<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON 5-14-97
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 whether the registrant has filed 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 since there was a distribution of securities under a plan confirmed by a
court. Yes X No
Common Shares outstanding at May 14, 1997: 11,894,902
<PAGE>
KEY ENERGY GROUP, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 22
Item 2. Changes in Securities. 22
Item 3. Defaults Upon Senior Securities. 22
Item 4. Submission of Matters to a Vote of Security Holders. 22
Item 6. Exhibits and Reports on Form 8-K. 22
Signatures. 25
- 2 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, June 30,
(Thousands, except share and per share data) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash ............................................................................... $ 11,528 $ 3,240
Restricted cash .................................................................... 3,568 971
Accounts receivable, net ........................................................... 32,073 20,570
Inventories ........................................................................ 2,004 1,957
Prepaid expenses and other current assets .......................................... 2,220 743
--------- ---------
Total Current Assets ................................................................. 51,393 27,481
--------- ---------
Property and Equipment:
Oilfield service equipment ......................................................... 118,287 66,432
Oil and gas well drilling equipment ................................................ 5,945 4,862
Motor vehicles ..................................................................... 1,510 1,159
Oil and gas properties and other related equipment, successful efforts method....... 20,525 17,663
Furniture and equipment ............................................................ 974 716
Buildings and land ................................................................. 7,558 5,295
--------- ---------
154,799 96,127
Accumulated depreciation & depletion ................................................... (16,120) (8,920)
--------- ---------
Net Property and Equipment ............................................................. 138,679 87,207
--------- ---------
Other Assets ......................................................................... 14,471 7,034
--------- ---------
Total Assets ......................................................................... $ 204,543 $ 121,722
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................................... $ 13,802 $ 11,086
Other accrued liabilities .......................................................... 12,480 11,002
Accrued interest ................................................................... 1,292 417
Accrued income taxes ............................................................... 118 53
Deferred tax liability ............................................................. 310 310
Current portion of long-term debt .................................................. 1,430 1,471
--------- ---------
Total Current Liabilities ............................................................ 29,432 24,339
--------- ---------
Long-term debt, less current portion ................................................. 91,102 45,354
Non-current accrued expenses ......................................................... 4,832 4,909
Deferred income taxes ................................................................ 15,117 4,244
Minority interest .................................................................... 1,249 1,252
Stockholders Equity:
Common stock, $.10 par value; 25,000,000 shares authorized, 11,733,134 and 10,413,513
shares issued and outstanding at March 31, 1997 and June 30, 1996, r1,173tively ... 1,041
Additional paid-in capital ......................................................... 47,856 32,763
Retained earnings .................................................................. 13,782 7,820
--------- ---------
Total Stockholders' Equity ........................................................... 62,811 41,624
--------- ---------
Total Liabilities and Stockholders' Equity ........................................... $ 204,543 $ 121,722
========= =========
</TABLE>
See the accompanying notes which are an integral part of these consolidated
financial statements.
<PAGE>
Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
(Thousands, except per share data) March 31, 1997 March 31, 1996 March 31, 1997 March 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Oilfield services $38,308 $11,916 $97,327 $31,064
Oil and gas 2,250 1,016 5,863 2,743
Oil and gas well drilling 2,414 1,370 7,097 5,029
Other revenues, net 78 - 422 258
- -----------------------------------------------------------------------------------------------------------------------------------
43,050 14,302 110,709 39,094
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COSTS AND EXPENSES:
Oilfield services 26,502 8,655 69,268 22,808
Oil and gas 899 316 2,185 935
Oil and gas well drilling 2,061 1,151 5,905 3,886
Depreciation, depletion and amortization 3,250 1,146 7,687 2,940
General and administrative 4,914 1,219 12,176 3,609
Interest 1,861 571 4,507 1,448
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39,487 13,058 101,728 35,626
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 3,563 1,244 8,981 3,468
Minority interest in net income (9) 18 (1) 18
Income tax expense 1,207 399 3,020 1,129
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $2,365 $827 $5,962 $2,321
===================================================================================================================================
EARNINGS PER SHARE:
Primary:
Income before income taxes and minority interest $0.28 $0.18 $0.76 $0.50
Net income $0.19 $0.12 $0.51 $0.33
Assuming full dilution:
Income before income taxes and minority interest $0.25 $0.18 $0.69 $0.50
Net income $0.17 $0.12 $0.46 $0.33
===================================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 12,572 6,981 11,737 6,981
Assuming full dilution 17,977 6,986 17,304 6,986
===================================================================================================================================
</TABLE>
See the accompanying notes which are an integral part of these consolidated
financial statements.
<PAGE>
Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
(Thousands) March 31, 1997 March 31, 1996 March 31, 1997 March 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,365 $827 $5,962 $2,321
Adjustments to reconcile income from operations to
net cash provided by operations:
Depreciation, depletion and amortization 3,250 1,146 7,687 2,940
Deferred income taxes 1,207 399 3,020 1,129
Minority interest in net income (9) 18 (1) 18
Change in assets and liabilities net of effects from the acquisitions:
(Increase) decrease in accounts receivable (3,462) 26 (7,135) (193)
(Increase) in other current assets (1,253) (184) (1,350) (94)
(Decrease) increase in accounts payable and
accrued expenses (1,541) 191 (4,610) (616)
Increase (decrease) in accrued interest 1,158 (1) 875 22
Increase in accrued taxes - (75) - (125)
Other assets and liabilities 699 (75) (107) (84)
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Net cash provided by operating activities 2,414 2,272 4,341 5,318
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Oilwell service operations (3,108) (878) (9,057) (2,605)
Capital expenditures - Oil and gas operations (1,623) - (2,639) (7)
Capital expenditures - Oil and gas well drilling operations (485) (90) (1,076) (450)
Cash received in acquisitions 365 - 415 -
Acquisitions - oilwell service operations (8,859) - (22,137) -
Expenditures for oil and gas properties - (382) (281) (2,532)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (13,710) (1,350) (34,775) (5,594)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt (200) (259) (1,253) (1,677)
Cash received from purchase of WellTech, Inc. - 1,168 - 1,168
Borrowings under line-of-credit 1,980 41 3,287 13
Proceeds from exercised stock options - - 58 -
Proceeds from exercised warrants 375 - 375 -
Proceeds from long-term debenture, net - - 50,440 -
Repayment of long-term debt (1,675) - (37,088) -
Proceeds from long-term debt - other 15,000 476 25,500 2,800
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 15,480 1,426 41,319 2,304
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and restricted cash 4,184 2,348 10,885 2,028
Cash and restricted cash at beginning of period 10,912 955 4,211 1,275
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and restricted cash at end of period $15,096 $3,303 $15,096 $3,303
==================================================================================================================================
Supplemental cash flow disclosures:
Interest paid $703 $434 $3,632 $1,288
</TABLE>
See the accompanying notes which are an integral part of these consolidated
financial statements.
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
The consolidated financial information in this report includes the accounts of
Key Energy Group, Inc. (the "Company") and its wholly-owned subsidiaries and was
prepared in conformity with accounting policies used in the Annual Report on
Form 10-K furnished for the preceding fiscal year.
As of May 14, 1997, the Company operates 415 well service and workover rigs in
the United States, which is the third largest fleet of well service and workover
rigs in the United States. The Company operates in Texas, Oklahoma, New Mexico,
Michigan and the Appalachian Basin and is a leader in each of its domestic
markets. The Company generally provides a full range of maintenance and workover
rig services to oil and gas producers in each of its operating regions. These
services also 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, storage and disposal, and fishing
tools and services. The Company also is engaged in the production of oil and
natural gas and contract drilling in the Permian Basin of West Texas. In
addition, the Company operates ten workover rigs and three drilling rigs in
Argentina.
The Company conducts its operations primarily 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 July 1996, the Company completed the offering of $52,000,000 of 7%
convertible subordinated debentures due 2003 (the "Offering"). The Offering was
a private offering pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"). Proceeds from the Offering were used to
substantially repay existing long-term debt (approximately $35.4 million). The
remaining proceeds, together with proceeds from borrowings under existing credit
arrangements, were used to fund the expansion of the Company's operations
through acquisitions of businesses and assets and for working capital and
general corporate purposes. See Note 3 for a more detailed description of the
Offering.
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 based on proved reserves expressed as net equivalent
barrels as reviewed by independent petroleum engineers. 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.
- 6 -
<PAGE>
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.
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position as of March 31, 1997, the statement of
cash flows for the three and nine months ended March 31, 1997 and 1996, and the
results of operations for the three and nine month periods then ended.
2. BUSINESS AND PROPERTY ACQUISITIONS
Since June 30, 1996, the Company has completed seventeen acquisitions of
unrelated oilwell service businesses or assets.
Acquisitions Completed after March 31, 1997
The following described acquisitions completed after March 31, 1997, are not
included in the Company's results of operations for the three and nine months
ended March 31, 1997.
Wireline and Excavation Assets
On May 1, 1997, the Company completed its acquisition of ten wireline units and
related equipment for approximately $600,000 in cash. These assets will be
operated in West Virginia by the WellTech Eastern Division of WellTech Eastern.
On May 5, 1997, the Company completed its acquisition of several dump trucks and
related excavation equipment for $410,000 in cash. These assets will be operated
in Michigan by the WellTech Eastern Division of WellTech Eastern.
Shreve's Well Service
On April 18, 1997, the Company completed its acquisition of the assets of
Shreve's Well Service, Inc. ("Shreve's") which operated in West Virginia.
Shreve's assets were acquired for $550,000 in cash and included five well
service rigs and related equipment. The Shreve's assets will be operated by the
WellTech Eastern Division of WellTech Eastern.
Argentine Drilling Rigs
On April 16, 1997, the Company acquired three drilling rigs and related
equipment in Argentina from Drillers, Inc. for $1.5 million in cash. The
drilling rigs will be operated by WellTech Servicios, the Company's Argentine
subsidiary.
Diamond Well Service
On April 3, 1997, the Company completed the acquisition of the assets of Diamond
Well Service, Inc. ("Diamond") for $675,000 in cash. The Diamond assets included
four oilwell service rigs and related equipment in Oklahoma. The Diamond assets
will be operated by the WellTech Mid-Continent Division of WellTech Eastern.
- 7 -
<PAGE>
Acquisitions Completed During the Nine Months Ended March 31, 1997
T.S.T. Paraffin Service Co., Inc.
On March 27, 1997, the Company completed the acquisition of T.S.T. Paraffin
Service Co., Inc. ("TST") for $8.7 million in cash. TST operates approximately
61 trucks, 22 hot oil units and other related equipment in west Texas. TST will
be operated by the Company's West Texas subsidiary: Yale E. Key, Inc. The
operating results of TST will be included in the Company's results of operations
effective April 1, 1997.
Kalkaska Construction Service, Inc. and Elder Well Service, Inc.
On March 31, 1997, the Company completed the acquisition of the assets of
Kalkaska Construction Service, Inc.("KalCon") and Elder Well Service, Inc.
("Elder"), both based in Michigan. The KalCon assets included 40 vacuum (fluid
transport) trucks, 40 trucks used in oilfield equipment hauling, seven saltwater
disposal wells and other oilfield related equipment, and were acquired for
approximately $8.5 million in cash and 77,998 shares of the Company's common
stock. The Elder assets included six oilwell service rigs and related equipment
and were acquired for $609,000 in cash. Both the KalCon and Elder assets will be
operated by the WellTech Eastern Division of WellTech Eastern. The operating
results of KalCon and Elder will be included in the Company's results of
operations effective April 1, 1997.
Tri-State Wellhead & Valve, Inc.
The Company completed its acquisition of the assets of Tri-State Wellhead &
Valve, Inc. ("Tri-State") on March 17, 1997 for $550,000 in cash and 83,770
shares of the Company's common stock. The Tri-State assets consisted of a
wellhead equipment rental business and five oilwell service rigs. These assets
will be operated by the WellTech Mid-Continent Division of WellTech Eastern. The
operating results from these assets will be included in the Company's results of
operations effective April 1, 1997.
Cobra Industries, Inc.
Effective as of January 13, 1997, the Company completed the purchase of Cobra
Industries, Inc. ("Cobra") for $5 million in cash and 175,000 shares of the
Company's common stock. Cobra operates 26 oilwell service rigs in southeastern
New Mexico. The acquisition was accounted for using the purchase method.
Talon Trucking Co.
Effective as of January 7, 1997, the Company completed the acquisition of the
assets of Talon Trucking Co. ("Talon") for $2.7 million in cash. Talon operated
three oilwell service rigs, 21 trucks and related fluid transportation and
disposal assets in Oklahoma, which assets are currently operated by the WellTech
Mid-Continent Division of WellTech Eastern. The acquisition was accounted for
using the purchase method.
B&L Hotshot, Inc.
Effective as of December 13, 1996, the Company completed the acquisition of B&L
Hotshot, Inc. and affiliated entities ("B&L) for $4.9 million in cash. B&L
provides trucking and related services for oil and natural gas wells in
Michigan, which operations are currently conducted by the WellTech Eastern
Division of WellTech Eastern. The acquisition was accounted for using the
purchase method.
- 8 -
<PAGE>
Brooks Well Servicing, Inc.
Effective as of December 4, 1996, the Company completed the acquisition of
Brooks Well Servicing, Inc. ("Brooks") for 917,500 shares of the Company's
common stock. Brooks was a wholly-owned subsidiary of Hunt Oil Company and
operated 32 oilwell service rigs and ancillary equipment in east Texas, which
operations are currently conducted by the WellTech Mid-Continent Division of
WellTech Eastern. The acquisition was accounted for using the purchase method.
Hitwell Surveys, Inc.
Effective as of December 2, 1996, the Company completed the purchase of Hitwell
Surveys, Inc. ("Hitwell") for approximately $1.3 million in cash. Hitwell
operates eight oilwell logging and perforating trucks in the Appalachian Basin
and Michigan. The acquisition was accounted for using the purchase method.
Energy Air Drilling Services Co.
Effective as of November 1, 1996, the Company completed the acquisition of
certain assets of Energy Air Drilling Services Co. ("Energy Air") for $500,000
in cash and 4,386 shares of the Company's common stock. Energy Air operated four
air drilling packages in west Texas, which operations are currently conducted by
Yale E. Key. The acquisition was accounted for using the purchase method.
Brownlee Well Service Inc.
Effective as of October 24, 1996, the Company completed the purchase of Brownlee
Well Service, Inc. ("Brownlee") and Integrity Fishing and Rental Tools Inc.,
("Integrity"). Consideration for the acquisition was $6.5 million in cash and
61,069 shares of the Company's common stock. Brownlee and Integrity operate 16
oilwell service rigs with ancillary equipment and a variety of oilfield fishing
tools in west Texas. The acquisition was accounted for using the purchase
method.
Woodward Well Service, Inc.
Effective as of October 1, 1996, the Company completed the acquisition of
Woodward Well Service, Inc. ("Woodward") for 75,000 shares of the Company's
common stock and approximately $100,000 in cash, most of which is payable over a
four-year period. Woodward operated five oilwell service units in Oklahoma,
which operations are currently conducted by the WellTech Mid-Continent Division
of Welltech Eastern. The acquisition was accounted for using the purchase
method.
Acquisitions Completed Prior to June 30, 1996
Odessa Exploration Properties
In April of 1996, Odessa Exploration purchased approximately $6.9 million in
cash of oil and gas producing properties from an unrelated company using
proceeds from bank borrowings, which indebtedness was subsequently repaid (see
Note 3). The acquisition was accounted for using the purchase method.
WellTech, Inc.
On March 26, 1996, the Company completed the merger of WellTech, Inc.
("WellTech") into the Company. The net consideration for the merger was
3,500,000 shares of the Company's common stock and warrants to purchase 500,000
additional shares of Common Stock at an exercise price of $6.75 per share.
WellTech conducted oil and gas well servicing operations in the Mid-Continent
and Northeast areas of the United States and in Argentina. The acquisition was
accounted for using the purchase method.
- 9 -
<PAGE>
3. LONG-TERM DEBT
On April 7, 1997, the Company announced that it had entered into an agreement by
which Lehman Commercial Paper, Inc. would provide (or arrange to be provided) a
$225 million credit facility, consisting of a $100 million seven-year term loan
and a $125 million five-year revolver. The floating interest rate is expected to
be lower than the Company's current rate on its existing bank debt. The Company
intends to use the proceeds from the facility to: (i) repay existing bank debt;
(ii) make additional acquisitions and capital expenditures; and (iii) provide
working capital. In addition, the credit facility provides, under certain
conditions, for the repurchase of a portion of the Company's outstanding common
stock in the open market from time to time. The credit facility is expected to
be in place before June 30, 1997.
7% Convertible Subordinated Debentures
In July 1996, the Company completed the offering of $52,000,000 of 7%
convertible subordinated debentures due 2003 (the "Offering"). The Offering was
a private offering pursuant to Rule 144A under the Securities Act. Gross
proceeds from the Offering were $52,000,000 and were used to substantially repay
existing long-term debt (approximately $35.4 million). The remaining proceeds
were used to fund the expansion of the Company's operations through acquisitions
of businesses and assets, for working capital and general corporate purposes.
The long-term debt that was repaid with proceeds from the Offering consisted of
(i) indebtedness under the term notes with CIT Group/Credit Finance, Inc.
("CIT") aggregating approximately $21.2 million and (ii) all indebtedness owed
by Odessa Exploration to Norwest Bank Texas, N.A. ("Norwest") totaling
approximately $14.2 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.
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 and unpaid interest thereon.
Pursuant to the terms of the Indenture governing the rights of the holders of
the Offering, the Company was required to obtain Servicios' guarantee of the
Company's indebtedness under the offering and agreed to increase the interest
rate payable on the offering to 7 1/2 % in the event such guarantee was not
obtained. To date, such guarantee has not been obtained, and, therefore, the
Offering is currently accruing interest at a rate of 7 1/2%. The Company made
its first interest payment on December 31, 1996.
- 10 -
<PAGE>
Other Long-term Debt
In March 1997, the Company completed the renegotiation of its credit facilities
with CIT consisting of a line of credit and term loan for each of WellTech
Eastern, Yale E. Key and Clint Hurt. The renegotiated term and credit facilities
include a maximum credit availability of the lesser of (i) $55 million, or (ii)
an amount subject to certain asset valuations determined by CIT. Also, the
re-negotiated term and credit facilities include an interest rate at one-quarter
percent above the stated prime rate, which was 8.25% at March 31, 1997.
The CIT line of credit, as amended, ($14,787,000 approximate balance at March
31, 1997) requires monthly payments of interest and is collateralized by the
accounts receivable of Yale E. Key, Clint Hurt and WellTech Eastern. At March
31, 1997, there was no credit line availability.
The CIT note, as amended, ($25,500,000 approximate balance at March 31, 1997)
requires monthly payments of interest and is collateralized by all of the assets
of Yale E. Key, Clint Hurt and WellTech Eastern. At March 31, 1997, there was
approximately $3.5 million in unused term loan facilities.
In addition to the CIT credit facilities, Odessa Exploration has funded its
operations and acquisitions in part through a credit facility with Norwest. All
amounts previously owed by Odessa Exploration under the Norwest facility were
paid using a portion of the proceeds from the Offering. Effective January 31,
1997, Odessa Exploration completed the renegotiation of the Norwest credit
facility, which, among other things, increased its borrowing base to $18
million, of which $1.2 million had been advanced as of March 31, 1997.
4. IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted FAS 121 effective as of July 1, 1996. FAS 121 requires that
long-lived assets held and used by an entity, including oil and gas properties
accounted for under the successful efforts method of accounting, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Long-lived assets to be
disposed of are to be accounted for at the lower of carrying amount or fair
value less cost to sell when management has committed to a plan to dispose of
the assets. All companies, including successful efforts oil and gas companies,
are required to adopt FAS 121 for fiscal years beginning after December 15,
1995. In order to determine whether an impairment had occurred, the Company
estimated the expected future cash flows of its oil and gas properties and
compared such future cash flows to the carrying amount of the oil and gas
properties to determine if the carrying amount was recoverable. Based on this
process, no writedown in the carrying amount of the Company's proved properties
was necessary at March 31, 1997.
5. 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.
- 11 -
<PAGE>
KEY ENERGY GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
The following discussion and analysis should be read in conjunction with the
Company's audited 10-K for the year ended June 30, 1996. Since June 30, 1996,
the Company has completed seventeen acquisitions of unrelated oilwell
service businesses or assets.
Acquisitions Completed after March 31, 1997
The following described acquisitions completed after March 31, 1997, are not
included in the Company's results of operations for the three and nine months
ended March 31, 1997.
Wireline and Excavation Assets
On May 1, 1997, the Company completed its acquisition of ten wireline units and
related equipment for approximately $600,000 in cash. These assets will be
operated in West Virginia by the WellTech Eastern Division of WellTech Eastern.
On May 5, 1997, the Company completed its acquisition of several dump trucks and
related excavation equipment for $410,000 in cash. These assets will be operated
in Michigan by the WellTech Eastern Division of WellTech Eastern.
Shreve's Well Service
On April 18, 1997, the Company completed its acquisition of the assets of
Shreve's Well Service, Inc. ("Shreve's") which operated in West Virginia.
Shreve's assets were acquired for $550,000 in cash and included five well
service rigs and related equipment. The Shreve's assets will be operated by the
WellTech Eastern Division of WellTech Eastern.
Argentine Drilling Rigs
On April 16, 1997, the Company acquired three drilling rigs and related
equipment in Argentina from Drillers, Inc. for $1.5 million in cash. The
drilling rigs will be operated by WellTech Servicios, the Company's Argentine
subsidiary.
Diamond Well Service
On April 3, 1997, the Company completed the acquisition of the assets of Diamond
Well Service, Inc. ("Diamond") for $675,000 in cash. The Diamond assets included
four oilwell service rigs and related equipment in Oklahoma. The Diamond assets
will be operated by the WellTech Mid-Continent Division of WellTech Eastern.
Acquisitions Completed During the Nine Months Ended March 31, 1997
T.S.T. Paraffin Service Co., Inc.
On March 27, 1997, the Company completed the acquisition of T.S.T. Paraffin
Service Co., Inc. ("TST") for $8.7 million in cash. TST operates approximately
61 trucks, 22 hot oil units and other related equipment in West Texas. TST will
be operated by the Company's west Texas subsidiary: Yale E. Key, Inc. The
operating results of TST will be included in the Company's results of operations
effective April 1, 1997.
- 12 -
<PAGE>
Kalkaska Construction Service, Inc. and Elder Well Service, Inc.
On March 31, 1997, the Company completed the acquisition of the assets of
Kalkaska Construction Service, Inc. ("KalCon") and Elder Well Service, Inc.
("Elder"), both based in Michigan. The KalCon assets included 40 vacuum (fluid
transport) trucks, 40 trucks used in oilfield equipment hauling, seven saltwater
disposal wells and other oilfield related equipment, and were acquired for
approximately $8.5 million in cash and 77,998 shares of the Company's common
stock. The Elder assets included six oilwell service rigs and related equipment
and were acquired for $609,000 in cash. Both the KalCon and Elder assets will be
operated by the WellTech Eastern Division of WellTech Eastern. The operating
results of KalCon and Elder will be included in the Company's results of
operations effective April 1, 1997.
Tri-State Wellhead & Valve, Inc.
The Company completed its acquisition of the assets of Tri-State Wellhead &
Valve, Inc. ("Tri-State") on March 17, 1997 for $550,000 in cash and 83,770
shares of the Company's common stock. The Tri-State assets consisted of a
wellhead equipment rental business and five oilwell service rigs. These assets
will be operated by the WellTech Mid-Continent Division of WellTech Eastern. The
operating results from these assets will be included in the Company's results of
operations effective April 1, 1997.
Cobra Industries, Inc.
Effective as of January 13, 1997, the Company completed the purchase of Cobra
Industries, Inc. ("Cobra") for $5 million in cash and 175,000 shares of the
Company's common stock. Cobra operates 26 oilwell service rigs in southeastern
New Mexico. The acquisition was accounted for using the purchase method.
Talon Trucking Co.
Effective as of January 7, 1997, the Company completed the acquisition of the
assets of Talon Trucking Co. ("Talon") for $2.7 million in cash. Talon operated
three oilwell service rigs, 21 trucks and related fluid transportation and
disposal assets in Oklahoma, which assets are currently operated by the WellTech
Mid-Continent Division of WellTech Eastern. The acquisition was accounted for
using the purchase method.
B&L Hotshot, Inc.
Effective as of December 13, 1996, the Company completed the acquisition of B&L
Hotshot, Inc. and affiliated entities ("B&L) for $4.9 million in cash. B&L
provides trucking and related services for oil and natural gas wells in
Michigan, which operations are currently conducted by the WellTech Eastern
Division of WellTech Eastern. The acquisition was accounted for using the
purchase method.
Brooks Well Servicing, Inc.
Effective as of December 4, 1996, the Company completed the acquisition of
Brooks Well Servicing, Inc. ("Brooks") for 917,500 shares of the Company's
common stock. Brooks was a wholly-owned subsidiary of Hunt Oil Company and
operated 32 oilwell service rigs and ancillary equipment in east Texas, which
operations are currently conducted by the WellTech Mid-Continent Division of
WellTech Eastern. The acquisition was accounted for using the purchase method.
Hitwell Surveys, Inc.
Effective as of December 2, 1996, the Company completed the purchase of Hitwell
Surveys, Inc. ("Hitwell") for approximately $1.3 million in cash. Hitwell
operates eight oilwell logging and perforating trucks in the Appalachian Basin
and Michigan. The acquisition was accounted for using the purchase method.
- 13 -
<PAGE>
Energy Air Drilling Services Co.
Effective as of November 1, 1996, the Company completed the acquisition of
certain assets of Energy Air Drilling Services Co. ("Energy Air") for $500,000
in cash and 4,386 shares of the Company's common stock. Energy Air operated four
air drilling packages in west Texas, which operations are currently conducted by
Yale E. Key. The acquisition was accounted for using the purchase method.
Brownlee Well Service Inc.
Effective as of October 24, 1996, the Company completed the purchase of Brownlee
Well Service, Inc. ("Brownlee") and Integrity Fishing and Rental Tools Inc.,
("Integrity"). Consideration for the acquisition was $6.5 million in cash and
61,069 shares of the Company's common stock. Brownlee and Integrity operate 16
oilwell service rigs with ancillary equipment and a variety of oilfield fishing
tools in west Texas. The acquisition was accounted for using the purchase
method.
Woodward Well Service, Inc.
Effective as of October 1, 1996, the Company completed the acquisition of
Woodward Well Service, Inc. ("Woodward") for 75,000 shares of the Company's
common stock and approximately $100,000 in cash, most of which is payable over a
four-year period. Woodward operated five oilwell service units in Oklahoma,
which operations are currently conducted by the WellTech Mid-Continent Division
of Welltech Eastern. The acquisition was accounted for using the purchase
method.
Acquisitions Completed Prior to June 30, 1996
Odessa Exploration Properties
In April of 1996, Odessa Exploration purchased approximately $6.9 million in
cash of oil and gas producing properties from an unrelated company using
proceeds from bank borrowings, which indebtedness was subsequently repaid (see
Note 3). The acquisition was accounted for using the purchase method.
WellTech, Inc.
On March 26, 1996, the Company completed the merger of WellTech, Inc.
("WellTech") into the Company. The net consideration for the merger was
3,500,000 shares of the Company's common stock and warrants to purchase 500,000
additional shares of Common Stock at an exercise price of $6.75 per share.
WellTech conducted oil and gas well servicing operations in the Mid-Continent
and Northeast areas of the United States and in Argentina. The acquisition was
accounted for using the purchase method.
Other Recent Developments
On April 7, 1997, the Company announced that it had entered into an agreement by
which Lehman Commercial Paper, Inc. would provide (or arrange to be provided) a
$225 million credit facility, consisting of a $100 million seven-year term loan
and a $125 million five-year revolver. The floating interest rate is expected to
be lower than the Company's current rate on its existing bank debt. The Company
intends to use the proceeds from the facility to: (i) repay existing bank debt;
(ii) make additional acquisitions and capital expenditures; and (iii) provide
working capital. In addition, the credit facility provides, under certain
conditions, for the repurchase of a portion of the Company's outstanding common
stock in the open market from time to time. The credit facility is expected to
be in place before June 30, 1997.
- 14 -
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 VERSUS QUARTER ENDED MARCH 31, 1996
The following discussion provides information to assist in the understanding of
the Company's 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 quarter ended March 31, 1997 include the Company's
oilfield well service operations conducted by its wholly-owned subsidiaries,
Yale E. Key, Inc. ("Yale E. Key") and WellTech Eastern, Inc., ("WellTech
Eastern"), 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.
In addition, the Company conducts oilfield service operations in Argentina
through its 63% ownership in Servicios WellTech, S.A. ("Servicios"), an
Argentinean corporation.
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.
The Company
Revenues of the Company for the quarter ended March 31, 1997 increased
$28,748,000 or 201% to $43,050,000 from $14,302,000 for the quarter ended March
31, 1996, while net income of $2,365,000 represented an increase of $1,538,000,
or 186%, from the 1996 quarter total of $827,000. The increase in revenues was
primarily due to increased oilwell service equipment utilization, the
acquisition of the WellTech Eastern operations from the date of acquisition of
March 26, 1996, the additional oilfield service acquisitions acquired (see Note
2 ) and the increased oil and gas revenues from Odessa Exploration. In addition,
the increase in revenues can be attributed to the improvement in general market
conditions in which the Company operates. The increase in quarterly 1997 net
income over the quarterly 1996 net income is partially attributable to the
acquisition of WellTech and the other recent acquisitions, but is also a result
of an increase in oilwell service equipment utilization.
Oilfield Services
The Company's oilfield services operations are performed primarily by Yale E.
Key and WellTech Eastern. Yale E. Key conducts oilfield services in west Texas,
while WellTech Eastern conducts oilfield services in the mid-continent region of
the United States (primarily in Oklahoma and East Texas) through its WellTech
Mid-Continent Division, and in the northeastern United States (primarily in
Michigan, Pennsylvania and West Virginia) through its WellTech Eastern Division.
The Company conducts oilfield services in Argentina through its indirect 63%
ownership in Servicios.
