SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 9, 2001
PIONEER DRILLING COMPANY
(Exact name of registrant as specified in its charter)
State of Texas 2-70145 74-2088619
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
9310 Broadway, Building 1
San Antonio, Texas 78217
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (210) 828-7689
_____________________________________________________________________
(Former name or former address, if changed since last report.)
Item 1. Changes in Control of Registrant.
On October 9, 2001, the Registrant issued $18,000,000 in principal amount
of its 6.75% Convertible Subordinated Debenture (the "Debenture") to WEDGE
Energy Services, L.L.C. ("WEDGE"). The Debenture is due and payable on
October 9, 2006, and is subordinated to the Registrant's outstanding bank
debt or debt incurred under current bank facilities of the Registrant, or any
extension or renewal of any such debt. The Debenture is convertible at the
option of the holder of the Debenture into 4,500,000 shares of the Registrant's
Common Stock ($4.00 in principal amount per share).
WEDGE currently holds 7,241,007 shares of the Registrant's Common Stock,
which equals approximately 45.50% of the 15,913,959 shares of the
Registrant's Common Stock currently outstanding, or 40.37% of the
Registrant's Common Stock outstanding assuming the exercise of all currently
outstanding Options or Warrants to acquire shares of the Registrant's
Common Stock, but not assuming the conversion of the Debenture. After the
conversion of the Debenture into the 4,500,000 shares described above, WEDGE
will hold an aggregate 11,741,007 shares of the Registrant's Common Stock,
or approximately 57.52% of the Registrant's Common Stock outstanding or
52.33% of the Registrant's Common Stock outstanding assuming the exercise of
all currently outstanding Options and Warrants to acquire shares of the
Registrant's Common Stock.
Under the terms of a previous agreement between the Registrant and WEDGE,
the Registrant and its Board of Directors agreed to support and cause to be
placed on the ballot at each election of directors of the Registrant not less
than one nominee designated by WEDGE so long as WEDGE holds at least 10% of
the outstanding Common Stock of the Registrant and not less than two nominees
designated by WEDGE so long as WEDGE holds at least 25% of the outstanding
Common Stock of the Registrant. Incident to the issuance of the Debenture,
the Registrant agreed that so long as WEDGE holds 25% of the outstanding
Common Stock of the Registrant, the Registrant and its Board of Directors
agree to support and cause to be placed on the ballot at each election of
directors of the Registrant a third director designated by WEDGE who will not
be affiliated with WEDGE as an employee, officer, director or otherwise.
Item 7. Exhibits.
No. Document
4.1 Debenture Agreement dated October 9, 2001 by and between WEDGE
Energy Services, L.L.C. and Pioneer Drilling Company
4.2 Debenture Purchase Agreement dated October 9, 2001 by and
between WEDGE Energy Services, L.L.C. and Pioneer Drilling
Company
4.3 Subordination Agreement dated October 9, 2001 by and between
the American Bank, N.A., WEDGE Energy Services, L.L.C.,
Pioneer Drilling Company and Pioneer Drilling Services, Ltd.
4.4 Subordination Agreement dated October 9, 2001 by and between
the Frost National Bank, WEDGE Energy Services, L.L.C.,
Pioneer Drilling Company and Pioneer Drilling Services, Ltd.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October ____, 2001 PIONEER DRILLING COMPANY
By: /s/ Wm. Stacy Locke
Wm. Stacy Locke, President
EXHIBIT 4.1
DEBENTURE AGREEMENT
6.75% Convertible Subordinated Debenture, Series A Due October 9, 2006
Original Principal Amount $18,000,000
THIS DEBENTURE AGREEMENT (the "Agreement") is made and entered into on
this 9th day of October, 2001, by and between WEDGE Energy Services, L.L.C.,
a Delaware limited liability company ("Holder") and Pioneer Drilling Company,
a Texas corporation (the "Company").
R E C I T A L S
WHEREAS the Company is issuing this 6.75% Convertible Subordinated
Debenture, Series A due October 9, 2006 in the original principal amount of
$18,000,000 (the "Debenture" or the "Note") pursuant to the payment of
$18,000,000 cash by Holder to the Company and as set forth in that certain
Debenture Purchase Agreement of even date herewith (the "Purchase Agreement").
WHEREAS the Company is now issuing to the Holder and the Holder is
receiving such Debenture from the Company; and
WHEREAS the parties hereto wish to set forth the terms and conditions of
such Debenture;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the
following terms shall have the meanings set forth below:
Section 1.01. Closing Date. The term Closing Date shall mean October
9, 2002.
Section 1.02. Common Stock. The term "Common Stock" shall mean the
Common Stock, par value $.10 per share, of the Company.
Section 1.03. Conversion Price. The conversion price per share of
Common Stock into which the Debenture is convertible, which price is $4.00
per share, as such conversion price may be adjusted and readjusted from time
to time in accordance with the terms of Section 7.05 hereof.
Section 1.04. Debenture. The term "Debenture" shall mean the Debenture
issued by the Company and concurrently herewith being acquired by the Holder,
in the form set forth on Exhibit 1.04 attached hereto, as originally executed
or as may from time to time be supplemented or amended pursuant to its
provisions or the provisions hereof. If the Holder purchases or otherwise
becomes the owner of more than one Debenture, the term "Debentures" shall
include all of the Debentures owned by the Holder taken as a whole. The term
"Debentures" shall mean all of the Debentures issued by the Company and
governed by this Agreement and other Debenture Agreements of like tenor.
Section 1.05. Event of Default. The term "Event of Default" shall
mean an Event of Default as defined in Section 8.01 hereof.
Section 1.06. Indebtedness. The term "Indebtedness" shall mean (a)
indebtedness for money borrowed and deferred payment obligations representing
the unpaid purchase price of property or stock, other than normal trade
credits, which would be included in determining total liabilities shown on
the liability side of a consolidated balance sheet of the Company and its
Subsidiaries; (b) guarantees and endorsements of obligations of others,
directly or indirectly, including obligations under industrial revenue and
pollution control bonds, and all other repurchase agreements and indebtedness
in effect guaranteed through an agreement, contingent or otherwise, to
purchase such indebtedness, or to purchase or sell property, or to purchase
or sell services, primarily for the purpose of enabling the debtor to make
payment of the indebtedness or to assure the owner of the indebtedness
against loss, or to supply funds to or in any manner invest in the debtor,
or otherwise (but excluding guarantees and endorsements of notes, bills
and checks made in the ordinary course of business); (c) indebtedness
secured by any mortgage, lien, pledge, conditional sale agreement, title
retention agreement, or other security interest or encumbrance upon property
owned by the Company, or its Subsidiaries, even though such indebtedness has
not been assumed; and (d) amounts due under capitalized leases as reflected
on the balance sheet.
Section 1.07. Interest Rate. The term "Interest Rate" shall mean an
interest rate payable on the Debentures of 6.75% per annum and as set forth
on the face of the Debenture.
Section 1.08. Issuance Date. The term "Issuance Date" shall mean the
date of issuance of the Debenture of October 9, 2001, as set forth on the face
of the Debenture.
Section 1.09. Material Adverse Effect. For purposes of this Debenture
the term "Material Adverse Effect" shall mean an event, circumstance, loss,
development or effect (individually or in the aggregate) when considered in
light of the total operations of the Company, which would prohibit the Company
from engaging in any material aspect of its business or result in a material
adverse change in the business, operations, properties, prospects or assets of
the Company, or if measured monetarily, would exceed $100,000.
Section 1.10. Maturity Date. The term "Maturity Date" shall mean
October 9, 2006.
Section 1.11. Person. The term "Person" shall mean an individual,
partnership, corporation, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
Section 1.12. Stock. The term "Stock" shall mean those shares of
Common Stock received by Holder upon conversion as provided in Section 7.
Section 1.13. Superior Indebtedness. The term "Superior Indebtedness"
shall mean the indebtedness owed by an indirect subsidiary of the Company to
the Frost National Bank and American Bank as described in the subordination
agreements of even date herewith between Holder and each Bank.
Section 1.14. Subsidiary. The term "Subsidiary" shall mean any
corporation of which more than 80% (by number of votes) of the voting stock is
owned by the Company or another Subsidiary.
ARTICLE II
THE DEBENTURE
Section 2.01. Debenture. This Debenture is in the principal amount of
$18,000,000 and is being issued by the Company to the Holder pursuant to the
payment of Eighteen Million Dollars ($18,000,000) cash by Holder to the Company.
The Holder hereby agrees to receive such Debenture from the Company pursuant to
the terms of this Agreement, and the Company hereby agrees to issue, convey,
transfer, and assign to the Holder, the Debenture free and clear of all liens,
options, claims, and encumbrances of any kind or character whatsoever, except
for applicable transfer restrictions required by federal and state securities
laws. The Debenture may have such notations or legends as are required by
applicable law. The Debenture shall be executed on behalf of the Company by
its president or any vice president and attested to by its secretary or any
assistant secretary. The Debenture shall recite upon its face the principal
amount of indebtedness evidenced by the Debenture, the rate at which interest
is payable on the Debenture, and the terms of repayment.
Section 2.02. Acquisition Price. If the Debenture is being received
from the Company upon issuance, the acquisition price for the Debenture shall
be the aggregate principal amount thereof. No original issue discount is
contemplated by the issuance of these Debentures.
Section 2.03. [Intentionally Omitted]
Section 2.04. Registration. The Debentures shall be registered in the
Debenture records of the Company as follows: The Company shall maintain a
register of the issuance of the Debentures by recording the issuance date, the
face amount, and the name and address of the initial holder and, upon transfer
in accordance with Article X of this Agreement, each transferee of each of the
Debentures upon the books of the Company. The Company shall be entitled to
recognize the person registered in the register as the exclusive owner of a
Debenture for the purposes of payment of principal and interest thereon, and
the Company shall not be bound to recognize any equitable or other claim to or
interest in such Debenture on the part of any other person, whether or not the
Company has express notice thereof, except as otherwise provided by applicable
law.
Section 2.05. Interest on Debenture. Interest shall be payable on the
outstanding principal amount of the Debenture at the Interest Rate. Interest
on the Debenture shall be calculated on the basis of a 360-day year of twelve
30-day months. Interest shall be calculated and paid through the last such
date prior to the Maturity Date or conversion.
Section 2.06. Lost or Stolen Certificates. In the event the
certificate representing the Debenture is destroyed, misplaced, or stolen, the
Holder shall promptly notify the Company of such loss. In its discretion, the
Company may, as a condition precedent to reissuing a new Debenture certificate,
require the Holder to do one or more of the following things:
(a) Deliver a notice to the Company in the form prescribed by the
Company requesting the Company to stop transfer of such lost Debenture
certificate;
(b) Execute and deliver to the Company an affidavit of the facts
covering the loss of the Debenture certificate; and
(c) Execute and file any form required by any state or federal
regulatory authority in connection with the loss of the Debenture certificate.
After the Holder has complied with such requirements as the Company deems
necessary and appropriate, the Company shall cancel the lost certificate in its
register and shall issue a new Debenture certificate to the Holder with terms
and provisions identical to those contained in the lost certificate.
Section 2.07. Governmental Charges. For any transfer of a Debenture
or exchange of a Debenture for Debentures of another denomination, the Company
may require from the Holder the payment of a sum sufficient to reimburse it for
any stamp tax or other governmental charge incidental thereto.
Section 2.08. Prepayment of Debenture. The Company shall not be entitled
to prepay any of the outstanding amount of this Debenture.
ARTICLE III
FINANCIAL STATEMENTS AND OTHER INFORMATION.
Section 3.01. Financial and Business Information. The Company agrees to
furnish to the Holder so long as the Holder or its nominee are the holder of any
Debenture and to each other holder of the then outstanding Debentures:
(a) Quarterly Statements. Within 45 days after the end of each
quarterly fiscal period (except the last) in each fiscal year of the Company,
duplicate copies of:
(1) consolidated balance sheets of the Company as of the
close of such period,
(2) consolidated statements of income and retained earnings
of the Company for such quarterly fiscal period and for
the portion of the fiscal year ending with such period,
and
(3) consolidated statements of cash flows of the Company for
the portion of the fiscal year ending with such period.
in each case (except (a)(1) above) setting forth in comparative form the figures
for the corresponding period of the preceding fiscal year, all in reasonable
detail and certified as having been prepared in accordance with generally
accepted accounting principles, but subject to changes resulting from year-end
adjustments, by an authorized financial officer of the Company.
(b) Annual Statements. As soon as available and in any event
within 90 days after the close of each fiscal year of the
Company, duplicate copies of:
(1) audited consolidated balance sheets of the Company as
of the close of such fiscal year, and
(2) audited consolidated statements of income and retained
earnings and changes in financial position of the
Company for such fiscal year.
In each case setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and accompanied, in the case of audited
statements, by an opinion thereon of a firm of independent public accountants
of recognized national standing selected by the Company to the effect that the
audited financial statements have been prepared in accordance with generally
accepted accounting principals consistently applied (except for changes in
which such accountants concur) and that the audit by such accountants in
connection with financial statements has been made in accordance with
generally accepted auditing standards.
The financial statements delivered pursuant to paragraphs (a) and (b)
above shall set forth the amounts charged in each of the periods involved for
depreciation and amortization, and for interest expense.
(c) Audit Reports. Promptly upon receipt thereof, one copy of
each interim or special audit made by independent accountants of the books of
the Company.
(d) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally, of each Form 8-K,
10-KSB, and 10-QSB, or any successor forms, and any registration statement or
prospectus filed by the Company with any securities exchange or with the
Securities Exchange Commission, and of all press releases and other statements
made available generally by the Company to the public concerning material
developments in the business of the Company.
(e) Together with each set of quarterly statements and annual
statements pursuant to paragraphs (a) and (b) above, a certificate of an
executive officer of the Company that such financial statements are true and
correct and that the Company is not then in default under the terms of this
Debenture.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Holder as follows:
Section 4.01. Organization and Existence. The Company is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Texas and has all requisite corporate power to carry on its business
as now conducted and is qualified to do business in those jurisdictions where
such registration is required; neither its lease of property nor the conduct
of its business requires such qualification under the laws of any other
jurisdiction, except where the failure to do so would not have a Material
Adverse Effect on the financial condition or results of operations of the
Company. The Company has delivered to the Holder complete and correct copies
of the Articles of Incorporation and Bylaws of the Company as in effect on
the date hereof.
Section 4.02. Capitalization: Ownership of Stock: Authorization. The
Company has 100,000,000 authorized shares of its common stock $0.10 par value
(the "Common Stock") and 10,000,000 authorized shares of its preferred stock,
issuable in series (the "Preferred Stock"). As of September 30, 2001, the
Company had (a) 15,913,959 issued and outstanding shares of Common Stock; (b)
zero (0) shares of issued and outstanding Preferred Stock; and (c) no
treasury shares. As of September 30, 2001, the Company had granted stock
options which, if all were exercised, would equal 2,023,500 shares of Common
Stock. Other than the registration rights granted to Holder in accordance
with the transactions contemplated hereby, the Company has only incidental
registration rights to two (2) of its officers and directors, Wm. Stacy Locke
and Michael E. Little, and no other individual or entity has any registration
rights of any kind or nature (other than rights under Form S-8), including
incidental or demand registration rights. Other than items referred to
herein, there are no other options, warrants, rights, conversion rights,
phantom rights, preemptive rights or any other rights by any party to
receive equity of the Company. Upon issuance of the Common Stock into which
the Debenture may be converted (the "Stock") to Holder, Holder will be the
record and beneficial owner of the Stock and the Stock will be duly
authorized, validly issued and outstanding, fully paid and nonassessable and
would have been issued in accordance with appropriate federal and state
securities law. By virtue of the conversion rights included in the Debenture,
Holder shall receive good and valid title to the Stock, free and clear of all
liens, encumbrances, pledges, options, claims, assessments and adverse charges.
If the Stock were issued on the Closing Date, Holder's ownership would
constitute approximately 57.5% of the Company's issued and outstanding shares
of Common Stock. As a result of the issuance of the Stock, the Company will
not become obligated to issue any additional shares of capital stock
(preferred or common) to any officer, director, shareholder or other party.
The execution, delivery and performance of this Agreement will not
result in a violation or breach of any term or provision of or constitute
a default or accelerate the performance required under the Articles of
Incorporation or Bylaws of the Company or any indenture, mortgage, deed of
trust or other contract or agreement to which the Company is a party or by
which its assets are bound, or violate any order, writ, injunction or decree
of any court, administrative agency or governmental body.
Section 4.03. Enforceability. The Company has full right, power, legal
capacity and authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby and thereby, and this Agreement
is valid and constitutes legally binding obligations enforceable in accordance
with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium or similar laws affecting the enforcement
of creditors' rights, by the availability of injunctive relief or specific
performance and by general principles of equity.
Section 4.04. Securities and Exchange Commission. The Company has
filed all forms, reports and documents required to be filed by the Securities
and Exchange Commission, National Association of Securities Dealers, Inc.
and the American Stock Exchange and the state of Texas in order to comply
with all applicable laws, rules and regulations of the Securities Act of 1933,
as amended (the "Act"), the Securities and Exchange Act of 1934, as amended,
and the securities laws of the state of Texas. Notwithstanding the foregoing,
Seller has delivered to Holder a copy of that certain "no action" letter dated
August 25, 1999 from the Securities and Exchange Commission regarding Seller's
failure to comply with Regulation S-X of the Act in connection with its
acquisition of assets of Howell Drilling, Inc.
Section 4.05. Litigation; Contingencies. Except as described in the
Reports and in the Opinion of Counsel to be delivered by Matthews & Branscomb,
P.C., attorneys for the Company, as required by the Debenture Purchase
Agreement of even date herewith between the Company and Holder, there is
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company before any court, agency or arbitrator which
might result in any Material Adverse Effect in the business, properties or
condition (financial or otherwise) of the Company or which question the
validity of any action taken or to be taken pursuant to on in connection
with this Agreement, or the Stock.
Section 4.06. No Subsidiaries. Other than subsidiaries that have no
assets, liabilities or operations, the Company has no subsidiaries or any
interests in other corporations, partnerships or joint ventures except as
follows: The Company owns 100% of PDC Investment Corp., a Delaware corporation.
PDC Investment Corp. is the sole limited partner with a 99% partnership interest
in Pioneer Drilling Services, Ltd., a Texas limited partnership. The Company
owns 100% of PDC Mgmt. Co., a Texas corporation. PDC Mgmt. Co. is the sole
general partner of Pioneer Drilling Services, Ltd. and holds a 1% partnership
interest in such limited partnership. Pioneer Drilling Services, Ltd., holds
substantially all of the operating assets of the consolidated group consisting
of the Company, PDC Investment Corp., Pioneer Drilling Services, Ltd., and PDC
Mgmt. Co.
Section 4.07. Title to Assets (Personal Property).
(a) The Company is the owner of, and has marketable title to, all of its
assets, free and clear of all liens except those noted in the Company's June 30,
2001 financial statements and except for those assets leased under leases
specifically noted in the Company's June 30, 2001 financial statements. The
assets referred to in the preceding sentence include, without limitation, all
assets, properties and rights of the Company shown or reflected on the June 30,
2001 Balance Sheet or acquired by the Company since June 30, 2001, except only
for (i) cash expended and (ii) inventories and other assets used or sold and
receivables collected in the ordinary course of business since June 30, 2001.
The Company has maintained all tangible assets material to the business in good
repair, working order and operating condition, subject only to ordinary wear and
tear, and all such tangible assets are suitable for the purposes for which they
are presently being used.
(b) With respect to each lease of real or personal property of the
Company: (i) the lease is valid and binding on the Company and in full force
and effect, (ii) no rental payment is in default, (iii) the Company is in
peaceable possession of the real property or personal property which is subject
thereto, and (iv) the Company is not in default of any material provision
thereof, and to the best knowledge of the Company, no event has occurred that
with the giving of notice, the passage of time or both, would become a material
default under any such lease.
(c) The Company has all easements, rights-of-way and similar
authorizations required for the use of the real property leased by the Company
and in the conduct of the business as heretofore conducted, excluding immaterial
easements (the "Easements"). To the best knowledge of the Company, no party
thereto is in default of any material provision of any easement or any material
covenant, restriction or other agreement encumbering any of the real property,
and to the best knowledge of the Company, no event that with the giving of
notice, the passage of time or both would become a material default, has
occurred under any easement or any material covenant, restriction or other
agreement encumbering any of the real property. Neither the whole nor any
portion of any real property occupied by the Company has been condemned or
otherwise taken by any public authority, and the Company has received no
written notice that any such condemnation or taking is threatened or
contemplated.
(d) (i) Neither the properties owned or occupied by the Company nor the
occupancy or operation thereof is in material violation of any law or any
building, zoning or other ordinance, code or regulation; (ii) no notice from
any governmental body has been served upon the Company or upon any property
owned or occupied by the Company claiming any material violation of any such
law, ordinance, code or regulation or requiring, or calling to the attention
of the Company the need for, any work, repair, construction, alterations or
installation on or in connection with any such properties which has not been
complied with; and (iii) there is no material encroachment of the improvements
located on the real property owned or occupied by the Company upon any adjoining
property, or of improvements located on any adjoining property upon any
property owned or occupied by the Company.
Section 4.08. Consents. Except for the listing of the Stock with the
American Stock Exchange, the Company is not required to obtain any consent from
or approval of any court, governmental entity or any other person in connection
with the execution, delivery or performance by it of this Agreement or the
transactions contemplated hereby. The consummation of the transactions
contemplated by this Agreement will not require the approval of any entity or
person in order to prevent the termination of any material right, privilege,
license or agreement of the Company.
