Document:

Third Amendment dated October 26, 2005 to Credit Agreement

 EXHIBIT 4.1 
  

THIRD AMENDMENT TO CREDIT AGREEMENT 
  
 THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the “Third Amendment”) is entered into as of the 26th day of October, 2005, by and among PIONEER DRILLING SERVICES, LTD., a Texas limited partnership (“Borrower”); PIONEER DRILLING
COMPANY, a Texas corporation; PDC MGMT. CO., a Texas corporation; PDC INVESTMENT CORP., a Delaware corporation; THE FROST NATIONAL BANK, a national banking association (in its individual capacity, “Frost
Bank”), for itself, as Lender, as Lead Arranger, and as Agent for Lenders; ZIONS FIRST NATIONAL BANK, a national banking association, as Lender; and BANK OF SCOTLAND, a Scottish banking corporation acting through its New York
Branch, as Lender. 
  
 R E C I T A L S 
  
 A. On October 29, 2004, Borrower, Credit Parties, Agent and Lender
entered into that certain Credit Agreement, as amended pursuant to that First Amendment to Credit Agreement dated November 29, 2004 and that certain Second Amendment to Credit Agreement dated March 29, 2005 (as amended, the “Credit
Agreement”) concerning the terms, conditions and covenants of certain credit facilities. 
  
 B. Borrower has requested and Lender has agreed to (i) renew and extend the Revolving Loan Commitment, and (ii) allow Acquisition Loans, at the
option of Borrower, to bear interest at certain LIBOR Rates as more particularly set forth herein. 
  
 C. All capitalized terms not otherwise defined in this Third Amendment shall have the same meanings as are set forth in the Credit Agreement. 

 
 NOW, THEREFORE, for and in consideration of the mutual covenants and
promises herein contained, Agent, Lenders and Borrower agree as follows: 
  
 AGREEMENTS 
  
 Amount and Terms of Credit: Credit
Facilities. Subsection 1.1(b) of the Credit Agreement is hereby amended to add the following sentence immediately after the last grammatical sentence: 
  
 If Borrower desires to have an Acquisition Loan bear interest by reference to a LIBOR Rate, it must comply with Section 1.5(e) below.

  
 Amount and Terms of Credit: Credit Facilities. Subsection
1.1(c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 
  
 (c) Reliance on Notices. Agent shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of
Revolving Credit Advance, Notice of Acquisition Loan, Notice of Conversion or similar notice executed by an Authorized Person and believed by Agent to be genuine. Agent may assume that each Person executing and delivering any notice in accordance
herewith was duly authorized, unless the responsible individual acting thereon for Agent has actual knowledge to the contrary. 
  

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 Amount and Terms of Credit: Interest. Section 1.5 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows: 
  

	 	1.5	Interest and Applicable Margins. 

  
 (a) Borrower shall pay interest to Agent, for the ratable benefit of Lenders in accordance with the various Loans being made by each
Lender, in arrears on each applicable Interest Payment Date, at the following rates: (i) with respect to the Revolving Credit Advances, the Prime Rate per annum; and (ii) with respect to the Acquisition Loans, the Prime Rate per annum or,
at the election of Borrower, the applicable LIBOR Rate plus the Applicable Acquisition Loan LIBOR Margin per annum. 
  
 The Applicable Margin(s) shall be adjusted (up or down) prospectively on a quarterly basis as determined by Borrower’s consolidated financial
performance, commencing with the first day of the first calendar month that occurs more than 5 days after delivery of Borrower’s quarterly Financial Statements to Lenders for the Fiscal Quarter ending September 30, 2005. Adjustments in
Applicable Margin(s) will be determined by reference to the following grids: 
  

			
	 If
Operating Leverage Ratio is:
  
	  	 Level
of
 Applicable Margin(s):
  

	< 1.00 to 1.00	  	Level I
	> 1.01 to 1.00, but < 1.50 to 1.00	  	Level II
	> 1.51 to 1.00, but < 2.00 to 1.00	  	Level III
	> 2.01 to 1.00	  	Level IV

  
  

									
	 Applicable Margin(s)
  

	 	 	 Level I
  
	 	 Level II
  
	 	 Level III
  
	 	 Level IV
  

	Applicable
Acquisition Loan
LIBOR Margin	 	1.75%	 	2.00%	 	2.25%	 	2.50%

  
 If there is a
disparity between the financial tests described above, the test resulting in the greater level of Applicable Margin(s) will prevail. 
  
 All adjustments in the Applicable Margin(s) after September 30, 2005, shall be implemented quarterly on a prospective basis, for each calendar month
commencing at least 5 days after the date of delivery to Lenders of the quarterly Compliance Certificate. Failure to timely deliver such Compliance Certificate shall, in addition to any other remedy provided for in this Agreement, result in an
increase in the Applicable Margin(s) to the highest level set forth in the foregoing grid, until the first day of the first calendar month following the delivery of a Compliance Certificate demonstrating that such an increase is not required. If a
Default or an Event of Default has occurred and is continuing at the time any reduction in the Applicable Margin(s) is to be implemented, that reduction shall be deferred until the first day of the first calendar month following the date on which
such Default or Event of Default is waived or cured. 
  
 (b) If any payment on any Loan becomes due and payable on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day (except as set forth in the definition of LIBOR Period) and, with respect
to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. 
  
 (c) All computations of Fees calculated on a per annum basis and interest shall be made by Agent on the basis of a 360-day year, in each
case for the actual number of days occurring in the period for which such interest and Fees are payable. The Prime Rate is a floating rate determined for each day. Each determination by Agent of an interest rate and Fees hereunder shall be final,
binding and conclusive on Borrower, absent manifest error. 
  

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 (d) So long as an Event of Default has occurred and is continuing under
Section 8.1(h) or (i), or so long as any other Default or Event of Default has occurred and is continuing and at the election of Agent (or upon the written request of Requisite Lenders) confirmed by written notice from Agent to Borrower,
the interest rates applicable to the Loans and the Letter of Credit Fees shall be increased by five percentage points (5%) per annum above the rates of interest or the rate of such Fees otherwise applicable hereunder (“Default Rate”),
and all outstanding Obligations shall bear interest at the lesser of the Default Rate applicable to such Obligations or the Maximum Lawful Rate. Interest and Letter of Credit Fees at the Default Rate shall accrue from the initial date of such
Default or Event of Default until that Default or Event of Default is cured or waived and shall be payable upon demand. 
  
 (e) Subject to the conditions precedent set forth in Section 2.2, Borrower shall have the option to (i) request that any
Acquisition Loan be made as a LIBOR Loan, (ii) convert at any time an outstanding Acquisition Loan from a Prime Rate Loan to a LIBOR Loan, (iii) convert any LIBOR Loan to a Prime Rate Loan, subject to payment of LIBOR breakage costs in
accordance with Section 1.12(b) if such conversion is made prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue an Acquisition Loan as a LIBOR Loan upon the expiration of the applicable LIBOR Period and
the succeeding LIBOR Period of that continued Acquisition Loan shall commence on the first day after the last day of the LIBOR Period of the Acquisition Loan to be continued. Any such election must be made by 11:00 a.m. (San Antonio time) on the 3rd
Business Day prior to (1) the date of any proposed advance of an Acquisition Loan which is to bear interest at the LIBOR Rate or (2) the date on which Borrower wishes to convert any Prime Rate Loan to a LIBOR Loan for a LIBOR Period
designated by Borrower in such election. If no election is received with respect to a LIBOR Loan by 11:00 a.m. (San Antonio time) on the 3rd Business Day prior to the end of the LIBOR Period with respect thereto, Borrower shall be deemed to have
selected a LIBOR Period of the same duration as the existing LIBOR Period and such Acquisition Loan shall be continued as such. If a Default or an Event of Default has occurred and is continuing or the additional conditions precedent set forth in
Section 2.2 shall not have been satisfied, each LIBOR Loan shall be converted to a Prime Rate Loan at the end of its LIBOR Period. Borrower must make such election by notice to Agent in writing, by telecopy or overnight courier. In the
case of any conversion, such election must be made pursuant to a written notice (a “Notice of Conversion”) in the form of Exhibit 1.5(e). 
  
