favor of Trustee a continuing security interest
and lien under the UCC and all other applicable laws in and to all of Grantor’s
right, title and interest in and to the Collateral as security for the full
and
timely payment, observance and performance of the Secured Obligations in
accordance with the terms thereof.
(b) In
furtherance of the intent of the parties hereto and the parties to the
Intercreditor Agreement, the security interests and liens granted hereunder
shall be treated as a severable second priority security interest and lien
granted to Trustee as the collateral agent under the Indenture and, the security
interests and liens granted by Grantor under the Senior Security Agreement
shall
be treated as a severable first priority security interest, for the purpose
of
determining the relative rights in the Collateral.
3. Grantor’s
Continuing Obligations.
Notwithstanding
any provision hereof to the contrary, (a) Grantor shall remain liable under
all
contracts and agreements included in the Collateral to which it is a party
or by
which it is bound to the extent required therein and shall use its best efforts
to pay, perform and observe all of its liabilities
and obligations thereunder, (b) Trustee shall have no obligation to pay, perform
or observe any of the Grantor’s liabilities or obligations under such contracts
and agreements as a result of exercising its rights under this Agreement or
otherwise and (c) Trustee’s exercise of its rights under this Agreement or
otherwise shall not release Grantor from any of its liabilities or obligations
under such contracts and agreements.
4
4. Names,
Addresses and Locations.
(a) Grantor
represents and warrants that, except as specified on Schedule
IV
hereto
or in the SEC Filings, (i) during the five-year period prior to the execution
and delivery of this Agreement, it has not used any name or names under which
it
has invoiced account debtors, maintained records concerning Collateral or
otherwise conducted business other than the exact name under which it has
executed this Agreement, (ii) during such five-year period, it has not entered
into any merger, consolidation, corporate reorganization or purchase of
substantial assets in any bulk transfer or other transactions in which the
transferor was not acting in the ordinary course of business and (iii) the
address of Grantor set forth in Section 29 hereof is the address of Grantor’s
chief executive office and is the address at which Grantor keeps all books
and
records (in whatever form or medium, including all computer data, software
and
source codes) concerning the Collateral and the Proceeds thereof.
(b) If
Grantor desires to establish a new location for its chief executive office
or a
new location for any offices, plants or facilities where any Collateral or
any
books or records relating to the Collateral may be kept or to establish a new
name in which it may invoice account debtors, maintain records concerning the
Collateral or otherwise conduct business, it shall first, with respect to each
such new location or name, (i) give Trustee at least 30 days prior written
notice of its intention to do so and provide Trustee with such information
in
connection therewith as Trustee may reasonably request and (ii) if financing
statements are on file with respect to any Collateral, take such action, upon
request of Trustee, as may be necessary to maintain at all times the perfection
and priority of the security interests in the Collateral granted to Trustee
hereunder.
5. Location
of Inventory.
Grantor
represents and warrants that (a) all of its Inventory is located at the
locations specified on Schedule
IV
hereto
(except to the extent any such Inventory is in transit or located at Grantor’s
job site in the ordinary course of business), and (b) except as specified on
Schedule
IV,
none of
such locations are leased by Grantor as lessee and none of Grantor’s Inventory
is in the possession of any bailee, warehouseman, processor or other third
party, except for Inventory in transit which is being sold in the ordinary
course of business. All of Grantor’s Inventory shall be kept at all times at the
locations specified on Schedule
IV
and at
no other locations unless such Inventory is in transit or located at Grantor’s
job site in the ordinary course of business, except upon compliance with the
requirements of Section 4(b).
6. Location
of Equipment.
Grantor
represents and warrants that (a) all of its Equipment is located at the
locations specified on Schedule IV
hereto
(except to the extent any such Equipment is in transit or located at Grantor’s
job site in the ordinary course of business)and (b) except as specified on
Schedule
IV,
none of
such locations are leased by Grantor as lessee and none of Grantor’s Equipment
is in the possession of any bailee, warehouseman, processor or other third
party. All of Grantor’s Equipment shall be kept and maintained at all times at
the locations specified
in Schedule
IV
and at
no other locations unless such Equipment is in transit or located at Grantor’s
job site in the ordinary course of business, except (a) upon compliance with
the
requirements of Section 4(b) of this Agreement and (b) disposal of obsolete
equipment in the ordinary course of business.