Section 4.09. Proprietary Rights. All patents (pending or issued),
copyrights, trademarks, state, federal and foreign registrations and
applications and trade secrets of the Company are valid and in full force
and effect and are not subject to any taxes, maintenance fees, or extension,
renewal or continuation actions by the Company falling due within 90 days
after the date hereof. There have not been any claims, actions or judicial or
other adversary proceedings involving the Company concerning any of the
Proprietary Rights and, no such action or proceeding is threatened. The
Company has the right and authority to use each item of the rights and
property referenced above in connection with the conduct of its business
including all patents, trademarks, computer hardware and software licenses;
such use has not and will not conflict with, infringe upon, or violate any
patent or other proprietary right of any other person, and the Company has
not infringed and is not now infringing any proprietary right belonging to
any other person. There are no outstanding nor to the best of the Company's
knowledge, threatened claims for breach, termination or penalty payment
with respect to any licenses or similar agreements. The Company has no
patents issued, pending or filed.
4.10. Disclosure. The Company represents and warrants that no
representation or warranty by the Company in this Agreement or in any of the
Exhibits or Schedules hereto, or certificate furnished to the Holder by or on
behalf of the Company in connection with the transactions contemplated hereby,
contains or will contain any materially untrue statement of a material fact;
and further, no Schedule omits or will omit any material item required to be
included in such Schedule. Any indemnification by the Company hereunder for
a breach of its representation and warranty in this Section 4.10 shall be made
in the manner applicable pursuant to Section 9 hereof to such representation
and warranty or to the provision of this Agreement to which such Exhibit,
Schedule or certificate relates.
4.11. Financial Statements. The Company has made available to the Holder
its Annual Report on Form 10K for the period ended March 31, 2001 and its
Quarterly Report on Form 10Q for the period ended June 30, 2001, a report of
Form 8K dated March 30, 2001 and filed April 16, 2001, a report of Form 8K
dated May 18, 2001 and filed May 29, 2001, and a report on Form 8K/A filed
June 15, 2001, and its unaudited interim financial statements dated
July 31, 2001 and August 31, 2001 (the "Reports"). "Financial Statements"
shall mean the unaudited balance sheet and statements of operations,
changes in equity and cash flows for the Company as of and for the fiscal
period ended August 31, 2001. Prior to Closing, the Company shall also
deliver to the Holder each monthly financial statement that is produced by
the Company during calendar year 2001 in its ordinary course of business
and such monthly financial statements shall be included in this definition
of Financial Statements. The Financial Statements have been prepared in
conformity with generally accepted accounting principles applied on a basis
consistent with prior periods. All of the Financial Statements present
fairly the financial position and the results of operations of the Company
on the dates and for the periods shown therein, and to the best knowledge
of the Company, there has been no Material Adverse Effect in the financial
condition of the Company since August 31, 2001.
Except as disclosed in the Reports or the Financial Statements and in the
Opinion of Counsel for the Company referred to in Section 4.05, hereof, the
Company has no debt, liability or obligation, contingent or otherwise, which
would have a Material Adverse Effect on the business or the assets of the
Company.
Section 4.12. Compliance with Laws; OSHA. To the best of the knowledge
of the Company, the Company is in compliance with all applicable laws,
ordinances, statutes, rules, regulations and orders promulgated by any court or
federal, state or local governmental body or agency relating to its assets and
business the failure to comply with which would cause a Material Adverse
Effect. The Company has not received any notice, citation, claim, assessment
or proposed assessment as to or alleging any violation of any Federal,
state or local Occupational Safety and Health laws and no violations
which materially, presently exist.
Section 4.13. Labor Matters. There is no labor strike or labor
disturbance pending, or to the knowledge of the Company threatened, against
the Company nor is any arbitration concerning an employee grievance currently
pending against the Company. The Company has experienced no work stoppage
or other material labor disturbance within the past three years. The Company
is not a party to any collective bargaining agreement with respect to its
employees and, to the knowledge of the Company, there are no current attempts
to organize its employees.
Section 4.14. ERISA. The Company has no pension, retirement, savings,
deferred compensation, and profit-sharing plan and each stock option, stock
appreciation, stock purchase, performance share, bonus or other incentive plan,
severance plan, health, group insurance or other welfare plan, or other similar
plan and any "employee benefit plan" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), under which the
Company has any current or future obligation or liability or under which any
employee or former employee (or beneficiary of any employee or former employee)
of the Company has or may have any current or future right to benefits on
account of employment with the Company (the term "plan" shall include any
contract, agreement, policy or understanding, each such plan being
hereinafter referred to individually as a "Plan").
Section 4.15. Environmental Matters. The Company has obtained all
Environmental Permits that are required with respect to its business,
operations and properties, either owned or leased, and (ii) the Company
and its properties are in compliance with all terms and conditions of all
applicable Requirements of Environmental Law and Environmental Permits,
the failure to comply with which would cause a Material Adverse Affect.
There are no Environmental Claims pending, or, to the knowledge of the
Company, threatened, against the Company. The Company has not received any
notice from any governmental authority of any violation or liability arising
under any Requirements of Environmental Law or Environmental Permit in
connection with the assets, the businesses or operations of the Company.
"Environmental Claim" means any third party (including
governmental agencies and employees) action, lawsuit, claim or proceeding
(including claims or proceedings under the Occupational Safety and Health
Act or similar laws relating to safety of employees) which seeks to impose
liability for (i) pollution or contamination of the air, surface water,
ground water or land; (ii) solid, gaseous or liquid waste generation, handling,
treatment, storage, disposal or transportation; (iii) exposure to hazardous or
toxic substances; (iv) the safety or health of employees or (v) the
transportation, processing, distribution in Commerce, use, or storage of
hydrocarbons or chemical substances. An Environmental Claim includes, but
is not limited to, a common law action, as well as a proceeding to issue,
modify or terminate an Environmental Permit.
"Environmental Permit" means any permit, license, approval or
other authorization under any applicable law, regulation and other requirement
of the United States or foreign country or of any state, municipality or other
subdivision thereof relating to pollution or protection of health or the
environment, including laws, regulations or other requirements relating to
emissions, discharges, releases or threatened releases of Pollutants,
contaminants or hazardous substances or toxic materials or wastes into
ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, or handling of hydrocarbons or chemical substances,
pollutants, contaminants or hazardous or toxic materials or wastes.
"Requirements of Environmental Law" means all requirements in
effect on the Closing Date imposed by any law, rule, regulation, or order of
any federal, foreign, state or local executive, legislative, judicial,
regulatory or administrative agency, board or authority with jurisdiction
over the Company or its properties or assets which relate to (i) pollution
or protection of the air, surface water, ground water or land; (ii) solid,
gaseous or liquid waste generation, treatment, storage, disposal or
transportation; (iii) exposure to hazardous or toxic substances; (iv) the
safety or health of employees or (v)regulation of the manufacture,
processing, distribution in Commerce, use, or storage of chemical substances.
4.16. Permits and Licenses. The Company has all material licenses,
permits and other authorizations necessary for the conduct of its business as
it is currently being conducted. To the best of the Company's knowledge,
all of such Permits are adequate for the operation of the business of the
Company as it is presently being conducted.
4.17. Insurance. Holder has been provided with all insurance policies
(together with all riders and amendments) relating to the assets or the
business of the Company are sufficient to protect against any material claim
for casualty or property damage. Such insurance policies are in full force
and effect, all premiums due thereon have been paid or accrued on the books
of the Company and will not terminate as of the Closing or the consummation
of the transactions contemplated hereby. The Company has no reason to believe
that such insurance policies will be terminated or subject to non-renewal.
4.18. Taxes. The Company has filed all tax returns and reports required
by law to be filed, or filed extensions for any period in which a tax return was
due and has paid or accrued on the financial statements provided to the Holder
all taxes, assessments and other governmental charges that are due and payable.
The charges, accruals and reserves on the books of the Company in respect of
taxes for all fiscal periods are considered adequate by the Company, and the
Company knows of no assessment for additional taxes for any of such fiscal years
or any basis therefor. All tax returns and reports are complete. No claim has
ever been made to the Company's knowledge that the Company is subject to a tax
in any jurisdiction in which the Company has not filed a return which remains
unpaid as of the Closing Date. The Company has withheld and paid all taxes
required to have been withheld or paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or other third
party. The Company has not since 1990 been the subject of an audit and the
Company has not waived any statute of limitations or agreed to an extension of
time with respect to a tax assessment or deficiency.
Section 4.19. Absence of Certain Developments. Since June 30, 2001, there
has been no change which would have a Material Adverse Effect, individually or
in the aggregate, in the assets, liabilities, condition (financial or
otherwise), operating results, business or prospects of the Company, except
changes in the ordinary course of business. Except for cash dividends paid
on its Preferred Stock, the Company has not, since the date of the Financial
Statements, directly or indirectly, declared or paid any dividend or ordered
or made any other distribution on account of any shares of any class of the
capital stock of the Company. The Company has not, since such date, directly
or indirectly redeemed, purchased or otherwise acquired any such shares or
agreed to do so or set aside any sum or property for any such purpose.
Additionally, except for the conversion of the Company's Series B Convertible
Preferred Stock (184,615 shares of preferred stock converted into 1,119,038
shares of Common Stock) and the issuance of common stock incident to the
exercise of employee options there have been no other sales of securities of
any kind or nature by the Company.
Section 4.20. Underground Storage Tanks. There are no underground storage
tanks on any of the Company's owned or leased real property.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HOLDER
The Holder hereby represents and warrants to Company:
Section 5.01. Power and Authority. The Holder has all requisite power
and authority to enter into this Agreement and to acquire the Debenture. No
provision of the Articles of Incorporation, Bylaws, or other governing
instruments of the Holder would preclude any of the transactions contemplated by
this Agreement.
Section 5.02. Authorization. The execution of this Agreement and the
consummation of the transactions contemplated herein have been duly approved by
all necessary action, corporate and otherwise, of the Holder.
Section 5.03. Investment Intent. The Holder is acquiring the Debenture
solely for its own account and not with a view to, or for resale in connection
with, any distribution or public offering thereof, within the meaning of any
applicable securities laws and regulations.
ARTICLE VI
SUBORDINATION
Section 6.01. Debentures Subordinated to Superior Indebtedness. Anything
in this Agreement or the Debentures to the contrary notwithstanding, the
indebtedness evidenced by the Debentures (such indebtedness being hereinafter
referred to as Subordinated Indebtedness) shall be subordinate and junior in
right of payment, to (but only to) all Superior Indebtedness (as defined herein)
of the Company.
Section 6.02. Payments on Subordinated Indebtedness. The Company shall
pay simple interest only on a semi-annual basis for a period of five years, with
the full amount of principal and any unpaid interest being due and payable on
the date five years from the date of this Debenture. However, any amount of
principal or interest paid by the Company to the Holder after an event of
default under any of the Superior Indebtedness, shall be held in trust for
the benefit of the holders of such Superior Indebtedness which is in default.
Section 6.03. Insolvency, etc. In the event of (a) any insolvency,
bankruptcy, receivership, liquidation, reorganization, readjustment,
composition, or other similar proceeding relating to the Company or its
property, (b) any proceeding for the liquidation, dissolution, or other
winding-up of the Company, voluntary or involuntary, and whether or not
involving insolvency or bankruptcy proceedings, (c) any assignment by the
Company for the benefit of creditors, or (d) any distribution, division,
marshaling, or application of any of the properties or assets of the Company
or the proceeds thereof to creditors, voluntary or involuntary, and whether
or not involving legal proceedings, then and in such event:
(i) all Superior Indebtedness shall first be paid in full
(including all principal, premium, if any, and interest, including interest
accruing after the commencement of any such proceeding) before any payment or
distribution of any character, whether in cash, securities, or other property
(other than securities of the Company or any other corporation provided for by
a plan of reorganization or readjustment or similar plan, the payment of which
is subordinated, at least to the extent provided in this Article VI with
respect to Subordinated Indebtedness, to the payment of all Superior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any such plan) is made in respect of any Subordinated
Indebtedness;
(ii) all principal and premium, if any, and interest on the
Subordinated Indebtedness shall forthwith become due and payable, and any
payment or distribution of any character, whether in cash, securities, or
other property (other than securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment or similar plan, the
payment of which is subordinated, at least to the extent provided in this
Article VI with respect to Subordinated Indebtedness, to the payment of all
Superior Indebtedness at the time outstanding and to any securities issued
in respect thereof under any such plan) which would otherwise (but for the
terms hereof) be payable or deliverable in respect of any Subordinated
Indebtedness, shall be paid or delivered directly to the holders of the
Superior Indebtedness, until all Superior Indebtedness shall have been paid
in full, the holders of the Subordinated Indebtedness at the time outstanding
irrevocably authorize, empower, and direct all receivers, trustees,
liquidators, conservators, fiscal agents, and others having authority in the
premises to effect all such payments and deliveries;
(iii) each holder of the Subordinated Indebtedness at the
time outstanding irrevocably authorizes and empowers each holder of the Superior
Indebtedness or such holder's representative to demand, sue for, collect, and
receive such holder's ratable share of all such payments and distributions and
to receipt therefor, and to file and prove all claims therefor and take all such
other action, in the name of such holder or otherwise, as such holder of the
Superior Indebtedness or such holder's representative may determine to be
necessary or appropriate for the enforcement of this Section 6.03; and
(iv) the holders of the Subordinated Indebtedness shall
execute and deliver to each holder of the Superior Indebtedness or such holder's
representative all such further instruments confirming the above authorization,
and all such powers of attorney, proofs of claim, assignments of claim, and
other instruments, and shall take all such other action as may be requested
by such holder of the Superior Indebtedness or such holder's representative
to enforce all claims upon or in respect of the Subordinated Indebtedness.
For all purposes of this Agreement, Superior Indebtedness shall not be deemed
to have been paid in full unless the holders thereof shall have received cash
equal to the amount of principal, premium, if any, and interest in respect of
all Superior Indebtedness at the time outstanding, and in case there are two
or more holders of the Superior Indebtedness any payment or distribution
required to be paid or delivered to the holders of the Superior Indebtedness
shall be paid or delivered to such holders ratably according to the respective
aggregate amounts remaining unpaid on the Superior Indebtedness of such
holders.
Section 6.04. Payments and Distributions Received. If any payment or
distribution of any character (whether in cash, securities, or other property)
or any security shall be received by any holder of any of the Subordinated
Indebtedness in contravention of any of the terms of this Article VI, and
except as permitted by Section 6.03 or Section 6.06, such payment or
distribution or security shall be held in trust for the benefit of, and shall
be paid over or delivered and transferred to, the holders of the Superior
Indebtedness for application to the payment of all Superior Indebtedness
remaining unpaid, to the extent necessary to pay all such Superior
Indebtedness in full. In the event of the failure of any holder of any of
the Subordinated Indebtedness to endorse or assign any such payment,
distribution or security, any holder of the Superior Indebtedness or such
holder's representative is hereby irrevocably authorized to endorse or assign
the same.
Section 6.05. Subrogation. In the event that cash, securities, or other
property otherwise payable and deliverable to the holders of the Subordinated
Indebtedness shall have been applied pursuant to Section 6.03 or Section 6.04
to the payment of Superior Indebtedness in full, then and in each such case,
the holders of the Subordinated Indebtedness shall be subrogated to any rights
of any holders of Superior Indebtedness to receive further payments or
distributions in respect of or applicable to the Superior Indebtedness.
Section 6.06. Acceleration of Subordinated Indebtedness. In case any
Subordinated Indebtedness is declared due and payable because of the occurrence
of an Event of Default with respect to the Subordinated Indebtedness under
circumstances when the terms of Section 6.03 are not applicable, the holders of
such Subordinated Indebtedness shall not be entitled to receive payment or
distribution in respect thereof until all Superior Indebtedness at the time
outstanding shall have been paid in full.
Section 6.07. Notice. In the event that any Subordinated Indebtedness
shall become due and payable before its expressed maturity on demand of the
holder thereof as the result of the occurrence of a default or event of default,
the Company will give prompt notice in writing of such happening to each holder
of Superior Indebtedness.
Section 6.08. Subordination Not Affected, etc. The terms of this
Article VI, the subordination effected hereby, and the rights of the
holders of the Superior Indebtedness shall not be affected by (a) any
amendment of or addition or supplement to any Superior Indebtedness or
any instrument or agreement relating thereto, (b) any exercise or
non-exercise of any right, power, or remedy under or in respect of any
Superior Indebtedness or any instrument or agreement relating thereto,
or (c) any waiver, consent, release, indulgence, extension, renewal,
modification, delay, or other action, inaction or omission, in respect
of any Superior Indebtedness or any instrument or agreement relating
thereto or any security therefor or guaranty thereof, whether or not
any holder of any Subordinated Indebtedness shall have had notice or
knowledge of any of the foregoing. In addition, in the event that any
holder or prospective holder of Superior Indebtedness reasonably requires
a modification or amendment of the terms of this Article VI with respect
to the subordination of the Subordinated Indebtedness, the Holder agrees
to execute any such modification or amendment to this Article VI with
respect thereto.
Section 6.09. Obligations Unimpaired. The holder of Superior
Indebtedness shall not be prejudiced in the right to enforce subordination
of the Subordinated Indebtedness by any act or failure to act on the part
of the Company. The provisions of this Article VI are solely for the
purpose of defining the relative rights of the holders of Superior
Indebtedness on the one hand and the holders of Subordinated Indebtedness
on the other hand, and nothing in this Article VI shall (a) impair as
between the Company and the holder of any Subordinated Indebtedness the
obligation of the Company, which is unconditional and absolute, to pay to
the holder thereof the principal, premium, if any, and interest thereon
in accordance with the terms thereof, or (b) prevent the holder of any
Subordinated Indebtedness from exercising all remedies otherwise permitted
by applicable law under this Agreement, subject to the rights, if any,
under this Article VI of the holders of Superior Indebtedness.
Section 6.10. Securities Subordinate to Debenture. All equity securities
of the Company shall be subordinate and junior in right of payment as to
dividends, and on liquidation, to the rights of the Debenture to payment of
principal and interest and on liquidation.
ARTICLE VII
CONVERSION OF DEBENTURES
Section 7.01. Conversion Privilege. At the election of the Holder, the
unpaid principal amount of any Debenture shall be converted into shares of
Common Stock at the conversion price per share of Common Stock of Four and
No/100 Dollars ($4.00) (such conversion price, as so adjusted and readjusted
and in effect at any time, being herein called the "Conversion Price"), into
the number of fully paid and non-assessable shares of Common Stock determined
by dividing (x) the aggregate principal amount of the Debentures to be so
converted by (y) the Conversion Price in effect at the time of such conversion.
Section 7.02. Manner of Conversion; Partial Conversion, etc.
(a) Any Debenture must be converted in whole by the holder thereof by
surrender of such Debenture, accompanied by a written statement designating the
principal amount of such Debenture to be converted and stating the name and
address of the person in whose name certificates for shares of Common Stock are
to be registered, at the office of the Company specified in or pursuant to
Section 14.01. The conversion shall be deemed to have been effected as of the
close of business on the date on which such Debenture shall have been so
surrendered to such office, and at such time the rights of the holder of such
Debenture as such shall, to the extent of the principal amount thereof
converted, cease, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
thereof.
(b) The Company shall pay all cash interest on any Debenture
surrendered for conversion to the date of such conversion.
Section 7.03. Delivery of Stock Certificates. As promptly as practicable
after the conversion of any Debenture in full, and in any event within 20 days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will issue and deliver to the holder of such Debenture,
or as such holder (upon payment by such holder of any applicable transfer taxes)
may direct, a certificate or certificates for the number of full and fractional
shares of Common Stock issuable upon such conversion.
Section 7.04. Shares to be Fully Paid; Reservation of Shares. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
conversion of the Debentures will, upon issuance, be fully paid and non-
assessable and free from all taxes, liens, and charges with respect to the issue
thereof; and without limiting the generality of the foregoing, the Company
covenants and agrees that it will from time to time take all such action as may
be requisite to assure that the par value (if any) per share of the Common Stock
is at all times equal to or less than the then effective purchase price per
share of the Common Stock issuable upon conversion of the Debentures. The
Company further covenants and agrees that the Company will at all times have
authorized, and reserved for the purpose of issue or transfer upon the
conversion of the Debentures, a sufficient number of shares of its Common
Stock to provide for the conversion of the Debentures.
Section 7.05. Conversion Price Adjustments. The Conversion Price shall
be subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Reclassifications or Combinations.
If the Company shall (i) declare a dividend or make a distribution on its Common
Stock in shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or
(iii) combine or reclassify the outstanding Common Stock into a smaller number
of shares, the Conversion Price in effect at the time of the record date for
such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
holder of any Debentures surrendered for conversion after such date shall be
entitled to receive the number of shares of Common Stock which he would have
owned or been entitled to receive had such Debentures been converted
immediately prior to such date. Successive adjustments in the Conversion
Ratio shall be made whenever any event specified above shall occur.
