Exhibit
4.1


 





 


AMENDED AND
RESTATED LOAN AGREEMENT


 


Between


 


	
  PIONEER DRILLING SERVICES, LTD.
9310 Broadway, Building 1
San Antonio, Texas 78217  

  	
  and

  	
  THE FROST NATIONAL BANK
100 W. Houston Street
San Antonio, Texas  78205

  
	
   

  	
   

  	
   

  
	
  PIONEER DRILLING COMPANY
9310 Broadway, Building 1
San Antonio, Texas 78217

  	
   

  	
   

  



 


 


December 15, 2003


 


THIS
AMENDED AND RESTATED LOAN AGREEMENT (the “Loan Agreement”) will serve to set forth the terms of the
financing transactions by and between PIONEER DRILLING SERVICES, LTD., a Texas limited
partnership (“Pioneer Services”), PIONEER DRILLING COMPANY, a Texas
corporation (“Pioneer Company”), (Pioneer Services and Pioneer Company
being collectively referred to herein as “Pioneer”) and THE FROST
NATIONAL BANK, a national banking association (“Lender”).  This Loan Agreement hereby amends and
restates in its entirety that certain 2003 Consolidated Loan Agreement dated
March 18, 2003, executed by and between Pioneer Company, Pioneer Services
and Lender.


 


1.                                       Credit Facilities.  Subject to the terms and
conditions set forth in this Loan Agreement and the other agreements,
instruments and documents evidencing, securing, governing, guaranteeing and/or
pertaining to the Loans, as hereinafter defined (collectively, together with
the Loan Agreement, referred to hereinafter as the “Loan Documents”),
Lender hereby agrees to provide to Pioneer Services the credit facility or
facilities hereinbelow described (whether one or more, the “Credit
Facilities”):


 


(a)                                  Letters of Credit Facility. 
Subject to the terms and conditions set forth herein, Lender may from
time to time up to and including December 15, 2004, issue letters of
credit for the account of Pioneer Services (each, a “Letter of Credit”
and collectively, “Letters of Credit”) up to a cumulative maximum face
amount (whether or not advanced) of the lesser of (i) an amount equal to the
Borrowing Base (as such term is defined hereinbelow) less any amounts
outstanding under the Borrowing Base Line of Credit (as such term is defined
hereinbelow), or (ii) $2,500,000.00 (the “Letters of Credit Facility”);
provided, that the form and substance of each Letter of Credit shall be subject
to approval by Lender in its sole discretion. 
Each Letter of Credit shall be issued for a term not to exceed 360 days,
as designated by Pioneer Services, provided, that no Letter of Credit shall
have an expiration date subsequent to December 15, 2005.  For each Letter of Credit issued hereunder,
Pioneer Services shall pay to Lender, at the time of issuance, a cash letter of
credit fee of one and one- half percent (1.50%) per annum of the face amount of
such Letter of Credit.


 

















 


(b)                                 Borrowing Base Line of Credit. 
Subject to the terms and conditions set forth herein, Lender agrees to
lend to Pioneer Services, on a revolving basis from time to time during the
period commencing on the date hereof and continuing through the maturity date
of the promissory note evidencing this Credit Facility from time to time, such
amounts as Pioneer Services may request hereunder; provided, however,
the total principal amount outstanding at any time shall not exceed the lesser
of (i) an amount equal to the Borrowing Base (as such term is defined
hereinbelow) less any amounts outstanding under the Letters of Credit
Facility, or (ii) $2,500,000.00 (the “Borrowing Base Line of Credit”).  If at any time the aggregate principal
amount outstanding under the Borrowing Base Line of Credit shall exceed an
amount equal to the Borrowing Base, Pioneer Services agrees to immediately
repay to Lender such excess amount, plus all accrued but unpaid interest
thereon.  The sums advanced under the
Borrowing Base Line of Credit shall be used for support of short term operating
cash needs.


 


(i)                                     Letters of Credit Subfeature.  As
a subfeature under the Borrowing Base Line of Credit, Lender may from time to
time up to and including December 15, 2004, issue letters of credit for
the account of Pioneer Services (each, a “Letter of Credit” and
collectively, “Letters of Credit”); provided, that the form and
substance of each Letter of Credit shall be subject to approval by Lender in
its sole discretion; and provided further that the aggregate undrawn amount of
all outstanding Letters of Credit under this subfeature shall not at any time
exceed the lesser of (i) an amount equal to the Borrowing Base less
any amounts outstanding under the Letters of Credit Facility, or
(ii) $2,500,000.00.  Each Letter of
Credit shall be issued for a term not to exceed 360 days, as designated by
Pioneer Services, provided, that no Letter of Credit shall have an expiration
date subsequent to December 15, 2005. 
The undrawn amount of all Letters of Credit plus any and all amounts
paid by Lender in connection with drawings under any Letter of Credit for which
the Lender has not been reimbursed shall be reserved under the Borrowing Base
Line of Credit and shall not be available for advances thereunder.  Each draft or other demand for payment paid
by Lender under a Letter of Credit shall be deemed an advance under the Borrowing
Base Line of Credit and shall be repaid in accordance with the terms of the
Note establishing the Borrowing Base Line of Credit; provided, that if the
Borrowing Base Line of Credit is not available for any reason whatsoever, at
the time any draft or demand is paid by Lender, or if advances are not
available under the Borrowing Base Line of Credit in such amount due to any
limitation of borrowing set forth herein, then the full amount of such drafts
or demand shall be immediately due and payable, together with interest thereon,
from the date such amount is paid by Lender to the date such amount is fully
repaid by Pioneer Services, at that rate of interest applicable to advances
under the Borrowing Base Line of Credit. 
In such event, Pioneer Services agrees that Lender, at Lender’s sole discretion
may debit Pioneer Services’ deposit account with Lender for the amount of such
draft.  For each Letter of Credit issued
hereunder, Pioneer Services shall pay to Lender, at the time of issuance, a
cash letter of credit fee of one and one-half percent (1.50%) per annum of the
face amount of such Letter of Credit.