5
7. Instruments.
Grantor
represents and warrants that except as specified on Schedule
IV
hereto,
it does not own or possess any Instruments other than checks and other drafts
received in the ordinary course of business.
8. Reserved.
9. Filing
Requirements; Other Financing Statements.
Grantor
represents and warrants that (a) none of its Equipment is covered by any
certificate of title, except for the vehicles specified on Schedule
V
hereto,
(b) none of the Collateral consists of property subject to any statute or treaty
referred to in Section 9-311 of the UCC (c) none of the Collateral is of a
type
for which security interests or liens may be filed under any federal statute,
and (d) no financing statements describing any portion of the Collateral have
been filed in any jurisdiction except for financing statements which have lapsed
or have been terminated and financing statements naming the [other Indenture]
and as set forth on Schedule
VI.
10. Receivables;
Right of Collection.
(a) Grantor
represents and warrants that the names of the account debtors and contract
obligors, the amounts owing, the due dates and other information with respect
to
all Receivables are and shall be correctly stated in all material respects
in
all records of Grantor relating thereto and in all invoices and reports with
respect thereto furnished to Trustee by Grantor from time to time.
(b) Except
as
otherwise provided in this Agreement, Grantor shall collect and enforce, at
its
expense, all amounts due or hereafter due with respect to all Receivables in
accordance with applicable law and commercially reasonable practices and
procedures. Promptly upon request from Trustee, Grantor shall deliver to Trustee
duplicate copies of all invoices rendered to account debtors in respect of
all
Accounts.
(c) If
an
Event of Default shall occur and be continuing or shall exist, Trustee shall
have the right upon written notice to Grantor to collect and dispose of all
Proceeds arising from all Receivables and to apply such Proceeds to the payment
of the Secured Obligations as determined in Trustee’s sole discretion. At any
such time and upon such written notice to Grantor, Trustee may (i) notify
account debtors and contract obligors of the grant to and creation in favor
of
Trustee of the security interest in the Receivables and the Proceeds thereof
under this Agreement, (ii) direct such account debtors and contract obligors
to
make any payments from time to time due in respect of any such Receivables
directly to Trustee at such places as it directs following acceleration of
the
Secured Obligations and (iii) assume entire control over all of the Proceeds
of
such Receivables. Trustee, its officers, employees and authorized agents are
hereby irrevocably appointed attorneys-in-fact of Grantor, effective following
the occurrence and during the continuance of an Event of Default, to endorse
any
check or draft which may be payable to Grantor in order to collect the
Receivables and any Proceeds thereof, which appointment is irrevocable and
coupled with an interest.
Upon receipt of written notice from Trustee of the revocation of Grantor’s right
of collection, Grantor shall promptly remit directly to Trustee all Proceeds
of
Receivables then or subsequently in its possession, and any collections and
receipts with respect to such Proceeds and Receivables shall be held in trust
by
Grantor for the benefit of Trustee.
6
(d) Grantor
shall not make or agree to make any discount, credit, rebate or other reduction
in the original amount owing on any Receivable or accept in satisfaction of
any
Receivable less than
the
original amount thereof, except that so long as an Event of Default is not
occurring, Grantor may in the ordinary course of business allow adjustments
to
the original amount owing on a Receivable in accordance with its customary
and
commercially reasonable credit policies and collection practices in effect
from
time to time. Except in the ordinary course of business or with the prior
written consent of Trustee in each case, Grantor shall not make any sale to
any
customer on a xxxx and hold, guaranteed sale, sale or return, sale on approval,
consignment or any other repurchase or return basis, or re-date any invoice
or
make sales on extended dating beyond that customary in its industry, or
otherwise change the terms of sale customarily offered to its
customers.
11. Vehicles;
Bailments; Legal Compliance.
(a) Grantor
shall give Trustee written notice of its acquisition of any vehicle, tractor
or
trailer covered by a certificate of title or similar evidence of ownership
acquired form Proceeds of any Collateral, and upon request of Trustee, Grantor
shall promptly execute and deliver any instruments and documents that may be
necessary, or that Trustee may request, in order to perfect its security
interest in all property subject to a certificate of title.