(b) Other Distributions. In case the Corporation shall fix a
record date for the making of a distribution to all holders of shares of
its Common Stock (i) of shares of any class other than its Common Stock
or (ii) of evidences of indebtedness of the Corporation or any Subsidiary
or (iii) of assets (excluding cash dividends or distributions, and dividends
or distributions referred to in subparagraph 7.05(a) above), or (iv) of
rights or warrants, in each such case of (i) through (iv) the Conversion
Price in effect immediately prior thereto shall be immediately thereafter
proportionately adjusted for such distribution so that the holder of Debentures
would be entitled to receive the fair market value (as determined by the
Board of Directors, whose determination in good faith shall be conclusive) of
what a Holder would have been entitled to receive had such Debentures been
converted prior to such distribution. Such adjustment shall be made
successively whenever such a record date is fixed. In the event that such
distribution is not so made, the Conversion Price then in effect shall be
readjusted, effective as of the date when the Board of Directors determines
not to distribute such shares, evidences of indebtedness, assets, rights or
warrants, as the case may be, to the Conversion Price which would then be in
effect if such record date had not been fixed.
(c) Consolidation, Merger, Sale, Lease or Conveyance. In case of
any consolidation with or merger of the Corporation with or into another
corporation, or in case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or substantially
as an entirety, the Debentures shall after the date of such consolidation,
merger, sale, lease or conveyance be convertible into the number of shares
of stock or other securities or property (including cash) to which the shares
of Common Stock issuable (at the time of such consolidation, merger, sale,
lease or conveyance) upon conversion of such Debenture would have been
entitled to upon such consolidation, merger, sale, lease or conveyance; and
in any such case, if necessary, the provisions set forth herein with respect
to the rights and interests thereafter of the holders of the Debentures shall
be appropriately adjusted so as to be applicable, as nearly as may reasonably
be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the Debentures.
Section 7.06. Statement Regarding Adjustments. Whenever the Conversion
Price shall be adjusted as provided in Section 7.05, the Company shall
forthwith file, at the principal office of the Company, a statement showing
in detail the facts requiring such adjustment and the Conversion Price that
shall be in effect after such adjustment, and the Company shall also cause
a copy of such statement to be sent by mail, first class postage prepaid, to
each holder of Debentures, at its address appearing on the Company's records.
Where appropriate, such copy may be given in advance and may be included as
part of a notice required to be mailed under the provisions of Section 7.07.
Section 7.07. Notice to Holders. In the event the Company shall propose
to take any action of the type described in Section 7.05, the Company shall give
written notice to each holder of Debentures, in the manner set forth in Section
7.06, which notice shall specify the record date, if any, with respect to any
such action and the approximate date on which such action is to take place.
Such notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Conversion Price and the
number, kind or class of shares which shall be deliverable upon conversion of
Debentures. In the case of any action which would require the fixing of a
record date, such written notice shall be given at least 15 days prior to the
taking of such action. Failure to give such written notice, or any defect
therein, shall not affect the legality or validity of any such action.
Section 7.08. Costs. The Company shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock upon conversion of any Debentures; provided that the
Company shall not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any certificate for such
shares in a name other than that of the holder of the Debentures, in respect of
which shares are being issued.
ARTICLE VIII
DEFAULT AND REMEDIES
Section 8.01. Event of Default. As used in this Agreement and the
accompanying Debenture, the term "Event of Default" shall mean any one of the
following:
(a) a default in the payment of interest on any Debenture when due
and such default shall continue for more than fifteen (15) days from such due
date;
(b) a default in the payment of the principal of Debentures at
maturity or at any date fixed in any notice for prepayment;
(c) the Company sells or otherwise disposes of all or substantially
all of its assets to any Person;
(d) a default in the observance or performance of any covenant or
provision of this Agreement or of the Purchase Agreement which is not remedied
within fifteen (15) days after written notice thereof to the Company by the
holder of any Debenture;
(e) any representation or warranty made by the Company herein or in
the Purchase Agreement, or made by the Company in any written statement or
certificate furnished by the Company in connection with the consummation of the
issuance and delivery of the Debentures or furnished by the Company pursuant
hereto, is untrue in any material respect as of the date of the issuance or
making thereof;
(f) final judgment or Judgments for the payment of money aggregating
in excess of $250,000 is or are outstanding against the Company or any
Subsidiary or against any of the property or assets of the Company or any
Subsidiary and any one of such judgments has remained unpaid, unvacated,
unbonded or unstayed by appeal or otherwise for a period of thirty (30) days
from the date of its entry;
(g) the Company or any Subsidiary becomes insolvent or bankrupt, is
generally not paying its debts as they become due or makes an assignment for
the benefit of creditors, or the Company or any Subsidiary causes or suffers
an order for relief to be entered with respect to it under applicable Federal
bankruptcy law or applies for or consents to the appointment of a custodian,
trustee or receiver for the Company or any Subsidiary or for the major part of
the property of the Company or any Subsidiary;
(h) a custodian, trustee or receiver is appointed for the Company or
any Subsidiary or for the major part of the property of the Company or any
Subsidiary and is not discharged within sixty (60) days after such appointment;
(i) bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar
law or laws for the relief of debtors, are instituted by or against the
Company or any Subsidiary and, if instituted against the Company or any
Subsidiary, are consented to or are not dismissed within sixty (60) days after
such institution; or
(j) any action or failure to act, honor or pay any obligation in
which such action or the failure to act would constitute an event of default
under any existing or hereafter created loan, credit or finance agreement;
or any default of any obligation of the Company of any kind or nature which
default shall have a Material Adverse Effect on the business, operations or
assets of the Company.
Section 8.02. Default Remedies.
(a) Upon the occurrence of an Event of Default, the Holder may, upon
ten (10) days prior written notice to the Company, declare the Debenture to be,
and the outstanding principal amount of the Debenture shall thereupon be and
become, forthwith due and payable in cash, together with interest accrued
thereon; and
(b) If an Event of Default occurs, the Holder may proceed to protect
and enforce its rights by a suit in equity, action at law, or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or for an injunction against a violation of any of the terms or
provisions hereof, or in aid of the exercise of any power granted herein or
by law.
Section 8.03. Waiver of Events of Default. The holders of 51 percent
(51%) of the aggregate principal amount of the Debentures outstanding may at
any time waive an existing Event of Default and its consequences.
ARTICLE IX
TRANSFER OF DEBENTURE
Section 9.01. Restriction on Transfer. In addition to any other
restrictions on transfer of the Debenture imposed by this Article IX, the Holder
may transfer or assign his, her, or its rights and obligations under this
Agreement only in conjunction with the transfer or assignment of the Debenture.
Section 9.02. Requirements of Transfer. No transfer of the Debenture
shall be valid and effective unless and until (a) the transferor executes a
written assignment of the Debenture or executes a separate power of attorney
indicating his intent to transfer ownership, (b) the transferee executes a
Debenture Agreement, which shall be identical to this Agreement except for the
Holder's name and the date of execution and (c) the transferor delivers written
transfer instructions (i) signed by the transferor and the transferee, (ii)
stating the name and mailing and residence address of the transferee, and (iii)
stating the desired effective date of such change of ownership. If the
transferee fails to execute a Debenture Agreement, the transferee's signature on
the instructions of transfer will be deemed to constitute the transferee's
assent to the terms of the Debenture and the Debenture Agreement.
Section 9.03. Registration of Transfer. Transfer of the Debenture shall
be registered upon the Company's register of Debentures following the Company's
receipt of all documents necessary to effect transfer in accordance with Section
9.02. Such documents may be either personally delivered by the transferor or
transferee or mailed to the Company in accordance with Section 12.01 hereof.
Section 9.04. Effective Date of Transfer. The effective date of the
transfer recorded on the Company's register of Debentures shall be the date
requested in the instructions of transfer; the effective date shall not,
however, precede the date of the most recent payment date of interest with
respect to such Debenture. In the event such date precedes the date of the
most recent payment of interest on the Debenture or if the desired date is
omitted from the instructions of transfer, the Company may in its discretion
honor the transfer, and, in such case, the effective date of transfer shall be
the first date at which the Company is in receipt of all of the items required
by Section 9.02 hereof.
Section 9.05. Transferee as Holder. Upon completion of a transfer in
accordance with the provisions provided in this Article X, such Transferee shall
be considered the Holder as if the transferee had been the original party to
execute this Agreement.
Section 9.06. Issuance of New Certificates. Upon a transfer in accordance
with this Article X, and upon delivery by the transferor of his, her, or its
Debenture certificate representing the Debenture being transferred, the Company
shall cancel such Debenture certificate and shall issue a new certificate in the
transferee's name. Such new certificate shall be issued in accordance with
Article II hereof, and its provisions will be identical to those of the old
Debenture certificate except as to the Holder's name and the date of execution,
which date on the new certificate shall be the same as the effective transfer
date in accordance with Section 9.04 hereof.
Section 9.07. Legend on Debenture. The Debenture shall bear the following
legend:
"THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE, AND HAS BEEN
ISSUED PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION
REQUIREMENTS. THIS DEBENTURE MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED WITHOUT
THE PERMISSION OF THE ISSUER AND UNLESS THIS DEBENTURE SHALL HAVE BEEN DULY
REGISTERED UNDER THE ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS, OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER,
REGISTRATION AND QUALIFICATION OF THE DEBENTURE SHALL NOT BE REQUIRED. THIS
DEBENTURE IS SUBJECT TO AND ITS TRANSFER IS RESTRICTED BY THE TERMS AND
PROVISIONS OF THAT CERTAIN DEBENTURE AGREEMENT, DATED OCTOBER 9, 2001, EXECUTED
BY AND BETWEEN THE COMPANY AND THE HOLDER OF THIS DEBENTURE, A COPY OF WHICH IS
ON FILE IN THE OFFICES OF THE COMPANY."
ARTICLE X
REGISTRATION RIGHTS
Section 10.01. Registration on Request. Upon conversion of the Debenture
into Common Stock as provided in Article VII above, the Company and the Holder
shall agree to abide by and honor the terms of that certain Registration Rights
Agreement executed on May 18, 2001 between the Company and the Holder, which, by
its terms, applies to the Common Stock received upon the conversion of the
Debenture.
ARTICLE XI
CONSOLIDATION, MERGER, AND CONVEYANCE
Section 11.01. Continuation of Terms of Agreement. Nothing contained in
this Agreement or in the accompanying Debenture shall prevent any consolidation
or merger of the Company with or into any other corporation or association, or
any conveyance of the business, assets, and properties of the Company as a whole
or substantially as a whole, to any other corporation or other entity, provided
that all terms and conditions of this Agreement, including payment, to be
observed and performed by the Company shall be expressly assumed by the
successor entity formed by or resulting from any such merger or to which any
such conveyance shall have been made.
Section 11.02. Rights of Successor. If the Company or any successor
entity is consolidated or merged with or into, or shall make a conveyance to,
any other corporation or other entity, as permitted and upon the terms provided
in this Article XI, the entity formed by or resulting from such consolidation
or merger or to which such conveyance shall have been made shall succeed to and
be substituted for the Company, with the same force and effect as if it had been
named in, and had executed, this Agreement, and shall have and possess and may
exercise, subject to the terms and conditions of this Agreement, each and every
power, authority, and right herein reserved to or conferred upon the Company.
Section 11.03. Construction. For every purpose of this Agreement,
including the execution and issuance of the Debenture, the term "Corporation"
includes and means (unless the context otherwise requires) not only the
corporation that has executed this Agreement, but also any such successor entity
in accordance with the provisions of this Article XI.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. Notices. Any notice or other communication required to be
given pursuant to this Agreement must be in writing and may be given by
registered or certified mail, and if given by registered or certified mail,
shall be deemed to have been given and received when a registered or certified
letter containing such notice, properly addressed with postage prepaid, is
deposited in the United States mail; and if given otherwise than by registered
or certified mail, it shall be deemed to have been given when delivered to and
received by the party to whom addressed. Such notices shall be given to the
parties hereto at the following addresses:
If to the Company:
Pioneer Drilling Company
9310 Broadway, Building I
San Antonio, Texas 78217
with a copy to:
John D. Fisch
Matthews and Branscomb, PC
112 East Pecan Street
Suite 1100
San Antonio, Texas 78205
If to the Holder:
WEDGE Energy Services, L.L.C.
1415 Louisiana
Suite 3000
Houston, Texas 77002
Attention: President
with a copy to:
WEDGE Energy Services, L.L.C.
1415 Louisiana
Suite 3000
Houston, Texas 77002
Attention: General Counsel
with an additional copy to:
Darryl M. Burman
DiCecco, Fant & Burman
3D/International Tower
1900 West Loop South, Suite 1100
Houston, Texas 77027
or addressed to either party at such other address as such party shall
hereafter furnish to the other party in writing. The address for any purpose
hereof may be changed at any time and shall be the most recent address
furnished in writing to the other party.
Section 12.02. Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors, and assigns,
except as otherwise expressly provided herein.
Section 12.03. Severability. If any one or more of the provisions
contained in this Agreement should for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
Section 12.04. No Third Parties. Except as otherwise expressly
provided herein, nothing in this Agreement, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
or corporation other than the parties hereto and the holders from time to
time of the accompanying Debenture any security, rights, remedies, or
claims, legal or equitable, under or by reason of this Agreement, or under
or by reason of any covenant, condition, or stipulation herein contained;
and this Agreement and all the covenants, conditions, and provisions
herein contained are and shall be held for the sole and exclusive benefit
of the parties hereto and the holders from time to time of the
accompanying Debenture.
Section 12.05. Headings. The captions used in conjunction with this
Agreement are for convenience only, and shall not be deemed a part of this
Agreement or used to construe any provision hereof.
Section 12.06. Survival of Representations, Warranties, and Covenants.
The representations, warranties, and covenants of the parties shall survive the
execution of this Agreement and the issuance of the Debenture and shall remain
in full force and effect until the expiration of any applicable statute of
limitations.
Section 12.07. Entire Agreement. This Agreement and the accompanying
Debenture constitute the sole and only agreements of the parties hereto and
supersede any prior understandings or written or oral agreements between the
parties respecting the subject matter within.
Section 12.08. Inclusion of Debenture. Reference is made to the
accompanying Debenture. The provisions of such Debenture shall be deemed
incorporated into this Agreement for all purposes as though fully set forth on
the face hereof.
Section 12.09. Governing Law. This Agreement and the Debenture shall be
governed by and construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
COMPANY: HOLDER:
PIONEER DRILLING COMPANY WEDGE ENERGY SERVICES, L.L.C.
By: /s/ Michael E. Little By: /s/ Bill White
Name: Michael E. Little Name: William H. White
Title: Title:
EXHIBIT 1.04
PIONEER DRILLING COMPANY
6.75% Convertible Subordinated Debenture, Series A
Due October 9, 2006
No. 01 October 9, 2001
$18,000,000
PIONEER DRILLING COMPANY, a Texas corporation (the "Company"), for value
received, hereby promises to pay to the order of:
WEDGE ENERGY SERVICES, L.L.C.
or registered assigns
on the 9th day of October, 2006
the principal amount of
EIGHTEEN MILLION DOLLARS ($18,000,000)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at
the rate of 6.75% per annum from the date hereof until maturity, and in
accordance with the terms of that certain Debenture Agreement dated
October 9, 2001, calculated and payable in semi-annual installments beginning
on April 9, 2002. The Company agrees to pay interest on overdue principal
(including any overdue required or optional prepayment of principal), and
(to the extent legally enforceable) on any overdue installment of interest,
at the rate of ten percent (10%) per annum after maturity, whether by
acceleration or otherwise, until paid. Both the principal hereof and interest
hereon are payable at the principal office of the Company in San Antonio, Texas,
in coin or currency of the United States of America which at the time of
payment shall be legal tender for the payment of public and private debts.
This Debenture is issued under and pursuant to the terms and provisions
of that certain Debenture Agreement dated October 9, 2001, entered into by the
Company with the original holder therein referred to, and this Debenture and the
holder hereof is entitled equally and ratably with the holders of all other
Debentures, if any, outstanding under the Debenture Agreement to all the
benefits provided for thereby or referred to therein, to which Debenture
Agreement reference is hereby made for the statement thereof.
This Debenture and the other Debentures, if any, outstanding under the
Debenture Agreement may be declared due prior to their expressed maturity dates
and voluntary prepayments may be made thereon by the Company all in the events,
on the terms specified in the Debenture Agreement, and in the manner and amounts
as provided in the Debenture Agreement.
This Debenture and the indebtedness evidenced hereby, including the
principal and interest, shall at all times remain junior and subordinate to any
and all Superior Indebtedness as defined in the Debenture Agreement, all on the
terms and to the extent more fully set forth in the Debenture Agreement.
This Debenture is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Debenture or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any, and interest
of this Debenture shall be made only to or upon the order in writing of the
registered holder.
PIONEER DRILLING COMPANY
By: /s/ Michael E. Little
Michael E. Little, President
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE, AND HAS BEEN ISSUED
PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION REQUIREMENTS.
THIS DEBENTURE MAY NOT BE SOLD, TRANS-FERRED, OR ASSIGNED WITHOUT THE PERMISSION
OF THE ISSUER AND UNLESS THIS DEBENTURE SHALL HAVE BEEN DULY REGISTERED UNDER
THE ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR,
IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, REGISTRATION AND
QUALIFICATION OF THE DEBENTURE SHALL NOT BE REQUIRED. THIS DEBENTURE IS SUBJECT
TO AND ITS TRANSFER IS RESTRICTED BY THE TERMS AND PROVISIONS OF THAT CERTAIN
DEBENTURE AGREEMENT, DATED AS OF OCTOBER 9, 2001, EXECUTED BY AND BETWEEN THE
COMPANY AND THE HOLDER OF THIS DEBENTURE, A COPY OF WHICH IS ON FILE IN THE
OFFICES OF THE COMPANY.
EXHIBIT 4.2
DEBENTURE PURCHASE AGREEMENT
BETWEEN
PIONEER DRILLING COMPANY
AND
WEDGE ENERGY SERVICES, L.L.C.
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE OF CONVERTIBLE DEBENTURE. . . . . . . . . . . . . . .-1-
ARTICLE II
CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . .-2-
ARTICLE III
REPRESENTATIONS AND WARRANTIES
BY THE COMPANY AND WEDGE . . . . . . . . . . . . . . . . .-2-
ARTICLE IV
REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . .-3-
ARTICLE V
AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . .-3-
ARTICLE VI
NATURE AND SURVIVAL OF
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . .-4-
ARTICLE VII
AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . .-5-
ARTICLE VIII
NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . .-6-
ARTICLE IX
DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . .-6-
ARTICLE X
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . .-6-
DEBENTURE PURCHASE AGREEMENT
THIS D DEBENTURE PURCHASE AGREEMENT (the "Agreement"), is entered into this
9th day of October, 2001, among PIONEER DRILLING COMPANY (the "Company"), a
corporation incorporated under the laws of the State of Texas, whose principal
place of business is at 9310 Broadway, Building I, San Antonio, Texas 78217 and
WEDGE ENERGY SERVICES, L.L.C., a limited liability company organized under the
laws of the State of Delaware, whose principal place of business is at 1415
Louisiana, Suite 3000, Houston, Texas 77002 ("WEDGE").
R E C I T A L S
WHEREAS, on the date hereof, the Company will enter into the Debenture
Agreement of even date herewith in the form attached hereto as Exhibit "A" ( the
"Debenture") pursuant to the payment of $18,000,000 cash by WEDGE to the
Company;
WHEREAS, WEDGE has previously acquired 7,241,007 shares of common stock of
the Company; and
WHEREAS, in connection with the issuance of the Debenture, the parties have
agreed, among other things, that WEDGE will have the right to convert the
Debenture as provided therein and certain preemptive rights to participate in
all future debt or equity offerings in the Company;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
PURCHASE OF CONVERTIBLE DEBENTURE
1.1 Purchase by WEDGE. The Company hereby agrees to sell, and WEDGE
agrees to purchase, the 6.75% Convertible Subordinated Debenture, Series A, due
October 9, 2006, for the aggregate amount of $18,000,000 payable upon WEDGE
tendering to the Company, by wire transfer, the cash sum of $18,000,000.
Attached hereto as Exhibit "A" is the form of Debenture which sets forth all
rights of WEDGE, as a holder of such Debenture, and all duties and obligations
of the Company, as the issuer of same. The Company and WEDGE hereby expressly
incorporate all terms and conditions of the Debenture as if it were set out in
their entirety in this Section 1.1.
1.2 Continued Enforceable Agreements. The Company and WEDGE hereby
acknowledge and confirm the continued enforceability of the Common Stock
Purchase Agreement entered into on or about May 18, 2001, expressly including,
but not limited to, Sections 1.4 and 1.7, and the Registration Rights
Agreement entered into between the parties simultaneously therewith. In
the event there shall be a conflict between this Agreement and either the
Common Stock Purchase Agreement or the Registration Rights Agreement, the
terms of this Agreement shall govern.
1.3 Board Seat. So long as Purchaser shall own at least 10% of the
capital stock of the Company, the Board of Directors agrees to support and cause
to be placed on the ballot at each election of Directors not less than one name
which shall be a nominee to the Board of Directors of the Company (the "WEDGE
Board Nominee"). So long as Purchaser shall own at least 25% of the capital
stock of the Company, the Board of Directors agrees to support and cause to be
polkaed on the ballot at each election of Directors not less than three names
which shall be nominees to the Board of Directors of the Company, one of which
shall be an individual with no affiliation to WEDGE, or its affiliates, who
shall serve as an independent outside director.
1.4 Definitions. All capitalized terms, not otherwise defined herein,
shall have the meaning ascribed to them in the Debenture.
ARTICLE II
CLOSING
The closing of the transactions provided for in Article 1 of this Agreement
(herein called the "Closing") shall take place at the offices of Matthews &
Branscomb, P.C., 112 East Pecan St., Suite 1100, San Antonio, Texas, on or
before October 9, 2001 (the "Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES BY THE COMPANY AND WEDGE
The Company hereby acknowledges and expressly reconfirms all warranties and
representations contained in Article IV of the Debenture.