 


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(ii)                                  Borrowing Base.  As
used in this Loan Agreement, the term “Borrowing Base” shall have the
following meaning:  an amount equal to seventy-five
percent 75% of the Pioneer Services’ Eligible Accounts.  As used herein, the term “Eligible
Accounts” shall mean at any time, an amount equal to the aggregate net
invoice or ledger amount owing on all trade accounts receivable of Pioneer
Services for goods sold or leased or services rendered in the ordinary course
of business, in which the Lender has a perfected, first priority lien, after
deducting (without duplication): (i) each such account that is unpaid
sixty (60) days or more after the original invoice date thereof, (ii) the
amount of all discounts, allowances, rebates, credits and adjustments to such
accounts, (iii) the amount of all contra accounts, setoffs, defenses or
counterclaims asserted by or available to the account debtors, (iv) all
accounts with respect to which goods are placed on consignment or subject to a
guaranteed sale or other terms by reason of which payment by the account debtor
may be conditional, (v) all accounts with respect to which Pioneer
Services has furnished a payment and/or performance bond and that portion of
any account for or representing retainage, if any, until all prerequisites to
the immediate payment of retainage have been satisfied, (vi) all accounts
owing by account debtors for which there has been instituted a proceeding in
bankruptcy or reorganization under the United States Bankruptcy Code or other
law, whether state or federal, now or hereafter existing for relief of debtors,
(vii) all accounts owing by any affiliates of Pioneer Services, (viii) all
accounts in which the account debtor is the United States or any department,
agency or instrumentality of the United States, except to the extent an
acknowledgment of assignment to Lender of such account in compliance with the
Federal Assignment of Claims Act and other applicable laws has been received by
Lender, (ix) all accounts due Pioneer Services by any account debtor whose
principal place of business is located outside the United States of America and
its territories, (x) all accounts subject to any provision prohibiting
assignment or requiring notice of or consent to such assignment, (xi) any
other accounts deemed unacceptable by Lender in its sole and absolute
discretion; provided, however, if more than twenty percent (20%) of the then
balance owing by any single account debtor does not qualify as an Eligible
Account under the foregoing provisions, then the aggregate amount of all
accounts owing by such account debtor shall be excluded from Eligible Accounts.


 


(c)                                  Term Loan.  Lender has lent to Pioneer
Services the amount of $5,677,888.84 (the “Term Loan”).  The sums advanced under the Term Loan were
for the purpose of refinancing that certain loan from Lender to Pioneer Company
in the original principal face amount of $9,000,000.00 dated August 11, 2000
which was used by Pioneer Company to finance the purchase of the stock of
Pioneer Drilling Co. (Pioneer Drilling Co. having since merged into Pioneer
Services).  The Term Loan shall continue
to be governed by the terms of this Agreement.


 


(d)                                 Acquisition Loan.  Subject
to the terms and conditions set forth herein, Lender agrees to lend to
Borrower, on a non-revolving basis from time to time during the period
commencing on the date hereof and continuing through March 15, 2004, an
aggregate amount not to exceed $3,000,000 in a single advance or in multiple
advances, as may be requested by Borrower from time to time (the “Acquisition Loan”).  Borrower shall


 


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not be
allowed to reborrow under the Acquisition Loan after a repayment.  The
sums advanced under the Acquisition Loan shall be for the purpose of financing
the purchase of one (1) drilling rig designated by Pioneer Services as
“Drilling Rig No. 4.”


 


All
advances under the Credit Facilities shall be collectively called the “Loans”.  Lender reserves the right to require Pioneer
Services to give Lender not less than one (1) business day prior notice of
each requested advance under the Credit Facilities, specifying (i) the
aggregate amount of such requested advance, (ii) the requested date of
such advance, and (iii) the purpose for such advance, with such advances
to be requested in a form satisfactory to Lender.  On or before the issuance date for each Letter of Credit
requested hereunder, Pioneer Services must also complete and deliver to Lender
an application for each requested Letter of Credit in form and substance
acceptable to Lender.


 


2.                                       Promissory Notes.


 


(a)                                  The Borrowing Base Line of Credit shall be
evidenced by a Revolving Promissory Note of even date herewith in the original
face amount of $2,500,000.00 duly executed by Pioneer Services and payable to
the order of Lender, in form and substance acceptable to Lender (whether one or
more, together with any renewals, extensions and increases thereof, the “Revolving
Note”).


 


(b)                                 The Term Loan is evidenced by that certain
Promissory Note dated March 18, 2003 in the original principal face amount
of $5,677,888.84 duly executed by Pioneer Services and payable to the order of
Lender as amended by that certain Note Modification Agreement dated
September 29, 2003 executed by and between Pioneer Services and Lender
(together with any renewals, extensions and increases thereof, the “Term
Note”).


 


(c)                                  The Acquisition Loan shall be evidenced by a
Promissory Note of even date herewith in the original principal face amount of
$3,000,000.00 duly executed by Pioneer Services and payable to the order of
Lender (together with any renewals, extensions and increases thereof, the “Acquisition
Note”).