 (f) Notwithstanding anything to the contrary set forth in this Section 1.5, if a court of
competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would be
so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrower
shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Agent, on behalf of Lenders, is equal to the total interest that would have been received had the interest rate payable hereunder
been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided in
Sections 1.5(a) through (d), unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by any Lender pursuant to the terms
hereof exceed the amount that such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such
interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. If, notwithstanding the provisions of this Section 1.5(f), a court of competent
jurisdiction shall finally determine that a Lender has received interest hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent permitted by applicable law, promptly apply such excess in the order specified in
Section 1.10 and thereafter shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order. 
  
 Notice of Conversion. The Credit Agreement is hereby amended to add Exhibit 1.5(e) attached hereto as Exhibit 1.5(e) to the Credit
Agreement. 
  
 Amount and Terms of Credit: Indemnity.
Section 1.12 of the Credit Agreement is hereby amended to add the following as subsection (b): 
  

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 (b) To induce Lenders to provide the LIBOR Rate option on the terms provided herein, if
(i) any LIBOR Loans are repaid in whole or in part prior to the last day of any applicable LIBOR Period (whether that repayment is made pursuant to any provision of this Agreement or any other Loan Document or occurs as a result of
acceleration, by operation of law or otherwise); (ii) Borrower shall default in payment when due of the principal amount of or interest on any LIBOR Loan; (iii) Borrower shall refuse to accept any borrowing of, or shall request a
termination of any borrowing, conversion into or continuation of LIBOR Loans after Borrower has given notice requesting the same in accordance herewith; or (iv) Borrower shall fail to make any prepayment of a LIBOR Loan after Borrower has given
a notice thereof in accordance herewith, then Borrower shall indemnify and hold harmless each Lender from and against all losses, costs and expenses resulting from or arising from any of the foregoing. Such indemnification shall include any loss
(including loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate deposits from which such funds were obtained. For the purpose of calculating amounts payable to a Lender under this
subsection, each Lender shall be deemed to have actually funded its relevant LIBOR Loan through the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a maturity comparable to the
relevant LIBOR Period; provided, that each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant
shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. As promptly as practicable under the circumstances, each Lender shall provide Borrower with its written calculation of all amounts
payable pursuant to this Section 1.12(b), and such calculation shall be binding on the parties hereto unless Borrower shall object in writing within 10 Business Days of receipt thereof, specifying the basis for such objection in detail.

  
 Amount and Terms of Credit: Capital Adequacy; Increased Costs;
Illegality. Section 1.15 of the Credit Agreement is hereby amended to add the following as subsection (d): 
  
 (d) Notwithstanding anything to the contrary contained herein, if the introduction of or any change in any law or regulation (or any
change in the interpretation thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such LIBOR Loan at another branch or office of that Lender without, in that Lender’s opinion, adversely affecting it or its Loans or the income obtained therefrom, on
notice thereof and demand therefor by such Lender to Borrower through Agent, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith
prepay in full all outstanding LIBOR Loans owing to such Lender, together with interest accrued thereon, unless Borrower, within 5 Business Days after the delivery of such notice and demand, converts all outstanding LIBOR Loans into Prime Rate
Loans. 
  
 Conditions Precedent; Further Conditions to Each Loan.
Section 2.2 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 
  
 2.2 Further Conditions to Each Loan. Except as otherwise expressly provided herein, no Lender shall be obligated to fund any
Advance, convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation, if, as of the date thereof: 
  
 (a) any representation or warranty by any Credit Party contained herein or in any other Loan Document is untrue or incorrect as of such
date, except to the extent that such representation or warranty expressly relates to an earlier date and except for changes therein expressly permitted or expressly contemplated by this Agreement, and Agent or Requisite Revolving Lenders have
determined not to make such Revolving Credit Advance, or incur such Letter of Credit Obligation as a result of the fact that such warranty or representation is untrue or incorrect; 
  
 (b) any representation or warranty by any Credit Party contained herein or in any other Loan Document is
untrue or incorrect as of such date, except to the extent that such representation or warranty expressly relates to an earlier date and except for changes therein expressly permitted or expressly contemplated by this Agreement, and Agent or
Requisite 

  

 4 

 
Acquisition Lenders have determined not to make such Acquisition Loan or convert or continue any Acquisition Loan as LIBOR Loan as a result of the fact that
such warranty or representation is untrue or incorrect; 
  
 (c) any event or circumstance having a Material Adverse Effect has occurred since the date hereof as determined by the Requisite Revolving Lenders, and Agent or Requisite Revolving Lenders have determined not to make
such Revolving Credit Advance, or incur such Letter of Credit Obligation as a result of the fact that such event or circumstance has occurred; 
  
 (d) any event or circumstance having a Material Adverse Effect has occurred since the date hereof as determined by the Requisite
Acquisition Lenders, and Agent or Requisite Acquisition Lenders have determined not to make such Acquisition Loan or convert or continue any Acquisition Loan as a LIBOR Loan as a result of the fact that such event or circumstance has occurred;

  
 (e) any Default or Event of Default has
occurred and is continuing or would result after giving effect to any Revolving Advance (or the incurrence of any Letter of Credit Obligation), and Agent or Requisite Revolving Lenders shall have determined not to make any Revolving Credit Advance
or incur any Letter of Credit Obligation as a result of that Default or Event of Default; or 
  
 (f) any Default or Event of Default has occurred and is continuing or would result after giving effect to any Acquisition Loan, and Agent
or Requisite Acquisition Lenders shall have determined not to make any Acquisition Loans or convert or continue any Acquisition Loan as a LIBOR Loan as a result of that Default or Event of Default; or 
  
 (g) after giving effect to any Revolving Credit Advance (or
the incurrence of any Letter of Credit Obligations), the outstanding principal amount of the Revolving Loan would exceed the lesser of the Borrowing Base and the Revolving Loan Commitment Maximum Amount. 
  
 The request and acceptance by Borrower of the proceeds of any Advance, the
incurrence of any Letter of Credit Obligations or the conversion or continuation of any Loan into, or as, a LIBOR Loan, shall be deemed to constitute, as of the date thereof, (i) a representation and warranty by Borrower that the conditions in
this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrower of the granting and continuance of Agent’s Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents. 
  
 Assignment and Participations; Appointment of Agent: Assignment and
Participations. Subsection 9.1(f) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 
  
 (f) So long as no Event of Default has occurred and is continuing, no Lender shall assign or sell participations in any portion of its
Loans or Commitments to a potential Lender or participant, if, as of the date of the proposed assignment or sale, the assignee Lender or participant would be subject to capital adequacy or similar requirements under Section 1.15(a),
increased costs under Section 1.15(b), an inability to fund LIBOR Loans under Section 1.15(d), or withholding taxes in accordance with Section 1.14(a). 
  
