UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8038
KEY ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 04-2648081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Tower Center, Tenth Floor, East Brunswick, NJ 08816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908)247-4822
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.10 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Common Shares held by
nonaffiliates of the Registrant as of August 1, 1996 was
approximately $86,562,327.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes X No
Common Shares outstanding at August 1, 1996: 10,413,513
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy
Statement with respect to the Annual Meeting of Shareholders are
incorporated by reference in Part III of this report.
Key Energy Group, Inc. and Subsidiaries
INDEX
PART I.
Item 1. Business. 3
Item 2. Properties. 8
Item 3. Legal Proceedings. 11
Item 4. Submission of Matters to a Vote of Security
Holders. 11
PART II.
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters. 11
Item 6. Selected Financial Data. 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation. 13
Item 8. Financial Statements and Supplementary Data. 20
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure. 46
PART III.
Item 10. Directors and Executive Officers of the Registrant. 46
Item 11. Executive Compensation. 46
Item 12. Security Ownership of Certain Beneficial
Owners and Management. 46
Item 13. Certain Relationships and Related Transactions. 46
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 47
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Key Energy Group, Inc. and Subsidiaries
PART I. ITEM 1. BUSINESS.
The Company
Key Energy Group, Inc. (the "Company" or "Key") operates 332
well service and workover rigs, which is the third largest fleet
of well service and workover rigs in the United States. The
Company operates in Texas, Oklahoma, Michigan, the Appalachian
Basin and Argentina and is a leader in each of its domestic
markets. The Company provides maintenance and workover rigs to
service producing oil and gas wells. Although the range and
extent of services provided varies from region to region, as
part of its well service business, the Company generally
provides a full range of maintenance and workover rig services.
These services include the completion of newly drilled wells,
the recompletion of existing wells (including horizontal
recompletions) and the plugging and abandonment of wells at the
end of their useful lives. Other services include hot oiling,
oil field liquid transportation, fishing tools and services,
storage and disposal services, vacuum truck services, frac tank
rental and salt water injection. The Company also is engaged in
the production of oil and natural gas and contract drilling in
the Permian Basin of West Texas.
The Company conducts operations through four wholly-owned
subsidiaries: Yale E. Key, Inc. ("Yale E. Key"); WellTech
Eastern, Inc. ("WellTech Eastern"); Odessa Exploration
Incorporated ("Odessa Exploration"); and Key Energy Drilling,
Inc. d/b/a Clint Hurt Drilling ("Clint Hurt"). In addition, Key
operates in Argentina through its 63% ownership in Servicios
WellTech, S.A. ("Servicios"). WellTech Eastern operates through
two divisions; WellTech Mid-Continent Division and WellTech
Eastern Division. Yale E. Key, WellTech Eastern and Servicios
provide oil and gas well services. Odessa Exploration is
engaged in the production of oil and gas and Clint Hurt provides
contract oil and gas well drilling services.
In March 1996, the Company completed the merger of WellTech,
Inc. ("WellTech Eastern"). WellTech Eastern was an established
oil well services company providing a broad range of workover
and production services for oil and gas wells. As a result of
the WellTech merger, the Company's fleet of workover rigs more
than doubled in number. In April 1996, Odessa Exploration
acquired approximately $6.9 million of oil and gas producing
properties from an unrelated third party.
Subsequent Event
In July 1996, the Company completed the offering of $52,000,000
7% convertible subordinated debentures due 2003 (the
"Offering"). The Offering was a private offering pursuant to
Rule 144A under the Securities Act. Net proceeds from the
Offering were used to substantially repay existing long-term
debt (approximately $35.2 million). The remaining proceeds,
together with proceeds of borrowings under existing credit
arrangements, are intended to fund the expansion of the
Company's services through acquisitions of businesses and assets
and for working capital and general corporate purposes. See
Note 5 to the Financial Statements for a more detailed
description of the Offering.
Oil Field Services
The Company provides a full range of workover rig services, oil
field liquid services and other production services necessary to
maintain and workover producing oil and gas wells through its
wholly-owned subsidiaries, Yale E. Key and WellTech Eastern.
These services include the completion of newly drilled wells,
the recompletion of existing wells (including horizontal
recompletions) and the plugging and abandonment of wells at the
end of their useful lives. Other services provided include oil
field liquid transportation, storage and
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disposal services, vacuum truck services, frac tank rental and
salt water injection. The Company has more than 750 customers
which are either major oil and gas companies or independent
producers seeking to optimize performance of oil and gas wells.
Although the mix of oil and gas wells serviced varies by
particular markets, approximately two-thirds of the Company's
overall business is attributable to oil wells. Of the Company's
332 well service and workover rigs, 135 operate in West Texas,
111 in Oklahoma and East Texas, 76 in Michigan and the
Appalachian Basin, and ten in Argentina.
Workover Rig Services. The Company operates a fleet of 332
well service and workover rigs providing maintenance, workover,
completion and plugging and abandonment services.
Maintenance Services. Maintenance services are required on
producing oil and gas wells to ensure efficient and continuous
operation. These services consist of routine mechanical repairs
necessary to maintain production from the well, such as
repairing parted sucker rods or defective downhole pumps in an
oil well, or replacing defective tubing in an oil or gas well.
The Company provides the workover rigs, equipment and crews for
these maintenance services. Many of these workover rigs also
have pumps and tanks that can be used for circulating fluids
into and out of the well. Maintenance jobs are often performed
on a series of wells in proximity to each other and typically
take less than 48 hours per well.
Maintenance services are generally required throughout the life
of a well. The need for these services does not depend on the
level of drilling activity and is generally independent of
short-term fluctuations in oil and gas prices. Accordingly,
maintenance services are generally the most stable type of well
service rig activity. The general level of maintenance,
however, is affected by changes in the total number of producing
oil and gas wells in the Company's geographic service areas.
Workover Services. In addition to periodic maintenance,
producing oil and gas wells occasionally require major repairs
or modifications, called "workovers." Workover services include
extensions of existing wells to drain new formations either
through deepening well bores or through drilling or horizontal
laterals. In less extensive workovers, the Company's rigs are
used to drill out plugs and packers in existing well bores to
access previously bypassed productive zones. The Company's
workover rigs are also used to convert producing wells to
injection wells during enhanced recovery operations. Workover
services include major subsurface repairs such as casing repair
or replacement, recovery of tubing and removal of foreign
objects in the well bore. These extensive workover operations
are normally performed by a workover rig with additional
specialized auxiliary equipment, which may include rotary
drilling equipment, mud pumps, mud tanks and blowout preventers
depending upon the particular type of workover operation. Most
of the Company's workover rigs are designed and equipped to
perform complex workover operations. A workover may last from a
few days to several weeks.
The demand for workover services is more sensitive to
expectations relating to and changes in oil and gas prices than
the demand for maintenance services, but not as sensitive as the
demand for completion services. When oil and gas prices are
low, there is little incentive to perform workovers on wells to
increase production and well operators tend to defer workover
services. As oil and gas prices increase, the level of workover
activity tends to increase as operators seek to increase
production by enhancing the efficiency of their wells.
Completion Services. Completion services prepare a newly
drilled well for production. The completion process may involve
selectively perforating the well casing to access producing
zones, stimulating and testing these zones and installing
downhole equipment. The Company provides a workover rig to
assist in this
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completion process. Newly drilled wells are frequently
completed by a well service rig so that an operator can minimize
the use of a higher cost drilling rig. The completion process
typically requires a few days to several weeks, depending on the
nature and type of the completion, and generally requires
additional auxiliary equipment which the Company provides for an
additional fee.
The demand for well completion services is directly related to
drilling activity levels, which are highly sensitive to
expectations relating to and changes in oil and gas prices.
During periods of weak drilling demand, drilling contractors
frequently price well completion work competitively compared to
a workover rig so that the drilling rig stays on the job. Thus,
excess drilling capacity will serve to reduce the amount of
completion work available to the well servicing industry.
Plugging and Abandonment Services. Workover rigs are also
used in the plugging and abandonment of oil and gas wells no
longer capable of producing in economic quantities. The demand
for oil and gas does not significantly affect the demand for
well plugging services.
Liquid Services. The Company provides vacuum truck services,
frac tank rentals and salt water injection services which
together provide an integrated mix of liquid services to well
site customers.
Other Production Services. The Company provides production
services, which include hot oiler unit services, pipeline
installation and testing services in Oklahoma, Michigan and the
Appalachian Basin, slick-line wire-line services in Michigan and
fishing and rental tool services.
Production
The Company is engaged in the production of oil and natural gas
in the Permian Basin area of West Texas through its wholly-owned
subsidiary, Odessa Exploration. Odessa Exploration acquires and
manages interests in producing oil and gas properties for its
own account and for drilling partnerships it sponsors. Odessa
Exploration acquires producing oil and gas wells and related
properties from major and independent producers and,
subsequently, either reworks the acquired wells to increase
production or forms drilling ventures for additional development
wells. Odessa Exploration operates oil and gas wells on behalf
of over 150 working interest owners as well as for its own
account.
Contract Drilling Services
The Company, through its wholly-owned subsidiary, Clint Hurt,
provides contract drilling services for major and independent
oil companies, primarily in West Texas. Clint Hurt owns and
operates six drilling rigs for this purpose. The Company
entered the land drilling business in March 1995 with the
acquisition of four drilling rigs from an independent third
party and, as the result of the WellTech merger, acquired two
additional land drilling rigs. The rigs are capable of drilling
up to 10,000 feet.
Foreign Operations
The Company provides oil field services in Argentina through its
ownership of 63% of the stock of Servicios. Currently,
Servicios owns and operates ten well servicing rigs in
Argentina. In addition, Servicios operates trucks to transport
its oil field equipment and, subject to availability, rents the
trucks to other operators to move their oil field equipment.
Servicios' principal customer is Yacimientos Petroliferos
Fiscales, the Argentine national oil company.
- 5 -
COMPETITION AND OTHER EXTERNAL FACTORS
The workover rig and production service industry is highly
fragmented and includes a large number of small companies that
are capable of competing effectively on a local basis and two
larger companies which possess greater financial and other
resources than those of the Company. In addition to those two
larger companies, both of which provide workover rig services
and liquids handling services in all or part of the Company's
domestic well servicing markets, the Company has numerous
regional competitors for each of the services which it provides.
The Company believes that it is competitive in terms of
pricing, performance, equipment, safety, availability of
equipment to meet customer needs and availability of
experienced, skilled personnel in those regions in which it
operates.
Excess capacity in the well servicing industry has resulted in
severe price competition throughout much of the past decade.
Management expects competitive pricing pressures to continue in
the foreseeable future. In the well servicing market, an
important competitive factor in establishing and maintaining
long-term customer relationships is having an experienced,
skilled and well-trained work force. In recent years, many of
the Company's larger customers have placed emphasis not only on
pricing, but also on safety records and quality management
systems. The Company believes that such factors will be of
increased importance in the future. The Company has directed
substantial resources toward employee safety and training
programs, as well as its employee review process. While the
Company's efforts in these areas are not unique, many
competitors, particularly small contractors, have not undertaken
similar training programs for their employees. Management
believes that the Company's safety record and reputation for
quality equipment and service are among the best in the industry.
The Company acquires oil and gas properties from independent and
major oil companies and competes with other independent and
integrated oil companies for the acquisition of these
properties. The Company also competes with other local oil and
gas drilling contractors, as well as national oil and gas
drilling companies. As with oil field services, the need for
drilling oil and gas wells fluctuates, in part, based on the
price of, and demand for, oil and natural gas.
The Company serves over 750 customers in West Texas, East Texas,
Oklahoma, Michigan, the Appalachian Basin and Argentina with its
two largest customers providing 20% and 11%, of total Company
revenue during fiscal 1996. The need for oilfield services
fluctuates, in part, in relation to the demand for oil and
natural gas. As demand for those commodities increases, service
and maintenance requirements increase as oil and natural gas
producers attempt to maximize the producing efficiency of their
wells in a higher priced environment.
EMPLOYEES
As of June 30, 1996, the Company employed 2,030 persons (1,925
in well service operations, 12 in oil and gas production, 85 in
contract drilling operations and 8 in corporate). None of the
Company's employees are represented by a labor union or
collective bargaining agent. The Company has experienced no
work stoppages associated with labor disputes or grievances and
considers its relations with its employees to be satisfactory.
- 6 -
REGULATIONS
The oilfield service operations and the oil and gas production
and drilling activities of the Company are subject to various
local, state and federal laws and regulations intended to
protect the environment. The Company's operations routinely
involve the handling of waste materials, some of which are
classified as hazardous substances. Consequently, the
regulations applicable to the Company's operations include those
with respect to containment, disposal and controlling the
discharge of any hazardous oil field waste and other
non-hazardous waste material into the environment, requiring
removal and cleanup under certain circumstances, or otherwise
relating to the protection of the environment. Laws and
regulations protecting the environment have become more
stringent in recent years, and may in certain circumstances
impose "strict liability," rendering a party liable for
environmental damage without regard to negligence or fault on
the part of such party. Such laws and regulations may expose
the Company to liability for the conduct of, or conditions
caused by, others, or for acts of the Company which were in
compliance with all applicable laws at the times such acts were
performed. Management of the Company believes that it is in
substantial compliance with all material federal, state and
local regulations as they relate to the environment. Although
the Company has incurred certain costs in complying with
environmental laws and regulations, such amounts have not been
material to the Company's financial condition during the three
past fiscal years.
Management believes that the Company is in substantial
compliance with all known material local, state and federal
safety guidelines and regulations. In order to comply with such
safety guidelines and regulations and increase employee
awareness of on-the-job safety, the Company employs eight safety
officers. The Company also has a safety training and education
center which is used by it for continued safety training and
awareness.
EXECUTIVE OFFICERS
Listed below are the names, ages and positions of the Company's
executive officers. Each officer of the Company holds office
until the first meeting of the Board of Directors following the
annual meeting of stockholders and until his successor shall
have been duly elected and qualified, or until he shall have
resigned or been removed as provided by the By-Laws. No family
relationship exists between any of the listed executive officers
or between any such executive officer and any Director of the
Company.
Name Age Positions
Francis D. John 42 Chairman of the Company since August
1996, President and Chief Executive
Officer since September 1989 and
President and Chief Financial
Officer of the Company since
June 1988; Director of the Company
since 1988.
Kenneth V. Huseman 43 Executive Vice President and Chief
Operating Officer of well service
operations since August 1996, Vice
President of WellTech Eastern and
Chief Executive Officer of its
Mid-Continent Division since March
1996. Mid-Continent Regional
President of WellTech from August
1994 to March 1996. Vice President
and Mid-Continent Regional Manager
of WellTech from April 1993 to
August 1994.
Danny R. Evatt 37 Vice President, Chief Accounting
Officer and Treasurer of the Company
since July 1990; Treasurer,
Secretary and Chief Financial
Officer of Yale E. Key from 1984 to
1996.
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C. Ron Laidley 50 Vice-President of the Company since
June 1996; President and Chief
Executive Officer of Yale E. Key
since April 1995. Vice President of
Yale E. Key from 1982 until April
1995.
Kenneth C. Hill 52 Vice President of the Company since
March 1996; Vice President of
WellTech Eastern and Chief
Executive Officer of its Welltech
Eastern Division since March 1996.
Northeast Regional President of
WellTech from August 1994 to March
1996, and Vice President and
Northeast Regional Manager of
WellTech from April 1990 to
August 1994.
D. Kirk Edwards 36 Executive Vice President of the
Company since March 1996, Vice
President of the Company from July
1993 until March 1996, President and
Chief Executive Officer of Odessa
Exploration since July 1993. Owner
and President of Odessa Exploration
Inc. from 1987 until 1993.
ITEM 2. PROPERTIES.
The Company's corporate offices are located in East Brunswick,
New Jersey where the Company leases office space from an
independent third party.
Oil Field Services
The following table sets forth the type, number and location of
the major equipment owned and operated by the Company's oil
field service subsidiaries as of June 30, 1996:
Slick-line
Well Service/ Hot Oil Vacuum Wire-line
Company Workover Rigs Trucks Trucks Frac Tanks Units
Domestic:
Yale E. Key
(West Texas) 135 21 6 65 -
Mid-Continent Division
of WellTech Eastern
(Texas and Oklahoma) 111 2 9 - -
Eastern Division of
WellTech Eastern
(Michigan and
Appalachian Basin) 76 11 12 16 4
International:
Servicios (Argentina) 10 - - - -
___ ___ ___ ___ ___
TOTAL 332 34 27 81 4
=== === === === ===
Yale E. Key owns ten and leases six office and yard locations.
The Mid-Continent Division of WellTech Eastern owns seven and
leases five office and yard locations. The Eastern Division of
Welltech Eastern owns two and leases six office and yard
locations. In Argentina, Servicios owns one and leases one
office and yard locations.
All operating facilities are metal or brick one story office
and/or shop buildings. All buildings are occupied and
considered in satisfactory condition.
- 8 -
All of the Company's owned oil field service operation's
properties are encumbered by security interests in favor of The
CIT Group/Credit Finance, Inc. the Company's senior lender
("CIT").
Production
Odessa Exploration's properties consist primarily of oil and gas
leases. Odessa Exploration's major proved producing properties
are located primarily in the Permian Basin area of West Texas.
Odessa Exploration leases office space in Odessa, Texas.
Producing Wells and Acreage
All wells owned and/or operated by Odessa Exploration are
located in the continental onshore United States, primarily in
West Texas. The following table sets forth the total gross and
net producing oil and gas wells and its total gross and net
developed and undeveloped acreage as of June 30, 1996. "Gross"
as it applies to wells or acreage refers to the number of wells
or acres in which a working interest is owned by Odessa
Exploration. "Net" as it applies to wells or acreage refers to
the sum of the fractional working interests owned by Odessa
Exploration in gross wells or gross acres.
Producing Wells Developed
Oil Gas Acreage Undeveloped
State Gross Net Gross Net Gross Net Gross Net
-------------- ------------- ---------------- --------------
Texas 287 206 30 10 55,240 37,277 - -
As operator, Odessa Exploration receives fees from other working
interest owners as reimbursement for the general and
administrative expenses attendant to the operation of the wells.
Odessa Exploration's oil and gas properties are subject to
royalty, overriding royalty and other outstanding interests that
are customary in the industry. The properties are also subject
to burdens such as liens incident to operating agreements,
current taxes, development obligations under oil and gas leases
and other encumbrances, easements and restrictions. Odessa
Exploration believes that the existence of any such burdens does
not materially detract from the value of its leasehold
interests. In addition, certain Odessa Exploration properties
are subject to liens securing debt (more fully described in Note
5 of the notes to consolidated financial statements).
Exploration and Development Activities
The following table shows gross and net wells drilled in which
Odessa Exploration had a working interest during the years ended
June 30, 1996, 1995 and 1994:
1996 1995 1994
Gross Net Gross Net Gross Net
------------ ------------ ------------
Exploratory:
Productive - - - - - -
Dry - - - - - -
Development:
Productive 10.0 10.0 8.0 6.2 1.0 0.1
Dry 3.0 1.0 - - - -
Total
Productive 10.0 10.0 8.0 6.2 1.0 0.1
Dry 3.0 1.0 - - - -
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During fiscal 1997, Odessa Exploration expects to participate in
or drill 15 wells on its operated properties.
Oil and Gas Reserve Information
Estimates of Odessa Exploration's proved oil and gas reserves as
of June 30, 1996, 1995 and 1994 were prepared by the Company and
reviewed by independent petroleum reservoir engineering firms.
All estimates were made in accordance with guidelines
established by the Securities and Exchange Commission. Proved
oil and gas reserves are the estimated quantities of crude oil
and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic
conditions, i.e. prices and costs as of the date the estimate is
made. Prices utilized reflect consideration of changes in
existing prices provided by contractual arrangements if any, but
not of escalations based upon future conditions.
Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing equipment and
operating methods.
Proved undeveloped oil and gas reserves are proved reserves that
are expected to be recovered from new wells on undrilled acreage
or from existing wells where a relatively major expenditure is
required for recompletion or secondary or tertiary recovery.
Reserves assigned to undrilled acreage are limited to those
drilling units that offset productive units reasonably certain
of production when drilled.
The following table summarizes oil and gas reserve data with
respect to Odessa Exploration's proved oil and gas reserves:
June 30,
1996 1995 1994
---------- ---------- -----------
Proved developed reserves
Oil (bbls) 2,727,967 750,604 114,908
Gas (mcf) 24,517,362 11,203,232 6,785,661
Proved undeveloped reserves
Oil (bbls) 2,457,361 931,613 -
Gas (mcf) 11,224,232 2,794,828 -
Additional information concerning Odessa Exploration's estimated
proved oil and gas reserves is included in Item 8, "Financial
Statements and Supplementary Data".
No major discovery or other favorable or adverse event has
occurred since July 1, 1996 which is believed to have caused a
significant change in the estimated proved oil and gas reserves
of Odessa Exploration.
Odessa Exploration's estimate of reserves has not been filed
with or included in reports to any federal agency other than the
Securities and Exchange Commission.
Production
The following table summarizes the net oil and gas production,
average sales prices, and average production (lifting) costs per
equivalent barrel of oil for the years ended June 30, 1996, 1995
and 1994.
1996 1995 1994
-------------------------------------------------------------------
Oil:
Production (bbls) 97,130 40,330 14,383
Average sales price
per bbls $17.74 $15.02 $13.54
Natural Gas:
Production (mcf) 1,026,577 770,197 552,791
Average sales price
per mcf $ 1.79 $ 1.54 $ 2.33
Production Costs:
Production (lifting) costs
per equivalent
barrel of oil (boe) $ 5.03 $ 4.48 $ 5.38
- 10 -
ITEM 3. LEGAL PROCEEDINGS AND OTHER ACTIONS.
See Item 8, Note 4 to the Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is traded on the American Stock
Exchange, under the symbol "KEG". As of June 30, 1996, there
were 544 holders of record of 10,413,513 shares of common stock.
The following table sets forth for the periods indicated the
high and low closing prices of the Company's common stock on the
American Stock Exchange, as derived from published sources.
Low High
Fiscal Year Ending 1996:
First Quarter $ 4 3/4 $ 5 1/2
Second Quarter 4 15/16 6 7/16
Third Quarter 5 7/8 7 9/16
Fourth Quarter 7 1/16 8 1/2
Fiscal Year Ending 1995:
First Quarter 5 5 1/2
Second Quarter 4 3/4 5 1/2
Third Quarter 4 1/4 4 5/8
Fourth Quarter 4 3/4 5 1/2
Fiscal Year Ending 1994:
First Quarter 5 5 1/2
Second Quarter 4 3/4 5 1/2
Third Quarter 4 7/8 5 5/8
Fourth Quarter 4 7/8 5 1/2
There were no dividends paid on the Company's common stock
during the fiscal years ended June 30, 1996, 1995 or 1994. The
Company does not intend, for the foreseeable future, to pay
dividends on its common stock.
The agreements with CIT and Norwest (see Note 5 of notes to
consolidated financial statements), include certain restrictive
covenants, the most restrictive of which, prohibits the Company
and Odessa Exploration from declaring or paying dividends on the
Company's and Odessa Exploration's Common Stock in any
circumstances.
- 11 -
Item 6.
Selected Financial Data.
Five Seven
Fiscal Year Months (1) Months
Ended Ended Ended Fiscal Year
June 30, November 30, June 30, Ended June 30,
(in thousands) 1992 1992 1993 1994 1995 1996(3)
- -------------------------------------------------------------------------------
OPERATING DATA:
Revenues $21,535 $10,433 $14,256 $34,621 $44,689 $66,478
Operating costs:
Direct costs 16,299 7,947 10,863 26,585 32,793 47,118
Depreciation,
depletion
and amortization 1,136 505 406 1,371 2,738 4,701
General and
administrative 2,697 1,117 1,587 3,540 4,352 6,608
Interest 1,320 464 276 830 1,478 2,477
Income before
income taxes,
minority interest,
reorganization
items and
extraordinary
items 83 400 1,124 2,295 3,328 5,575
Net income (loss) (596) 4,986 711 1,345 2,178 3,586
Income (loss) per
common share:
Primary:
Income before
income taxes,
minority interest,
reorganization items
and extraordinary
items $0.02 $0.02 $0.21 $0.44 $0.50 $0.70
Net income (loss) (0.04) 0.28 0.14 0.26 0.33 0.45
Fully-diluted:
Income before
income taxes,
minority interest,
reorganization items
and extraordinary
items $0.01 $0.00 $0.21 $0.43 $0.50 $0.69
Net income (loss) (0.02) 0.03 0.14 0.25 0.33 0.44
Average common shares
outstanding:
Primary 14,717 17,942 5,124 5,274 6,647 7,941
Assuming full
dilution 38,339 176,508 5,138 5,288 6,647 8,114
Common shares
outstanding
at period end 17,942 17,942 5,124 5,274 6,914 10,414
Market price per
common share at
period end $0.06 n/a $3.67 $4.67 $5.06 $8.19
Cash dividends
paid on
common shares $ - $ - $ - $ - $ - $ -
BALANCE SHEET DATA:
Cash and restricted
cash $208 * $623 $1,173 $1,275 $4,211
Current assets 3,194 * 4,922 9,167 11,290 27,481
Property and
equipment 20,921 * 10,093 18,935 36,336 95,127
Property and
equipment, net 7,417 * 9,688 17,159 31,942 87,207
Total assets 12,239 * 15,906 28,095 45,243 121,722
Current
liabilities 5,296 * 4,113 8,38 9,228 24,339
Long-term debt,
incl. current
portion 13,287 * 5,374 11,501 15,949 46,825
Stockholders'
equity
(deficit) (4,938) * 7,280 9,263 20,111 41,624
OTHER DATA:
EBITDA (2) 2,539 * 1,806 4,496 7,544 12,752
Net cash (used)
provided by:
Operating
activities 1,109 * (123) 1,842 3,258 7,121
Investing
activities (1,689) * (1,284) (5,608) (7,154) (13,551)
Financing
actvities 501 * (73) 4,316 3,998 9,366
Working capital (2,102) * 809 784 2,062 3,142
Book value per
common share ($0.26) * $1.42 $1.76 $2.91 $4.00
Ratio of earnings to
fixed charges (4) 1.05 * 2.91 2.65 2.54 2.77
* - Not applicable due to the Company's 1992 Reorganization plan.
(1) Financial Data for the five months ended November 30, 1992
and prior periods, reflect the previous capital structure of
Key Energy Group, Inc. (previously "National Environmental
Group, Inc.") prior to the 1992 Reorganization Plan and are not
always comparable to subsequent periods.
(2) Net income before interest, income taxes, depreciation,
depletion and amortization. EBITDA should not be considered as
an alternative to operating or net net income, (as determined in
accordance with GAAP) or as a measure of liquidity.
(3) Financial data for the year ended June 30, 1996 includes the allocated
purchase price of WellTech Eastern, Inc. and the results of their operations,
beginning March 26, 1996.
(4) Fixed Charges are the sum of (i) interest costs, (ii) interest component
of rent expenses, and (iii) amortization of deferred financing costs (if any).
- 12 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
Recent Developments
In March 1996, the Company completed the merger of WellTech,
Inc. ("WellTech"). WellTech was an established oil well
services company providing a broad range of workover and
production services for oil and gas wells. As a result of the
WellTech merger, the Company's fleet of workover rigs more than
doubled in number. In April 1996, Odessa Exploration (a
wholly-owned subsidiary of the company) acquired approximately
$6.9 million of oil and gas producing properties from an
unrelated third party.
Subsequent Event
In July 1996, the Company completed the offering of $52,000,000
7% convertible subordinated debentures due 2003 (the
"Offering"). The Offering was a private offering pursuant to
Rule 144A under the Securities Act. Net proceeds from the
Offering were used substantially to repay existing long-term
debt (approximately $35.2 million). The remaining proceeds,
together with proceeds of borrowings under existing credit
arrangements, are intended to fund the expansion of the
Company's services through acquisitions of businesses and assets
and for working capital and general corporate purposes. See
Note 5 to the Financial Statements for a more detailed
description, (including an interest rate increase), of the
Offering.
Overview
Fluctuations in well servicing activity historically have had a
strong correlation with fluctuations in oil and gas prices. The
Company seeks to minimize the effects of such fluctuations on
its operations and financial condition through diversification
of services, entry into new markets and customer alliances.
Since 1993, the Company has made a number of acquisitions, which
have significantly expanded the Company's operations:
* In April 1996, Odessa Exploration consummated the purchase of
$6.9 million of oil and gas properties, and as a result,
acquired additional oil and gas producing properties with daily
average net production of 240 barrels of oil and 1.5 million
cubic feet of natural gas.
* In March 1996, WellTech, a well services provider, merged
into the Company, doubling the Company's fleet of well
service and workover rigs and adding two oil and gas drilling
rigs to the Company's contract drilling operations. WellTech
now operates as WellTech Eastern and has two operating
divisions, WellTech Mid-Con and WellTech Eastern.
* In March 1995, the Company acquired four oil and gas drilling
rigs from Clint Hurt.
* In August 1994, the Company acquired 58 well service and
workover rigs and other well service equipment in West Texas
from WellTech.
* In July 1993, the Company acquired Odessa Exploration, an oil
and gas production company.
In addition to the above acquisitions, the Company has acquired
several smaller oilwell service related entities and expanded
its ancillary equipment services.
- 13 -
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 1996 VERSUS FISCAL YEAR ENDED JUNE 30, 1995
The following discussion provides information to assist in the
understanding of Key Energy Group, Inc.'s ("Key" or "the
Company") financial condition and results of operations. It
should be read in conjunction with the financial statements and
related notes appearing elsewhere in this report.
Operating results for the fiscal year ended June 30, 1996
include the Company's oilfield well service operations conducted
by its wholly-owned subsidiaries, Yale E. Key, Inc. ("Yale E.
Key"), its oil and natural gas exploration and production
operations conducted by its wholly-owned subsidiary, Odessa
Exploration, Inc. ("Odessa Exploration") and Key Energy
Drilling, Inc. d/b/a Clint Hurt Drilling ("Clint Hurt Drilling")
which is engaged in oil and natural gas well contract drilling
and was acquired in March 1995. Also included are the operating
results of WellTech Eastern for the period of March 26, 1996
(the date of the merger, See Note 2 ) to June 30, 1996.
Historically, fluctuations in oilfield well service operations
and oil and gas well contract drilling activity have been
closely linked to fluctuations in crude oil and natural gas
prices. However, the Company, through acquisitions, customer
alliances and agreements, and diversification of services, seeks
to minimize the effects of such fluctuations on the Company's
results of operations and financial condition.
Operating Income
The Company
Revenues of the Company for the year ended June 30, 1996
increased $21,789,000 or 49% to $66,478,000 from $44,689,000 for
the year ended June 30, 1995, while net income of $3,585,000
increased $1,407,000 or 65% from the 1995 fiscal year total of
$2,178,000. The increase in revenues was primarily due to the
addition of Clint Hurt Drilling on April 1, 1995, whose
operations were only included for one quarter in fiscal year
1995 results, increased oil and gas revenues from Odessa
Exploration, increased oilwell service equipment utilization and
the acquisition of WellTech operations from the date of
acquisition of March 26, 1996 (see Note 2 ). The increase in
fiscal year 1996 net income over fiscal year 1995 net income is
partially attributable to the inclusion of Clint Hurt Drilling
and the acquisition of WellTech, but is also a result of an
increase in oilwell service equipment utilization and a decrease
in total consolidated Company costs and expenses as a percent of
total revenues.
Oilfield Services
Oilfield services are performed by Yale E. Key and WellTech
Eastern. Yale E. Key conducts oilfield services primarily in
West Texas, while WellTech Eastern conducts oilfield services in
the Mid-Continent region of the United States (primarily in
Oklahoma) through its operating division, WellTech Mid-Con, and
in the Northeastern United States (primarily in Michigan,
Pennsylvania and West Virginia) through its operating division;
WellTech Eastern. In addition, the Company conducts oilfield
services in Argentina through its 63% ownership in Servicios
WellTech, S.A. ("Servicios"), an Argentinean corporation.
Oilfield service revenues increased $15,828,000 or 39% from
$40,105,000 for the 1995 fiscal year to $55,933,000 for the 1996
fiscal year. The increase in revenues is primarily attributable
to higher equipment utilization as the result of an increase in
demand for oilfield services and the acquisition of WellTech
Eastern whose operating results are included for the period of
March 26, 1996 (the date of the merger, see Note 2 ) to June 30,
1996. In addition, Yale E. Key diversified oilfield services
into higher margin business segments such as oilfield frac
tanks, oilfield fishing tools and trucking operations.
- 14 -
Oil and Natural Gas Exploration and Production
Oil and natural gas exploration and production operations are
performed by Odessa Exploration. Revenues from oil and gas
activities increased $1,841,000 or 79% from $2,334,000 during
the year ended June 30, 1995 to $4,175,000 for the current year.
The increase in revenues was primarily the result of increased
production of oil and natural gas as several oil and natural gas
wells which were drilled began production during 1996, higher
oil and natural gas prices for the current year, and the April
1996 purchase of $6.9 million of oil and gas properties from an
unrelated third party, which almost doubled the size of Odessa
Exploration.
Of the total $4,175,000 of revenues for fiscal year 1996,
approximately $3,554,000 was from the sale of oil and gas -
97,130 barrels of oil at an average price of $17.74 per barrel
and 1,026,577 MCF of natural gas at an average price of $1.79
per MCF. The remaining $621,000 of revenues represented
primarily administrative fee income and other miscellaneous
income.
Oil and Natural Gas Well Drilling
Oil and natural gas well drilling operations are performed by
Clint Hurt Drilling which was acquired in March 1995.
Comparable numbers for the full prior fiscal year are,
therefore, not available. In addition, two drilling rigs were
acquired in the March 1996 merger with WellTech. Revenues for
fiscal 1996 were $6,188,000.
Operating Expenses
Oilfield Services
Oilfield service expenses increased $10,145,000 or 33% from
$30,592,000 for the fiscal 1995 to $40,737,000 for fiscal year
1996. The increase was due primarily to the acquisition of
WellTech on March 26, 1996 and the increased demand for oilfield
services. In addition, the Company has continued to expand its
services, offering ancillary services and equipment such as
oilwell fishing tools, blow-out preventers and oilwell frac
tanks.
Oil and Natural Gas Exploration and Production
Expenses related to oil and gas activities increased $593,000 or
78% from $757,000 for fiscal year 1995 to $1,350,000 for fiscal
year 1996. The increase in expenses was primarily the result of
increased production of oil and natural gas as several oil and
natural gas wells which were drilled began production during
1996 and the April 1996 purchase of $6.9 million in oil and gas
properties which almost doubled the size of Odessa Exploration.
Oil and Natural Gas Well Drilling
Clint Hurt Drilling was acquired in March 1995. Comparable
numbers for the full prior fiscal year are, therefore, not
available. Expenses for fiscal year 1996 were $5,031,000.
Interest Expense
Interest expense increased $999,000 or 68% to $2,477,000 for the
fiscal year 1996 from $1,478,000 for fiscal 1995. The increase
was primarily the result of acquisitions and the addition of
certain oil and gas properties.
- 15 -
General and Administrative Expenses
General and administrative expenses increased $2,256,000, or
52%, to $6,608,000 for the fiscal year 1996 from $4,352,000 for
the fiscal year 1995. The increase was primarily attributable
to the Company's recent acquisitions and expanded services.
Depreciation, Depletion and Amortization Expense
Depreciation, depletion and amortization expense increased
$1,963,000, or 72%, to $4,701,000 for the fiscal year 1996 from
$2,738,000 for the fiscal year 1995. The increase is primarily
due to oilfield service depreciation expense, which is the
result of increased oilfield service capital expenditures for
the current period versus the prior period and the acquisition
of WellTech and Clint Hurt. In addition, depletion expense
increased for the period due to the increase in the production
of oil and natural gas.
Income Taxes
Income tax expense of $1,888,000 for fiscal year 1996 increased
from $1,150,000 in income tax expense for fiscal year 1995.
The increase in income taxes is primarily due to the increases
in operating income. However, the Company does not expect to be
required to remit a significant amount of the $1,888,000 in
total federal income taxes for fiscal year 1996, because of the
availability of net operating loss carryforwards, accelerated
depreciation and drilling tax credits.
Cash Flow
Net cash provided by operating activities increased $3,863,000
from $3,258,000 during the fiscal year 1995 to $7,121,000 for
fiscal year 1996. The increase is attributable primarily to
increases in net income.
Net cash used in investing activities increased from $7,154,000
for fiscal year 1995 to $13,551,000 for fiscal 1996. The
increase is primarily the result of increased capital
expenditures for oil and gas properties and costs associated
with the acquisition of Welltech. This increase is partially
offset by a decrease in oilfield service capital expenditures.
Net cash provided by financing activities was $9,366,000 for
the fiscal year 1996 as compared to $3,998,000 in net cash
provided by financing activities for fiscal year 1995. The
increase is primarily the result of an increase in proceeds
from long-term debt and borrowings under the line-of-credit during
fiscal 1996 primarily as the result of the purchase of oil
and gas properties by Odessa Exploration and the acquisition of WellTech.
FISCAL YEAR ENDED JUNE 30, 1995 VERSUS FISCAL YEAR ENDED JUNE 30, 1994
Operating Income
Fiscal 1995 revenues of $44,689,000 increased $10,068,000 or
29% over fiscal 1994 revenues of $34,621,000. Fiscal 1995
revenues increased due to the acquisition of oil and gas
producing properties by Odessa Exploration, the operation of the
assets of WellTech West Texas (which included twelve months of
fiscal 1995 and seven months of fiscal 1994), and the additional
revenues from Clint Hurt Drilling (which was acquired in March
1995). In addition, the Company has continued to expand its
services offering oilwell fishing tools, blow-out preventers and
oilwell frac tanks.
- 16 -
Income before income taxes was $3,328,000 for fiscal 1995, which
was an increase from $2,295,000 in fiscal 1994. The increase in
income before income taxes was due to the increase in gross
revenues for the current fiscal year, the acquisition by Odessa
Exploration of producing oil and gas properties, the operations
of WellTech West Texas and the acquisition of Clint Hurt
Drilling.
Operating Expenses
Fiscal 1995 costs and expenses of $41,361,000 increased
$9,035,000 or 28% over fiscal 1994 costs and expenses of
$32,326,000. Fiscal 1995 costs and expenses increased
primarily due to the operations of WellTech West Texas and the
acquisition of Clint Hurt Drilling, as well as increased lease
operating costs due to acquisitions of oil and gas producing
properties by Odessa Exploration.
Interest Expense
Interest expense increased from $830,000 during fiscal 1994 to
$1,478,000 during fiscal 1995,
primarily as a result of borrowings for the acquisition and
drilling of oil and gas producing properties by Odessa
Exploration and the acquisition of Clint Hurt Drilling.
General and Administrative Expenses
General and administrative expenses include those of the
Company, Yale E. Key, Odessa Exploration and Clint Hurt
Drilling. These expenses increased $812,000 to $4,352,000
during fiscal 1995 from $3,540,000 during fiscal 1994, primarily
due to increased expenses of Odessa Exploration and the
acquisition of Clint Hurt Drilling and WellTech West Texas.
However, as a percent of gross revenues, general and
administrative expenses decreased from 10.2% of gross revenues
during fiscal 1994 to 9.7% of gross revenues during fiscal 1995.
Depreciation and Depletion Expense
Depreciation and depletion expense increased to $2,738,000 in
fiscal 1995 from $1,371,000 in fiscal 1994 due mainly to the
additional depreciation expense associated with the acquisition
of the WellTech West Texas oilfield service equipment and
subsequent capital expenditures on such equipment.
Income Taxes
Income tax expense of $1,150,000 for fiscal 1995 increased from
$950,000 in income tax expense for fiscal 1994. The increase
in income taxes is primarily due to the increase in operating
income. However, the Company does not expect to be required to
remit a significant amount of the $1,150,000 in total federal
income taxes in cash during fiscal 1996.
Cash Flow
Net cash provided by operating activities increased $1,416,000
from $1,842,000 during the 1994 fiscal year to $3,258,000 for
the 1995 fiscal period. The increases are attributable primarily
to increases in net income.
Net cash used in investing activities increased from $5,608,000
for fiscal 1994 to $7,154,000 for fiscal 1995. The increase is
primarily the result of increased capital expenditures for oil
and gas properties and costs associated with the acquisition of
Clint Hurt Drilling. This increase is partially offset by a
decrease in oilfield service capital expenditures. The capital
expenditures for the oilfield service operations during fiscal
1994 were primarily the result of the improvements necessary for
the WellTech West Texas equipment.
- 17 -
Net cash provided by financing activities was $3,998,000 for the
1995 fiscal year as compared to $4,316,000 in net cash provided
by financing activities for fiscal 1994. The decrease is
primarily the result of increased principal payments during
fiscal 1995. This increase in principal payments is somewhat
off-set by an increase in proceeds from long-term debt during
fiscal 1995 as the result of the financing of the improvement
costs to the equipment of the West Texas operations of WellTech,
the purchase of oil and gas properties by Odessa Exploration
and the acquisition of Clint Hurt Drilling.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had $3,240,000 in cash as compared
to $865,000 in cash at June 30, 1995. At June 30, 1995, the
Company had $865,000 in cash (the Company also had $267,000 in
restricted marketable securities) as compared to $717,000 in
cash at June 30, 1994.
The Company has projected $6.2 million for oilfield service
capital expenditures for fiscal 1997 as compared to $5.2 million
for fiscal 1996. Capital expenditures are expected to be
primarily capitalized improvement costs to existing equipment
and machinery. The Company expects to finance these capital
expenditures utilizing the operating cash flows of the Company.
Capital expenditures were $2,839,000 in fiscal 1995.
Odessa Exploration is forecasting outlays of approximately $6.0
million in development costs for fiscal 1997, as compared to
$9.8 million during fiscal 1996. Financing is expected to come
from borrowings.
Clint Hurt Drilling has forecast approximately $250,000 for oil
and gas drilling capital expenditures for fiscal 1997 primarily
for improvements to existing equipment and machinery compared to
$598,000 for fiscal 1996. Such outlays are treated as capital
costs. Financing is expected to come from existing cash flow.
Debt
In July 1996, the Company completed the offering of $52,000,000
7% convertible subordinated debentures due 2003 (the
"Debentures" and the "Offering"). In August 1996, the interest
rate on the Debentures was increased to 7 1/2%. The Offering
was a private offering pursuant to Rule 144A under the
Securities Act. Net proceeds from the Offering were used to
substantially repay existing long-term debt (approximately $35.2
million). The remaining proceeds are intended to fund the
expansion of the Company's services through acquisitions of
businesses and assets and for working capital and general
corporate purposes.
Long-term debt which was repaid with proceeds from the Offering
in July 1996 included the term note with CIT Group/Credit
Finance, Inc. ("CIT") of approximately $21.1 million and all
bank debt associated with Odessa Exploration, previously with
Norwest Bank Texas, N.A. ("Norwest"), of approximately $14.1
million.
The Debentures mature on July 1, 2003 and are convertible at any
time after November 1, 1996 and before maturity, unless
previously redeemed, into shares of the Company's common stock
at a conversion price of $9 3/4 per share, subject to adjustment
in certain events. In addition, holders of the Debentures who
convert prior to July 1, 1999 will receive, in addition to the
Company's common stock, a payment generally equal to 50% of the
interest otherwise payable on the converted Debentures from the
date of conversion through July 1, 1999, payable in cash or
common stock, at the Company's option. Interest on the
Debentures is payable semi-annually on January 1 and July 1 of
each year, commencing January 1, 1997. In August 1996, the
interest rate was increased from 7% to 7 1/2% due to certain
modifications in the Debenture indenture involving a certain
subsidiary's inability to guarantee the obligations under the
indenture, relating to the Debentures (the "Prospectus"). The 7
1/2% effective interest rate is expected to remain for the
foreseeable future.
- 18 -
The Debentures will not be redeemable before July 15, 1999.
Thereafter, the Debentures will be redeemable at the option of
the Company in whole or part, at the declining redemption prices
set forth in the original prospectus, together with accrued and
unpaid interest thereon. The Debentures also may be redeemed at
the option of the holder if there is a change in control (as
defined in the original prospectus) at 100% of their principal
amount, together with accrued interest thereon.
In January 1996, prior to the merger with Welltech described in
Note 2, and prior to the consummation of the Offering described
above, the Company, Yale E. Key, Clint Hurt Drilling and
WellTech entered into separate credit facilities with CIT
totaling approximately $35 million (the combined maximum credit
limit). The credit facilities were combined into one facility
after the consummation of the Welltech merger. As a result of
the separate credit facilities, the interest rate for Yale E.
Key was lowered from two and one-half to one and one-quarter
percent over the stated prime rate of 8.25% at June 30, 1996.
Each of the CIT term notes required principal and interest
payments, due the first day of each month beginning February 1,
1996, plus a final payment of the unpaid balance of the note due
December 31, 1998. The expiration of each of the lines of
credit is December 31, 1998.
As a result of the convertible subordinated debenture Offering
described above and subsequent repayment of all long-term debt
with CIT, except the lines of credit, the Company is currently
renegotiating its overall credit facilities with CIT, including,
but not limited to, maximum credit availability, interest rate
and maturity dates.
Impact of SFAS 121
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 - Accounting
for Long-Lived Assets and for Long-Lived Assets to be Disposed
Of ("SFAS 121") regarding the impairment of long-lived assets,
identifiable intangibles and goodwill related to those assets.
SFAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995, although earlier adoption is
encouraged. The application of SFAS 121 will require periodic
determination of whether the book value of long-lived assets
exceeds the future cash flows expected to result from the use of
such assets and, if so, will require reduction of the carrying
amount of the "impaired" assets to their estimated fair values.
The Company, currently, estimates that the implementation of
SFAS 121 will not have a material effect on the Company's
financial position. The Company will implement SFAS 121
beginning July 1, 1996.
Impact of Inflation on Operations
Although in our complex environment it is extremely difficult to
make an accurate assessment of the impact of inflation on the
Company's operations, management is of the opinion that
inflation has not had a significant impact on its business.
- 19 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Presented herein are the consolidated financial statements of
Key Energy Group, Inc. and Subsidiaries as of June 30, 1996 and
1995 and for the years ended June 30, 1996, 1995 and 1994.
Also, included is the report of KPMG Peat Marwick LLP,
independent certified public accountants, on such consolidated
financial statements as of June 30, 1996 and 1995 and for each of the
three years ended June 30, 1996.
INDEX to FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets............................ 21
Consolidated Statements of Operations.................. 22
Consolidated Statements of Cash Flows.................. 23
Consolidated Statements of Stockholders' Equity........ 24
Notes to Consolidated Financial Statements............. 25
Independent Auditors' Report........................... 45
- 20 -
Key Energy Group, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, June 30,
(Thousands, except share and per share data) 1996 1995
---------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $3,240 $865
Restricted cash 971 410
Restricted marketable securities - 267
Accounts receivable, net of allowance for
doubtful accounts of $1,942 and $133,
respectively) 20,570 8,133
Inventories 1,957 1,257
Prepaid expenses and other current assets 743 358
--------------------------------------------------------------------------
Total Current Assets 27,481 11,290
--------------------------------------------------------------------------
Property and Equipment:
Oilfield service equipment 66,432 23,726
Oil and gas well drilling equipment 4,862 2,014
Motor vehicles 1,159 526
Oil and gas properties and other related
equipment,successful efforts method 17,663 7,652
Furniture and equipment 716 332
Buildings and land 5,295 2,086
--------------------------------------------------------------------------
95,127 36,336
Accumulated depreciation & depletion (8,920) (4,394)
--------------------------------------------------------------------------
Net Property and Equipment 87,207 31,942
--------------------------------------------------------------------------
Other Assets 7,034 2,011
--------------------------------------------------------------------------
Total Assets $121,722 $45,243
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $11,086 $3,930
Other accrued liabilities 11,002 2,612
Accrued interest 417 145
Accrued income taxes 53 174
Deferred tax liability 310 118
Current portion of long-term debt 1,471 2,249
--------------------------------------------------------------------------
Total Current Liabilities 24,339 9,228
--------------------------------------------------------------------------
Long-term debt,less current portion 45,354 13,700
Non-current accrued expenses 4,909 -
Deferred income taxes 4,244 2,204
Minority interest 1,252 -
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value; 25,000,000 shares
authorized, 10,413,513 and 6,913,513 issued and
outstanding at June 30, 1996 and 1995,
respectively 1,041 691
Additional paid-in capital 32,763 15,186
Retained earnings 7,820 4,234
--------------------------------------------------------------------------
Total Stockholders' Equity 41,624 20,111
--------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $121,722 $45,243
==========================================================================
See the accompanying notes which are an integral part of these
consolidated financial statements.
- 21 -
Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Operations
Fiscal Year Ended June 30,
(Thousands, except per share data) 1996 1995 1994
---------------------------------------------------------------------------
REVENUES:
Oilfield services $55,933 $40,105 $32,616
Oil and gas 4,175 2,334 1,936
Oil and gas well drilling 6,188 1,932 -
Other, net 182 318 69
---------------------------------------------------------------------------
66,478 44,689 34,621
---------------------------------------------------------------------------
COSTS AND EXPENSES:
Oilfield services 40,737 30,592 25,992
Oil and gas 1,350 757 593
Oil and gas well drilling 5,030 1,444 -
Depreciation, depletion and
amortization 4,701 2,738 1,371
General and administrative 6,608 4,352 3,540
Interest 2,477 1,478 830
---------------------------------------------------------------------------
60,903 41,361 32,326
---------------------------------------------------------------------------
Income before income taxes and
minority interest 5,575 3,328 2,295
Income tax expense 1,888 1,150 950
Minority interest in net income 101 - -
---------------------------------------------------------------------------
NET INCOME $3,586 $2,178 $1,345
===========================================================================
EARNINGS PER SHARE :
Primary:
Income before income taxes and
minority interest $0.70 $0.50 $0.44
Net income $0.45 $0.33 $0.26
Assuming full dilution:
Income before income taxes and
minority interest $0.69 $0.50 $0.43
Net income $0.44 $0.33 $0.25
WEIGHTED AVERAGE OUTSTANDING:
Primary 7,941 6,647 5,274
Assuming full dilution 8,114 6,647 5,288
See the accompanying notes which are an integral part of these
consolidated financial statements.
- 22 -
Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Fiscal Year Ended June 30,
(Thousands) 1996 1995 1994
---------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,586 $2,178 $1,345
Adjustments to reconcile income
from operations to
net cash provided by operations:
Depreciation, depletion and
amortization 4,701 2,738 1,371
Deferred income taxes 1,618 1,370 493
Minority interest in net income 101 - -
Gain on sale of assets (186) - -
Other non-cash items 6 (312) -
Change in assets and liabilities net
of effects from the acquisitions:
Increase in accounts receivable (2,180) (1,327) (389)
Increase (decrease) in other current
assets 765 (940) (613)
Decrease in accounts payable and
accrued expenses (1,293) (154) (392)
Other assets and liabilities 3 (295) 27
---------------------------------------------------------------------------
Net cash provided by
operating activities 7,121 3,258 1,842
---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - Oilwell service
operations (5,188) (2,839) (4,395)
Capital expenditures - Oil and gas
operations (1,879) (2,823) (1,253)
Capital expenditures - Oil and gas
well drilling operations (598) (143) -
Proceeds from sale of fixed assets 574 - -
Cash received in WellTech merger 1,168 - -
Acquisitions - oil and gas operations (7,895) (1,348) -
Redemption (purchase) of restricted
marketable securities 267 (1) 40
---------------------------------------------------------------------------
Net cash used in investing
activities (13,551) (7,154) (5,608)
---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (2,601) (2,148) (1,771)
Borrowings (payments) under
line-of-credit 1,100 (605) 1,551
Borrowings from long-term debt 10,867 6,751 4,536
---------------------------------------------------------------------------
Net cash provided by financing
activities 9,366 3,998 4,316
---------------------------------------------------------------------------
Net increase in cash and
restricted cash 2,936 102 550
Cash and restricted cash at
beginning of period 1,275 1,173 623
---------------------------------------------------------------------------
Cash and restricted cash at end
of period $4,211 $1,275 $1,173
===========================================================================
See the accompanying notes which are an integral part of these
consolidated financial statements.
- 23 -
Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Common Stock
-------------------
Number of Additional
Shares Amount Paid-in Retained
(Thousands) Outstanding at par Capital Earnings Total
--------------------------------------------------------------------------
Balance at
June 30, 1993 5,124 $512 $6,057 $711 $7,280
Issuance of common
stock for Odessa
Exploration, Inc. 150 15 623 - 638
Net income - - - 1,345 1,345
--------------------------------------------------------------------------
Balance at
June 30, 1994 5,274 $527 $6,680 $2,056 $9,263
--------------------------------------------------------------------------
Issuance of common
stock for WellTech
West Texas assets 1,635 164 8,420 - 8,584
Issuance of warrants
for WellTech West
Texas assets - - 63 - 63
Issuance of common
stock for Clint Hurt
Drilling assets 5 - 23 - 23
Net income - - - 2,178 2,178
--------------------------------------------------------------------------
Balance at
June 30, 1995 6,914 $691 $15,186 $4,234 $20,111
--------------------------------------------------------------------------
Issuance of common
stock for WellTech
merger 3,500 350 17,577 - 17,927
Net income - - - 3,586 3,586
--------------------------------------------------------------------------
Balance at
June 30, 1996 10,414 $1,041 $32,763 $7,820 $41,624
==========================================================================
See the accompanying notes which are an integral part of these
consolidated financial statements.
- 24 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996, 1995 and 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Key Energy Group, Inc. herein after referred to as the "Company"
or "Key", was organized in April 1977, and commenced operations
in July 1978. Results of operations for the twelve months ended
June 30, 1996, 1995 and 1994 include the Company's oilfield
service operations conducted by its wholly-owned subsidiary,
Yale E. Key, Inc., ("Yale E. Key"), the Company's oil and gas
exploration and production wholly-owned subsidiary, Odessa
Exploration Incorporated ("Odessa Exploration"), and the
Company's oil and gas well drilling operations conducted by the
Company's wholly-owned subsidiary, Key Energy Drilling, Inc.
d/b/a Clint Hurt Drilling ("Clint Hurt Drilling"). Clint Hurt
Drilling was acquired in March of 1995 (see Note 2). Also
included in the results of operations for the fiscal year ended
June 30, 1996 are approximately three months of operating
results from the Company's wholly-owned subsidiary; WellTech
Eastern, Inc. ("WellTech Eastern") which currently holds the
assets acquired in the merger with WellTech, Inc. ("WellTech"),
on March 26, 1996 (see Note 2). WellTech Eastern operates
through two divisions; the WellTech Mid-Continent Division and
the WellTech Eastern Division. In addition, as a result of the
Welltech acquisition, the Company acquired a 63% ownership in
Servicious WellTech, S.A. ("Servicious"), an Argentinean
corporation. Servicious conducts oilfield services operations
in Argentina and is accounted for using the consolidation with a
minority interest method.
Basis of Presentation
The Company's consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries.
All significant inter-company transactions and balances have
been eliminated. The accounting policies presented below have
been followed in preparing the accompanying financial
statements. The Company's ownership of less than 50% owned
entities are accounted for by the cost or equity methods,
depending on the Company's ownership percentage. The
preparation of these financial statements requires
the use of management estimates.
Cash, Restricted Cash and Marketable Securities
The Company holds significant cash in certain financial
institutions. Restricted cash, $971,000 and $410,000 at June
30, 1996 and 1995, respectively, consists of monies held in
Key's cash lock-box and certifcates of deposit. The cash
lock-box is a requirement under the line of credit with CIT (see
Note 5). Restricted marketable securities of $267,000 at June
30, 1995 consist primarily of an investment in a mutual fund
which invests, primarily, in short-term intermediate government
securities which are recorded at market value at June 30, 1995.
The investment was held in escrow for a letter-of-credit
(issued in the amount of approximately $244,000) for workers'
compensation insurance. During fiscal 1996, the investment was
converted into a Certificate of Deposit which is recorded at
cost.
Inventories
Inventories, which consist primarily of oilwell service parts
and supplies, are held for use in the operations of Key and are
valued at the lower of cost (first-in first-out method) or
market.
- 25 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Property and Equipment
The Company provides for depreciation and amortization of
non-oil and gas properties using the straight-line method over
the following estimated useful lives of the assets:
Description Years
------------------------------------------------
Oilfield service equipment 3 - 20
Oil and gas well drilling equipment 3 - 15
Motor vehicles 3 - 7
Furniture and equipment 3 - 10
Buildings and improvements 10 - 40
Gas processing facilities 10
------------------------------------------------
Upon disposition or retirement of property and equipment, the
cost and related accumulated depreciation are removed from the
accounts and the gain or loss thereon, if any, is included in
the results of operations. Odessa Exploration's aggregate oil
and gas properties are stated at cost, not in excess of total
estimated future net revenues net of related income tax effects.
Odessa Exploration utilizes the successful efforts method of
accounting for its oil and gas properties. Under this method,
all costs associated with productive wells and nonproductive
development wells are capitalized, while nonproductive
exploration costs and geological and geophysical costs (if any),
are expensed. Capitalized costs relating to proved properties
are depleted using the unit-of-production method. Upon
disposition, the carrying amounts of properties sold or
otherwise disposed of and the related allowance for depletion
are eliminated from the accounts and any gain/loss is included
in results of operations.
Gas Balancing
Deferred income associated with gas balancing is accounted for
on the entitlements method and represents amounts received for
gas sold under gas balancing arrangements in excess of Odessa
Exploration's interest in properties covered by such agreements.
Odessa Exploration had deferred income associated with gas
balancing of $198,000 and $253,000 as of June 30, 1996 and 1995,
respectively.
Environmental
The Company is subject to extensive federal, state and local
environmental laws and regulations. These laws, which are
constantly changing, regulate the discharge of materials into
the environment and may require the Company to remove or
mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites. Environmental
expenditures are expensed or capitalized depending on their
future economic benefit. Expenditures that relate to an existing
condition caused by past operations and that have no future
economic benefits are expensed. Liabilities for expenditures of
a noncapital nature are recorded when environmental assessment
and/or remediation is probable, and the costs can be reasonably
estimated.
Other Assets and Goodwill
At June 30, 1996 and 1995, other assets consisted primarily of
goodwill and security and escrow deposits from Key's workers'
compensation retrospective insurance program, in addition to an
interest, (approximately 13%), in an insurance company (the
insurance company is affiliated with Key's workers' compensation
carrier).
- 26 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
At June 30, 1996 and 1995, the Company classified as goodwill
the cost in excess of fair value of the net assets acquired in
purchase transactions. Goodwill is being amortized on a
straight-line basis over ten to twenty-five years. Management
continually evaluates whether events or circumstances have
occurred that indicate the remaining useful life of goodwill may
warrant revision or the remaining balance of goodwill may not be
recoverable. Goodwill amortization expense totaled $100,000 for
the year ended June 30, 1996.
Earnings per Share
Primary earnings per common share are determined by dividing net
earnings applicable to common stock by the weighted average
number of common shares actually outstanding during the year and
common equivalent shares resulting from the assumed exercise of
stock options and warrants (if any) using the treasury stock
method, except in periods with reported losses as the inclusion
of common stock equivalents would be antidilutive. Fully
diluted earnings per common share are based on the increased
number of shares that would be outstanding assuming conversion
of dilutive outstanding convertible securities using the "as if
converted" method.
Income Taxes
The Company accounts for income taxes based upon Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in
income in the period that includes the enactment date. A
valuation allowance for deferred tax assets is recognized when
it is "more likely than not" that the benefit of deferred tax
assets will not be realized. The Company and its wholly-owned
subsidiaries file a consolidated federal income tax return.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of temporary
cash investments and trade receivables. The Company restricts
investment of temporary cash investments to financial
institutions with high credit standing and by policy limits the
amount of credit exposure to any one financial institution. The
Company's customer base consists primarily of multi-national,
foreign national and independent oil and natural gas producers.
See Note 11 for additional information regarding customers which
accounted for more than 10% of consolidated revenues. The
Company performs ongoing credit evaluations of its customers and
generally does not require collateral on its trade receivables.
Such credit risk is considered by management to be limited due
to the large number of customers comprising the Company's
customer base. The Company maintains reserves for potential
credit losses, and such losses have been within management's
expectations.
Impact of SFAS 121
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 - Accounting
for Long-Lived Assets and for Long-Lived Assets to be Disposed
Of ("SFAS 121") regarding the impairment of long-lived assets,
identifiable intangibles and goodwill related to those assets.
SFAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995, although earlier adoption is
encouraged. Under SFAS 121 an entity shall review long-lived
assets and certain identifiable intangibles to be held and used
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable.
- 27 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
If the book value of long-lived assets exceeds the future cash
flows expected to result from the use of such assets and a
reduction of the carrying amount of the "impaired"
assets to their estimated fair values is required. The Company, currently,
estimates that the implementation of SFAS 121 will not have a
material effect on the Company's financial position. The
Company will implement SFAS 121 beginning July 1, 1996.
Cash Flows
For cash flow purposes, the Company considers all highly liquid
investments with less than a three month maturity when purchased
as cash equivalents.
2. BUSINESS AND PROPERTY ACQUISITIONS
WellTech, Inc.
On March 26, 1996, the Company acquired, through a merger,
WellTech. Key was the surviving entity in the merger. Net
consideration for the merger was 3,500,000 shares of the
Company's common stock and warrants to purchase 500,000
additional shares. In the merger, WellTech stockholders received
an aggregate of 4,929,962 shares of the Company's common stock
and warrants to purchase 750,000 shares of the Company's common
stock at $6.75 per share. As part of the merger, 1,429,962 of
the 1,635,000 shares of the Company's common stock owned by
WellTech and previously issued warrants to purchase 250,000
shares of the Company's common stock at $5.00 per share were
cancelled. WellTech's principal line of business is oil and gas
well servicing and it operates in the Mid-Continent and
Northeast areas of the United States and in Argentina. The
acquisition was accounted for using the purchase method and the
results from operations from the acquisition have been included
in those of the Company's since March 26, 1996.
Odessa Exploration Properties
In April of 1996, Odessa Exploration purchased approximately
$6.9 million of oil and gas producing properties from an
unrelated company. Financing for the acquisition came from bank
financing. The acquisition was accounted for using the purchase
method. The results of operations of the acquired properties
are included in the consolidated statements of operations
beginning April 26, 1996.
Clint Hurt Drilling
On March 30, 1995, the Company and Clint Hurt Associates, Inc.
("CHA") entered into an asset purchase agreement pursuant to
which CHA sold to the Company all of its assets in West Texas.
Such assets mainly consisted of four oil and gas drilling rigs and related
equipment. As consideration for the acquisition, the Company
paid CHA $1,750,000, of which $1,000,000 was paid in cash and
the balance in the form of a $725,000 note payable to CHA (the
note was paid in full in July 1995). Mr. Clint Hurt entered
into consulting and noncompetition agreements with the Company
in consideration for which the Company issued 5,000 shares of
common stock. The acquisition was accounted for using the
purchase method and the results of operations of Clint Hurt
Drilling have been included in those of the Company since April
1, 1995.
WellTech West Texas
In December 1993, the Company and WellTech entered into a
purchase agreement pursuant to which the Company purchased
substantially all assets used by Welltech in its West Texas
operations. The acquisition was dependent on shareholder
approval which occurred in August of 1994. As consideration for
the acquisition, the
- 28 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Company issued to WellTech 1,635,000 shares of common stock of
the Company and warrants to acquire 250,000 additional shares of
common stock, (at $5.00 per share which expire on February 5,
1997). The issued warrants have been subsequently modified as
the result of the WellTech merger described above. The closing
of the transaction occurred on August 11, 1994. Prior to the
closing, the Company (through its wholly-owned subsidiary; Yale
E. Key, Inc.) operated and managed the operations of the
WellTech West Texas region in connection with an interim
operating agreement. The Company's consolidated statements of
operations from December 10, 1993 through August 11, 1994,
include the direct revenues and expenses from the West Texas
operations of WellTech. For the period after August 11, 1994,
the results of operations include the effects of ownership of
WellTech West Texas.
The following unaudited pro forma results of operations have
been prepared as though WellTech Eastern, Clint Hurt Drilling
and WellTech West Texas had been acquired on July 1, 1993:
(unaudited)
Year Ended June 30,
(Thousands, except per share data) 1996 1995 1994
-----------------------------------------------------------------
Revenues $ 113,022 $ 119,645 $ 97,111
Net income 5,247 4,875 4,266
Earnings per share:
Primary $0.50 $0.48 $0.42
Fully-diluted $0.47 $0.45 $0.40
Weighted average shares outstanding:
Primary 10,414 10,106 10,106
Fully-diluted 11,106 10,798 10,798
3. OTHER ASSETS
Other assets consist of the following:
June 30,
(Thousands) 1996 1995
---------------------------------------------------------------------
Investment in insurance
company - common stock * $ 368 $ 368
Workers compensation security premiums 1,117 326
Deferred acquisition costs - 200
Goodwill (net of amortization - $200) 5,400 963
Other 149 154
---------------------------------------------------------------------
$ 7,034 $2,011
=====================================================================
* - Represents approximately 13% ownership.
4. COMMITMENTS AND CONTINGENCIES
Various suits and claims arising in the ordinary course of
business are pending against the Company. Management does not
believe that the disposition of any of these items will result
in a material adverse impact to the consolidated financial
position of the Company. As of June 30, 1996, the Company had
reserved $425,000 for potential suits and claims.
During 1995, the Company entered into employment agreements with
certain of its officers. These employment agreements generally
run to June 30, 1997, but will automatically be extended on a
yearly basis
- 29 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
unless terminated by the Company or the applicable officer. In
addition to providing a base salary for each officer, the
employment agreements provide for severance payments for each
officer varying from 12 to 24 months of the officers base
salary. The current annual base salaries for the officers
covered under such employment agreements total approximately
$800,000.
5. LONG-TERM DEBT
In July 1996, the Company completed the offering of $52,000,000
7% convertible subordinated debentures due 2003 (the
"Debentures" or the "Offering"). The Offering was a private
offering pursuant to Rule 144A under the Securities Act.
Proceeds from the Offering were approximately $52,000,000 and
were used to substantially repay existing long-term debt
(approximately $35.2 million). The remaining proceeds are
intended to fund the expansion of the Company's services through
acquisitions of businesses and assets and for working capital
and general corporate purposes.
Long-term debt which was repaid with proceeds from the Offering
in July 1996 were the term note with CIT Group/Credit Finance,
Inc. ("CIT") of approximately $21.1 million and all bank debt
associated with Odessa Exploration, previously with Norwest Bank
Texas, N.A. ("Norwest") of approximately $14.1 million.
The Debentures mature on July 1, 2003 and are convertible at any
time after November 1, 1996 and before maturity, unless
previously redeemed, into shares of the Company's common stock
at a conversion price of $9 3/4 per share, subject to adjustment
in certain events. In addition, holders of the Debentures who
convert prior to July 1, 1999 will receive, in addition to the
Company's common stock, a payment generally equal to 50% of the
interest otherwise payable on the converted Debentures from the
date of conversion through July 1, 1999, payable in cash or
common stock, at the Company's option. Interest on the
Debentures is payable semi-annually on January 1 and July 1 of
each year, commencing January 1, 1997. In August, 1996, the
interest rate was increased from 7% to 7 1/2% due to certain
modifications in the Debenture indenture involving a certain
subsidiary's inability to guarantee the obligations under the
indenture, (specifically, Servicious). The 7 1/2% effective
interest rate is expected to remain for the foreseeable future.
The Debentures are not redeemable before July 15, 1999.
Thereafter, the Debentures will be redeemable at the option of
the Company in whole or part, at the declining redemption prices
set forth in the original Debenture prospectus, together with
accrued and unpaid interest thereon. The Debentures also may be
redeemed at the option of the holder if there is a change in
control (as defined in the original Debenture prospectus) at
100% of their principal amount, together with accrued interest
thereon.
In January 1996, prior to the completed merger described in Note
2, and prior to the consummation of the Offering described
above, the Company, Yale E. Key, Clint Hurt and WellTech entered
into separate credit facilities with CIT totaling approximately
$35 million (the combined maximum credit limit). The credit
facilities were combined into one facility after the
consummation of the Welltech merger. As a result of the
separate credit facilities, the interest rate for Yale E. Key
was lowered from two and one-half to one and one-quarter
percent over the stated prime rate of 8.25% at June 30, 1996.
Each of the CIT term notes required principal and interest
payments, due the first day of each month beginning February 1,
1996, plus a final payment of the unpaid balance of the note due
December 31, 1998. The expiration of each of the lines of
credit was December 31, 1998.
- 30 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
As a result of the Offering described above and subsequent
repayment of all long-term debt with CIT, except the lines of
credit, the Company is currently renegotiating its overall
credit facilities with CIT including, but not limited to,
maximum credit availability, interest rate and maturity dates.
The components of long-term debt, prior to the Offering
described above, were as follows:
June 30,
(Thousands) 1996 1995
---------------------------------------------------------------------------
Term Note(s) - CIT, interest and
principal payable monthly (i) $ 21,062 $ 6,032
Revolving Line(s) of Credit - CIT,
interest payable monthly (i) 9,910 3,846
Revolver Note - Norwest, interest
payable monthly (ii) 6,300 4,237
Term Note(s) - Norwest, interest and
principal payable monthly (iii) 7,000 944
Other notes payable 2,554 890
---------------------------------------------------------------------------
46,826 15,949
Less current portion 1,472 2,249
---------------------------------------------------------------------------
Long-term debt $ 45,354 $ 13,700
===========================================================================
(i).Prior to the Offering described above, the CIT term note,
as amended, required principal payments of approximately
$275,000, plus interest, due the first day of each month plus a
final payment of the unpaid balance of the note due December
31, 1998. The interest rate was one and one-quarter percent
above the stated prime rate of 8.25% at June 30, 1996. The note
was collateralized by all of the assets (including equipment
and inventory) of Yale E. Key, Clint Hurt and WellTech
Eastern.
The CIT line of credit, as amended, currently requires monthly
payments of interest at one and one-quarter percent above the
stated prime rate of 8.25% at June 30, 1996. The line of credit
is collateralized by the accounts receivable of Yale E. Key,
Clint Hurt and WellTech Eastern. At June 30, 1996, there was
no credit line availability.
The agreement with CIT included certain restrictive covenants,
the most restrictive of which prohibits the Company from
making distributions and declaring dividends on its common
stock.
(ii). Prior to the Offering described above, Odessa Exploration
had a loan agreement, as amended, with Norwest. The loan
agreement provided for a $7.5 million revolving line of credit
note subject to a borrowing base limitation (approximately $6.3
million at June 30, 1996). The borrowing base was redetermined
on at least a semi-annual basis. The borrowing base was reduced
by approximately $100,000 per month through October 1997; the
maturity of the note. The note's interest rate was one-half
of one percent over Norwest's prime rate of 8.25% at June 30,
1996). The note was secured by substantially all of the oil
and gas properties of Odessa Exploration.
- 31 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The loan agreement had contained various restrictive covenants
and compliance requirements, which included (a) prohibits
Odessa Exploration from declaring or paying dividends on
Odessa Exploration's common stock, (b) limiting the incurrence
of additional indebtedness by Odessa Exploration, (c) the
limitation on the disposition of assets and (d) various
financial covenants.
(iii). In April, 1996, as the result of the acquisition of
certain properties by Odessa Exploration, but prior to the
Offering described above, Odessa Exploration entered into a loan
agreement with Norwest. The loan agreement provided for a
term loan of $9.3 million to be reduced by $2.4 million in
principal amount after the consummation of the acquisition of
certain properties by Odessa Exploration. The note's interest
rate was one-half of one percent over Norwest's prime rate of
8.25% at June 30, 1996. The note required interest payments
beginning June 1, 1996. The note was secured by substantially
all of the oil and gas properties of Odessa Exploration. As a
result of the Offering described above, the note was repaid in
full in July 1996.
In March 1995, Clint Hurt entered into a loan agreement with
Norwest. The loan agreement provided for a $1 million term
note and a $200,000 line of credit note. The $1 million term
note required principal payments of approximately $28,000 per
month plus interest with the first payment due May 5th, 1995
and monthly thereafter for 36 months with a maturity date of
April 1998. The $200,000 line of credit note required principal
payments of $20,000 per month beginning July 5, 1995, plus
interest, through its maturity in April 1996. Both notes had
an interest rate of Norwest prime rate (8.25% at June 30,
1996), plus 3/4 of one percent. The notes were secured by all
of the equipment of Clint Hurt Drilling and were guaranteed
by the Company. In January 1996, as the result of the new
credit facilities with CIT as described above, but prior to
the Offering, also described above, the Clint Hurt loan and
line of credit with Norwest was repaid in full.
Presented below is a schedule of the repayment requirements of
long-term debt, which reflects the revised payment terms of the
Offering, for each of the next five years and thereafter as of June 30, 1996:
(in thousands)
Fiscal year Principal
Ended Amount
--------------------------------
1997 $ 1,472
1998 111
1999 9,956
2000 39
2001 38
Thereafter 35,210
--------------------------------
$ 46,826
================================
- 32 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
June 30,
(Thousands) 1996 1995
--------------------------------------------------------------------
Accrued payroll and taxes $ 2,614 $ 624
Group medical insurance 1,536 -
Workers compensation 1,067 704
State sales, use and property taxes 414 208
Gas imbalance - deferred income 198 253
Revenue distribution 437 215
Acquisition accrual 3,720 -
Other 1,016 608
--------------------------------------------------------------------
Total $ 11,002 $2,612
====================================================================
7. STOCKHOLDERS' EQUITY
The 1995 Stock Option Plan
On October 5, 1995, a Stock Option Plan (the "1995 Plan") was
approved by the Company's Board of Director's. The Plan became
effective July 1, 1995, and , unless terminated earlier, will
terminate July 1, 2005. The 1995 Plan is administered by a
committee (the "Committee") consisting of at least three
directors of Key, each of whom is a "disinterested person"
within the meaning of rule 16b-3 under the Exchange Act and an
"outside director" within the meaning of Section 162(m) of the
Code.
The total number of shares of the Company's common stock that
may be subject to options under the 1995 Plan may not exceed
1,150,000 in the aggregate. The total amount of common stock
with respect to which options may be granted over the life of
the 1995 Plan to any single employee shall not exceed 500,000
shares in the aggregate. Options which are canceled, forfeited
or have expired or expire by their terms without being exercised
shall be available for future grants under the 1995 Plan. The
Committee may determine may determine which key employees of the
Company or any subsidiary or other persons shall be granted
options under the 1995 Plan, the terms of the options and the
number of shares which may be purchased under the option.
The individuals eligible to receive options under the 1995 Plan
consist of key employees (including officers who may be members
of the Board), directors who are neither employees nor members
of the Committee and other individuals who render services of
special importance to the management, operation or development
of Key or any subsidiary, and who have contributed or may be
expected to contribute materially to the success of Key or a
subsidiary, provided, however, that only key employees are
eligible to receive options.
The price at which shares of common stock may be purchased upon
exercise of an option will be specified by the Committee at the
time the option is granted, but in the case of an individual
stock option, except under certain conditions, may not be less
than the fair market value of the common stock on the date of
grant. The duration of any option is determined by the
Committee in its discretion and shall be specified in the option
agreement. No individual stock option may be exercisable after
the expiration of ten years.
- 33 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The 1995 Outside Directors Stock Option Plan
On October 5, 1995, an Outside Directors Stock Option Plan was
approved by the Company's Board of Director's (the "Directors
Plan"). Individuals who are "Outside Directors" are eligible to
participate in the Directors Plan. An "Outside Director" is
defined as a member of the Board of Directors who is not an
employee of the Company or any of its subsidiaries. Under the
Directors Plan, Outside Directors are divided into three groups
dependent upon certain dates and length of service on the Board.
Only nonqualified stock options ("NSO's") may be granted under
the Directors Plan. An NSO granted under the Directors Plan
shall expire ten years after the date of the grant. An NSO may
not be granted under the Directors Plan after July 1, 1998.
The Directors Plan provides for the issuance of an aggregate of
300,000 shares of common stock, which may be authorized but
unissued shares, treasury shares, or shares purchased on the
open market. The exercise price of the NSO shall be the fair
market value on the date of the grant.
The following table summarizes the stock option activity
related to the Company's plans:
Price
Shares Per Share
---------------------------------------------------------
Outstanding, July 1, 1995 - $ -
Granted 1,075,000 $ 5.00 - $ 7.50
Cancelled - $ -
Exercised - $ -
----------------------------------------------------------
Outstanding, June 30, 1996 1,075,000 $ 5.00 - $ 7.50
==========================================================
Exercisable, June 30, 1996 281,250 $ 5.00 - $ 7.50
==========================================================
8. INCOME TAXES
Components of income tax expense (benefit) are as follows:
Fiscal Year Ended June 30,
(Thousands) 1996 1995 1994
--------------------------------------------------------------
Federal and State:
Current $ 270 $ (220) $ 457
Deferred 1,618 1,370 493
--------------------------------------------------------------
$1,888 $ 1,150 $ 950
==============================================================
- 34 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Income tax expense (benefit) differs from amounts computed by
applying the statutory federal rate as follows:
Fiscal Year Ended June 30,
(Thousands) 1996 1995 1994
---------------------------------------------------------------------
Income tax computed at
Statutory rate 34.0% 34.0% 34.0%
State taxes net of federal benefit - - 2.4
Expiration of capital loss carryover - - 4.4
Meals and entertainment disallowance 1.7 2.2 -
Accrual to return adjustments (1.5) (1.0) -
Other (0.3) (0.7) .5
---------------------------------------------------------------------
33.9% 34.5% 41.3%
=====================================================================
Deferred tax assets (liabilities) are comprised of the following:
Fiscal Year Ended June 30,
(Thousands) 1996 1995 1994
------------------------------------------------------------------------
Net operating loss carry-forwards, net
of allowance and Sec. 382 limitations $ 6,293 $ 1,140 $ 1,143
Property and equipment (10,942) (3,437) (2,095)
Other 95 (25) -
------------------------------------------------------------------------
Net deferred tax liability $(4,554) $(2,322) $ (952)
========================================================================
A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax assets will not be
realized. Based on expectations for the future, management has
determined that taxable income of the Company will more likely
than not be sufficient to fully utilize available carryforwards
prior to their ultimate expiration.
The Company estimates that as of June 30, 1996, the Company will
have available approximately $186,837,042 of net operating loss
carryforwards (which begin to expire in 2001). The net
operating loss carryforwards are subject to an annual limitation
of approximately $940,000, under Sections 382 and 383 of the
Internal Revenue Code.
9. LEASING ARRANGEMENTS
Among other leases, the Company (primarily its subsidiaries),
lease certain automotive equipment under non-cancellable
operating leases which expire at various dates through 1999.
The term of the operating leases generally run from 36 to 60
months with varying payment dates throughout each month. In
addition, in the case of Yale E. Key, each lease includes an
option to purchase the equipment and an excess mileage charge as
defined in the leases.
- 35 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
As of June 30, 1996, the future minimum lease payments under
non-cancellable operating leases, in thousands, are as follows:
Fiscal Year Lease
Ending June 30, Payments
-------------------------------------
1997 $ 2,819
1998 2,217
1999 1,371
2000 587
2001 286
-------------------------------------
$ 7,280
=====================================
Operating lease expense was approximately $2,897,000, $1,930,000
and $1,640,000 for the fiscal years ended June 30, 1996, 1995
and 1994, respectively.
10. EMPLOYEE BENEFIT PLANS
At June 30, 1996, as the result of the WellTech merger (Note 2),
the Company maintains two 401-(k) plan's (the "Plans") for its
employees. Employee's of WellTech Eastern are eligible for
participation in one Plan (the "WellTech 401-(k) Plan"), while
all other employee's are eligible for participation in the other
Plan (the "Key 401-(k) Plan"). The Company intends to merge the
two Plans during fiscal 1997. The 401-(k) plan's cover
substantially all employees of the Company. The Company did
not make a contribution to the Key 401-(k) Plan during the
fiscal year ended June 30, 1994, however, beginning July 1,
1994, the Company agreed to match employees contributions up to
10% of the employees contribution to the Key 401-(k) Plan.
These contributions totaled approximately $19,000 and $20,000
for the years ended June 30, 1996 and 1995, respectively.
Additionally, the Company contributed $37,000 into the Welltech
401-(k) Plan for the period March 26, 1996 (the date of the
WellTech merger) to June 30, 1996. The Company agreed to match
employee contributions up to 50% (to a maximum of $1,000 per
employee) of the employees contributions to the Welltech 401-(k)
Plan.
11. MAJOR CUSTOMERS
Sales to customers representing 10% or more of consolidated
revenues for the years ended June 30, 1996, 1995 and 1994 were
as follows:
Fiscal Year Ended
June 30,
1996 1995 1994
----------------------------------------------------------
Customer A 20% 18% 15%
Customer B 11% 10% 14%
The accounts receivable balance for customers A and B at June
30, 1996 were $1,603,000 and $835,000, respectively.
- 36 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
12. TRANSACTIONS WITH RELATED PARTIES
WellTech Eastern paid $18,000 for the period March 26, 1996 (the
date of the Welltech merger) to June 30, 1996, for office/yard
rental expense in which an officer of the Company and WellTech
Eastern has an interest. In the opinion of the Board of
Directors of the Company, based on the Board's review of
competitive bids, this transaction was on terms at least as
favorable to the Company as could have been obtained from a
third party.
In connection with the Odessa Exploration acquisition, (see Note
2) the Company granted D. Kirk Edwards (President of Odessa
Exploration) a percentage reversionary working interest in five
deep gas wells located in West Texas upon repayment of
$1,622,000 of the bank debt assumed by the Company in the
acquisition from the Company's earnings from the five wells.
The percentage reversionary working interest decreases based on
the date of repayment of the assumed bank debt and ranges from
20% of the earnings from the five wells if repayment occurs on
or prior to July 7, 1995, to 5% of the earnings from the five
wells if repayment occurs after July 7, 1996. The value of the
reversionary interest assigned was insignificant at July 1,
1993.
Key leases automotive equipment from an independent third party
(see Note 9). The independent third party purchases the
automotive equipment from an automobile dealership in which a
former officer owns a majority interest. Net proceeds to the
automobile dealership totaled $399,000 and $1,058,000 for years
ended June 30, 1995 and 1994, respectively. The leases are
considered operating leases. In the opinion of the Board of
Directors of the Company, the net proceeds from automotive
equipment were on terms at least as favorable to the Company as
could have been obtained from a third party. This opinion is
based on information provided by a third party leasing company,
that is not affiliated with the former officer or the Company,
to the Board of Directors regarding purchase prices and
equipment lease rentals offered by third parties.
Key paid $55,000 for the year ended June 30, 1994 for oilfield
related services and equipment to two oilfield related companies
in which two officers of Key had an interest. In the opinion of
the Board of Directors of the Company, based on the Board's
review of competitive bids, these transactions were on terms at
least as favorable to the Company as could have been obtained
from a third party.
13. CONCENTRATIONS OF CREDIT RISK
The Company has a concentration of customers in the oil and gas
industry. Substantially all of the Company's customers are
major integrated oil companies, major independent producers of
oil and gas and smaller independent producers. This may affect
the Company's overall exposure to credit risk either positively
or negatively, in as much as its customers are effected by
economic conditions in the oil and gas industry, which has
historically been cyclical. However, accounts receivable are
well diversified among many customers and a significant portion
of the receivables are from major oil companies, which
management believes minimizes potential credit risk.
Historically, credit losses have been insignificant.
Receivables are generally not collateralized, although the
Company may generally secure a receivable at any time by filing
a mechanic's and material-mans' lien on the well serviced.
- 37 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
14. BUSINESS SEGMENT INFORMATION
Information about the Company's operations by business segment
is as follows:
Year Ended June 30,
(Thousands) 1996 1995 1994
--------------------------------------------------------------------
Revenues:
Oil and gas $ 4,175 $ 2,334 $ 1,936
Oilfield services 55,933 40,105 32,616
Oil and gas well drilling services 6,188 1,932 -
Other 182 318 69
--------------------------------------------------------------------
$66,478 $ 44,689 $34,621
====================================================================
Income before minority interest and
and income taxes:
Oil and gas $ 1,596 $ 941 $ 814
Oilfield services 6,482 4,105 2,823
Oil and gas well drilling services 639 367 -
Interest expense (2,477) (1,478) (830)
General corporate (665) (607) (512)
---------------------------------------------------------------------
$ 5,575 $ 3,328 $ 2,295
=====================================================================
Identifiable assets:
Oil and gas $ 18,170 $ 8,289 $ 5,258
Oilfield services 94,962 33,516 22,022
Oil and gas well drilling services 5,583 3,160 -
General corporate 3,007 278 815
---------------------------------------------------------------------
$121,722 $ 45,243 $ 28,095
=====================================================================
Capital Expenditures:
Oil and gas $ 9,774 $ 3,736 $ 4,449
Oilfield services 5,188 11,422 4,395
Oil and gas well drilling services 598 2,141 -
---------------------------------------------------------------------
$ 15,560 $ 17,299 $ 8,844
=====================================================================
Depreciation, depletion and amortization:
Oil and gas $ 618 $ 426 $ 412
Oilfield services 3,862 2,279 959
Oil and gas well drilling services 221 33 -
---------------------------------------------------------------------
$ 4,701 $ 2,738 $ 1,371
=====================================================================
Key operates a variety of oilfield service equipment including
workover rigs, hot oil units, transports and various other
oilfield servicing equipment. In addition, Key performs a
variety of other oilfield services including fishing tools, frac
tanks and blow-out preventers.
- 38 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Oil and gas production is conducted by Odessa Exploration.
Odessa Exploration acquires and manages interests in producing
oil and gas properties for its own account and for its sponsored
investors. The Company is engaged in the drilling and
production of oil and natural gas in the United States. Odessa
Exploration acquires producing oil and gas properties from major
and independent producers. After acquisition, Odessa
Exploration may either rework the acquired well to increase
production and/or form drilling partnerships for additional
development wells.
Oil and gas well drilling services are conducted by Clint Hurt
Drilling. Clint Hurt Drilling operates six drilling rigs which
drill for oil and gas in the West Texas area.
15. INFORMATION ON OIL AND GAS ACTIVITIES (unaudited)
CAPITALIZED COSTS:
June 30,
(in thousands) 1996 1995
---------------------------------------------------------------
Oil and Gas Properties:
Proved properties $ 17,290 $ 7,652
Unproven properties - -
Less accumulated depletion (1,364) (766)
---------------------------------------------------------------
Net capitalized costs $ 15,926 $ 6,886
===============================================================
COSTS INCURRED:
June 30,
(in thousands) 1996 1995 1994
------------------------------------------------------------------------
Proved property acquisition costs $ 7,786 $ 1,054 $ 4,390
Development costs 1,848 2,581 40
------------------------------------------------------------------------
Total Costs Incurred $ 9,634 $ 3,635 $ 4,430
========================================================================
RESULTS OF OPERATIONS:
Oil and gas sales $ 3,555 $ 1,793 $ 1,483
Production costs, including
production taxes (1,350) (756) (573)
Depletion (598) (398) (386)
Income taxes * (546) (217) (178)
-------------------------------------------------------------------------
Results of operations for oil and
gas producing activities ** $ 1,061 $ 422 $ 346
=========================================================================
* - computed at the statutory rate of 34%.
** - excludes corporate overhead and financing costs.
- 39 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Oil and Gas Reserve Information
Estimates of Odessa Exploration's proved oil and gas reserves as
of June 30, 1996, 1995 and 1994 were prepared by the Company and
reviewed by independent petroleum reservoir engineering firms.
All estimates were made in accordance with guidelines
established by the Securities and Exchange Commission. Proved
oil and gas reserves are the estimated quantities of crude oil
and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic
conditions, i.e. prices and costs as of the date the estimate is
made. Prices utilized reflect consideration of changes in
existing prices provided by contractual arrangements, if any,
but not of escalations based upon future conditions. The
reserve estimates are presented utilizing an average oil price
of $19.17 Bbl and an average natural gas price of $1.95 Mcf as
of June 30, 1996.
Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing equipment and
operating methods.
Proved undeveloped oil and gas reserves are proved reserves that
are expected to be recovered from new wells on undrilled acreage
or from existing wells where a relatively major expenditure is
required for recompletion or secondary or tertiary recovery.
