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Exhibit 10.1  

 
 

REPURCHASE AND CONVERSION AGREEMENT    
    
    by and between    
    
    OMEGA HEALTHCARE INVESTORS, INC.    
    
    and    
    
    EXPLORER HOLDINGS, L.P.    
    
    Dated as of
February 5, 2004    
    

REPURCHASE AND CONVERSION AGREEMENT  

        THIS REPURCHASE AND CONVERSION AGREEMENT (this "Agreement"), is
dated as of February 5, 2004, and is by and between Omega Healthcare Investors, Inc., a Maryland company (the "Company") and Explorer
Holdings, L.P., a Delaware limited partnership ("Explorer"). The Company and Explorer are collectively referred to herein as the
"Parties," and individually referred to herein as a "Party"). 

RECITALS  

        A.    Explorer currently is the beneficial owner of 1,048,420 shares (the "Explorer Series C
Shares") of the Company's Series C Convertible Preferred Stock, with a liquidation preference of $100.00 per share ("Series C Preferred
Stock"), and 12,543,526 shares (the "Explorer Common Shares") of the Company's common stock, par value $.10 per share
("Company Common Stock"); 

        B.    The Company is currently contemplating an offering (the "Offering") of an
additional series of preferred stock (the "New Preferred Stock"), which shall be conducted at the sole discretion of the Company. 

        C.    Explorer is willing to grant to the Company the Repurchase Option (as defined below). 

        D.    If the Company exercises the Repurchase Option, immediately following the exercise of the Repurchase Option, Explorer will
convert any Explorer Series C Shares not repurchased by the Company into Company Common Stock (the "Converted Common Shares," and together with
the Explorer Common Shares, the "Explorer Shares"); 

        E.    Each of the Parties hereto acknowledge that the benefits associated with the consummation of the Transactions contemplated
by this Agreement are sufficient inducement to cause the Parties hereto to carry out the obligations and other conditions precedent contained herein. 

        F.    Capitalized terms used herein that are not otherwise defined shall have the respective meanings set forth in  Schedule 1.

AGREEMENT  

        NOW, THEREFORE, in consideration of the mutual terms, conditions and other agreements set forth herein, the
Parties hereby agree as follows: 

ARTICLE 1  

 OPTION TO REPURCHASE EXPLORER SERIES C SHARES  

        1.1    Option to Repurchase of Explorer Shares.    Explorer does hereby grant to Omega the right to repurchase (the
"Repurchase Option") up to 700,000 Explorer Series C Shares (the "Repurchased Explorer Shares")
at a price of $145.92 per share (the "Share Repurchase Price"); provided, however, that it shall be a condition to the exercise by Omega of the
Repurchase Option that the Share Repurchase Price multiplied by the number of Repurchased Explorer Shares is at least $100 million (the "Minimum Aggregate Repurchase
Price"). The Repurchase Option may be exercised by the Company by delivering written notice of such exercise to Explorer setting forth the number of Repurchased Explorer Shares
and the date, not more than 10 days after the date of such notice, on which the Closing hereunder will occur, which shall be the same date and at the same time and place as the closing of the
Offering. Unless the Closing shall have previously occurred, this Repurchase Option shall expire at 5:00 p.m. eastern time on February 27, 2004 without any further action by the Parties.
At the Closing, subject to the terms and conditions of this Agreement: 

        (a)   Explorer
will sell, assign, transfer, convey, and deliver to the Company all right, title, and interest of Explorer in and to the Repurchased Explorer Shares, free and
clear of any Lien. Explorer shall designate at its option which of the Explorer Series C Shares are to be Repurchased Explorer Shares. 

 

        (b)   The
Company will purchase from Explorer all of its interest in and to the Repurchased Explorer Shares and shall pay to Explorer in consideration thereof an amount equal
to the Share Repurchase
Price multiplied by the total number of the Repurchased Explorer Shares (the "Aggregate Repurchase Price"); provided, however, that the Aggregate
Repurchase Price shall equal or exceed the Minimum Aggregate Repurchase Price; and 

        (c)   Explorer
will convert the Explorer Series C Shares that are not repurchased pursuant to the exercise by the Company of the Repurchase Option into Converted Common
Shares in accordance with the terms of the Explorer Series C Shares. 