Oilfield service revenues increased $26,392,000, or 221%, from $11,916,000 for
the 1996 quarter to $38,308,000 for the 1997 quarter. 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, and other smaller recent acquisitions, whose operating results are
included for the current quarter but not for the comparable 1996 quarter. In
addition, Yale E. Key diversified oilfield services into higher margin business
segments such as oilfield frac tanks, oilfield fishing tools and trucking
operations.
- 15 -
<PAGE>
Oilfield service expenses increased $17,847,000, or 206%, from $8,655,000 for
the 1996 quarter to $26,502,000 for the current 1997 quarter. The increase was
due primarily to the acquisition of WellTech on March 26, 1996, other smaller
recent acquisitions and the increased demand for oilfield services. In addition,
the Company has continued to expand and diversify its revenue base, offering
ancillary services and equipment such as oilwell fishing tools, blow-out
preventors and oilwell frac tanks.
Oil and Natural Gas Exploration and Production
The Company's oil and natural gas exploration and production operations are
conducted by Odessa Exploration. Revenues from oil and gas activities increased
$1,234,000, or 122%, from $1,016,000 during the quarter ended March 31, 1996 to
$2,250,000 for the current quarter. 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 fiscal 1997, 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 number of oil and natural gas wells owned and/or operated by Odessa
Exploration.
Of the total $2,250,000 of revenues for the quarter ended March 31, 1997,
approximately $1,757,000 was from the sale of oil and gas - 42,604 barrels of
oil at an average price of $20.26 per barrel and 226,305 MCF of natural gas at
an average price of $3.95 per MCF. The remaining $493,000 of revenues
represented primarily administrative fee income and other miscellaneous income.
Expenses related to oil and gas activities increased $583,000, or 185%, from
$316,000 for the 1996 quarter to $899,000 for current 1997 quarter. 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.
Oil and Natural Gas Well Drilling
The Company's oil and natural gas well drilling operations are conducted by
Clint Hurt Drilling. Oil and natural gas well drilling revenues increased
$1,044,000, or 76%, from $1,370,000 for the 1996 quarter to $2,414,000 for the
1997 quarter. The increase in revenues is primarily attributable to higher
equipment utilization and an increase pricing structure. In addition, two
drilling rigs were acquired in the March 1996 merger with WellTech.
Expenses related to oil and natural gas well drilling activities increased
$910,000, or 79%, from $1,151,000 for the 1996 quarter to $2,061,000 for current
1997 quarter. The increase in expenses is attributable to higher equipment
utilization and the addition of two drilling rigs as the result of the WellTech
merger.
Interest Expense
Interest expense increased $1,290,000 or 226% to $1,861,000 for the current 1997
quarter from $571,000 for the 1996 comparable quarter. The increase was
primarily the result of the issuance of $52 million in principal amount of 7%
Convertible Subordinated Debentures, (see Note 3).
General and Administrative Expenses
General and administrative expenses are comprised of the Company's and all
subsidiaries general and administrative expenses. These expenses increased
$3,695,000, or 303%, to $4,914,000 for the current 1997 quarter from $1,219,000
for the comparable 1996 quarter. The increase was primarily attributable to the
Company's recent acquisitions and expanded services.
- 16 -
<PAGE>
Depreciation, Depletion and Amortization Expense
Depreciation, depletion and amortization expense increased $2,104,000, or 184%,
to $3,250,000 for the current 1997 quarter from $1,146,000 for the comparable
1996 quarter. 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.
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 $1,207,000 for current 1997 quarter increased from
$399,000 in income tax expense for the comparable 1996 quarter. 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
$1,207,000 in total federal income taxes for fiscal year 1997, because of the
availability of net operating loss carry-forwards, accelerated depreciation and
drilling tax credits.
Cash Flow
Net cash provided by operating activities was $2,414,000 compared to $2,272,000
during the comparable 1996 quarter. The increase is attributable primarily to
increases in net income.
Net cash used in investing activities increased from $1,350,000 for the
comparable 1996 quarter to $13,710,000 for the current 1997 quarter. The
increase is primarily the result of increased capital expenditures as well as
the Company's recent acquisitions (see Note 2 to the Financial Statements).
Net cash provided by financing activities was $15,480,000 for the current 1997
quarter as compared to $1,426,000 in net cash provided by financing activities
for the comparable 1996 quarter. The increase is primarily the result of the
proceeds from other long-term debt.
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<PAGE>
NINE MONTHS ENDED MARCH 31, 1997 VERSUS NINE MONTHS ENDED MARCH 31, 1996
The Company
Revenues of the Company for the nine months ended March 31, 1997 increased
$71,615,000, or 183%, to $110,709,000 from $39,094,000 for the nine months ended
March 31, 1996, while net income of $5,962,000 represented an increase of
$3,641,000, or 157%, from the 1996 total of $2,321,000. The increase in revenues
was primarily due to increased oilwell service equipment utilization, the
acquisition of the WellTech Eastern operations from the date of acquisition of
March 26, 1996, the additional oilfield service acquisitions acquired (see Note
2 ) and the increased oil and gas revenues from Odessa Exploration. In addition,
the increase in revenues can be attributed to the improvement in general market
conditions in which the Company operates. The increase in 1997 net income over
the 1996 net income is partially attributable to the acquisition of WellTech and
the other recent acquisitions , but is also a result of an increase in oilwell
service equipment utilization.
Oilfield Services
Oilfield service revenues increased $66,263,000, or 213%, from $31,064,000 for
the 1996 period to $97,327,000 for the 1997 nine month period. 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, and other smaller acquisitions, whose operating results are included
for the current period but not for the comparable 1996 period.
Oilfield service expenses increased $46,460,000, or 204%, from $22,808,000 for
the 1996 nine month period to $69,268,000 for the current 1997 comparable
period. The increase was due primarily to the acquisition of WellTech on March
26, 1996, other recent acquisitions and the increased demand for oilfield
services. In addition, the Company has continued to expand and diversify its
revenue base, offering ancillary services and equipment such as oilwell fishing
tools, blow-out preventers and oilwell frac tanks.
Oil and Natural Gas Exploration and Production
Revenues from oil and gas activities increased $3,120,000, or 114%, from
$2,743,000 during the nine months ended March 31, 1996 to $5,863,000 for the
current period. 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 1997, 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.
Of the total $5,863,000 of revenues for the nine months ended March 31, 1997,
approximately $4,849,000 was from the sale of oil and gas - 109,584 barrels of
oil at an average price of $22.97 per barrel and 835,918 MCF of natural gas at
an average price of $2.79 per MCF. The remaining $1,014,000 of revenues
represented primarily administrative fee income and other miscellaneous income.
Expenses related to oil and gas activities increased $1,250,000 or 134% from
$935,000 for the 1996 nine month period to $2,185,000 for current 1997 period.
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 1997 and the April 1996 purchase of $6.9 million in oil and
gas properties.
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<PAGE>
Oil and Natural Gas Well Drilling
Oil and natural gas well drilling revenues increased $2,068,000, or 41%, from
$5,029,000 for the 1996 nine month period to $7,097,000 for the 1997 period. The
increase in revenues is primarily attributable to higher equipment utilization
and an increase pricing structure. In addition, two drilling rigs were acquired
in the March 1996 merger with WellTech.
Expenses related to oil and natural gas well drilling activities increased
$2,019,000, or 52%, from $3,886,000 for the 1996 nine month period to $5,905,000
for the current 1997 period. The increase in expenses is attributable to higher
equipment utilization and the addition of two drilling rigs as the result of the
WellTech merger.
Interest Expense
Interest expense increased $3,059,000, or 211%, to $4,507,000 for the current
1997 nine months from $1,448,000 for the 1996 comparable period. The increase
was primarily the result of the issuance of $52 million in principal amount of
7% Convertible Subordinated Debentures, (see Note 3).
General and Administrative Expenses
General and administrative expenses are comprised of the Company's and all
subsidiaries general and administrative expenses. These expenses increased
$8,567,000, or 237%, to $12,176,000 for the current 1997 nine month period from
$3,609,000 for the comparable 1996 period. 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 $4,747,000, or 161%,
to $7,687,000 for the current 1997 nine month period from $2,940,000 for the
comparable 1996 period. 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. 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 $3,020,000 for current 1997 nine month period increased
from $1,129,000 in income tax expense for the comparable 1996 period. 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 $3,020,000 in total federal income taxes for fiscal year 1997,
because of the availability of net operating loss carryforwards, accelerated
depreciation and drilling tax credits.
Cash Flow
Net cash provided by operating activities decreased $977,000 from $5,318,000
during the comparable 1996 nine month period to $4,341,000 for the current 1997
period. The decrease is attributable primarily to an increase in accounts
receivable and a decrease in accounts payable and accrued expenses.
Net cash used in investing activities increased from $5,594,000 for the
comparable 1996 nine month period to $34,775,000 for the current 1997 period.
The increase is primarily the result of increased capital expenditures and cash
paid for oilwell service acquisitions (see Note 2). These increases are
partially offset by a decrease in expenditures for oil and gas properties.
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<PAGE>
Net cash provided by financing activities was $41,319,000 for the current 1997
nine month period as compared to $2,304,000 in net cash provided by financing
activities for the comparable 1996 period. The increase is primarily the result
of the proceeds from the issuance of the Company's 7% debenture and proceeds
from other long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $11,528,000 in cash as compared to $3,240,000
in cash at June 30, 1996.
The Company has projected $12 million for oilfield service capital expenditures
for fiscal 1997, (revised since December 31, 1996 due to oilwell service
acquisitions), as compared to $5.2 million for fiscal 1996. Oilfield service
capital expenditures for the nine months ended March 31, 1997 of $9.1 million
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.
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 under its Norwest credit
facilities.
Clint Hurt Drilling has forecast approximately $1.5 million 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
Recent Development
On April 7, 1997, the Company announced that it had entered into an agreement by
which Lehman Commercial Paper, Inc. would provide (or arrange to be provided) a
$225 million credit facility, consisting of a $100 million seven-year term loan
and a $125 million five-year revolver. The floating interest rate is expected to
be lower than the Company's current rate on its existing bank debt. The Company
intends to use the proceeds from the facility to: (i) repay existing bank debt;
(ii) make additional acquisitions and capital expenditures; and (iii) provide
working capital. In addition, the credit facility provides, under certain
conditions, for the repurchase of a portion of the Company's outstanding common
stock in the open market from time to time. The credit facility is expected to
be in place before June 30, 1997.
Other Debt
In July 1996, the Company completed the offering of $52,000,000 of 7%
convertible subordinated debentures due 2003. 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 $35.4 million). The remaining proceeds
were used to fund the expansion of the Company's operations through acquisitions
of businesses and assets, for working capital and general corporate purposes.
The Company's long-term debt that was repaid with proceeds from the Offering
consisted of (i) indebtedness under the term notes with CIT Group/Credit
Finance, Inc. ("CIT") aggregating approximately $21.2 million and (ii) all
indebtedness owed by Odessa Exploration to Norwest Bank Texas, N.A. ("Norwest")
totaling approximately $14.2 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
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<PAGE>
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.
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 and unpaid interest thereon.
Pursuant to the terms of the Indenture governing the rights of the holders of
the Offering, the Company was required to obtain Servicios' guarantee of the
Company's indebtedness under the offering and agreed to increase the interest
rate payable on the offering to 7 1/2 % in the event such guarantee was not
obtained. To date, such guarantee has not been obtained, and, therefore, the
Offering is currently accruing interest at a rate of 7 1/2%. The Company made
its first interest payment on December 31, 1996.
In March 1997, the Company completed the re-negotiation of its credit facilities
with CIT consisting of a line of credit and term loan for each of WellTech
Eastern, Yale E. Key and Clint Hurt. The re-negotiated term and credit
facilities include a maximum credit availability of the lesser of (i) $55
million, or (ii) an amount subject to certain asset valuations determined by
CIT. Also, the re-negotiated term and credit facilities include an interest rate
at one-quarter percent above the stated prime rate, which was 8.25% at March 31,
1997.
In addition to the CIT credit facilities, Odessa Exploration has funded its
operations and acquisitions in part through a credit facility with Norwest. All
amounts previously owed by Odessa Exploration under the Norwest facility were
paid using a portion of the proceeds from the Offering. Effective January 31,
1997, Odessa Exploration completed the re-negotiation of the Norwest credit
facility, which, among other things, increased its borrowing base to $18
million, of which $1.2 million had been advanced as of March 31, 1997.
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. The application of SFAS 121 requires 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 implemented SFAS 121 beginning July 1, 1996, (see Note 4).
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.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Securities:
The Company effected the following unregistered sales of its securities
during the three months ended March 31, 1997. Each of the following
issuances by the Company of the securities sold in the transactions
referred to below were not registered under the Securities Act of 1933,
as amended, pursuant to the exemption provided under Section 4(2)
thereof for transactions not involving a public offering:
Effective as of January 13, 1997, the Company issued 175,000 shares of
the Company's common stock to Michael and Georgia McDermett as partial
consideration for the acquisition of all of the capital stock of Cobra
Industries, Inc., of which Michael and Georgia McDermett were the sole
shareholders.
Effective as of March 17, 1997, the Company issued 83,770 shares of the
Company's common stock to Tri-State Wellhead & Valve, Inc.
("Tri-State") as partial consideration for the Company's purchase of
certain assets of Tri-State.
Effective as of March 31, 1997, the Company issued 77,998 shares of the
Company's common stock to Dennis and LaWenda Hogerheide as partial
consideration for the acquisition of certain assets of Kalkaska
Construction Service, Inc. of which Dennis and LaWenda Hogerheide were
the shareholders.
Effective as of January 10, 1997, the Company issued to Thomas B.
Murphy, pursuant to the Company's 1995 Employee Stock Option Plan, an
option to purchase 25,000 shares of the Company's common stock (the
"Option") as partial consideration for Mr. Murphy's entering into
employment with the Company. The exercise price of the Option is $13.00
per share and is exercisable under the following vesting schedule;
5,000 shares on each of January 30, 1998, 1999, 2000, 2001 and 2002.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On December 9, 1996, a meeting of the holders of Common Stock, par
value $.10 per share, was held to approve the Company's Board of
Directors and other matters. Only holders of record as of the close of
business on November 15, 1996 were entitled to notice of and to vote at
the meeting and at any adjournment thereof. On the Record Date, the
outstanding number of shares entitled to vote consisted of 10,480,529
shares of common stock. The results of the voting were as follows:
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<PAGE>
<TABLE>
<CAPTION>
For Against Abstain
Item 1. To elect Directors:
<C> <C> <C>
Francis D. John 8,324,873 (79%) 11,275 * 0
Kevin P. Collins 8,324,870 (79%) 11,278 * 0
Van D. Greenfield 8,313,207 (79%) 22,941 * 0
William Manly 8,324,864 (79%) 11,284 * 0
W. Phillip Marcum 8,313,207 (79%) 22,941 * 0
Morton Wolkowitz 8,324,930 (79%) 11,218 * 0
Item 2. To ratify independent
auditors 8,329,801 (79%) 4,788 * 1,559 *
</TABLE>
* - less than 1%
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of the Form 10-Q:
Number Description
10(a) Stock Purchase Agreement among Key Energy Group,
Inc., Michael and Georgia McDermett dated as of
January 10, 1997
10(b) Asset Purchase Agreement among WellTech Eastern,
Inc., Key Energy Group, Inc., Tri State Wellhead
& Valve, Inc. and John C. Bozeman dated as of
March 14,1997
10(c) Stock Purchase Agreement among Yale E. Key,
Inc., Keith and Leslie Neill as of March 24,
1997
10(d) Asset Purchase Agreement among Key Energy Group,
Inc., WellTech Eastern, Inc., Elder Well
Service, Inc., Martha Elder, Kenneth L. Ward,
Nona Faye Mugraur, Lela Gaye Biehl and Johnny
Ray Johnson dated as of March 28, 1997
10(e) Asset Purchase Agreement #1 among WellTech
Eastern, Inc., Key Energy Group, Inc., Kalkaska
Construction Service, Inc., Dennis Hogerheide,
LaWenda Hogerheide, David Hogerheide and Derek
Hogerheide dated March 31, 1997
- 23 -
<PAGE>
10(f) Asset Purchase Agreement #2 among WellTech
Eastern, Inc., Key Energy Group, Inc., Kalkaska
Construction Service, Inc., Dennis Hogerheide,
LaWenda Hogerheide, David Hogerheide and Derek
Hogerheide dated March 31, 1997
10(g) Stock Purchase Agreement among WellTech Eastern,
Inc., Dennis Hogerheide and LaWenda Hogerheide
dated as of March 31, 1997
10(h) Asset Purchase Agreement among WellTech Eastern,
Inc., Diamond Well Service, Inc., John Scott and
Dwayne Wardwell dated as of April 3, 1997
10(i) Asset Sale Agreement among WellTech Eastern,
Inc. and Drillers, Inc. dated as of April 14,
1997
10(j) Asset Purchase Agreement among WellTech Eastern,
Inc., Shreve's Well Service, Inc. and William A.
Shreve dated as of April 18, 1997
10(k) Asset Purchase Agreement among WellTech Eastern,
Inc. and Petro Equipment, Inc. and Donald E.
Clark dated as of May 1, 1997
10(l) Second Restated Loan Agreement dated as of
January 31, 1997 among Odessa Exploration
Incorporated and Norwest Bank Texas, N.A.
10(m) Second Amendment to Third Amended and Restated
Loan and Security Agreement and Modification of
Notes dated as of March 27, 1997 among
Group/Credit Finance, Inc., Yale E. Key, Inc.,
Key Energy Drilling, Inc. and WellTech Eastern,
Inc.
11(a) Statement - Computation of per share earnings.
Filed herewith as part of the Condensed
Consolidated Financial Statements).
27(a) Statement - Financial Data Schedule (Filed
herewith as part of the Condensed Consolidated
Financial Statements).
(b) There were no reports filed on form 8-K during the quarter ended
March 31, 1997.
- 24 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities 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
President, Chief Executive Officer
Dated: May 14, 1997 and Chief Financial Officer
By /s/ Danny R. Evatt
Vice President and Chief Accounting
Dated: May 14, 1997 Officer
- 25 -
<PAGE>
Stock Purchase Agreement
among
Key Energy Group, Inc.,
and
Michael and Georgia McDermett
Dated as of January 10, 1997
I:\PBOOKER\JMA\Key Energy Group\Cobra Stock Purchase Agreement.wpd Stock
Purchase Agreement This Stock Purchase Agreement (this AAgreement@) is entered
into as of January 10, 1997 by and among Key Energy Group, Inc., a Maryland
corporation (AKey@), and Michael McDermett and Georgia McDermett, individual
residents of the State of Texas (individually the AShareholder@ and collectively
the AShareholders@). W I T N E S S E T H: WHEREAS, the Shareholders own 500
shares (the ACobra Shares@) of common stock, par value $1.00 per share (ACobra
Common Stock@), of Cobra Industries, Inc., a New Mexico corporation (ACobra@),
which constitute all of the issued and outstanding shares of capital stock of
Cobra; and WHEREAS, the Shareholders desire to sell to Key and Key desires to
purchase from the Shareholders all of the issued and outstanding capital stock
of Cobra. NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and agreements herein contained, the parties hereto hereby
agree as follows:
ARTICLE 1
Purchase and Sale
ARTICLE 1 Purchase and Sale
1.1. Purchase and Sale of Cobra Shares.Purchase and
Sale of Cobra Shares. Subject to the terms and conditions of this Agreement, at
the Closing (as defined in Section 1.2), the Shareholders agree to sell and
convey to Key, free and clear of all Encumbrances (as defined in Section
2.1.8.1), and Key agrees to purchase and accept from the Shareholders, all of
the Cobra Shares. In consideration of the sale of the Cobra Shares, Key shall
pay and deliver to the Shareholders at the Closing: (i) $5,000,000 to be paid to
the Shareholders by means of a wire transfer of immediately available funds to
the account designated in writing by the Shareholders and (ii) shall institute
such action required under Section 7.7 hereof for the issuance to the
Shareholders of 175,000 shares (the AKey Shares@) of common stock, par value
$.10 per share, of Key (AKey Common Stock@). 1.2. Time and Place of Closing1.2.
Time and Place of Closing. The closing of the transactions contemplated by this
Agreement (the AClosing@) shall be at the offices of Lynch, Chappell & Alsup, a
Professional Corporation, located at 300 North Marienfeld, Suite 700, Midland,
Texas 79701, at 10:00 a.m. on January 10, 1997 (the AClosing Date@), unless
another time, place or date is agreed to by the Shareholders and Key.
ARTICLE 2 Representations and Warranties of the ShareholdersWarranties
reholders
2.1. Representations and Warranties of the Shareholders. The express
representations and warranties of the Shareholders contained in this Article 2
are exclusive and are in lieu of all other representations and warranties,
express, implied or statutory, or otherwise. Subject to the foregoing, each of
the Shareholders jointly and severally represents and warrants to Key as
follows: 2.1.1. Organization and Standing. Cobra is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Mexico, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a material adverse effect on its financial condition, properties
or business. 2.1.2. Agreement Authorized and its Effect on Other Obligations
Both of the Shareholders are residents of the State of Texas, above the age of
18 years, and each of them has the legal capacity and requisite power and
authority to enter into, and perform his or her obligations under this
Agreement. This Agreement is a valid and binding obligation of each of the
Shareholders enforceable against each of the Shareholders (subject to normal
equitable principles) in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, debtor relief or similar
laws affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement by the Shareholders will not conflict with or
result in a violation or breach of any term or provision of, nor constitute a
default under (i) the Articles of Incorporation or Bylaws of Cobra or (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which Cobra or either of the Shareholders is a party or by which
Cobra or either of the Shareholders or their respective properties are bound.
2.1.3. Capitalization of Cobra The authorized capitalization of Cobra consists
of 50,000 shares of Cobra Common Stock, of which, as of the date hereof, 500
shares are issued and outstanding and held beneficially and of record by the
Shareholders. On the date hereof, Cobra does not have any outstanding options,
warrants, calls or commitments of any character relating to any of its
authorized but unissued shares of capital stock. All issued and outstanding
shares of Cobra Common Stock are validly issued, fully paid and non-assessable
and are not subject to preemptive rights. None of the outstanding shares of
Cobra Common Stock is subject to any voting trust, voting agreement or other
agreement or understanding with respect to the voting thereof, nor is any proxy
in existence with respect thereto. 2.1.4. Ownership of Cobra Shares.Ownership of
Cobra Shares. The Shareholders hold good and valid title to all of the Cobra
Shares free and clear of all Encumbrances. The Shareholders possess full
authority and legal right to sell, transfer and assign to Key the Cobra Shares,
free and clear of all Encumbrances. Upon transfer to Key by the Shareholders of
the Cobra Shares, Key will own the Cobra Shares free and clear of all
Encumbrances. There are no claims pending or, to the knowledge of either of the
Shareholders, threatened, against Cobra or either of the Shareholders that
concern or affect title to the Cobra Shares, or that seek to compel the issuance
of capital stock or other securities of Cobra. 2.1.5. No Subsidiaries There is
no corporation, partnership, joint venture, business trust or other legal entity
in which Cobra, either directly or indirectly through one or more
intermediaries, owns or holds beneficial or record ownership of at least a
majority of the outstanding voting securities. 2.1.6. Financial Statements. The
Shareholders have delivered to Key Cobra=s audited balance sheet and related
statements of income, retained earnings and cash flows, with appended notes
which are an integral part of such statements, as of and for the 12 months ended
July 31, 1996, and also have delivered to Key copies of Cobra=s unaudited
balance sheets and related statements of income, retained earnings and cash
flows as of and for the periods beginning August 1, 1996 and ending August 31,
September 30, October 31, and November 30, 1996. The unaudited November 30, 1996
balance sheet, a copy of which is attached hereto as Schedule 2.1.6, is
hereinafter referred to as the AUnaudited Balance Sheet.@ All of such financial
statements delivered to Key are complete in all material respects (except, with
respect to the unaudited financial statements, for the omission of notes and
schedules), present fairly the financial condition of Cobra as at the dates
indicated, and the results of operations for the respective periods indicated,
and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except as noted therein and subject,
in the case of interim financial statements, to normal year-end adjustments and
other adjustments described therein; in addition, such financial statements as
of and for the months ended August 31, September 30, October 31, and November
30, 1996, though unaudited, include all adjustments which the Shareholders
consider necessary for a fair presentation of Cobra=s results for those periods.
November 30, 1996 shall hereinafter be referred to as the ABalance Sheet Date.@
The accounts receivable reflected in the Unaudited Balance Sheet, or which
thereafter have been acquired by Cobra, have been collected or are current and
collectible at the aggregate recorded amounts thereof less applicable reserves
computed in accordance with generally accepted accounting principles, which
reserves are adequate. 2.1.7.Liabilities. Except as disclosed on Schedule 2.1.7
hereto, Cobra has no liabilities or obligations, either accrued, absolute or
contingent, nor do either of the Shareholders have any knowledge of any
potential liabilities or obligations, which would materially adversely affect
the value and conduct of the business of Cobra, other than those (i) reflected
or reserved against in the Unaudited Balance Sheet or (ii) incurred in the
ordinary course of business since the Balance Sheet Date. 2.1.8. Additional
Information. Attached as Schedule 2.1.8 hereto are true, complete and correct
lists of the following items: 2.1.8.1 Real Estate. All real property and
structures thereon owned, leased or subject to a contract of purchase and sale,
or lease commitment, by Cobra, with a description of the nature and amount of
any Encumbrances thereon. The term AEncumbrances@ means all liens, security
interests, pledges, mortgages, deeds of trust, claims, rights of first refusal,
options, charges, restrictions or conditions to transfer or assignment,
liabilities, obligations, privileges, equities, easements, rights-of-way,
limitations, reservations, restrictions and other encumbrances of any kind or
nature; 2.1.8.2 Machinery and Equipment. All rigs, carriers, rig equipment,
machinery, transportation equipment, tools, equipment, furnishings, and fixtures
owned, leased or subject to a contract of purchase and sale, or lease
commitment, by Cobra with a description of the nature and amount of any
Encumbrances thereon; 2.1.8.3 Receivables. All accounts and notes receivable,
together with (i) aging schedules by invoice date and due date, (ii) the amounts
provided for as an allowance for bad debts, (iii) the identity and location of
any asset in which Cobra holds a security interest to secure payment of the
underlying indebtedness, and (iv) a description of the nature and amount of any
Encumbrance on such accounts and notes receivable; 2.1.8.4 Payables. All
accounts and notes payable of Cobra, together with an appropriate aging
schedule; 2.1.8.5 Insurance. All insurance policies or bonds currently
maintained by Cobra, including title insurance policies, and those covering
Cobra=s properties, rigs, machinery, equipment, fixtures, employees and
operations, as well as a listing of any deductibles, premiums, audit adjustments
or retroactive adjustments due or pending on such policies or any predecessor
policies; 2.1.8.6 Contracts. All service contracts and all other material
contracts to which Cobra is a party which are to be performed in whole or in
part after the date hereof; 2.1.8.7 Employee Compensation Plans. All bonus,
incentive compensation, deferred compensation, profit-sharing, retirement,
pension, welfare, group insurance, death benefit, or other fringe benefit plans,
arrangements or trust agreements of Cobra, together with copies of the most
recent reports with respect to such plans, arrangements, or trust agreements
filed with any governmental agency, and all Internal Revenue Service
determination letters that have been received with respect to such plans;
2.1.8.8 Certain Salaries. The names and salary rates of all present employees of
Cobra who have salaries in excess of $50,000, and, to the extent existing on the
date of this Agreement, all arrangements with respect to any bonuses to be paid
to them from and after the date of this Agreement; 2.1.8.9 Bank Accounts. The
name of each bank in which Cobra has an account, the account numbers of each
account and the names of all persons authorized to draw thereon; 2.1.8.10
Employee Agreements. Any collective bargaining agreements of Cobra with any
labor union or other representative of employees, including amendments,
supplements, and written or oral understandings, and all employment and
consulting and severance agreements of Cobra; 2.1.8.11 Intellectual Property.
All patents, trademarks, copyrights and other intellectual property rights
owned, licensed, or used by Cobra; 2.1.8.12 Trade Names. All trade names,
assumed names and fictitious names used or held by Cobra, whether and where such
names are registered, and where used; 2.1.8.13 Promissory Notes. All long-term
and short-term promissory notes, installment contracts, loan agreements, credit
agreements, and any other agreements of Cobra relating thereto or with respect
to collateral securing the same; 2.1.8.14 Guaranties. All indebtedness,
liabilities and commitments of others and as to which Cobra is a guarantor,
endorser, co-maker, surety, or accommodation maker, or contingently liable
therefor and all letters of credit, whether stand-by or documentary, issued by
any third party; 2.1.8.15 Leases. All leases to which Cobra is a party whether
as lessor or lessee; and 2.1.8.16 Environment. All environmental permits,
approvals, certifications, licenses, registrations, orders and decrees
applicable to current operations conducted by Cobra and all environmental
audits, assessments, investigations and reviews conducted by Cobra within the
last five years on any property owned or used by it. 2.1.9.No Defaults. Cobra is
not in default in any material obligation or covenant on its part to be
performed under any obligation, lease, contract, order, plan or other agreement
or arrangement other than those that are not material to the business or
business prospects of Cobra. 2.1.10. Absence of Certain Changes and Events.
Other than as a result of the transactions contemplated by this Agreement, since
the Balance Sheet Date, there has not been: 2.1.10.1 Financial Change. Any
material adverse change in the financial condition, backlog, operations, assets,
liabilities or business of Cobra; 2.1.10.2 Property Damage. Any material damage,
destruction, or loss to the business or properties of Cobra (whether or not
covered by insurance); 2.1.10.3 Dividends. Any declaration, setting aside, or
payment of any dividend or other distribution in respect of the Cobra Common
Stock, or any direct or indirect redemption, purchase or any other acquisition
by Cobra of any such stock; 2.1.10.4 Capitalization Change. Any change in the
capital stock or in the number of shares or classes of the authorized or
outstanding capital stock of Cobra as described in Section 2.1.3 hereof;
2.1.10.5 Labor Disputes. Except as disclosed on Schedule 2.1.16, any labor
disputes involving Cobra; or 2.1.10.6 Other Material Changes. Any other event or
condition known to either of the Shareholders particularly pertaining to and
adversely affecting the operations, assets or business of Cobra which would
constitute a material adverse change. 2.1.11. Taxes. All federal, state and
local income, value added, sales, use, franchise, gross revenue, turnover,
excise, payroll, property, employment, customs, duties and any and all other tax
returns, reports, and estimates have been filed with appropriate governmental
agencies, domestic and foreign, by Cobra for each period for which any such
returns, reports, or estimates were due (taking into account any extensions of
time to file before the date hereof); all taxes shown by such returns to be
payable and any other taxes due and payable have been paid other than those
being contested in good faith by Cobra; and the tax provisions reflected in the
Unaudited Balance Sheet are adequate, in accordance with generally accepted
accounting principles, to cover liabilities of Cobra at the date thereof for all
taxes, including any assessed interest, assessed penalties and additions to
taxes of any character whatsoever applicable to Cobra or its assets or business.