 Assignment and Participations; Appointment of Agent: Advances; Payments; Non-Funding Lenders; Information; action in
Concert. Subsection 9.9(a)(ii) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 
  
 (ii) Agent shall notify Acquisition Lenders, promptly after receipt of a Notice of Acquisition Advance and in any event prior to 1:00 p.m.
(San Antonio time) on the date such Notice of Acquisition Advance is received, by telecopy, telephone or other similar form of transmission. Each Acquisition Lender shall make the amount of such Lender’s Pro Rata Share of such Acquisition Loan
available to Agent in same day funds by wire transfer to Agent’s account as set forth in Annex G not later than 3:00 p.m. (San Antonio time) on the requested funding date and not later than 11:00 a.m. (San Antonio 

  

 5 

 
time) on the requested funding date in the case of a LIBOR Loan. After receipt of such wire transfers (or, in the Agent’s sole discretion, before
receipt of such wire transfers), subject to the terms hereof, Agent shall make the requested Acquisition Loan to Borrower or convert or continue any Acquisition Loan as a LIBOR Loan. All payments by each Acquisition Lender shall be made without
setoff, counterclaim or deduction of any kind. 
  
 Annex A:
Definition of Interest Payment Date. The Definition of “Interest Payment Date” set forth in Annex A of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 
  
 “Interest Payment Date” means (a) as
to any Prime Rate Loan, the first Business Day of each month to occur while such Loan is outstanding and (b) as to any LIBOR Loan, the last day of the applicable LIBOR Period; provided, that in the case of any LIBOR Period greater than
three months in duration, interest shall be payable at three month intervals and on the last day of such LIBOR Period; and provided further, that in the case of each of the foregoing, (x) the date upon which all of the Commitments have
been terminated and the Loans have been paid in full shall be deemed to be an “Interest Payment Date” with respect to any interest that has then accrued under the Agreement, (y) the Acquisition Commitment Termination Date shall
be deemed to be an “Interest Payment Date” with respect to Acquisition Loans and (z) the Revolving Commitment Termination Date shall be deemed to be an “Interest Payment Date” with respect to Revolving Loans.

  
 Annex A: Definitions. Annex A of the Credit Agreement is
hereby amended to add the following definitions: 
  
 “Applicable Margin(s)” means individually and/or collectively, as the case may be, the Applicable Acquisition Loan LIBOR Margin. 
  
 “Applicable Acquisition Loan LIBOR Margin” means the per annum interest rate from time to time in effect and payable in
addition to the LIBOR Margin applicable to an Acquisition Loan, as determined by reference to Section 1.5(a). 
  
 “LIBOR Business Day” means a Business Day on which banks in the City of London are generally open for interbank or
foreign exchange transactions. 
  
 “LIBOR
Loan” means an Acquisition Loan or any portion thereof bearing interest by reference to the LIBOR Rate. 
  
 “LIBOR Period” means, with respect to any LIBOR Loan, each period commencing on a LIBOR Business Day selected by Borrower
pursuant to the Agreement and ending one, two, or three months thereafter, as selected by Borrower’s irrevocable notice to Agent as set forth in Section 1.5(e); provided, that the foregoing provision relating to LIBOR Periods is
subject to the following: 
  
 (a) if any LIBOR
Period would otherwise end on a day that is not a LIBOR Business Day, such LIBOR Period shall be extended to the next succeeding LIBOR Business Day unless the result of such extension would be to carry such LIBOR Period into another calendar month
in which event such LIBOR Period shall end on the immediately preceding LIBOR Business Day; 
  
 (b) any LIBOR Period that would otherwise extend beyond the Commitment Termination Date shall end 2 LIBOR Business Days prior to such
date; 
  
 (c) any LIBOR Period that begins on the
last LIBOR Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Period) shall end on the last LIBOR Business Day of a calendar month; and 
  

 6 

 (d) Borrower shall select LIBOR Periods so as not to require a payment or prepayment of
any LIBOR Loan during a LIBOR Period for such Loan. 
  
 “LIBOR Rate” means for each LIBOR Period, a rate of interest determined by Agent equal to: 
  
 (a) the offered rate for deposits in United States Dollars for the applicable LIBOR Period that appears on Telerate Page 3750 as of
11:00 a.m. (London time), on the second full LIBOR Business Day next preceding the first day of such LIBOR Period (unless such date is not a Business Day, in which event the next succeeding Business Day will be used); divided by 
  
 (b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day that is 2 LIBOR Business Days prior to the beginning of such LIBOR Period (including basic, supplemental, marginal and emergency reserves under
any regulations of the Federal Reserve Board or other Governmental Authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in
Regulation D of the Federal Reserve Board that are required to be maintained by a member bank of the Federal Reserve System. 
  
 If such interest rates shall cease to be available from Telerate News Service, the LIBOR Rate shall be determined from such financial reporting service or
other information as shall be mutually acceptable to Agent and Borrower. 
  
 “Notice of Conversion “ has the meaning ascribed to it in Section 1.5(e). 
  
 “Prime Rate Loan” means a Loan or portion thereof bearing interest by reference to the Prime Rate. 
  
 “Revolving Commitment Termination Date”
means the earliest of (a) October 27, 2006, (b) the date of termination of Lenders’ obligations to make Advances and to incur Letter of Credit Obligations or permit existing Loans to remain outstanding pursuant to
Section 8.2(a), and (c) the date of indefeasible prepayment in full by Borrower of the Loans and the cancellation and return (or stand-by guarantee) of all Letters of Credit or the cash collateralization of all Letter of Credit
Obligations pursuant to Annex B, and the permanent reduction of the Commitments to zero dollars ($0). 
  
 Form of Acquisition Note. The form of Acquisition Note attached to the Credit Agreement as Exhibit 1.1(b)(ii) is hereby deleted in its entirety and
replaced with Exhibit 1.1(b)(ii) attached hereto. 
  
 No Other
Amendment. Except as specifically modified or amended herein, all terms, provisions and requirements of the Credit Agreement shall remain as written, and as amended from time to time. 
  
 Reaffirmation. Borrower hereby reaffirms all covenants, conditions, representations and warranties contained in the Credit
Agreement, as amended by this Third Amendment. 
  
 Expenses.
Borrower covenants and agrees to pay all costs and expenses of Agent and Lender in connection with this Third Amendment, including, but not limited to, Agent’s and Lender’s attorneys’ fees, recording or filing costs or expenses, and
similar items. 
  
 Counterparts. This Third Amendment may be
executed in counterpart originals, no one of which need contain the signature of all parties, but all of which together shall constitute one and the same instrument. 
  
 Release of Agent and Lenders. Borrower hereby acknowledges and agrees that, as of the date hereof, there exists no right of
offset, defense, counterclaim, claim, or objection in favor of such Borrower as against Lenders with respect to the Credit Agreement or any other aspect of the transactions contemplated thereby, or alternatively, that any such right of offset,
defense, counterclaim, claim, or objection is hereby expressly waived. In connection with the foregoing, Borrower hereby releases and discharges Agent and Lenders, and their respective parents, subsidiaries, affiliates, directors, officers,
employees, attorneys, agents, successors, and assigns from any and all 
  

 7 

 
rights, claims, demands, actions, causes of action, suits, proceedings, agreements, contracts, judgments, damages, debts or liabilities, of any kind or
character, including without limitation such claims and defenses as fraud, mistake, duress, and usury, whether in law or in equity, known or unknown, choate or inchoate, it has had, now has, or hereafter may have, arising under or in any manner
relating to, whether directly or indirectly, the Credit Agreement or any other aspect of the transactions contemplated thereby from the beginning of time until the date hereof. 
  
 Cooperation, Further Assurances. Borrower agrees to cooperate with Agent so that the interests of Lenders are protected and
the intent of the Loan Documents and this Third Amendment can be effectuated. Borrower agrees to execute whatever further documents and to provide whatever further assurances Agent or Lenders may reasonably request or deem necessary to effectuate
the terms of this Third Amendment. 
  
 Governing Law. This Third
Amendment and all other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of Texas, excluding those laws relating to the resolution of conflicts between laws of different jurisdictions. 
  
 Headings. The headings preceding the text of the paragraphs of this Third
Amendment have been inserted solely for convenience of reference and shall neither constitute a part of this Third Amendment nor affect its meaning, interpretation, or effect. 
  
 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. 
  