        (d)   The
Company will pay to Explorer the amount set forth in Section 7.12 hereof. 

        1.2    Exercise of Repurchase Option.    At the Closing, Explorer shall deliver executed stock powers, in a form
reasonably satisfactory to the Company, together with those original certificates that immediately prior to the Closing represented one hundred percent (100%) of the Repurchased Explorer Shares, or a
duly executed affidavit of lost certificate and indemnity for any stock certificate of the Company which has been lost, stolen, seized or destroyed (the "Company
Certificates"), to the Company. Upon the surrender of the Company Certificates to the Company, the Company shall pay to Explorer, in cash or other immediately available funds
by wire transfer to the accounts designated by Explorer, the Aggregate Purchase Price. 

        1.3    Dividends.    Notwithstanding the repurchase or conversion of the Explorer Series C Shares, the Company
will pay to Explorer the quarterly dividend of $2.72 per share of Series C Preferred Stock payable on February 16, 2004, to holders of record on February 2, 2004. 

ARTICLE 2  

 CLOSING  

        2.1    Closing Date.    The consummation of the Transactions contemplated by this Agreement (the
"Closing") shall take place on the same date and at the same time and place as the closing of the Offering (the "Closing
Date"), at the offices of Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree Street, NE, 16th Floor, Atlanta, Georgia 30303, or at such other time or place as the
Parties may agree. 

        2.2    Closing Deliveries.    At Closing, the Parties will deliver to each other the various certificates,
instruments, and documents referred to in Sections 1.1 and 1.2 and Article 5 hereof, and will further execute, acknowledge (if appropriate), and deliver to each other Party such additional
certificates,
instruments and documents as their counsel reasonably may request to effect the Transactions contemplated by this Agreement. 

ARTICLE 3  

 REPRESENTATIONS AND WARRANTIES  

        3.1    Representations and Warranties of Explorer.    Explorer represents and warrants to the Company that the
following statements are true, complete and correct as of the date of this Agreement and will be true, complete and correct effective as of the Closing Date, as follows: 

        (a)    Existence; Good Standing; Corporate Authority.    Explorer is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of Delaware. Explorer is duly licensed or qualified to do business as a limited partnership and is in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified or to be in good
standing would not have an Explorer Material Adverse Effect. An "Explorer Material Adverse Effect" means any change, effect, event or condition that has
had or could reasonably be expected to prevent or materially delay Explorer's ability to consummate the 

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Transactions
contemplated hereby. Explorer has all requisite limited partnership power and authority to own, operate and lease its properties and carry on its business as now conducted. 

        (b)    Authorization, Validity and Effect of Transaction Documents.    Explorer has all requisite limited partnership
power and authority to execute and deliver the Transaction Documents to which it is a party. Each Transaction Document to which Explorer is a party and the consummation by Explorer of the Transactions
contemplated hereby and thereby have been duly and validly authorized by the general partner of Explorer and the applicable governing body of Explorer's general partner, and no other action on the
part of Explorer or Explorer's general partner is necessary to authorize such Transaction Documents or to consummate the Transactions contemplated hereby or thereby. All Transaction Documents executed
and delivered by Explorer constitute the valid and binding obligations of Explorer, enforceable against it in accordance with their respective terms, except that (i) the enforceability thereof
may be subject to applicable bankruptcy, reorganization, moratorium, insolvency or other similar laws now or hereinafter in effect affecting creditors' rights generally, (ii) the availability
of the remedy of specific performance or injunctive or other forms of equitable relief may be subject to equitable and legal defenses and would be subject to the discretion of the court before which
any proceeding therefor may be brought, and (iii) rights to indemnification may be limited by public policy considerations. 

        (c)    No Conflict; Required Filings and Consents.    

        (1)   The
execution, delivery and performance of each Transaction Document to which Explorer is a party do not, and the consummation by Explorer of the Transactions
contemplated thereby will not, (i) conflict with or violate the Charter Documents of Explorer or any of its Subsidiaries, (ii) conflict with or violate any Law or Order applicable to
Explorer or any of its Subsidiaries or by which any property or asset of Explorer or any of its Subsidiaries is bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default) under, result in the loss of a material benefit under, or give to others any right of termination, amendment, acceleration,
increased payments or cancellation of, or result in the creation of a Lien on any property or asset of Explorer or any of its Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation to which Explorer or any of its Subsidiaries is a party or by which Explorer or any of its Subsidiaries or any property
or asset of Explorer or any of its Subsidiaries is bound or affected, except in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults, events, losses,
rights, payments, cancellations, encumbrances or other occurrences that would not, individually or in the aggregate, have an Explorer Material Adverse Effect. 