1.5 WEDGE represents and warrants that:
(a) Experience. WEDGE is an "accredited investor" within the
meaning of Regulation D promulgated by the Securities and Exchange Commission
under the Act, and (by virtue of its experience in evaluating and investing in
private placement transactions of securities in companies similar to the
Company) it is capable of evaluating the merits and risks of its investment in
the Company. WEDGE acknowledges that it had the opportunity to ask questions
of the officers of the Company. In reaching the conclusion that it desires to
acquire the Debenture and the Stock upon conversion, WEDGE has evaluated its
financial resources and investment position and the risks associated with this
investment and acknowledges that it is able to bear the economic risks of this
investment.
(b) Restricted Securities. As of the date hereof, WEDGE
represents, warrants and agrees that it is acquiring the Debenture, and upon
conversion the Stock, solely for its own account, for investment, and not with
a view to the distribution or resale thereof. WEDGE further represents that its
present financial condition is such that it is not under any present necessity
or constraint to dispose of such Debenture or the Stock into which it is
convertible to satisfy any existing or contemplated debt or undertaking and that
the investment is suitable for WEDGE upon the basis of WEDGE's other security
holdings, financial situation and needs. WEDGE acknowledges and understands
that it must bear the economic risk of this investment for an indefinite period
of time because the Stock must be held indefinitely unless subsequently
registered under the Act and applicable state and other securities laws or
unless an exemption from such registration is available.
(c) Unregistered Stock. WEDGE is aware that the Debenture and
the Stock have not been registered under the Act, and that, accordingly, the
Stock must be held unless it is subsequently registered under said Act or
unless, in the opinion of counsel reasonably satisfactory to the Company, a
sale or transfer may be made without registration thereunder. WEDGE agrees
that any certificates evidencing the Stock must bear a standard legend
restricting the transfer thereof consistent with the foregoing and that a
notice may be made in the records of the Company or its transfer agent
restricting the transfer of the Stock in a manner consistent with the
foregoing.
ARTICLE IV
REGISTRATION RIGHTS
Upon conversion of the Debenture into common stock as provided in Article
VII of the Debenture, the Company and the Holder shall agree to abide by and
honor the terms of that certain Registration Rights Agreement between them
executed as of May 18, 2001.
ARTICLE V
AFFIRMATIVE COVENANTS
Conditions to Obligations of WEDGE. The obligations of WEDGE under this
Agreement shall, except as may be waived in writing by WEDGE, be subject to the
following conditions:
(a) Company's Representations and Warranties True at Closing.
WEDGE shall not have discovered any material error, misstatement or omission in
the representations and warranties made by the Company in Article III above
which such error, misstatement or omission remains uncured; and the Company
shall have performed and complied with in all material respects all agreements
and conditions required by this Agreement to be performed or complied with by it
at or prior to the Closing.
(b) Opinion of Counsel for the Company. Attached hereto as
Exhibit "B" is a true and correct copy of the Opinion of Counsel to be delivered
by Matthews and Branscomb, P.C., attorneys for the Company, as approved by
counsel for WEDGE.
(c) Absence of Restraint. No order to restrain, enjoin or
otherwise prevent the consummation of this Agreement or the transactions
contemplated hereby shall have been entered; and, on the Closing Date, there
shall not be any pending or threatened litigation in any court, or any
proceeding by or before any governmental commission, board or agency, with a
view to seeking to restrain or prohibit consummation of this Agreement or the
transactions contemplated hereby or in which divestiture, rescission or
significant damages are sought in connection with this Agreement or the
transactions contemplated hereby, and no investigation by any governmental
agency shall be pending or threatened which might result in any such
litigation or other proceeding.
(d) Company Officers' Certificate. WEDGE shall have received a
certificate, dated the Closing Date, of the president, executive vice president
and financial officers of the Company (the "Officers' Certificate") to the
effect that the representations and warranties relating to the Company or its
business, financial condition, properties or assets are true in all material
respects at and as of the Closing Date or, to the extent such representations
and warranties are made at and as of a specific date, such representations and
warranties were true in all material respects, and as of such date.
(e) No Material Adverse Effect. No Material Adverse Effect in
the results of operations, financial condition or business of the Company taken
as a whole shall have occurred, and the Company shall not have suffered any
material loss or damages to any of its properties or assets which change, loss
or damage materially affects or impairs the ability of the Company to conduct
its respective businesses. For purposes of this Agreement, the term "Material
Adverse Effect" shall mean an event, circumstance, loss, development or effect
(individually or in the aggregate) when considered in light of the total
operations of the Company, would prohibit the Company from engaging in any
material aspect of its business or result in a material adverse change in the
business, operations, properties, prospects or assets of the Company, or if
measured monetarily, would exceed $100,000.
(f) Consents and Other Approvals. WEDGE shall have received
all consents and other approvals which are necessary or required, if any, to
consummate this Agreement.
(g) Release of Line of Credit. The Company shall cause to be
released and returned that certain Letter of Credit issued by Credit Suisse
in favor of Frost National Bank in the original amount of $6,000,000.
1.6 Deliveries. WEDGE shall have received (a) Debenture certificates,
and (b) any other documents which WEDGE may reasonably request to consummate
this Agreement and the transactions contemplated hereby.
ARTICLE VI
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Nature of Statements. All statements contained in any Exhibit or schedule
hereto, including the Debenture, or in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement shall be
deemed representations and warranties by the Company.
1.7 Survival of Representations and Warranties. All covenants,
agreements, representations and warranties made hereunder or pursuant hereto
or in connection with the transactions contemplated hereby shall survive the
Closing. Generally, all covenants, representations and warranties shall
remain effective for a period of 24 months from the date of closing. The
representations and warranties of the Company with respect to litigation,
ERISA and environmental matters shall remain effective for a period of 48
months from the Closing Date. The representations and warranties of the
Company with respect to taxes and title to Stock shall survive for the
applicable limitations period established by law. Notwithstanding the
foregoing, any bona fide claim which shall have been asserted during any
such survival period and the obligation to indemnify for such claim shall
continue in effect until such time as such claim shall have been resolve
or settled.
1.8 Indemnity by the Company. The Company shall indemnify and hold
harmless WEDGE and the officers, directors, managers, agents, affiliates and
representatives of WEDGE or any of them (the "WEDGE Indemnitees") from and
against, and shall reimburse the WEDGE Indemnitees from any loss, liability,
damage or expense, including reasonable attorneys' fees and costs of
investigation incurred as a result thereof, that the WEDGE Indemnitees shall
incur or suffer (collectively, the "WEDGE Recoverable Losses"), arising out of
or resulting from (a) any misrepresentation by the Company, or (b) breach by the
Company of any (i) representation or warranty contained in Article III hereof,
(ii) agreement or covenant under or pursuant to this Agreement, including the
Registration Rights Agreement, or (iii) document, certificate, schedule or
instrument delivered by or on behalf of the Company pursuant hereto.
1.9 Indemnity by WEDGE. WEDGE shall indemnify and hold harmless the
Company and the officers, directors, agents, affiliates and representatives of
the Company or any of them (the "Company Indemnitees") from and against, and
shall reimburse the Company Indemnitees for any loss, liability, damage or
expense, including reasonable attorneys' fees and cost of investigation incurred
as a result thereof, that the Company Indemnitees shall incur or suffer
(collectively, the "Company's Recoverable Losses") resulting from (a) any
misrepresentation by WEDGE, or (b) breach by WEDGE of any (i) representation or
warranty contained in Article III hereof, (ii) agreement or covenant under or
pursuant to this Agreement, or (iii) document, certificate, schedule or
instrument delivered by or on behalf of WEDGE in connection herewith.
1.10 Limitation of Liability. Notwithstanding any liability which the
Company or WEDGE may incur in Sections 6.3 and 6.4, respectively, above, the
Company shall not be obligated for a WEDGE's Recoverable Loss, and WEDGE shall
not be obligated for a Company's Recoverable Loss, unless and until such loss,
individually, or in the aggregate, shall have exceed $100,000, in which case
such liability shall be for all amounts in excess thereof.
ARTICLE VII
AFFIRMATIVE COVENANTS
Inspection of Property, Books and Records. The Company shall (a) keep
proper books of record and account in which full, true and correct entries in
conformity with generally accepted accounting principles shall be made of all
dealings and transactions in relation to its business activity, (b) permit
representatives of WEDGE to visit and inspect any of its properties and to
examine and make abstracts from any of its books and records at their customary
location during normal business hours or at such other times as WEDGE may
reasonably request, and as often as may be reasonably desired for use by WEDGE,
and to discuss the business, operations, properties and financial and other
condition of the Company with the Company's officers and employees.
Additionally, the Company will adhere to the requirements of Section 3.01 of the
Debenture by providing all financial and business information and statements
required therein within the time frames provided.
ARTICLE VIII
NEGATIVE COVENANTS
Reorganization, Stock Dividends, Reclassification, Subdivision or Stock
Issuances. The Company will not (a) enter into a reorganization, consolidation,
merger, lease or sale with another entity in connection with the sale, transfer
or conveyance of its Common Stock or assets, (b) subdivide or reclassify the
outstanding Common Stock into a greater or lesser number of shares, or (c) issue
any additional shares of its capital stock, unless it shall have given WEDGE at
least fifteen (15) days' advance written notice.
ARTICLE IX
DEFAULT
1.11 Event of Default. As used in this Agreement, the term "Event of
Default" shall mean any of the following:
(a) any default of any kind or nature under Section 8.01 of the
Debenture;
(b) any breach of any representation or warranty contained in
Article III herein in any material respect as of the date of issuance or making
thereof; or
(c) any default in the observance of any affirmative covenant set
forth in Article VI herein which is not remedied within 30 days after written
notice thereof to the Company by WEDGE.
1.12 Default Remedies. Upon the occurrence of an Event of Default, WEDGE
shall be entitled to enforce all rights and remedies provided in Section 8.02 of
the Debenture, in addition to all other rights and remedies it may be entitled
to at equity or under law.
ARTICLE X
MISCELLANEOUS
1.13 Conflict of Agreement. The parties agree that in the event that any
of the terms or conditions of this Agreement shall conflict with the terms or
conditions of the Debenture, the Debenture shall govern.
1.14 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute one agreement.
1.15 Amendments. This Agreement may be amended, modified or terminated
only by a written instrument signed by the parties hereto.
1.16 Governing Law. This Agreement shall in all respects be governed by
and shall be construed in accordance with the laws of the State of Texas.
1.17 Severability. If any provision or part thereof of this Agreement
is
found to be prohibited, unenforceable or invalid under the laws of any
jurisdiction, the provision or part thereof shall be ineffective only to the
extent of such prohibition, unenforceability or invalidity under the applicable
law without effecting the enforceability or validity of such provision in any
other jurisdiction and without invalidating the remainder of such provision or
other provisions in this Agreement.
1.18 Injunctive Relief. The Company acknowledges that a breach of any
of the provisions hereof would cause irreparable harm to WEDGE and agrees that
in the event of any such threatened breach WEDGE shall be entitled to
injunctive relief and that it shall not be required to post any bond in excess
of $1,000.
1.19 Term. Defined terms not defined herein shall have the meaning
ascribed thereto in the Debenture.
1.20 Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed, first-class postage prepaid, by certified mail, return
receipt requested.
If to WEDGE:
WEDGE Energy Services, L.L.C.
1415 Louisiana
Suite 3000
Houston, Texas 77002
Attention: President
with a copy to:
WEDGE Energy Services, L.L.C.
1415 Louisiana
Suite 3000
Houston, Texas 77002
Attention: General Counsel
with a copy to:
Darryl M. Burman, Esq.
DiCecco, Fant & Burman
1900 West Loop South
Suite 1100
Houston, Texas 77027
If to the Company:
Pioneer Drilling Company
9310 Broadway, Building I
San Antonio, Texas 78217
with a copy to:
John D. Fisch
Matthews and Branscomb, PC
112 East Pecan Street
Suite 1100
San Antonio, Texas 78205
1.21 Headings. The headings of the sections of this Agreement have been
inserted for convenience or reference only and shall in no way restrict or
otherwise modify any of the terms or provisions hereof.
1.22 Arbitration.
Negotiation Period. Any dispute, controversy or claim arising out of or
relating to this Agreement, or any alleged breach hereof, will be subject
to binding arbitration in accordance with this Section 10.10. If such a
dispute, controversy or claim exists, the parties shall attempt for a
30-day period (the "Negotiation Period") from the date any party gives
any one or more of the other parties notice (a "Dispute Notice") pursuant
to this Section, to negotiate in good faith, a resolution of the dispute.
The Dispute Notice shall set forth with specificity the basis of the
dispute. During the Negotiation Period, representatives of each party
involved in the dispute who have authority to settle the dispute shall
meet at mutually convenient times and places and use their best efforts
to resolve the dispute.
Commencement of Arbitration. If a resolution is not reached by the
parties prior to the end of the Negotiation Period, either party may
provide a written request to the American Arbitration Association within
ten (10) days from the end of such period requesting the selection of
three (3) arbitrators (the "Panel") to arbitrate the parties' respective
rights and obligations with respect to the matters set forth in the
Dispute Notice. Each arbitrator on the Panel shall be experienced in
the arbitration of complex commercial disputes.
Discovery. Each party to an arbitration shall be entitled to such
discovery as the Panel shall determine is appropriate.
Expenses of Arbitration. The expenses of the Panel shall be paid by the
party that does not substantially prevail on the merits in the arbitration
(as determined by the award of the Panel).
Location of Arbitration. The arbitration shall take place in Houston, Texas.
AAA Rules. Except as expressly provided in this Section 10.10, the Arbitration
shall be conducted in accordance with the Commercial Rules of the American
Arbitration Association as then in effect.
Attorneys' Fees and Expenses. The party that substantially prevails on the
merits of the arbitration (as defined by the Panel) shall be entitled to
reasonable attorneys' fees, costs, expenses, and necessary disbursements in
addition to any other relief to which such party may be entitled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.
PIONEER DRILLING COMPANY WEDGE ENERGY SERVICES, L.L.C.
By: /s/ Michael E. Little By: /s/ Bill White
Name: Michael E. Little Name: William H. White
Title: CEO Title: President
EXHIBIT "A"
DEBENTURE AGREEMENT
6.75% Convertible Subordinated Debenture, Series A Due October 9, 2006
Original Principal Amount $18,000,000
THIS DEBENTURE AGREEMENT (the "Agreement") is made and entered into on
this 9th day of October, 2001, by and between WEDGE Energy Services, L.L.C.,
a Delaware limited liability company ("Holder") and Pioneer Drilling Company,
a Texas corporation (the "Company").
R E C I T A L S
WHEREAS the Company is issuing this 6.75% Convertible Subordinated
Debenture, Series A due October 9, 2006 in the original principal amount of
$18,000,000 (the "Debenture" or the "Note") pursuant to the payment of
$18,000,000 cash by Holder to the Company and as set forth in that certain
Debenture Purchase Agreement of even date herewith (the "Purchase Agreement").
WHEREAS the Company is now issuing to the Holder and the Holder is
receiving such Debenture from the Company; and
WHEREAS the parties hereto wish to set forth the terms and conditions of
such Debenture;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the
following terms shall have the meanings set forth below:
Section 1.01. Closing Date. The term Closing Date shall mean October
9, 2002.
Section 1.02. Common Stock. The term "Common Stock" shall mean the
Common Stock, par value $.10 per share, of the Company.
Section 1.03. Conversion Price. The conversion price per share of
Common Stock into which the Debenture is convertible, which price is $4.00
per share, as such conversion price may be adjusted and readjusted from time
to time in accordance with the terms of Section 7.05 hereof.
Section 1.04. Debenture. The term "Debenture" shall mean the Debenture
issued by the Company and concurrently herewith being acquired by the Holder,
in the form set forth on Exhibit 1.04 attached hereto, as originally executed
or as may from time to time be supplemented or amended pursuant to its
provisions or the provisions hereof. If the Holder purchases or otherwise
becomes the owner of more than one Debenture, the term "Debentures" shall
include all of the Debentures owned by the Holder taken as a whole. The term
"Debentures" shall mean all of the Debentures issued by the Company and
governed by this Agreement and other Debenture Agreements of like tenor.
Section 1.05. Event of Default. The term "Event of Default" shall
mean an Event of Default as defined in Section 8.01 hereof.
Section 1.06. Indebtedness. The term "Indebtedness" shall mean (a)
indebtedness for money borrowed and deferred payment obligations representing
the unpaid purchase price of property or stock, other than normal trade
credits, which would be included in determining total liabilities shown on
the liability side of a consolidated balance sheet of the Company and its
Subsidiaries; (b) guarantees and endorsements of obligations of others,
directly or indirectly, including obligations under industrial revenue and
pollution control bonds, and all other repurchase agreements and indebtedness
in effect guaranteed through an agreement, contingent or otherwise, to
purchase such indebtedness, or to purchase or sell property, or to purchase
or sell services, primarily for the purpose of enabling the debtor to make
payment of the indebtedness or to assure the owner of the indebtedness
against loss, or to supply funds to or in any manner invest in the debtor,
or otherwise (but excluding guarantees and endorsements of notes, bills
and checks made in the ordinary course of business); (c) indebtedness
secured by any mortgage, lien, pledge, conditional sale agreement, title
retention agreement, or other security interest or encumbrance upon property
owned by the Company, or its Subsidiaries, even though such indebtedness has
not been assumed; and (d) amounts due under capitalized leases as reflected
on the balance sheet.
Section 1.07. Interest Rate. The term "Interest Rate" shall mean an
interest rate payable on the Debentures of 6.75% per annum and as set forth
on the face of the Debenture.
Section 1.08. Issuance Date. The term "Issuance Date" shall mean the
date of issuance of the Debenture of October 9, 2001, as set forth on the face
of the Debenture.
Section 1.09. Material Adverse Effect. For purposes of this Debenture
the term "Material Adverse Effect" shall mean an event, circumstance, loss,
development or effect (individually or in the aggregate) when considered in
light of the total operations of the Company, which would prohibit the Company
from engaging in any material aspect of its business or result in a material
adverse change in the business, operations, properties, prospects or assets of
the Company, or if measured monetarily, would exceed $100,000.
Section 1.10. Maturity Date. The term "Maturity Date" shall mean
October 9, 2006.
Section 1.11. Person. The term "Person" shall mean an individual,
partnership, corporation, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
Section 1.12. Stock. The term "Stock" shall mean those shares of
Common Stock received by Holder upon conversion as provided in Section 7.
Section 1.13. Superior Indebtedness. The term "Superior Indebtedness"
shall mean the indebtedness owed by an indirect subsidiary of the Company to
the Frost National Bank and American Bank as described in the subordination
agreements of even date herewith between Holder and each Bank.
Section 1.14. Subsidiary. The term "Subsidiary" shall mean any
corporation of which more than 80% (by number of votes) of the voting stock is
owned by the Company or another Subsidiary.
ARTICLE II
THE DEBENTURE
Section 2.01. Debenture. This Debenture is in the principal amount of
$18,000,000 and is being issued by the Company to the Holder pursuant to the
payment of Eighteen Million Dollars ($18,000,000) cash by Holder to the Company.
The Holder hereby agrees to receive such Debenture from the Company pursuant to
the terms of this Agreement, and the Company hereby agrees to issue, convey,
transfer, and assign to the Holder, the Debenture free and clear of all liens,
options, claims, and encumbrances of any kind or character whatsoever, except
for applicable transfer restrictions required by federal and state securities
laws. The Debenture may have such notations or legends as are required by
applicable law. The Debenture shall be executed on behalf of the Company by
its president or any vice president and attested to by its secretary or any
assistant secretary. The Debenture shall recite upon its face the principal
amount of indebtedness evidenced by the Debenture, the rate at which interest
is payable on the Debenture, and the terms of repayment.
Section 2.02. Acquisition Price. If the Debenture is being received
from the Company upon issuance, the acquisition price for the Debenture shall
be the aggregate principal amount thereof. No original issue discount is
contemplated by the issuance of these Debentures.
Section 2.03. [Intentionally Omitted]
Section 2.04. Registration. The Debentures shall be registered in the
Debenture records of the Company as follows: The Company shall maintain a
register of the issuance of the Debentures by recording the issuance date, the
face amount, and the name and address of the initial holder and, upon transfer
in accordance with Article X of this Agreement, each transferee of each of the
Debentures upon the books of the Company. The Company shall be entitled to
recognize the person registered in the register as the exclusive owner of a
Debenture for the purposes of payment of principal and interest thereon, and
the Company shall not be bound to recognize any equitable or other claim to or
interest in such Debenture on the part of any other person, whether or not the
Company has express notice thereof, except as otherwise provided by applicable
law.
Section 2.05. Interest on Debenture. Interest shall be payable on the
outstanding principal amount of the Debenture at the Interest Rate. Interest
on the Debenture shall be calculated on the basis of a 360-day year of twelve
30-day months. Interest shall be calculated and paid through the last such
date prior to the Maturity Date or conversion.
Section 2.06. Lost or Stolen Certificates. In the event the
certificate representing the Debenture is destroyed, misplaced, or stolen, the
Holder shall promptly notify the Company of such loss. In its discretion, the
Company may, as a condition precedent to reissuing a new Debenture certificate,
require the Holder to do one or more of the following things:
(a) Deliver a notice to the Company in the form prescribed by the
Company requesting the Company to stop transfer of such lost Debenture
certificate;
(b) Execute and deliver to the Company an affidavit of the facts
covering the loss of the Debenture certificate; and
(c) Execute and file any form required by any state or federal
regulatory authority in connection with the loss of the Debenture certificate.