 NOTICE OF FINAL AGREEMENT 
  
 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.

  
 [Balance of Page Intentionally Left Blank]

  
 [Signature(s) on Following Page(s)] 
  

 8 

 IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed as of the
date first above written. 
  

					
	 BORROWER:

	
	PIONEER DRILLING SERVICES, LTD., a Texas limited partnership
		
	 By:
	 	PDC Mgmt. Co., a Texas corporation, General Partner
			
	 	 	 By:
	 	 /s/ Wm. Stacy Locke

	 	 	 	 	Wm. Stacy Locke, President and Chief Executive Officer

  
  

			
	 LENDERS:

	
	THE FROST NATIONAL BANK, a national banking association, as Agent and Lender
		
	 By:
	 	/s/ Casey Shaeffer
	 Name:
	 	 
	 Title:
	 	 Vice President

  
  

			
	ZIONS FIRST NATIONAL BANK, a national banking association, as Lender
		
	 By:
	 	/s/ Jennifer Christopulos
	 Name:
	 	 
	 Title:
	 	 Vice President

  
  

			
	BANK OF SCOTLAND, a Scottish banking corporation acting through its New York Branch, as Lender
		
	 By:
	 	/s/ Karen Weich
	 Name:
	 	 
	 Title:
	 	 Assistant Vice President

  

 9 

 The following Persons are signatories to this Third Amendment in their capacity as Credit Parties and Guarantors and not
as Borrowers. 
  

			
	 HOLDING COMPANY:
  
 PIONEER DRILLING COMPANY, a Texas corporation

		
	 By:
	 	/s/ Wm. Stacy Locke
	 	 	Wm. Stacy Locke, President and Chief Executive Officer

  
  

			
	PDC MGMT. CO., a Texas corporation
		
	 By:
	 	/s/ Wm. Stacy Locke
	 	 	Wm. Stacy Locke, President and Chief Executive Officer

  
  

			
	PDC INVESTMENT CORP., a Delaware corporation
		
	 By:
	 	/s/ Wm. Stacy Locke
	 	 	Wm. Stacy Locke, President and Chief Executive Officer

  

 10CEA 2005 Performance Equity Plan.

 Exhibit 10.12 
  
 Approved by Board of Directors on November __________, 2005 
  
 Approved by Shareholders on _______________ 
  
 CEA Acquisition Corporation 
  
 2005 Performance Equity Plan 
  
 1. Purpose; Definitions. 
  
 1.1 Purpose. The purpose of the CEA Acquisition Corporation 2005
Performance Equity Plan is to enable the Company to offer to its employees, officers, directors and consultants whose past, present and/or potential contributions to the Company and its Subsidiaries have been, are or will be important to the success
of the Company, an opportunity to acquire a proprietary interest in the Company. The various types of long-term incentive awards that may be provided under the Plan will enable the Company to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its businesses. 
  
 1.2 Definitions. For purposes of the Plan, the following terms will have the meanings set forth below: 
  
 (a) “Agreement” means the agreement between the Company and the Holder, including any amendment thereto or such other document
as may be determined by the Committee, setting forth the terms and conditions of an award under the Plan. 
  
 (b) “Board” means the Board of Directors of the Company. 
  
 (c) “Code” means the Internal Revenue Code of 1986, as amended from time to time. 
  
 (d) “Committee” means the Compensation Committee
of the Board or any other committee of the Board that the Board may designate to administer the Plan or any portion thereof. If no Committee is so designated, then all references in this Plan to “Committee” will mean the Board. 

 
 (e) “Common Stock” means the Common Stock of
the Company, $0.0001 par value per share. 
  
 (f)
“Company” means CEA Acquisition Corporation, a corporation organized under the laws of the State of Delaware. 

 (g) “Deferred Stock” means Common Stock to be received under an award made
pursuant to Section 8, below, at the end of a specified deferral period. 
  
 (h) “Disability” means physical or mental impairment as determined under procedures established by the Committee for purposes of the Plan. 
  
 (i) “Effective Date” means the date set forth in Section 12.1, below. 
  
 (j) “Fair Market Value”, unless otherwise required
by any applicable provision of the Code or any regulations issued thereunder, means, as of any given date: (i) if the Common Stock is listed on a national securities exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market,
the last sale price of the Common Stock in the principal trading market for the Common Stock on such date, as reported by the exchange or Nasdaq, as the case may be; (ii) if the Common Stock is not listed on a national securities exchange or
quoted on the Nasdaq National Market or Nasdaq SmallCap Market, but is traded in the over-the-counter market, the closing bid price for the Common Stock on such date, as reported by the OTC Bulletin Board or the National Quotation Bureau,
Incorporated or similar publisher of such quotations; and (iii) if the fair market value of the Common Stock cannot be determined pursuant to clause (i) or (ii) above, such price as the Committee determines in good faith. 

 
 (k) “Holder” means a person who has received an
award under the Plan. 
  
 (l) “Incentive
Stock Option” means any Stock Option intended to be and designated as an “incentive stock option” within the meaning of Section 422 of the Code. 
  
 (m) “Nonqualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

  
 (n) “Normal Retirement” means
retirement from active employment with the Company or any Subsidiary on or after such age which may be designated by the Committee as “retirement age” for any particular Holder. If no age is designated, it will be 65. 
  
 (o) “Other Stock-Based Award” means an award under
Section 9, below, that is valued in whole or in part by reference to, or is otherwise based upon, Common Stock. 
  
 (p) “Parent” means any present or future “parent corporation” of the Company, as such term is defined in
Section 424(e) of the Code. 
  
 (q)
“Plan” means the CEA Acquisition Corporation 2005 Performance Equity Plan, as hereinafter amended from time to time. 
  
 (r) “Repurchase Value” means the Fair Market Value in the event the award to be settled under Section 2.2(h) or repurchased
under Section 10.2 is comprised of shares of 

  

 2 

 
Common Stock and the difference between Fair Market Value and the Exercise Price (if lower than Fair Market Value) in the event the award is a Stock Option
or Stock Appreciation Right; in each case, multiplied by the number of shares subject to the award. 
  
 (s) “Restricted Stock” means Common Stock received under an award made pursuant to Section 7, below, that is subject to
restrictions under said Section 7. 
  
 (t)
“SAR Value” means the excess of the Fair Market Value (on the exercise date) over the exercise price that the participant would have otherwise had to pay to exercise the related Stock Option, multiplied by the number of shares for which
the Stock Appreciation Right is exercised. 
  
 (u) “Stock Appreciation Right” means the right to receive from the Company, on surrender of all or part of the related Stock Option, without a cash payment to the Company, a number of shares of Common Stock equal to the SAR Value
divided by the Fair Market Value (on the exercise date). 
  
 (v) “Stock Option” or “Option” means any option to purchase shares of Common Stock which is granted pursuant to the Plan. 
  
 (w) “Stock Reload Option” means any option granted under Section 5.3 of the Plan. 

 
 (x) “Subsidiary” means any present or future
“subsidiary corporation” of the Company, as such term is defined in Section 424(f) of the Code. 
  
 (y) “Vest” means to become exercisable or to otherwise obtain ownership rights in an award. 
  
 2. Administration. 
  
 2.1 Committee Membership. The Plan will be administered by the Board or a Committee. Committee members will serve for
such term as the Board may in each case determine, and are subject to removal at any time by the Board. The Committee members, to the extent possible and deemed to be appropriate by the Board, will be “non-employee directors” as defined in
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and “outside directors” within the meaning of Section 162(m) of the Code. 
  
 2.2 Powers of Committee. The Committee has full authority to award,
pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee has the authority (subject to the express provisions of this Plan): 
  

 3 

 (a) to select the officers, employees, directors and consultants of the Company or any
Subsidiary to whom Stock Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options and/or Other Stock—Based Awards may from time to time be awarded hereunder. 
  