        (2)   The
execution, delivery and performances by Explorer of each Transaction Document to which Explorer is a party do not, and the consummation by Explorer of the
Transactions contemplated thereby will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental or Regulatory Body, except for
(A) applicable requirements, if any, of the Securities Act and the Exchange Act and (B) where failure to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate, have an Explorer Material Adverse Effect. 

        (d)    No Brokers.    Explorer has not entered into any contract, arrangement or understanding with any Person which
could impose an obligation on the Company or any Subsidiary of the Company to pay any investment banker's, consultant's or finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation of the Transactions contemplated hereby, any such amounts to be the sole liability of Explorer. 

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        (e)    Title; Ownership of Shares.    Explorer owns, beneficially or of record, 1,048,420 shares of Series C
Preferred Stock and 12,543,526 shares of Company Common Stock, free and clear of any Liens. Explorer has, and on the Closing Date will have, the right to transfer to the Company, good, valid, and
marketable title to the Repurchased Explorer Shares, free and clear of any Liens. 

        3.2    Representations and Warranties of the Company.    The Company represents and warrants to Explorer that the
following statements are true, complete and correct as of the date of this Agreement and will be true, complete and correct effective as of the Closing Date, as follows: 

        (a)    Existence; Good Standing; Corporate Authority.    The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Maryland. The Company is duly licensed or qualified to do business as a foreign corporation and is in good standing under the laws of each
state in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified or to
be in good standing would not have a Company Material Adverse Effect. The Company has all requisite corporate power and authority to own, operate and lease its properties and carry on its business as
now conducted. As used in this Agreement, the term "Company Material Adverse Effect" means any change, effect, event or condition that has had or could
reasonably be expected to (i) have a material adverse effect on the business, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole, or
(ii) prevent or materially delay the Company's ability to consummate the Transactions contemplated hereby. 

        (b)    Authorization, Validity and Effect of Agreement.    The Company has the requisite corporate power and authority
to execute and deliver the Transaction Documents to which it is a party. Each Transaction Document to which the Company is a party and the consummation by the Company of the Transactions contemplated
hereby and thereby have been duly authorized by all requisite corporate action. The Transaction Documents have been duly and validly executed and delivered by the Company and constitute the valid and
binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except that (i) such enforceability may be subject to applicable bankruptcy,
reorganization, moratorium, insolvency or other similar laws now or hereinafter in effect affecting creditors' rights generally, (ii) the availability of the remedy of specific performance or
injunctive or other forms of equitable relief may be subject to equitable and legal defenses and would be subject to the discretion of the court before which any proceeding therefor may be brought,
and (iii) rights to indemnification may be limited by public policy considerations. 

        (c)    No Conflict; Required Filings and Consents.    

        (1)   The
execution, delivery and performance of each Transaction Document to which the Company is a party does not, and the consummation by the Company of the Transactions
contemplated thereby will not, (i) conflict with or violate the Charter Documents of the Company or any of its Subsidiaries, (ii) conflict with or violate any Law or Order applicable to
the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected, or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default) under, result in the loss of a material benefit under, or give to others any right of termination, amendment,
acceleration, increased payments or cancellation of, or result in the creation of a Lien on any property or asset of the Company or any of its Subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any property or asset of the Company or any of its Subsidiaries is bound or affected, except in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults, events, losses, rights, payments, cancellations, 

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encumbrances
or other occurrences that would not, individually or in the aggregate, have a Company Material Adverse Effect. 

        (2)   The
execution, delivery and performances by the Company of each Transaction Document to which the Company is a party does not, and the consummation by the Company of the
Transactions contemplated thereby will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental or Regulatory Body, except for
(A) applicable requirements, if any, of the Securities Act and the Exchange Act and (B) where failure to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate, have a Company Material Adverse Effect. 