(b) If
any of
Grantor’s Inventory or Equipment is in the possession or control of any
warehouseman or any of Grantor’s processors or other bailees, Grantor shall
notify Trustee and if Trustee so requests, notify such warehousemen, processors
and other bailees in writing (with a copy to Trustee) of Trustee’s security
interest in such property and, upon Trustee’s request, instruct them to hold all
such Inventory and Equipment for Trustee’s account and subject to Trustee’s
instructions. If more than $250,000
in fair market value of the Inventory and Equipment of Granter is held by any
such bailee, Grantor shall file a financing statement in the appropriate
jurisdiction against such bailee in a form appropriate for the underlying
transaction.
(c) Grantor
represents, warrants and covenants that it has not or will not produce its
Inventory in violation of the Fair Labor Standards Act of 1938 (29 U.S.C.
§ 201 et.
seq.)
or in
violation of any other applicable law.
12. Insurance;
Risk of Loss.
(a) Grantor
shall maintain, at its expense, insurance with respect to the Collateral against
such risks and casualties, in such amounts and with such insurers as required
by
the Note. Such insurance policy shall (i) contain a loss payable clause and
a
Trustees’ loss payable endorsement in favor of Trustee as its interest may
appear and (ii) provide that at least 30 days prior written notice of any
cancellation or lapse of such policy must be given to Trustee by the
insurer.
The risk of loss of, damage to or destruction of the Inventory, Equipment and
other Collateral shall be on the Grantor.
7
(b) If
Grantor fails to obtain and keep in full force and effect the insurance coverage
required by the Note or fails to pay the premiums therefor when due, Trustee
may
(but shall not be obligated to) do so for the account of Grantor (without
waiving or releasing any obligation or default of Grantor hereunder), and the
cost thereof shall be added to the Secured Obligations and shall be payable
upon
demand with interest accruing thereon at the Default interest rate provided
from
the Notes (the
"Default Interest Rate").
13. Rights
in Collateral.
(a) Other
than the liens set forth on Schedule
VI,
Grantor
represents, warrants and covenants that it has and shall have at all times
valid
title to all Collateral, free and clear of all liens, claims, charges and
encumbrances (except for Permitted Liens), and Grantor shall defend such title
against the claims and demands of all other Persons. Other than for the Stock
Rights, vehicles and bank accounts, Grantor represents and warrants that this
Agreement creates a valid security interest in the Collateral which, upon filing
of proper financing statements in the jurisdictions and the taking of all other
steps regarding perfection specified on Schedule
VII
attached
hereto, shall constitute a valid perfected lien on and security interest in
the
Collateral, subject only to Permitted Liens which are accorded priority. Grantor
represents and warrants that to the best of Grantor’s knowledge, except as
previously disclosed, all Receivables are valid, binding and enforceable in
accordance with their respective terms and that no party to any Receivable
is in
default with respect thereto, except to the extent of allowances for
uncollectible accounts reflected on the financial statements of Grantor in
accordance with generally accepted accounting principles consistently
applied.
(b) Except
for dispositions permitted by the Indenture or in the ordinary course of
business, Grantor shall not sell, transfer, assign, convey or otherwise dispose
of, or extend, amend, terminate or otherwise modify any term or provision of,
any Collateral, any interest therein or any Proceeds thereof, nor waive or
release any right with respect thereto, without, the prior written consent
of
Trustee.
(c) Grantor
assumes full responsibility for taking any and all steps to preserve its rights
with respect to the Collateral against all prior parties. Trustee shall be
deemed to have exercised reasonable care in the preservation and custody of
the
portion of the Collateral as may be in Trustee’s possession if Trustee takes
such action as is required by applicable law and as Grantor shall reasonably
request in writing; provided that such requested action shall not, in the
judgment of Trustee, impair Trustee’s prior security interest in such Collateral
or its rights in or the value of such Collateral, and provided further that
such
written request is received by Trustee in sufficient time to permit Trustee
to
take the requested action. In the absence of such written request, Trustee
shall
be deemed to have exercised reasonable care in the custody and preservation
of
the Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which Trustee accords its own property.