 


Such
Revolving Note, Term Note and Acquisition Note, together with any renewals,
extensions and increases thereof, shall hereinafter be referred to as the “Notes.”  Interest on the Notes shall accrue at the
rates set forth therein.  The principal
of and interest on the Notes shall be due and payable in accordance with the
terms and conditions set forth in the Notes and in this Loan Agreement.


 


3.                                       Collateral.


 


(a)                                  As collateral and security for the
indebtedness evidenced by the Term Note and any and all other indebtedness or
obligations from time to time owing by Pioneer Services to Lender, Pioneer
Services  granted to Lender, its
successors and assigns, pursuant to that certain Security Agreement dated
March 18, 2003, executed by Pioneer Services, a first and prior lien and
security interest in and to the following described property:


 


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equipment,
fixtures and inventory (if any) consisting of the Drilling Rigs and related
equipment designated by Pioneer Services as Rigs 3 (formerly known as No. 17)
(National 110-UE), 5 (Gardner-Denver 500), 6 (Skytop Brewster DH-14610), 9
(Wiess W-45), 10 (formerly known as No. 4) (Skytop Brewster N-46), 11 (Skytop
Brewster N-46), 12 (formerly known as No. 1) (Cabot 900), 14 (Skytop Brewster
N-46), 15 (formerly known as No. 2) (Cabot 750), 17 (Ideco H-725), 18 (Brewster
N-75), 19 (Brewster N-75), 20 (BDW 800), 7 (IRI 1700 E) and 8 (IRI 1700 E),
(the “Drilling Rig Collateral”).


 


(b)                                 As collateral and security for the
indebtedness evidenced by the Letters of Credit Facility, Revolving Note, Term
Note, Acquisition Note, and any and all other indebtedness or obligations from
time to time owing by Pioneer Services to Lender, Pioneer Services shall grant,
and hereby grants to Lender, its successors and assigns, a first and prior lien
and security interest in and to the following described property:


 


(i)                                     all present and future “accounts”, as defined
in the Texas Business and Commerce Code in effect in the State of Texas on the
date hereof or as it may hereafter be amended from time to time, (including
health-care-insurance receivables), together with any and all books of account,
customer lists and other records relating in any way to the foregoing
(including, without limitation, computer software, whether on tape, disk, card,
strip, cartridge or any other form), and in any case where an account arises
from the sale of goods, the interest of Pioneer Services in such goods (the “Accounts
Collateral”); and


 


(ii)                                  “equipment”, “fixtures” and “inventory” (if
any) consisting of the Drilling Rig and related equipment designated by Pioneer
Services as Rig 4 (RMI 1000-E/SCR) (the “Rig 4 Collateral”).


 


The
term Drilling Rig Collateral, Accounts Collateral and Rig 4 Collateral being
referred to herein as the “Collateral” which shall also include all
records and data relating to any of the foregoing (including, without
limitation, any computer software on which such records and data may be
located).  Pioneer Services agrees to
execute such security agreements, assignments, deeds of trust and other
agreements and documents as Lender shall deem appropriate and otherwise require
from time to time to more fully create and perfect Lender’s lien and security
interests in the Collateral.


 


4.                                       Guarantors.  As a condition precedent to the
Lender’s obligation to make the Loans to Pioneer Services, Pioneer Company
agrees to execute and deliver to Lender contemporaneously herewith a guaranty
agreement, in form and substance satisfactory to Lender guaranteeing Pioneer
Services’ obligations and liabilities under the Loans.


 


5.                                       Representations and Warranties. 
Pioneer hereby represents and warrants, and upon each request for an
advance under the Credit Facilities further represents and warrants, to Lender
as follows:


 


(a)                                  Existence.  Pioneer Services is a limited
partnership duly organized, validly existing and in good standing under the
laws of the State of Texas and all other states


 


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where
it is doing business, and has all requisite power and authority to execute and
deliver the Loan Documents and Pioneer Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas and
all other states where it is doing business, and has all requisite power and
authority to execute and deliver the Loan Documents.


 


(b)                                 Binding Obligations.  The
execution, delivery, and performance of this Loan Agreement and all of the
other Loan Documents by Pioneer have been duly authorized by all necessary
action by Pioneer, and constitute legal, valid and binding obligations of
Pioneer, enforceable in accordance with their respective terms, except as
limited by Bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors’ rights and except to the extent
specific remedies may generally be limited by equitable principles.


 


(c)                                  No Consent.  The
execution, delivery and performance of this Loan Agreement and the other Loan
Documents, and the consummation of the transactions contemplated hereby and
thereby, do not (i) conflict with, result in a violation of, or constitute
a default under (A) any provision of its articles or certificate of
incorporation or bylaws, if Pioneer is a corporation, or its partnership
agreement, if Pioneer is a partnership, or any agreement or other instrument
binding upon Pioneer, or (B) any law, governmental regulation, court
decree or order applicable to Pioneer, or (ii) require the consent,
approval or authorization of any third party.


 


(d)                                 Financial Condition. 
Each financial statement of Pioneer supplied to the Lender truly
discloses and fairly presents Pioneer’s financial condition as of the date of
each such statement.  There has been no
material adverse change in such financial condition or results of operations of
Pioneer subsequent to the date of the most recent financial statement supplied
to Lender.