Reserves assigned to undrilled acreage are limited to those
drilling units that offset productive units reasonably certain
of production when drilled.
No major discovery or other favorable or adverse event has
occurred since July 1, 1996 which is believed to have caused a
significant change in the estimated proved oil and gas reserves
of Odessa Exploration.
Odessa Exploration's estimate of reserves has not been filed
with or included in reports to any federal agency other than the
Securities and Exchange Commission.
Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved
reserves and in the projection of future rates of production and
the timing of development expenditures. The accuracy of such
estimates is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results
of subsequent drilling, testing and production may cause either
upward or downward revision of previous estimates. Further, the
volumes considered to be commercially recoverable fluctuate with
changes in prices and operating costs. The Company emphasizes
that reserve estimates are inherently imprecise and that
estimates of new discoveries are more imprecise than those of
currently producing oil and gas properties. Accordingly, these
estimates are expected to change as additional information
becomes available in the future.
(continued next page)
- 40 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Oil and Gas Producing Activities:
Oil and Natural
Condensate Gas
(Bbls) (Mcf)
----------------------------------------------------------------
Total Proved Reserves:
Balance, July 1, 1993: - -
Purchases of minerals-in-place 129,291 7,338,452
Production (14,383) (552,791)
----------------------------------------------------------------
Balance, June 30, 1994 114,908 6,785,661
Revisions of previous estimates 92,080 1,945,659
Purchases of minerals-in-place 1,515,559 6,036,937
Production (40,330) (770,197)
----------------------------------------------------------------
Balance, June 30, 1995 1,682,217 13,998,060
Revisions of previous estimates 275,499 4,520,007
Discoveries and extensions 162,643 1,793,111
Purchases of minerals-in-place 3,162,099 16,456,993
Production (97,130) (1,026,577)
----------------------------------------------------------------
Balance, June 30, 1996 5,185,328 35,741,594
================================================================
Proved Developed Reserves:
June 30, 1994 114,908 6,785,661
================================================================
June 30, 1995 750,604 11,203,232
================================================================
June 30, 1996 2,727,967 24,517,362
================================================================
Standardized Measure of Discounted Future Cash Flows
The following schedules present estimates of the standardized
measure of discounted future net cash flows from the Company's
proved reserves as of June 30, 1996, and an analysis of the
changes in these amounts for the years ended June 30, 1996, 1995
and 1994. Estimated future cash flows are determined using
year-end prices adjusted only for fixed and determinable
increases for natural gas provided by contractual agreement (if
any). Estimated future production and development costs are
based on economic conditions at year-end. Future federal
income taxes are computed by applying the statutory federal
income tax rate of 34% to the difference between the future
pretax net cash flows and the tax basis of proved oil and gas
properties, after considering investment tax credits and net
operating loss carry-forwards (if any), associated with these
properties.
Discounted future cash flow estimates like those shown below are
not intended to represent estimates of the fair value of oil and
gas properties. Estimates of fair value should also consider
probable reserves, anticipated future oil and gas prices, interest rates,
changes in development and production costs and risks associated
with future production. Because of these and other
considerations, any estimate of fair value is necessarily
subjective and imprecise.
- 41 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
June 30,
(in thousands) 1996 1995
-----------------------------------------------------------------------
Standardized Measure:
Future cash inflows $171,000 $ 51,830
Future production costs (61,521) (11,852)
Future development costs (15,495) (6,160)
Future income taxes (12,092) (10,477)
-----------------------------------------------------------------------
Future after-tax net cash flows 81,892 23,341
10% annual discount (42,188) (8,183)
-----------------------------------------------------------------------
Standardized Measure $ 39,704 $ 15,158
=======================================================================
Changes in Standardized Measure:
Standardized Measure, July 1, 1993 $ -
Oil and gas sales, net of production costs (910)
Purchases of minerals in place 6,030
Net change in income taxes (381)
Accretion of discount -
-------------------------------------------------------------
Standardized Measure, June 30, 1994 $ 4,739
Oil and gas sales, net of production costs (1,037)
Purchases of minerals in place 13,033
Net change in income taxes (5,881)
Accretion of discount 512
Revision of quantity estimates 1,745
Change in future development costs 1,227
Net change in sales prices 79
Changes in production rates (timing) and other 741
-------------------------------------------------------------
Standardized Measure, June 30, 1995 $ 15,158
Oil and gas sales, net of production costs (2,205)
Purchases of minerals in place 24,216
Net change in income taxes 75
Accretion of discount 2,142
Revision of quantity estimates 6,189
Change in future development costs (982)
Extensions and discoveries 2,952
Net change in sales prices 1,397
Changes in production rates (timing) and other (9,238)
-------------------------------------------------------------
Standardized Measure, June 30, 1996 $ 39,704
=============================================================
- 42 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
16. CASH FLOW DISCLOSURES
Supplemental cash flow disclosures for the years ended June 30,
1996, 1995 and 1994 are presented below:
Year Ended June 30,
(Thousands) 1996 1995 1994
--------------------------------------------------------------------------
Interest paid $ 2,205 $ 1,422 $ 759
Taxes paid 391 53 10
Supplemental schedule of non-cash investing and financing
transactions for the years ended June 30, 1996, 1995 and 1994
are presented below:
Year Ended June 30,
(Thousands) 1996 1995 1994
-------------------------------------------------------------------------
Fair value of Common Stock issued
for Odessa Exploration, Inc. $ - $ - $ 638
Assumption of Odessa Exploration,
Inc. liabilities - - 2,752
Acquisition of Odessa Exploration, Inc.
property and equipment - - 3,196
Fair value of Common Stock issued for
Clint Hurt Drilling - 23 -
Fair value of Common Stock and
Warrants issued for
WellTech West Texas - 8,647 -
Capital lease obligation reduced for
purchase of asset - 275 -
Proceeds on sale of assets
not received - 132 -
Property and equipment additions and
acquisition costs not
paid as of June 30th - 1,015 -
Issuance of note payable in Clint Hurt
Drilling acquisition - 725 -
Fair value of Common Stock issued
for WellTech, Inc. 17,729 - -
Assumption of Welltech, Inc.
working capital deficit 1,734 - -
Assumption of Welltech, Inc.
non-current liabilities
and debt 27,570 - -
Acquisition of WellTech, Inc.
property and equipment and
other assets 47,455 - -
- 43 -
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
17. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
Summarized quarterly financial data for 1996 and 1995 are as
follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
(in thousands, except per share amounts)
----------------------------------------------------------------------------
1996
Revenues . . . . . . . . . . $12,398 $12,394 $14,302 $27,384
Earnings from operations . . 3,522 3,763 4,180 7,895
Net earnings . . . . . . . . 726 768 827 1,265
Earnings per share . . . . . .11 .11 .12 .16
Weighted average common shares
and equivalents outstanding 6,914 6,914 6,981 7,941
1995
Revenues . . . . . . . . . . $11,181 $10,781 $11,049 $11,678
Earnings from operations . . 2,645 2,683 3,083 3,485
Net earnings . . . . . . . . 519 492 631 536
Earnings per share . . . . . .09 .08 .10 .08
Weighted average common shares
and equivalents outstanding 6,091 6,500 6,637 6,647
18. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to manage
well-defined commodity price risks. The Company is exposed to
credit losses in the event of nonperformance by the
counterparties to its commodity hedges. The Company
anticipates, however, that such counterparties will be able to
fully satisfy their obligations under the contracts. The
Company does not obtain collateral or other security to support
financial instruments subject to credit risk but monitors the
credit standing of the counterparties.
The Company utilizes option contracts to hedge the effect of
price changes on future oil and gas production. If market
prices of oil and gas exceed the strike price of put options,
the options will expire unexercised, therefore reducing the
effective price received for oil and gas sales by the cost of
the related option. As of June 30, 1996, Odessa Exploration had
6,000 Bbls of oil per month hedged with a strike price of $19.50
per Bbl., for the period of July 1, 1996 through December 31,
1996.
Premiums paid for commodity options contracts are amortized to
oil and gas sales, over the terms of the agreements.
Unamortized premiums of $91,789 are included in other current
assets in the consolidated balance sheet at June 30, 1996.
Amounts receivable, if any, under commodity option contracts are
accrued as an increase in oil and gas sales for the applicable
periods.
- 44 -
Independent Auditors' Report
To The Board of Directors and Stockholders
Key Energy Group, Inc.
We have audited the accompanying consolidated balance sheets of
Key Energy Group, Inc. and Subsidiaries as of June 30, 1996 and
1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years
ended June 30, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Key Energy Group, Inc. and
Subsidiaries as of June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years
ended June 30, 1996, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Midland, Texas
September 13, 1996
- 45 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III.
ITEMS 10 - 13.
Pursuant to Instruction G(3) to Form 10-K, the information
required in Items 10-13 is incorporated by reference from the
Company's definitive proxy statement, which will be filed with
the Commission pursuant to Regulation 14A within 120 days of
June 30, 1996.
- 46 -
PART IV.
TEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Reports on Form 8-K
The Company filed a report on Form 8-K during the quarter ended
June 30, 1996 which was dated June 28, 1996 relating to the
private placement offering of the Company's convertible
subordinated debentures.
(b) Index to Exhibits
The following exhibits have been filed with the Securities
and Exchange Commission:
Exhibit 2.1 Agreement and Plan of Merger dated as of November
18, 1995, between Key and WellTech, as amended. (Incorporated
by reference to the Company's Registration Statement Form S-4,
Registration No. 333-369).
Exhibit 2.2 Joint Plan of Reorganization, dated as of October
20, 1992, of the Company, ESKEY Inc. and YFC International
Finance N.V. and Order, dated December 4, 1992, of the United
States Bankruptcy Court for the District of New Jersey,
approving the Joint Plan of Reorganization (Incorporated by
reference to Exhibits 2 (a) and 28 (a) of the Company's
Report on Form 8-K dated December 14, 1992, File No.1-8038).
Exhibit 2.3 Agreement and Plan of Merger dated as of July 20,
1993, by and among the Company, OEI Acquisition Corp. and
Odessa Exploration Incorporated.
(Incorporated by reference to Exhibit 2(a) of the Company's
Report on Form 8-K dated September 2, 1993, File No. 1-8038).
Exhibit 2.4 Asset Purchase Agreement dated as of December 10,
1993 between the Company and WellTech, Inc. (Incorporated by
reference to exhibit 2(a) of the Company's report on Form 8-K
dated August 17, 1974, File No. 1-8038).
Exhibit 3.1 Amended and Restated Articles of Incorporation of
the Company (Incorporated by reference to the Company's
Registration Statement on Form S-4, Registration No. 333-369).
Exhibit 3.2 Amended and Restated By-Laws of the Company
(Incorporated by reference to the Company's Registration
Statement on Form S-4 dated March 8, 1996, Registration No.
333-369).
Exhibit 4.1* 7% Convertible Subordinated Debenture of the
Company due July 1, 2003.
Exhibit 4.2* Indenture for the 7% Convertible Subordinated
Debenture of the Company due July 1, 2003.
Exhibit 4.3* Registration Rights Agreement among the Company,
McMahan Securities Co., L.P. and Rausher Pierce Refsnes, Inc.,
dated as of July 3, 1996.
- 47 -
Exhibit 4.4 Registration Rights Agreement between the Company
and D. Kirk Edwards, dated as of July 20, 1993.
(Incorporated by reference to Exhibit 10 (c) to the Company's
Report on Form 8-K/A).
Exhibit 4.5 Registration Rights Agreement dated as of March 2,
1996 among the Company and certain of its stockholders
(Incorporated by reference to the Company's Registration
Statement on Form S-4,Registration No. 353-369).
Exhibit 4.6 Registration Rights Agreement dated as of March 30,
1995 between the Company, Clint Hurt and Associates, Inc. and
Clint Hurt (Incorporated by reference to Exhibit 10(d) of the
Company's Report on Form 10-KSB dated June 30, 1995, File No.
1-8038).
Exhibit 4.7 Form of Common Stock Purchase Warrant to Purchase
Key Common Stock issued in connection with the WellTech
Merger. (Incorporated by reference to the Company's Registration
Statement on Form S-4, Registration No. 353-369).
Exhibit 4.8 Common Stock Purchase Warrant to Purchase 75,000
shares of Key Common Stock issued to CIT Group/Credit
Finance, Inc. (Incorporated by reference to the Company's
Registration Statement on Form S-4, Registration No. 353-369).
Exhibit 10.1 Employment Agreement between the Company and D.
Kirk Edwards, dated as of July 20, 1993. (Incorporated by
reference to Exhibit 10 (b) to the Company's Report on Form
8-K/A).
Exhibit 10.2 Asset Purchase Agreement dated as of March 30, 1995
between the Company and Clint Hurt and Associates, Inc.
(Incorporated by reference to the Company's Report on Form
10-KSB dated June 30, 1995, File No. 1-8038).
Exhibit 10.3 Non-Competition Agreement dated as of March 30,
1995 between the Company, Clint Hurt and Associates, Inc. and
Clint Hurt.(Incorporated by reference to Exhibit 10(f) of the
Company's Report on Form 10-KSB dated June 30, 1995, File No.
1-8038).
Exhibit 10.4* Employment Agreement between Welltech, Inc. and
Kenneth Hill, dated as of March 29, 1996.
Exhibit 10.5* Employment Agreement between Welltech, Inc. and
Kenneth Huseman, dated as of March 29, 1996.
Exhibit 10.6* Letter Agreement between Van Greenfield and the
Company dated May 15, 1996.
Exhibit 10.7* Amendment No. 2 to the Company's Employment with
Agreement between Francis D. John and the Company, dated as
of May 15, 1996.
Exhibit 10.8* Letter Agreement between Morton Wolkowitz and the
Company dated June 3, 1996.
- 48 -
Exhibit 10.9* Third Amended and restated Loan and Security
Agreement between The CIT Group/Credit Finance, Inc., Yale E.
Key, Inc., Key Energy Drilling, Inc. d/b/a Clint Hurt Drilling,
and Welltech Eastern, Inc.
Exhibit 10.10* Cross-Collaterization and Cross-Guaranty
Agreement among The CIT Group/Credit Finance, Inc., Yale E.
Key, Inc., Key Energy Drilling, Inc. d/b/a Clint Hurt Drilling,
and Welltech Eastern, Inc.
Exhibit 10.11* Guaranty Agreement among The CIT Group/Credit
Finance, Inc., Yale E. Key, Inc., Key Energy Drilling, Inc.
d/b/a Clint Hurt Drilling, and Welltech Eastern, Inc.
Exhibit 10.12* Asset Purchase Agreement between Hardy Oil & Gas
USA, Inc. and Arch Petroleum, Inc. dated as of April. 1996.
Exhibit 10.13* Asset Purchase Agreement between Arch Petroleum,
Inc. to Odessa Exploration, Inc. dated as of April 18, 1996.
Exhibit 10.14* General Conveyance by Arch Petroleum, Inc. to
Odessa Exploration, Inc. dated as of January 1, 1996.
Exhibit 10.15 Company's 1995 Stock Option Plan (Incorporated
by reference to the Company's Registration Statement on Form
S-4, Registration No. 353-369).
Exhibit 10.16 The Company's Outside Directors Stock Option Plan
(Incorporated by reference to the Company's Registration
Statement on Form S-4, Registration No. 353-369).
Exhibit 22* Subsidiaries of the Registrant.
Exhibit 27* Financial Data Schedule.
______________________________________
* Filed herewith.
- 49 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KEY ENERGY GROUP, INC.
(Registrant)
By /s/ Francis D. John
Francis D. John
President, Chief Executive and Chief
Dated: September 25, 1996 Financial Officer and Director
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
By /s/ Francis D. John
Francis D. John
President, Chief Executive and Chief
Dated: September 25, 1996 Financial Officer and Director
By /s/ Morton Wolkowitz
Morton Wolkowitz
Dated: September 25, 1996 Chairman of the Board and Director
By /s/ Van Greenfield
Van Greenfield
Dated: September 25, 1996 Director
By /s/ William Manly
William Manly
Dated: September 25, 1996 Director
By /s/ Kevin P. Collins
Kevin P. Collins
Dated: September 25, 1996 Director
By /s/ W. Phillip Marcum
W. Phillip Marcum
Dated: September 25, 1996 Director
By /s/ Danny R. Evatt
Danny R. Evatt
Dated: September 25, 1996 Chief Accounting Officer
- 50 -
KEY ENERGY GROUP, INC.
255 Livingston Avenue
New Brunswick, New Jersey 08901
May 15, 1996
Mr. Van Greenfield
GreenCohn
45 Broadway, 21st Floor
New York, NY 10006
Dear Van:
The purpose of this letter is to confirm to you
that the Board of Directors of Key Energy Group, Inc.
("Key") in March, 1996 agreed, in recognition of the
successful completion of the merger of WellTech, Inc. into Key
and Key's financing with CIT Group-Credit Finance, Inc., to
make to you a payment of $75,000, at your request, which
amount shall be utilized by you to acquire shares of common
stock of Key.
Please confirm your agreement to the foregoing by
countersigning this letter where indicated, whereupon this
letter agreement shall become a binding letter agreement.
Very truly yours,
Key Energy Group, Inc.
By: /s/ Francis D. John
Francis D. John
President
Agreed to:
/s/ Van Greenfield Van Greenfield
Date: 5/15/96
KEY ENERGY GROUP, INC.
255 Livingston Avenue
New Brunswick, New Jersey 08901
May 15, 1996
Mr. Francis D. John
33 Penn Oak Trail
Newtown, PA 18940
Dear Fran:
The purpose of this letter is to confirm to you
that the Board of Directors of Key Energy Group, Inc.
("Key") in March, 1996 agreed, in recognition of the
successful completion of the merger of WellTech, Inc. into Key
and Key's financing with CIT Group-Credit Finance, Inc., to pay
you a bonus of $300,000 on any date after July 1, 1996 that you
shall request; after July 1, 1996 the unpaid portion of the
bonus shall bear interest at 6% per annum. In addition, the
Board of Directors has agreed that Key will pay an
additional bonus to you of $150,000, at your request, which
amount shall be utilized by you to acquire shares of common
stock of Key.
Please confirm your agreement to the foregoing by
countersigning this letter where indicated, whereupon this
letter agreement shall become Amendment No. 2 to your Employment
Agreement dated as of July 1, 1995, as amended.
Very truly yours,
Key Energy Group, Inc.
By: /s/ Van Greenfield
Co-Chairman of
the Board of Directors
Agreed to:
/s/ Francis D. John Francis D. John
Date: 5/15/96
KEY ENERGY GROUP, INC.
255 Livingston Avenue
New Brunswick, New Jersey 08901
May 15, 1996
Mr. Morton Wolkowitz
400 West 43rd Street Apartment 41D
New York, NY 10036
Dear Mort:
The purpose of this letter is to confirm to you
that the Board of Directors of Key Energy Group, Inc.
("Key") in March, 1996 agreed, in recognition of the
successful completion of the merger of WellTech, Inc. into Key
and Key's financing with CIT Group-Credit Finance, Inc., to
make to you a payment of $75,000, at your request, which
amount shall be utilized by you to acquire shares of common
stock of Key.
Please confirm your agreement to the foregoing by
countersigning this letter where indicated, whereupon this
letter agreement shall become a binding letter agreement.
Very truly yours,
Key Energy Group, Inc.
By: /s/ Francis D. John
Francis D. John
President
Agreed to:
/s/ Morton Wolkowitz Morton Wolkowitz
Date: 6/3/96
CROSS-COLLATERALIZATION AND CROSS-GUARANTY
AGREEMENT
This CROSS-COLLATERALIZATION AND CROSS-GUARANTY
AGREEMENT (this "Agreement"), dated as of May 21, 1996, is
among The CIT Group/Credit Finance, Inc. ("Lender"), Yale E.
Key, Inc. ("Yale"), Key Energy Drilling, Inc. d/b/a Clint Hurt
Drilling ("Hurt"), Key Energy Group, Inc. ("Key"), and
WellTech Eastern, Inc. ("WellTech") (Yale, Hurt, and
WellTech are referred to each individually as a "Borrower" and
collectively as the "Borrowers").
A. Yale, Hurt, and WellTech have entered into that
certain Third Amended and Restated Loan and Security
Agreement with Lender dated of even date herewith (the "Loan
Agreement").
B. In accordance with the terms of the Loan
Agreement, Lender has agreed to make loans and other
financial accommodations for the benefit of Borrowers. Key
owns one hundred percent (100%) of the stock of each of the
Borrowers and has executed a separate Guaranty of even
date herewith guaranteeing Borrowers' Obligations to Lender
under the Loan Agreement.
C. Key and Lender have entered into that certain
Amended and Restated Stock Pledge Agreement dated of even
date herewith (the "Key Stock Pledge Agreement"), under
which Key pledged certain stock (the "Key Stock") described
therein as security for the obligations of the Borrowers
under the Loan Agreement.
D. WellTech and Lender have entered into that
certain Amended and Restated Stock Pledge Agreement dated of
even date herewith (the "WellTech Stock Pledge Agreement"),
under which WellTech pledged certain stock (the "WellTech
Stock") described therein as security for the obligations of the
Borrowers under the Loan Agreement.
E. Yale and WellTech have each executed certain
deeds of trust or mortgages (the "Mortgages") pledging as
additional collateral certain parcels of real estate located in
various states (the "Real Estate").
F. Borrowers and Key have also executed certain
Assignments of Chattel Paper in favor of Lender.
G. Lender has conditioned its obligations under the
Loan Agreement and the other documents and instruments
executed in connection therewith on the execution of this
Agreement by each of the Borrowers and Key.
NOW, THEREFORE, in consideration of the mutual
conditions and agreements set forth in this Agreement, and for
good and valuable consideration, the receipt of which is
hereby acknowledged, each Borrower, Key and Lender hereby
agree as follows:
Due to the close business and financial relationships
between each and all Borrowers and Key, in consideration of
the benefits which will accrue to each Borrower and Key, and as
an inducement for and in consideration of Lender
<PAGE>
at any time providing or extending loans, advances and
other financial accommodations to all Borrowers pursuant to
the Loan Agreement, each of the Borrowers and Key hereby,
irrevocably and unconditionally, (a) guarantees and agrees to
be liable for the prompt indefeasible and full payment and
performance of all revolving loans, term loans, letters of
credit, bankers' acceptances, merchandise purchase
guaranties or other guaranties or indemnities for each other
Borrower's account and all other obligations, liabilities and
indebtedness of every kind, nature or description owing by
all other Borrowers to Lender and/or its affiliates,
including principal, interest, charges, fees and expenses,
however evidenced, whether as principal, surety, endorser,
guarantor or otherwise, arising under the Loan Agreement,
whether now existing or hereafter arising, whether arising
during or after the initial or any renewal term of the Loan
Agreement or after the commencement of any case with respect to
any Borrower or Key under the United States Bankruptcy Code
or any similar statute, whether direct or indirect, absolute
or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended, and whether arising
directly or howsoever acquired by Lender including from
any other entity outright, conditionally or as collateral
security, by assignment, merger with any other entity,
participations or interests of Lender in the obligations of any
Borrower to others, by assumption, operation of law,
subrogation or otherwise, and (b) agrees to pay to Lender on
demand the amount of all expenses (including, without
limitation, attorneys' fees and legal expenses) incurred by
Lender in connection with the preparation, execution,
delivery, recording, administration, collection,
liquidation, enforcement and defense of each Borrower's and
Key's obligations, liabilities and indebtedness as aforesaid
to Lender, Lender's rights in any collateral or under this
Agreement, the Loan Agreement and all other Loan Documents,
or in any way involving claims by or against Lender directly
or indirectly arising out of or related to the relationship
between any Borrower or Key and Lender, whether such expenses
are incurred before, during or after the initial or any
renewal term of the Loan Agreement or after the commencement
of any case with respect to any Borrower or Key under the
United States Bankruptcy Code or any similar statute (all of
which being collectively referred to herein as the "Guaranteed
Obligations").
Notice of acceptance of this Agreement, the making of
loans, advances and extensions of credit or other financial
accommodations to, and the incurring of any expenses by or in
respect of, each Borrower, and presentment, demand, protest,
notice of protest, notice of nonpayment or default, notice of
intent to accelerate and notice of acceleration, and all
other notices to which each Borrower or Key is or may be
entitled are hereby waived. Each of the Borrowers and Key also
waives notice of, and hereby consents to, (i) any
amendment, modification, supplement, renewal, restatement or
extensions of time of payment of or increase or decrease in the
amount of any of the Guaranteed Obligations or to the Loan
Agreement and any collateral, and the guarantee made herein
shall apply to the Guaranteed Obligations as so amended,
modified, supplemented, renewed, restated or extended,
increased or decreased, (ii) the taking, exchange,
surrender and releasing of collateral or guarantees now or at
any time held by or available to Lender for the obligations of
any Borrower or Key or any other party at any time liable for or
in respect of the Guaranteed Obligations (individually, an
"Obligor" and collectively, the "Obligors"), (iii) the
exercise of, or refraining from the exercise of any rights
against any Borrower or Key, or any other Obligor, or any
collateral, and (iv) the settlement, compromise or release
of, or the waiver of any default with respect to, any
Guaranteed Obligations. Each of the Borrowers and Key agrees
that the amount of the Guaranteed Obligations shall not be
diminished and the liability of such Borrower and Key hereunder
shall not be otherwise impaired or affected by any of the
foregoing.
2
<PAGE>
No invalidity, irregularity or unenforceability of
all or any part of the Guaranteed Obligations shall affect,
impair or be a defense to this Agreement, nor shall any
other circumstance which might otherwise constitute a defense
available to, or legal or equitable discharge of any Borrower
or Key in respect of any of the Guaranteed Obligations affect,
impair or be a defense to the obligations under this Agreement.
Without limitation of the foregoing, the liability of each
Borrower and Key hereunder shall not be discharged or impaired
in any respect by reason of any failure by Lender to
perfect or continue perfection of any lien or security
interest in any collateral for the Guaranteed Obligations or
any delay by Lender in perfecting any such lien or security
interest. As to interest, fees and expenses, whether arising
before or after the commencement of any case with respect to
any Borrower or Key under the United States Bankruptcy Code or
any similar statute, each Borrower and Key shall be liable
therefor, even if any other Borrower's or Key's liability
for such amounts does not, or ceases to, exist by operation of
law.
Payment of all amounts now or hereafter owed to any
Borrower or Key by any other Borrower or Key or any other
Obligor is hereby subordinated in right of payment to the
indefeasible payment in full to Lender of the Guaranteed
Obligations and is hereby assigned to Lender as security
therefor. Until such time as the Guaranteed Obligations have
been indefeasibly paid to Lender in full in cash or by cashiers'
or bank check or wire transfer, each Borrower and Key hereby
irrevocably and unconditionally waives and relinquishes
all surety defenses including, but not limited to, all
statutory, contractual, common law, equitable and all other
claims against each other Borrower, any collateral for the
Guaranteed Obligations or other assets of any Borrower or any
other Obligor, for subrogation, reimbursement, exoneration,
contribution, indemnification, setoff or other recourse in
respect of sums paid or payable to Lender by any Borrower or
Key hereunder, and each Borrower hereby further irrevocably
and unconditionally waives and relinquishes any and all other
benefits which such Borrower or Key might otherwise directly or
indirectly receive or be entitled to receive by reason of any
amounts paid by or collected or due from any other Borrower
or any other Obligor upon the Guaranteed Obligations or
realized from their property.
EACH BORROWER HEREBY PLEDGES, ASSIGNS, AND GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL DESCRIBED IN THE
LOAN AGREEMENT TO SECURE ALL OF THE GUARANTEED OBLIGATIONS. IN
ADDITION, THE STOCK AND THE REAL ESTATE, AS WELL AS ANY OTHER
PROPERTY, REAL OR PERSONAL, AT ANY TIME NOW OR HEREAFTER
PLEDGED TO LENDER BY ANY BORROWER OR KEY SHALL SERVE AS
COLLATERAL TO SECURE THE GUARANTEED OBLIGATIONS.
In the event proceedings shall be instituted by or
against any Borrower or Key or any other Obligor in bankruptcy
or insolvency, or for reorganization, arrangement,
receivership, or the like, or if any Borrower, or Key or any
other Obligor calls a meeting of creditors or makes any
assignment for the benefit of creditors, or upon the
occurrence of any event which constitutes a default or event of
default under the Loan Agreement, the liability of such
Borrower and Key for the entire Guaranteed Obligations
shall, at the option of Lender, mature, even if the
liability of any other Borrower or Key or any other Obligor
therefor does not.
Each Borrower and Key shall continue to be liable
hereunder until one of Lender's officers actually receives a
written termination notice by certified mail; but the giving of
such notice shall not relieve such Borrower or Key from
liability for any Guaranteed Obligations incurred before
termination or for post-termination collection expenses and
interest pertaining to any Guaranteed Obligations arising before
termination.
3
<PAGE>
Each Borrower and Key agrees that this Agreement
shall remain in full force and effect or be reinstated, as the
case may be, if at any time payment of any of the Guaranteed
Obligations is rescinded or otherwise restored by Lender to any
Borrower or Key or to any other person who made such payment,
or to the creditors or creditors' representative of such
Borrower or Key or such other person.
Lender's books and records showing the account between
Lender and each Borrower shall be admissible in evidence in
any action or proceeding as prima facie proof of the items
therein set forth, and any written statements rendered by
Lender to any Borrower, to the extent to which no written
objection is made within sixty (60) days after the date thereof,
shall be considered correct and be binding on Borrowers as an
account stated for purposes of this Agreement.
No delay on Lender's part in exercising any rights
hereunder or failure to exercise the same shall constitute a
waiver of such rights. No notice to, or demand on, any Borrower
or Key shall be deemed to be a waiver of the obligation of such
Borrower or Key to take further action without notice or
demand as provided herein. No waiver of any of Lender's
rights hereunder, and no modification or amendment of this
Agreement, shall be deemed to be made by Lender unless the
same shall be in writing, duly signed on Lender's behalf, and
each such waiver, if any, shall apply only with respect to the
specific instance involved and shall in no way impair Lender's
rights or the obligations of any Borrower or Key to Lender in
any other respect at any other time.
This Agreement is binding upon each Borrower and Key,
its successors and assigns and shall benefit Lender and its
successors, endorsers, transferees and assigns. All
references to Borrower, Key, and Lender herein shall include
their respective successors and assigns. THIS AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE IN WHICH THE OFFICE OF LENDER SET
FORTH ABOVE IS LOCATED.
EACH BORROWER, KEY, AND LENDER WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER
OR ANY OF THEM AGAINST THE OTHER WHICH PERTAINS DIRECTLY OR
INDIRECTLY TO THIS AGREEMENT, ANY ALLEGED TORTIOUS CONDUCT BY
ANY BORROWER, KEY, OR LENDER, OR, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISING OUT OF OR RELATED TO THE RELATIONSHIP
BETWEEN BORROWERS, KEY, AND LENDER. IN NO EVENT WILL LENDER BE
LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL
DAMAGES.
Each Borrower and Key waives all rights to
interpose any claims, deductions, setoffs or counterclaims of
any kind, nature or description in any action or proceeding
instituted by Lender with respect to this Agreement or any
matter arising herefrom or relating hereto, except compulsory
counterclaims.
4
<PAGE>
EACH BORROWER AND KEY HEREBY IRREVOCABLY SUBMITS AND
CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS LOCATED IN THE STATE IN WHICH THE OFFICE OF
LENDER DESIGNATED ABOVE IS LOCATED WITH RESPECT TO ANY ACTION
OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY MATTER
ARISING HEREFROM OR RELATING HERETO. ANY SUCH ACTION OR
PROCEEDING COMMENCED BY ANY BORROWER OR KEY AGAINST LENDER
WILL BE LITIGATED ONLY IN A FEDERAL COURT LOCATED IN THE
DISTRICT, OR A STATE COURT IN THE STATE AND COUNTY, IN WHICH
THE OFFICE OF LENDER SET FORTH ABOVE IS LOCATED AND EACH
BORROWER AND KEY WAIVES ANY OBJECTION BASED ON FORUM NON
CONVENIENS AND ANY OBJECTION TO VENUE IN CONNECTION THEREWITH.
In any such action or proceeding, each Borrower and Key
waives personal service of the summons and complaint or other
process and papers therein and agrees that any process or
notice of motion or other application to any of said Courts or
a judge thereof, or any notice in connection with any
proceedings hereunder may be served (i) inside or outside
such State by registered or certified mail, return receipt
requested, addressed to such Borrower or Key at the address set
forth below or which such Borrower or Key has previously advised
Lender in writing and as indicated in the records of Lender,
and service or notice so served shall be deemed complete
five (5) days after the same shall have been posted or (ii) in
such other manner as may be permissible under the rules of
said Courts.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
This Agreement may be executed in any number of
counterparts, and by the Lender, Key, and the Borrowers in
separate counterparts, each of which shall be an original, but
all of which shall together constitute one and the same
agreement.
IN WITNESS WHEREOF, each party hereto has executed
and delivered this Agreement on the day and year first above
written.
KEY ENERGY GROUP, INC.
By:
Name: Francis D. John
Title: President
5
<PAGE>
"BORROWERS":
YALE E. KEY, INC.
By:
Name: Francis D. John
Title: Executive Vice President
KEY ENERGY DRILLING, INC. D/B/A CLINT HURT
DRILLING
By:
Name: Francis D. John
Title: Executive Vice President
WELLTECH EASTERN, INC.
By:
Name: Francis D. John
Title: President
"LENDER":
THE CIT GROUP/CREDIT FINANCE, INC.
By:
Name: Morris Horstmann
Title: Vice President
7% CONVERTIBLE SUBORDINATED DEBENTURE
DUE JULY 1, 2003
No. ____
$______________
KEY ENERGY GROUP, INC.
promises to pay to
_________________________________________________________________
______________
or its registered assigns, the principal sum of
_________________________________________________________________
______________
Dollars on July 1, 2003.
Interest Payment Dates: July 1 and January 1, commencing January
1, 1997.
Record Dates: June 15 and December 15 (whether or not a Business
Day).
KEY ENERGY GROUP, INC.
By:
Officer of the Company
(SEAL)
Attest: By:
Officer of the Company
This is one of the Convertible Subordinated Debentures referred
to in the within-mentioned Indenture:
_________________________, as Trustee
By Authorized Signature
Dated: ,
<PAGE>
7% CONVERTIBLE SUBORDINATED DEBENTURE
DUE JULY 1, 2003
Unless and until it is exchanged in whole or in part
for Securities in definitive form, this Security may not be
transferred except as a whole by the Depositary to a nominee of
the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. Unless this
certificate is presented by an authorized representative of The
Depositary Trust Company, 55 Water Street, New York, New York
("DTC"), to the issuer or its agent for registration of
transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as
requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or such other entity as is
requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
THE DEBENTURE EVIDENCED HEREBY HAS NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE, SECURITIES LAWS,
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (A)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE
DEBENTURE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2)
AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL
ISSUANCE OF THE DEBENTURE EVIDENCED HEREBY RESELL OR OTHERWISE
TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH DEBENTURE EXCEPT (A) TO KEY
ENERGY GROUP, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO AMERICAN STOCK TRANSFER & TRUST
COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE DEBENTURE EVIDENCED HEREBY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT OR (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE)
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE
DEBENTURE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT
2
<PAGE>
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE
DEBENTURE EVIDENCED HEREBY WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF SUCH DEBENTURE, THE HOLDER MUST CHECK
THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING
TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO AMERICAN STOCK
TRANSFER & TRUST COMPANY, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS
LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THREE YEARS
FROM THE ORIGINAL ISSUANCE OF THE DEBENTURE EVIDENCED HEREBY.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
Section 1. Interest. Key Energy Group, Inc., a
Maryland corporation (the "Company"), promises to pay
interest on the principal amount of this 7% Convertible
Subordinated Debenture due 2003 (the "Debenture") at the rate
and in the manner specified below.
The Company shall pay interest on the principal
amount of this Debenture in cash at the rate per annum shown
above, which rate shall be (i) subject to an increase of
fifty (50) basis points (__%) in the event of a Servicios
Guaranty Default and (ii) subject to increase as specified
in the Registration Rights Agreement dated as of July 3, 1993,
to which the Company is a party. The Company will pay interest
(including the additional interest as a Servicios Default
Payment or any additional interest referred to in such
Registration Rights Agreement) semi-annually on July 1 and
January 1 of each year commencing January 1, 1997, or if any
such day is not a Business Day, on the next Business Day (each
an "Interest Payment Date") to record holders of Debentures
("Holders") at the close of business on June 15 or December
15 immediately preceding the applicable Interest Payment
Date. A copy of the Indenture (defined Below), the
Registration Rights Agreement and all other agreements
affecting this Debenture or the Holders may be obtained from
the Company upon request.
Interest shall be computed on the basis of a 360-day
year consisting of twelve 30-day months. Interest shall accrue
from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of the original
issuance of this Debenture. To the extent lawful, the Company
shall pay interest on overdue principal at the rate of 1% per
annum in excess of the then applicable interest rate on this
Debenture; it shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) at the
same rate to the extent lawful.
Section 2. Method of Payment. The Company shall pay
interest on the Debentures (except defaulted interest) to
Holders at the close of business on the record date next
preceding the Interest Payment Date, even if such
Debentures are canceled after such record date and on or before
such Interest
3
<PAGE>
Payment Date. The Holder hereof must surrender this Debenture
to a Paying Agent (as defined in the Indenture) to collect
principal payments. The Company shall pay principal and
interest in money of the United States that at the time of
payment is legal tender for payment of public and private
debts. The Company, however, may pay principal and interest by
check payable in such money. It may mail an interest check to a
Holder's registered address.
Section 3. Paying Agent and Registrar. Initially, the
Trustee shall act as Paying Agent and Registrar. The Company
may change any Paying Agent, Registrar or co-Registrar
without notice to any Holder. The Company and any of its
Subsidiaries may act in any such capacity.
Section 4. Indenture. The Company issued the
Debentures under an Indenture, dated as of July 3, 1996 (the
"Indenture"), among the Company, the Subsidiary Guarantors
(as defined in the Indenture) and American Stock Transfer &
Trust Company, as Trustee. The terms of the Debentures include
those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15
U.S. Code ss.ss. 77aaa-77bbbb), as amended by the Trust
Indenture Reform Act of 1990, and as in effect on the
date of the Indenture. The Debentures are subject to all
such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. The terms of the
Indenture shall govern any inconsistencies between the
Indenture and the Debentures. Capitalized used herein that are
not defined herein shall have the meanings set forth in the
Indenture. The Debentures are unsecured general obligations
of the Company limited to $52,000,000 in aggregate principal
amount.
Section 5. Optional Redemption. The Company may
redeem at any time on or after July 15, 1999, all or any portion
of the Securities outstanding at the following redemption
prices expressed as a percentage of the principal amount
thereof, if the Securities are redeemed during the 12 month
period beginning July 15, of the following years:
Year Percentage
1999..................... 104%
2000..................... 103%
2001..................... 102%
2002..................... 101%
Section 6. Redemption or Repurchase at Option of Holder. If
there is a Change of Control (as defined in the Indenture), the
Company will be required to offer to purchase on the Change of
Control Payment Date (as defined in the Indenture) all
outstanding Debentures at 100% of the principal amount
thereof, plus accrued and unpaid interest to the date of
purchase. Holders whose Debentures are subject to an offer to
purchase will receive an offer to purchase from the Company
prior to any related Change of Control Payment Date and may
elect to have their Debentures purchased by completing the form
entitled "Option of Holder to Elect Purchase" appearing below.
4
<PAGE>
Section 7. Notice of Redemption. Notice of redemption
will be mailed at least 30 days but not more than 60 days
before the redemption date to each Holder to be redeemed at
its registered address. Debentures may be redeemed in part but
only in whole multiples of $1,000, unless all of the Debentures
held by a Holder are to be redeemed. On and after the
redemption date, interest ceases to accrue on Debentures or
portions of them called for redemption.
Section 8. Conversion. Subject to the provisions of
the Indenture, the Holder hereof has the right, at his
option, at any time on or after July 15, 1999 and on or before
the maturity, or, as to all or any portion hereof called for
redemption during such period, the close of business on the
date fixed for redemption (unless the Company shall default
in payment due upon redemption thereof), to convert the
principal hereof or any portion of such principal that is $1,000
or a multiple thereof, into (A) that number of shares of the
Company's Common Stock, as such shares shall be constituted
at the date of conversion, obtained by dividing the principal
amount of this Debenture or portion thereof to be converted by
the conversion price of $9.75, or such conversion price as
adjusted from time to time as provided in the Indenture,
and (B) if such conversion occurs after November 1, 1996, and
before July 1, 1999, an amount equal to 50% of the interest
otherwise payable on the converted securities from the date of
conversion through and including July 1, 1999, (the
"Premium Protection Payment"), such amount payable, at the
option of the Company, in cash or Common Stock based on the
Closing Price of the Common Stock on the conversion date, by
surrender of this Debenture, together with a conversion
notice as provided in the Indenture, to the Company at the
office or agency of the Company maintained for that purpose
in New York, New York, and, unless the shares issuable on
conversion are to be issued in the same name as this Debenture,
duly endorsed by, or accompanied by instruments of transfer in
form satisfactory to the Company duly executed by, the holder
or by his duly authorized attorney ; provided, however, that
no Premium Protection Payments will be made after the
consummation of an all cash tender offer for 100% of the Common
Stock at a price per share representing a 40% or greater
premium above the conversion price. No adjustments in respect
of interest or dividends will be made upon any
conversion; provided, however, that if the Debenture shall be
surrendered for conversion during the period from the close of
business on any record date for the payment of interest to the
opening of business on the following interest payment date,
this Debenture (unless it or the portion being converted
shall have been called for redemption on a date in such period)
must be accompanied by an amount, in funds acceptable to the
Company, equal to the interest payable on such interest
payment date on the principal amount being converted. No
fractional shares will be issued upon any conversion, but an
adjustment in cash shall be made, as provided in the
Indenture, in respect of any fraction of a share which would
otherwise be issuable upon the surrender of any Debenture or
Debentures for conversion. A holder of Debentures is not
entitled to any rights of a holder of Common Stock until such
holder has converted his Debentures to Common Stock, and
only to the extent such Debentures are to have been converted to
Common Stock under the Indenture.
Section 9. Subordination. The Securities are
subordinated to Senior Indebtedness (as defined in the
Indenture). To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid.
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<PAGE>
The Company agrees, and each Holder by accepting a Security
agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give effect to such
provisions, and each Holder appoints the Trustee his
attorney-in-fact for any and all such purposes.
Section 10. Denominations, Transfer, Exchange. The
Debentures are initially issued in global form. The global
Debenture represents such of the outstanding Securities as
shall be specified therein or endorsed thereon in accordance
with the Indenture. The definitive Securities are in registered
form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Debentures may be
registered and Debentures may be exchanged as provided in the
Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not exchange
or register the transfer of any Debenture or portion of an
Debenture selected for redemption. Also, it need not exchange
or register the transfer of any Debentures for a period of 15
days before a selection of Debentures to be redeemed.
Section 11. Persons Deemed Owners. Before due
presentment to the Trustee for registration of the transfer
of this Debenture, the Trustee, any Agent and the Company may
deem and treat the person in whose name this Debenture is
registered as its absolute owner for the purpose of receiving
payment of principal of and interest on this Debenture
and for all other purposes whatsoever, whether or not this
Debenture is overdue, and neither the Trustee, any Agent nor
the Company shall be affected by notice to the contrary.
The registered holder of an Debenture shall be treated as
its owner for all purposes.
Section 12. Amendments and Waivers. Subject to certain
exceptions, the Indenture or the Securities may be amended with
the consent of the Holders of at least a majority in principal
amount of the then outstanding Securities, and any existing
default (except a payment default) may be waived with the
consent of the holders of a majority in principal amount
of the then outstanding Securities. Without the consent of
any Holder, the Indenture or the Securities may be amended to
cure any ambiguity, defect or inconsistency, to provide for
assumption of Company obligations to Holders or to make any
change that does not adversely affect the rights of any Holder.
Section 13. Defaults and Remedies. Events of default
include: default in payment of interest on the Securities
for 30 days; default in payment of principal of or premium on
the Securities when due; failure by the Company for 60 days
after notice to it to comply with its agreements in the
Indenture or the Securities; defaults under and acceleration
before express maturity of certain other Indebtedness that
aggregates $1,000,000 or more; certain final judgments which
remain undischarged if the aggregate of all such judgments
exceeds $1,000,000 or more; certain final judgments which
remain undischarged if the aggregate of all such judgments
exceeds $1,000,000; and certain events of bankruptcy or
insolvency. If an Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Securities may declare all
the Securities to be due and payable immediately, except that
in the case of an Event of Default arising from certain events
of bankruptcy or insolvency, all outstanding Securities become
due and
6
<PAGE>
payable immediately without further action or notice and
all outstanding Securities, and all Obligations and Claims
with respect thereto, become immediately due and payable.
Holders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations,
Holders of a majority in principal amount of the then
outstanding Securities may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders
notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding
notice is in their interests. The Company must furnish an
annual compliance certificate to the Trustee.
Section 14. Trustee Dealings with Company. The
Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform
services for the Company, the Subsidiary Guarantors or their
Affiliates, and may otherwise deal with the Company, the
Subsidiary Guarantors or their Affiliates, as if it were not
Trustee; provided, however, that if the Trustee acquires any
conflicting interest as described in the Trust Indenture Act,
it must eliminate such conflict or resign.
Section 15. No Recourse Against Others. No director,
officer, employee, agent, manager, stockholder or other
Affiliates (other than the Subsidiary Guarantors), of the
Company or any Subsidiary Guarantor, as such, shall have any
liability for any obligations of the Company or any of the
Subsidiary Guarantors under the Securities, the Indenture or
the Subsidiary Guarantees or for any claim based on, in
respect of or by reason of such obligations or their
creation. Each Holder by accepting a Debenture waives and
releases all such liability. The waiver and release are part of
the consideration for the issuance of the Debentures.
Section 16. Subsidiary Guarantees. Payment of
principal, premium (if any) and interest (including interest on
overdue principal and overdue interest, if lawful) is
unconditionally guaranteed by certain Subsidiaries of the
Company.
Section 17. Authentication. This Debenture shall
not be valid until authenticated by the manual signature of the
Trustee or an authenticating agent.
Section 18. Abbreviations. Customary abbreviations
may be used in the name of a Holder or an assignee, such as: TEN
COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST = Custodian),
and U/G/M/A (= Uniform Gifts to Minors Act).
Section 19. CUSIP Numbers. Pursuant to a recommendation
promulgated by the Committee on Uniform Security
Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Debentures and has directed
the Trustee to use CUSIP numbers in notices of redemption
as a convenience to Holders. No representation is made as to
the accuracy of such numbers either as printed on the
Debentures or as contained in any notice of redemption and
reliance may be placed only on the other identification number
placed thereon.
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<PAGE>
Section 20. Additional Rights of Holders of
Transfer Restricted Securities. In addition to the rights
provided to Holders of Securities under the Indenture, Holders
of Transferred Restricted Securities shall have all the rights
set forth in the Registration Rights Agreement referred
to in the Indenture and certain other agreements executed
and delivered in connection therewith.
The Company will furnish to any Holder upon written
request and without charge a copy of the Indenture. Request may
be made to:
Key Energy Group, Inc.
255 Livingston Avenue
New Brunswick, New Jersey 08901
Attn: Francis D. John
8
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we)
assign and transfer this Security to
_________________________________________________________________
_____________ (Insert assignee's soc. sec. or
tax I.D. no.)
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________ (Print or type assignee's name,
address and zip code)
and irrevocably appoint
_____________________________________________________
___________________________________________________ agent to
transfer this Security on the books of the Company. The agent
may substitute another to act for him.
Date:
Your Signature:
(Sign exactly as your name appears
on the face of this Security)
Signature Guaranteed:
By: (THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (Banks, Stock Brokers, Savings and Loan
Associations, and Credit Unions) WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15)
9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this
Security purchased by the Company pursuant to Section 4.10 of
the Indenture (Change of Control), state the amount you
elect to have purchased (if all, write "ALL"):
$__________________________
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Security)
Signature Guaranteed:
By: (THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (Banks, Stock Brokers, Savings and Loan
Associations, and Credit Unions) WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15)
10
<PAGE>
GENERAL CONVEYANCE
THIS GENERAL CONVEYANCE (this "Conveyance") executed by
ARCH PETROLEUM, INC., a Texas corporation, whose address is 777
Taylor Street, Suite II-A, Fort Worth, Texas 76102
(hereinafter called "Assignor"), to ODESSA EXPLORATION
INCORPORATION, whose address is 191 Professional Center, 6010
Highway 191, Suite 210, Odessa, Texas 79762, (hereinafter
called "Assignee"), dated effective at 7:00 a.m., Central
Daylight Time, on January 1, 1996 (said hour and day
hereinafter called the "Effective Time"). Capitalized
terms used but not otherwise defined herein shall have the
meanings set forth in that certain Asset Purchase Agreement
dated April 18, 1996 (the "Agreement"), by and between
Assignor, as "Seller", and Assignee, as "Buyer".
ARTICLE I
Conveyance of Assets
Assignor, for Ten and No/100 Dollars ($10.00) and
other good and valuable consideration in hand paid by
Assignee, the receipt and sufficiency of which consideration
are hereby acknowledged and confessed, by these presents does
hereby GRANT, BARGAIN, SELLER, CONVEY, ASSIGN, TRANSFER,
SET OVER AND DELIVER unto Assignee, effective as of the
Effective time, the following described assets and
properties (except to the extent constituting "Excluded
Assets" (hereinafter defined)) (collectively, the "Assets"):
(i) (a) The undivided interests specified in
Exhibit A hereto (the "Property Schedule") in, to or under the
Hydrocarbon Interests (hereinafter defined) specifically
described in the Property Schedule, and (b) all other interests
of Assignor in, to or under any Hydrocarbon Interests in, to
or under or derived from any lands covered by or subject to
any of the Hydrocarbon Interests described in the Property
Schedule, even though such interests of the Assignor may be
incorrectly described or referred to in, or a description
thereof may be omitted from, the Property Schedule
(collectively, the "Subject Interests");
(ii) All right, title, and interest of
Assignor in and to the lands covered by or subject to the
Subject Interests (the "Lands");
(iii) All right, title and interest of
Assignor in and to or derived from the following insofar as the
same are attributable to the Subject Interests: (a) all rights
with respect to the use and occupancy of the surface of and the
subsurface depths under the Lands; (b) all rights with respect
to any pooled, communitized or unitized acreage by virtue of
any Subject Interest being a part thereof; (c) all agreements
and contracts, easements, rights-of-way, servitudes and other
estates; (d) all real and personal property located upon the
Lands and used in connection with the exploration,
development or operation of the Subject Interests; and (e)
the Records;
(iv) All right, title and interest of
Assignor to any claims to the extent attributable to ownership,
use, construction, maintenance or operation of the Assets
subsequent to the Effective Time, including, without
limitation, past, present or future claims, whether or not
previously asserted by Assignor;
<PAGE>
(v) Those separate identifiable
accounts (the "Royalty Accounts") which are expressly
identified and set forth in Schedule A-1 hereto in which
Assignor or any third party operator is holding as of the
Effective Time monies which (a) are owing to third party owners
of royalty, overriding royalty, working or other interests in
respect of past production of oil, gas or other hydrocarbons
attributable to the Assets or (b) may be subject to refund by
royalty owners or other third parties to purchasers of past
production of oil, gas or other hydrocarbons attributable
to the Assets; and
(vi) All (a) oil, gas and other hydrocarbons
produced from or attributable to the Subject Interests with
respect to all periods subsequent to the Effective time and
(b) proceeds from or of such oil, gas and other
hydrocarbons.
As used in this Conveyance, the term "Hydrocarbon
Interests" shall mean (a) leases affecting, relating to or
covering any oil, gas and other hydrocarbons and the leasehold
interests and estates in the nature of working or
operating interests under such leases, as well as overriding
royalties, net profits interests, production payments,
carried interests, rights of recoupment and other interests
in, under or relating to such leases, (b) fee
interests in oil, gas or other hydrocarbons, (c) royalty
interests in oil, gas or other hydrocarbons, (d) any other
interest in oil, gas or other hydrocarbons in place, (e) any
economic or contractual rights, options or interests in and to
any of the foregoing, including, without limitation, any
farmout or farmin agreement or production payment affecting
any interest or estate in oil, gas or other hydrocarbons,
and (f) any and all rights and interests attributable or
allocable thereto by virtue of any pooling, unitization,
communitzation, production sharing or similar agreement, order
or declaration.
There is excluded from this Conveyance and the Assets
and reserved unto Assignor the following described interests,
rights and properties (collectively, the "Excluded Assets"):
(i) Copies of all Records;
(ii) Except to the extent constituting the
Royalty Accounts, all deposits, cash, checks, funds and
accounts receivable attributable to Assignor's interest in the
Assets with respect to any period of time prior to the
Effective Time;
(iii) All (a) oil, gas and other hydrocarbons
produced from or attributable to the Subject Interests with
respect to all periods prior to the Effective Time, (b) oil, gas
and other hydrocarbons attributable to the Subject
Interests which, at the Effective Time, are in storage and are
above pipeline connections within processing plants, in
pipelines or otherwise held in inventory, and (c) proceeds
from or of such oil, gas and other hydrocarbons;
2
<PAGE>
(iv) Such assets as Assignor elects to exclude
from the Assets pursuant to the terms of the Agreement;
(v) All receivables and cash proceeds which
were expressly taken into account and for which credit was
given in the determination of Net Cash Flow pursuant to Section
3.3 of the Agreement, as adjusted pursuant to Section 3.4 of
the Agreement;
(vi) Claims of Assignor for refund of or loss
carry forwards with respect to (i) Taxes attributable to
any period prior to theEffective Time or (ii) any Taxes
attributable to the Excluded Assets;
(vii) All corporate, financial, tax and
legal records of Assignor; and (viii) All rights, interests,
assets and properties described in Exhibit B hereto.
TO HAVE AND TO HOLD the Assets unto Assignee, its
successors and assigns, forever; subject, however, to the
matters set forth herein.
ARTICLE II
Limitation of Warranties; Permitted Encumbrances
Section 2.1 Limitation of Warranties.
(a) Assignor does hereby bind itself, Assignor's
successors and assigns, to warrant and forever defend all
and singular Defensible Title (hereinafter defined) to the
Subject Interests, unto Assignee, its successors and assigns,
against every person whomsoever lawfully claiming or to claim
the same or any part thereof, by, through or under Assignor,
but not otherwise, subject, however, to the Permitted
Encumbrances (hereinafter defined). As used herein, the term
"Defensible Title" shall mean, respectively, as to the Subject
Interest or Subject Interests related to a particular
Property Subdivision, title to such Property Subdivision and
the Subject Interest or Subject Interests related to such
Property Subdivision, that: (i) entitles Assignor to receive not
less than the applicable Net Revenue Interest or Net Revenue
Interests specified for such Property Subdivision in the
Property Schedule; (ii) obligates Assignor to bear the costs
and expenses relating to the maintenance, development and
operation of such Property Subdivision in an amount not
greater than the applicable Working Interest or Working
Interests specified for such Property Subdivision in the
Property Schedule unless Assignor's Net Revenue Interest
therein is proportionately increased; and (iii) except
for Permitted Encumbrances, is free and clear of liens and
encumbrances. Recourse for breach of the foregoing special
warranty of title shall be limited to a return of the purchase
price allocated to the Subject Interest with respect to
which such warranty has been breached in accordance with
Section 6.2(b) of the Agreement, without interest thereon.
3
<PAGE>
(b) EXCEPT FOR THE SPECIAL WARRANTY OF TITLE SET
FORTH HEREIN, THE ASSETS ARE ASSIGNED TO ASSIGNEE "AS IS
AND WHERE IS" AND WITH ALL FAULTS AND WITHOUT WARRANTY OR
REPRESENTATION OF ANY KIND OR CHARACTER, EITHER EXPRESS OR
IMPLIED. ASSIGNOR FURTHER HEREBY (I) EXPRESSLY DISCLAIMS
AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE, RELATING TO
(A) THE CONDITION OF THE ASSETS (INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS) OR (B) ANY INFRINGEMENT BY
ASSIGNOR OR ANY OF ITS AFFILIATES OF ANY PATENT OR
PROPRIETARY RIGHT OF ANY THIRD PARTY; AND (II) NEGATES ANY
RIGHTS OR ASSIGNEE UNDER STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION AND ANY CLAIMS BY ASSIGNEE FOR DAMAGES BECAUSE OF
DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING THE INTENTION OF
ASSIGNOR AND ASSIGNEE THAT THE ASSETS ARE ACCEPTED BY
ASSIGNEE IN THEIR PRESENT CONDITION AND STATE OF REPAIR.
(c) To the extent transferable, Assignee shall be
and is hereby subrogated to all covenants and warranties
of title by parties (other than Assignor) heretofore given or
made to Assignor or its predecessors in title in respect to any
of the Assets.
Section 2.2 Permitted Encumbrances. The Assets
are assigned and conveyed by Assignor and accepted by Assignee
expressly subject to the following (the "Permitted
Encumbrances"):
(a) all agreements, instruments,
documents, liens, encumbrances, and other matters which are
described in Schedule A-2;
(b) any (i) undetermined or inchoate
liens or charges constituting or securing the payment of
expenses which were incurred incidental to maintenance,
development, production or operation of the Assets or
for the purpose of developing, producing or processing oil,
gas or other hydrocarbons therefrom or therein and (ii)
materialman's, mechanics', repairman's, employees',
contractors', operators' or other similar liens,
security interests or charges for liquidated amounts arising
in the ordinary course of business incidental to construction,
maintenance, development, production or operation of the Assets
or the production or processing of oil, gas or other
hydrocarbons therefrom, that are not delinquent and that will
be paid in the ordinary course of business or, if delinquent,
that are being contested in good faith; (c) any liens for Taxes
not yet delinquent or, if delinquent, that are being contested
in good faith in the ordinary course of business;
4
<PAGE>
(d) any liens or security interest created by
Law or reserved in oil, gas and/or mineral leases for royalty,
bonus or rental or for compliance with the terms of the Subject
Interests;
(e) all Preference Rights and Transfer
Requirements;
(f) any easements, rights-of-way,
servitudes, permits, licenses, surface leases and other
rights with respect to surface operations to the extent such
matters do not interfere in any material respect with Assignee's
operation of the portion of the Assets burdened thereby;
(g) any prohibitions or restrictions
similar to those contained in Article VIII.D. of the A.A.P.L.
Form 610-1982 Model Form Operating Agreement and any
contribution obligations under provisions similar to
Article VII.B. of said Model Form Operating Agreement;
(h) all agreements and obligations relating to
imbalances with respect to the production, transportation or
processing of gas or calls or purchase options on oil or gas
production;
(i) all royalties, overriding
royalties, net profits interests, carried interests,
reversionary interests and other burdens to the extent that the
net cumulative effect of such burdens, as to a
particular Property Subdivision, does not operate to reduce
the Net Revenue Interest of Assignor in such Property
Subdivision as specified in the Property Schedule;
(j) all obligations by virtue of a prepayment,
advance payment or similar arrangement under any contract
for the sale of gas production, including by virtue of
"take-or-pay" or similar provisions, to deliver gas
produced from or attributable to the Subject Interests after
the Effective Time without then or thereafter being entitled
to receive full payment therefor;
(k) all liens, charges, encumbrances,
contracts, agreements, instruments, obligations, defects,
irregularities and other matters affecting any Asset which
individually or in the aggregate are not such as to
interfere materially with the operation, value or use of
such Asset;
(l) any encumbrance, title defect or other
matter (whether or not constituting a Title Defect) waived or
deemed waived by Assignee pursuant to Article VI of the
Agreement;
(m) rights reserved to or vested in any
Governmental Authority to control or regulate any of the wells
or units included in the Assets and all applicable laws, rules,
regulations and orders of such
5
<PAGE>
authorities so long as the same do not decrease
Assignor's Net Revenue Interest below the Net Revenue Interest
shown in the Property Schedule;
(n) the terms and conditions of all contracts
and agreements relating to the Subject Interests,
including, without limitation, exploration agreements, gas
sales contracts, processing agreements, farmins,
farmouts, operating agreements, and rights-of-way agreements to
the extent such terms and conditions do not decrease Assignor's
Net Revenue Interest below the Net Revenue Interest shown in
the Property Schedule; and
(o) conventional rights of reassignment
requiring notice to the holders of the rights prior to
surrendering or releasing a leasehold interest.
By Assignee's acceptance of this Conveyance, Assignee assumes
and agrees to keep and perform the obligations of Assignor under
the Permitted Encumbrances which accrue from and after the
Effective Time.
ARTICLE III
Miscellaneous
Section 3.1 Further Assurances. Assignor covenants
and agrees to execute and deliver to Assignee all such other
and additional instruments and other documents and will do
all such other acts and things as may be necessary to more
fully assure to Assignee or its successor or assigns all
of the respective properties, rights and interests herein
and hereby granted or intended so to be.
Section 3.2 Successors and Assigns. All of the
provisions hereof shall inure to the benefit of and be binding
upon Assignor and Assignee and their respective successors
and assigns. All references herein to either Assignor or
Assignee shall include their respective successors and assigns.
Section 3.3 Counterparts. This Assignment is being
executed in several original counterparts, all of which are
identical, except that, to facilitate recordations, there are
omitted from certain counterparts those property
descriptions in the Property Schedule which contain
descriptions of property located in recording jurisdictions
other than the jurisdiction in which the particular
counterpart is to be recorded. Each such counterpart hereof
shall be deemed to be an original instrument, but all such
counterparts shall constitute but one and the same assignment.
IN WITNESS WHEREOF, the Assignor and Assignee
have caused this Conveyance to be executed on the date of
their respective acknowledgments set forth below, to be
effective, however, as of the Effective Time.
6
<PAGE>
ASSIGNOR:
ARCH PETROLEUM, INC.
By: _____________________________________
Larry Kalas, President
ASSIGNEE:
ODESSA EXPLORATION INCORPORATED
By: _____________________________________
D. Kirk Edwards, President
STATE OF TEXAS )
) COUNTY OF HARRIS )
This instrument was acknowledged before me on April ___,
1996, by Larry Kalas, President of ARCH PETROLEUM, INC., a Texas
corporation, on behalf of said corporation.
-----------------------------------------
Notary Public in and for the State of Texas
My Commission Expires: ___________________
STATE OF TEXAS )
) COUNTY OF HARRIS )
This instrument was acknowledged before me on April
___, 1996, by D. Kirk Edwards, President of ODESSA
EXPLORATION INCORPORATED, a Delaware corporation, on behalf
of said corporation.
- -----------------------------------------
Notary Public in and for the State of Texas
My Commission Expires: ____________________
7
GUARANTY
The CIT Group/Credit Finance, Inc. 10 South LaSalle Street
Chicago, Illinois 60603
Re: Yale E. Key, Inc., Key Energy Drilling, Inc. d/b/a Clint
Hurt Drilling and WellTech Eastern, Inc. (the "Borrowers")
Ladies and Gentlemen:
Reference is made to the financing arrangements
between The CIT Group/Credit Finance, Inc. ("Lender") and
Borrowers, pursuant to which Lender may extend loans, advances
and other financial accommodations to Borrowers as set forth
in the Third Amended and Restated Loan and Security Agreement
dated of even date herewith between Borrowers and Lender and
various other agreements, documents and instruments now or
at any time executed and/or delivered in connection
therewith or otherwise related thereto, including, but not
limited to, this Guaranty (all of the foregoing, as the same
now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements").
Due to the close business and financial relationships
between Borrowers and the undersigned ("Guarantor"), in
consideration of the benefits which will accrue to Guarantor,
and as an inducement for and in consideration of Lender at any
time providing or extending loans, advances and other
financial accommodations to Borrowers, whether pursuant to
the Financing Agreements or otherwise, Guarantor hereby,
irrevocably and unconditionally, (a) guarantees and agrees to be
liable for the prompt indefeasible and full payment and
performance of all revolving loans, term loans, letters of
credit, bankers' acceptances, merchandise purchase
guaranties or other guaranties or indemnities for each
Borrower's account and all other obligations, liabilities and
indebtedness of every kind, nature or description owing by
any Borrower to Lender and/or its affiliates, including
principal, interest, charges, fees and expenses, however
evidenced, whether as principal, surety, endorser,
guarantor or otherwise, whether arising under any of the
Financing Agreements or otherwise, whether now existing or
hereafter arising, whether arising before, during or after
the initial or any renewal term of the Financing
Agreements or after the commencement of any case with
respect to any Borrower under the United States Bankruptcy
Code or any similar statute, whether direct or indirect,
absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or
unsecured, original, renewed or extended, and whether
arising directly or howsoever acquired by Lender including
from any other entity outright, conditionally or as collateral
security, by assignment, merger with any other entity,
participations or interests of Lender in the obligations of
Borrowers to others, assumption, operation of law, subrogation
or otherwise and (b) agrees to pay to Lender on demand the
amount of all expenses (including, without limitation,
attorneys fees and legal expenses) incurred by Lender in
connection with the preparation, execution, delivery, recording,
<PAGE>
administration, collection, liquidation, enforcement and
defense of any Borrower's obligations, liabilities and
indebtedness as aforesaid to Lender, Lender's rights in any
collateral or under this Guaranty and all other Financing
Agreements or in any way involving claims by or against
Lender directly or indirectly arising out of or related to
the relationship between each Borrower and Lender, Guarantor
and Lender, or any other Obligor (as hereinafter defined) and
Lender, whether such expenses are incurred before, during
or after the initial or any renewal term of the Financing
Agreements or after the commencement of any case with
respect to any Borrower, Guarantor or any other Obligor under
the United States Bankruptcy Code or any similar statute (all
of which being collectively referred to herein as the
"Guaranteed Obligations").
Notice of acceptance of this Guaranty, the making of
loans, advances and extensions of credit or other financial
accommodations to, and the incurring of any expenses by or in
respect of, Borrowers, and presentment, demand, protest,
notice of protest, notice of nonpayment or default and all
other notices to which any Borrower or Guarantor are or may
be entitled are hereby waived. Guarantor also waives notice
of, and hereby consents to, (i) any amendment, modification,
supplement, renewal, restatement or extensions of time of
payment of or increase or decrease in the amount of any of
the Guaranteed Obligations or to the Financing Agreements and
any collateral, and the guarantee made herein shall apply to the
Guaranteed Obligations as so amended, modified, supplemented,
renewed, restated or extended, increased or decreased, (ii)
the taking, exchange, surrender and releasing of collateral or
guarantees now or at any time held by or available to Lender for
the obligations of any Borrower or any other party at any
time liable for or in respect of the Guaranteed
Obligations (individually and collectively, the "Obligors"),
(iii) the exercise of, or refraining from the exercise of
any rights against any Borrower, Guarantor or any other
Obligor or any collateral, and (iv) the settlement,
compromise or release of, or the waiver of any default with
respect to, any Guaranteed Obligations. Guarantor agrees
that the amount of the Guaranteed Obligations shall not be
diminished and the liability of Guarantor hereunder shall not
be otherwise impaired or affected by any of the foregoing.
This Guaranty is a guaranty of payment and not of
collection. Guarantor agrees that Lender need not attempt to
collect any Guaranteed Obligations from the Borrowers or any
other Obligor or to realize upon any collateral, but may
require Guarantor to make immediate payment of the Guaranteed
Obligations to Lender when due or at any time thereafter.
Lender may apply any amounts received in respect of the
Guaranteed Obligations to any of the Guaranteed Obligations,
in whole or in part (including reasonable attorneys fees and
legal expenses incurred by Lender with respect thereto or
otherwise chargeable to any Borrower or Guarantor) and in such
order as Lender may elect, whether or not then due.
No invalidity, irregularity or unenforceability of
all or any part of the Guaranteed Obligations shall affect,
impair or be a defense to this Guaranty, nor shall any
other circumstance which might otherwise constitute a defense
available to, or legal or equitable discharge of any Borrower in
respect of any of the Guaranteed Obligations or Guarantor in
respect of this Guaranty, affect, impair or be a defense to
this Guaranty. Without limitation of the foregoing, the
liability of Guarantor hereunder shall not be discharged or
impaired in any respect by reason of any failure by Lender
to perfect or continue perfection of any lien or security
interest in any collateral for the Guaranteed Obligations or
any delay by Lender in perfecting any such lien or security
interest. As to interest, fees and expenses, whether arising
before
2
<PAGE>
or after the commencement of any case with respect to any
Borrower under the United States Bankruptcy Code or any similar
statute, Guarantor shall be liable therefor, even if any
Borrower's liability for such amounts does not, or ceases to,
exist by operation of law.
This Guaranty is absolute, unconditional and
continuing. Payment by Guarantor shall be made to Lender at
its office from time to time on demand as Guaranteed
Obligations become due. One or more successive or concurrent
actions may be brought hereon against Guarantor either in the
same action in which the Borrowers or any of them, or any other
Obligors are sued or in separate actions.
Payment of all amounts now or hereafter owed to
Guarantor by Borrowers or any other Obligor is hereby
subordinated in right of payment to the indefeasible
payment in full to Lender of the Guaranteed Obligations and
is hereby assigned to Lender as security therefor. Guarantor
hereby irrevocably and unconditionally waives and relinquishes
all surety defenses including, but not limited to, all
statutory, contractual, common law, equitable and all other
claims against each Borrower, any collateral for the Guaranteed
Obligations or other assets of each Borrower or any
other Obligor, for subrogation, reimbursement,
exoneration, contribution, indemnification, setoff or other
recourse in respect of sums paid or payable to Lender by
Guarantor hereunder, and Guarantor hereby further
irrevocably and unconditionally waives and relinquishes any
and all other benefits which Guarantor might otherwise directly
or indirectly receive or be entitled to receive by reason of any
amounts paid by or collected or due from Guarantor, any
Borrower or any other Obligor upon the Guaranteed Obligations or
realized from their property.
All sums at any time owed by Lender to Guarantor or
to the credit of Guarantor and any property of Guarantor on
which Lender at any time has a lien or security interest or of
which Lender at any time has possession, shall secure payment
and performance of all Guaranteed Obligations and all other
obligations of Guarantor to Lender however arising.
In case proceedings be instituted by or against
any Borrower or Guarantor or any other Obligor in
bankruptcy or insolvency, or for reorganization,
arrangement, receivership, or the like, or if any Borrower or
Guarantor or any other Obligor calls a meeting of
creditors or makes any assignment for the benefit of
creditors, or upon the occurrence of any event which
constitutes a default or event of default under the Financing
Agreements, the liability of Guarantor for the entire
Guaranteed Obligations shall mature, even if the liability of
Borrowers or any other Obligor therefor does not.
Guarantor shall continue to be liable hereunder until
one of Lender's officers actually receives a written
termination notice by certified mail; but the giving of such
notice shall not relieve Guarantor from liability for any
Guaranteed Obligations incurred before termination or for
post-termination collection expenses and interest pertaining
to any Guaranteed Obligations arising before termination.
Guarantor agrees that this Guaranty shall remain
in full force and effect or be reinstated, as the case may be,
if at any time payment of any of the Guaranteed Obligations
is rescinded or otherwise restored by Lender to Borrowers or
to any other person, who made such payment, or to the creditors
or creditors representative of Borrowers or such other person.
3
<PAGE>
Lender's books and records showing the account
between Lender and Borrowers shall be admissible in evidence
in any action or proceeding as prima facie proof of the items
therein set forth, and any written statements rendered by
Lender to Borrowers, to the extent to which no written
objection is made within sixty (60) days after the date
thereof, shall be considered correct and be binding on
Guarantor as an account stated for purposes of this Guaranty.
No delay on Lender's part in exercising any rights
hereunder or failure to exercise the same shall constitute a
waiver of such rights. No notice to, or demand on, Guarantor
shall be deemed to be a waiver of the obligation of
Guarantor to take further action without notice, or demand as
provided herein. No waiver of any of Lender's rights hereunder,
and no modification or amendment of this Guaranty, shall be
deemed to be made by Lender unless the same shall be in writing,
duly signed on Lender's behalf, and each such waiver, if any,
shall apply only with respect to the specific instance
involved and shall in no way impair Lender's rights or the
obligations of Guarantor to Lender in any other respect at any
other time.
This Guaranty is binding upon Guarantor, its successors
and assigns and shall benefit Lender and its successors,
endorses, transferees and assigns. If the undersigned are
more than one, this Guaranty shall be binding jointly and
severally upon them and their respective successors and
assigns and the term "Guarantor" wherever used herein shall
mean all the undersigned and any one or more of them and their
successors and assigns. All references to Borrowers and Lender
herein shall include their respective successors and
assigns. THIS INSTRUMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE IN
WHICH THE OFFICE OF LENDER SET FORTH ABOVE IS LOCATED.
GUARANTOR AND LENDER WAIVE ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM
AGAINST THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY
TO THIS GUARANTY, ANY ALLEGED TORTIOUS CONDUCT BY GUARANTOR
OR LENDER, OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISING OUT
OF OR RELATED TO THE RELATIONSHIP BETWEEN GUARANTOR AND
LENDER OR BORROWERS AND LENDER. IN NO EVENT WILL LENDER BE
LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL
DAMAGES.
Guarantor waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any kind,
nature or description in any action or proceeding instituted
by Lender with respect to this Guaranty or any matter arising
herefrom or relating hereto, except compulsory counterclaims.
GUARANTOR HEREBY IRREVOCABLY SUBMITS AND CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN THE STATE IN WHICH THE OFFICE OF LENDER DESIGNATED
ABOVE IS LOCATED WITH RESPECT TO ANY ACTION OR PROCEEDING
ARISING OUT OF THIS GUARANTY OR ANY MATTER ARISING HEREFROM
OR RELATING HERETO. ANY SUCH ACTION OR PROCEEDING COMMENCED
BY GUARANTOR AGAINST LENDER WILL BE LITIGATED ONLY IN A FEDERAL
COURT LOCATED IN THE DISTRICT, OR A
4
<PAGE>
STATE COURT IN THE STATE AND COUNTY, IN WHICH THE OFFICE OF
LENDER SET FORTH ABOVE IS LOCATED AND GUARANTOR WAIVES ANY
OBJECTION BASED ON FORUM NON CONVENIENS AND ANY OBJECTION TO
VENUE IN CONNECTION THEREWITH.
In any such action or proceeding, Guarantor waives
personal service of the summons and complaint or other process
and papers therein and agrees that any process or notice of
motion or other application to any of said Courts or a judge
thereof, or any notice in connection with any proceedings
hereunder may be served (i) inside or outside such State by
registered or certified mail, return receipt requested,
addressed to Guarantor at the address set forth below or
which Guarantor has previously advised Lender in writing and as
indicated in the records of Lender, and service or notice so
served shall be deemed complete five (5) days after the same
shall have been posted or (ii) in such other manner as may be
permissible under the rules of said Courts.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Guarantor has executed and
delivered this Guaranty as of the ______ day of May, 1996.
KEY ENERGY GROUP, INC.
a Maryland corporation
By:
Francis D. John
President
Address: 257 Livingstone Avenue
New Brunswick, New Jersey 08901
5
<PAGE>
STATE OF TEXAS
ss. ss.
COUNTY OF HARRIS ss.
On this ______ day of May, 1996, before me personally
appeared Francis D. John, President of Key Energy Group, Inc., a
Maryland corporation, proved to me to be the person whose name
is subscribed to foregoing instrument, and that he executed
the foregoing instrument as the act and deed, and by the
order of the Board of Directors of said corporation.
Notary Public in and for
The State of Texas
Name (Print):
Commission Expires:
6
ASSET PURCHASE AGREEMENT
DATED AS OF APRIL ____, 1996,
BY AND BETWEEN
HARDY OIL & GAS USA INC.,
AS SELLER,
AND
ARCH PETROLEUM, INC.,
AS BUYER
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I.
CERTAIN DEFINITIONS
Section 1.1 Certain Defined
Terms.....................................1
Section 1.2 References, Gender,
Number................................1
ARTICLE II.
SALE AND PURCHASE
ARTICLE III.
CONSIDERATION AND PAYMENT
Section 3.1
Consideration..............................................1
Section 3.2
Payment....................................................2
Section 3.3 Adjustment Period Cash
Flow................................2
Section 3.4 Post Closing
Review........................................3
Section 3.5 Gas Imbalance
Credits......................................3
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of
Seller...................4
Section 4.2 Representations and Warranties of
Buyer....................5
ARTICLE V.
INVESTIGATION OF ASSETS: CONFIDENTIALITY
Section 5.1 Investigation of
Assets....................................6
Section 5.2 Confidential
Information...................................7
ARTICLE VI.
TITLE ADJUSTMENTS.
Section 6.1 No Warranty or
Representation..............................7
Section 6.2 Buyer's Title
Review.......................................7
Section 6.3 Determination of Title
Defects............................10
Section 6.4 Seller Title
Credit.......................................10
Section 6.5 Exclusion of Defect
Properties............................11
- i -
<PAGE>
Section 6.6 Deferred Claims and
Disputes..............................11
Section 6.7 No
Duplication............................................12
ARTICLE VII.
PREFERENCE RIGHTS AND CONSENTS
Section 7.1
Compliance................................................12
Section 7.2 Effect of Preference
Rights...............................12
Section 7.3 Transfer
Requirements.....................................13
ARTICLE VIII.
COVENANTS OF SELLER AND BUYER
Section 8.1 Conduct of Business Pending
Closing.......................13
Section 8.2 Qualifications on Seller's
Conduct........................15
Section 8.3
Conveyance................................................16
Section 8.4 Public
Announcements......................................16
Section 8.5 Further
Assurances........................................16
Section 8.6
Removal...................................................16
Section 8.7
Records...................................................16
ARTICLE IX.
CLOSING CONDITIONS
Section 9.1 Seller's Closing
Conditions...............................17
Section 9.2 Buyer's Closing
Conditions................................17
ARTICLE X.
CLOSING
Section 10.1
Closing...................................................18
Section 10.2 Seller's Closing
Obligations..............................18
Section 10.3 Buyer's Closing
Obligations...............................19
ARTICLE XI.
EFFECT OF CLOSING
Section 11.1
Revenues..................................................19
Section 11.2
Expenses..................................................19
Section 11.3 Payments and
Obligations..................................19
Section 11.4
Survival..................................................19
- ii -
<PAGE>
ARTICLE XII.
CASUALTY AND CONDEMNATION
Section 12.1 No
Termination............................................20
Section 12.2 Proceeds and
Awards.......................................20
ARTICLE XIII
ASSUMPTION AND INDEMNIFICATION
Section 13.1 Indemnification By
Buyer..................................20
Section 13.2 Indemnification by
Seller.................................20
Section 13.3 Third Party
Claims........................................21
ARTICLE XIV.
TERMINATION; REMEDIES; LIMITATIONS
Section 14.1
Termination...............................................21
Section 14.2 Remedies.
...............................................22
Section 14.3
Limitations...............................................22
ARTICLE XV.
MISCELLANEOUS
Section 15.1
Counterparts..............................................24
Section 15.2 Governing
Law.............................................24
Section 15.3 Entire Agreement.
.......................................24
Section 15.4
Expenses..................................................24
Section 15.5
Notices...................................................25
Section 15.6 Successors and
Assigns....................................25
Section 15.7 Amendments and
Waivers....................................25
Section 15.8 Schedules and
Exhibits....................................25
Section 15.9 Purchase Price Allocation for Tax
Purposes................25
Section 15.10 Ad Valorem Tax
Proration..................................26
Section 15.11 Agreement for the Parties' Benefit
Only...................26
Section 15.12 Attorneys'
Fees...........................................26
Section 15.13
Severability..............................................26
Section 15.14 No
Recordation............................................26
Section 15.15 Time of
Essence...........................................26
- iii -
<PAGE>
EXHIBITS
Exhibit 8.3
- -- Conveyance Exhibit 10.2(c)
- -- Affidavit of Non-Foreign Status Exhibit A-1
- -- Arbitration Procedures Exhibit A-2
- -- Property Schedule Exhibit B
- -- Forecast of Costs and Expenses
SCHEDULES
Schedule 4.1(d)
- -- Seller's Conflicts or Violations Schedule 4.1(e)
- -- Seller's Consents Schedule 4.1(f)
- -- Seller's Actions Schedule 4.1(g)
- -- Non-Compliance with Laws Schedule 4.2(d)
- -- Buyer's conflicts or Violations Schedule 4.2(e)
- -- Buyer's Consents Schedule 4.2(f)
- -- Buyer's Actions Schedule 7.1 - Part I
- -- Preference Rights Schedule 7.1 - Part II
- -- Transfer Requirements Schedule 8.1
- -- Conduct of Business Schedule 15.9
- -- Purchase Price Allocation for Tax Purposes Schedule A-1
- -- Certain Excluded Assets Schedule A-2
- -- Certain Permitted Encumbrances Schedule A-3
- -- Scheduled Imbalances Schedule A-4
- -- Royalty Accounts
- iv -
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as
of April ___, 1996, is by and between HARDY OIL & GAS USA,
INC., a Delaware corporation ("Seller"), and ARCH PETROLEUM,
INC., a Texas corporation ("Buyer").
WHEREAS, Seller owns certain oil and gas properties and
related assets;
WHEREAS, Seller desires to sell to Buyer, and Buyer
desires to purchase from Seller, such oil and gas properties
and related assets upon the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter set forth, the parties
hereto agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
Section 1.1 Certain Defined Terms. Unless the
context otherwise requires, the respective terms defined in
Appendix A attached hereto and incorporated herein shall,
when used herein, have the respective meanings therein
specified, with each such definition to be equally applicable
both to the singular and the plural forms of the term so defined.
Section 1.2 References, Gender, Number. All
references in this Agreement to an "Article," "Section," or
"subsection" shall be to an Article, Section, or subsection of
this Agreement, unless the context requires otherwise. Unless
the context otherwise requires, the words "this Agreement,"
"hereof," "hereunder," "herein," "hereby," or words of similar
import shall refer to this Agreement as whole and not to a
particular Article, Section, subsection, clause or other
subdivision hereof. Whenever the context requires, the
words used herein shall include the masculine, feminine and
neuter gender, and the singular and the plural.
ARTICLE II.
SALE AND PURCHASE
Subject to the terms and conditions of this Agreement,
Seller agrees to sell and convey to Buyer, and Buyer agrees to
purchase from Seller, the Assets.
ARTICLE III.
CONSIDERATION AND PAYMENT
Section 3.1 Consideration. The consideration for
the sale and conveyance of the Assets to Buyer is
$8,000,000.00, as adjusted in accordance with the terms of this
Agreement (the "Purchase Price"). The "Adjusted Purchase Price"
shall be the Purchase Price (I) as adjusted by the Initial
Adjustment Amount determined pursuant to Section 3.3, (ii) as
adjusted for Title Defects, if any, in accordance with Section
6.2, (iii) as may be adjusted for excluded Title Defect
Properties, if any, in accordance with Section 6.5, (iv) as may
be
<PAGE>
adjusted for undisclosed gas imbalances, if any, pursuant to
Section 3.5, (v) as may be adjusted for payments of portions
of the Purchase Price received by Seller from holder of
Preference Right contemporaneously with Closing in
accordance with and as contemplated by Section 7.2, and (vi) as
may be adjusted on account of Retained Assets as contemplated by
Section 7.3.
Section 3.2 Payment. Contemporaneously with the
execution of this Agreement, Buyer has deposited an amount
equal to twenty percent (20%) of the Purchase Price with
Seller as a deposit hereunder (the "Deposit"). At the
Closing, Buyer shall wire transfer the Adjusted Purchase Price
minus the Deposit in immediately available funds to Texas
Commerce Bank, N.A., ABA No. 113000609 for the account of
Seller, Account No. 001-01763374, or such other account
specified by Seller to Buyer on or prior to the business
day immediately preceding the Closing Date.
Section 3.3 Adjustment Period Cash Flow. (a) The
Purchase Price shall be increased or decreased, as the case
may be, by an amount equal to the Net Cash Flow with respect
to the Assets for the time period (the "Adjustment Period")
beginning at the Effective Time and ending at 7:00 a.m. (local
time) on the Closing Date. The Seller shall deliver to Buyer on
or prior to the business day immediately preceding the
Closing Date a statement (the "Adjustment Statement")
setting forth the Seller's preliminary determination (the
"Initial Adjustment Amount") of the Net Cash Flow. If the
Initial Adjustment Amount shown on the Adjustment statement is
a positive number, then the Purchase Price shall be increased
by such amount. If the Initial Adjustment Amount shown on
the Adjustment Statement is a negative number, then the
Purchase Price shall be decreased by such amount.
(b) The Adjustment Statement shall be based upon
actual information available to the Seller at the time of its
preparation and upon the Seller's good faith estimates and
assumptions. There shall be attached to the Adjustment
Statement such supporting documentation and other data as
is reasonably necessary to provide a basis for the Net Cash
Flow shown therein.
(c) The "Net Cash Flow" shall be the algebraic sum
of (i) a positive amount equal to the aggregate amount paid
by Seller as Seller's share of the costs and expenses of
exploration, maintenance, development, production and
operation of the Assets incurred with respect to the
Adjustment Period (including prepayments of any such costs or
expenses), (ii) a positive amount equal to the sum of (A) all
overhead charges paid by Seller to any operator of any of the
Assets, and (B) with respect to any properties operated by
Seller or any affiliate of Seller, the overhead charges
payable to Seller or such affiliated operator on account of
the Subject Interests in such properties under existing
operating agreements or, if no overhead charge is applicable
to a Subject Interest under an existing operating agreement,
an overhead charge to such Subject Interest equal to the
Average Drilling and Producing Well Rates in the area as
indicated in the most recent Survey of Combined Fixed Rate
Overhead Charges for Oil and Gas Producers conducted by Ernst &
Young or the prevailing rate in the area if the foregoing
survey is not available, and (iii) a negative amount equal to
the aggregate gross proceeds received by Seller from the sale or
disposition of oil, gas and other hydrocarbons produced from
the Assets during the Adjustment Period or from the rental,
sale, salvage or other disposition of any other Assets during
the Adjustment Period.
2
<PAGE>
Section 3.4 Post Closing Review. After the Closing,
Seller shall review the Adjustment Statement and determine the
actual Net Cash Flow. On or prior to the ninetieth day after
the Closing Date, Seller shall present Buyer with a statement
of the actual Net Cash Flow and such supporting documentation
as is reasonably necessary to support the Net Cash Flow shown
therein (the "Final Adjustment Statement"). Buyer will give
representatives of Seller reasonable access to its premises
and to its books and records for purposes of preparing the
Final Adjustment Statement and will cause appropriate personnel
of Buyer to assist Seller and Seller's representatives, at
no cost to Seller, in the preparation of the Final Adjustment
Statement. Seller will give representatives of Buyer
reasonable access to its premises and to its books and
records for purposes of reviewing the calculation of Net
Cash Flow and will cause appropriate personnel of Seller to
assist Buyer and its representatives, at no cost to Buyer, in
verification of such calculation. The Final Adjustment
Statement shall become final and binding on Seller and Buyer as
to the Net Cash Flow ninety (90) days following the date the
Final Adjustment Statement is received by Buyer, except to
the extent that prior to the expiration of such ninety (90)
day period Buyer shall deliver to Seller notice, as
hereinafter required, of its disagreement with the
contents of the Final Adjustment Statement. Such notice
shall be in writing and set forth all of Buyer's
disagreements with respect to any portion of the Final
Adjustment Statement, together with Buyer's proposed changes
thereto, and shall include an explanation in reasonable detail
of, and such supporting documentation as is reasonably
necessary to support, such changes. If Buyer has timely
delivered such a notice of disagreement to Seller, then, upon
written agreement between Buyer and Seller resolving all
disagreements of Buyer set forth in such notice, the Final
Adjustment Statement will become final and binding upon Buyer
and Seller as to the Net Cash Flow. If the Final Adjustment
Statement has not become final and binding by the one hundred
twentieth (120th) day following its receipt by Buyer, then Buyer
and Seller may submit any unresolved disagreements of Buyer set
forth in such notice to final and binding arbitration in
accordance with the Arbitration Procedures. Upon resolution
of such unresolved disagreements of Buyer, the Final
Adjustment Statement shall be final and binding upon Buyer and
Seller as to the Net Cash Flow. Within three (3) business days
after the Final Adjustment Statement becomes final and binding,
Seller or Buyer, as appropriate, shall pay to the other party
the amount, if any, by which the Net Cash Flow as shown in the
Final Adjustment Statement is less than or exceeds the
Initial Adjustment Amount.