8
14. Records.
With
respect to Collateral in which it has rights or interests, Grantor shall
at all
times maintain accurate and complete records with respect to each item of
Collateral constituting fixed assets, shall keep aggregate records regarding
Inventory or Receivables, and shall otherwise keep books and records in
accordance with the terms of the Indenture.
15. Taxes
and Charges.
Grantor
shall pay and discharge all taxes, levies and other impositions levied on
any
Collateral in which Grantor has rights or interests, in accordance with the
terms of the Indenture, unless such failure to pay would not have a material
adverse effect on the market value of the Collateral or if Grantor contest
such
tax, levy or imposition. If Grantor shall fail to do so, Trustee may (but
shall
not be obligated to) pay such taxes, levies or impositions for the account
of
Grantor (without waiving or releasing any obligation or default by Grantor
hereunder), and the amount thereof shall be added to the Secured Obligations
and
shall be payable upon demand with interest accruing at the Default Interest
Rate.
16. Preservation
and Protection of Security Interest.
Except
as otherwise provided herein, Grantor shall use its best efforts to diligently
preserve and protect Trustee’s security interest in the Collateral in which
Grantor has rights or interests and Borrower shall, at its expense, cause such
security interest in such Collateral, other than the, vehicles and bank accounts
(until required herein) owned by the Borrower to be perfected and continue
perfected so long as the Secured Obligations or any portion thereof are
outstanding
and
unpaid (including, without limitation, by means of the delivery of all
instruments, documents of title and securities to Trustee with endorsements
and
documents of transfer satisfactory to Trustee), and for such purposes, Grantor
shall from time to time at Trustee’s request and at its expense file or record,
or cause to be filed or recorded, such instruments, documents and notices
(including, without limitation, financing statements and continuation
statements) as Trustee may deem necessary or advisable from time to time to
perfect and continue perfected such security interests during the period, in
accordance with the foregoing provision, that each Grantor has the obligation
to
cause such security interest to be perfected. Grantor shall do all such other
acts and things and shall execute and deliver all such other instruments and
documents (including, without limitation, further security agreements, pledge
agreements, pledges, endorsements, assignments and notices) as Trustee may
deem
necessary or advisable from time to time to perfect and preserve the priority
of
Trustee’s security interest in the Collateral, as a perfected security interest
in the Collateral (except as otherwise provided herein), prior to the rights
of
any other secured party or lien creditor, except with respect to Permitted
Liens, which are accorded priority or as contemplated in the Intercreditor
Agreement. Trustee, and its officers, employees and authorized agents, or any
of
them, are hereby irrevocably appointed the attorneys-in-fact of Grantor to
do,
at Grantor’s expense, all acts and things which Trustee may deem necessary or
advisable to preserve, perfect and continue perfected Trustee’s security
interest in the Collateral (including, without limitation, the signing of
financing, continuation or other similar statements and notices on behalf of
Grantor), which appointment is irrevocable and coupled with an interest.
17. Federal
Claims.
Grantor
shall notify Trustee of any Collateral which constitutes a claim against the
United States government or any instrumentality or agency thereof, the
assignment of which claim is governed by federal law. Upon the request of
Trustee, Grantor shall at its expense take all actions required to comply,
to
Trustee’s satisfaction, with the Assignment of Claims
Act of 1940, as amended, or any similar applicable law, with respect to any
such
Collateral having a value in excess of $10,000.
9
18. Intercreditor
Agreement.
The
Trustee hereby acknowledges and agrees that the exercise of remedies pursuant
to
paragraph 19 hereof and all other provisions of this Agreement are, and shall
at
all times be, subject to the limitations on the Trustee’s remedies set forth in
the Intercreditor Agreement.
19. Remedies
on Default.