No waiver of any statute of limitations executed by Cobra with respect to any
income or other tax is in effect for any period. Except for an audit by the
Internal Revenue Service of the 1991 federal income tax returns of Cobra, the
income tax returns of Cobra have never been examined by the Internal Revenue
Service or the taxing authorities of any other jurisdiction. There are no tax
liens on any assets of Cobra except for taxes not yet currently due. Cobra is
not, never has been, nor has Cobra ever attempted to become, an S-Corp under the
Internal Revenue Code of 1986, as amended. 2.1.12. Intellectual Property. Cobra
owns or possesses licenses to use all patents, patent applications, trademarks
and service marks (including registrations and applications therefor), trade
names, copyrights and written know-how, trade secrets and all other similar
proprietary data and the goodwill associated therewith (collectively, the
AIntellectual Property@) that are either material to its business or that are
necessary for the rendering of any services rendered by it and the use or sale
of any equipment or products used or sold by it, including all such Intellectual
Property listed in Schedule 2.1.12 hereto. The Intellectual Property so owned or
possessed by Cobra is owned or licensed free and clear of any Encumbrance. Cobra
has not granted to any other person any license to use any Intellectual
Property. Cobra has not received any notice of infringement, misappropriation,
or conflict with, the intellectual property rights of others in connection with
the use by it of the Intellectual Property or otherwise in connection with the
operation of its business. 2.1.13. Title to and Condition of Assets. Cobra has
good, indefeasible and marketable title to all its properties, interests in
properties and assets, real and personal, reflected in the Unaudited Balance
Sheet or in Schedule 2.1.8 hereto, free and clear of any Encumbrance, except (i)
Encumbrances reflected in the Unaudited Balance Sheet or in Schedule 2.1.8
hereto, (ii) liens for current taxes not yet due and payable, and (iii) such
imperfections of title, easements and Encumbrances, if any, as are not
substantial in character, amount, or extent and do not and will not materially
detract from the value, or interfere with the present use, of the property
subject thereto or affected thereby, or otherwise materially impair business
operations. All leases pursuant to which Cobra leases (whether as lessee or
lessor) any substantial amount of real or personal property are in good
standing, valid, and effective; and there is not, under any such leases, any
existing default or event of default or event which with notice or lapse of
time, or both, would constitute a default by Cobra and in respect to which Cobra
has not taken adequate steps to prevent a default from occurring. The buildings
and premises of Cobra that are used in its business are in good operating
condition and repair, subject only to ordinary wear and tear. All rigs, rig
equipment, machinery, transportation equipment, tools and other major items of
equipment of Cobra are in good operating condition and in a state of reasonable
maintenance and repair, ordinary wear and tear excepted, and are free from any
known defects except as may be repaired by routine maintenance and such minor
defects as to not substantially interfere with the continued use thereof in the
conduct of normal operations. All such assets conform in all material respects
to all applicable laws governing their use. No notice of any violation of any
law, statute, ordinance, or regulation relating to any such assets has been (or
are being) received by Cobra or any of the Shareholders, except such as have
been fully complied with. 2.1.14. Contracts. All contracts, leases, plans or
other arrangements to which Cobra is a party, by which it is bound or to which
Cobra or the assets of Cobra are subject are in full force and effect, and
constitute valid and binding obligations of Cobra. Cobra is not, and to the
knowledge of either of the Shareholders, no other party to any such contract,
lease, plan or other arrangement, is in default thereunder, and no event has
occurred which (with or without notice, lapse of time, or the happening of any
other event) would constitute a material default thereunder. No contract has
been entered into on terms which could reasonably be expected to have a
materially adverse effect on Cobra. Neither of the Shareholders has received any
information which would cause such Shareholder to conclude that any customer of
Cobra will (or is likely to) cease doing business with Cobra (or any successors
thereto) as a result of the consummation of the transactions contemplated
hereby. 2.1.15. Licenses and Permits. Cobra possess all permits, authorizations,
certificates, approvals, registrations, variances, waivers, exemptions,
rights-of-way, franchises, ordinances, licenses and other rights of every kind
and character (collectively, the APermits@) necessary under law or otherwise for
it to conduct its business as now being conducted and to construct, own,
operate, maintain and use its assets in the manner in which they are now being
constructed, operated, maintained and used. Each of such Permits and the rights
of Cobra with respect thereto is (and will be following the consummation of the
transactions contemplated hereby) valid and subsisting, in full force and
effect, and enforceable by Cobra subject to administrative powers of regulatory
agencies having jurisdiction. Cobra is in compliance in all material respects
with the terms of such Permits. None of such Permits have been, or to the
knowledge of the Shareholders, are threatened to be, revoked, canceled,
suspended or modified. 2.1.16. Litigation. Except as set forth on Schedule
2.1.16, there is no suit, action, or legal, administrative, arbitration, or
other proceeding or governmental investigation pending to which Cobra is a party
or, to the knowledge of the Shareholders, might become a party or which
particularly affect Cobra, nor is any change in the zoning or building
ordinances directly affecting the real property or leasehold interests of Cobra,
pending or, to the knowledge of the Shareholders, threatened. 2.1.17.
Environmental Compliance.
2.1.17.1 Environmental Conditions.
Except as set forth in Schedule 2.1.17 hereof, there are no environmental
conditions or circumstances, including, without limitation, the presence or
release of any hazardous substance, on any property presently or previously
owned by Cobra, or on any property to which hazardous substances or waste
generated by the operations of Cobra or by the use of the assets of Cobra were
disposed of, which would result in a material adverse change in the business or
business prospects of Cobra. The term Ahazardous substance@ means (i) asbestos,
polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas,
petroleum, oil, solid waste, pollutants and contaminants, and (ii) any
chemicals, materials, wastes or substances that are defined, regulated,
determined or identified as toxic or hazardous in any Applicable Environmental
Laws, including, but not limited to, substances defined as Ahazardous
substances,@ Ahazardous materials,@ or Ahazardous waste@ in CERCLA, RCRA, HMTA,
or comparable state and local statutes or in the regulations adopted and
promulgated pursuant to said statutes; 2.1.17.2 Permits, etc. Cobra has in full
force and effect all environmental permits, licenses, approvals and other
authorizations required to conduct its operations, other than those that are not
material to its business or operations, and is operating in substantial
compliance thereunder; 2.1.17.3 Compliance. Neither the operations of Cobra nor
the use of the assets of Cobra violate in any respect any applicable federal,
state or local law, statute, ordinance, rule, regulation, order or notice
requirement pertaining to (a) the condition or protection of air, groundwater,
surface water, soil, or other environmental media, (b) the environment,
including natural resources or any activity which affects the environment, or
(c) the regulation of any pollutants, contaminants, waste, or substances
(whether or not hazardous or toxic), including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C.
'9601 et seq.) (ACERCLA@), the Hazardous Materials Transportation Act (49 U.S.C.
'1801 et seq.) (AHMTA@), the Resource Conservation and Recovery Act (42 U.S.C.
'6901 et seq.) (ARCRA@), the Clean Water Act (33 U.S.C. 1251 et seq.), the Clean
Air Act (42 U.S.C. '7401 et seq.), the Toxic Substances Control Act (17 U.S.C.
'2601 et seq.), the Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C.
'136 et seq.), the Safe Drinking Water Act (42 U.S.C. '201 and '300f et seq.),
the Rivers and Harbors Act (33 U.S.C. '401 et seq.), the Oil Pollution Act (33
U.S.C. '2701 et seq.) and analogous federal, interstate, state and local
requirements, as any of the foregoing may have been amended or supplemented from
time to time (collectively the AApplicable Environmental Laws@), other than
violations that in the aggregate are not material to the business or operations
of Cobra; 2.1.17.4 Past Compliance. None of the operations or assets of Cobra
has ever been conducted or used in such a manner as to constitute a violation of
any of the Applicable Environmental Laws, other than violations that in the
aggregate are not material to the business or operations of Cobra; 2.1.17.5
Environmental Claims. No notice has been served on Cobra or either of the
Shareholders from any entity, governmental agency or individual regarding any
existing, pending or threatened investigation, inquiry, enforcement action or
litigation related to alleged violations under any Applicable Environmental
Laws, or regarding any claims for remedial obligations, response costs or
contribution under any Applicable Environmental Laws; 2.1.17.6 Renewals. Neither
of the Shareholders knows of any reason Cobra or their successors would not be
able to renew any of the permits, licenses, or other authorizations required
pursuant to any of the Applicable Environmental Laws to operate and use any of
assets of Cobra for their current purposes and uses; and 2.1.17.7 Asbestos and
PCBs. No material amounts of friable asbestos currently exist on any property
owned or operated by Cobra, nor do polychlorinated biphenyls exist in
concentrations of 50 parts per million or more in electrical equipment owned or
being used by Cobra in the operations or on the properties of Cobra. 2.1.18.
Compliance with Other Laws. Cobra is not in violation of or in default with
respect to, or in alleged violation of or alleged default with respect to, the
Occupational Safety and Health Act (29 U.S.C. "651 et seq.) as amended, or any
other applicable law or any applicable rule, regulation, or any writ or decree
of any court or any governmental commission, board, bureau, agency, or
instrumentality, or delinquent with respect to any report required to be filed
with any governmental commission, board, bureau, agency or instrumentality,
other than violations that in the aggregate are not material to the business or
operations of Cobra. 2.1.19. No ERISA Plans or Labor Issues; No Penalty for
Termination of Employee Compensation Plans. Cobra does not currently sponsor,
maintain or contribute to, and Cobra has not at any time sponsored, maintained
or contributed to any employee benefit plan which is or was subject to any
provisions of the Employee Retirement Income Security Act of 1974, as amended
(AERISA@). Cobra has not engaged in any unfair labor practices which could
reasonably be expected to result in a material adverse effect on the operations
or assets of Cobra. Except as described in Schedule 2.1.16 hereto, Cobra has no
dispute with any of the existing or former employees of Cobra. There are no
labor disputes or, to the knowledge of either of the Shareholders, any disputes
threatened by current or former employees of Cobra. There will not be any
penalty for the termination of any employee compensation plan listed on Schedule
2.1.8 for items in Section 2.1.8.7. 2.1.20. Investigations; Litigation. No
investigation or review by any governmental entity with respect to Cobra or any
of the transactions contemplated by this Agreement is pending or, to the
knowledge of either of the Shareholders, threatened, nor has any governmental
entity indicated to Cobra an intention to conduct the same, and there is no
action, suit or proceeding pending or, to the knowledge of either of the
Shareholders, threatened against or affecting Cobra at law or in equity, or
before any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, that either individually
or in the aggregate, does or is likely to result in a material adverse change in
the financial condition, properties or business of Cobra. 2.1.21. Absence of
Certain Business Practices. Neither Cobra, nor any officer of Cobra, nor, to the
knowledge of either of the Shareholders, any employee or agent of Cobra or any
other person acting on behalf of Cobra, has, directly or indirectly, within the
past five years, given or agreed to give any gift or similar benefit to any
customer, supplier, government employee or other person who is or may be in a
position to help or hinder the business of Cobra (or to assist Cobra in
connection with any actual or proposed transaction) which (i) might subject
Cobra to any damage or penalty in any civil, criminal or governmental litigation
or proceeding, (ii) if not given in the past, might have had a materially
adverse effect on the assets, business or operations of Cobra, or (iii) if not
continued in the future, might materially and adversely affect the assets,
business operations or prospects of Cobra or which might result in liability to
Cobra in a private or governmental litigation or proceeding. 2.1.22. Consents
and Approvals. No consent, approval or authorization of, or filing or
registration with, any governmental or regulatory authority, or any other person
or entity other than the Shareholders, is required to be made or obtained by
Cobra in connection with the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby. 2.1.23.
Finder=s Fee. All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by the Shareholders and their counsel
directly with Key and its counsel, without the intervention of any other person
as the result of any act of the Shareholders in such manner as to give rise to
any valid claim against any of the parties hereto for a brokerage commission,
finder=s fee or any similar payments. 2.2. Investment Representations. Each of
the Shareholders acknowledges, represents and agrees that:
2.2.1. Shareholders Investment Suitability and Related Matters. (i) Key has
made available to the Shareholders the information and documents described in
Section 3.4. hereof, (ii) such Shareholder understands the risks associated with
ownership of Key Common Stock, and (iii) such Shareholder is capable of bearing
the financial risks associated with such ownership;
2.2.2. Key Shares Not Registered. The Key Shares have not been registered
under the Securities Act of 1933, as amended (the A Securities Act@), or
registered or qualified under any applicable state securities laws;
2.2.3. Reliance on Representations.
The Key Shares are being issued to such Shareholder in reliance upon exemptions
from such registration or qualification requirements, and the availability of
such exemptions depends in part upon such Shareholder=s bona fide investment
intent with respect to the Key Shares;
2.2.4. Investment Intent.
Such Shareholder's acquisition of the Key Shares is solely for his or her own
account for investment, and such Shareholder is not acquiring the Key Shares for
the account of any other person or with a view toward resale, assignment,
fractionalization, or distribution thereof;
2.2.5. Permitted Resale.
Such Shareholder shall not offer for sale, sell, transfer, pledge, hypothecate
or otherwise dispose of any of the Key Shares except in accordance with the
registration requirements of the Securities Act and applicable state securities
laws or upon delivery to Key of an opinion of legal counsel reasonably
satisfactory to Key that an exemption from registration is available;
2.2.6. Investor Sophistication.
Such Shareholder has such knowledge and experience in financial and business
matters that he or she is capable of evaluating the merits and risks of an
investment in the Key Shares, and to make an informed investment decision with
respect thereto;
2.2.7. Availability of Information.
Such Shareholder has had the opportunity to ask questions of, and receive
answers from Key=s officers and directors concerning such Shareholder=s
acquisition of the Key Shares and to obtain such other information concerning
Key and the Key Shares, to the extent Key=s officers and directors possessed the
same or could acquire it without unreasonable effort or expense, as such
Shareholder deemed necessary in connection with making an informed investment
decision; and
2.2.8. Restrictive Legends.
In addition to any other legends required by law or the other agreements entered
into in connection herewith, each certificate evidencing the Key Shares will
bear a conspicuous restrictive legend substantially as follows: THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (AACT@), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED EXCEPT
IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH OTHER STATE
LAWS OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF LEGAL COUNSEL
SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
ARTICLE 3
Representations and Warranties of Key
Key represents and warrants to each of the Shareholders as follows:
3.1. Organization and Standing.
Key is a corporation duly organized, validly existing and in good standing under
the laws of the State of Maryland, has full requisite corporate power and
authority to carry on its business as it is currently conducted, and to own and
operate the properties currently owned and operated by it, and is duly qualified
or licensed to do business and is in good standing as a foreign corporation
authorized to do business in all jurisdictions in which the character of the
properties owned or the nature of the business conducted by it would make such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not have a material adverse effect on its financial
condition, properties or business.
3.2. Agreement Authorized and its Effect on Other Obligations. The consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Key, and this Agreement is a valid
and binding obligation of Key enforceable (subject to normal equitable
principles) in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement by Key will not conflict with or result in a
violation or breach of any term or provision of, or constitute a default under
(i) the Articles of Incorporation or Bylaws of Key or (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Key or any of its property is bound.
3.3. Capitalization.
The capitalization of Key consists of 25,000,000 shares of Key Common Stock, of
which as of the date hereof, 11,398,050 shares are issued and outstanding,
913,334 shares are reserved for issuance pursuant to stock options, 825,000
shares are reserved for issuance pursuant to outstanding warrants and 5,333,333
shares are reserved for issuance upon conversion of Key=s 7% Convertible
Subordinated Debentures (the AConvertible Debentures@). Pursuant to Key=s
Certificate of Incorporation, Key=s board of directors has the authority,
without further shareholder action, to redesignate all of the authorized and
unissued shares of Key Common Stock into one or more series of preferred stock.
As of the date hereof, no shares have been so designated or issued. Except as
set forth in this Section 3.3., there are outstanding as of the date hereof (i)
no securities of Key or any other person convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities of Key, and
(ii) no subscriptions, options, warrants, calls, rights obligating Key to issue,
deliver, sell, purchase, redeem or acquire shares of capital stock or other
voting securities of Key. All of the outstanding Key Common Stock is, and, when
issued, the Key Shares will be, validly issued, fully paid and nonassessable and
not subject to any preemptive right. As of the date hereof there is no, and at
the Closing Date there will not be any, stockholder agreement, voting trust, or
other agreement or understanding to which Key is a party or by which it is bound
relating to the voting of any shares of capital stock of Key.
3.4. Reports and Financial Statements.
Key has previously furnished to the Shareholders true and complete copies of (i)
Key=s annual report filed with the Securities and Exchange Commission (the
ACommission@) pursuant to the Securities and Exchange Act of 1934, as amended
(the AExchange Act@), for Key=s fiscal year ended June 30, 1996; (ii) Key=s
quarterly and other reports filed with the Commission since June 30, 1996; (iii)
all definitive proxy solicitation materials filed with the Commission since June
30, 1996; (iv) any registration statements (other than those relating to
employee benefit plans) declared effective by the Commission since June 30,
1996; and (v) Key=s Private Offering Memorandum dated June 28, 1996, relating to
the Convertible Debentures. All of the foregoing items are listed on Schedule
3.4 hereto (collectively, the AKey SEC Documents@). The consolidated financial
statements of Key and its consolidated subsidiaries included in Key=s most
recent report on Form 10-K and most recent report on Form 10-Q were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved and fairly present the consolidated financial
position of Key and its consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and changes in financial position
for the periods then ended; and the Key SEC Documents did not contain any untrue
statement of a material fact or omit to state 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. Since June 30, 1994,
Key has filed with the Commission all material reports, registration statements
and other material filings required to be filed with the Commission under the
rules and regulations of the Commission.
3.5. Absence of Certain Changes and Events in Key.
Since September 30, 1996, there has not been:
3.5.1. Financial Change.
Any material adverse change in the financial condition, backlog, operations,
assets, liabilities or business of Key; or
3.5.2. Other Material Changes.
Any other event or condition known to Key particularly pertaining to and
adversely affecting the operations, assets or business of Key, other than events
or conditions which are of a general or industry-wide nature and of general
public knowledge, or which have been disclosed in writing to the Shareholders.
3.6. Key=s Compliance with Other Laws.
Key is not in violation of or in default with respect to, or in alleged
violation of or alleged default with respect to the Occupational Safety and
Health Act (29 U.S.C. ' 651 et seq., as amended), or any applicable law or any
applicable rule, regulation, or any writ or decree of any court or any
governmental commission, board, bureau, agency, or instrumentality, or
delinquent with respect to any report required to be filed with any governmental
commission, board, bureau, agency or instrumentality which would have a material
adverse affect upon its financial condition, properties or business.
3.7. Consents and Approvals.
No consent, approval or authorization of, or filing of a registration with, any
governmental or regulatory authority, or any other person or entity is required
to be made or obtained by Key in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby, other than what is required by the American Stock Exchange
for the listing of the Key Shares issuable hereunder.
3.8. Investigations; Litigation.
No investigation or review by any governmental entity with respect to Key in
connection with any of the transactions contemplated by this Agreement is
pending or, to the best of Key=s knowledge, threatened, nor has any governmental
entity indicated to Key an intention to conduct the same. There is no action,
suit or proceeding pending or, to the best of Key=s knowledge, threatened
against or affecting Key by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, which either
individually or in the aggregate, does or is likely to result in any material
adverse change in the financial condition, properties or businesses of Key.
3.9. Finder=s Fee.
All negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by Key and its counsel directly with Cobra and the
Shareholders and their counsel, without the intervention by any other person as
the result of any act of Key in such a manner as to give rise to any valid claim
against any of the parties hereto for any brokerage commission, finder=s fee or
any similar payments.
3.10. Key=s Access to Cobra=s Assets and Records.
Key acknowledges that it is actively engaged in the same business as is Cobra,
that it has been afforded an opportunity to examine the assets and records of
Cobra, discuss Cobra=s business and operations with the Shareholders, and
investigate the condition of the assets of Cobra, and that Key is entering into
this Agreement on the basis of such investigation and the representations and
warranties of the Shareholders.
ARTICLE 4
Obligations Pending Closing Date
4.1. Agreements of Key and the Shareholders.
Except as expressly contemplated elsewhere in this Agreement, Key and the
Shareholders agree that from the date hereof until the Closing Date, Key will,
and the Shareholders will cause Cobra to (and unless otherwise indicated by the
context, since September 30, 1996, it has):
4.1.1. Maintenance of Present Business.
Operate its business only in the usual, regular, and ordinary manner so as to
maintain the goodwill it now enjoys and, to the extent consistent with such
operation, use all reasonable efforts to preserve intact its present business
organization, keep available the services of its present officers and employees,
and preserve its relationships with customers, suppliers, jobbers, distributors,
and others having business dealings with it;
4.1.2. Maintenance of Properties.
At its expense, maintain all of its property and assets in customary repair,
order, and condition, reasonable wear and tear excepted;
4.1.3. Maintenance of Books and Records.
Maintain its books of account and records in the usual, regular, and ordinary
manner, in accordance with generally accepted accounting principles applied on a
consistent basis;
4.1.4. Compliance with Law.
Duly comply in all material respects with all laws applicable to it and to the
conduct of its business;
4.1.5. Inspection.
Permit the other party hereto and their authorized representatives, during
normal business hours, to inspect its records and to consult with its officers,
employees, attorneys, and agents for the purpose of determining the accuracy of
the representations and warranties herein made and the compliance with covenants
contained in this Agreement. Each of the Shareholders and Key agrees that they
will and will cause their representatives to hold all data and information
obtained with respect to the other party, in confidence and further agrees that
they will not use such data or information or disclose the same to others,
except to the extent such data or information either are, or become, published
or a matter of public knowledge through the fault of its own; and
4.1.6. Notice of Material Developments.
Promptly notify the other party in writing of any Amaterial adverse change@ in,
or any changes which, in the aggregate, could result in a Amaterial adverse
change@ in, the consolidated financial condition, business or affairs of such
party, whether or not occurring in the ordinary course of business. As used in
this Agreement, the term Amaterial adverse change@ means any change, event,
circumstance or condition (collectively, a AChange@) which when considered with
all other Changes would reasonably be expected to result in a "loss" having the
effect of so fundamentally adversely affecting the business or financial
prospects of Key or Cobra, as the case may be, that the benefits reasonably
expected to be obtained by Key or Cobra, as the case may be, as a result of the
consummation of the transactions contemplated by this Agreement would be
jeopardized with relative certainty. The term "loss" shall mean any and all
direct or indirect payments, obligations, assessments, losses, loss of income,
liabilities, fines, penalties, costs and expenses paid or incurred or more
likely than not to be paid or incurred, or diminutions in value of any kind or
character (whether known or unknown, conditional or unconditional, choate or
inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise) that are more likely than not to occur, including
without limitation penalties, interest on any amount payable to a third party as
a result of the foregoing and any legal or other expenses reasonably incurred or
more likely than not to be incurred in connection with investigating or
defending any demands, claims, actions or causes of action that, if adversely
determined, would likely result in losses, and all amounts paid in settlement of
claims or actions; provided, that losses shall be net of any recoveries by Cobra
from third parties and any insurance proceeds Cobra is entitled to receive from
a nonaffiliated insurance company on account of such losses (after taking into
account any costs incurred in obtaining such proceeds and any increase in
insurance premiums as a result of a claim with respect to such proceeds); and
provided further, that a reduction of the trading price of the Key Common Stock
on the American Stock Exchange shall not, in and of itself, constitute a
material adverse change.
4.2. Additional Agreements of the Shareholders.
Except as expressly contemplated elsewhere in this Agreement, each of the
Shareholders agree that since the Balance Sheet Date, Cobra has not, and from
the date hereof until the Closing Date, they will not cause or permit Cobra to:
4.2.1. Prohibition of Certain Employment Contracts.
Enter into any contracts of employment which cannot be terminated on notice of
30 days or less or which provide for any severance payments or benefits covering
a period beyond the earlier of the termination date or notice thereof;
4.2.2. Prohibition of Certain Loans
Incur any borrowings which would exceed $50,000, in the aggregate, for any
purpose except (i) the refunding of indebtedness now outstanding, (ii) the
prepayment by customers of amounts due or to become due for services rendered or
to be rendered in the future, or (iii) as is otherwise approved in writing by
Key;
4.2.3. Prohibition of Certain Commitments.
Enter into commitments of a capital expenditure nature or incur any contingent
liabilities which would exceed $10,000 in the aggregate except (i) as may be
necessary for the maintenance of existing facilities, machinery and equipment in
good operating condition and repair in the ordinary course of business, or (ii)
as is otherwise approved in writing by Key;
4.2.4. Disposal of Assets.
Sell, dispose of, or encumber, any property or assets, except (i) in the usual
and ordinary course of business, (ii) property or assets which individually have
a value of less than $1,000; or (iii) as may be approved in writing by Key;
4.2.5. Maintenance of Insurance.
Discontinue its current level of insurance; provided, that if during the period
from the date hereof to and including the Closing Date any of its property or
assets are damaged or destroyed by fire or other casualty, the obligations of
Key and the Shareholders under this Agreement shall not be affected thereby, and
upon the Closing Date all proceeds of insurance and claims of every kind arising
as a result of any such damage or destruction shall remain the property of
Cobra; 4.2.6. Acquisition Proposals. Directly or indirectly (i) solicit,
initiate or encourage any inquiry or Acquisition Proposal from any person or
(ii) participate in any discussions or negotiations regarding, or furnish to any
person other than Key or its representatives any information with respect to, or
otherwise facilitate or encourage any Acquisition Proposal by any other person.
As used herein AAcquisition Proposal@ means any proposal for a merger,
consolidation or other business combination involving Cobra or for the
acquisition or purchase of any equity interest in, or a material portion of the
assets of, Cobra, other than the transactions with Key and the Shareholders
contemplated by this Agreement. Cobra shall promptly communicate to Key the
terms of any such written Acquisition Proposals which it may receive or any
written inquiries made to it or any of its directors, officers, representatives
or agents;
4.2.7. No Amendment to Articles of Incorporation.
Amend its Articles of Incorporation or merge or consolidate with or into any
other corporation or change in any manner the rights of its common stock or the
character of its business;
4.2.8. No Issuance, Sale, or Purchase of Securities.
Issue or sell, or issue options or rights to subscribe to, or enter into any
contract or commitment to issue or sell (upon conversion or otherwise), any
shares of Cobra Common Stock, or subdivide or in any way reclassify any shares
of Cobra Common Stock, or acquire, or agree to acquire, any shares of Cobra
Common Stock; and
4.2.9. Prohibition on Dividends.
Declare or pay any dividend on shares of Cobra Common Stock or make any other
distribution of assets to the holders thereof.
4.3. Agreements of Key.
Key agrees it will:
4.3.1. No Amendment to Articles of Incorporation.
Not amend its Articles of Incorporation or merge or with into any other
corporation or change in any manner the rights of the Key Shares; and
4.3.2. Notice of Material Developments.
Promptly furnish to the Shareholders copies of all Key=s communications to Key=s
stockholders and all reports filed by it with the Commission and the American
Stock Exchange, and relating to periodic or other material developments
concerning Key=s financial condition, business, or affairs.
ARTICLE 5
Conditions Precedent to Obligations
5.1. Conditions Precedent to Obligations of Shareholders.
The obligations of Shareholders to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction of the following
conditions, or to the waiver thereof by Shareholders before the Closing Date:
5.1.1. Representations and Warranties of Key True at Closing Date. The
representations and warranties of Key herein contained shall be, in all material
respects, true as of and at the Closing Date with the same effect as though made
at such date, except as affected by transactions permitted or contemplated by
this Agreement; Key shall have performed and complied, in all material respects,
with all covenants required by this Agreement to be performed or complied with
by Key before the Closing Date; and Key shall have delivered to the Shareholders
a certificate, dated the Closing Date and signed by its vice president and its
secretary, to such effect.
5.1.2. No Material Litigation.
No suit, action, or other proceeding shall be pending, or to Key's knowledge,
threatened, before any court or governmental agency in which it will be, or it
is, sought to restrain or prohibit or to obtain damages or provide other relief
in connection with this Agreement or the consummation of the transactions
contemplated hereby or which might result in a material adverse change in the
value of the consolidated assets and business of Key.
5.1.3. Opinion of Key Counsel.
The Shareholders shall have received a favorable opinion, dated as of the
Closing Date, from Porter & Hedges, L.L.P., counsel for Key, in form and
substance satisfactory to the Shareholders, to the effect that (i) Key has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the State of Maryland; (ii) all corporate proceedings required
to be taken by or on the part of Key to authorize the execution of this
Agreement and the implementation of the transactions contemplated hereby have
been taken; (iii) the shares of Key Common Stock which are to be delivered in
accordance with this Agreement will, when issued, be validly issued, fully paid
and nonassessable outstanding securities of Key; (iv) this Agreement has been
duly executed and delivered by, and is the legal, valid and binding obligation
of Key and is enforceable against Key in accordance with its terms, except as
enforceability may be limited by (a) equitable principles of general
applicability or (b) bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws affecting the rights of creditors generally. No
opinion need be expressed as to the enforceability of any indemnification
provisions of this Agreement. In rendering such opinion, such counsel may rely
upon (i) certificates of public officials and of officers of Key as to matters
of fact and (ii) the opinion or opinions of other counsel, which opinions shall
be reasonably satisfactory to the Shareholders, as to matters other than federal
or Texas law.