        (d)    No Brokers.    The Company has not entered into any contract, arrangement or understanding with any Person
which could impose an obligation on Explorer or any of its Affiliates to pay any investment banker's, consultant's or finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation of the Transactions contemplated hereby, including the Offering, any such amounts to be the sole liability of the
Company. 

ARTICLE 4  

 COVENANTS  

        4.1    Filings, Reasonable Efforts.    Upon the terms and subject to the conditions set forth in this Agreement, each
of the Parties will use all commercially reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other Party in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner
practicable, the Transactions contemplated by this Agreement, including without limitation (i) obtaining of all necessary actions, waivers, consents and approvals from Governmental or
Regulatory Bodies and making of all necessary registrations and filings (including filings with Governmental or Regulatory Bodies) and taking of all reasonable steps as may be necessary to obtain an
approval or waiver from, or to avoid an action or proceeding by, any Governmental or Regulatory Body, (ii) obtaining, in writing, of all necessary consents, approvals or waivers from third
parties in form reasonably satisfactory to the Parties, and (iii) executing and delivering any additional instruments necessary to consummate the Transactions contemplated by, and to fully
carry out the purposes of, this Agreement. 

        4.2    The Offering.    Notwithstanding anything to the contrary, the Company shall have sole and absolute discretion
on whether to engage in and consummate the Offering and shall have sole and absolute discretion regarding the terms and conditions of the Offering. 

        4.3    Conversion of Explorer Series C Shares.    If the Company exercises the Repurchase Option and
repurchases the Repurchased Explorer Shares, Explorer will take all actions and execute all documentation required by the Series C Articles Supplementary to convert all of the remaining
Explorer Series C Shares into Company Common Stock 

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ARTICLE 5  

 CONDITIONS PRECEDENT TO THE CLOSING  

        5.1    Conditions Precedent to the Obligations of the Parties to Complete the Closing.    The obligations of each of
the Parties to enter into and complete the Transactions contemplated by the Transaction Documents are subject to the fulfillment at or prior to the Closing of the following conditions: 

        (a)    Offering.    The Offering shall be completed simultaneously with or prior to the Closing hereunder and the net
proceeds available therefrom, together with other resources, shall be sufficient to enable the Company to fund the Minimum Aggregate Purchase Price. 

        (b)    Consents and Waivers.    All authorizations, consents, waivers and approvals as may be required to be obtained
by the Parties in connection with the consummation of the Transactions shall have been obtained. 

        (c)    Governmental Approvals.    All filings that are required to have been made by the Parties with any Governmental
or Regulatory Body in order to carry out the Transactions shall have been made and all authorizations, consents and approvals from any Governmental or Regulatory Body required to carry out the
Transactions shall have been received and any applicable waiting periods shall have expired. 

        (d)    Proceedings, Orders or Decrees.    There shall not be in force any Order, Action or Proceeding by or before any
Governmental or Regulatory Body restraining, restricting, enjoining, prohibiting, invalidating or otherwise preventing (or seeking to prevent) the consummation of the Transactions. 

        5.2    Transfer Documents.    The Parties shall have executed and delivered to each other such instruments and
documents as may be reasonably requested by any of them in order to complete and consummate the Transactions, each in form and substance satisfactory to the Parties, including the instruments and
documents contemplated by Article 1. 

        5.3    Conditions Precedent to the Obligations of Explorer to Complete the Closing.    In addition to the conditions
precedent set forth in Section 5.1, the obligation of Explorer to enter into and complete the Closing are subject to the fulfillment at or prior to the Closing of the following conditions: 

        (a)    Accuracy of Representations and Warranties.    Each of the representations and warranties of the Company
contained in the Transaction Documents shall be true and correct in all material respects both as of the date of this Agreement and at and as of the date of the Closing as if made at and as of such
date (other than representations and warranties which address matters only as of a specified date, which shall be true and correct as of such specified date), except where the failure of such
representations and warranties to be true and correct without regard to any materiality or Company Material Adverse Effect qualification contained therein, would not, either individually or in the
aggregate, reasonably be expected to have a material adverse effect on the Company's ability to consummate the Transactions contemplated by the Transaction Documents or to perform its obligations
thereunder, and Explorer shall have received a certificate of an officer of the Company, acting in his or her capacity as such, to such effect. 