 (b) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not limited to, number of shares, share exercise price or types of consideration paid upon exercise of such options, such as other securities of the Company or other
property, any restrictions or limitations, and any vesting, exchange, surrender, cancellation, acceleration, termination, exercise or forfeiture provisions, as the Committee may determine); 
  
 (c) to determine any specified performance goals or such
other factors or criteria which need to be attained for the vesting of an award granted hereunder; 
  
 (d) to determine the terms and conditions under which awards granted hereunder are to operate on a tandem basis and/or in conjunction with
or apart from other equity awarded under this Plan and cash and non-cash awards made by the Company or any Subsidiary outside of this Plan; 
  
 (e) to permit a Holder to elect to defer a payment under the Plan under such rules and procedures as the Committee may establish,
including the payment or crediting of interest on deferred amounts denominated in cash and of dividend equivalents on deferred amounts denominated in Common Stock; 
  
 (f) to determine the extent and circumstances under which Common Stock and other amounts payable with
respect to an award hereunder will be deferred that may be either automatic or at the election of the Holder; and 
  
 (g) to substitute (i) new Stock Options for previously granted Stock Options, which previously granted Stock Options have higher
option exercise prices and/or contain other less favorable terms, and (ii) new awards of any other type for previously granted awards of the same type, which previously granted awards are upon less favorable terms. 
  
 (h) to make payments and distributions with respect to
awards (i.e., to “settle” awards) through cash payments in an amount equal to the Repurchase Value. 
  
 Notwithstanding anything contained herein to the contrary, the Committee shall not grant to any one Holder in any one calendar year awards for more than
500,000 shares in the aggregate. 
  

 4 

 2.3 Interpretation of Plan. 
  
 (a) Committee Authority. Subject to Section 11, below, the Committee has the authority to adopt,
alter and repeal such administrative rules, guidelines and practices governing the Plan as it from time to time deems advisable to interpret the terms and provisions of the Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise the administration of the Plan. Subject to Section 11, below, all decisions made by the Committee pursuant to the provisions of the Plan will be made in the
Committee’s sole discretion and will be final and binding upon all persons, including the Company, its Subsidiaries and Holders. 
  
 (b) Incentive Stock Options. Anything in the Plan to the contrary notwithstanding, no term or provision of the Plan relating to
Incentive Stock Options (including but not limited to Stock Reload Options or Stock Appreciation rights granted in conjunction with an Incentive Stock Option) or any Agreement providing for Incentive Stock Options will be interpreted, amended or
altered, nor will any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Holder(s) affected, to disqualify any Incentive Stock Option under
such Section 422. 
  
 3. Stock Subject to Plan. 
  
 3.1 Number of Shares. The total number of shares of Common Stock
reserved and available for issuance under the Plan is 2,100,000 shares. Shares of Common Stock under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. If any shares of Common Stock that have been
granted pursuant to a Stock Option cease to be subject to a Stock Option, or if any shares of Common Stock that are subject to any Stock Appreciation Right, Restricted Stock award, Deferred Stock award, Reload Stock Option or Other Stock-Based Award
granted hereunder are forfeited or any such award otherwise terminates without a payment being made to the Holder in the form of Common Stock, such shares will again be available for distribution in connection with future grants and awards under the
Plan. If a Holder pays the exercise price of a Stock Option by surrendering any previously owned shares and/or arranges to have the appropriate number of shares otherwise issuable upon exercise withheld to cover the withholding tax liability
associated with the Stock Option exercise, then the number of shares available under the Plan will be increased by the lesser of (i) the number of such surrendered shares and shares used to pay taxes; and (ii) the number of shares
purchased under such Stock Option. 
  
 3.2 Adjustment Upon
Changes in Capitalization, Etc. In the event of any merger, reorganization, consolidation, common stock dividend payable on shares of Common Stock, Common Stock split or reverse split, combination or exchange of shares of Common Stock, or other
extraordinary or unusual event which results in a change in the shares of Common Stock of the Company as a whole, the Committee will determine, in its sole discretion, whether such change equitably requires an adjustment in the terms of any award
(including number of shares subject to the award and the exercise price) or the aggregate number of shares reserved for 

  

 5 

 
issuance under the Plan. Any such adjustments will be made by the Committee, whose determination will be final, binding and conclusive. 
  
 4. Eligibility. 
  
 Awards may be made or granted to employees, officers, directors and consultants who are deemed to have rendered or to be
able to render significant services to the Company or its Subsidiaries and who are deemed to have contributed or to have the potential to contribute to the success of the Company. No Incentive Stock Option will be granted to any person who is not an
employee of the Company or a Subsidiary at the time of grant. Notwithstanding the foregoing, an award may be made or granted to a person in connection with his hiring or retention, or at any time on or after the date he reaches an agreement (oral or
written) with the Company with respect to such hiring or retention, even though it may be prior to the date the person first performs services for the Company or its Subsidiaries; provided, however, that no portion of any such award will vest
prior to the date the person first performs such services. 
  
 5. Stock
Options. 
  
 5.1 Grant and Exercise. Stock Options
granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. Any Stock Option granted under the Plan will contain such terms, not inconsistent with this Plan, or with respect to Incentive
Stock Options, not inconsistent with the Plan and the Code, as the Committee may from time to time approve. The Committee has the authority to grant Incentive Stock Options or Non-Qualified Stock Options, or both types of Stock Options which may be
granted alone or in addition to other awards granted under the Plan. To the extent that any Stock Option intended to qualify as an Incentive Stock Option does not so qualify, it will constitute a separate Nonqualified Stock Option. 
  
 5.2 Terms and Conditions. Stock Options granted under the Plan are
subject to the following terms and conditions: 
  
 (a) Option Term. The term of each Stock Option will be fixed by the Committee; provided, however, that an Incentive Stock Option may be granted only within the ten-year period commencing from the Effective Date and may only be
exercised within ten years of the date of grant (or five years in the case of an Incentive Stock Option granted to an optionee who, at the time of grant, owns Common Stock possessing more than 10% of the total combined voting power of all classes of
voting stock of the Company (“10% Shareholder”). 
  
 (b) Exercise Price. The exercise price per share of Common Stock purchasable under a Stock Option will be determined by the Committee at the time of grant and may not be less than 100% of the Fair Market Value
on the date of grant (or, if greater, the par value of a share of Common Stock); provided, however, that (i) the exercise price of an Incentive Stock Option granted to a 10% Shareholder will not be less than 110% of the Fair Market Value
on the date of grant; and (ii) if the Stock Option is granted in connection with the recipient’s 

  

 6 

 
hiring, retention, reaching an agreement (oral or written) with the Company with respect to such hiring or retention, promotion or similar event, the option
exercise price may be not less than the Fair Market Value on the date on which the recipient is hired or retained, reached such agreement with respect to such hiring or retention, or is promoted (or similar event), if the grant of the Stock Option
occurs not more than 120 days after the date of such hiring, retention, agreement, promotion or other event. 
  
 (c) Exercisability. Stock Options are exercisable at such time or times and subject to such terms and conditions as are determined
by the Committee and as set forth in Section 10, below. If the Committee provides, in its discretion, that any Stock Option is exercisable only in installments, i.e., that it vests over time, the Committee may waive such installment exercise
provisions at any time at or after the time of grant in whole or in part, based upon such factors as the Committee determines. 
  
