exv10w3



 





Exhibit 10.3




PROMISSORY NOTE AND SECURITY AGREEMENT




					
	 
	US$10,908,456
	 	 
	 	January 4, 2008






     FOR VALUE RECEIVED, the undersigned, CHALLENGER LIMITED, a company organized under the laws of
the Isle of Man (“Maker”), hereby promises to pay to the order of BRONCO DRILLING COMPANY,
INC., a Delaware corporation (“Payee”), on or before April 1, 2011, the sum of TEN MILLION
NINE HUNDRED EIGHT THOUSAND FOUR HUNDRED FIFTY SIX AND 00/100 DOLLARS (US$10,908,456) (the
“Amount”), payable as hereinafter provided in lawful money of the United States of America,
at Payee’s address at 16217 N. May Avenue, Edmond, Oklahoma 73013, or at such other place as from
time to time may be designated by the Payee.



     This Promissory Note and Security Agreement (this “Note”) is being delivered by Maker
under that certain Drilling Rigs Purchase And Sale Agreement by and between Maker, Payee and Hays
Trucking, Inc., a wholly-owned subsidiary of Payee (“Hays”), dated January 4, 2008 (the
“Purchase Agreement”) as payment of a portion of the Purchase Price (as defined in the
Purchase Agreement) thereunder.



     1. Payments. The Amount of the Note shall be payable in 12 equal installments of
US$909,038 each. The first installment is payable on the 5th day of May 2008, and
subsequent installments shall be due quarterly on each of the 1st day of July, October,
January, and April of each year thereafter until the Amount has been paid in full, with the final
installment being due on January 1, 2011.



     The Maker shall have the right to prepay, without penalty, at any time and from time to time
prior to maturity, all or any part of the unpaid balance of this Note. Partial prepayments shall
be applied to installments in inverse order of maturity.



     2. Grant of Security Interest. In order to secure the obligations of Maker hereunder,
including any obligations pursuant to the applicable law or otherwise which may accrue after the
commencement of any case, proceeding, or other action relating to the bankruptcy, insolvency or
reorganization of Maker, Maker hereby grants to Payee a security interest in (and hereby pledges
and assigns as applicable) and agrees that Payee shall continue to have a security interest in (and
a pledge and assignment as applicable), the property, whether now owned or hereafter acquired
described in Exhibit A hereto (the “Collateral”).



     The term “Collateral” as used in this Agreement shall mean and include, and the security
interest (and pledge and assignment as applicable) shall cover, all of the foregoing property,
whether now owned or hereafter acquired, as well as any accessions, additions and attachments
thereto and the proceeds and products thereof, insurance proceeds payable because of loss or
damage, or other property, benefits or rights arising therefrom, and in and to all proceeds of any
sale or other disposition of such property. Terms used herein and defined in the Uniform Commerce
Code in effect in the State of Oklahoma (“UCC”) shall have the meanings given therein.



 









 





     Maker agrees not to suffer or permit any charge, lien, security interest, adverse claim or
encumbrance of any and every nature whatsoever (“Liens”) against the Collateral or any part
thereof. This Note creates a first priority security interest in the Collateral in favor of Payee
(subject to the filing of a financing statement pursuant to the UCC). Maker authorizes Payee to
file such financing statement or statements, or amendments thereof or supplements thereto, or other
documents as Payee may from time to time deem necessary or desirable in order to comply with the
UCC (or other applicable law of the jurisdiction where any of the Collateral is located) and to
preserve and protect Payee’s rights to the Collateral and shall do, make, procure, execute and
deliver all such additional and further acts, things, deeds, interests and assurances as Payee may
require from time to time to protect, assure and enforce Payee’s rights and remedies hereunder.
The office where Maker will keep the Collateral records is located at Regional Office – M.E.Q.
Africa, 1 El Moshier Ahmed Ismail Street, Heliopolis 11361 Cairo, Egypt, and shall not, while this
Note is outstanding, be removed from those premises without thirty days prior written notice to
Payee. Maker shall not change its jurisdiction of organization or formal name without thirty days
prior written notice to Payee. Maker shall maintain the Collateral in a careful and proper manner
and shall permit Payee at all reasonable times with prior notice to inspect the Collateral, and
permit Payee at all reasonable times with prior notice to enter the premises upon which such
Collateral is located for the purpose of inspecting such Collateral. Maker shall maintain careful
and proper records reflecting and fully identifying the Collateral. Maker shall maintain all
Collateral in good condition and repair. Maker shall not sell or offer to sell or otherwise
transfer the Collateral or any interest therein without the prior written consent of Payee. Maker
represents that no consent of any other person or entity and no authorization, approval or other
action by, and no notice to or filing with, any governmental authority is required (i) for the
grant by Maker of the security interest granted hereby or for the execution, delivery or
performance of Maker’s obligations hereunder, (ii) for the perfection or maintenance of the
security interest created hereby (including the senior priority nature of such security interest),
or (iii) to Maker’s knowledge, for the exercise by Payee of its rights, powers, privileges, and
remedies hereunder or in connection herewith.