Section 3.5 Gas Imbalance Credits. The Purchase
Price shall be (a) reduced by an amount equal to (1) Unscheduled
(Negative) Imbalances multiplied by (2) $1.00 per Mcf and (b)
increased by an amount equal to (1) Unscheduled (Positive)
Imbalances multiplied by (2) $1.00 per Mcf.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Seller.
Seller represents and warrants to Buyer as follows:
(a) Organization and Qualification. Seller is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the
requisite corporate power to carry on its business as it is now
being conducted. Seller is duly qualified to do business,
and is in good standing, in each jurisdiction in which the
Assets owned or leased by it makes such qualification necessary.
(b) Authority. Seller has all requisite corporate
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution, delivery and
performance of this Agreement and the transactions contemplated
hereby have been duly and validly authorized by all
requisite corporate action on the part of Seller.
(c) Enforceability. This Agreement constitutes a
valid and binding agreement of Seller enforceable against
Seller in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the
power of a court to deny enforcement of remedies generally based
upon public policy.
(d) No Conflict or Violation. Neither the execution
and delivery of this Agreement nor the consummation of the
transactions and performance of the terms and conditions
contemplated hereby by Seller will (i) conflict with or result
in any breach of any provisions of the certificate of
incorporation or by-laws or other governing documents of
Seller; (ii) be rendered void or ineffective by or under the
terms, conditions or provisions of any agreement, instrument
or obligation to which Seller is a party or is subject; (iii)
result in a default under the terms, conditions or provisions
of any Asset (or of any agreement, instrument or obligation
relating to or burdening the Asset); or (iv) subject to the
limitations contained in Section 4.1(c), violate or be
rendered void or ineffective under any Law; provided that,
the representations and warranties contained in clauses (ii),
(iii) and (iv) of this Section 4.1(d) are subject to the matters
expressly described and set forth in Schedule 4.1(d).
(e) Consents. Except for (i) Preference
Rights and Transfer Requirements and (ii) the consents,
filings or notices expressly described and set forth in
Schedule 4.1(e), no consent, approval, authorization or permit
of, or filing with or notification to, any Person is required
for or in connection with the execution and delivery of this
Agreement by Seller or for or in connection with the
consummation of the transactions and performance of the terms
and conditions contemplated hereby by Seller.
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(f) Actions. Except as set forth on Schedule
4.1(f), there are no Actions pending against Seller or, to
the knowledge of Seller, threatened against Seller which
relate to the Assets or the transactions contemplated by this
Agreement.
(g) Compliance With Laws. Except as set forth on
Schedule 4.1(g), Seller has no knowledge of any violation by
Seller of any Law applicable to the Assets which affects in any
material respect the value of the Assets taken as a whole.
(h) Brokerage Fees and Commissions. Neither Seller nor
any affiliate of Seller has incurred any obligation or
entered into any agreement for any investment banking,
brokerage or finder's fee or commission in respect of the
transactions contemplated by this Agreement for which Buyer
shall incur any liability.
(i) Bankruptcy. There are no bankruptcy,
reorganization or arrangement proceedings pending against,
being contemplated by, or, to the knowledge of Seller,
threatened against Seller.
Section 4.2 Representations and Warranties of Buyer.
Buyer represents and warrants to Seller as follows:
(a) Organization and Qualification. Buyer is in good
standing under the laws of the State of Texas and has the
requisite power to carry on its business as it is now being
conducted. Buyer is duly qualified to do business and is in
good standing in each jurisdiction in which the Assets to be
acquired by it makes such qualification necessary.
(b) Authority. Buyer has all requisite power and
authority to execute and deliver this Agreement and to perform
its obligations under this Agreement. The execution, delivery
and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by
Buyer.
(c) Enforceability. This Agreement constitutes a
valid and binding agreement of Buyer enforceable against
Buyer in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to
creditors; (ii) general principles of equity and (iii) the
power of a court to deny enforcement of remedies generally based
upon public policy.
(d) No Conflict or Violation. Neither the execution
and delivery of this Agreement nor the consummation of the
transactions and performance of the terms and conditions
contemplated hereby by Buyer will (i) be rendered void or
ineffective by or under the terms, conditions or provisions of
any agreement, instrument or obligation to which Buyer is a
party or is subject; or (ii) subject to the limitations
contained in Section 4.2(c), violate or be rendered void or
ineffective under any Law; provided that, the
representations and warranties contained in clauses (i) and
(ii) of this Section 4.2(d) are subject to the matters expressly
described and set forth in Schedule 4.2(d).
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(e) Consents. Except for (i) Preference
Rights and Transfer Requirements, and (ii) the consents,
filings or notices expressly described and set forth in Schedule
4.2(e), no consent, approval, authorization or permit of, or
filing with or notification to, any Person is required for or
in connection with the execution and delivery of this
Agreement by Buyer or for or in connection with the
consummation of the transaction and performance of the terms and
conditions contemplated hereby by Buyer.
(f) Actions. Except as set forth on Schedule
4.2(f), there are no Actions pending against Buyer or, to the
knowledge of Buyer, threatened against Buyer which relate to
the transactions contemplated by this Agreement.
(g) Brokerage Fees and Commissions. Neither Buyer nor
any affiliate of Buyer has incurred any obligation or
entered into any agreement for any investment banking,
brokerage or finder's fee or commission in respect of the
transactions contemplated by this Agreement for which Seller
shall incur any liability.
(h) Funds. Buyer has sufficient funds available to
enable Buyer to consummate the transactions contemplated hereby
and to pay all related fees and expenses of Buyer.
(i) Buyer's Knowledge. Buyer has no knowledge of any
fact which results in any representations or warranty of Seller
in Section 4.1 being breached.
(j) No Distribution. Buyer is an experienced and
knowledgeable investor in the oil and gas business. Prior to
entering into this Agreement, Buyer was advised by its
counsel and such other persons it has deemed appropriate
concerning this Agreement and has relied solely on an
independent investigation and evaluation of, and appraisal and
judgment with respect to, the geologic and geophysical
characteristics of the Subject Interests, the estimated
reserves recoverable therefrom, and the price and expense
assumptions applicable thereto. Buyer is not acquiring any
interests in the Assets in connection with a distribution
thereof in violation of the Securities Act of 1933 and the
rules and regulations thereunder or any applicable state blue
sky laws.
(k) Bankruptcy. There are no bankruptcy,
reorganization or arrangement proceedings pending against,
being contemplated by, or to the knowledge of Buyer,
threatened against Buyer.
ARTICLE V.
INVESTIGATION OF ASSETS: CONFIDENTIALITY
Section 5.1 Investigation of Assets. Promptly
following the execution of this Agreement and until the
Closing Date (or earlier termination of this Agreement),
Seller (i) shall permit Buyer and its representatives at
reasonable times to examine, in Seller's offices, all
abstracts of title, title opinions, title files, ownership
maps, lease files, assignments, division orders, and
documents relating to the Assets insofar as the same are in
Seller's possession and insofar as Seller may do so without (a)
violating legal constraints or any
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legal obligation or (b) waiving any attorney/client privilege
and (ii), subject to any required consent of any third
Person, shall permit Buyer and its representatives at
reasonable times and at Buyer's sole risk, cost and expenses, to
conduct reasonable inspections of the Assets; provided,
however, Buyer shall repair any damage to the Assets resulting
from such inspections and Buyer does hereby indemnify and hold
harmless Seller from and against any and all losses, costs,
damages, obligations, claims, liabilities, expenses and causes
of action arising from Buyer's inspection of the Assets,
including, without limitation, claims for personal injuries,
property damage and reasonable attorney's fees.
Section 5.2 Confidential Information. Unless and
until the Closing occurs, Buyer agrees to maintain all
information made available to it pursuant to Section 5.1
confidential and to cause its officers, employees,
representatives, consultants and advisors to maintain all
information made available to them pursuant to Section 5.1
confidential.
ARTICLE VI.
TITLE ADJUSTMENTS.
Section 6.1 No Warranty or Representation. Without
limiting Buyer's right to adjust the Purchase Price by
operation of Section 6.2 and except for the special warranty of
title which is contained in the Conveyance, Seller makes no
warranty or representation, express, implied, statutory or
otherwise, with respect to Seller's title to any of the Assets
and Buyer hereby acknowledges and agrees that Buyer's sole
remedy for any defect of title, including any Title Defect,
with respect to any of the Assets shall be pursuant to the
procedures set forth in this Article VI, which remedies shall
cease, and be deemed to be finally and conclusively
satisfied, in all respects, upon the Closing. Furthermore,
Seller makes no warranty or representation, express,
implied, statutory or otherwise, with respect to the accuracy
or completeness of the information, records and data now,
heretofore or hereafter made available to Buyer in connection
with this Agreement (including, without limitation, any
description of the Assets, pricing assumptions, potential for
production of oil, gas or other hydrocarbons from the Subject
Interests or any other matters contained in or related to
any other material furnished to Buyer by Seller or by Seller's
agents or representatives).
Section 6.2 Buyer's Title Review.
(a) Buyer's Assertion of Title Defects. Prior to the
expiration of the fourteen (14) day period commencing on the
execution of this Agreement (the "Title Examination Period"),
Buyer shall notify Seller in writing of any matters which, in
Buyer's reasonable opinion, constitute Title Defects and which
Buyer intends to assert as a Title Defect with respect to any
portion of a Property Subdivision pursuant to this Article VI.
For all purposes of this Agreement, Buyer shall be deemed to
have waived any Title Defect which Buyer fails to assert as
a Title Defect by written notice given to Seller on or
before the expiration of the Title Examination Period. To be
effective, Buyer's written notice of a Title Defect must
include (i) a brief description of the matter constituting
the asserted Title Defect, (ii) the claimed Title Defect
Amount attributable thereto, and (iii) supporting documents
reasonably necessary for
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Seller (as well as any title attorney or examiner hired by
Seller) to verify the existence of such asserted Title Defect.
Buyer shall promptly furnish Seller with written notice of
any Seller Title Credit which is discovered by any of Buyer's
employees or representatives while conducting Buyer's title
review, due diligence or investigation with respect to the
Subject Interests and Property Subdivisions.
(b) Purchase Price Allocations. A portion of the
Purchase Price has been allocated to the various Subject
Interests in Property Subdivisions in the manner and in
accordance with the respective values set forth in the
Property Schedule. If any adjustment is made to the Purchase
Price pursuant to this Section 6.2, a corresponding
adjustment shall be made to the portion of the Purchase Price
allocated to the affected Property Subdivision in the Property
Schedule.
(c) Seller's Opportunity to Cure. Seller shall have
until two (2) days prior to the Closing Date, at its cost and
expense, if it so elects but without obligation, to cure all
or a portion of such asserted Title Defects. Any asserted
Title Defects which are waived by Buyer or cured within such
time shall be deemed "Permitted Encumbrances" hereunder. If
Seller within such time fails to cure any Title Defect of which
Buyer has given timely written notice as required above
and Buyer has not and does not waive same on or before the day
immediately preceding the Closing Date, the Property
Subdivision affected by such uncured and unwaived Title Defect
shall be a "Title Defect Property".
(d) Buyer's Title Adjustments. Subject to Section 6.5,
as Buyer's sole and exclusive remedy with respect to Title
Defects, Buyer shall be entitled to reduce the Purchase Price
by the amount, if any, by which the aggregate amount of Title
Defect Amounts with respect to all Title Defect Properties
exceeds the sum of $400,000.00 (the "Title Defect Deductible")
plus the aggregate amount of Seller Title Credits with respect
to all Property Subdivisions. "Title Defect Amount" shall
mean, with respect to a Title Defect Property, the amount by
which the value of such Title Defect Property is impaired as a
result of the existence of one or more Title Defects, which
amount shall be determined as follows:
(1) If the Title Defect results from Seller
having a lesser Net Revenue Interest in such Title
Defect Property than the Net Revenue Interest specified
therefor in the Property Schedule, the Title Defect
Amount shall be equal to the product obtained by
multiplying the portion of the Purchase Price
allocated to such Title Defect Property in the Property
Schedule by a fraction, the numerator or which is the
reduction in the Net Revenue Interest and the denominator of
which is the Net Revenue Interest specified for such
Title Defect Property in the Property Schedule.
(2) If the Title Defect results from Seller
having a greater Working Interest in a Title Defect
Property than the Working Interest specified therefor
in the Property Schedule, the Title Defect Amount
shall be equal to the present value (discounted at 10%
compounded annually) of the increase in the costs and
expenses forecasted in Exhibit B hereto with respect
to such Title Defect Property for the period from and
after the Effective Time which is attributable to such
increase in the Seller's Working Interest.
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(3) If the Title Defect results from the
existence of a lien, the Title Defect Amount shall be an
amount sufficient to discharge such lien.
(4) If the Title Defect results from any
matter not described in paragraphs (1), (2) or (3)
above, the Title Defect Amount shall be an amount equal
to the difference between the value of the Title Defect
Property affected by such Title Defect with such Title Defect
and the value of such Title Defect Property without
such Title Defect (taking into account the portion
of the Purchase Price allocated in the Property
Schedule to such Title Defect Property); provided, that if
such Title Defect is reasonably susceptible of being
cured, the Title Defect Amount shall be the reasonable
cost and expense of curing such Title Defect, if less.
(5) If a Title Defect is not effective or
does not affect a Title Defect Property throughout the
entire productive life of such Title Defect
Property, such fact shall be taken into account in
determining the Title Defect Amount.
(6) The Title Defect Amount with respect to
a Title Defect Property shall be determined without
duplication of any costs or losses included in another
Title Defect Amount hereunder. For example, but
without limitation, if a lien affects more than one Title
Defect Property or the curative work with respect to one
Title Defect results (or is reasonably expected to
result) in the curing of any other Title Defect
affecting the same or another Title Defect Property, the amount
necessary to discharge such lien or the cost and
expense of such curative work shall only be included in
the Title Defect Amount for one Title Defect Property
and only once in such Title Defect Amount.
(7) If a Title Defect affects only a
portion of a Property Subdivision (as contrasted with
an undivided interest in the entirety of such Property
Subdivision) and a portion of the Purchase Price has
not been allocated specifically to such portion of a
Property Subdivision in the Property Schedule, then
for purposes of computing the Title Defect Amount, the
portion of the Purchase Price allocated to such Property
Subdivision shall be further allocated among the portions
of such Property Subdivision in the proportion that the
portion of the Property Subdivision affected by such
Title Defect bears to the entire Property Subdivision.
(8) The Title Defect Amount attributable
to a Title Defect Property or any portion thereof
shall not exceed the portion of the Purchase Price
allocated to such Title Defect Property or such portion
in Section 6.2(b) and paragraph (7) above. For example, but
without limitation, if the Seller does not own fifty
percent (50%) of the Net Revenue Interest specified in
the Property Schedule for a Title Defect Property and
such unowned fifty percent (50%) interest is also burdened
by a lien, the Title Defect Amount for such Title Defect
Property shall not exceed the portion of the Purchase
Price allocable to such fifty percent (50%) interest
notwithstanding that it may be affected by multiple
Title Defects.
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(9) No Title Defect Amount shall be allowed
on account of and to the extent that an increase in the
Seller's Working Interest in a Property Subdivision
has the effect of proportionately increasing the
Seller's Net Revenue Interest in such Property Subdivision.
(10) With respect to any Subject Interest
in a Property Subdivision in which Buyer likewise
owned an undivided interest at the Effective Time, no
Title Defect Amount shall be allowed on account of a
Title Defect affecting such Subject Interest that also affected
Buyer's interest in such Property Subdivision at the
Effective Time.
Section 6.3 Determination of Title Defects. A
portion of a Property Subdivision shall be deemed to have a
"Title Defect" if any one or more of the following statements
is untrue with respect to such portion of a Property
Subdivision as of the Effective Time and as of the Closing Date:
(a) The Seller has Defensible Title thereto.
(b) All royalties, rentals, Pugh clause
payments, shut-in gas payments and other payments due
with respect to such portion of a Property
Subdivision have been properly and timely paid, except for
payments held in suspense for title or other reasons
which are customary in the industry and which will
not result in grounds for cancellation of the
Seller's rights in such portion of a Property
Subdivision.
(c) The Seller is not in default under the
material terms of any leases, farm-out agreements
or other contracts or agreements respecting such
portion of a Property Subdivision which could (1)
prevent the Seller from receiving the proceeds of
production attributable to the Seller's interest
therein, or (2) result in cancellation of the
Seller's interest therein.
Section 6.4 Seller Title Credit. A "Seller Title
Credit" shall mean, with respect to a Property Subdivision,
the amount by which the value of such Property Subdivision is
enhanced by virtue of (a) Seller having a greater Net Revenue
Interest in such Property Subdivision than the Net Revenue
specified therefor in the Property Schedule, or (b) Seller
having a lesser Working Interest in such Property
Subdivision than the Working Interest specified therefor in
the Property Schedule, which amount shall be determined as
follows:
(1) If the Seller Title Credit results from
Seller having a greater Net Revenue Interest in such
Property Subdivision than the Net Revenue Interest
specified therefor in the Property Schedule, the
Seller Title Credit shall be equal to the product
obtained by multiplying the portion of the Purchase
Price allocated to such Property Subdivision in
the Property Schedule by a fraction, the numerator
of which is the increase in the Net Revenue Interest and the
denominator of which is the Net Revenue Interest
specified for such Property Subdivision in the Property
Schedule.
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(2) If the Seller Title Credit results from
Seller having a lesser Working Interest in a
Property Subdivision than the Working Interest
specified therefor in the Property Schedule, the Seller Title
Credit shall be equal to the present value
(discounted at 10% compounded annually) of the
decrease in the costs and expenses forecasted in
Exhibit B hereto with respect to such Property
Subdivision for the period from and after the Effective Time
which is attributable to such decrease in Seller's
Working Interest.
(3) In determining the amount of Seller
Title Credits, the principles and methodology set
forth in paragraphs (5), (6) and (7) of Section 6.2(d)
shall be applied, mutatis mutandis.
(4) No Seller Title Credit shall be allowed
on account of and to the extent that a decrease in
Seller's Working Interest in a Property Subdivision
has the effect of proportionately decreasing
Seller's Net Revenue Property Interest in such Property
Subdivision.
The Title Defect Deductible shall be restored to the extent
that any portion thereof is applied as a credit against a Title
Defect Amount attributable to a Title Defect which is
subsequently cured by Seller or determined not to
constitute a Title Defect.
Section 6.5 Exclusion of Defect Properties. On or
before the Closing Date, Seller may elect to retain and exclude
from the Assets to be conveyed to Seller by Buyer pursuant to
the terms hereof any Title Defect Property so long as the
Purchase Price is reduced by the portion of the Purchase Price
allocated to such Title Defect Property in the Property
Schedule. Upon such election by Seller, said Title Defect
Property, together with a pro rata share of all incidental
rights, oil, gas and other hydrocarbons and other assets
attributable or appurtenant thereto, shall be retained by Seller
and excluded from the Assets which are conveyed by Seller to
Buyer pursuant to the Conveyance.
Section 6.6 Deferred Claims and Disputes. In the
event that Buyer and Seller have not agree upon one or more
adjustments, credits or offsets claimed by Buyer or Seller
pursuant to and in accordance with the requirements of this
Article VI, any such claim (a "Deferred Adjustment Claim")
shall be settled pursuant to this Section 6.6 and, except as
provided in Sections 9.1(g) and 9.2(g), shall not prevent or
delay Closing. With respect to each potential Deferred
Adjustment Claim, Buyer and Seller shall deliver to the other a
written notice describing each such potential Deferred
Adjustment Claim, the amount in dispute and a statement setting
forth the facts and circumstances that support such party's
position with respect to such Deferred Adjustment Claim. At
Closing the Purchase Price shall not be adjusted on account of,
and, except as provided in Sections 9.1(e) and 9.2(e), no
effect shall be given to, the Deferred Adjustment Claim. On
or prior to the thirtieth (30th) consecutive calendar day
following the Closing Date (the "Deferred Matters Date"), the
Seller and Buyer shall attempt in good faith to reach agreement
on the Deferred Adjustment Claims and, ultimately, to resolve
by written agreement all disputes regarding the Deferred
Adjustment Claims. Any Deferred Adjustment Claims which are
not so
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resolved on or before the Deferred Matters Date shall be
submitted to final and binding arbitration in accordance with
the Arbitration Procedures; provided, however, that the
Seller may elect at any time to resolve the disputes relating to
the Deferred Adjustment Claims by the payment to Buyer of the
amount by which the Purchase Price would have been reduced at
Closing on account of the Title Defects which constitute
Deferred Adjustment Claims if same did not constitute Deferred
Adjustment Claims. Notwithstanding anything herein provided
to the contrary, including Section 6.2(c), Seller shall be
entitled to cure any Title Defect which constitutes a Deferred
Adjustment Claim at any time prior to the point in time when
a final and binding written decision of the board of
arbitrators is made with respect thereto in accordance with
the Arbitration Procedures. The amount of any reduction in
the Purchase Price to which Buyer becomes entitled under the
final and binding written decision of the board of arbitrators
shall be promptly refunded by Seller to Buyer.
Section 6.7 No Duplication. Notwithstanding anything
herein provided to the contrary, if a Title Defect results from
a matter which could also result in the breach of any
representation or warranty of Seller set forth in Section 4.1,
then Buyer shall only be entitled to assert such matter as
a Title Defect pursuant to this Article VI and shall be
precluded from also asserting such matter as the basis of the
breach of any such representation or warranty.
ARTICLE VII.
PREFERENCE RIGHTS AND CONSENTS
Section 7.1 Compliance. To Seller's knowledge,
all agreements containing a (i) Preference Right are set
forth in Part I of Schedule 7.1 and (ii) Transfer Requirement
are set forth in Part II of Schedule 7.1 (except such agreements
with respect to which all Preference Rights and Transfer
Requirements applicable to the sale contemplated by this
Agreement have been complied with or waived). Prior to the
Closing Date, Seller shall initiate all procedures
required to comply with or obtain the waiver of all
Preference Rights and Transfer Requirements set forth in
Schedule 7.1 with respect to the transactions contemplated by
this Agreement.
Section 7.2 Effect of Preference Rights. If a third
party who has been offered a Preference Property pursuant to
Section 7.1 elects prior to Closing to purchase such
Preference Property in accordance with the terms of such
Preference Right, and Seller and Buyer receive written notice
of such election prior to the Closing Date, such Preference
Property will be eliminated from the Assets and the Purchase
Price shall be reduced by the portion of the Purchase Price
allocated to such Preference Property pursuant to the
immediately following sentence. The portion of the Purchase
Price to be allocated to any Asset or portion thereof
affected by a Preference Right (a "Preference Property")
shall be the portion of the Purchase Price allocated thereto in
the Property Schedule. If a Preference Right affects only a
portion of a Property Subdivision and a portion of the
Purchase Price has not been allocated specifically to such
portion of a Property Subdivision in the Property Schedule, then
the portion of the Purchase Price to be allocated to such
Preference Property shall be determined in the same manner as
provided in Section 6.2(d)(7) when a Title Defect affects only a
portion of a Property Subdivision. If a third party who has been
offered a Preference Property or who has been requested to
waive its Preference Right pursuant to Section 7.1 does not
elect to purchase
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such Preference Property or waive such Preference Right
with respect to the transactions contemplated by this
Agreement prior to the Closing Date, such Preference Property
shall be conveyed to Buyer at Closing subject to such
Preference Right, unless such Preference Property has been
otherwise eliminated from the Assets in accordance with other
provisions of this Agreement. If a third party elects to
purchase a Preference Property subject to a Preference Right
and Closing has already occurred with respect to such Preference
Property, Buyer shall be obligated to convey said Preference
Property to such third party and shall be entitled to the
consideration for the sale of such Preference Property.
Section 7.3 Transfer Requirements. If a Transfer
Requirement applicable to the transactions contemplated by
this Agreement is not obtained, complied with or otherwise
satisfied prior to the Closing Date; then, unless otherwise
mutually agreed by Seller and Buyer, any Asset or portion
thereof affected by such Transfer Requirement (a "Retained
Asset") shall be held back from the Assets to be transferred
and conveyed to Buyer at Closing and the Purchase Price to be
paid at Closing shall be reduced by the portion of the
Purchase Price which would be allocated to such Retained Asset
pursuant to Section 7.2 if such Retained Asset were a
Preference Property. Any Retained Asset so held back at the
initial Closing will be conveyed to Buyer within ten (10) days
following the date on which Seller obtains, complies with or
otherwise satisfies all Transfer Requirements with respect to
such Retained Assets for a purchase price equal to the amount by
which the Purchase Price was reduced on account of the
holding back of such Retained Asset; provided, however, if
all Transfer Requirements with respect to any Retained Asset
so held back at the initial Closing are not obtained, complied
with or otherwise satisfied within one hundred twenty (120)
days following the Closing Date, then such Retained Asset
shall be eliminated from the Assets and this Agreement unless
Seller and Buyer mutually agreed to proceed with a closing on
such Retained Asset in which case Buyer shall be deemed to
have waived any objection with respect to non-compliance
with such Transfer Requirements. In connection with any
subsequent conveyance of a Retained Asset, appropriate
adjustments in Net Cash Flow and proration of revenues and
expenses will be made to account for any delayed Closing
with respect to a Retained Asset.
ARTICLE VIII.
COVENANTS OF SELLER AND BUYER
Section 8.1 Conduct of Business Pending Closing.
Subject to Section 8.2 and the constraints of applicable
operating and other agreements from the date hereof through the
Closing, except as disclosed in Schedule 8.1, or as otherwise
consented to or approved by Buyer in writing (which consent or
approval shall not be unreasonably withheld or delayed), Seller
covenants and agrees that:
(a) Sales. Sellers shall not sell, transfer, assign,
convey, farmout, release, abandon or otherwise dispose of
any Assets, or enter into any transaction the effect of
which would be to cause Seller's ownership interest in any of
the Assets to be altered from Seller's ownership interest as of
the date of this Agreement, other than (i) oil, gas and other
hydrocarbons produced, saved and sold in the ordinary course
of business, and (ii) personal property
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and equipment which is replaced with personal property
and equipment of comparable or better value and utility in
the ordinary and routine maintenance and operation of the
Assets.
(b) Encumbrances. Sellers shall not create or permit
the creation of any lien, security interest or encumbrance on
any Assets, except to the extent required or permitted
incident to the operation of the Assets pursuant to this
Section 8.1.
(c) Operation of Assets. Seller shall:
(1) cause the Assets to be maintained
and operated in the ordinary course of
business, in accordance with Law, maintain
insurance now in force with respect to the Assets,
and pay or cause to be paid all costs and expenses
in connection therewith promptly when due;
(2) not commit to participate in the
drilling or any new well or other new
operations on the Assets the cost of which
(net to Seller's interest) is in excess of $15,000.00 in
any single instance, without the advance written
consent of Buyer, which consent or
non-consent must be given by Buyer within the
lesser of (x) ten (10) days of Buyer's receipt of
the notice from Seller or (y) one-half (1/2) of the
applicable notice period within which Seller is
contractually obligated to respond to third
parties to avoid a deemed election by Seller
regarding such operation, as specified in Seller's
notice to Buyer requesting such consent; and
(3) maintain and keep the Assets
in full force and effect, except where such
failure is due to (i) the failure to pay a
delay rental, royalty, shut in royalty or other payment
by mistake or oversight (including Seller's negligence)
unless caused by Seller's gross negligence or
willful misconduct, or (ii) the failure to
participate in an operation which Buyer does
not timely approve.
(d) Contracts and Agreements. Seller shall not:
(1) grant or create any Preference
Right or Transfer Requirement with respect to the
Assets except in connection with the performance by
Seller or an obligation or agreement existing on the
date hereof or pursuant to this Agreement;
(2) enter into any oil, gas or other
hydrocarbon sales, supply, exchange, processing or
transportation contract with respect to the Assets
which is not terminable without penalty or detriment on
notice of ninety (90) days or less; or
(3) voluntarily relinquish any Seller's
position as operator with respect to the Assets.
(e) Notice of Defaults. Seller shall give prompt
written notice to Buyer of any notice of default (or threat
of default, whether disputed or denied) received or given
by Seller under any material instrument or agreement affecting
the Assets to which Seller is a party or by which Seller or any
of the Assets are bound.
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Section 8.2 Qualifications on Seller's Conduct.
(a) Emergencies; Legal Requirements. Seller may take
(or not take, as the case may be) any of the actions mentioned
in Section 8.1 above if reasonably necessary under emergency
circumstances (or if required or prohibited (as the case may
be) pursuant to Law and provided Buyer is notified as soon
thereafter as practicable.
(b) Non-Operated Properties. If Seller is not the
operator of a particular portion of the Assets, the
obligations of Seller in Section 8.1 above with respect to such
portion of the Assets, which have reference to operations or
activities which pursuant to existing contracts are carried out
or performed by the operator, shall be construed to require
only that Seller use its best efforts (without being obligated
to incur any expense or institute any cause of action) to cause
the operator of such portion of the Assets to take such actions
or render such performance within the constraints of the
applicable operating agreements and other applicable agreements.
(c) Certain Operations. Should Seller not wish to pay
any lease rental or other payment or participate in any
reworking, deepening, drilling, completion, equipping or
other operation on or with respect to any well or other Property
Subdivision which may otherwise be required by Section 8.1
above, Seller shall give Buyer written notice thereof at least
fifteen (15) days prior to the date such rental or other payment
is due or, in the case of an operation, promptly after Seller
receives notice of such proposed operation from the operator
of such property (or if Seller is the operator, at the same time
Seller gives or is required to give notice of such
proposed operation to the non-operators of such property);
and Seller shall not be obligated to make any such payment or to
elect to participate in any such operation which Seller does
not wish to make or participate in unless Seller receives from
Buyer, within a reasonable time prior to the date when such
payment or election is required to be made by Seller, the
written election and agreement of Buyer (i) to require Seller
to take such action and (ii) to pay all costs and expenses of
Seller with respect to such lease rental or other payment or
such operation. Notwithstanding the foregoing, Seller shall
not be obligated to pay any lease rental or other payment or to
elect to participate in any operation if the operator of
the property involved recommends that such action not be
taken. If Buyer advances any funds pursuant to this Section
8.2(c) with respect to a particular portion of the Assets, such
portion of the Assets is not conveyed to Buyer at Closing or
Closing does not occur, and such funds are not reimbursed to
Buyer within thirty (30) days after the earlier of Closing or
termination of this Agreement, then with respect to such
particular portion of the Assets, (i) Buyer shall own and be
entitled to any interest of Seller that would have lapsed
but for such payment or (ii) in the case of operations, Buyer
shall be entitled to receive the penalty, if any, that Seller,
as nonconsenting party, would have suffered under the
applicable operating or other agreement with respect to
such operations as if Buyer were a consenting party thereunder;
in each case, subject to and after deduction of any damages or
other relief to which Seller may be entitled with respect to
any breach by Buyer of this Agreement.
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Section 8.3 Conveyance. Upon the terms and subject to
the conditions of this Agreement, at or prior to the Closing,
Seller and Buyer shall execute and deliver or cause the
execution and delivery of the General Conveyance, in
substantially the form attached hereto as Exhibit 8.3 (the
"Conveyance").
Section 8.4 Public Announcements. Without the prior
written approval of the other party hereto, no party hereto
will issue, or permit any agent or affiliate of it to issue,
any press releases or otherwise make, or cause any agent or
affiliate of it to make, any public statements with respect
to this Agreement and the transactions contemplated hereby,
except where such release or statement is deemed in good faith
by the releasing party to be required by Law or any national
securities exchange, in which case the party will use its best
efforts to provide a copy to the other party prior to any
release or statement.
Section 8.5 Further Assurances. Seller and Buyer each
agrees that, from time to time, whether before, at or after
the Closing Date, each of them will execute and deliver or cause
their respective affiliates to execute and deliver such further
instruments of conveyance and transfer and take such other
action as may be necessary to carry out the purposes and intents
of this Agreement. Any separate or additional assignment of the
Assets or any portion thereof required pursuant to this Section
8.5 (i) shall evidence the conveyance and assignment of the
Assets made or intended to be made in the Conveyance, (ii)
shall not modify or be deemed to modify any of the terms,
covenants and conditions set forth in the Conveyance, and
(iii) shall be deemed to contain all of the terms and
provisions of the Conveyance, as fully as though the same
were set forth at length in such separate or additional
assignment.
Section 8.6 Removal. Within a reasonable period of
time following the Closing, Buyer shall remove the name
and mark of Seller and any of its affiliates and any
variations and derivatives thereof and logos relating thereto
from the Assets.
Section 8.7 Records. Within a reasonable period of
time following the Closing, Seller shall make all Records
available for delivery to Buyer in Houston, Texas. Buyer
agrees to maintain the Records that are acquired pursuant to
this Agreement until the fifth anniversary of the Closing Date
(or for such longer period of time as Seller shall advise Buyer
is necessary in order to have Records available with respect to
open years for tax audit purposes), or, if any of such Records
pertain to any claim or dispute pending on the fifth anniversary
of the Closing Date, Buyer shall maintain any of such Records
designated by Seller until such claim or dispute is finally
resolved and the time for all appeals has been exhausted.
Buyer shall provide Seller and its representatives reasonable
access to and the right to copy such Records, at Seller's
expense, for the purposes of (i) preparing and delivering any
accounting provided for in this Agreement, (ii) complying
with any law, rule or regulation affecting Seller's interest
in the Assets prior to the Closing Date, (iii) preparing any
audit of the books and records of any third party relating to
Seller's interest in the Assets prior to the Closing Date, or
responding to any audit prepared by such third parties, (iv)
preparing tax returns, (v) responding to or disputing any tax
audit or (vi) asserting, defending or otherwise dealing with
any claim or dispute under this Agreement or with respect to the
Assets. In no event shall
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Buyer destroy any such Records without giving Seller sixty
(60) days' advance written notice thereof and the opportunity,
at Seller's expense, to obtain such Records prior to their
destruction. Buyer shall have no liability to Seller
regarding this Section 8.7 in the event of any destruction of
the Records which may occur due to no fault of Buyer as a result
of an act of God.
ARTICLE IX.
CLOSING CONDITIONS
Section 9.1 Seller's Closing Conditions. The
obligation of Seller to consummate the transactions
contemplated hereby is subject, at the option of Seller, to
the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and Covenants. The (1)
representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects
on and as of the Closing Date, and (2) covenants and
agreements of Buyer to be performed on or before the Closing
Date in accordance with this Agreement shall have been duly
performed in all material respects.
(b) Officer's Certificate. Seller shall have
received a certificate dated as of the Closing Date, executed by
a duly authorized officer of Buyer, to the effect that to such
officer's knowledge the conditions set forth in paragraph
(a) of this Section 9.1 have bene satisfied.
(c) Conveyance. Buyer shall have executed and
delivered the Conveyance prior to or on the Closing Date.
(d) No Action. On the Closing Date, no suit, action or
other proceeding (excluding any such matter initiated by Seller
or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of
this Agreement or recover damages from Seller resulting
therefrom.
(e) Title Adjustments. The sum of (i) the reduction
in the Purchase Price on account of the aggregate amount of
all Title Defect Amounts and the exclusion of Title Defect
Properties pursuant to Section 6.5, and (ii) the aggregate
amount of Title Defect Amounts claimed by Buyer with
respect to unresolved Deferred Adjustment Claims, and (iii)
the reduction in the Purchase Price on account of the exclusion
of Retained Assets pursuant to Section 7.3 shall not exceed
$1,200,000.00.
(f) Lender Approval. Seller shall have received written
approval of the sale provided for under this Agreement by
Barclays Bank as lead bank pursuant to Seller's Revolving Credit
Facility dated January 21, 1991, as amended.
Section 9.2 Buyer's Closing Conditions. The
obligation of Buyer to consummate the transactions
contemplated hereby is subject, at the option of Buyer, to
the satisfaction on or prior to the Closing Date of all
of the following conditions:
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(a) Representations, Warranties and Covenants. The (1)
representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects
on and as of the Closing Date, and (2) covenants and
agreements of Seller to be performed on or before the Closing
Date in accordance with this Agreement shall have been duly
performed in all material respects.
(b) Officer's Certificate. Buyer shall have
received a certificate dated as of the Closing Date, executed
by a duly authorized officer of Seller, to the effect that to
such officer's knowledge the conditions set forth in
paragraph (a) of this Section 9.1 have bene satisfied.
(c) Conveyance. Seller shall have executed and
delivered the Conveyance prior to or on the Closing Date.
(d) No Action. On the Closing Date, no suit, action or
other proceeding (excluding any such matter initiated by Buyer
or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of
competent jurisdiction seeking to enjoin or restrain the
consummation of this Agreement or recover damages from Buyer
resulting therefrom.
(e) Title Adjustments. The sum of (i) the reduction
in the Purchase Price on account of the aggregate amount of
all Title Defect Amounts and the exclusion of Title Defect
Properties pursuant to Section 6.5, and (ii) the aggregate
amount of Title Defect Amounts claimed by Buyer with
respect to unresolved Deferred Adjustment Claims, and (iii)
the reduction in the Purchase Price on account of the exclusion
of Retained Assets pursuant to Section 7.3 shall not exceed
$1,200,000.00.
ARTICLE X.
CLOSING
Section 10.1 Closing. The Closing shall be held on the
Closing Date at 10:00 a.m., Houston time, at the offices of
Seller at 1600 Smith Street, Suite 1400, Houston, Texas, or
at such other time or place as Seller and Buyer may otherwise
agree in writing.
Section 10.2 Seller's Closing Obligations. At
Closing, Seller shall execute and deliver, or cause to be
executed and delivered, to Buyer the following:
(a) The Conveyance;
(b) The officer's certificate referred to in Section
9.2(b);
(c) An affidavit of Non-Foreign Status,
substantially in the form attached hereto as Exhibit 10.2(c);
and
(d) Letters in lieu of division and transfer orders
executed by Seller relating to the Subject Interests in form
reasonably necessary to reflect the conveyances contemplated
hereby.
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Section 10.3 Buyer's Closing Obligations. At Closing,
Buyer shall (i) deliver or cause to be delivered, the Adjusted
Purchase Price minus the Deposit to Seller in immediately
available funds to the bank account as provided in Section
3.2 and (ii) execute and deliver, or cause to be executed and
delivered, to Seller the following:
(a) The Conveyance; and
(b) The officer's certificate of Buyer referred to in
Section 9.1(b).
ARTICLE XI.
EFFECT OF CLOSING
Section 11.1 Revenues. After Closing, all
proceeds, accounts receivable, notes receivable, income,
revenues, monies and other items included in or attributed to
the Excluded Assets and all other Excluded Assets shall
belong to and be paid over to Seller and all proceeds,
accounts receivable, notes receivable, income, revenues,
monies and other items included in or attributable to the
Assets with respect to any period of time after the
Effective Time shall belong to and be paid over to Buyer
except to the extent credited to Buyer in calculating the
Adjusted Purchase Price.
Section 11.2 Expenses. After Closing, all accounts
payable and other costs and expenses with respect to the
Assets for which Seller is given credit in the determination
of Net Cash Flow pursuant to Section 3.3, as adjusted
pursuant to Section 3.4, shall be borne by Seller.
Section 11.3 Payments and Obligations. If monies are
received by any party hereto which, under the terms of this
Article XI, belong to another party, the same shall immediately
be paid over to the proper party. If an invoice or other
evidence of an obligation is received which under the
terms of this Article XI is partially the obligation of Seller
and partially the obligation of Buyer, then the parties shall
consult each other and each shall promptly pay its portion of
such obligation to the obligee.
Section 11.4 Survival. No representation,
warranty, covenant or agreement made herein shall survive
the Closing except as provided in this Section 11.4. It is
expressly agreed that the terms and provisions of (a)
Article IV shall survive the Closing for a period of one
hundred eighty (180) days from the Closing Date and (b)
Sections 3.4, 3.6, 6.1, 6.6, 6.7, 7.2, 7.3, 8.2(c), 8.4,
8.5, 8.6, 8.7 and 14.3 and Articles XI, XIII and XV shall
survive the Closing indefinitely. In addition, the definitions
set forth in Appendix A to this Agreement which are used in
representations, warranties, covenants and agreements which
survive the Closing pursuant to this Section 11.4 shall survive
the Closing to the extent necessary to give operative effect
to such surviving representations, warranties, covenants and
agreements.
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ARTICLE XII.
CASUALTY AND CONDEMNATION
Section 12.1 No Termination. If after the Effective
Time and prior to the Closing any part of the Assets shall be
destroyed by fire or other casualty or if any part of the
Assets shall be taken in condemnation or under the right of
eminent domain or if proceedings for such purposes shall be
pending or threatened, this Agreement shall remain in full
force and effect notwithstanding any such destruction, taking or
proceeding or the threat thereof.
Section 12.2 Proceeds and Awards. To the extent
insurance proceeds, condemnation awards or other payments
are not committed, used or applied by Seller prior to the
Closing Date to repair, restore or replace such damaged or
taken Assets, Seller shall at the Closing pay to Buyer all
sums paid to Seller by reason of such destruction or taking
less any reasonable costs and expenses incurred by Seller in
collecting same.
ARTICLE XIII
ASSUMPTION AND INDEMNIFICATION
Section 13.1 Indemnification By Buyer. FROM AND AFTER
THE CLOSING DATE, BUYER SHALL ASSUME AND PAY, PERFORM,
FULFILL AN DISCHARGE ALL ASSUMED LIABILITIES, AND SHALL
INDEMNIFY AND HOLD HARMLESS THE SELLER, ITS PRESENT AND FORMER
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS, AND EACH OF THE
DIRECTORS, OFFICERS, HEIRS, EXECUTORS, SUCCESSORS AND
ASSIGNS OF ANY OF THE FOREGOING (COLLECTIVELY, THE "SELLER
INDEMNIFIED PARTIES") FROM AND AGAINST ANY AND ALL (I) ASSUMED
LIABILITIES INCURRED BY OR ASSERTED AGAINST ANY OF THE
SELLER INDEMNIFIED PARTIES, INCLUDING, WITHOUT LIMITATION, ANY
ASSUMED LIABILITY OF THE SELLER INDEMNIFIED PARTY OR ANY OTHER
THEORY OF LIABILITY, WHETHER IN LAW (WHETHER COMMON OR
STATUTORY) OR EQUITY AND (II) ANY COVERED LIABILITY RESULTING
FROM ANY MISREPRESENTATION, BREACH OF WARRANTY OR NONFULFILLMENT
OF ANY COVENANT OR AGREEMENT ON THE PART OF BUYER HEREUNDER.
Section 13.2 Indemnification by Seller. FROM AND
AFTER THE CLOSING DATE, SELLER SHALL INDEMNIFY AND HOLD
HARMLESS THE BUYER, ITS PRESENT AND FORMER DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS, AND EACH OF THE HEIRS, EXECUTORS,
SUCCESSORS AND ASSIGNS OF ANY OF THE FOREGOING
(COLLECTIVELY, THE "BUYER INDEMNIFIED PARTIES") FROM AND
AGAINST ANY AND ALL (I) ASSUMED LIABILITIES INCURRED BY OR
ASSERTED AGAINST ANY OF THE BUYER INDEMNIFIED PARTIES,
INCLUDING, WITHOUT LIMITATION, ANY ASSUMED LIABILITY OF THE
BUYER INDEMNIFIED PARTY OR ANY OTHER THEORY OF LIABILITY,
WHETHER IN LAW (WHETHER COMMON OR STATUTORY) OR
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EQUITY AND (II) ANY COVERED LIABILITY RESULTING FROM ANY
MISREPRESENTATION, BREACH OF WARRANTY OR NONFULFILLMENT OF ANY
COVENANT OR AGREEMENT ON THE PART OF SELLER HEREUNDER.
Section 13.3 Third Party Claims. If a claim by a
third party is made against a Seller Indemnified Party or a
Buyer Indemnified Party (an "Indemnified Party"), and if such
party intends to seek indemnity with respect thereto under this
Article XIII, such Indemnified Party shall promptly notify Buyer
or Seller, as the case may be (the "Indemnitor"), of such
claims. The Indemnitor shall have thirty (30) days after receipt
of such notice to undertake, conduct and control, through
counsel of its own choosing and at its own expense, the
settlement or defense thereof, and the Indemnified Party shall
cooperate with it in connection therewith; provided that the
Indemnitor shall permit the Indemnified Party to participate
in such settlement or defense through counsel chosen by
such Indemnified Party; however, the fees and expenses of such
counsel shall be borne by such Indemnified Party. So long as
the Indemnitor, at Indemnitor's cost and expense, (1) has
undertaken the defense of, and assumed full responsibility for
all Covered Liabilities with respect to, such claim, (2)
is reasonably contesting such claim in good faith, by
appropriate proceedings, and (3) has taken such action
(including the posting of a bond, deposit or other security) as
may be necessary to prevent any action to foreclose a
lien against or attachment of the property of the Indemnified
Party for payment of such claim, the Indemnified Party shall
not pay or settle any such claim. Notwithstanding compliance by
the Indemnitor with the preceding sentence, the Indemnified
party shall have the right to pay or settle any such claim,
provided that in such event it shall waive any right to
indemnity therefor by the Indemnitor for such claim. If, within
thirty (30) days after the receipt of the Indemnified Party's
notice of a claim of indemnity hereunder, the Indemnitor
does not notify the Indemnified Party that it elects, at
Indemnitor's cost and expense, to undertake the defense thereof
and assume full responsibility for all Covered Liabilities
with respect thereto, or gives such notice and thereafter fails
to contest such claim in good faith or to prevent action to
foreclose a lien against or attachment of the Indemnified
Party's property as contemplated above, the Indemnified
Party shall have the right to contest, settle or compromise
the claim but shall not thereby waive any right to indemnity
therefor pursuant to this Agreement.
ARTICLE XIV.
TERMINATION; REMEDIES; LIMITATIONS
Section 14.1 Termination.
(a) Termination of Agreement. This Agreement and
the transactions contemplated hereby may be terminated at any
time prior to the Closing:
(1) By the mutual consent of Seller and
Buyer; or
(2) If the Closing has not occurred by the
close of business on the Closing Date, then (i) by
Seller if any condition specified in Section 9.1 has
not been satisfied on or before such close of business,
and shall not theretofore have been waived by Seller, or
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(ii) Buyer if any condition specified in Section
9.2 has not been satisfied on or before such close
of business, and shall not theretofore have been
waived by Buyer; provided, in each case, that the
failure to consummate the transactions contemplated hereby on or
before such date did not result from the failure by
the party or parties seeking termination of this
Agreement to fulfill any undertaking or commitment
provided for herein on the part of such party or parties
that is required to be fulfilled on or prior to Closing.
(b) Effect of Termination. In the event of
termination of this Agreement by Seller, on the one hand, or
Buyer, on the other hand, pursuant to Section 14.1, written
notice thereof shall forthwith be given by terminating party
or parties to the other party or parties hereto, Seller shall
return to Buyer the Deposit, and this Agreement shall
thereupon terminate; provided, however, that following such
termination Buyer will continue to be bound by its obligations
set forth in Article V. If this Agreement is terminated as
provided herein all filings, applications and other submissions
made to any Governmental Authority shall, to the extent
practicable, be withdrawn from the Governmental Authority to
which they were made and any notices or offers made pursuant
to Section 7.1 shall become void.
Section 14.2 Remedies.
(a) Seller's Remedies. Notwithstanding anything herein
provided to the contrary, upon the failure by Buyer to fulfill
any undertaking or commitment provided for herein on the
part of Buyer that is required to be fulfilled on or prior to
the Closing Date, Seller, at its sole option, may (i) enforce
specific performance of this Agreement or (ii) terminate this
Agreement and retain the Deposit as liquidated damages, as
Seller's sole and exclusive remedies for such default, all
other remedies being expressly waived by Seller. Seller and
Buyer agree upon the Deposit amount as liquidated damages due
to the difficulty and inconvenience of measuring actual
damages and the uncertainty thereof, and Seller and Buyer
agree that the Deposit amount is a reasonable estimate of
Seller's loss in the event of any such default by Buyer.
(b) Buyer's Remedies. Notwithstanding anything herein
provided to the contrary, upon the failure by Seller to fulfill
any undertaking or commitment provided for herein on the part
of Seller that is required to be fulfilled on or prior to the
Closing Date, Buyer, at its sole option, may (i) enforce
specific performance of this Agreement or (ii) terminate this
Agreement and retain the Deposit as liquidated damages, as
Buyer's sole and exclusive remedies for such default, all other
remedies being expressly waived by Buyer.
Section 14.3 Limitations.
(a) Disclaimer of Warranties. NOTWITHSTANDING ANYTHING
CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS
AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO
THAT SELLER IS NOT MAKING ANY REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE,
BEYOND THOSE REPRESENTATIONS OR WARRANTIES EXPRESSLY GIVEN IN
THIS AGREEMENT, AND IT IS
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UNDERSTOOD THAT BUYER TAKES THE ASSETS AS IS AND WHERE IS AND
WITH ALL FAULTS. WITHOUT LIMITING THE GENERALITY OF THE
IMMEDIATELY PRECEDING SENTENCE, SELLER HEREBY (I) EXPRESSLY
DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE,
RELATING TO (A) THE CONDITION OF THE ASSETS (INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR
OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS) OR (B) ANY
INFRINGEMENT BY SELLER OR ANY OF ITS AFFILIATES OF ANY PATENT OR
PROPRIETARY RIGHT OF ANY THIRD PARTY; AND (II) NEGATES ANY
RIGHTS OF BUYER UNDER STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION AND ANY CLAIMS BY BUYER FOR DAMAGES BECAUSE OF
DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING THE INTENTION OF
SELLER AND BUYER THAT THE ASSETS ARE TO BE ACCEPTED BY BUYER IN
THEIR PRESENT CONDITION AND STATE OF REPAIR.
(b) Texas Deceptive trade Practices Act Waiver.
BUYER (A) REPRESENTS AND WARRANTS TO SELLER THAT IT (i) IS
ACQUIRING THE ASSETS FOR COMMERCIAL OR BUSINESS USE, (ii) IS
REPRESENTED BY LEGAL COUNSEL, (iii) ACKNOWLEDGES THE
CONSIDERATION PAID OR TO BE PAID FOR THE ASSETS WILL EXCEED
$500,000, AND (iv) HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL
AND BUSINESS MATTERS SUCH THAT ENABLE IT TO EVALUATE THE
MERITS AND RISKS OF THE TRANSACTION CONTEMPLATED BY THIS
AGREEMENT AND IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION WITH RESPECT TO THE SELLER; AND (B) HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHTS OR
REMEDIES IT MAY HAVE UNDER THE DECEPTIVE TRADE PRACTICES
CONSUMER PROTECTION ACT OF THE STATE OF TEXAS, TEX. BUS. &
COM. CODE ss. 17.41 ET SEQ. TO THE MAXIMUM EXTENT IT CAN DO SO
UNDER APPLICABLE LAW, IF SUCH ACT WOULD FOR ANY REASON BE
DEEMED APPLICABLE TO THE TRANSACTIONS CONTEMPLATED HEREBY.
WAIVER OF CONSUMER RIGHTS
BUYER WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET
SEQ., BUSINESS & COMMERCE CODE, A LAW THAT GIVES
CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION
WITH AN ATTORNEY OF BUYER'S OWN SELECTION, BUYER
VOLUNTARILY CONSENTS TO THIS WAIVER.
(c) Damages. NOTWITHSTANDING ANYTHING CONTAINED TO THE
CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, SELLER
AND BUYER AGREE THAT, EXCEPT FOR LIQUIDATED DAMAGES
SPECIFICALLY PROVIDED FOR IN SECTION 14.2, THE RECOVERY BY
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EITHER PARTY HERETO OF ANY DAMAGES SUFFERED OR INCURRED BY IT
AS A RESULT OF ANY BREACH BY THE OTHER PARTY OF ANY OF
ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS UNDER THIS
AGREEMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES SUFFERED OR
INCURRED BY THE NON- BREACHING PARTY AS A RESULT OF THE
BREACH BY THE BREACHING PARTY OF ITS REPRESENTATIONS,
WARRANTIES OR OBLIGATIONS HEREUNDER AND IN NO EVENT SHALL THE
BREACHING PARTY BE LIABLE TO THE NON-BREACHING PARTY FOR ANY
INDIRECT, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES SUFFERED
OR INCURRED BY THE NON- BREACHING PARTY AS A RESULT OF THE
BREACH BY THE BREACHING PARTY OF ANY OF ITS REPRESENTATIONS,
WARRANTIES OR OBLIGATIONS HEREUNDER.
ARTICLE XV.
MISCELLANEOUS
Section 15.1 Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by
each of the parties and delivered to the other party.
Section 15.2 Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS WITHOUT REFERENCE TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
Section 15.3 Entire Agreement. This Agreement and
the Schedules and Exhibits hereto contain the entire agreement
between the parties with respect to the subject matter hereof
and there are no agreements, understandings,
representations or warranties between the parties other than
those set forth or referred to herein. The headings herein are
for convenience only and shall have no significance in the
interpretation hereof.
Section 15.4 Expenses Buyer shall be responsible
for (i) any sales Taxes which may become due and owing by
reason of the sale of the Assets hereunder, (ii) all
transfer, stamp, documentary and similar Taxes imposed on the
parties hereto with respect to the property transfer
contemplated pursuant to this Agreement and (iii) all
recording fees relating to the filing of instruments
transferring title to Buyer from Seller. Seller shall be
responsible for (i) all recording and other fees relating to
title curative documents and (ii) all income and other Taxes
incurred by or imposed on Seller with respect to the
transactions contemplated hereby. All other costs and expenses
incurred by each party hereto in connection with all things
required to be done by it hereunder, including attorney's
fees, accountant fees and the expense of title examination,
shall be borne by the party incurring same.
24
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Section 15.5 Notices. All notices hereunder shall be
sufficiently given for all purposes hereunder if in writing
and delivered personally, sent by documented overnight
delivery service or, to the extent receipt is confirmed, by
United States Mail, telecopy, telefax or other electronic
transmission service to the appropriate address or number as set
forth below. Notices to Seller shall be addressed as follows:
Hardy Oil & Gas USA Inc. 1600
Smith Street, Suite 1400 Houston, Texas
77002-7346 Attention: James M. Fitzpatrick
Telecopy No.: (713) 951-7329
or at such other address and to the attention of such other
Person as Seller may designate by written notice to Buyer.
Notices to Buyer shall be addressed to:
Arch Petroleum, Inc. 777
Taylor Street, Suite II-A Fort Worth, Texas
76102 Attention: Larry Kalas
Telecopy No: (817) 332-9249
or at such other address and to the attention of such other
Person as Buyer may designate be written notice to Seller.
Section 15.6 Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and
assigns; provided, however, that the respective rights and
obligations of the parties hereto shall not be assignable or
delegable by any party hereto without the express written
consent of the non-assigning or nondelegating party.
Section 15.7 Amendments and Waivers. This Agreement may
not be modified or amended except by an instrument or
instruments in writing signed by the party against whom
enforcement of any such modification or amendment is sought.
Any party hereto may, only by an instrument in writing, waive
compliance by another party hereto with any term or provision
of this Agreement on the part of such other party hereto to be
performed or complied with. The waiver by any party hereto
of a breach of any term or provision of this Agreement
shall not be construed as a waiver of any subsequent breach.
Section 15.8 Schedules and Exhibits. All Schedules and
Exhibits hereto which are referred to herein are hereby made
a part hereof and incorporated herein by such reference.
Section 15.9 Purchase Price Allocation for Tax
Purposes. Seller and Buyer agree that the Purchase Price shall
be allocated to the various Assets for federal and state income
tax purposes only in the manner set forth in Schedule
25
<PAGE>
15.9. The parties agree not to take a federal or state
income tax reporting position inconsistent with the
allocations set forth on Schedule 15.9. The parties further
agree that the allocations set forth on Schedule 15.9 represent
reasonable estimates of the fair market values of the Assets
described herein.
Section 15.10 Ad Valorem Tax Proration. Ad valorem
taxes related to the Assets will be prorated as of the
Effective Time. For ad valorem taxes for a period which the
Effective Time splits which have been paid by Seller, Buyer
shall reimburse Seller for the portion thereof equal to the
percentage of such period represented by the portion of such
period beginning at the Effective Time. For ad valorem taxes
for a period which the Effective Time splits which have not
been paid by Seller, Buyer shall pay such taxes and Seller
shall reimburse Buyer for a percentage of such taxes equal
to the portion of such period which ends on the day immediately
preceding the Effective Time.
Section 15.11 Agreement for the Parties' Benefit
Only. Except as specified in Article XIII, which is also
intended to benefit and to be enforceable by any of the
Indemnified Parties, this Agreement is not intended to confer
upon any Person not a party hereto any rights or remedies
hereunder, and no Person, other than the parties hereto or the
Indemnified Parties, is entitled to rely on any representation,
warranty, covenant or agreement contained herein. In each case,
such third party beneficiary may only bring suit against
the defaulting party or parties.
Section 15.12 Attorneys' Fees. The prevailing
party in any legal proceeding brought under or to enforce
this Agreement shall be additionally entitled to recover
court costs and reasonable attorneys' fees from the
nonprevailing party.
Section 15.13 Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated
hereby is not affected in any adverse manner to any party. Upon
such determination that any term or other provision is invalid,
illegal or incapable or being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent
possible.
Section 15.14 No Recordation. Without limiting any
party's right to file suit to enforce its rights under this
Agreement, Buyer and Seller expressly covenant and agree not to
record or place of record this Agreement or any copy or
memorandum hereof.
Section 15.15 Time of Essence. Time is of the
essence in this Agreement.
IN WITNESS WHEREOF, this Agreement has been signed by
or on behalf of each of the parties as of the day first above
written.
26
<PAGE>
SELLER:
HARDY OIL & GAS USA INC.
By:
___________________________________
James M. Fitzpatrick,
Vice President - Land & Legal
BUYER:
ARCH PETROLEUM, INC.
By:
____________________________________
Larry Kalas
President
27
<PAGE>
APPENDIX A
TO ASSET PURCHASE
AGREEMENT
DEFINITIONS
"Action" shall mean any action, claim, suit,
arbitration, inquiry, proceeding, investigation, condemnation
or audit by or before any court or other Governmental Authority.
"Adjustment Period" shall be as defined in Section
3.3(a).
"Adjusted Purchase Price" shall be as defined in
Section 3.1.
"Adjustment Statement" shall be as defined in Section
3.3(a).
"Arbitration Procedures" shall mean the arbitration
procedures set forth in Exhibit A-1.
"Assets" shall mean the following described assets
and properties (except to the extent constituting Excluded
Assets):
(a) the Subject Interests;
(b) the Lands;
(c) the Incidental Rights;
(d) the Claims;
(e) the Royalty Accounts; and
(f) all (i) oil, gas and other hydrocarbons
produced from or attributable to the Subject
Interests with respect to all periods
subsequent to the Effective Time and (ii) proceeds
from or of such oil, gas and other hydrocarbons.
"Assumed Liabilities" shall mean (i) all Covered
Liabilities of Seller with respect to the Royalty Accounts
and the Claims, and (ii) all Covered Liabilities to the
extent arising out of or attributable to the ownership, use,
construction, maintenance or operation of the Assets subsequent
to the Effective Time.
"Buyer Indemnified Parties" shall be as defined in
Section 13.2.
"Claims" shall mean all right, title and interest
of Seller to any claims to the extent attributable to ownership,
use, construction, maintenance or operation of the Assets
subsequent to the Effective Time, including, without
limitation, past, present or future claims, whether or not
previously asserted by Seller.
Page - 1 - of Appendix A
<PAGE>
"Closing" shall be the consummation of the transaction
contemplated by Article X.
"Closing Date" shall mean (a) April 30, 1996, or (b)
such other date as may be mutually agreed to by Seller and Buyer.
"Conveyance" shall be as defined in Section 8.3.
"Covered Liabilities" shall mean any and all
debts, losses, liabilities, duties, claims (including, without
limitation, those arising out of any demand, assessment,
settlement, judgment or compromise relating to any actual or
threatened Action), Taxes, costs and expenses (including,
without limitation, any attorneys' fees and any and all
expenses whatsoever incurred in investigating, preparing or
defending any Action), matured or unmatured, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated,
known or unknown, including, without limitation, any of the
foregoing arising under, out of or in connection with any
Action, any order or consent decree of any Governmental
Authority, any award of any arbitrator, or any Law,
contract, commitment or undertaking.
"Defensible Title" shall mean, respectively as to the
Subject Interest or Subject Interests related to a particular
Property Subdivision, title to such Property Subdivision and
the Subject Interest or Subject Interests related to such
Property Subdivision that: (i) entitles Seller to receive not
less than the applicable Net Revenue Interest or Net Revenue
Interests specified for such Property Subdivision in the
Property Schedule; (ii) obligates Seller to bear the costs and
expenses attributable to the maintenance, development, and
operation of such Property Subdivision in an amount not
greater than the applicable Working Interest or Working
Interests specified for such Property Subdivision in the
Property Schedule; and (iii), except for Permitted Encumbrances,
is free and clear of all liens and encumbrances.
"Deferred Adjustment Claim" shall be defined in Section
6.6.
"Deferred Matters Date" shall be as defined in Section
6.6.
"Deposit" shall be as defined in Section 3.2.
"Disputed Issues" shall be as defined in the
Arbitration Procedures.
"Effective Time" shall mean 7:00 a.m., Central
Daylight Time, on January 1, 1996.
"Excluded Assets" shall mean the following:
(a) copies of all Records;
(b) except to the extent constituting the
Royalty Accounts, all deposits, cash, checks, funds
and accounts receivable attributable to Seller's
interest in the Assets with respect to any period of time
prior to the Effective Time;
Page - 2 - of Appendix A
<PAGE>
(c) all (i) oil, gas and other hydrocarbons
produced from or attributable to the Subject Interests
with respect to all periods prior to the Effective
Time, (ii) oil, gas and other hydrocarbons
attributable to the Subject Interests which, at the Effective
Time, are in storage, within processing plants, in
pipelines or otherwise held in inventory, and (iii)
proceeds from or of such oil, gas and other
hydrocarbons;
(d) such assets as Seller elects to exclude
from the Assets pursuant to the terms hereof;
(e) all receivables and cash proceeds which
were expressly taken into account and for which credit
was given in the determination of Net Cash Flow
pursuant to Section 3.3, as adjusted pursuant to
Section 3.4;
(f) claims of Seller for refund of or loss
carry forwards with respect to (i) Taxes attributable
to any period prior to the Effective time or (ii) any
Taxes attributable to the Excluded Assets;
(g) all corporate, financial, tax and legal
records of Seller; and
(h) all rights, interests, assets and
properties described in Schedule A-1.
"Excluded Liabilities" shall mean, except to the extent
constituting an Assumed Liability, any Covered Liabilities
to the extent arising out of or attributable to the ownership,
use, construction, maintenance or operation of the Assets by
Seller prior to the Effective Time.
"Final Adjustment Statement" shall be as defined in
Section 3.4.
"Governmental Authority" shall mean (i) the United
States of America, (ii) any state, county, municipality or
other governmental subdivision within the United States of
America, and (iii) any court or any governmental
department, commission, board, bureau, agency or other
instrumentality of the United States of America or of any
state, county, municipality or other governmental
subdivision within the United States of America.
"Hydrocarbon Interests" shall mean (a) leases
affecting, relating to or covering any oil, gas and other
hydrocarbons and the leasehold interests and estates in the
nature of working or operating interests under such leases,
as well as overriding royalties, net profits interests,
production payments, carried interests, rights of recoupment
and other interests in, under or relating to such leases;
(b) fee interests in oil, gas or other hydrocarbons; (c)
royalty interests in oil, gas or other hydrocarbons; (d) any
other interest in oil, gas or other hydrocarbons in place,
(e) any economic or contractual rights, options or interests
in and to any of the foregoing, including, without limitation,
any farmout or farmin agreement or production payment affecting
any interest or estate in oil, gas or other hydrocarbons; and
(f) any and all rights and interests attributable or
allocable thereto by virtue of any pooling, unitization,
communitization, production sharing or similar agreement, order
or declaration.
Page - 3 - of Appendix A
<PAGE>
"Incidental Rights" shall mean all right, title and
interest of Seller in and to or derived from the following
insofar as the same are attributable to the Subject Interests:
(a) all rights with respect to the use and occupancy of the
surface of and the subsurface depths under the Lands; (b) all
rights with respect to any pooled, communitized or unitized
acreage by virtue of any Subject Interest being a part thereof;
(c) all agreements and contracts, easements, rights-of-way,
servitudes and other estates; and (d) all real and personal
property located upon the Lands and used in connection with
the exploration, development or operation of the Subject
Interests; and (e) the Records.
"Indemnified Party" shall be as defined in Section 13.3.
"Indemnitor" shall be as defined in Section 13.3.
"Initial Adjustment Amount" shall be as defined in
Section 3.3(a).
"Knowledge" shall mean the actual knowledge of any
fact, circumstance or condition by the officers (if the party
involved is a corporation), partners (if the party involved is
a partnership) or employees at a supervisory or higher level of
the party involved.
"Lands" shall mean, except to the extent constituting
Excluded Assets, all right, title, and interest of Seller
in and to the lands covered by or subject to the Subject
Interests.
"Law" shall mean any applicable statute, law,
ordinance, regulation, rule, ruling, order, restriction,
requirement, writ, injunction, decree or other official act of
or by any Governmental Authority.
"Net Cash Flow" shall be as defined in Section 3.3(c).
"Net Revenue Interest" shall mean an interest
(expressed as a percentage or decimal fraction) in and to
all oil and gas produced and saved from or attributable to a
Property Subdivision.
"Permitted Encumbrances" shall mean any of the
following matters:
(a) all agreements, instruments,
documents, liens, encumbrances, and other matters
which are described in Schedule A-2;
(b) any (i) undetermined or inchoate
liens or charges constituting or securing the payment
of expenses which were incurred incidental to
maintenance, development, production or operation of the
Assets or for the purpose of developing, producing or
processing oil, gas or other hydrocarbons therefrom or
therein and (ii) materialman's, mechanics', repairman's,
employees', contractors', operators' or other similar
liens, security interests or charges for liquidated amounts
arising in the ordinary course of business incidental to
construction, maintenance, development, production or
operation
Page - 4 - of Appendix A
<PAGE>
of the Assets or the production or processing of
oil, gas or other hydrocarbons therefrom, that are
not delinquent and that will be paid in the ordinary
course of business, or if delinquent, that are being
contested in good faith;
(c) any liens for Taxes not yet delinquent
or, if delinquent, that are being contested in good
faith in the ordinary course of business;
(d) any liens or security interests created by
Law or reserved in oil, gas and/or mineral leases for
royalty, bonus or rental or for compliance with the
terms of the Subject Interests;
(e) all Preference Rights and Transfer
Requirements;
(f) any easements, rights-of-way,
servitudes, permits, licenses, surface leases and
other rights with respect to surface operations to
the extent such matters do not interfere in any material
respect with Buyer's operation of the portion of the Assets
burdened thereby;
(g) any prohibitions or restrictions
similar to those contained in Article VIII.D. of the
A.A.P.L. Form 610-1982 Model Form Operating Agreement
and any contribution obligations under provisions
similar to Article VII.B. of said Model Form Operating Agreement;
(h) all agreements and obligations relating to
imbalances with respect to the production,
transportation or processing of gas or calls or purchase
options on oil or gas production;
(i) all royalties, overriding
royalties, net profits interests, carried interests,
reversionary interests and other burdens to the extent
that the net cumulative effect of such burdens, as to a
particular Property Subdivision, does not operate to reduce
the Net Revenue Interest of Seller in such Property
Subdivision as specified in the Property Schedule;
(j) all obligations by virtue of a prepayment,
advance payment or similar arrangement under any
contract for the sale of gas production, including
by virtue of "take-or-pay" or similar provisions, to
deliver gas produced from or attributable to the Subject
Interests after the Effective Time without then or
thereafter being entitled to receive full payment
therefor;
(k) all liens, charges, encumbrances,
contracts, agreements, instruments, obligations,
defects, irregularities and other matters affecting
any Asset which individually or in the aggregate are not such
as to interfere materially with the operation, value or
use of such Asset;
Page - 5 - of Appendix A
<PAGE>
(l) any encumbrance, title defect or other
matter (whether or not constituting a Title Defect)
waived or deemed waived by Buyer pursuant to Article
VI;
(m) rights reserved to or vested in any
Governmental Authority to control or regulate any of the
wells or units included in the Assets and all
applicable laws, rules, regulations and orders of such
authorities so long as the same do not decrease Seller's
Net Revenue Interest below the Net Revenue Interest
shown in the Property Schedule;
(n) the terms and conditions of all contracts
and agreements relating to the Subject Interests,
including, without limitation, exploration
agreements, gas sales contracts, processing agreements,
farmins, farmouts, operating agreements, and right-of-way
agreements, to the extent such terms and conditions do
not decrease Seller's Net Revenue Interest below the
Net Revenue Interest shown in the Property Schedule; and
(o) conventional rights of reassignment
requiring notice to the holders of the rights prior
to surrendering or releasing a leasehold interest.
"Person" shall mean any Governmental Authority or any
individual, firm, partnership, corporation, joint venture,
trust, unincorporated organization or other entity or
organization.
"Preference Property" shall be as defined in Section
7.2.
"Preference Right" shall mean any right or agreement
that enables or may enable any Person to purchase or acquire any
Asset or any interest therein or portion thereof as result of
or in connection with (i) the sale, assignment, encumbrance or
other transfer of any Asset or any interest therein or portion
thereof or (ii) the execution or delivery of this Agreement or
the consummation or performance of the terms and conditions
contemplated by this Agreement.
"Property Schedule" means Exhibit A-2 attached to
and made a part of this Agreement.
"Property Subdivision" means each well location, well,
well completion, multiple well completion, unit, lease, or
other subdivision of property described or referenced in the
Property Schedule.
"Purchase Price" shall be as defined in Section 3.1.
"Records" shall mean, except to the extent
constituting Excluded Assets, and except to the extent the
transfer thereof may not be made without violating legal
constraints or legal obligations or waiving any attorney/client
privilege, any and all lease files, land files, division order
files, production marketing files, well files, production
records, seismic, geological, geophysical and engineering
data, litigation files, and all other files, maps and data (in
whatever form) arising out of or relating to the Subject
Interests or the ownership, use, maintenance or operation of the
Assets.
Page - 6 - of Appendix A
<PAGE>
"Retained Assets" shall be defined in Section 7.3.
"Royalty Accounts" shall mean those separately
indentifiable accounts which are expressly identified and set
forth in Schedule A-4 in which Seller or any third party
operator is holding as of the Effective Time monies which (i)
are owing to third party owners of royalty, overriding royalty,
working or other interests in respect of past production of
oil, gas or other hydrocarbons attributable to the Assets or
(ii) may be subject to refund by royalty owners or other third
parties to purchasers of past production of oil, gas or
other hydrocarbons attributable to the Assets.
"Seller Indemnified Parties" shall be as defined in
Section 13.1.
"Seller Title Credit" shall be as defined in Section
6.4.
"Subject Interests" shall mean and include (i) the
undivided interests specified in the Property Schedule in, to
or under the Hydrocabon Interests specifically described in
the Property Schedule, and (ii) all other interests of Seller
in, to or under any Hydrocarbon Interests in, to or under or
derived from any lands covered by or subject to any of the
Hydrocarbon Interests described in the Property Schedule,
even though such interests of the Seller may be
incorrectly described or referred to in, or a description
thereof may be omitted from, the Property Schedule.
"Taxes" shall mean all federal, state and local
taxes or similar assessments or fees, together with all
interest, fines, penalties and additions thereto.
"Title Defect" shall be as defined in Section 6.3.
"Title Defect Amount" shall be as defined in Section
6.2(d).
"Title Defect Deductible" shall be as defined in
Section 6.2(d).
"Title Defect Property" shall be as defined in Section
6.2(c).
"Title Examination Period" shall be as defined in
Section 6.2(a).
"Transfer Requirement" shall mean any consent,
approval, authorization or permit of, or filing with or
notification to, any Person which must be obtained, made or
complied with for or in connection with any sale, assignment,
transfer or encumbrance of any Asset or any interest therein
in order (a) for such sale, assignment, transfer or encumbrance
to be effective, (b) to prevent any termination, cancellation,
default, acceleration or change in terms (or any right thereof
from arising) under any terms, conditions or provisions of
any Asset (or of any agreement, instrument or obligation
relating to or burdening any Asset) as a result of such sale,
assignment, transfer or encumbrance, or (c) to prevent the
creation or imposition of any lien, charge, penalty,
restriction, security interest or encumbrance on or with
respect to any Asset (or any right thereof from arising) as a
result of such sale, assignment, transfer or encumbrance.
Page - 7 - of Appendix A
<PAGE>
"Unscheduled (Negative) Imbalance" shall mean,
respectively as to each Property Subdivision to which the
Subject Interests are attributable and without duplication, the
sum (expressed in Mcfs) of (i) the aggregate make-up, prepaid
or other volumes of oil, gas or other hydrocarbons, not
described on Schedule A-3, that Seller was obligated as of
the Effective time, on account of prepayment, advance
payment, take-or-pay, gas balancing or similar obligations, to
deliver from the Subject Interests attributable to such
Property Subdivision after the Effective time without then or
thereafter begin entitled to receive full payment therefor and
(ii), to the extent such obligations burden the Assets or Buyer
could incur any liability therefor as a result of the
transaction contemplated hereby and the same are not described
on Schedule A-3 or covered by clause (i) above, the aggregate
pipeline or processing plant imbalances or overdeliveries for
which Seller is obligated to pay or deliver oil, gas or other
hydrocarbons or cash to any pipeline, gatherer, transporter,
processor, co-owner or purchaser in connection with any
other oil, gas or other hydrocarbons attributable to the
Subject Interests.
"Unscheduled (Negative) Imbalance" shall mean,
respectively as to each Property Subdivision to which the
Subject Interests are attributable and without duplication, the
sum (expressed in Mcfs) of (i) the aggregate make-up, prepaid
or other volumes of oil, gas or other hydrocarbons, not
described on Schedule A-3, that Seller was obligated as of
the Effective Time, on account of prepayment, advance
payment, take-or-pay, gas balancing or similar obligations, to
deliver from the Subject Interests attributable to such
Property Subdivision after the Effective Time without then or
thereafter being entitled to receive full payment therefor and
(ii), to the extent such obligations burden the Assets or Buyer
could incur any liability therefor as a result of the
transaction contemplated hereby and the same are not described
on Schedule A-3 or covered by clause (i) above, the aggregate
pipeline or processing plant imbalances or overdeliveries for
which Seller is obligated to pay or deliver oil, gas or other
hydrocarbonds or cash to any pipeline, gatherer,
transporter, processor, co-owner or purchaser in connection
with any other oil, gas or other hydrocarbons
attributable to the Subject Interests.
"Unschedule (Positive) Imbalances" shall mean,
respectively as to each Property Subdivision to which the
Subject Interests are attributable and without duplication, the
sum (expressed in Mcfs) of (i) the aggregate make-up, prepaid
or other volumes of oil, gas or other hydrocarbons, not
described on Schedule A-3, that Seller was entitled as of
the Effective Time, on account of prepayment, advance
payment, take-or-pay, gas balancing or similar obligations, to
receive from the Subject Interests attributable to such
Property Subdivision after the Effective Time without then and
thereafter being obligated to make any payment therefor and
(ii) to the extent such entitlements run with the Assets and
the same are not described on Schedule A-3 or covered by
clause (i) above, the aggregate pipeline or processing plant
imbalances or underdeliveries for which Seller is entitled to
receive oil, gas or other hydrocarbons or cash from any
pipeline, gatherer, transporter, processor, co-owner or
purchaser in connection with any oil, gas or other
hydrocarbons attributable to the Subject Interests.
"Working Interest" shall mean the percentage of
costs and expenses attributable to the maintenance,
development and operation of a Property Settlement.
Page - 8 - of Appendix A
<PAGE>
EXHIBIT 8.3
GENERAL CONVEYANCE
THIS GENERAL CONVEYANCE (this "Conveyance") executed by
HARDY OIL & GAS USA INC., a Delaware corporation, whose
address is 1600 Smith, Suite 1400, Houston, Texas 77002-7346
(hereinafter called "Assignor"), to ARCH PETROLEUM, INC.,
whose address is 777 Taylor Street, Suite II-A, Fort Worth,
Texas 76102 (hereinafter called "Assignee"), dated effective at
7:00 a.m., Central Daylight Time, on January 1, 1996 (said hour
and day hereinafter called the "Effective Time").
Capitalized terms used but not otherwise defined herein shall
have the meanings set forth in that certain Asset Purchase
Agreement dated April 18, 1996 (the "Agreement"), by and
between Assignor, as "Seller", and Assignee, as "Buyer".
ARTICLE I
Conveyance of Assets
Assignor, for Ten and No/100 Dollars ($10.00) and
other good and valuable consideration in hand paid by
Assignee, the receipt and sufficiency of which consideration
are hereby acknowledged and confessed, by these presents does
hereby GRANT, BARGAIN, SELLER, CONVEY, ASSIGN, TRANSFER,
SET OVER AND DELIVER unto Assignee, effective as of the
Effective time, the following described assets and
properties (except to the extent constituting "Excluded
Assets" (hereinafter defined)) (collectively, the "Assets"):
(i) (a) The undivided interests specified in
Exhibit A hereto (the "Property Schedule") in, to or
under the Hydrocarbon Interests (hereinafter defined)
specifically described in the Property Schedule, and
(b) all other interests of Assignor in, to or under any
Hydrocarbon Interests in, to or under or derived
from any lands covered by or subject to any of the
Hydrocarbon Interests described in the Property
Schedule, even though such interests of the Assignor may be
incorrectly described or referred to in, or a
description thereof may be omitted from, the Property
Schedule (collectively, the "Subject Interests");
(ii) All right, title, and interest of
Assignor in and to the lands covered by or subject to
the Subject Interests (the "Lands");
(iii) All right, title and interest of
Assignor in and to or derived from the following
insofar as the same are attributable to the Subject
Interests: (a) all rights with respect to the use and occupancy
of the surface of and the subsurface depths under the
Lands; (b) all rights with respect to any pooled,
communitized or unitized acreage by virtue of any
Subject Interest being a part thereof; (c) all agreements
and contracts, easements, rights-of-way, servitudes and other
estates; (d) all real and personal property
Page - 1 - of Exhibit 8.3
<PAGE>
located upon the Lands and used in connection with
the exploration, development or operation of the
Subject Interests; and (e) the Records;
(iv) All right, title and interest of
Assignor to any claims to the extent attributable to
ownership, use, construction, maintenance or operation
of the Assets subsequent to the Effective Time, including,
without limitation, past, present or future claims,
whether or not previously asserted by Assignor;
(v) Those separate identifiable accounts
(the "Royalty Accounts") which are expressly
identified and set forth in Schedule A-1 hereto in which
Assignor or any third party operator is holding as of
the Effective Time monies which (a) are owing to third party
owners of royalty, overriding royalty, working or
other interests in respect of past production of oil,
gas or other hydrocarbons attributable to the Assets
or (b) may be subject to refund by royalty owners or other third
parties to purchasers of past production of oil,
gas or other hydrocarbons attributable to the Assets;
and
(vi) All (a) oil, gas and other hydrocarbons
produced from or attributable to the Subject
Interests with respect to all periods subsequent to
the Effective time and (b) proceeds from or of such oil,
gas and other hydrocarbons.
As used in this Conveyance, the term "Hydrocarbon
Interests" shall mean (a) leases affecting, relating
to or covering any oil, gas and other hydrocarbons and
the leasehold interests and estates in the nature of
working or operating interests under such leases, as well as
overriding royalties, net profits interests,
production payments, carried interests, rights of
recoupment and other interests in, under or
relating to such leases, (b) fee interests in oil, gas or
other hydrocarbons, (c) royalty interests in oil, gas
or other hydrocarbons, (d) any other interest in oil,
gas or other hydrocarbons in place, (e) any economic or
contractual rights, options or interests in and to any
of the foregoing, including, without limitation, any farmout or
farmin agreement or production payment affecting any
interest or estate in oil, gas or other hydrocarbons,
and (f) any and all rights and interests
attributable or allocable thereto by virtue of any pooling,
unitization, communitzation, production sharing or similar
agreement, order or declaration.
There is excluded from this Conveyance and the Assets
and reserved unto Assignor the following described interests,
rights and properties (collectively, the "Excluded Assets"):
(i) Copies of all Records;
(ii) Except to the extent constituting the
Royalty Accounts, all deposits, cash, checks, funds
and accounts receivable attributable to Assignor's
interest in the Assets with respect to any period of time
prior to the Effective Time;
(iii) All (a) oil, gas and other hydrocarbons
produced from or attributable to the Subject Interests
with respect to all periods prior to the Effective Time,
(b) oil, gas and other hydrocarbons attributable
Page - 2 - of Exhibit 8.3
<PAGE>
to the Subject Interests which, at the Effective
Time, are in storage and are above pipeline
connections within processing plants, in pipelines
or otherwise held in inventory, and (c) proceeds from or of
such oil, gas and other hydrocarbons;
(iv) Such assets as Assignor elects to exclude
from the Assets pursuant to the terms of the Agreement;
(v) All receivables and cash proceeds which
were expressly taken into account and for which credit
was given in the determination of Net Cash Flow
pursuant to Section 3.3 of the Agreement, as adjusted
pursuant to Section 3.4 of the Agreement;
(vi) Claims of Assignor for refund of or loss
carry forwards with respect to (i) Taxes
attributable to any period prior to the Effective
Time or (ii) any Taxes attributable to the Excluded Assets;
(vii) All corporate, financial, tax and
legal records of Assignor; and
(viii) All rights, interests, assets and
properties described in Exhibit B hereto.
TO HAVE AND TO HOLD the Assets unto Assignee, its
successors and assigns, forever; subject, however, to the
matters set forth herein.
ARTICLE II
Limitation of Warranties; Permitted Encumbrances
Section 2.1 Limitation of Warranties.
(a) Assignor does hereby bind itself, Assignor's
successors and assigns, to warrant and forever defend all
and singular Defensible Title (hereinafter defined) to the
Subject Interests, unto Assignee, its successors and assigns,
against every person whomsoever lawfully claiming or to claim
the same or any part thereof, by, through or under Assignor,
but not otherwise, subject, however, to the Permitted
Encumbrances (hereinafter defined). As used herein, the term
"Defensible Title" shall mean, respectively, as to the Subject
Interest or Subject Interests related to a particular
Property Subdivision, title to such Property Subdivision and
the Subject Interest or Subject Interests related to such
Property Subdivision, that: (i) entitles Assignor to receive not
less than the applicable Net Revenue Interest or Net Revenue
Interests specified for such Property Subdivision in the
Property Schedule; (ii) obligates Assignor to bear the costs
and expenses relating to the maintenance, development and
operation of such Property Subdivision in an amount not
greater than the applicable Working Interest or Working
Interests specified for such Property Subdivision in the
Property Schedule unless Assignor's Net Revenue Interest
therein is proportionately increased; and (iii) except
for Permitted Encumbrances, is free and clear of liens and
encumbrances. Recourse for breach of the foregoing special
warranty of title
Page - 3 - of Exhibit 8.3
<PAGE>
shall be limited to a return of the purchase price allocated
to the Subject Interest with respect to which such warranty
has been breached in accordance with Section 6.2(b) of the
Agreement, without interest thereon.
(b) EXCEPT FOR THE SPECIAL WARRANTY OF TITLE SET
FORTH HEREIN, THE ASSETS ARE ASSIGNED TO ASSIGNEE "AS IS
AND WHERE IS" AND WITH ALL FAULTS AND WITHOUT WARRANTY OR
REPRESENTATION OF ANY KIND OR CHARACTER, EITHER EXPRESS OR
IMPLIED. ASSIGNOR FURTHER HEREBY (I) EXPRESSLY DISCLAIMS
AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE, RELATING TO
(A) THE CONDITION OF THE ASSETS (INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS) OR (B) ANY INFRINGEMENT BY
ASSIGNOR OR ANY OF ITS AFFILIATES OF ANY PATENT OR
PROPRIETARY RIGHT OF ANY THIRD PARTY; AND (II) NEGATES ANY
RIGHTS OR ASSIGNEE UNDER STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION AND ANY CLAIMS BY ASSIGNEE FOR DAMAGES BECAUSE OF
DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING THE INTENTION OF
ASSIGNOR AND ASSIGNEE THAT THE ASSETS ARE ACCEPTED BY
ASSIGNEE IN THEIR PRESENT CONDITION AND STATE OF REPAIR.
(c) To the extent transferable, Assignee shall be
and is hereby subrogated to all covenants and warranties
of title by parties (other than Assignor) heretofore given or
made to Assignor or its predecessors in title in respect to any
of the Assets.
Section 2.2 Permitted Encumbrances. The Assets
are assigned and conveyed by Assignor and accepted by Assignee
expressly subject to the following (the "Permitted
Encumbrances"):
(a) all agreements, instruments,
documents, liens, encumbrances, and other matters
which are described in Schedule A-2;
(b) any (i) undetermined or inchoate
liens or charges constituting or securing the payment
of expenses which were incurred incidental to
maintenance, development, production or operation of the
Assets or for the purpose of developing, producing or
processing oil, gas or other hydrocarbons therefrom or
therein and (ii) materialman's, mechanics', repairman's,
employees', contractors', operators' or other similar
liens, security interests or charges for liquidated amounts
arising in the ordinary course of business incidental to
construction, maintenance, development, production or
operation of the Assets or the production or processing
of oil, gas or other hydrocarbons therefrom, that are
not delinquent and that will be paid in the ordinary course of
business or, if delinquent, that are being contested in
good faith;
Page - 4 - of Exhibit 8.3
<PAGE>
(c) any liens for Taxes not yet delinquent
or, if delinquent, that are being contested in good
faith in the ordinary course of business;
(d) any liens or security interest created by
Law or reserved in oil, gas and/or mineral leases for
royalty, bonus or rental or for compliance with the
terms of the Subject Interests;
(e) all Preference Rights and Transfer
Requirements;
(f) any easements, rights-of-way,
servitudes, permits, licenses, surface leases and
other rights with respect to surface operations to
the extent such matters do not interfere in any material
respect with Assignee's operation of the portion of the Assets
burdened thereby;
(g) any prohibitions or restrictions
similar to those contained in Article VIII.D. of the
A.A.P.L. Form 610-1982 Model Form Operating Agreement
and any contribution obligations under provisions
similar to Article VII.B. of said Model Form Operating Agreement;
(h) all agreements and obligations relating to
imbalances with respect to the production,
transportation or processing of gas or calls or purchase
options on oil or gas production;
(i) all royalties, overriding
royalties, net profits interests, carried interests,
reversionary interests and other burdens to the extent
that the net cumulative effect of such burdens, as to a
particular Property Subdivision, does not operate to reduce
the Net Revenue Interest of Assignor in such Property
Subdivision as specified in the Property Schedule;
(j) all obligations by virtue of a prepayment,
advance payment or similar arrangement under any
contract for the sale of gas production, including
by virtue of "take-or-pay" or similar provisions, to
deliver gas produced from or attributable to the Subject
Interests after the Effective Time without then or
thereafter being entitled to receive full payment
therefor;
(k) all liens, charges, encumbrances,
contracts, agreements, instruments, obligations,
defects, irregularities and other matters affecting
any Asset which individually or in the aggregate are not such
as to interfere materially with the operation, value or
use of such Asset;
(l) any encumbrance, title defect or other
matter (whether or not constituting a Title Defect)
waived or deemed waived by Assignee pursuant to Article
VI of the Agreement;
Page - 5 - of Exhibit 8.3
<PAGE>
(m) rights reserved to or vested in any
Governmental Authority to control or regulate any of the
wells or units included in the Assets and all
applicable laws, rules, regulations and orders of such
authorities so long as the same do not decrease Assignor's
Net Revenue Interest below the Net Revenue Interest
shown in the Property Schedule;
(n) the terms and conditions of all contracts
and agreements relating to the Subject Interests,
including, without limitation, exploration
agreements, gas sales contracts, processing agreements,
farmins, farmouts, operating agreements, and rights-of-way
agreements, to the extent such terms and conditions do
not decrease Assignor's Net Revenue Interest below the
Net Revenue Interest shown in the Property Schedule; and
(o) conventional rights of reassignment
requiring notice to the holders of the rights prior
to surrendering or releasing a leasehold interest.
