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EXHIBIT 10.4
LOAN AGREEMENT
LENDER: AMERICAN BANK, N.A.
LENDER'S ADDRESS: P.O. Box 6469
Corpus Christi, Texas 78466-6469
BORROWER: SOUTH TEXAS DRILLING & EXPLORATION, INC.
BORROWER'S ADDRESS: 9310 Broadway, Building 1
San Antonio, Texas 78217
1. Loan. Lender hereby agrees to loan to Borrower the sum of
$3,000,000.00, subject to all legal requirements. The loan is to bear interest
and be repayable in accordance with a note of even date herewith executed by
Borrower payable to the order of Lender.
2. Purpose. Borrower ("South Texas") is acquiring 100% of the issued and
outstanding stock of Pioneer Drilling Co. ("Pioneer"). A portion of the funds
will be advanced at closing to refinance indebtedness owing by Pioneer to
Lender and also owing by Pioneer to other third-party creditors. Funds not
advanced for refinance of Pioneer indebtedness will be advanced as requested
from time to time for capital expenditures to be made by Borrower; provided the
time limit for advances is December 15, 2000, and after such date Lender shall
not be required to make any additional advances and Borrower will forfeit the
right to draw any then unfunded portion of the loan.
3. Collateral: Expenses. The loan and all other indebtedness now or
hereafter owing by Borrower to Lender shall be secured by: (i) a first lien Deed
of Trust from Pioneer covering the real estate known as Lot 4, Block 6, ROBLEX
INDUSTRIAL AREA, Corpus Christi, Nueces County, Texas; and (ii) a first lien
security interest from Pioneer covering Pioneer Drilling Rigs Nos. 1 and 2 and
the present and future tubulars, tools, equipment and accessions for Rigs Nos. 1
and 2; and (iii) a first lien security interest on the tubulars and the
equipment now or hereafter owned by Pioneer which is now or hereafter utilized
on Pioneer Drilling Rigs No. 4 (the drawworks, mast, brake and substructure of
Rig No. 4 being owned by and leased from a third-party lessor). Such Pioneer
Rigs Nos. 1, 2 and 4 will be known, respectively, as South Texas Rigs Nos. 15,
16 and 18.
4. Expenses. Borrower agrees to pay or reimburse Lender for the legal
fees and other out-of-pocket expenses incurred by Lender in connection with the
loan, including but not limited to costs for credit reports, appraisals,
surveys, environmental studies and reports, lien and title searches, mortgagee
policies, recording fees and preparation of loan documents.
5. Conditions. Notwithstanding anything herein to the contrary, the
performance of each covenant to be performed by Borrower hereunder and under the
note and mortgage instrument, and the truth of every representation made by
Borrower, shall be a condition precedent to each and every advance to be made to
Borrower, or to any other obligation of the Lender hereunder; and the Lender
shall not be required to make any advance when Borrower is in default on any
obligation to Lender.
6. Financial Statements of Borrower. Borrower shall keep proper books of
record and account in which complete and correct entries shall be made of
Borrower's transactions in accordance with generally accepted accounting
principles and shall furnish or cause to be furnished to Lender interim
unaudited quarterly financial statements within thirty (30) days after the end
of each quarter, and an annual audited financial statement within ninety (90)
days of the end of the fiscal year. A copy of Borrower's budget for each year
shall be furnished to Lender within ninety (90) days after the beginning of each
year. Each annual financial statement shall include a balance sheet,
operating/income statement, contingent liabilities, statement of cash flows,
comparison to budget and a reconciliation of retained earnings and net worth,
and be in a form suitable to the Lender. Each interim financial statement shall
include a balance sheet, operating/income statement and comparison to budget.
Each financial statement shall be accompanied by a certificate from the
chief financial officer of Borrower certifying that Borrower is in compliance
with all of the Financial Covenants imposed on Borrower hereunder.
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7. FINANCIAL COVENANTS. Borrower shall maintain throughout the term of
the Loan in accordance with generally accepted accounting principles ("GAAP")
the following ratios to be tested on an annual basis:
a. A Leverage Ratio of not more than 3.0 to 1.0. This ratio is defined
as:
Funded Bank Debt
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Net Income + Interest Expense + Taxes + Depreciation + Amortization
b. A Cash Flow Ratio of not less than 1.25 to 1.00. This ratio is defined
as:
Net Income + Interest Expense + Taxes + Depreciation + Amortization - Dividends
- Maintenance Capital Expenditures
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Current Portion of Long-Term Debt + Interest Expense
c. A Capitalization Ratio of not more than 0.5 to 1.00. This ratio is
defined as:
Funded Bank Debt
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Tangible Net Worth + Funded Bank Debt
8. ACTIVITY REPORTS. Within ten (10) days after the end of each month
the Borrower shall furnish to Lender a monthly rig activity report for all of
Borrower's rigs, and not merely those pledged to Lender.
9. BENEFIT. The provisions hereof shall inure to the benefit of Lender,
its successors and assigns, and to Borrower. Borrower's rights hereunder are
personal to Borrower and may not be assigned or transferred to or assumed by
any other party.
10. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Dated the 21 day of August, 2000.
BORROWER: LENDER:
SOUTH TEXAS DRILLING & AMERICAN BANK, N.A.
EXPLORATION, INC.
By: /s/ Michael E. Little By: /s/ Illegible
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Name: Michael E. Little Name:
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Title: Chairman, CEO Title:
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PLEDGOR:
PIONEER DRILLING CO.
By: /s/ Wayne M. Squires
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Name: Wayne M. Squires
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Title: President & COO
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