After the Holder has complied with such requirements as the Company deems
necessary and appropriate, the Company shall cancel the lost certificate in its
register and shall issue a new Debenture certificate to the Holder with terms
and provisions identical to those contained in the lost certificate.
Section 2.07. Governmental Charges. For any transfer of a Debenture
or exchange of a Debenture for Debentures of another denomination, the Company
may require from the Holder the payment of a sum sufficient to reimburse it for
any stamp tax or other governmental charge incidental thereto.
Section 2.08. Prepayment of Debenture. The Company shall not be entitled
to prepay any of the outstanding amount of this Debenture.
ARTICLE III
FINANCIAL STATEMENTS AND OTHER INFORMATION.
Section 3.01. Financial and Business Information. The Company agrees to
furnish to the Holder so long as the Holder or its nominee are the holder of any
Debenture and to each other holder of the then outstanding Debentures:
(a) Quarterly Statements. Within 45 days after the end of each
quarterly fiscal period (except the last) in each fiscal year of the Company,
duplicate copies of:
(1) consolidated balance sheets of the Company as of the
close of such period,
(2) consolidated statements of income and retained earnings
of the Company for such quarterly fiscal period and for
the portion of the fiscal year ending with such period,
and
(3) consolidated statements of cash flows of the Company for
the portion of the fiscal year ending with such period.
in each case (except (a)(1) above) setting forth in comparative form the figures
for the corresponding period of the preceding fiscal year, all in reasonable
detail and certified as having been prepared in accordance with generally
accepted accounting principles, but subject to changes resulting from year-end
adjustments, by an authorized financial officer of the Company.
(b) Annual Statements. As soon as available and in any event
within 90 days after the close of each fiscal year of the
Company, duplicate copies of:
(1) audited consolidated balance sheets of the Company as
of the close of such fiscal year, and
(2) audited consolidated statements of income and retained
earnings and changes in financial position of the
Company for such fiscal year.
In each case setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and accompanied, in the case of audited
statements, by an opinion thereon of a firm of independent public accountants
of recognized national standing selected by the Company to the effect that the
audited financial statements have been prepared in accordance with generally
accepted accounting principals consistently applied (except for changes in
which such accountants concur) and that the audit by such accountants in
connection with financial statements has been made in accordance with
generally accepted auditing standards.
The financial statements delivered pursuant to paragraphs (a) and (b)
above shall set forth the amounts charged in each of the periods involved for
depreciation and amortization, and for interest expense.
(c) Audit Reports. Promptly upon receipt thereof, one copy of
each interim or special audit made by independent accountants of the books of
the Company.
(d) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally, of each Form 8-K,
10-KSB, and 10-QSB, or any successor forms, and any registration statement or
prospectus filed by the Company with any securities exchange or with the
Securities Exchange Commission, and of all press releases and other statements
made available generally by the Company to the public concerning material
developments in the business of the Company.
(e) Together with each set of quarterly statements and annual
statements pursuant to paragraphs (a) and (b) above, a certificate of an
executive officer of the Company that such financial statements are true and
correct and that the Company is not then in default under the terms of this
Debenture.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Holder as follows:
Section 4.01. Organization and Existence. The Company is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Texas and has all requisite corporate power to carry on its business
as now conducted and is qualified to do business in those jurisdictions where
such registration is required; neither its lease of property nor the conduct
of its business requires such qualification under the laws of any other
jurisdiction, except where the failure to do so would not have a Material
Adverse Effect on the financial condition or results of operations of the
Company. The Company has delivered to the Holder complete and correct copies
of the Articles of Incorporation and Bylaws of the Company as in effect on
the date hereof.
Section 4.02. Capitalization: Ownership of Stock: Authorization. The
Company has 100,000,000 authorized shares of its common stock $0.10 par value
(the "Common Stock") and 10,000,000 authorized shares of its preferred stock,
issuable in series (the "Preferred Stock"). As of September 30, 2001, the
Company had (a) 15,913,959 issued and outstanding shares of Common Stock; (b)
zero (0) shares of issued and outstanding Preferred Stock; and (c) no
treasury shares. As of September 30, 2001, the Company had granted stock
options which, if all were exercised, would equal 2,023,500 shares of Common
Stock. Other than the registration rights granted to Holder in accordance
with the transactions contemplated hereby, the Company has only incidental
registration rights to two (2) of its officers and directors, Wm. Stacy Locke
and Michael E. Little, and no other individual or entity has any registration
rights of any kind or nature (other than rights under Form S-8), including
incidental or demand registration rights. Other than items referred to
herein, there are no other options, warrants, rights, conversion rights,
phantom rights, preemptive rights or any other rights by any party to
receive equity of the Company. Upon issuance of the Common Stock into which
the Debenture may be converted (the "Stock") to Holder, Holder will be the
record and beneficial owner of the Stock and the Stock will be duly
authorized, validly issued and outstanding, fully paid and nonassessable and
would have been issued in accordance with appropriate federal and state
securities law. By virtue of the conversion rights included in the Debenture,
Holder shall receive good and valid title to the Stock, free and clear of all
liens, encumbrances, pledges, options, claims, assessments and adverse charges.
If the Stock were issued on the Closing Date, Holder's ownership would
constitute approximately 57.5% of the Company's issued and outstanding shares
of Common Stock. As a result of the issuance of the Stock, the Company will
not become obligated to issue any additional shares of capital stock
(preferred or common) to any officer, director, shareholder or other party.
The execution, delivery and performance of this Agreement will not
result in a violation or breach of any term or provision of or constitute
a default or accelerate the performance required under the Articles of
Incorporation or Bylaws of the Company or any indenture, mortgage, deed of
trust or other contract or agreement to which the Company is a party or by
which its assets are bound, or violate any order, writ, injunction or decree
of any court, administrative agency or governmental body.
Section 4.03. Enforceability. The Company has full right, power, legal
capacity and authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby and thereby, and this Agreement
is valid and constitutes legally binding obligations enforceable in accordance
with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium or similar laws affecting the enforcement
of creditors' rights, by the availability of injunctive relief or specific
performance and by general principles of equity.
Section 4.04. Securities and Exchange Commission. The Company has
filed all forms, reports and documents required to be filed by the Securities
and Exchange Commission, National Association of Securities Dealers, Inc.
and the American Stock Exchange and the state of Texas in order to comply
with all applicable laws, rules and regulations of the Securities Act of 1933,
as amended (the "Act"), the Securities and Exchange Act of 1934, as amended,
and the securities laws of the state of Texas. Notwithstanding the foregoing,
Seller has delivered to Holder a copy of that certain "no action" letter dated
August 25, 1999 from the Securities and Exchange Commission regarding Seller's
failure to comply with Regulation S-X of the Act in connection with its
acquisition of assets of Howell Drilling, Inc.
Section 4.05. Litigation; Contingencies. Except as described in the
Reports and in the Opinion of Counsel to be delivered by Matthews & Branscomb,
P.C., attorneys for the Company, as required by the Debenture Purchase
Agreement of even date herewith between the Company and Holder, there is
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company before any court, agency or arbitrator which
might result in any Material Adverse Effect in the business, properties or
condition (financial or otherwise) of the Company or which question the
validity of any action taken or to be taken pursuant to on in connection
with this Agreement, or the Stock.
Section 4.06. No Subsidiaries. Other than subsidiaries that have no
assets, liabilities or operations, the Company has no subsidiaries or any
interests in other corporations, partnerships or joint ventures except as
follows: The Company owns 100% of PDC Investment Corp., a Delaware corporation.
PDC Investment Corp. is the sole limited partner with a 99% partnership interest
in Pioneer Drilling Services, Ltd., a Texas limited partnership. The Company
owns 100% of PDC Mgmt. Co., a Texas corporation. PDC Mgmt. Co. is the sole
general partner of Pioneer Drilling Services, Ltd. and holds a 1% partnership
interest in such limited partnership. Pioneer Drilling Services, Ltd., holds
substantially all of the operating assets of the consolidated group consisting
of the Company, PDC Investment Corp., Pioneer Drilling Services, Ltd., and PDC
Mgmt. Co.
Section 4.07. Title to Assets (Personal Property).
(a) The Company is the owner of, and has marketable title to, all of its
assets, free and clear of all liens except those noted in the Company's June 30,
2001 financial statements and except for those assets leased under leases
specifically noted in the Company's June 30, 2001 financial statements. The
assets referred to in the preceding sentence include, without limitation, all
assets, properties and rights of the Company shown or reflected on the June 30,
2001 Balance Sheet or acquired by the Company since June 30, 2001, except only
for (i) cash expended and (ii) inventories and other assets used or sold and
receivables collected in the ordinary course of business since June 30, 2001.
The Company has maintained all tangible assets material to the business in good
repair, working order and operating condition, subject only to ordinary wear and
tear, and all such tangible assets are suitable for the purposes for which they
are presently being used.
(b) With respect to each lease of real or personal property of the
Company: (i) the lease is valid and binding on the Company and in full force
and effect, (ii) no rental payment is in default, (iii) the Company is in
peaceable possession of the real property or personal property which is subject
thereto, and (iv) the Company is not in default of any material provision
thereof, and to the best knowledge of the Company, no event has occurred that
with the giving of notice, the passage of time or both, would become a material
default under any such lease.
(c) The Company has all easements, rights-of-way and similar
authorizations required for the use of the real property leased by the Company
and in the conduct of the business as heretofore conducted, excluding immaterial
easements (the "Easements"). To the best knowledge of the Company, no party
thereto is in default of any material provision of any easement or any material
covenant, restriction or other agreement encumbering any of the real property,
and to the best knowledge of the Company, no event that with the giving of
notice, the passage of time or both would become a material default, has
occurred under any easement or any material covenant, restriction or other
agreement encumbering any of the real property. Neither the whole nor any
portion of any real property occupied by the Company has been condemned or
otherwise taken by any public authority, and the Company has received no
written notice that any such condemnation or taking is threatened or
contemplated.
(d) (i) Neither the properties owned or occupied by the Company nor the
occupancy or operation thereof is in material violation of any law or any
building, zoning or other ordinance, code or regulation; (ii) no notice from
any governmental body has been served upon the Company or upon any property
owned or occupied by the Company claiming any material violation of any such
law, ordinance, code or regulation or requiring, or calling to the attention
of the Company the need for, any work, repair, construction, alterations or
installation on or in connection with any such properties which has not been
complied with; and (iii) there is no material encroachment of the improvements
located on the real property owned or occupied by the Company upon any adjoining
property, or of improvements located on any adjoining property upon any
property owned or occupied by the Company.
Section 4.08. Consents. Except for the listing of the Stock with the
American Stock Exchange, the Company is not required to obtain any consent from
or approval of any court, governmental entity or any other person in connection
with the execution, delivery or performance by it of this Agreement or the
transactions contemplated hereby. The consummation of the transactions
contemplated by this Agreement will not require the approval of any entity or
person in order to prevent the termination of any material right, privilege,
license or agreement of the Company.
Section 4.09. Proprietary Rights. All patents (pending or issued),
copyrights, trademarks, state, federal and foreign registrations and
applications and trade secrets of the Company are valid and in full force
and effect and are not subject to any taxes, maintenance fees, or extension,
renewal or continuation actions by the Company falling due within 90 days
after the date hereof. There have not been any claims, actions or judicial or
other adversary proceedings involving the Company concerning any of the
Proprietary Rights and, no such action or proceeding is threatened. The
Company has the right and authority to use each item of the rights and
property referenced above in connection with the conduct of its business
including all patents, trademarks, computer hardware and software licenses;
such use has not and will not conflict with, infringe upon, or violate any
patent or other proprietary right of any other person, and the Company has
not infringed and is not now infringing any proprietary right belonging to
any other person. There are no outstanding nor to the best of the Company's
knowledge, threatened claims for breach, termination or penalty payment
with respect to any licenses or similar agreements. The Company has no
patents issued, pending or filed.
4.10. Disclosure. The Company represents and warrants that no
representation or warranty by the Company in this Agreement or in any of the
Exhibits or Schedules hereto, or certificate furnished to the Holder by or on
behalf of the Company in connection with the transactions contemplated hereby,
contains or will contain any materially untrue statement of a material fact;
and further, no Schedule omits or will omit any material item required to be
included in such Schedule. Any indemnification by the Company hereunder for
a breach of its representation and warranty in this Section 4.10 shall be made
in the manner applicable pursuant to Section 9 hereof to such representation
and warranty or to the provision of this Agreement to which such Exhibit,
Schedule or certificate relates.
4.11. Financial Statements. The Company has made available to the Holder
its Annual Report on Form 10K for the period ended March 31, 2001 and its
Quarterly Report on Form 10Q for the period ended June 30, 2001, a report of
Form 8K dated March 30, 2001 and filed April 16, 2001, a report of Form 8K
dated May 18, 2001 and filed May 29, 2001, and a report on Form 8K/A filed
June 15, 2001, and its unaudited interim financial statements dated
July 31, 2001 and August 31, 2001 (the "Reports"). "Financial Statements"
shall mean the unaudited balance sheet and statements of operations,
changes in equity and cash flows for the Company as of and for the fiscal
period ended August 31, 2001. Prior to Closing, the Company shall also
deliver to the Holder each monthly financial statement that is produced by
the Company during calendar year 2001 in its ordinary course of business
and such monthly financial statements shall be included in this definition
of Financial Statements. The Financial Statements have been prepared in
conformity with generally accepted accounting principles applied on a basis
consistent with prior periods. All of the Financial Statements present
fairly the financial position and the results of operations of the Company
on the dates and for the periods shown therein, and to the best knowledge
of the Company, there has been no Material Adverse Effect in the financial
condition of the Company since August 31, 2001.
Except as disclosed in the Reports or the Financial Statements and in the
Opinion of Counsel for the Company referred to in Section 4.05, hereof, the
Company has no debt, liability or obligation, contingent or otherwise, which
would have a Material Adverse Effect on the business or the assets of the
Company.
Section 4.12. Compliance with Laws; OSHA. To the best of the knowledge
of the Company, the Company is in compliance with all applicable laws,
ordinances, statutes, rules, regulations and orders promulgated by any court or
federal, state or local governmental body or agency relating to its assets and
business the failure to comply with which would cause a Material Adverse
Effect. The Company has not received any notice, citation, claim, assessment
or proposed assessment as to or alleging any violation of any Federal,
state or local Occupational Safety and Health laws and no violations
which materially, presently exist.
Section 4.13. Labor Matters. There is no labor strike or labor
disturbance pending, or to the knowledge of the Company threatened, against
the Company nor is any arbitration concerning an employee grievance currently
pending against the Company. The Company has experienced no work stoppage
or other material labor disturbance within the past three years. The Company
is not a party to any collective bargaining agreement with respect to its
employees and, to the knowledge of the Company, there are no current attempts
to organize its employees.
Section 4.14. ERISA. The Company has no pension, retirement, savings,
deferred compensation, and profit-sharing plan and each stock option, stock
appreciation, stock purchase, performance share, bonus or other incentive plan,
severance plan, health, group insurance or other welfare plan, or other similar
plan and any "employee benefit plan" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), under which the
Company has any current or future obligation or liability or under which any
employee or former employee (or beneficiary of any employee or former employee)
of the Company has or may have any current or future right to benefits on
account of employment with the Company (the term "plan" shall include any
contract, agreement, policy or understanding, each such plan being
hereinafter referred to individually as a "Plan").
Section 4.15. Environmental Matters. The Company has obtained all
Environmental Permits that are required with respect to its business,
operations and properties, either owned or leased, and (ii) the Company
and its properties are in compliance with all terms and conditions of all
applicable Requirements of Environmental Law and Environmental Permits,
the failure to comply with which would cause a Material Adverse Affect.
There are no Environmental Claims pending, or, to the knowledge of the
Company, threatened, against the Company. The Company has not received any
notice from any governmental authority of any violation or liability arising
under any Requirements of Environmental Law or Environmental Permit in
connection with the assets, the businesses or operations of the Company.
"Environmental Claim" means any third party (including
governmental agencies and employees) action, lawsuit, claim or proceeding
(including claims or proceedings under the Occupational Safety and Health
Act or similar laws relating to safety of employees) which seeks to impose
liability for (i) pollution or contamination of the air, surface water,
ground water or land; (ii) solid, gaseous or liquid waste generation, handling,
treatment, storage, disposal or transportation; (iii) exposure to hazardous or
toxic substances; (iv) the safety or health of employees or (v) the
transportation, processing, distribution in Commerce, use, or storage of
hydrocarbons or chemical substances. An Environmental Claim includes, but
is not limited to, a common law action, as well as a proceeding to issue,
modify or terminate an Environmental Permit.
"Environmental Permit" means any permit, license, approval or
other authorization under any applicable law, regulation and other requirement
of the United States or foreign country or of any state, municipality or other
subdivision thereof relating to pollution or protection of health or the
environment, including laws, regulations or other requirements relating to
emissions, discharges, releases or threatened releases of Pollutants,
contaminants or hazardous substances or toxic materials or wastes into
ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, or handling of hydrocarbons or chemical substances,
pollutants, contaminants or hazardous or toxic materials or wastes.
"Requirements of Environmental Law" means all requirements in
effect on the Closing Date imposed by any law, rule, regulation, or order of
any federal, foreign, state or local executive, legislative, judicial,
regulatory or administrative agency, board or authority with jurisdiction
over the Company or its properties or assets which relate to (i) pollution
or protection of the air, surface water, ground water or land; (ii) solid,
gaseous or liquid waste generation, treatment, storage, disposal or
transportation; (iii) exposure to hazardous or toxic substances; (iv) the
safety or health of employees or (v)regulation of the manufacture,
processing, distribution in Commerce, use, or storage of chemical substances.
4.16. Permits and Licenses. The Company has all material licenses,
permits and other authorizations necessary for the conduct of its business as
it is currently being conducted. To the best of the Company's knowledge,
all of such Permits are adequate for the operation of the business of the
Company as it is presently being conducted.
4.17. Insurance. Holder has been provided with all insurance policies
(together with all riders and amendments) relating to the assets or the
business of the Company are sufficient to protect against any material claim
for casualty or property damage. Such insurance policies are in full force
and effect, all premiums due thereon have been paid or accrued on the books
of the Company and will not terminate as of the Closing or the consummation
of the transactions contemplated hereby. The Company has no reason to believe
that such insurance policies will be terminated or subject to non-renewal.
4.18. Taxes. The Company has filed all tax returns and reports required
by law to be filed, or filed extensions for any period in which a tax return was
due and has paid or accrued on the financial statements provided to the Holder
all taxes, assessments and other governmental charges that are due and payable.
The charges, accruals and reserves on the books of the Company in respect of
taxes for all fiscal periods are considered adequate by the Company, and the
Company knows of no assessment for additional taxes for any of such fiscal years
or any basis therefor. All tax returns and reports are complete. No claim has
ever been made to the Company's knowledge that the Company is subject to a tax
in any jurisdiction in which the Company has not filed a return which remains
unpaid as of the Closing Date. The Company has withheld and paid all taxes
required to have been withheld or paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or other third
party. The Company has not since 1990 been the subject of an audit and the
Company has not waived any statute of limitations or agreed to an extension of
time with respect to a tax assessment or deficiency.
Section 4.19. Absence of Certain Developments. Since June 30, 2001, there
has been no change which would have a Material Adverse Effect, individually or
in the aggregate, in the assets, liabilities, condition (financial or
otherwise), operating results, business or prospects of the Company, except
changes in the ordinary course of business. Except for cash dividends paid
on its Preferred Stock, the Company has not, since the date of the Financial
Statements, directly or indirectly, declared or paid any dividend or ordered
or made any other distribution on account of any shares of any class of the
capital stock of the Company. The Company has not, since such date, directly
or indirectly redeemed, purchased or otherwise acquired any such shares or
agreed to do so or set aside any sum or property for any such purpose.
Additionally, except for the conversion of the Company's Series B Convertible
Preferred Stock (184,615 shares of preferred stock converted into 1,119,038
shares of Common Stock) and the issuance of common stock incident to the
exercise of employee options there have been no other sales of securities of
any kind or nature by the Company.
Section 4.20. Underground Storage Tanks. There are no underground storage
tanks on any of the Company's owned or leased real property.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HOLDER
The Holder hereby represents and warrants to Company:
Section 5.01. Power and Authority. The Holder has all requisite power
and authority to enter into this Agreement and to acquire the Debenture. No
provision of the Articles of Incorporation, Bylaws, or other governing
instruments of the Holder would preclude any of the transactions contemplated by
this Agreement.
Section 5.02. Authorization. The execution of this Agreement and the
consummation of the transactions contemplated herein have been duly approved by
all necessary action, corporate and otherwise, of the Holder.
Section 5.03. Investment Intent. The Holder is acquiring the Debenture
solely for its own account and not with a view to, or for resale in connection
with, any distribution or public offering thereof, within the meaning of any
applicable securities laws and regulations.
ARTICLE VI
SUBORDINATION
Section 6.01. Debentures Subordinated to Superior Indebtedness. Anything
in this Agreement or the Debentures to the contrary notwithstanding, the
indebtedness evidenced by the Debentures (such indebtedness being hereinafter
referred to as Subordinated Indebtedness) shall be subordinate and junior in
right of payment, to (but only to) all Superior Indebtedness (as defined herein)
of the Company.