By Assignee's acceptance of this Conveyance, Assignee assumes
and agrees to keep and perform the obligations of Assignor under
the Permitted Encumbrances which accrue from and after the
Effective Time.
ARTICLE III
Miscellaneous
Section 3.1 Further Assurances. Assignor covenants
and agrees to execute and deliver to Assignee all such other
and additional instruments and other documents and will do
all such other acts and things as may be necessary to more
fully assure to Assignee or its successor or assigns all
of the respective properties, rights and interests herein
and hereby granted or intended so to be.
Section 3.2 Successors and Assigns. All of the
provisions hereof shall inure to the benefit of and be binding
upon Assignor and Assignee and their respective successors
and assigns. All references herein to either Assignor or
Assignee shall include their respective successors and assigns.
Section 3.3 Counterparts. This Assignment is being
executed in several original counterparts, all of which are
identical, except that, to facilitate recordations, there are
omitted from certain counterparts those property
descriptions in the Property Schedule which contain
descriptions of property located in recording jurisdictions
other than the jurisdiction in which the particular
counterpart is to be recorded. Each such counterpart hereof
shall be deemed to be an original instrument, but all such
counterparts shall constitute but one and the same assignment.
IN WITNESS WHEREOF, the Assignor and Assignee
have caused this Conveyance to be executed on the date of
their respective acknowledgments set forth below, to be
effective, however, as of the Effective Time.
Page - 6 - of Exhibit 8.3
<PAGE>
ASSIGNOR:
HARDY OIL & GAS USA INC.
By:
_____________________________________
James M. Fitzpatrick,
Vice President of Land and Legal
ASSIGNEE:
ARCH PETROLEUM, INC.
By:
_____________________________________
Larry Kalas, President
STATE OF TEXAS )
) COUNTY OF HARRIS )
This instrument was acknowledged before me on April
18, 1996, by James M. Fitzpatrick, Vice President of HARDY
OIL & GAS USA INC., a Delaware corporation, on behalf of
said corporation.
- -----------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
____________________
STATE OF TEXAS )
) COUNTY OF ___________ )
This instrument was acknowledged before me on April
18, 1996, by Larry Kalas, President of ARCH PETROLEUM, INC., a
Texas corporation, on behalf of said corporation.
- -----------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
____________________
Page - 7 - of Exhibit 8.3
<PAGE>
EXHIBIT "A"
Page - 8 - of Exhibit 8.3
<PAGE>
EXHIBIT 10.2(c)
AFFIDAVIT
STATE OF TEXAS )
) COUNTY OF HARRIS )
Section 1445 of the Internal Revenue Code provides
that a transferee (buyer) of a U.S. real property interest
must withhold tax if the transferor (seller) is a foreign
person, foreign corporation, foreign partnership, foreign trust
or foreign estate. To inform the transferee (buyer) that the
withholding of taxes is not required upon the disposition of a
U.S. real property interest, before me, the undersigned
authority, on this day personally appeared James M.
Fitzpatrick, Vice President of Hardy Oil & Gas USA Inc., a
Delaware corporation, well known to me to be the person whose
name is subscribed hereto, who being first duly sworn by me,
upon oath deposed and stated as follows:
1. Hardy Oil & Gas USA Inc. is not a foreign
person, foreign corporation, foreign partnership,
foreign trust or foreign estate (as those terms are
defined in the Internal Revenue Code and Income Tax
Regulations).
2. The U.S. employer's identification
number of Hardy Oil & Gas USA Inc. is 86-0460233.
3. The office address of Hardy Oil & Gas
USA Inc. is 1600 Smith, Suite 1400, Houston, Texas
77002-7346.
4. I understand that this Affidavit may be
disclosed to the Internal Revenue Service by the
transferee and that any false statement contained herein
could be punished by fine, imprisonment or both.
5. Under penalties of perjury, I declare that
I have examined this Affidavit and to the best of my
knowledge and belief, it is true, correct and complete.
- -------------------------------------
James M. Fitzpatrick
Page - 1 - of Exhibit 10.2(c)
<PAGE>
STATE OF TEXAS )
) COUNTY OF HARRIS )
Subscribed, sworn to and acknowledged before me, in my
presence, this the ___ day of __________, 1996.
- ---------------------------------------
Notary Public in and for the State of Texas
My Commission Expires: __________________
Page - 2 - of Exhibit 10.2(c)
<PAGE>
EXHIBIT A-1
ARBITRATION PROCEDURES
The Arbitration Procedures referred to in the Asset
Purchase Agreement (the "Agreement") to which this Exhibit A-1
is attached shall be as follows:
1. Capitalized terms used herein, and not otherwise herein
defined, shall have the meaning ascribed to such terms
in the Agreement.
2. (a) With respect to unresolved Deferred Adjustment
Claims, on or before the Deferred Matters Date,
Seller and Buyer shall each submit to the other the list
of what such party considers to comprise the remaining
unresolved Deferred Adjustment Claims. The two lists shall
together comprise the "Disputed Issues" relating to
Deferred Adjustment Claims which shall be resolved by
the binding arbitration provided for herein.
(b) If, pursuant to Section 3.4 of the Agreement,
either Buyer or Seller elects to submit any Final
Adjustment Statement disagreements to arbitration, such
disagreements will also constitute "Disputed Issues" to
be resolved by the binding arbitration provided for herein.
3. Seller and Buyer, each being duly authorized by
all necessary corporate, partnership or other
proceedings, if any are applicable, shall submit the
Disputed Issues to binding arbitration by a board of
arbitration to be selected by the following procedures.
Notices hereunder shall be sufficient if sent in
accordance with the terms of the Agreement. With
respect to Disputed Issues involving Deferred
Adjustment Claims, within five (5) days after the Deferred
Matters Date, Seller shall by written notice name one
arbitrator and Buyer shall by written notice name one
arbitrator. With respect to Disputed Issues involving
Final Adjustment Statement disagreements, within five
(5) days after either Buyer or Seller provides the other
party with written notice that such party desires to
submit such Final Adjustment Statement disagreements to
arbitration, Seller shall by written notice name one
arbitrator and Buyer shall by written notice name one
arbitrator. If a party fails to name an arbitrator, the
other party shall by further written notice name the
second arbitrator. The two arbitrators so appointed
shall name the third arbitrator within ten (10) days
after the selection of the second arbitrator. If they fail to
do so, either arbitrator may request the judge of the
United States District Court for the Southern
District of Texas having greatest tenure; but not
yet on retired or senior status, to appoint the third
arbitrator. If that judge fails to do so within thirty (30)
days, either party may request the judge of that
court next senior to name the third arbitrator, and if
that judge fails to do so after ten (10) days, either
party may make the request of the judge of that court next
senior, and so on, until the board of arbitration is
constituted. With respect to Disputed Issues involving
Deferred Adjustment Claims, each of the arbitrators
shall be knowledgeable about matters affecting title to
oil and gas properties in the state or other jurisdiction in
which
Page - 1 - of Exhibit A-1
<PAGE>
such properties are located, by virtue of
managerial, land property administration, legal or
judicial experience. With respect to Disputed Issues
involving Final Adjustment Statement disagreements, each of the
arbitrators shall be knowledgeable about oil and gas
related accounting matters. In addition, the third
arbitrator, in each case, shall be required to meet
the qualification requirements of the Commercial
Arbitration Rules of the American Arbitration Association
(the "AAA Rules"), whether appointed by the arbitrators
or by a judge as provided above.
4. If prior to rendering a decision an arbitrator
resigns or becomes unable to serve, the arbitrator
shall be replaced as follows. If that arbitrator was
one of the two arbitrators appointed by the parties, the
party that names him or her shall name a replacement;
provided, however, that if that replacement is not
named within five (5) days from notice of resignation
or inability to serve, the other party shall name a
replacement. If he or she was the third arbitrator, the other
two arbitrators shall name a replacement; provided,
however, that if they fail to agree on a replacement
within ten (10) days, either arbitrator may follow
the procedures specified in Paragraph 3 above and
request judicial appoint of the replacement.
5. No party subject to these Arbitration Procedures
will commence or prosecute any suit or action
against another party subject to these Arbitration
Procedures relating to the Disputed Issues, other than as
may be necessary to compel arbitration under these
Arbitration Procedures or to enforce the award of the
board of arbitration.
6. The board of arbitration may in all matters act
through a majority of its members on each matter if
unanimity is not attained. It shall not be necessary
that the same majority agree on each and every item; that
is, the parties will be bound by majority rulings on each
Disputed Issue even though the majority is not the
same as to each Disputed Issue. In fulfilling their
duties hereunder with respect to Deferred Adjustment
Claims, each of the arbitrators shall be bound by the
matters set forth in Article VI of the Agreement. The
arbitrators shall not add any interest factor
reflecting the time value of money to any title Defect
Amount.
7. No matters whatsoever, other than the Disputed
Issues, are subject to the agreement to arbitrate
embodied in these Arbitration Procedures. The board of
arbitration shall be empowered hereunder solely to resolve
the Disputed Issues. The board of arbitration shall not
have any authority to award punitive damages. The sole
forum for the arbitration shall be Harris County,
Texas and all hearings shall be conducted in Harris
County, Texas.
8. The decision of the board of arbitration shall be
rendered in writing and shall be final and binding
upon the parties as to the Disputed Issues. The
expenses of arbitration, including reasonable compensation
to the third arbitrator, shall be borne equally by the
parties. Each party shall bear the compensation and
expenses of its own counsel, witnesses and employees
and of any arbitrator it has appointed. If the
Page - 2 - of Exhibit A-1
<PAGE>
testimony of a witness is obtained by both
parties, the costs associated with obtaining such
testimony shall be borne equally between the parties.
9. Matters not specifically provided for in the
Arbitration Procedures shall be governed by the AAA
Rules.
Page - 3 - of Exhibit A-1
WellTech Eastern, Inc.
5976 Venture Way
Mt. Pleasant, MI 48858
As of March 29, 1996
Mr. Kenneth Hill
10530 Lumberjack
Riverdale, MI 48877
EMPLOYMENT AGREEMENT
(the "Agreement")
Dear Mr. Hill:
WellTech Eastern, Inc., a Delaware corporation (the
"Company") and a wholly owned subsidiary of Key Energy
Group, Inc., a Maryland corporation ("Key"), with its
principal offices at the address set forth above, and you, an
individual residing at your address set forth above, agree as
follows:
1. Employment; Term.
a. The Company agrees to employ you, and you
accept employment by the Company, as Vice
President of the Company and President and
Chief Executive Officer of the division of the Company
which you operate. Your employment will commence as
of March 29, 1996 (the "Commencement Date")
and continue until the close of business on
March 29, 1999, subject to extension as
provided in this Section 1(a), unless sooner terminated in
accordance with this Agreement (the "Initial
Employment Period"). On each March 30,
commencing with March 30, 1999, the term of
your employment will be automatically extended for
twelve (12) months unless either you or the Company
gives written notice to the other, no later
than thirty (30) days prior to the relevant
March 30, that such automatic extension shall
not occur. The Initial Employment Period, together with
any extensions, until termination in accordance
herewith is referred to herein as the
"Employment Period".
b. You will have the usual duties of a Vice
President and will be responsible, subject to
the Chairman of the Board, the President
and the Board of Directors of the Company (the
"Board"), for participating in the management and direction
of the Company's business and operations;
provided, however, that you shall not be
required to permanently relocate by the
Company to a location outside of Michigan. You will, if
elected, serve as a director of the Company and
as an officer and/or director of the Company
and its subsidiaries and perform all duties
incident to such offices and such specific
other tasks as may from time to time be assigned to you by
<PAGE>
the Chairman of the Board or the Board or by
the President of the Company. During the
Employment Period, you will devote your full
time and best efforts to the business and affairs of
the Company and its subsidiaries.
2. Salary; Bonuses; Expenses.
a. During the Employment Period, the Company will
pay a salary to you at the annual rate of One
Hundred Eighty Thousand Dollars ($180,000)
per year (the "Base Salary"), payable in
substantially equal installments in accordance with the
Company's existing payroll practices, but no
less frequently than monthly.
b. For each fiscal year of the Company
commencing after June 30, 1996, you will be
eligible to participate in an incentive plan
for key employees and other persons involved in the business
of Key and its subsidiaries (the "Incentive
Plan") providing for the payment of cash
bonuses of up to fifty percent (50%) of your
Base Salary and in the 1995 Stock Option Plan of Key
(the "1995 Stock Option Plan").
c. You will be reimbursed by the Company for
reasonable travel, lodging, meal and other
expenses incurred by you in connection with
performing your services hereunder in accordance with the
Company's policies from time to time in effect.
3. Stock Options. As performance-based incentive
compensation to you in connection with your services
hereunder, there shall be granted to you options (the
"Options") to acquire Seventy Five Thousand (75,000)
shares of the Common Stock, par value $.10 per share, of
Key (the "Common Stock") at an exercise price per share
equal to the fair market value of the Common Stock at
the date of grant, with such options to be granted
pursuant to, and subject to the terms and provisions (including
vesting provisions) of, the 1995 Stock Option Plan and
an agreement substantially in the form attached hereto
as Exhibit A.
4. Benefit Plans; Vacations. You will be entitled
during the Employment Period (and thereafter to the
extent provided in Section 5(d) below) to such fringe
benefits, including without limitation group medical and
dental, life, executive life, accident and disability
insurance, retirement plans and supplemental and excess
retirement benefits and a Company-leased automobile and
payment of expenses associated therewith, as the Company
may provide from time to time for its senior management;
not less than twenty (20) vacation days.
5. Termination.
a. Termination by Company. The Company shall
have the right to terminate your employment
under this Agreement for Cause at any time
without obligation to make any further payments to
you hereunder. The Company shall have the right to
terminate your employment for any reason other
than for Cause, subject only to the Company's
obligations under Section 5(d) below. As used
in this Agreement, the term "Cause" shall mean the
willful and continued failure by you to substantially
-2-
<PAGE>
perform your duties hereunder (other than any
such willful or continued failure resulting
from your incapacity due to physical or
mental illness or physical injury), or the willful
engaging by you in misconduct which is materially injurious
to the Company, monetarily or otherwise, or
your conviction of a felony by a court of
competent jurisdiction.
b. Termination upon Disability. If you
become totally and permanently disabled
during the Employment Period so that you are
unable to perform your obligations hereunder by reasons
involving physical or mental illness or
physical injury ("Disability"), then the term
of your employment hereunder may be terminated
by the Company.
c. Termination by Executive. You may terminate
your employment by giving written notice to
the Company at any time by written notice of
at least thirty (30) days.
d. Severance Compensation. In the event your
employment hereunder is terminated following a
change of control of the Company or by you
because of a material breach by the Company of its
obligations under this Agreement or by the Company other
than for Cause, you will be entitled to
severance compensation at your Base Salary
at the monthly rate in effect on the
termination date, payable in arrears, during the period
expiring eighteen (18) months after the
termination date, commencing at the end of
the calendar month in which the
termination date occurs; provided, however, that in the event
your employment should be terminated by the
Company as a result of Disability in
accordance with Section 5(b) above, then the
severance compensation to which you are entitled
shall be reduced by the amount of any disability
insurance proceeds actually paid to you or for
your benefit during the said time period.
You shall have the right to terminate
receipt of such severance pay at any time.
6. Limitation on Competition. During the Employment
Period, and for such period thereafter as you receive
severance compensation under this Agreement or, if you
are terminated for just cause, for a period of one year
after your termination, you shall not, directly or
indirectly, without the prior written consent of the
Company, participate or engage in, whether as a
director, officer, employee, advisor, consultant,
stockholder, partner, joint venturer, owner or in any other
capacity, any business engaged in the business of
furnishing oil field services or the drilling,
production or sale of natural gas or crude oil (a
"Competing Enterprise"), provided, however, that you shall
not be deemed to be participating or engaging in any
such business solely (i) by virtue of your ownership of
not more than five percent of any class of stock or
other securities which is publicly traded on a national
securities exchange or in a recognized over-the-counter
market; and (ii) by virtue of ownership of royalty
interests, overriding royalty interests, or working
interests (in which you are a passive investor), whether
presently owned or hereafter acquired). You shall not, directly
or indirectly, solicit, raid, entice or otherwise
induce any employee of the Company or any of its
subsidiaries to be employed by a Competing Enterprise.
During the Employment Period, you shall not engage in the
activities that are permitted under this Section 6 if doing
so would interfere with the fulfillment of your duties
and obligations under this Agreement.
-3-
<PAGE>
If this Agreement correctly sets forth your
understanding of the agreement between the Company and you,
please indicate your agreement hereto by signing this Agreement
in the space for that purpose below.
WELLTECH EASTERN, INC.
By: /s/Francis D. John
Name: Francis D. John
Title: President
ACCEPTED AND AGREED:
/s/Kenneth Hill Kenneth Hill
-4-
<PAGE>
KEY ENERGY GROUP, INC.
- ------------------------------
Stock Option Agreement
Option Certificate: No. 16
- ------------------------------
Specific Terms of the Option
Subject to the terms and conditions hereinafter set
forth and the terms and conditions of the Key Energy Group,
Inc. 1995 Stock Option Plan (the "Plan"), Key Energy Group,
Inc., a Maryland corporation (the "Company" which term shall
include, unless the context otherwise clearly requires,
all Subsidiaries [as defined in the Plan] of the Company),
hereby grants the following option to purchase Common
Stock, par value $.10 per share (the "Stock"), of the Company:
1. Name of Person to Whom the Option is Granted (the
"Optionee"): Kenneth C. Hill.
2. Date of Grant of Option: March 29, 1996.
3. An Option for 53,333 Shares of Stock.
4. Option Exercise Price (per Share): $7.50.
5. Term of Option: Subject to Section 9 below, this
Option expires
at 5:00 p.m. Eastern Time on
March 29, 2006.
6. Exercise Schedule: Subject to the provisions of
Section 9 below,
this Option will be exercisable
as follows:
With respect to 13,334 shares, the Option
shall be exercisable
as of March 29, 1996; and with respect to the balance of 39,999
shares
of Stock, the Option shall become exercisable in three
annual installments of 13,333 shares of Stock on March
29, 1997, March 29, 1998 and March 29, 1999;
provided, however, that the Option shall become
immediately exercisable in full upon a change of control of the
Company.
KEY ENERGY GROUP, INC.
By: /s/Francis D. John
/s/ Kenneth C. Hill Title: President
(Signature of Optionee)
Date: March 29, 1996
Optionee's Address: 10530 Lumberjack
Riverdale, MI 48877
<PAGE>
-2-
OTHER TERMS OF THE OPTION
WHEREAS, the Board of Directors (the "Board") has
authorized the grant of stock options upon certain terms and
conditions set forth in the Plan and herein; and
WHEREAS, the Compensation Committee (the
"Committee") has authorized the grant of this stock option
pursuant and subject to the terms of the Plan, a copy of which
is available from the Company and is hereby incorporated herein;
NOW, THEREFORE, in consideration of the premises
and the mutual covenants and agreements herein contained,
the Company and the Optionee, intending to be legally bound,
covenant and agree as set forth on the first page hereof and as
follows:
7. Grant. Pursuant and subject to the Plan, the
Company does hereby grant to the Optionee a stock option (the
"Option") to purchase from the Company the number of shares of
Stock set forth in Section 3 on the first page hereof upon
the terms and conditions set forth in the Plan and upon the
additional terms and conditions contained herein. This Option
is an incentive stock option and is intended to qualify for
special federal income tax treatment as an "incentive stock
option" pursuant to Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
8. Option Price. This Option may be exercised at the
option price per share of Stock set forth in Section 4 on the
first page hereof, subject to adjustment as provided herein
and in the Plan.
9. Term and Exercisability of Option. This Option
shall expire on the date determined pursuant to Section 5 on
the first page hereof and shall be exercisable prior to that
date in accordance with and subject to the conditions set forth
in the Plan (including but not limited to Section 16 of the
Plan) and those conditions, if any, set forth in Section 6 on
first page hereof. If before this Option has been exercised in
full, the Optionee ceases to be an employee of the Company for
any reason other than a termination for a reason specified in
Section 16 of the Plan, the Optionee may exercise this Option to
the extent that he or she might have exercised it on the
date of termination of his or her employment, but only during
the period ending on the earlier of (a) the date on which the
Option expires in accordance with Section 5 of this Agreement
or (b) three (3) months after the date of termination of the
Optionee's employment with the Company. If the Optionee dies
before the date of expiration of this Option and while in the
employ of the Company or during the three month period
described in the preceding sentence, or in the event of the
retirement of the Optionee for reasons of disability (within
the meaning of Code ss. 22(e)(3)), the Option shall terminate
on the earlier of such date of expiration or one year following
the date of such death or disability retirement. If the
Optionee dies before this Option has been exercised in full,
the personal representative of the Optionee may exercise this
Option as set forth in the preceding sentence.
10. Method of Exercise. To the extent that the right to
purchase shares of Stock has accrued hereunder, this Option
may be exercised from time to time by written notice to the
Company substantially in the form attached hereto as Exhibit
A, stating the number of shares with respect to which this
Option is being exercised, and accompanied by payment in full
of the option price for the number of shares to be delivered,
by means of payment acceptable to the Company in accordance with
Section 10 of the Plan. Subject to the Plan and to Section 13
<PAGE>
-3-
hereof, as soon as practicable after its receipt of such
notice, the Company shall, without transfer or issue tax to
the Optionee (or other person entitled to exercise this Option),
deliver to the Optionee (or other person entitled to exercise
this Option), at the principal executive offices of the Company
or such other place as shall be mutually acceptable, a
certificate or certificates for such shares out of theretofore
authorized but unissued shares or reacquired shares of its
Stock as the Company may elect; provided, however, that the
time of such delivery may be postponed by the Company for
such period as may be required for it with reasonable
diligence to comply with any applicable requirements of
law. Payment of the option price may be made in cash or cash
equivalents or otherwise in accordance with the terms and
conditions of Section 10 of the Plan; provided, however, that
the Board reserves the right upon receipt of any written
notice of exercise from the Optionee to require payment in cash
with respect to the shares contemplated in such notice. If the
Optionee (or other person entitled to exercise this Option)
fails to pay for and accept delivery of all of the shares
specified in such notice upon tender of delivery thereof, his
or her right to exercise this Option with respect to such
shares not paid for may be terminated by the Company.
11. Forfeiture; Restrictions on Exercise. This Option
may be subject to forfeiture upon the occurrence of the events
specified in Section 16 of the Plan or restrictions on exercise
upon the occurrence of events specified in Section 9 of the Plan.
12. Nonassignability of Option Rights. This
Option shall not be assignable or transferable by the
Optionee except by will or by the laws of descent and
distribution. During the life of the Optionee, this Option
shall be exercisable only by him or her.
13. Compliance with Securities Act. The Company shall
not be obligated to sell or issue any shares of Stock or
other securities pursuant to the exercise of this Option
unless the shares of Stock or other securities with respect to
which this Option is being exercised are at that time
effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and applicable state
securities laws. In the event shares or other securities shall
be issued which shall not be so registered, the Optionee hereby
represents, warrants and agrees that he or she will receive such
shares or other securities for investment and not with a view
to their resale or distribution, and will execute an
appropriate investment letter satisfactory to the Company and
its counsel.
14. Legends. The Optionee hereby acknowledges
that the stock certificate or certificates evidencing
shares of Stock or other securities issued pursuant to any
exercise of this Option will bear a legend setting forth the
restrictions on their transferability described in Section 13
hereof, in Section 13 of the Plan, and under any applicable
agreements between the Optionee and the Company or any of its
stockholders.
15. Rights as Stockholder. The Optionee shall
have no rights as a stockholder with respect to any shares of
Stock or other securities covered by this Option until the
date of issuance of a certificate to him or her for such
shares or other securities. No adjustment shall be made for
dividends or other rights for which the record date is prior to
the date such stock certificate is issued.
16. Certain Agreements. The Optionee agrees, at
the request of the Company, to enter into a noncompetition
agreement substantially in the form heretofore furnished to
the Optionee.
<PAGE>
-4-
17. Withholding Taxes. The Optionee hereby agrees,
as a condition to any exercise of this Option, to provide to
the Company an amount sufficient to satisfy its obligation
to withhold certain federal, state and local taxes arising
by reason of such exercise (the "Withholding Amount") by (a)
authorizing the Company to withhold the Withholding
Amount from his or her cash compensation, or (b) remitting
the Withholding Amount to the Company in cash, or (c) with the
consent of the Committee, in its discretion, by withholding
from shares of Stock to be delivered upon exercise of the
Option that number of shares having a fair market value,
on the date of exercise, sufficient to eliminate any
deficiency in the Withholding Amount; provided, however, that
to the extent that the Withholding Amount is not provided by
one or a combination of such methods, the Company in its sole
and absolute discretion may refuse to issue such shares of
Stock.
18. Termination or Amendment of Plan. The Board may
in its sole and absolute discretion at any time terminate or
from time to time modify and amend the Plan, but no such
termination or amendment will adversely affect rights and
obligations under this Option without the consent of the
Optionee.
19. Effect Upon Employment. Nothing in this Option or
the Plan shall be construed to impose any obligation upon the
Company to employ or retain in its employ, or continue its
involvement with, the Optionee.
20. Time for Acceptance. Unless the Optionee shall
evidence his or her acceptance of this Option by execution of
this Agreement within seven (7) days after its delivery to
him or her, the Option and this Agreement shall be null and
void.
21. General Provisions.
(a) Amendment; Waivers. This Agreement,
including the Plan, contains the full and complete understanding
and agreement of the parties hereto as to the subject matter
hereof and may not be modified or amended, nor may any
provision hereof be waived, except by a further written
agreement duly signed by each of the parties. The waiver by
either of the parties hereto of any provision hereof in any
instance shall not operate as a waiver of any other
provision hereof or in any other instance.
(b) Binding Effect. This Agreement shall
inure to the benefit of and be binding upon the parties hereto
and, to the extent provided herein and in the Plan, their
respective heirs, executors, administrators, representatives,
successors and assigns.
(c) Construction. This Agreement is to
be construed in accordance with the terms of the Plan. In case
of any conflict between the Plan and this Agreement, the Plan
shall control. The titles of the sections of this Agreement
and of the Plan are included for convenience only and shall
not be construed as modifying or affecting their provisions. The
masculine gender shall include both sexes; the singular shall
include the plural and the plural the singular unless the
context otherwise requires.
(d) Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the
applicable laws of the United State of America and the law
(other than the law governing conflict of law questions) of
the State of Maryland except to the extent the laws of any
other jurisdiction are mandatorily applicable.
<PAGE>
-5-
(e) Notices. Any notice in connection with this
Agreement shall be deemed to have been properly delivered if
it is in writing and is delivered in hand or sent by registered
or certified mail, return receipt requested, to the party
addressed as follows, unless another address has been
substituted by notice so given:
To the Optionee:
To his or her address as
listed on the books of the Company.
To the Company:
Key Energy Group, Inc.
255 Livingston Avenue
New Brunswick, NJ 08901
Attention: Francis D. John, President
Copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attention: Karen L. Linsley
(f) Definition. As used herein, a "change of
control" means that any of the following events has occurred:
(I) Any person (as defined in Section 3(a)(9)
of the 1934 Act (or any successor provision), other than
the Company, is the beneficial owner directly or
indirectly of more than twenty-five percent (25%) of
the outstanding Common Stock of the Company, determined in
accordance with Rule 13d-3 under the 1934 Act (or any
successor provision), or otherwise becomes entitled to
vote more than twenty-five percent (25%) of the voting
power entitled to be cast at elections for directors
("Voting Power") of the Company, or in any event such lower
percentage as may at any time be provided for in any
similar provision for any director or officer of the
Company or of any Subsidiary approved by the Board;
(II) If the Company is subject to the
reporting requirements of Section 13 or 15(d) (or any
successor provision) of the 1934 Act, any person (as
defined in Section 3(a)(9) of the 1934 Act), other than
the Company, shall purchase shares pursuant to a tender
offer or exchange offer to acquire Common Stock of the
Company (or securities convertible into or
exchangeable for or exercisable for Common Stock) for
cash, securities or any other consideration, provided that
after consummation of the offer, the person in
question is the beneficial owner, directly or
indirectly, of more than twenty-five percent (25%) of
the outstanding Common Stock of the Company, determined
in accordance with Rule 13d-3 under the 1934 Act
(or any successor provision) or such lower percentage
as may at any time be provided for in any similar
provision for any director or officer of the Company or
of any Subsidiary approved by the Board;
<PAGE>
-6-
(III) The stockholders or the Board shall
have approved any consolidation or merger of the
Company in which (i) the Company is not the continuing
or surviving corporation unless such merger is with a
Subsidiary at least eighty percent (80%) of the Voting Power
of which is held by the Company or (2) pursuant to
which the holders of the Company's shares of Common
Stock immediately prior to such merger or
consolidation would not be the holders immediately after such
merger or consolidation of at least a majority of the
Voting Power of the Company or such lower percentage
as may at any time be provided for in any similar
provision for any director or officer of the Company or of any
Subsidiary approved by the Board;
(IV) The stockholders or the Board shall
have approved any sale, lease, exchange or other
transfer (in one transaction or a series of
transactions) of all or substantially all of the assets of
the Company; or
(V) Upon the election of one or more new
directors of the Company, a majority of the directors
holding office, including the newly elected
directors, were not nominated as candidates by a majority
of the directors in office immediately before such election.
As used in this definition of "change of
control", "Common Stock" means the Common Stock, or if
changed, the capital stock of the Company as it shall be
constituted from time to time entitling the holders thereof
to share generally in the distribution of all assets available
for distribution to the Company's stockholders after the
distribution to any holders of capital stock with preferential
rights.
<PAGE>
EXHIBIT A to Stock
Option Agreement
[FORM FOR EXERCISE OF STOCK OPTION]
Key Energy Group, Inc. [Address as specified in Section 20(e)
of the Option Agreement]
RE: Exercise of Option under Key Energy Group, Inc. 1995
Stock Option Plan
Gentlemen:
Please take notice that the undersigned hereby elects
to exercise the stock option granted to __________________ on
_______________, ____ by and to the extent of purchasing
shares of Common Stock, par value $.10 per share, of Key
Energy Group, Inc. (the "Company") for the option price of
$__________ per share, subject to the terms and conditions of
the Stock Option Agreement between ______________ and the
Company dated as of ___________, ____ (the "Option
Agreement").
The undersigned encloses herewith payment, in cash
or in such other property as is permitted under the Plan, of
the purchase price for said shares. If the undersigned is
making payment of any part of the purchase price by delivery
of shares of Common Stock of the Company, he or she hereby
confirms that he or she has investigated and considered
the possible income tax consequences to him or her of making
such payments in that form. The undersigned hereby agrees to
provide the Company an amount sufficient to satisfy the
obligation of the Company to withhold certain taxes, as
provided in Section 16 of the Option Agreement.
The undersigned hereby specifically confirms to Key
Energy Group, Inc. that he or she is acquiring said shares for
investment and not with a view to their sale or distribution,
and that said shares shall be held subject to all of the terms
and conditions of said Stock Option Agreement.
Very truly yours,
Date _______________
(Signed by __________________ or
other party duly exercising option)
<PAGE>
KEY ENERGY GROUP, INC.
------------------------------
Stock Option Agreement
Option Certificate: No. 18
------------------------------
Specific Terms of the Option
Subject to the terms and conditions hereinafter set
forth and the terms and conditions of the Key Energy Group,
Inc. 1995 Stock Option Plan (the "Plan"), Key Energy Group,
Inc., a Maryland corporation (the "Company", which term shall
include, unless the context otherwise clearly requires,
all Subsidiaries [as defined in the Plan] of the Company),
hereby grants the following option to purchase Common
Stock, par value $.10 per share (the "Stock"), of the Company:
1. Name of Person to Whom the Option is Granted (the
"Optionee"): Kenneth C. Hill.
2. Date of Grant of Option: As of March 29, 1996.
3. An Option for 21,667 Shares of Stock.
4. Option Exercise Price (per Share): $7.50.
5. Term of Option:
Subject to Section 9 below and to vesting as set
forth in Section 6 below, this Option expires at
5:00 p.m. Eastern Time on March 29, 2006.
6. Exercise Schedule:
Subject to the provisions
of Section 9 below, the Option shall become
fully exercisable upon the first to occur of
(a) a change of control of the Company or
(b) with respect to 5,416 shares on March
29, 1996, and the balance in three annual
installments of 5,417 shares on March 29,
1997, March 29, 1998 and March
29, 1999.
<PAGE>
KEY ENERGY GROUP, INC. OPTIONEE
By: /s/Francis D. John /s/Kenneth C.
Hill Title:______________________ Kenneth
C. Hill
Date: 5-20-96
Optionee's
Address: 10530
Lumberjack Road
Riverdale, MI 48877
OTHER TERMS OF THE OPTION
WHEREAS, the Board of Directors of the Company
(the "Board") has authorized the grant of stock options upon
certain terms and conditions set forth in the Plan and
herein; and
WHEREAS, the Compensation Committee (the
"Committee") has authorized the grant of this stock option
pursuant and subject to the terms of the Plan, a copy of which
is available from the Company and is hereby incorporated herein;
NOW, THEREFORE, in consideration of the premises
and the mutual covenants and agreements herein contained,
the Company and the Optionee, intending to be legally bound,
covenant and agree as set forth on the first page hereof and as
follows:
7. Grant. Pursuant and subject to the Plan, the
Company does hereby grant to the Optionee a stock option (the
"Option") to purchase from the Company the number of shares of
Stock set forth in Section 3 on the first page hereof upon
the terms and conditions set forth in the Plan and upon the
additional terms and conditions contained herein. This
Option is a nonqualified stock option and is not intended to
qualify for special federal income tax treatment as an
"incentive stock option" pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
8. Option Price. This Option may be exercised at the
option price per share of Stock set forth in Section 4 on the
first page hereof, subject to adjustment as provided herein
and in the Plan.
9. Term and Exercisability of Option. This Option
shall expire on the date determined pursuant to Section 5 on
the first page hereof and shall be exercisable prior to that
date in accordance with and subject to the conditions set forth
in Section 5(e) of the Employment Agreement, dated as of July 1,
1995, between the Company and the Optionee.
10. Method of Exercise. To the extent that the right to
purchase shares of Stock has accrued hereunder, this Option
may be exercised from time to time by written notice to the
Company substantially in the form attached hereto as Exhibit
A, stating the number of shares with respect to which this
Option is being exercised, and accompanied by payment in full of
the option price for the
-2-
<PAGE>
number of shares to be delivered, by means of payment
acceptable to the Company in accordance with Section 10 of the
Plan. Subject to the Plan and to Section 13 hereof, as soon as
practicable after its receipt of such notice, the Company
shall, without transfer or issue tax to the Optionee (or other
person entitled to exercise this Option), deliver to the
Optionee (or other person entitled to exercise this Option), at
the principal executive offices of the Company or such other
place as shall be mutually acceptable, a certificate or
certificates for such shares out of theretofore authorized
but unissued shares or reacquired shares of its Stock as the
Company may elect; provided, however, that the time of such
delivery may be postponed by the Company for such period as
may be required for it with reasonable diligence to comply
with any applicable requirements of law. Payment of the
option price may be made in cash or cash equivalents or
otherwise in accordance with the terms and conditions of
Section 10 of the Plan; provided, however, that the Board
reserves the right upon receipt of any written notice of
exercise from the Optionee to require payment in cash with
respect to the shares contemplated in such notice. If the
Optionee (or other person entitled to exercise this Option)
fails to pay for and accept delivery of all of the shares
specified in such notice upon tender of delivery thereof, his
or her right to exercise this Option with respect to such
shares not paid for may be terminated by the Company.
11. Forfeiture; Restrictions on Exercise. This Option
may be subject to forfeiture upon the occurrence of the events
specified in Section 16 of the Plan or restrictions on exercise
upon the occurrence of events specified in Section 9 of the Plan.
12. Nonassignability of Option Rights. This
Option shall not be assignable or transferable by the
Optionee except by will or by the laws of descent and
distribution; provided, however, that the Optionee may
transfer Options to members of his or her immediate family (or
to trusts or partnerships for the benefit of such persons) by
gift. During the life of the Optionee, this Option shall be
exercisable only by him or her.
13. Compliance with Securities Act. The Company shall
not be obligated to sell or issue any shares of Stock or
other securities pursuant to the exercise of this Option
unless the shares of Stock or other securities with respect to
which this Option is being exercised are at that time
effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and applicable state
securities laws. In the event shares or other securities shall
be issued which shall not be so registered, the Optionee hereby
represents, warrants and agrees that he or she will receive such
shares or other securities for investment and not with a view
to their resale or distribution, and will execute an
appropriate investment letter satisfactory to the Company and
its counsel.
14. Legends. The Optionee hereby acknowledges
that the stock certificate or certificates evidencing
shares of Stock or other securities issued pursuant to any
exercise of this Option will bear a legend setting forth the
restrictions on their transferability described in Section 13
hereof, in Section 13 of the Plan, and under any applicable
agreements between the Optionee and the Company or any of its
stockholders.
15. Rights as Stockholder. The Optionee shall
have no rights as a stockholder with respect to any shares of
Stock or other securities covered by this Option until the
date of issuance of a certificate to him or her for such
-3-
<PAGE>
shares or other securities. No adjustment shall be made for
dividends or other rights for which the record date is prior to
the date such stock certificate is issued.
16. Withholding Taxes. The Optionee hereby agrees,
as a condition to any exercise of this Option, to provide to
the Company an amount sufficient to satisfy its obligation
to withhold certain federal, state and local taxes arising
by reason of such exercise (the "Withholding Amount") by (a)
authorizing the Company to withhold the Withholding
Amount from his or her cash compensation, or (b) remitting
the Withholding Amount to the Company in cash, or (c) with the
consent of the Committee, in its discretion, by withholding
from shares of Stock to be delivered upon exercise of the
Option that number of shares having a fair market value,
on the date of exercise, sufficient to eliminate any
deficiency in the Withholding Amount; provided, however, that
to the extent that the Withholding Amount is not provided by
one or a combination of such methods, the Company in its sole
and absolute discretion may refuse to issue such shares of
Stock.
17. Termination or Amendment of Plan. The Board may
in its sole and absolute discretion at any time terminate or
from time to time modify and amend the Plan, but no such
termination or amendment will adversely affect rights and
obligations under this Option without the consent of the
Optionee.
18. Effect upon Employment. Nothing in this Option or
the Plan shall be construed to impose any obligation upon the
Company to employ or retain in its employ, or continue its
involvement with, the Optionee.
19. General Provisions.
(a) Amendment; Waivers. This Agreement,
including the Plan, contains the full and complete understanding
and agreement of the parties hereto as to the subject matter
hereof and may not be modified or amended, nor may any
provision hereof be waived, except by a further written
agreement duly signed by each of the parties. The waiver by
either of the parties hereto of any provision hereof in any
instance shall not operate as a waiver of any other
provision hereof or in any other instance.
(b) Binding Effect. This Agreement shall
inure to the benefit of and be binding upon the parties hereto
and, to the extent provided herein and in the Plan, their
respective heirs, executors, administrators, representatives,
successors and assigns.
(c) Construction. This Agreement is to
be construed in accordance with the terms of the Plan. In case
of any conflict between the Plan and this Agreement, the Plan
shall control. The titles of the sections of this Agreement
and of the Plan are included for convenience only and shall
not be construed as modifying or affecting their provisions. The
masculine gender shall include both sexes; the singular shall
include the plural and the plural the singular unless the
context otherwise requires.
-4-
<PAGE>
(d) Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the
applicable laws of the United State of America and the law
(other than the law governing conflict of law questions) of
the State of Maryland except to the extent the laws of any
other jurisdiction are mandatorily applicable.
(e) Notices. Any notice in connection with
this Agreement shall be deemed to have been properly
delivered if it is in writing and is delivered in hand or
sent by registered or certified mail, return receipt
requested, to the party addressed as follows, unless another
address has been substituted by notice so given:
To the Optionee: To his or her address as
listed on the books of the
Company.
To the Company: Key Energy Group, Inc.
255 Livingston Avenue
New Brunswick, NJ 08901
Attention: President
Copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attention: Karen L. Linsley
(f) Definition. As used herein, a "change of
control" means that any of the following events has occurred:
(I) Any person (as defined in Section 3(a)(9)
of the 1934 Act (or any successor provision), other than
the Company, is the beneficial owner directly or
indirectly of more than twenty-five percent (25%) of
the outstanding Common Stock of the Company, determined in
accordance with Rule 13d-3 under the 1934 Act (or any
successor provision), or otherwise becomes entitled to
vote more than twenty-five percent (25%) of the voting
power entitled to be cast at elections for directors
("Voting Power") of the Company, or in any event such lower
percentage as may at any time be provided for in any
similar provision for any director or officer of the
Company or of any Subsidiary approved by the Board;
(II) If the Company is subject to the
reporting requirements of Section 13 or 15(d) (or any
successor provision) of the 1934 Act, any person (as
defined in Section 3(a)(9) of the 1934 Act), other than
the Company, shall purchase shares pursuant to a tender
offer or exchange offer to acquire Common Stock of the
Company (or securities convertible into or
exchangeable for or exercisable for Common Stock) for
cash, securities or any other consideration, provided that
after consummation of the offer, the person in
question is the beneficial owner, directly or
indirectly, of more than twenty-five percent (25%) of
the outstanding Common Stock of the Company, determined
in accordance with Rule 13d-3 under the 1934 Act
(or any successor provision) or such lower percentage
as may at any time be provided for in any similar
provision for any director or officer of the Company or
of any Subsidiary approved by the Board;
-5-
<PAGE>
(III) The stockholders or the Board
shall have approved any consolidation or merger of the
Company in which (i) the Company is not the continuing
or surviving corporation unless such merger is with a
Subsidiary at least eighty percent (80%) of the Voting Power
of which is held by the Company or (2) pursuant to
which the holders of the Company's shares of Common
Stock immediately prior to such merger or
consolidation would not be the holders immediately after such
merger or consolidation of at least a majority of the
Voting Power of the Company or such lower percentage
as may at any time be provided for in any similar
provision for any director or officer of the Company or of any
Subsidiary approved by the Board;
(IV) The stockholders or the Board shall
have approved any sale, lease, exchange or other
transfer (in one transaction or a series of
transactions) of all or substantially all of the assets of
the Company; or
(V) Upon the election of one or more new
directors of the Company, a majority of the directors
holding office, including the newly elected
directors, were not nominated as candidates by a majority
of the directors in office immediately before such election.
As used in this definition of "change of
control", "Common Stock" means the Common Stock, or if
changed, the capital stock of the Company as it shall be
constituted from time to time entitling the holders thereof
to share generally in the distribution of all assets available
for distribution to the Company's stockholders after the
distribution to any holders of capital stock with preferential
rights.
-6-
<PAGE>
EXHIBIT A to Stock
Option Agreement
[FORM FOR EXERCISE OF STOCK OPTION]
Key Energy Group, Inc. [Address as specified in Section 20(e)
of the Option Agreement]
RE: Exercise of Option under Key Energy Group, Inc. 1995
Stock Option Plan
Gentlemen:
Please take notice that the undersigned hereby elects
to exercise the stock option granted to __________________ on
_______________, ____ by and to the extent of purchasing
shares of Common Stock, par value $.10 per share, of Key
Energy Group, Inc. (the "Company") for the option price of
$__________ per share, subject to the terms and conditions of
the Stock Option Agreement between ______________ and the
Company dated as of ___________, ____ (the "Option
Agreement").
The undersigned encloses herewith payment, in cash
or in such other property as is permitted under the Plan, of
the purchase price for said shares. If the undersigned is
making payment of any part of the purchase price by delivery
of shares of Common Stock of the Company, he or she hereby
confirms that he or she has investigated and considered
the possible income tax consequences to him or her of making
such payments in that form. The undersigned hereby agrees to
provide the Company an amount sufficient to satisfy the
obligation of the Company to withhold certain taxes, as
provided in Section 15 of the Option Agreement.
The undersigned hereby specifically confirms to Key
Energy Group, Inc. that he or she is acquiring said shares for
investment and not with a view to their sale or distribution,
and that said shares shall be held subject to all of the terms
and conditions of said Stock Option Agreement.
Very truly yours,
Date _______________
(Signed by Kenneth C. Hill
or other party duly exercising
option)
WellTech Eastern, Inc.
5776 Venture Way
Mt. Pleasant, MI 48858
As of March 29, 1996
Mr. Kenneth Huseman
6105 Kingbridge Drive
Oklahoma City, OK 73162
EMPLOYMENT AGREEMENT
(the "Agreement")
Dear Mr. Huseman:
WellTech Eastern, Inc., a Delaware corporation (the
"Company") and wholly owned subsidiary of Key Energy Group,
Inc., a Maryland corporation ("Key"), with its principal
offices at the address set forth above, and you, an individual
residing at your address set forth above, agree as follows:
1. Employment; Term.
a. The Company agrees to employ you, and you accept
employment by the Company, as a Vice President
of the Company and President and Chief Executive
Officer of the division of the Company which you
operate. Your employment will commence as of March 29, 1996
(the "Commencement Date") and continue until the
close of business on March 29, 1999, subject to
extension as provided in this Section 1(a),
unless sooner terminated in accordance with this Agreement
(the "Initial Employment Period"). On each March 30,
commencing with March 30, 1999, the term of
your employment will be automatically extended
for twelve (12) months unless either you or the
Company gives written notice to the other, no later than
thirty (30) days prior to the relevant March 30,
that such automatic extension shall not occur.
The Initial Employment Period, together with
any extensions, until termination in
accordance herewith is referred to herein as the
"Employment Period".
b. You will have the usual duties of a Vice
President and will be responsible, subject to
the Chairman of the Board, the President and the
Board of Directors of the Company (the "Board"), for
participating in the management and direction of the
Company's business and operations. You will,
if elected, serve as a director of the Company
and as an officer and/or director of the Company
and its subsidiaries and perform all duties incident to
such offices and such specific other tasks as may from
time to time be assigned to you by the Chairman of
the Board or the Board or by the President of the
Company. During the Employment Period, you will
devote your full time and best efforts to the business
and affairs of the Company and its subsidiaries.
<PAGE>
2. Salary; Bonuses; Expenses.
a. During the Employment Period, the Company will
pay a salary to you at the annual rate of One
Hundred Eighty Thousand Dollars ($180,000)
per year (the "Base Salary"), payable in
substantially equal installments in accordance with the
Company's existing payroll practices, but no
less frequently than monthly.
b. For each fiscal year of the Company
commencing after June 30, 1996, you will be
eligible to participate in an incentive plan
for key employees and other persons involved in the business
of Key and its subsidiaries (the "Incentive
Plan") providing for the payment of cash
bonuses of up to fifty percent (50%) of your
Base Salary and in the 1995 Stock Option Plan of Key
(the "1995 Stock Option Plan").
c. You will be reimbursed by the Company for
reasonable travel, lodging, meal and other
expenses incurred by you in connection with
performing your services hereunder in accordance with the
Company's policies from time to time in effect.
3. Stock Options. As performance-based incentive
compensation to you in connection with your services
hereunder, there shall be granted to you options (the
"Options") to acquire One Hundred Thousand (100,000)
shares of the Common Stock, par value $.10 per share, of
Key (the "Common Stock") at an exercise price per share
equal to the fair market value of the Common Stock at
the date of grant, with such options to be granted
pursuant to, and subject to the terms and provisions (including
vesting provisions) of, the 1995 Stock Option Plan and
an agreement substantially in the form attached hereto
as Exhibit A.
4. Benefit Plans; Vacations. You will be entitled
during the Employment Period (and thereafter to the
extent provided in Section 5(d) below) to such fringe
benefits, including without limitation group medical and
dental, life, executive life, accident and disability
insurance, retirement plans and supplemental and excess
retirement benefits and a Company-leased automobile and
payment of expenses associated therewith, as the Company
may provide from time to time for its senior management;
not less than twenty (20) vacation days.
5. Termination
a. Termination by Company. The Company shall
have the right to terminate your employment
under this Agreement for Cause at any time
without obligation to make any further payments to
you hereunder. The Company shall have the right to
terminate your employment for any reason
other than for Cause, subject only to the
Company's obligations under Section 5(d) below.
As used in this Agreement, the term "Cause" shall mean the
willful and continued failure by you to
substantially perform your duties hereunder
(other than any such willful or continued
failure resulting from your incapacity due to
physical or mental illness or physical injury), or the
willful engaging by you in misconduct which
is materially injurious to the Company,
monetarily or otherwise, or your conviction
of a felony by a court of competent jurisdiction.
-2-
<PAGE>
b. Termination upon Disability. If you
become totally and permanently disabled
during the Employment Period so that you are
unable to perform your obligations hereunder by
reasons involving physical or mental illness or
physical injury ("Disability"), then the
term of your employment hereunder may be
terminated by the Company.
c. Termination by Executive. You may terminate
your employment by giving written notice
to the Company at any time by written
notice of at least thirty (30) days.
d. Severance Compensation. In the event
your employment hereunder is terminated
following a change of control of the Company
or by you because of a material breach by the
Company of its obligations under this Agreement or by
the Company other than for Cause, you
will be entitled to severance compensation
at your Base Salary at the monthly rate in
effect on the termination date, payable in arrears,
during the period expiring eighteen (18) months after
the termination date, commencing at the
end of the calendar month in which the
termination date occurs; provided,
however, that in the event your employment should be
terminated by the Company as a result of
Disability in accordance with Section
5(b) above, then the severance
compensation to which you are entitled shall be reduced by
the amount of any disability insurance
proceeds actually paid to you or for your
benefit during the said time period.
6. Limitation on Competition. During the
Employment Period, and for such period
thereafter as you are entitled to receive
severance compensation under this Agreement or, if not
entitled to receive severance compensation, for
a period of one year after your termination,
you shall not, directly or indirectly,
without the prior written consent of the
Company, participate or engage in, whether as a director,
officer, employee, advisor, consultant,
stockholder, partner, joint venturer, owner
or in any other capacity, any business
engaged in the business of furnishing oilfield
services (a "Competing Enterprise"), provided, however,
that you shall not be deemed to be
participating or engaging in any such
business solely by virtue of your ownership of not
more than five percent of any class of stock or
other securities which is publicly traded on
a national securities exchange or in a
recognized over-the-counter market; and you
shall not, directly or indirectly, solicit, raid, entice or
otherwise induce any employee of the Company or
any of its subsidiaries to be employed by a
Competing Enterprise.
-3-
<PAGE>
If this Agreement correctly sets forth your
understanding of the agreement between the Company and you,
please indicate your agreement hereto by signing this Agreement
in the space for that purpose below.
WELLTECH EASTERN,
INC.
By: /s/Francis D.
John Name:
Francis D. John
Title: President/CEO
ACCEPTED AND AGREED:
/s/Kenneth Huseman Kenneth Huseman
-4
<PAGE>
KEY ENERGY GROUP, INC.
$52,000,000 Principal Amount
of 7% Convertible Subordinated Debentures Due 2003
- -----------------------------------------------------------------
- -
INDENTURE
- -----------------------------------------------------------------
- -
Dated as of July 3, 1996
- -----------------------------------------------------------------
- -
AMERICAN STOCK TRANSFER & TRUST COMPANY
Trustee
- -----------------------------------------------------------------
- -
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1
Definitions....................................................
1
Section 1.2 Other
Definitions.............................................. 6
Section 1.3 Incorporation by Reference of Trust Indenture
Act.............. 6
Section 1.4 Rules of
Construction.......................................... 7
ARTICLE 2
THE SECURITIES
Section 2.1 Form and Dating; Securities in Global
Form..................... 7
Section 2.2 Execution and
Authentication................................... 8
Section 2.3 Registrar, Paying Agent, Depository and Securities
Custodian... 8
Section 2.4 Paying Agent to Hold Money in
Trust............................ 9
Section 2.5 Holder
Lists................................................... 9
Section 2.6 Transfer and
Exchange..........................................10
Section 2.7 Replacement
Securities.........................................16
Section 2.8 Outstanding
Securities.........................................16
Section 2.9 Treasury
Securities............................................16
Section 2.11
Cancellation...................................................17
Section 2.12 Defaulted
Interest.............................................17
ARTICLE 3
REDEMPTION
Section 3.1 Notices to
Trustee.............................................17
Section 3.2 Selection of Securities to be
Redeemed.........................18
Section 3.3 Notice of
Redemption...........................................18
Section 3.4 Effect of Notice of
Redemption.................................19
Section 3.5 Deposit of Redemption
Price....................................19
Section 3.6 Securities Redeemed in
Part....................................20
Section 3.7 Optional
Redemption............................................20
i
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
ARTICLE 4
COVENANTS
Section 4.1 Payment of
Securities..........................................20
Section 4.2 Maintenance of Office or
Agency................................21
Section 4.3 SEC
Reports....................................................21
Section 4.4 Compliance
Certificate.........................................22
Section 4.5 Compliance with Laws;
Taxes....................................23
Section 4.6 Stay, Extension and Usury
Laws.................................23
Section 4.7 Corporate
Existence............................................23
Section 4.8
Liquidation....................................................24
Section 4.9 Limitation on Dispositions of
Assets...........................24
Section 4.10 Change of
Control..............................................24
Section 4.11 Additional Subsidiary
Guarantees...............................25
ARTICLE 5
SUCCESSORS
Section 5.1 When the Company May Merge,
etc................................26
Section 5.2 Successor Corporation
Substituted..............................27
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1 Events of
Default..............................................27
Section 6.2
Acceleration...................................................29
Section 6.3 Other
Remedies.................................................29
Section 6.4 Waiver of Past
Defaults........................................29
Section 6.5 Control by
Majority............................................29
Section 6.6 Limitation on
Suits............................................30
Section 6.7 Rights of Holders to Receive
Payment...........................30
Section 6.8 Collection Suit by
Trustee.....................................30
Section 6.9 Trustee May File Proofs of
Claim...............................31
Section 6.10
Priorities.....................................................31
Section 6.11 Undertaking for
Costs..........................................32
ii
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
ARTICLE 7
TRUSTEE
Section 7.1 Duties of a
Trustee............................................32
Section 7.2 Rights of
Trustee..............................................33
Section 7.3 Individual Rights of
Trustee...................................34
Section 7.4 Trustee's
Disclaimer...........................................34
Section 7.5 Notice of
Defaults.............................................34
Section 7.6 Reports by Trustee to
Holders..................................34
Section 7.7 Compensation and
Indemnity.....................................35
Section 7.8 Replacement of
Trustee.........................................35
Section 7.9 Successor Trustee by Merger,
etc...............................36
Section 7.10 Eligibility;
Disqualification..................................36
Section 7.11 Preferential Collection of Claims Against Company
and Subsidiary
Guarantors......................................37
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.1 Termination of Company's and Subsidiary
Guarantors' Obligation.37
Section 8.2 Application of Trust
Money.....................................38
Section 8.3 Repayment to
Company...........................................38
Section 8.4
Reinstatement..................................................39
ARTICLE 9
AMENDMENTS
Section 9.1 Without Consent of
Holders.....................................39
Section 9.2 With Consent of
Holders........................................40
Section 9.3 Compliance with Trust Indenture
Act............................41
Section 9.4 Revocation and Effect of
Consents..............................41
Section 9.5 Notation on or Exchange of
Securities..........................41
Section 9.6 Trustee to Sign Amendments,
etc................................42
iii
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
ARTICLE 10
SUBSIDIARY GUARANTEES
Section 10.1 Subsidiary
Guarantees..........................................42
Section 10.2 Execution and Delivery of Subsidiary
Guarantees................43
Section 10.3 Subsidiary Guarantors May Consolidate, etc. on
Certain Terms...43
Section 10.4 Releases Following Sale of
Assets..............................44
Section 10.5 "Trustee" to Include Paying
Agent..............................44
Section 10.6 Limitation of Subsidiary Guarantor's
Liability.................45
ARTICLE 11
CONVERSION Section 11.1 Right to
Convert...............................................45
Section 11.2 Exercise of Conversion Privilege; Issuance of
Common Stock
on Conversion; No Adjustment for Interest or
Dividends.........46
Section 11.3 Cash Payments in Lieu of Fractional
Shares.....................47
Section 11.4 Conversion
Price...............................................47
Section 11.5 Adjustment of Conversion
Price.................................47
Section 11.6 Effect of Reclassification, Consolidation, Merger
or Sale......51
Section 11.7 Taxes on Shares
Issued.........................................52
Section 11.8 Reservation of Shares; Shares to be Fully Paid;
Compliance
with Governmental Requirements; Listing of Common
Stock........52
Section 11.9 Responsibility of
Trustee......................................53
Section 11.10 Notice to Holders Before Certain
Actions.......................54
ARTICLE 12
SUBORDINATION
Section 12.1 Agreement to
Subordinate.......................................55
Section 12.2 Certain
Definitions............................................55
Section 12.3 Liquidation; Dissolution;
Bankruptcy...........................56
Section 12.4 Company Not to Make Payments with Respect to
Securities in
Certain
Circumstances..........................................56
Section 12.5 Acceleration of
Securities.....................................57
Section 12.6 When Distribution Must Be Paid
Over............................57
Section 12.7 Notice by
Company..............................................57
Section 12.8
Subrogation....................................................57
Section 12.9 Relative
Rights................................................57
Section 12.10 Subordination May Not be Impaired by
Company...................58
iv
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
Section 12.11 Distribution or Notice to
Representative......................58
Section 12.12 Rights of Trustee and Paying
Agent............................58
Section 12.13 Effectuation of Subordination by
Trustee......................59
ARTICLE 13
MISCELLANEOUS
Section 13.1 Trust Indenture Act
Controls..................................59
Section 13.2
Notices.......................................................59
Section 13.3 Communication to Holders with Other
Holders...................61
Section 13.4 Certificate and Opinion as to Conditions
Precedent............61
Section 13.5 Statements Required in
Certificate............................61
Section 13.6 Rules by Trustee and
Agents...................................61
Section 13.7 Additional Rights of Holders of Transfer
Restricted
Securities..................................................
..61
Section 13.8 Legal
Holidays................................................62
Section 13.9 No Recourse Against
Others....................................62
Section 13.10 Duplicate
Originals...........................................62
Section 13.11 Governing
Law.................................................62
Section 13.12 No Adverse Interpretation of Other
Agreements.................62
Section 13.13
Successors....................................................62
Section 13.14
Severability..................................................62
Section 13.15 Counterpart
Originals.........................................63
Section 13.16 Table of Contents, Headings,
.................................63
v
<PAGE>
INDENTURE dated as of July 3, 1996, among KEY ENERGY
GROUP, INC., a Maryland corporation (the "Company"), YALE E.
KEY, INC., a Texas corporation ("Yale E. Key"), WELLTECH
EASTERN, INC., a Delaware corporation ("WellTech Eastern"),
ODESSA EXPLORATION, INC., a Delaware corporation ("Odessa");
and KEY ENERGY DRILLING, INC., D/B/A CLINT HURT DRILLING, a
Delaware corporation ("Clint Hurt"), SERVICIOS WELLTECH, SA,
an Argentine corporation ("Servicios"), and AMERICAN STOCK
TRANSFER & TRUST COMPANY, a Delaware corporation, as trustee
(the "Trustee").
The Company and, with respect to Article 10 only, Yale
E. Key, WellTech Eastern, Odessa, Clint Hurt and Servicios,
jointly and severally, and the Trustee agree as follows
for the benefit of each other and for the equal and ratable
benefit of the Holders of the 7% Convertible Subordinated
Debentures due 2003 (collectively, the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1. Definitions.
"Affiliate" of any specified Person means any other
Person directly or indirectly controlling or controlled by
or under direct or indirect common control with such
specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person
means the power to direct the management and policies of
such Person directly or indirectly, whether through the
ownership of Voting Stock, by agreement or otherwise; and the
terms "controlling" and "controlled" have meanings
correlative to the foregoing; provided, however, that
beneficial ownership of 10% or more of the Voting Stock of a
person shall be deemed control.
"Agent" means any Registrar (as defined in Section
2.3), Paying Agent (as defined in Section 2.3) or co-Registrar.
"Board of Directors" means the Board of Directors of
the Company, or any authorized committee of the Board of
Directors.
"Board Resolution" means a resolution of the Board of
Directors of the Company.
"Business Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday that is not a day on which
banking institutions in the Borough of Manhattan, New York,
New York are authorized or obligated by law or executive order
to close.
"Capital Stock" means, with respect to any Person, any
and all shares, interests, participation or other equivalents
(however designated) of corporate stock, including each class
of common stock and preferred stock of such Person and any
warrants, options or other rights to acquire such stock.
"Common Stock" means, any stock of any class of the
Company that has no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company
<PAGE>
and which is not subject to redemption by the Company. Subject
to the provisions of Section 11.6, however, shares issuable
on conversion of Securities shall include only shares of the
class or classes resulting that have no preference in respect of
dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the Company and which are not subject to redemption by
the Company, provided that if at any time there shall be more
than one such resulting class, the shares of each such class
then so issuable shall be substantially in the proportion
which the total number of shares of such class resulting from
all such reclassifications bears to the total number of
shares of all such classes resulting from all such
reclassifications.
"Consolidated Net Worth" with respect to any Person
means the amount by which the assets of such Person and its
Subsidiaries on a consolidated basis exceed the sum of (i)
the total liabilities of such Person and its Subsidiaries on a
consolidated basis, plus (ii) Disqualified Capital Stock of
such Person or Disqualified Capital Stock of any Subsidiary of
such Person issued to any Person other than such Person or
another Wholly Owned Subsidiary of such Person, all as
determined on a consolidated basis and in accordance with GAAP.
"Conversion Price" has the meaning set forth in Section
11.4.
"Corporate Trust Office of the Trustee" shall be at
the address of the Trustee specified in Section 13.2 or such
other address as the Trustee may give by notice to the Company.
"Debentures" means the 7% Convertible Subordinated
Debentures due July 1, 2003 issued under this Indenture.
"Default" means any event that is, or after notice or
passage of time or both would be, an Event of Default.
"Definitive Securities" means Securities that are in
the form of the Debenture attached hereto as Exhibit A that
do not include the information called for by footnotes 1 and
2 thereof.
"Depository" means, with respect to the Securities
issuable or issued in whole or in part in global form, the
Person specified in Section 2.3 as the Depository with respect
to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable
provisions of this Indenture, and, thereafter, "Depository"
shall mean or include such successor.
"Disqualified Capital Stock" means any Capital Stock
that, by its terms or by the terms of any security into which,
at the option of the holder, it is convertible or
exchangeable, is, or upon the happening of an event or the
passage of time would be, required to be redeemed or
repurchased, including at the option of the holder, in whole
or in par, or has, or upon the happening of an event or the
passage of time would have, a redemption or similar payment due,
on or before the maturity date of the Securities.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
2
<PAGE>
"GAAP" means generally accepted accounting principles
as in effect in the United States of America as of any date of
determination.
"Global Security" means a Security that contains
the additional paragraph referred to in footnote 1 to the form
of Debenture and the additional schedule referred to in footnote
2 to the form of Debenture.
"Group of Persons" means any group of Persons or other
entities acting in concert as a partnership or other group
within the meaning of Section 13(d) of the Exchange Act.
"Holder" means a person in whose name a Security is
registered in the records of the Registrar.
"Indebtedness" means, with respect to any Person,
without duplication, (i) any indebtedness of such Person for
money borrowed or for the deferred purchase price of
property or services (other than any such balance that
represents an account payable or any other monetary
obligation to a trade creditor created, incurred, assumed or
guaranteed by such Person in connection with obtaining goods,
materials or services and due within 12 months (or such longer
period for payment as is customarily extended by such trade
creditor) of the incurrence thereof, which account is not
overdue by more than 120 days, according to the original terms
of sale, unless such account payable is being contested in
good faith or has otherwise been extended), (ii) all
capitalized lease obligations, (iii) any such indebtedness or
obligation secured by any Lien on the assets of such Person and
(iv) any such indebtedness or obligation of others which
such Person has directly or indirectly guaranteed, endorsed
with recourse (otherwise than for collection, deposit or other
similar transactions in the ordinary course of business),
agreed to purchase or repurchase or in respect of which such
Person has agreed contingently to supply or advance funds.
"Indenture" means this Indenture, as amended or
supplemented from time to time.
"Issue Date" means the date on which the Debentures
are originally issued under this Indenture.
"Lien" means, with respect to any Person, any mortgage,
pledge, lien, encumbrance, easement, restriction, covenant,
right-of-way, charge or adverse claim affecting title or
resulting in an encumbrance against real or personal property
of such Person, or a security interest of any kind whether
or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any
option, right of first refusal or other similar agreement to
sell in each case securing obligations of such Person and any
filing of or agreement to give any financing statement under the
Uniform Commercial Code (or equivalent statute or statutes) of
any jurisdiction).
"Memorandum" means the Confidential Private Placement
Memorandum, dated June 28, 1996, of the Company relating to the
Securities and the Offering.
3
<PAGE>
"Obligations" means any principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and
other liabilities payable under the documentation governing any
Indebtedness.
"Offering" means the sale of the Securities to the
Purchasers.
"Officers" means the Chairman of the Board, the
President, the Chief Financial Officer, the Treasurer, any
Assistant Treasurer, Controller, Secretary or any Vice President
of the Company or of any Subsidiary Guarantor, as the case may
be.
"Officers' Certificate" means a certificate signed by
two Officers, one of whom who must be the principal executive
officer, principal financial officer or principal accounting
officer of the Company.
"Opinion of Counsel" means an opinion from legal
counsel who is reasonably acceptable to the Trustee. The
counsel may be an employee of or counsel to the Company, any
Subsidiary Guarantor or the Trustee.
"Person" means any individual, corporation,
partnership, limited liability company, joint venture, trust,
estate, unincorporated organization or government or any agency
or political subdivision thereof.
"Property" means with respect to any Person, any
interest of such Person in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible,
including, without limitation, Capital Stock in any other
Person.
"Purchasers" means the initial purchasers of the
Debentures.
"Qualified Capital Stock" means any Capital
Stock that is not Disqualified Capital Stock.
"Registration Rights Agreement" means the Registration
Rights Agreement dated as of the date hereof by and among the
Company and the Purchasers, as such agreement may be amended,
modified or supplemented from time to time.
"Related Person" means (i) any Affiliate of the
Company, (ii) any individual or other Person who directly or
indirectly holds 10% or more of any class of Capital Stock of
the Company, (iii) any relative of such individual by blood,
marriage or adoption not more remote than first cousin and
(iv) any officer or director of the Company.
"Responsible Officer" when used with respect to the
Trustee, means any officer within the Corporate Trust
Office (or any successor group of the Trustee) including any
President, Vice President, Secretary, Assistant Secretary or any
other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated
officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter
is referred because of his knowledge of and familiarity
with the particular subject.
4
<PAGE>
"SEC" means the Securities and Exchange Commission.
"Securities" means the Debentures issued pursuant to
this Indenture.
"Securities Act" means the Securities Act of 1933, as
amended.
"Securities Custodian" means the Person named in
Section 2.3, as custodian with respect to the Securities in
global form, or any successor entity thereto.
"Senior Indebtedness" has the meaning provided in
Section 12.2 hereof.
"Servicios Default Payment" means an increase of
fifty (50) basis points (1/2%) on the interest rate payable on
the Debentures, which increase is payable during such period of
time as a Servicios Guaranty Default exists.
"Servicios Guaranty Default" means the failure of
Servicios, at anytime after August 3, 1996, to have obtained the
approval of its shareholders to the incurrence by Servicios of
its covenants and obligations under this Indenture.
"Shelf Registration Statement" means a registration
statement filed with the SEC relating to the sale by the
holders thereof of Common Stock to be acquired upon conversion
of the Securities.
"Subsidiary" means any corporation or other entity of
which securities or other ownership interests having ordinary
voting power to elect a majority of the Board of Directors or
other Persons shall, at the time as of which any
determination is being made, be owned by the Company either
directly or through Subsidiaries.
"Subsidiary Guarantors" means each of (i) Yale E.
Key, (ii) WellTech Eastern, (iii) Odessa, (iv) Clint Hurt,
(v) Servicios and (vi) any other Subsidiary of the Company
that executes a Subsidiary Guarantee in accordance with the
provisions of this Indenture, and their respective
successors and assigns.
"TIA" means the Trust Indenture Act of 1939 (15
U.S.C. ss.ss. 77aaa-77bbbb), as amended by the Trust
Indenture Reform Act of 1990, and as in effect on the date on
which this Indenture is qualified under the TIA.
"Trading Day" means a day on which the American Stock
Exchange and the NASDAQ --NMS are open for the transaction of
business.
"Transfer Restricted Securities" means Securities
that bear or are required to bear the legend set forth in
Section 2.6 hereof.
"Trustee" means the party named as such above
until a successor replaces it in accordance with the
applicable provisions of this Indenture and thereafter means
the successor serving hereunder.
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"U.S. Government Obligations" means direct
obligations of the United States of America, or any agency or
instrumentality thereof for the payment of which the full faith
and credit of the United States of America is pledged.
"Voting Stock" means, with respect to any Person,
securities of any class or classes of Capital Stock in such
Person entitling the holders thereof (whether at all times
or only so long as no senior class of stock has voting power
by reason of any contingency) to vote in the election of
members of the Board of Directors or other governing body of
such Person.
"Wholly-Owned Subsidiary" means a Subsidiary, all
the Capital Stock (other than directors' qualifying shares,
if applicable) of which is owned by the Company or another
Wholly Owned Subsidiary.
Section 1.2 Other Definitions.
Defined in Term
Section
"Bankruptcy
Law"........................................................6.1
Change of
Control"....................................................4.10
"Change of Control
Date"...............................................4.10
"Change of Control
Offer"..............................................4.10
"Change of Control Payment
Date".......................................4.10
"Custodian"......................................................
.......6.1
"Event of
Default"......................................................6.1
"Expiration
Time"......................................................11.5
"Legal
Holiday"........................................................1
3.8
"Paying
Agent"..........................................................2
.3
"Purchased
Shares".....................................................11.5
"Registrar"......................................................
.......2.3
"Representative".................................................
......12.2
"Securities
Register"...................................................2.3
Section 1.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the
TIA, the provision is incorporated by reference in and made a
part of this Indenture.
The following TIA terms used in this Indenture
have the following meanings:
"indenture securities" means the Securities and
the Subsidiary Guarantees;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
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"indenture trustee" or "institutional trustee" means
the Trustee;
"obligor" on the Securities means the Company, any
successor obligor and any Subsidiary Guarantor upon the
Securities.
All other terms used in this Indenture that are
defined by the TIA, defined by TIA reference to another statute
or defined by SEC rule under the TIA have the meanings so
assigned to them.
Section 1.4 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise
defined has the
meaning assigned to it in accordance
with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the
plural, and in the
plural include the singular; and
(5) provisions apply to successive
events and
transactions.
ARTICLE 2
THE SECURITIES
Section 2.1. Form and Dating; Securities in Global Form.
The Debentures and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A
hereto, which is incorporated in and made a part of this
Indenture and shall be in a principal amount at maturity of no
greater than $52,000,000. The Subsidiary Guarantees shall be
substantially in the form of Exhibit B hereto, the terms of
which are incorporated in and made part of this Indenture.
The Securities may have notations, legends or
endorsements as required by law, stock exchange rule,
agreements to which the Company is subject or usage. Each
Security shall be dated the date of its authentication. The
Securities shall be issued initially in denominations of
$1,000 and whole multiples thereof.
The terms and provisions contained in the
Securities, and the Subsidiary Guarantee in the form annexed
hereto as Exhibit B, shall constitute, and are hereby
expressly made, a part of this Indenture. To the extent
applicable, the Company, the Subsidiary Guarantors and the
Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound
thereby.
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The Debentures will initially be issued in global
form, substantially in the form of Exhibit A. Such Global
Securities shall represent such of the outstanding Securities
as shall be specified therein and each shall provide that it
shall represent the aggregate amount of outstanding Securities
from time to time endorsed thereon and that the aggregate
amount of outstanding Securities represented thereby may
from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any
endorsement of a Global Security to reflect the amount of any
increase or decrease in the amount of outstanding Securities
represented thereby shall be made by the Trustee or the
Securities Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof.
Payment of the principal of and any interest on any
Security in global form shall be made to the Holder thereof.
Section 2.2. Execution and Authentication.
Officers of the Company shall sign and attest the
Securities for the Company by manual or facsimile signature.
The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no
longer holds that office at the time the Security is
authenticated, the Security shall nevertheless be valid.
A Security shall not be valid until authenticated
by the manual signature of the Trustee. The signature of
the Trustee shall be conclusive evidence that the Security has
been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Securities
shall be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon receipt of an Officers'
Certificate directing it to do so, authenticate Securities
for original issue up to an aggregate principal amount
stated in Section 2.1. The aggregate principal amount of
Securities outstanding at any time may not exceed such
amount, except as provided in Section 2.7.
The Trustee may appoint an authenticating agent
acceptable to the Company to authenticate Securities.
Unless limited by the terms of such appointment, an
authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent
to deal with the Company or an Affiliate.
Section 2.3. Registrar, Paying Agent, Depository and Securities
Custodian.
The Company shall maintain (i) an office or agency
where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and (ii) an office or agency
where Securities may be presented for payment (the "Paying
Agent"). The Registrar shall keep a register of the Securities
and of their transfer and exchange (the "Securities Register").
The Company may appoint one or more co-Registrars and one or
more additional Paying Agents. The term "Paying Agent"
includes any additional Paying Agent. The Company may change any
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<PAGE>
Paying Agent, Registrar or co-Registrar without notice to
any Holder. The Company shall notify the Trustee and the
Trustee shall notify the Holders of the name and address of
any Agent not a party to this Indenture. If the Company fails
to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent, Registrar or co-
Registrar. The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture, which
shall incorporate the provisions of the TIA. The agreement
shall implement the provisions of this Indenture that relate to
such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing
notice, the Trustee shall act as such, and shall be entitled to
appropriate compensation in accordance with Section 7.7 hereof.
The Company initially appoints the Trustee as
Registrar, Paying Agent and agent for service of notices and
demands in connection with the Securities.
The Company initially appoints The Depositary Trust
Company ("DTC") to act as Depositary with respect to the Global
Securities.
The Company initially appoints Cede & Co. to act
as Securities Custodian with respect to the Global Securities.
Section 2.4. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other
than the Trustee to agree in writing that the Paying Agent
will hold in trust for the benefit of Holders or the Trustee
all money held by the Paying Agent for the payment of
principal or interest on the Securities, and will notify
the Trustee of any default by the Company or any Subsidiary
Guarantor in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all
money held by it to the Trustee. The Company at any time
may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company) shall have no further liability for
the money delivered to the Trustee. If the Company or
any Subsidiary Guarantor acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit
of the Holders all money held by it as Paying Agent.
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form
as is reasonably practicable the most recent list available
to it of the names and addresses of Holders and shall otherwise
comply with TIA ss.312(a). If the Trustee is not the Registrar,
the Company and/or any Subsidiary Guarantor shall furnish to
the Trustee at least seven Business Days before each interest
payment date and at such other times as the Trustee may
request in writing a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of
Holders, including the aggregate principal amount of Securities
held by them, and the Company and the Subsidiary Guarantors
shall otherwise comply with TIA ss.312(a).
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Section 2.6 Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities.
When Definitive Securities are presented to the Registrar or
co-Registrar with a request:
(x) to register the transfer of the Definitive
Securities; or (y) to exchange such Definitive
Securities for an equal principal amount of
Definitive Securities of other authorized
denominations,
the Registrar or co-Registrar shall register the transfer or
make the exchange as requested if its requirements for such
transactions are met; provided, however, that the
Definitive Securities presented or surrendered for
registration of transfer or exchange:
(i) shall be duly endorsed or accompanied by a
written instruction of transfer in form
satisfactory to the Registrar or co-Registrar,
duly executed by the Holder thereof or by his attorney,
duly authorized in writing; and
(ii) in the case of Transfer Restricted Securities
that are Definitive Securities, shall be
accompanied by the following additional
information and documents, as applicable:
(A) if such Transfer Restricted Security is
being delivered to the Registrar or co-
Registrar by a Holder for registration in
the name of such Holder, without transfer, a
certification from such Holder to that effect; or
(B) if such Transfer Restricted Security is
being transferred to a qualified
institutional buyer (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A under
the Securities Act or pursuant to an
exemption from registration in accordance
with Rules 144 or 145 or Regulation S
under the Securities Act or pursuant to an
effective registration statement under the Securities Act, a
certification to that effect from the
transferee or transferor and an Opinion of
Counsel from the transferee or transferor
reasonably acceptable to the Company and to the
Registrar or co- Registrar to the effect that such transfer
is in compliance with the Securities Act, or
(C) if such Transfer Restricted Security is
being transferred in reliance on another
exemption from the registration
requirements of the Securities Act, a certification to that
effect and an Opinion of Counsel reasonably
acceptable to the Company and to the
Registrar or co-Registrar to the effect
that such transfer is in compliance with the
Securities Act.
(b) Restrictions on Transfer of a Definitive Security
for a Beneficial Interest in a Global Security. A Definitive
Security may not be exchanged for a beneficial interest in a
Global Security except upon satisfaction of the
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<PAGE>
requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to
the Trustee, together with:
(A) if such Definitive Security is a
Transfer Restricted Security, certification
in form and substance satisfactory to the
Trustee that such Definitive Security is being
transferred to a qualified institutional buyer (as
defined in Rule 144A under the Securities
Act) in accordance with Rule 144A under the
Securities Act; and
(B) whether or not such Definitive Security
is a Transfer Restricted Security,
written instructions directing the Trustee
to make, or to direct the Securities Custodian to
make, an endorsement on the Global Security to reflect
an increase in the aggregate principal amount
of the Securities represented by the Global
Security,
then the Trustee shall cancel such Definitive Security and
cause, or direct the Securities Custodian to cause, in
accordance with the standing instructions and procedures
existing between the Depositary and the Securities Custodian,
the aggregate principal amount of Securities represented by
the Global Security to be increased accordingly. If no Global
Securities are then outstanding, the Company shall issue and
the Trustee shall authenticate a new Global Security in the
appropriate principal amount.
(c) Transfer and Exchange of Global Securities.
The transfer and exchange of Global Securities or beneficial
interests therein shall be effected through the Depositary in
accordance with this Indenture (including the restrictions
on transfer set forth herein) and the procedures of the
Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global
Security for a Definitive Security.
(i) Any person having a beneficial interest in a
Global Security may upon request exchange such
beneficial interest for a Definitive Security.
Upon receipt by the Trustee of written instructions (or
such other form of instructions as is customary
for the Depositary) from the Depositary or its
nominee on behalf of any person having a
beneficial interest in a Global Security and upon
receipt by the Trustee of a written order or such other form
of instructions as is customary for the
Depositary or the person designated by the
Depositary as having such a beneficial interest
containing registration instructions and, in the case of
a beneficial interest in a Transfer Restricted
Security only, the following additional
information and documents (all of which may be
submitted by facsimile):
(A) if such beneficial interest is being
transferred to the person designated by the
Depositary as being the beneficial owner, a
certification from such person to that effect; or
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<PAGE>
(B) if such beneficial interest is being
transferred to a qualified institutional
buyer (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from
registration in accordance with Rules 144
or 145 or Regulation S under the Securities
Act or pursuant to an effective registration
statement under the Securities Act, a certification to that
effect from the transferee or transferor and an
Opinion of Counsel from the transferee
or transferor reasonably acceptable to
the Company and to the Registrar or
co-Registrar to the effect that such transfer is in
compliance with the Securities Act; or
(C) if such beneficial interest is being
transferred in reliance on another exemption
from the registration requirements of the
Securities Act, a certification to that effect from the
transferee or transferor and an Opinion of Counsel
from the transferee or transferor
reasonably acceptable to the Company and
to the Registrar or co-Registrar to the effect
that such transfer is in compliance with the Securities Act,
then the Trustee or the Securities
Custodian, at the direction of the Trustee,
will cause, in accordance with the standing
instructions and procedures existing between the
Depositary and the Securities Custodian, the
aggregate principal amount of the Global
Security to be reduced and, following such
reduction, the Company will execute and, upon
receipt of an authentication order in the form of an
Officers' Certificate, the Trustee will
authenticate and deliver to the transferee,
as the case may be, a Definitive Security.
(ii) Definitive Securities issued in exchange
for a beneficial interest in a Global
Security pursuant to this Section 2.6(d)
shall be registered in such names and in such
authorized denominations as the Depositary, pursuant
to instructions from its direct or indirect
participants or otherwise, shall instruct
the Trustee. The Trustee shall deliver such
Definitive Securities to the persons in whose
names such Securities are so registered.
(e) Restrictions on Transfer and Exchange of
Global Securities. Notwithstanding any other provisions of
this Indenture (other than the provisions set forth in
subsection (f) of this Section 2.6), a Global Security may not
be transferred as a whole except by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or
by the Depositary or any such nominee to a successor
Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Securities in
Absence of Depositary. If at any time:
(i) the Depositary for the Securities notifies the
Company that the Depositary is unwilling or unable
to continue as Depositary for the Global
Securities and a successor Depositary for the Global
Securities is not appointed by the Company within 90 days
after delivery of such notice; or
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(ii) the Company, at its sole discretion, notifies
the Trustee in writing that it elects to cause
the issuance of Definitive Securities under
this Indenture,
then the Company will execute, and the Trustee, upon receipt
of an Officers' Certificate requesting the authentication and
delivery of Definitive Securities, will authenticate and deliver
Definitive Securities, in an aggregate principal amount equal
to the principal amount of the Global Securities, in exchange
for such Global Securities.
(g) Legends.
(i) Except as permitted by the following
paragraph (ii), each Debenture certificate
evidencing the Global Securities and the
Definitive Securities (and all Debentures issued in
exchange therefor or substitution thereof)
shall bear a legend in substantially the
following form:
THE DEBENTURE EVIDENCED HEREBY HAS NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE, SECURITIES LAWS,
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (A)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE
DEBENTURE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2)
AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL
ISSUANCE OF THE DEBENTURE EVIDENCED HEREBY RESELL OR OTHERWISE
TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH DEBENTURE EXCEPT (A) TO KEY
ENERGY GROUP, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO AMERICAN STOCK TRANSFER & TRUST
COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE DEBENTURE EVIDENCED HEREBY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT OR (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE)
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE
DEBENTURE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THE DEBENTURE EVIDENCED HEREBY WITHIN
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH DEBENTURE, THE
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HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE
HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS
TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL
ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON,
THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO AMERICAN
STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE, SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS
LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THREE YEARS
FROM THE ORIGINAL ISSUANCE OF THE DEBENTURE EVIDENCED HEREBY.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
(ii) Upon any sale or transfer of a Transfer
Restricted Security (including any Transfer
Restricted Security represented by a Global
Security) pursuant to an effective registration statement
under the Securities Act or satisfying the condition set
forth in subclause (2)(E) of the legend set
forth in the immediately preceding paragraph:
(A) in the case of any Transfer Restricted
Security that is a Definitive Security,
the Registrar or co-Registrar shall permit
the Holder thereof to exchange such Transfer
Restricted Security for a Definitive Security that does
not bear the legend set forth above and
rescind any restriction on the transfer of
such Transfer Restricted Security; and
(B) any such Transfer Restricted Security
represented by a Global Security shall not
be subject to the provisions set forth in (i)
above (such sales or transfer being subject
only to the provisions of Section 2.6(c) hereof); provided,
however, that with respect to any request for
an exchange of a Transfer Restricted
Security that is represented by a Global
Security for a Definitive Security that does not bear
a legend, which request is made in reliance upon Rule
144 or 145, the Holder thereof shall
certify in writing to the Registrar or
co-Registrar and shall provide an Opinion of
Counsel to the Registrar or co-Registrar that such request
is being made pursuant to Rule 144 or 145.
(h) Cancellation or Adjustment of Global
Security. At such time as all beneficial interests in a Global
Security have either been exchanged for Definitive Securities,
redeemed, repurchased or canceled, such Global Security
shall be returned to or retained and canceled by the Trustee.
At any time before such cancellation, if any beneficial
interest in a Global Security is exchanged for Definitive
Securities, redeemed, repurchased or canceled, the principal
amount of Securities represented by such Global Security
shall be reduced and an endorsement shall be made on such Global
Security, by the Trustee or the Securities Custodian, at the
direction of the Trustee, to reflect the reduction.
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(i) Obligations with respect to Transfers and
Exchanges of Definitive Securities.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the
Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's
or co-Registrar's request.
(ii) No service charge shall be made to a Holder for
any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental
charge payable in connection therewith (other than any
such transfer taxes or similar governmental
charge payable upon exchanges or transfers
pursuant to Sections 2.10, 3.6 and 9.5 hereof).
(iii)The Registrar or co-Registrar shall not be
required to register the transfer or exchange of
any Definitive Security selected for redemption
in whole or in part, except the unredeemed portion of
any Definitive Security being redeemed in part.
(iv) All Definitive Securities and Global Securities
issued upon any registration of transfer or
exchange of Definitive Securities or Global
Securities shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same
benefits under this Indenture as the Definitive
Securities or Global Securities surrendered upon
such registration of transfer or exchange.
(v) The Company shall not be required:
(A) to issue, register the transfer of or
exchange Securities during a period
beginning at the opening of business 15 days
before the day of any selection of Securities for redemption
under Section 3.2 and ending at the close of
business of the day of selection, or
(B) to register the transfer or exchange of
any Security so selected for redemption
in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
(vi) Before due presentment for registration of
transfer of any Security, the Trustee, any
Agent and the Company may deem and treat the
person in whose name any Security is registered as the
absolute owner of such Security for the purpose of
receiving payment of principal of and interest on
such Security and for all other purposes
whatsoever, whether or not such Security is
overdue, and neither the Trustee, any Agent nor the Company
shall be affected by notice to the contrary.
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Section 2.7 Replacement Securities.
If any mutilated Security is surrendered to the Trustee
or the Company, or the Trustee receives evidence to its
satisfaction of the destruction, loss or theft of any Security,
the Company shall issue and the Trustee, upon the written order
of the Company signed by two Officers of the Company, shall
authenticate a replacement Security if the Trustee's
requirements for replacements of Securities are met. If
required by the Trustee or the Company, an indemnity bond must
be supplied by the Holder that is sufficient in the judgment of
the Trustee and the Company to protect the Company, the
Subsidiary Guarantors, the Trustee, any Agent or any
authenticating agent from any loss that any of them may suffer
if a Security is replaced. The Company and the Trustee may
charge for their expenses in replacing a Security.
Every replacement Security is an additional obligation
of the Company.
Section 2.8 Outstanding Securities.
The Securities outstanding at any time are all
the Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancellation and
those reductions in the interests in a Global Security effected
by the Trustee hereunder, and those described in this Section
2.8 as not outstanding.
If a Security is replaced pursuant to Section 2.7
hereof, it ceases to be outstanding unless the Trustee
receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser.
If the principal amount of any Security is
considered paid under Section 4.1 hereof, it ceases to be
outstanding, and interest on it ceases to accrue.
Except as set forth in Section 2.9 hereof, a Security
does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Security.
Section 2.9 Treasury Securities.
In determining whether the Holders of the required
principal amount of Securities have concurred in any direction,
waiver or consent, Securities owned by the Company, any
Subsidiary Guarantor or any Affiliate of the Company or any
Subsidiary Guarantor (whether directly or by or through the
Depository) shall be considered as though not outstanding,
except that for purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or
consent, only Securities that a Responsible Officer knows
to be so owned shall be so considered.
Section 2.10 Temporary Securities.
Until Definitive Securities are ready for delivery,
the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be
substantially in the form of Definitive Securities but may have
variations that the Company and the Trustee consider
appropriate for temporary Securities. Without unreasonable
delay, the Company shall prepare and
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the Trustee, upon receipt of an Officers' Certificate of the
Company directing it to do so, shall authenticate Definitive
Securities in exchange for temporary Securities. Until such
exchange, temporary Securities shall be entitled to the same
rights, benefits and privileges as Definitive Securities.
Section 2.11 Cancellation.
The Company at any time may deliver Securities to
the Trustee for cancellation. The Registrar and Paying
Agent shall forward to the Trustee any Securities surrendered
to them for registration of transfer, exchange or payment.
