EXHIBIT 99.2
DEBENTURE AGREEMENT
6.75% CONVERTIBLE SUBORDINATED DEBENTURE, SERIES B DUE JULY 3, 2007
ORIGINAL PRINCIPAL AMOUNT UP TO $28,000,000
THIS DEBENTURE AGREEMENT (the "Agreement") is made and entered into on
this 3rd day of July, 2002, by and between WEDGE Energy Services, L.L.C., a
Delaware limited liability company, or its assigns ("Holder") and Pioneer
Drilling Company, a Texas corporation (the "Company").
RECITALS
WHEREAS on the Initial Closing Date, the Company is issuing this 6.75%
Convertible Subordinated Debenture, Series B, No.1 , due July 3, 2007 in the
original principal amount of $25,000,000 and on the Subsequent Closing Date will
issue that certain 6.75% Convertible Subordinated Debenture, Series B, No. 2, in
the original principal amount of $3,000,000 (collectively referred to as the
"Debenture" or the "Note") pursuant to (i) the cash payments of $7,000,000 on
the Initial Closing Date, and $3,000,000 on the Subsequent Closing Date by
Holder to, or on behalf of, the Company, (ii) the exchange if that certain 6.75%
Convertible Subordinated Debenture, Series A due October 9, 2006 in the
principal amount of $18,000,000, the "October 2001 Debenture", and (iii) those
additional terms and conditions as set forth in that certain Debenture Purchase
Agreement of even date herewith (the "Purchase Agreement").
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. Affiliate. An affiliate is a Person or entity that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person or entity.
Section 1.02. Common Stock. The term "Common Stock" shall mean the
Common Stock, par value $.10 per share, of the Company.
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Section 1.03. Conversion Price. The conversion price per share of
Common Stock into which the Debenture is convertible, which price is $4.31 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 forms set forth on Exhibits 1.04(a) and (b) 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. Frost Loan. The term "Frost Loan" shall mean the
approximate principal amount of $7,000,000 which was borrowed by the Company
from the Frost National Bank to purchase two (2) drilling rigs on or about May
28, 2002.
Section 1.07 Holder. The term "Holder" shall mean WEDGE Energy
Services, L.L.C., a Delaware limited liability company or an Affiliate.
Section 1.08. 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 1.09. Initial Closing Date. The term Initial Closing Date shall
mean July 3, 2002.
Section 1.10. 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.
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Section 1.11. Issuance Date. The term "Issuance Date" shall mean the
date of issuance of the Debenture of July 3, 2002, as set forth on the face of
the Debenture.
Section 1.12. 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 $150,000.
Section 1.13. Maturity Date. The term "Maturity Date" shall mean July
3, 2007.
Section 1.14. October 0000 Xxxxxxxxx. The term "October Debenture"
shall mean that certain 6.75% Convertible Subordinated Debenture, Series A,
originally issued on October 9, 2001 and due October 9, 2006, in the principal
amount of $18,000,000.
Section 1.15. Person. The term "Person" shall mean an individual,
partnership, corporation, trust or unincorporated organization, and a government
or agency or political subdivision thereof.
Section 1.16. Stock. The term "Stock" shall mean those shares of Common
Stock received by Holder upon conversion as provided in Section 7.
Section 1.17 Subsequent Closing Date. The term Subsequent Closing Date
shall mean on or before September 30, 2002.
Section 1.18 Subsequent Closing. The term "Subsequent Closing" shall
mean the payment by Holder of $3,000,000 to the Company on the Subsequent
Closing Date.
Section 1.19. 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.
Section 1.20. Superior Indebtedness. The term "Superior Indebtedness"
shall mean the indebtedness owed by the Company to the Frost National Bank and
American Bank as described in the subordination agreements previously entered
into between Holder and each Bank.
ARTICLE II
THE DEBENTURE
Section 2.01. Debenture. This Debenture is in the principal amount of
up to $28,000,000 and is being issued by the Company to the Holder pursuant to
the surrender of the October 2001 Debenture and the obligation of Holder to pay
Ten Million Dollars ($10,000,000) cash by Holder, of which
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$7,000,000 shall be paid to Frost Bank in satisfaction of those amounts owed by
the Company in connection with the Frost Loan on the Initial Closing Date and
$3,000,00 to be paid to the Company by the Holder on or before the Subsequent
Closing Date. 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 chief executive office, 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. The acquisition price for the
Debenture shall be the aggregate principal amount thereof. No original issue
discount is contemplated by the issuance of the Debenture.
Section 2.03. Optional Redemption of Debentures. The Company may, at
its option, redeem all of the Debenture, or part of it, on at least 15 days' but
not more than 60 days' prior notice to the holder of Debenture to be redeemed at
its registered address, at the redemption prices (expressed as percentages of
the principal amount of the Debenture) set forth below, plus accrued interest to
the redemption date, if redeemed during the 12-month period beginning July 3rd
of the years indicated below.
Year Percentage
---- ----------
2004 105%
2005 104%
2006 103%
2007 and thereafter 100%
The Debentures may not be so redeemed before July 3, 2004.
Section 2.04. Registration. The Debenture shall be registered in the
Debenture records of the Company as follows: The Company shall maintain a
register of the issuance of the Debenture 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 all
or part of the Debenture 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
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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 the 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. Except as provided in Section
2.03, the Company shall not be entitled to prepay any of the outstanding amount
of this Debenture.
Section 2.09 Debenture Purchase Agreement. The Holder and the Company
hereby acknowledge that simultaneous herewith they have entered into that
certain Debenture Purchase Agreement, which Agreement is expressly incorporated
herein for all purposes.