5.1.4. Consent of Certain Parties in Privity With Key. The holders of any
material indebtedness of Key, the lessors of any material property leased by
Key, and the other parties to any other material agreements to which Key are a
party shall, when and to the extent necessary in the reasonable opinion of the
Shareholders, have consented to the transactions contemplated hereby.
5.1.5. Employment Agreements.
Yale E. Key (a subsidiary of Key) shall have executed and entered into with the
Shareholders employment agreements described in Section 7.2 hereof.
5.1.6. Real Estate Agreements.
5.2. Conditions Precedent to Obligations of Key.
The obligation of Key to consummate and effect the transactions contemplated
hereunder shall be subject to the satisfaction of the following conditions, or
to the waiver thereof by Key before the Closing Date.
5.2.1. Representations and Warranties of Shareholders True at Closing Date. The
representations and warranties of the Shareholders herein contained shall be, in
all material respects, true as of and at the Closing Date with the same effect
as though made at such date, except as affected by transactions permitted or
contemplated by this Agreement; Cobra and the Shareholders shall have performed
and complied in all material respects, with all covenants required by this
Agreement to be performed or complied with by them before the Closing Date; and
Cobra and the Shareholders each shall have delivered to Key a certificate, dated
the Closing Date and signed by each of the Shareholders and by Cobra=s
president, chief financial or accounting officer, and secretary, as the case may
be, to such effects.
5.2.2. No Material Litigation.
No suit, action, or other proceeding shall be pending, or to the Shareholders=
knowledge, threatened, before any court or governmental agency in which it will
be, or it is, sought to restrain or prohibit or to obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby or which might result in a material adverse change in the
value of the assets and business of Cobra.
5.2.3. Opinion of Counsel.
Key shall have received a favorable opinion, dated the Closing Date, from Lynch,
Chappell & Alsup, a Professional Corporation, counsel to the Shareholders, in
form and substance satisfactory to Key, to the effect that (i) Cobra has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the state of New Mexico; (ii) all outstanding shares of the
Cobra Common Stock have been validly issued and are fully paid and
nonassessable; and (iii) this Agreement has been duly executed and delivered by,
and is the legal, valid and binding obligation of the Shareholders and is
enforceable against the Shareholders in accordance with its terms, except as the
enforceability may be limited by (a) equitable principles of general
applicability or (b) bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws affecting the rights of creditors generally. No
opinion need be expressed as to the enforceability of any indemnification
provisions of this Agreement. In rendering such opinion, such counsel may rely
upon (i) certificates of public officials and of officers of Cobra or the
Shareholders as to matters of fact and (ii) on the opinion or opinions of other
counsel, which opinions shall be reasonably satisfactory to Key, as to matters
other than federal or Texas law.
5.2.4. Consent of Certain Parties in Privity with Cobra or the Shareholders. The
holders of any material indebtedness of Cobra or the Shareholders, the lessors
of any material property leased by Cobra or the Shareholders, and the other
parties to any other material agreements to which Cobra or the Shareholders are
a party shall, when and to the extent necessary in the reasonable opinion of
Key, have consented to the transaction contemplated hereby.
5.2.5. Employment Agreements.
The Shareholders shall have executed and entered into with Yale E. Key (a
subsidiary of Key) their respective employment Agreements described in Section
7.2 hereof.
5.2.6. Real Estate Agreements.
The Shareholders, or corporations owned by the Shareholders, shall have conveyed
to Cobra the real estate described on Schedule 5.1.6 under terms acceptable to
Key.
5.2.7. Completion of Due Diligence.
Key shall have completed and have been satisfied with the results of its due
diligence review of Cobra and its operations.
5.2.8. Environmental Restoration.
Notwithstanding the representations and warranties contained in Section 2.1.17
hereof, and notwithstanding the provisions of Section 8.1 which limit the
Shareholders= indemnification obligations to liabilities in excess of $150,000,
the Shareholders agree that if Key in good faith within 60 days of the Closing
Date determines that restoration activities are required to eliminate any
material environmental problem resulting in any violation of any Applicable
Environmental Laws that may exist as a result of the underground storage tank
that once existed at the property known as the Jal Yard and further described on
Schedule 2.1.17.1 hereof, then Cobra will conduct such restoration activities
for the account of the Shareholders who will reimburse Cobra for such
restoration costs within 30 days of receipt of the invoice relating thereto. As
used herein, Arestoration costs@ shall include, but not be limited to, the cost
of all investigations performed to determine that restoration activities must be
performed.
ARTICLE 6
Termination and Abandonment
6.1. Termination.
Anything contained in this Agreement to the contrary notwithstanding, this
Agreement may be terminated and the purchase and sale contemplated hereby
abandoned at any time before the Closing Date:
6.1.1. By Mutual Consent.
By mutual consent of Key and the Shareholders.
6.1.2. By Key Because of Failure to Perform Agreements or Conditions
Precedent
By Key, if the Shareholders have failed to perform any material agreement set
forth in Sections 4.1 or 4.2, or if any material condition set forth in Section
5.2 hereof has not been met, and such condition has not been waived.
6.1.3. By the Shareholders Because of Key=s Failure to Perform
Agreements or ConditionsPrecedent
By the Shareholders, if Key has failed to perform any material agreement set
forth in Sections 4.1 or 4.3 hereof, or if any material condition set forth in
Section 5.1 hereof has not been met, and such condition has not been waived.
6.1.4. By Key or by the Shareholders Because of Legal Proceedings. By either Key
or the Shareholders if any suit, action, or other proceeding shall be pending or
threatened by the federal or a state government before any court or governmental
agency, in which it is sought to restrain, prohibit, or otherwise affect the
consummation of the transactions contemplated hereby.
6.1.5. By Key Because of a Material Adverse Change.
By Key if there has been a material adverse change in the financial condition or
business of Cobra since the Balance Sheet Date.
6.1.6. By the Shareholders Because of a Material Adverse Change.
By the Shareholders if there has been a material adverse change in the financial
condition or business of Key since September 30, 1996.
6.1.7. By Key or by the Shareholders if No Closing by January 15, 1997. By
either Key or the Shareholders, if the Closing of the purchase and sale
contemplated hereby shall not have been consummated on or before January 15,
1997 through no fault of any party hereto; provided, however, that this
Agreement may not be terminated by any party hereto if the transactions
contemplated hereby have not occurred due to the breach of any provision of this
Agreement by the party desiring to terminate this Agreement.
6.2. Effect of Termination.
In the event of the termination and abandonment of this Agreement pursuant to
and in accordance with the provisions of Section 6.1 hereof, this Agreement
shall become void and have no effect, without any liability on the part of any
party hereto (or its stockholders or controlling persons or directors or
officers), except as otherwise provided in this Agreement; provided, however,
that a termination of this Agreement shall not relieve any party hereto from any
liability for damages incurred as a result of a breach by such party of its
representations, warranties, covenants, agreements, or other obligations
hereunder, occurring before such termination.
6.3. Waiver of Conditions.
Subject to the requirements of any applicable law, any of the terms or
conditions of this Agreement may be waived at any time by the party which is
entitled to the benefit thereof.
6.4. Expense on Termination.
If the transactions contemplated hereby are abandoned pursuant to and in
accordance with the provisions of Section 6.1 hereof, all expenses will be paid
by the party incurring them.
ARTICLE 7
Additional Agreements
7.1. Forgiveness of Notes.
At or before Closing, the Shareholders agree to forgive or convert to capital of
Cobra all principal and any accrued but unpaid interest on those certain
unsecured promissory notes made by Cobra and reflected on the Unaudited Balance
Sheet and held by Michael McDermett and Georgia McDermett, which promissory
notes are in the original principal amount of $1,000,000 and are further
described on Schedule 7.1 hereof.
7.2. Employment Agreements.
At the Closing, the Shareholders each agree to execute and enter into employment
agreements with Yale E. Key, Inc., a subsidiary of Key, pursuant to which each
of the Shareholders agree to work full time at Cobra for one year past the
Closing Date. Such employment agreements shall each include noncompetition
agreements satisfactory to Key pursuant to which each of the Shareholders agree
not to compete with Yale E. Key (or any of its affiliates) for five years from
the Closing Date in the geographic area covering Texas and New Mexico.
7.3. Registration Rights.
7.3.1. Agreement to Register Resales
Key agrees that no later than April 3, 1997, it will file with the Commission on
Form S-3, or if Form S-3 is not available to Key, on such other form as is
available to Key for registration of its securities under the Securities Act, a
shelf registration statement pursuant to Rule 415 of the Securities Act (the
AShelf Registration Statement@) covering the offer and resale by the
Shareholders of all the Key Shares and will use its best efforts to cause the
Shelf Registration Statement to be declared effective by July 3, 1997 by the
Commission.
7.3.2. Effectiveness of Shelf Registration Statement Key agrees to maintain the
Shelf Registration Statement in effect for the maximum period allowable under
the regulations promulgated by the Commission; provided that if such maximum
period is less than three years from the Closing Date and if as of the end of
such maximum period not all of the Key Shares registered under the Shelf
Registration Statement have been sold, then within 10 days after the end of such
maximum period Key shall file either a post-effective amendment to the existing
Shelf Registration Statement or a new Shelf Registration Statement covering the
offer and resale by the Shareholders of all Key Shares not previously sold, and
Key will use its best efforts to cause the same to be declared effective
promptly by the Commission and will maintain such Shelf Registration Statement
in effect until the third anniversary of the Closing Date. In addition, Key
shall amend the Shelf Registration Statement and supplement the prospectus
included therein as and when required by Form S-3 or the applicable form, or by
the Securities Act.
7.3.3. Blue Sky Qualification.
In any offering pursuant to this Section, Key will use its best efforts to
effect any such registration and use its best efforts to effect such
qualification and compliance as may be required and as would permit or
facilitate the resale of such Key Shares, including, without limitation,
registration under the Securities Act, appropriate qualifications under
applicable blue-sky or other state securities laws and, appropriate compliance
with any other governmental requirements.
7.3.4. Registration Expenses.
All expenses (except for any legal fees for the Shareholders= counsel) relating
to the registration of the Key Shares pursuant to this Agreement (including, but
not limited to, the expenses of any qualifications under the blue-sky or other
state securities laws and compliance with governmental requirements of preparing
and filing any post-effective amendments or prospectus supplements required for
the lawful distribution of the Key Shares to the public in connection with such
registration) will be paid by Key.
7.3.5. Preparation; Reasonable Investigation.
Key will give the Shareholders the opportunity to participate in the preparation
of the Shelf Registration Statement, each prospectus included therein or filed
with the Commission, and each amendment thereof or supplement thereto, and will
give the Shareholders such access to its books and records and such
opportunities to discuss the business of Key with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary to conduct a reasonable investigation within the meaning of
the Securities Act.
7.3.6. Rights Non-Transferable.
The registration rights provided by this Section 7.3 are for the sole benefit of
the Shareholders, are personal in nature, and shall not be available to any
subsequent holder of the Key Shares.
7.3.7. Undertaking to File Reports and Cooperate in Rule 144 and Rule 145
Transactions.
For as long as the Shareholders are subject to Rule 144 or Rule 145 of the
Securities Act with respect to the Key Shares, Key will use reasonable
commercial efforts to timely file all annual, quarterly and other reports
required to be filed by it under Section 13 or 15(d) of the Exchange Act and the
rules and regulations of the Commission thereunder, as amended from time to
time. If the Shareholders propose to sell any Key Shares pursuant to Rule 144
and 145, Key shall cooperate with the Shareholders so as to enable such sales to
be made in accordance with applicable laws, rules and regulations, the
requirements of Key's transfer agent, and the reasonable requirements of the
broker through which the sales are proposed to be executed. Without limiting the
generality of the foregoing, Key shall, upon request, furnish with respect to
each such sale (i) a written statement certifying that Key has complied with the
public information requirements of Rule 144 and 145 and (ii) an opinion of Key's
counsel regarding such matters as Key's transfer agent or such stockholder's
broker may reasonably desire to confirm.
7.4. Further Assurances.
From time to time, as and when requested by any party hereto, any other party
hereto shall execute and deliver, or cause to be executed and delivered, such
documents and instruments and shall take, or cause to be taken, such further or
other actions as may be reasonably necessary to effectuate the transactions
contemplated hereby.
7.5. Cobra Employees`.
The Shareholders will use their reasonable best efforts to make all of Cobra=s
employees remain in the employment of Cobra as of the Closing Date. On the
Closing Date, Yale E. Key, Inc. (a subsidiary of Key) will continue the
employment of the Cobra employees. All such employees hired by Yale E. Key shall
be entitled to participate in Yale E. Key=s employee benefit plans, including
Yale E. Key=s medical plan, and shall receive full credit thereunder for all
purposes for their years of service at Cobra. With respect to any preexisting
condition, limitations or similar provisions contained in Yale E. Key=s medical
plan, service with Cobra shall be treated as service with Yale E. Key, and for
the purpose of determining deductibles, copayments and out-of-pocket maximums
under Yale E. Key=s plans for 1997, such former Cobra employees shall be given
credit under Yale E. Key=s medical plan for any back deductibles, copayments and
out-of-pocket maximums made by a former Cobra employee or his or her dependents
with respect to coverage under the medical plan sponsored by Cobra during 1997.
Notwithstanding the foregoing, only those Cobra employees who are covered by
Cobra=s medical plan as of the Closing Date shall be entitled to participate in
Yale E. Key=s medical plan after the Closing Date; provided, however, that Yale
E. Key, may, in its discretion, with any or all of Cobra employees who are not
covered by Cobra=s medical plan allow them to participate in Yale E. Key=s
medical plan, subject to the terms and conditions thereof.
7.6. Noncompetition.
Each of the Shareholders agrees that for a period of five years from the Closing
Date, such Shareholder will not, directly or indirectly, acting alone or as a
member of a partnership or as an officer, director, employee, consultant,
representative, holder of, or investor in as much as 3% of any security of any
class of any corporation or other business entity (i) engage in competition with
the business or businesses conducted by Cobra, Key or any affiliate of Key as of
the Closing Date, or in any service business the services of which are provided
and marketed by Cobra, Key or any affiliate of Key as of the Closing Date, in
New Mexico or Texas; (ii) request any present customers or suppliers of Cobra to
curtail or cancel their business with Cobra, Key or any affiliate of Key; (iii)
disclose to any person, firm or corporation any trade, technical or
technological secrets of Cobra, Key or any affiliate of Key or any details of
their organization or business affairs or (iv) induce or actively attempt to
influence any employee of Cobra, Key or any affiliate of Key to terminate his
employment. Each of the Shareholders agrees that if either the length of time or
geographical area set forth in this Section 7.6 is deemed too restrictive in any
court proceeding, the court may reduce such restrictions to those which it deems
reasonable under the circumstances. The obligations expressed in this Section
7.6 are in addition to any other obligations that the Shareholders may have
under the laws of the State of New Mexico requiring an employee of a business or
a shareholder who sells his stock in a corporation (including a disposition in a
merger) to limit his activities so that the goodwill and business relations of
his employer and of the corporation whose stock he has sold (and any successor
corporation) will not be materially impaired. Each of the Shareholders further
agrees and acknowledges that Cobra, Key and its affiliates do not have any
adequate remedy at law for the breach of threatened breach by such Shareholder
of this covenant, and agree that Cobra, Key or any affiliate of Key may, in
addition to the other remedies which may be available to it hereunder, file a
suit in equity to enjoin such Shareholder from such breach or threatened breach.
If any provisions of this Section 7.6 are held to be invalid or against public
policy the remaining provisions shall not be affected thereby. Each of the
Shareholders acknowledges that the covenants set forth in this Section 7.6 are
being executed and delivered by such Shareholder in consideration of the
covenants of Key contained in this Agreement, and for other good and valuable
consideration, receipt of which is hereby acknowledged.
7.7. Stock Certificate Issuance.
Key shall file an additional listing application with the American Stock
Exchange requesting the listing of the Key Shares. On the date Key receives
notice of approval of such request, Key shall send written instructions to its
transfer agent and registrar to issue, countersign and register one or more
certificates representing the Key Shares in the names of the Shareholders in
accordance with written instructions signed by each of the Shareholders and
deliver such certificate(s) to the Shareholders at the address specified in
Section 9.5 hereof.
7.8. Releases.
Following the Closing, Key agrees to repay in full the loan which Cobra has with
the Small Business Administration and is listed on Schedule 2.1.8.13 hereof.
With regard to any other indebtedness of Cobra which the Shareholders have
personally guaranteed, after the Closing, Key and Cobra shall use their
reasonable efforts to secure the release of any personal guaranties the
Shareholders have made with respect to Cobra=s indebtedness; provided, however,
neither Key nor Cobra shall have any obligation to prepay any such indebtedness
in order to secure such releases.
ARTICLE 8
Indemnification
8.1. Indemnification by the Shareholders.
In addition to an other remedies available to Key under this Agreement, or at
law or in equity, each of the Shareholders shall jointly and severally
indemnify, defend and hold harmless Key, and its officers, directors, employees,
agents, and stockholders, against and with respect to any and all claims, costs,
damages, losses, expenses, obligations, liabilities, recoveries, suits, causes
of action and deficiencies, including interest, penalties and reasonable
attorneys= fees and expenses in excess of $150,000 in the aggregate
(collectively, the ADamages@) that such indemnitees shall incur or suffer, which
arise, result from or relate to any breach of, or failure by, the Shareholders
to perform, their respective representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished or delivered to Key by the Shareholders under this
Agreement; provided however, that the Shareholders= aggregate obligations to
indemnify Key and the other parties identified above shall never exceed the
aggregate sum of $7,100,000; further provided, however, that the Shareholders
shall not be required to so indemnity, defend and hold harmless Key and its
officers, directors, employees, agents and stockholders, against and with
respect to any Damages incurred as a result of a breach by any of the
Shareholders of their respective representations and warranties in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to Key by any of the Shareholders under this Agreement for which
Key fails to provide written notice of a claim for such Damages to the
Shareholders on or before the expiration of the survival period (as specified in
Section 9.2 hereof) of the specific representation or warranty alleged to have
been breached.
8.2. Indemnification by Key.
In addition to any other remedies available to the Shareholders under this
Agreement, or at law or in equity, Key shall indemnify, defend and hold harmless
each of the Shareholders against and with respect to any and all Damages that
such indemnitees shall incur or suffer, which arise, result from or relate to
any breach of, or failure by Key to perform, any of its representations,
warranties, covenants or agreements in this Agreement or in any schedule,
certificate, exhibit or other instrument furnished or delivered to the
Shareholders by or on behalf of Key under this Agreement; provided, however,
that Key shall not be required to so indemnify, defend and hold harmless the
Shareholders and their employees and agents against and with respect to any
Damages incurred as a result of a breach by Key of any of its representations
and warranties in this Agreement or in any schedule, certificate, exhibit or
other instrument furnished or delivered to the Shareholders by Key under this
Agreement for which the Shareholders fail to provide written notice of a claim
for such Damages to Key on or before the expiration of the survival period (as
is specified in Section 9.2 hereof) of the specific representations or warranty
alleged to have been breached.
8.3. Additional Indemnification by Key.
In addition, Key will indemnify, defend and hold harmless the Shareholders
against any claims to which the Shareholders may become subject under the
Securities Act or otherwise, insofar as such claims (or actions or proceedings
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Shelf Registration Statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and Key will reimburse the Shareholders for any legal or
any other expenses reasonably incurred by them in connection with investigating
or defending any such claim (or action or proceeding in respect thereof);
provided that Key shall not be liable in any such case to the extent that a
claim (or action or proceeding in respect thereof) arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such Shelf Registration Statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to Key, in an
instrument duly executed by the Shareholders specifically stating that it is for
use in the preparation thereof.
8.4. Indemnification Procedures.
If any party hereto discovers or otherwise becomes aware of a claim for Damages
arising under this Article 8, such indemnified party shall give written notice
to the indemnifying party, specifying such claim, and may thereafter exercise
any remedies available to such party under this Agreement; provided, however,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of any obligations hereunder, to the
extent the indemnifying party is not materially prejudiced thereby. Further,
promptly after receipt by an indemnified party hereunder of written notice of
the commencement of any action or proceeding with respect to which a claim for
Damages arising under this Article 8 may be made, such indemnified party shall,
if a claim in respect thereof is to be made against any indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of any obligations hereunder, to
the extent the indemnifying party is not materially prejudiced thereby. In case
any such action is brought against an indemnified party, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof unless the
indemnifying party has failed to assume the defense of such claim and to employ
counsel reasonably satisfactory to such indemnified person. An indemnifying
party who elects not to assume the defense of a claim shall not be liable for
the fees and expenses of more than one counsel in any single jurisdiction for
all parties indemnified by such indemnifying party with respect to such claim or
with respect to claims separate but similar or related in the same jurisdiction
arising out of the same general allegations. Notwithstanding any of the
foregoing to the contrary, the indemnified party will be entitled to select its
own counsel and assume the defense of any action brought against it if the
indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party, and the expenses of such defense shall be paid by the
indemnifying party. No indemnifying party shall consent to entry of any judgment
or enter into any settlement with respect to a claim without the consent of the
indemnified party, which consent shall not be unreasonably withheld, or unless
such judgment or settlement includes as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim. No indemnified party shall consent to
entry of any judgment or enter into any settlement of any such action, the
defense of which has been assumed by an indemnifying party, without the consent
of such indemnifying party, which consent shall not be unreasonably withheld.
ARTICLE 9
Miscellaneous
9.1. Press Releases.
The Shareholders agree that they will not cause or permit Cobra to, make any
public statement or announcement concerning this Agreement or the transactions
contemplated herein without the prior consent of Key, subject, however, to the
right of any party to make such an announcement when in the opinion of its
counsel such public statement or announcement is legally required.
9.2. Survival of Representations, Warranties and Covenants. All representations
and warranties made by the parties hereto shall survive for a period of 24
months from the Closing Date, notwithstanding any investigation made by or on
behalf of any of the parties hereto; provided, however, that the representations
and warranties contained in Section 2.1.11 hereof shall survive until the
expiration of the applicable statute of limitations associated with the taxes at
issue. All statements contained in any certificate, schedule, exhibit or other
instrument delivered pursuant to this Agreement shall be deemed to have been
representations and warranties by the respective party or parties, as the case
may be, and shall also survive for a period of 24 months from the Closing Date
despite any investigation made by any party hereto or on its behalf. All
covenants and agreements contained herein shall survive as provided herein.
9.3. Entirety.
This Agreement embodies the entire agreement among the parties with respect to
the subject matter hereof, and all prior agreements between the parties with
respect thereto are hereby superseded in their entirety.
9.4. Counterparts.
Any number of counterparts of this Agreement may be executed and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one instrument.
9.5. Notices and Waivers.
Any notice or waiver to be given to any party hereto shall be in writing and
shall be delivered by courier, sent by facsimile transmission or first class
registered or certified mail, postage prepaid, return receipt requested.
If to Key: -----------------------------------------------------------
- --------------------------------------------------------
Addressed to: With a copy to:
- -----------------------------------------------------------
- --------------------------------------------------------
- -----------------------------------------------------------
- --------------------------------------------------------
Key Energy Group, Inc. Porter & Hedges, L.L.P.
Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor
East Brunswick, New Jersey 08816 Houston, Texas 77210-4744
Attention: Jack D. Loftis Attention: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
- ----------------------------------- --------------------------------------------
If to any Shareholder:
- -------------------------------- -----------------------------------------------
Addressed to: With a copy to:
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Michael and Georgia McDermett Lynch, Chappell & Alsup, a Professional
P.O. Box 9504 Corporation
Midland, Texas 79708-9504 Attention: James M. Alsup
The Summit, Suite 700
300 North Marienfeld
Midland, Texas 79701
Facsimile: (915) 683-2587
- ----------------------------------- --------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
9.6 Table of Contents and Captions.
The table of contents and captions contained in this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any article, section, or paragraph hereof.
9.7. Knowledge.
When the term Aknowledge@ is used in this Agreement, it shall mean the current
and actual knowledge of the person or entity to which such knowledge is
attributable.
9.8. Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the successors and assigns of the parties hereto.
9.9. Severability.
If any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants and restrictions shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such which may be hereafter declared
invalid, void or unenforceable.
9.10. Applicable Law.
This Agreement shall be governed by and construed and enforced in accordance
with the applicable laws of the State of Texas.
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and Key has
caused this Agreement to be signed in its corporate name by its duly authorized
representative, all as of the day and year first above written.
Key Energy Group, Inc.
By:
C. Ron Laidley, Vice President
Shareholders
Michael McDermett
Georgia McDermett
- --------------------------------------------------------------------------------
I:\PBOOKER\JMA\Key Energy Group\Cobra Stock Purchase Agreement.wpd
SCHEDULE 3.4
KEY SEC DOCUMENTS OF KEY ENERGY GROUP, INC.
1. Form 10-K. Annual Report of Key Energy Group, Inc. for fiscal year ended June
30, 1996. 2. Form 10-Q. Quarterly Report of Key Energy Group, Inc. for the
quarterly period ended September 30, 1996. 3. Form 8-K. Current Report of Key
Energy Group, Inc., dated July 3, 1996. 4. Form 8-K. Current Report of Key
Energy Group, Inc., dated September 16, 1996. 5. Notice of 1996 Annual Meeting
of Stockholders to be held on December 9, 1996; and Proxy Statement for the 1996
Annual Meeting of Stockholders to be held on December 9, 1996. 6. Private
Offering Memorandum, dated June 28, 1996, relating to 7% Convertible
Subordinated Debentures Due 2003.
v
I:\PBOOKER\JMA\Key Energy Group\Cobra Stock Purchase Agreement.wpd
Table of Contents
Page No.
ARTICLE 1Purchase and Sale.....................................................1
1.1. Purchase and Sale of Cobra Shares.....................................1
1.2. Time and Place of Closing.............................................1
ARTICLE 2 Representations and Warrantiesof the Shareholders............2
2.1. Representations and Warranties of the Shareholders....................2
2.1.1. Organization and Standing....................................2
2.1.2. Agreement Authorized and its Effect on Other Obligations.....2
2.1.3. Capitalization of Cobra......................................2
2.1.4. Ownership of Cobra Shares....................................3
2.1.5. No Subsidiaries..............................................3
2.1.6. Financial Statements.........................................3
2.1.7. Liabilities..................................................3
2.1.8. Additional Information.......................................4
2.1.8.1 Real Estate.........................................4
2.1.8.2 Machinery and Equipment.............................4
2.1.8.3 Receivables.........................................4
2.1.8.4 Payables............................................4
2.1.8.5 Insurance...........................................4
2.1.8.6 Contracts...........................................4
2.1.8.7 Employee Compensation Plans.........................4
2.1.8.8 Certain Salaries....................................5
2.1.8.9 Bank Accounts.......................................5
2.1.8.10 Employee Agreements................................5
2.1.8.11 Intellectual Property..............................5
2.1.8.12 Trade Names........................................5
2.1.8.13 Promissory Notes...................................5
2.1.8.14 Guaranties.........................................5
2.1.8.15 Leases.............................................5
2.1.8.16 Environment........................................5
2.1.9. No Defaults..................................................5
2.1.10. Absence of Certain Changes and Events........................6
2.1.10.1 Financial Change...................................6
2.1.10.2 Property Damage....................................6
2.1.10.3 Dividends..........................................6
2.1.10.4 Capitalization Change..............................6
2.1.10.5 Labor Disputes.....................................6
2.1.10.6 Other Material Changes.............................6
2.1.11. Taxes........................................................6
2.1.12. Intellectual Property........................................7
2.1.13. Title to and Condition of Assets.............................7
2.1.14. Contracts....................................................8
2.1.15. Licenses and Permits.........................................8
2.1.16. Litigation...................................................8
2.1.17. Environmental Compliance.....................................8
2.1.17.1 Environmental Conditions...........................8
2.1.17.2 Permits, etc.......................................9
2.1.17.3 Compliance.........................................9
2.1.17.4 Past Compliance....................................9
2.1.17.5 Environmental Claims...............................9
2.1.17.6 Renewals..........................................10
2.1.17.7 Asbestos and PCBs.................................10
2.1.18. Compliance with Other Laws..................................10
2.1.19. No ERISA Plans or Labor Issues; No Penalty for Termination of
Employee Compensation Plans.................................10
2.1.20. Investigations; Litigation..................................10
2.1.21. Absence of Certain Business Practices.......................11
2.1.22. Consents and Approvals......................................11
2.1.23. Finder=s Fee................................................11
2.2. Investment Representations..............................................11
2.2.1. Shareholders Investment Suitability and Related Matters......11
2.2.2. Key Shares Not Registered....................................11
2.2.3. Reliance on Representations..................................11
2.2.4. Investment Intent...........................................12
2.2.5. Permitted Resale.............................................12
2.2.6. Investor Sophistication......................................12
2.2.7. Availability of Information..................................12
2.2.8. Restrictive Legends..........................................12
ARTICLE 3Representations and Warranties of Key................................13
3.1. Organization and Standing...............................................13
3.2. Agreement Authorized and its Effect on Other Obligations................13
3.3. Capitalization..........................................................13
3.4. Reports and Financial Statements........................................14
3.5. Absence of Certain Changes and Events in Key............................14
3.5.1. Financial Change.............................................14
3.5.2. Other Material Changes.......................................14
3.6. Key=s Compliance with Other Laws.......................................14
3.7. Consents and Approvals..................................................14
3.8. Investigations; Litigation...............................................15
3.9. Finder=s Fee............................................................15
3.10. Key=s Access to Cobra=s Assets and Records.............................15
ARTICLE 4Obligations Pending Closing Date.....................................15
4.1. Agreements of Key and the Shareholders..................................15
4.1.1. Maintenance of Present Business..............................15
4.1.2. Maintenance of Properties....................................15
4.1.3. Maintenance of Books and Records.............................16
4.1.4. Compliance with Law..........................................16
4.1.5. Inspection...................................................16
4.1.6. Notice of Material Developments..............................16
4.2. Additional Agreements of the Shareholders...............................17
4.2.1. Prohibition of Certain Employment Contracts..................17
4.2.2. Prohibition of Certain Loans.................................17
4.2.3. Prohibition of Certain Commitments...........................17
4.2.4. Disposal of Assets...........................................17
4.2.5. Maintenance of Insurance.....................................17
4.2.6. Acquisition Proposals........................................17
4.2.7. No Amendment to Articles of Incorporation....................18
4.2.8. No Issuance, Sale, or Purchase of Securities.................18
4.2.9. Prohibition on Dividends.....................................18
4.3. Agreements of Key.......................................................18
4.3.1. No Amendment to Articles of Incorporation....................18
4.3.2. Notice of Material Developments..............................18
ARTICLE 5 Conditions Precedent to Obligations................................18
5.1. Conditions Precedent to Obligations of Shareholders.....................18
5.1.1. Representations and Warranties of Key True at Closing Date...18
5.1.2. No Material Litigation.......................................19
5.1.3. Opinion of Key Counsel.......................................19
5.1.4. Consent of Certain Parties in Privity With Key...............19
5.1.5. Employment Agreements........................................19
5.1.6. Real Estate Agreements.......................................19
5.2. Conditions Precedent to Obligations of Key..............................20
5.2.1. Representations and Warranties of Shareholders True at Closing
Date.........................................................20
5.2.2. No Material Litigation.......................................20
5.2.3. Opinion of Counsel...........................................20
5.2.4. Consent of Certain Parties in Privity with Cobra or the
Shareholders.................................................20
5.2.5. Employment Agreements........................................21
5.2.6. Real Estate Agreements.......................................21
5.2.7. Completion of Due Diligence..................................21
5.2.8. Environmental Restoration....................................21
ARTICLE 6Termination and Abandonment..........................................21
6.1. Termination.............................................................21
6.1.1. By Mutual Consent............................................21
6.1.2. By Key Because of Failure to Perform Agreements or Conditions
Precedent....................................................21
6.1.3. By the Shareholders Because of Key=s Failure to Perform
Agreements or Conditions Precedent...........................22
6.1.4. By Key or by the Shareholders Because of Legal Proceedings...22
6.1.5. By Key Because of a Material Adverse Change..................22
6.1.6. By the Shareholders Because of a Material Adverse Change.....22
6.1.7. By Key or by the Shareholders if No Closing by January 15,
1997.........................................................22
6.2. Effect of Termination...................................................22
6.3. Waiver of Conditions....................................................22
6.4. Expense on Termination..................................................22
6.5 Additional Agreements ..................................................23
7.1. Forgiveness of Notes....................................................23
7.2. Employment Agreements...................................................23
7.3. Registration Rights.....................................................23
7.3.1. Agreement to Register Resales................................23
7.3.2. Effectiveness of Shelf Registration Statement................23
7.3.3. Blue Sky Qualification.......................................23
7.3.4. Registration Expenses........................................24
7.3.5. Preparation; Reasonable Investigation........................24
7.3.6. Rights Non-Transferable......................................24
7.3.7. Undertaking to File Reports and Cooperate in Rule 144 and Rule
145 Transactions............................................24
7.4. Further Assurances......................................................24
7.5. Cobra Employees.........................................................25
7.6. Noncompetition..........................................................25
7.7. Stock Certificate Issuance..............................................26
7.8. Releases................................................................26
ARTICLE 8Indemnification......................................................26
8.1. Indemnification by the Shareholders.....................................26
8.2. Indemnification by Key..................................................27
8.3. Additional Indemnification by Key.......................................27
8.4. Indemnification Procedures..............................................27
ARTICLE 9Miscellaneous........................................................28
9.1. Press Releases..........................................................28
9.2. Survival of Representations, Warranties and Covenants...................28
9.3. Entirety................................................................29
9.4. Counterparts............................................................29
9.5. Notices and Waivers.....................................................29
9.6. Table of Contents and Captions..........................................29
9.7. Knowledge...............................................................30
9.8. Successors and Assigns..................................................30
9.9. Severability............................................................30
9.10. Applicable Law.........................................................30
ASSET PURCHASE AGREEMENT
AMONG
WELLTECH EASTERN, INC.,
KEY ENERGY GROUP, INC.,
TRI STATE WELLHEAD & VALVE, INC.