 


(e)                                  Litigation.  Except as set forth in the
Securities and Exchange Commission filings of Pioneer Company, copies of which
have been made available to the Lender, there are no actions, suits or
proceedings, pending or, to the knowledge of Pioneer, threatened against or
affecting Pioneer or the properties of Pioneer, before any court or
governmental department, commission or board, which, if determined adversely to
Pioneer, would have a material adverse effect on the financial condition,
properties, or operations of Pioneer.


 


(f)                                    Taxes; Governmental Charges. 
Pioneer has filed all federal, state and local tax reports and returns
required by any law or regulation to be filed by it and has either duly paid
all taxes, duties and charges indicated due on the basis of such returns and
reports, or made adequate provision for the payment thereof, and the assessment
of any material amount of additional taxes in excess of those paid and reported
is not reasonably expected.


 


6.                                       Conditions Precedent to Advances. 
Lender’s obligation to make any advance under this Loan Agreement and
the other Loan Documents shall be subject to the conditions precedent that, as
of the date of such advance and after giving effect thereto (i) all
representations and warranties made to Lender in this Loan Agreement and the
other Loan Documents shall be true


 


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and
correct, as of and as if made on such date, (ii) no material adverse
change in the financial condition of Pioneer since the effective date of the
most recent financial statements furnished to Lender by Pioneer shall have
occurred and be continuing, (iii) no event has occurred and is continuing,
or would result from the requested advance, which with notice or lapse of time,
or both, would constitute an Event of Default (as hereinafter defined), and
(iv) Lender’s receipt of all Loan Documents appropriately executed by
Pioneer and all other proper parties.


 


7.                                       Affirmative Covenants.  Until (i) the Notes and
all other obligations and liabilities of Pioneer under this Loan Agreement and
the other Loan Documents are fully paid and satisfied, and (ii) the Lender
has no further commitment to lend hereunder, Pioneer agrees and covenants that
it will, unless Lender shall otherwise consent in writing:


 


(a)                                  Accounts and Records. 
Maintain its books and records in accordance with generally accepted
accounting principles.


 


(b)                                 Right of Inspection. 
Permit Lender to visit its properties and installations and to examine,
audit and make and take away copies or reproductions of Pioneer’s books and
records, at all reasonable times.


 


(c)                                  Right to Additional Information. 
Furnish Lender with such additional information and statements, lists of
assets and liabilities, tax returns, and other reports with respect to
Pioneer’s financial condition and business operations as Lender may request
from time to time.


 


(d)                                 Compliance with Laws. 
Conduct its business in an orderly and efficient manner consistent with
good business practices, and perform and comply in all material respects with
all statutes, rules, regulations and/or ordinances imposed by any governmental
unit upon Pioneer and its businesses, operations and properties (including
without limitation, all applicable environmental statutes, rules, regulations
and ordinances).


 


(e)                                  Taxes.  Pay and discharge when due
all of its indebtedness and obligations, including without limitation, all
assessments, taxes, governmental charges, levies and liens, of every kind and
nature, imposed upon Pioneer or its properties, income, or profits, prior to
the date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Pioneer’s properties, income,
or profits; provided, however, Pioneer will not be required to pay and
discharge any such assessment, tax, charge, levy, lien or claim so long as
(i) the legality of the same shall be contested in good faith by
appropriate judicial, administrative or other legal proceedings, and
(ii) Pioneer shall have established on its books adequate reserves
with  respect to such contested
assessment, tax, charge, levy, lien or claim in accordance with generally
accepted accounting principles, consistently applied.


 


(f)                                    Insurance.  Maintain insurance, including
but not limited to, fire insurance, comprehensive property damage, public
liability, worker’s compensation and other insurance deemed necessary or
otherwise required by Lender.


 


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(g)                                 Notice of Indebtedness. 
Promptly inform Lender of the creation, incurrence or assumption by
Pioneer of any actual or contingent liabilities not permitted under this Loan
Agreement.


 


(h)                                 Notice of Litigation.  Promptly
after the commencement thereof, notify Lender of all actions, suits and
proceedings before any court or any governmental department, commission or
board affecting Pioneer or any of its properties which, if determined adversely
to Pioneer, would have a material adverse effect on the financial condition,
properties, or operations of Pioneer.


 


(i)                                     Notice of Material Adverse Change. 
Promptly inform Lender of (i) any and all material adverse changes
in Pioneer’s financial condition, and (ii) all claims made against Pioneer
which could materially affect the financial condition of Pioneer.


 


(j)                                     Additional Documentation. 
Execute and deliver, or cause to be executed and delivered, any and all
other agreements, instruments or documents which Lender may reasonably request
in order to give effect to the transactions contemplated under this Loan
Agreement and the other Loan Documents.


 


8.                                       Negative Covenants.  Until (i) the Notes and
all other obligations and liabilities of Pioneer under this Loan Agreement and
the other Loan Documents are fully paid and satisfied, and (ii) the Lender
has no further commitment to lend hereunder, Pioneer will not, without the
prior written consent of Lender:


 


(a)                                  Nature of Business. 
Make any material change in the nature of its business as carried on as
of the date hereof.


 


(b)                                 Liquidations, Mergers, Consolidations. Liquidate, merge or consolidate with or
into any other entity.


 


(c)                                  Sale of Assets. 
Sell, transfer or otherwise dispose of (1) any of the Collateral, or (2)
any of its assets or property, other than any asset of property valued not more
than $500,000.00 and disposed of in the ordinary course of business.