The Trustee shall cancel all Securities surrendered for
registration of transfer, exchange, payment, conversion,
replacement or cancellation and shall destroy canceled
Securities and certification of their destruction shall be
delivered to the Company (subject to the record retention
requirement of the Exchange Act) unless by a written order,
signed by two Officers of the Company, the Company shall direct
that canceled Securities be returned to it. The Company may not
issue new Securities to replace Securities that it has redeemed
or paid, converted or that have been delivered to the Trustee
for cancellation.
Section 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the
Securities, it shall pay the defaulted interest in any
lawful manner plus, to the extent lawful, interest payable
on the defaulted interest, to the persons who are Holders on
a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five
Business Days before the payment date, in each case at the
rate provided in the Securities and in Section 4.1 hereof. The
Company shall, with the consent of the Trustee, fix or cause to
be fixed each such special record date and payment date. At
least 15 days before the special record date, the Company (or
the Trustee, in the name of and at the expense of the Company)
shall mail to Holders a notice that states the special record
date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3
REDEMPTION
Section 3.1 Notices to Trustee.
If the Company elects to redeem Securities pursuant
to the optional redemption provisions of Section 3.7 hereof, it
shall furnish to the Trustee, at least 60 days but not more than
90 days before a redemption date, an Officers' Certificate
setting forth the Section of this Indenture pursuant to which
the redemption shall occur, the redemption date, the principal
amount of Securities to be redeemed and the redemption price.
If the Company is required to make an offer to
redeem Securities pursuant to a Change of Control, it shall
furnish to the Trustee, within 60 days after a Change of
Control, an Officers' Certificate setting forth (a) the
Section of this Indenture pursuant to which the redemption
shall occur, (b) the date of the Change of Control, (c) the
Change of Control Payment Date, (d) the principal amount of the
Securities offered to be redeemed, (e) a statement that
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a Change of Control has occurred and a description
thereof, and (f) a description of the procedures to be
followed by Holders in order to have their Securities
repurchased.
If the Company is required to increase the
interest rate on the Securities pursuant to the Registration
Rights Agreement or as a Servicios Default Payment, it
shall furnish to the Trustee not more than 15 days before the
date such interest is due to be paid an Officers' Certificate
setting forth the rate at which interest on the Securities is to
be paid. The Company, or the Trustee, at the expense of the
Company, shall notify the Holders of the change in interest
rate by notice sent in accordance with Section 11.10(e) of
this Indenture. Notwithstanding any other provisions of this
Indenture, the Trustee shall have no duty to inquire as to
whether the interest rate on the Securities has increased and
shall not be bound by the terms and conditions of the
Registration Rights Agreement or any other agreements or
documents between the Holders and the Company.
Section 3.2 Selection of Securities to be Redeemed.
If less than all of the Securities are to be
redeemed, the Trustee shall select the Securities to be
redeemed among the Holders of the Securities in accordance with
a method the Trustee considers fair and appropriate (and in
such manner as complies with applicable legal and stock
exchange requirements, if any). In the event of partial
redemption by lot, the particular Securities to be redeemed
shall be selected, unless otherwise provided herein, not less
than 15 nor more than 60 days before the redemption date by
the Trustee from the outstanding Securities not previously
called for redemption.
The Trustee shall promptly notify the Company in
writing of the Securities selected for redemption and, in the
case of any Security selected for partial redemption, the
principal amount thereof to be redeemed. Securities and
portions of them selected shall be in amounts of $1,000 or
whole multiples thereof. Provisions of this Indenture that
apply to Securities called for redemption also apply to
portions of Securities called for redemption.
Section 3.3 Notice of Redemption.
Subject to the provisions of Sections 4.10 and 4.11
hereof, at least 15 days but not more than 60 days before a
redemption date, the Company shall mail a notice of redemption
to each Holder whose Securities are to be redeemed at its
registered address. The notice shall identify the Securities to
be redeemed and shall state:
(a) the redemption date; and that the right to convert
such Securities pursuant to Article 11 hereof shall be
terminated on such date;
(b) the redemption price;
(c) if any Security is being redeemed in part, the
portion of the principal amount of such Security to be
redeemed and that, after the redemption date upon surrender of
such Security, a new Security of the same series of
Securities in principal amount equal to the unredeemed portion
will be issued;
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(d) the name and address of the Paying Agent;
(e) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making
such redemption payment, interest on Securities called for
redemption ceases to accrue on and after the redemption date;
(g) the paragraph of the Securities and Section of
this Indenture pursuant to which the Securities called for
redemption are being redeemed; and
(h) that no representation is made as to the
correctness or accuracy of the CUSIP number, if any, listed in
such notice or printed on the Securities.
At the Company's request, the Trustee shall give
the notice of redemption in the Company's name and at its
expense; provided, however, that the Company shall have
delivered to the Trustee, at least 60 days prior to the
redemption date, an Officers' Certificate requesting that the
Trustee give such notice and setting forth the information to be
stated in such notice as provided in the preceding paragraph.
Section 3.4 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance
with Section 3.3 hereof, Securities called for redemption
become due and payable on the redemption date at the
redemption price. On and after the redemption date, unless
the Company defaults in the payment of the redemption price,
interest shall cease to accrue on the Securities or
portions of them called for redemption and all rights of
Holders of such Securities shall terminate, including
without limitation the right to convert such Securities,
except for the right to receive the redemption price. Upon
surrender to the Paying Agent, such Securities shall be paid
the redemption price plus accrued interest, if any, to the
redemption date, but interest installments whose maturity is
on or before the redemption date shall be payable to the Holder
of record at the close of business on the relevant record dates
referred to in the Securities.
Section 3.5 Deposit of Redemption Price.
One Business Day before the redemption date, the
Company shall deposit with the Trustee or with the Paying Agent
money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date. The
Trustee or the Paying Agent shall return to the Company any
money deposited with the Trustee or the Paying Agent by the
Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all
Securities to be redeemed.
Interest on the Securities to be redeemed shall cease
to accrue on the applicable redemption date, whether or not
such Securities are presented for payment, if the Company
provides money sufficient to pay the redemption price of and
accrued interest on all Securities to be redeemed on such
date. If any
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Security called for redemption shall not be so paid
upon surrender for redemption because of the failure of the
Company to comply with the preceding paragraph, interest shall
be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any
interest not paid on such unpaid principal, in each case
at the rate provided in the Securities and in Section 4.1
hereof.
Section 3.6 Securities Redeemed in Part.
Upon surrender of a Definitive Security that is
redeemed in part, the Company shall issue and the Trustee
shall authenticate for the Holder at the expense of the
Company a new Security of the same series equal in principal
amount to the unredeemed portion of the Definitive Security
surrendered.
Section 3.7 Optional Redemption.
The Company may redeem at any time on or after July
15, 1999, all or any portion of the Securities outstanding
at the following redemption prices expressed as a percentage
of the principal amount thereof, if the Securities are redeemed
during the 12 month period beginning July 15, of the following
years:
Year
Percentage
1999...........................................................
104%
2000.......................................................
.... 103%
2001.......................................................
.... 102%
2002.......................................................
.... 101%
Any redemption pursuant to this Section 3.7 shall
be made, to the extent applicable, pursuant to the
provisions of Sections 3.1 through 3.6 hereof.
ARTICLE 4
COVENANTS
Section 4.1 Payment of Securities.
The Company shall pay the principal of and interest on
the Securities on the dates and in the manner provided in
the Securities. Principal and interest shall be considered
paid on the date due if the Paying Agent, if other than the
Company or a Subsidiary of the Company, holds at least one
Business Day before that date money deposited by the Company in
immediately available funds and designated for and
sufficient to pay all principal and interest then due. Such
Paying Agent shall return to the Company, no later than five
days following the date of payment, any money (including
accrued interest) that exceeds such amount of principal and
interest paid on the Securities.
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The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue
principal at the rate equal to 1% per annum in excess of the
then applicable interest rate on the Securities to the extent
lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
Section 4.2 Maintenance of Office or Agency.
The Company shall maintain in the Borough of
Manhattan, New York, New York, an office or agency (which may
be an office of the Trustee, Registrar or co-Registrar) where
Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company
in respect of the Securities and this Indenture may be served.
The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to furnish the
Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company also may from time to time designate
one or more other offices or agencies where the Securities may
be presented or surrendered for any or all such purposes and
may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any
manner relieve the Company of its obligation to maintain an
office or agency in the Borough of Manhattan, New York, New
York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust
Office of the Trustee as one such office or agency of the
Company in accordance with Section 2.3.
Section 4.3 SEC Reports.
(a) So long as any of the Securities remain outstanding
and the Company is subject to the reporting requirements of the
Exchange Act, the Company shall file with the SEC and
distribute to the Trustee for delivery to the Holders of the
Securities copies of the quarterly and annual reports required
to be filed with the SEC, and if the Company ceases to become
subject to the reporting requirements of the Exchange Act,
the Company shall distribute to the Trustee for delivery to
the Holders of the Securities copies of the quarterly and annual
financial information that would have been required to be
filed with the SEC pursuant to the Exchange Act had the
Company been subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act. All such financial
information shall include consolidated financial
statements (including footnotes) prepared in accordance with
GAAP. Such annual financial information shall also include an
opinion thereon expressed by an independent accounting firm
of established national reputation. All such consolidated
financial statements shall be accompanied by a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
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(b) The financial information to be distributed
to Holders of Securities shall be filed with the Trustee and
shall be mailed by the Trustee to the Holders at their
addresses appearing in the register of Securities
maintained by the Registrar, within 15 days after receipt of
such financial information. The Company shall file such
financial information with the Trustee within 15 days after it
is filed with the SEC, if required, but in no event later
than 105 days after the end of the Company's fiscal year or
later than 60 days after the end of each of the first three
quarters of each such fiscal year, in the case of quarterly
reports; provided, however, that the Trustee's only
obligation is to mail the financial information that it
receives from the Company to the Holders and not to obtain such
information from the Company.
(c) No Subsidiary Guarantor shall be required to
file separate financial statements or a separate
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" if its results are included and
discussed in the Company's consolidated financial statements
and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations" relating thereto filed
with the Trustee pursuant to Section 4.3(b).
(d) The Company and the Subsidiary Guarantors shall
make such financial information described in Section 4.3 (a)
available to prospective purchasers of the Debentures.
(e) The Company and each Subsidiary Guarantor shall
provide the Trustee with a sufficient number of copies of all
reports and other documents and information that the
Trustee may be required to deliver to the Holders under this
Section 4.3.
Section 4.4 Compliance Certificate.
(a) The Company shall deliver to the Trustee, within
120 days after the end of each fiscal year, an Officers'
Certificate stating that a review of the activities of the
Company and its Subsidiaries (including the Subsidiary
Guarantors) during the preceding fiscal year has been made under
the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and
fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate,
that to the best of his knowledge each has kept, observed,
performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions
hereof (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of
which he may have knowledge and what action he is taking or
proposes to take with respect thereto) and that to the best of
his knowledge no event has occurred and remains in existence
by reason of which payments on account of the principal of or
interest, if any, on the Securities or the Subsidiary
Guarantees are prohibited or if such event has occurred, a
description of the event and what action each signing
Officer is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public
Accountants, the financial statements delivered pursuant to
Section 4.3 above shall be accompanied by a written
statement of the Company's independent public accountants (who
shall be a firm of established national reputation) that in
making the examination necessary for
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certification of such financial statements nothing has come to
their attention which would lead them to believe that the
Company or any of the Subsidiary Guarantors has violated any
provisions of Sections 4.1, 4.5, 4.7, 4.9, 4.10 or 4.11 hereof
or of Article 5 or Article 10 of this Indenture or, if any
such violation has occurred, specifying the nature and period
of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to
any person for any failure to obtain knowledge of any
such violation.
(c) The Company and each of the Subsidiary Guarantors
shall, so long as any of the Securities are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming
aware of any Default or Event of Default or default in the
performance of any covenant, agreement or condition contained
in this Indenture an Officers' Certificate specifying such
Default, Event of Default or default and what action the
Company and the Subsidiary Guarantors are taking or propose to
take with respect thereto.
Section 4.5 Compliance with Laws; Taxes.
Each of the Company and the Subsidiary Guarantors
shall, and shall cause each of its Subsidiaries to, comply with
all statutes, laws, ordinances or government rules and
regulations to which it is subject, noncompliance with which
would materially adversely affect the business, prospects,
earnings, properties, assets or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole.
Each of the Company and the Subsidiary Guarantors
shall, and shall cause each of its respective Subsidiaries
to, pay before delinquency all material taxes, assessments,
and governmental levies except as contested in good faith and by
appropriate proceedings.
Section 4.6 Stay, Extension and Usury Laws.
Each of the Company and the Subsidiary Guarantors
covenants (to the extent that each may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the
performance of this Indenture; and each of the Company and the
Subsidiary Guarantors (to the extent that each may lawfully do
so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein
granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been
enacted.
Section 4.7 Corporate Existence.
Subject to Sections 4.8 and 10.3 and Article 5
hereof, each of the Company and the Subsidiary Guarantors
shall do or cause to be done all things necessary to preserve
and keep in full force and effect (a) their corporate
existence, and the corporate, partnership or other existence
of each of their Subsidiaries, in accordance with their
respective organizational documents (as the same may be amended
from time to time) of each Subsidiary and (b) their (and
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their Subsidiaries') rights (charter and statutory),
licenses and franchises; provided, however, that the Company
and the Subsidiary Guarantors shall not be required to preserve
any such right, license or franchise, or the corporate,
partnership or other existence of any of their Subsidiaries,
if the Board of Directors of the Company or such Subsidiary
Guarantor, as the case may be, shall determine that the
preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material
respect to the Holders.
Section 4.8 Liquidation.
The Board of Directors or the stockholders of the
Company may not adopt a plan of liquidation that provides for,
contemplates or the effectuation of which is preceded by (a)
the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company otherwise than
substantially as an entirety (Section 5.1 of this Indenture
being the Section hereof that governs any such sale, lease,
conveyance or other disposition substantially as an entirety)
and (b) the distribution of all or substantially all of
the proceeds of such sale, lease, conveyance or other
disposition and of the remaining assets of the Company to the
holders of Capital Stock of the Company, unless the Company,
before making any liquidating distribution pursuant to such
plan, makes provision for the satisfaction of the
Company's Obligations hereunder and under the Securities as
to the payment of principal and premium thereon, if any, and
interest. The Company shall be deemed to make provision for such
payments only if (x) the Company delivers in trust to the
Trustee or Paying Agent (other than the Company or its
Subsidiaries) money or U.S. Government Obligations maturing
as to principal and interest in such amounts and at such times
as are sufficient without consideration of any
reinvestment of such interest to pay the principal of and
premium on, if any, and accrued interest on the Securities, or
(y) there is an express assumption and observance of all
covenants and conditions to be performed by the Company
hereunder by the execution and delivery of a supplemental
indenture in form satisfactory to the Trustee by a Person that
acquires or will acquire (otherwise than pursuant to a lease) a
portion of the assets of the Company and which Person
will have Consolidated Net Worth (immediately after the
acquisition) equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the acquisition
and which is organized and existing under the laws of the
United States, any State thereof or the District of Columbia;
provided, however, that the Company shall not make any
liquidating distribution until after the Company shall have
certified to the Trustee pursuant to an Officers' Certificate
at least five days before the making of any liquidating
distribution that it has complied with the provisions of this
Section 4.8 and that no Default or Event of Default then
exists or would occur as a result of any such
liquidating distribution.
Section 4.9 Limitation on Dispositions of Assets.
The Company shall not, and shall not permit any of its
Subsidiaries to, sell, transfer or otherwise dispose of
all or substantially all of its properties or assets
(including by way of a sale and leaseback) except in
accordance with the provisions of Section 5.1 hereof.
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Section 4.10 Change of Control.
If, at any time, (a) an event or series of events by
which any Person or Group of Persons shall, as a result of a
tender or exchange offer, open market purchase, privately
negotiated purchases, merger, consolidation or otherwise,
have become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of 50% or more of the combined
voting power of the then outstanding Voting Stock and warrants
or options to acquire such Voting Stock, calculated on a
fully-diluted basis, of the Company, (b) the Company is merged
with or into another corporation with the effect that
immediately after such transaction the stockholders of the
Company hold less than a majority of the combined voting
power of the then outstanding Voting Stock of the Person
surviving such transaction or, (c) the direct or indirect, sale,
lease, exchange or other transfer to any Person or Group of
Persons of all or substantially all of the assets of the
Company (each a "Change of Control" and the time of such
Change of Control being referred to as the "Change of Control
Date"), then the Company shall notify the Holders in writing of
such occurrence and shall make an offer to purchase (as the
same may be extended in accordance with applicable law, the
"Change of Control Offer") on a Business Day (the "Change of
Control Payment Date") not later than 60 days following each
Change of Control Date all then outstanding Securities at a
purchase price equal to 100% of the principal amount thereof
plus accrued and unpaid interest thereon to the Change of
Control Payment Date, if any. The Change of Control Offer shall
be mailed by the Company not less than 30 days nor more than 45
days before any Change of Control Payment Date to Holders of
Securities at their last registered address with a copy to the
Trustee and the Paying Agent and shall set forth (w) notice that
a Change of Control has occurred and that each Holder of
Securities then outstanding has the right to require the Company
to repurchase, for cash, all or any portion (which is equal to
$1,000 or a whole multiple thereof) of such Holder's
Securities at 100% of the principal amount thereof plus accrued
and unpaid interest thereon to the Change of Control Payment
Date, (x) the Change of Control Payment Date, (y) a description
of the Change of Control and (z) a description of the
procedures to be followed by such Holder in order to have its
Securities repurchased. The Change of Control Offer shall
remain open for not less than 30 days, nor more than 45 days,
and until the close of business on any such Change of
Control Payment Date. If the Change of Control Payment Date is
on or after an interest payment record date and on or before
the related Interest Payment Date, any accrued interest
will be paid to the person in whose name a Security is
registered at the close of business on such record date,
and no additional interest will be payable to Holders who
tender a Security pursuant to the Change of Control Offer.
The Company shall comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are
applicable, in the event that a Change of Control occurs and the
Company is required to repurchase the Securities pursuant to
this Section 4.10.
On the Change of Control Payment Date, the Company
shall (x) accept for payment Securities or portions thereof
tendered pursuant to the Change of Control Offer, (y)
deposit with the Paying Agent money sufficient to pay the
purchase price of all Securities or portions thereof so tendered
and (z) deliver to the Trustee Securities so accepted together
with an Officers' Certificate stating the Securities or
portions thereof tendered to the Company. The Paying Agent
shall promptly mail to the Holders of Securities so accepted
payment in an
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amount equal to the purchase price and the Trustee shall
promptly authenticate and mail to such Holders a new Security
of the same series equal in principal amount to any unpurchased
portion of the Security surrendered.
Section 4.11 Additional Subsidiary Guarantees.
If the Company or any of its Subsidiaries shall
transfer or cause to be transferred in one, or a series of
related transactions, any assets, businesses, divisions, real
property or equipment having a book value in excess of
$1,000,000 to any Subsidiary that is not a Subsidiary
Guarantor, or if the Company or any of its Subsidiaries shall
acquire another Subsidiary having assets with a book value
in excess of $1,000,000, the Company shall (a) cause such
transferee Subsidiary or acquired Subsidiary, as the case
may be, to execute a Subsidiary Guarantee having the same terms
and conditions as those set forth in Article 10 hereof and (b)
deliver to the Trustee an Opinion of Counsel, in form and
substance satisfactory to the Trustee, that such
Subsidiary Guarantee is a legally valid, binding and
enforceable obligation of such Subsidiary Guarantor, subject
to customary exceptions for bankruptcy and equitable
principles.
Section 4.12 Rule 144A Information Requirement.
The Company and the Subsidiary Guarantors have agreed
to furnish to the Holders or beneficial holders of Debentures
and prospective purchasers of Debentures designated by the
holders of Transfer Restricted Securities, upon their
request, the information required to be delivered pursuant
to Rule 144(d)(4) under the Securities Act unless and until
such time as the Company has registered the Debentures for
resale under the Securities Act.
ARTICLE 5
SUCCESSORS
Section 5.1 When the Company May Merge, etc.
The Company will not consolidate or merge with or into
(whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose
of, or permit any of its Subsidiaries to sell, transfer,
lease, convey or otherwise dispose of all or substantially all
of its and its Subsidiaries' properties or assets (determined
on a consolidated basis for the Company and its Subsidiaries
taken as a whole), in one or more related transactions, to
another Person or entity (other than a merger between the
Company and any Wholly-Owned Subsidiary of the Company) unless:
(a) the Company survives such merger or
such Person is a corporation organized and existing
under the laws of the United States of America, one of
the states thereof or the District of Columbia, and
expressly assumes by supplemental indenture all of the
obligations under the Securities, the Indenture, the
Registration Rights Agreement and all other agreements
pertaining thereto,
(b) immediately after giving effect to such
transaction, no Default or Event of Default shall have
occurred and be continuing, and
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(c) immediately after giving effect to such
transaction, the Consolidated Net Worth of the
resulting, surviving corporation is not less than that
of the Company immediately before the transaction.
The Company shall deliver to the Trustee before the
consummation of the proposed transaction an Officers'
Certificate to the foregoing effect and an Opinion of Counsel
to the effect that such merger, sale, assignment, transfer,
lease, conveyance or other disposition and, if applicable,
such Supplemental Indenture, comply with this Indenture and
all conditions precedent to such merger, sale, assignment,
transfer, lease, conveyance or other disposition have been
satisfied. The Trustee shall be entitled to conclusively rely
upon such Officers' Certificate and Opinion of Counsel.
Section 5.2 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale,
lease, conveyance or other disposition of all or
substantially all of the assets of the Company or its
Subsidiaries in accordance with Section 5.1 hereof, the
successor corporation formed by such consolidation or into or
with which the Company is merged or to which such sale, lease,
conveyance or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of
the Company under this Indenture with the same effect as if
such successor person has been named as the Company,
herein; provided, however, that the Company shall not be
released or discharged from the obligation to pay the
principal of or interest on the Securities.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1 Events of Default.
The following shall constitute an "Event of Default":
(a) default in the payment of principal of, or premium
if any, on, the Securities when due at maturity, upon
repurchase, upon acceleration or otherwise, including
failure of the Company to repurchase the Securities
following a Change of Control and failure to make any
redemption payment when due;
(b) default in the payment of any installment of
interest on the Securities when due (including any interest
payable in connection with any redemption payment) and
continuance of such Default for more than 30 days;
(c) default on any other Indebtedness of the Company
or any Subsidiary if either (i) such default results from
the failure to pay principal of, premium, if any, or
interest on any such Indebtedness when due in excess of
$1,000,000, or (ii) as a result of such default, the
maturity of such Indebtedness has been accelerated before
its expected maturity, without such default and acceleration
having been rescinded or annulled within a period of 10 days,
and the principal amount of any other such Indebtedness in
default, or the maturity of which has been so accelerated,
aggregates $1,000,000 or more;
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(d) default by the Company or any Subsidiary in the
performance, or the breach, of any other covenant or warranty
of the Company or such Subsidiary in this Indenture and the
failure to remedy such Default within a period of 60 days after
written notice thereof to the Company from the Trustee or to
the Company and the Trustees from the Holders of 25% in
principal amount of the outstanding Securities;
(e) except as permitted by this Indenture and except
for the existence of a Servicios Guaranty Default, any
Subsidiary Guarantee shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to
be in full force and effect, or any Guarantor, or any person
acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee;
(f) the entry by a court of one or more judgments or
orders against the Company or any Subsidiary in an aggregate
amount in excess of $1,000,000 that are not covered by
insurance written by third parties that has not been vacated,
discharged, satisfied or stayed pending appeal within 60 days
after the entry thereof;
(g) any act or acts by the Company or its Subsidiaries
pursuant to or within the meaning of any Bankruptcy Law:
(i) commencing a voluntary case,
(ii) consenting to the entry of an
order for relief against it in an
involuntary case,
(iii) consenting to the appointment of a
Custodian of it or for all or
substantially all of its property,
(iv) making a general assignment for the
benefit of its creditors, or
(v) which results in the Company or
its Subsidiaries generally not paying
its debts as they become due; or
(h) the entry of an order or decree by a
court of competent jurisdiction under any Bankruptcy Law that:
(i) is for relief against the Company or
any Subsidiary in an involuntary case,
(ii) appoints a Custodian of the Company
or any Subsidiary or for all or
substantially all of the property of
the Company or any Subsidiary, or
(iii) orders the liquidation of the
Company or any Subsidiary,
in each case, if such order or decree remains unstayed and
in effect for 60 consecutive days.
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The term "Bankruptcy Law" means title 11, U.S.
Code or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy
Law.
Section 6.2 Acceleration.
If an Event of Default (other than an Event of
Default specified in clauses (g) and (h) of Section 6.1)
occurs and is continuing, the Trustee by notice to the
Company, or the Holders of at least 25% in principal amount of
the then outstanding Securities by notice to the Company
and the Trustee, may declare the unpaid principal of and any
accrued interest on all the Securities to be due and payable.
Upon such declaration the principal and interest shall be due
and payable immediately. If an Event of Default specified in
clause (g) or (h) of Section 6.1 occurs, such an amount
shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee
or any Holder. The Holders of a majority in principal amount of
the then outstanding Securities by written notice to the
Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if
all existing Events of Default (except nonpayment of principal
or interest that has become due solely because of the
acceleration) have been cured or waived.
Section 6.3 Other Remedies.
If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy to collect the
payment of principal or interest on the Securities or to
enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does
not possess any of the Securities or does not produce any of
them in the proceeding. A delay or omission by the Trustee
or any Holder in exercising any right or remedy occurring
upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of
Default. All remedies are cumulative to the extent permitted by
law.
Section 6.4 Waiver of Past Defaults.
Holders of a majority in principal amount of the
then outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its
consequences, except a continuing Default or Event of Default in
the payment of the principal or interest on any Security held by
a nonconsenting Holder. Upon any such waiver, such Default
shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent
thereon.
Section 6.5 Control by Majority.
The Holders of a majority in principal amount of
the outstanding Securities shall have the right to direct
the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising
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any trust or power conferred on such Trustee, provided that
(a) such direction is not in conflict with any rule of law or
with this Indenture, (b) the Trustee may take any other action
it deems proper that is not inconsistent with such direction
and (c) such Holders have offered to the Trustee indemnity as
provided in Section 7.1(e).
Section 6.6 Limitation on Suits.
No Holder of any of the Securities shall have any
right to institute any proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a
receiver or trustee or for any other remedy under this
Indenture, unless
(a) such Holder has previously given
notice to the Trustee of a
continuing Event of Default;
(b) the Holders of not less than 25% in
principal amount of the outstanding
Securities have made written
request to the Trustee to institute proceedings in
respect of such Event of Default in its own
name as Trustee under this Indenture;
(c) such Holder or Holders have
offered to the Trustee reasonable
indemnity against the costs, expenses and
liabilities to be incurred in compliance with such
request;
(d) the Trustee for 30 days after its
receipt of such notice, request and
offer of indemnity has failed to
institute any such proceeding; and
(e) no direction inconsistent with such
written request has been given to the
Trustee during such 30-day period
by the Holders of a majority in principal
amount of the outstanding Securities.
A Holder may not use this Indenture to prejudice the
rights of another Holder or to obtain a preference or priority
over another Holder.
Section 6.7 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture,
the right of any Holder of a Security to receive payment of
principal and interest on the Security, on or after the
respective due dates expressed in the Security, or to bring suit
for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the
consent of the Holder.
Section 6.8 Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(a) or
(b) occurs and is continuing, the Trustee is authorized to
recover judgment in its own name and as trustee of an express
trust against the Company, any Subsidiary Guarantor or any other
obligor for the whole amount of principal and interest remaining
unpaid on the Securities and interest on overdue principal
and, to the extent lawful,
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interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel.
Section 6.9 Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim
and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel) and the Holders allowed in any judicial proceedings
relative to the Company (or any other obligor upon the
Securities), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such
claims and any custodian in any such judicial proceeding is
hereby authorized by each Holder to make such payments to the
Trustee, and if the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under
Section 7.7 hereof. To the extent that the payment of any
such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.7 hereof out of the estate in any such
proceeding, shall be denied for any reason, payment of the same
shall be secured by a Lien on, and shall be paid out of, any
and all distributions, dividends, money, securities and other
properties that the Holders of the Securities may be entitled to
receive in such proceeding whether in liquidation or under any
plan of reorganization or arrangement or otherwise. Nothing
herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment
or composition affecting the Securities or the rights of any
Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
Section 6.10 Priorities.
If the Trustee collects any money pursuant to this
Article 6, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for
amounts due under Section 7.7, including payment of all
compensation, expense and liabilities incurred, and all
advances made, by the Trustee and the costs and expenses of
collection.
Second: to Holders for amounts due and unpaid on the
Securities for principal and interest, ratably, without
preference or priority of any kind, according to the amounts due
and payable on the Securities for principal and interest,
respectively; and
Third: to the Company or to such party as a
court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date
for any payment to Holders.
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Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or
remedy under this Indenture or in any suit against the
Trustee for any action taken or omitted by it as a Trustee, a
court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of
the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the
party litigant. This Section does not apply to a suit by
the Trustee, a suit by a Holder pursuant to Section 6.7,
or a suit by Holders of more than 10% in principal amount of
the then outstanding Securities.
ARTICLE 7
TRUSTEE
Section 7.1 Duties of a Trustee.
(a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree
of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of
Default:
(i) the duties of the Trustee shall be
determined solely by the express provisions of this
Indenture, and the Trustee undertakes to perform only
those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or
obligations shall be read into this Indenture against
the Trustee.
(ii) In the absence of bad faith on its part,
the Trustee may conclusively rely, as to the truth
of the statements and the correctness of the
opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the
requirements of this Indenture; provided, however,
that the Trustee shall examine the certificates and
opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from
liabilities for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) this paragraph does not limit the
effect of paragraph (b) of this
Section 7.1;
(ii) the Trustee shall not be liable
for any error of judgment made in good
faith by a Responsible Officer, unless
it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
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(iii) the Trustee shall not be liable with
respect to any action it takes or
omits to take in good faith in
accordance with a direction received by it pursuant
to Section 6.5.
(d) Whether or not therein expressly so provided,
every provision of this Indenture that in any way relates
to the Trustee is subject to the provisions of this Section
7.1.
(e) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or incur any liability.
The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory
to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing
with the Company. Money held in trust by the Trustee need not
be segregated from other funds except to the extent required
by law.
(g) The Trustee shall have no responsibility
for making any calculations hereunder, including, without
limitation, the amount of interest owing on the Securities
under any of the provisions of the Registration Rights
Agreement or pursuant to a Servicios Guaranty Default. The
Company shall deliver to the Trustee an Officers' Certificate
specifying any additional interest due under the Registration
Rights Agreement or as a Servicios Default Payment on or before
the 15th day prior to an interest payment date.
Section 7.2 Rights of Trustee.
(a) The Trustee may rely and shall be fully protected
in relying upon any document believed by it to be genuine and
to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting,
it may require an Officers' Certificate or an Opinion of
Counsel, or both. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee
may consult with counsel and the written advice of such counsel
or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent
appointed and monitored with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be
authorized or within its rights or powers conferred upon it by
this Indenture.
(e) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice from the
Company shall be sufficient if signed by an Officer of the
Company, and any demand, request, direction or notice from
any Subsidiary Guarantor shall be sufficient if signed by an
Officer of such Subsidiary Guarantor.
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Section 7.3 Individual Rights of Trustee.
The Trustee in its individual or any other capacity
may become the owner or pledgee of Securities and may
otherwise deal with the Company, the Subsidiary Guarantors
or any Affiliate of the Company or the Subsidiary
Guarantors with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights; provided,
however, the Trustee is subject to Sections 7.10 and 7.11.
Section 7.4 Trustee's Disclaimer.
The Trustee makes no representation as to the
validity or adequacy of this Indenture, the Securities or any
documents relating to the Securities. It shall not be
accountable for the Company's use of the proceeds from
the Securities or any money paid to the Company or upon the
Company's discretion under any provision hereof. It shall
not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee and it shall
not be responsible for any statement or recital herein or any
statement in the Securities or any other document in
connection with the sale of the Securities or pursuant to
this Indenture, other than its certificate of
authentication.
Section 7.5 Notice of Defaults.
If a Default or Event of Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall
mail to Holders a notice of the Default or Event of Default
within 90 days after it occurs. A Default or an Event of
Default shall not be considered known to the Trustee unless it
is a Default or Event of Default under Section 6.1(a) or (b) or
the Trustee shall have received notice thereof, in accordance
with this Indenture, from the Company or from the Holders of a
majority in principal amount of the outstanding Securities, and
in the absence of such notice the Trustee may conclusively
assume there is no Default or Event of Default. Except in the
case of a Default or Event of Default in payment of principal or
interest on any Security (including the failure to make a
mandatory redemption pursuant hereto), the Trustee may
withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding
the notice is in the interests of Holders.
Section 7.6 Reports by Trustee to Holders.
Within 60 days after each May 15 beginning with the
May 15 following the date hereof, the Trustee shall mail to
Holders a brief report dated as of such reporting date that
complies with TIA ss. 313(a) (but if no event described in TIA
ss. 313(a) has occurred within the 12 months preceding the
reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(n). The Trustee shall also
transmit by mail all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to
Holders shall be filed with the SEC and each stock exchange on
which the Securities are listed. The Company shall promptly
notify the Trustee when the Securities are listed on any stock
exchange.
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Section 7.7 Compensation and Indemnity.
The Company shall pay to the Trustee from time to
time reasonable compensation for its acceptance of this
Indenture and services hereunder. The Trustee's compensation
shall not be limited by any law on compensation of a trustee
of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable disbursements, advances
and expenses incurred or made by it. Such expenses shall
include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any
and all losses, liabilities or expenses incurred by it arising
out of or in connection with the acceptance or administration
of its duties under this Indenture, except as set forth in the
next paragraph. The Trustee shall notify the Company promptly
of any claim for which it may seek indemnity. The Company
shall defend the claim, and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel, and the
Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably
withheld.
The Company need not reimburse any expense or
indemnify against any loss or liability incurred by the
Trustee through its own negligence or bad faith.
To secure the Company's payment obligations in
this Section, the Trustee shall have a Lien with priority
over the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay
principal and interest on particular Securities. Such Lien
shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services
after an Event of Default specified in Section 6.1(g) or
(h) occurs, the expenses and the compensation for the
services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8 Replacement of Trustee.
A resignation or removal of the Trustee and
appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as
provided in this Section 7.8.
The Trustee may resign at any time and be discharged
from the trust hereby created by so notifying the Company.
The Holders of a majority in principal amount of the then
outstanding Securities may remove the Trustee by so notifying
the Trustee and the Company. The Company may remove the Trustee
if:
(a) the Trustee fails to comply with
Section 7.10;
(b) the Trustee is adjudged a bankrupt or
an insolvent or an order for relief
is entered with respect to the
Trustee under any Bankruptcy Law;
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(c) a Custodian or public officer
takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of
acting.
If the Trustee resigns or is removed or if a
vacancy exists in the office of Trustee for any reason, the
Company shall promptly appoint a successor Trustee. Within one
year after the successor Trustee takes office, the Holders of a
majority in principal amount of the then outstanding Securities
may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
If a successor Trustee does not take office within
60 days after the retiring Trustee resigns or is removed, the
retiring Trustee, the Company, or the Holders of at least
10% in principal amount of the then outstanding Securities
may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee after written request by any
Holder who had been a Holder for at least six months fails to
comply with Section 7.10, such Holder may petition any court
of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written
acceptance of its appointment to the retiring Trustee and
to the Company. Thereupon the resignation or removal of
the retiring Trustee shall become effective, and the successor
Trustee shall have all of the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall
mail a notice of its succession to the Holders. The
retiring Trustee shall promptly transfer all property held by
it as Trustee to the successor Trustee, provided all sums owing
to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.7. Notwithstanding replacement of the
Trustee pursuant to this Section 7.8, the Company's obligations
under Section 7.7 hereof shall continue for the benefit of the
retiring Trustee.
Section 7.9 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into,
or transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation
without any further act shall be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
There shall at all times be a Trustee hereunder
that shall be a corporation organized and doing business under
the laws of the United States of America or of any state thereof
authorized under such laws to exercise corporate trustee power,
shall be subject to supervision or examination by federal or
state authority and shall have a combined capital and surplus
of at least $10 million as set forth in its most recent
published annual report of condition.
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This Indenture shall always have a Trustee who
satisfies the requirements of TIA ss. 310(a)(1). The
Trustee is subject to TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss.
310(b)(9).
Section 7.11 Preferential Collection of Claims Against
Company and Subsidiary Guarantors.
The Trustee is subject to TIA ss. 311(a),
excluding any creditor relationship listed in TIA ss.
311(b). A Trustee who has resigned or has been removed shall be
subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.1 Termination of Company's and Subsidiary Guarantors'
Obligation.
This Indenture shall cease to be of further effect
(except that the Company's obligations under Section 7.7 and
8.4, the Subsidiary Guarantors' obligations under Section
10.1 and the Company's, Trustee's and Paying Agent's
obligations under Section 8.3 shall survive) when all
outstanding Securities theretofore authenticated and issued
have been delivered (other than destroyed, lost or stolen
Securities that have been replaced or paid) to the Trustee for
cancellation and the Company and the Subsidiary Guarantors
have paid all sums payable by the Company or such Subsidiary
Guarantors hereunder and under the Subsidiary Guarantees,
respectively. In addition, subject to the conditions
described below, at the Company's option, either (a) the
Company and the Subsidiary Guarantors will be deemed to
have been discharged from their obligations with respect to
the Securities on the 31st day after the applicable conditions
set forth below have been satisfied or (b) the Company and
the Subsidiary Guarantors shall cease to be under any
obligation to comply with Article 4 of this Indenture, at any
time after the conditions set forth below have been satisfied:
(i) the Company has deposited or caused
to be deposited irrevocably with the Trustee as
trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit of the
Holders (A) money or (B) noncallable U.S. Government
Obligations, which through the payment of interest and
principal in respect thereof in accordance with their
terms, will provide either (I) payment in full of
principal, premium on, if any, and interest on, the
outstanding Securities as of the date of such
payment, or (II) (without any reinvestment of such
interest or principal), not later than one day before
the due date of any payment, money or (C) a combination of (A)
and (B), in an amount sufficient, in the opinion (with
respect to (B) and (C)) of a nationally recognized
firm of independent public accountants expressed in
a written certification thereof delivered to the
Trustee at or before the time of such deposit, to pay and
discharge each installment of principal of, premium on,
if any, and interest on, the outstanding Securities on
the dates such installments are due;
(ii) no Default or Event of Default has
occurred and is continuing on the date of such
deposit or shall occur as a result of such deposit,
and such deposit shall not result in a breach or
violation of, or constitute a Default under, any other
instrument to which the Company is a party to or is
bound, as evidenced to the Trustee in an
Officers' Certificate delivered to the Trustee
concurrently with such deposit;
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(iii) the Company has paid or duly provided
for payment of all amounts then due or to become due to
the Trustee pursuant to Section 7.7 of the Indenture;
and
(iv) the Company has delivered to the
Trustee an Officers' Certificate, stating that there
has been compliance with all conditions precedent
provided for in the Indenture relating to the satisfaction
and discharge of this Indenture.
If the Company selects option (a) above, this
Indenture shall cease to be of further effect on the 31st day
after the conditions set forth above have been satisfied
(except as provided in this paragraph), and the Trustee, on
demand of the Company or any Subsidiary Guarantor, shall
execute proper instruments acknowledging confirmation of and
discharge under this Indenture, the Securities and the
Subsidiary Guarantees; provided, however, the Company's
obligations in Sections 2.3, 2.4, 2.5, 2.6, 4.1, 4.6, 7.7, 7.8,
8.3 and 8.4, the Subsidiary Guarantors' obligations under
Article 10 and the Trustee's and Paying Agent's obligations in
Section 8.3 shall survive until the Securities are no longer
outstanding. Thereafter, only the Company's obligations under
Sections 7.7 and 8.4, the Subsidiary Guarantors' obligations
under Section 10.1 and the Company's, Trustee's and Paying
Agent's obligations under Section 8.3 shall survive. If the
Company elects option (b) above, the Company's obligations under
Article 4 hereunder shall terminate upon the satisfaction of the
conditions, and all other obligations shall survive until
the Securities are no longer outstanding. Thereafter, only
the Company's obligations under Sections 7.7 and 8.4, the
Subsidiary Guarantors' obligations under Section 10.1 and
the Company's, Trustee's and Paying Agent's obligations
under Section 8.3 above shall survive.
After such irrevocable deposit is made pursuant to this
Section 8.1 and satisfaction of the other conditions set
forth herein, the Trustee, upon request, shall acknowledge
in writing the discharge of the Company's and the Subsidiary
Guarantors' obligations under this Indenture and the
Subsidiary Guarantees except for those surviving obligations
specified above.
In order to have money available on a payment date to
pay principal of or interest on the Securities, the U.S.
Government Obligations shall be payable as to principal or
interest at least one Business Day before such payment date in
such amounts as will provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's
option.
Section 8.2 Application of Trust Money.
The Trustee or a trustee satisfactory to the Trustee
and the Company shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.1. It
shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and
interest on the Securities.
Section 8.3 Repayment to Company.
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To the extent permitted by applicable law, the
Trustee and the Paying Agent shall promptly pay to the Company
upon written request any excess money or securities held by
them at any time in excess of amounts required to pay
principal of or interest on the Securities.
The Trustee and the Paying Agent shall pay to the
Company upon written request any money held by them for the
payment of principal or interest that remains unclaimed for
one year after the date upon which such payment shall have
become due; provided, however, that the Company shall have
either caused notice of such payment to be mailed to each
Holder entitled thereto no less than 30 days before such
repayment or within such period shall have published such
notice in a financial newspaper of widespread circulation
published in New York, New York. After payment to the Company,
Holders entitled to the money must look to the Company for
payment as general creditors unless an applicable abandoned
property law designates another person, and all liability of
the Trustee and such Paying Agent with respect to such money
shall cease.
Section 8.4 Reinstatement.
If the Trustee or Paying Agent is unable to apply
any money or U.S. Government Obligations in accordance with
Section 8.2 by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture
and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.1 until such time as
the Trustee or Paying Agent is permitted to apply all such money
or U.S. Government Obligations in accordance with Section 8.2;
provided, however, that if the Company has made any payment of
interest on or principal of any Securities because of the
reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities
to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
Section 9.1 Without Consent of Holders.
The Company and the Trustee may amend this Indenture
and the Securities without the consent of any Holder:
(a) to cure any ambiguity, defect or
inconsistency;
(b) to comply with Section 5.1 or 10.3;
(c) to provide for uncertificated
Securities in addition to certificated
Securities;
(d) to make any change that does not
adversely affect the legal rights
hereunder of any Holder; and
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(e) to comply with requirements of the
SEC in order to effect or maintain
the qualification of this
Indenture under the TIA.
Upon the request of the Company accompanied by a
resolution of its Board of Directors authorizing the execution
of any such Supplemental Indenture and upon receipt by the
Trustee of the documents described in Section 9.6 hereof,
the Trustee shall join with the Company in the execution
of any Supplemental Indenture authorized or permitted by the
terms of this Indenture and to make any further appropriate
agreements and stipulations which may be therein contained,
but the Trustee shall not be obligated to enter into such
Supplemental Indenture which affects its own rights, duties or
immunities under this Indenture or otherwise.
Section 9.2 With Consent of Holders.
Except as provided below in this Section 9.2, the
Company and the Trustee may amend this Indenture or the
Securities with the written consent of the Holders of at least
a majority in principal amount of the then outstanding
Securities. The Holders of a majority in principal amount of the
Securities then outstanding may, or the Trustee with the
written consent of the Holders of at least a majority in
principal amount of the then outstanding Securities may,
waive compliance in a particular instance by the Company with
any provision of this Indenture or the Securities.
Upon the request of the Company, accompanied by a
resolution of its Board of Directors authorizing the execution
of any such Supplemental Indenture, and upon the filing with the
Trustee of evidence satisfactory to the Trustee of the consent
of the Holders as aforesaid, and upon receipt by the Trustee of
the documents described in Section 9.6 hereof, the Trustee
shall join with the Company in the execution of such
Supplemental Indenture unless such Supplemental Indenture
affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such
Supplemental Indenture.
It shall not be necessary for the consent of the
Holders under this Section to approve the particular form of
any proposed amendment or waiver, but it shall be sufficient if
such consent approves the substance thereof.
After an amendment or waiver under this Section becomes
effective, the Company shall mail to the Holders of each
Security affected thereby a notice briefly describing the
amendment or waiver. Any failure of the Company to mail such
notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such Supplemental
Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof,
the Holders of a majority in principal amount of the
Securities then outstanding may waive compliance in particular
instance by the Company or any Subsidiary Guarantor with any
provision of this Indenture or the Securities, provided,
however, that without the consent of each Holder affected, an
amendment or waiver under this Section may not (with respect to
any Securities held by a non-consenting Holder):
(a) reduce the principal amount of
Securities whose Holders must consent to an amendment
or waiver;
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(b) reduce the rate of or change the time
for payment of interest, including default interest,
on any Security;
(c) reduce the principal of or change the
fixed maturity of any Security or alter the optional or
mandatory redemption provisions or the price at
which the Company shall offer to purchase such
Securities pursuant to Sections 3.7 and 4.10 hereof;
(d) make any Security payable in money other
than that stated in the Security;
(e) make any change in Section 6.4 or 6.7
hereof or in this sentence of this Section 9.2;
(f) waive a Default in the payment of
principal of, premium or interest on, or redemption
payment with respect to, any Security; or
(g) except as provided in Sections 8.1
and 10.4 hereof, release any of the Subsidiary
Guarantors from their obligations under the Subsidiary
Guarantees or make any change in the Subsidiary
Guarantees that would adversely affect the Holders.
Section 9.3 Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Securities
shall be set forth in a Supplemental Indenture that complies
with the TIA as then in effect.
Section 9.4 Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a
consent to it by a Holder of a Security is a continuing consent
by the Holder and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is
not made on any Security; provided, however, that any such
Holder or subsequent Holder may revoke the consent as to his or
her security if the Trustee receives written notice of
revocation before the date the waiver or amendment becomes
effective. An amendment or waiver becomes effective in
accordance with its terms and thereafter binds every Holder.
The Company may fix a record date for determining
which Holders must consent to such amendment or waiver. If
the Company fixes a record date, the record date shall be
fixed at (a) the later of 30 days before the first
solicitation of such consent or the date of the most recent
list of Holders furnished to the Trustee before such
solicitation pursuant to Section 2.05, or (b) such other date
as the Company shall designate.
Section 9.5 Notation on or Exchange of Securities.
The Trustee may place an appropriate notation about
an amendment or waiver on any Security thereafter
authenticated. The Company in exchange for all Securities may
issue and the Trustee shall authenticate new Securities of the
same series that reflect the amendment or waiver.
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Failure to make the appropriate notation or issue a new
Security of the same series shall not affect the validity
and effect of such amendment or waiver.
Section 9.6 Trustee to Sign Amendments, etc.
The Trustee shall sign any amendment or
Supplemental Indenture authorized pursuant to this Article 9
if the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or
refusing to sign such amendment or Supplemental Indenture,
the Trustee shall be entitled to receive, and, subject to
Section 7.1, shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel as conclusive
evidence that such amendment or Supplemental Indenture is
authorized or permitted by this Indenture, that it is not
inconsistent herewith, and that it will be valid and binding
upon the Company in accordance with its terms. Neither the
Company nor any Subsidiary Guarantor may sign an amendment or
Supplemental Indenture until the Board of Directors approves it.
ARTICLE 10
SUBSIDIARY GUARANTEES
Section 10.1 Subsidiary Guarantees
The Subsidiary Guarantors hereby, jointly
and severally, unconditionally guarantee to each Holder
of a Security authenticated and delivered by the Trustee and
to the Trustee and its successors and assigns, regardless of
the validity and enforceability of this Indenture, the
Securities and the Obligations of the Company hereunder and
thereunder, that (a) the principal and interest on the
Securities shall be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest
on the overdue principal of and interest on the Securities,
if any, to the extent lawful, and all other Obligations of
the Company to the Holders or the Trustee hereunder or
thereunder shall be promptly paid in full, all in
accordance with the terms hereof and thereof and (b) in case of
any extension of time of payment or renewal of any Securities
or any of such other obligations, that the same shall be
promptly paid in full when due in accordance with the terms
of the extension or renewal, whether at stated maturity, by
acceleration or otherwise; subject, however, in the case of
clauses (a) and (b) above, to the limitations set forth in
Section 10.6. Failing payment when due of any amount so
guaranteed for whatever reason, the Subsidiary Guarantors
will be jointly and severally obligated to pay the same
immediately. Each Subsidiary Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with
a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and
covenants that this Subsidiary Guarantee will not be
discharged except by complete performance of the obligations
contained in the Securities and this Indenture. If any Holder
or the Trustee is required by any court or otherwise to return
to the Company or Subsidiary Guarantors, or any Custodian,
Trustee, liquidator or other similar official acting in
relation to either the Company or Subsidiary Guarantors, any
amount paid by either to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged
shall be reinstated in full force and effect. Each Subsidiary
Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the
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Holders in respect of any obligations guaranteed hereby until
payment in full of all Obligations guaranteed hereby. Each
Subsidiary Guarantor further agrees that, as between the
Subsidiary Guarantors, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article
6 for the purposes of this Subsidiary Guarantee,
notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6, such
obligations (whether or not due and payable) shall forthwith
become due and payable by the Subsidiary Guarantors for the
purpose of this Subsidiary Guarantee. The Subsidiary
Guarantors shall have the right to seek contribution from
any non-paying Subsidiary Guarantor so long as the exercise
of such right does not impair the rights of the Holders
under the Subsidiary Guarantee.
Section 10.2 Execution and Delivery of Subsidiary Guarantees.
To evidence its Subsidiary Guarantee set forth in
Section 10.1, each Subsidiary Guarantor hereby agrees that a
notation of such Subsidiary Guarantee substantially in the form
of Exhibit B shall be endorsed by an officer of such Subsidiary
Guarantor on each Security authenticated and delivered by the
Trustee and that this Indenture shall be executed on behalf of
such Subsidiary Guarantor by its President or one of its Vice
Presidents and attested to by an Officer.
Each Subsidiary Guarantor hereby agrees that its
Subsidiary Guarantee set forth in Section 10.1 shall remain in
full force and effect notwithstanding any failure to endorse on
each Security a notation of such Subsidiary Guarantee.
If an Officer or Officer whose signature is on this
Indenture or on the Subsidiary Guarantee no longer holds
that office at the time the Trustee authenticates the
Security on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery
of the Subsidiary Guarantee set forth in this Indenture on
behalf of the Subsidiary Guarantors.
Section 10.3 Subsidiary Guarantors May Consolidate, etc. on
Certain Terms.
(a) Except as set forth in Articles 4 and 5, nothing
contained in this Indenture or in any of the Securities shall
prevent any consolidation or merger of a Subsidiary Guarantor
with or into the Company or any other Subsidiary Guarantor
or shall prevent any transfer, sale or conveyance of the
property of a Subsidiary Guarantor as an entirety or
substantially as an entirety, to the Company or any other
Subsidiary Guarantor.
(b) Except as set forth in Article 4 and 5, nothing
contained in this Indenture or in any of the Securities shall
prevent any consolidation or merger of a Subsidiary Guarantor
with or into a corporation or corporations other than the
Company or any other Subsidiary Guarantor (in each case,
whether or not affiliated with the Subsidiary Guarantor), or
successive consolidations or mergers in which a Subsidiary
Guarantor or its successor or successors shall be a party or
parties, or shall prevent any sale or conveyance of the property
of a
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Subsidiary Guarantor as an entirety or substantially as an
entirety, to a corporation other than the Company or any
other Subsidiary Guarantor (in each case, whether or not
affiliated with the Subsidiary Guarantor) authorized to
acquire and operate the same; provided, however, that each
Subsidiary Guarantor hereby covenants and agrees that, upon any
such consolidation, merger, sale or conveyance, the Subsidiary
Guarantee endorsed on the Securities, and the due and punctual
performance and observance of all of the covenants and
conditions of this Indenture to be performed by such Subsidiary
Guarantor, shall be expressly assumed (if the Subsidiary
Guarantor is not the surviving corporation in the merger), by
supplemental indenture satisfactory in form to the Trustee,
executed and delivered to the Trustee, by the corporation
formed by such consolidation, or into which the Subsidiary
Guarantor shall have been merged, or by the corporation
which shall have acquired such property. In case of any
such consolidation merger, sale or conveyance and upon
the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the Subsidiary
Guarantee endorsed upon the Securities and the due and punctual
performance of all of the covenants and conditions of this
Indenture to be performed by the Subsidiary Guarantor, such
successor corporation shall succeed to and be substituted for
the Subsidiary Guarantor with the same effect as if it had been
named herein as a Subsidiary Guarantor. Such successor
corporation thereupon may cause to be signed any or all of the
Subsidiary Guarantees to be endorsed upon all of the
Securities issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee.
All the Subsidiary Guarantees so issued shall in all
respects have the same legal rank and benefit under this
Indenture as the Subsidiary Guarantees theretofore and
thereafter issued in accordance with the terms of this
Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
Section 10.4 Releases Following Sale of Assets.
Concurrently with any sale of substantially all of
the assets of any Subsidiary Guarantor, or successor Subsidiary
Guarantor, in compliance with the terms of Sections 5.1 and 10.3
hereof, such Subsidiary Guarantor, or successor Subsidiary
Guarantor, shall be released from and relieved of its
obligations under its Subsidiary Guarantee or Section 10.3
hereof, as the case may be. Upon delivery by the Company to
the Trustee of an Officers' Certificate and an Opinion of
Counsel to the effect that such sale or other disposition was
made by the Company in accordance with the provisions of
this Indenture, including without limitation Section 5.1
hereof, the Trustee shall execute any documents reasonably
required in order to evidence the release of any
Subsidiary Guarantor, or successor Subsidiary Guarantor,
from its obligations under its Subsidiary Guarantee. Any
Subsidiary Guarantor, or successor Subsidiary Guarantor,
not released from its obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal
of, premium on, if any, and interest on the Securities and
for the other obligations of any Subsidiary Guarantor under
the Indenture as provided in this Article 10.
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Section 10.5 "Trustee" to Include Paying Agent.
In case at any time any Paying Agent other than the
Trustee shall have been appointed by the Company and be then
acting hereunder, the term "Trustee" as used in this Article
10 shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying
Agent within its meaning as fully and for all intents and
purposes as if such Paying Agent were named in this Article 10
in place of the Trustee.
Section 10.6 Limitation of Subsidiary Guarantor's Liability.
Each Subsidiary Guarantor and by its acceptance
hereof each Holder hereby confirms that it is the intention of
all such parties that the guarantee by such Subsidiary
Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or
state law. To effect the foregoing intention, the Holders and
such Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under the Guarantee
shall be limited to the maximum amount as will, after giving
effect to all other contingent and fixed liabilities of such
Subsidiary Guarantor, result in the obligations of such
Subsidiary Guarantor under the Subsidiary Guarantee not
constituting such fraudulent transfer or conveyance.
ARTICLE 11
CONVERSION
Section 11.1 Right to Convert.
Subject to and upon compliance with the provisions of
this Indenture, each Holder on or after November 1, 1996, shall
have the right, at his option, at any time on or before
maturity (except that, with respect to any Security or portion
of a Security that shall be called for redemption or
delivered for repurchase, such right shall terminate at the
close of business on the date fixed for redemption of such
Security or portion of a Security or the second trading day
preceding a Change of Control Payment Date, as the case may
be, unless the Company shall default in payment due upon
redemption or repurchase thereof) to convert the principal
amount of any such Security, or any portion of such principal
amount which is $1,000 or a whole multiple thereof, into (y)
that number of fully paid and nonassessable shares of Common
Stock (as such shares shall then be constituted) obtained by
dividing the principal amount of the Security or portion
thereof surrendered for conversion by the conversion price in
effect at such time plus (z) if such conversion occurs after
November 1, 1996, and before July 1, 1999, an amount equal to
50% of the interest otherwise payable on the converted
Securities from the date of conversion through and including
July 1, 1999 (the "Premium Protection Payment"), such amount
payable, at the option of the Company, in cash or Common Stock
based on the Closing Price of the Common Stock on the
conversion date (as calculated in accordance with Section
11.5(f) hereof, by surrender of the Security so to be converted
in whole or in part in the manner provided in Section 11.2;
provided, however, that no Premium Protection Payments will
be made after the consummation of an all cash tender offer for
100% of the Common Stock at a price per share representing a
40% or greater premium above the conversion price. A holder of
Securities is not entitled to any rights of a holder of
Common Stock until such holder has converted his Securities
to Common Stock, and only to the extent such Securities are
deemed to have been converted to Common Stock under this Article
11.
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Section 11.2 Exercise of Conversion Privilege; Issuance of
Common Stock on Conversion; No Adjustment for
Interest or Dividends.
In order to exercise the conversion privilege, the
holder of any Security to be converted in whole or in part
shall surrender such Security, duly endorsed, at an office or
agency maintained by the Company pursuant to Section 2.3,
accompanied by the funds, if any, required by the last
paragraph of this Section, and shall give written notice of
conversion in the form provided on the Securities (or such
other notice that is acceptable to the Company) to the
Company at such office or agency that the holder elects to
convert such Security or the portion thereof specified in such
notice. Such notice shall also state the name or names (with
address) in which the certificate or certificates for shares
of Common Stock that shall be issuable on such conversion
shall be issued, and shall be accompanied by transfer taxes,
if required pursuant to Section 11.7. Each Security
surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as the
registration under such Security, be duly endorsed by, or be
accompanied by instruments of transfer in form satisfactory to
the Company duly executed by, the Holder or his duly authorized
attorney.
As promptly as practicable after the surrender of such
Security and the receipt of such notice and funds, if any, as
aforesaid, the Company shall issue and shall deliver at such
office or agency to such holder, or on his written order, (x)
a certificate or certificates for the number of full shares
issuable upon the conversion of such Security or portion
thereof in accordance with the provisions of this Article,
(y) a check or cash, or such number of shares of Common Stock
issuable in respect of the Premium Protection Payment, if
any, required to be paid upon conversion pursuant to Section
11.1, and (z) a check or cash in respect of any fractional
interest in respect of a share of Common Stock arising upon such
conversion as provided in Section 11.3. In case any Security
of a denomination greater than $1,000 shall be
surrendered for partial conversion, and subject to Article 2,
the Company shall execute and the Trustee shall authenticate and
deliver to or upon the written order of the holder of the
Debenture so surrendered, without charge to him, a new Security
or Securities in authorized denominations in an aggregate
principal amount equal to the unconverted portion of the
surrendered Security.
Each conversion shall be deemed to have been
effected on the date on which such Security shall have been
surrendered (accompanied by the funds, if any, required by
the last paragraph of this Section 11.2) and such notice shall
have been received by the Company, as aforesaid, and the
person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become on said date the holder of record
of the shares represented thereby; provided, however, that
any such surrender on any date when the stock transfer books
of the Company shall be closed shall constitute the person
in whose name the certificates are to be issued as the record
holder thereof for all purposes on the next day on which such
stock transfer books are open, but such conversion shall
be at the conversion price in effect on the date upon which
such Security shall have been surrendered.
Any Security or portion thereof surrendered for
conversion during the period from the close of business on the
record date for any interest payment date to the opening of
business on such interest payment date shall (unless such
Security or portion thereof being converted shall have
been called for
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redemption on a date in such period) be accompanied by
payment, in funds acceptable to the Company, of an amount
equal to the interest otherwise payable on such interest payment
date on the principal amount being converted; provided, however,
that no such payment need be made if there shall exist at the
time of conversion a default in the payment of interest on the
Securities. An amount equal to such payment shall be paid by
the Company on such interest payment date to the holder of such
Security at the close of business on such record date;
provided, however, that if the Company shall default in the
payment of interest on such interest payment date, such amount
shall be paid to the person who made such required payment.
Except as provided above in this Section 11.2, no
adjustment shall be made for interest accrued on any Security
converted or for dividends on any shares issued upon the
conversion of such Security as provided in this Article 11. If
any Security or portion thereof which has been called for
redemption on a date during the period from the close of
business on the record date for any interest payment date to
the opening of business on such interest payment date is
surrendered for conversion during such period, no interest shall
be payable to the holder of such Security on account of such
Security or portion thereof.
Section 11.3 Cash Payments in Lieu of Fractional Shares.
No fractional shares of Common Stock or scrip
representing fractional shares shall be issued upon conversion
of Securities. If more than one Security shall be surrendered
for conversion at one time by the same holder, the number of
full shares which shall be issuable upon conversion shall be
computed on the basis of the aggregate principal amount of the
Securities (or specified portions thereof to the extent
permitted hereby) so surrendered. If any fractional share of
Common Stock would be issuable upon the conversion of any
Security or Securities, including fractional shares
issuable as a Premium Protection Payment, the Company shall
make an adjustment therefor in cash at the current market
value thereof. The current market value of a share of Common
Stock shall be the Closing Price on the day (that is not a
Legal Holiday as defined in Section 13.8) before the day on
which the Securities (or specified portions thereof) are
deemed to have been converted and such Closing Price shall
be determined as provided in subsection (f) of Section 11.5.
Section 11.4 Conversion Price.
The conversion price shall be as specified in the
form of Security hereinabove set forth, subject to adjustment as
provided in this Article.
Section 11.5 Adjustment of Conversion Price.
(a) In case the Company shall (i) pay a
dividend, or make a distribution, in shares of its Common
Stock on its Common Stock, (ii) subdivide its outstanding
Common Stock into a greater number of shares or (iii) combine
its outstanding Common Stock into a smaller number of shares,
the conversion price in effect immediately prior thereto
shall be adjusted so that the holder of any Security
thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock of the Company
that he would have owned or have been entitled to receive after
the happening of any of the events described above had such
Security been converted immediately before the happening of
such event. An adjustment made pursuant to this subsection
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(a) shall become effective immediately after the record date
in the case of a dividend and shall become effective
immediately after the effective date in the case of subdivision
or combination.
(b) In case the Company shall issue rights or
warrants to all holders of its Common Stock entitling them (for
a period expiring within 45 days after the record date
mentioned below) to subscribe for or purchase Common Stock at a
price per share less than the current market price per share of
Common Stock (as determined in accordance with subsection (f)
below) at the record date for the determination of
stockholders entitled to receive such rights or warrants,
except as provided in subsection (f) below, the conversion
price in effect immediately prior thereto shall be adjusted
so that the same shall equal the price determined by
multiplying the conversion price in effect immediately
before the date of issuance of such rights or warrants by a
fraction of which the numerator shall be the number of shares
of Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so
offered would purchase at such current market price
(determined by multiplying the total number of shares by the
exercise price of such rights or warrants and dividing the
product so obtained by the current price), and of which the
denominator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered
for subscription or purchase. Such adjustment shall be
made successively whenever any such rights or warrants are
issued, and shall become effective immediately after such
record date. Except as provided in subsection (f) below, in
determining whether any rights or warrants entitle the holders
to subscribe for or purchase shares of Common Stock at less
than such current market price, and in determining the
aggregate offering price of such shares of Common stock, there
shall be taken into account any consideration received by the
Company for such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board
of Directors of the Company whose determination shall be
conclusive and described in a certificate filed with the
Trustee. Upon the expiration of any right or warrant to
purchase Common Stock the issuance of which resulted in an
adjustment in the conversion price pursuant to this
subsection (b), if any such right or warrant shall expire
and shall not have been exercised, the conversion price shall
immediately upon such expiration be recomputed to the
conversion price which would have been in effect had the
adjustment of the conversion price made upon the issuance
of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of
Common Stock actually purchased upon the exercise of such
rights or warrants actually exercised.
(c) In case the Company shall distribute to all
holders of its Common Stock any shares of Capital Stock of the
Company (other than Common Stock) or evidences of its
indebtedness or assets (excluding cash dividends or other
distributions to the extent paid from retained earnings of
the Company) or rights or warrants to subscribe for or purchase
any of its securities (excluding those referred to in
subsection (b) above), then, except as provided in
subsection (f) below, in each such case the conversion price
shall be adjusted so that the same shall equal the price
determined by multiplying the conversion price in effect
immediately before the date of such distribution by a fraction
of which the numerator shall be the current market price per
share (as defined in subsection (f) below) of the Common Stock
on the record date mentioned below less the fair market value
on such record date (as determined by the Board of Directors
of the Company, whose determination shall be conclusive, and
described in a certificate filed with the Trustee) of the
portion of the Capital Stock or
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assets or evidences of indebtedness so distributed or of such
rights or warrants applicable to one share of Common Stock, and
the denominator shall be the market price per share (as defined
in subsection (f) below) of the Common Stock on such record
date. Such adjustment shall become effective immediately after
the record date for the determination of stockholders
entitled to received such distribution, except as provided in
subsection (f) below.
(d) In case the Company shall, by dividend or
otherwise, distribute to all holders of its Common Stock cash
in an aggregate amount that, combined together with (1) the
aggregate amount of any other distributions to all holders of
its Common Stock made exclusively in cash within the 12 months
preceding the date of payment of such distribution and in
respect of which no adjustment pursuant to this paragraph
(d) has been made and (2) the aggregate of any cash plus the
fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a
Board Resolution) of consideration payable in respect of any
tender offer by the Company or any of its Subsidiaries for all
or any portion of the Common Stock concluded within the 12
months preceding the date of payment of such distribution and
in respect of which no adjustment pursuant to paragraph (e)
of this Section has been made, exceeds 10% of the product of the
current market price per share of the Common Stock on the date
for the determination of holders of shares of Common Stock
entitled to receive such distribution times the number of shares
of Common Stock outstanding on such date, then, and in each
such case, immediately after the close of business on such
date for determination, the conversion price shall be reduced
so that the same shall equal the price determined by
multiplying the conversion price in effect immediately before
the close of business on the date fixed for determination of
the stockholders entitled to receive such distribution
by a fraction (i) the numerator of which shall be equal to
the current market price per share (determined as provided in
paragraph (f) of this Section) of the Common Stock on the date
fixed for such determination less an amount equal to the
quotient of (x) the excess of such combined amount over such 10%
and (y) the number of shares of Common Stock outstanding on
such date for determination and (ii) the denominator of which
shall be equal to the current market price per share (determined
as provided in paragraph (f) of this Section) of the Common
Stock on such date for determination.
(e) In case a tender offer made by the Company or any
Subsidiary for all or any portion of the Common Stock shall
expire and such tender offer (as amended at the time of the
expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any maximum
specified in the terms of the tender offer) of Purchase
Shares (as defined below) of an aggregate consideration
having a fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and
described in a Board Resolution) that combined together with
(1) the aggregate of the cash plus the fair market value (as
determined by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution) as of the
expiration of such tender offer, of consideration payable
in respect of any other tender offer, by the Company or any
Subsidiary for all or any portion of the Common Stock expiring
within the 12 months preceding the expiration of such tender
offer and in respect of which no adjustment pursuant to this
paragraph (e) has been made and (2) the aggregate amount of any
distributions to all holders of the Company's Common Stock
made exclusively in cash within 12 months preceding the
expiration of such tender offer and in respect of which no
adjustment pursuant to paragraph (d) of this Section has
been made, exceeds 10% of the product of the current market
price per share of the Common Stock (determined as
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provided in paragraph (f) of this Section) as of the last time
(the "Expiration Time") tenders could have been made pursuant
to such tender offer (as it may be amended) times the number of
shares of Common Stock outstanding (including any tendered
shares) on the Expiration Time, then, and in each such
case, immediately before the opening of business on the day
after the date of the Expiration Time, the conversion price
shall be adjusted so that the same shall equal the price
determined by multiplying the conversion price in effect
immediately before close of business on the date of the
Expiration Time by a fraction (i) the numerator of which shall
be equal to (A) the product of (I) the current market price per
share of the Common Stock (determined as provided in paragraph
(f) of this Section) on the date of the Expiration Time and
(II) the number of shares of Common Stock outstanding
(including any tendered shares) on the Expiration Time, less
(B) the amount of cash plus the fair market value (determined
as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum
specified in the terms of the tender offer) of Purchased Shares,
and (ii) the denominator of which shall be equal to the
product of (A) the current market price per share of the
Common Stock (determined as provided in paragraph (f) of this
Section) as of the Expiration Time and (B) the number of shares
of Common Stock outstanding (including any tendered shares)
as of the Expiration Time less the number of all shares validly
tendered and not withdrawn as of the Expiration Time (the
shares deemed so accepted up to any such maximum, being
referred to as the "Purchased Shares").
(f) For the purpose of any computation under
paragraphs (b), (c), (d) and (e) of this Section 11.5, the
current market price per share of Common Stock on any date shall
be deemed to be the average of the daily Closing Prices for
the five consecutive Trading Days selected by the Company
commencing not more than twenty Trading Days before, and
ending not later than, the earlier of the day in question and
the day before the "ex date" with respect to the issuance or
distribution requiring such computation. The "Closing Price"
for each Trading Day shall be the reported last sale price
regular way or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked
prices regular way, in either case on the American Stock
Exchange or, if the Common Stock is not listed or admitted to
trading on such exchange, on the principal national
securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on
any national securities exchange, on the National Association
of Securities Dealers Automated Quotations systems ("NASDAQ")
National Market System ("NASDAQ/NMS") or, if not listed or
admitted to trading on NASDAQ/NMS, on NASDAQ, or, if the Common
Stock is not listed or admitted to trading on any national
securities exchange or NASDAQ/NMS or quoted on NASDAQ, the
average of the closing bid and asked prices in the
over-the-counter market as furnished by any American Stock
Exchange member firm selected from time to time by the Company
for that purpose. For purposes of this paragraph, the term
"ex date," when used with respect to any issuance of
distribution, shall mean the first date on which the Common
Stock trades regular way on such exchange or in such market
without the right to receive such issuance or distribution.
(g) No adjustment in the conversion price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided, however, that
any adjustments which by reason of this subsection (g) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this Article 11 shall be made by the Company and shall be made
to the nearest cent or to the nearest one
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hundredth of a share, as the case may be. Anything in this
Section 11.5 to the contrary notwithstanding, the Company shall
be entitled to make such reductions in the conversion price, in
addition to those required by this Section 11.5, as it in its
discretion shall determine to be advisable in order that any
stock dividends, subdivision of shares, distribution of
rights to purchase stock or securities, or a distribution of
securities convertible into or exchangeable for stock hereafter
made by the Company to its stockholders shall not be taxable.
(h) Whenever the conversion price is adjusted as herein
provided, the Company shall promptly file with the Trustee and
any conversion agent other than the Trustee an Officers'
Certificate setting forth the conversion price after such
adjustment and setting forth a brief statement of the facts
requiring such adjustment. Promptly after delivery of such
certificate, the Company shall prepare a notice of such
adjustment of the conversion price setting forth the adjusted
conversion price and the date on which such adjustment
becomes effective and shall mail or cause to be mailed such
notice of such adjustment of the conversion price to the
Holder of each Security at his last address appearing on
the Security register provided for in Section 2.3 of
this Indenture.
(i) In any case in which this Section 11.5 provides
that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the
occurrence of such event (i) issuing to the Holder of any
Security converted after such record date and before the
occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the Common
Stock issuable upon such conversion before giving effect to
such adjustment and (ii) paying to such Holder any amount in
cash in lieu of any fraction pursuant to Section 11.3.
Section 11.6 Effect of Reclassification, Consolidation, Merger
or Sale.
If any of the following events occur, namely (i) any
reclassification or change of outstanding shares of Common
Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result
of a subdivision or combination), (ii) any consolidation,
merger or combination of the Company with another corporation as
a result of which holders of Common Stock shall be entitled to
receive stock, securities or other property or assets (including
cash) with respect to or in exchange for such Common Stock, or
(iii) any sale or conveyance of the properties and assets of
the Company as, or substantially as, an entirety to any other
corporation as a result of which holders of Common Stock shall
be entitled to receive stock, securities or other property or
assets (including cash) with respect to or in exchange for
such Common Stock shall occur, then the Company or the
successor or purchasing corporation, as the case may be,
shall execute with the Trustee a supplemental indenture (which
shall conform to the TIA as in force at the date of execution
of such supplemental indenture) providing that each
Security shall be convertible into the kind and amount of
shares of stock and other securities or property or assets
(including cash) receivable upon such reclassification,
change, consolidation, merger, combination, sale or conveyance
by a holder of a number of shares of Common Stock issuable upon
conversion of such Securities immediately before such
reclassification, change, consolidation, merger,
combination, sale or conveyance. Such supplemental indenture
shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided
for in this Article.
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The Company shall cause notice of the execution of
such supplemental indenture to be mailed to each Holder of
Securities, at his address appearing on the Security register
provided for in Section 2.3 of this Indenture.
The above provisions of this Section 11.6 shall
similarly apply to successive reclassifications, changes,
consolidations, mergers, combinations, sales and conveyances.
Section 11.7 Taxes on Shares Issued.
The issue of stock certificates on conversions of
Securities shall be made without charge to the converting
Holder of Securities for any tax in respect of the issue
thereof. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that
of the Holder of any Security converted, and the Company
shall not be required to issue or deliver any such stock
certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
Section 11.8 Reservation of Shares; Shares to be Fully
Paid; Compliance with Governmental Requirements;
Listing of Common Stock.
The Company shall use its best efforts to provide, free
from preemptive rights, out of its authorized but unissued
shares or shares held in treasury, sufficient shares of
Common Stock to provide for the conversion of the
Securities (including Common Stock issuable as a Premium
Protection Payment) from time to time as such Securities are
presented for conversion.
Before taking any action which would cause an
adjustment reducing the conversion price below the then par
value, if any, of the shares of Common Stock issuable upon
conversion of the Securities, the Company will take all
corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally
issue shares of such Common Stock at such adjusted conversion
price.
The Company covenants that all shares of Common
Stock which may be issued upon conversion of Securities
will upon issue be fully paid and nonassessable by the
Company and free from all taxes, liens and charges with
respect to the issue thereof.
The Company covenants that if any shares of Common
Stock to be provided for the purpose of conversion of Securities
hereunder require registration with or approval of any
governmental authority under any Federal or State law before
such shares may be validly issued upon conversion, the
Company will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case
may be.
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The Company further covenants that if at any time
Common Stock shall be listed on the American Stock Exchange or
any other national securities exchange the Company will, if
permitted by the rules of such exchange, list and keep listed
so long as the Common Stock shall be so listed on such
exchange, all Common Stock issuable upon conversion of the
Securities.
Section 11.9 Responsibility of Trustee.
The Trustee and any other conversion agent shall
not at any time be under any duty or responsibility to any
Holder of Securities to determine whether any facts exist
which may require any adjustment of the conversion price or
other adjustment or with respect to the nature or extent or
calculation of any such adjustment when made, or with respect
to the method employed, herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee and
any other conversion agent shall not be accountable with
respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property, which
may at any time be issued or delivered upon the conversion of
any Security; and the Trustee and any other conversion agent
make no representations with respect thereto. Subject to the
provisions of Section 7.1, neither the Trustee nor any
conversion agent shall be responsible for any failure of the
Company to issue, transfer or deliver any shares of Common
Stock or stock certificates or other securities or property or
cash upon the surrender of any Security for the purpose of
conversion or to comply with any of the duties,
responsibilities or covenants of the Company contained in
this Article 11. Without limiting the generality of the
foregoing, neither the Trustee nor any conversion agent shall
be under any responsibility to determine the correctness of
any provisions contained in any supplemental indenture
entered into pursuant to Section 11.6 relating either to the
kind or amount of shares of stock or securities or property
(including cash) receivable by Holders of Securities upon the
conversion of their Securities after any event referred to in
Section 11.6 or to any adjustment to be made with respect
thereto, but, subject to the provisions of Section 7.1, may
accept as conclusive evidence of the correctness of any such
provisions, and shall be protected in relying upon, the
Officers' Certificate (which the Company shall be obligated to
file with the Trustee before the execution of any such
supplemental indenture) with respect thereto.
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Section 11.10 Notice to Holders Before Certain Actions.
In case:
(a) the Company shall declare a dividend
(or any other distribution) on its Common Stock
(other than in cash out of retained earnings); or
(b) the Company shall authorize the granting
to the holders of its Common Stock of rights or warrants
to subscribe for or purchase any share of any class or
any other rights or warrants; or
(c) of any reclassification of the Common
Stock of the Company (other than a subdivision or
combination of its outstanding Common Stock, or a
change in par value, or from par value to no par value, or
from no par value to par value), or of any consolidation or
merger to which the Company is a party and for which
approval of any shareholders of the Company is
required, or of the sale or transfer of all or
substantially all of the assets of the Company; or
(d) of the voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
or
(e) of an increase in the interest rate on
the Securities pursuant to the Registration Rights
Agreement or a Servicios Guaranty Default,
the Company shall cause to be filed with the Trustee and to
be mailed to each Holder of Securities at his address
appearing on the Securities Register provided for in Section
2.3 of this Indenture, as promptly as possible but in any
event at least fifteen days before the applicable date
hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend,
distribution or rights, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record to
be entitled to such dividend, distribution or rights are to be
determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation
or winding-up is expected to become effective or occurring
and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up. Failure to give such
notice, or any defect therein, shall not affect the legality or
validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation
or winding-up.
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ARTICLE 12
SUBORDINATION
Section 12.1 Agreement to Subordinate.
The Company agrees, and each Holder by accepting a
Security agrees, that the indebtedness evidenced by the
Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article, to the prior payment
in full of all Senior Indebtedness, and that the
subordination is for the benefit of the holders of Senior
Indebtedness.
Section 12.2 Certain Definitions.
"Senior Indebtedness"means:
(a) the principal of, interest (including,
to the extent permitted by applicable law, interest on
or after the commencement of a proceeding referred to
in clauses (g) or (h) of Section 6.1 whether or not
representing an allowed claim in such proceeding) and premium,
if any, on and any other amounts owing with
respect to (i) any indebtedness of the Company, now
or hereafter outstanding, in respect of borrowed money
(other than the Securities), (ii) any indebtedness of
the Company, now or hereafter outstanding, evidenced by a
bond, note, debenture, capitalized lease, letter of
credit or other similar instrument, (iii) any other
written obligation of the Company, now or hereafter
outstanding, to pay money issued or assumed as all or part of
the consideration for the acquisition of property,
assets or securities, including without limitation,
hedging obligations with respect to the purchase and
sale of oil and gas, and (iv) any guaranty or
endorsement (other than for collection or deposit in the
ordinary course of business) or discount with recourse
of, or other agreement (contingent or otherwise) to
purchase, repurchase or otherwise acquire, to supply
or advance funds or to become liable with respect to
(directly or indirectly), any indebtedness or obligation of
any person of the type referred to in the preceding
subclauses (i), (ii) and(iii) now or hereafter
outstanding; and
(b) any refunds, refinancings, renewals or
extensions of any indebtedness or other obligation
described in clause (a) of this Section 12.2.
Notwithstanding the foregoing, if, by the terms of the
instrument creating or evidencing any indebtedness or
obligation referred to in clauses (a) and (b) above, it is
expressly provided that such indebtedness or obligation is
not senior in right of payment to the Securities, such
indebtedness or obligation shall not be included as Senior
Indebtedness.
"Representative" means the indenture trustee or other
trustee, agent or representative for an issue of Senior
Indebtedness.
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Section 12.3 Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in
a liquidation, dissolution or winding up of the Company or in
a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property:
(1) holders of Senior Indebtedness
shall be entitled to receive payment in
full, in cash or in a manner
satisfactory to the holders of such Senior Indebtedness, of
all Senior Indebtedness before Holders shall
be entitled to receive any payments of
principal of or premium, if any, or interest
on Securities; and
(2) until the Senior Indebtedness is
paid in full in cash or in a manner
satisfactory to the holders of such Senior
Indebtedness, any distribution to which Holders would be
entitled but for this Article shall be made to
holders of Senior Indebtedness as their
interest may appear, except that Holders may
receive securities that are subordinated to Senior
Indebtedness to at least the same extent as the Securities.
A distribution may consist of cash,
securities or other property.
Section 12.4 Company Not to Make Payments with Respect to
Securities in Certain Circumstances.
(a) Upon the maturity of any Senior Indebtedness
by lapse of time, acceleration or otherwise, all principal
thereof, premium, if any, and interest thereon and any other
amounts owing in respect thereof shall first be paid in full,
or such payment duly provided for in cash or in a manner
satisfactory to the holders of such Senior Indebtedness,
before any payment is made on account of the principal of or
premium, if any, or interest on the Securities or to acquire
any of the Securities.
(b) Upon the happening of an event of default (or
if any event of default would result upon any payment upon or
with respect to the Securities) with respect to any Senior
Indebtedness as such event of default is defined therein or in
the instrument under which it is outstanding, permitting
holders to accelerate the maturity thereof, and, if the default
is other than default in payment of the principal of, premium,
if any, or interest on or any other amount owing in respect of
such Senior Indebtedness, upon written notice thereof given to
the Company and the Trustee by the holders of Senior
Indebtedness or their Representative, then, unless such an
event of default shall have been cured or waived or shall have
ceased to exist, no payment shall be made by the Company with
respect to the principal of or premium, if any, or
interest on the Securities or to acquire any of the Securities.
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Section 12.5 Acceleration of Securities.
If payment of the Securities is accelerated
because of an Event of Default, the Company shall promptly
notify holders of Senior Indebtedness of the acceleration.
Section 12.6 When Distribution Must Be Paid Over.
If a distribution is made to Holders that, because of
this Article 12, should not have been made to them, the Holders
who receive the distribution shall hold it in trust for
holders of Senior Indebtedness and pay it over to them as
their interests may appear.
Section 12.7 Notice by Company.
The Company shall promptly notify the Trustee and the
Paying Agent of any facts known to the Company that would
cause a payment of principal of or premium, if any, or
interest on the Securities to violate this Article 12.
Section 12.8 Subrogation.
After all Senior Indebtedness is paid in full and
until the Securities are paid in full, Holders shall be
subrogated to the rights of holders of Senior Indebtedness to
receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have
been applied to the payment of Senior Indebtedness. A
distribution made under this Article 12 to holders of Senior
Indebtedness which otherwise would have been made to Holders is
not, as between the Company and Holders, a payment by the
Company on Senior Indebtedness.
Section 12.9 Relative Rights.
This Article 12 defines the relative rights of
Holders and holders of Senior Indebtedness. Nothing in this
Indenture shall:
(1) impair, as between the Company and
Holders, the obligation of the Company, which is
absolute and unconditional, to pay principal of and
premium, if any, and interest on the Securities in accordance
with their terms;
(2) affect the relative rights of Holders and
creditors of the Company, other than holders of Senior
Indebtedness; or
(3) prevent the Trustee or any Holder from
exercising its available remedies upon a Default,
subject to the rights of holders of Senior Indebtedness
to receive distributions otherwise payable to
Holders.
If the Company fails because of this Article 12 to pay
principal of or premium, if any, or interest on a Security on
the due date, such failure shall nevertheless be deemed a
Default.
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Section 12.10 Subordination May Not be Impaired by Company.
No right of any holder of Senior Indebtedness
to enforce the subordination of the indebtedness evidenced by
the Securities shall be impaired by any act or failure to act by
the Company or by its failure to comply with the terms of this
Indenture.
Section 12.11 Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice
given to holders of Senior Indebtedness, the distribution may
be made and the notice given to their Representative.
Section 12.12 Rights of Trustee and Paying Agent.
Notwithstanding any provisions of this Indenture to
the contrary, the Trustee and any Paying Agent may continue to
make payments on the Securities and shall not at any time be
charged with knowledge of the existence of any facts which
would prohibit the making of such payments until it
receives written notice (received by a Responsible Officer,
in the case of the Trustee) reasonably satisfactory to
it that payments may not be made under this Article 12 and,
before the receipt of any such notice, the Trustee, subject
to the provisions of Article 7, and any agent shall be entitled
to assume conclusively that no such facts exist. The Company,
an Agent, a Representative or a holder of Senior Indebtedness
may give the notice. If an issue of Senior Indebtedness has a
Representative, only the Representative (or any Representative,
if more than one) may give the notice with respect to such
Senior Indebtedness.
The Trustee shall be entitled to rely on the
delivery to it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness (or a
Representative) to establish that such notice has been given by
a holder of Senior Indebtedness (or a Representative), and
shall be entitled to rely on any written notice by a Person
representing himself to be a holder of Senior Indebtedness to
the effect that such issue of Senior Indebtedness has no
Representative.
Any deposit of moneys by the Company with the
Trustee or any Paying Agent (whether or not in trust) for the
payment of the principal of or premium, if any, or interest
on, or payment on account of Change of Control or Premium
Protection Payment, if any, of, any Securities shall be
subject to the provisions of this Article 12, except that
if, at least three business days before the date on which by
the terms of this Indenture any such moneys may become
payable for any purpose (including, without limitation, the
payment of principal of or premium, if any, or interest on any
Security), the Trustee shall not have received with respect to
such moneys the notice provided for in this Section 12.12,
then the Trustee shall have full power and authority to receive
such moneys and to apply the same to the purpose for which
they were received and shall not be affected by any notice to
the contrary which may be received by it within three business
days before or on or after such date. This Section 12.12
shall be construed solely for the benefit of the Trustee and
Paying Agent and shall not otherwise affect the rights of
holders of Senior Indebtedness. If the Trustee determines in
good faith that further evidence is required with respect to
the right of any Person as holder of Senior Indebtedness
to participate in any payment or distribution pursuant to
this Article 12, the Trustee may request such Person to
furnish evidence to the reasonable
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satisfaction of the Trustee as to the amount of the Senior
Indebtedness held by such Person, the extent to which such
person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of
such Person under this Article 12, and, if such evidence is
not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such
Person to receive payment.
The Trustee shall not be deemed to owe any fiduciary
duty to holders of Senior Indebtedness by virtue of the
provisions of this Article 12. The Trustee's
responsibilities to the holders of Senior Indebtedness are
limited to those set forth in this Article 12, and no implied
covenants or obligations shall be read into this Indenture.
The Trustee shall not become liable to the holders of Senior
Indebtedness if it makes a payment prohibited by this Article 12
in good faith.
The Trustee in its individual or any other capacity
may hold Senior Indebtedness with the same rights it would
have if it were not Trustee. Any agent may do the same with
like rights.
Section 12.13 Effectuation of Subordination by Trustee.
Each Holder of Securities, by acceptance thereof,
authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effect the
subordination provided in this Article 12 and appoints the
Trustee his attorney-in-fact for any and all such purposes.
ARTICLE 13
MISCELLANEOUS
Section 13.1 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies
or conflicts with the duties imposed by TIA ss. 318 (C), the
imposed duties shall control.
Section 13.2 Notices.
Any notice or communication by the Company, the
Subsidiary Guarantors or the Trustee to the others is duly
given if in writing and delivered in person or mailed by
first-class mail (registered or certified, return receipt
requested), telex, telecopier or overnight air courier
guaranteeing next day delivery, to the other's address:
If to the Company or any Subsidiary Guarantor:
Key Energy Group, Inc.
255 Livingston Avenue New
Brunswick, New Jersey 08901 Attention:
Francis D. John Telecopier No.: (908)
247-5148
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With a copy to:
Sullivan & Worcester, LLP
One Post Office Square
Boston, Massachusetts 02109 Attention:
Karen L. Linsley, Esq. Telecopier
No.: (617) 338-2880
If to the Trustee:
American Stock Transfer & Trust
Company 40 Wall Street
46th Floor New York, New
York 10005 Attention: Executive Vice
President Telecopier No.: (718)
236-4558
With a copy to:
Herbert J. Lemmer
American Stock Transfer & Trust Company
6201 15th Avenue, 3rd Floor
Brooklyn, New York 11219 Telecopier
No.: (718) 331-1552
The Company, the Subsidiary Guarantors (or any of
them), or the Trustee by notice to the others may designate
additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent
to Holders) shall be deemed to have been duly given at the time
delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after
timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be
mailed by first-class mail to his address shown on the register
kept by the Registrar. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect
its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner
provided above within the time prescribed, it is duly given,
whether or not the addressee receives it.
If the Company mails a notice or communication to
Holders, it shall mail a copy to the Trustee at the same time.