        (b)    Fulfillment of Covenants and Other Obligations.    The Company shall have performed or complied in all material
respects with all covenants required by the Transaction Documents to be performed or complied with by it on or prior to the Closing and Explorer shall have received a certificate of an officer of the
Company, acting in his or her capacity as such, to such effect. 

        5.4    Conditions Precedent to the Obligations of the Company to Complete the Closing.    In addition to the
conditions precedent set forth in Section 5.1, the obligation of the Company to enter into and 

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complete
the Closing are subject to the fulfillment at or prior to the Closing of the following conditions: 

        (a)    Accuracy of Representations and Warranties.    Each of the representations and warranties of Explorer contained
in the Transaction Documents shall be true and correct in all material respects both as of the date of this Agreement and at and as of the date of the Closing as if made at and as of such date (other
than representations and warranties which address matters only as of a specified date, which shall be true and correct as of such specified date), except where the failure of such representations and
warranties to be true and correct without regard to any materiality or Explorer Material Adverse Effect qualification contained therein, would not, either individually or in the aggregate, reasonably
be expected to have a material adverse effect on Explorer's ability to consummate the Transactions contemplated by the Transaction Documents or to perform its obligations thereunder, and the Company
shall have received a certificate of an officer of the general partner of Explorer, acting in his or her capacity as such, to such effect. 

        (b)    (b) Fulfillment of Covenants and Other Obligations.    Explorer shall have performed or complied in all
material respects with all covenants required by the Transaction Documents to be performed or complied with by it on or prior to the Closing and the Company shall have received a certificate of an
officer of the general partner of Explorer, acting in his or her capacity as such, to such effect. 

ARTICLE 6  

 TERMINATION  

        6.1    Termination Events.    This Agreement may, by notice given prior to or at the Closing, be terminated: 

        (a)   By
either (i) the Company, if Explorer has materially breached any provision of this Agreement and such material breach has not been waived or cured within
fifteen (15) days of such material breach, or (ii) by Explorer, if the Company has materially breached any provision of this Agreement, and such material breach has not been waived or
cured within fifteen (15) days of such material breach; 

        (b)   By
either (i) the Company or (ii) Explorer, if (A) the Company determines not to proceed with the Offering or (B) the Closing has not
occurred (other than through the failure of the Party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before February 27, 2004, or such
later date as each of the Parties may agree upon; or 

        (c)   By
mutual consent of each of the Parties hereto. 

        6.2    Effect of Termination.    If this Agreement is terminated pursuant to Section 6.1 above, all further
obligations of the Parties under this Agreement will terminate; provided, however, that if this Agreement is terminated by a Party as a result of the
other Party's fraud, or willful or intentional breach of its representations, warranties or obligations hereunder, the terminating Party shall have the right to pursue all remedies available to it at
law or in equity. 

ARTICLE 7  

 GENERAL PROVISIONS  

        7.1    Notices.    Any notice or other communication required to be given hereunder shall be in writing, and sent by
reputable courier service (with proof of service), by hand delivery or by facsimile 

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(followed
on the same day by delivery by courier service (with proof of delivery) or by hand delivery), addressed as follows: 

        If
to Explorer: 

Explorer
Holdings, L.P.

4200 Texas Commerce Tower West

2200 Ross Avenue

Dallas, Texas 75201

Attn: Kymberlyn K. Janney

Fax No.: (214) 220-4949 

        With
copies to: 

Munsch
Hardt Kopf & Harr, P.C.

1445 Ross Avenue

4000 Fountain Place

Dallas, Texas 75202

Attn: William T. Cavanaugh, Jr., Esq. or Peter E. Lorenzen, Esq.

Fax No.: (214) 978-4351 

        If
to the Company: 

Omega
Healthcare Investors, Inc.

Suite 100

9690 Deereco Road

Timonium, Maryland 21093

Attn: Chief Financial Officer

Fax No.: (410) 427-8822 

        With
copies to: 

Powell,
Goldstein, Frazer & Murphy LLP

191 Peachtree Street, N.E.

Suite 1600

Atlanta, Georgia 30303

Attn: Rick Miller or Eliot Robinson

Fax No.: (404) 572-6999 

or
to such other address as any Party will specify by written notice so given, and such notice will be deemed to have been delivered as of the date so telecommunicated or actually delivered. 

