Document:

Exhibit 4.10

 

FOURTH AMENDMENT TO LOAN AGREEMENT

 

THIS

FOURTH AMENDMENT TO LOAN AGREEMENT (the “Fourth Amendment”) is entered into as of the 20th day of December,

2002, by and between  PIONEER DRILLING SERVICES, LTD., a Texas limited

partnership, formerly known as Pioneer

Drilling Co., Ltd., (Borrower”), and THE FROST

NATIONAL BANK, a national banking association (“Lender”) and

joined in by PIONEER DRILLING COMPANY, a Texas corporation, formerly known

as South Texas Drilling & Exploration, Inc. (“Pioneer”).

 

R E C I T A L S

 

A.            On March 30, 2001, Borrower and Lender entered into that

certain Loan Agreement (the “Loan Agreement”) concerning the terms,

conditions and covenants of certain Credit Facilities.  On October 9, 2001, Borrower

and Lender amended the Loan Agreement by execution of that certain First

Amendment to Loan Agreement.  On July 3,

2002, Borrower and Lender amended the Loan Agreement by execution of that

certain Second Amendment to Loan Agreement. 

On September 29, 2002, Borrower and Lender amended the Loan Agreement by

execution of that certain Third Amendment to Loan Agreement.

 

B.            Borrower and Lender have agreed to make certain

modifications to the Loan Agreement as hereinafter more fully set forth.

 

C.            All capitalized terms not otherwise defined in this

Fourth Amendment shall have the same meanings as are set forth in the Loan

Agreement.

 

NOW, THEREFORE, for and

in consideration of the mutual covenants and promises herein contained, Lender

and Borrower agree as follows:

 

AGREEMENTS

 

1.             Section

1 is deleted in its entirety and the following is substituted in its place:

 

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 Borrower the credit facility or facilities

hereinbelow (whether one or more, the “Credit Facilities”):

 

Advance Facility.  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 the maturity date of the promissory note evidencing this

Credit Facility from time to time, an aggregate amount not to exceed

$6,000,000.00 in multiple advances, as may be requested by Borrower from time

to time (the “Advance Facility”). 

Borrower shall not be allowed to reborrow under the Advance

Facility after a repayment.  All sums

advanced under the Advance Facility shall be used for such purposes as approved

by Lender in Lender’s sole and absolute discretion.

 

All advances under the Credit Facilities shall be collectively called

the “Loans”.  Lender reserves the

right to require Borrower 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.

 

2.             Section

8, subsection (e) is deleted in its entirety and the following is substituted

in its place:

 

(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, Borrower shall be permitted to

incur or have 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 (the “Convertible Subordinated Debentures”) and (iii) the

Convertible Subordinated Debentures.

 

3.            

The last sentence contained in the definition of Leverage Ratio in Section 9,

subsection (a) is hereby deleted and the following is substituted in its place:

 

Beginning

with the fiscal quarter ending on March 31, 2003, Borrower shall be in

compliance with the foregoing covenant as of the end of each fiscal quarter of

Borrower calculated on a rolling four quarters basis.

 

2

 

4.             The

definition of Cash Flow Coverage Ratio in Section 9, subsection (b) and the two

sentences immediately following such definition are deleted and the following

is substituted in its place:

 

Net Income +

Interest + Taxes + Depreciation
 + Amortization – Distributions or

Dividends

 – Maintenance Capital Expenditures

(each for the preceding four fiscal quarters)

Consolidated Interest Expense +

scheduled maturities of principal indebtedness + 

cash taxes paid (each for the preceding four fiscal quarters)

 

As

used herein, “scheduled maturities of principal indebtedness” shall

exclude amounts due on the Advance Facility at its maturity on June 30, 2003.

 

As

used herein, “Maintenance Capital Expenditures” shall mean:  amounts actually paid for the routine

maintenance of equipment, to the extent such maintenance is required to keep

that equipment in operating condition.

 

Beginning

with the fiscal quarter ending on March 31, 2003, Borrower shall be in

compliance with the foregoing covenant as of the end of each fiscal quarter of

Borrower calculated on a rolling four quarters basis.

 

5.             Subsection (e) of Section 11 is deleted in its

entirety and the following is substituted in its place:

 

(e)           The occurrence of any event which

permits the acceleration of the maturity of any indebtedness in excess of

$100,000.00 owing by Borrower 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 Borrower and Merrill Lynch Capital or any documents executed in

connection therewith and any renewals thereof.

 

6.             Except

as specifically modified or amended herein, all terms, provisions and

requirements of the Loan Agreement shall remain as written, and as amended from

time to time.  Borrower hereby reaffirms

all covenants, conditions, representations and warranties contained in the Loan

Agreement, as amended by this Fourth Amendment.

 

3

 

IN

WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be

duly executed as of the date first above written.