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Section 13.3 Communication to Holders with Other Holders.
Holders may communicate pursuant to TIA ss. 312(b)
with other Holders with respect to their rights under this
Indenture or the Securities. The Company, the Subsidiary
Guarantors, the Trustee, the Registrar and any anyone else
shall have the protection of TIA ss. 312(c).
Section 13.4 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or
any Subsidiary Guarantor to the Trustee to take any action
under this Indenture, the Company or such Subsidiary Guarantor,
as the case may be, shall, upon request, furnish to the
Trustee an Officer's Certificate and Opinion of Counsel
in form and substance reasonably satisfactory to the Trustee
(which shall include the statements set forth in Section
13.5) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in
this Indenture relating to the proposed action have been
complied with.
Section 13.5 Statements Required in Certificate.
Each certificate with respect to compliance with
a condition or covenant provided for in this Indenture
(other than a certificate provided pursuant to TIA ss. 314(a)
(4)) shall include:
(a) a statement that the person making such
certificate has read such covenant or condition;
(b) a brief statement as to the nature
and scope of the examination or investigation upon
which the statements contained in such certificate are
based;
(c) a statement that, in the opinion of such
person, he has made such examination or investigation
as is necessary to enable him to express an informed
opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the
opinion of such person, such condition or covenant has
been complied with.
Section 13.6 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or
at a meeting of Holders. The Registrar or Paying Agent may
make reasonable rules and set reasonable requirements for its
functions.
Section 13.7 Additional Rights of Holders of Transfer Restricted
Securities.
In addition to the rights provided to Holders of
Securities under this Indenture, Holders of Transferred
Restricted Securities shall have all the rights set forth
in the Registration Rights Agreement and certain other
agreements executed and delivered in connection herewith.
61
<PAGE>
Section 13.8 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day
on which banking institutions in New York, New York, or at a
place of payment are authorized or obligated by law, regulation
or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that
place on the next day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
Section 13.9 No Recourse Against Others.
No past, present or future director, officer, employee,
agent, manager, stockholder or other Affiliate (other than
the Subsidiary Guarantor) of the Company or any Subsidiary
Guarantor, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the
Securities, the Indenture or the Subsidiary Guarantee or for
any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder by accepting a
Security waives and releases all such liability.
Section 13.10 Duplicate Originals.
The parties may sign any number of copies of this
Indenture. One signed copy is enough to prove this Indenture.
Section 13.11 Governing Law.
This indenture and the Securities shall be governed by
and construed in accordance with the laws of the State of
New York, without regard to the conflict of law rules
thereof.
Section 13.12 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Company or its
Subsidiaries. Any such indenture, loan or debt agreement may
not be used to interpret this Indenture.
Section 13.13 Successors.
All agreements of the Company and the Subsidiary
Guarantors in this Indenture and the Securities shall bind their
successors. All agreements of the Trustee in this Indenture
shall bind its successor.
Section 13.14 Severability.
In case any provision in this Indenture or in the
Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
62
<PAGE>
Section 13.15 Counterpart Originals.
The parties may sign any number of copies of this
Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
Section 13.16 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and
Headings of the Articles and Sections of this Indenture have
been inserted for convenience of reference only, are not to
be considered a part hereof and shall in no way modify or
restrict any of the terms or provisions hereof.
[SIGNATURE PAGES FOLLOW]
63
<PAGE>
IN WITNESS WHEREOF, the parties hereto have causes this
Indenture to be executed as of the day and year first above
written.
Dated as of July 3, 1996 KEY ENERGY GROUP, INC.
By:
Its: Attest:
(SEAL)
Dated as of July 3, 1996 YALE E. KEY, INC., as
Subsidiary Guarantor
By:
Its:
Attest:
(SEAL)
Dated as of July 3, 1996 WELLTECH EASTERN, INC.,
as Subsidiary Guarantor
By:
Its:
Attest:
(SEAL)
64
<PAGE>
Dated as of July 3, 1996 ODESSA EXPLORATION,
INC., as Subsidiary
Guarantor
By:
Its:
Attest:
(SEAL)
Dated as of July 3, 1996 KEY ENERGY DRILLING,
INC. D/B/A CLINT HURT
DRILLING, as Subsidiary
Guarantor
By:
Its:
Attest:
(SEAL)
Dated as of July 3, 1996 SERVICIOS WELLTECH, SA,
as Subsidiary Guarantor
By:
Its:
Attest:
(SEAL)
65
<PAGE>
Dated as of July 3, 1996 AMERICAN STOCK TRANSFER
& TRUST COMPANY, as
Trustee
By:
Its:
Attest:
(SEAL)
66
<PAGE>
Exhibit A
(Face of Security)
7% CONVERTIBLE SUBORDINATED DEBENTURE
DUE JULY 1, 2003
No.
$______
KEY ENERGY GROUP, INC.
promises to pay to
_________________________________________________________________
____________ or its registered assigns, the principal sum of
_________________________________________________________________
____________ Dollars on July 1, 2003.
Interest Payment Dates: July 1 and January 1, commencing January
1, 1997.
Record Dates: June 15 and December 15 (whether or not a Business
Day).
KEY ENERGY GROUP, INC.
By:
Officer of the Company
(SEAL)
Attest: This is
one of the Convertible Subordinated Debentures referred to in
the within-mentioned By: Indenture:
Officer of the Company
_________________________, as Trustee
By Authorized Signature
Dated: ,
A-1
<PAGE>
(Back of Security)
7% CONVERTIBLE SUBORDINATED DEBENTURE
DUE JULY 1, 2003
[Unless and until it is exchanged in whole or in part
for Securities in definitive form, this Security may not be
transferred except as a whole by the Depositary to a nominee of
the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. Unless this
certificate is presented by an authorized representative of The
Depositary Trust Company, 55 Water Street, New York, New York
("DTC"), to the issuer or its agent for registration of
transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as
requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or such other entity as is
requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.]1
THE DEBENTURE EVIDENCED HEREBY HAS NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE, SECURITIES LAWS,
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (A)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE
DEBENTURE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2)
AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL
ISSUANCE OF THE DEBENTURE EVIDENCED HEREBY RESELL OR OTHERWISE
TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH DEBENTURE EXCEPT (A) TO KEY
ENERGY GROUP, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO AMERICAN STOCK TRANSFER & TRUST
COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE DEBENTURE EVIDENCED HEREBY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT OR (E) PURSUANT
- --------1 This paragraph is to be included only if the
Security is in global form.
A-2
<PAGE>
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THE DEBENTURE EVIDENCED HEREBY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE DEBENTURE
EVIDENCED HEREBY WITHIN THREE YEARS AFTER THE ORIGINAL
ISSUANCE OF SUCH DEBENTURE, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE
MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO AMERICAN STOCK
TRANSFER & TRUST COMPANY, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS
LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THREE YEARS
FROM THE ORIGINAL ISSUANCE OF THE DEBENTURE EVIDENCED HEREBY.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
Section 1. Interest. Key Energy Group, Inc., a
Maryland corporation (the "Company"), promises to pay
interest on the principal amount of this 7% Convertible
Subordinated Debenture due 2003 (the "Debenture") at the rate
and in the manner specified below.
The Company shall pay interest on the principal
amount of this Debenture in cash at the rate per annum shown
above, which rate shall be (i) subject to an increase of
fifty (50) basis points (1/2%) in the event of a Servicios
Guaranty Default and (ii) subject to increase as specified
in the Registration Rights Agreement dated as of July 3, 1993,
to which the Company is a party. The Company will pay interest
(including the additional interest as a Servicios Default
Payment or any additional interest referred to in such
Registration Rights Agreement) semi-annually on July 1 and
January 1 of each year commencing January 1, 1997, or if any
such day is not a Business Day, on the next Business Day (each
an "Interest Payment Date") to record holders of Debentures
("Holders") at the close of business on June 15 or December
15 immediately preceding the applicable Interest Payment
Date. A copy of the Indenture (defined below), the
Registration Rights Agreement and all other agreements
affecting this Debenture or the Holders may be obtained from
the Company upon request.
Interest shall be computed on the basis of a 360-day
year consisting of twelve 30-day months. Interest shall accrue
from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of the original
issuance of this Debenture. To the extent lawful, the Company
shall pay interest on overdue principal at the rate of 1% per
annum in excess of the then applicable interest rate on this
Debenture; it shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) at the
same rate to the extent lawful.
A-3
<PAGE>
Section 2. Method of Payment. The Company shall pay
interest on the Debentures (except defaulted interest) to
Holders at the close of business on the record date next
preceding the Interest Payment Date, even if such
Debentures are canceled after such record date and on or
before such Interest Payment Date. The Holder hereof must
surrender this Debenture to a Paying Agent (as defined in the
Indenture) to collect principal payments. The Company shall
pay principal and interest in money of the United States
that at the time of payment is legal tender for payment of
public and private debts. The Company, however, may pay
principal and interest by check payable in such money. It may
mail an interest check to a Holder's registered address.
Section 3. Paying Agent and Registrar. Initially, the
Trustee shall act as Paying Agent and Registrar. The Company
may change any Paying Agent, Registrar or co-Registrar
without notice to any Holder. The Company and any of its
Subsidiaries may act in any such capacity.
Section 4. Indenture. The Company issued the
Debentures under an Indenture, dated as of July 3, 1996 (the
"Indenture"), among the Company, the Subsidiary Guarantors
(as defined in the Indenture) and American Stock Transfer &
Trust Company, as Trustee. The terms of the Debentures include
those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15
U.S. Code ss.ss. 77aaa-77bbbb), as amended by the Trust
Indenture Reform Act of 1990, and as in effect on the
date of the Indenture. The Debentures are subject to all
such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. The terms of the
Indenture shall govern any inconsistencies between the
Indenture and the Debentures. Capitalized terms used herein
that are not specifically defined herein shall have the
meanings set forth in the Indenture. The Debentures are
unsecured general obligations of the Company limited to
$52,000,000 in aggregate principal amount.
Section 5. Optional Redemption. The Company may
redeem at any time on or after July 15, 1999, all or any portion
of the Securities outstanding at the following redemption
prices expressed as a percentage of the principal amount
thereof, if the Securities are redeemed during the 12 month
period beginning July 15, of the following years:
Year
Percentage----
- ----------1999...................................................
........ 104%
2000...........................................................
103%
2001...........................................................
102%
2002...........................................................
101%
Section 6. Redemption or Repurchase at Option of
Holder. If there is a Change of Control (as defined in the
Indenture), the Company will be required to offer to purchase
on the Change of Control Payment Date (as defined in the
Indenture) all outstanding Debentures at 100% of the principal
amount thereof, plus accrued and unpaid interest to the
date of purchase. Holders whose Debentures are subject to an
offer to purchase will receive an offer to purchase
A-4
<PAGE>
from the Company prior to any related Change of Control
Payment Date and may elect to have their Debentures purchased
by completing the form entitled "Option of Holder to Elect
Purchase" appearing below.
Section 7. Notice of Redemption. Notice of redemption
will be mailed at least 30 days but not more than 60 days
before the redemption date to each Holder to be redeemed at
its registered address. Debentures may be redeemed in part but
only in whole multiples of $1,000, unless all of the Debentures
held by a Holder are to be redeemed. On and after the
redemption date, interest ceases to accrue on Debentures or
portions of them called for redemption.
Section 8. Conversion. Subject to the provisions of
the Indenture, the Holder hereof has the right, at his
option, at any time on or after July 15, 1999 and on or before
the maturity, or, as to all or any portion hereof called for
redemption during such period, the close of business on the
date fixed for redemption (unless the Company shall default
in payment due upon redemption thereof), to convert the
principal hereof or any portion of such principal that is $1,000
or a multiple thereof, into (A) that number of shares of the
Company's Common Stock, as such shares shall be constituted
at the date of conversion, obtained by dividing the principal
amount of this Debenture or portion thereof to be converted by
the conversion price of $9.75, or such conversion price as
adjusted from time to time as provided in the Indenture,
and (B) if such conversion occurs after November 1, 1996, and
before July 1, 1999, an amount equal to 50% of the interest
otherwise payable on the converted securities from the date of
conversion through and including July 1, 1999, (the
"Premium Protection Payment"), such amount payable, at the
option of the Company, in cash or Common Stock based on the
Closing Price of the Common Stock on the conversion date, by
surrender of this Debenture, together with a conversion
notice as provided in the Indenture, to the Company at the
office or agency of the Company maintained for that purpose
in New York, New York, and, unless the shares issuable on
conversion are to be issued in the same name as this Debenture,
duly endorsed by, or accompanied by instruments of transfer in
form satisfactory to the Company duly executed by, the Holder
or by his duly authorized attorney ; provided, however, that
no Premium Protection Payments will be made after the
consummation of an all cash tender offer for 100% of the Common
Stock at a price per share representing a 40% or greater
premium above the conversion price. No adjustments in respect
of interest or dividends will be made upon any
conversion; provided, however, that if the Debenture shall be
surrendered for conversion during the period from the close of
business on any record date for the payment of interest to the
opening of business on the following interest payment date,
this Debenture (unless it or the portion being converted
shall have been called for redemption on a date in such period)
must be accompanied by an amount, in funds acceptable to the
Company, equal to the interest payable on such interest
payment date on the principal amount being converted. No
fractional shares will be issued upon any conversion, but an
adjustment in cash shall be made, as provided in the
Indenture, in respect of any fraction of a share which would
otherwise be issuable upon the surrender of any Debenture or
Debentures for conversion. A holder of Debentures is not
entitled to any rights of a holder of Common Stock until such
holder has converted his Debentures to Common Stock, and
only to the extent such Debentures are to have been converted to
Common Stock under the Indenture.
Section 9. Subordination. The Securities are
subordinated to Senior Indebtedness (as defined in the
Indenture). To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid.
A-5
<PAGE>
The Company agrees, and each Holder by accepting a Security
agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give effect to such
provisions, and each Holder appoints the Trustee his
attorney-in-fact for any and all such purposes.
Section 10. Denominations, Transfer, Exchange. The
Debentures are initially issued in global form. The global
Debenture represents such of the outstanding Securities as
shall be specified therein or endorsed thereon in accordance
with the Indenture. The definitive Securities are in registered
form without coupons in denominations of $1,000 and whole
multiples of $1,000. The transfer of Debentures may be
registered and Debentures may be exchanged as provided in the
Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not exchange
or register the transfer of any Debenture or portion of an
Debenture selected for redemption. Also, it need not exchange
or register the transfer of any Debentures for a period of 15
days before a selection of Debentures to be redeemed.
Section 11. Persons Deemed Owners. Before due
presentment to the Trustee for registration of the transfer
of this Debenture, the Trustee, any Agent and the Company may
deem and treat the person in whose name this Debenture is
registered as its absolute owner for the purpose of receiving
payment of principal of and interest on this Debenture
and for all other purposes whatsoever, whether or not this
Debenture is overdue, and neither the Trustee, any Agent nor
the Company shall be affected by notice to the contrary.
The registered holder of an Debenture shall be treated as
its owner for all purposes.
Section 12. Amendments and Waivers. Subject to certain
exceptions, the Indenture or the Securities may be amended with
the consent of the Holders of at least a majority in principal
amount of the then outstanding Securities, and any existing
default (except a payment default) may be waived with the
consent of the holders of a majority in principal amount
of the then outstanding Securities. Without the consent of
any Holder, the Indenture or the Securities may be amended to
cure any ambiguity, defect or inconsistency, to provide for
assumption of Company obligations to Holders or to make any
change that does not adversely affect the rights of any Holder.
Section 13. Defaults and Remedies. Events of default
include: default in payment of interest on the Securities
for 30 days; default in payment of principal of or premium on
the Securities when due; failure by the Company for 60 days
after notice to it to comply with its agreements in the
Indenture or the Securities; defaults under and acceleration
before express maturity of certain other Indebtedness that
aggregates $1,000,000 or more; certain final judgments which
remain undischarged if the aggregate of all such judgments
exceeds $1,000,000 or more; certain final judgments which
remain undischarged if the aggregate of all such judgments
exceeds $1,000,000; and certain events of bankruptcy or
insolvency. If an Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Securities may declare all
the Securities to be due and payable immediately, except that
in the case of an Event of Default arising from certain events
of bankruptcy or insolvency, all outstanding Securities
become due and payable immediately without further action
or notice and all outstanding
A-6
<PAGE>
Securities, and all Obligations and Claims with respect
thereto, become immediately due and payable. Holders may
not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or
the Securities. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Securities
may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders notice of any continuing
default (except a default in payment of principal or interest)
if it determines that withholding notice is in their
interests. The Company must furnish an annual compliance
certificate to the Trustee.
Section 14. Trustee Dealings with Company. The
Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform
services for the Company, the Subsidiary Guarantors or their
Affiliates, and may otherwise deal with the Company, the
Subsidiary Guarantors or their Affiliates, as if it were not
Trustee; provided, however, that if the Trustee acquires any
conflicting interest as described in the Trust Indenture Act,
it must eliminate such conflict or resign.
Section 15. No Recourse Against Others. No director,
officer, employee, agent, manager, stockholder or other
Affiliates (other than the Subsidiary Guarantors), of the
Company or any Subsidiary Guarantor, as such, shall have any
liability for any obligations of the Company or any of the
Subsidiary Guarantors under the Securities, the Indenture or
the Subsidiary Guarantees or for any claim based on, in
respect of or by reason of such obligations or their
creation. Each Holder by accepting a Debenture waives and
releases all such liability. The waiver and release are part of
the consideration for the issuance of the Debentures.
Section 16. Subsidiary Guarantees. Payment of
principal, premium (if any) and interest (including interest on
overdue principal and overdue interest, if lawful) is
unconditionally guaranteed by certain Subsidiaries of the
Company.
Section 17. Authentication. This Debenture shall
not be valid until authenticated by the manual signature of the
Trustee or an authenticating agent.
Section 18. Abbreviations. Customary abbreviations
may be used in the name of a Holder or an assignee, such as: TEN
COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST = Custodian),
and U/G/M/A (= Uniform Gifts to Minors Act).
Section 19. CUSIP Numbers. Pursuant to a recommendation
promulgated by the Committee on Uniform Security
Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Debentures and has directed
the Trustee to use CUSIP numbers in notices of redemption
as a convenience to Holders. No representation is made as to
the accuracy of such numbers either as printed on the
Debentures or as contained in any notice of redemption and
reliance may be placed only on the other identification number
placed thereon.
Section 20. Additional Rights of Holders of
Transfer Restricted Securities. In addition to the rights
provided to Holders of Securities under
A-7
<PAGE>
the Indenture, Holders of Transferred Restricted Securities
shall have all the rights set forth in the Registration
Rights Agreement referred to in the Indenture and certain
other agreements executed and delivered in connection
therewith.
The Company will furnish to any Holder upon written
request and without charge a copy of the Indenture. Request may
be made to:
Key Energy Group, Inc.
255 Livingston Avenue New
Brunswick, New Jersey 08901 Attn:
Francis D. John
A-8
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or
(we) assign and transfer this Security to
(Insert assignee's soc. sec. or tax I.D.
no.)
(Print or type assignee's name, address and zip
code)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent
may substitute another to act for him.
Date:
Your Signature:
(Sign exactly as your name appears on
the face of this Security)
Signature Guaranteed:
By: (THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (Banks, Stock Brokers, Savings and Loan
Associations, and Credit Unions) WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C.
RULE 17Ad-15.)
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this
Security purchased by the Company pursuant to Section 4.10 of
the Indenture (Change of Control), state the amount you
elect to have purchased (if all, write "ALL"):
$__________________________
Date:
Your Signature:
(Sign exactly as your name appears on
the face of this Security)
Signature Guaranteed:
By: (THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (Banks, Stock Brokers, Savings and Loan
Associations, and Credit Unions) WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C.
RULE 17Ad-15.)
A-10
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES'2
The following exchanges of a part of this Global Security
for Definitive Securities have been made: <TABLE> <CAPTION>
Amount of
Principal Signature of
decrease in Amount of
Amount of this authorized Date of
Principal Increase in Global
officer of Exchange Amount of
Principal Security
Trustee or this Global Amount
of this following such Securities
Security Global Security
decrease (or Custodian
increase) <S>
<C> <C>
<C> <C>
- ----------------- -------------------
- ---------------------- ---------------------
- -----------------------
- --------
2 This is to be included only if the Security is in
global form
A-11
<PAGE>
Exhibit B
[Form of Subsidiary Guarantee]
Subsidiary Guarantee
_______________, the undersigned (the "Subsidiary
Guarantor"), hereby expressly guarantees the performance of
all obligations and duties set forth in Section 10.1 of an
indenture dated June __, 1996 (the "Indenture") and hereby
agrees to be jointly and severally bound with all other
Subsidiary Guarantors to all the terms, conditions and
responsibilities and liabilities contained therein or that may
arise by operation of law.
Defined terms and sections of the Indenture
referred to in this Guarantee are incorporated herein by
reference.
Subsidiary Guarantor:
[Name]
[Address]
By:
Name:
Office:
B-1
</TABLE>
THIRD AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This THIRD AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (the "Agreement") is between the undersigned
Borrowers, YALE E. KEY, INC. ("Yale"), KEY ENERGY DRILLING,
INC. D/B/A CLINT HURT DRILLING ("Hurt"), and WELLTECH
EASTERN, INC. ("WellTech") and the undersigned Lender, THE
CIT GROUP/CREDIT FINANCE, INC., concerning loans and other
credit accommodations to be made by Lender to Borrowers.
SECTION 1. PARTIES; BACKGROUND
1.1 The "Borrowers" are the persons, firms,
corporations or other entities, identified as the Borrowers in
Section 10.6(c) and their successors and assigns. All
references to "Borrower" shall mean each of them individually,
and all references to "Borrowers" shall mean each of them,
jointly, severally and collectively, and the successors and
assigns of each.
1.2 The "Lender" is The CIT Group/Credit Finance,
Inc. and its successors and assigns.
1.3 (i) Yale (the "Original Borrower"), Eskey, Inc.
(the "Original Guarantor"), and Fidelcor Business Credit
Corporation ("Fidelcor") entered into a loan transaction (the
"Original Loan Transaction") on December 29, 1988, and, in
connection therewith, Yale executed a Promissory Note in
favor of Fidelcor (the "Original Note"), and Yale delivered to
Fidelcor a Security Agreement (the "Security Agreement") and
certain related agreements and documents. As part of the
Original Loan Transaction, Eskey, Inc. executed a Corporate
Continuing Guaranty (the "Original Guaranty") in favor
of Fidelcor, guaranteeing unconditionally Yale's obligations
to Fidelcor. The Original Note, the Security Agreement, the
Original Guaranty, and all documents related thereto are
referred to herein as the "1988 Agreements".
(ii) On June 29, 1990, Yale and Fidelcor
entered into an Amended and Restated Loan and Security
Agreement (the Security Agreement as amended by the Amended
and Restated Loan and Security Agreement, being referred to
herein as the "Original Loan Agreement"); Yale executed a
Restated Promissory Note which amended and restated the Original
Note; and Eskey, Inc. reaffirmed its obligations under the
Original Guaranty by executing the Reaffirmation and Amendment
of Guaranty and Subordination Agreement; all of the foregoing
being referred to as the "Amendment Agreements". On July 25,
1990, Skeeter Well Service, Inc. ("Skeeter") executed a
Guaranty in favor of Lender and entered into a Security
Agreement with Lender (the "Skeeter Agreements"). The Amendment
Agreements and the Skeeter Agreements, along with all
documents executed in connection therewith, are referred to as
the "1990 Agreements".
(iii) On February 4, 1991, Fidelcor sold and
assigned to CIT the Original Loan Transaction, including all of
its right, title, and interest in and to the 1988 Agreements
and the 1990 Agreements.
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(iv) On or about December 8, 1992,
pursuant to a plan of reorganization, Key Energy Group, Inc.,
a newly formed wholly-owned subsidiary of National
Environmental Group, Inc. ("NEGI"), and ESKEY, Inc., a
wholly-owned subsidiary of NEGI, merged with NEGI. NEGI was the
surviving corporation and its name was changed to Key Energy
Group, Inc.
(v) In March 1991, Yale, a wholly-owned
subsidiary of Key Energy Group, Inc. ("Key"), merged with
Skeeter Well Service, Inc. and Yale was the surviving
corporation. In July 1993, OEI Acquisition Corp., a
wholly-owned subsidiary of Key, merged with Odessa Exploration
Incorporated. OEI Acquisition Corp. was the surviving
corporation and its name was changed to "Odessa
Exploration Incorporated" ("Odessa"). In March 1995, Key Energy
Drilling, Inc., a wholly-owned subsidiary of Key, acquired
the assets of Clint Hurt & Associates, Inc. and the right
to use the name "Clint Hurt Drilling."
(vi) On May 19, 1994, Yale executed a
Second Amended and Restated Promissory Note (the "Second
Amended Note") in favor of CIT in the principal amount of
$4,326,666.69. On December 27, 1994, Yale executed a
Promissory Note (Term Note) (the "Term Note") in favor of CIT
in the principal amount of $2,500,000.00. The Second Amended
Note and the Term Note are referred to as the "1994 Notes".
(vii) The 1988 Agreements, the 1990
Agreements, and the 1994 Notes are referred to herein as the
"Original Loan Documents". Yale and Key are from time-to-time
referred to as the "Original Obligors".
(viii) On November 18, 1995, Key and
WellTech, Inc. entered into an Agreement and Plan of Merger
(the "Merger Agreement") evidencing their intent to merge
WellTech, Inc. with and into Key in accordance with the general
corporation laws of the states of Delaware and Maryland (the
"Merger").
(ix) On January 19, 1996: (i) Yale, Hurt,
Key and Lender entered into that certain Second Amended
and Restated Loan and Security Agreement which amended and
restated the Original Loan Agreement (the "Second Loan
Agreement"); and (ii) WellTech, Inc., Bronson Production, Inc.
("BPI") and Lender entered into that certain Loan and Security
Agreement (the "WellTech Agreement"").
(x) In connection with the Second Loan
Agreement and the WellTech Agreement, Borrowers and BPI
executed the following promissory notes (the "1996 Notes")
which amended, renewed and restated in part the 1994 Notes:
(i) that certain Promissory Note dated
January 19, 1996 in the original principal
amount of $10,004,082 executed by Yale and
payable to CIT (the "Original Yale Note");
(ii) that certain Promissory Note
dated January 19, 1996 in the original
principal amount of $1,230,000 executed by
Hurt and payable to CIT (the "Original Clint Hurt Note");
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(iii) that certain Promissory Note
dated January 19, 1996 in the original
principal amount of $875,350 executed by BPI
and payable to CIT (the "Original BPI Note");
(iv) that certain Promissory Note
dated January 19, 1996 in the original
principal amount of $10,946,836 executed
by WellTech, Inc. and payable to CIT (the "Original
WellTech Note").
(xi) The Merger was concluded and became
effective on March 28, 1996. Following the Merger, Key, as
the survivor of the merged entities, transferred all of the
assets and liabilities of WellTech, Inc. to WellTech. On May
10, 1996 BPI and WellTech merged and WellTech is the surviving
corporation.
(xii) Yale, Hurt and WellTech have requested,
and Lender has agreed, to consolidate and amend the Second
Loan Agreement and the WellTech Agreement, and accordingly
the parties are entering into this Agreement. In addition,
Key, which is not a party to this Agreement, has entered into
that certain Guaranty dated of even date herewith by which Key
has unconditionally guaranteed all Obligations of the Borrowers
to CIT hereunder.
(xiii) In connection with this Agreement
the 1996 Notes are being amended and restated as follows, all
such notes as amended, renewed or restated from time to time
hereafter being referred to as the "Promissory Notes":
(i) The Original Yale Note has
been amended and restated of even date
herewith by that certain Amended and Restated
Promissory Note dated of even date herewith in the
original principal amount of $10,004,082 executed by Yale
and payable to CIT;
(ii) The Original Clint Hurt Note
has been amended and restated of even date
herewith by that certain Amended and Restated
Promissory Note dated of even date herewith in the
original principal amount of $1,230,000 executed by Hurt
and payable to CIT;
(iii) The Original BPI Note and the
Original WellTech Note have been amended and
restated of even date herewith by that
certain Amended and Restated Promissory Note dated of
even date herewith in the original principal
amount of $11,822,186 executed by WellTech and
payable to CIT.
1.4 Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein,
the meaning customarily given in accordance with generally
accepted accounting principles ("GAAP"), and all financial
computations hereunder shall be computed, unless
otherwise specifically provided herein, in accordance with
GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of a Borrower's
financial statements.
1.5 Capitalized terms not otherwise defined herein
shall, unless the context indicates otherwise, have the
meanings provided for by the Uniform Commercial Code to the
extent the same are used or defined therein. Wherever
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appropriate in the context, terms used herein in the singular
also include the plural, and vice versa, and each masculine,
feminine, or neuter pronoun shall also include the other
genders.
1.6 The terms "herein," "hereof" and "hereunder"
and other words of similar import refer to this Agreement as
a whole and not to any particular section, paragraph or
subdivision. The section titles, and list of exhibits appear
as a matter of convenience only and shall not affect the
interpretation of this Agreement. All references to statutes
and related regulations shall include any amendments of same
and any successor statutes and regulations. All references to
any instruments or agreements, shall include any and
all modifications or amendments thereto and any and all
extensions or renewals thereof.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the
terms and conditions contained herein, make revolving loans
to each of the Borrowers ("Revolving Loans") in amounts
requested by such Borrower from time to time, but not in
excess of such Borrower's Net Availability existing
immediately prior to the making of the requested loan and
provided the requested loan would not cause the outstanding
Obligations of all Borrowers in the aggregate to exceed the
Maximum Credit; provided further, however, that Lender shall
be under no obligation to make Revolving Loans to any Borrower
following the filing of an involuntary petition, action or
proceeding against any Borrower or guarantor (and for so long
thereafter as such involuntary petition, action, or
proceeding remains undismissed or unstayed, and subject to
the terms and provisions of Section 7.1(h)) seeking
reorganization, arrangement or readjustment of such Borrower's
or guarantor's debts or for any other relief under the
bankruptcy laws of the United States now or hereafter in effect.
(a) The " Maximum Credit" is set forth in Section
10.1(a) hereof.
(b) "Accounts Availability" equals the product
obtained by multiplying the outstanding amounts of a
Borrower's separate Eligible Accounts, net of taxes,
discounts, allowances, and credits given or claimed, by the
Eligible Accounts Percentage set forth in Section 10.1(b), and
deducting therefrom any Reserves.
(c) The "Net Availability" shall be calculated at any
time as an amount equal to the Maximum Credit minus the
aggregate amount of all then-outstanding Obligations by the
Borrowers to Lender.
(d) "Yale's Net Availability" shall be calculated as
the lesser of
(i) the Maximum Credit, less the Obligations; and
(ii) Yale's Accounts Availability, less Yale's
Revolving Loans.
(e) "Hurt's Net Availability" shall be calculated as
the lesser of:
(i) the Maximum Credit, less the Obligations; and
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(ii) $2,000,000, less the sum of Hurt's Term
Loan, Hurt's Capital Expenditures Loan, and
Hurt's Revolving Loans; and
(iii) Hurt's Accounts Availability, less Hurt's
Revolving Loans.
(f) "WellTech's Net Availability" shall be calculated
as the lesser of:
(i) the Maximum Credit, less the Obligations; and
(ii) WellTech's Accounts Availability, less
WellTech's Revolving Loans and Accommodations.
(g) "Eligible Accounts" are accounts created by a
Borrower in the ordinary course of its business which are and
remain acceptable to Lender for lending purposes. General
criteria for Eligible Accounts are set forth below but may be
revised from time to time, by Lender, in its sole judgment,
on fifteen (15) days prior written notice to the Borrowers.
Lender shall, in general, deem accounts to be Eligible
Accounts if: (1) such accounts arise from bona fide completed
transactions and have not remained unpaid for more than the
number of days after the invoice date set forth in Section
10.1(c); (2) the amounts of the accounts reported to Lender are
absolutely owing to a Borrower and do not arise from sales on
consignment, guaranteed sale or other terms under which payment
by the account debtors may be conditional or contingent; (3)
the account debtor's chief executive office or principal
place of business is located in the United States; (4) such
accounts do not arise from progress billings or retainages or
bill and hold sales; (5) there are no contra
relationships, setoffs, counterclaims or disputes existing
with respect thereto (but that portion of the account for which
no contras, setoffs, counterclaims or disputes are applicable
may be deemed an Eligible Account) and there are no other
facts existing or threatened which would impair or delay the
collectibility of all or any portion thereof; (6) the goods
giving rise thereto were not at the time of the sale subject
to any liens except those permitted in this Agreement; (7) such
accounts are not accounts with respect to which the account
debtor or any officer or employee thereof is an officer,
employee or agent of or is affiliated with any Borrower,
directly or indirectly, whether by virtue of family
membership, ownership, control, management or otherwise; (8)
such accounts are not accounts with respect to which the
account debtor is the United States or any State or political
subdivision thereof or any department, agency or
instrumentality of the United States, any State or political
subdivision, unless there has been compliance with the
Assignment of Claims Act or any similar State or local law, if
applicable; (9) the Borrowers have delivered to Lender
or Lender's representative such original documents as Lender
may have reasonably requested pursuant to Section 5.8 hereof in
connection with such accounts and Lender shall have received a
verification of such account, reasonably satisfactory to it, if
sent to the account debtor or any other obligor or any
bailee pursuant to Section 5.4 hereof; (10) there are no
facts existing or threatened which are reasonably likely to
result in any adverse change in the account debtor's
financial condition; (11) such accounts owed by a single
account debtor or its affiliates do not represent more than
twenty percent (20%) of all otherwise Eligible Accounts of all
Borrowers, provided, however, that with respect to the Eligible
Accounts of Parker & Parsley, Inc., such accounts may not
represent more than thirty-two percent (32%) of all otherwise
Eligible Accounts of all Borrowers (accounts excluded from
Eligible Accounts solely by reason of this subsection (11)
shall nevertheless be considered Eligible Accounts to the extent
of the amount of such accounts which does not exceed twenty
percent (20%) or in the case of Parker & Parsley, Inc.
thirty-two percent (32%), of all otherwise
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Eligible Accounts); (12) such accounts are not owed by an
account debtor who is or whose affiliates are "past due" (i.e.
where more than 90 days have elapsed since the invoice date of
such accounts) upon other accounts owed to Borrowers
comprising more than fifty percent (50%) of the accounts of
such account debtor or its affiliates owed to such Borrower;
(13) such accounts are owed by account debtors whose total
indebtedness to a Borrower does not exceed the amount of any
customer credit limits as established, and changed, from time
to time by Lender upon notice to such Borrower (accounts
excluded from Eligible Accounts solely by reason of this
subsection (13) shall nevertheless be considered Eligible
Accounts to the extent the amount of such accounts does not
exceed such customer credit limit); (14) with respect to which
the account debtor is located in the states of New Jersey,
Minnesota, West Virginia, or any other state requiring the
filing of a Business Activity Report or similar document in
order to bring suit or otherwise enforce its remedies against
such account debtor in the courts or through any judicial
process of such state, unless such Borrower has qualified to do
business in such states, or has filed a Notice of Business
Activities Report or similar document with such states, as
appropriate, for the then current year; and (15) such
accounts are owed by account debtors deemed creditworthy at
all times by Lender.
(h) Lender shall have a continuing right to
deduct reserves in determining Accounts Availability and
each individual Borrower's Net Availability ("Reserves"),
and to increase and decrease such Reserves from time to time, if
and to the extent that, in Lender's sole judgement, such
Reserves are necessary to protect Lender against any state of
facts which does, or would, with notice or passage of time or
both, constitute an Event of Default or have a material adverse
effect on any Collateral. Lender may, at its option, implement
Reserves by designating as ineligible a sufficient amount of
accounts which would otherwise be Eligible Accounts so as to
reduce Net Availability and/or each individual Borrower's
Accounts Availability by the amount of the intended Reserve.
(i) Subject to the terms and conditions hereof,
including but not limited to the existence of sufficient
Net Availability and Accounts Availability, each Borrower
agrees to borrow amounts from time to time such that the
aggregate outstanding Revolving Loans and Term Loans to both
Borrowers shall at all times equal or exceed the principal
amount set forth in Section 10.1(d) as the Minimum Borrowing.
Each Borrower covenants, represents and warrants to Lender
that they will jointly and severally maintain Net
Availability at all times in amounts sufficient to permit
Borrowers to comply with the Minimum Borrowing requirement.
In the event Borrowers do not borrow sufficient amounts to
continuously meet or exceed the Minimum Borrowing
requirement, or in the event Borrowers fail to maintain Net
Availability at all times at amounts sufficient to permit
Borrowers to comply with the Minimum Borrowing requirement,
then, in either of such events, Borrowers shall be deemed to
have borrowed from Lender jointly such additional sums from
time to time as may be necessary in order for Borrowers to
continuously meet the Minimum Borrowing requirement. Such sums
shall be added to the principal amount of the outstanding
Revolving Loans for the sole purpose of computing
interest due under this Agreement. Notwithstanding the
provisions of the immediately preceding sentence, Lender
shall have no obligation to disburse to Borrowers, or any of
them, any amount deemed to have been borrowed for purposes
of meeting the Minimum Borrowing requirement unless
Borrowers actually requested such disbursement from Lender and
unless the Net Availability is sufficient to support such
disbursement.
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2.2 Term Loan.
(a) The amount of any term loans made by Lender to any
Borrower on the date hereof is set forth in Section 10.2(a)
(the "Initial Term Loans"). Such Initial Term Loans are
evidenced by Promissory Notes delivered by each Borrower
receiving an Initial Term Loan to Lender and shall be repaid,
together with interest and other amounts, in accordance
with this Agreement and such Promissory Notes.
(b) The amount of any additional term loans which may
be available to any Borrower at Lender's discretion after
the date hereof is set forth in Section 10.2(b) ("Capital
Expenditures Loans" and together with the Initial Term Loans,
the "Term Loans"). Such Capital Expenditures Loans shall be
evidenced by promissory notes delivered by such Borrower to
Lender, in form and substance reasonably acceptable to Lender,
and shall be repaid together with interest and other amounts in
accordance with this Agreement and such promissory notes.
(c) All appraisals conducted in connection with the
Term Loans shall be conducted at Borrowers' expense by an
independent appraiser reasonably acceptable to Lender. In
addition, with respect to the Capital Expenditures Loans,
(i) Lender shall have received such appraisal at least thirty
(30) days prior to the date of the requested advance for such
Capital Expenditures Loan, (ii) Lender shall have received
from Borrower evidence reasonably satisfactory to Lender that
the machinery and equipment has been purchased by Borrower
and delivered to such Borrower at one of its locations set forth
in Section 10.6(e) and that such machinery and equipment is
in place and operational and (iii) Lender shall have received
invoices and such other documentation as reasonably requested
by Lender.
2.3 Accommodations.
(a) Lender may, in its sole discretion, issue or
cause to be issued, from time to time at any Borrower's request
and on terms and conditions and for purposes satisfactory to
Lender, credit accommodations consisting of letters of credit,
bankers' acceptances, merchandise purchase guaranties or
other guaranties or indemnities for such Borrower's account
("Accommodations"). Each such Borrower shall execute and
perform additional agreements relating to the Accommodations
in form and substance reasonably acceptable to Lender and the
issuer of any Accommodations, all of which shall supplement
the rights and remedies granted herein. Any payments made by
Lender or any affiliate of Lender in connection with the
Accommodations shall constitute additional Revolving Loans
to such Borrower.
(b) In addition to the fees and costs of any issuer in
connection with issuing or administering Accommodations,
the Borrower requesting the Accommodation shall pay
monthly to Lender, on the first day of each month, a charge
on such Borrower's open Accommodations at the rate per annum set
forth in Section 10.3(a) (the "Accommodation Charges").
(c) No Accommodation will be issued (i) unless the
full amount of the Accommodation requested, plus fees and
costs for issuance (unless paid by Borrower), is less than
the Net Availability existing immediately prior to the issuance
of the requested Accommodation, or (ii) if the requested
Accommodation would cause the outstanding Obligations to exceed
the Maximum Credit, or (iii) if the requested Accommodation
would cause the open amount of Accommodations
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issued to all Borrowers to exceed, at any time, the
Accommodation sublimit set forth in Section 10.3(b), or
(iv) if the expiry date of the requested Accommodation
extends beyond the initial term (or any renewal terms
if applicable) of this Agreement.
(d) All indebtedness, liabilities and
obligations of any sort whatsoever, however arising,
whether present or future, fixed or contingent, secured or
unsecured, due or to become due, paid or incurred, arising
or incurred in connection with any Accommodation shall be
included in the term "Obligations," as defined herein, and shall
include, without limitation, (i) all amounts due or which may
become due under any Accommodation; (ii) all amounts charged
or chargeable to any Borrower or to Lender by any bank, other
financial institution or correspondent bank which opens,
issues, or is involved with such Accommodations; (iii) Lender's
Accommodation Charges and all fees, costs and other charges
of any issuer of any Accommodation; and (iv) all duties,
freight, taxes, costs, insurance and all such other charges
and expenses which may pertain directly or indirectly to any
Obligations or Accommodations or to the goods or documents
relating thereto.
(e) Each Borrower unconditionally agrees to indemnify
and hold Lender harmless from any and all loss, claim or
liability (including reasonable attorneys' fees) arising from
any transactions or occurrences relating to any Accommodation
established or opened for such Borrower's account, the
Collateral relating thereto and any drafts or acceptances
thereunder, including any such loss or claim due to any action
taken by an issuer of any Accommodation. Each Borrower
further agrees to indemnify and hold Lender harmless for any
errors or omissions other than gross negligence, bad faith,
or willful misconduct in connection with the Accommodations,
whether caused by Lender, by the issuer of any Accommodation
or otherwise. Each Borrower's unconditional obligation to
indemnify and hold Lender harmless under this provision shall
not be modified or diminished for any reason or in any manner
whatsoever, except for Lender's gross negligence, bad faith,
or willful misconduct. Each Borrower agrees that any charges
made to Lender by any issuer of any Accommodation shall be
conclusive on such Borrower and may be charged to such
Borrower's account.
(f) Lender shall not be responsible for (i) the
conformity of any goods to the documents presented; (ii) the
validity or genuineness of any documents; or (iii) delay,
default, or fraud by any Borrower or shipper and/or anyone else
in connection with the Accommodations or any underlying
transaction.
(g) Each Borrower agrees that any action taken by
Lender, if taken in good faith, or any action taken by an
issuer of any Accommodation, under or in connection with any
Accommodation, shall be binding on such Borrower and shall not
create any resulting liability to Lender. In furtherance
thereof, Lender shall have the full right and authority to
clear and resolve any questions of non-compliance of
documents; to give any instructions as to acceptance or
rejection of any documents or goods; to execute for each
Borrower's account any and all applications for steamship or
airway guarantees, indemnities or delivery orders; to grant any
extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents; and to
agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of
any of the applications or Accommodations. All of the foregoing
actions may be taken in Lender's sole name, and the issuer
thereof shall be entitled to comply with and honor any and
all such documents or instruments executed by or received
solely from Lender, all without any notice
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to or any consent from any Borrower. None of the foregoing
actions described in this subsection (g) may be taken by any
Borrower without Lender's express written consent.
2.4 Certain Amounts Due on Demand. Lender may, in its
sole discretion, make or permit Revolving Loans,
Accommodations, or other Obligations in excess of the Maximum
Credit, Accounts Availability or Net Availability or
applicable formulas or sublimits. All or any portion of such
excess(es) shall become immediately due and payable upon
Lender's demand.
SECTION 3. INTEREST AND FEES
3.1 (a) Interest on the Revolving Loans shall be
payable by the Borrowers on the first day of each month,
calculated upon the closing daily balances in the loan
account of the Borrowers for each day during the
immediately preceding month, at the per annum rate (the "Annual
Rate") set forth as the Interest Rate in Section 10.4(a).
The Annual Rate shall increase or decrease by an amount equal
to each increase or decrease, respectively, in the Prime Rate
(as herein defined), effective as of the date of each such
change, On and after any Event of Default or termination or
non-renewal hereof, interest on all unpaid matured obligations
shall accrue at a rate equal to two percent (2%) per annum in
excess of the Annual Rate otherwise payable until such time as
all Obligations are indefeasibly paid in full (notwithstanding
entry of any judgment against any Borrower or the exercise of
any other right or remedy by Lender), and all such interest
shall be payable on demand. Notwithstanding the foregoing
provisions of this Section 3.1(a) regarding the rates of
interest applicable to Revolving Loans and any rate of interest
applicable to any Term Loan:
(i) If at any time the amount of interest
computed on the basis of either the Annual Rate or the
rate provided by any Promissory Note pursuant to
Section 2.2 of this Agreement (the "Note Rate") would
exceed the amount of interest computed upon the basis of the
maximum rate of interest (the "Maximum Legal Rate")
permitted by applicable state or federal law in
effect from time to time hereafter, after taking into
account, to the extent required by applicable law, any and
all fees, payments, charges and calculations provided
for in this Agreement or in any other agreement between
Borrowers or any individual Borrower and Lender, the
interest payable under this Agreement shall be computed
on the basis of the Maximum Legal Rate, but any subsequent
reduction in the Annual Rate or the Note Rate (if
applicable) shall not reduce such interest thereafter
payable hereunder below the amount computed on the
basis of the Maximum Legal Rate until the aggregate
amount equals the total amount of interest which would have
accrued if such interest had been at all times computed
solely on the basis of the Annual Rate and the Note Rate
(if applicable).
(ii) No agreements, conditions, provisions
or stipulations contained in this Agreement or any
other instrument, document or agreement between
Borrowers, or any of them, and the Lender, or default of
any Borrower, or the exercise by the Lender of the right
to accelerate the maturity of the payment of the
principal and interest or to exercise any option
whatsoever contained in this Agreement or any other
agreement among Borrowers, or any of them, and the Lender, or
the arising of any contingency whatsoever, shall
entitle the Lender to collect, in any event, interest
exceeding the Maximum Legal Rate and in no event shall
any Borrower be obligated to pay interest exceeding such
Maximum Legal Rate and all agreements, conditions or
stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or
compel any Borrower to pay a rate of interest
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exceeding the Maximum Legal Rate, shall be without
binding force or effect, at law or in equity, to the
extent only of the excess of interest over such
Maximum Legal Rate. In the event that any interest is
charged in excess of the Maximum Legal Rate ("Excess"),
each Borrower acknowledges and stipulates that any such
charge shall be the result of an accidental and bona
fide error, and such Excess shall be, first, applied
to reduce the principal amount of indebtedness then
unpaid hereunder; second, applied to reduce such Borrower's
other Obligations hereunder; and third, returned to
such Borrower, it being the intention of the parties
hereto not to enter at any time into a usurious or
otherwise illegal relationship. Each Borrower recognizes
that, with fluctuations in the Annual Rate, the Note
Rate, and the Maximum Legal Rate, such an
unintentional result could inadvertently occur. By the
execution of this Agreement, each Borrower covenants that
(x) the credit or return of any Excess shall constitute the
acceptance by each Borrower of such Excess, and (y)
no Borrower shall seek or pursue any other remedy,
legal or equitable, against Lender, based in whole or
in part upon the charging or receiving of any interest in
excess of the maximum authorized by applicable law. For
the purpose of determining whether or not any Excess has
been contracted for, charged, or received by Lender, all
interest at any time contracted for, charged or received
by the Lender in connection with this Agreement shall be
amortized, prorated, allocated and spread in equal parts
during the entire term of this Agreement.
(iii) The provisions of Section 3.1(a)(ii)
shall be deemed to be incorporated into every document
or communication relating to the Obligations which
sets forth or prescribes any account, right or claim or
alleged account, right or claim of the Lender with respect to
each Borrower (or any other obligor in respect of the
Obligations), whether or not any provision of Section
3.1 is referred to therein. All such documents and
communications and all figures set forth therein shall,
for the sole purpose of computing the extent of the
liabilities and obligations of each Borrower (or any
other obligor) asserted by the Lender thereunder, be
automatically recomputed by such Borrower or obligor,
and by any court considering the same, to give effect to the
adjustments or credits required by Section 3.1(a)(ii).
(iv) If the applicable state or federal law
is amended in the future to allow a greater rate of
interest to be charged under this Agreement or any
other loan documents than is presently allowed by
applicable state or federal law, then the limitation of
interest hereunder shall be increased to the maximum
rate of interest allowed by applicable state or federal
law as amended, which increase shall be effective
hereunder on the effective date of such amendment, and all
interest charges owing to the Lender by reason thereof shall
be payable upon demand.
(b) The "Prime Rate" is the per annum rate of
interest publicly announced by Chase Manhattan Bank, New York,
New York, or the applicable rate of its successors or assigns,
from time to time as its prime rate (the prime rate is not
intended to be the lowest rate of interest charged by Chase
Manhattan Bank, New York, New York, or its successors or
assigns, to its borrowers).
3.2 The Borrowers collectively shall pay Lender on
the date hereof a Closing Commitment Fee in the amount set forth
in Section 10.4(b), which fee is fully earned as of the date
hereof.
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3.3 The Borrowers collectively shall pay Lender
monthly, on the first day of each month, in arrears, an
Unused Line Fee for each month during the initial and each
renewal Term at the rate per annum set forth in Section
10.4(c), calculated upon the amount, if any, by which the
Maximum Credit exceeds the average outstanding daily principal
balance during the preceding month of all Revolving Loans,
Accommodations and any Term Loan and Capital Expenditures Loan.
3.4 At Lender's option, all principal, interest
(other than unmatured accrued interest), fees, costs, expenses
and other charges provided for in this Agreement, or in any
other agreement now or hereafter existing between Lender and
any Borrower, may be charged to any loan account of such
Borrower maintained by Lender. Interest, fees for
Accommodations, the Unused Line Fee and any other amounts
payable by the Borrowers, or any of them, to Lender based on a
per annum rate shall be calculated on the basis of actual
days elapsed over a 360-day year.
3.5 If as a result of any regulatory change directly
or indirectly affecting Lender or any of Lender's affiliated
companies there shall be imposed, modified or deemed
applicable any tax excluding any tax on or measured by
income, gross receipts, charges, or rates of Lender, reserve,
special deposit, minimum capital, capital ratio, or similar
requirement against or with respect to or measured by
reference to loans made or to be made hereunder or
participations therein, or to Accommodations, and the
result shall be to increase the cost to Lender or to any of
Lender's affiliated companies of making or maintaining any
loan or Accommodation hereunder or to any other party
maintaining any participation therein, or reduce any amount
receivable in respect of any such loan (which increase in
cost, or reduction in amount receivable, shall be the result
of Lender's or Lender's affiliated companies' reasonable
allocation among all affected customers of the aggregate of
such increases or reductions resulting from such event), then,
within ten (10) days after receipt by the Borrowers of a
certificate from Lender containing the information described
in this Section 3.5, each Borrower agrees, jointly and
severally, from time to time to pay Lender such additional
amounts as shall be sufficient to compensate Lender or any of
Lender's affiliated companies for such increased costs or
reductions in amounts which Lender determines in its sole
discretion are material. Notwithstanding the foregoing, all
such amounts shall be subject to the provisions of Section
3.1. The certificate requesting compensation under this
Section 3.5 shall identify the regulatory change which has
occurred, the requirements which have been imposed,
modified or deemed applicable, the amount of such additional
cost or reduction in the amount receivable and the way in
which such amount has been calculated.
3.6 For purposes of calculating any interest,
fees, balances or expenses hereunder, the outstanding daily
principal balance of the Revolving Loans will be deemed to
be zero in the event that the outstanding daily principal
balance of the Revolving Loans is a credit balance.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 To secure the payment and performance in full of
all Obligations, each Borrower hereby grants to Lender a
continuing security interest in and lien upon, and a right of
setoff against, and each Borrower hereby assigns and
pledges to Lender, all of the Collateral, including any
Collateral not deemed eligible for lending purposes.
4.2 "Obligations" shall mean any and all Revolving
Loans, Term Loans, Accommodations and all other indebtedness,
liabilities and obligations of every kind, nature and
description owing by any Borrower to Lender and/or its
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affiliates, including principal, interest, charges, fees and
expenses, however evidenced, whether as principal, surety,
endorser, guarantor or otherwise, whether arising under this
Agreement or otherwise, whether now existing or hereafter
arising, whether arising before, during or after the initial
or any renewal Term or after the commencement of any case with
respect to any Borrower under the United States Bankruptcy Code
or any similar statute, whether direct or indirect, absolute
or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or
unsecured, original, renewed or extended and whether arising
directly or howsoever acquired by Lender including from any
other entity outright, conditionally or as collateral
security, by assignment, merger with any other entity,
participations or interests of Lender in the obligations of
such Borrower to others, assumption, operation of law,
subrogation or otherwise and shall also include all amounts
chargeable to the Borrowers under this Agreement or in
connection with any of the foregoing.
4.3 "Collateral" shall mean all of the following
property of each Borrower:
All now owned and hereafter acquired right, title and
interest of each Borrower in, to and in respect of all:
accounts, interests in goods represented by accounts,
returned, reclaimed or repossessed goods with respect thereto
and rights as an unpaid vendor; contract rights; chattel paper;
general intangibles (including, but not limited to, tax
and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill,
processes, drawings, blueprints, customer lists, licenses,
whether as licensor or licensee, choses in action and other
claims, and existing and future leasehold interests in
equipment, real estate and fixtures); documents; instruments;
letters of credit, bankers' acceptances or guaranties; cash
monies, deposits, securities, bank accounts, deposit
accounts, investment property, credits and other property now
or hereafter held in any capacity by Lender, its
affiliates, or any entity which, at any time, participates in
Lender's financing of such Borrower, or at any other depository
or other institution; agreements or property securing or
relating to any of the items referred to above;
All now owned and hereafter acquired right, title and
interest of each Borrower in, to and in respect of goods,
including, but not limited to:
All inventory, wherever located, whether now
owned or hereafter acquired, of whatever kind, nature or
description, including all raw materials, work-in-process,
finished goods, and materials to be used or consumed in each
Borrower's business; and all names or marks affixed to or to be
affixed thereto for purposes of selling same by the seller,
manufacturer, lessor or licensor thereof;
All equipment and fixtures, wherever located,
whether now owned or hereafter acquired, including, without
limitation, all machinery, equipment, motor vehicles,
furniture and fixtures, and any and all additions,
substitutions, replacements (including spare parts), and
accessions thereof and thereto;
All consumer goods, farm products, crops, timber,
minerals or the like (including oil and gas), wherever
located, whether now owned or hereafter acquired, of
whatever kind, nature or description;
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All now owned and hereafter acquired right, title and
interests of each Borrower in, to and in respect of any real or
other personal property in or upon which Lender has or may
hereafter have a security interest, lien or right of setoff;
All present and future books and records relating to
any of the above including, without limitation, all computer
programs, printed output and computer readable data in the
possession or control of any Borrower, any computer
service bureau or other third party;
All products and proceeds of the foregoing in
whatever form and wherever located, including, without
limitation, all insurance proceeds and all claims against third
parties for loss or destruction of or damage to any of the
foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Borrowers are authorized to collect the
accounts and any other proceeds of Collateral, on behalf of and
in trust for Lender, at the Borrowers' expense, but such
authority shall automatically terminate upon an Event of
Default. Lender may modify or terminate such authority at any
time whether or not an Event of Default has occurred and
directly collect the accounts and other monetary obligations
included in the Collateral. Each Borrower shall, at such
Borrower's expense and in the manner requested by Lender
from time to time, direct that remittances and all other
proceeds of accounts and other Collateral shall be (a) sent to a
post office box designated by and/or in the name of Lender
or in the name of such Borrower, but as to which access is
limited to Lender and/or (b) deposited into a bank account
maintained in the name of Lender and/or a blocked bank account
under arrangements with the depository bank under which all
funds deposited to such blocked bank account are required
to be transferred solely to Lender. Regardless whether such
account is maintained in the name of the Borrowers, or any of
them, or the Lender, the Borrowers shall bear the risk of loss
of all funds in such account. In connection therewith, each
Borrower shall execute such post office box and/or blocked
bank account agreements as Lender shall specify.
5.2 All Obligations shall be payable at Lender's office
set forth below or at Lender's bank designated in Section
10.6(b) or at such other bank or place as Lender may
expressly designate from time to time for purposes of this
Section. Lender shall apply all proceeds of accounts or
other Collateral received by Lender and all other payments in
respect of the Obligations to the Revolving Loans whether or
not then due or to any other Obligations then due, in whatever
order or manner Lender shall determine. Lender shall
have the continuing and exclusive right to apply and reverse
and reapply any and all such proceeds and payments to any
portion of the Obligations. For purposes of determining
Accounts Availability and Net Availability, remittances and
other payments with respect to the Collateral and
Obligations will be treated as credited to the loan account
of the Borrowers maintained by Lender and Collateral
balances to which they relate, upon the date of Lender's
receipt of advice from Lender's bank that such remittances
or other payments have been credited to Lender's account or in
the case of remittances or other payments received, directly
in kind by Lender, upon the date of Lender's deposit thereof at
Lender's bank, subject to final payment and collection. In
computing interest charges, the loan account of the Borrowers
maintained by Lender will be credited with remittances and other
payments two (2) Business Days after Lender's receipt of advice
of deposit of remittances and other payments in Lender's
account at Lender's bank designated in Section 10.6(b) or
at such other financial
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institution as Lender may designate. "Business Day" shall
mean any day other than a Saturday or Sunday or any other day on
which Lender or banks in Chicago, Illinois or New York, New
York are authorized to close.
5.3 Lender shall render to Borrowers monthly a loan
account statement. Each statement shall be considered correct
and binding upon each Borrower as an account stated, except to
the extent that Lender receives, within ninety (90) days after
the mailing of such statement, written notice from any
Borrower of any specific exceptions by such Borrower to that
statement.
5.4 Lender may, at any time, whether or not an Event
of Default has occurred, without notice to or assent of any
Borrower, (a) notify any account debtor that the accounts
and other Collateral which includes a monetary obligation
have been assigned to Lender by any such Borrower and that
payment thereof is to be made to the order of and directly to
Lender, (b) send, or cause to be sent by its designee,
requests (which may identify the sender by a pseudonym)
for verification of accounts and other Collateral directly
to any account debtor or any other obligor or any bailee with
respect thereto, and (c) demand, collect or enforce payment of
any accounts or such other Collateral, but without any duty to
do so, and Lender shall not be liable for any, failure to
collect or enforce payment thereof. At Lender's request,
all invoices and statements sent to any account debtor, other
obligor or bailee, shall state that the accounts and such
other Collateral have been assigned to Lender and are payable
directly and only to Lender.
5.5 Each Borrower hereby appoints Lender and any
designee of Lender as such Borrower's attorney-in-fact and
authorizes Lender or such designee, at such Borrower's sole
expense, to exercise at any times in Lender's or such designee's
discretion all or any of the following powers, which powers of
attorney, being coupled with an interest, shall be irrevocable
until all Obligations have been paid in full: (a) receive,
take, endorse, assign, deliver, accept and deposit, in the
name of Lender or such Borrower, any and all cash, checks,
commercial paper, drafts, remittances and other instruments
and documents relating to the Collateral or the proceeds
thereof, (b) transmit to account debtors, other obligors or
any bailees notice of the interest of Lender in the Collateral
or request from account debtors or such other obligors or
bailees at any time, in the name of such Borrower or Lender or
any designee of Lender, information concerning the
Collateral and any amounts owing with respect thereto, (c)
notify account debtors or other obligors to make payment
directly to Lender, or notify bailees as to the disposition of
Collateral, (d) after an Event of Default has occurred and has
not been waived or cured to Lender's satisfaction, take or
bring, in the name of Lender or such Borrower, all steps,
actions, suits or proceedings deemed by Lender necessary or
desirable to effect collection of or other realization upon the
accounts and other Collateral, (e) after an Event of Default
has occurred and has not been waived or cured to Lender's
satisfaction, change the address for delivery of mail to such
Borrower and to receive and open mail addressed to any such
Borrower, (f) after an Event of Default has occurred and has
not been waived or cured to Lender's satisfaction, extend the
time of payment of, compromise or settle for cash, credit,
return of merchandise, and upon any terms or conditions, any
and all accounts or other Collateral which includes a monetary
obligation and discharge or release the account debtor or
other obligor, without affecting any of the Obligations, and
(g) execute in the name of such Borrower and file against
such Borrower in favor of Lender financing statements or
amendments with respect to the Collateral.
5.6 Each Borrower hereby releases and exculpates
Lender, its officers, employees and designees, from any
liability arising from any acts under this Agreement or in
furtherance thereof, whether as attorney-in-fact or otherwise,
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whether of omission or commission, and whether based upon any
error of judgment or mistake of law or fact, except for willful
misconduct, gross negligence, or bad faith. In no event will
Lender have any liability to any Borrower for lost profits or
other special or consequential damages.
5.7 After written notice by Lender to the Borrowers and
automatically, without notice, after an Event of Default which
has not been waived or cured to Lender's satisfaction, no
Borrower shall, without the prior written consent of Lender in
each instance, (a) grant any extension of time of payment of
any of the accounts or any other Collateral which includes a
monetary obligation, (b) compromise or settle any of the
accounts or any such other Collateral for less than the full
amount thereof, (c) release in whole or in part any account
debtor or other person liable for the payment of any of the
accounts or any such other Collateral, or (d) grant any credits,
discounts, allowances, deductions, return authorizations or the
like with respect to any of the accounts or any such other
Collateral.
5.8 At such times as Lender may reasonably request
and in the manner specified by Lender, each Borrower shall
deliver to Lender or Lender's representative true and
correct copies of original invoices, agreements, proofs of
rendition of services and delivery of goods and other documents
evidencing or relating to the transactions which gave rise to
accounts or other Collateral, together with customer
statements, schedules describing the accounts or other
Collateral and/or statements of account and confirmatory
assignments to Lender of the accounts or other Collateral,
in form and substance reasonably satisfactory to Lender
and duly executed by such Borrower. After an Event of Default
has occurred, each Borrower shall deliver to Lender the
originals of the foregoing documents upon Lender's request
therefor. Without limiting the provisions of Section 5.7,
a Borrower's granting of credits, discounts, allowances,
deductions, return authorizations or the like will be
promptly reported to Lender in writing. In no event shall
any such schedule or confirmatory assignment (or the
absence thereof or omission of any of the accounts or other
Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or
rights of Lender or the warranties, representations and
covenants of any Borrower under this Agreement. Any documents,
schedules, invoices or other paper delivered to Lender by the
Borrowers may be destroyed or otherwise disposed of by Lender
six (6) months after receipt by Lender, unless such Borrower
requests their return in writing in advance, and makes prior
arrangements for their return, at such Borrower's expense.
5.9 From time to time as requested by Lender, at the
sole expense of the Borrowers, Lender or its designee shall
have access, prior to an Event of Default during reasonable
business hours and on or after an Event of Default at any time,
to all of the premises where Collateral is located for the
purposes of inspecting the Collateral and all Borrowers'
books and records, and each Borrower shall permit Lender or
its designee to make such copies of such books and records or
extracts therefrom as Lender may reasonably request.
Without expense to Lender, Lender may use such of any Borrower's
personnel, equipment, including computer equipment,
programs, printed output and computer readable media, supplies
and premises for the collection of accounts and realization on
other Collateral as Lender, in its sole discretion, deems
appropriate. Each Borrower hereby irrevocably authorizes all
accountants and third parties to disclose and deliver to
Lender at such Borrower's expense all financial
information, books and records, work papers, management
reports and other information in their possession regarding
such Borrower.
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5.10 If after receipt of any payment of, or proceeds
applied to the payment of, all or any part of the
Obligations, the Lender is for any reason required to surrender
such payment or proceeds because such payment or proceeds is
invalidated, declared fraudulent, set aside, determined to
be void or voidable as a preference, or a diversion of
trust funds, or for any other reason, then: the Obligations or
any part thereof intended to be satisfied shall be revived and
continue and this Agreement shall continue in full force as
if such payment or proceeds had not been received by the Lender,
and each Borrower shall be jointly and severally liable to
pay to the Lender, and hereby does indemnify the Lender and
hold the Lender harmless, for the amount of such payment or
proceeds surrendered. The provisions of this Section 5.10
shall be and remain effective notwithstanding any contrary
action which may have been taken by the Lender in reliance
upon such payment or proceeds, and any such contrary action
so taken shall be without prejudice to the Lender's rights under
this Agreement and shall be deemed to have been conditioned upon
such payment or proceeds having become final and irrevocable.
The provisions of this Section 5.10 shall survive the
termination of this Agreement.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Borrower hereby represents, warrants and
covenants to Lender the following, the truth and accuracy of
which, and compliance with which, shall be continuing
conditions of the making of loans or other credit
accommodations by Lender to any Borrower:
6.1 Each Borrower shall keep and maintain its books
and records in accordance with generally accepted accounting
principles, consistently applied. The Borrowers shall on a
consolidated basis, at each Borrower's expense, on or before
the fifteenth (15th) day of each month, deliver to Lender
true and complete monthly agings of its accounts receivable
and, on or before the twentieth (20th) day of each month,
deliver to Lender true and complete agings of its accounts and
notes payable, monthly inventory reports and monthly
internally prepared interim financial statements including
consolidating financial statements of the Borrowers and any
of the Borrowers' subsidiaries, all in such form, and together
with such other information with respect to the business of
each Borrower or any guarantor, as Lender may reasonably
request. Quarterly, the Borrowers shall deliver to Lender
a certificate verifying Borrowers' compliance with the
financial covenants set forth in Section 6.11 and Section 10.5,
such certificate to be delivered as soon as available but in
no event later than forty-five (45) days after the end of
the relevant fiscal quarter, provided, however, that with
respect to the certificate verifying compliance during the
final fiscal quarter of each fiscal year, Borrowers shall
deliver such certificate to Lender no later than sixty (60)
days after the end of such fiscal quarter. Annually, the
Borrowers shall deliver to Lender consolidated audited
financial statements of Key accompanied by the report and
opinion thereon of independent certified public
accountants reasonably acceptable to Lender and consolidating
financial statements of Borrowers and any of Borrowers'
subsidiaries, as soon as available, but in no event later
than ninety (90) days after the end of the Borrowers' fiscal
year. Additionally, promptly upon the filing thereof,
Borrower shall deliver to Lender true and complete copies of
any 10-Q Report, 10-K Report and any other report or document
filed by Borrowers, or any of them, with the Securities and
Exchange Commission, or any other governmental agency.
6.2 Each Borrower may from time to time render
invoices to account debtors under its trade names set forth
in Section 10.6(f) after Lender has received prior written
notice from such Borrower of the use of such trade names and as
to which, such Borrower agrees that: (a) each trade name does
not refer
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to another corporation or other legal entity, (b) all
accounts and proceeds thereof (including any returned
merchandise) invoiced under any such trade names are owned
exclusively by such Borrower and are subject to the security
interest of Lender and the other terms of this Agreement,
and (c) all schedules of accounts and confirmatory
assignments including any sales made or services rendered
using the trade name shall show such Borrower's name as
assignor and Lender is authorized to receive, endorse and
deposit to any loan account of such Borrower maintained by
Lender all checks or other remittances made payable to any
trade name of such Borrower representing payment with respect
to such sales or services.
6.3 Each Borrower shall promptly notify Lender in
writing of any loss, damage, investigation, action, suit,
proceeding or claim relating to a material portion of the
Collateral or which may result in any material adverse change
in such Borrower's business, assets, liabilities or
condition, financial or otherwise.
6.4 Each Borrower's books and records concerning
accounts and its chief executive office are and shall be
maintained only at the address set forth in Section 10.6(d).
Each Borrower's only other places of business and the only
other locations of Collateral, if any, are and shall be the
addresses set forth in Section 10.6(e) hereof, except any
Borrower may change such locations in the ordinary course of
business or open a new place of business after thirty (30)
days prior written notice to Lender. Prior to any change in
location or opening of any new place of business, each Borrower
shall execute and deliver or cause to be executed and
delivered to Lender such financing statements, financing
documents, mortgages, and security and other agreements as
Lender may reasonably require, including, without limitation,
those described in Section 6.14. Without otherwise limiting the
effect of the foregoing, Borrower may change the location of its
well servicing rigs and drilling rigs without prior approval
of Lender; provided, however, such well servicing rigs and
drilling rigs may not be removed from the state where they are
located as of the date hereof, and Borrowers shall within five
(5) days of Lender's request, provide Lender with a listing of
the current locations of all well servicing rigs and drilling
rigs.
6.5 Each Borrower has and at all times will continue
to have good and marketable title to all of the Collateral, free
and clear of all liens, security interests, claims or
encumbrances of any kind except those, if any, set forth on
Schedule A hereto.
6.6 No Borrower shall directly or indirectly:
(a) sell, lease, transfer, assign, abandon or otherwise
dispose of any part of the Collateral or any material portion
of its other assets (other than sales of inventory to buyers
in the ordinary course of business) or (b) consolidate with or
merge with or into any other entity, or permit any other
entity to consolidate with or merge with or into such
Borrower or (c) form or acquire any interest in any firm,
corporation or other entity.
6.7 Each Borrower shall at all times maintain, with
financially sound and reputable insurers, casualty insurance
with respect to the Collateral and other assets. All such
insurance policies shall be in such form, substance, amounts
and coverage as may be reasonably satisfactory to Lender
and shall provide for thirty (30) days prior written notice to
Lender of cancellation or reduction of coverage. Each
Borrower hereby irrevocably appoints Lender and any designee of
Lender as, attorney-in-fact for such Borrower to obtain at
such Borrower's expense, any such insurance should such
Borrower fail to do so and, after an Event of Default that is
continuing, to adjust or settle any claim or other matter under
or arising pursuant to such insurance or to amend or cancel
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such insurance. Each Borrower shall deliver to Lender evidence
of such insurance and a lender's loss payable endorsement
satisfactory to Lender as to all existing and future
insurance policies with respect to the Collateral. Each
Borrower shall deliver to Lender, in kind, all instruments
representing proceeds of insurance received by such Borrower.
Prior to an Event of Default, Lender may permit Borrowers to
apply any insurance proceeds received at any time to the cost
of repairs to or replacement of any portion of the Collateral
and/or, at Lender's option, payment of or as security for any
of the Obligations, whether or not due; provided, however,
that if Lender elects to apply the insurance proceeds to the
then outstanding Obligations, Lender will apply the proceeds (i)
first to reduce the Capital Expenditures Loans, (ii) second,
to reduce other Term Loans, and (iii) third, to reduce the
Revolving Loans. After the occurrence of an Event of Default
which has not been cured to Lender's satisfaction, Lender may
permit Borrowers to apply any insurance proceeds received at any
time to the cost of repairs to or replacement of any portion of
the Collateral and/or, at Lender's option, to payment of
or as security for any of the Obligations, whether or not
due, in any order or manner as Lender determines.
6.8 Each Borrower is and at all times will continue to
be in compliance with the requirements of all material laws,
rules, regulations and orders of any governmental authority
relating to its business (including laws, rules,
regulations and orders relating to taxes, payment and
withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee
retirement and welfare benefits, employee health and
safety, or environmental matters) and all material agreements
or other instruments, binding on such Borrower or its property.
All of each Borrower's inventory shall be produced in
accordance with the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations
and orders related thereto. Each Borrower shall pay and
discharge all taxes, assessments and governmental charges
against such Borrower or any Collateral prior to the date
on which penalties are imposed or liens attach with respect
thereto, unless the, same are being contested in good faith and,
at Lender's option, Reserves are established for the amount
contested and penalties which may accrue thereon.
6.9 With respect to each account deemed an Eligible
Account, except as reported in writing to Lender, (a) Borrower
has no knowledge that any of the criteria for eligibility are
not or are no longer satisfied, (b) each is valid and legally
enforceable and represents an undisputed bona fide
indebtedness incurred by the account debtor for the sum
reported to Lender, (c) each arises from an absolute and
unconditional sale of goods, without any right of return or
consignment, or from a completed rendition of services, (d)
each is not, at the time such account arises, subject to any
defense, offset, dispute, contra relationship, counterclaim,
or any given or claimed credit, allowance or discount
except as disclosed to Lender in writing and approved by
Lender in writing, and (e) all statements made and all
unpaid balances and other information appearing in the
invoices, agreements, proofs of rendition of services and
delivery of goods and other documentation relating to the
accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect
thereto, are in all material respects true and correct and what
they purport to be.
6.10 With respect to each Borrower's equipment,
each such Borrower shall maintain equipment having an
aggregate value of at least 85% of the then current appraised
forced liquidation value of all of such Borrower's equipment
in good order and repair, and in running and marketable
condition, ordinary wear and tear excepted.
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6.11 Borrowers shall at all times on a consolidated
basis maintain cash flow coverage, tangible net worth, and
liabilities to tangible net worth as set forth in Section 10.5
and no Borrower shall, directly or indirectly, expend or
commit to expend, for fixed or capital assets (including
capital lease obligations) an amount in excess of the capital
expenditure limit set forth in Section 10.5 in any fiscal year
of Borrowers. In addition, after the date of this Agreement
no Borrower will enter into any operating or capital lease as
lessee or sublessee if, after giving effect thereto, the
aggregate amount of additional operating or capital lease
rentals payable by all Borrowers in any fiscal year with
respect to all such leases entered into in such fiscal year
would exceed $1,500,000.
6.12 Except as set forth on Schedule 6.12 hereto
and as otherwise provided herein, no Borrower will, directly
or indirectly: (a) lend or advance money or property to,
guarantee or assume indebtedness of, or invest (by capital
contribution or otherwise) in any person, firm, corporation or
other entity; or (b) declare, pay or make any cash dividend,
redemption or other distribution on account of any shares of any
class of stock of such Borrower now or hereafter outstanding;
or (c) make any payment of the principal amount of or interest
on any indebtedness owing to any officer, director,
shareholder, or affiliate of such Borrower; or (d) make any
loans or advances to any officer, director, employee,
shareholder or affiliate of such Borrower (including, but not
limited to, any other Borrower) provided, however, that,
with respect to advances to officers and employees, Borrowers
may make such advances in the ordinary course of business as
long as all such advances at any time outstanding do not
exceed $25,000 in the aggregate during any fiscal year of
Borrowers; or (e) enter into any sale or lease or other
transaction with any officer, director, employee, shareholder
or affiliate of such Borrower on terms that are less
favorable to such Borrower than those which might be obtained
at the time from persons who are not an officer, director,
employee, shareholder or affiliate of such Borrower.
Notwithstanding the foregoing, each Borrower (each, an
"Intercompany Lender") may make loans to any other Borrower
(each, an "Intercompany Borrower") provided however that (i) all
such loans to any Intercompany Borrower shall be evidenced by
the Intercompany Note and Security Agreement executed by
such Intercompany Borrower (the "Chattel Paper") and (ii)
Lender retains a properly perfected security interest in
the Chattel Paper at the time of such intercompany loan.
In addition, WellTech may make intercompany loans to
WellTech's 63% owned subsidiary, Servicios WellTech, S.A.
("Servicios") as long as (a) all such intercompany loans are
properly documented on WellTech's books and records, (b) all
such intercompany loans are memorialized by one or more
Intercompany Note and Security Agreements (the "Servicios
Chattel Paper"), (c) no such additional intercompany loans to
Servicios after January 19, 1996 would exceed the amount of
$500,000 which is part of the principal amount as set forth in
the related Intercompany Note and Security Agreement executed by
Servicios of even date herewith, and (d) Lender retains a
properly perfected security interest in the Servicios Chattel
Paper at the time of such intercompany loan.
6.13 Each Borrower shall pay, on Lender's demand, all
costs, expenses, filing fees and taxes payable in connection
with the preparation, execution, delivery, recording,
administration, collection, liquidation, enforcement and
defense of the Obligations, Lender's rights in the Collateral,
this Agreement and all other existing and future agreements or
documents contemplated herein or related hereto, including any
amendments, waivers, supplements or consents which may hereafter
be made or entered into in respect hereof, or in any way
involving claims or defense asserted by Lender or claims or
defense against Lender asserted by such Borrower, any
guarantor or any third party directly or indirectly
arising out of or related to the relationship between such
Borrower and Lender or any guarantor and Lender, including,
but not limited to the
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following, whether incurred before, during or after the
initial or any renewal Term or after the commencement of any
case with respect to any such Borrower or any guarantor under
the United States Bankruptcy Code or any similar statute: (a)
all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and
fees, documentary taxes, intangibles taxes and mortgage
recording taxes and fees, if applicable); (b) all title
insurance and other insurance premiums, appraisal fees,
fees incurred in connection with any environmental report,
audit or survey and search fees; (c) all fees relating to the
wire transfer of loan proceeds and other funds and fees for
returned checks; (d) all reasonable expenses and costs
heretofore and from time to time hereafter incurred by Lender
during the course of periodic field examinations of the
Collateral and the Borrowers' operations, plus a per diem
charge at the rate of $650 per person, per day for Lender's
examiners in the field and office; and (e) the reasonable
costs, fees and disbursements of in-house and outside counsel
to Lender.
6.14 At the request of Lender, at any time and from
time to time at such Borrower's sole expense, each Borrower
shall execute and deliver or cause to be executed and
delivered to Lender such agreements, documents and
instruments, including waivers, consents and subordination
agreements from mortgagees or other holders of security
interests or liens, landlords or bailees, and do or cause
to be done such further acts as Lender, in its discretion,
deems necessary or desirable to create, preserve,
perfect or validate any security interest of Lender or the
priority thereof in the Collateral and otherwise to
effectuate the provisions and purposes of this Agreement.
Each Borrower hereby authorizes Lender to file financing
statements or amendments against such Borrower in favor of
Lender with respect to the Collateral, without such
Borrower's signature and to file as financing statements
any carbon, photographic or other reproductions of this
Agreement or any financing statements signed by such Borrower.
6.15 Each Borrower authorizes Lender, at
Lender's option, as attorney-in-fact for such Borrower, to
commence, appear in and prosecute, in Lender's or such
Borrower's name and with the participation of such Borrower,
any action or proceeding relating to any condemnation or
other taking of any Collateral comprised of real property and
to settle or compromise any claim in connection with any such
condemnation or other taking. Any award for the taking of, or
damage to, all or any part of the Collateral, or any interest
therein, upon the lawful exercise of power of eminent domain
shall be payable to Lender who, after deducting its expenses,
including reasonable attorneys' fees, may apply the sums so
received to the portion of the Obligations hereby secured last
falling due or in such other manner as Lender may desire. Each
Borrower agrees to execute such further assignments of any
compensations, awards, damages, claims, rights of action and
proceeds as Lender reasonably may require.
6.16 Each Borrower assumes all responsibility and
liability arising from or relating to the use, sale, or
other disposition of the Collateral. Neither the Lender nor
any of its officers, directors, employees, and agents shall
be liable or responsible in any way for the safekeeping of
any of the Collateral, or for any act or failure to act with
respect to the Collateral, or for any loss or damage thereto,
or for any diminution in the value thereof, or for any act of
default by any warehouseman, carrier, forwarding agency or,
other person whomsoever, all of which shall be at the
Borrowers' sole risk. The Obligations shall not be affected
by any failure of the Lender to take any steps to perfect its
security interest in or to collect or realize upon the
Collateral, nor shall loss of or damage to the Collateral
release any Borrower from any of the Obligations. The Lender
may (but shall not be required to), to the extent set forth in
this Agreement or applicable law, without notice to or
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consent from any Borrower, sue upon or otherwise collect,
extend the time for payment of, modify or amend the terms of,
compromise or settle for cash or credit, grant other
indulgences, extensions, renewals, compositions, or
releases, and take or omit to take any other action with
respect to the Collateral, any security therefor, any agreement
relating thereto, any insurance applicable thereto, or any
person liable directly or indirectly in connection with any of
the foregoing, without discharging or otherwise affecting
the liability of the Borrower for the Obligations.
6.17 Each Borrower shall notify Lender in writing
of the following matters at the following times:
(a) Immediately after becoming aware of the
existence of any Event of Default.
(b) Immediately after becoming aware that
the holder of any capital stock of such Borrower
has given notice or taken any action with respect to a
claimed default.
(c) Immediately after becoming aware of any
material adverse change in the Collateral or in any
Borrower's property, business, operations, or
condition (financial or otherwise).
(d) Immediately after becoming aware of any
pending or threatened action, proceeding, or
counterclaim by any individual, sole
proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation,
Public Authority, or any other entity, or any
pending or threatened investigation by a Public
Authority, which may materially and adversely affect the
Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the
Collateral or in any Borrower's property, business,
operations, or condition (financial or otherwise).
(e) Immediately after becoming aware of any
pending or threatened strike, work stoppage, material
unfair labor practice claim, or other material labor
dispute affecting any Borrower or any of its
subsidiaries.
(f) Immediately after becoming aware of any
violation of any law, statute, regulation, or
ordinance of a Public Authority applicable to any
Borrower, which may materially and adversely affect
the Collateral, the repayment of the Obligations,
the Lender's rights under this Agreement, or the
Collateral or any Borrower's property, business,
operations, or condition (financial or otherwise).
(g) Immediately after becoming aware of any
violation or any investigation of a violation by any
Borrower of environmental laws which would
materially and adversely affect the Collateral, any
Borrower's property, business, operation or condition
(financial or otherwise).
(h) Thirty (30) days prior to any Borrower
changing its name.
Each notice given under this Section 6.17 shall describe the
subject matter thereof in reasonable detail and shall set
forth the action that such Borrower has taken or proposes to
take with respect thereto. As used herein, the term
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"Public Authority" shall mean the government of any country or
sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or any department, agency,
public corporation or other instrumentality of any of the
foregoing.
6.18 (a) Except with respect to the matters
described in Schedule B hereto, neither Borrower nor any
subsidiary of any Borrower, except in compliance in all
material respects with all laws, ordinances, regulations,
administrative orders, notices and decrees of any
governmental authority pertaining to Borrower or such
subsidiary, (i) may own, occupy, or operate a site or vessel
on which any hazardous material or oil is stored, transported
or disposed of; or (ii) may directly or indirectly transport,
or arrange for the transport, of any hazardous material or oil;
or (iii) will cause, or have legal responsibility for, any
release, or threat of release, of any hazardous material or oil
on or from the real property identified in Section 10.6 (the
"Premises"), or any other site or vessel presently owned,
occupied, or operated either by any Borrower or any subsidiary
or any person for whose conduct any Borrower or any subsidiary
is responsible. Except with respect to the matters described
in Schedule B, neither Borrower nor any subsidiary of any
Borrower may cause, or have legal responsibility for, any
release, or threat of release, of any hazardous material or
oil on or from the Premises, or any other site or vessel
presently owned, occupied, or operated by any Borrower, any
subsidiary or any person for whose conduct any Borrower or any
subsidiary is responsible, where any such release or threat of
release can reasonably be expected to result in a material
liability of any Borrower or any subsidiary or a lien on the
Premises or other property of any Borrower or any subsidiary.
(b) Except with respect to the matters described in
Schedule B hereto, no Borrower nor any Borrower's subsidiary
has, except in compliance in all material respects with all
laws, ordinances, regulations, administrative orders, notices
and decrees of any governmental authority pertaining thereto,
(i) owned, occupied or operated a site or vessel on which any
hazardous materials or oil were stored, transported or
disposed of by any Borrower or such subsidiary; (ii) directly or
indirectly transported, or arranged for the transport, of
any hazardous material or oil; or (iii) caused, or become
legally responsible for, any material release or threat of
release, of any hazardous material or oil on or from the
Premises or any other site or vessel owned, occupied or
operated either by any Borrower, any subsidiary of any
Borrower or any person for whose conduct any Borrower or any
subsidiary of any Borrower is responsible. Except with
respect to the matters described in Schedule B, no
Borrower nor its subsidiaries has caused, or become legally
responsible for, any release or threat of release of any
hazardous material or oil on or from the Premises or any other
site or vessel owned, occupied or operated either by any
Borrower, any subsidiary of any Borrower or any person for
whose conduct any Borrower or any subsidiary of any Borrower is
responsible, where any such release or threat of release can
reasonably be expected to result in a material liability to
any Borrower or any subsidiary of any Borrower or a lien on
the Premises or other property of any Borrower or any subsidiary
of any Borrower.
(c) Except with respect to the matters described
in Schedule B, no Borrower nor any subsidiary of any Borrower
has received notification from any federal, state, foreign or
other governmental authority of: any potential, known or threat
of release of any hazardous material or oil on or from the
Premises or any other site or vessel at any time owned,
occupied or operated either by any Borrower, any subsidiary
of any Borrower or any person for whose conduct any Borrower or
any subsidiary of any Borrower is responsible or whose liability
may result in a lien on the Premises or any other property of
any Borrower or any subsidiary of any Borrower; or of the
incurrence of any expense or loss by such
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governmental authority or by any other person, in
connection with the assessment, containment, or removal of any
release, or threat of release, of any hazardous material or oil
from the Premises or any such site or vessel.
(d) Each Borrower shall, and shall cause the other
Borrowers and each subsidiary of any Borrower to:
(i) comply with all material laws,
ordinances, regulations, administrative orders,
notices and decrees of any governmental authority
pertaining to the storage, transport, release and disposal of
hazardous material or oil;
(ii) except in compliance with all
applicable laws, ordinances, regulations,
administrative orders, notices and decrees of any
governmental authority refrain from disposing of hazardous
material or oil on the Premises or on any other site or
vessel owned, occupied or operated either by any
Borrower, any subsidiary of any Borrower, or by any
person for whose conduct any Borrower or any subsidiary of any
Borrower is responsible;
(iii) engage in such activity as is
reasonable and prudent under the circumstances to (w)
determine whether and to what extent hazardous
materials or oil is present on the Premises or on any other
site or vessel at any time owned, occupied or operated
either by any Borrower, any subsidiary of any
Borrower, or by any person for whose conduct any
Borrower or any subsidiary of any Borrower is responsible
or whose liability may result in a lien on the Premises
or other property of any Borrower or any subsidiary
of any Borrower, (x) determine whether and to what
extent containment or removal of such hazardous
material or oil as may then be present is necessary or
appropriate in light of applicable law or potential harms
or damages which may result therefrom, (y) carry out
any activities necessary or appropriate under clauses
(w) and (x), and (z) qualify for insurance programs or
safe harbors which may be available under applicable law,
ordinances and regulations;
(iv) provide Lender with written notice:
(x) upon any Borrower's obtaining knowledge or any
material release, or threat of release, or any
hazardous material or oil at or from the Premises, or
any other site or vessel at any time owned, occupied, or
operated by any Borrower, or any subsidiary of any
Borrower, or by any person for whose conduct any
Borrower, or any subsidiary of any Borrower, is
responsible, where such release or threat of release is
required to be reported to any governmental
authority by any Borrower or any subsidiary of any
Borrower or any other such person, or may result in a
lien on the Premises or other property of any Borrower
or any subsidiary of any Borrower; (y) upon any
Borrower's or any Borrower's subsidiary's receipt of
any notice to such effect from any federal, state,
foreign or other governmental authority; and (z) upon any
Borrower's or any Borrower's subsidiary's obtaining
knowledge of any incurrence of any expense or loss by
any such governmental authority in connection with the
assessment, containment, or removal of any
hazardous material or oil for which expense or loss any Borrower
or any subsidiary may be liable in any material amount
or for which expense a lien may be imposed on the
Premises or any other property of any Borrower or
any subsidiary of any Borrower; and
(v) jointly and severally indemnify, defend
and hold Lender harmless from any claim brought or
threatened against Lender by any Borrower, or any
subsidiary of any Borrower, any guarantor or endorser
of the Obligations, or any governmental agency or authority or
any
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other person (as well as from attorneys' and
environmental expert's reasonable fees and expenses in
connection therewith) on account of the presence of
hazardous material or oil on the Premises, or any other
site or vessel at any time owned, occupied or operated by any
Borrower or any subsidiary of any Borrower or any
person for whose conduct any Borrower or any subsidiary
of any Borrower may be responsible, or whose liability
may result in a lien on the Premises or other property of any
Borrower or any subsidiary of any Borrower, the past,
present or future release or threat of release of
hazardous materials or oil on or from the Premises, or
any other site or vessel at any time owned, occupied or
operated by any Borrower, or any subsidiary of any Borrower,
or by any person for whose conduct any Borrower or
any subsidiary of any Borrower may be responsible or
whose liability may result in a lien on the Premises or
other property of any Borrower or any subsidiary of any
Borrower, or the failure by any Borrower to comply with the
terms and provisions of this Section 6.18 (each of
which may be defended, compromised, settled, or
pursued by Lender with counsel of Lender's selection,
but at the expense of the Borrowers, on a joint and several
basis, and, in the case of compromise or settlement prior
to an Event of Default, with the consent of any
Borrower, which consent shall bind all Borrowers). The
within indemnification shall survive payment of the
Obligations and/or any termination, release, or discharge
executed by Lender in favor of any Borrower or any
subsidiary of any Borrower or other person.