 


(d)                                 Liens.  Create or incur any lien or
encumbrance on any of its assets, other than (i) liens and security
interests securing indebtedness owing to Lender, (ii) liens for taxes,
assessments or similar charges that are (1) not yet due or (2) being
contested in good faith by appropriate proceedings and for which such entity
has established adequate reserves, (iii) liens and security interests
existing as of the date hereof which have been disclosed to and approved by
Lender in writing, and (iv) liens or encumbrances securing indebtedness which
would not otherwise violate the terms of this Loan Agreement.


 


(e)                                  Indebtedness. 
Create, incur or assume any indebtedness for borrowed money or issue or
assume any other note, debenture, bond or other evidences of indebtedness, or
guarantee any such indebtedness or such evidences of indebtedness of others,
other than (i) borrowings from Lender, (ii) borrowings from lenders
other than Lender, except that during the term of the Loan, Pioneer shall be
permitted to incur or have


 


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outstanding
indebtedness to other lenders provided that the aggregate principal balance of
all such debt outstanding at any time shall not exceed $17,500,000.00
(exclusive of the subordinated debt in the total amount of $28,000,000.00
described in that certain Subordination Agreement dated as of July 3, 2002,
as amended (the “Convertible Subordinated Debentures”) and (iii) the
Convertible Subordinated Debentures.


 


(f)                                    Transfer of Ownership. 
Permit the sale, pledge or other transfer of any of the ownership
interests in Pioneer.


 


(g)                                 Change in Management. 
Permit a change in the senior management of Pioneer Company (as used
herein, “a change in senior management” shall mean that Michael E.
Little shall have ceased to hold the title of Chairman of the Board or Wm.
Stacy Locke shall have ceased to hold the titles of President and Chief
Executive Officer); provided, however, should Michael E. Little or Wm. Stacy
Locke die, become disabled or be terminated for cause (an “Involuntary
Change of Management”), Pioneer shall not be in default hereunder if and
only if Pioneer Company shall  (i)
immediately, but in no event more than thirty days following such Involuntary
Change of Management, name a replacement reasonably acceptable to Lender to
exercise the duties and hold the office(s) and positions held by Michael E.
Little and Wm. Stacy Locke on an interim basis; and (ii) as soon as practical,
but in no event more than (270) days following such Involuntary Change of
Management, name a replacement acceptable to Lender in it reasonable discretion
to exercise the duties and hold the office(s) and positions held by Michael E.
Little and Wm. Stacy Locke.


 


(h)                                 Loans.  Make any loans to any person
or entity, other than, in the  loans
made in the ordinary course of business to entities affiliated with Pioneer and
not exceeding $250,000.00 principal outstanding to all Pioneers in the
aggregate at any time.


 


(i)                                     Transactions with Affiliates. 
Enter into any transaction, including, without limitation, the purchase,
sale or exchange of property or the rendering of any service, with any Affiliate
(as hereinafter defined) of Pioneer, except in the ordinary course of and
pursuant to the reasonable requirements of the business of either of them and
upon fair and reasonable terms no less favorable to Pioneer as the case may be
than would be obtained in a comparable arm’s-length transaction with a person
or entity not an Affiliate of Pioneer. 
As used herein, the term “Affiliate” means any individual or
entity directly or indirectly controlling, controlled by, or under common
control with, another individual or entity.


 


(j)                                     Distributions. 
Pioneer Services agrees not to declare or pay any distributions on any
of Pioneer Services’ partnership interests, make any other distributions with
respect to any payment on account of the purchase, redemption, or other
acquisition or retirement of any of Pioneer Services’ partnership interests, or
make any other distribution, sale, transfer or lease of any of Pioneer
Services’ assets other than in the ordinary course of business, unless any such
amounts are directly utilized for the payment of principal or interest on
indebtedness and obligations owing from time to time by Pioneer Services to
Lender.  The above notwithstanding, the
Pioneer Services may make distributions with respect to Pioneer Services’
partnership interests, for the purposes of (i) providing funds to pay taxes
(including federal income taxes and franchise taxes) of the partners of


 


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Pioneer
Services attributable to ownership of an interest in Pioneer Services, (ii)
providing operating capital to Pioneer Company in an amount not exceeding
$250,000.00 distributed in any one fiscal year, (iii) providing sufficient
funds for the retirement of term bank debt owed by Pioneer Company to Merrill
Lynch Capital; and (iv) providing sufficient funds for payment of interest on
debt owed by Pioneer Company to Wedge Energy Services, L.L.C.


 


(k)                                  Dividends.  Pioneer Company agrees not to
declare or pay any dividends on any shares of its capital stock, make any other
distributions with respect to any payment on account of the purchase,
redemption, or other acquisition or retirement of any shares of it  capital stock, or make any other
distribution, sale, transfer or lease of any of it assets other than in the
ordinary course of business, unless any such amounts are directly utilized for
the payment of principal or interest on indebtedness and obligations owing from
time to time by it to Lender and other than Preferred Dividends which Pioneer
Company is contractually obligated to pay pursuant to agreements in existence
on the date hereof.