Subject
to the terms and conditions set forth in the Intercreditor
Agreement:
(a) If
any
Event of Default shall occur and be continuing or shall exist, Trustee may
(i)
to the full extent permitted by law, take possession and control of all or
any
part of the Collateral and Proceeds thereof and the books and records pertaining
thereto, with or without judicial process, and (ii) after ten days prior written
notice, proceed to exercise one or more of the rights and remedies accorded
to a
secured party by the UCC and otherwise by law or by the terms of the Indenture
or this Agreement. Trustee’s rights and remedies shall include, without
limitation, the power to (i) sell, lease, assign or otherwise dispose of and
deliver all or any portion of the Collateral at public or private sale or sales
at such place and time and on such terms as Trustee may see fit (subject to
the
requirements, including commercial reasonableness, of applicable law), (ii)
endorse in the name of Grantor any Instrument representing Collateral, (iii)
prosecute claims and legal actions regarding Accounts, other Receivables and
General Intangibles, (iv) perform any agreement or contract which constitutes
Collateral and (v) sell, assign, license, sublicense or otherwise dispose of,
all right, title and interest in and to any General Intangibles included in
the
Collateral (including, without limitation, assignments, recordings,
registrations and applications therefor in the United States Patent and
Trademark Office, the United States Copyright Office or any similar domestic
or
foreign office or agency) and for the purpose of recording, registering and
filing of, or accomplishing any other formality with respect to the foregoing,
execute and deliver any and all agreements, documents, instruments of assignment
or other papers necessary or advisable to effect such purpose. Without
precluding any other methods of sale, the sale of Collateral shall be deemed
to
have been made in a commercially reasonable manner if conducted in conformity
with reasonable commercial practices of secured lenders disposing of similar
property, but in any event, Trustee may sell the Collateral on such terms as
Trustee may choose without assuming any credit risk and without any obligation
to advertise or give notice of any kind not expressly required under this
Agreement or by the UCC or otherwise. All of the rights and remedies of Trustee
under this Agreement shall be cumulative and not exclusive of other rights
and
remedies which it otherwise would have, whether under the Indenture, the UCC
or
otherwise. After the occurrence of an Event of Default, promptly upon the
request of Trustee, Grantor shall assemble so much of the Collateral (including,
without limitation, all books and records relating thereto) in its possession
as
is capable of physical delivery and make the same available to Trustee at such
locations designated by Trustee reasonably convenient to both parties and shall
permit Trustee, or Trustee’s representatives and agents, to enter any premises
where all or any part of the Collateral, or the books and records relating
thereto, or both, are located, to take possession of all or any part of the
Collateral and to remove all or any part of the Collateral. The right of Trustee
to have the Collateral assembled and made available to it is of the essence
of
this Agreement, and Trustee may, at its election, enforce such right by a xxxx
in equity for injunctive relief for specific performance.
Trustee shall not be under any obligation to marshal any assets in favor of
Grantor or any other Person or against or in payment of all or any of the
Secured Obligations.
10
(b) Grantor
agrees that in any sale of any of the Collateral, Trustee is authorized to
comply with any limitation or restriction in connection with such sale which
it
is advised by its counsel is appropriate (i) to avoid violation of
applicable law, or (ii) to obtain any required approval of such sale or of
a
purchase of such sale by any governmental regulatory authority or official.
Grantor further agrees that such compliance shall not result in any such sale
being deemed not to have been made in a commercially reasonable manner, nor
shall Trustee be liable or accountable to Grantor for any discount allowed
by
reason of the fact that any Collateral is sold in compliance with any such
limitation or restriction.
(c) If
any
Event of Default shall occur and be continuing or shall exist, Trustee shall
have the right, in addition to all other rights and remedies available to it
hereunder or otherwise, without notice to Grantor, to set-off against and to
appropriate and apply to the unpaid balance of the Notes and all other Secured
Obligations, any obligations owing to Grantor by Trustee and any funds held
in
any manner for the account of Grantor by Trustee, and Trustee is hereby granted
a security interest in and lien on all such obligations for such purpose. Such
set-off rights shall exist whether or not Trustee shall have made any demand
under this Agreement, the Indenture or any other Secured Obligations and whether
the Notes and such other obligations are matured or unmatured.
20. Further
Funding; Expansion Debt.