(e) As used in this Section 6.18, the term "oil" shall
mean oil and/or any other petroleum product or by-product.
6.19 At Lender's option, and at each Borrower's
expense, Lender may order appraisals of the forced
liquidation value of Borrower's machinery and equipment,
provided, however, that the timing and manner of all such
appraisals shall be commercially reasonable in all respects.
If the principal balance of the Term Loans outstanding to any
Borrower, as of the date of the appraisal, exceeds eighty-two
percent (82%) of the appraised forced liquidation value of
such Borrower's machinery and equipment, such Borrower shall
make additional principal payments with respect to the Term
Loan in an amount equal to 1/12 of the amount by which the
outstanding principal balance of such Borrower's Term Loans
exceeds eighty-two percent (82%) of the appraised forced
liquidation value of such Borrower's machinery and equipment as
of the date of the appraisal, such payments to be paid
concurrently with the monthly Term Loan installments due
under the Term Loans, until the entire excess amount has been
fully amortized.
6.20 No Borrower shall directly or indirectly enter
into or permit to exist, any transaction with Odessa as
obligor to such Borrower, direct or contingent, by reason of
any loan, advance, lease, sale or other financing
transaction, investment or otherwise; provided, however, that
Hurt may provide services from time to time to Odessa as
long as the aggregate of all such accounts outstanding at any
time does not exceed $300,000.00.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this
Agreement as to future loans and credit accommodations by
Lender shall terminate automatically, upon the termination
or non-renewal of this Agreement or, at Lender's option, upon
or at any time after the occurrence or existence of any one or
more of the following "Events of Default":
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(a) Any Borrower fails to pay when due any of the
Obligations or fails to perform any of the terms of this
Agreement or any other existing or future financing, security
or other agreement between such Borrower and Lender or any
affiliate of Lender;
(b) Any representation, warranty or statement of
fact made by any Borrower to Lender in this Agreement or
any other agreement, schedule, confirmatory assignment or
otherwise, or to any affiliate of Lender, shall prove inaccurate
or misleading in any material respect;
(c) Any guarantor revokes, terminates or fails to
perform any of the terms of any guaranty, endorsement or other
agreement of such party in favor of Lender or any affiliate of
Lender;
(d) Any judgment or judgments aggregating in excess
of $50,000 or any injunction or attachment (except statutory
liens or attachments for amounts not yet due and payable) is
obtained against any Borrower or any guarantor which remains
unstayed for a period of ten (10) days or is enforced;
(e) Any Borrower or any guarantor or a general
partner of a guarantor or a Borrower (which is a partnership),
being a natural person, dies, or any Borrower or any guarantor
which is a partnership or corporation, is dissolved, or any
Borrower or any guarantor which is a corporation fails to
maintain its corporate existence in good standing, or Borrower
or any guarantor suspends its usual business or engages in a
different line of business from the line of business it is
engaged in as of the date of this Agreement;
(f) Any change in the chief executive officer or
president of Key without Lender's prior written consent;
(g) Any Borrower or any guarantor of any of the
Obligations becomes insolvent, makes an assignment for the
benefit of creditors, makes or sends notice of a bulk
transfer or calls a general meeting of its creditors or
principal creditors;
(h) Any petition or application for any relief under
the bankruptcy laws of the United States now or hereafter in
effect or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction now or hereafter in effect (whether at law
or in equity) is filed by any Borrower or any guarantor or, if
filed against any Borrower or any guarantor of any of the
Obligations, is not dismissed within sixty (60) days;
(i) The indictment or threatened indictment of any
Borrower or any guarantor under any criminal statute, or
commencement or threatened commencement of criminal or civil
proceedings against any Borrower or any guarantor, pursuant to
which statute or proceedings the penalties or remedies sought
or available include forfeiture of any of the property of such
Borrower or such guarantor;
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(j) Any event of default under any financing,
security or other agreement, document or instrument at any time
executed and/or delivered to, with or in favor of Lender or any
of its affiliates by any affiliate of any Borrower;
(k) Lender in good faith believes that either (i)
the prospect of payment or performance of the Obligations is
impaired or (ii) the Collateral is not sufficient to secure
fully the Obligations; or
(l) Any default by any Borrower under any
material agreement or instrument, in favor of any individual
or entity other than Lender and such default continues for
thirty (30) days after such breach first occurs; provided,
however, that such grace period shall not apply, and an Event
of Default shall exist, promptly upon such breach, if such
breach may not, in Lender's reasonable determination, be cured
by Borrower during such thirty (30) day grace period.
7.2 Upon the occurrence of an Event of Default
which has not been waived by Lender or cured to Lender's
satisfaction and at any time thereafter, Lender shall have all
rights and remedies provided in this Agreement, any other
agreements between any Borrower and Lender, the Uniform
Commercial Code or other applicable law, all of which rights and
remedies may be exercised without notice to any Borrower, all
such notices being hereby waived, except such notice as is
expressly provided for hereunder or is not waivable under
applicable law. All rights and remedies of Lender are
cumulative and not exclusive and are enforceable, in
Lender's discretion, alternatively, successively, or
concurrently on any one or more occasions and in any order
Lender may determine. Without limiting the foregoing, Lender
may (a) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender, (b) to the extent
permitted by law, with or without judicial process or the aid
or assistance of others, enter upon any premises on or in
which any of the Collateral may be located and take
possession of the Collateral or complete processing,
manufacturing and repair of all or any portion, of the
Collateral, (c) require any Borrower, at such Borrower's
expense, to assemble and make available to Lender any part or
all of the Collateral at any place and time designated by
Lender, (d) collect, foreclose, receive, appropriate, set off
and realize upon any and all Collateral, (e) extend the time of
payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all
accounts or other Collateral which includes a monetary
obligation and discharge or release the account debtor or other
obligor, without affecting any of the Obligations, (f) sell,
lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral (including, without limitation, entering
into contracts with respect thereto, by public or private
sales at any exchange, broker's board, any office of Lender
or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with
the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption
of any Borrower which right or equity of redemption is hereby
expressly waived and released by each Borrower. If any of the
Collateral is sold or leased by Lender upon credit terms or
for future delivery, the Obligations shall not be reduced as
a result thereof until payment therefor is finally collected
by Lender. If notice of disposition of Collateral is required by
law, ten (10) business days prior notice by Lender to
the Borrowers designating the time and place of any public
sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and each Borrower waives any
other notice. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by
way of prejudgment remedy, each Borrower waives to the
extent permitted by law the posting of any bond which
might otherwise be required.
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7.3 Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease,
foreclosure or other disposition of the Collateral to payment
of any of the Obligations, in whole or in part (including
reasonable attorneys' fees and legal expenses incurred by
Lender with respect thereto or otherwise chargeable to the
Borrowers) and in such order as Lender may elect, whether or
not then due. Each Borrower shall remain liable to Lender for
the payment of any deficiency together with interest at the
highest rate provided for herein and all costs and expenses of
collection or enforcement, including reasonable attorneys'
fees and legal expenses.
7.4 Lender may, at its option, cure any default by any
Borrower under any agreement with a third party or pay or bond
on appeal any judgment entered against any Borrower,
discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to
the Collateral and pay any amount, incur any expense or perform
any act which, in Lender's sole judgment, is necessary or
appropriate to preserve, protect, insure, maintain or realize
upon the Collateral. Lender may charge the Borrowers' loan
account for any amounts so expended, such amounts to be
repayable by the Borrowers on demand. Lender shall be under
no obligation to effect such cure, payment, bonding or
discharge, and shall not by doing so, be deemed to have assumed
any obligation or liability of any Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 WAIVER OF JURY TRIAL. LENDER AND EACH BORROWER
ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES,
AND THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT GROWING OUT
OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT JURY. TRIAL BY A
JUDGE SITTING WITHOUT A JURY WILL FURTHER RESULT IN THE
AVOIDANCE OF DELAYS, A STREAMLINING OF THE PROCEEDINGS
INVOLVED AND, AS A RESULT, WILL MINIMIZE THE EXPENSE OF ANY
SUCH LAWSUIT FOR THE BENEFIT OF EACH BORROWER AND LENDER. EACH
BORROWER HEREBY WAIVES TRIAL BY JURY, RIGHTS OF SET OFF, AND
THE RIGHT TO IMPOSE COUNTERCLAIMS (EXCEPT BY COMPULSORY
COUNTERCLAIMS) IN ANY LITIGATION IN ANY COURT WITH RESPECT
TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE
COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT
HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER
ARISING, BETWEEN THE BORROWERS, OR ANY OF THEM, AND THE
LENDER. EACH BORROWER HEREBY CONFIRMS THAT THE FOREGOING
WAIVERS ARE INFORMED AND FREELY MADE.
8.2 Each Borrower hereby irrevocably submits and
consents to the nonexclusive jurisdiction of the State and
Federal Courts located in the State in which the office of
Lender designated in Section 10.6(a) is located and any other
State where any Collateral is located with respect to any action
or
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proceeding arising out of this Agreement, the Collateral or
any matter arising therefrom or relating thereto. In any such
action or proceeding, each Borrower waives personal service of
the summons and complaint or other process and papers therein
and agrees that the service thereof may be made by mail directed
to such Borrower at its chief executive office set forth herein
or other address thereof of which Lender has received notice
as provided herein, service to be deemed complete five (5)
days after mailing by certified or registered mail, or as
permitted under the rules of either of said Courts. Any
such action or proceeding commenced by any Borrower against
Lender will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the
office of Lender designated in Section 10.6(a) is located and
each Borrower waives any objection based on forum non conveniens
and any objection to venue in connection therewith.
8.3 Lender shall not, by any act, delay, omission
or otherwise be deemed to have expressly or impliedly
waived any of its rights or remedies unless such waiver shall
be in writing and signed by an authorized officer of Lender.
A waiver by Lender of any right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such
right or remedy which Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
8.4 Unless otherwise expressly provided herein, each
Borrower waives, to the extent permitted by applicable law,
diligence, presentment, protest and notice of demand or
dishonor and protest as to any instrument, notice of intent to
accelerate and notice of acceleration, notice of default,
notice of protest, demand, dishonor or nonpayment, as well as
any and all other notices to which it might otherwise be
entitled. No notice to or demand on any Borrower which the
Lender may elect to give shall entitle such Borrower to any
further notice or demand in the same, similar or other
circumstances.
8.5 The provisions of Chapter 15 of the Texas Credit
Code (Vernon's Texas Civil Statutes) Article 5069-15 are
specifically declared by Lender and the Borrowers not to be
applicable to this Agreement or the transactions
contemplated hereby.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective
upon the execution and delivery of this Agreement by each
Borrower and Lender and shall continue in full force and effect
until either December 31, 1998, or January 5, 1999, at
Lender's option, and shall be deemed automatically renewed for
successive terms of two (2) years thereafter unless
terminated as of the end of the initial or any renewal term
(each a "Term") by the Lender or any Borrower giving the other
parties hereto written notice at least sixty (60) days prior
to the end of the then-current Term.
9.2 Any of the Borrowers may also terminate this
Agreement by giving Lender at least thirty (30) days prior
written notice at any time upon payment in full of all of the
Obligations as provided herein, including the early
termination fee provided below. Lender shall also have the
right to terminate this Agreement at any time upon or after the
occurrence of an Event of Default. If Lender terminates this
Agreement upon or after the occurrence of an Event of Default,
or if any of the Borrowers shall terminate this Agreement as
permitted herein effective prior to the end of the then-current
Term, in addition to all other Obligations, the Borrowers
collectively shall pay to Lender, upon the effective date of
termination, in view of the impracticality and extreme
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<PAGE>
difficulty of ascertaining actual damages and by mutual
agreement of the parties as to a reasonable calculation of
Lender's lost profits, an early termination fee equal to:
(a) fifty percent (50%) of the average
monthly interest and fees payable by the Borrowers to
Lender with respect to the Revolving Loans for the
immediately preceding six (6) months or from the date of
this Agreement, whichever is the shorter period, multiplied by
(b) either (i) the number of months (or
any part thereof) remaining in the then-current Term,
if the Borrowers' written notice of termination is
received by Lender or termination by Lender is effective
more than sixty (60) days prior to the end of the then-current
Term or (ii) the number of months (or any part
thereof) remaining in the then-current Term plus
twenty-four (24) if the Borrowers' written notice of
termination is received by Lender or termination by Lender is
effective within sixty (60) days prior to the end of the
then-current Term.
For purposes of calculating the early termination fee, in
no event will the average monthly interest be less than the
interest which would have been payable if the Revolving Loans
had equaled the Minimum Borrowing set forth in Section 10.1(d)
on each day during the calculation period.
9.3 Borrowers may prepay, in whole or in part, the
Term Loans prior to the end of the then current Term. If such
prepayment is made with funds other than funds obtained from a
public offering or private placement of equity or debt by
Borrowers, the Borrowers collectively shall pay to Lender,
upon the effective date of termination, in view of the
impracticality and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits, an early
termination fee equal to:
(a) fifty percent (50%) of the average
monthly interest and fees payable by the Borrowers to
Lender with respect to the Term Loans for the
immediately preceding six (6) months or from the date of this
Agreement, whichever is the shorter period, multiplied by
(b) either (i) the number of months (or
any part thereof) remaining in the then-current Term,
if the Borrowers' written notice of termination is
received by Lender or termination by Lender is effective
more than sixty (60) days prior to the end of the then-current
Term or (ii) the number of months (or any part
thereof) remaining in the then-current Term plus
twenty-four (24) if the Borrowers' written notice of
termination is received by Lender or termination by Lender is
effective within sixty (60) days prior to the end of the
then-current Term.
If such payment is made with funds obtained from a
public offering or private placement of equity or debt by
Borrowers, then, in lieu of the fee set forth in (a) and (b)
above, Borrowers shall collectively pay to Lender an early
termination fee of $100,000.00.
9.4 Upon termination of this Agreement by the
Borrowers, as permitted herein, in addition to payment of all
Obligations which are not contingent, each Borrower shall
deposit such amount of cash collateral as Lender reasonably
determines is necessary to secure Lender from loss, cost,
damage or expense, including reasonable attorneys' fees, in
connection with any open Accommodations
29
<PAGE>
or remittance items or other payments provisionally credited
to the Obligations and/or to which Lender has not yet received
final and indefeasible payment.
9.5 Except as otherwise provided, all notices,
requests and demands hereunder shall be (a) made to Lender at
its address set forth in Section 10.6(a) and to each
Borrower at its chief executive office set forth in Section
10.6(d), or to such other address as either party may
designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if
by hand, immediately upon delivery; if by telex, telegram or
telecopy (fax), immediately upon receipt; if by overnight
delivery service, upon receipt; and if by certified mail,
return receipt requested five (5) days after mailing.
9.6 If any provision of this Agreement is held to
be invalid or unenforceable, such provision shall not affect
this Agreement as a whole, but this Agreement shall be
construed as though it did not contain the particular provision
held to be invalid or unenforceable.
9.7 Neither this Agreement nor any provision hereof
shall be amended, modified or discharged orally or by course
of conduct, but only by a written agreement signed by an
authorized officer of Lender and Borrowers. This Agreement
shall be binding upon and inure to the benefit of each of the
parties hereto and their respective successors and assigns,
except that any obligation of Lender under this Agreement
shall not be assignable nor inure to the successors and
assigns of Borrowers.
9.8 No termination of this Agreement shall relieve
or discharge any Borrower of its Obligations, grants of
Collateral, duties and covenants hereunder or otherwise
including, without limitation, the continuation and
survival in full force and effect of all security interests and
liens of Lender in and upon all then-existing and
thereafter-arising or acquired Collateral and all warranties and
waivers of Borrowers, until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full.
9.9 The enumeration herein of the Lender's rights and
remedies is not intended to be exclusive, and such rights and
remedies are in addition to and not by way of limitation of
any other rights or remedies that the Lender may have under
the Uniform Commercial Code or other applicable law. The Lender
shall have the right, in its sole discretion, to determine
which rights and remedies are to be exercised and in which
order. The exercise of one right or remedy shall not preclude
the exercise of any others, all of which shall be cumulative.
The Lender may, without limitation, proceed directly against
the Borrowers, or any of them, to collect the Obligations
without any prior recourse to the Collateral.
9.10 Whenever an Event of Default exists, the
Lender is hereby authorized at any time and from time to
time, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held
and other indebtedness at any time owing by the Lender or any
affiliate of such Lender to or for the credit or the account of
any Borrower against any and all of the Obligations, whether or
not then due and payable.
9.11 Lender may grant the right to participate in
Loans and to enter into participation agreements with one or
more participating lenders; and, in the event that Lender does
grant such right to participate in Loans, Lender may do so with
such participating lenders, and on such terms and
conditions, as
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<PAGE>
shall be acceptable to Lender. If a participating lender shall
at any time with the Borrowers' knowledge participate with the
Lender in the Loans, each Borrower hereby grants to such
participating lender, and the Lender and such
participating lender shall have and are hereby given, a
continuing lien on and security interest in any money,
securities and other property of such Borrower in the custody or
possession of the participating lender, including, the right
of set-off, to the extent of such participating lender's
participation in the Obligations, and such participating
lender shall be deemed to have the same right of set-off to
the extent of such participating lender's participation in the
Obligations under this Agreement, as it would have if it
were a direct lender.
9.12 All terms used herein which are defined in the
Uniform Commercial Code shall have the meanings given therein
unless otherwise defined in this Agreement and all
references to the singular or plural herein shall also mean the
plural or singular, respectively.
9.13 THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE
OFFICE OF LENDER SET FORTH IN SECTION 10.6(a) BELOW IS LOCATED.
9.14 THIS AGREEMENT (AND THE PROMISSORY NOTES
REFERRED TO IN SECTION 2.2), ARE INTENDED BY THE BORROWERS AND
THE LENDER TO BE THE FINAL, COMPLETE, AND EXCLUSIVE
EXPRESSION OF THE AGREEMENT BETWEEN THEM. THIS AGREEMENT
SUPERSEDES ANY AND ALL PRIOR ORAL OR WRITTEN AGREEMENTS
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. NO MODIFICATION,
RESCISSION, WAIVER, RELEASE, OR AMENDMENT OF ANY PROVISION OF
THIS AGREEMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT
SIGNED BY THE BORROWERS AND A DULY AUTHORIZED OFFICER OF
LENDER.
9.15 This Agreement may be executed in any number of
counterparts, and by the Lender and the Borrowers in separate
counterparts, each of which shall be an original, but all of
which shall together constitute on and the same agreement.
9.16 The captions contained in this Agreement are for
convenience only, are without substantive meaning and should not
be construed to modify, enlarge, or restrict any provision.
9.17 This Agreement amends and restates in its entirety
the Second Loan Agreement and the WellTech Agreement. The
execution of this Agreement, the Promissory Notes, and the
other loan documents executed in connection herewith does not
extinguish the indebtedness outstanding in connection
therewith nor does it constitute a novation with respect to
indebtedness outstanding in connection with the Original Loan
Agreement or the indebtedness evidenced by the Original Loan
Documents or the Second Loan Agreement or the WellTech
Agreement. The Borrowers and Lender ratify and confirm each of
the Original Loan Documents including each of the security
documents executed pursuant to the Original Loan Agreement or
the Second Loan Agreement or the WellTech Agreement, and agree
that such Original Loan Documents as amended and modified
hereby continue to be legal, valid, binding and enforceable in
accordance with their respective terms. Without limiting the
generality of the foregoing and notwithstanding any loan
document to the contrary, each Borrower and Lender agree and
acknowledge that:
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<PAGE>
(i) the term "Loan Agreement" as used in each loan document,
including, but not limited to, each of the Promissory Notes,
means this Agreement; (ii) the term "Indebtedness,"
"Obligations" or "Secured Obligations" as used in any loan
document means the Obligations; and (iii) the term "Lender" as
used in the Loan Documents means the Lender as defined herein.
9.18 Releases. As a material inducement to Lender to
enter into this Agreement, each Borrower hereby represents and
warrants that there are no claims or offsets against, or
defenses or counterclaims to, the terms and provisions of and
the other obligations created or evidenced by the Original
Loan Documents, the Second Loan Agreement or the WellTech
Agreement. Each of the Original Obligors hereby releases,
acquits, and forever discharges Lender, and its current
parent, subsidiaries and affiliated organizations, and the
current offices, employees, attorneys and agents of each of
the foregoing (all of whom are herein jointly and severally
referred to as the "Released Parties") from any and all
liability, damages, losses, obligations, costs, expenses, suits,
claims, demands, causes of action for damages or any other
relief, whether or not now known or suspected, of any kind,
nature or character, at law or in equity, that any of them now
has or may have ever had against any of the Released Parties,
including, but not limited to, those relating to (a) usury
or penalties or damages therefor, (b) allegations that a
partnership existed between Borrower and the Released Parties,
(c) allegations of unconscionable acts, deceptive trade
practices, lack of good faith or fair dealing, lack of
commercial reasonableness or special relationships, such
as fiduciary, trust or confidential relationships, (d)
allegations of dominion, control, alter ego, instrumentality,
fraud, misrepresentation, duress, coercion, undue influence,
interference or negligence, (e) allegations of tortious
interference with present or present or prospective business
relationships or of antitrust or (f) slander, libel or damage to
reputation (hereinafter being collectively referred to as the
"Claims"), all of which Claims are hereby waived.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit: $35,000,000
(b) Eligible Accounts Percentage:
Eighty-Five Percent (85%) so long
as the dilution percentage of such
accounts does not exceed Four Percent (4%) whereupon
the Eligible Accounts Percentage shall be
reduced to an amount deemed reasonable
by Lender.
(c) Maximum days after Invoice
Date for Eligible Accounts: 90 days;
provided, however, that Lender may
make advances up to $250,000.00 in the aggregate at
any given time against Eligible Accounts which
are between 91 days and 120 days past
invoice date.
(d) Minimum Borrowing: $20,000,000;
provided, however, that if the Term
Loans are repaid in full from either
(i) Borrowers' operating income or (ii) the proceeds
of a stock offering of Key, then the
Minimum Borrowing will be $12,000,000.
(e) Sublimits:
(i) For Yale, $35,000,000 less
all Obligations of Hurt and
WellTech;
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(ii) For Hurt, the lesser of (i)
$2,000,000, and (ii)
$35,000,000 less all Obligations of
Yale and WellTech; and
(iii) For WellTech, $35,000,000
less all Obligations of Hurt
and Yale;
10.2 The lesser of eighty-two percent (82%) of the
forced liquidation value of the Borrower's equipment and
(a) Term Loan:
(i) For Yale, $10,004,082;
(ii) For Hurt, $1,230,000; and
(iii) For WellTech, $11,822,186.
(b) Capital Expenditures Loans
(ss.2.2(b)): In addition, Lender will
provide Borrowers with a line of credit
in the aggregate amount of up to the amount set forth
below ("Capital Expenditures Line") for the
equipment purchased by Borrowers after
November 6, 1995, which is
acceptable to Lender for lending purposes
("Acceptable Capital Expenditures"). Advances, if
any, by Lender against Borrower'
Acceptable Capital Expenditures
("Capital Expenditures Loans") shall be
limited to seventy percent (70%) of the forced
liquidation value of such Capital
Expenditures, as set forth in an
appraisal delivered to Lender in
accordance with Section 2.2(c), and such advances
will be evidenced by a Promissory Note and
be amortized over 84 months. Any
advances made under the Capital
Expenditures Line will be made at the sole
discretion of Lender.
(i) For Yale, up to $2,500,000
less all outstanding Advances
under the Capital
Expenditures Line;
(ii) For Hurt, up to the lesser of
(i) $2,000,000, and (ii)
$2,500,000 less all outstanding
Advances under the Capital Expenditures
Line; and
(iii) For WellTech, up to
$2,500,000 less all
outstanding advances under the Capital
Expenditures Line.
10.3 Accommodations:
(a) Lender's Charge for
Accommodations: 1.25% per annum with respect to all
outstanding Accommodations
(b) Sublimit for Accommodations:
$1,800,000
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10.4 Fees:
(a) Interest Rate: Prime Rate plus 1.25%
per annum
(b) Closing Fees: N/A
(c) Unused Line Fee Rate: N/A
10.5 Financial Covenants: Unless indicated otherwise,
all amounts below shall be determined in accordance with
generally accepted accounting principles, in effect on the date
hereof, consistently applied:
(a) "Consolidated Debt Service (Fixed
Charge) Coverage Ratio" means the
ratio of (a) the sum of net income
plus (i) depreciation and amortization expenses plus
(ii) increases in deferred taxes less (iii)
decreases in deferred taxes
resulting from tax payments
actually made; divided by (b) the sum of payments on
long term indebtedness plus (i) capital
lease payments plus (ii) any unfunded
capital expenditures; (c) determined
on a consolidated basis.
Testing of the following ratio
will begin on March 31, 1996.
Borrowers will maintain a
Consolidated Debt Service (Fixed
Charge) Coverage Ratio of not less than 1.30
to 1.00, such ratio to be tested at the end of each
calendar quarter (i.e. as of March
31, June 30, September 30 and
December 31) based on the prior
12-month period.
(b) "Consolidated Tangible Net Worth"
means the amount by which the sum
of (a) Shareholders' Equity plus
Subordinated Debt (non-current balance) exceeds (b)
Intangible Assets, determined on a consolidated
basis for all Borrowers. For this
purpose: "Shareholders Equity"
means shareholders' equity determined
according to GAAP; and "Intangible Assets" means (i)
assets which are treated as intangible
pursuant to GAAP; (ii) obligations
owing by any persons that are
officers, directors, shareholders, employees,
subsidiaries or affiliates, or any entity in
which any such person owns any
interest; and (iii) any asset which
is intangible or lacks intrinsic and
marketable value or collectibility, including without
limitation goodwill, noncompetition
agreements, patents, copyrights,
trademarks, franchises or
organization or research and development costs,
prepaid expenses or investments
in subsidiaries/affiliates; and (iv)
any other assets determined to be
intangible by Lender in its
reasonable credit judgment.
Borrowers will maintain a
Consolidated Tangible Net Worth of
not less than $30,000,000, such ratio to be
tested as of the end of each calendar quarter (i.e.
as of March 31, June 30, September 30 and
December 31).
(c) Total Liabilities (as defined
by GAAP) to Consolidated Tangible
Net Worth:
Borrowers will not allow the
ratio of Total Liabilities to
Consolidated Tangible Net Worth to be
greater than 2.25 to 1.00, such ratio to be tested as
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of the end of any calendar quarter
(i.e. as of March 31, June 30,
September 30 and December 31).
(d) Maximum Annual Capital Expenditures:
Borrowers will not allow their
Capital Expenditures to exceed
$7,000,000 during any Fiscal Year.
10.6 (a) Lender's Office: 10 South
LaSalle Street
Chicago, Illinois 60603
(b) Lender's Bank: Bank of
America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
(c) Borrowers: Yale E. Key, Inc.
Key Energy Drilling,
Inc. d/b/a Clint
Hurt Drilling
WellTech Eastern, Inc.
(d) Borrowers' Chief Executive Offices:
1. Yale:
1503 East Taylor
Midland, Texas 79702
2. Key Energy Drilling, Inc.
d/b/a Clint Hurt Drilling:
1503 East Taylor
Midland, Texas 79702
3. WellTech Eastern, Inc.
5967 Venture Way
Mt. Pleasant, Michigan 48858
(e) Attached hereto as Schedule 10.6(e)
is a correct and complete listing of
all of Borrowers' other Offices and
Locations of Collateral identifying each location
by street address, listing the name and address of
each owner of each location and if
different from the owner, the name
and address of each lessor of each
location.
(f) Borrowers' Trade Names for Invoicing:
1. Yale: Bonner Hoffman Oil
Well Service Skeeter
Machen Oil Well Service
Key Fishing & Rental Tools
Key Tank Rentals
Key Mud
2. Key Energy Drilling, Inc.
d/b/a Clint Hurt Drilling:
None
3. WellTech: WellTech
Mid-Continent Division
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<PAGE>
IN WITNESS WHEREOF, Borrowers and Lender have duly
executed this Agreement this day of May, 1996.
LENDER: BORROWERS:
THE CIT GROUP/CREDIT YALE E. KEY, INC.
FINANCE, INC.
By: By: Name: Mr.Morris
Horstmann Name: Francis D. John Title: Vice
President Title: Executive Vice President
KEY ENERGY DRILLING,
INC. D/B/A CLINT HURT
DRILLING
By:
Name: Francis D. John
Title: Executive Vice President
WELLTECH EASTERN,
INC.
By:
Name: Francis D. John
Title: President
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<PAGE>
SCHEDULE A
Permitted Liens
Amended and Restated Intercompany Notes and Security Agreements
as follows:
Intercompany Note and Security Agreement executed by Hurt
for the benefit of Yale and endorsed to Lender.
Intercompany Note and Security Agreement executed by Key for the
benefit of Yale and endorsed to Lender.
Intercompany Note and Security Agreement executed by WellTech
for the benefit of Yale and endorsed to Lender.
Intercompany Note and Security Agreement executed by Yale
for the benefit of Hurt and endorsed to Lender.
Intercompany Note and Security Agreement executed by Key for the
benefit of Hurt and endorsed to Lender.
Intercompany Note and Security Agreement executed by WellTech
for the benefit of Hurt and endorsed to Lender.
Intercompany Note and Security Agreement executed by Yale for
the benefit of Key and endorsed to Lender.
Intercompany Note and Security Agreement executed by Hurt for
the benefit of Key and endorsed to Lender.
Intercompany Note and Security Agreement executed by WellTech
for the benefit of Key and endorsed to Lender.
Intercompany Note and Security Agreement executed by Yale
for the benefit of WellTech and endorsed to Lender.
Intercompany Note and Security Agreement executed by Key
for the benefit of WellTech and endorsed to Lender.
Intercompany Note and Security Agreement executed by Hurt
for the benefit of WellTech and endorsed to Lender.
Security Agreement between Nubs Well Servicing, Inc., and
WellTech, Inc., and Assumption Agreement entered into by
WellTech Eastern, Inc., and Guaranty executed by Key.
<PAGE>
SCHEDULE B
The following should be noted with respect to environmental
matters:
1. WellTech conducts its operations from well servicing
yards owned and leased as described on Schedule
10.6(e). These yards and vehicles located thereon are
subject to contamination resulting from fueling of the
rigs from gasoline and diesel tanks situated on certain of
the properties; washing the rigs using a mild
detergent with resulting flow-off and servicing the
rigs at the site using oil, grease and other types of
lubricants.
2. WellTech conducts liquid hauling operations in
both Oklahoma and Michigan. These operations entail
the hauling of liquid substances and wastes and the
disposal of such substances in disposal wells permitted
for this purpose.
3. In connection with the trucking operations mentioned
in No. 2 above, WellTech has acquired three disposal
wells in the State of Michigan and five disposal wells
in the State of Oklahoma. These wells are properly
permitted and caution is taken to deter unauthorized use of the
wells.
4. Bronson Production, Inc., acquired the Wlosinski
No. 2-27 well in Manistee County, Michigan in 1994
from Terra Energy, Ltd. Terra has entered into final
administrative consent order assessing civil penalty
against respondent, Terra Energy, Ltd., on May 9, 1995. The
alleged infractions relate to injecting into the well
pressures in excess of permissible pressures; failing
to submit monthly, quarterly and annual monitoring
reports; and failure to post an acceptable
alternative demonstration of financial responsibility. Terra
paid a fine of approximately $35,000 and seeks
reimbursement from the Company for a portion of the
amount paid.
5. The Santa Maria, California property, formerly leased
and utilized last in April 1992, by WellTech in its
California operations, is subject to limited
reclamation activities. While WellTech has not acknowledged any
liability or responsibility, approximately $15,000 has
been contributed towards efforts with the
representative of the property owners to satisfy the
Santa Maria County Environmental Agency. There is an
understanding that the efforts will be pursued jointly
to avoid litigation with the property owners.
WellTech owns and operates the following above-ground and
underground storage tanks:
1. Mid-Continent Region - Fuel Tanks
There are only two underground tanks on property owned
or leased by the Company at the El Reno, Oklahoma
facility in El Reno, Oklahoma. These tanks were in the
ground at the time WellTech acquired the El Reno,
Oklahoma property and have not been used by the Company
since the acquisition. At the time of the acquisition,
the soils around the tanks were tested and no
contamination was found as documented in an
environmental assessment delivered to the Company.
<PAGE> Above the ground storage tanks are located in:
Canadian, Texas Countyline,
Oklahoma Guthrie, Oklahoma
Lindsay, Oklahoma Oklahoma City, Oklahoma
Northeastern Region - Fuel Tanks
There are no underground tanks
A single above the ground storage tank
is located at WellTech's well servicing yard
in Kalkaska, Michigan.
<PAGE>
SCHEDULE 6.12
1. Key has guaranteed the obligations of Odessa to
Norwest Bank Texas, Midland.
2. Key will pay the bonuses due to Francis D. John under Mr.
John's Employment Agreement with Key.
3. Key will guarantee WellTech's obligations relating to the
Nub's acquisition and note balance: $200,000 - $250,000
4. WellTech leases from Hidco Development Corporation,
which is owned by Kenneth C. Hill and his spouse, real
property used for well servicing yards in Mt. Pleasant,
Michigan and Ripley, West Virginia. Lease terms, including
rental rates, are deemed by management to be competitive.
5. WellTech leases from Talon Development Corporation real
property used for its servicing yard in Indiana,
Pennsylvania. Kenneth C. Hill owns a 33 1/3 interest in
Talon Development Corporation. Lease terms including rental
rates are deemed by management to be competitive.
6. WellTech initiated a management incentive compensation
plan which requires the payment of sums of money to
various parties contingent upon the attainment of a
stipulated level of profitability. No payments have been
made pursuant to this plan since its adoption.
<PAGE>
SCHEDULE 10.6(e)
ASSET PURCHASE AGREEMENT
DATED AS OF APRIL 18, 1996,
BY AND BETWEEN
ARCH PETROLEUM INC.,
AS SELLER,
AND
ODESSA EXPLORATION INCORPORATED,
AS BUYER
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I.
CERTAIN DEFINITIONS
Section 1.1 Certain Defined
Terms.......................................1 Section 1.2
References, Gender, Number..................................1
ARTICLE II. SALE
AND PURCHASE
ARTICLE III.
CONSIDERATION AND PAYMENT
Section 3.1
Consideration...............................................1
Section 3.2
Payment.....................................................2
Section 3.3 Adjustment Period Cash
Flow.................................2 Section 3.4 Post
Closing Review.........................................3 Section
3.5 Gas Imbalance
Credits.......................................3
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of
Seller....................4 Section 4.2 Representations and
Warranties of Buyer.....................5
ARTICLE V.
INVESTIGATION OF ASSETS: CONFIDENTIALITY
Section 5.1 Investigation of
Assets.....................................6 Section 5.2
Confidential Information....................................7
ARTICLE VI. TITLE
ADJUSTMENTS.
Section 6.1 No Warranty or
Representation...............................7 Section 6.2
Buyer's Title Review........................................7
Section 6.3 Determination of Title
Defects.............................10 Section 6.4 Seller
Title Credit........................................10
- i -
<PAGE>
Section 6.5 Exclusion of Defect
Properties..............................11 Section 6.6
Deferred Claims and Disputes................................11
Section 6.7 No
Duplication..............................................12
ARTICLE VII.
PREFERENCE RIGHTS AND CONSENTS
Section 7.1
Compliance.................................................12
Section 7.2 Effect of Preference
Rights................................12 Section 7.3
Transfer Requirements......................................13
ARTICLE VIII.
COVENANTS OF SELLER AND BUYER
Section 8.1 Conduct of Business Pending
Closing.........................13 Section 8.2
Qualifications on Seller's Conduct..........................15
Section 8.3
Conveyance..................................................16
Section 8.4 Public
Announcements........................................16 Section
8.5 Further
Assurances..........................................16 Section
8.6
Removal.....................................................16
Section 8.7
Records.....................................................16
ARTICLE IX.
CLOSING CONDITIONS
Section 9.1 Seller's Closing
Conditions.................................17 Section 9.2
Buyer's Closing Conditions..................................18
ARTICLE X.
CLOSING
Section 10.1
Closing.....................................................19
Section 10.2 Seller's Closing
Obligations................................19 Section 10.3
Buyer's Closing Obligations.................................19
ARTICLE XI. EFFECT
OF CLOSING
Section 11.1
Revenues...................................................19
Section 11.2
Expenses...................................................19
Section 11.3 Payments and
Obligations...................................20 Section 11.4
Survival...................................................20
- ii -
<PAGE>
ARTICLE XII.
CASUALTY AND CONDEMNATION
Section 12.1 No
Termination.............................................20
Section 12.2 Proceeds and
Awards........................................20
ARTICLE XIII
ASSUMPTION AND INDEMNIFICATION
Section 13.1 Indemnification By
Buyer...................................20 Section 13.2
Indemnification by Seller..................................21
Section 13.3 Third Party
Claims.........................................21
ARTICLE XIV.
TERMINATION; REMEDIES; LIMITATIONS
Section 14.1
Termination................................................22
Section 14.2 Remedies.
................................................22 Section 14.3
Limitations................................................23
ARTICLE XV.
MISCELLANEOUS
Section 15.1
Counterparts...............................................24
Section 15.2 Governing
Law..............................................24 Section 15.3
Entire Agreement. ........................................25
Section 15.4
Expenses...................................................25
Section 15.5
Notices....................................................25
Section 15.6 Successors and
Assigns.....................................26 Section 15.7
Amendments and Waivers.....................................26
Section 15.8 Schedules and
Exhibits.....................................26 Section 15.9
Purchase Price Allocation for Tax Purposes.................26
Section 15.10 Ad Valorem Tax
Proration...................................26 Section 15.11
Agreement for the Parties' Benefit Only....................26
Section 15.12 Attorneys'
Fees............................................26 Section 15.13
Severability...............................................27
Section 15.14 No
Recordation.............................................27
Section 15.15 Time of
Essence............................................27 Section
15.16 Hardy
Agreement............................................27 Section
15.17 Like Kind
Exchange.........................................27
- iii -
<PAGE>
EXHIBITS
Exhibit 8.3 -- Conveyance Exhibit 10.2(c)
-- Affidavit of Non-Foreign Status Exhibit A-1
-- Arbitration Procedures Exhibit A-2
-- Property Schedule Exhibit B --
Forecast of Costs and Expenses
SCHEDULES
Schedule 4.1(d) -- Seller's Conflicts or
Violations Schedule 4.1(e) -- Seller's Consents
Schedule 4.1(f) -- Seller's Actions Schedule
4.1(g) -- Non-Compliance with Laws Schedule
4.2(d) -- Buyer's conflicts or Violations
Schedule 4.2(e) -- Buyer's Consents Schedule
4.2(f) -- Buyer's Actions Schedule 7.1 - Part I
-- Preference Rights Schedule 7.1 - Part II
-- Transfer Requirements Schedule 8.1
-- Conduct of Business Schedule 15.9 --
Purchase Price Allocation for Tax Purposes Schedule A-1
-- Certain Excluded Assets Schedule A-2
-- Certain Permitted Encumbrances Schedule A-3
-- Scheduled Imbalances Schedule A-4
- -- Royalty Accounts
- iv -
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated
as of April 18, 1996, is by and between ARCH PETROLEUM INC., a
Delaware corporation ("Seller"), and ODESSA EXPLORATION
INCORPORATED, a Delaware corporation ("Buyer").
WHEREAS, Seller owns certain oil and gas properties
and related assets and has agreed to exercise its preferential
purchase right to acquire additional interests in such oil and
gas properties (the "Hardy Properties") under the terms of
that Asset Purchase Agreement by and between Hardy Oil & Gas
USA, Inc. ("Hardy") and Seller, which will be executed after
the date hereof according to the terms of such preferential
purchase right (the "Hardy Agreement");
WHEREAS, Seller desires to sell to Buyer, and Buyer
desires to purchase from Seller, such oil and gas properties
and related assets, specifically including the Hardy
Properties, upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter set forth, the parties
hereto agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
Section 1.1 Certain Defined Terms. Unless the
context otherwise requires, the respective terms defined in
Appendix A attached hereto and incorporated herein shall,
when used herein, have the respective meanings therein
specified, with each such definition to be equally applicable
both to the singular and the plural forms of the term so defined.
Section 1.2 References, Gender, Number. All
references in this Agreement to an "Article," "Section," or
"subsection" shall be to an Article, Section, or subsection of
this Agreement, unless the context requires otherwise. Unless
the context otherwise requires, the words "this Agreement,"
"hereof," "hereunder," "herein," "hereby," or words of similar
import shall refer to this Agreement as whole and not to a
particular Article, Section, subsection, clause or other
subdivision hereof. Whenever the context requires, the
words used herein shall include the masculine, feminine and
neuter gender, and the singular and the plural.
ARTICLE II.
SALE AND PURCHASE
Subject to the terms and conditions of this Agreement,
Seller agrees to sell and convey to Buyer, and Buyer agrees to
purchase from Seller, the Assets.
ARTICLE III.
CONSIDERATION AND PAYMENT
Section 3.1 Consideration. The consideration for
the sale and conveyance of the Assets to Buyer is
$9,610,000.00, as adjusted in accordance with the terms of this
Agreement (the "Purchase Price"). The "Adjusted Purchase
<PAGE>
Price" shall be the Purchase Price (I) as adjusted by the
Initial Adjustment Amount determined pursuant to Section 3.3,
(ii) as adjusted for Title Defects, if any, in accordance with
Section 6.2, (iii) as may be adjusted for excluded Title Defect
Properties, if any, in accordance with Section 6.5, (iv) as may
be adjusted for undisclosed gas imbalances, if any, pursuant to
Section 3.5, (v) as may be adjusted for payments of portions
of the Purchase Price received by Seller from holder of
Preference Right contemporaneously with Closing in
accordance with and as contemplated by Section 7.2, and (vi) as
may be adjusted on account of Retained Assets as contemplated by
Section 7.3.
Section 3.2 Payment. Contemporaneously with the
execution of this Agreement, Buyer has deposited an amount
equal to twenty percent (20%) of the Purchase Price with
Seller as a deposit hereunder (the "Deposit"). At the
Closing, Buyer shall wire transfer the Adjusted Purchase Price
minus the Deposit in immediately available funds to Bank One,
Texas, N. A. (Fort Worth), ABA No. 111000614 for the account of
Seller, Account No.9740426379, with notification to Brad Bartek
at (817) 884-5707 or Fred Cantu at (817) 332- 9209, extension
125, or such other account specified by Seller to Buyer on or
prior to the business day immediately preceding the Closing Date.
Section 3.3 Adjustment Period Cash Flow. (a) The
Purchase Price shall be increased or decreased, as the case
may be, by an amount equal to the Net Cash Flow with respect
to the Assets for the time period (the "Adjustment Period")
beginning at the Effective Time and ending at 7:00 a.m. (local
time) on the Closing Date. The Seller shall deliver to Buyer on
or prior to the business day immediately preceding the
Closing Date a statement (the "Adjustment Statement")
setting forth the Seller's preliminary determination (the
"Initial Adjustment Amount") of the Net Cash Flow. If the
Initial Adjustment Amount shown on the Adjustment statement is
a positive number, then the Purchase Price shall be increased
by such amount. If the Initial Adjustment Amount shown on
the Adjustment Statement is a negative number, then the
Purchase Price shall be decreased by such amount.
(b) The Adjustment Statement shall be based upon
actual information available to the Seller at the time of its
preparation and upon the Seller's good faith estimates and
assumptions. There shall be attached to the Adjustment
Statement such supporting documentation and other data as
is reasonably necessary to provide a basis for the Net Cash
Flow shown therein.
(c) The "Net Cash Flow" shall be the algebraic sum
of (i) a positive amount equal to the aggregate amount paid
by Seller as Seller's share of the costs and expenses of
exploration, maintenance, development, production and
operation of the Assets incurred with respect to the
Adjustment Period (including prepayments of any such costs or
expenses), (ii) a positive amount equal to the sum of (A) all
overhead charges paid by Seller to any operator of any of the
Assets, and (B) with respect to any properties operated by
Seller or any affiliate of Seller, the overhead charges
payable to Seller or such affiliated operator on account of
the Subject Interests in such properties under existing
operating agreements or, if no overhead charge is applicable
to a Subject Interest under an existing operating agreement,
an overhead charge to such Subject Interest equal to the
Average Drilling and Producing Well Rates in
2
<PAGE>
the area as indicated in the most recent Survey of Combined
Fixed Rate Overhead Charges for Oil and Gas Producers conducted
by Ernst & Young or the prevailing rate in the area if the
foregoing survey is not available, and (iii) a negative amount
equal to the aggregate gross proceeds received by Seller from
the sale or disposition of oil, gas and other hydrocarbons
produced from the Assets during the Adjustment Period or from
the rental, sale, salvage or other disposition of any other
Assets during the Adjustment Period.
Section 3.4 Post Closing Review. After the Closing,
Seller shall review the Adjustment Statement and determine the
actual Net Cash Flow. On or prior to the ninetieth day after
the Closing Date, Seller shall present Buyer with a statement
of the actual Net Cash Flow and such supporting documentation
as is reasonably necessary to support the Net Cash Flow shown
therein (the "Final Adjustment Statement"). Buyer will give
representatives of Seller reasonable access to its premises
and to its books and records for purposes of preparing the
Final Adjustment Statement and will cause appropriate personnel
of Buyer to assist Seller and Seller's representatives, at
no cost to Seller, in the preparation of the Final Adjustment
Statement. Seller will give representatives of Buyer
reasonable access to its premises and to its books and
records for purposes of reviewing the calculation of Net
Cash Flow and will cause appropriate personnel of Seller to
assist Buyer and its representatives, at no cost to Buyer, in
verification of such calculation. The Final Adjustment
Statement shall become final and binding on Seller and Buyer as
to the Net Cash Flow ninety (90) days following the date the
Final Adjustment Statement is received by Buyer, except to
the extent that prior to the expiration of such ninety (90)
day period Buyer shall deliver to Seller notice, as
hereinafter required, of its disagreement with the
contents of the Final Adjustment Statement. Such notice
shall be in writing and set forth all of Buyer's
disagreements with respect to any portion of the Final
Adjustment Statement, together with Buyer's proposed changes
thereto, and shall include an explanation in reasonable detail
of, and such supporting documentation as is reasonably
necessary to support, such changes. If Buyer has timely
delivered such a notice of disagreement to Seller, then, upon
written agreement between Buyer and Seller resolving all
disagreements of Buyer set forth in such notice, the Final
Adjustment Statement will become final and binding upon Buyer
and Seller as to the Net Cash Flow. If the Final Adjustment
Statement has not become final and binding by the one hundred
twentieth (120th) day following its receipt by Buyer, then Buyer
and Seller may submit any unresolved disagreements of Buyer set
forth in such notice to final and binding arbitration in
accordance with the Arbitration Procedures. Upon resolution
of such unresolved disagreements of Buyer, the Final
Adjustment Statement shall be final and binding upon Buyer and
Seller as to the Net Cash Flow. Within three (3) business days
after the Final Adjustment Statement becomes final and binding,
Seller or Buyer, as appropriate, shall pay to the other party
the amount, if any, by which the Net Cash Flow as shown in the
Final Adjustment Statement is less than or exceeds the
Initial Adjustment Amount.
Section 3.5 Gas Imbalance Credits. The Purchase
Price shall be (a) reduced by an amount equal to (1) Unscheduled
(Negative) Imbalances multiplied by (2) $1.00 per Mcf and (b)
increased by an amount equal to (1) Unscheduled (Positive)
Imbalances multiplied by (2) $1.00 per Mcf.
3
<PAGE>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Seller.
Seller represents and warrants to Buyer as follows:
(a) Organization and Qualification. Seller is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the
requisite corporate power to carry on its business as it is now
being conducted. Seller is duly qualified to do business,
and is in good standing, in each jurisdiction in which the
Assets owned or leased by it makes such qualification necessary.
(b) Authority. Seller has all requisite corporate
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution, delivery and
performance of this Agreement and the transactions contemplated
hereby have been duly and validly authorized by all
requisite corporate action on the part of Seller.
(c) Enforceability. This Agreement constitutes a
valid and binding agreement of Seller enforceable against
Seller in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the
power of a court to deny enforcement of remedies generally based
upon public policy.
(d) No Conflict or Violation. Neither the execution
and delivery of this Agreement nor the consummation of the
transactions and performance of the terms and conditions
contemplated hereby by Seller will (i) conflict with or result
in any breach of any provisions of the certificate of
incorporation or by-laws or other governing documents of
Seller; (ii) be rendered void or ineffective by or under the
terms, conditions or provisions of any agreement, instrument
or obligation to which Seller is a party or is subject; (iii)
result in a default under the terms, conditions or provisions
of any Asset (or of any agreement, instrument or obligation
relating to or burdening the Asset); or (iv) subject to the
limitations contained in Section 4.1(c), violate or be
rendered void or ineffective under any Law; provided that,
the representations and warranties contained in clauses (ii),
(iii) and (iv) of this Section 4.1(d) are subject to the matters
expressly described and set forth in Schedule 4.1(d).
(e) Consents. Except for (i) Preference
Rights and Transfer Requirements and (ii) the consents,
filings or notices expressly described and set forth in
Schedule 4.1(e), no consent, approval, authorization or permit
of, or filing with or notification to, any Person is required
for or in connection with the execution and delivery of this
Agreement by Seller or for or in connection with the
consummation of the transactions and performance of the terms
and conditions contemplated hereby by Seller.
4
<PAGE>
(f) Actions. Except as set forth on Schedule
4.1(f), there are no Actions pending against Seller or, to
the knowledge of Seller, threatened against Seller which
relate to the Assets or the transactions contemplated by this
Agreement.
(g) Compliance With Laws. Except as set forth on
Schedule 4.1(g), Seller has no knowledge of any violation by
Seller of any Law applicable to the Assets which affects in any
material respect the value of the Assets taken as a whole.
(h) Brokerage Fees and Commissions. Neither Seller nor
any affiliate of Seller has incurred any obligation or
entered into any agreement for any investment banking,
brokerage or finder's fee or commission in respect of the
transactions contemplated by this Agreement for which Buyer
shall incur any liability.
(i) Bankruptcy. There are no bankruptcy,
reorganization or arrangement proceedings pending against,
being contemplated by, or, to the knowledge of Seller,
threatened against Seller.
Section 4.2 Representations and Warranties of Buyer.
Buyer represents and warrants to Seller as follows:
(a) Organization and Qualification. Buyer is in good
standing under the laws of the State of Delaware and has the
requisite power to carry on its business as it is now being
conducted. Buyer is duly qualified to do business and is in
good standing in each jurisdiction in which the Assets to be
acquired by it makes such qualification necessary.
(b) Authority. Buyer has all requisite power and
authority to execute and deliver this Agreement and to perform
its obligations under this Agreement. The execution, delivery
and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by
Buyer.
(c) Enforceability. This Agreement constitutes a
valid and binding agreement of Buyer enforceable against
Buyer in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to
creditors; (ii) general principles of equity and (iii) the
power of a court to deny enforcement of remedies generally based
upon public policy.
(d) No Conflict or Violation. Neither the execution
and delivery of this Agreement nor the consummation of the
transactions and performance of the terms and conditions
contemplated hereby by Buyer will (i) be rendered void or
ineffective by or under the terms, conditions or provisions of
any agreement, instrument or obligation to which Buyer is a
party or is subject; or (ii) subject to the limitations
contained in Section 4.2(c), violate or be rendered void or
ineffective under any Law; provided that, the
representations and warranties contained in clauses (i) and
(ii) of this Section 4.2(d) are subject to the matters expressly
described and set forth in Schedule 4.2(d).
5
<PAGE>
(e) Consents. Except for (i) Preference
Rights and Transfer Requirements, and (ii) the consents,
filings or notices expressly described and set forth in Schedule
4.2(e), no consent, approval, authorization or permit of, or
filing with or notification to, any Person is required for or
in connection with the execution and delivery of this
Agreement by Buyer or for or in connection with the
consummation of the transaction and performance of the terms and
conditions contemplated hereby by Buyer.
(f) Actions. Except as set forth on Schedule
4.2(f), there are no Actions pending against Buyer or, to the
knowledge of Buyer, threatened against Buyer which relate to
the transactions contemplated by this Agreement.
(g) Brokerage Fees and Commissions. Neither Buyer nor
any affiliate of Buyer has incurred any obligation or
entered into any agreement for any investment banking,
brokerage or finder's fee or commission in respect of the
transactions contemplated by this Agreement for which Seller
shall incur any liability.
(h) Funds. Buyer has sufficient funds available to
enable Buyer to consummate the transactions contemplated hereby
and to pay all related fees and expenses of Buyer.
(i) Buyer's Knowledge. Buyer has no knowledge of any
fact which results in any representations or warranty of Seller
in Section 4.1 being breached.
(j) No Distribution. Buyer is an experienced and
knowledgeable investor in the oil and gas business. Prior to
entering into this Agreement, Buyer was advised by its
counsel and such other persons it has deemed appropriate
concerning this Agreement and has relied solely on an
independent investigation and evaluation of, and appraisal and
judgment with respect to, the geologic and geophysical
characteristics of the Subject Interests, the estimated
reserves recoverable therefrom, and the price and expense
assumptions applicable thereto. Buyer is not acquiring any
interests in the Assets in connection with a distribution
thereof in violation of the Securities Act of 1933 and the
rules and regulations thereunder or any applicable state blue
sky laws.
(k) Bankruptcy. There are no bankruptcy,
reorganization or arrangement proceedings pending against,
being contemplated by, or to the knowledge of Buyer,
threatened against Buyer.
ARTICLE V.
INVESTIGATION OF ASSETS: CONFIDENTIALITY
Section 5.1 Investigation of Assets. Promptly
following the execution of this Agreement and until the
Closing Date (or earlier termination of this Agreement),
Seller (i) shall permit Buyer and its representatives at
reasonable times to examine, in Seller's offices, all
abstracts of title, title opinions, title files, ownership
maps, lease files, assignments, division orders, and
documents relating to the Assets insofar as the same are in
Seller's possession and insofar as Seller may do so without (a)
violating legal constraints or any
6
<PAGE>
legal obligation or (b) waiving any attorney/client privilege
and (ii), subject to any required consent of any third
Person, shall permit Buyer and its representatives at
reasonable times and at Buyer's sole risk, cost and expenses, to
conduct reasonable inspections of the Assets; provided,
however, Buyer shall repair any damage to the Assets resulting
from such inspections and Buyer does hereby indemnify and hold
harmless Seller from and against any and all losses, costs,
damages, obligations, claims, liabilities, expenses and causes
of action arising from Buyer's inspection of the Assets,
including, without limitation, claims for personal injuries,
property damage and reasonable attorney's fees.
Section 5.2 Confidential Information. Unless and
until the Closing occurs, Buyer agrees to maintain all
information made available to it pursuant to Section 5.1
confidential and to cause its officers, employees,
representatives, consultants and advisors to maintain all
information made available to them pursuant to Section 5.1
confidential.
ARTICLE VI.
TITLE ADJUSTMENTS.
Section 6.1 No Warranty or Representation. Without
limiting Buyer's right to adjust the Purchase Price by
operation of Section 6.2 and except for the special warranty of
title which is contained in the Conveyance, Seller makes no
warranty or representation, express, implied, statutory or
otherwise, with respect to Seller's title to any of the Assets
and Buyer hereby acknowledges and agrees that Buyer's sole
remedy for any defect of title, including any Title Defect,
with respect to any of the Assets shall be pursuant to the
procedures set forth in this Article VI, which remedies shall
cease, and be deemed to be finally and conclusively
satisfied, in all respects, upon the Closing. Furthermore,
Seller makes no warranty or representation, express,
implied, statutory or otherwise, with respect to the accuracy
or completeness of the information, records and data now,
heretofore or hereafter made available to Buyer in connection
with this Agreement (including, without limitation, any
description of the Assets, pricing assumptions, potential for
production of oil, gas or other hydrocarbons from the Subject
Interests or any other matters contained in or related to
any other material furnished to Buyer by Seller or by Seller's
agents or representatives).
Section 6.2 Buyer's Title Review.
(a) Buyer's Assertion of Title Defects. Prior to the
expiration of the fourteen (14) day period commencing on the
execution of this Agreement (the "Title Examination Period"),
Buyer shall notify Seller in writing of any matters which, in
Buyer's reasonable opinion, constitute Title Defects and which
Buyer intends to assert as a Title Defect with respect to any
portion of a Property Subdivision pursuant to this Article VI.
For all purposes of this Agreement, Buyer shall be deemed to
have waived any Title Defect which Buyer fails to assert as
a Title Defect by written notice given to Seller on or
before the expiration of the Title Examination Period. To be
effective, Buyer's written notice of a Title Defect must
include (i) a brief description of the matter constituting
the asserted Title Defect, (ii) the claimed Title Defect
Amount attributable thereto, and (iii) supporting documents
reasonably necessary for
7
<PAGE>
Seller (as well as any title attorney or examiner hired by
Seller) to verify the existence of such asserted Title Defect.
Buyer shall promptly furnish Seller with written notice of
any Seller Title Credit which is discovered by any of Buyer's
employees or representatives while conducting Buyer's title
review, due diligence or investigation with respect to the
Subject Interests and Property Subdivisions.
(b) Purchase Price Allocations. A portion of the
Purchase Price has been allocated to the various Subject
Interests in Property Subdivisions in the manner and in
accordance with the respective values set forth in the
Property Schedule. If any adjustment is made to the Purchase
Price pursuant to this Section 6.2, a corresponding
adjustment shall be made to the portion of the Purchase Price
allocated to the affected Property Subdivision in the Property
Schedule.
(c) Seller's Opportunity to Cure. Seller shall have
until two (2) days prior to the Closing Date, at its cost and
expense, if it so elects but without obligation, to cure all
or a portion of such asserted Title Defects. Any asserted
Title Defects which are waived by Buyer or cured within such
time shall be deemed "Permitted Encumbrances" hereunder. If
Seller within such time fails to cure any Title Defect of which
Buyer has given timely written notice as required above
and Buyer has not and does not waive same on or before the day
immediately preceding the Closing Date, the Property
Subdivision affected by such uncured and unwaived Title Defect
shall be a "Title Defect Property".
(d) Buyer's Title Adjustments. Subject to Section 6.5,
as Buyer's sole and exclusive remedy with respect to Title
Defects, Buyer shall be entitled to reduce the Purchase Price
by the amount, if any, by which the aggregate amount of Title
Defect Amounts with respect to all Title Defect Properties
exceeds the sum of $400,000.00 (the "Title Defect Deductible")
plus the aggregate amount of Seller Title Credits with respect
to all Property Subdivisions. "Title Defect Amount" shall
mean, with respect to a Title Defect Property, the amount by
which the value of such Title Defect Property is impaired as a
result of the existence of one or more Title Defects, which
amount shall be determined as follows:
(1) If the Title Defect results from Seller
having a lesser Net Revenue Interest in such Title
Defect Property than the Net Revenue Interest specified
therefor in the Property Schedule, the Title Defect
Amount shall be equal to the product obtained by
multiplying the portion of the Purchase Price
allocated to such Title Defect Property in the Property
Schedule by a fraction, the numerator or which is the
reduction in the Net Revenue Interest and the denominator of
which is the Net Revenue Interest specified for such
Title Defect Property in the Property Schedule.
(2) If the Title Defect results from Seller
having a greater Working Interest in a Title Defect
Property than the Working Interest specified therefor
in the Property Schedule, the Title Defect Amount
shall be equal to the present value (discounted at 10%
compounded annually) of the increase in the costs and
expenses forecasted in Exhibit B hereto with respect
to such Title Defect Property for the period from and
after the Effective Time which is attributable to such
increase in the Seller's Working Interest.
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(3) If the Title Defect results from the
existence of a lien, the Title Defect Amount shall be an
amount sufficient to discharge such lien.
(4) If the Title Defect results from any
matter not described in paragraphs (1), (2) or (3)
above, the Title Defect Amount shall be an amount equal
to the difference between the value of the Title Defect
Property affected by such Title Defect with such Title Defect
and the value of such Title Defect Property without
such Title Defect (taking into account the portion
of the Purchase Price allocated in the Property
Schedule to such Title Defect Property); provided, that if
such Title Defect is reasonably susceptible of being
cured, the Title Defect Amount shall be the reasonable
cost and expense of curing such Title Defect, if less.
(5) If a Title Defect is not effective or
does not affect a Title Defect Property throughout the
entire productive life of such Title Defect
Property, such fact shall be taken into account in
determining the Title Defect Amount.
(6) The Title Defect Amount with respect to
a Title Defect Property shall be determined without
duplication of any costs or losses included in another
Title Defect Amount hereunder. For example, but
without limitation, if a lien affects more than one Title
Defect Property or the curative work with respect to one
Title Defect results (or is reasonably expected to
result) in the curing of any other Title Defect
affecting the same or another Title Defect Property, the amount
necessary to discharge such lien or the cost and
expense of such curative work shall only be included in
the Title Defect Amount for one Title Defect Property
and only once in such Title Defect Amount.
(7) If a Title Defect affects only a
portion of a Property Subdivision (as contrasted with
an undivided interest in the entirety of such Property
Subdivision) and a portion of the Purchase Price has
not been allocated specifically to such portion of a
Property Subdivision in the Property Schedule, then
for purposes of computing the Title Defect Amount, the
portion of the Purchase Price allocated to such Property
Subdivision shall be further allocated among the portions
of such Property Subdivision in the proportion that the
portion of the Property Subdivision affected by such
Title Defect bears to the entire Property Subdivision.
(8) The Title Defect Amount attributable
to a Title Defect Property or any portion thereof
shall not exceed the portion of the Purchase Price
allocated to such Title Defect Property or such portion
in Section 6.2(b) and paragraph (7) above. For example, but
without limitation, if the Seller does not own fifty
percent (50%) of the Net Revenue Interest specified in
the Property Schedule for a Title Defect Property and
such unowned fifty percent (50%) interest is also burdened
by a lien, the Title Defect Amount for such Title Defect
Property shall not exceed the portion of the Purchase
Price allocable to such fifty percent (50%) interest
notwithstanding that it may be affected by multiple
Title Defects.
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(9) No Title Defect Amount shall be allowed
on account of and to the extent that an increase in the
Seller's Working Interest in a Property Subdivision
has the effect of proportionately increasing the
Seller's Net Revenue Interest in such Property Subdivision.
(10) With respect to any Subject Interest
in a Property Subdivision in which Buyer likewise
owned an undivided interest at the Effective Time, no
Title Defect Amount shall be allowed on account of a
Title Defect affecting such Subject Interest that also affected
Buyer's interest in such Property Subdivision at the
Effective Time.
Section 6.3 Determination of Title Defects. A
portion of a Property Subdivision shall be deemed to have a
"Title Defect" if any one or more of the following statements
is untrue with respect to such portion of a Property
Subdivision as of the Effective Time and as of the Closing Date:
(a) The Seller has Defensible Title thereto.
(b) All royalties, rentals, Pugh clause
payments, shut-in gas payments and other payments due
with respect to such portion of a Property
Subdivision have been properly and timely paid, except for
payments held in suspense for title or other reasons
which are customary in the industry and which will
not result in grounds for cancellation of the
Seller's rights in such portion of a Property
Subdivision.
(c) The Seller is not in default under the
material terms of any leases, farm-out agreements
or other contracts or agreements respecting such
portion of a Property Subdivision which could (1)
prevent the Seller from receiving the proceeds of
production attributable to the Seller's interest
therein, or (2) result in cancellation of the
Seller's interest therein.
Section 6.4 Seller Title Credit. A "Seller Title
Credit" shall mean, with respect to a Property Subdivision,
the amount by which the value of such Property Subdivision is
enhanced by virtue of (a) Seller having a greater Net Revenue
Interest in such Property Subdivision than the Net Revenue
specified therefor in the Property Schedule, or (b) Seller
having a lesser Working Interest in such Property
Subdivision than the Working Interest specified therefor in
the Property Schedule, which amount shall be determined as
follows:
(1) If the Seller Title Credit results from
Seller having a greater Net Revenue Interest in such
Property Subdivision than the Net Revenue Interest
specified therefor in the Property Schedule, the
Seller Title Credit shall be equal to the product
obtained by multiplying the portion of the Purchase
Price allocated to such Property Subdivision in
the Property Schedule by a fraction, the numerator
of which is the increase in the Net Revenue Interest and the
denominator of which is the Net Revenue Interest
specified for such Property Subdivision in the Property
Schedule.
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(2) If the Seller Title Credit results from
Seller having a lesser Working Interest in a
Property Subdivision than the Working Interest
specified therefor in the Property Schedule, the Seller Title
Credit shall be equal to the present value
(discounted at 10% compounded annually) of the
decrease in the costs and expenses forecasted in
Exhibit B hereto with respect to such Property
Subdivision for the period from and after the Effective Time
which is attributable to such decrease in Seller's
Working Interest.
(3) In determining the amount of Seller
Title Credits, the principles and methodology set
forth in paragraphs (5), (6) and (7) of Section 6.2(d)
shall be applied, mutatis mutandis.
(4) No Seller Title Credit shall be allowed
on account of and to the extent that a decrease in
Seller's Working Interest in a Property Subdivision
has the effect of proportionately decreasing
Seller's Net Revenue Property Interest in such Property
Subdivision.
The Title Defect Deductible shall be restored to the extent
that any portion thereof is applied as a credit against a Title
Defect Amount attributable to a Title Defect which is
subsequently cured by Seller or determined not to
constitute a Title Defect.
Section 6.5 Exclusion of Defect Properties. On or
before the Closing Date, Seller may elect to retain and exclude
from the Assets to be conveyed to Seller by Buyer pursuant to
the terms hereof any Title Defect Property so long as the
Purchase Price is reduced by the portion of the Purchase Price
allocated to such Title Defect Property in the Property
Schedule. Upon such election by Seller, said Title Defect
Property, together with a pro rata share of all incidental
rights, oil, gas and other hydrocarbons and other assets
attributable or appurtenant thereto, shall be retained by Seller
and excluded from the Assets which are conveyed by Seller to
Buyer pursuant to the Conveyance.
Section 6.6 Deferred Claims and Disputes. In the
event that Buyer and Seller have not agree upon one or more
adjustments, credits or offsets claimed by Buyer or Seller
pursuant to and in accordance with the requirements of this
Article VI, any such claim (a "Deferred Adjustment Claim")
shall be settled pursuant to this Section 6.6 and, except as
provided in Sections 9.1(e) and 9.2(e), shall not prevent or
delay Closing. With respect to each potential Deferred
Adjustment Claim, Buyer and Seller shall deliver to the other a
written notice describing each such potential Deferred
Adjustment Claim, the amount in dispute and a statement setting
forth the facts and circumstances that support such party's
position with respect to such Deferred Adjustment Claim. At
Closing the Purchase Price shall not be adjusted on account of,
and, except as provided in Sections 9.1(e) and 9.2(e), no
effect shall be given to, the Deferred Adjustment Claim. On
or prior to the thirtieth (30th) consecutive calendar day
following the Closing Date (the "Deferred Matters Date"), the
Seller and Buyer shall attempt in good faith to reach agreement
on the Deferred Adjustment Claims and, ultimately, to resolve
by written agreement all disputes regarding the Deferred
Adjustment Claims. Any Deferred Adjustment Claims which are
not so
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resolved on or before the Deferred Matters Date shall be
submitted to final and binding arbitration in accordance with
the Arbitration Procedures; provided, however, that the
Seller may elect at any time to resolve the disputes relating to
the Deferred Adjustment Claims by the payment to Buyer of the
amount by which the Purchase Price would have been reduced at
Closing on account of the Title Defects which constitute
Deferred Adjustment Claims if same did not constitute Deferred
Adjustment Claims. Notwithstanding anything herein provided
to the contrary, including Section 6.2(c), Seller shall be
entitled to cure any Title Defect which constitutes a Deferred
Adjustment Claim at any time prior to the point in time when
a final and binding written decision of the board of
arbitrators is made with respect thereto in accordance with
the Arbitration Procedures. The amount of any reduction in
the Purchase Price to which Buyer becomes entitled under the
final and binding written decision of the board of arbitrators
shall be promptly refunded by Seller to Buyer.
Section 6.7 No Duplication. Notwithstanding anything
herein provided to the contrary, if a Title Defect results from
a matter which could also result in the breach of any
representation or warranty of Seller set forth in Section 4.1,
then Buyer shall only be entitled to assert such matter as
a Title Defect pursuant to this Article VI and shall be
precluded from also asserting such matter as the basis of the
breach of any such representation or warranty.
ARTICLE VII.
PREFERENCE RIGHTS AND CONSENTS
Section 7.1 Compliance. To Seller's knowledge,
all agreements containing a (i) Preference Right are set
forth in Part I of Schedule 7.1 and (ii) Transfer Requirement
are set forth in Part II of Schedule 7.1 (except such agreements
with respect to which all Preference Rights and Transfer
Requirements applicable to the sale contemplated by this
Agreement have been complied with or waived). Prior to the
Closing Date, Seller shall initiate all procedures
required to comply with or obtain the waiver of all
Preference Rights and Transfer Requirements set forth in
Schedule 7.1 with respect to the transactions contemplated by
this Agreement.
Section 7.2 Effect of Preference Rights. If a third
party who has been offered a Preference Property pursuant to
Section 7.1 elects prior to Closing to purchase such
Preference Property in accordance with the terms of such
Preference Right, and Seller and Buyer receive written notice
of such election prior to the Closing Date, such Preference
Property will be eliminated from the Assets and the Purchase
Price shall be reduced by the portion of the Purchase Price
allocated to such Preference Property pursuant to the
immediately following sentence. The portion of the Purchase
Price to be allocated to any Asset or portion thereof
affected by a Preference Right (a "Preference Property")
shall be the portion of the Purchase Price allocated thereto in
the Property Schedule. If a Preference Right affects only a
portion of a Property Subdivision and a portion of the
Purchase Price has not been allocated specifically to such
portion of a Property Subdivision in the Property Schedule, then
the portion of the Purchase Price to be allocated to such
Preference Property shall be determined in the same manner as
provided in Section 6.2(d)(7) when a Title Defect affects only a
portion of a Property Subdivision. If a third party who has been
offered a Preference Property or who has been requested to
waive its Preference Right pursuant to Section 7.1 does not
elect to purchase
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such Preference Property or waive such Preference Right
with respect to the transactions contemplated by this
Agreement prior to the Closing Date, such Preference Property
shall be conveyed to Buyer at Closing subject to such
Preference Right, unless such Preference Property has been
otherwise eliminated from the Assets in accordance with other
provisions of this Agreement. If a third party elects to
purchase a Preference Property subject to a Preference Right
and Closing has already occurred with respect to such Preference
Property, Buyer shall be obligated to convey said Preference
Property to such third party and shall be entitled to the
consideration for the sale of such Preference Property.
Section 7.3 Transfer Requirements. If a Transfer
Requirement applicable to the transactions contemplated by
this Agreement is not obtained, complied with or otherwise
satisfied prior to the Closing Date; then, unless otherwise
mutually agreed by Seller and Buyer, any Asset or portion
thereof affected by such Transfer Requirement (a "Retained
Asset") shall be held back from the Assets to be transferred
and conveyed to Buyer at Closing and the Purchase Price to be
paid at Closing shall be reduced by the portion of the
Purchase Price which would be allocated to such Retained Asset
pursuant to Section 7.2 if such Retained Asset were a
Preference Property. Any Retained Asset so held back at the
initial Closing will be conveyed to Buyer within ten (10) days
following the date on which Seller obtains, complies with or
otherwise satisfies all Transfer Requirements with respect to
such Retained Assets for a purchase price equal to the amount by
which the Purchase Price was reduced on account of the
holding back of such Retained Asset; provided, however, if
all Transfer Requirements with respect to any Retained Asset
so held back at the initial Closing are not obtained, complied
with or otherwise satisfied within one hundred twenty (120)
days following the Closing Date, then such Retained Asset
shall be eliminated from the Assets and this Agreement unless
Seller and Buyer mutually agreed to proceed with a closing on
such Retained Asset in which case Buyer shall be deemed to
have waived any objection with respect to non-compliance
with such Transfer Requirements. In connection with any
subsequent conveyance of a Retained Asset, appropriate
adjustments in Net Cash Flow and proration of revenues and
expenses will be made to account for any delayed Closing
with respect to a Retained Asset.
ARTICLE VIII.
COVENANTS OF SELLER AND BUYER
Section 8.1 Conduct of Business Pending Closing.
Subject to Section 8.2 and the constraints of applicable
operating and other agreements from the date hereof through the
Closing, except as disclosed in Schedule 8.1, or as otherwise
consented to or approved by Buyer in writing (which consent or
approval shall not be unreasonably withheld or delayed), Seller
covenants and agrees that:
(a) Sales. Sellers shall not sell, transfer, assign,
convey, farmout, release, abandon or otherwise dispose of
any Assets, or enter into any transaction the effect of
which would be to cause Seller's ownership interest in any of
the Assets to be altered from Seller's ownership interest as of
the date of this Agreement, other than (i) oil, gas and other
hydrocarbons produced, saved and sold in the ordinary course
of business, and (ii) personal property
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and equipment which is replaced with personal property
and equipment of comparable or better value and utility in
the ordinary and routine maintenance and operation of the
Assets.
(b) Encumbrances. Sellers shall not create or permit
the creation of any lien, security interest or encumbrance on
any Assets, except to the extent required or permitted
incident to the operation of the Assets pursuant to this
Section 8.1.
(c) Operation of Assets. Seller shall:
(1) cause the Assets to be maintained
and operated in the ordinary course of
business, in accordance with Law, maintain
insurance now in force with respect to the Assets,
and pay or cause to be paid all costs and expenses
in connection therewith promptly when due;
(2) not commit to participate in the
drilling or any new well or other new
operations on the Assets the cost of which
(net to Seller's interest) is in excess of $15,000.00 in
any single instance, without the advance written
consent of Buyer, which consent or
non-consent must be given by Buyer within the
lesser of (x) ten (10) days of Buyer's receipt of
the notice from Seller or (y) one-half (1/2) of the
applicable notice period within which Seller is
contractually obligated to respond to third
parties to avoid a deemed election by Seller
regarding such operation, as specified in Seller's
notice to Buyer requesting such consent;
(3) maintain and keep the Assets
in full force and effect, except where such
failure is due to (i) the failure to pay a
delay rental, royalty, shut in royalty or other payment
by mistake or oversight (including Seller's negligence)
unless caused by Seller's gross negligence or
willful misconduct, or (ii) the failure to
participate in an operation which Buyer does
not timely approve; and
(4) resign as operator of any and
all of the Assets and use its best efforts
to ensure election of Buyer as successor
operator of those Assets for which Seller presently
serves as operator.
(d) Contracts and Agreements. Seller shall not:
(1) grant or create any Preference
Right or Transfer Requirement with respect to the
Assets except in connection with the performance by
Seller or an obligation or agreement existing on the
date hereof or pursuant to this Agreement;
(2) enter into any oil, gas or other
hydrocarbon sales, supply, exchange, processing or
transportation contract with respect to the Assets
which is not terminable without penalty or detriment on
notice of ninety (90) days or less; or
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(3) voluntarily relinquish any Seller's
position as operator with respect to the Assets.
(e) Notice of Defaults. Seller shall give prompt
written notice to Buyer of any notice of default (or threat
of default, whether disputed or denied) received or given
by Seller under any material instrument or agreement affecting
the Assets to which Seller is a party or by which Seller or any
of the Assets are bound.
Section 8.2 Qualifications on Seller's Conduct.
(a) Emergencies; Legal Requirements. Seller may take
(or not take, as the case may be) any of the actions mentioned
in Section 8.1 above if reasonably necessary under emergency
circumstances (or if required or prohibited (as the case may
be) pursuant to Law and provided Buyer is notified as soon
thereafter as practicable.
(b) Non-Operated Properties. If Seller is not the
operator of a particular portion of the Assets, the
obligations of Seller in Section 8.1 above with respect to such
portion of the Assets, which have reference to operations or
activities which pursuant to existing contracts are carried out
or performed by the operator, shall be construed to require
only that Seller use its best efforts (without being obligated
to incur any expense or institute any cause of action) to cause
the operator of such portion of the Assets to take such actions
or render such performance within the constraints of the
applicable operating agreements and other applicable agreements.
(c) Certain Operations. Should Seller not wish to pay
any lease rental or other payment or participate in any
reworking, deepening, drilling, completion, equipping or
other operation on or with respect to any well or other Property
Subdivision which may otherwise be required by Section 8.1
above, Seller shall give Buyer written notice thereof at least
fifteen (15) days prior to the date such rental or other payment
is due or, in the case of an operation, promptly after Seller
receives notice of such proposed operation from the operator
of such property (or if Seller is the operator, at the same time
Seller gives or is required to give notice of such
proposed operation to the non-operators of such property);
and Seller shall not be obligated to make any such payment or to
elect to participate in any such operation which Seller does
not wish to make or participate in unless Seller receives from
Buyer, within a reasonable time prior to the date when such
payment or election is required to be made by Seller, the
written election and agreement of Buyer (i) to require Seller
to take such action and (ii) to pay all costs and expenses of
Seller with respect to such lease rental or other payment or
such operation. Notwithstanding the foregoing, Seller shall
not be obligated to pay any lease rental or other payment or to
elect to participate in any operation if the operator of
the property involved recommends that such action not be
taken. If Buyer advances any funds pursuant to this Section
8.2(c) with respect to a particular portion of the Assets, such
portion of the Assets is not conveyed to Buyer at Closing or
Closing does not occur, and such funds are not reimbursed to
Buyer within thirty (30) days after the earlier of Closing or
termination of this Agreement, then with respect to such
particular portion of the Assets, (i) Buyer shall own and be
entitled to any interest of Seller that would have lapsed
but for such payment or (ii) in the case of operations, Buyer
shall be entitled to receive
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the penalty, if any, that Seller, as nonconsenting party,
would have suffered under the applicable operating or other
agreement with respect to such operations as if Buyer were
a consenting party thereunder; in each case, subject to and
after deduction of any damages or other relief to which
Seller may be entitled with respect to any breach by Buyer of
this Agreement.
Section 8.3 Conveyance. Upon the terms and subject to
the conditions of this Agreement, at or prior to the Closing,
Seller and Buyer shall execute and deliver or cause the
execution and delivery of the General Conveyance, in
substantially the form attached hereto as Exhibit 8.3 (the
"Conveyance").
Section 8.4 Public Announcements. Without the prior
written approval of the other party hereto, no party hereto
will issue, or permit any agent or affiliate of it to issue,
any press releases or otherwise make, or cause any agent or
affiliate of it to make, any public statements with respect
to this Agreement and the transactions contemplated hereby,
except where such release or statement is deemed in good faith
by the releasing party to be required by Law or any national
securities exchange, in which case the party will use its best
efforts to provide a copy to the other party prior to any
release or statement.
Section 8.5 Further Assurances. Seller and Buyer each
agrees that, from time to time, whether before, at or after
the Closing Date, each of them will execute and deliver or cause
their respective affiliates to execute and deliver such further
instruments of conveyance and transfer and take such other
action as may be necessary to carry out the purposes and intents
of this Agreement. Any separate or additional assignment of the
Assets or any portion thereof required pursuant to this Section
8.5 (i) shall evidence the conveyance and assignment of the
Assets made or intended to be made in the Conveyance, (ii)
shall not modify or be deemed to modify any of the terms,
covenants and conditions set forth in the Conveyance, and
(iii) shall be deemed to contain all of the terms and
provisions of the Conveyance, as fully as though the same
were set forth at length in such separate or additional
assignment.
Section 8.6 Removal. Within a reasonable period of
time following the Closing, Buyer shall remove the name
and mark of Seller and any of its affiliates and any
variations and derivatives thereof and logos relating thereto
from the Assets.
Section 8.7 Records. Within a reasonable period of
time following the Closing, Seller shall make all Records
available for delivery to Buyer in Houston, Midland or Fort
Worth, Texas, as appropriate. Buyer agrees to maintain the
Records that are acquired pursuant to this Agreement until
the fifth anniversary of the Closing Date (or for such
longer period of time as Seller shall advise Buyer is necessary
in order to have Records available with respect to open years
for tax audit purposes), or, if any of such Records pertain to
any claim or dispute pending on the fifth anniversary of the
Closing Date, Buyer shall maintain any of such Records
designated by Seller until such claim or dispute is finally
resolved and the time for all appeals has been exhausted.
Buyer shall provide Seller and its representatives reasonable
access to and the right to copy such Records, at Seller's
expense, for the purposes of (i) preparing and delivering
any accounting provided for in this Agreement, (ii)
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complying with any law, rule or regulation affecting Seller's
interest in the Assets prior to the Closing Date, (iii)
preparing any audit of the books and records of any third party
relating to Seller's interest in the Assets prior to the
Closing Date, or responding to any audit prepared by such
third parties, (iv) preparing tax returns, (v) responding to or
disputing any tax audit or (vi) asserting, defending or
otherwise dealing with any claim or dispute under this
Agreement or with respect to the Assets. In no event shall
Buyer destroy any such Records without giving Seller sixty
(60) days' advance written notice thereof and the
opportunity, at Seller's expense, to obtain such Records prior
to their destruction. Buyer shall have no liability to Seller
regarding this Section 8.7 in the event of any destruction of
the Records which may occur due to no fault of Buyer as a result
of an act of God.
ARTICLE IX.
CLOSING CONDITIONS
Section 9.1 Seller's Closing Conditions. The
obligation of Seller to consummate the transactions
contemplated hereby is subject, at the option of Seller, to
the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and Covenants. The (1)
representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects
on and as of the Closing Date, and (2) covenants and
agreements of Buyer to be performed on or before the Closing
Date in accordance with this Agreement shall have been duly
performed in all material respects.
(b) Officer's Certificate. Seller shall have
received a certificate dated as of the Closing Date, executed by
a duly authorized officer of Buyer, to the effect that to such
officer's knowledge the conditions set forth in paragraph
(a) of this Section 9.1 have bene satisfied.
(c) Conveyance. Buyer shall have executed and
delivered the Conveyance prior to or on the Closing Date.
(d) No Action. On the Closing Date, no suit, action or
other proceeding (excluding any such matter initiated by Seller
or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of
this Agreement or recover damages from Seller resulting
therefrom.
(e) Title Adjustments. The sum of (i) the reduction
in the Purchase Price on account of the aggregate amount of
all Title Defect Amounts and the exclusion of Title Defect
Properties pursuant to Section 6.5, and (ii) the aggregate
amount of Title Defect Amounts claimed by Buyer with
respect to unresolved Deferred Adjustment Claims, and (iii)
the reduction in the Purchase Price on account of the exclusion
of Retained Assets pursuant to Section 7.3 shall not exceed
$1,200,000.00.
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(f) Purchase Price Funding. On or before 5:00 P.M. on
the business day preceding Closing, Seller shall have received
written notification from Norwest Bank Texas, Midland, N. A.
("Norwest"), by telecopy, telefax or other electronic
transmission service, that Norwest holds as of that date
any and all funds necessary to finance the Purchase Price
and is under irrevocable escrow agreement executed by Buyer
and Seller to release those funds to Seller as of the date of
Closing. Time being of essence hereof, Buyer shall be deemed
to be in default hereunder if written notification called
for herein is not timely received by Seller, in which case
Seller shall be entitled to retain Buyer's deposit as
liquidated damages and: (i) close the Hardy Agreement and
acquire the Hardy Properties for its own account with no
further obligation to convey the properties to Buyer; or (ii)
not close the Hardy Agreement and exercise any other remedies
available to Seller under this agreement or at law or in equity.
(g) Hardy Closing. Closing shall have occurred
under the Hardy Agreement, and Seller shall hold title to
all of the Hardy Properties for conveyance into Buyer.
Section 9.2 Buyer's Closing Conditions. The
obligation of Buyer to consummate the transactions
contemplated hereby is subject, at the option of Buyer, to
the satisfaction on or prior to the Closing Date of all
of the following conditions:
(a) Representations, Warranties and Covenants. The (1)
representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects
on and as of the Closing Date, and (2) covenants and
agreements of Seller to be performed on or before the Closing
Date in accordance with this Agreement shall have been duly
performed in all material respects.
(b) Officer's Certificate. Buyer shall have
received a certificate dated as of the Closing Date, executed
by a duly authorized officer of Seller, to the effect that to
such officer's knowledge the conditions set forth in
paragraph (a) of this Section 9.1 have bene satisfied.
(c) Conveyance. Seller shall have executed and
delivered the Conveyance prior to or on the Closing Date.
(d) No Action. On the Closing Date, no suit, action or
other proceeding (excluding any such matter initiated by Buyer
or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of
competent jurisdiction seeking to enjoin or restrain the
consummation of this Agreement or recover damages from Buyer
resulting therefrom.
(e) Title Adjustments. The sum of (i) the reduction
in the Purchase Price on account of the aggregate amount of
all Title Defect Amounts and the exclusion of Title Defect
Properties pursuant to Section 6.5, and (ii) the aggregate
amount of Title Defect Amounts claimed by Buyer with
respect to unresolved Deferred Adjustment Claims, and (iii)
the reduction in the Purchase Price on account of the exclusion
of Retained Assets pursuant to Section 7.3 shall not exceed
$1,200,000.00.
(f) Hardy Closing. Closing shall have occurred
under the Hardy Agreement, and Seller shall hold title to
all of the Hardy Properties for conveyance into Buyer.
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ARTICLE X.
CLOSING
Section 10.1 Closing. The Closing shall be held on the
Closing Date at 10:00 a.m., Houston time, at the offices of
Hardy at 1600 Smith Street, Suite 1400, Houston, Texas, or
at such other time or place as Seller and Buyer may otherwise
agree in writing.
Section 10.2 Seller's Closing Obligations. At
Closing, Seller shall execute and deliver, or cause to be
executed and delivered, to Buyer the following:
(a) The Conveyance;
(b) The officer's certificate referred to in Section
9.2(b);
(c) An affidavit of Non-Foreign Status,
substantially in the form attached hereto as Exhibit 10.2(c);
and
(d) Letters in lieu of division and transfer orders
executed by Seller relating to the Subject Interests in form
reasonably necessary to reflect the conveyances contemplated
hereby.
Section 10.3 Buyer's Closing Obligations. At Closing,
Buyer shall (i) deliver or cause to be delivered, the Adjusted
Purchase Price minus the Deposit to Seller in immediately
available funds to the bank account as provided in Section
3.2 and (ii) execute and deliver, or cause to be executed and
delivered, to Seller the following:
(a) The Conveyance; and
(b) The officer's certificate of Buyer referred to in
Section 9.1(b).
ARTICLE XI.
EFFECT OF CLOSING
Section 11.1 Revenues. After Closing, all
proceeds, accounts receivable, notes receivable, income,
revenues, monies and other items included in or attributed to
the Excluded Assets and all other Excluded Assets shall
belong to and be paid over to Seller and all proceeds,
accounts receivable, notes receivable, income, revenues,
monies and other items included in or attributable to the
Assets with respect to any period of time after the
Effective Time shall belong to and be paid over to Buyer
except to the extent credited to Buyer in calculating the
Adjusted Purchase Price.
Section 11.2 Expenses. After Closing, all accounts
payable and other costs and expenses with respect to the
Assets for which Seller is given credit in the determination
of Net Cash Flow pursuant to Section 3.3, as adjusted
pursuant to Section 3.4, shall be borne by Seller.
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Section 11.3 Payments and Obligations. If monies are
received by any party hereto which, under the terms of this
Article XI, belong to another party, the same shall immediately
be paid over to the proper party. If an invoice or other
evidence of an obligation is received which under the
terms of this Article XI is partially the obligation of Seller
and partially the obligation of Buyer, then the parties shall
consult each other and each shall promptly pay its portion of
such obligation to the obligee.