        7.2    Assignment; Binding Effect.    Neither this Agreement nor any of the rights, interests or obligations hereunder
will be assigned by any Party hereto (whether by operation of Law or otherwise) without the prior written consent of the other Party, except that Explorer will have the right to assign to any direct
or indirect wholly owned subsidiary of Explorer or to the direct or indirect partners or limited partners of Explorer any and all rights and obligations of Explorer under this Agreement, provided,
that any such assignment will not relieve Explorer from any of its obligations hereunder. Any assignment not granted in accordance with the foregoing shall be null and void. Subject to the first
sentence of this Section 7.2, this Agreement will be binding upon and will inure to the benefit of the Parties hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the Parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 

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        7.3    Entire Agreement.    This Agreement, the other Transaction Documents and any other documents, instruments and
certificates delivered by the Parties in connection herewith or therewith, constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the Parties with respect thereto, including, without limitation, any draft proposal or letter of intent, with respect to the Transactions contemplated herein,
provided that, except as expressly provided herein or in another Transaction Document, neither this Agreement nor any Transaction Document supercedes or modifies any existing agreement between
Explorer and the Company, and each such agreement including, without limitation, that certain Indemnification Agreement dated as of July 14, 2000, by and between the Company and Explorer, shall
remain in full force and effect. 

        7.4    Amendment.    This Agreement may be amended by the Parties hereto, by action taken by their respective Boards
of Directors, or other equivalent governing bodies. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Parties hereto. 

        7.5    Governing Law.    This Agreement will be governed by and construed in accordance with the laws of the State of
Delaware, without regard to its conflict of laws principles. 

        7.6    Counterparts.    This Agreement may be executed by the Parties hereto in separate counterparts, each of which
when so executed and delivered will be an original, but all such counterparts will together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the Parties hereto. A facsimile copy of a signature page shall be deemed to be an original signature page. 

        7.7    Headings.    Headings of the Articles and Sections of this Agreement are for the convenience of the Parties
only, and will be given no substantive or interpretive effect whatsoever. 

        7.8    Interpretations.    When a reference is made in this Agreement to an Article, Section, Exhibit or Annex, such
reference will be to an Article or Section of, or an Annex or Exhibit to, this Agreement unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Agreement,
they will be deemed to be followed by the words "without limitation," except when used in conjunction with a negative predicate. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement will refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms used herein with initial capital letters have the meanings
ascribed to them herein and all terms defined in this Agreement will have such defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders
of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time
to time amended, modified or supplemented, including (in the case of agreements or instruments) by written waiver or written consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated therein. References to a Person are also to its permitted successors and assigns. 

        7.9    Waivers.    Except as provided in this Agreement, no action taken pursuant to this Agreement, including without
limitation any investigation by or on behalf of any Party, will be deemed to constitute a waiver by the Party taking such action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement or the other Transaction Documents. The waiver by any Party hereto of a breach of any provision hereunder will not operate or be construed as a waiver of any
prior or subsequent breach of the same or any other provision hereunder. At any time any Party hereto may (a) extend the time for the performance of any of the obligations or other acts of the
other Party hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of
the agreements or 

9

 

conditions
contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the Party or Parties to be bound thereby. 

        7.10    Severability.    Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction
will, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the
provision will be interpreted to be only so broad as is enforceable. 

        7.11    Enforcement of Agreement.    The Parties hereto agree that irreparable damage would occur in the event that
any provision of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the Parties will be entitled to an injunction or
injunctions to prevent breaches or threatened breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are
entitled at law or in equity. 

        7.12    Expenses.    All Expenses incurred by the Parties hereto shall be borne solely and entirely by the Party which
has incurred such Expenses whether or not the Transactions are consummated. The Company will be solely responsible for payment of any investment banker's, consultant's or finder's fees, brokerage or
agent's commissions or other like payments in connection with the Offering; provided, however, that at the Closing the Company will pay to Explorer $150,000 in settlement of all outstanding claims by
Explorer for reimbursement of expenses (other than travel and related expenses incurred by representatives of Explorer on behalf of the Company) and in consideration of Explorer's agreement to pay all
expenses incurred by it in connection with the Transactions. 