 (d) Method of Exercise. Subject to whatever installment, exercise and waiting period provisions are applicable in a particular
case, Stock Options may be exercised in whole or in part at any time during the term of the Option by giving written notice of exercise to the Company specifying the number of shares of Common Stock to be purchased. Such notice will be accompanied
by payment in full of the purchase price, which will be in cash or, if provided in the Agreement, either in shares of Common Stock (including Restricted Stock and other contingent awards under this Plan) or partly in cash and partly in such Common
Stock, or such other means which the Committee determines are consistent with the Plan’s purpose and applicable law. Cash payments will be made by wire transfer, certified or bank check or personal check, in each case payable to the order of
the Company; provided, however, that the Company will not be required to deliver certificates for shares of Common Stock with respect to which an Option is exercised until the Company has confirmed the receipt of good and available funds in payment
of the purchase price thereof (except that, in the case of an exercise arrangement approved by the Committee and described in the last sentence of this paragraph, payment may be made as soon as practicable after the exercise). Payments in the form
of Common Stock will be valued at the Fair Market Value on the date prior to the date of exercise. Such payments will be made by delivery of stock certificates in negotiable form that are effective to transfer good and valid title thereto to the
Company, free of any liens or encumbrances. Subject to the terms of the Agreement, the Committee may, in its sole discretion, at the request of the Holder, deliver upon the exercise of a Nonqualified Stock Option a combination of shares of Deferred
Stock and Common Stock; provided, however, that, notwithstanding the provisions of Section 8 of the Plan, such Deferred Stock will be fully vested and not subject to forfeiture. A Holder will have none of the rights of a shareholder with
respect to the shares subject to the Option until such shares are transferred to the Holder upon the exercise of the Option. The Committee may permit a Holder to elect to pay the Exercise Price upon the exercise of a Stock Option by irrevocably
authorizing a third party to sell shares of Common Stock (or a sufficient portion of the shares) acquired upon exercise of the Stock Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any
tax withholding resulting from such exercise. 
  
 (e) Transferability. Except as may be set forth in the next sentence of this Section or in the Agreement, no Stock Option is transferable by the Holder other than by will or 

  

 7 

 
by the laws of descent and distribution, and all Stock Options are exercisable, during the Holder’s lifetime, only by the Holder (or, to the extent of
legal incapacity or incompetency, the Holder’s guardian or legal representative). Notwithstanding the foregoing, a Holder, with the approval of the Committee, may transfer a Nonqualified Stock Option (i) (A) by gift, for no
consideration, or (B) pursuant to a domestic relations order, in either case, to or for the benefit of the Holder’s “Immediate Family” (as defined below), or (ii) to an entity in which the Holder and/or members of
Holder’s Immediate Family own more than 50% of the voting interest, in exchange for an interest in that entity, subject to such limits as the Committee may establish, and the transferee will remain subject to all the terms and conditions
applicable to the Stock Option prior to such transfer. The term “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons have more than 50% beneficial interest,
and a foundation in which these persons (or the Holder) control the management of the assets. 
  
 (f) Termination by Reason of Death. If a Holder’s employment by the Company or a Subsidiary terminates by reason of death, any
Stock Option held by such Holder, unless otherwise determined by the Committee and set forth in the Agreement, will thereupon automatically terminate, except that the portion of such Stock Option that has vested on the date of death may thereafter
be exercised by the legal representative of the estate or by the legatee of the Holder under the will of the Holder, for a period of one year (or such other greater or lesser period as the Committee may specify in the Agreement) from the date of
such death or until the expiration of the stated term of such Stock Option, whichever period is shorter. 
  
 (g) Termination by Reason of Disability. If a Holder’s employment by the Company or any Subsidiary terminates by reason of
Disability, any Stock Option held by such Holder, unless otherwise determined by the Committee and set forth in the Agreement, will thereupon automatically terminate, except that the portion of such Stock Option that has vested on the date of
termination may thereafter be exercised by the Holder for a period of one year (or such other greater or lesser period as the Committee may specify in the Agreement) from the date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is shorter. 
  
 (h) Termination by Reason of Normal Retirement. Subject to the provisions of Section 13.3, if such Holder’s employment or retention by, or association with, the Company or any Subsidiary terminates
due to Normal Retirement, then the portion of such Stock Option that has vested on the date of termination of employment may be exercised for the lesser of three years after termination of employment (or such other greater or lesser period as the
Committee may specify in the Agreement) or the balance of such Stock Option’s term. 
  
 (i) Other Termination. Subject to the provisions of Section 13.3, if such Holder’s employment or retention by, or
association with, the Company or any Subsidiary terminates for any reason other than death, Disability or Normal Retirement, unless otherwise 

  

 8 

 
determined by the Committee and set forth in the Agreement, the Stock Option will thereupon automatically terminate, except that if the Holder’s
employment is terminated by the Company or a Subsidiary without cause, then the portion of such Stock Option that has vested on the date of termination of employment may be exercised for the lesser of three months after termination of employment (or
such other greater or lesser period as the Committee may specify in the Agreement) or the balance of such Stock Option’s term. 
  
 (j) Additional Incentive Stock Option Limitation. In the case of an Incentive Stock Option, the aggregate Fair Market Value (on the
date of grant of the Option) with respect to which Incentive Stock Options become exercisable for the first time by a Holder during any calendar year (under all such plans of the Company and its Parent and Subsidiaries) may not exceed $100,000.

  
 (k) Buyout and Settlement Provisions.
The Committee may at any time, in its sole discretion, offer to repurchase a Stock Option previously granted, based upon such terms and conditions as the Committee establishes and communicates to the Holder at the time that such offer is made.

  
 5.3 Stock Reload Option. If a Holder tenders shares of
Common Stock to pay the exercise price of a Stock Option (“Underlying Option”) and/or arranges to have a portion of the shares otherwise issuable upon exercise withheld to pay the applicable withholding taxes, then the Holder may receive,
at the discretion of the Committee, a new Stock Reload Option to purchase that number of shares of Common Stock equal to the number of shares tendered to pay the exercise price and the withholding taxes (but only if such tendered shares were held by
the Holder for at least six months). Stock Reload Options may be any type of option permitted under the Code and will be granted subject to such terms, conditions, restrictions and limitations as may be determined by the Committee from time to time.
Such Stock Reload Option will have an exercise price equal to the Fair Market Value as of the date of exercise of the Underlying Option. Unless the Committee determines otherwise, a Stock Reload Option may be exercised commencing one year after it
is granted and will expire on the date of expiration of the Underlying Option to which the Reload Option is related. 
  
 6. Stock Appreciation Rights. 
  
 6.1 Grant and Exercise. The Committee may grant Stock Appreciation Rights to participants who have been or are being granted Stock Options under
the Plan as a means of allowing such participants to exercise their Stock Options without the need to pay the exercise price in cash. In the case of a Nonqualified Stock Option, a Stock Appreciation Right may be granted either at or after the time
of the grant of such Nonqualified Stock Option. In the case of an Incentive Stock Option, a Stock Appreciation Right may be granted only at the time of the grant of such Incentive Stock Option. 
  
 6.2 Terms and Conditions. Stock Appreciation Rights
are subject to the following terms and conditions: 
  

 9 

 (a) Exercisability. Stock Appreciation Rights are exercisable as determined by the
Committee and set forth in the Agreement, subject to the limitations, if any, imposed by the Code with respect to related Incentive Stock Options. 
  
 (b) Termination. A Stock Appreciation Right will terminate and will no longer be exercisable upon the termination or exercise of
the related Stock Option. 
  
 (c) Method of
Exercise. Stock Appreciation Rights are exercisable upon such terms and conditions as may be determined by the Committee and set forth in the Agreement and by surrendering the applicable portion of the related Stock Option. Upon such exercise
and surrender, the Holder will be entitled to receive a number of shares of Common Stock equal to the SAR Value divided by the Fair Market Value on the date the Stock Appreciation Right is exercised. 
  
 (d) Shares Affected Upon Plan. The granting of a
Stock Appreciation Right will not affect the number of shares of Common Stock available under for awards under the Plan. The number of shares available for awards under the Plan will, however, be reduced by the number of shares of Common Stock
acquirable upon exercise of the Stock Option to which such Stock Appreciation Right relates. 
  