 

	

  BORROWER:

  	

   

  	

  LENDER:

  
	

   

  	

   

  	

   

  
	

  PIONEER DRILLING SERVICES, LTD., a Texas

  limited partnership formerly known as Pioneer

  Drilling Co., Ltd., a Texas limited

  partnership

  	

   

  	

  THE FROST NATIONAL BANK

  a national banking

  association

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

   

  
	

  By:

  	

  PDC Mgmt. Co., a Texas

  corporation, General Partner

  	

   

  	

  Printed

  Name:

  	

   

  
	

   

  	

   

  	

   

  	

  Title:

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

   

  	

   

  
	

   

  	

  Printed

  Name:

  	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  AGREED

  TO:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  PIONEER DRILLING COMPANY, a Texas corporation, formerly known as South

  Texas Drilling & Exploration, Inc., a Texas corporation (executing for

  purposes of joining in certain specific provisions, as noted above)

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  By:

  	

   

  	

   

  	

   

  
	

  Printed

  Name:

  	

   

  	

   

  	

   

  
	

  Title:

  	

   

  	

   

  	

   

  
												

 

4Exhibit

4.11

 

FIRST AMENDED

AND RESTATED LOAN AGREEMENT

 

Between

 

	

  PIONEER DRILLING SERVICES, LTD.

  	

  and

  	

  THE FROST NATIONAL

  BANK

  
	

  9310 Broadway, Building 1

  	

   

  	

  100 W. Houston Street

  
	

  San Antonio, Texas 78217

  	

   

  	

  San Antonio, Texas  78205

  

 

March 19, 2002

 

THIS FIRST 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 (formerly known as Pioneer Drilling Co., Ltd.) (“Borrower”), and THE FROST NATIONAL BANK, a

national banking association (“Lender”).  This Loan Agreement hereby amends and restates that certain Loan

Agreement dated March 20, 2001, executed by and between Bank and Borrower.

 

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 Borrower the credit facility or facilities hereinbelow (whether

one or more, the “Credit Facilities”):

 

(a)           Borrowing Base

Line of Credit.  Subject to the

terms and conditions set forth herein, Lender agrees to lend to Borrower, 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 Borrower 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), or

(ii) $1,000,000.00 (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, Borrower 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.

 

1

 

As used in this Loan Agreement,

the term “Borrowing Base” shall have the meaning set forth hereinbelow:

 

An

amount equal to seventy-five percent 75% of the Borrower’s 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 Borrower 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 Borrower 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 Borrower, (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 Borrower 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.

 

2

 

All

advances under the Credit Facilities shall be collectively called the “Loans”.  Lender reserves the right to require

Borrower 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.

 

2.             Promissory Notes.  The Loans shall be evidenced by one or more

promissory notes or an Application (whether one or more, together with any

renewals, extensions and increases thereof, the “Notes”) duly executed

by Borrower and payable to the order of Lender, in form and substance

acceptable to Lender.  Interest on the

Notes shall accrue at the rate 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.  As collateral and security for the indebtedness evidenced by the

Notes and any and all other indebtedness or obligations from time to time owing

by Borrower to Lender, Borrower has granted to Lender, its successors and

assigns, Security Agreement dated as of March 20, 2001, executed by and between

Borrower and Lender (the “Security Agreement”) a first and prior lien

and security interest in and to the property described hereinbelow, together

with any and all PRODUCTS AND PROCEEDS thereof (the “Collateral”):

 

All

present and future accounts, chattel paper, documents, instruments, deposit

accounts and general intangibles (including any right to payment for goods sold

or services rendered arising out of the sale or delivery of personal property

or work done or labor performed by Borrower), now or hereafter owned, held, or

acquired by Borrower, together with any and all books of account, customer

lists and other records relating in any way to the foregoing.

 

The

term “Collateral” 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). 

Borrower 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.

 

Borrower hereby expressly acknowledges

that the lien and security interest granted pursuant to the Security Agreement

is a valid and subsisting lien and security interest against the Collateral,

and it is expressly agreed that the lien is hereby renewed, extended and

continued in full force and effect to secure payment of the indebtedness

evidenced by the Notes and all other indebtedness or obligations from time to

time owing by Borrower to Lender.

 

3

 

4.             Intentionally Omitted.

 

5.             Representations and Warranties.  Borrower 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.  Borrower is a limited partnership 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

Borrower have been duly authorized by all necessary action by Borrower, and

constitute legal, valid and binding obligations of Borrower, 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  partnership agreement, any

provision of the articles or certificate of incorporation or bylaws of

Borrower’s general or limited partner, or any agreement or other instrument

binding upon Borrower, its general or limited partner, or (B) any law,

governmental regulation, court decree or order applicable to Borrower, or

(ii) require the consent, approval or authorization of any third party.