Section 6.02. Payments on Subordinated Indebtedness. The Company shall
pay simple interest only on a semi-annual basis for a period of five years, with
the full amount of principal and any unpaid interest being due and payable on
the date five years from the date of this Debenture. However, any amount of
principal or interest paid by the Company to the Holder after an event of
default under any of the Superior Indebtedness, shall be held in trust for
the benefit of the holders of such Superior Indebtedness which is in default.
Section 6.03. Insolvency, etc. In the event of (a) any insolvency,
bankruptcy, receivership, liquidation, reorganization, readjustment,
composition, or other similar proceeding relating to the Company or its
property, (b) any proceeding for the liquidation, dissolution, or other
winding-up of the Company, voluntary or involuntary, and whether or not
involving insolvency or bankruptcy proceedings, (c) any assignment by the
Company for the benefit of creditors, or (d) any distribution, division,
marshaling, or application of any of the properties or assets of the Company
or the proceeds thereof to creditors, voluntary or involuntary, and whether
or not involving legal proceedings, then and in such event:
(i) all Superior Indebtedness shall first be paid in full
(including all principal, premium, if any, and interest, including interest
accruing after the commencement of any such proceeding) before any payment or
distribution of any character, whether in cash, securities, or other property
(other than securities of the Company or any other corporation provided for by
a plan of reorganization or readjustment or similar plan, the payment of which
is subordinated, at least to the extent provided in this Article VI with
respect to Subordinated Indebtedness, to the payment of all Superior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any such plan) is made in respect of any Subordinated
Indebtedness;
(ii) all principal and premium, if any, and interest on the
Subordinated Indebtedness shall forthwith become due and payable, and any
payment or distribution of any character, whether in cash, securities, or
other property (other than securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment or similar plan, the
payment of which is subordinated, at least to the extent provided in this
Article VI with respect to Subordinated Indebtedness, to the payment of all
Superior Indebtedness at the time outstanding and to any securities issued
in respect thereof under any such plan) which would otherwise (but for the
terms hereof) be payable or deliverable in respect of any Subordinated
Indebtedness, shall be paid or delivered directly to the holders of the
Superior Indebtedness, until all Superior Indebtedness shall have been paid
in full, the holders of the Subordinated Indebtedness at the time outstanding
irrevocably authorize, empower, and direct all receivers, trustees,
liquidators, conservators, fiscal agents, and others having authority in the
premises to effect all such payments and deliveries;
(iii) each holder of the Subordinated Indebtedness at the
time outstanding irrevocably authorizes and empowers each holder of the Superior
Indebtedness or such holder's representative to demand, sue for, collect, and
receive such holder's ratable share of all such payments and distributions and
to receipt therefor, and to file and prove all claims therefor and take all such
other action, in the name of such holder or otherwise, as such holder of the
Superior Indebtedness or such holder's representative may determine to be
necessary or appropriate for the enforcement of this Section 6.03; and
(iv) the holders of the Subordinated Indebtedness shall
execute and deliver to each holder of the Superior Indebtedness or such holder's
representative all such further instruments confirming the above authorization,
and all such powers of attorney, proofs of claim, assignments of claim, and
other instruments, and shall take all such other action as may be requested
by such holder of the Superior Indebtedness or such holder's representative
to enforce all claims upon or in respect of the Subordinated Indebtedness.
For all purposes of this Agreement, Superior Indebtedness shall not be deemed
to have been paid in full unless the holders thereof shall have received cash
equal to the amount of principal, premium, if any, and interest in respect of
all Superior Indebtedness at the time outstanding, and in case there are two
or more holders of the Superior Indebtedness any payment or distribution
required to be paid or delivered to the holders of the Superior Indebtedness
shall be paid or delivered to such holders ratably according to the respective
aggregate amounts remaining unpaid on the Superior Indebtedness of such
holders.
Section 6.04. Payments and Distributions Received. If any payment or
distribution of any character (whether in cash, securities, or other property)
or any security shall be received by any holder of any of the Subordinated
Indebtedness in contravention of any of the terms of this Article VI, and
except as permitted by Section 6.03 or Section 6.06, such payment or
distribution or security shall be held in trust for the benefit of, and shall
be paid over or delivered and transferred to, the holders of the Superior
Indebtedness for application to the payment of all Superior Indebtedness
remaining unpaid, to the extent necessary to pay all such Superior
Indebtedness in full. In the event of the failure of any holder of any of
the Subordinated Indebtedness to endorse or assign any such payment,
distribution or security, any holder of the Superior Indebtedness or such
holder's representative is hereby irrevocably authorized to endorse or assign
the same.
Section 6.05. Subrogation. In the event that cash, securities, or other
property otherwise payable and deliverable to the holders of the Subordinated
Indebtedness shall have been applied pursuant to Section 6.03 or Section 6.04
to the payment of Superior Indebtedness in full, then and in each such case,
the holders of the Subordinated Indebtedness shall be subrogated to any rights
of any holders of Superior Indebtedness to receive further payments or
distributions in respect of or applicable to the Superior Indebtedness.
Section 6.06. Acceleration of Subordinated Indebtedness. In case any
Subordinated Indebtedness is declared due and payable because of the occurrence
of an Event of Default with respect to the Subordinated Indebtedness under
circumstances when the terms of Section 6.03 are not applicable, the holders of
such Subordinated Indebtedness shall not be entitled to receive payment or
distribution in respect thereof until all Superior Indebtedness at the time
outstanding shall have been paid in full.
Section 6.07. Notice. In the event that any Subordinated Indebtedness
shall become due and payable before its expressed maturity on demand of the
holder thereof as the result of the occurrence of a default or event of default,
the Company will give prompt notice in writing of such happening to each holder
of Superior Indebtedness.
Section 6.08. Subordination Not Affected, etc. The terms of this
Article VI, the subordination effected hereby, and the rights of the
holders of the Superior Indebtedness shall not be affected by (a) any
amendment of or addition or supplement to any Superior Indebtedness or
any instrument or agreement relating thereto, (b) any exercise or
non-exercise of any right, power, or remedy under or in respect of any
Superior Indebtedness or any instrument or agreement relating thereto,
or (c) any waiver, consent, release, indulgence, extension, renewal,
modification, delay, or other action, inaction or omission, in respect
of any Superior Indebtedness or any instrument or agreement relating
thereto or any security therefor or guaranty thereof, whether or not
any holder of any Subordinated Indebtedness shall have had notice or
knowledge of any of the foregoing. In addition, in the event that any
holder or prospective holder of Superior Indebtedness reasonably requires
a modification or amendment of the terms of this Article VI with respect
to the subordination of the Subordinated Indebtedness, the Holder agrees
to execute any such modification or amendment to this Article VI with
respect thereto.
Section 6.09. Obligations Unimpaired. The holder of Superior
Indebtedness shall not be prejudiced in the right to enforce subordination
of the Subordinated Indebtedness by any act or failure to act on the part
of the Company. The provisions of this Article VI are solely for the
purpose of defining the relative rights of the holders of Superior
Indebtedness on the one hand and the holders of Subordinated Indebtedness
on the other hand, and nothing in this Article VI shall (a) impair as
between the Company and the holder of any Subordinated Indebtedness the
obligation of the Company, which is unconditional and absolute, to pay to
the holder thereof the principal, premium, if any, and interest thereon
in accordance with the terms thereof, or (b) prevent the holder of any
Subordinated Indebtedness from exercising all remedies otherwise permitted
by applicable law under this Agreement, subject to the rights, if any,
under this Article VI of the holders of Superior Indebtedness.
Section 6.10. Securities Subordinate to Debenture. All equity securities
of the Company shall be subordinate and junior in right of payment as to
dividends, and on liquidation, to the rights of the Debenture to payment of
principal and interest and on liquidation.
ARTICLE VII
CONVERSION OF DEBENTURES
Section 7.01. Conversion Privilege. At the election of the Holder, the
unpaid principal amount of any Debenture shall be converted into shares of
Common Stock at the conversion price per share of Common Stock of Four and
No/100 Dollars ($4.00) (such conversion price, as so adjusted and readjusted
and in effect at any time, being herein called the "Conversion Price"), into
the number of fully paid and non-assessable shares of Common Stock determined
by dividing (x) the aggregate principal amount of the Debentures to be so
converted by (y) the Conversion Price in effect at the time of such conversion.
Section 7.02. Manner of Conversion; Partial Conversion, etc.
(a) Any Debenture must be converted in whole by the holder thereof by
surrender of such Debenture, accompanied by a written statement designating the
principal amount of such Debenture to be converted and stating the name and
address of the person in whose name certificates for shares of Common Stock are
to be registered, at the office of the Company specified in or pursuant to
Section 14.01. The conversion shall be deemed to have been effected as of the
close of business on the date on which such Debenture shall have been so
surrendered to such office, and at such time the rights of the holder of such
Debenture as such shall, to the extent of the principal amount thereof
converted, cease, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
thereof.
(b) The Company shall pay all cash interest on any Debenture
surrendered for conversion to the date of such conversion.
Section 7.03. Delivery of Stock Certificates. As promptly as practicable
after the conversion of any Debenture in full, and in any event within 20 days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will issue and deliver to the holder of such Debenture,
or as such holder (upon payment by such holder of any applicable transfer taxes)
may direct, a certificate or certificates for the number of full and fractional
shares of Common Stock issuable upon such conversion.
Section 7.04. Shares to be Fully Paid; Reservation of Shares. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
conversion of the Debentures will, upon issuance, be fully paid and non-
assessable and free from all taxes, liens, and charges with respect to the issue
thereof; and without limiting the generality of the foregoing, the Company
covenants and agrees that it will from time to time take all such action as may
be requisite to assure that the par value (if any) per share of the Common Stock
is at all times equal to or less than the then effective purchase price per
share of the Common Stock issuable upon conversion of the Debentures. The
Company further covenants and agrees that the Company will at all times have
authorized, and reserved for the purpose of issue or transfer upon the
conversion of the Debentures, a sufficient number of shares of its Common
Stock to provide for the conversion of the Debentures.
Section 7.05. Conversion Price Adjustments. The Conversion Price shall
be subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Reclassifications or Combinations.
If the Company shall (i) declare a dividend or make a distribution on its Common
Stock in shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or
(iii) combine or reclassify the outstanding Common Stock into a smaller number
of shares, the Conversion Price in effect at the time of the record date for
such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
holder of any Debentures surrendered for conversion after such date shall be
entitled to receive the number of shares of Common Stock which he would have
owned or been entitled to receive had such Debentures been converted
immediately prior to such date. Successive adjustments in the Conversion
Ratio shall be made whenever any event specified above shall occur.
(b) Other Distributions. In case the Corporation shall fix a
record date for the making of a distribution to all holders of shares of
its Common Stock (i) of shares of any class other than its Common Stock
or (ii) of evidences of indebtedness of the Corporation or any Subsidiary
or (iii) of assets (excluding cash dividends or distributions, and dividends
or distributions referred to in subparagraph 7.05(a) above), or (iv) of
rights or warrants, in each such case of (i) through (iv) the Conversion
Price in effect immediately prior thereto shall be immediately thereafter
proportionately adjusted for such distribution so that the holder of Debentures
would be entitled to receive the fair market value (as determined by the
Board of Directors, whose determination in good faith shall be conclusive) of
what a Holder would have been entitled to receive had such Debentures been
converted prior to such distribution. Such adjustment shall be made
successively whenever such a record date is fixed. In the event that such
distribution is not so made, the Conversion Price then in effect shall be
readjusted, effective as of the date when the Board of Directors determines
not to distribute such shares, evidences of indebtedness, assets, rights or
warrants, as the case may be, to the Conversion Price which would then be in
effect if such record date had not been fixed.
(c) Consolidation, Merger, Sale, Lease or Conveyance. In case of
any consolidation with or merger of the Corporation with or into another
corporation, or in case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or substantially
as an entirety, the Debentures shall after the date of such consolidation,
merger, sale, lease or conveyance be convertible into the number of shares
of stock or other securities or property (including cash) to which the shares
of Common Stock issuable (at the time of such consolidation, merger, sale,
lease or conveyance) upon conversion of such Debenture would have been
entitled to upon such consolidation, merger, sale, lease or conveyance; and
in any such case, if necessary, the provisions set forth herein with respect
to the rights and interests thereafter of the holders of the Debentures shall
be appropriately adjusted so as to be applicable, as nearly as may reasonably
be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the Debentures.
Section 7.06. Statement Regarding Adjustments. Whenever the Conversion
Price shall be adjusted as provided in Section 7.05, the Company shall
forthwith file, at the principal office of the Company, a statement showing
in detail the facts requiring such adjustment and the Conversion Price that
shall be in effect after such adjustment, and the Company shall also cause
a copy of such statement to be sent by mail, first class postage prepaid, to
each holder of Debentures, at its address appearing on the Company's records.
Where appropriate, such copy may be given in advance and may be included as
part of a notice required to be mailed under the provisions of Section 7.07.
Section 7.07. Notice to Holders. In the event the Company shall propose
to take any action of the type described in Section 7.05, the Company shall give
written notice to each holder of Debentures, in the manner set forth in Section
7.06, which notice shall specify the record date, if any, with respect to any
such action and the approximate date on which such action is to take place.
Such notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Conversion Price and the
number, kind or class of shares which shall be deliverable upon conversion of
Debentures. In the case of any action which would require the fixing of a
record date, such written notice shall be given at least 15 days prior to the
taking of such action. Failure to give such written notice, or any defect
therein, shall not affect the legality or validity of any such action.
Section 7.08. Costs. The Company shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock upon conversion of any Debentures; provided that the
Company shall not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any certificate for such
shares in a name other than that of the holder of the Debentures, in respect of
which shares are being issued.
ARTICLE VIII
DEFAULT AND REMEDIES
Section 8.01. Event of Default. As used in this Agreement and the
accompanying Debenture, the term "Event of Default" shall mean any one of the
following:
(a) a default in the payment of interest on any Debenture when due
and such default shall continue for more than fifteen (15) days from such due
date;
(b) a default in the payment of the principal of Debentures at
maturity or at any date fixed in any notice for prepayment;
(c) the Company sells or otherwise disposes of all or substantially
all of its assets to any Person;
(d) a default in the observance or performance of any covenant or
provision of this Agreement or of the Purchase Agreement which is not remedied
within fifteen (15) days after written notice thereof to the Company by the
holder of any Debenture;
(e) any representation or warranty made by the Company herein or in
the Purchase Agreement, or made by the Company in any written statement or
certificate furnished by the Company in connection with the consummation of the
issuance and delivery of the Debentures or furnished by the Company pursuant
hereto, is untrue in any material respect as of the date of the issuance or
making thereof;
(f) final judgment or Judgments for the payment of money aggregating
in excess of $250,000 is or are outstanding against the Company or any
Subsidiary or against any of the property or assets of the Company or any
Subsidiary and any one of such judgments has remained unpaid, unvacated,
unbonded or unstayed by appeal or otherwise for a period of thirty (30) days
from the date of its entry;
(g) the Company or any Subsidiary becomes insolvent or bankrupt, is
generally not paying its debts as they become due or makes an assignment for
the benefit of creditors, or the Company or any Subsidiary causes or suffers
an order for relief to be entered with respect to it under applicable Federal
bankruptcy law or applies for or consents to the appointment of a custodian,
trustee or receiver for the Company or any Subsidiary or for the major part of
the property of the Company or any Subsidiary;
(h) a custodian, trustee or receiver is appointed for the Company or
any Subsidiary or for the major part of the property of the Company or any
Subsidiary and is not discharged within sixty (60) days after such appointment;
(i) bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar
law or laws for the relief of debtors, are instituted by or against the
Company or any Subsidiary and, if instituted against the Company or any
Subsidiary, are consented to or are not dismissed within sixty (60) days after
such institution; or
(j) any action or failure to act, honor or pay any obligation in
which such action or the failure to act would constitute an event of default
under any existing or hereafter created loan, credit or finance agreement;
or any default of any obligation of the Company of any kind or nature which
default shall have a Material Adverse Effect on the business, operations or
assets of the Company.
Section 8.02. Default Remedies.
(a) Upon the occurrence of an Event of Default, the Holder may, upon
ten (10) days prior written notice to the Company, declare the Debenture to be,
and the outstanding principal amount of the Debenture shall thereupon be and
become, forthwith due and payable in cash, together with interest accrued
thereon; and
(b) If an Event of Default occurs, the Holder may proceed to protect
and enforce its rights by a suit in equity, action at law, or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or for an injunction against a violation of any of the terms or
provisions hereof, or in aid of the exercise of any power granted herein or
by law.
Section 8.03. Waiver of Events of Default. The holders of 51 percent
(51%) of the aggregate principal amount of the Debentures outstanding may at
any time waive an existing Event of Default and its consequences.
ARTICLE IX
TRANSFER OF DEBENTURE
Section 9.01. Restriction on Transfer. In addition to any other
restrictions on transfer of the Debenture imposed by this Article IX, the Holder
may transfer or assign his, her, or its rights and obligations under this
Agreement only in conjunction with the transfer or assignment of the Debenture.
Section 9.02. Requirements of Transfer. No transfer of the Debenture
shall be valid and effective unless and until (a) the transferor executes a
written assignment of the Debenture or executes a separate power of attorney
indicating his intent to transfer ownership, (b) the transferee executes a
Debenture Agreement, which shall be identical to this Agreement except for the
Holder's name and the date of execution and (c) the transferor delivers written
transfer instructions (i) signed by the transferor and the transferee, (ii)
stating the name and mailing and residence address of the transferee, and (iii)
stating the desired effective date of such change of ownership. If the
transferee fails to execute a Debenture Agreement, the transferee's signature on
the instructions of transfer will be deemed to constitute the transferee's
assent to the terms of the Debenture and the Debenture Agreement.
Section 9.03. Registration of Transfer. Transfer of the Debenture shall
be registered upon the Company's register of Debentures following the Company's
receipt of all documents necessary to effect transfer in accordance with Section
9.02. Such documents may be either personally delivered by the transferor or
transferee or mailed to the Company in accordance with Section 12.01 hereof.
Section 9.04. Effective Date of Transfer. The effective date of the
transfer recorded on the Company's register of Debentures shall be the date
requested in the instructions of transfer; the effective date shall not,
however, precede the date of the most recent payment date of interest with
respect to such Debenture. In the event such date precedes the date of the
most recent payment of interest on the Debenture or if the desired date is
omitted from the instructions of transfer, the Company may in its discretion
honor the transfer, and, in such case, the effective date of transfer shall be
the first date at which the Company is in receipt of all of the items required
by Section 9.02 hereof.
Section 9.05. Transferee as Holder. Upon completion of a transfer in
accordance with the provisions provided in this Article X, such Transferee shall
be considered the Holder as if the transferee had been the original party to
execute this Agreement.
Section 9.06. Issuance of New Certificates. Upon a transfer in accordance
with this Article X, and upon delivery by the transferor of his, her, or its
Debenture certificate representing the Debenture being transferred, the Company
shall cancel such Debenture certificate and shall issue a new certificate in the
transferee's name. Such new certificate shall be issued in accordance with
Article II hereof, and its provisions will be identical to those of the old
Debenture certificate except as to the Holder's name and the date of execution,
which date on the new certificate shall be the same as the effective transfer
date in accordance with Section 9.04 hereof.
Section 9.07. Legend on Debenture. The Debenture shall bear the following
legend:
"THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE, AND HAS BEEN
ISSUED PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION
REQUIREMENTS. THIS DEBENTURE MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED WITHOUT
THE PERMISSION OF THE ISSUER AND UNLESS THIS DEBENTURE SHALL HAVE BEEN DULY
REGISTERED UNDER THE ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS, OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER,
REGISTRATION AND QUALIFICATION OF THE DEBENTURE SHALL NOT BE REQUIRED. THIS
DEBENTURE IS SUBJECT TO AND ITS TRANSFER IS RESTRICTED BY THE TERMS AND
PROVISIONS OF THAT CERTAIN DEBENTURE AGREEMENT, DATED OCTOBER 9, 2001, EXECUTED
BY AND BETWEEN THE COMPANY AND THE HOLDER OF THIS DEBENTURE, A COPY OF WHICH IS
ON FILE IN THE OFFICES OF THE COMPANY."
ARTICLE X
REGISTRATION RIGHTS
Section 10.01. Registration on Request. Upon conversion of the Debenture
into Common Stock as provided in Article VII above, the Company and the Holder
shall agree to abide by and honor the terms of that certain Registration Rights
Agreement executed on May 18, 2001 between the Company and the Holder, which, by
its terms, applies to the Common Stock received upon the conversion of the
Debenture.
ARTICLE XI
CONSOLIDATION, MERGER, AND CONVEYANCE
Section 11.01. Continuation of Terms of Agreement. Nothing contained in
this Agreement or in the accompanying Debenture shall prevent any consolidation
or merger of the Company with or into any other corporation or association, or
any conveyance of the business, assets, and properties of the Company as a whole
or substantially as a whole, to any other corporation or other entity, provided
that all terms and conditions of this Agreement, including payment, to be
observed and performed by the Company shall be expressly assumed by the
successor entity formed by or resulting from any such merger or to which any
such conveyance shall have been made.
Section 11.02. Rights of Successor. If the Company or any successor
entity is consolidated or merged with or into, or shall make a conveyance to,
any other corporation or other entity, as permitted and upon the terms provided
in this Article XI, the entity formed by or resulting from such consolidation
or merger or to which such conveyance shall have been made shall succeed to and
be substituted for the Company, with the same force and effect as if it had been
named in, and had executed, this Agreement, and shall have and possess and may
exercise, subject to the terms and conditions of this Agreement, each and every
power, authority, and right herein reserved to or conferred upon the Company.