AND
JOHN C. BOZEMAN
MARCH 14, 1997
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of March 15,
1997 (the "Effective Date") among Key Energy Group, Inc., a Maryland corporation
("Key"), WellTech Eastern, Inc., a Delaware corporation and a wholly-owned
subsidiary of Key ("Buyer"), Tri State Wellhead & Valve, Inc., a Texas
corporation ("Seller"), and John C. Bozeman, the sole shareholder of the Seller
(the "Shareholder").
WITNESSETH:
WHEREAS, Seller desires to sell substantially all of its assets, and Buyer
desires to purchase such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
Article I
Purchase and Sale of Assets
1.1 Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, Seller hereby agrees to sell, convey, transfer, assign
and deliver to Buyer, and Buyer hereby agrees to purchase from Seller, all of
the assets of Seller existing on the date hereof other than the Excluded Assets
(defined below), whether, tangible, or intangible, including, without
limitation, the following assets of Seller relating to or used or useful in the
operation of the business of Seller as conducted by Seller on and before the
date hereof (the "Business") (all such assets being sold hereunder are referred
to collectively herein as the "Assets"):
(a) all tangible personal property of Seller (such as machinery, equipment,
furniture and fixtures, and vehicles including, without limitation, that which
is more fully described on Schedule 1.1(a) hereto (collectively, the "Tangible
Personal Property");
(b) all of the inventory of Seller, including, without limitation, that which is
more fully described on Schedule 1.1(b) hereto (collectively, the
"Inventories"), subject to changes in the ordinary course of business since the
Balance Sheet Date (as defined in Section 2.1.3 hereof
(c) all of Sellers' intangible assets collectively, the "Intangibles"),
including, without limitation, (i) all of Seller's rights to the names under
which it is incorporated or under which it currently does business, (ii) all of
Seller's rights to any patents, copyrights, trademarks, service marks, licenses
or sublicenses, trade names, written know-how, trade secrets and all other
similar proprietary data and the goodwill associated therewith (collectively,
the "Intellectual Property") used or held in connection with the business,
including those specifically listed on Schedule 1.1(c) hereto (collectively, the
"Seller Intellectual Property"), and (iii) all of Seller's rights in its phone
numbers and all of its account ledgers, sales and promotional literature,
computer software, books, records, files, and data (including customer and
supplier lists), and all other records of Seller relating to the Assets or the
Business, excluding the corporation minutes books of Seller;
(d) to the extent that Seller has the legal power to convey same, those leases,
subleases, contracts, contract rights, and agreements, (collectively, the
"Contracts") relating to the of the Business, specifically listed on Schedule
1.1(d) hereto (collectively, the Transferred "Contracts");
(e) to the extent that Seller has the legal power to convey same, all permits,
authorizations, certificates, approvals, registrations, variances, waivers,
exemptions, rights-of-way, franchises, ordinances, licenses and other rights of
every kind and character (collectively, the "Permits") of Seller obtained from
governments and governmental agencies relating to including, without limitation,
that which is more fully described on Schedule 1.1(e) hereto (collectively, the
"Seller Permits");
(f) the goodwill and going concern value of the Business; and
(g) to the extent that Seller has the legal power to convey same, all other or
additional privileges, rights, interests, properties and assets of Seller of
every kind and description and wherever located that are used in the Business,
intended for use in the Business, or necessary for the continued conduct of the
Business other than the Excluded Assets. The Assets described in this
subparagraph (g) shall include the right to complete all work in progress of
Seller as it exists at 12:01 A.M. on March 15, 1997 (the Effective Date"). All
customer payments due or to become due with respect to such work in process
arising out of services performed or products furnished prior to the Effective
Date shall be retained by Seller and all customer payments due or to become due
with respect to services furnished and products furnished subsequent to the
Effective Date shall be the property of Buyer. All expenses incurred, including
expenses of wages or salaries of employees, incurred prior to the Effective Date
shall remain the liability of Seller and all such expenses incurred after the
Effective Date shall be the liability of Buyer.
The Assets shall not include the following (collectively, the "Excluded
Assets"); (i) notes or indebtedness owed to Seller including all of Seller's
accounts receivable and all other rights of Seller to payment for services
rendered by Seller before the Effective Date the ("Seller Receivables"); (ii)
all cash accounts, cash equivalents or similar investments of Seller and all
petty cash of Seller kept on hand for use in the Business; (iii) all right,
title and interest of Seller in and to all prepaid rentals, other prepaid
expenses, prepaid taxes, bonds, deposits and financial assurance requirements,
and other current assets relating to any of the Assets of the Business; (iv) the
corporate charter, corporate seal, organizational documents and minute books of
Seller; (v) all assets in possession of Seller but owned by third parties; (vi)
all rights under the Contracts of Seller not specifically assigned to Buyer
hereunder; and (viii) Seller's right, title and interest in and to this
Agreement; and (ix) two hot oiler trucks, all tubing owned by Seller, and one
end dump trailer.
1.2 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of Seller contained herein,
Buyer (i) agrees to pay to Seller, on the date hereof, the amount of $550,000 in
the form of a cashier's check or bank check or wire transfer of immediately
available funds to an account designated by Seller; and (ii) Key, for the
benefit of Buyer, agrees to issue, in accordance with Section 4.2 hereof, 83,770
shares (the "Key Shares") of common stock, par value $.01 per share, of Key (the
"Key Common Stock").
1.3 Assumed Liabilities. Buyer shall assume only those liabilities of Seller
associated with Buyer's assumption of the Transferred Contracts. Seller shall be
responsible for all other liabilities of Seller (collectively, the "Retained
Liabilities"), including, without limitation all obligations and liabilities
owed by Seller to the Employees (as defined in Section 2.1.10 hereof).
1.4 Assets Owned by Shareholder. Buyer and Seller acknowledge that some of the
Assets listed on Schedule 1.1(a) hereto are in fact owned by Shareholder rather
than by Tri-State. With respect to all such Assets owned by Shareholder, the
term "Seller" as used in this Article I shall include Shareholder.
Article II
Representations and Warranties
of Seller and the Shareholder
2.1 Representations and Warranties of Seller. Each of Seller and the Shareholder
jointly and severally represents and warrants to Buyer and Key as follows:
2.1.1. Organization and Good Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
organization, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to so qualify or be licensed would
not have a material adverse effect on the Assets or the Business.
2.1.2. Agreements Authorized and their Effect on Other Obligations. The
execution and delivery of this Agreement and all other agreements executed by
Seller or the Shareholder and delivered to Buyer or Key in connection herewith
(the "Seller Agreements") have been authorized by all necessary corporate action
on the part of Seller, and this Agreement and the Seller Agreements are valid
and binding obligations of Seller and the Shareholder, as applicable,
enforceable (subject to normal equitable principals) against such parties in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting
the rights of creditors generally. The execution, delivery and performance of
this Agreement and the Seller Agreements and the consummation of the transaction
contemplated hereby and thereby, will not conflict with or result in a violation
or breach of any term or provision of, nor constitute a default under (i) the
charter or bylaws of Seller, (ii) any obligation, indenture, mortgage, deed of
trust, lease, contract or other agreement to which Seller or the Shareholder is
a party or by which Seller or the Shareholder or their respective properties are
bound; or (iii) any provision of any law, rule, regulation, order, permits,
certificate, writ, judgment, injunction, decree, determination, award or other
decision of any court, arbitrator, or other governmental authority to which
Seller or the Shareholder or any of their respective properties are subject.
2.1.3. Financial Statement; Absence of Certain Changes and Events. Seller has
delivered to Buyer copies of certain unaudited financial statements of Seller.
Such financial statements are attached hereto as Schedule 2.1.3 (collectively,
the "Seller Financial Statements") and include Seller's balance sheet (the
"January 31, Balance Sheet") as at January 31, 1997 (the "Balance Sheet Date").
The Seller Financial Statements present fairly and fully the financial condition
of the Seller as at the dates and for the periods indicated thereon, subject, in
the case of interim financial statements, to normal year end adjustments. Other
than as a result of the transactions contemplated by this Agreement, since the
Balance Sheet Date, there has not been (whether as a result of a single event or
in the aggregate):
(a) Financial Change. Any material adverse change in the Assets, the Business or
the financial condition, operations, liabilities or prospects of Seller;
(b) Property Damage. Any material damage, destruction, or loss to any of the
Assets or the Business (whether or not covered by insurance);
(c) Waiver. Any waiver or release of a material right of or claim held by
Seller;
(d) Change in Assets. Any acquisition, disposition, transfer, encumbrance,
mortgage, pledge or other encumbrance of any material asset of Seller other than
in the ordinary course of business;
(e) Labor Disputes. Any labor disputes between Seller and its employees; or
(f) Other Changes. Any other event or condition known to either Seller or the
Shareholder that particularly pertains to and has or is likely to have a
material adverse effect on the Assets, the operations and the Business or the
financial condition or prospects of Seller.
2.1.4. Transferred Contracts. Schedule 1.1(d) hereto sets forth a complete list
of all Contracts, relating to the Assets or the operation, of the Business. All
of the Transferred Contracts are in full force and effect, and constitute valid
and binding obligations of Seller. Seller is not, and no other party to any
Transferred Contract is, in default thereunder, and no event has occurred which
(with or without notice, lapse of time, or the happening of any other event)
would constitute a default thereunder. No Transferred Contract has been entered
into on terms which could reasonably be expected to have a material adverse
effect on the use of the Assets by Buyer. Neither Seller nor the Shareholder has
received any information which would cause such party to conclude that any
customer of Seller will (or is likely to) cease doing business with Buyer, as
successor the Business, as a result of the consummation of the transactions
contemplated hereby.
2.1.5. Title to and Condition of Assets. Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). Except as noted on Schedule 1.1(a), all of the Assets are in a
state of good operating condition and repair, ordinary wear and tear excepted,
and are free from any known defects except as may be repaired by routine
maintenance and such minor defects as to not substantially interfere with the
continued use thereof in the conduct of normal operations. To the knowledge of
either Seller or the Shareholder, all of the Assets conform to all applicable
laws governing their use. No notice of any violation of any law, statute,
ordinance, or regulation relating to any of the Assets has been received by
Seller or the Shareholder, except such as have been fully complied with. The
term "Encumbrances" means all liens, security interests, pledges, mortgages,
deeds of trust, claims, rights of first refusal, options, charges, restrictions
or conditions to transfer or assignment, liabilities, obligations, privileges,
equities, easements, rights of way, limitations, reservations, restrictions, and
other encumbrances of any kind or nature.
2.1.6. Licenses and Permits. Schedule 1.1(e) hereto sets forth a complete list
of all Permits necessary under law or otherwise for the ownership, operation,
maintenance or use of the Assets and for the conduct of the Business in the
manner in which the Assets are now being owned, operated, maintained and used
and the manner in which the Business is being conducted. Each of the Seller
Permits and Sellers' rights with respect thereto is valid and subsisting, in
full force and effect, and enforceable by Seller subject to administrative
powers of regulatory agencies having jurisdiction. Seller is in compliance in
all material respects with the terms of each of the Seller Permits. None of the
Seller Permits has been, or to the knowledge of Seller or the Shareholder, are
threatened to be, revoked, canceled, suspended or modified. Upon consummation of
the transactions contemplated hereby, each of the Seller Permits which may be
lawfully assigned by Seller shall have been validly assigned to Buyer, will be
valid and subsisting in full force and effect, and will be enforceable by Buyer
subject to administrative powers of regulatory agencies having jurisdiction.
2.1.7. Intellectual Property. Schedule 1.1(c) hereto sets forth a complete list
of all Intellectual Property material to or necessary for the cooperation of the
Assets and the continued conduct of the Business. The Seller Intellectual
Property is owned or licensed by Seller free and clear of any Encumbrances.
Seller has not granted to any other person any license to use any Seller
Intellectual Property. Use of the Seller Intellectual Property by Buyer will
not, and the use of the Seller Intellectual Property by Seller did not,
infringe, misappropriate or conflict with the intellectual property rights of
others. Neither Seller nor the Shareholder has received any notice of
infringement, misappropriation, or conflict with the intellectual property
rights of others in connection with the use by Seller of the Seller Intellectual
Property.
2.1.8. Necessary Consents. Seller will use its best efforts to obtain and
deliver to Buyer all consents to assignment or waivers thereof required to be
obtained from any governmental authority or from any other third party in order
to validly transfer the Assets hereunder, including the assignment of the Seller
Permits and the Transferred Contracts.
2.1.9. Environmental Matters. None of the current or past operations of the
Business or the Assets is being or has been conducted or used in such a manner
as to constitute a violation of any Applicable Environmental Laws (defined
below). Neither Seller nor the Shareholder has received any notice (whether
formal or informal, written or oral) from any entity, governmental agency or
individual regarding any existing, pending or threatened investigation or
inquiry related to violations of any Applicable Environmental Laws or regarding
any claims for remedial obligations or contribution for removal costs or damages
under any Applicable Environmental Laws. There are no writs, injunction decrees,
orders or judgments outstanding, or lawsuits, claims, proceedings or
investigations pending or, to Seller's or the Shareholder's knowledge,
threatened relating to the ownership, use, maintenance or operation of the
Assets or the conduct of the business of Seller, nor, to Seller's or
Shareholder's knowledge, is there any basis for any of the foregoing. Buyer is
not required to obtain any permits, licenses or similar authorizations pursuant
to any Applicable Environmental Laws in effect as of the date hereof to operate
and use any of the Assets for their current or proposed purposes and uses. To
Seller's or the Shareholder's knowledge, the Assets include all environmental
and pollution control equipment necessary for compliance with all Applicable
Environmental Laws. Those Hazardous Materials (defined below) which have been or
are currently being used by Seller in the operation of the Assets are listed in
Schedule 2.1.9 hereto. No other Hazardous Materials have been or are currently
being used by Seller in the operation of the Assets. To Seller's or the
Shareholder's knowledge, there are no, and there have never been any,
underground storage tanks (as defined under Applicable Environmental Laws)
located under Seller's properties, whether owned or leased. There are no
environmental conditions or circumstances, including the presence or release of
any Hazardous Materials, or any property owned or leased by Seller, or on any
property on which Hazardous Materials generated by Seller's operations or the
use of the Assets were disposed of, which would result in a material adverse
change in the Business. The term "Applicable Environmental Laws" means any
applicable federal, state or local law, statute, ordinance, rule, regulation,
order or notice requirement pertaining to human health, the environment, or to
the storage, treatment, discharge, release or disposal of hazardous wastes or
hazardous substances, including, without limitation (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.
ss.ss.9601 et seq.), as amended from time to time, including, without
limitation, as amended pursuant to the Superfund Amendments and Reauthorization
Act of 1986 ("CERCLA"), and regulations promulgated thereunder, (ii) the
Resources Conservation and Recovery Act of 1976 (42 U.S.C. ss.ss.6901 et seq.),
as amended from time to time ("RCRA"), and regulations promulgated thereunder,
(iii) the Federal Water Pollution Control Act (U.S.C.A. ss.9601 et seq.), as
amended, and regulations promulgated thereunder, and (iv) any applicable state
laws or regulations relating to the environment. The term "Hazardous Materials"
means (x) asbestos, polychlorinated biphenyls, urea formaldehyde, lead based
paint, radon gas, petroleum, oil, solid waste, pollutants and contaminants, and
(y) any chemicals, materials, wastes or substances that are defined, regulated,
determined or identified as toxic or hazardous in any Applicable Environmental
Laws, including, but not limited to, substances defined as "hazardous
substances," "hazardous materials," or "hazardous waste" in CERCLA, RCRA, the
Hazardous Materials Transportation Act (49 U.S.C. ss. 1801, et seq.), or
comparable state and local statutes or in the regulations adopted and
publications promulgated pursuant to said statutes.
2.1.10. Employees. Schedule 2.1.10 hereto is a complete and accurate listing of
all employees of Seller that are involved in the ownership, operation,
maintenance or use of the Assets or the conduct of the Business (the
"Employees"). Seller does not currently sponsor, maintain or contribute to, and
has not at anytime sponsored, maintained or contributed to any employee benefit
plan which is or was subject to any provisions of the Employee Retirement Income
Security Act of 1974, as amended. No employee benefit plan of Seller will, by
its terms or applicable law, become binding upon or an obligation of Buyer.
Buyer has not engaged in any unfair labor practices which could reasonably be
expected to result in a material adverse effect on the Assets or the Business.
Seller does not have any dispute with any of its existing or former employees.
There are no labor disputes or to the knowledge of Seller, any disputes
threatened by current or former employees of Seller.
2.1.11. Investigations; Litigation. No investigation or review by any
governmental entity with respect to Seller or any of the transactions
contemplated by this Agreement or the Seller Agreements is pending or, to the
best of Seller's knowledge, threatened, nor has any governmental entity
indicated to Seller an intention to conduct the same. There is no suit, action,
or legal, administrative, arbitration, or other proceeding or governmental
investigation pending to which Seller is a party or, to the knowledge of Seller
or Shareholder, might become a party or which particularly affects the Assets or
the Business.
2.1.12. Absence of Certain Business Practices. Neither Seller, the Shareholder
nor any officer, employee or agent of Seller, nor any other person acting on its
or his behalf, has, directly or indirectly, within the past five years, given or
agreed to give any gift or similar benefit to any customer, supplier, government
employee or other person who is or may be in a position to help or hinder the
profitable use of the Assets or conduct of the Business (or to assist Seller in
connection with any actual or proposed transaction) which if not given in the
past, might have had a material adverse effect on the profitable use of the
Assets or conduct of the Business , or if not continued in the future, might
materially adversely effect the profitable use of the Assets or conduct of the
Business.
2.1.13. Solvency. Seller is not now insolvent, nor will Seller be rendered
insolvent by the occurrence of the transactions contemplated by this Agreement.
The term "insolvent" means that the sum of the present fair and saleable value
of Seller's assets does not and will not exceed its debts and other probable
liabilities, and the term "debts" includes any legal liability whether matured
or unmatured, liquidated or unliquidated, absolute fixed or contingent, disputed
or undisputed or secured or unsecured.
2.1.14. Untrue Statements. Seller has made available to Buyer and Key true,
complete and correct copies of all contracts, documents concerning all
litigation and administrative proceedings, licenses, permits, insurance
policies, lists of suppliers and customers, and records relating principally to
the Assets and the business, and such information covers all commitments and
liabilities of Seller relating principally to the Assets. This Agreement, the
Seller Agreements and the other instruments executed by Seller, or the
Shareholder and delivered to Buyer or Key in connection herewith do not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements made herein and therein not misleading in any
material respect.
2.1.15. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Seller, the Shareholder
and their counsel directly with Buyer, Key and their counsel, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or any similar payment.
2.1.16. Investment Representations of Seller. Pursuant to Sections 1.2 and 4.2
hereof, Key will issue the Key shares to the Shareholder. In connection with
this issuance, each of Seller and the Shareholder acknowledges, represents and
agrees that :
(a) The Shareholder is an "accredited investor" as such term is defined in
Regulation D under the Securities Act of 1933, as amended (the "Securities
Act").
(b)(i) The Shareholder, through his own operations, is knowledgeable in
operations of the type conducted by Key, (ii) Key has made available to Seller
and the Shareholder extensive legal, financial, accounting and other business
records for examination by Seller and the Shareholder, (iii) Key has made its
principal executive and operating personnel available for consultation with the
designated representatives of Seller and the Shareholder, (iv) Seller and the
Shareholder have made an extensive investigation of Key's assets and
liabilities, business and financial affairs, and operations, (v) the Shareholder
is aware of the risks associated with ownership of the Key Shares, (vi) the
Shareholder is capable of bearing the financial risks associated with such
ownership, and (vii) while recognizing that he cannot effectively waive the
protections afforded to it under the Securities Act, he regards himself as an
entity of such financial capacity, sophistication, and prudence that he does not
require the protections afforded to him by the Securities Act, and is relying
upon his own investigation of Key in making his decision to enter into this
Agreement.
(c) The Key Shares have not been registered under the Securities Act, or
registered or qualified under any applicable state securities laws;
(d) The Key Shares are being issued to the Shareholder in reliance upon
exemptions from such registration or qualification requirements, and the
availability of such exemptions depends in part upon the Shareholder's bona fide
investment intent with respect to the Key Shares;
(e) Seller's acquisition of the Key Shares is solely for its own account for
investment, and Seller is not acquiring the Key Shares for the account of any
other person or with a view toward resale, assignment, fractionalization, or
distribution thereof;
(f) Seller shall not offer for sale, sell, transfer, pledge, hypothecate or
otherwise dispose of any of the Key Shares except in accordance with the
registration requirements of the Securities Act and applicable state securities
laws or upon delivery to Key of an opinion of legal counsel reasonably
satisfactory to Key that an exemption from registration is available;
(g) Since the Key Shares have not been registered under the Securities Act or
applicable state securities laws, Seller must bear the economic risk of holding
the Key Shares for an indefinite period of time, and Seller is capable of
bearing such risk; and
(h) In addition to any other legends required by law or the other agreements
entered into in connection herewith, the certificate evidencing the Key Shares
will bear a conspicuous restrictive legend substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS,
AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT
AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF
LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
2.2. Limitation on Representations. The existence of an inaccuracy or
incorrectness with respect to a representation contained in this Article II
shall not constitute a misrepresentation or a breach of any such representation
unless such inaccuracy or incorrectness shall be material. An inaccuracy or
incorrectness shall be considered material if:
(a) it is contained in a financial statement delivered by Seller to Buyer prior
to Closing and relates to a financial matter which could reasonably be expected
to be relied on by Buyer in determining the advisability of the purchase
described herein or the amount of consideration to be paid; or,
(b) it results in an actual financial loss to Buyer.
2.3 To the Knowledge of Seller. The term "to Seller's or the Shareholder's
knowledge" or any similar term, where any representation or warranty contained
in Article II is expressly qualified by reference to such phrase, shall mean
that Seller acting by and through its duly appointed and authorized officers,
confirms that as to the matters that are the subject of such representations and
warranties, such officers either have actual knowledge of such matters or have
made inquiries with respect to such matters, sufficient to allow Seller to make
such representation or warranty in good faith without actual knowledge that such
representation is untrue.
Article III
Representations and Warranties of Buyer and Key
3.1 Representations and Warranties of Buyer. Buyer represents and warrants to
Seller and the Shareholder as follows:
3.1.1. Organization and Standing. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware, has full requisite
corporate power and authority to carry on its business as it is currently
conducted, and to own and operate the properties currently owned and operated by
it, and is duly qualified or licensed to do business and is in good standing as
a foreign corporation authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business conducted by
it would make such qualification or licensing necessary, except where the
failure to so qualify or be licensed would not have a material adverse effect on
the business of Buyer.
3.1.2. Agreement Authorized and its Effect on Other Obligations. The execution
and delivery of this Agreement and all other agreements executed by Buyer and
delivered to Seller or the Shareholder in connection herewith (the "Buyer
Agreements") have been authorized by all necessary corporate action on the part
of Buyer, and this Agreement and the Buyer Agreements are valid and binding
obligations of Buyer, enforceable (subject to normal equitable principals)
against Buyer in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement and the Buyer Agreements and the consummation of
the transactions contemplated hereby and thereby will not conflict with or
result in a violation or breach of any term or provision of, nor constitute a
default under (i) the charter or bylaws of Buyer; (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Buyer is a party or by which Buyer or its properties are bound; or (iii) any
provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator or other governmental authority to which Buyer or any of its
properties is subject.
3.1.3. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer and its counsel
directly with Seller, the Shareholder and their counsel, without the
intervention of any other person as the result of any act of Buyer in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payment.
3.2 Representations and Warranties of Key. Key represents and warrants to Seller
and the Shareholder as follows:
3.2.1. Organization and Standing. Key is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland, has full
requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary, except
where the failure to so qualify or be licensed would not have a material adverse
effect on the business of Buyer.
3.2.2. Agreement Authorized and its Effect on Other Obligations. The execution
and delivery of this Agreement and all other agreements executed by Key and
delivered to Seller, or the Shareholder in connection herewith (the "Key
Agreements") have been authorized by all necessary corporate action on the part
of Key, and this Agreement and the Key Agreements are valid and binding
obligations of Key, enforceable (subject to normal equitable principals) against
Key in accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting
the rights of creditors generally. The execution, delivery and performance of
this Agreement and the Key Agreements and the consummation of the transactions
contemplated hereby and thereby will not conflict with or result in a violation
or breach of any term or provision of, nor constitute a default under (i) the
charter or bylaws of Key; (ii) any obligation, indenture, mortgage, deed of
trust, lease, contract or other agreement to which Key is a party or by which
Key or its properties are bound; or (iii) any provision of any law, rule,
regulation, order, permits, certificate, writ, judgment, injunction, decree,
determination, award or other decision of any court, arbitrator or other
governmental authority to which Key or any of its properties is subject.
3.2.3. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Key and its counsel
directly with Seller, the Shareholder and their counsel, without the
intervention by any other person as the result of any act of Key in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payments.
Article IV
Additional Agreements
4.1 Noncompetition. Except as otherwise consented to or approved in writing by
Buyer and Key, each of Seller and the Shareholder agrees that for a period of 60
months following the Effective Date, directly or indirectly, acting alone or as
a member of a partnership or a holder of, or investor in as much as 5% of any
security of any class of any corporation or other business entity (i) engage in
any business selling and installing wellhead and down hole equipment, providing
drilling, workover or well services, engaging in oil field tool rental, or
providing any other oil field services previously provided by Seller during the
twenty-four (24) month period in Texas, Oklahoma or Kansas (the "Territory");
(ii) request any present customers or suppliers of Seller to curtail or cancel
their business with Buyer or Key; (iii) disclose to any person, firm or
corporation any trade, technical or technological secrets of Seller, Buyer or
Key or any details of their organization or business affairs or (iv) induce or
actively attempt to influence any employee of Buyer or Key to terminate his
employment. Seller agrees that if either the length of time or geographical area
of the Territory is deemed too restrictive in any court proceeding, the court
may reduce such restrictions to those which it deems reasonable under the
circumstances. The obligations expressed in this Section 4.1 are in addition to
any other obligations that Seller or the Shareholder may have under the laws of
any state requiring a corporation who sells its assets (and the shareholders of
such corporation) to limit its activities so that the goodwill and business
relations being transferred with such assets will not be materially impaired.