Section 2.10 Assignability. The Holder shall have the absolute,
unfettered right to assign all, or any part of the Debenture to an Affiliate of
the Holder by tendering written notice to the Company and the Company shall
cause the Debenture to be issued to such assignee.
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ARTICLE III
FINANCIAL STATEMENTS AND OTHER INFORMATION
Section 3.01. Financial and Business Information. The Company agrees to
furnish to you so long as you or your 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 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 retained earnings and 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 cash flows 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 accepted in the United States of America
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 auditing standards generally accepted in the United
States of America.
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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-K, and 10-Q, 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 of the Initial
Closing Date 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 March 31, 2002, the Company
had (a) 15,922,459 issued and outstanding shares of Common Stock; (b) zero (0)
shares of issued and outstanding Preferred Stock; and (c) no treasury shares. As
of March 31, 2002, the Company had granted stock options which, if all were
exercised, would equal 2,320,000 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
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directors, Wm. Xxxxx Xxxxx and Xxxxxxx X. Xxxxxx, 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 and an option to purchase 100,000 shares of common
stock to a consultant of the Company at an exercise price of $4.50 per share,
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 Initial
Closing Date, Holder's ownership would constitute approximately 60.7% 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 Xxxxxx Drilling, Inc.
Section 4.05. Litigation; Contingencies. Except as described in the
Reports, 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
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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
March 31, 2002 financial statements and except for those assets leased under
leases specifically noted in the Company's March 31, 2002 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 March
31, 2002 Balance Sheet or acquired by the Company since March 31, 2002, 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 March 31,
2002. On May 28, 2002, the Company purchased the assets of United Drilling
Company and U-D Holdings, L. P. for $7,000,000. The purchase was financed with a
$7,000,000 loan from Frost National Bank. The Company has also agreed to
purchase two drilling rigs totaling approximately $12,000,000 from IDM
Equipment, Ltd. and one drilling rig for approximately $5,500,000 from Drilling
Structures International, Inc. 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, except rigs 5
and 12 for which refurbishment has been postponed due to the current decline in
the demand for drilling rigs.
(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
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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. 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
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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 10-K for the period ended March 31, 2002 (the
"Reports"). "Financial Statements" shall mean the audited balance sheet and
statements of operations, changes in equity and cash flows for the Company as of
and for the fiscal period ended March 31, 2002. Prior to the Initial Closing
Date and again on the Subsequent Closing Date, the Company shall also deliver to
the Holder each monthly financial statement that is produced by the Company
during calendar year 2002 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 accepted in the United States of
America 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 March 31, 2002.
Except as disclosed in this
Debenture Agreement, the Reports or the
Financial Statements, 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
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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"). Provided, however, the Company has a
401(k) plan and a health 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 Initial Closing Date and the Subsequent Closing Date, as
applicable, 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
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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 Initial Closing Date or the Subsequent Closing
Date, as applicable, 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 Initial Closing Date or the Subsequent Closing Date, as
applicable. 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 March 31, 2002,
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. 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 issuance of common stock
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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
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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,
xxx 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
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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
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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
Thirty One/100 Dollars ($4.31) (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
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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
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
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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,
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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;
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(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.
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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, and as
expressly contemplated in Section 2.10 hereof, 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
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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 JULY 3, 2002, 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
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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
0000 Xxxxxxxx, Xxxxxxxx X
Xxx Xxxxxxx, Xxxxx 00000
with a copy to:
Xxxx X. Xxxxx
Xxxxxxxx and Xxxxxxxxx, PC
000 Xxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxx 00000
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If to the Holder:
WEDGE Energy Services, L.L.C.
0000 Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: President
with a copy to:
WEDGE Group Incorporated
0000 Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: General Counsel
with an additional copy to:
Xxxxxx X. Xxxxxx
XxXxxxx, Xxxx & Xxxxxx
3D/International Tower
0000 Xxxx Xxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
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
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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, the accompanying
Debenture and the Debenture Purchase Agreement all executed simultaneously
herewith 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: By:
---------------------------------- --------------------------------
Name: Xxxxxxx X. Xxxxxx Name:
------------------------------
Title: Chief Executive Officer Title:
-----------------------------
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EXHIBIT 1.04(a)
PIONEER DRILLING COMPANY
6.75% CONVERTIBLE SUBORDINATED DEBENTURE, SERIES B
DUE JULY 3, 2007
No. 01 July 3, 2002
$25,000,000
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 3rd day of July, 2007
the principal amount of
TWENTY-FIVE MILLION DOLLARS ($25,000,000)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount outstanding from time to time remaining unpaid
hereon at the rate of 6.75% per annum from the date hereof until maturity, and
in accordance and subject to the terms of that certain
Debenture Agreement dated
July 3, 2002, calculated and payable in semi-annual installments beginning on
January 3, 2003. 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 July 3, 2002, 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:
--------------------------------
Xxxxxxx X. Xxxxxx
Chief Executive Officer
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 AS OF JULY 3, 2002, 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 1.04(b)
PIONEER DRILLING COMPANY
6.75% CONVERTIBLE SUBORDINATED DEBENTURE, SERIES B
DUE JULY 3, 2007
No. 02 September ___, 2002
$3,000,000
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 3rd day of July, 2007
the principal amount of
THREE MILLION DOLLARS ($3,000,000)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount outstanding from time to time remaining unpaid
hereon at the rate of 6.75% per annum from the date hereof until maturity, and
in accordance and subject to the terms of that certain Debenture Agreement dated
July 3, 2002, calculated and payable in semi-annual installments beginning on
March ___, 2003. 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 July 3, 2002, 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:
--------------------------------
---------------, ---------------
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 AS OF JULY 3, 2002, 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.