 


9.                                       Financial Covenants.  Until (i) the Notes and
all other obligations and liabilities of Pioneer under this Loan Agreement and
the other Loan Documents are fully paid and satisfied, and (ii) the Lender
has no further commitment to lend hereunder, Pioneer will maintain the
following financial covenants (on a consolidated basis):


 


(a)                                  Leverage Ratio.  Pioneer will maintain, at all
times, to be tested quarterly on the last day of each fiscal quarter of
Pioneer, a Leverage Ratio not to exceed 3.00 to 1.00.  Defined as:


 


 




	
  Funded Bank Debt

  
	
  Consolidated EBITDA (for the most-recently ended four fiscal
  quarters)

  






 


(b)                                 Fixed Charge Coverage Ratio. 
Pioneer will maintain, at all times, to be tested quarterly on the last
day of each fiscal quarter of Pioneer a fixed charge coverage ratio of not less
than 1.00 to 1.00—such ratio being defined as:


 


 


	
  Consolidated EBITDA – Maintenance Capital Expenditures (each for the
  most-recently ended four fiscal quarters)

  
	
  Consolidated Interest Expense + scheduled maturities of principal
  indebtedness + cash taxes paid (each for the most-recently ended four fiscal
  quarters)

  



 


(c)                                  Senior Cash Flow Coverage Ratio. 
Pioneer will maintain, at all times, to be tested quarterly on the last
day of each fiscal quarter of Pioneer, a senior cash flow coverage ratio of not
less than 1.50 to 1.00—such ratio being defined as:


 


	
  Consolidated EBITDA - Maintenance Capital Expenditures (each for the
  most-recently ended four fiscal quarters)

  
	
  Consolidated Interest Expense (excluding interest on Subordinated
  Debt) + scheduled maturities of principal indebtedness  + cash taxes paid (each for the
  most-recently ended four fiscal quarters)

  



 


10

















 


(d)                                 Debt to Worth Ratio.  Pioneer will maintain, at all
times, to be tested quarterly on the last day of each fiscal quarter of
Pioneer, a ratio of (a) total liabilities less  any Subordinated
Debt, to (b) Tangible Net Worth plus Subordinated Debt of not greater
than 1.00 to 1.00.


 


As
used herein, the following terms shall have the following meanings:


 


“EBITDA” means Net
Income + Interest + Taxes + Depreciation + Amortization –Distributions.


 


“Funded Bank Debt”
means all outstanding principal on loans and capital leases. excluding (i) any
insurance premium notes with an original maturity date of one year or less, and
(ii) the outstanding balance of all Subordinated Debt.


 


“Maintenance
Capital Expenditures” means amounts actually paid for the routine maintenance
of equipment, to the extent such maintenance is required to keep that equipment
in operating  condition.


 


“Tangible
Net Worth” means, as of any date, Pioneer’s total assets excluding all
intangible assets, less total liabilities excluding any Subordinated
Debt.


 


“Scheduled maturities of
principal indebtedness” shall exclude payments made on loans and capital
leases with an original maturity date of one year or less and any payments made
in excess of regularly scheduled payments.


 


“Subordinated
Debt” means any indebtedness owing by Pioneer which has been subordinated
by written agreement to all indebtedness now or hereafter owing by Pioneer to
Lender, such agreement to be in form and substance acceptable to Lender.


 


10.                                 Reporting Requirements.  Until (i) the Notes and
all other obligations and liabilities of Pioneer under this Loan Agreement and
the other Loan Documents are fully paid and satisfied, and (ii) the Lender
has no further commitment to lend hereunder, Pioneer will, unless Lender shall
otherwise consent in writing, furnish to Lender (all on a consolidated basis):


 


(a)                                  Interim Financial Statements.  As
soon as available, and in any event within forty-five (45) days after the end
of each month of each fiscal year of Pioneer, (i) a balance sheet, income
statement and statement of cash flows of Pioneer as of the end of such fiscal
month; (ii) an accounts receivable aging report; (iii) a Borrowing Base
Certificate; and (iv) a Rig Schedule/Utilization Report; each in form and
substance and in reasonable detail satisfactory to Lender and duly certified
(as to item (i), subject to year-end review adjustments) by the President
and/or Chief Financial Officer of Pioneer Company and the President and/or
Chief Financial Officer of the general partner of Pioneer Services and/or Chief
Accounting Officer of Pioneer Services (A) as being true and correct in
all material aspects to the best of his or her knowledge and (B) (as to
item (i) only), as having been prepared in accordance with generally accepted
accounting principles, consistently applied.


 


11

















 


(b)                                 Quarterly Statements. 
Within sixty (60) days after the end of each quarter of each fiscal year
of Pioneer, (i) a copy of the 10-Q Report of Pioneer Company, as filed with the
Securities Exchange Commission and (ii) a
certificate signed by the President and/or Chief Financial Officer of Pioneer
Company and the President and/or Chief Financial Officer of the general partner
of Pioneer Services and/or Chief Accounting Officer of Pioneer Services,
stating that Pioneer is in full compliance with all of its obligations under
this Loan Agreement and all other Loan Documents and is not in default of any
term or provisions hereof or thereof, and demonstrating compliance with all
financial ratios and covenants set forth in this Loan Agreement.


 


(c)                                  Annual Reporting.  As
soon as available and in any event within one hundred twenty days (120) days
after the end of each fiscal year of Pioneer, (i) a copy of the 10-K Report of
Pioneer Company, as filed with the Securities Exchange Commission, together
with (ii) a certificate signed by the
President and/or Chief Financial Officer of Pioneer Company and the President
and/or Chief Financial Officer of the general partner of Pioneer Services
and/or Chief Accounting Officer of Pioneer Services, stating that Pioneer is in
full compliance with all of its obligations under this Loan Agreement and all
other Loan Documents and is not in default of any term or provisions hereof or
thereof, and demonstrating compliance with all financial ratios and covenants
set forth in this Loan Agreement.