     Maker will maintain with financially sound and reputable insurance companies insurance on the
Collateral in such amounts and against such risks as are usually insured against by persons engaged
in similar businesses, but not less than an amount equal to or greater than the outstanding Amount
of the Note. Each insurance policy covering Collateral shall name Payee as loss payee and provide
that such policy shall not be canceled without fifteen (15) days prior written notice to Payee.



     3. Default. The occurrence or existence of any one of the following events or
conditions shall constitute an “Event of Default” hereunder: (i) any amount due under this Note
shall not have been paid when the same shall have become due and payable, and such non-payment
shall continue for a period of ten (10) business days; (ii) failure by the Maker to make payments
of the Purchase Price (as defined in the Purchase Agreement) to Hays or Payee when due under the
Purchase Agreement or any default by the Maker in other payment of money due under any other
obligation for borrowed money in excess of $25,000, beyond any period of grace provided with
respect thereto, or in the performance of any other covenant or agreement under which any such
obligation is created, if the effect of such default is to cause or permit such obligation to
become due prior to its stated maturity, and such default is not waived or cured pursuant thereto;
(iii) the legal existence of the Maker is terminated for any reason; or the Maker makes an
assignment for the benefit of creditors or becomes insolvent or unable to pay its debts as they
mature, or applies to any tribunal for the appointment of a trustee or receiver of a



 









 







substantial part of the assets of the Maker, or commences any proceedings relating to the
Maker under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debts,
dissolution or other liquidation law of any jurisdiction; or any such application is filed, or any
such proceedings are commenced against the Maker and the Maker indicates its consent to such
proceedings, or an order is entered appointing such trustee or receiver, or adjudicating the Maker
bankrupt or insolvent, or approving the petition in any such proceedings; or (iv) Maker commits a
material breach under the Purchase Agreement or any other agreements between Maker and Payee (or
Payee’s affiliate), and any such breach continues uncured for a period of thirty (30) days after
written notice of such default is delivered by Payee to Maker.



     4. Remedies. In case of an Event of Default, the Payee or other holder of this Note
may declare the entire unpaid Amount of this Note to be due and payable immediately, and upon any
such declaration the unpaid Amount of this Note shall become and be immediately due and payable,
and the Payee or any other holder of this Note may thereupon proceed to protect and enforce its
rights either by suit in equity or by action at law or by other appropriate proceedings, whether
for specific performance (to the extent permitted by law) of any covenant or agreement contained
herein or in aid of the exercise of any power granted herein, or proceed to enforce the payment of
this Note or to enforce any other legal or equitable right of the Payee or such other holder.