Section
4.09 of the Indenture provides that Borrower may incur certain additional debt
(herein called Expansion Debt as also defined in the Indenture) for the purpose
of acquiring or constructing certain additional assets (herein called Expansion
Assets as also defined in the Indenture). In the event that such Expansion
Debt
is incurred in accordance with the limitations of Section 4.09 of the Indenture
but not issued in a manner that makes it part of the Indenture, as amended
or
modified, or issued under the Indenture but otherwise incurred with a separate
lender, then Trustee agrees to release the security interest in the Secondary
Equipment and Secondary Inventory not comprising the Rigs and, if required
by
the subsequent lender, the Stock Rights but only to the extent related to the
Secondary Equipment and Secondary Inventory being released.
21. Application
of Proceeds.
Any
Collateral or Proceeds of the Collateral received or realized upon at any time
by Trustee shall be applied in the manner set forth in the Note (or if not
so
set forth, in a manner acceptable to, and at the election of, the Trustee).
If
the Proceeds of the Collateral together with the proceeds of any other
collateral granted to Trustee by Borrower to secure the Secured Obligations,
and
of any sales or other dispositions thereof, shall be insufficient to fully
discharge and satisfy the Secured Obligations, Borrower shall be liable for
the
deficiency, and if a surplus results after lawful application of such proceeds,
either the Borrower or any other Grantor, to the extent such party has an
entitlement to any such surplus.
22. Bank
Accounts.
After
the date of this Agreement, at the request of Trustee, Grantor shall execute
and
deliver to Trustee a depository account agreement or blocked account agreement,
in form and substance reasonably satisfactory to Trustee and Grantor and
accompanied by an appropriate executed acknowledgment, with respect to each
bank
or other financial institution where Grantor maintains accounts so that Trustee
shall have control over the bank account upon the occurrence and continuance
of
an Event of Default, thereafter the Bank Account shall be subject to the terms
of such depository account agreement of blocked account agreement.
11
23. Continuing
Validity of Obligations.
(a) The
agreements and obligations of the Grantor hereunder are continuing agreements
and obligations and are absolute and unconditional irrespective of the
genuineness, validity or enforceability of the Notes or any other instrument
or
instruments now or hereafter evidencing the Secured Obligations or any part
thereof or of this Agreement or any other agreement or agreements now or
hereafter entered into by Trustee and Grantor pursuant to which the Secured
Obligations or any part thereof is issued or of any other circumstance which
might otherwise constitute a legal or equitable discharge of such agreements
and
obligations other than payment in full of the Secured
Obligations.
(b) Without
limitation upon the foregoing, such agreements and obligations of Grantor shall
continue in full force and effect as long as the Secured Obligations or any
part
thereof remains outstanding and unpaid and shall remain in full force and effect
without regard to and shall not be released, discharged or in any way affected
by (i) any renewal, refinancing or refunding of the Secured Obligations in
whole
or in part, (ii) any extension of the time of payment of the Notes or other
instrument or instruments now or hereafter evidencing the Secured Obligations
or
any part thereof, (iii) any amendment to or modification of the terms of the
Notes or other instrument or instruments now or hereafter evidencing the Secured
Obligations or any part thereof or any other agreement or agreements now or
hereafter entered into by Trustee and Grantor pursuant to which the Secured
Obligations or any part thereof is issued or secured, or (iv) any substitution,
exchange or release of, or failure to preserve, perfect or protect, or other
dealing in respect of, the Collateral or any other property or any security
for
the payment of the Secured Obligations or any part thereof.
(c) To
the
extent that Grantor makes a payment or payments to Trustee or Trustee receives
any payment or proceeds of the Collateral, which payment or proceeds or any
part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or
required to be repaid to Grantor or a trustee, receiver or any other party
under
any bankruptcy law, state or federal law, common law or equitable cause of
action, then, to the extent of such payment or proceeds, the Secured Obligations
or portion thereof intended to be satisfied and this Agreement shall be revived
and continue in full force and effect, as if such payment or proceeds had not
been received by such party.
24. Defeasance.
Upon
payment in full of the Secured Obligations, this Agreement shall terminate
and
be of no further force and effect (except for the provisions of Sections 25
hereof which shall survive), and in such event Trustee shall, at Grantor’s
expense and without recourse, representation or warranty, redeliver and reassign
to Grantor the Collateral and take all action necessary to terminate Trustee’s
security interest in the Collateral. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and
assigns.
