SECOND AMENDMENT TO
SECURITY AGREEMENT
THIS AGREEMENT is dated this 13(TH) day of August, 1998, by and between
Pennaco Energy, Inc. a Nevada corporation ("Pennaco"), and Venture Capital
Sourcing, S.A., a corporation ("VCS") is the second amendment to the Security
Agreement entered into by the parties May 15, 1998 (the "May Agreement").
NOW THEREFORE, in consideration of their mutual promises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the May Agreement in its entirety
as follows:
RECITALS:
WHEREAS, the parties hereto have entered into that certain Promissory Note
dated August 13, 1998 (the "Note"), to which this Agreement is Exhibit "A"
pursuant to which Pennaco is obligated to pay to VCS principal and interest in
the aggregate of $4,203,746 (the "Obligation"); and
WHEREAS, as security for the Obligation, Pennaco has agreed to grant VCS a
security interest in certain of the mineral interests to which Pennaco is
entitled.
NOW THEREFORE, in consideration of their mutual promises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. GRANT OF SECURITY INTEREST.
To secure payment to VCS by Pennaco of the Obligation, Pennaco hereby
assigns and grants to VCS a security interest in the collateral described in
Paragraph 2 (the "Collateral").
2. THE COLLATERAL.
The Collateral shall consist of (a all the mineral interests to which
Pennaco is entitled pursuant to an agreement entered into with High Plains
Associates, attached hereto and made apart hereof and designated as Exhibit
"A.1" hereto, and an agreement entered into with the Taylor group attached
hereto and made apart hereof and designated as Exhibit "B.1" hereto (b) any
additional properties or sums deriving from the Collateral, which are to be held
as Collateral pursuant to this paragraph; and (c) any and all additional
proceeds of the foregoing Collateral. For purposes of this Agreement, the term
"proceeds" includes whatever is receivable or received when any part of the
Collateral is sold or otherwise disposed of, whether such disposition is
voluntary or involuntary, and includes all rights to payment with respect to the
Collateral. Upon the dissolution of Pennaco, any sums paid with respect to the
Collateral shall be appropriately assigned and delivered to VCS to be held as
part of the Collateral.
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3. COVENANTS OF PENNACO.
Pennaco hereby agrees, until the Obligation has been fully paid:
(a) To execute and deliver from time to time any endorsements,
assignments and other writings reasonably deemed necessary or appropriate by VCS
to perfect, maintain and protect its security interest in the Collateral;
(b) Not to sell, encumber or otherwise dispose of or transfer
any Collateral, except to VCS and in accordance with the terms of the Agreement;
and
(c) To immediately deliver all Collateral to VCS, as
appropriate, it being understood that until so delivered all Collateral shall be
held by Pennaco in trust for VCS under the terms of this Agreement.
4. RIGHTS UPON DEFAULT.
If Pennaco shall default in the performance of any of his obligations
under the Obligation or this Agreement, VCS may exercise any and all rights with
respect to the Collateral which it may have as a secured creditor under
applicable provisions of the California Uniform Commercial Code or any other
applicable law.
5. FURTHER ACTIONS.
Each party agrees that after the delivery of this Agreement such party
will execute and deliver such further documents and do such further acts and
things as the other party may reasonably request in order to carry out the terms
of this Agreement.
6. ENTIRE AGREEMENT.
This Agreement, together with the Obligation, contains the entire
agreement between the parties, and supersedes all prior agreements,
representations and understandings of the parties, relating to the subject
matter of this Agreement.
7. AMENDMENTS.
No supplement or amendment of this Agreement will be binding unless
executed in writing by both the parties.
8. WAIVERS.
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Any term or provision of this Agreement may be waived at any time by
the party entitled to its benefit by a written instrument executed by the party
or by a duly authorized officer of the party. No waiver of any of the provision
of this Agreement will be deemed, or will constitute, a waiver of any other
provision, whether or not similar, nor will any waiver constitute a continuing
waiver.
9. SUCCESSOR AND ASSIGNS.
This Agreement will be binding on, and will inure to the benefit of,
the parties and their respective heirs, legal representatives, successors and
assigns.
10. ATTORNEYS' FEES.
If any legal action or other proceeding is brought in connection with
any of the provisions of this Agreement, the successful or prevailing party will
be entitled to recover reasonable attorneys' fees and other costs incurred in
that action or proceeding, in addition to any other relief to which that party
may be entitled.
11. GOVERNING LAW.
All questions with respect to the construction of this Agreement, and
the rights and liabilities of the parties under this Agreement, will be governed
by the laws of the State of California.
12. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which will be deemed a valid, original agreement, but all of which together will
constitute one and the same instrument.
13. SEVERABILITY.
If any provision of this Agreement is held to be unenforceable or
invalid by any court of competent jurisdiction, the validity and enforceability
of the remaining provisions shall not be affected thereby.
14. NOTICES.
Any notice or the delivery of any item to be delivered by a party
hereto shall be delivered personally, by U.S. mail, return receipt requested, or
by Federal Express, next-day delivery. Any personal delivery made shall be
deemed to have been made upon the execution of a receipt for the item to be
delivered by the party to whom delivery is made. Delivery by U.S. mail or
Federal Express shall be deemed to have been made when delivered by Federal
Express to the party
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to whom addressed. All such deliveries shall be made to the following
addresses, or such other addresses as the parties may have instructed the
others in accordance with the provisions of this Paragraph:
(a) If to VCS:
Serco Management
65 Main Street
P.O. Box 3463
Road Town, Tortola
British Virgin Islands
(b) If to Pennaco :
Jeffrey L. Taylor
Chairman
1050 17th Street, Suite 700
Denver, CO 80265
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IN WITNESS WHEREOF, the parties have executed this Agreement, which amends
for the second time the Security Agreement executed on May 15, 1998 between the
parties, as of the first date set forth in the first paragraph.
PENNACO:
Pennaco Energy, Inc.
By:
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Jeffrey L. Taylor, Chairman
VCS:
Venture Capital Sourcing, S.A.
By: Serco Management
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Authorized Signature
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