Section 11.03. Construction. For every purpose of this Agreement,
including the execution and issuance of the Debenture, the term "Corporation"
includes and means (unless the context otherwise requires) not only the
corporation that has executed this Agreement, but also any such successor entity
in accordance with the provisions of this Article XI.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. Notices. Any notice or other communication required to be
given pursuant to this Agreement must be in writing and may be given by
registered or certified mail, and if given by registered or certified mail,
shall be deemed to have been given and received when a registered or certified
letter containing such notice, properly addressed with postage prepaid, is
deposited in the United States mail; and if given otherwise than by registered
or certified mail, it shall be deemed to have been given when delivered to and
received by the party to whom addressed. Such notices shall be given to the
parties hereto at the following addresses:
If to the Company:
Pioneer Drilling Company
9310 Broadway, Building I
San Antonio, Texas 78217
with a copy to:
John D. Fisch
Matthews and Branscomb, PC
112 East Pecan Street
Suite 1100
San Antonio, Texas 78205
If to the Holder:
WEDGE Energy Services, L.L.C.
1415 Louisiana
Suite 3000
Houston, Texas 77002
Attention: President
with a copy to:
WEDGE Energy Services, L.L.C.
1415 Louisiana
Suite 3000
Houston, Texas 77002
Attention: General Counsel
with an additional copy to:
Darryl M. Burman
DiCecco, Fant & Burman
3D/International Tower
1900 West Loop South, Suite 1100
Houston, Texas 77027
or addressed to either party at such other address as such party shall
hereafter furnish to the other party in writing. The address for any purpose
hereof may be changed at any time and shall be the most recent address
furnished in writing to the other party.
Section 12.02. Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors, and assigns,
except as otherwise expressly provided herein.
Section 12.03. Severability. If any one or more of the provisions
contained in this Agreement should for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
Section 12.04. No Third Parties. Except as otherwise expressly
provided herein, nothing in this Agreement, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
or corporation other than the parties hereto and the holders from time to
time of the accompanying Debenture any security, rights, remedies, or
claims, legal or equitable, under or by reason of this Agreement, or under
or by reason of any covenant, condition, or stipulation herein contained;
and this Agreement and all the covenants, conditions, and provisions
herein contained are and shall be held for the sole and exclusive benefit
of the parties hereto and the holders from time to time of the
accompanying Debenture.
Section 12.05. Headings. The captions used in conjunction with this
Agreement are for convenience only, and shall not be deemed a part of this
Agreement or used to construe any provision hereof.
Section 12.06. Survival of Representations, Warranties, and Covenants.
The representations, warranties, and covenants of the parties shall survive the
execution of this Agreement and the issuance of the Debenture and shall remain
in full force and effect until the expiration of any applicable statute of
limitations.
Section 12.07. Entire Agreement. This Agreement and the accompanying
Debenture constitute the sole and only agreements of the parties hereto and
supersede any prior understandings or written or oral agreements between the
parties respecting the subject matter within.
Section 12.08. Inclusion of Debenture. Reference is made to the
accompanying Debenture. The provisions of such Debenture shall be deemed
incorporated into this Agreement for all purposes as though fully set forth on
the face hereof.
Section 12.09. Governing Law. This Agreement and the Debenture shall be
governed by and construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
COMPANY: HOLDER:
PIONEER DRILLING COMPANY WEDGE ENERGY SERVICES, L.L.C.
By: /s/ Michael E. Little By: /s/ Bill White
Name: Michael E. Little Name: William H. White
Title: Title:
EXHIBIT 1.04
PIONEER DRILLING COMPANY
6.75% Convertible Subordinated Debenture, Series A
Due October 9, 2006
No. 01 October 9, 2001
$18,000,000
PIONEER DRILLING COMPANY, a Texas corporation (the "Company"), for value
received, hereby promises to pay to the order of:
WEDGE ENERGY SERVICES, L.L.C.
or registered assigns
on the 9th day of October, 2006
the principal amount of
EIGHTEEN MILLION DOLLARS ($18,000,000)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at
the rate of 6.75% per annum from the date hereof until maturity, and in
accordance with the terms of that certain Debenture Agreement dated
October 9, 2001, calculated and payable in semi-annual installments beginning
on April 9, 2002. The Company agrees to pay interest on overdue principal
(including any overdue required or optional prepayment of principal), and
(to the extent legally enforceable) on any overdue installment of interest,
at the rate of ten percent (10%) per annum after maturity, whether by
acceleration or otherwise, until paid. Both the principal hereof and interest
hereon are payable at the principal office of the Company in San Antonio, Texas,
in coin or currency of the United States of America which at the time of
payment shall be legal tender for the payment of public and private debts.
This Debenture is issued under and pursuant to the terms and provisions
of that certain Debenture Agreement dated October 9, 2001, entered into by the
Company with the original holder therein referred to, and this Debenture and the
holder hereof is entitled equally and ratably with the holders of all other
Debentures, if any, outstanding under the Debenture Agreement to all the
benefits provided for thereby or referred to therein, to which Debenture
Agreement reference is hereby made for the statement thereof.
This Debenture and the other Debentures, if any, outstanding under the
Debenture Agreement may be declared due prior to their expressed maturity dates
and voluntary prepayments may be made thereon by the Company all in the events,
on the terms specified in the Debenture Agreement, and in the manner and amounts
as provided in the Debenture Agreement.
This Debenture and the indebtedness evidenced hereby, including the
principal and interest, shall at all times remain junior and subordinate to any
and all Superior Indebtedness as defined in the Debenture Agreement, all on the
terms and to the extent more fully set forth in the Debenture Agreement.
This Debenture is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Debenture or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any, and interest
of this Debenture shall be made only to or upon the order in writing of the
registered holder.
PIONEER DRILLING COMPANY
By: /s/ Michael E. Little
Michael E. Little, President
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE, AND HAS BEEN ISSUED
PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION REQUIREMENTS.
THIS DEBENTURE MAY NOT BE SOLD, TRANS-FERRED, OR ASSIGNED WITHOUT THE PERMISSION
OF THE ISSUER AND UNLESS THIS DEBENTURE SHALL HAVE BEEN DULY REGISTERED UNDER
THE ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR,
IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, REGISTRATION AND
QUALIFICATION OF THE DEBENTURE SHALL NOT BE REQUIRED. THIS DEBENTURE IS SUBJECT
TO AND ITS TRANSFER IS RESTRICTED BY THE TERMS AND PROVISIONS OF THAT CERTAIN
DEBENTURE AGREEMENT, DATED AS OF OCTOBER 9, 2001, EXECUTED BY AND BETWEEN THE
COMPANY AND THE HOLDER OF THIS DEBENTURE, A COPY OF WHICH IS ON FILE IN THE
OFFICES OF THE COMPANY.
EXHIBIT "B"
EXHIBIT B
John D. Fisch
(210) 357-9319
October 9, 2001
WEDGE Energy Services, L.L.C.
1415 Louisiana, Suite 3000
Houston, Texas 77002
Attention: President
Re: Debenture Purchase Agreement dated October 9, 2001
Gentlemen:
We are legal counsel for Pioneer Drilling Company, a business corporation
formed under the laws of the State of Texas ("Company"). As such counsel, we
have represented the Company in connection with the execution and delivery of
the Debenture Purchase Agreement dated October 9, 2001, and all exhibits
thereto (the "Debenture Purchase Agreement") by and between you and the
Company. Capitalized terms used herein are as defined in the Debenture
Purchase Agreement, unless otherwise indicated.
As counsel for the Company, we have also examined copies of the Debenture
Purchase Agreement. We are familiar with the proceedings of the Company with
respect to the authorization, execution, and delivery of the Debenture Purchase
Agreement executed by the Company and the transactions contemplated thereby and
the execution of the other agreements referred to therein and in this opinion
letter. In addition to the foregoing, we have examined and relied upon such
other matters of law, documents, certificates, and statements of public
officials and certificates and representations of officers of the Company as
we have deemed relevant in rendering our opinion. In all of our examinations,
we have assumed the accuracy of all information furnished to us, the genuineness
of all documents submitted to us as original or certified documents, the
conformity to originalor certified documents of all copies submitted to us as
conformed or photostatic copies and the genuineness of all signatures on all
documents.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated and validly existing
and in good standing under the laws of the state of Texas, has all requisite
corporate power to own its properties and assets and to carry on its business as
now conducted;
2. The Company is duly qualified to do business and is in good standing
in the state of Texas and is not required to be qualified in any foreign
jurisdictions;
3. The authorized capital stock of the Company consists of 100,000,000
Shares of Common Stock, $0.10 par value, of which 15,913,959 are issued and
outstanding, and 10,000,000 shares of Preferred Stock, $1.00 par value, issuable
in series, of which zero (0) shares are issued and outstanding. The Debenture
has been duly and validly authorized and issued, and, to the best of our
knowledge, the Company has outstanding no options, warrants, calls or other
commitments of any kind relating to any issued, or authorized but unissued,
capital stock of the Company, except as disclosed herein or in the Debenture
Purchase Agreement, the Debenture Agreement or in the Reports. The issuance of
the Stock upon conversion of the Debenture will not cause the Company to issue
any additional shares of capital stock (preferred or common).
4. The consummation of the transactions contemplated by the Debenture
Purchase Agreement will not result in the breach of or constitute a default
(including with regard to the giving of notice or the passing of time or both)
under the Articles of Incorporation or Bylaws of the Company or any statute,
rule or regulation or, to the best of our knowledge, any loan, credit or
similar agreement or judicial or governmental decree, order or judgment to
which the Company is a party or by which the Company or its properties are
bound;
5. Except for the listing requirements of the American Stock Exchange
as to the issuance of the Stock, to the best of our knowledge, no authorization,
approval or consent of or declaration or filing with any governmental authority
or regulatory body, Federal, state or local, is necessary or required of the
Company in connection with the execution and delivery of the Debenture Purchase
Agreement or the performance by the Company of its obligations thereunder;
6. To the best our knowledge, except as to any litigation described in
the Reports, there is no outstanding litigation by or against the Company which
is likely to have a material adverse effect. Attached and incorporated into
this opinion for all purposes are copies of correspondence to the Company's
auditors from us dated May 22, 2001, and June 6, 2001, which describe the
litigation and claims involving the Company of which we are aware;
7. The Debenture Purchase Agreement has been duly authorized, executed
and delivered by the Company and constitutes valid and binding obligations of
the Company enforceable in accordance with its terms (except as otherwise
limited by bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights or by general principles of
equity, and except that we do not express an opinion as to whether any covenant
contained in the Debenture Purchase Agreement is specifically enforceable);
8. No authorization, approval or consent of or declaration or filing
with any governmental authority or regulatory body, federal, state or local, is
necessary or required of the Company in connection with the execution and
delivery of the Debenture Purchase Agreement or the performance by the Company
of its obligations thereunder; and
9. The certificates representing the Stock when delivered to Purchaser,
upon conversion will vest in Purchaser valid, legal and record ownership in the
Stock on the share transfer books and the stock ledger of the Company.
10. To the best of our knowledge, the Company has granted no registration
rights other than rights previously granted to WEDGE, Stacy Locke or Michael
Little, or rights to registrations on Form S-8. However, the undersigned
understands that there have been discussions between persons affiliated with
WEDGE and persons affiliated with former holders of the Company's Preferred
Stock regarding the sharing of registration rights with WEDGE, but the
undersigned is not aware of whether such discussions have resulted in an
agreement.
11. The Company has sufficient authorized shares necessary to cause the
conversion of the Debenture into shares of stock as provided in the Debenture
Purchase Agreement.
This opinion is delivered to you incident to the requirements of the
Debenture Purchase Agreement. Without prior written consent, this opinion
letter may not be used or relied upon by the Addressees or any other person
for any other purpose whatsoever.
Sincerely,
MATTHEWS and BRANSCOMB, P.C.
By: /s/ John D. Fisch
JOHN D. FISCH
Enclosures
John D. Fisch
(210) 357-9313
May 22, 2001
Via Facsimile 224-0126
Mr. Cody Bissett
KPMG Peat Marwick
112 East Pecan, Suite 2400
San Antonio, Texas 78205 -9968
Re: South Texas Drilling & Exploration, Inc.
Dear Sirs:
The Corporate Secretary of South Texas Drilling & Exploration, Inc. (the
"Company"), has requested that we furnish you with certain information in
connection with your audit of the financial statement of the company and its
subsidiaries as of March 31, 2001.
As concerns our response, please be advised that this firm represents the
Company as outside counsel and our employment is limited to specific matters
referred to us by officers and employees of the Company, and there may exist
many matters of a legal nature about which we have not been consulted.
Subject to the previous paragraph and the limitations in the "ABA
Statement of Policy" defined in a subsequent paragraph, we advise you that we
have not been engaged to give substantive attention to, or represent the
Company in connection with, loss contingencies coming within the scope of
Clause (a) of Paragraph 5 of the ABA Statement of Policy, except for the
following:
Pioneer Drilling Co., Ltd. has been sued by a former employee, Romeo L. Marines,
in Cause No. 01-0706-B in the 117th District Court of Nueces County, Texas.
The suit was initiated on February 6, 2001. In the lawsuit, Mr. Marines claims
Pioneer Drilling Co., Ltd. wrongfully terminated him because he filed a worker's
compensation claim following an on-the-job injury. He claims damages for lost
salary in the amount of $100 per week from the time of his unlawful discharge
until age 65. He also seeks damages in an unspecified amount for
self-defamation because he must reveal his termination to prospective employers.
Discovery in this suit has just commenced. South Texas Drilling & Exploration,
Inc. has denied Mr. Marines' claims and intends to vigorously defend the
lawsuit.
Pioneer Drilling Co., Ltd. has been sued by a former employee, Eliberto O.
Ramos, in Cause No. 01-02129-C in the 94th District Court of Nueces County,
Texas. The suit was initiated on April 23, 2001. In the lawsuit, Mr. Ramos
claims Pioneer Drilling Co., Ltd. wrongfully terminated him because he filed
a worker's compensation claim following an on-the-job injury. He claims
damages for lost salary in the amount of $100 per week from the time of his
unlawful discharge until age 65. He also seeks damages in an unspecified
amount for self-defamation because he must reveal his termination to prospective
employers. Discovery in this suit has just commenced. South Texas Drilling &
Exploration, Inc. has denied Mr. Ramos' claims and intends to vigorously defend
the lawsuit.
South Texas Drilling & Exploration, Inc. has been sued in Cause No.
99-CVT00376-D3 in the 341st District Court of Webb County, Texas. The suit
arises out of an oil-field accident resulting in injuries to a former employee,
Jesse Sanchez. Mr. Sanchez's wife and children have also brought claims against
South Texas Drilling & Exploration, Inc. for loss of consortium, support and
services. Plaintiffs claim South Texas Drilling & Exploration, Inc.
intentionally failed to provide a safe workplace and believed its conduct was
substantially certain to cause Mr. Sanchez's injuries. In support of the
claims, Plaintiffs allege that certain employees of South Texas Drilling &
Exploration, Inc. used alcohol and illegal drugs on the rig site. South Texas
Drilling & Exploration, Inc. has denied that Mr. Sanchez' injuries were caused
by the use of alcohol or illegal drugs on the rig site and is vigorously
defending the lawsuit.
South Texas Drilling & Exploration, Inc. and Pioneer Drilling Co., Ltd. have
been sued in Cause No. 2000CVQ000819 D1 in the 49th District Court of Webb
County, Texas. Plaintiffs in this suit are various taxing entities within
Webb County, including Webb County itself, Webb County Consolidated Independent
School District, Mirando Independent School District, City of Laredo, and the
United Independent School District. In this suit, Plaintiffs seek to require
the Chief Appraiser and the Appraisal District to re-value certain assets of
various oil and gas companies, including certain drilling rigs owned by South
Texas Drilling & Exploration, Inc. and Pioneer Drilling Co., Ltd. Plaintiffs
also seek to require the Chief Appraiser and the Appraisal District to include
certain drilling rigs, including rigs owned by South Texas Drilling &
Exploration, Inc. and Pioneer Drilling Co., Ltd., on the property tax rolls
for the years 1998, 1999 and 2000. South Texas Drilling & Exploration, Inc.
and Pioneer Drilling Co., Ltd. have denied these claims, alleging that the
rigs are not subject to taxation in Webb County. Discovery is ongoing, and
South Texas Drilling & Exploration, Inc. and Pioneer Drilling Co., Ltd. are
vigorously defending the lawsuit.
Pioneer Drilling Co., Ltd. has been sued in Cause No. 4828 in the 49th District
Court of Zapata County, Texas. Plaintiffs in this suit are Zapata County and
Zapata Independent School District. Among other things, Plaintiffs seek to
require the Chief Appraiser and the Appraisal District of Zapata County to
include certain drilling rigs, including one of Pioneer Drilling Co., Ltd.'s
rigs, on the property tax rolls for the years 1998 and 1999. Pioneer Drilling
Co., Ltd. has denied these claims, alleging that the rig is not subject to
taxation in Zapata County. Discovery is ongoing, and Pioneer
Drilling Co., Ltd. is vigorously defending the lawsuit.
This response is limited by, and in accordance with, the ABA Statement of
Policy Regarding Lawyers' Responses to Auditors' Request for Information
(December, 1975). Without limiting the generality of the foregoing, the
limitations set forth in such Statement on the scope and use of this response
(Paragraphs 2 and 7) are specifically incorporated herein by reference, and any
description herein of any "loss contingencies" is qualified in its entirety by
Paragraph 5 of the Statement of the ABA Statement of Policy).
Pursuant to the Company's request, this will confirm as correct the
Company's understanding that whenever, in the course of performing legal
services for the Company with respect to a matter recognized to involve an
unasserted possible claim or assessment, we, as a matter of professional
responsibility to the Company, will so advise the Company and will consult
with the Company concerning the question of such disclosure and the
applicable requirements of Statement No. 5 of the Financial Accounting
Standards Board. In this regard, in advising the Company with reference to
the necessity to disclose any possible unasserted claims, we accept the
Company's determination as to the probability to assertion of such claim
unless we have extrinsic evidence that cases us to disagree with the Company's
determination.
Except as otherwise may be noted, the information set forth herein is as
of the date of this letter. We disclaim any undertaking to advise you of
changes which thereafter may be brought to our attention.
Very truly yours,
MATTHEWS & BRANSCOMB
A Professional Corporation
By: /s/ John D. Fisch
John D. Fisch
cc: Mr. William D. Hibbetts [Via Facsimile]
June 6, 2001
Mr. Cody Bissett
KPMG Peat Marwick
112 East Pecan, Suite 2400
San Antonio, Texas 78205-9968
Re: South Texas Drilling & Exploration, Inc.
Dear Mr. Bissett:
This supplements our letter dated May 22, 2001 to you in response to the
request by the corporate secretary of South Texas Drilling & Exploration, Inc.
(the "Company") that we furnish you certain information in connection with your
audit of the financial statements of the Company and its subsidiaries as of
March 31, 2001.
In addition to the information provided to you in our letter of May 22,
2001 relating to Cause No. 99-CVT00376-D3 in the 341st District Court of Webb
County, Texas, the Company is obligated under an agreement with the operator of
the well site at which Mr. Sanchez received his injuries to indemnify and hold
the operator harmless from any loss or damage resulting from personal injuries
to the Company's employees, including Mr. Sanchez, incurred during operations at
such site. The Company's general liability carrier has undertaken the defense
of the operator in a claim by Mr. Sanchez against the operator for damages under
a theory of negligence which is part of Cause No. 99-CVT00376-D3. In addition
to the $1,000,000 general liability insurance policy under which the Company's
carrier is now defending the operator, the Company has in place a $10,000,000
excess coverage policy with the same carrier obtained for the purpose of paying
any damages incurred by the operator and included under the Company's hold
harmless and indemnity obligations to the operator.
Very truly yours,
Matthews and Branscomb
A Professional Corporation
/s/ John D. Fisch
John D. Fisch
EXHIBIT 4.3
SUBORDINATION AGREEMENT
This Subordination Agreement (this "Agreement") is made this 9th day of
October 2001 by and between Wedge Energy Services, L.L.C. a Delaware
limited liability company ("WEDGE"), The American Bank, N.A. ("American Bank")
and Pioneer Drilling Company ("Pioneer") and Pioneer Drilling Services, Ltd.
(the "Partnership").
WHEREAS, WEDGE intends to purchase from Pioneer, for the sum of
$18,000,000.00, a Convertible Subordinated Debenture of even date
herewith (the "Subordinated Debenture"); and
WHEREAS, The Frost National Bank ("Frost Bank") has entered into a Loan
Agreement, dated March 30, 2001 (the "Frost Loan Agreement"), under which
the Partnership, (formerly known as Pioneer Drilling Co., Ltd. and which is
a partnership wholly owned by subsidiaries of Pioneer)borrowed up to
$12,000,000.00, evidenced by one or more notes issued under the Loan Agreement
(the "Notes") which Notes were secured by certain of the assets of the
Partnership pursuant to a Security Agreement of even date therewith (the
"Security Agreement"), and further, Frost Bank has made two loans in the
amount of $1,000,000.00 under a note dated March 20, 2001 (the "March 2001
Note")and $9,000,000.00 under a note dated August 11, 2000 (the "August Note")
to Pioneer and/or the Partnership. The Loan Agreement, Notes, Security
Agreement, the March 2001 Note and the August Note, and any renewals and
extensions thereof, are collectively referred to herein as the "Frost
Superior Indebtedness"; and
WHEREAS, American Bank has entered into a Loan Agreement (the "American
Loan Agreement") with Pioneer under which Pioneer borrowed $3,000,000.00,
evidenced by one or more notes issued under the Loan Agreement (the "Notes")
which Notes are to be secured by certain real estate and assets of the
Partnership pursuant to a Deed of Trust and Security Agreement (the
"Security Agreement"). The American Loan Agreement would otherwise prevent the
issuance of the Subordinated Debenture without the consent of American Bank.