 7. Restricted Stock. 
  
 7.1 Grant. Shares of Restricted Stock may be awarded either alone or in addition to other awards granted under the Plan. The Committee determines the eligible persons to whom, and the time or times at which, grants of Restricted
Stock will be awarded, the number of shares to be awarded, the price (if any) to be paid by the Holder, the time or times within which such awards are subject to forfeiture (“Restriction Period”), the vesting schedule and rights to
acceleration thereof and all other terms and conditions of the awards. 
  
 7.2 Terms and Conditions. Each Restricted Stock award is subject to the following terms and conditions: 
  
 (a) Certificates. Restricted Stock, when issued, will be represented by a stock certificate or certificates registered in the name
of the Holder to whom such Restricted Stock has been awarded. During the Restriction Period, certificates representing the Restricted Stock and any securities constituting Retained Distributions (as defined below) will bear a legend to the effect
that ownership of the Restricted Stock (and such Retained Distributions) and the enjoyment of all rights appurtenant thereto are subject to the restrictions, terms and conditions provided in the Plan and the Agreement. Such certificates will be
deposited by the Holder with the Company, together with stock powers or other instruments of assignment, each endorsed in blank, which will permit transfer to the Company of all or any portion of the Restricted Stock and any securities constituting
Retained Distributions that are forfeited or that do not become vested in accordance with the Plan and the Agreement. 
  

 10 

 (b) Rights of Holder. Restricted Stock will constitute issued and outstanding
shares of Common Stock for all corporate purposes. The Holder will have the right to vote such Restricted Stock, to receive and retain all regular cash dividends and other cash equivalent distributions as the Board may in its sole discretion
designate, pay or distribute on such Restricted Stock and to exercise all other rights, powers and privileges of a holder of Common Stock with respect to such Restricted Stock, with the exceptions that (i) the Holder will not be entitled to
delivery of the stock certificate or certificates representing such Restricted Stock until the Restriction Period has expired and unless all other vesting requirements with respect thereto has been fulfilled; (ii) the Company will retain
custody of the stock certificate or certificates representing the Restricted Stock during the Restriction Period; (iii) other than regular cash dividends and other cash equivalent distributions as the Board may in its sole discretion designate,
pay or distribute, the Company will retain custody of all distributions (“Retained Distributions”) made or declared with respect to the Restricted Stock (and such Retained Distributions are subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever, as the Restricted Stock with respect to which such Retained Distributions has been made, paid or declared has vested and with respect to which the Restriction Period has
expired; (iv) a breach of any of the restrictions, terms or conditions contained in this Plan or the Agreement or otherwise established by the Committee with respect to any Restricted Stock or Retained Distributions will cause a forfeiture of
such Restricted Stock and any Retained Distributions with respect thereto. 
  
 (c) Vesting; Forfeiture. Upon the expiration of the Restriction Period with respect to each award of Restricted Stock and the satisfaction of any other applicable restrictions, terms and conditions (i) all
or part of such Restricted Stock will become vested in accordance with the terms of the Agreement, subject to Section 10, below, and (ii) any Retained Distributions with respect to such Restricted Stock will become vested to the extent
that the Restricted Stock related thereto has vested, subject to Section 10, below. Any such Restricted Stock and Retained Distributions that do not vest will be forfeited to the Company and the Holder will not thereafter have any rights with
respect to such Restricted Stock and Retained Distributions that has been so forfeited. 
  
 8. Deferred Stock. 
  
 8.1 Grant. Shares
of Deferred Stock may be awarded either alone or in addition to other awards granted under the Plan. The Committee will determine the eligible persons to whom and the time or times at which grants of Deferred Stock will be awarded, the number of
shares of Deferred Stock to be awarded to any person, the duration of the period (“Deferral Period”) during which, and the conditions under which, receipt of the shares will be deferred, and all the other terms and conditions of the
awards. 
  
 8.2 Terms and Conditions. Each Deferred Stock
award is subject to the following terms and conditions: 
  

 11 

 (a) Certificates. At the expiration of the Deferral Period (or the Additional
Deferral Period referred to in Section 8.2 (d) below, where applicable), share certificates will be issued and delivered to the Holder, or his legal representative, representing the number equal to the shares covered by the Deferred Stock
award. 
  
 (b) Rights of Holder. A person
entitled to receive Deferred Stock will not have any rights of a Shareholder by virtue of such award until the expiration of the applicable Deferral Period and the issuance and delivery of the certificates representing such Common Stock. The shares
of Common Stock issuable upon expiration of the Deferral Period will not be deemed outstanding by the Company until the expiration of such Deferral Period and the issuance and delivery of such Common Stock to the Holder. 
  
 (c) Vesting; Forfeiture. Upon the expiration of the
Deferral Period with respect to each award of Deferred Stock and the satisfaction of any other applicable restrictions, terms and conditions all or part of such Deferred Stock will become vested in accordance with the terms of the Agreement, subject
to Section 10, below. Any such Deferred Stock that does not vest will be forfeited to the Company and the Holder will not thereafter have any rights with respect to such Deferred Stock. 
  
 (d) Additional Deferral Period. A Holder may request
to, and the Committee may at any time, defer the receipt of an award (or an installment of an award) for an additional specified period or until a specified event (“Additional Deferral Period”). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to expiration of the Deferral Period for such Deferred Stock award (or such installment). 
  

9. Other Stock—Based Awards. 
  
 Other Stock—Based Awards may be awarded, subject to limitations under applicable law, that are denominated or payable in, valued in whole or in part
by reference to, or otherwise based on or related to, shares of Common Stock, as deemed by the Committee to be consistent with the purposes of the Plan, including, without limitation, purchase rights, shares of Common Stock awarded which are not
subject to any restrictions or conditions, convertible or exchangeable debentures, or other rights convertible into shares of Common Stock and awards valued by reference to the value of securities of or the performance of specified Subsidiaries.
Other Stock-Based Awards may be awarded either alone or in addition to or in tandem with any other awards under this Plan or any other plan of the Company. Each other Stock-Based Award is subject to such terms and conditions as may be determined by
the Committee. 
  
 10. Accelerated Vesting and Exercisability. 

 
 10.1 Non-Approved Transactions. If any “person” (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act of 1934, as amended (“Exchange Act”)), is or becomes the “beneficial owner” (as referred in Rule 13d-3 under the Exchange Act), directly or indirectly, of 

  

 12 

 
securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities in one or more
transactions, and the Board does not authorize or otherwise approve such acquisition, then the vesting periods of any and all Stock Options and other awards granted and outstanding under the Plan will be accelerated and all such Stock Options and
awards will immediately and entirely vest, and the respective holders thereof will have the immediate right to purchase and/or receive any and all Common Stock subject to such Stock Options and awards on the terms set forth in this Plan and the
respective agreements respecting such Stock Options and awards. 
  
 10.2 Approved Transactions. The Committee may, in the event of an acquisition of substantially all of the Company’s assets or at least 50% of the combined voting power of the Company’s then outstanding securities in one or
more transactions (including by way of merger or reorganization) which has been approved by the Company’s Board of Directors, (i) accelerate the vesting of any and all Stock Options and other awards granted and outstanding under the Plan,
and (ii) require a Holder of any award granted under this Plan to relinquish such award to the Company upon the tender by the Company to Holder of cash in an amount equal to the Repurchase Value of such award. 
  
 11. Amendment and Termination. 
  
 The Board may at any time, and from time to time, amend alter, suspend or
discontinue any of the provisions of the Plan, but no amendment, alteration, suspension or discontinuance will be made that would impair the rights of a Holder under any Agreement theretofore entered into hereunder, without the Holder’s
consent. 
  