        7.13    Jurisdiction; Consent to Service of Process.    (a) Each Party hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any state or federal court located in the State of Delaware (a "Delaware Court"),
and any appellate court from any such court, in any suit, action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment resulting from any such
suit, action or proceeding, and each Party hereby irrevocably and unconditionally agrees that all claims in respect of any such suit, action or proceeding may be heard and determined in a Delaware
Court. 

        (b)   It
will be a condition precedent to each Party's right to bring any such suit, action or proceeding that such suit, action or proceeding, in the first instance, be
brought in a Delaware Court (unless such suit, action or proceeding is brought solely to obtain discovery or to enforce a judgment), and if each such court refuses to accept jurisdiction with respect
thereto, such suit, action or proceeding may be brought in any other court with jurisdiction. 

        (c)   No
Party may move to (i) transfer any such suit, action or proceeding from a Delaware Court to another jurisdiction, (ii) consolidate any such suit, action
or proceeding brought in a Delaware Court with a suit, action or proceeding in another jurisdiction, or (iii) dismiss any such suit, action or proceeding brought in a Delaware Court for the
purpose of bringing the same in another jurisdiction. 

        (d)   Each
Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, (i) any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in a Delaware Court, (ii) the defense of an inconvenient forum to the
maintenance of such suit, action or proceeding in any such court, and (iii) the right to object, with respect to such suit, action or proceeding, that such court does not have jurisdiction over
such Party. Each Party irrevocably consents to service of process in any manner permitted by law. Notwithstanding the foregoing, this 

10

 

Section 7.13
will not apply to any suit, action or proceeding to enforce a judgment of a Delaware Court. 

        7.14    WAIVER OF JURY TRIAL.    EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

        7.15    No Strict Construction.    The Parties hereto have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. 

        IN WITNESS WHEREOF, the Parties have executed this Repurchase and Conversion Agreement as of the date first above written. 

	 	 	OMEGA HEALTHCARE INVESTORS, INC.
	

 	
 	

By:	
 	

/s/  C. TAYLOR PICKETT      

	 	 	Name:    C. Taylor Pickett

Title:    Chief Executive Officer
	

 	
 	
EXPLORER HOLDINGS, L.P.:
	

 	
 	

By:	
 	

Explorer Holdings GenPar, LLC, its General Partner
	

 	
 	

By:	
 	

/s/  KYMBERLYN K. JANNEY      

	 	 	Name:    Kymberlyn K. Janney

Title:    Vice President

11

SCHEDULE 1

DEFINITIONS  

        As used in this Agreement, the following terms have the following meanings unless the context otherwise requires: 

        1.     "Action or Proceeding" means any action, suit, proceeding or arbitration by any Person or any investigation or audit by
any Governmental or Regulatory Body. 

        2.     Intentionally
omitted. 

        3.     An
"Affiliate" of any Person means another Person that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such first Person. For purposes of this Agreement, the Company shall be deemed not to be an Affiliate of Explorer. 

        4.     Intentionally
omitted. 

        5.     "Business Day" means any day other than a Saturday, Sunday or day on which banks in New York, New York are authorized or
required by Law to close. 

        6.     "Charter Documents" means, with respect to any corporation or entity: those instruments that, among other things,
(a) define its existence, as filed or recorded with the applicable Governmental or Regulatory Body, including, without limitation, such corporation's or entity's Articles or Certificate of
Incorporation, Organization, Association or Partnership, and (b) otherwise govern its internal affairs including, without limitation, such corporation's or entity's Bylaws, partnership
agreement or agreement of limited partnership. 

        7.     "Claim" means any pending contest, claim, charge, demand, assessment, action, cause of action, litigation, notice or
demand involving any Person. 

        8.     "Exchange Act" means the Securities Exchange Act of 1934, as amended. 

        9.     "Expenses" as used in this Agreement shall include all out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a Party hereto and its affiliates) incurred by a Party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and performance of the Transaction Documents. 

        10.   "Governmental or Regulatory Body" means any court, tribunal, arbitrator or any government or political subdivision
thereof, whether federal, state, county, local or foreign, or any agency, authority, official or instrumentality of any such government or political subdivision. 

        11.   "Knowledge" means, in the case of the Company, the actual knowledge of the Chief Executive Officer, Chief Financial
Officer or Chief Operating Officer of the Company and, in the case of Explorer, the actual knowledge of any officer of Explorer's general partner and, in each case, the knowledge that such Persons
would have obtained of the matter represented after reasonable due and diligent inquiry of those employees and affiliates of such Party whom such officers reasonably believe would have actual
knowledge of the matters represented. 