 


11.                                 Events of Default.  Each of the following shall
constitute an “Event of Default” under this Loan Agreement:


 


(a)                                  The failure, refusal or neglect of Pioneer
Services to pay when due any part of the principal of, or interest on, the
Notes or any other indebtedness or obligations owing to Lender by Pioneer
Services from time to time, from time to time, which default remains uncured
for a period of ten (10) days after notice to Pioneer Services from Lender,
given in accordance with the terms hereof.


 


(b)                                 The failure of Pioneer Services or any
Obligated Party (as defined below) to timely and properly observe, keep or
perform any covenant, agreement, warranty or condition required herein or in
any of the other Loan Documents and the failure of Pioneer Services or any
Obligated Party to cure such default within 30 days after written notice
from Lender specifying such default, provided that if such default or violation
is susceptible of being remedied, but such remedy can not reasonably be
accomplished within the initial 30-day cure period, no Event of Default shall
be deemed to have occurred so long as Pioneer Services or the appropriate
Obligated Party is diligently pursuing such remedy and is successful in curing
the default or violation to the reasonable satisfaction of Lender within such
additional period of time as may be necessary to effect the remedy, not to
exceed in any event an additional 60 days following the end of the initial
cure period.


 


(c)                                  The occurrence of an event of default under
any of the other Loan Documents or under any other agreement now existing or
hereafter arising between Lender and Pioneer Services after the giving of any
required notice and expiration of any applicable cure period.


 


12

















 


(d)                                 Any representation contained herein or in any
of the other Loan Documents made by Pioneer Services or any Obligated Party is
false or misleading in any material respect.


 


(e)                                  The occurrence of any event which permits the
acceleration of the maturity of any indebtedness in excess of $100,000.00 owing
by Pioneer to any third party under any agreement or understanding, or  any default in the terms, conditions or
covenants of that certain Term Loan and Security Agreement dated on or about
December 20, 2002 between Pioneer Services and Merrill Lynch Capital or
any documents executed in connection therewith and any renewals thereof.


 


(f)                                    If Pioneer Services or any Obligated Party:
(i) becomes insolvent, or makes a transfer in fraud of creditors, or makes
an assignment for the benefit of creditors, or admits in writing its inability
to pay its debts as they become due; (ii) generally is not paying its
debts as such debts become due; (iii) has a receiver, trustee or custodian
appointed for, or take possession of, all or substantially all of the assets of
such party, either in a proceeding brought by such party or in a proceeding
brought against such party and such appointment is not discharged or such
possession is not terminated within sixty (60) days after the effective date
thereof or such party consents to or acquiesces in such appointment or
possession; (iv) files a petition for relief under the United States
Bankruptcy Code or any other present or future federal or state insolvency,
bankruptcy or similar laws (all of the foregoing hereinafter collectively
called “Applicable Bankruptcy Law”) or an involuntary petition for
relief is filed against such party under any Applicable Bankruptcy Law and such
involuntary petition is not dismissed within sixty (60) days after the filing
thereof, or an order for relief naming such party is entered under any
Applicable Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is
requested or consented to by such party; (v) fails to have discharged within a
period of thirty (30) days any attachment, sequestration or similar writ levied
upon any property of such party; or (vi) fails to pay within thirty (30)
days any final money judgment against such party.


 


(g)                                 If Pioneer Services or any Obligated Party is
an entity, the liquidation, dissolution, merger or consolidation of any such
entity or, if Pioneer Services or any Obligated Party is an individual, the
death or legal incapacity of any such individual.


 


(h)                                 The entry of any judgment against Pioneer or
the issuance or entry of any attachment or other lien against any of the
property of Pioneer for an amount in excess of $500,000.00, if undischarged,
unbonded or undismissed within thirty (30) days after such entry.


 


Nothing
contained in this Loan Agreement shall be construed to limit the events of
default enumerated in any of the other Loan Documents and all such events of
default shall be cumulative.  The term “Obligated
Party”, as used herein, shall mean Pioneer Company and any party other than
Pioneer Services who secures, guarantees and/or is otherwise obligated to pay
all or any portion of the indebtedness evidenced by the Notes.


 


13

















 


12.                                 Remedies.  Upon the occurrence of any one or more of
the foregoing Events of Default, (a) the entire unpaid balance of principal of
the Notes, together with all accrued but unpaid interest thereon, and all other
indebtedness owing to Lender by Pioneer Services at such time shall, at the
option of Lender, become immediately due and payable without further notice,
demand, presentation, notice of dishonor, notice of intent to accelerate,
notice of acceleration, protest or notice of protest of any kind, all of which
are expressly waived by Pioneer Services, and (b) Lender may, at its
option, cease further advances under any of the Notes.  All rights and remedies of Lender set forth
in this Loan Agreement and in any of the other Loan Documents may also be
exercised by Lender, at its option to be exercised in its sole discretion, upon
the occurrence of an Event of Default.


 


13.                                 Rights Cumulative.  All rights of Lender under the
terms of this Loan Agreement shall be cumulative of, and in addition to, the
rights of Lender under any and all other agreements between Pioneer Services
and Lender (including, but not limited to, the other Loan Documents), and not
in substitution or diminution of any rights now or hereafter held by Lender
under the terms of any other agreement.