Section 11.4 Survival. No representation,
warranty, covenant or agreement made herein shall survive
the Closing except as provided in this Section 11.4. It is
expressly agreed that the terms and provisions of (a)
Article IV shall survive the Closing for a period of one
hundred eighty (180) days from the Closing Date and (b)
Sections 3.4, 6.1, 6.6, 6.7, 7.2, 7.3, 8.2(c), 8.4, 8.5,
8.6, 8.7 and 14.3 and Articles XI, XIII and XV shall survive the
Closing indefinitely. In addition, the definitions set forth
in Appendix A to this Agreement which are used in
representations, warranties, covenants and agreements which
survive the Closing pursuant to this Section 11.4 shall survive
the Closing to the extent necessary to give operative effect
to such surviving representations, warranties, covenants and
agreements.
ARTICLE XII.
CASUALTY AND CONDEMNATION
Section 12.1 No Termination. If after the Effective
Time and prior to the Closing any part of the Assets shall be
destroyed by fire or other casualty or if any part of the
Assets shall be taken in condemnation or under the right of
eminent domain or if proceedings for such purposes shall be
pending or threatened, this Agreement shall remain in full
force and effect notwithstanding any such destruction, taking or
proceeding or the threat thereof.
Section 12.2 Proceeds and Awards. To the extent
insurance proceeds, condemnation awards or other payments
are not committed, used or applied by Seller prior to the
Closing Date to repair, restore or replace such damaged or
taken Assets, Seller shall at the Closing pay to Buyer all
sums paid to Seller by reason of such destruction or taking
less any reasonable costs and expenses incurred by Seller in
collecting same.
ARTICLE XIII
ASSUMPTION AND INDEMNIFICATION
Section 13.1 Indemnification By Buyer. FROM AND AFTER
THE CLOSING DATE, BUYER SHALL ASSUME AND PAY, PERFORM,
FULFILL AND DISCHARGE ALL ASSUMED LIABILITIES, AND SHALL
INDEMNIFY AND HOLD HARMLESS THE SELLER, ITS PRESENT AND FORMER
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS, AND EACH OF THE
DIRECTORS, OFFICERS, HEIRS, EXECUTORS, SUCCESSORS AND
ASSIGNS OF ANY OF THE FOREGOING (COLLECTIVELY, THE "SELLER
INDEMNIFIED PARTIES") FROM AND AGAINST ANY AND ALL (I) ASSUMED
LIABILITIES INCURRED BY OR ASSERTED AGAINST ANY OF THE
SELLER INDEMNIFIED PARTIES, INCLUDING, WITHOUT LIMITATION, ANY
ASSUMED LIABILITY OF THE
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SELLER INDEMNIFIED PARTY OR ANY OTHER THEORY OF LIABILITY,
WHETHER IN LAW (WHETHER COMMON OR STATUTORY) OR EQUITY AND
(II) ANY COVERED LIABILITY RESULTING FROM ANY MISREPRESENTATION,
BREACH OF WARRANTY OR NONFULFILLMENT OF ANY COVENANT OR
AGREEMENT ON THE PART OF BUYER HEREUNDER.
Section 13.2 Indemnification by Seller. FROM AND
AFTER THE CLOSING DATE, SELLER SHALL INDEMNIFY AND HOLD
HARMLESS THE BUYER, ITS PRESENT AND FORMER DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS, AND EACH OF THE HEIRS, EXECUTORS,
SUCCESSORS AND ASSIGNS OF ANY OF THE FOREGOING
(COLLECTIVELY, THE "BUYER INDEMNIFIED PARTIES") FROM AND
AGAINST ANY AND ALL (I) EXCLUDED LIABILITIES INCURRED BY OR
ASSERTED AGAINST ANY OF THE BUYER INDEMNIFIED PARTIES,
INCLUDING, WITHOUT LIMITATION, ANY EXCLUDED LIABILITY OF THE
BUYER INDEMNIFIED PARTY OR ANY OTHER THEORY OF LIABILITY,
WHETHER IN LAW (WHETHER COMMON OR STATUTORY) OR EQUITY AND
(II) ANY COVERED LIABILITY RESULTING FROM ANY
MISREPRESENTATION, BREACH OF WARRANTY OR NONFULFILLMENT OF ANY
COVENANT OR AGREEMENT ON THE PART OF SELLER HEREUNDER.
Section 13.3 Third Party Claims. If a claim by a
third party is made against a Seller Indemnified Party or a
Buyer Indemnified Party (an "Indemnified Party"), and if such
party intends to seek indemnity with respect thereto under this
Article XIII, such Indemnified Party shall promptly notify Buyer
or Seller, as the case may be (the "Indemnitor"), of such
claims. The Indemnitor shall have thirty (30) days after receipt
of such notice to undertake, conduct and control, through
counsel of its own choosing and at its own expense, the
settlement or defense thereof, and the Indemnified Party shall
cooperate with it in connection therewith; provided that the
Indemnitor shall permit the Indemnified Party to participate
in such settlement or defense through counsel chosen by
such Indemnified Party; however, the fees and expenses of such
counsel shall be borne by such Indemnified Party. So long as
the Indemnitor, at Indemnitor's cost and expense, (1) has
undertaken the defense of, and assumed full responsibility for
all Covered Liabilities with respect to, such claim, (2)
is reasonably contesting such claim in good faith, by
appropriate proceedings, and (3) has taken such action
(including the posting of a bond, deposit or other security) as
may be necessary to prevent any action to foreclose a
lien against or attachment of the property of the Indemnified
Party for payment of such claim, the Indemnified Party shall
not pay or settle any such claim. Notwithstanding compliance by
the Indemnitor with the preceding sentence, the Indemnified
party shall have the right to pay or settle any such claim,
provided that in such event it shall waive any right to
indemnity therefor by the Indemnitor for such claim. If, within
thirty (30) days after the receipt of the Indemnified Party's
notice of a claim of indemnity hereunder, the Indemnitor
does not notify the Indemnified Party that it elects, at
Indemnitor's cost and expense, to undertake the defense thereof
and assume full responsibility for all Covered Liabilities
with respect thereto, or gives such notice and thereafter fails
to contest such claim in good faith or to prevent action to
foreclose a lien against or
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attachment of the Indemnified Party's property as
contemplated above, the Indemnified Party shall have the
right to contest, settle or compromise the claim but shall
not thereby waive any right to indemnity therefor pursuant to
this Agreement.
ARTICLE XIV.
TERMINATION; REMEDIES; LIMITATIONS
Section 14.1 Termination.
(a) Termination of Agreement. This Agreement and
the transactions contemplated hereby may be terminated at any
time prior to the Closing:
(1) By the mutual consent of Seller and
Buyer; or
(2) If the Closing has not occurred by the
close of business on the Closing Date, then (i) by
Seller if any condition specified in Section 9.1 has
not been satisfied on or before such close of business,
and shall not theretofore have been waived by Seller, or (ii)
Buyer if any condition specified in Section 9.2 has
not been satisfied on or before such close of
business, and shall not theretofore have been waived
by Buyer; provided, in each case, that the failure to consummate
the transactions contemplated hereby on or before
such date did not result from the failure by the party
or parties seeking termination of this Agreement to
fulfill any undertaking or commitment provided for
herein on the part of such party or parties that is required
to be fulfilled on or prior to Closing.
(b) Effect of Termination. In the event of
termination of this Agreement by Seller, on the one hand, or
Buyer, on the other hand, pursuant to Section 14.1, written
notice thereof shall forthwith be given by terminating party
or parties to the other party or parties hereto, Seller shall
return to Buyer the Deposit, and this Agreement shall
thereupon terminate; provided, however, that following such
termination Buyer will continue to be bound by its obligations
set forth in Article V. If this Agreement is terminated as
provided herein all filings, applications and other submissions
made to any Governmental Authority shall, to the extent
practicable, be withdrawn from the Governmental Authority to
which they were made and any notices or offers made pursuant
to Section 7.1 shall become void.
Section 14.2 Remedies.
(a) Seller's Remedies. Notwithstanding anything herein
provided to the contrary, upon the failure by Buyer to fulfill
any undertaking or commitment provided for herein on the
part of Buyer that is required to be fulfilled on or prior to
the Closing Date, Seller, at its sole option, may (i) enforce
specific performance of this Agreement or (ii) terminate this
Agreement and retain the Deposit as liquidated damages, as
Seller's sole and exclusive remedies for such default, all
other remedies being expressly waived by Seller. Seller and
Buyer agree upon the Deposit amount as liquidated damages due
to the difficulty and
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inconvenience of measuring actual damages and the
uncertainty thereof, and Seller and Buyer agree that the
Deposit amount is a reasonable estimate of Seller's loss in
the event of any such default by Buyer.
(b) Buyer's Remedies. Notwithstanding anything herein
provided to the contrary, upon the failure by Seller to fulfill
any undertaking or commitment provided for herein on the part
of Seller that is required to be fulfilled on or prior to the
Closing Date, Buyer, at its sole option, may (i) enforce
specific performance of this Agreement or (ii) terminate this
Agreement and retain the Deposit as liquidated damages, as
Buyer's sole and exclusive remedies for such default, all other
remedies being expressly waived by Buyer.
Section 14.3 Limitations.
(a) Disclaimer of Warranties. NOTWITHSTANDING ANYTHING
CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS
AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO
THAT SELLER IS NOT MAKING ANY REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE,
BEYOND THOSE REPRESENTATIONS OR WARRANTIES EXPRESSLY
GIVEN IN THIS AGREEMENT, AND IT IS UNDERSTOOD THAT BUYER
TAKES THE ASSETS AS IS AND WHERE IS AND WITH ALL FAULTS. WITHOUT
LIMITING THE GENERALITY OF THE IMMEDIATELY PRECEDING SENTENCE,
SELLER HEREBY (I) EXPRESSLY DISCLAIMS AND NEGATES ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT COMMON LAW,
BY STATUTE OR OTHERWISE, RELATING TO (A) THE CONDITION OF THE
ASSETS (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS)
OR (B) ANY INFRINGEMENT BY SELLER OR ANY OF ITS AFFILIATES OF
ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY; AND (II)
NEGATES ANY RIGHTS OF BUYER UNDER STATUTES TO CLAIM
DIMINUTION OF CONSIDERATION AND ANY CLAIMS BY BUYER FOR
DAMAGES BECAUSE OF DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING
THE INTENTION OF SELLER AND BUYER THAT THE ASSETS ARE TO BE
ACCEPTED BY BUYER IN THEIR PRESENT CONDITION AND STATE OF REPAIR.
(b) Texas Deceptive Trade Practices Act Waiver.
BUYER (A) REPRESENTS AND WARRANTS TO SELLER THAT IT (i) IS
ACQUIRING THE ASSETS FOR COMMERCIAL OR BUSINESS USE, (ii) IS
REPRESENTED BY LEGAL COUNSEL, (iii) ACKNOWLEDGES THE
CONSIDERATION PAID OR TO BE PAID FOR THE ASSETS WILL EXCEED
$500,000, AND (iv) HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL
AND BUSINESS MATTERS SUCH THAT ENABLE IT TO EVALUATE THE
MERITS AND RISKS OF THE TRANSACTION CONTEMPLATED BY THIS
AGREEMENT AND IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION WITH RESPECT TO THE SELLER; AND (B) HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY
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AND ALL RIGHTS OR REMEDIES IT MAY HAVE UNDER THE DECEPTIVE
TRADE PRACTICES CONSUMER PROTECTION ACT OF THE STATE OF TEXAS,
TEX. BUS. & COM. CODE ss. 17.41 ET SEQ. TO THE MAXIMUM EXTENT
IT CAN DO SO UNDER APPLICABLE LAW, IF SUCH ACT WOULD FOR ANY
REASON BE DEEMED APPLICABLE TO THE TRANSACTIONS
CONTEMPLATED HEREBY.
WAIVER OF CONSUMER RIGHTS
BUYER WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET
SEQ., BUSINESS & COMMERCE CODE, A LAW THAT GIVES
CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION
WITH AN ATTORNEY OF BUYER'S OWN SELECTION, BUYER
VOLUNTARILY CONSENTS TO THIS WAIVER.
(c) Damages. NOTWITHSTANDING ANYTHING CONTAINED TO THE
CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, SELLER
AND BUYER AGREE THAT, EXCEPT FOR LIQUIDATED DAMAGES
SPECIFICALLY PROVIDED FOR IN SECTION 14.2, THE RECOVERY BY
EITHER PARTY HERETO OF ANY DAMAGES SUFFERED OR INCURRED BY IT AS
A RESULT OF ANY BREACH BY THE OTHER PARTY OF ANY OF ITS
REPRESENTATIONS, WARRANTIES OR OBLIGATIONS UNDER THIS
AGREEMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES SUFFERED OR
INCURRED BY THE NON- BREACHING PARTY AS A RESULT OF THE
BREACH BY THE BREACHING PARTY OF ITS REPRESENTATIONS,
WARRANTIES OR OBLIGATIONS HEREUNDER AND IN NO EVENT SHALL THE
BREACHING PARTY BE LIABLE TO THE NON-BREACHING PARTY FOR ANY
INDIRECT, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES SUFFERED
OR INCURRED BY THE NON- BREACHING PARTY AS A RESULT OF THE
BREACH BY THE BREACHING PARTY OF ANY OF ITS REPRESENTATIONS,
WARRANTIES OR OBLIGATIONS HEREUNDER.
ARTICLE XV.
MISCELLANEOUS
Section 15.1 Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by
each of the parties and delivered to the other party.
Section 15.2 Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS WITHOUT REFERENCE TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
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Section 15.3 Entire Agreement. This Agreement and
the Schedules and Exhibits hereto contain the entire agreement
between the parties with respect to the subject matter hereof
and there are no agreements, understandings,
representations or warranties between the parties other than
those set forth or referred to herein. The headings herein are
for convenience only and shall have no significance in the
interpretation hereof.
Section 15.4 Expenses Buyer shall be responsible
for (i) any sales Taxes which may become due and owing by
reason of the sale of the Assets hereunder, (ii) all
transfer, stamp, documentary and similar Taxes imposed on the
parties hereto with respect to the property transfer
contemplated pursuant to this Agreement and (iii) all
recording fees relating to the filing of instruments
transferring title to Buyer from Seller. Seller shall be
responsible for (i) all recording and other fees relating to
title curative documents and (ii) all income and other Taxes
incurred by or imposed on Seller with respect to the
transactions contemplated hereby. All other costs and expenses
incurred by each party hereto in connection with all things
required to be done by it hereunder, including attorney's
fees, accountant fees and the expense of title examination,
shall be borne by the party incurring same.
Section 15.5 Notices. All notices hereunder shall be
sufficiently given for all purposes hereunder if in writing
and delivered personally, sent by documented overnight
delivery service or, to the extent receipt is confirmed, by
United States Mail, telecopy, telefax or other electronic
transmission service to the appropriate address or number as set
forth below. Notices to Seller shall be addressed as follows:
Arch Petroleum Inc. 777
Taylor Street, Suite II-A Fort Worth, Texas
76102 Attention: Larry Kalas
Telecopy No.: (817) 332-9249
or at such other address and to the attention of such other
Person as Seller may designate by written notice to Buyer.
Notices to Buyer shall be addressed to:
Odessa Exploration Incorporated
191 Professional Center 6010 Highway 191,
Suite 210 Odessa, Texas 79762
Attention: D. Kirk Edwards Telecopy No.:
(915) 550-0544
or at such other address and to the attention of such other
Person as Buyer may designate be written notice to Seller.
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Section 15.6 Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and
assigns; provided, however, that the respective rights and
obligations of the parties hereto shall not be assignable or
delegable by any party hereto without the express written
consent of the non-assigning or nondelegating party.
Section 15.7 Amendments and Waivers. This Agreement may
not be modified or amended except by an instrument or
instruments in writing signed by the party against whom
enforcement of any such modification or amendment is sought.
Any party hereto may, only by an instrument in writing, waive
compliance by another party hereto with any term or provision
of this Agreement on the part of such other party hereto to be
performed or complied with. The waiver by any party hereto
of a breach of any term or provision of this Agreement
shall not be construed as a waiver of any subsequent breach.
Section 15.8 Schedules and Exhibits. All Schedules and
Exhibits hereto which are referred to herein are hereby made
a part hereof and incorporated herein by such reference.
Section 15.9 Purchase Price Allocation for Tax
Purposes. Seller and Buyer agree that the Purchase Price shall
be allocated to the various Assets for federal and state income
tax purposes only in the manner set forth in Schedule 15.9.
The parties agree not to take a federal or state income tax
reporting position inconsistent with the allocations set
forth on Schedule 15.9. The parties further agree that the
allocations set forth on Schedule 15.9 represent reasonable
estimates of the fair market values of the Assets described
herein.
Section 15.10 Ad Valorem Tax Proration. Ad valorem
taxes related to the Assets will be prorated as of the
Effective Time. For ad valorem taxes for a period which the
Effective Time splits which have been paid by Seller, Buyer
shall reimburse Seller for the portion thereof equal to the
percentage of such period represented by the portion of such
period beginning at the Effective Time. For ad valorem taxes
for a period which the Effective Time splits which have not
been paid by Seller, Buyer shall pay such taxes and Seller
shall reimburse Buyer for a percentage of such taxes equal
to the portion of such period which ends on the day immediately
preceding the Effective Time.
Section 15.11 Agreement for the Parties' Benefit
Only. Except as specified in Article XIII, which is also
intended to benefit and to be enforceable by any of the
Indemnified Parties, this Agreement is not intended to confer
upon any Person not a party hereto any rights or remedies
hereunder, and no Person, other than the parties hereto or the
Indemnified Parties, is entitled to rely on any representation,
warranty, covenant or agreement contained herein. In each case,
such third party beneficiary may only bring suit against
the defaulting party or parties.
Section 15.12 Attorneys' Fees. The prevailing
party in any legal proceeding brought under or to enforce
this Agreement shall be additionally entitled to recover
court costs and reasonable attorneys' fees from the
nonprevailing party.
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Section 15.13 Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated
hereby is not affected in any adverse manner to any party. Upon
such determination that any term or other provision is invalid,
illegal or incapable or being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent
possible.
Section 15.14 No Recordation. Without limiting any
party's right to file suit to enforce its rights under this
Agreement, Buyer and Seller expressly covenant and agree not to
record or place of record this Agreement or any copy or
memorandum hereof.
Section 15.15 Time of Essence. Time is of the
essence in this Agreement.
Section 15.16 Hardy Agreement Seller is entering
into the Hardy Agreement for the sole purpose of
accommodating Buyer as to its intention to acquire the Hardy
Properties from Seller pursuant to the terms of this
Agreement. Buyer hereby agrees to assume all
obligations, duties, and responsibilities of Seller as set
forth in the Hardy Agreement to the same extent and with like
effect as if Buyer had been a party to the Hardy Agreement in
lieu of Seller. In the event that Buyer fails to perform its
obligations under this Agreement, and as a result, Seller
is unable to close the Hardy Agreement, Buyer shall indemnify
and hold harmless Seller from and against any and all claims and
liabilities incurred by or asserted against Seller by Hardy on
account of or in connection with Seller's failure to
close the Hardy Agreement. If the Hardy Agreement is amended
or modified to contain any terms, conditions or provisions
that are materially different than the terms, conditions
or provisions of this Agreement, then this Agreement shall
likewise be modified and amended to conform to the modification
and amendments made to the Hardy Agreement. Promptly upon
Seller's receipt of an executed copy of the Agreement and the
payment of the Deposit, Seller shall exercise its preferential
right to purchase by giving Hardy written notice of such
election, and shall request Hardy to provide Seller with the
Hardy Agreement for execution by Seller. If the due
diligence period and the Closing Date provided under the
Hardy Agreement are extended beyond the dates provided in this
Agreement, the dates in this Agreement shall be concomitantly
extended to accord to those later dates.
Section 15.17 Like Kind Exchange Buyer shall
cooperate fully in the event that Seller elects to effectuate
a like kind exchange under IRC Section 1031 and Seller shall
reimburse Buyer for any additional costs incurred in
connection therewith.
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IN WITNESS WHEREOF, this Agreement has been signed by
or on behalf of each of the parties as of the day first above
written.
SELLER:
ARCH PETROLEUM INC.
By:
___________________________________
Larry Kalas
President
BUYER:
ODESSA EXPLORATION
INCORPORATED
By:
____________________________________
D. Kirk Edwards
President
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APPENDIX A
TO ASSET PURCHASE
AGREEMENT
DEFINITIONS
"Action" shall mean any action, claim, suit,
arbitration, inquiry, proceeding, investigation, condemnation
or audit by or before any court or other Governmental Authority.
"Adjustment Period" shall be as defined in Section
3.3(a).
"Adjusted Purchase Price" shall be as defined in
Section 3.1.
"Adjustment Statement" shall be as defined in Section
3.3(a).
"Arbitration Procedures" shall mean the arbitration
procedures set forth in Exhibit A-1.
"Assets" shall mean the following described assets
and properties (except to the extent constituting Excluded
Assets):
(a) the Subject Interests;
(b) the Lands;
(c) the Incidental Rights;
(d) the Claims;
(e) the Royalty Accounts; and
(f) all (i) oil, gas and other hydrocarbons
produced from or attributable to the Subject
Interests with respect to all periods
subsequent to the Effective Time and (ii) proceeds
from or of such oil, gas and other hydrocarbons.
"Assumed Liabilities" shall mean (i) all Covered
Liabilities of Seller with respect to the Royalty Accounts
and the Claims, and (ii) all Covered Liabilities to the
extent arising out of or attributable to the ownership, use,
construction, maintenance or operation of the Assets subsequent
to the Effective Time.
"Buyer Indemnified Parties" shall be as defined in
Section 13.2.
"Claims" shall mean all right, title and interest
of Seller to any claims to the extent attributable to ownership,
use, construction, maintenance or operation of the Assets
subsequent to the Effective Time, including, without
limitation, past, present or future claims, whether or not
previously asserted by Seller.
<PAGE>
"Closing" shall be the consummation of the transaction
contemplated by Article X.
"Closing Date" shall mean (a) April 30, 1996, or (b)
such other date as may be mutually agreed to by Seller and Buyer.
"Conveyance" shall be as defined in Section 8.3.
"Covered Liabilities" shall mean any and all
debts, losses, liabilities, duties, claims (including, without
limitation, those arising out of any demand, assessment,
settlement, judgment or compromise relating to any actual or
threatened Action), Taxes, costs and expenses (including,
without limitation, any attorneys' fees and any and all
expenses whatsoever incurred in investigating, preparing or
defending any Action), matured or unmatured, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated,
known or unknown, including, without limitation, any of the
foregoing arising under, out of or in connection with any
Action, any order or consent decree of any Governmental
Authority, any award of any arbitrator, or any Law,
contract, commitment or undertaking.
"Defensible Title" shall mean, respectively as to the
Subject Interest or Subject Interests related to a particular
Property Subdivision, title to such Property Subdivision and
the Subject Interest or Subject Interests related to such
Property Subdivision that: (i) entitles Seller to receive not
less than the applicable Net Revenue Interest or Net Revenue
Interests specified for such Property Subdivision in the
Property Schedule; (ii) obligates Seller to bear the costs and
expenses attributable to the maintenance, development, and
operation of such Property Subdivision in an amount not
greater than the applicable Working Interest or Working
Interests specified for such Property Subdivision in the
Property Schedule; and (iii), except for Permitted Encumbrances,
is free and clear of all liens and encumbrances.
"Deferred Adjustment Claim" shall be defined in Section
6.6.
"Deferred Matters Date" shall be as defined in Section
6.6.
"Deposit" shall be as defined in Section 3.2.
"Disputed Issues" shall be as defined in the
Arbitration Procedures.
"Effective Time" shall mean 7:00 a.m., Central
Daylight Time, on January 1, 1996.
"Excluded Assets" shall mean the following:
(a) copies of all Records;
(b) except to the extent constituting the
Royalty Accounts, all deposits, cash, checks, funds
and accounts receivable attributable to Seller's
interest in the Assets with respect to any period of time
prior to the Effective Time;
Page - 2 - of Appendix A
<PAGE>
(c) all (i) oil, gas and other hydrocarbons
produced from or attributable to the Subject Interests
with respect to all periods prior to the Effective
Time, (ii) oil, gas and other hydrocarbons
attributable to the Subject Interests which, at the Effective
Time, are in storage, within processing plants, in
pipelines or otherwise held in inventory, and (iii)
proceeds from or of such oil, gas and other
hydrocarbons;
(d) such assets as Seller elects to exclude
from the Assets pursuant to the terms hereof;
(e) all receivables and cash proceeds which
were expressly taken into account and for which credit
was given in the determination of Net Cash Flow
pursuant to Section 3.3, as adjusted pursuant to
Section 3.4;
(f) claims of Seller for refund of or loss
carry forwards with respect to (i) Taxes attributable
to any period prior to the Effective time or (ii) any
Taxes attributable to the Excluded Assets;
(g) all corporate, financial, tax and legal
records of Seller; and
(h) all rights, interests, assets and
properties described in Schedule A-1.
"Excluded Liabilities" shall mean, except to the extent
constituting an Assumed Liability, any Covered Liabilities
to the extent arising out of or attributable to the ownership,
use, construction, maintenance or operation of the Assets by
Seller prior to the Effective Time.
"Final Adjustment Statement" shall be as defined in
Section 3.4.
"Governmental Authority" shall mean (i) the United
States of America, (ii) any state, county, municipality or
other governmental subdivision within the United States of
America, and (iii) any court or any governmental
department, commission, board, bureau, agency or other
instrumentality of the United States of America or of any
state, county, municipality or other governmental
subdivision within the United States of America.
"Hydrocarbon Interests" shall mean (a) leases
affecting, relating to or covering any oil, gas and other
hydrocarbons and the leasehold interests and estates in the
nature of working or operating interests under such leases,
as well as overriding royalties, net profits interests,
production payments, carried interests, rights of recoupment
and other interests in, under or relating to such leases;
(b) fee interests in oil, gas or other hydrocarbons; (c)
royalty interests in oil, gas or other hydrocarbons; (d) any
other interest in oil, gas or other hydrocarbons in place,
(e) any economic or contractual rights, options or interests
in and to any of the foregoing, including, without limitation,
any farmout or farmin agreement or production payment affecting
any interest or estate in oil, gas or other hydrocarbons; and
(f) any and all rights and interests attributable or
allocable thereto by virtue of any pooling, unitization,
communitization, production sharing or similar agreement, order
or declaration.
Page - 3 - of Appendix A
<PAGE>
"Incidental Rights" shall mean all right, title and
interest of Seller in and to or derived from the following
insofar as the same are attributable to the Subject Interests:
(a) all rights with respect to the use and occupancy of the
surface of and the subsurface depths under the Lands; (b) all
rights with respect to any pooled, communitized or unitized
acreage by virtue of any Subject Interest being a part thereof;
(c) all agreements and contracts, easements, rights-of-way,
servitudes and other estates; and (d) all real and personal
property located upon the Lands and used in connection with
the exploration, development or operation of the Subject
Interests; and (e) the Records.
"Indemnified Party" shall be as defined in Section 13.3.
"Indemnitor" shall be as defined in Section 13.3.
"Initial Adjustment Amount" shall be as defined in
Section 3.3(a).
"Knowledge" shall mean the actual knowledge of any
fact, circumstance or condition by the officers (if the party
involved is a corporation), partners (if the party involved is
a partnership) or employees at a supervisory or higher level of
the party involved.
"Lands" shall mean, except to the extent constituting
Excluded Assets, all right, title, and interest of Seller
in and to the lands covered by or subject to the Subject
Interests.
"Law" shall mean any applicable statute, law,
ordinance, regulation, rule, ruling, order, restriction,
requirement, writ, injunction, decree or other official act of
or by any Governmental Authority.
"Net Cash Flow" shall be as defined in Section 3.3(c).
"Net Revenue Interest" shall mean an interest
(expressed as a percentage or decimal fraction) in and to
all oil and gas produced and saved from or attributable to a
Property Subdivision.
"Permitted Encumbrances" shall mean any of the
following matters:
(a) all agreements, instruments,
documents, liens, encumbrances, and other matters
which are described in Schedule A-2;
(b) any (i) undetermined or inchoate
liens or charges constituting or securing the payment
of expenses which were incurred incidental to
maintenance, development, production or operation of the
Assets or for the purpose of developing, producing or
processing oil, gas or other hydrocarbons therefrom or
therein and (ii) materialman's, mechanics', repairman's,
employees', contractors', operators' or other similar
liens, security interests or charges for liquidated amounts
arising in the ordinary course of business incidental to
construction, maintenance, development, production or
operation
Page - 4 - of Appendix A
<PAGE>
of the Assets or the production or processing of
oil, gas or other hydrocarbons therefrom, that are
not delinquent and that will be paid in the ordinary
course of business, or if delinquent, that are being
contested in good faith;
(c) any liens for Taxes not yet delinquent
or, if delinquent, that are being contested in good
faith in the ordinary course of business;
(d) any liens or security interests created by
Law or reserved in oil, gas and/or mineral leases for
royalty, bonus or rental or for compliance with the
terms of the Subject Interests;
(e) all Preference Rights and Transfer
Requirements;
(f) any easements, rights-of-way,
servitudes, permits, licenses, surface leases and
other rights with respect to surface operations to
the extent such matters do not interfere in any material
respect with Buyer's operation of the portion of the Assets
burdened thereby;
(g) any prohibitions or restrictions
similar to those contained in Article VIII.D. of the
A.A.P.L. Form 610-1982 Model Form Operating Agreement
and any contribution obligations under provisions
similar to Article VII.B. of said Model Form Operating Agreement;
(h) all agreements and obligations relating to
imbalances with respect to the production,
transportation or processing of gas or calls or purchase
options on oil or gas production;
(i) all royalties, overriding
royalties, net profits interests, carried interests,
reversionary interests and other burdens to the extent
that the net cumulative effect of such burdens, as to a
particular Property Subdivision, does not operate to reduce
the Net Revenue Interest of Seller in such Property
Subdivision as specified in the Property Schedule;
(j) all obligations by virtue of a prepayment,
advance payment or similar arrangement under any
contract for the sale of gas production, including
by virtue of "take-or-pay" or similar provisions, to
deliver gas produced from or attributable to the Subject
Interests after the Effective Time without then or
thereafter being entitled to receive full payment
therefor;
(k) all liens, charges, encumbrances,
contracts, agreements, instruments, obligations,
defects, irregularities and other matters affecting
any Asset which individually or in the aggregate are not such
as to interfere materially with the operation, value or
use of such Asset;
Page - 5 - of Appendix A
<PAGE>
(l) any encumbrance, title defect or other
matter (whether or not constituting a Title Defect)
waived or deemed waived by Buyer pursuant to Article
VI;
(m) rights reserved to or vested in any
Governmental Authority to control or regulate any of the
wells or units included in the Assets and all
applicable laws, rules, regulations and orders of such
authorities so long as the same do not decrease Seller's
Net Revenue Interest below the Net Revenue Interest
shown in the Property Schedule;
(n) the terms and conditions of all contracts
and agreements relating to the Subject Interests,
including, without limitation, exploration
agreements, gas sales contracts, processing agreements,
farmins, farmouts, operating agreements, and right-of-way
agreements, to the extent such terms and conditions do
not decrease Seller's Net Revenue Interest below the
Net Revenue Interest shown in the Property Schedule; and
(o) conventional rights of reassignment
requiring notice to the holders of the rights prior
to surrendering or releasing a leasehold interest.
"Person" shall mean any Governmental Authority or any
individual, firm, partnership, corporation, joint venture,
trust, unincorporated organization or other entity or
organization.
"Preference Property" shall be as defined in Section
7.2.
"Preference Right" shall mean any right or agreement
that enables or may enable any Person to purchase or acquire any
Asset or any interest therein or portion thereof as result of
or in connection with (i) the sale, assignment, encumbrance or
other transfer of any Asset or any interest therein or portion
thereof or (ii) the execution or delivery of this Agreement or
the consummation or performance of the terms and conditions
contemplated by this Agreement.
"Property Schedule" means Exhibit A-2 attached to
and made a part of this Agreement.
"Property Subdivision" means each well location, well,
well completion, multiple well completion, unit, lease, or
other subdivision of property described or referenced in the
Property Schedule.
"Purchase Price" shall be as defined in Section 3.1.
"Records" shall mean, except to the extent
constituting Excluded Assets, and except to the extent the
transfer thereof may not be made without violating legal
constraints or legal obligations or waiving any attorney/client
privilege, any and all lease files, land files, division order
files, production marketing files, well files, production
records, seismic, geological, geophysical and engineering
data, litigation files, and all other files, maps and data (in
whatever form) arising out of or relating to the Subject
Interests or the ownership, use, maintenance or operation of the
Assets.
Page - 6 - of Appendix A
<PAGE>
"Retained Assets" shall be defined in Section 7.3.
"Royalty Accounts" shall mean those separately
indentifiable accounts which are expressly identified and set
forth in Schedule A-4 in which Seller or any third party
operator is holding as of the Effective Time monies which (i)
are owing to third party owners of royalty, overriding royalty,
working or other interests in respect of past production of
oil, gas or other hydrocarbons attributable to the Assets or
(ii) may be subject to refund by royalty owners or other third
parties to purchasers of past production of oil, gas or
other hydrocarbons attributable to the Assets.
"Seller Indemnified Parties" shall be as defined in
Section 13.1.
"Seller Title Credit" shall be as defined in Section
6.4.
"Subject Interests" shall mean and include (i) the
undivided interests specified in the Property Schedule in, to
or under the Hydrocabon Interests specifically described in
the Property Schedule, and (ii) all other interests of Seller
in, to or under any Hydrocarbon Interests in, to or under or
derived from any lands covered by or subject to any of the
Hydrocarbon Interests described in the Property Schedule,
even though such interests of the Seller may be
incorrectly described or referred to in, or a description
thereof may be omitted from, the Property Schedule.
"Taxes" shall mean all federal, state and local
taxes or similar assessments or fees, together with all
interest, fines, penalties and additions thereto.
"Title Defect" shall be as defined in Section 6.3.
"Title Defect Amount" shall be as defined in Section
6.2(d).
"Title Defect Deductible" shall be as defined in
Section 6.2(d).
"Title Defect Property" shall be as defined in Section
6.2(c).
"Title Examination Period" shall be as defined in
Section 6.2(a).
"Transfer Requirement" shall mean any consent,
approval, authorization or permit of, or filing with or
notification to, any Person which must be obtained, made or
complied with for or in connection with any sale, assignment,
transfer or encumbrance of any Asset or any interest therein
in order (a) for such sale, assignment, transfer or encumbrance
to be effective, (b) to prevent any termination, cancellation,
default, acceleration or change in terms (or any right thereof
from arising) under any terms, conditions or provisions of
any Asset (or of any agreement, instrument or obligation
relating to or burdening any Asset) as a result of such sale,
assignment, transfer or encumbrance, or (c) to prevent the
creation or imposition of any lien, charge, penalty,
restriction, security interest or encumbrance on or with
respect to any Asset (or any right thereof from arising) as a
result of such sale, assignment, transfer or encumbrance.
Page - 7 - of Appendix A
<PAGE>
"Unscheduled (Negative) Imbalance" shall mean,
respectively as to each Property Subdivision to which the
Subject Interests are attributable and without duplication, the
sum (expressed in Mcfs) of (i) the aggregate make-up, prepaid
or other volumes of oil, gas or other hydrocarbons, not
described on Schedule A-3, that Seller was obligated as of
the Effective time, on account of prepayment, advance
payment, take-or-pay, gas balancing or similar obligations, to
deliver from the Subject Interests attributable to such
Property Subdivision after the Effective time without then or
thereafter begin entitled to receive full payment therefor and
(ii), to the extent such obligations burden the Assets or Buyer
could incur any liability therefor as a result of the
transaction contemplated hereby and the same are not described
on Schedule A-3 or covered by clause (i) above, the aggregate
pipeline or processing plant imbalances or overdeliveries for
which Seller is obligated to pay or deliver oil, gas or other
hydrocarbons or cash to any pipeline, gatherer, transporter,
processor, co-owner or purchaser in connection with any
other oil, gas or other hydrocarbons attributable to the
Subject Interests.
"Unscheduled (Negative) Imbalance" shall mean,
respectively as to each Property Subdivision to which the
Subject Interests are attributable and without duplication, the
sum (expressed in Mcfs) of (i) the aggregate make-up, prepaid
or other volumes of oil, gas or other hydrocarbons, not
described on Schedule A-3, that Seller was obligated as of
the Effective Time, on account of prepayment, advance
payment, take-or-pay, gas balancing or similar obligations, to
deliver from the Subject Interests attributable to such
Property Subdivision after the Effective Time without then or
thereafter being entitled to receive full payment therefor and
(ii), to the extent such obligations burden the Assets or Buyer
could incur any liability therefor as a result of the
transaction contemplated hereby and the same are not described
on Schedule A-3 or covered by clause (i) above, the aggregate
pipeline or processing plant imbalances or overdeliveries for
which Seller is obligated to pay or deliver oil, gas or other
hydrocarbonds or cash to any pipeline, gatherer,
transporter, processor, co-owner or purchaser in connection
with any other oil, gas or other hydrocarbons
attributable to the Subject Interests.
"Unschedule (Positive) Imbalances" shall mean,
respectively as to each Property Subdivision to which the
Subject Interests are attributable and without duplication, the
sum (expressed in Mcfs) of (i) the aggregate make-up, prepaid
or other volumes of oil, gas or other hydrocarbons, not
described on Schedule A-3, that Seller was entitled as of
the Effective Time, on account of prepayment, advance
payment, take-or-pay, gas balancing or similar obligations, to
receive from the Subject Interests attributable to such
Property Subdivision after the Effective Time without then and
thereafter being obligated to make any payment therefor and
(ii) to the extent such entitlements run with the Assets and
the same are not described on Schedule A-3 or covered by
clause (i) above, the aggregate pipeline or processing plant
imbalances or underdeliveries for which Seller is entitled to
receive oil, gas or other hydrocarbons or cash from any
pipeline, gatherer, transporter, processor, co-owner or
purchaser in connection with any oil, gas or other
hydrocarbons attributable to the Subject Interests.
"Working Interest" shall mean the percentage of
costs and expenses attributable to the maintenance,
development and operation of a Property Settlement.
Page - 8 - of Appendix A
<PAGE>
EXHIBIT 8.3
GENERAL CONVEYANCE
THIS GENERAL CONVEYANCE (this "Conveyance") executed
by ARCH PETROLEUM INC., a Delaware corporation, whose address
is 777 Taylor Street, Suite II-A, Fort Worth, Texas 76102
(hereinafter called "Assignor"), to ODESSA EXPLORATION
INCORPORATION, whose address is 191 Professional Center, 6010
Highway 191, Suite 210, Odessa, Texas 79762, (hereinafter
called "Assignee"), dated effective at 7:00 a.m., Central
Daylight Time, on January 1, 1996 (said hour and day
hereinafter called the "Effective Time"). Capitalized
terms used but not otherwise defined herein shall have the
meanings set forth in that certain Asset Purchase Agreement
dated April 18, 1996 (the "Agreement"), by and between
Assignor, as "Seller", and Assignee, as "Buyer".
ARTICLE I
Conveyance of Assets
Assignor, for Ten and No/100 Dollars ($10.00) and
other good and valuable consideration in hand paid by
Assignee, the receipt and sufficiency of which consideration
are hereby acknowledged and confessed, by these presents does
hereby GRANT, BARGAIN, SELLER, CONVEY, ASSIGN, TRANSFER,
SET OVER AND DELIVER unto Assignee, effective as of the
Effective time, the following described assets and
properties (except to the extent constituting "Excluded
Assets" (hereinafter defined)) (collectively, the "Assets"):
(i) (a) The undivided interests specified in
Exhibit A hereto (the "Property Schedule") in, to or
under the Hydrocarbon Interests (hereinafter defined)
specifically described in the Property Schedule, and
(b) all other interests of Assignor in, to or under any
Hydrocarbon Interests in, to or under or derived
from any lands covered by or subject to any of the
Hydrocarbon Interests described in the Property
Schedule, even though such interests of the Assignor may be
incorrectly described or referred to in, or a
description thereof may be omitted from, the Property
Schedule (collectively, the "Subject Interests");
(ii) All right, title, and interest of
Assignor in and to the lands covered by or subject to
the Subject Interests (the "Lands");
(iii) All right, title and interest of
Assignor in and to or derived from the following
insofar as the same are attributable to the Subject
Interests: (a) all rights with respect to the use and occupancy
of the surface of and the subsurface depths under the
Lands; (b) all rights with respect to any pooled,
communitized or unitized acreage by virtue of any
Subject Interest being a part thereof; (c) all agreements
and contracts, easements, rights-of-way, servitudes and other
estates; (d) all real and personal property
Page - 1 - of Exhibit 8.3
<PAGE>
located upon the Lands and used in connection with
the exploration, development or operation of the
Subject Interests; and (e) the Records;
(iv) All right, title and interest of
Assignor to any claims to the extent attributable to
ownership, use, construction, maintenance or operation
of the Assets subsequent to the Effective Time, including,
without limitation, past, present or future claims,
whether or not previously asserted by Assignor;
(v) Those separate identifiable accounts
(the "Royalty Accounts") which are expressly
identified and set forth in Schedule A-1 hereto in which
Assignor or any third party operator is holding as of
the Effective Time monies which (a) are owing to third party
owners of royalty, overriding royalty, working or
other interests in respect of past production of oil,
gas or other hydrocarbons attributable to the Assets
or (b) may be subject to refund by royalty owners or other third
parties to purchasers of past production of oil,
gas or other hydrocarbons attributable to the Assets;
and
(vi) All (a) oil, gas and other hydrocarbons
produced from or attributable to the Subject
Interests with respect to all periods subsequent to
the Effective time and (b) proceeds from or of such oil,
gas and other hydrocarbons.
As used in this Conveyance, the term "Hydrocarbon
Interests" shall mean (a) leases affecting, relating
to or covering any oil, gas and other hydrocarbons and
the leasehold interests and estates in the nature of
working or operating interests under such leases, as well as
overriding royalties, net profits interests,
production payments, carried interests, rights of
recoupment and other interests in, under or
relating to such leases, (b) fee interests in oil, gas or
other hydrocarbons, (c) royalty interests in oil, gas
or other hydrocarbons, (d) any other interest in oil,
gas or other hydrocarbons in place, (e) any economic or
contractual rights, options or interests in and to any
of the foregoing, including, without limitation, any farmout or
farmin agreement or production payment affecting any
interest or estate in oil, gas or other hydrocarbons,
and (f) any and all rights and interests
attributable or allocable thereto by virtue of any pooling,
unitization, communitzation, production sharing or similar
agreement, order or declaration.
There is excluded from this Conveyance and the Assets
and reserved unto Assignor the following described interests,
rights and properties (collectively, the "Excluded Assets"):
(i) Copies of all Records;
(ii) Except to the extent constituting the
Royalty Accounts, all deposits, cash, checks, funds
and accounts receivable attributable to Assignor's
interest in the Assets with respect to any period of time
prior to the Effective Time;
(iii) All (a) oil, gas and other hydrocarbons
produced from or attributable to the Subject Interests
with respect to all periods prior to the Effective Time,
(b) oil, gas
Page - 2 - of Exhibit 8.3
<PAGE>
and other hydrocarbons attributable to the Subject
Interests which, at the Effective Time, are in storage
and are above pipeline connections within processing
plants, in pipelines or otherwise held in inventory, and
(c) proceeds from or of such oil, gas and other hydrocarbons;
(iv) Such assets as Assignor elects to exclude
from the Assets pursuant to the terms of the Agreement;
(v) All receivables and cash proceeds which
were expressly taken into account and for which credit
was given in the determination of Net Cash Flow
pursuant to Section 3.3 of the Agreement, as adjusted
pursuant to Section 3.4 of the Agreement;
(vi) Claims of Assignor for refund of or loss
carry forwards with respect to (i) Taxes
attributable to any period prior to the Effective
Time or (ii) any Taxes attributable to the Excluded Assets;
(vii) All corporate, financial, tax and
legal records of Assignor; and
(viii) All rights, interests, assets and
properties described in Exhibit B hereto.
TO HAVE AND TO HOLD the Assets unto Assignee, its
successors and assigns, forever; subject, however, to the
matters set forth herein.
ARTICLE II
Limitation of Warranties; Permitted Encumbrances
Section 2.1 Limitation of Warranties.
(a) Assignor does hereby bind itself, Assignor's
successors and assigns, to warrant and forever defend all
and singular Defensible Title (hereinafter defined) to the
Subject Interests, unto Assignee, its successors and assigns,
against every person whomsoever lawfully claiming or to claim
the same or any part thereof, by, through or under Assignor,
but not otherwise, subject, however, to the Permitted
Encumbrances (hereinafter defined). As used herein, the term
"Defensible Title" shall mean, respectively, as to the Subject
Interest or Subject Interests related to a particular
Property Subdivision, title to such Property Subdivision and
the Subject Interest or Subject Interests related to such
Property Subdivision, that: (i) entitles Assignor to receive not
less than the applicable Net Revenue Interest or Net Revenue
Interests specified for such Property Subdivision in the
Property Schedule; (ii) obligates Assignor to bear the costs
and expenses relating to the maintenance, development and
operation of such Property Subdivision in an amount not
greater than the applicable Working Interest or Working
Interests specified for such Property Subdivision in the
Property Schedule unless Assignor's Net Revenue Interest
therein is proportionately increased; and (iii) except
for Permitted Encumbrances, is free and clear of liens and
encumbrances. Recourse for breach
Page - 3 - of Exhibit 8.3
<PAGE>
of the foregoing special warranty of title shall be limited
to a return of the purchase price allocated to the Subject
Interest with respect to which such warranty has been breached
in accordance with Section 6.2(b) of the Agreement, without
interest thereon.
(b) EXCEPT FOR THE SPECIAL WARRANTY OF TITLE SET
FORTH HEREIN, THE ASSETS ARE ASSIGNED TO ASSIGNEE "AS IS
AND WHERE IS" AND WITH ALL FAULTS AND WITHOUT WARRANTY OR
REPRESENTATION OF ANY KIND OR CHARACTER, EITHER EXPRESS OR
IMPLIED. ASSIGNOR FURTHER HEREBY (I) EXPRESSLY DISCLAIMS
AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE, RELATING TO
(A) THE CONDITION OF THE ASSETS (INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS) OR (B) ANY INFRINGEMENT BY
ASSIGNOR OR ANY OF ITS AFFILIATES OF ANY PATENT OR
PROPRIETARY RIGHT OF ANY THIRD PARTY; AND (II) NEGATES ANY
RIGHTS OR ASSIGNEE UNDER STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION AND ANY CLAIMS BY ASSIGNEE FOR DAMAGES BECAUSE OF
DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING THE INTENTION OF
ASSIGNOR AND ASSIGNEE THAT THE ASSETS ARE ACCEPTED BY
ASSIGNEE IN THEIR PRESENT CONDITION AND STATE OF REPAIR.
(c) To the extent transferable, Assignee shall be
and is hereby subrogated to all covenants and warranties
of title by parties (other than Assignor) heretofore given or
made to Assignor or its predecessors in title in respect to any
of the Assets.
Section 2.2 Permitted Encumbrances. The Assets
are assigned and conveyed by Assignor and accepted by Assignee
expressly subject to the following (the "Permitted
Encumbrances"):
(a) all agreements, instruments,
documents, liens, encumbrances, and other matters
which are described in Schedule A-2;
(b) any (i) undetermined or inchoate
liens or charges constituting or securing the payment
of expenses which were incurred incidental to
maintenance, development, production or operation of the
Assets or for the purpose of developing, producing or
processing oil, gas or other hydrocarbons therefrom or
therein and (ii) materialman's, mechanics', repairman's,
employees', contractors', operators' or other similar
liens, security interests or charges for liquidated amounts
arising in the ordinary course of business incidental to
construction, maintenance, development, production or
operation of the Assets or the production or processing
of oil, gas or other hydrocarbons therefrom, that are
not delinquent and that will be paid in the ordinary course of
business or, if delinquent, that are being contested in
good faith;
Page - 4 - of Exhibit 8.3
<PAGE>
(c) any liens for Taxes not yet delinquent
or, if delinquent, that are being contested in good
faith in the ordinary course of business;
(d) any liens or security interest created by
Law or reserved in oil, gas and/or mineral leases for
royalty, bonus or rental or for compliance with the
terms of the Subject Interests;
(e) all Preference Rights and Transfer
Requirements;
(f) any easements, rights-of-way,
servitudes, permits, licenses, surface leases and
other rights with respect to surface operations to
the extent such matters do not interfere in any material
respect with Assignee's operation of the portion of the Assets
burdened thereby;
(g) any prohibitions or restrictions
similar to those contained in Article VIII.D. of the
A.A.P.L. Form 610-1982 Model Form Operating Agreement
and any contribution obligations under provisions
similar to Article VII.B. of said Model Form Operating Agreement;
(h) all agreements and obligations relating to
imbalances with respect to the production,
transportation or processing of gas or calls or purchase
options on oil or gas production;
(i) all royalties, overriding
royalties, net profits interests, carried interests,
reversionary interests and other burdens to the extent
that the net cumulative effect of such burdens, as to a
particular Property Subdivision, does not operate to reduce
the Net Revenue Interest of Assignor in such Property
Subdivision as specified in the Property Schedule;
(j) all obligations by virtue of a prepayment,
advance payment or similar arrangement under any
contract for the sale of gas production, including
by virtue of "take-or-pay" or similar provisions, to
deliver gas produced from or attributable to the Subject
Interests after the Effective Time without then or
thereafter being entitled to receive full payment
therefor;
(k) all liens, charges, encumbrances,
contracts, agreements, instruments, obligations,
defects, irregularities and other matters affecting
any Asset which individually or in the aggregate are not such
as to interfere materially with the operation, value or
use of such Asset;
(l) any encumbrance, title defect or other
matter (whether or not constituting a Title Defect)
waived or deemed waived by Assignee pursuant to Article
VI of the Agreement;
Page - 5 - of Exhibit 8.3
<PAGE>
(m) rights reserved to or vested in any
Governmental Authority to control or regulate any of the
wells or units included in the Assets and all
applicable laws, rules, regulations and orders of such
authorities so long as the same do not decrease Assignor's
Net Revenue Interest below the Net Revenue Interest
shown in the Property Schedule;
(n) the terms and conditions of all contracts
and agreements relating to the Subject Interests,
including, without limitation, exploration
agreements, gas sales contracts, processing agreements,
farmins, farmouts, operating agreements, and rights-of-way
agreements, to the extent such terms and conditions do
not decrease Assignor's Net Revenue Interest below the
Net Revenue Interest shown in the Property Schedule; and
(o) conventional rights of reassignment
requiring notice to the holders of the rights prior
to surrendering or releasing a leasehold interest.
By Assignee's acceptance of this Conveyance, Assignee assumes
and agrees to keep and perform the obligations of Assignor under
the Permitted Encumbrances which accrue from and after the
Effective Time.
ARTICLE III
Miscellaneous
Section 3.1 Further Assurances. Assignor covenants
and agrees to execute and deliver to Assignee all such other
and additional instruments and other documents and will do
all such other acts and things as may be necessary to more
fully assure to Assignee or its successor or assigns all
of the respective properties, rights and interests herein
and hereby granted or intended so to be.
Section 3.2 Successors and Assigns. All of the
provisions hereof shall inure to the benefit of and be binding
upon Assignor and Assignee and their respective successors
and assigns. All references herein to either Assignor or
Assignee shall include their respective successors and assigns.
Section 3.3 Counterparts. This Assignment is being
executed in several original counterparts, all of which are
identical, except that, to facilitate recordations, there are
omitted from certain counterparts those property
descriptions in the Property Schedule which contain
descriptions of property located in recording jurisdictions
other than the jurisdiction in which the particular
counterpart is to be recorded. Each such counterpart hereof
shall be deemed to be an original instrument, but all such
counterparts shall constitute but one and the same assignment.
IN WITNESS WHEREOF, the Assignor and Assignee
have caused this Conveyance to be executed on the date of
their respective acknowledgments set forth below, to be
effective, however, as of the Effective Time.
Page - 6 - of Exhibit 8.3
<PAGE>
ASSIGNOR:
ARCH PETROLEUM INC.
By:
_____________________________________
Larry Kalas, President
ASSIGNEE:
ODESSA EXPLORATION
INCORPORATED
By:
_____________________________________
D. Kirk Edwards, President
STATE OF TEXAS ) ) COUNTY OF
___________ )
This instrument was acknowledged before me on April
18, 1996, by Larry Kalas, President of ARCH PETROLEUM INC., a
Delaware corporation, on behalf of said corporation.
- -------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
____________________
STATE OF TEXAS ) ) COUNTY OF MIDLAND )
This instrument was acknowledged before me on April
18, 1996, by D. Kirk Edwards, President of ODESSA
EXPLORATION INCORPORATED, a Delaware corporation, on behalf
of said corporation.
- -------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
____________________
Page - 7 - of Exhibit 8.3
<PAGE>
EXHIBIT "A"
Page - 8 - of Exhibit 8.3
<PAGE>
EXHIBIT 10.2(c)
AFFIDAVIT
STATE OF TEXAS ) ) COUNTY OF HARRIS )
Section 1445 of the Internal Revenue Code provides
that a transferee (buyer) of a U.S. real property interest
must withhold tax if the transferor (seller) is a foreign
person, foreign corporation, foreign partnership, foreign trust
or foreign estate. To inform the transferee (buyer) that the
withholding of taxes is not required upon the disposition of a
U.S. real property interest, before me, the undersigned
authority, on this day personally appeared Larry Kalas,
President of Arch Petroleum Inc., a Delaware corporation, well
known to me to be the person whose name is subscribed hereto,
who being first duly sworn by me, upon oath deposed and stated
as follows:
1. Arch Petroleum Inc. is not a foreign
person, foreign corporation, foreign partnership,
foreign trust or foreign estate (as those terms are
defined in the Internal Revenue Code and Income Tax
Regulations).
2. The U.S. employer's identification number
of Arch Petroleum Inc. is ______________________.
3. The office address of Arch Petroleum
Inc. is 777 Taylor Street, Suite II-A Fort Worth, Texas
76102.
4. I understand that this Affidavit may be
disclosed to the Internal Revenue Service by the
transferee and that any false statement contained herein
could be punished by fine, imprisonment or both.
5. Under penalties of perjury, I declare that
I have examined this Affidavit and to the best of my
knowledge and belief, it is true, correct and complete.
- ---------------------------------------
Larry Kalas
Page - 1 - of Exhibit 10.2(c)
<PAGE>
STATE OF TEXAS ) ) COUNTY OF HARRIS )
Subscribed, sworn to and acknowledged before me, in my
presence, this the ___ day of __________, 1996.
- -------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
__________________
Page - 2 - of Exhibit 10.2(c)
<PAGE>
EXHIBIT A-1
ARBITRATION PROCEDURES
The Arbitration Procedures referred to in the Asset
Purchase Agreement (the "Agreement") to which this Exhibit A-1
is attached shall be as follows:
1. Capitalized terms used herein, and not otherwise herein
defined, shall have the meaning ascribed to such terms
in the Agreement.
2. (a) With respect to unresolved Deferred Adjustment
Claims, on or before the Deferred Matters Date,
Seller and Buyer shall each submit to the other the list
of what such party considers to comprise the remaining
unresolved Deferred Adjustment Claims. The two lists shall
together comprise the "Disputed Issues" relating to
Deferred Adjustment Claims which shall be resolved by
the binding arbitration provided for herein.
(b) If, pursuant to Section 3.4 of the Agreement,
either Buyer or Seller elects to submit any Final
Adjustment Statement disagreements to arbitration, such
disagreements will also constitute "Disputed Issues" to
be resolved by the binding arbitration provided for herein.
3. Seller and Buyer, each being duly authorized by
all necessary corporate, partnership or other
proceedings, if any are applicable, shall submit the
Disputed Issues to binding arbitration by a board of
arbitration to be selected by the following procedures.
Notices hereunder shall be sufficient if sent in
accordance with the terms of the Agreement. With
respect to Disputed Issues involving Deferred
Adjustment Claims, within five (5) days after the Deferred
Matters Date, Seller shall by written notice name one
arbitrator and Buyer shall by written notice name one
arbitrator. With respect to Disputed Issues involving
Final Adjustment Statement disagreements, within five
(5) days after either Buyer or Seller provides the other
party with written notice that such party desires to
submit such Final Adjustment Statement disagreements to
arbitration, Seller shall by written notice name one
arbitrator and Buyer shall by written notice name one
arbitrator. If a party fails to name an arbitrator, the
other party shall by further written notice name the
second arbitrator. The two arbitrators so appointed
shall name the third arbitrator within ten (10) days
after the selection of the second arbitrator. If they fail to
do so, either arbitrator may request the judge of the
United States District Court for the Southern
District of Texas having greatest tenure; but not
yet on retired or senior status, to appoint the third
arbitrator. If that judge fails to do so within thirty (30)
days, either party may request the judge of that
court next senior to name the third arbitrator, and if
that judge fails to do so after ten (10) days, either
party may make the request of the judge of that court next
senior, and so on, until the board of arbitration is
constituted. With respect to Disputed Issues involving
Deferred Adjustment Claims, each of the arbitrators
shall be knowledgeable about matters affecting title to
oil and gas properties in the state or other jurisdiction in
which
Page - 1 - of Exhibit A-1
<PAGE>
such properties are located, by virtue of
managerial, land property administration, legal or
judicial experience. With respect to Disputed Issues
involving Final Adjustment Statement disagreements, each of the
arbitrators shall be knowledgeable about oil and gas
related accounting matters. In addition, the third
arbitrator, in each case, shall be required to meet
the qualification requirements of the Commercial
Arbitration Rules of the American Arbitration Association
(the "AAA Rules"), whether appointed by the arbitrators
or by a judge as provided above.
4. If prior to rendering a decision an arbitrator
resigns or becomes unable to serve, the arbitrator
shall be replaced as follows. If that arbitrator was
one of the two arbitrators appointed by the parties, the
party that names him or her shall name a replacement;
provided, however, that if that replacement is not
named within five (5) days from notice of resignation
or inability to serve, the other party shall name a
replacement. If he or she was the third arbitrator, the other
two arbitrators shall name a replacement; provided,
however, that if they fail to agree on a replacement
within ten (10) days, either arbitrator may follow
the procedures specified in Paragraph 3 above and
request judicial appoint of the replacement.
5. No party subject to these Arbitration Procedures
will commence or prosecute any suit or action
against another party subject to these Arbitration
Procedures relating to the Disputed Issues, other than as
may be necessary to compel arbitration under these
Arbitration Procedures or to enforce the award of the
board of arbitration.
6. The board of arbitration may in all matters act
through a majority of its members on each matter if
unanimity is not attained. It shall not be necessary
that the same majority agree on each and every item; that
is, the parties will be bound by majority rulings on each
Disputed Issue even though the majority is not the
same as to each Disputed Issue. In fulfilling their
duties hereunder with respect to Deferred Adjustment
Claims, each of the arbitrators shall be bound by the
matters set forth in Article VI of the Agreement. The
arbitrators shall not add any interest factor
reflecting the time value of money to any title Defect
Amount.
7. No matters whatsoever, other than the Disputed
Issues, are subject to the agreement to arbitrate
embodied in these Arbitration Procedures. The board of
arbitration shall be empowered hereunder solely to resolve
the Disputed Issues. The board of arbitration shall not
have any authority to award punitive damages. The sole
forum for the arbitration shall be Harris County,
Texas and all hearings shall be conducted in Harris
County, Texas.
8. The decision of the board of arbitration shall be
rendered in writing and shall be final and binding
upon the parties as to the Disputed Issues. The
expenses of arbitration, including reasonable compensation
to the third arbitrator, shall be borne equally by the
parties. Each party shall bear the compensation and
expenses of its own counsel, witnesses and employees
and of any arbitrator it has appointed. If the
Page - 2 - of Exhibit A-1
<PAGE>
testimony of a witness is obtained by both
parties, the costs associated with obtaining such
testimony shall be borne equally between the parties.
9. Matters not specifically provided for in the
Arbitration Procedures shall be governed by the AAA
Rules.
Page - 3 - of Exhibit A-1
<PAGE>
REGISTRATION RIGHTS AGREEMENT
among
KEY ENERGY GROUP, INC.
MCMAHAN SECURITIES CO. L.P.
and
RAUSHER PIERCE REFSNES, INC.
DATED AS OF JULY 3, 1996
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is
entered into as of July 3, 1996, among KEY ENERGY GROUP,
INC., a Maryland corporation (the "Company"), McMAHAN
SECURITIES CO. L.P., a Delaware limited partnership
("McMahan"), and RAUSCHER PIERCE REFSNES, INC., a Delaware
corporation ("RPRI"; RPRI and McMahan being hereinafter referred
to as the "Initial Purchasers"), who have agreed to purchase the
Company's 7% Convertible Debentures due 2003 (the
"Debentures") pursuant to the Purchase Agreement dated as of
June 27, 1996 among the Company and the Initial Purchasers
(the "Purchase Agreement"). This Agreement is being executed
pursuant to Section 3(i) of the Purchase Agreement. The
Debentures are convertible into shares of the Company's common
stock, par value $.10 per share (the "Common Stock"), under
the terms and conditions set forth in an indenture dated as of
July 3, 1996, between the Company and American Stock Transfer &
Trust Company, as Trustee (the "Indenture").
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, the
following capitalized terms shall have the following meanings:
Broker-Dealer. Any broker or dealer registered under
the Exchange Act.
Business Day. A day other than a Saturday or Sunday
or any federal holiday.
Closing Date. The date of this Agreement.
Commission. The Securities and Exchange Commission.
Damages Payment Date. Each Interest Payment Date. For
purposes of this Agreement, if no Debentures are outstanding,
"Damages Payment Date" shall mean each July 1 and January 1.
Debentures. As defined in the preamble hereto.
Effectiveness Target Date. As defined in Section 3
hereof.
Exchange Act. The Securities Exchange Act of 1934, as
amended.
Holder. A Person who owns, beneficially or
otherwise, Transfer Restricted Securities.
Indemnified Holder. As defined in Section 6(a) hereof.
Indenture. As defined in the preamble hereto.
Initial Purchasers. As defined in the preamble hereto.
<PAGE>
Interest Payment Date. As defined in the Indenture.
Liquidated Damages. As defined in Section 3 hereof.
NASD. National Association of Securities Dealers, Inc.
Person. An individual, partnership, corporation,
unincorporated organization, limited liability company, trust,
joint venture or a government or agency or political subdivision
thereof.
Prospectus. The prospectus included in a Registration
Statement, as amended or supplemented by any prospectus
supplement and by all other amendments thereto, including
post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder. With respect to any Damages Payment
Date, each Person who is a Holder on the record date with
respect to the Interest Payment Date on which such Damages
Payment Date shall occur. In the case of a Holder of shares of
Common Stock issued upon conversion of the Debentures, "Record
Holder" shall mean each Person who is a Holder of shares of
Common Stock which constitute Transfer Restricted
Securities on the June 15 or December 15 immediately
preceding the Damages Payment Date.
Registration Default. As defined in Section 3(a)
hereof.
Registration Statement. The registration for
resale of Transfer Restricted Securities pursuant to the
Shelf Registration Statement, which is filed pursuant to the
provisions of this Agreement, in each case, including the
Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Securities Act. The Securities Act of 1933, as amended.
Shelf Filing Deadline. As defined in Section 2 hereof.
Shelf Registration Statement. As defined in Section 2
hereof.
TIA. The Trust Indenture Act of 1939 (15 U.S.C.
Section 77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities. Each share of Common
Stock issued upon conversion of Debentures until the earlier
of (a) the date on which such share of Common Stock issued upon
conversion has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf
Registration Statement, (b) the date on which such share of
Common Stock issued upon conversion is distributed to the
public pursuant to Rule 144 under the Securities Act or
(c) the date on which such share of Common Stock issued upon
conversion may be sold or transferred pursuant to Rule
144(k) (or any other similar provision then in force).
2
<PAGE>
Underwritten Registration or Underwritten Offering. A
registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
2. Shelf Registration.
(a) The Company shall: (i) as soon as practicable,
but not later than nine months after the date hereof (the
"Shelf Filing Deadline"), cause to be filed a shelf
registration statement pursuant to Rule 415 under the
Securities Act (the "Shelf Registration Statement"), which
Shelf Registration Statement shall provide for resales of all
Transfer Restricted Securities held by Holders that have
provided the information required pursuant to Section 2(b)
hereof; (ii) use its best efforts to cause such Shelf
Registration Statement to be declared effective by the
Commission on or before one year after the date hereof; and
(iii) use its best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended as
required by the provisions of Section 4(b) hereof to the extent
necessary to ensure that it is available for resales by the
Holders of Transfer Restricted Securities entitled to the
benefit of this Agreement, and to ensure that it conforms with
the requirements of this Agreement, the Securities Act and the
policies, rules and regulations of the Commission as announced
from time to time, for a period of at least three years
following the Closing Date or such shorter period that will
terminate when all Transfer Restricted Securities covered by
the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement.
(b) No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf
Registration Statement pursuant to this Agreement unless and
until such Holder furnishes to the Company in writing, within 10
Business Days after receipt of a request therefor, such
information as the Company may reasonably request for use
in connection with such Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein and in any
application to be filed with or under state securities
laws. No Holder of Transfer Restricted Securities shall be
entitled to Liquidated Damages pursuant to Section 3 hereof
unless and until such Holder shall have provided all such
reasonably requested information. Each Holder as to which any
Shelf Registration Statement is being effected agrees to
furnish promptly to the Company all information required
to be disclosed in order to make the information
previously furnished to the Company by such Holder not
materially misleading.
3. Liquidated Damages.
(a) If the Shelf Registration Statement required by
this Agreement (i) is not filed with the Commission on or before
the date specified for such filing in Section 2(a)(i) hereof,
(ii) has not been declared effective by the Commission
on or before the date specified for such effectiveness in
Section 2(a)(ii) hereof (the "Effectiveness Target Date"),
or (iii) subject to the provisions of Section 4(b)(i) below, is
filed and declared effective but, during the period specified in
Section 2(a)(ii) hereof, shall thereafter cease to be
effective or fail to be usable for its intended purpose without
being succeeded within 15 Business Days by a post-effective
amendment to such Registration Statement that cures such
failure and that is itself immediately declared effective
(each such event referred to in foregoing clauses (i) through
(iii), a
3
<PAGE>
"Registration Default"), the Company hereby agrees to pay
liquidated damages ("Liquidated Damages") to (A) each holder
of Debentures with respect to any period during which a
Registration Default shall have occurred and be
continuing, in an amount equal to one and one-half percent
(150 basis points) per annum per $1,000 principal amount of
Debentures held by such Holder; and (B) each Holder of shares of
Common Stock issued upon conversion of Debentures with respect
to any period in which a Registration Default shall have
occurred and be continuing, in an amount equal to $.07 per
annum per share of Common Stock, subject to adjustment in the
event of stock splits, stock recombinations, stock dividends
and the like.
(b) All accrued Liquidated Damages shall be paid
to holders of Debentures or Record Holders by the Company on
each Damages Payment Date by wire transfer of immediately
available funds or by federal funds check. Following the cure of
all Registration Defaults relating to any particular Debenture
or share of Common Stock, the accrual of Liquidated
Damages with respect to such Debenture or share of Common
Stock will cease.
4. Registration Procedures.
(a) In connection with the Shelf Registration
Statement, the Company shall comply with all the provisions
of Section 4(b) below and shall use its best efforts to effect
such registration to permit the sale of the Transfer
Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof, and,
pursuant thereto, the Company will as expeditiously as
possible prepare and file with the Commission a Shelf
Registration Statement relating to the registration on any
appropriate form under the Securities Act.
(b) In connection with the Shelf Registration
Statement and any Prospectus required by this Agreement to
permit the sale or resale of Transfer Restricted Securities, the
Company shall:
(i) Use its best efforts to keep such
Registration Statement continuously effective during the
period required by this Agreement; upon the occurrence of any
event that would cause any such Registration Statement or the
Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not be effective and usable for
resale of Transfer Restricted Securities during the period
required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement, in the
case of clause (A), correcting any such misstatement or
omission, and, in the case of either clause (A) or (B), use
its reasonable best efforts to cause such amendment to be
declared effective and such Registration Statement and the
related Prospectus to become usable for their intended
purposes as soon as practicable thereafter. Notwithstanding
the foregoing, if the Board of Directors of the Company
determines in good faith that it is in the best interests of
the Company not to disclose the existence of or facts
surrounding any proposed or pending material corporate
transaction involving the Company, the Company may allow the
Shelf Registration Statement to fail to be effective and
usable as a result of such nondisclosure for (1) a period not
to exceed 30 days in any three month period or (2) two periods
not to exceed an aggregate of 60 days in any twelve month
period.
4
<PAGE>
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to the Registration
Statement as may be necessary to keep the Registration
Statement effective for the period set forth in Section
2(a)(ii) hereof or such shorter period as will terminate
when all Transfer Restricted Securities covered by such
Registration Statement have been sold; cause the Prospectus to
be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the
Securities Act, and to comply fully with the applicable
provisions of Rules 424 and 430A under the Securities Act in a
timely manner; and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered
by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution
by the sellers thereof set forth in such Registration Statement
or supplement to the Prospectus.
(iii) Advise the underwriter(s), if any, and selling
holders promptly (but in any event within two Business Days)
and, if requested by such Persons, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and,
with respect to any Registration Statement or any
post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments
to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement
under the Securities Act or of the suspension by any state
securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any
of the preceding purposes, (D) of the existence of any fact
or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any
document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the
Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission
or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification
of the Transfer Restricted Securities under state securities or
Blue Sky laws, the Company shall use its reasonable best
efforts to obtain the withdrawal or lifting of such order at
the earliest possible time.
(iv) Furnish to each of the selling holders
and each of the underwriter(s), if any, before filing
with the Commission, copies of any Registration Statement
or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus
(including, upon request in writing, all documents
incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to
the review of such holders and underwriter(s), if any, for
a period of at least three Business Days, and the Company
will not file any such Registration Statement or Prospectus
or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents
incorporated by reference) to which a selling holder of
Transfer Restricted Securities covered by such Registration
Statement or the underwriter(s), if any, shall, upon advice of
its counsel, reasonably object within three Business Days after
the receipt thereof.
5
<PAGE>
A selling holder or underwriter, if any, shall be deemed to
have reasonably objected to such filing if such Registration
Statement, amendment, Prospectus or supplement, as applicable,
as proposed to be filed, contains a material misstatement
or omission.
(v) Promptly before the filing of any document
that is to be incorporated by reference into a
Registration Statement or Prospectus, (A) provide copies
of such document to the selling Holders and to the
underwriter(s), if any, (B) make the Company's
representatives available for discussion of such document and
other customary due diligence matters, and (C) include such
information in such document before the filing thereof as
such selling Holders or underwriter(s), if any, reasonably may
request.
(vi) Make available at reasonable times for
inspection by the selling Holders, any underwriter
participating in any distribution pursuant to such
Registration Statement, and any attorney or accountant retained
by such selling Holders or any of the underwriter(s), all
financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's officers,
directors, managers and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney
or accountant in connection with such Registration Statement
after the filing thereof and before its effectiveness.
(vii) If requested by any selling Holders or the
underwriter(s), if any, promptly incorporate in any
Registration Statement or Prospectus, pursuant to a supplement
or post-effective amendment if necessary, such information as
such selling Holders and underwriter(s), if any, may reasonably
request to have included therein, including, without
limitation, information relating to the "Plan of Distribution"
of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted
Securities being sold to such underwriter(s), the purchase
price being paid therefor and any other terms of the offering
of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable
after the Company is notified of the matters to be incorporated
in such Prospectus supplement or post-effective amendment.
(viii) Furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of
the Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits
(including exhibits incorporated therein by reference).
(ix) Deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of
the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons reasonably
may request; the Company hereby consents to the use of the
Prospectus and any amendment or supplement thereto by each of
the selling Holders and each of the underwriter(s), if any, in
connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment
or supplement thereto.
(x) Whether or not an underwriting agreement is
entered into and whether or not the registration is an
Underwritten Registration, the Company shall: (A) upon
request, furnish to each selling Holder and each underwriter, if
any, in such substance and scope as they may reasonably request
and as are
6
<PAGE>
customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of effectiveness of
the Shelf Registration Statement: (1) a certificate, dated
the date of effectiveness of the Shelf Registration
Statement, signed by (y) the President and (z) the Chief
Financial Officer of the Company confirming, as of the date
thereof, the matters set forth in Section 5(b) of the Purchase
Agreement and such other matters as such parties may
reasonably request; (2) an opinion, dated the date of
effectiveness of the Shelf Registration Statement, of counsel
for the Company covering the matters set forth in Section
5(a)(1) of the Purchase Agreement; and (3) customary comfort
letters, dated as of the date of effectiveness of the
Shelf Registration Statement from the Company's independent
accountants, in the customary form and covering matters of
the type customarily covered in comfort letters by
underwriters in connection with primary underwritten offerings;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification
provisions and procedures of Section 6 hereof with respect to
all parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance
with clause (A) above and with any customary conditions
contained in the underwriting agreement or other agreement
entered into by the pursuant to this clause (xi).
(xi) Before any public offering of Transfer
Restricted Securities, cooperate with the selling Holders,
the underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue
Sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may reasonably request and do any and
all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted
Securities covered by the Shelf Registration Statement;
provided, however, that the Company shall not be required to
register or qualify as a foreign corporation where it is not
now so qualified or to take any action that would subject
it to the service of process, in any jurisdiction where they are
not now so subject.
(xii) Cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing
Transfer Restricted Securities to be sold and not bearing
any restrictive legends; and enable such Transfer Restricted
Securities to be in such denominations and registered in
such names as the Holders or the underwriter(s), if any,
may request at least two Business Days before any sale of
Transfer Restricted Securities made by such underwriter(s).
(xiii) Use its reasonable best efforts to cause the
Transfer Restricted Securities covered by the Registration
Statement to be registered with or approved by such other
U.S. governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the
underwriter(s), if any, to consummate the disposition of such
Transfer Restricted Securities.
(xiv) Subject to Section 4(b)(i) above, if any
fact or event contemplated by Section 4(b)(iii)(D) above shall
exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by
reference or file any other required document so that, as
thereafter delivered to the purchasers of Transfer Restricted
Securities, the Prospectus will not contain an untrue
7
<PAGE>
statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(xv) Cooperate and assist in any filings required to
be made with the NASD and in the performance of any due
diligence investigation by any underwriter that is required
to be retained in accordance with the rules and regulations
of the NASD.
(xvi) Otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the
Commission, and make generally available to its security
holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not
be audited) for the twelve-month period (A) commencing at the
end of any fiscal quarter in which Transfer Restricted
Securities are sold to underwriters in a firm or best
efforts Underwritten Offering or (B) if not sold to
underwriters in such an offering, beginning with the first
month of the Company's first fiscal quarter commencing after
the effective date of the Registration Statement.
(xvii) If required, cause the Indenture to be
qualified under the TIA not later than the effective date of
the first Registration Statement required by this Agreement,
and, in connection therewith, cooperate, with the trustee and
the holders of Debentures to effect such changes to the
Indenture as may be required for such Indenture to be so
qualified in accordance with the terms of the TIA; and execute
and use its reasonable best efforts to cause the trustee
thereunder to execute all documents that may be required to
effect such changes and all other forms and documents required
to be filed with the Commission to enable such Indenture to be
so qualified in a timely manner.
(xviii) Cause all Transfer Restricted Securities
covered by the Registration Statement to be listed on each
securities exchange on which securities of the same class
issued by the Company are then listed.
(xix) Provide promptly to each Holder upon
written request each document filed with the Commission
pursuant to the requirements of Section 13 and Section 15 of
the Exchange Act after the Effective Date of the Registration
Statement.
(c) Each Holder agrees by acquisition of a Transfer
Restricted Security that, upon receipt of any notice from the
Company of the existence of any fact of the kind described in
Section 4(b)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 4(b)(xv) hereof, or until it
is advised in writing (the "Advice") by the Company that the
use of the Prospectus may be resumed, and has received
copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus. If so directed by
the Company, each Holder will deliver to the Company (at
the Company's expense) all copies, other than permanent file
copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current
at the time of receipt of such notice.
8
<PAGE>
5. Registration Expenses.
(a) All expenses incident to the Company's performance
of or compliance with this Agreement will be borne by the
Company regardless of whether a Registration Statement
becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings
made by any Initial Purchasers or Holders with the NASD (and, if
applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel that may be required
by the rules and regulations of the NASD)); (ii) all
reasonable fees and expenses of compliance with federal
securities and state Blue Sky or securities laws; (iii) all
expenses of printing (including printing of Prospectuses),
messenger and delivery services and telephone; (iv) all fees
and disbursements of counsel for the Company and, subject to
Section 5(b) below, the Holders of Transfer Restricted
Securities; (v) all application and filing fees in
connection with listing of the Common Stock issued upon
conversion of the Debentures on a national securities
exchange or automated quotation system pursuant to the
requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company
(including the expenses of any special audit and comfort
letters required by or incident to such performance), but
specifically excluding (a) fees and expenses of counsel to the
underwriter(s), if any (other than fees and expenses set
forth in clauses (i) and (ii) above), (b) underwriting
discounts and commissions and (c) transfer fees and taxes if
any, relating to the sale and disposition of Transfer
Restricted Securities by a selling Holder. The Company will, in
any event, bear its internal expenses (including, without
limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the
expenses of any annual audit and the fees and expenses of any
Person, including special experts, retained by the Company.
(b) In connection with any Registration Statement
required by this Agreement, the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted
Securities being registered pursuant to the Shelf
Registration Statement, as applicable, for the reasonable fees
and disbursements of not more than one counsel chosen by the
Holders of a majority in principal amount of Debentures and
in number of shares of Common Stock issued upon conversion
thereof for whose benefit such Registration Statement is
being prepared.
6. Indemnification and Contribution.
(a) The Company and the Subsidiaries (as defined
in the Purchase Agreement), jointly and severally, agree to
indemnify and hold harmless: (i) each Holder; (ii) each
person, if any, who controls (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act)
any Holder (any of the persons referred to in this clause
(ii) being referred to as a "controlling person"); and (iii)
the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling
person (any person referred to in clause (i), (ii), or
(iii) may hereinafter be referred to as an "Indemnified
Holders"), against any losses, claims, damages or liabilities,
joint or several, to which such Indemnified Holder may
become subject under the Securities Act, the Exchange Act or
otherwise, insofar as any such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon: (i) any untrue statement or alleged untrue
statement of any material fact contained in (A) in any
Registration Statement or Prospectus or in any amendment or
supplement thereto or (B) any application or
9
<PAGE>
other document, or any amendment or supplement thereto,
executed by the Company or any Subsidiary or based upon written
information furnished by or on behalf of the Company or any
Subsidiary filed in any jurisdiction in order to qualify the
Common Stock issued upon conversion of the Debentures under
the securities or "Blue Sky" laws thereof or filed with
the Commission or any securities association or securities
exchange (each an "Application"); or (ii) the omission or
alleged omission to state, in such Registration Statement or
Prospectus or any amendment or supplement thereto, or in any
Application, a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and
will reimburse, as incurred, each Indemnified Holder for
any legal or other expenses reasonably incurred by such
Indemnified Holder or controlling person in connection with
investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage,
liability or action; provided, however, neither the Company
nor any of the Subsidiaries will be liable in any such case to
the extent that any such loss, claim, damage, or liability
is finally judicially determined to arise out of or be based
upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration
Statement or Prospectus or amendment or supplement thereto or
Application in reliance upon and in conformity with
written information furnished to the Company through the
Holders by or on behalf of any Holder (or its related
Indemnified Holder) specifically for use therein. This
indemnity agreement will be in addition to any liability that
the Company and the Subsidiaries may otherwise have to the
Indemnified Holders. The Company and the Subsidiaries shall
not be liable under this Section 6 for any settlement of any
claim or action effected without their consent, which
shall not be unreasonably withheld.
(b) Each Holder, severally and not jointly, will
indemnify and hold harmless each of the Company and each
person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the
Exchange Act against any losses, claims, damages or
liabilities to which the Company or any such controlling
person may become subject under the Securities Act, the Exchange
Act, or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration
Statement or the Prospectus or any amendment or supplement
thereto or any Application or (ii) the omission or the alleged
omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the
Company through the Holders by or on behalf of any Holder or its
related Indemnified Holder specifically for use therein;
and, subject to the limitation set forth immediately
preceding this clause, will reimburse, as incurred, any
legal or other expenses incurred by the Company or any
controlling person in connection with investigating or
defending against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or
action in respect thereof. This indemnity agreement will be in
addition to any liability that any Holder may otherwise
have to the indemnified parties. No Holder shall be liable
under this Section 6 for any settlement of any claim or action
effected without its consent, which shall not
10
<PAGE>
be unreasonably withheld. In no event shall the liability of
any selling Holder hereunder be greater in amount than the
dollar amount of the proceeds received by such Holder upon the
sale of Transfer Restricted Securities giving rise to such
indemnification obligation.
(c) Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action
for which such indemnified party is entitled to
indemnification under this Section 6, such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify the indemnifying
party of the commencement thereof; but the omission so to
notify the indemnifying party (i) will not relieve it from any
liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any
obligations to any indemnified party other than the
indemnification obligation provided in paragraphs (a) and
(b) above. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that
if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with
a conflict of interest, (ii) the defendants in any such
action include both the indemnified party and the
indemnifying party and the indemnified party shall have
been advised by counsel that there may be one or more legal
defenses available to it and other indemnified parties that
are different from or additional to those available to the
indemnifying party or (iii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after notice of the institution of such action,
then, in each such case, the indemnifying party shall not have
the right to direct the defense of such action on behalf of
such indemnified party or parties and such indemnified
party or parties shall have the right to select separate counsel
to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense
thereof and approval by such indemnified party of counsel
appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 6
for any legal or other expenses, other than reasonable costs
of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof, unless (i)
the indemnified party shall have employed separate counsel in
accordance with the proviso to the immediately preceding
sentence (it being understood, however, that in connection
with such action the indemnifying party shall not be liable
for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but
substantially similar actions in the same jurisdiction arising
out of the same general allegations or circumstances, designated
by the Holders in the case of paragraph (a) of this Section 6
or the Company in the case of paragraph (b) of this Section
6, representing the indemnified parties under such
paragraph (a) or paragraph (b), as the case may be, who are
parties to such action or actions) or (ii) the indemnifying
party has authorized in writing the employment of counsel for
the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable
for the costs and expenses of any settlement of such
action effected by such indemnified party without the consent
of the indemnifying party, unless such
11
<PAGE>
indemnified party waived in writing its rights under this
Section 6, in which case the indemnified party may effect such a
settlement without such consent.
(d) In circumstances in which the indemnity agreement
provided for in the preceding paragraphs of this Section 6 is
unavailable or insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages or liabilities
(or actions in respect thereof), each indemnifying party, in
order to provide for just and equitable contribution, shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion
as is appropriate to reflect (i) the relative benefits received
by the Company and the Subsidiaries on the one hand and any
Holder on the other from such Holder's sale of Transfer
Restricted Securities or (ii) if the allocation provided by
the foregoing clause (i) is not permitted by applicable law,
not only such relative benefits but also the relative fault of
the Company and the Subsidiaries on the one hand and such
Holder on the other in connection with the statements or
omissions or alleged statements or omissions that resulted
in such losses, claims, damages or liabilities (or actions in
respect thereof). The relative fault of the parties shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact
relates to information supplied by the Company or the
Subsidiaries on the one hand or such Holder on the other, the
parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate
in the circumstances. The Company, the Subsidiaries and each
Holder of Transfer Restricted Securities agree that it would
not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation or by any other
method of allocation that does not take into account the
equitable considerations referred to in the first sentence of
this paragraph (d). Notwithstanding the provisions of this
Section 6(d), none of the Holders (or any of their related
Indemnified Holders) shall be required to contribute any
amount in excess of the amount by which the total discount
received by such Holder with respect to the Common Stock issued
upon conversion thereof exceeds the amount of any damages
which such Holder has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each
person, if any, who controls any Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the
Exchange Act shall have the same rights to contribution as
such Holder, and each person, if any, who controls the Company
or any Subsidiary within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, shall have
the same rights to contribution as the Company.
7. Rule 144A. The Company hereby agrees with each
Holder, for so long as any Transfer Restricted Securities
remain outstanding, to make available to any Holder or
beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser
of such Transfer Restricted Securities from such Holder or
beneficial owner, the information required by Rule
144A(d)(4) under the Securities Act in order to permit
resales of such Transfer Restricted Securities pursuant to Rule
144A.
12
<PAGE>
8. Participation in Underwritten Registrations.
No Holder may participate in any Underwritten Registration
hereunder unless such Holder (a) agrees to sell such Holder's
Transfer Restricted Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of
attorney, indemnities, underwriting agreements, lockup
letters and other documents required under the terms of such
underwriting arrangements.
9. Selection of Underwriters. The Holders of
Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such
Transfer Restricted Securities in an Underwritten Offering.
In any such Underwritten Offering, the investment banker or
investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a
majority in number of shares of Common Stock included in
such offering; provided, that such investment bankers and
managers must be reasonably satisfactory to the Company.
10. Miscellaneous.
(a) Remedies. The Company agrees that monetary damages
(including the Liquidated Damages contemplated hereby) would
not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this
Agreement other than with respect to Registration Defaults and
hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not,
on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company
has not previously entered into any agreement granting any
registration rights with respect to their securities to any
Person which rights conflict with the provisions hereof. The
rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights
granted to the holders of the Company's securities under any
agreement in effect on the date hereof.
(c) Amendments and Waivers. This Agreement may not be
amended, modified or supplemented, and waivers or consents to
or departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of Holders
of a majority in number of shares of Common Stock as
issuable upon conversion of the Debentures, as the case may be.
(d) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by
hand-delivery, first-class mail (registered or certified,
return receipt requested), telex, telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture or the transfer
agent of the Common Stock, as the case may be; and
13
<PAGE>
(ii) if to the Company:
Key Energy Group, Inc.
255 Livingston Avenue
New Brunswick, New Jersey 08901
With a copy to:
Sullivan & Worcester, LLP
One Post Office Square
Boston, Massachusetts 02109
All such notices and communications shall be deemed
to have been duly given: at the time delivered by hand, if
personally delivered, five Business Days after being
deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if
telecopied; and on the next Business Day, if timely delivered to
an air courier guaranteeing overnight delivery.
(a) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors
and assigns of each of the parties, including without
limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities;
provided, however, that this Agreement shall not inure to the
benefit of or be binding upon a successor or assign of a Holder
unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(b) Counterparts. This Agreement may be executed
in any number of counterparts and by the parties hereto in
separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
(c) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(d) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES
THEREOF.
(e) Severability. If any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the
validity, legality and enforceability of any such
provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired
thereby.
(f) Entire Agreement. This Agreement is intended by
the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein with respect to the
registration rights granted by the Company with respect to
14
<PAGE>
the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
[SIGNATURE PAGE FOLLOWS]
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
KEY ENERGY GROUP, INC.
By:
MCMAHAN SECURITIES CO.
L.P.
By:
RAUSCHER PIERCE REFSNES,
INC.
By:
16
Key Energy Group, Inc.
Subsidiaries of the Registrant
Yale E. Key, Inc.
Key Energy Drilling, Inc. d/b/a Clint Hurt Drilling
Odessa Exploration, Inc.
WellTech Eastern, Inc.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,211
<SECURITIES> 0
<RECEIVABLES> 20,570
<ALLOWANCES> 0
<INVENTORY> 1,957
<CURRENT-ASSETS> 27,481
<PP&E> 96,127
<DEPRECIATION> (8,920)
<TOTAL-ASSETS> 126,222
<CURRENT-LIABILITIES> 24,339
<BONDS> 0
<COMMON> 1,041
0
0
<OTHER-SE> 32,763
<TOTAL-LIABILITY-AND-EQUITY> 126,222
<SALES> 4,175
<TOTAL-REVENUES> 66,478
<CGS> 1,350
<TOTAL-COSTS> 60,903
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,477
<INCOME-PRETAX> 5,575
<INCOME-TAX> 1,888
<INCOME-CONTINUING> 3,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,586
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.44
</TABLE>