 12. Term of Plan. 
  
 12.1 Effective Date. The Plan is effective as of the date of the
closing of the merger of etrials Acquisition, Inc., the Company’s wholly-owned subsidiary, with and into etrials Worldwide, Inc. (“etrials”), pursuant to the terms of the Merger Agreement and Plan of Merger among the Company, etrials
and the other parties thereto dated as of August 22, 2005, as amended. In the event that the Plan is not approved by the Company’s stockholders within one (1) year of such date, then the Plan shall remain in effect, but any Incentive
Stock Options previously granted under the Plan shall remain outstanding as Nonqualified Stock Options pursuant to the provisions of Section 5.1. 
  
 12.2 Termination Date. Unless terminated by the Board, this Plan will continue to remain effective until such time as no further awards may be
granted and all awards granted under the Plan are no longer outstanding. Notwithstanding the foregoing, grants of Incentive Stock Options may be made only during the ten year period following the Effective Date. 
  

 13 

 13. General Provisions. 
  

13.1 Written Agreements. Each award granted under the Plan will be confirmed by, and is subject to the terms of, the Agreement executed by the
Company and the Holder, or such other document as may be determined by the Committee, including any amendments thereto. The Committee may terminate any award made under the Plan if the Agreement relating thereto is not executed and returned to the
Company within ten days after the Agreement has been delivered to the Holder for his or her execution. 
  
 13.2 Unfunded Status of Plan. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect
to any payments not yet made to a Holder by the Company, nothing contained herein will give any such Holder any rights that are greater than those of a general creditor of the Company. 
  
 13.3 Employees. 
  
 (a) Engaging in Competition With the Company; Solicitation of Customers and Employees; Disclosure of Confidential Information. If a
Holder’s employment with the Company or a Subsidiary is terminated for any reason whatsoever, and within one year after the date thereof such Holder either (i) accepts employment with any competitor of, or otherwise engages in competition
with, the Company or any of its Subsidiaries, (ii) solicits any customers or employees of the Company or any of its Subsidiaries to do business with or render services to the Holder or any business with which the Holder becomes affiliated or to
which the Holder renders services or (iii) uses or discloses to anyone outside the Company any confidential information or material of the Company or any of its Subsidiaries in violation of the Company’s policies or any agreement between
the Holder and the Company or any of its Subsidiaries, the Committee, in its sole discretion, may require such Holder to return to the Company the economic value of any award (profit) that was realized or obtained by such Holder at any time during
the period beginning on the date that is six months prior to the date such Holder’s employment with the Company is terminated. 
  
 (b) Termination for Cause. The Committee may, if a Holder’s employment with the Company or a Subsidiary is terminated for
cause, annul any award granted under this Plan to such employee and, in such event, the Committee, in its sole discretion, may require such Holder to return to the Company the economic value of any award (profit) that was realized or obtained by
such Holder at any time during the period beginning on that date that is six months prior to the date such Holder’s employment with the Company is terminated. 
  
 (c) No Right of Employment. Nothing contained in the Plan or in any award hereunder will be deemed to
confer upon any Holder who is an employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, nor will it interfere in any way with the right of the Company or any Subsidiary to terminate the
employment of any Holder who is an employee at any time. 
  

 14 

 13.4 Investment Representations; Company Policy. The Committee may require each person acquiring
shares of Common Stock pursuant to a Stock Option or other award under the Plan to represent to and agree with the Company in writing that the Holder is acquiring the shares for investment without a view to distribution thereof. Each person
acquiring shares of Common Stock pursuant to a Stock Option or other award under the Plan will be required to abide by all policies of the Company in effect at the time of such acquisition and thereafter with respect to the ownership and trading of
the Company’s securities. 
  
 13.5 Additional Incentive
Arrangements. Nothing contained in the Plan will prevent the Board from adopting such other or additional incentive arrangements as it may deem desirable, including, but not limited to, the granting of Stock Options and the awarding of Common
Stock and cash otherwise than under the Plan; and such arrangements may be either generally applicable or applicable only in specific cases. 
  
 13.6 Withholding Taxes. Not later than the date as of which an amount must first be included in the gross income of the Holder for Federal income
tax purposes with respect to any Stock Option or other award under the Plan, the Holder will pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any Federal, state and local taxes of any kind required by
law to be withheld or paid with respect to such amount. If permitted by the Committee, tax withholding or payment obligations may be settled with Common Stock, including Common Stock that is part of the award that gives rise to the withholding
requirement. The obligations of the Company under the Plan will be conditioned upon such payment or arrangements and the Company or the Holder’s employer (if not the Company) will, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the Holder from the Company or any Subsidiary. 
  
 13.7 Governing Law. The Plan and all awards made and actions taken thereunder will be governed by and construed in accordance with the laws of the
State of Delaware (without regard to choice of law provisions). 
  
 13.8 Other Benefit Plans. Any award granted under the Plan will not be deemed compensation for purposes of computing benefits under any retirement plan of the Company or any Subsidiary and will not affect any benefits under any other
benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation (unless required by specific reference in any such other plan to awards under this Plan). 
  
 13.9 Non-Transferability. Except as otherwise expressly provided in
the Plan or the Agreement, no right or benefit under the Plan may be alienated, sold, assigned, hypothecated, pledged, exchanged, transferred, encumbranced or charged, and any attempt to alienate, sell, assign, hypothecate, pledge, exchange,
transfer, encumber or charge the same will be void. 
  
 13.10
Applicable Laws. The obligations of the Company with respect to all Stock Options and awards under the Plan are subject to (i) all applicable laws, rules and regulations and 

  

 15 

 
such approvals by any governmental agencies as may be required, including, without limitation, the Securities Act of 1933, as amended, and (ii) the
rules and regulations of any securities exchange on which the Common Stock may be listed. 
  
 13.11 Conflicts. If any of the terms or provisions of the Plan or an Agreement conflict with the requirements of Section 422 of the Code, then such terms or provisions will be deemed inoperative to the
extent they so conflict with such requirements. Additionally, if this Plan or any Agreement does not contain any provision required to be included herein under Section 422 of the Code, such provision will be deemed to be incorporated herein and
therein with the same force and effect as if such provision had been set out at length herein and therein. If any of the terms or provisions of any Agreement conflict with any terms or provisions of the Plan, then such terms or provisions will be
deemed inoperative to the extent they so conflict with the requirements of the Plan. Additionally, if any Agreement does not contain any provision required to be included therein under the Plan, such provision will be deemed to be incorporated
therein with the same force and effect as if such provision had been set out at length therein. 
  
 13.12 Certain Awards Deferring or Accelerating the Receipt of Compensation. To the extent applicable, all awards granted under the Plan are
intended to comply with Section 409A of the Code, which was added by the American Jobs Creation Act of 2004 and relates to deferred compensation under nonqualified deferred compensation plans. The Committee, in administering the Plan, intends
to restrict provisions of any Awards which may constitute deferred receipt of compensation subject to Section 409A requirements, to those consistent with this section. The Board may amend the Plan to comply with Section 409A of the
Internal Revenue Code in the future. 
  
 13.13 Non-Registered
Stock. The shares of Common Stock to be distributed under this Plan have not been, as of the Effective Date, registered under the Securities Act of 1933, as amended, or any applicable state or foreign securities laws and the Company has no
obligation to any Holder to register the Common Stock or to assist the Holder in obtaining an exemption from the various registration requirements, or to list the Common Stock on a national securities exchange or any other trading or quotation
system, including the Nasdaq National Market and Nasdaq SmallCap Market. 
  

 16 

 Plan Amendments 
  

									
	 Date Approved
by Board

	  	 Date Approved
by Shareholders,

 if necessary

	  	Sections
Amended

	  	Description of
Amendments

	  	Initials of
Attorney Effecting
Amendment

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