     In addition, upon occurrence of an Event of Default, Payee shall have all of the rights and
remedies provided for herein and in any other agreements executed by Maker, the rights and remedies
in the UCC, and any and all of the rights and remedies at law and equity, all of which shall be
deemed cumulative. Without limiting the foregoing, Maker agrees that Payee shall have the right to
(a) require Maker to assemble the Collateral and make it available to Payee at a place designated
by Payee that is reasonably convenient to both parties, which Maker agrees to do; (b) take
possession of the Collateral, with or without process of law, and, in this connection, enter any
premises where the Collateral is located to remove same, to render it unusable, or to dispose of
same on such premises; (c) sell, lease or otherwise dispose of the Collateral, by public or private
proceedings, for cash or credit, without assumption of credit risk; and/or (d) collect and receipt
for, compound, compromise, and settle, and give releases, discharges and acquittances with respect
to, any and all amounts owned by any person or entity with respect to the Collateral. Unless the
Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold
on a recognized market, Payee shall send Maker reasonable notice of the time and place of any
public sale or of the time after which any private sale or other disposition will be made. Any
requirement of reasonable notice to Maker shall be met if such notice is sent by airmail, postage
paid, or international courier to Maker at the address of Maker designated at the beginning of this
Note, at least thirty (30) days before the day of any public or private sale or other disposition
will be made. Maker shall be liable for and agrees to pay the reasonable expenses incurred by
Payee in enforcing its rights and remedies, in retaking, holding, testing, repairing, improving,
selling, leasing or disposing of the Collateral, or like expenses, including, without limitation,
attorneys’ fees and legal expenses incurred by Payee and any other amounts due or available to be
due to Payee under applicable law. These expenses, which Maker agrees to pay, shall constitute
additional obligations and indebtedness hereunder and shall be secured hereby and entitled to the
benefits hereof. Proceeds received by Payee from disposition of the Collateral shall be applied
toward Payee’s expenses and obligations hereunder in such order or manner as Payee may elect.
Maker shall be entitled to any surplus if one results after lawful application of the proceeds.
Maker shall remain liable for any deficiency and shall pay any such deficiency within ten days of
demand by Payee. The term “applicable law” as used in this Note



 









 







shall mean the laws of the State of Oklahoma as such laws now exist or may be changed or
amended or come into effect into the future.



     5. Indemnification. Maker agrees to indemnify Payee, upon demand, from and against
any and all liabilities, obligations, claims, losses, damages, penalties, fines, actions,
judgments, suits, settlements, costs, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature whatsoever arising on and after
the date of this Note (in this section collectively called “liabilities and costs”) which to any
extent (in whole or in part) may be imposed on, incurred by, or asserted against Payee growing out
of, resulting from or in any other way associated with any of the Collateral, this Note and the
transactions and events (including the enforcement or defense thereof) at any time associated
therewith or contemplated herein whether arising in contract or in tort or otherwise and including
any violation or noncompliance with any environmental laws by Payee or any other person or any
liabilities or duties of Payee or any other person with respect to hazardous materials found in or
released into the environment).




The foregoing indemnification shall apply whether or not such liabilities and costs are
in any way or to any extent owed, in whole or in part, under any claim or theory of strict
liability or caused, in whole or in part, by any negligent act or omission of any kind by
Payee,


provided only that Payee shall not be entitled under this section to receive indemnification for
that portion, if any, of any liabilities and costs which is proximately caused by its own
individual gross negligence or willful misconduct, as determined in a final judgment. If any
person (including Maker or any of its affiliates) ever alleges such gross negligence or willful
misconduct by Payee, the indemnification provided for in this section shall nonetheless be paid
upon demand, subject to later adjustment or reimbursement, until such time as a court of competent
jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or
willful misconduct. As used in this section the term “Payee” shall refer not only to Payee but
also to each director, officer, agent, attorney, employee, representative and affiliate of Payee.




     It is the intent of the Payee of this Note and the Maker in the execution of this Note and all
other instruments now or hereafter securing this Note to contract in strict compliance with
applicable usury law. In furtherance thereof, the Payee and the Maker stipulate and agree that
none of the terms and provisions contained in this Note, or in any other instrument executed in
connection herewith, shall ever be construed to create a contract to pay for the use, forbearance
or detention of money, or usurious under applicable law; and that the provisions of this paragraph
shall control over all other provisions of this Note and any other instruments now or hereafter
executed in connection herewith which may be in apparent conflict herewith.



     Should the indebtedness represented by this Note or any part thereof be collected at law or in
equity or through any bankruptcy, receivership, probate or other court proceedings or if this Note
is placed in the hands of attorneys for collection after default, the Maker and all endorsers,
guarantors and sureties of this Note jointly and severally agree to pay to the holder of this Note
in addition to the amounts due and payable hereon all the costs and expenses of said holder in
enforcing this Note including, without limitation, reasonable attorneys’ fees and legal expenses
and any other amounts due or available to be due to Payee under applicable law..