12
25. Indemnification
and Expenses.
Grantor
shall indemnify and hold harmless Trustee from and against any and all claims
and losses arising out of or attributable to this Agreement, the Notes and
all
other related agreements, and the granting to Trustee of a security interest
and
lien in the Collateral hereunder, except claims and losses arising from
Trustee’s breach hereof or Trustee’s gross negligence or willful misconduct.
Grantor shall, jointly and severally, pay Trustee on demand the amount of
any
out-of-pocket expenses (including, without limitation, reasonable attorneys’
fees and other legal expenses) incurred by Trustee in connection with the
enforcement of this Agreement, the Indenture and the Notes and as otherwise
provided in this Agreement with interest accruing thereon at the Default
Interest Rate.
26. Saving
Clause.
Notwithstanding any other provision contained in this Agreement or the Notes,
the aggregate interest rate per annum charged with respect to the Notes
(including all charges and fees deemed to be interest pursuant to applicable
law) shall not exceed the maximum rate per annum permitted by applicable law.
In
the event that the aggregate interest rate per annum payable with respect to
the
Notes (including all charges and fees deemed to be interest under applicable
laws) exceeds the maximum legal rate, Borrower shall only pay Trustee interest
at the maximum permitted rate, and Borrower shall continue to make such interest
payments at the maximum permitted rate until all such interest payments and
other charges and fees payable hereunder (in the absence of such legal
limitations) have been paid in full.
27. Modifications,
Amendments or Waivers.
The
provisions of this Agreement may be modified, amended or waived, but only by
a
written instrument signed by Grantor and the Trustee.
28. No
Implied Waivers; Cumulative Remedies; Writing Required.
No
delay or failure of Trustee in exercising any right, power or remedy under
this
Agreement or the Indenture shall affect or operate as a waiver thereof, nor
shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power or remedy preclude any
further exercise thereof or of any other right, power or remedy. The rights
and
remedies of Trustee under this Agreement and the Indenture are cumulative and
not exclusive of any rights or remedies which it would otherwise have,
including, without limitation, any rights and remedies under any other
agreement. Any waiver, permit, consent or approval of any kind or character
on
the part of Trustee of any breach or default or any such waiver of any provision
or condition of this Agreement and the Indenture must be in writing and shall
be
effective only to the extent in such writing specifically set
forth.
29. Notices.
All
notices, requests, demands, waivers and other communication required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given if (a) delivered personally, (b) mailed by
first-class, certified mail, return receipt, postage prepaid, or (c) sent by
next-day or overnight mail or delivery or (d) sent by telecopy (with electronic
confirmation of receipt) or telegram.
If
to
the Trustee:
Bank
of
the Ozarks
00000
Xxxxxx Xxxxxxx
Xxxxxx
Xxxx, XX 00000
Attention:
Xxxxxx Xxxxxx, Senior Vice President
13
with
a
copy, which will
not
constitute notice to
the
Trustee, to:
Xxxx
Xxxxxx Xxxxx Xxxx Xxxxx & Xxxxxxx, P.A.
000
Xxxx
Xxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxx
Xxxx, XX 00000
Attention:
Xxx Xxxxxxx
If
to
the Borrower:
Xxxxxxx
Drilling Corporation
Attn:
W.
Xxxxx Xxxxxxxx
0000
Xxxxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx,
Xxxxx 00000
with
a
copy, in each case, which will
not
constitute notice to
Grantor,
to:
Xxxxxx
& Xxxxxxxxx, PC
Attn:
Xxxxxx X. Xxxxxxxxx
0
Xxxxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxx 00000
or,
in
each case, at such other address as may be specified in writing to the other
parties.
All
such
notices, requests, demands, waivers and other communications shall be deemed
to
have been received (a) if by personal delivery on the date after such delivery,
(b) if by certified mail, on the seventh business day after the mailing thereof,
(c) if by next-day or overnight mail or delivery, on the day delivered, (d)
if
by telecopy or telegram, on the next day following the day on which such
telecopy or telegram was sent, provided that a copy is also sent by certified
or
registered mail.