Seller further agrees and acknowledge that Buyer and Key do not have any
adequate remedy at law for the breach or threatened breach by Seller of this
covenant, and agree that Buyer or Key may, in addition to the other remedies
which may be available to them hereunder, file a suit in equity to enjoin Seller
from such breach or threatened breach. If any provisions of this Section 4.1 are
held to be invalid or against public policy, the remaining provisions shall not
be affected thereby. Seller acknowledges that the covenants set forth in this
Section 4.1 are being executed and delivered by Seller in consideration of the
covenants of Buyer and Key contained in this Agreement, and for other good and
valuable consideration, receipt of which is hereby acknowledged.
4.2 Issuance of Key Shares. On the date hereof, Key shall file an additional
listing application with the American Stock Exchange requesting the listing of
the Key Shares. On the date Key receives notice of approval of such request, Key
shall send written instructions to its transfer agent and registrar to issue,
countersign and register one or more certificates representing the Key Shares in
the name of the Shareholder and deliver such certificate(s) to the Shareholder
at the address specified in Section 6.4 hereof. In the event that the American
Stock Exchange does not approve the listing application, the parties hereto
shall negotiate in good faith the appropriate consideration to replace such
shares.
4.3 Employment of the Shareholder. Buyer hereby agrees to employ the Shareholder
as Buyer's area manager at a salary of $5,000 per month, a monthly vehicle
allowance and those additional benefits now afforded buyer's employees
commensurate with shareholder's area manager position with Buyer. 4.4 Hiring
Employees. Effective as of the date hereof, all of the Employees shall be
terminated by Seller. Buyer may, but shall be under no obligation to, hire any
of the Employees effective as of the date hereof. Except as provided in Section
1.4 hereof, Buyer shall have no liability or obligation with respect to any
employee benefits of any Employee except those benefits that accrue pursuant to
such Employees' employment with Buyer on or after the date hereof. Seller and
the Shareholder shall cooperate with Buyer in connection with any offer of
employment from Buyer to the Employees and use its best efforts to cause the
acceptance of any and all such offers. All Employees hired by Buyer shall be
at-will employees of Buyer.
4.5 Registration Rights. Key has delivered to the Shareholder a copy of the
Registration Right Agreement among Key, McMahan Securities Co. L.P. and Rauscher
Pierce Refsnes, Inc. dated July 3, 1996 (the "Registration Rights Agreement")
pursuant to which Key has agreed to (i) file a registration statement (the
"Shelf Registration Statement") with the SEC on or before April 3, 1997
registering the resale of certain shares of Key Common Stock issuable upon
conversion of certain outstanding convertible debentures of Key and (ii) use its
best efforts to cause the Shelf Registration Statement to be declared effective
by the SEC on or before July 3, 1997. Key hereby agrees to include the resale of
the Key Shares in the Shelf Registration Statement; provided, that (i) each of
the Shareholders shall have all duties and obligations of a "Holder" under the
Registration Rights Agreement and (ii), notwithstanding the inclusion of the
resale of the Key Shares in the Shelf Registration Statement, the Shareholders
shall have no right to participate in an underwritten offering, if any, of Key
Common Stock by those debenture holders exercising their rights under the
Registration Rights Agreement. In the event that the Shelf Registration
Statement is declared effective by July 3, 1997, Key shall, subject to the
"Black-out" provision in Section 4(b)(i) of the Registration Rights Agreement,
use its best efforts to keep such Shelf Registration Statement continuously
effective, supplemented and amended as required to the extent necessary to
ensure that it is available for resale of the Key Shares and to insure that it
conforms with 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 (3)
years following the date of issuance of the Key Shares or such shorter period
that will terminate when all of the Key Shares have been sold pursuant to the
Shelf Registration Statement or pursuant rule 144 of the Securities Act. If Key
shall fail to keep such registration statement so effective, then during any
period prior to the date termination is allowed during which the Shelf
Registration Statement is not effective in accordance with the foregoing
provision, Seller or Shareholder shall have a Put Right to the same extent and
exercisable in the same manner as provided in the following sentence relating to
the Put Right available during the period July 3, 1997 through August 3, 1997,
in the event the Shelf Registration Statement does not become effective. In the
event that the Shelf Registration Statement is not declared effective by the SEC
by July 3, 1997, Seller shall have the right (the "Put Right") to require Key to
purchase the Key Shares from Seller for an aggregate purchase price equal to
ninety- percent (90%) of the aggregate market value of the Key Shares calculated
using the per share closing price on July 3, 1997 as reported by the American
Stock Exchange. The Put Right shall be exercised by delivery of written notice
to Key on or before August 3, 1997, after which date the Put Right shall expire.
During any period in which Seller or Shareholders holds a Put Right pursuant to
this Section 4.5, such Put Right may be exercised as often as Seller or
Shareholder desires and such Put Right may be exercised with respect to all or
such portion of the Key Shares as Seller or Shareholder may desire. The rights
of Seller set forth in this paragraph shall be transferable to Shareholder but
not otherwise. To the extent shares have been transferred to Shareholder, the
term Seller shall include shareholder.
4.6 Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on Schedule
4.6 hereto, and shall report this transaction for federal income tax purposes in
accordance with the allocation so agreed upon. The parties hereto for themselves
and for their respective successors and assigns covenant and agree that they
will file coordinating Form 8594's in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
4.7 Name Change. Seller and the Shareholder shall, within thirty (30) days from
the date hereof, caused to be filed (i) with the secretary of state of Seller's
state of organization an amendment to the charter (or other applicable
organization document) of Seller changing the name of Seller from its current
name to a name that is not similar to such name or such documents required to
effect the dissolution of Seller so that the separate corporate existence of
Seller is terminated, and (ii) with the appropriate authorities of Seller's
state of organization and any other states such documents as are required to
effect such name change or dissolution, including without limitation, amendments
or withdrawals of certificates of authority to do business and assumed name
filing. Seller and the Shareholder shall, within five (5) business days from the
date of its receipt of confirmation of such filings from the applicable state
authorities, cause to be delivered to Buyer copies of all such confirmations.
4.8 Collection of Receivables. Buyer shall cooperate with and assist Seller in
collecting the Seller Receivables, which cooperation and assistance shall
include promptly forwarding to Seller all payments received by Buyer that are
made in respect of the Seller Receivables. Seller shall cooperate with and
assist Buyer in collecting receivables of Buyer, which cooperation and
assistance shall include promptly forwarding to Buyer all payments received by
the Seller that are made in respect of Buyer's receivables.
4.9 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby. 4.10 Access to Records. Buyer shall
preserve all account ledgers, computer software and data, books, records, files
and data transferred to Buyer pursuant to this Agreement for a period of at
least six (6) years and shall at any reasonable time allow Seller or Shareholder
full access to such records and shall, at Seller's or Shareholder's expense,
furnish copies of any such material as may be requested.
Article V
Indemnification
5.1 Indemnification by Seller and the Shareholder. In addition to any other
remedies available to Buyer and Key under this Agreement, or at law or in
equity, each of Seller and the Shareholder shall, jointly and severally,
indemnify, defend and hold harmless each of Buyer and Key, and their respective
officers, directors, employees, agents and stockholders, against and with
respect to any and all claims, costs, damages, losses, expenses, obligations,
liabilities, recoveries, suits, causes of action and deficiencies, including
interest, penalties and reasonable attorneys' fees and expenses (collectively,
the "Damages") that such indemnitees shall incur or suffer, which arise, result
from or relate to (i) any breach of, or failure by Seller or the Shareholder to
perform, their respective re presentations, warranties, covenants or agreements
in this Agreement or in any schedule, certificate, exhibit or other instrument
furnished or delivered to Buyer and Key by Seller or the Shareholder under this
Agreement and (ii) the Retained Liabilities.
5.2 Indemnification by Buyer and Key. In addition to any other remedies
available to Seller or the Shareholder under this Agreement, or at law or in
equity, Buyer and Key shall, jointly and severally, indemnify, defend and hold
harmless the Shareholder, Seller and its officers, directors, employees and
agents against and with respect to any and all Damages that such indemnitees
shall incur or suffer, which arise, result from or relate to any breach of, or
failure by Buyer or Key to perform any of its representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to Seller or the Shareholder
by or on behalf of Buyer or Key under this Agreement.
5.3 Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 5.1 or Section
5.2 of this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. Further, promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Article 5, such indemnified party shall, if a claim
in respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
Article VI
Miscellaneous
6.1 Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive without
limitation despite any investigation made by any party hereto or on its behalf.
6.2 Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
6.3 Counterparts. This Agreement may be executed by facsimile signature and in
one or more counterparts, each of which shall deemed to be an original
instrument, but all of which together shall constitute one and the same
instrument.
6.4 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested. If to Buyer or Key
Addressed to:
Key Energy Group, Inc.
Two Tower Center, Tenth Floor
East Brunswick, New Jersey 08816
Attn: General Counsel
Facsimile: (908) 247-5148
With Copy to:
William P. Parker, P.C.
Attorney at Law
2212 NW 50th, Suite 163
Oklahoma City, OK 73112
If to Seller or the Shareholder
Addressed to:
Tri State Wellhead & Valve, Inc.
102 S. Industrial
Perryton, TX 79070
Attn: John C. Bozeman
Fax: (806) 435-6555
With Copy to:
Gerald Bybee, Attorney
Underwood Law Firm
PO Box 9158
Amarillo, TX 79105
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
6.5 Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
6.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
6.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
6.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all on this
15th day of March, 1997 to be effective as of the Effective Date.
SCHEDULE 1.1(a) - TANGIBLE PERSONAL PROPERTY
Property
SCHEDULE 1.1(c) - SELLER INTELLECTUAL PROPERTY
(Patents, Copy Rights, Trademarks, Service Marks, Licenses and all applicable
customer and supplier lists of Seller)
None
SCHEDULE 1.1(d) - CONTRACTS
(Leases, Subleases, Contracts, Contract Rights and
Agreements relating to ownership, operation or maintenance
or use of Tangible Personal Property)
None
Amoco Production Company
Anadarko Petroleum Corporation
Citation Oil & Gas Corp.
Corlena Oil Company
Cross Timbers Oil Company
Enron Oil & Gas Company
Exxon Company, U.S.A.
Marathon Oil Company
Midgard Energy Company (formerly Maxus Exploration Company)
MESA Inc.
Mobil Administrative Services Company Inc.
Oryx Energy Company
Phillips Petroleum Company
Samson Hydrocarbons Company
Sonat Exploration Company
Strat Land Exploration Company
Texaco Exploration and Production Inc.
Unit Drilling Company/Unit Petroleum Company
Vintage Petroleum, Inc.
West Texas Gas, Inc.
Zinke & Trumbo, Inc.
SCHEDULE 1.1(e) - SELLER PERMITS
(Permits, Authorizations, Certificates, Approvals,
Registrations, Variances, Waivers, Exemptions,
Rights of Way, Franchises, Ordinances, Licenses and Rights
obtained from governmental agencies relating to use,
operation, maintenance or use of Tangible Personal Property)
1. Various state permits authorizing variances from size and weight rules and
regulations.
2. Commercial hauler permit issued by Texas Transportation Division.
3. License issued pursuant to International Fule Tax Agreement (FTA Permit).
SCHEDULE 2.1.3 - FINANCIAL STATEMENTS
SCHEDULE 2.1.9 - HAZARDOUS MATERIALS
SCHEDULE 2.1.10 - EMPLOYEES Employee Social Security
No.
SCHEDULE 4.6 - ALLOCATION OF PURCHASE PRICE
Equipment $1,109,410.00
Wellhead Inventory 220,961.00
Goodwill 119,629.00
Covenant not to compete 100,000.00
Total $1,550,000.00
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of March 24,
1997, by and among Yale E. Key, Inc., a Texas corporation ("Key"), and Keith
Neill and wife, Leslie Neill, individual residents of the State of Texas
(individually, a "Shareholder" and collectively the "Shareholders").
RECITATIONS
WHEREAS, the Shareholders own 15,282 shares (the "TST Shares") of common stock,
par value $1.00 per share, of T.S.T. Paraffin Service Company, Inc. ("TST Common
Stock"), which constitutes all of the issued and outstanding shares of capital
stock of T.S.T. Paraffin Service Company, Inc., a Texas corporation ("TST"); and
WHEREAS, the Shareholders desire to sell to Key, and Key desires to purchase
from the Shareholders, all of the issued and outstanding capital stock of TST.
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual
covenants and agreements herein contained, the parties hereto hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale of TST Shares. Subject to the terms and conditions of this
Agreement, the Shareholders agree to sell and convey to Key, free and clear of
all Encumbrances (as defined in Section 2.1.8.1 hereof), and Key agrees to
purchase and accept from the Shareholders, all of the TST Shares. In
consideration of the sale of the TST Shares, Key shall pay to the Shareholders,
at the Closing (as defined in Section 1.3 hereof) the sum of $8,150,000.00 (the
"Purchase Price"), to be paid to Shareholders by means of a wire transfer of
immediately available funds to the account designated in writing by the
Shareholders.
1.2 Delivery of TST Certificates. The Shareholders shall deliver to Key, at the
Closing, duly and validly issued certificate(s) representing all of the TST
Shares, each such certificate having been endorsed in blank and in good form for
transfer or accompanied by stock powers duly executed in blank, sufficient and
in good form to promptly transfer the TST Shares to Key.
1.3 Time and Place of Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall occur on April 4, 1997 at l0:00 a.m. at the
offices of Bradford L. Moore, Attorney at Law, 508 West Broadway, Brownfield,
Texas 79316 provided that the conditions set forth in Article 5 hereof have been
satisfied or waived or if such closing conditions have been satisfied or waived
prior to April 4, 1997 at such earlier date as is mutually agreed to by the
parties hereto. The date on which the Closing occurs is referred to elsewhere
herein as the "Closing Date".
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
2.1 Representations and Warranties of the Shareholders. The express
representations and warranties of the Shareholders contained in this Article 2
are exclusive and are in lieu of all other representations and warranties,
express, implied or statutory, or otherwise. Subject to the foregoing, each of
the Shareholders jointly and severally represents and warrants to Key as
follows:
2.1.1 Organization and Standing. TST is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, has full
requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it. Copies of TST's Certificate of Incorporation, Articles of
Incorporation, Bylaws (all as amended to the date hereof), Articles of Merger of
K&L Neill Corp. ("K&L") into TST, and a Certificate of Good Standing issued by
the Comptroller of the State of Texas are attached hereto as Schedule 2.1.1. TST
does not now conduct (and has never conducted) operations outside of the State
of Texas.
2.1.2 Agreement Authorized and its Effect on Other Obligations. Each of the
Shareholders is a resident of the State of Texas, above the age of 18 years, and
each has the legal capacity and requisite power and authority to enter into, and
perform his or her obligations under this Agreement. This Agreement is a valid
and binding obligation of each of the Shareholders enforceable against each of
the Shareholders (subject to normal equitable principles) in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. The execution, delivery and performance of this Agreement by the
Shareholders will not conflict with or result in a violation or breach of any
term or provision of, nor constitute a default under (i) the Articles of
Incorporation or Bylaws of TST or (ii) any obligation, indenture, mortgage, deed
of trust, lease, contract or other agreement to which TST or either of the
Shareholders is a party or by which TST or either of the Shareholders or their
respective properties are bound.
2.1.3 Capitalization of TST. The authorized capitalization of TST consists of
50,000 shares of TST Common Stock of which, as of the date hereof, 15,282 shares
are issued and outstanding (the "TST Shares") and held beneficially and of
record by the Shareholders. On the date hereof, TST does not have any
outstanding options, warrants, calls or commitments of any character relating to
any of its authorized but unissued shares of capital stock. All issued and
outstanding shares of TST Common Stock are validly issued, fully paid and
non-assessable and are not subject to preemptive rights. None of the outstanding
shares of TST Common Stock are subject to any voting trust, voting agreement or
other agreement or understanding with respect to the voting thereof, nor is any
proxy in existence with respect thereto.
2.1.4 Ownership of TST Shares. Except as disclosed on Schedule 2.1.4 hereto, the
Shareholders hold good and valid title to all of the TST Shares, free and clear
of all Encumbrances. The Shareholders possess full authority and legal right to
sell, transfer and assign to Key the TST Shares, free and clear of all
Encumbrances. Upon transfer of the TST Shares to Key by the Shareholders, Key
will own the TST Shares free and clear of all Encumbrances. There are no claims
pending or, to the knowledge of either of the Shareholders, threatened, against
TST or either of the Shareholders that concern or affect the title to the TST
Shares or that seek to compel the issuance of capital stock or other securities
of TST.
2.1.5 No Subsidiaries. Except as disclosed on Schedule 2.1.5 hereto, there is no
corporation, partnership, joint venture, business trust or other legal entity in
which TST, either directly or indirectly, through one or more intermediaries,
owns or holds beneficial or record ownership of at least a majority of the
outstanding voting securities.
2.1.6 Financial Statements. The Shareholders have delivered to Key TST's audited
balance sheet (the "12/31 Balance Sheet ") and related statements of income,
retained earnings and cash flows, with appended notes which are an integral part
of such statements (collectively, the "12/31 Financial Statements"), as of and
for the 12 months ended December 31, 1996 (the "Balance Sheet Date"). The 12/31
Financial Statements are attached hereto as Schedule 2.1.6. The 12/31 Financial
Statements are true, correct and complete in all material respects and present
fairly the financial condition of TST as of the dates indicated, and the results
of operations for the respective periods indicated, and have been prepared in
accordance with generally accepted accounting principles as promulgated by the
American Institute of Certified Public Accountants ("GAAP") applied on a
consistent basis, except as noted therein. The accounts receivable reflected in
the 12/31 Balance Sheet, or which have been thereafter acquired by TST, have
been collected or are current and collectible in the aggregate recorded amounts
thereof. The inventories of TST reflected in the 12/31 Balance Sheet, or which
have been thereafter acquired by TST, consist of items of quality and quantity
usable and salable in the normal course of TST's business, and the values at
which such inventories are carried are the lower of cost or market.
2.1.7 Liabilities. Except as disclosed on Schedule 2.1.7 hereto, TST has no
liabilities or obligations, either accrued, absolute or contingent, nor do
either of the Shareholders have any knowledge of any potential liabilities or
obligations, which would materially or adversely affect the value and conduct of
the business of TST, other than those (i) reflected or reserved against in the
12/31 Balance Sheet or (ii) incurred in the ordinary course of business since
the Balance Sheet Date.
2.1.8 Additional Information. Attached as Schedule 2.1.8 hereto are true,
complete and correct lists of the following items:
2.1.8.1 Real Estate. All real property and structures thereon owned, leased or
subject to a contract of purchase and sale, or lease commitment, by TST, with a
description of the nature and amount of any Encumbrances thereon. The term
"Encumbrances" means all liens, security interests, pledges, mortgages, deeds of
trust, claims, rights of first refusal, options, charges, restrictions or
conditions to transfer or assignment, liabilities, obligations, privileges,
equities, easements, rights-of-way, limitations, reservations, restrictions and
other encumbrances of any kind or nature;
2.1.8.2 Machinery and Equipment. All vehicles, equipment, machinery, tools,
furnishings, and fixtures owned, leased or subject to a contract of purchase and
sale, or lease commitment by TST with a description of the nature and amount of
any Encumbrances thereon;
2.1.8.4 Receivables. All accounts and notes receivable, together with (i) aging
schedules by invoice date and due date, (ii) the amounts provided for as an
allowance for bad debts, (iii) the identity and location of any asset in which
TST holds a security interest to secure payment of the underlying indebtedness,
and (iv) a description of the nature and amount of any Encumbrance on such
accounts and notes receivable;
2.1.8.5 Payables. All accounts and notes payable of TST, together with an
appropriate aging schedule;
2.1.8.7 [Reserved]
2.1.8.8 Employee Compensation Plans. All bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, welfare, group insurance,
death benefit, or other fringe benefit plans, arrangements or trust agreements
of TST (collectively, the "TST Employee Benefit Arrangements"), together with
copies of the most recent reports with respect to such plans, arrangements, or
trust agreements filed with any governmental agency, and all Internal Revenue
Service determination letters that have been received with respect to such
plans;
2.1.8.9 Certain Salaries. The names and salary rates of all present employees of
TST (the "TST Employees") and, to the extent existing on the date of this
Agreement, all TST Employee Benefit Arrangements with respect thereto;
2.1.8.10 Bank Accounts. The name of each bank in which TST has an account, the
account numbers of each account and the names of all persons authorized to draw
thereon; 2.1.8.11 Employee Agreements. Any collective bargaining agreements of
TST with any labor union or other representative of employees, including
amendments, supplements, and written or oral understandings, and all employment
and consulting and severance agreements of TST;
2.1.8.13 Trade Names. All trade names, assumed names and fictitious names used
or held by TST, whether and where such names are registered, and where used;
2.1.8.14 Promissory Notes. All long-term and short-term promissory notes,
installment contracts, loan agreements, credit agreements, and any other
agreements of TST relating thereto or with respect to collateral securing the
same;
2.1.8.15 Guaranties. All indebtedness, liabilities and commitments of others as
to which TST is a guarantor, endorser, co-maker, surety, or accommodation maker,
or contingently liable therefor and all letters of credit, whether stand-by or
documentary, issued by any third party;
2.1.8.16 Reserves and Accruals. All accounting reserves and accruals, maintained
in the 12/31 Balance Sheet;
2.1.8.17 Leases. All leases to which TST is a party (whether as lessor or
lessee); and
2.1.8.18 Environment. All environmental permits, approvals, certifications,
licenses, registrations, orders and decrees applicable to current operations
conducted by TST and all environmental audits, assessments, investigation and
reviews conducted by TST within the last five years of any property owned or
used by it.
2.1.9 No Defaults. TST is not in default in any material obligation or covenant
on its part to be performed under any obligation, lease, contract, order, plan
or other agreement or arrangement other than those that are not material to the
business or business prospects of TST.
2.1.10 Absence of Certain Changes and Events. Except as disclosed on Schedule
2.1.10 hereto, and except for the payment by TST of (i) the Shareholders' legal
fees incurred through February 28, 1997 in connection with the negotiation of
this Agreement and (ii) the professional fees associated with the costs of the
environmental study performed in connection with this Agreement and other than
as a result of the transactions contemplated by this Agreement, since the
Balance Sheet Date, there has not been:
2.1.10.1 Financial Change. Any material adverse change in the financial
condition, backlog, operations, assets, liabilities or business of TST;
2.1.10.2 Property Damage. Any material damage, destruction, or loss to the
business or properties of TST (whether or not covered by insurance);
2.1.10.3 Dividends. Any declaration, setting aside, or payment of any dividend
or other distribution in respect of the TST Common Stock, or any direct or
indirect redemption, purchase or any other acquisition by TST of any such stock;
2.1.10.4 Capitalization Change. Any change in the capital stock or in the number
of shares or classes of the authorized or outstanding capital stock of TST as
described in Section 2.1.3 hereof;
2.1.10.5 Labor Disputes. Any labor disputes involving TST; or
2.1.10.6 Other Material Changes. Any other event or condition known to either of
the Shareholders, particularly pertaining to and adversely affecting the
operations, assets or business of TST which would constitute a material adverse
change.
2.1.11 Taxes. All federal, state and local income, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs, duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by TST
for each period for which any such returns, reports, or estimates were due
(taking into account any extensions of time to file before the date hereof); all
taxes shown by such returns to be payable and any other taxes due and payable
have been paid other than those being contested in good faith by TST, a
description of which is included in Schedule 2.1.11 hereto; and the tax
provisions reflected in the 12/31 Balance Sheet are adequate, in accordance with
GAAP, to cover liabilities of TST at the date thereof for all taxes, including
any assessed interest, assessed penalties and additions to taxes of any
character whatsoever applicable to TST or its assets or business. No waiver of
any statute of limitations executed by TST with respect to any income or other
tax is in effect for any period. The income tax returns of TST or of K&L have
never been examined by the Internal Revenue Service or the taxing authorities of
any other jurisdiction for the time period commencing January 1, 1993 up to and
including the date of this Agreement and to the best knowledge of the
Shareholders, for any period prior to January 1, 1993, and there are no current
or pending audits by the Internal Revenue Service. There are no tax liens on any
assets of TST except for taxes not currently due. TST is not now, never has
been, and has never attempted to become, a Subchapter S Corporation under the
Internal Revenue Code of 1986, as amended.
2.1.12 Intellectual Property. TST owns or possess licenses to use all patents,
patent applications, trademarks and service marks (including registrations and
applications therefor), trade names, copyrights and written know-how, trade
secrets and all other similar proprietary data and the goodwill associated
therewith (collectively, "Intellectual Property") that are either material to
its business or that are necessary for the rendering of any services rendered by
it and the use or sale of any equipment or products used or sold by it
(collectively, the "TST Intellectual Property"), including all such Intellectual
Property listed in Schedule 2.1.12 hereto. The TST Intellectual Property is
owned or licensed by TST free and clear of any Encumbrance. TST has not granted
to any other person any license to use any of the TST Intellectual Property. TST
has not received any notice of infringement, misappropriation, or conflict with,
the intellectual property rights of others in connection with the use by it of
the TST Intellectual Property or otherwise in connection with the operation of
its business.
2.1.13 Title to and Condition of Assets. TST has good, indefeasible and
marketable title to all its properties, interests in properties and assets, real
and personal, reflected in the 12/31 Balance Sheet or in Schedule 2.1.8 hereto,
free and clear of any Encumbrance, except (i) Encumbrances reflected in the
12/31 Balance Sheet or in Schedule 2.1.8 hereto, (ii) liens for current taxes
not yet due and payable, and (iii) such imperfections of title, easements and
Encumbrances, if any, as are not substantial in character, amount, or extent and
do not and will not materially detract from the value, or interfere with the
present use, of the property subject thereto or affected thereby, or otherwise
materially impair the business operations of TST. All leases pursuant to which
TST leases (whether as lessee or lessor) any substantial amount of real or
personal property are in good standing, valid and effective; and there is not,
under any such leases, any existing default or event of default or event which
with notice or lapse of time, or both, would constitute a default by TST and in
respect to which TST has not taken adequate steps to prevent a default from
occurring. The buildings and premises of TST that are used in its business are
in good operating condition and repair, subject only to ordinary wear and tear.
All hot oilers, vacuum trucks, pump trucks, transport trucks, machinery,
transportation equipment, vehicles, tools and other major items of equipment of
TST are in good operating condition and in a state of reasonable maintenance and
repair, ordinary wear and tear excepted, and are free from any known defects
except as may be repaired by routine maintenance and such minor defects as to
not substantially interfere with the continued use thereof in the conduct of
normal operations. All such assets conform in all material respects to all
applicable laws governing their use. No notice of any violation of any law,
statute, ordinance, or regulation relating to any such assets has been (or are
being) received by TST or any of the Shareholders, except such as have been
fully complied with.
2.1.14 Contracts. All contracts, leases, plans or other arrangements to which
TST is a party, by which it is bound or to which TST or the assets of TST are
subject are in full force and effect, and constitute valid and binding
obligations of TST and the other parties thereto. TST is not, and to the
knowledge of either of the Shareholders, no other party to any such contract,
lease, plan or other arrangement, is in default thereunder, and no event has
occurred which (with or without notice, lapse of time, or the happening of any
other event) would constitute a material default thereunder. No contract has
been entered into on terms which could reasonably be expected to have a
materially adverse effect on TST. Neither of the Shareholders has received any
information which would cause such Shareholder to conclude that any customer of
TST will (or is likely to) cease doing business with TST (or any successors
thereto) as a result of the consummation of the transactions contemplated
hereby. The Shareholders have provided Key with copies of all of TST's material
contracts which are to be performed in whole or in part after the date hereof.
2.1.15 Licenses and Permits. Except as set forth on Schedule 2.1.15 hereto and
on Schedule 2.1.17 hereto, TST possesses all permits, authorizations,
certificates, approvals, registrations, variances, waivers, exemptions,
rights-of-way, franchises, ordinances, licenses and other rights of every kind
and character (collectively, the "Permits") necessary under law or otherwise for
it to conduct its business as now being conducted and to own, operate, maintain
and use its assets in the manner in which they are now being operated,
maintained and used (collectively, the "TST Permits"). Each of the TST Permits
and the rights of TST with respect thereto is (and will be following the
consummation of the transactions contemplated hereby) valid and subsisting, in
full force and effect, and enforceable by TST subject to administrative powers
of regulatory agencies having jurisdiction. TST is in compliance in all material
respects with the terms of each of the TST Permits. None of the TST Permits have
been, or to the knowledge of either of the Shareholders, are threatened to be,
revoked, canceled, suspended or modified. Copies of the TST Permits are attached
hereto as Schedule 2.1.15.
2.1.16 Litigation. Except as set forth on Schedule 2.1.16 hereto, there is no
suit, action, or legal or administrative, arbitration, or other proceeding or
governmental investigation pending to which TST is a party or, to the knowledge
of either of the Shareholders, might become a party or which particularly
affects TST, nor is any change in the zoning or building ordinances directly
affecting the real property or leasehold interests of TST, pending or, to the
knowledge of either of the Shareholders, threatened.
2.1.17 Environmental Compliance.
2.1.17.1 Environmental Conditions. Except as set forth on Schedule 2.1.17
hereto, there are no environmental conditions or circumstances, including,
without limitation, the presence or release of any hazardous substance, on any
property presently or previously owned or leased by TST, or on any property to
which hazardous substances or waste generated by the operations of TST or by the
use of the assets of TST were disposed of, which would result in a material
adverse change in the business or business prospects of TST. The term "hazardous
substance" means (i) asbestos, polychlorinated biphenyls, urea formaldehyde,
lead based paint, radon gas, petroleum, oil, solid waste, pollutants and
contaminants, and (ii) any chemicals, materials, wastes or substances that are
defined, regulated, determined or identified as toxic or hazardous in any
Applicable Environmental Laws (as defined in Section 2.1.17.3 hereof),
including, but not limited to, substances defined as "hazardous substances",
"hazardous materials," or "hazardous waste" in CERCLA, RCRA, HMTA, or comparable
state and local statutes or in the regulations adopted and promulgated pursuant
to said statutes;
2.1.17.2 Permits, etc. Except as set forth on Schedule 2.1.17 hereto, TST has in
full force and effect all environmental permits, licenses, approvals and other
authorizations required to conduct its operations, other than those that are not
material to its business or operations, and is operating in substantial
compliance thereunder;
2.1.17.3 Compliance. Except as set forth on Schedule 2.1.17 hereto, neither the
operations of TST nor the use of the assets of TST violate in any respect any
applicable federal, state or local law, statute, ordinance, rule, regulation,
order or notice requirement pertaining to (a) the condition or protection of
air, groundwater, surface water, soil, or other environmental media, (b) the
environment, including natural resources or any activity which affects the
environment, or (c) the regulation of any pollutants, contaminants, waste, or
substances (whether or not hazardous or toxic), including, without limitation,
the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.