 

(d)           Financial

Condition.  Each financial statement

of Borrower supplied to the Lender truly discloses and fairly presents

Borrower’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 Borrower 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 DRILLING COMPANY, a Texas

corporation (“Pioneer”), copies of which have been made available to the

Lender, there are no actions, suits or

proceedings, pending or, to the knowledge of Borrower, threatened against or

affecting Borrower or the 

 

4

 

properties

of Borrower, before any court or governmental department, commission or board,

which, if determined adversely to Borrower, would have a material adverse

effect on the financial condition, properties, or operations of Borrower.

 

(f)            Taxes; Governmental Charges.  Borrower 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 and correct, as

of and as if made on such date, (ii) no material adverse change in the

financial condition of Borrower since the effective date of the most recent

financial statements furnished to Lender by Borrower 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 Borrower and all other

proper parties.

 

7.             Affirmative Covenants.  Until (i) the Notes and all other

obligations and liabilities of Borrower 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, Borrower 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 Borrower’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 Borrower’s

financial condition and business operations as Lender may request from time to

time.

 

5

 

(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 Borrower

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 Borrower 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 Borrower’s properties, income, or profits;

provided, however, Borrower 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) Borrower 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.

 

(g)           Notice of Indebtedness.  Promptly inform Lender of the creation,

incurrence or assumption by Borrower 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

Borrower or any of its properties which, if determined adversely to Borrower,

would have a material adverse effect on the financial condition, properties, or

operations of Borrower.

 

(i)            Notice of

Material Adverse Change.  Promptly

inform Lender of (i) any and all material adverse changes in Borrower’s

financial condition, and (ii) all claims made against Borrower which could

materially affect the financial condition of Borrower.

 

6

 

(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 Borrower 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, neither Borrower nor Pioneer will ,

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, Borrower shall be permitted to incur or have outstanding

indebtedness to other lenders provided that the aggregate principal balance of

all such debt outstanding at any time shall not exceed  $5,000,000.00 (exclusive of the subordinated

debt described in 1(a)2. above) and (iii) the subordinated debt described in

1.(a)2. above (whether or not such subordinated

 

7

 

debt

is prohibited by other currently existing agreements between Lender and Pioneer

or Borrower).

 

(f)            Transfer of

Ownership.  Permit the sale, pledge

or other transfer of any of the ownership interests in Borrower.

 

(g)           Change in

Management.  Permit a change in the

senior management of Pioneer (as used herein, “a change in senior management”

shall mean that Michael E. Little shall have ceased to hold the titles of

Chairman and Chief Executive Officer or William Stacey Locke shall have ceased

to hold the titles of  Chief Financial

Officer and President); provided, however, should Michael E. Little or William

Stacey Locke die, become disabled or be terminated for cause (an “Involuntary

Change of Management”), Borrower shall not be in default hereunder if and

only if Pioneer 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

William Stacey 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

William Stacey 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 Borrower or Pioneer and

not exceeding $250,000.00 principal outstanding to all borrowers 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 Borrower or 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 Borrower and/or 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 Borrower or 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.  Borrower agrees not to declare or pay any

distributions on any of Borrower’s 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 Borrower’s partnership

interests, or make

 

8

 

any

other distribution, sale, transfer or lease of any of Borrower’s 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 Borrower to Lender.  The above notwithstanding, the

Borrower may make distributions with respect to Borrower’s partnership

interests, for the purposes of (i) providing funds to pay taxes (including

federal income taxes and franchise taxes) of the partners of Borrower

attributable to ownership of an interest in Borrower, (ii) providing operating

capital to Pioneer in an amount not exceeding $250,000.00 distributed in any

one fiscal year, and (iii) providing sufficient funds for the retirement of

term bank debt owed by Pioneer to American Bank.

 

(k)           Dividends.  Pioneer 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 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 Borrower 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, Borrower will maintain the following

financial covenants (on a consolidated basis with Pioneer ):

 

(a)                

Leverage Ratio. 

Beginning with the fiscal year ending on March 31, 2002, Borrower will

maintain, a Leverage Ratio not to exceed 3.0 to 1.0, to be tested annually

during the term of Loan.  Defined as:

 

	

  Funded Bank Debt

  
	

  Net Income + Interest + Taxes + Depreciation + Amortization

  

 

As used herein, “Funded Bank

Debt” shall mean: all outstanding principal due to Lender and other non-equity

lenders.

 

Compliance with the foregoing

covenant shall begin with the fiscal year ending on March 31, 2002

notwithstanding the terms of any Loan Agreement previously executed between

Lender and Borrower or Pioneer.