30. Survival.
All
representations, warranties, covenants and agreements of Grantor contained
herein or made in writing in connection herewith shall survive the execution
and
delivery of this Agreement and the issuance of the Notes.
31. Governing
Law; Waivers and Jurisdiction.
(a) Governing
Law.
This
Agreement shall in all respects be governed by, and construed and enforced
in
accordance with, the laws of the State of Texas, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State
of
Texas or any other jurisdiction) that would cause the application of the laws
of
any jurisdiction other than the State of Texas, except that the filing,
perfection, effect of perfection and enforcement of security interests and
liens
in other jurisdictions shall be governed by the laws of the applicable
jurisdictions in accordance with the UCC.
14
(b) Waivers.
To the extent permitted by law, Grantor hereby waives personal service of
any
and all process upon them and consent that all such service of process be
made
by certified mail (with return receipt) directed to them at their addresses
set
forth in Section 29 hereof, and service so made shall be deemed to be completed
on the seventh Business Day after the same shall have been deposited in the
U.S.
mails, postage prepaid. In addition, Grantor hereby waives, to the extent
permitted by law, trial by jury, any objections based on
forum non conveniens and any objections to venue
of any action arising out of, connected with, related to or incidental to
the
transactions contemplated by or the relationships established in connection
with
this Agreement.
(c) Exclusive
Jurisdiction.
All
disputes among or between Trustee and Grantor arising out of, connected with,
related to or incidental to the transactions contemplated by or the relationship
established between them in connection with this Agreement and whether arising
in contract, tort, equity or otherwise, shall be resolved only by state or
federal courts located in the State of Texas, Xxxxxx County, and Grantor hereby
consents and submits to the jurisdiction of any state or federal court located
within such county and state. Trustee and Grantor acknowledge, however, that
any
appeals from those courts may be required to be heard by a court located outside
the State of Texas, Xxxxxx County. Grantor waives in all disputes any objections
that they may have to the location of the court considering the dispute. Nothing
in this Section 31 shall affect the right of Trustee to serve legal process
in
any other manner permitted by law or affect the right of Trustee to bring any
action or proceeding against Grantor or its property in the courts of any other
jurisdiction.
32. Herein,
etc.
Words
such as “herein,” “hereunder,” “hereof” and the like shall be deemed to refer to
this Agreement as a whole and not to any particular document or Article, Section
or other portion of a document.
33. Severability.
Whenever possible, each prevision of this Agreement shall be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law
in
any jurisdiction, such provision shall be ineffective only to the extent of
such
prohibition or invalidity, without invalidating any other provision of this
Agreement.
34. Headings.
Section
and subsection headings in this Agreement are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
35. Counterparts.
This
Agreement may be executed in any number of counterparts and by either party
hereto on separate counterparts, each of which, when so executed and delivered,
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
15
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day
and year first above written.
|
BANK
OF THE OZARKS
|
||
|
By:
|
/s/
Xxxxxx Xxxxxx
|
|
|
Its:
Sr.
Vice President
|
||
|
XXXXXXX
DRILLING CORPORATION
|
||
|
By:
|
/s/
Xxxx Xxxxxxx III
|
|
|
Name:
|
Xxxx
Xxxxxxx III
|
|
|
Title:
|
President
|
|
|
XXXXXXX
DRILLING, INC.
|
||
|
By:
|
/s/
W. Xxxxx Xxxxxxxx
|
|
|
Name:
|
W.
Xxxxx Xxxxxxxx
|
|
|
Title:
|
Secretary
|
|
|
XXXXXXX
TOOL & SUPPLY, INC.
|
||
|
By:
|
/s/
W. Xxxxx Xxxxxxxx
|
|
|
Name:
|
W.
Xxxxx Xxxxxxxx
|
|
|
Title:
|
Secretary
|
|
|
|
||
|
XXXXXXX
EXPLORATION
|
||
|
&
PRODUCTION, INC.
|
||
|
By:
|
/s/
W. Xxxxx Xxxxxxxx
|
|
|
Name:
|
W.
Xxxxx Xxxxxxxx
|
|
|
Title:
|
Secretary
|
|
Schedule
to Subordinated Security Agreement