C. ss.9601 et seq.) ("CERCLA") , the Hazardous Materials Transportation Act (49
U.S. C. ss.1801 et seq.) ("HMTA"), the Resource Conservation and Recovery Act
(42 U.S.C. ss.6901 et seq.) ("RCRA"), the Clean Water Act (33 U.S.C. 1251 et
seq.) , the Clean Air Act (42 U.S. C. ss.7401 et seq.), the Toxic Substances
Control Act (17 U.S.C. ss.2601 et seq.) the Federal Insecticide Fungicide and
Rodenticide Act (7 U.S.C. ss.136 et seq.), the Safe Drinking Water Act (42
U.S.C. ss.201 and ss.300f et seq.), the Rivers and Harbors Act (33 U.S.C. ss.401
et seq.), the Oil Pollution Act (33 U.S.C. ss.2701 et seq.) and analogous
federal, interstate, state and local requirements, as any of the foregoing may
have been amended or supplemented from time to time (collectively the
"Applicable Environmental Laws"), other than violations that in the aggregate
are not material to the business or operations of TST;
2.1.17.4 Past Compliance. None of the operations or assets of TST has ever been
conducted or used in such a manner as to constitute a violation of any
Applicable Environmental Laws, other than violations that in the aggregate are
not material to the business or operations of TST;
2.1.17.5 Environmental Claims. No notice has been served on TST or either of the
Shareholders from any entity, governmental agency or individual regarding any
existing, pending or threatened investigation, inquiry, enforcement action or
litigation related to alleged violations under any Applicable Environmental
Laws, or regarding any claims for remedial obligations, response costs or
contribution under the Applicable Environmental Laws;
2.1.17.6 Renewals. Neither of the Shareholders knows of any reason TST or its
successors would not be able to renew any of the permits, licenses, or other
authorizations required pursuant to any Applicable Environmental Laws to operate
and use any of assets of TST for their current purposes and uses; and
2.1.17.7 Asbestos and PCBS. No known material amounts, except as may be
described on Schedule 2.1.17 hereto, of friable asbestos currently exist on any
property owned or operated by TST, nor do known polychlorinated biphenyls exist
in concentrations of 50 parts per million or more in electrical equipment owned
or being used by TST in the operations or on the properties of TST.
2.1.18 Compliance with Other Laws. TST is not in violation of or in default with
respect to, or in alleged violation of or alleged default with respect to, the
Occupational Safety and Health Act (29 U.S.C. ss.651 et seq.) as amended, or any
other applicable law (including zoning laws) or any applicable rule, regulation,
or any writ or decree of any court or any governmental commission, board,
bureau, agency, or instrumentality, or delinquent with respect to any report
required to be filed with any governmental commission, board, bureau, agency or
instrumentality, other than violations that in the aggregate are not material to
the business or operations of TST.
2.1.19 ERISA Plans, Labor Issues. Other than TST's employee health plan (the
"TST Health Plan") and profit sharing plan (the "TST Profit Sharing Plan")
contained or described in Schedule 2.1.8.8 hereto, TST does not currently
sponsor, maintain or contribute to, and has not at any time sponsored,
maintained or contributed to any employee benefit plan which is or was subject
to any provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). As to the TST Health Plan, the TST Profit Sharing Plan and
all other TST Employee Benefit Arrangements:
(i) the TST Health Plan, the TST Profit Sharing Plan and all other TST Employee
Benefit Arrangements comply with and have been administered in form and in
operation in compliance with all applicable laws including, without limitation,
ERISA, the Internal Revenue Code of 1986, as amended (the "Code), and the
Consolidated Omnibus Reconciliation Act of 1985, as amended ("COBRA"), and
neither of the Shareholders has received any notice from any governmental
authority questioning or challenging such compliance; (ii) TST's administration
and operation of the TST Health Plan and the TST Profit Sharing Plan has not
been conducted in such a manner as would give rise to any material fines,
penalties, taxes, claims or charges against TST by a governmental entity or any
third party or otherwise, result in a material adverse effect on TST's financial
condition;
(iii) funding of the TST Profit Sharing Plan is in the sole discretion of TST
regardless of past funding practices, and the TST Profit Sharing Plan may be
terminated at any time without liability to TST other than the obligation to
distribute the funds held by the TST Profit Sharing Plan in accordance with the
provisions thereof;
(iv) there has been no event or condition which presents a material risk of
termination of the TST Profit Sharing Plan or the TST Health Plan; and
(v) the execution, delivery and performance of this Agreement will not cause
either the TST Health Plan or the TST Profit Sharing Plan to be terminated or
otherwise adversely affect the administration or operation thereof. TST's
administration of the TST Health Plan and the TST Profit Sharing Plan following
the Closing in the same manner as such plans were administered by TST prior to
the Closing will not violate any applicable laws or otherwise result in the
material adverse effect on the financial condition of TST. TST has not engaged
in any unfair labor practices which could reasonably be expected to result in a
material adverse effect on the operations or assets of TST. Except as described
in Schedule 2.1.16 hereto, TST has no dispute with any of its existing or former
employees. There are no labor disputes or, to the knowledge of either of the
Shareholders, any disputes threatened by current or former employees of TST.
2.1.20 Investigations; Litigation. No investigation or review by any
governmental entity with respect to TST or any of the transactions contemplated
by this Agreement is pending or, to the knowledge of either of the Shareholders,
threatened, nor has any governmental entity indicated to TST an intention to
conduct the same, and, except as set forth on Schedule 2.1.16 hereto, there is
no action, suit or proceeding pending or, to the knowledge of either of the
Shareholders, threatened against or affecting TST at law or in equity, or before
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, that either individually or in the
aggregate, does or is likely to result in a material adverse change in the
financial condition, properties or business of TST.
2.1.21 Absence of Certain Business Practices. Neither TST, nor any officer of
TST, nor, to the knowledge of either of the Shareholders, any employee or agent
of TST or any other person acting on behalf of TST, has, directly or indirectly,
within the past five years, given or agreed to give any gift or similar benefit
to any customer, supplier, government employee or other person who is or may be
in a position to help or hinder the business of TST (or to assist TST in
connection with any actual or proposed transaction) which (i) might subject TST
to any damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) if not given in the past, might have had a materially adverse
effect on the assets, business or operations of TST, or (iii) if not continued
in the future, might materially and adversely affect the assets, business
operations or prospects of TST or which might result in liability to TST in a
private or governmental litigation or proceeding.
2.1.22 Consents and Approvals. No consents, approvals, or authorizations of, or
filing a registration with any governmental or regulatory authority, or any
other person is required to be made or obtained by the Shareholders or TST in
connection with the consummation of the transactions contemplated hereby.
2.1.23 Broker or Financial Advisor Fee. Neither the Shareholders nor TST have
retained any broker, agent, or finder or agreed to pay any financial broker,
agent or finder on account of this Agreement in such a manner as to give rise to
any valid claim against Key for any finder's fee, brokerage commission, or
similar payment.
2.1.24 Relationship to K&L. On February 18, 1997 (the "Merger Date") K&L was
merged into TST. Prior to the Merger Date, K&L was the sole shareholder of TST.
From the date K&L became the sole shareholder of TST through the Merger Date,
the business operations of TST were conducted solely by TST and not by K&L.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF KEY
3.1 Representations and Warranties of Key. The express representations and
warranties of Key contained in this Article 3 are exclusive and are in lieu of
all other representations and warranties, express, implied or statutory, or
otherwise. Subject to the foregoing, Key represents and warrants to each of the
Shareholders as follows:
3.1.1 Organization and Standing. Key is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, has full
requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it.
3.1.2 Agreement Authorized and its Effect on Other Obligations. The consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Key, and this Agreement is a valid
and binding obligation of Key enforceable (subject to normal equitable
principles) in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement by Key will not conflict with or result in a
violation or breach of any term or provision of, or constitute a default under
(i) the Articles of Incorporation or Bylaws of Key, or (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Key or any of its property is bound.
3.1.3 Consents and Approvals. No consent, notice, approval, order or
authorization of, or declaration, filing, or registration with, any governmental
or regulatory authority, or any other person is required to be obtained or made
by Key in connection with its execution, delivery or performance of this
agreement or the consummation by it of the transactions contemplated hereby.
3.1.4 Key's Access to TST's Assets and Records. Key acknowledges that it is
actively engaged in the same business as is TST, that it has been afforded an
opportunity to examine the assets and records of TST, discuss TST's business and
operations with the Shareholders, and investigate the condition of the assets of
TST, and that Key is entering into this Agreement on the basis of such
investigation and the representations and warranties of the Shareholders.
3.1.5 TST's Stock Not Registered. TST is a privately held corporation, and Key
acknowledges such. TST's stock has not been registered under the Securities Act
of 1933, as amended (the "Act"), or under any applicable state securities laws,
and the stock, therefore, cannot be offered for sale, sold, transferred, pledged
or otherwise hypothecated except in accordance with the registration
requirements of the Act and such other state laws as may be applicable. Key
acknowledges that TST has made available to it such information and documents,
and that Key understands the risk associated with ownership of TST and Key is
capable of bearing the financial risk associated therewith. The TST Shares and
the dealings with Key are proceeding in reliance on exemptions from registration
or qualification requirements pursuant to state law.
ARTICLE 4
OBLIGATIONS PENDING CLOSING DATE
4.1 Affirmative Covenants of the Shareholders. Except as expressly contemplated
elsewhere in this Agreement, the Shareholders agree that from the date hereof
until the Closing Date, the Shareholders will cause TST to (and unless otherwise
indicated by the context, since the Balance Sheet Date, TST has):
4.1.1 Maintenance of Present Business. Operate its business only in the usual,
regular, and ordinary manner so as to maintain the goodwill it now enjoys and,
to the extent consistent with such operation, use all reasonable efforts to
preserve intact its present business organization, keep available the services
of its present officers and employees, and preserve its relationships with
customers, suppliers, jobbers, distributors, and others having business dealings
with it;
4.1.2 Maintenance of Properties. At its expense, maintain all of its property
and assets in customary repair, order, and condition, reasonable wear and tear
excepted;
4.1.3 Maintenance of Books and Records. Maintain its books of account and
records in the usual, regular, and ordinary manner, in accordance with GAAP
applied on a consistent basis;
4.1.4 Compliance with Law. Duly comply in all material respects with all laws
applicable to it and to the conduct of its business;
4.1.5 Inspection. Permit Key and its authorized representatives, during normal
business hours, to inspect its records and to consult with its officers,
employees, attorneys, and agents for the purpose of determining the accuracy of
the representations and warranties herein made and the compliance with covenants
contained in this Agreement; and
4.1.6 Notice of Material Developments. Promptly notify Key in writing of any
material adverse change in, or any changes which, in the aggregate, could result
in a material adverse change in, the consolidated financial condition, business
or affairs of TST, whether or not occurring in the ordinary course of business.
4.2 Negative Covenants of the Shareholders. Except as expressly contemplated
elsewhere in this Agreement, each of the Shareholders agrees that from the date
hereof until the Closing Date, they will cause TST not to (and unless otherwise
indicated by the context, since the Balance Sheet Date, it has not):
4.2.1 Prohibition of Certain Employment Contracts. Enter into any contracts of
employment which cannot be terminated on notice of 30 days or less or which
provide for any severance payments or benefits covering a period beyond the
earlier of the termination date or notice thereof;
4.2.2 Prohibition of Certain Loans. Incur any borrowings which would exceed
$50,000.00, in the aggregate, for any purpose except (i) the prepayment by
customers of amounts due or to become due for services rendered or to be
rendered in the future, or (ii) as is otherwise approved in writing by Key;
4.2.3 Prohibition of Certain Commitments. Enter into commitments of a capital
expenditure nature or incur any contingent liabilities which would exceed
$10,000.00 in the aggregate except (i) as may be necessary for the maintenance
of existing facilities, machinery and equipment in good operating condition and
repair in the ordinary course of business, or (ii) as is otherwise approved in
writing by Key;
4.2.4 Disposal of Assets. Other than as set forth in Schedule 4.2.4 hereto,
sell, dispose of, or encumber, any property or assets, except (i) in the usual
and ordinary course of business, (ii) property or assets which individually have
a value of less than $1,000.00, or (iii) as may be approved in writing by Key;
4.2.5 Maintenance of Insurance. Discontinue its current level of insurance;
4.2.6 Acquisition Proposals. Directly or indirectly (i) solicit, initiate or
encourage any inquiry or Acquisition Proposal (defined below) from any person or
(ii) participate in any discussions or negotiations regarding, or furnish to any
person other than Key or its representatives any information with respect to, or
otherwise facilitate or encourage any Acquisition Proposal by any other person.
As used herein "Acquisition Proposal" means any proposal for a merger,
consolidation or other business combination involving TST or for the acquisition
or purchase of any equity interest in, or a material portion of the assets of,
TST, other than the transactions with Key and the Shareholders contemplated by
this Agreement. TST shall promptly communicate to Key the terms of any such
written Acquisition Proposal which it may receive or any written inquiries made
to it or any of its directors, officers, representatives or agents;
4.2.7 No Amendment to Articles of Incorporation. Amend its Articles of
Incorporation or merge or consolidate with or into any other corporation or
change in any manner the rights of the TST Common Stock or the character of its
business;
4.2.8 No Issuance, Sale, or Purchase of Securities. Issue or sell, or issue
options or rights to subscribe to, or enter into any contract or commitment to
issue or sell (upon conversion or otherwise) any shares of TST Common Stock, or
subdivide or in any way reclassify any shares of TST Common Stock or acquire, or
agree to acquire, any shares of TST Common Stock; and
4.2.9 Prohibition on Dividends. Other than as set forth on Schedule 4.2.4
hereto, declare or pay any dividend on shares of TST Common Stock or make any
other distribution of assets to the holders thereof.
4.3 Control of Operations. Nothing contained in this Agreement shall give Key,
directly or indirectly, the right to control or direct the operations of TST
prior to the Closing. Prior to the Closing, the Shareholders shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision of TST's operations.
4.4 Agreements of Key. Key agrees that from the date hereof until the Closing
Date it will, and will cause its representatives to hold all data and
information obtained with respect to TST, in confidence and further agrees that
it will not use such data or information or disclose the same to others, except
to the extent such data or information either are, or become, published or a
matter of public knowledge through no fault of Key.
4.5 Agreements of Key and the Shareholders. Each party hereto agrees that it
will not voluntarily undertake any course of action inconsistent with the
provisions or intent of this Agreement and will use its reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper, or advisable under applicable laws to consummate the
transactions contemplated by this Agreement, including, without limitation (i)
cooperation in determining whether any consents, approvals, orders,
authorizations, waivers, declarations, filings or registrations of or with any
governmental entity or third party are required in connection with the
consummation of the transactions contemplated hereby; (ii) the use of reasonable
best efforts to obtain any such consents, approvals, orders, authorizations, and
waivers and to effect any such declarations, filings, and/or registrations;
(iii) the use of reasonable best efforts to cause to be lifted or rescinded any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby; (iv) the use
of reasonable best efforts to defend, and cooperate in defending, all lawsuits
or other legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby; (v) the use of reasonable best efforts to
satisfy the Closing conditions set forth in Article 5 hereof to the extent that
the fulfillment of the requirements thereof are within the control of such
party, and (vi) the execution of any additional instruments necessary to
consummate the transactions contemplated hereby.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1 Conditions Precedent to Obligations of the Shareholders. The obligations of
the Shareholders to consummate and effect the transactions contemplated
hereunder shall be subject to the satisfaction of the following conditions, or
to the waiver thereof by the Shareholders, before the Closing Date:
5.1.1 Representations and Warranties of Key True at the Closing Date. The
representations and warranties of Key herein contained shall be, in all material
respects, true as of and at the Closing Date with the same effect as though made
at such date, except as affected by transactions permitted or contemplated by
this Agreement; Key shall have performed and complied, in all material respects,
with all covenants required by this Agreement to be performed or complied with
by Key before the Closing Date; and Key shall have delivered to the Shareholders
a certificate, dated the Closing Date and signed by its president or vice
president, to such effect.
5.1.2 No Material Litigation. No suit, action, or other proceeding shall be
pending or threatened, before any court or governmental agency in which it will
be, or it is, sought to restrain or prohibit or to obtain damages or provide
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
5.1.3 Opinion of Key Counsel. The Shareholders shall have received a favorable
opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, counsel for
Key, in form and substance satisfactory to the Shareholders, to the effect that
(i) Key has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of Texas; (ii) all corporate
proceedings required to be taken by or on the part of Key to authorize the
execution of this Agreement and the implementation of the transactions
contemplated hereby have been taken; (iii) this Agreement has been duly executed
and delivered by, and is the legal, valid and binding obligation of Key and is
enforceable against Key in accordance with its terms, except as unenforceability
may be limited by (a) equitable principles of general applicability or (b)
bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws
affecting the rights of creditors generally. No opinion need be expressed as to
the enforceability of any indemnification provisions of this Agreement. In
rendering such opinion, such counsel may rely upon certificates of public
officials and of officers of Key as to matters of fact.
5.2 Conditions Precedent to Obligations of Key. The obligations of Key to
consummate and effect the transactions contemplated hereunder shall be subject
to the satisfaction of the following conditions, or to the waiver thereof by
Key, before the Closing Date.
5.2.1 Representations and Warranties of the Shareholders True at Closing Date.
The representations and warranties of the Shareholders herein contained shall
be, in all material respects, true as of and at the Closing Date with the same
effect as though made at such date, except as affected by transactions permitted
or contemplated by this Agreement; the Shareholders shall have performed and
complied in all material respects, with all covenants required by this Agreement
to be performed or complied with by them before the Closing Date; and each of
the Shareholders each shall have delivered to Key a certificate, dated the
Closing Date and signed by each of the Shareholders, to such effect.
5.2.2 No Material Litigation. No suit, action, or other proceeding shall be
pending or threatened, before any court or governmental agency in which it will
be, or it is, sought to restrain or prohibit or to obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby or which might result in a material adverse change in the
value of the assets and business of TST.
5.2.3 Opinion of Counsel. Key shall have received a favorable opinion, dated as
of the Closing Date, from Bradford L. Moore, counsel to the Shareholders, in
form and substance satisfactory to Key, to the effect that (i) TST has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Texas; (ii) all outstanding shares of the TST Common Stock
have been validly issued and are fully paid and non-assessable; and (iii) this
Agreement has been duly executed and delivered by, and is the legal, valid and
binding obligation of the Shareholders, and is enforceable against the
Shareholders in accordance with its terms, except as the enforceability may be
limited by (a) equitable principles of general applicability or (b) bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws affecting the
rights of creditors generally. No opinion need be expressed as to the
enforceability of any indemnification provisions of this Agreement. In rendering
such opinion, such counsel may rely upon certificates of public officials and of
officers of TST or the Shareholders as to matters of fact.
5.2.4 Consent of Certain Parties in Privity with TST or the Shareholders. The
holders of any material indebtedness of TST or the Shareholders, the lessors of
any material property leased by TST or the Shareholders, and the other parties
to any other material agreements to which TST or the Shareholders are a party
shall, when and to the extent necessary in the reasonable opinion of Key, have
consented to the transaction contemplated hereby.
5.2.5 Title Policies. Key shall have received a commitment to issue a title
insurance policy covering title to those properties of TST identified in Tracts
1, 2, 3, 4, 5, 6A, 7, 8, 9, 10, 14, 15, 16 and 17 on Schedule 2.1.8.1 hereto,
with each such policy to be issued by an insurer in an amount equal to the
greater of (i) the appraisal value of such property for property tax assessment
purposes or (ii) the original purchase price of such property (subject to the
consent of the insurance provider) and subject only to such conditions and
exceptions as are reasonably acceptable to Key; provided, however, that if TST
holds existing title insurance policies covering any of such properties, Key
agrees to accept, in lieu of title commitments, run-sheets since the original
date of such existing policies covering such properties, the accuracy of which
has been certified by the Shareholders' counsel, indicating (together with those
conditions and exceptions shown on such original policies) such Encumbrances as
are reasonably acceptable to Key.
5.2.6 Resignations. Key shall have received a written resignation from each
officer and director of TST from their respective positions with TST effective
as of the Closing Date.
5.2.7 Lien Releases. Key shall have received documentation reasonably
satisfactory to it that, as of the Closing Date, (i) the TST shares are free and
clear of all Encumbrances and (ii) all of the assets, real and personal, of TST
are held by TST free and clear of all liens, security interests, mortgages and
deeds trust; provided, however, that in connection with obtaining such releases,
subject to TST having received, on or before the Closing, proceeds from the
asset transfers, note repayment and capital contributions referred to in
Schedule 2.1.4 hereto in an amount equal to the Payoff Amount (defined below)
less $750,000, Key consents and agrees to (i) TST's repayment, at the Closing,
of the Bobby Knight Promissory Note referred to in Schedule 2.1.8.14 hereto
together with all interest that would have been payable over the term of such
note (the "Payoff Amount") and (ii) pay the holder of such note an additional
$500,000 at the Closing.
5.2.8 TST Health Plan. Key shall have received assurances satisfactory to Key
that the TST Health Plan will remain in effect following the Closing.
ARTICLE 6
TERMINATION AND ABANDONMENT
6.1 Termination. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the purchase and sale
contemplated hereby abandoned at any time before the Closing Date:
6.1.1 By Mutual Consent. By mutual consent of Key and the Shareholders.
6.1.2 By Key Because of Failure to Perform Agreements or Conditions Precedent.
By Key, if the Shareholders have failed to perform or comply with any material
agreement set forth in Sections 4.1 or 4.2 hereof, or if any condition set forth
in Section 5.2 hereof has not been met, and such condition has not been waived
by Key.
6.1.3 By the Shareholders Because of Key's Failure to Perform Agreements or
Conditions Precedent. By the Shareholders, if Key has failed to perform or
comply with any material agreement set forth in Section 4.4 hereof, or if any
condition set forth in Section 5.1 hereof has not been met, and such condition
has not been waived by the Shareholders. .
6.1.4 By Key or by the Shareholders if No Closing by April 4, 1997. By either
Key or the Shareholders, if the Closing shall not have occurred on or before
April 4, 1997, provided, however, that this Agreement may not be terminated by
any party hereto pursuant to the provisions of this Section 6.1.4 if the Closing
has not occurred due to the breach of any provision of this Agreement by the
party desiring to terminate this Agreement.
6.2 Effect of Termination. In the event the termination and abandonment of this
Agreement pursuant to and in accordance with the provisions of Section 6.1
hereof, this Agreement shall become void and have no effect, without any
liability on the part of any party hereto (or its Shareholders or controlling
persons or directors or officers), except as otherwise provided in this
Agreement; provided, however, that a termination of this Agreement shall not
relieve any party hereto from any liability for damages incurred as a result of
a breach by such party of its representations, warranties, covenants, agreements
or other obligations hereunder, occurring before such termination.
6.3 Waiver of Conditions. Subject to the requirements of any applicable law, any
of the terms or conditions of this Agreement may be waived at any time by the
party which is entitled to the benefit thereof.
6.4 Expense on Termination. If the transactions contemplated hereby are
abandoned pursuant to and in accordance with the provisions of Section 6.1
hereof, all expenses will be paid by the party incurring them.
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 Fees and Expenses. Except as otherwise expressly provided in this Agreement,
all fees and expenses, including fees and expenses of counsel, financial
advisors, and accountants incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fee
or expense by or on the date hereof. Key expressly agrees to the payment by TST
of the legal and environmental fees referred to in Section 2.1.10 hereof. Key
also agrees to pay to the Shareholders one-half (l/2) of the costs incurred by
the Stockholders in fulfilling the closing conditions set forth in Section 5.2.5
hereof.
7.2 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby.
7.3 TST Employees. The Shareholders will use their reasonable best efforts to
cause the TST Employees to remain in the employment of TST through the Closing
Date. Key will cause TST to continue the employment of the TST Employees;
provided, however, nothing herein shall be construed as creating any contractual
obligation of TST to continue any such employee as an employee of TST.
7.4 Employee Benefit Plans. The TST Employee Benefit Arrangements as currently
in effect may, at the option of Key, be continued, amended or terminated. Key
shall cause TST to pay, without offset, deduction, counterclaim, interruption,
or deferment, in accordance with the applicable terms thereof, all benefits due
under the terms of all such TST Employee Benefit Arrangements that have vested
or accrued at or prior to the Closing Date or that become vested or accrued as a
result of the transactions contemplated hereby.
7.5 Noncompetition. Each of the Shareholders agrees that for a period of five
(5) years from the Closing Date, such Shareholder will not, directly or
indirectly, acting alone or as a member of a partnership or as an officer,
director, employee, consultant, representative, holder of, or investor in as
much as 3% of any security of any class of any corporation or other business
entity (i) engage in competition with the business or businesses conducted by
TST, Key or any affiliate of Key as of the Closing Date, or in any service
business the services of which are provided and marketed by TST, Key or any
affiliate of Key as of the Closing Date in Texas or New Mexico; (ii) request any
present customers or suppliers of TST to curtail or cancel their business with
TST, Key or any affiliate of Key; (iii) disclose to any person, firm or
corporation any trade, technical or technological secrets of TST, Key or any
affiliate of Key or any details of their organization or business affairs or
(iv) induce or actively attempt to influence any employee of TST, Key or any
affiliate of Key to terminate his employment. Each of the Shareholders agrees
that if either the length of time or geographical area set forth in this Section
7.5 is deemed too restrictive in any court proceeding, the court may reduce such
restrictions to those which it deems reasonable under the circumstances. The
obligations expressed in this Section 7.5 are in addition to any other
obligations that the Shareholders may have under the laws of the State of Texas
requiring an employee of a business or a shareholder who sells his stock in a
corporation (including a disposition in a merger) to limit his activities so
that the goodwill and business relations of his employer and of the corporation
whose stock he has sold (and any successor corporation) will not be materially
impaired. Each of the Shareholders further agrees and acknowledges that TST, Key
and its affiliates do not have any adequate remedy at law for the breach or
threatened breach by such Shareholder of this covenant, and agree that TST, Key
or any affiliate of Key may, in addition to the other remedies which may be
available to it hereunder, file a suit in equity to enjoin such Shareholder from
such breach or threatened breach. If any provisions of this Section 7.5 are held
to be invalid or against public policy the remaining provisions shall not be
affected thereby. Each of the Shareholders acknowledges that the covenants set
forth in this Section 7.5 are being executed and delivered by such Shareholder
in consideration of the covenants of Key contained in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged.
7.6 Material Adverse Change. As used in this Agreement, the term "material
adverse change" means any change, event, circumstance or condition
(collectively, a "Change") which when considered with all other Changes would
reasonably be expected to result in a "loss" having the effect of so
fundamentally adversely affecting the business or financial prospects of Key or
TST, as the case may be, that the benefits reasonably expected to be obtained by
Key or TST, as the case may be, as a result of the consummation of the
transactions contemplated by this Agreement would be jeopardized with relative
certainty. The term "loss" shall mean any and all direct or indirect payments,
obligations, assessments, losses, loss of income, liabilities, fines, penalties,
costs and expenses paid or incurred or more likely than not to be paid or
incurred, or diminutions in value of any kind or character (whether known or
unknown, conditional or unconditional, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise)
that are more likely than not to occur, including without limitation penalties,
interest on any amount payable to a third party as a result of the foregoing and
any legal or other expenses reasonably incurred or more likely than not to be
incurred in connection with investigating or defending any demands, claims,
actions or causes of action that, if adversely determined, would likely result
in losses, and all amounts paid in settlement of claims or actions; provided,
that losses shall be net of any recoveries by TST from third parties and any
insurance proceeds TST is entitled to receive from a non-affiliated insurance
company on account of such losses (after taking into account any costs incurred
in obtaining such proceeds and any increase in insurance premiums as a result of
a claim with respect to such proceeds).
7.7 Shareholder Employment. After the Closing Date, Keith Neill shall remain in
the employment of TST at a monthly salary of $8,000.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by the Shareholders. In addition to any other remedies
available to Key under this Agreement, or at law or in equity, each of the
Shareholders shall jointly and severally indemnify, defend and hold harmless
Key, and its officers, directors, employees, agents and stockholders, against
and with respect to any and all claims, costs, damages, losses, expenses,
obligations, liabilities, recoveries, suits, causes of action and deficiencies,
including interest, penalties and reasonable attorneys' fees and expenses
(collectively, the "Damages") in excess of $150,000.00 in the aggregate that
such indemnitees shall incur or suffer, which arise, result from or relate to
any breach of, or failure by, the Shareholders to perform, their respective
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to Key
by the Shareholders under this Agreement; provided, however, that (i) the
Shareholders' aggregate obligations to indemnify Key and the other parties
identified above shall never exceed the aggregate sum of $8,500,000.00; (ii) the
Shareholders shall not be required to so indemnify, defend and hold harmless Key
and its officers, directors, employees, agents and stockholders, against and
with respect to any Damages incurred as a result of a breach by either of the
Shareholders of their respective representations and warranties in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to Key by any of the Shareholders under this Agreement for which
Key fails to provide written notice of a claim for such Damages to the
Shareholders on or before the expiration of the survival period (as specified in
Section 9.2 hereof) of the specific representation or warranty alleged to have
been breached; (iii) in the event that Key can recover Damages for which it is
indemnified by the Shareholders pursuant to this Section 8.1 from a collateral
source including, but not limited to, a third party or insurance coverage, and
does in fact collect all or a portion of such Damages from such collateral
source, then Key agrees not to enforce its right to indemnification under this
Section 8.1 to the extent of such third party collections; and (iv) Key agrees
that it will not seek indemnification under this Section 8.1 for any
environmental remedial work on TST's properties unless TST (or Key) is required
to perform such work by a third party or by a governmental entity or agency.