 









 





     The Maker and all endorsers, guarantors and sureties of this Note and all other persons liable
or to become liable on this Note severally waive presentment for payment, demand, notice of demand
and of dishonor and nonpayment of this Note, notice of intention to accelerate the maturity of this
Note, protest and notice of protest, diligence in collecting, and the bringing of suit against any
other party, and agree to all renewals, extensions, modifications, partial payments, releases or
substitutions of security, in whole or in part, with or without notice, before or after maturity.



     THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE GOVERNED FOR ALL
PURPOSES BY THE LAW OF THE STATE OF OKLAHOMA AND THE LAW OF THE UNITED STATES APPLICABLE TO
TRANSACTIONS WITHIN SUCH STATE, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS RULES THAT WOULD
REFER THE MATTER TO THE LAWS OF ANOTHER JURISDICTION. EACH PARTY HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT IN OKLAHOMA COUNTY IN THE STATE OF OKLAHOMA, AND AGREES
THAT VENUE FOR ANY PROCEEDING ARISING FROM THIS AGREEMENT SHALL BE PROPER IN SUCH FORUM.



     Maker agrees to amend this Note upon the written request of Payee to the extent reasonably
necessary to secure for Payee under the laws of Libya and any other jurisdiction that may at any
time apply to the Collateral, Maker or this Note, all of the rights and remedies intended to be
provided and available to Payee under this Note, the UCC and the laws of the State of Oklahoma (or,
as nearly as such rights and remedies may be obtained in any such jurisdiction, if not available in
full).



     MAKER HEREBY AGREES THAT IN THE EVENT OF ANY DEFAULT HEREUNDER, ANY ATTORNEY AT LAW CHOSEN BY
PAYEE IN ITS SOLE DISCRETION IS HEREBY AUTHORIZED TO APPEAR IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION WITHIN THE STATE OF OKLAHOMA TO (i) WAIVE THE ISSUANCE AND SERVICE OR
PROCESS, (ii) ADMIT THE MATURITY OF THE LIABILITIES AND THE NONPAYMENT THEREOF WHEN DUE, (iii)
CONFESS JUDGMENT AGAINST ANY OR ALL MAKERS JOINTLY AND SEVERALLY IN FAVOR OF PAYEE FOR SUCH
AMOUNTS THAT PAYEE’S RECORDS INDICATE THEN APPEAR DUE, TOGETHER WITH INTEREST AND COSTS OF SUIT,
AND (iv) THEREUPON TO RELEASE ALL ERRORS AND TO WAIVE ALL RIGHTS OF APPEAL IN STAY OF EXECUTION.
THE FOREGOING WARRANT OF ATTORNEY SHALL SURVIVE ANY JUDGMENT; IT BEING UNDERSTOOD THAT SHOULD ANY
JUDGMENT BE VACATED FOR ANY REASON, THE FOREGOING WARRANT NEVERTHELESS MAY THEREAFTER BE USED FOR
OBTAINING ADDITIONAL JUDGMENT OR JUDGMENTS. MAKER HEREBY UNDERSTANDINGLY WAIVES THE RIGHT TO NOTICE
AND OPPORTUNITY TO BE HEARD PRIOR TO THE ENTRY OF FINAL JUDGMENT AGAINST MAKERS AND KNOWINGLY
ENTERS INTO THIS NOTE CONTAINING A WARRANT OF ATTORNEY TO CONFESS JUDGMENT.



     This Note represents the final agreement between the parties and may not be contradicted
by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.



 









 





     There are no unwritten oral agreements between the parties.



 









 





	 	 	 	 	 	 	 
	 	 	CHALLENGER LIMITED	 	 
	 
	 	 	 	 	 	 
	 

	 	By: 
	 	/s/ Yalmez Salah El Din Ali Tatanaki
 

	 	 
	 
	 	 	 	 	 	 
	 	 	Name: Yalmez Salah El Din Ali Tatanaki	 	 
	 
	 	 	 	 	 	 
	 	 	Title: Director	 	 
	 
	 	 	 	 	 	 
	 

	 	By: 
	 	/s/ Abdullatif Janahi
 

	 	 
	 
	 	 	 	 	 	 
	 	 	Name: Abdullatif Janahi	 	 
	 
	 	 	 	 	 	 
	 	 	Title: Vice Chairman	 	 






 









 






EXHIBIT A




COLLATERAL




(see attached)