        12.   "Law" means any law, statute, rule, regulation, ordinance and other pronouncement having the effect of law of the United
States, or any state, county, city or other political subdivision or of any Governmental or Regulatory Body. 

        13.   "Liability" means any direct or indirect obligation, indebtedness, liability, Claim, loss, damage (including punitive or
exemplary damages and fines or penalties or interest thereon), deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured,
accrued, absolute, contingent or otherwise. 

        14.   "Lien" means any lien, pledge, hypothecation, mortgage, security interest, Claim, lease, charge, option, right of first
refusal, easement, servitude, transfer restriction under any stockholder or similar agreement, encumbrance or any other restriction or limitation whatsoever. 

 

        15.   "Order" means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Body, in each
case whether preliminary or final. 

        16.   "Person" means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental or Regulatory Body or other entity. 

        17.   "Securities Act" means the Securities Act of 1934, as amended. 

        18.   "Series C Articles Supplementary" means the Articles Supplementary and any amendments thereto setting forth the
preferences, terms and conditions of the Series C Preferred Stock as filed by the Company with the Secretary of State for the State of Maryland. 

        19.   Intentionally
omitted. 

        20.   "Subsidiary" when used with respect to any Person, means any corporation or other Person, whether incorporated or
unincorporated, of which such Person directly or indirectly owns or controls more than 50% of the securities or other interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions. For purposes of this Agreement, the Company shall be deemed not to be a Subsidiary of Explorer. 

        21.   "Transaction Documents" means this Agreement, and each other certificate, instrument, or agreement necessary to
consummate the Transactions contemplated by this Agreement. 

        22.   "Transactions" means the Purchase and the transactions contemplated by the Transaction Documents. 

2

QuickLinks

REPURCHASE AND CONVERSION AGREEMENT by and between OMEGA HEALTHCARE INVESTORS, INC. and EXPLORER HOLDINGS, L.P. Dated as of February 5, 2004Exhibit
4.1

 

 

AMENDED AND
RESTATED LOAN AGREEMENT

 

Between

 

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

  	
  and

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

  
	
   

  	
   

  	
   

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

  	
   

  	
   

  

 

 

December 15, 2003

 

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

 

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

 

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

 

 

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

 

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

 

2

 

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

 

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

 

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

 

3

 

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

 

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

 

2.                                       Promissory Notes.

 

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

 

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

 

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

 

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

 

3.                                       Collateral.

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

 

	
  Funded Bank Debt

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

  

 

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

 

 

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

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

  

 

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

 

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

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

  

 

10

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

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

 

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

 

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

 

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

 

12

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

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

 

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

 

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

 

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

 

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

 

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

 

14

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

NOTICE TO COMPLY WITH STATE LAW

 

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

 

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

 

15

 

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

 

THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

 

[Balance of
Page Intentionally Left Blank]

 

[Signatures
Appear on Next Page]

 

16

 

	
  PIONEER SERVICES:

  	
   

  	
  LENDER:

  
	
   

  	
   

  	
   

  
	
  PIONEER DRILLING SERVICES, LTD.,

  a Texas limited partnership

  	
   

  	
  THE FROST NATIONAL BANK
a national banking association

  
	
   

  	
   

  	
   

  
	
  By:

  	
  PDC
  Mgmt. Co., a Texas corporation,

  	
   

  	
   

  
	
   

  	
  General
  Partner

  	
   

  	
  By:

  	
  /s/
  W. Casey Shaeffer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  W.
  Casey Shaeffer

  
	
  By:

  	
  /s/
  Wm. Stacy Locke

  	
   

  	
   

  	
   

  	
  Vice
  President

  
	
   

  	
  Wm.
  Stacy Locke

  	
   

  	
   

  
	
   

  	
  President
  and Chief Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PIONEER COMPANY:

  	
   

  	
   

  
	
   

  	
   

  	
   

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

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Wm. Stacy Locke

  	
   

  	
   

  	
   

  
	
   

  	
  Wm.
  Stacy Locke

  	
   

  	
   

  
	
   

  	
  President
  and Chief Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
								

 

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