 

9

 

(b)                

Cash Flow Coverage Ratio.  Beginning with the fiscal year ending on

March 31, 2002, Borrower will maintain, as of the end of each fiscal year, a

cash flow coverage ratio of not less than 1.25 to 1.0—defined as:

 

Net Income + Interest +

Taxes + Depreciation + Amortization – Distributions or 

Dividends– Maintenance Capital Expenditures

Current Portion of Long-Term Debt + Interest Expense

 

As

used herein, “Maintenance Capital Expenditures” shall mean: Amounts

actually paid for the routine maintenance of the equipment serving as collateral

for the Loans to the extent such maintenance is required to keep that equipment

in operating condition.

 

Compliance

with the foregoing covenant shall begin with the fiscal year ending on March

31, 2002 notwithstanding the terms of any Loan Agreement previously executed

between Lender and Borrower or Pioneer.

 

(c)           Debt to Worth Ratio.  Borrower will maintain, at all times, to be

tested quarterly on the last day of each fiscal quarter of Borrower, a ratio of

(a) total liabilities (excluding any Subordinated Debt), to

(b) Tangible Net Worth of not greater than 1.75 to 1.0.

 

As

used herein, the term “Tangible Net Worth” means, as of any date,

Borrower’s total assets excluding all intangible assets, less total

liabilities excluding any Subordinated Debt. 

As used herein, the term “Subordinated Debt” means any

indebtedness owing by Borrower which has been subordinated by written agreement

to all indebtedness now or hereafter owing by Borrower 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 Borrower 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, Borrower will, unless Lender shall

otherwise consent in writing, furnish to Lender (all on a consolidated basis

with Pioneer ):

 

(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

Borrower, (i) a balance sheet,  income

statement and statement of cash flows of Borrower 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 Borrower

 

10

 

and/or

Chief Accounting Officer (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.

 

(b)           Quarterly

Statements.  Within sixty (60) days

after the end of each quarter of each fiscal year of Borrower, a copy of the

10-Q Report of Pioneer , as filed with the Securities Exchange Commission.

 

(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

Borrower, (i) a copy of the 10-K Report of Pioneer , as filed with the

Securities Exchange Commission, together with (ii) a certificate signed by the President and/or Chief

Financial Officer of Borrower and/or Chief Accounting Officer, stating that

Borrower 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 Borrower 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 Borrower from time to time, from time to time, which default remains uncured

for a period of ten (10) days after notice to Borrowers from Lender, given in

accordance with the terms hereof.

 

(b)           The failure of

Borrower 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 Borrower 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

Borrower 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.

 

11

 

(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 Borrower after

the giving of any required notice and expiration of any applicable cure period.

 

(d)           Any representation

contained herein or in any of the other Loan Documents made by Borrower 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 Borrower to any third party under any agreement

or understanding and such default continues after the giving of written notice

to Borrower and the passage of the cure period specified in Section 11(b)

above.

 

(f)            If Borrower 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 Borrower or any

Obligated Party is an entity, the liquidation, dissolution, merger or

consolidation of any such entity or, if Borrower or any Obligated Party is an

individual, the death or legal incapacity of any such individual.

 

12

 

(h)           The entry of any

judgment against Borrower or the issuance or entry of any attachment or other

lien against any of the property of Borrower 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 any party other than Borrower who

secures, guarantees and/or is otherwise obligated to pay all or any portion of

the indebtedness evidenced by the Notes.

 

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 Borrower 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

Borrower, 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 Borrower 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 Borrower

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.

 

13

 

15.           Benefits.  This Loan Agreement shall be binding upon and inure to the

benefit of Lender and Borrower, and their respective successors and assigns,

provided, however, that Borrower 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 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.  Borrower 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.  Borrower 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

 

14

 

may disclose any financial and other information

available to Lender concerning Borrower 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 EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL

AGREEMENTS OF THE PARTIES.

 

THERE ARE NO

UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

15

 

	

  BORROWER:

  	

   

  	

  LENDER:

  
	

   

  	

   

  	

   

  
	

  PIONEER DRILLING SERVICES, LTD., a Texas

  limited partnership (formerly known as Pioneer Drilling Co., Ltd.)

  	

   

  	

  THE FROST NATIONAL BANK

  a national banking association   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

   

  
	

  By:  

  	

  PDC Mgmt. Co., a Texas

  corporation, General Partner

  	

   

  	

  Printed

  Name: 

  	

   

  
	

   

  	

   

  	

   

  	

  Title:

  	

   

  
	

   

  	

  By:  

  	

   

  	

   

  	

   

  
	

   

  	

  Printed

  Name:

  	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  PIONEER DRILLING COMPANY, a Texas

  corporation (executing for purposes of joining in certain specific

  provisions, as noted above)   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  By:  

  	

   

  	

   

  	

   

  
	

  Printed

  Name:

  	

   

  	

   

  	

   

  
	

  Title:

  	

   

  	

   

  	

   

  
													

 

16

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