The Loan Agreement, Notes and Deed of Trust and Security Agreement and any
renewals and extensions thereof, are collectively referred to herein as the
"American Superior Indebtedness"); and
WHEREAS, WEDGE has agreed to subordinate the Subordinated Debenture and
any renewals and extensions thereof (the "Inferior Indebtedness") to the Frost
Superior Indebtedness and the American Superior Indebtedness (collectively,
the "Superior Indebtedness"):
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that WEDGE, in
consideration of the premises, and in consideration of the sum of TEN AND NO/100
DOLLARS ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which consideration is hereby acknowledged, HAS COVENANTED
AND AGREED, and does hereby COVENANT AND AGREE, that the Inferior Indebtedness
shall be, and the same is hereby made subject and inferior to the Frost Superior
Indebtedness and the parties hereto agree as follows:
1. Consent of Lender and Subordination. American Bank does hereby
consent to the issuance by Pioneer of the $18,000,000.00 Convertible
Subordinated Debenture to WEDGE. Until the American Superior Indebtedness
is paid in full, including any renewals or extensions thereof, the payment
of the Inferior Indebtedness shall be subordinated to the payment of the
American Superior Indebtedness in accordance with the terms of this Agreement.
2. Payments on Inferior Indebtedness. WEDGE shall be entitled to receive
payments of simple interest only on a semi-annual basis for a period of five
years from the issuance of the Subordinated Debenture, with the full amount
of principal and any unpaid interest being due and payable on the date five
years from the date of the Subordinated Debenture. However, from and
after an event of default under either of the Superior Indebtedness and the
failure of Pioneer to cure such default pursuant to any contractual right to
cure such default, no further payments shall be made with respect to the
Inferior Indebtedness (until the Superior Indebtedness is paid in full) and any
amount of principal or interest paid by Pioneer to WEDGE after an event of
default under either of the Superior Indebtedness, shall be held in trust for
the benefit of the Frost Bank and American Bank, on a pro rata basis based upon
the amount owing Frost Bank and American Bank respectively.
3. Insolvency, etc. In the event of (a) any insolvency, bankruptcy,
receivership, liquidation, reorganization, readjustment, composition, or other
similar proceeding relating to Pioneer or its property, (b) any proceeding for
the liquidation, dissolution, or other winding-up of Pioneer, voluntary or
involuntary, and whether or not involving insolvency or bankruptcy proceedings,
(c) any assignment by Pioneer for the benefit of creditors, or (d) any
distribution, division, marshaling, or application of any of the properties or
assets of Pioneer or the proceeds thereof to creditors, voluntary or
involuntary, and whether or not involving legal proceedings, then and in such
event:
(i) all Superior Indebtedness shall first be paid in full (including all
principal, premium, if any, and interest, including interest accruing after
the commencement of any such proceeding) before any payment or distribution
of any character, whether in cash, securities, or other property (other than
securities of Pioneer or any other corporation provided for by a plan of
reorganization or readjustment or similar plan, the payment of which is
subordinated, at least to the extent provided in this Agreement with
respect to Inferior Indebtedness, to the payment of all Superior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any such plan) is made in respect of any Inferior Indebtedness;
(ii) all principal and premium, if any, and interest on the Inferior
Indebtedness shall forthwith become due and payable, and any payment or
distribution of any character, whether in cash, securities, or other
property (other than securities of Pioneer or any other corporation
provided for by a plan of reorganization or readjustment or similar plan,
the payment of which is subordinated, at least to the extent provided in
this Agreement with respect to Inferior Indebtedness, to the payment of
all Superior Indebtedness at the time outstanding and to any securities
issued in respect thereof under any such plan) which would otherwise (but
for the terms hereof) be payable or deliverable in respect of any Inferior
Indebtedness, shall be paid or delivered directly to the holders of the
Superior Indebtedness, until all Superior Indebtedness shall have been
paid in full, the holders of the Inferior Indebtedness at the time
outstanding irrevocably authorize, empower, and direct all receivers,
trustees, liquidators, conservators, fiscal agents, and others having
authority in the premises to effect all such payments and deliveries;
(iii) each holder of the Inferior Indebtedness at the time outstanding
irrevocably authorizes and empowers each holder of the Superior Indebtedness
or such holder's representative to demand, sue for, collect, and receive
such holder's ratable share of all such payments and distributions and to
receipt therefor, and to file and prove all claims therefor and take all
such other action, in the name of such holder or otherwise, as such holder
of the Superior Indebtedness or such holder's representative may determine
to be necessary or appropriate for the enforcement of this Section 3; and
(iv) the holders of the Inferior Indebtedness shall execute and deliver
to each holder of the Superior Indebtedness or such holder's representative
all such further instruments confirming the above authorization, and all such
powers of attorney, proofs of claim, assignments of claim, and other
instruments, and shall take all such other action as may be requested by such
holder of the Superior Indebtedness or such holder's representative to
enforce all claims upon or in respect of the Inferior Indebtedness.
For all purposes of this Agreement, Superior Indebtedness shall not be
deemed to have been paid in full unless the holders thereof shall have received
cash equal to the amount of principal, premium, if any, and interest in respect
of all Superior Indebtedness at the time outstanding, and in case there are two
or more holders of the Superior Indebtedness any payment or distribution
required to be paid or delivered to the holders of the Superior Indebtedness
shall be paid or delivered to such holders ratably according to the respective
aggregate amounts remaining unpaid on the Superior Indebtedness of such holders.
3. Payments and Distributions Received. If any payment or distribution
of any character (whether in cash, securities, or other property) or any
security shall be received by any holder of any of the Inferior Indebtedness
in contravention of any of the terms of this Agreement, such payment or
distribution or security shall be held in trust for the benefit of, and shall
be paid over or delivered and transferred to, the holders of the Superior
Indebtedness for application to the payment of all Superior Indebtedness
remaining unpaid, on a pro rata basis based upon the amount owing to the holders
of the Superior Indebtedness, to the extent necessary to pay all such Superior
Indebtedness in full. In the event of the failure of any holder of any of
the Inferior Indebtedness to endorse or assign any such payment, distribution
or security, any holder of the Superior Indebtedness or such holder's
representative is hereby irrevocably authorized to endorse or assign the same.
4. Subrogation. In the event that cash, securities, or other property
otherwise payable and deliverable to the holders of the Inferior Indebtedness
shall have been applied pursuant to this Agreement to the payment of Superior
Indebtedness in full, then and in each such case, the holders of the Inferior
Indebtedness shall be subrogated to any rights of any holders of Superior
Indebtedness to receive further payments or distributions in respect of or
applicable to the Superior Indebtedness.
5. Acceleration of Inferior Indebtedness. In case any Inferior
Indebtedness is declared due and payable because of the occurrence of an Event
of Default with respect to the Inferior Indebtedness under circumstances when
the terms of Section 2 are not applicable, the holders of such Inferior
Indebtedness shall not be entitled to receive payment or distribution in
respect thereof until all Superior Indebtedness at the time outstanding
shall have been paid in full.
6. Notice. In the event that any Inferior Indebtedness shall become due
and payable before its expressed maturity on demand of the holder thereof as the
result of the occurrence of a default or event of default, Pioneer will give
prompt notice in writing of such happening to each holder of Superior
Indebtedness.
7. Subordination Not Affected, etc. The terms of this Agreement, the
subordination effected hereby, and the rights of the holders of the Superior
Indebtedness shall not be affected by (a) any amendment of or addition or
supplement to any Superior Indebtedness or any instrument or agreement relating
thereto, (b) any exercise or non-exercise of any right, power, or remedy under
or in respect of any Superior Indebtedness or any instrument or agreement
relating thereto, or (c) any waiver, consent, release, indulgence, extension,
renewal, modification, delay, or other action, inaction or omission, in respect
of any Superior Indebtedness or any instrument or agreement relating thereto
or any security therefor or guaranty thereof, whether or not any holder of
any Inferior Indebtedness shall have had notice or knowledge of any of the
foregoing. In addition, in the event that any holder or prospective holder
of Superior Indebtedness reasonably requires a modification or amendment
of the terms of this Agreement with respect to the subordination of the
Inferior Indebtedness, the Holder agrees to execute any such modification
or amendment to this Agreement with respect thereto.
8. Obligations Unimpaired. The holders of Superior Indebtedness
shall not be prejudiced in the right to enforce subordination of the
Inferior Indebtedness by any act or failure to act on the part of
Pioneer. The provisions of this Agreement are solely for the purpose
of defining the relative rights of the holders of Superior Indebtedness
on the one hand and the holders of Inferior Indebtedness on the other
hand, and nothing in this Agreement shall (a) impair as between Pioneer
and the holder of any Inferior Indebtedness, the obligation of Pioneer,
which is unconditional and absolute, to pay to the holder thereof the
principal, premium, if any, and interest thereon in accordance with the
terms thereof, or (b) prevent the holder of any Inferior Indebtedness
from exercising all remedies otherwise permitted by applicable law under
this Agreement, subject to the rights, if any, under this Agreement of
the holders of Superior Indebtedness.
IN WITNESS WHEREOF, this instrument has been executed effective the
9th day of October, 2001.
WEDGE:
/s/ William H. White
BY: William H. White,
President
American Bank:
American Bank
By: Wayne C. Meyer
Its:Branch Executive Officer
Pioneer:
Pioneer Drilling Company
By: Michael E. Little
Its: CEO
The Partnership
Pioneer Drilling Services, Ltd.
By: PDC Mgmt. Co., general
partner
By: Michael E. Little
Its: CEO
EXHIBIT 4.4
SUBORDINATION AGREEMENT
This Subordination Agreement (this "Agreement") is made this 9th day of
October 2001 by and between Wedge Energy Services, L.L.C. a Delaware limited
liability company ("WEDGE"), The Frost National Bank ("Frost Bank") and Pioneer
Drilling Company ("Pioneer") and Pioneer Drilling Services, Ltd. (the
"Partnership").
WHEREAS, WEDGE intends to purchase from Pioneer, for the sum of
$18,000,000.00, a Convertible Subordinated Debenture of even date herewith (the
"Subordinated Debenture"); and
WHEREAS, Frost Bank has entered into a Loan Agreement, dated March 30, 2001
(the "Frost Loan Agreement"), under which the Partnership, (formerly known as
Pioneer Drilling Co., Ltd. and which is a partnership wholly owned by
subsidiaries of Pioneer) borrowed up to $12,000,000.00, evidenced by one or more
notes issued under the Frost Loan Agreement (the "Notes") which Notes were
secured by certain of the assets of the Partnership pursuant to a Security
Agreement of even date therewith (the "Security Agreement"), and further,
Frost Bank has made two loans in the amount of $1,000,000.00 under a note
dated March 20, 2001 (the "March 2001 Note") and $9,000,000.00 under a note
dated August 11, 2000 (the "August Note") to Pioneer and/or the Partnership.
The Frost Loan Agreement would otherwise prevent the issuance of the
Subordinated Debenture without the consent of Frost Bank. The Frost
Loan Agreement, Notes, Security Agreement, the March 2001 Note and the August
Note, and any renewals and extensions thereof, are collectively referred to
herein as the "Frost Superior Indebtedness"; and
WHEREAS, the American Bank, N.A. ("American Bank") has entered into a Loan
Agreement (the "American Loan Agreement") with Pioneer under which Pioneer
borrowed $3,000,000.00, evidenced by one or more notes issued under the American
Loan Agreement (the "Notes") which Notes are to be secured by certain real
estate and assets of the Partnership pursuant to a Deed of Trust and Security
Agreement (the "Security Agreement"). The American Loan Agreement, Notes and
Deed of Trust and Security Agreement and any renewals and extensions thereof,
are collectively referred to herein as the "American Superior Indebtedness");
and
WHEREAS, WEDGE has agreed to subordinate the Subordinated Debenture and any
renewals and extensions thereof (the "Inferior Indebtedness") to the Frost
Superior Indebtedness and the American Superior Indebtedness (collectively, the
"Superior Indebtedness"):
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that WEDGE, in
consideration of the premises, and in consideration of the sum of TEN AND NO/100
DOLLARS ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which consideration is hereby acknowledged, HAS COVENANTED AND
AGREED, and does hereby COVENANT AND AGREE, that the Inferior Indebtedness shall
be, and the same is hereby made subject and inferior to the Frost Superior
Indebtedness and the parties hereto agree as follows:
1. Consent of Lender and Subordination. Frost Bank does hereby consent
to the issuance by Pioneer of the $18,000,000.00 Convertible Subordinated
Debenture to WEDGE. Until the Frost Superior Indebtedness is paid in full,
including any renewals or extensions thereof, the payment of the Inferior
Indebtedness shall be subordinated to the payment of the Frost Superior
Indebtedness in accordance with the terms of this Agreement.
2. Payments on Inferior Indebtedness. In accordance with the
Subordinated Debenture, WEDGE shall be entitled to receive payments of simple
interest only on a semi-annual basis for a period of five years from the
issuance of the Subordinated Debenture, with the full amount of principal and
any unpaid interest being due and payable on the date five years from the date
of the Subordinated Debenture. However, from and after an event of default
under either of the Superior Indebtedness and the failure of Pioneer to cure
such default pursuant to any contractual right to cure such default, no
further payments shall be made with respect to the Inferior Indebtedness
(until the Superior Indebtedness is paid in full) and any amount of principal
or interest paid by Pioneer to WEDGE after an event of default under either
of the Superior Indebtedness, shall be held in trust for the benefit of the
Frost Bank and American Bank, on a pro rata basis based upon the amount owing
Frost Bank and American Bank respectively.
3. Insolvency, etc. In the event of (a) any insolvency, bankruptcy,
receivership, liquidation, reorganization, readjustment, composition, or other
similar proceeding relating to Pioneer or its property, (b) any proceeding for
the liquidation, dissolution, or other winding-up of Pioneer, voluntary or
involuntary, and whether or not involving insolvency or bankruptcy proceedings,
(c) any assignment by Pioneer for the benefit of creditors, or (d) any
distribution, division, marshaling, or application of any of the properties or
assets of Pioneer or the proceeds thereof to creditors, voluntary or
involuntary, and whether or not involving legal proceedings, then and in such
event:
(i) all Superior Indebtedness shall first be paid in full
(including all principal, premium, if any, and interest, including interest
accruing after the commencement of any such proceeding) before any payment or
distribution of any character, whether in cash, securities, or other property
(other than securities of Pioneer or any other corporation provided for by a
plan of reorganization or readjustment or similar plan, the payment of which is
subordinated, at least to the extent provided in this Agreement with respect to
Inferior Indebtedness, to the payment of all Superior Indebtedness at the time
outstanding and to any securities issued in respect thereof under any such plan)
is made in respect of any Inferior Indebtedness;
(ii) all principal and premium, if any, and interest on the Inferior
Indebtedness shall forthwith become due and payable, and any payment or
distribution of any character, whether in cash, securities, or other property
(other than securities of Pioneer or any other corporation provided for by a
plan of reorganization or readjustment or similar plan, the payment of which is
subordinated, at least to the extent provided in this Agreement with respect to
Inferior Indebtedness, to the payment of all Superior Indebtedness at the time
outstanding and to any securities issued in respect thereof under any such plan)
which would otherwise (but for the terms hereof) be payable or deliverable in
respect of any Inferior Indebtedness, shall be paid or delivered directly to the
holders of the Superior Indebtedness, until all Superior Indebtedness shall have
been paid in full, the holders of the Inferior Indebtedness at the time
outstanding irrevocably authorize, empower, and direct all receivers, trustees,
liquidators, conservators, fiscal agents, and others having authority in the
premises to effect all such payments and deliveries;
(iii) each holder of the Inferior Indebtedness at the time
outstanding irrevocably authorizes and empowers each holder of the Superior
Indebtedness or such holder's representative to demand, sue for, collect, and
receive such holder's ratable share of all such payments and distributions and
to receipt therefor, and to file and prove all claims therefor and take all such
other action, in the name of such holder or otherwise, as such holder of the
Superior Indebtedness or such holder's representative may determine to be
necessary or appropriate for the enforcement of this Section 3; and
(iv) the holders of the Inferior Indebtedness shall execute and
deliver to each holder of the Superior Indebtedness or such holder's
representative all such further instruments confirming the above authorization,
and all such powers of attorney, proofs of claim, assignments of claim, and
other instruments, and shall take all such other action as may be requested by
such holder of the Superior Indebtedness or such holder's representative to
enforce all claims upon or in respect of the Inferior Indebtedness.
For all purposes of this Agreement, Superior Indebtedness shall not be
deemed to have been paid in full unless the holders thereof shall have received
cash equal to the amount of principal, premium, if any, and interest in respect
of all Superior Indebtedness at the time outstanding, and in case there are two
or more holders of the Superior Indebtedness any payment or distribution
required to be paid or delivered to the holders of the Superior Indebtedness
shall be paid or delivered to such holders ratably according to the respective
aggregate amounts remaining unpaid on the Superior Indebtedness of such holders.
4. Payments and Distributions Received. If any payment or distribution
of any character (whether in cash, securities, or other property) or any
security shall be received by any holder of any of the Inferior Indebtedness
in contravention of any of the terms of this Agreement, such payment or
distribution or security shall be held in trust for the benefit of, and shall
be paid over or delivered and transferred to, the holders of the Superior
Indebtedness for application to the payment of all Superior Indebtedness
remaining unpaid, on a pro rata basis based upon the amount owing to the
holders of the Superior Indebtedness, to the extent necessary to pay all such
Superior Indebtedness in full. In the event of the failure of any holder of
any of the Inferior Indebtedness to endorse or assign any such payment,
distribution or security, any holder of the Superior Indebtedness or such
holder's representative is hereby irrevocably authorized to endorse or assign
the same.
5. Subrogation. In the event that cash, securities, or other property
otherwise payable and deliverable to the holders of the Inferior Indebtedness
shall have been applied pursuant to this Agreement to the payment of Superior
Indebtedness in full, then and in each such case, the holders of the Inferior
Indebtedness shall be subrogated to any rights of any holders of Superior
Indebtedness to receive further payments or distributions in respect of or
applicable to the Superior Indebtedness.
6. Acceleration of Inferior Indebtedness. In case any Inferior
Indebtedness is declared due and payable because of the occurrence of an Event
of Default with respect to the Inferior Indebtedness under circumstances when
the terms of Section 2 are not applicable, the holders of such Inferior
Indebtedness shall not be entitled to receive payment or distribution in
respect thereof until all Superior Indebtedness at the time outstanding shall
have been paid in full.
7. Notice. In the event that any Inferior Indebtedness shall become due
and payable before its expressed maturity on demand of the holder thereof as
the result of the occurrence of a default or event of default, Pioneer will
give prompt notice in writing of such happening to each holder of Superior
Indebtedness.
8. Subordination Not Affected, etc. The terms of this Agreement, the
subordination effected hereby, and the rights of the holders of the Superior
Indebtedness shall not be affected by (a) any amendment of or addition or
supplement to any Superior Indebtedness or any instrument or agreement relating
thereto, (b) any exercise or non-exercise of any right, power, or remedy under
or in respect of any Superior Indebtedness or any instrument or agreement
relating thereto, or (c) any waiver, consent, release, indulgence, extension,
renewal, modification, delay, or other action, inaction or omission, in respect
of any Superior Indebtedness or any instrument or agreement relating thereto or
any security therefor or guaranty thereof, whether or not any holder of any
Inferior Indebtedness shall have had notice or knowledge of any of the
foregoing. In addition, in the event that any holder or prospective holder of
Superior Indebtedness reasonably requires a modification or amendment of the
terms of this Agreement with respect to the subordination of the Inferior
Indebtedness, the Holder agrees to execute any such modification or amendment
to this Agreement with respect thereto.
9. Obligations Unimpaired. The holder of Superior Indebtedness shall
not be prejudiced in the right to enforce subordination of the Inferior
Indebtedness by any act or failure to act on the part of Pioneer. The
provisions of this Agreement are solely for the purpose of defining the
relative rights of the holders of Superior Indebtedness on the one hand and
the holders of Inferior Indebtedness on the other hand, and nothing in this
Agreement shall (a) impair as between Pioneer and the holder of any Inferior
Indebtedness, the obligation of Pioneer, which is unconditional and absolute,
to pay to the holder thereof the principal, premium, if any, and interest
thereon in accordance with the terms thereof, or (b) prevent the holder of
any Inferior Indebtedness from exercising all remedies otherwise permitted
by applicable law under this Agreement, subject to the rights, if any, under
this Agreement of the holders of Superior Indebtedness.
IN WITNESS WHEREOF, this instrument has been executed effective the
9th day of October, 2001.
WEDGE:
/s/ William H. White
BY: William H. White, President
Frost Bank:
The Frost National Bank
By: Casey Schaeffer
Its: Vice President
Pioneer:
Pioneer Drilling Company
By: Michael E. Little
Its: CEO
The Partnership
Pioneer Drilling Services, Ltd.
By: PDC Mgmt. Co., general partner
By: Michael E. Little
Its: CEO