 


14.                                 Waiver and Agreement.  Neither the failure nor any
delay on the part of Lender to exercise any right, power or privilege herein or
under any of the other Loan Documents shall operate as a waiver thereof, nor
shall any single or partial exercise of such right, power or privilege preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege.  No waiver of any
provision in this Loan Agreement or in any of the other Loan Documents and no
departure by Pioneer Services therefrom shall be effective unless the same
shall be in writing and signed by Lender, and then shall be effective only in
the specific instance and for the purpose for which given and to the extent
specified in such writing.  No
modification or amendment to this Loan Agreement or to any of the other Loan
Documents shall be valid or effective unless the same is signed by the party
against whom it is sought to be enforced.


 


15.                                 Benefits.  This Loan Agreement shall be binding upon
and inure to the benefit of Lender and Pioneer Services, and their respective
successors and assigns, provided, however, that Pioneer Services may not,
without the prior written consent of Lender, assign any rights, powers, duties
or obligations under this Loan Agreement or any of the other Loan Documents.


 


16.                                 Notices.  All notices, requests, demands or other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and given by (i) personal delivery,
(ii) expedited delivery service with proof of delivery, or
(iii) United States mail, postage prepaid, registered or certified mail,
return receipt requested, sent to the intended addressee at the address set
forth on the first page hereof and shall be deemed to have been received
either, in the case of personal delivery, as of the time of personal delivery,
in the case of expedited delivery service, as of the date of first attempted
delivery at the address and in the manner provided herein, or in the case of
mail, upon deposit in a depository receptacle under the care and custody of the
United States Postal Service.  Either
party shall have the right to change its address for notice hereunder to any
other location within the continental United States by notice to the other
party of such new address at least thirty (30) days prior to the effective date
of such new address.


 


17.                                 Construction.  This Loan Agreement and the
other Loan Documents have been executed and delivered in the State of Texas,
shall be governed by and construed in accordance


 


14

















 


with
the laws of the State of Texas, and shall be performable by the parties hereto
in the county in Texas where the Lender’s address set forth on the first page
hereof is located.


 


18.                                 Invalid Provisions.  If any provision of this Loan
Agreement or any of the other Loan Documents is held to be illegal, invalid or
unenforceable under present or future laws, such provision shall be fully
severable and the remaining provisions of this Loan Agreement or any of the
other Loan Documents shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its
severance.


 


19.                                 Expenses.  Pioneer Services shall pay all costs and
expenses (including, without limitation, reasonable attorneys’ fees) in
connection with (i) any action required in the course of administration of
the indebtedness and obligations evidenced by the Loan Documents, and
(ii) any action in the enforcement of Lender’s rights upon the occurrence
of Event of Default.


 


20.                                 Participation of the Loans. 
Pioneer Services agrees that Lender may, at its option, sell interests
in the Loans and its rights under this Loan Agreement to a financial
institution or institutions and, in connection with each such sale, Lender may
disclose any financial and other information available to Lender concerning
Pioneer Services to each prospective purchaser.


 


21.                                 Conflicts.  In the event any term or
provision hereof is inconsistent with or conflicts with any provision of the
other Loan Documents, the terms and provisions contained in this Loan Agreement
shall be controlling.


 


22.                                 Counterparts.  This Loan Agreement may be
separately executed in any number of counterparts, each of which shall be an
original, but all of which, taken together, shall be deemed to constitute one
and the same instrument.


 


23.                                 Facsimile Documents and Signatures.  For
purposes of negotiating and finalizing this Loan Agreement, if this document or
any document executed in connection with it is transmitted by facsimile machine
(“fax”), it shall be treated for all purposes as an original
document.  Additionally, the signature
of any party on this document transmitted by way of a facsimile machine shall
be considered for all purposes as an original signature.  Any such faxed document shall be considered
to have the same binding legal effect as an original document.  At the request of any party, any faxed
document shall be re-executed by each signatory party in an original form.


 


If
the foregoing correctly sets forth our mutual agreement, please so acknowledge
by signing and returning this Loan Agreement to the undersigned.


 


NOTICE TO COMPLY WITH STATE LAW


 


For
the purpose of this Notice, the term “WRITTEN AGREEMENT” shall include the
document set forth above, together with each and every other document relating
to and/or securing the same loan transaction, regardless of the date of
execution.


 


THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY


 


15

















 


EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.


 


THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.


 


 


[Balance of
Page Intentionally Left Blank]


 


[Signatures
Appear on Next Page]


 


16

















 


	
  PIONEER SERVICES:

  	
   

  	
  LENDER:

  
	
   

  	
   

  	
   

  
	
  PIONEER DRILLING SERVICES, LTD.,

  a Texas limited partnership

  	
   

  	
  THE FROST NATIONAL BANK
a national banking association

  
	
   

  	
   

  	
   

  
	
  By:

  	
  PDC
  Mgmt. Co., a Texas corporation,

  	
   

  	
   

  
	
   

  	
  General
  Partner

  	
   

  	
  By:

  	
  /s/
  W. Casey Shaeffer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  W.
  Casey Shaeffer

  
	
  By:

  	
  /s/
  Wm. Stacy Locke

  	
   

  	
   

  	
   

  	
  Vice
  President

  
	
   

  	
  Wm.
  Stacy Locke

  	
   

  	
   

  
	
   

  	
  President
  and Chief Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PIONEER COMPANY:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PIONEER DRILLING COMPANY, a Texas corporation (executing for
  purposes of joining in certain specific provisions, as noted above)  

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Wm. Stacy Locke

  	
   

  	
   

  	
   

  
	
   

  	
  Wm.
  Stacy Locke

  	
   

  	
   

  
	
   

  	
  President
  and Chief Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
								



 


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