8.2 Indemnification by Key. In addition to any other remedies available to the
Shareholders under this Agreement, or at law or in equity, Key shall indemnify,
defend and hold harmless each of the Shareholders against and with respect to
any and all Damages in excess of $150,000.00 in the aggregate that such
indemnitees shall incur or suffer, which arise, result from or relate to any
breach of, or failure by Key to perform, any of its representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to the Shareholders by or on
behalf of Key under this Agreement; provided, however, that (i) Key's aggregate
obligation to indemnify the Shareholders shall never exceed the sum of
$8,500,000.00; (ii) Key shall not be required to so indemnify, defend and hold
harmless the Shareholders and their employees and agents against and with
respect to any Damages incurred as a result of a breach by Key of any of its
representations and warranties in this Agreement or in any schedule,
certificate, exhibit or other instrument furnished or delivered to the
Shareholders by Key under this Agreement for which the Shareholders fail to
provide written notice of a claim for such Damages to Key on or before the
expiration of the survival period (as is specified in Section 9.2 hereof) of the
specific representations or warranty alleged to have been breached; and (iii) in
the event that the Shareholders can recover Damages for which it is indemnified
by Key pursuant to this Section 8.1 from a collateral source including, but not
limited to, a third party or insurance coverage, and does in fact collect all or
a portion of such Damages from such collateral source, then the Shareholders
agree not to enforce its right to indemnification under this Section 8.2 to the
extent of such third party collections.
8.3 Indemnification Procedures. If any party hereto discovers or otherwise
becomes aware of a claim for Damages arising under this Article 8, such
indemnified party shall give written notice to the indemnifying party,
specifying such claim, and may thereafter exercise any remedies available to
such party under this Agreement; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the indemnifying
party is not materially prejudiced thereby. Further, promptly after receipt by
an indemnified party hereunder of written notice of the commencement of any
action or proceeding with respect to which a claim for Damages arising under
Sections 8.1 or 8.2 hereof may be made, such indemnified party shall, if a claim
in respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. Any indemnifying party who elects not
to assume the defense of a claim shall not be liable for the fees and expenses
of more than one counsel in any single jurisdiction for all parties indemnified
by such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, and the
expenses of such defense shall be paid by the indemnifying party. No
indemnifying party shall consent to entry of any judgment or enter into any
settlement with respect to a claim without the consent of the indemnified party,
which consent shall not be unreasonably withheld, or unless such judgment or
settlement includes as an unconditional term thereof the giving by the claimant
or plaintiff to such indemnified party of a release from all liability with
respect to such claim. No indemnified party shall consent to entry of any
judgment or enter into any settlement of any such action, the defense of which
has been assumed by an indemnifying party, without the consent of such
indemnifying party, which consent shall not be unreasonably withheld.
8.4 Litigation Indemnification. The parties hereto acknowledge that TST is a
defendant in Cause No. H-96-0163 pending in the United States District Court for
the Southern District of Texas, Houston Division, entitled AMERADA HESS
CORPORATION VS. T.S.T. PARAFFIN SERVICE COMPANY, INC. (the "Amerada Hess
Litigation"). The parties hereto further acknowledge that there are collateral
matters which are being litigated insofar as the validity of an indemnity
agreement executed as a result of settlement by TST in Cause No. C-2244-94-D
pending in the 206th Judicial District Court of Hidalgo County, Texas, which
involved Regina Valenzuela as Next Friend of Brenda Janette Montanez. The
parties hereto further acknowledge that TST has remaining upon its insurance
coverage the sum of $250,000 which can be applied toward any damages awarded in
the Amerada Hess Litigation or which may be used to help fund a settlement of
this litigation. In addition to any other remedies available to the parties
hereto under this Agreement, or at law or in equity, the parties hereto hereby
agree that in the event that damages and/or settlement of the Amerada Hess
Litigation results in an amount in excess of the $250,000 insurance coverage,
that such excess will be paid as follows:
(i) The Shareholders shall commence paying with the first dollar over the
$250,000 and shall continue paying all dollars thereafter until such award
and/or settlement amount reaches $1,250,000; and
(ii) For all amounts awarded or for which settlement may be had in excess of
$1,250,000 and commencing with the first dollar after $1,250,000, the
Shareholders shall pay 20% of each dollar and TST shall pay 80% of each dollar.
The Shareholders and Key agree that they will jointly, at TST's expense, pursue
any third party, including Petrosurance Company, for reimbursement, collateral
source money, or to enforce any other indemnity agreements. For monies recovered
as a result of such pursuit, the Shareholders and TST shall divide each dollar
recovered according to a ratio formula determined by a fraction whose numerator
shall consist of the total amount of money paid by either the Shareholders or
TST, and the denominator shall consist of the total monies paid by both the
Shareholders and TST. Such fraction shall then be multiplied times the recovered
amount of money to determine those sums reimbursable either to the Shareholders
or TST. Key further agrees that upon the Closing, it shall cause TST to directly
participate in the Amerada Hess Litigation and proceed with due diligence to
reach resolution thereof by employing its own counsel to commence such legal
activities as may be necessary to (i) apply pressure to TST's insurance carrier,
AIG, to settle the Amerada Hess Litigation, and/or to tender the full policy
amounts to assist in funding the settlement of said litigation, and (ii)
initiate such activities as may be necessary to commence meaningful settlement
discussions with Amerada Hess and other matters which management may deem
prudent to rapidly conclude the Amerada Hess Litigation. The first $25,000 of
the costs and expenses of such counsel shall be borne by TST with the remaining
costs and expenses being shared equally by TST and the Shareholders. Key shall
not consent to settle the Amerada Hess Litigation for an amount above $250,000
without the prior consent of the Shareholders, such consent not to be
unreasonably withheld.
ARTICLE 9
MISCELLANEOUS
9.1 Press Releases. Key, on the one hand, and the Shareholders, on the other,
shall consult with each other before issuing any press release or otherwise
making any public statement with respect to this Agreement or the transactions
contemplated hereby, and shall not issue any such press release or make any such
public statement prior to receiving approval from the other party, such approval
not to be unreasonably withheld or delayed. No announcement shall be made by any
of the parties hereto prior to the Closing except as may specifically be
required under the terms of this Agreement, except when in the opinion of the
parties' counsel such public statement or announcement is legally required.
9.2 Survival of Representations, Warranties and Covenants. All representations
and warranties made by the parties hereto shall survive for a period of 12
months from the Closing Date, notwithstanding any investigation made by or on
behalf of any of the parties hereto; provided, however, that the representations
and warranties contained in Section 2.1.11 hereof shall survive until the
expiration of the applicable statute of limitations associated with the taxes at
issue. All statements contained in any certificate, schedule, exhibit or other
instrument delivered pursuant to this Agreement shall be deemed to have been
representations and warranties by the respective party or parties, as the case
may be, and shall also survive for a period of 12 months from the Closing Date
despite any investigation made by any party hereto or on its behalf. All
covenants and agreements contained herein shall survive as provided herein.
9.3 Entirety. This Agreemennt embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
9.4 Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
9.5 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
If to Key:
Addressed to: With a copy to:
Yale E. Key, Inc. Key Energy Group, Inc.
1501 E. Taylor Two Tower Center, Tenth Floor
Midland, Texas 79702 East Brunswick, New Jersey 08816
Attention: C. Ron Laidley Attention: General Counsel
Facsimile: (915) 570-8990 Facsimile: (908) 247-5148
and
Lynch, Chappell & Alsup,
a Professional Corporation
300 N. Marienfeld, Suite 700
Midland, Texas 79701
Attention: James M. Alsup
Facsimile: (915) 683-2587
If to either Shareholder:
Addressed to: With a copy to:
Keith and Leslie Neill Bradford L. Moore
1309 East Harris P. O. Box 352
Brownfield, Texas 79316 Brownfield, Texas 79316
Facsimile: (806) 637-3877
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
9.6 Table of Contents and Captions. The table of contents and captions contained
in this Agreement are solely for convenient reference and shall not be deemed to
affect the meaning or interpretation of any article, section, or paragraph
hereof.
9.7 Binding Effect; Assignment; No Third Party Benefit. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns Nothing in this Agreement, express or implied,
is intended to or shall confer upon any person other than Key and the
Shareholders, any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
9.8 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
9.9 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
9.10 Knowledge. References to "knowledge" contained in Sections 2.1.4, 2.1.7,
2.1.11, 2.1.14, 2.1.16, 2.1.19, and 2.1.20 hereof refer only to the actual
knowledge of each Shareholder. References to "knowledge", "known"or "knows"
contained in Sections 2.1.10.6, 2.1.13, 2.1.15, 2.1.17.6, 2.1.17.7 and 2.1.21
hereof refer to, in addition to the actual knowledge of each Shareholder, that
level of knowledge which a person in the same office, position and relationship
to TST (and the same level of responsibility and authority over the operations
of TST) as such Shareholder would be reasonably expected to possess. IN WITNESS
WHEREOF, the Shareholders have executed this Agreement and Key has caused this
Agreement to be signed in its corporate name by its duly authorized
representative, all as of the day and year first above written.
YALE E. KEY, INC.
By:________________________________
C. Ron Laidley, President
SHAREHOLDERS
-----------------------------------
Keith Neill
-----------------------------------
Leslie Neill
pbooker\jma\key energy group\neill 7 unmarked agreement
Asset Purchase Agreement
among
WellTech Eastern, Inc.,
Key Energy Group, Inc.
Elder Well Service, Inc.
Martha J. Elder
Kenneth L. Ward
Nona Faye Mugrauer
Lela Gaye Biehl
Johnny Ray Johnson
March 28, 1997
Asset Purchase Agreement
This Asset Purchase Agreement (herein this "Agreement") is entered into as of
March 28, 1997, among WellTech Eastern, Inc., a Delaware corporation (herein
"Buyer"), Key Energy Group, Inc., a Maryland Corporation (herein "Key"), and
Elder Well Service, Inc., a Texas Corporation, (herein the "Seller"). Martha J.
Elder, Kenneth L. Ward, Nona Faye Mugrauer, Lela Gaye Biehl and Johnny Ray
Johnson are referred to collectively herein as the "Shareholders" and
individually as a "Shareholder."
W I T N E S S E T H:
WHEREAS, the Seller desires to sell substantially all of its assets, and Buyer
desires to acquire such assets..
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
I. Purchase and Sale of Assets
A. Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer all of the assets of the Seller existing on the date
hereof other than the Excluded Assets (as defined in Section 1.2, hereof),
whether tangible or intangible, including, without limitation, the following
assets of the Seller relating to or used or useful in the operation of the
businesses as conducted by the Seller on and before the date hereof (the
"Businesses") (all such assets being sold hereunder are referred to collectively
herein as the "Assets"):
(1) all tangible personal property of the Seller and all tangible personal
property used in the Businesses (such as machinery, equipment, leasehold
improvements, furniture and fixtures, and vehicles), including, without
limitation, that which is more fully described on Schedule 1.1(a) hereto
(collectively, the "Tangible Personal Property");
(1) all of the Seller's inventory and all inventory used in the Businesses,
including without limitation, that which is more fully described on Schedule
1.1(b) hereto (collectively, the "Inventories"), subject to changes in the
ordinary course of business since the Balance Sheet Date (as defined in Section
2.1.8 hereof);
(1) the goodwill and going concern value of the Businesses; and
(1) all other or additional privileges, rights, interests, properties and assets
of the Sellers of every kind and description and wherever located that are used
in the Businesses or
intended for use in the Businesses in connection with, or
that are necessary for the continued conduct of, the Businesses; intended for
use in the Businesses in connection with, or that are necessary for the
continued conduct of, the Businesses;that are necessary for the continued
conduct of, the Businesses; intended for use in the Businesses in connection
with, or that are necessary for the continued conduct of, the
Businesses;continued conduct of, the Businesses;that are necessary for the
continued conduct of, the Businesses; intended for use in the Businesses in
connection with, or that are necessary for the continued conduct of, the Busin
A. Excluded Assets. The Assets shall not include the following (collectively,
the "Excluded Assets"): (i) all of the Seller's accounts receivable and all
other rights of the Seller to payment for services rendered by the Seller before
the date hereof; (ii) all cash accounts of the Seller and all petty cash of the
Seller kept on hand for use in the Businesses; (iii) all right, title and
interest of the Seller in and to all prepaid rentals, other prepaid expenses,
bonds, deposits and financial assurance requirements, and other current assets
relating to any of the Assets or the Businesses; (iv) all assets in possession
of the Seller but owned by third parties; (v) all assets not included in Section
1.1 hereof; (vi) the corporate charter, related organizational documents and
minute books of the Seller; and (vii) the consideration paid or payable by Buyer
to Seller pursuant to Section 1.3 hereof.
A. Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of the Seller and the
Shareholders contained herein:
Buyer agrees to pay to Seller on the date hereof the sum of Six Hundred Nine
Thousand Dollars ($609,000.00) in the form of a cashier's check or bank check or
wire transfer of immediately available funds to an account designated by the
Seller (the "Cash Consideration").
A. Liabilities. Effective as of the date hereof, Buyer shall assume those, and
only those, liabilities and obligations of the Seller to perform the Contracts
to the extent that the Contracts have not been performed and are not in default
on the date hereof (the "Assumed Liabilities"). On and after the date hereof,
the Seller shall be responsible for all other liabilities and obligations of the
Seller other than the Assumed Liabilities, including, without limitation, any
obligations arising from the Seller's employment of those employees of the
Seller listed on Schedule 5.2 hereto (the "Retained Liabilities").
I. Representations and Warranties
of the Sellers and the Shareholder
Representations and Warrantiesof the Sellers and the Shareholder Representations
and Warranties of the Seller and the Shareholders. The Seller and each of the
Shareholders jointly and severally represent and warrant to Buyer as follows:
1. Organization and Good Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of its state of
organization, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary except where the failure to so qualify would not have a
material adverse effect on the business of Seller.
1. Agreements Authorized and their Effect on Other Obligations. The execution
and delivery of this Agreement have been authorized by all necessary corporate
and shareholder action on the part of the Seller, and this Agreement is the
valid and binding obligation of the Seller and each of the Shareholders
enforceable (subject to normal equitable principals) against each of such
parties in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting
the rights of creditors generally. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby,
will not conflict with or result in a violation or breach of any term or
provision of, nor constitute a default under (i) the charter or bylaws (or other
organizational documents) of the Seller, (ii) any obligation, indenture,
mortgage, deed of trust, lease, contract or other agreement to which the Seller
or the Shareholders is a party or by which the Seller or the Shareholders or
their respective properties are bound; or (iii) any provision of any law, rule,
regulation, order, permits, certificate, writ, judgment, injunction, decree,
determination, award or other decision of any court, arbitrator, or other
governmental authority to which the Seller or the Shareholders or any of their
respective properties are subject. Schedule 2.1.2. hereto contains a complete
list of all shareholders of Seller as of the Closing Date.
1. Title to and Condition of Assets. The Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). All of the Assets are in a state of good operating condition
and repair, ordinary wear and tear excepted, and are free from any known defects
except as may be repaired by routine maintenance and such minor defects as to
not substantially interfere with the continued use thereof in the conduct of
normal operations. All of the Assets conform to all applicable laws governing
their use. Except as set forth on Schedule 2.1.3 hereto, no notice of any
violation of any law, statute, ordinance, or regulation relating to any of the
Assets has been received by the Seller or any of the Shareholders, except such
as have been fully complied with. The term "Encumbrances" means all liens,
security interests, pledges, mortgages, deeds of trust, claims, rights of first
refusal, options, charges, restrictions or conditions to transfer or assignment,
liabilities, obligations, privileges, equities, easements, rights of way,
limitations, reservations, restrictions, and other encumbrances of any kind or
nature.
1. Bulk Sales Act Not Applicable. The Seller is not and was not in the business
of selling merchandise from stock or manufacturing what it sells.
1. Necessary Consents. The Seller has obtained and delivered to Buyer all
consents to assignment or waivers thereof required to be obtained from any
governmental authority or from any other third party in order to validly
transfer the Assets hereunder.
1. No ERISA Plans or Labor Issues. No employee benefit plan of the Seller,
whether or not subject to any provisions of the Employee Retirement Income
Security Act of 1974, as amended, will by its terms or applicable law, become
binding upon or an obligation of Buyer. The Seller has not engaged in any unfair
labor practices which could reasonably be expected to result in a material
adverse effect on the Assets. Except as set forth in Schedule 2.1.6 hereto, the
Seller has no dispute with any of its existing or former employees and there are
no labor disputes or, to the knowledge of the Seller or any of the Shareholders,
any disputes threatened by current or former employees of the Seller. Neither
the Seller nor any of the Shareholders know of any claims or efforts by any of
its employees or by others to organize their employees into a union and/or
unions.
1. Investigations; Litigation. No investigation or review by any governmental
entity with respect to the Seller or any of the transactions contemplated by
this Agreement is pending or, to the knowledge of the Seller or any of the
Shareholders, threatened, nor has any governmental entity indicated to the
Seller or any of the Shareholders an intention to conduct the same. Except as
set forth in Schedule 2.1.7 hereto, there is no suit, action, or legal,
administrative, arbitration, or other proceeding or governmental investigation
pending to which the Seller or any of the Shareholders is a party or, to the
knowledge of the Seller or any of the Shareholders, might become a party or
which particularly affects the Assets. Neither Seller nor any of the
Shareholders know of any claims that any of its officers, employees or agents
have violated any state or federal civil rights law including the Michigan
Elliott-Larsen Civil Rights Act.
1. Absence of Certain Business Practices. Neither Seller nor any officer,
employee or agent of the Seller, or any other person acting on behalf of the
Seller, have, directly or indirectly, within the past five years, given or
agreed to give any gift or similar benefit to any customer, supplier, government
employee or other person who is or may be in a position to help or hinder the
profitable conduct of the Businesses or the profitable use of the Assets, (or to
assist the Seller in connection with any actual or proposed transaction) which
if not given in the past, might have had a material adverse effect on the
profitable conduct of the Businesses or the profitable use of the Assets, or if
not continued in the future, might materially adversely affect the profitable
conduct of the Businesses or the profitable use of the Assets.
1. Solvency. The Seller is not now insolvent, nor will the Seller be rendered
insolvent by the occurrence of the transactions contemplated by this Agreement.
The term "insolvent", with respect to the Seller, means that the sum of the
present fair and saleable value of Seller's assets does not and will not exceed
its debts and other probable liabilities, and the term "debts" includes any
legal liability whether matured or unmatured, liquidated or unliquidated,
absolute fixed or contingent, disputed or undisputed or secured or unsecured.
1. Untrue Statements. The Seller has made available to Buyer true, complete and
correct copies of all contracts, documents concerning all litigation and
administrative proceedings, licenses, permits, insurance policies, lists of
suppliers and customers, and records relating principally to the Businesses and
the Assets, and such information covers all commitments and liabilities of Buyer
relating principally to the Businesses and the Assets. This Agreement does not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made herein and therein not misleading in
any material respect.
1. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Seller, the
Shareholders and their counsel directly with Buyer and its counsel, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or any similar payment.
I. Representations and Warranties of Buyer and
Key
A. Representations and Warranties of Buyer. Buyer represents and warrants to
Seller and the Shareholders as follows:
1. Organization and Standing. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware, has full requisite
corporate power and authority to carry on its business as it is currently
conducted, and to own and operate the properties currently owned and operated by
it, and is duly qualified or licensed to do business and is in good standing as
a foreign corporation authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business conducted by
it would make such qualification or licensing necessary except where the failure
to so qualify would not have a material adverse affect on the business of Buyer.
1. Agreement Authorized and its Effect on Other Obligations. The execution and
delivery of this Agreement have been authorized by all necessary corporate
action on the part of Buyer, and this Agreement is the valid and binding
obligation of Buyer, enforceable (subject to normal equitable principals)
against Buyer in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a violation or breach of
any term or provision of, nor constitute a default under (i) the charter or
bylaws of Buyer; (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which Buyer is a party or by which Buyer or its
properties are bound; or (iii) any provision of any law, rule, regulation,
order, permits, certificate, writ, judgment, injunction, decree, determination,
award or other decision of any court, arbitrator or other governmental authority
to which Buyer or any of its properties are subject.
1. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer and its counsel
directly with Seller, the Shareholders and their counsel, without the
intervention of any other person as the result of any act of Buyer in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payment.
A. Representations and Warranties of Key. Key represents and warrants to Seller
and each of the Shareholders as follows:
1. Organization and Standing. Key is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland, has full
requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary except
where the failure to so qualify would not have a material adverse affect on the
business of Buyer.
1. Agreement Authorized and its Effect on Other Obligations. The execution and
delivery of this have been authorized by all necessary corporate action on the
part of Key, and this Agreement is the valid and binding obligation of Key,
enforceable (subject to normal equitable principals) against Key in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, debtor relief or similar laws affecting the rights
of creditors generally. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict with or result in a violation or breach of any term or provision of,
nor constitute a default under (i) the charter or bylaws of Key; (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which Key is a party or by which Key or its properties are bound;
or (iii) any provision of any law, rule, regulation, order, permits,
certificate, writ, judgment, injunction, decree, determination, award or other
decision of any court, arbitrator or other governmental authority to which Key
or any of its properties is subject.
1. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Key and its counsel
directly with Seller, the Shareholders and their counsel, without the
intervention by any other person as the result of any act of Key in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payments.
I. Closing
A. Closing Date. Consummation of the sale and the purchase contemplated by this
Agreement shall take place on the date hereof at the offices of Tom A. Taylor.
A. Duties of Seller and the Shareholders at Closing. Contemporaneously with the
performance by Buyer of its obligations to be performed at the Closing, Seller
and each of the Shareholders agree to, and shall deliver to Buyer at the Closing
the following:
(1) Bills of Sale conveying all of the Assets to Buyer sufficient to convey,
transfer to, and vest in Buyer, good and marketable title to all rights in the
Assets, free and clear of any and all Encumbrances;
(1) Such other items that Buyer deems necessary or convenient to effect the
transactions contemplated hereby.
A. Duties of Buyer and Key at Closing. Contemporaneously with the performance by
Seller and each of the Shareholders of their obligations to be performed at the
Closing, Buyer agrees to, and shall deliver to Seller at the Closing the
following:
(1) The Cash Consideration;
(1) Such other items that Seller deems necessary or convenient to effect the
transactions contemplated hereby.
I. Additional Agreements
Additional Agreements Noncompetition. Except as otherwise consented to or
approved in writing by Buyer, the Seller and each of the Shareholders agree that
for a period of 60 months following the date hereof, such party will not,
directly or indirectly, acting alone or as a member of a partnership or a holder
of, or investor in as much as 5% of any security of any class of any corporation
or other business entity (i) engage in any business in competition with the
business or businesses conducted by Buyer (or Buyer's affiliates) or the Seller
on the date hereof or in any service business the services of which are provided
and marketed by Buyer (or Buyer's affiliates) or the Seller on the date hereof
in any state of the United States, or in any foreign country in which Buyer (or
Buyer's affiliates) or the Seller transact business on the date hereof; (ii)
request any present customers or suppliers of the Seller to curtail or cancel
their business with Buyer; (iii) disclose to any person, firm or corporation any
trade, technical or technological secrets of Buyer (or Buyer's affiliates) or
the Seller or any details of their organization or business affairs or (iv)
induce or actively attempt to influence any employee of Buyer (or Buyer's
affiliates) to terminate his employment. The Seller and each of the Shareholders
agree that if either the length of time or geographical as set forth in this
Section 5.1 is deemed too restrictive in any court proceeding, the court may
reduce such restrictions to those which it deems reasonable under the
circumstances. The obligations expressed in this Section 5.1 are in addition to
any other obligations that the Seller and each of the Shareholders may have
under the laws of any state requiring an employee of a business or a shareholder
who sells its assets in a corporation to limit its activities so that the
goodwill and business relations of employer and of the corporation whose assets
it has sold (and any successor corporation) will not be materially impaired. The
Seller and each of the Shareholders further agree and acknowledge that Buyer
does not have any adequate remedy at law for the breach or threatened breach by
the Seller or any of the Shareholders of this covenant, and agree that Buyer
may, in addition to the other remedies which may be available to it hereunder,
file a suit in equity to enjoin the Seller or such Shareholder from such breach
or threatened breach. If any provisions of this Section 5.1 are held to be
invalid or against public policy, the remaining provisions shall not be affected
thereby. The Seller and each of the Shareholders acknowledge that the covenants
set forth in this Section 5.1 are being executed and delivered by such party in
consideration of the covenants of Buyer contained in this Agreement, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged.
A. Hiring Employees. Schedule 5.2 hereto is a complete and accurate listing of
all employees of the Seller that are involved in the operation of the Assets
(the "Employees"). Effective as of the date hereof, all of the Employees shall
be terminated by the Seller. Buyer agrees to hire all of the Employees effective
as of the date hereof, subject to such Employees meeting Buyer's standard
employment eligibility requirements. All such hired Employees will become
participants in Buyer's employee benefit plans, including Buyer's medical plan,
and shall receive credit for their seniority at Seller, to the extent allowable
under Buyer's current contracts. All Employees hired by Buyer shall be at-will
employees of Buyer and be bound by Buyer's personnel policies. Buyer shall have
no liability or obligation with respect to any employee benefits of any Employee
except those benefits that accrue pursuant to such Employees' employment with
Buyer on or after the date hereof. The Seller and each of the Shareholders shall
cooperate with Buyer in connection with any offer of employment from Buyer to
the employees and use its best efforts to cause the acceptance of any and all
such offers.
A. Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on Schedule
5.3 hereto, and shall report this transaction for federal income tax purposes in
accordance with the allocation so agreed upon. The parties hereto for themselves
and for their respective successors and assigns covenant and agree that they
will file coordinating Form 8594's in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
A. Possession of Tangible Personal Property and Inventories. Possession of the
Assets shall be deemed to have passed from Seller to Buyer on the date hereof.
All Tangible Personal Property and Inventories shall be available in Kalkaska
County, Michigan for Buyer, at Buyer's sole cost and expense, to pick up and/or
take possession.
A. Proration of Expenses. The parties further agree that the following
obligations shall be prorated as follows:
(1) All utility charges incurred by Sellers in the Businesses prior to the date
of Closing shall be paid by Seller. The Buyer shall be responsible for the
utility charges incurred by the Assets and/or Businesses purchased by Buyer
after the date hereof.
(1) The Seller shall pay a prorata share of the personal property taxes for the
Assets sold by the Seller to Buyer for all years prior to the Closing and a
prorata share of all such taxes for 1997, prorated to the date hereof, in
accordance with the standards of practice in Kalkaska County, Michigan. If the
actual taxes for the current year are not known as of the date hereof, the
apportionment of taxes shall be upon the basis of taxes for the immediate
preceding year, provided that, if taxes for the current year are thereafter
determined to be more or less for the taxes for the preceding year (after any
appeal of the assessed valuation thereof is concluded), Seller and Buyer
promptly shall adjust the proration of such taxes and Seller and/or Buyer, as
the case may be, shall pay to the other any amount required as a result of such
adjustment and as a covenant shall survive the Closing.
(1) The Seller shall pay all taxes, whether federal, state or local, assessed
against the Assets or the Businesses for that period of time prior to the date
hereof, including any and all sales taxes, use taxes, unemployment compensation
taxes or taxes arising out of the fact that Seller hired employees.
(1) All other costs or expenses arising out of the Assets or the Businesses
prior to the date hereof.
A. Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
I. Indemnification
Indemnification Indemnification by the Seller and the Shareholders. In addition
to any other remedies available to Buyer under this Agreement, or at law or in
equity, the Seller and each of the Shareholders shall, jointly and severally,
indemnify, defend and hold harmless Buyer and its officers, directors,
employees, agents and stockholders, against and with respect to any and all
claims, costs, damages, losses, expenses, obligations, liabilities, recoveries,
suits, causes of action and deficiencies, including interest, penalties and
reasonable attorneys' fees and expenses (collectively, the "Damages") that such
indemnitee shall incur or suffer, which arise, result from or relate to (i) any
breach of, or failure by the Seller, any of the Affiliated Companies or any of
the Shareholders to perform, their respective representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to Buyer by the Seller or
each of the Shareholders under this Agreement; and (ii) the Retained
Liabilities.
A. Indemnification by Buyer. In addition to any other remedies available to
Seller under this Agreement, or at law or in equity, Buyer shall indemnify,
defend and hold harmless each of the Shareholders and the Seller and its
officers, directors, employees and agents against and with respect to any and
all Damages that such indemnities shall incur or suffer, which arise, result
from or relate to any breach of, or failure by Buyer to perform any of its
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to
Seller by or on behalf of Buyer under this Agreement.
A. Indemnification Procedure. If any party hereto discovers or otherwise becomes
aware of an indemnification claim arising under Section 6.1 or 6.2 of this
Agreement, such indemnified party shall give written notice to the indemnifying
party, specifying such claim, and may thereafter exercise any remedies available
to such party under this Agreement; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the indemnifying
party is not materially prejudiced thereby. Further, promptly after receipt by
an indemnified party hereunder of written notice of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Article 6, such indemnified party shall, if a claim in
respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
I. Miscellaneous
A. Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive without
limitation despite any investigation made by any party hereto or on its behalf.
A. Entirety. This Agreement embodies the entire agreement among the parties with
respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
A. Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
A. Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
If to Buyer
Addressed to: With a copy to:
WellTech Eastern, Inc. Key Energy Group, Inc.
Kenneth C. Hill Two Tower Center, Tenth Floor
5976 Venture Way East Brunswick, New Jersey 08816
Mt. Pleasant, Michigan 48858 Attn: General Counsel
Facsimile: (517) 773-0229 Facsimile: (908) 247-5148
and
Steven W. Martineau
Lynch, Gallagher, Lynch &
Martineau, P.L.L.C.
555 N. Main St., P.O. Box 446
Mt. Pleasant, Michigan 48804-0446
Facsimile: (517) 773-2107
If to a Seller or a Shareholder
Addressed to: With a copy to:
Elder Well Service, Inc. Tom A. Taylor
2137 Office Park Drive 3471 Knickerbocker, Suite 304
San Angelo, Texas 76904 San Angelo, Texas 76904
Attn: Joe Hoelle Facsimile: (915) 944-4816
Facsimile: (915) 944-2538
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
A. Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
A. Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
A. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
A. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Michigan.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
WELLTECH EASTERN, INC.
By:
Name:
Title:
KEY ENERGY GROUP, INC.
By:
Name:
Title:
ELDER WELL SERVICE, INC.
By:
Name: Joe Hoelle
Title: President
THE SHAREHOLDERS:
----------------------------------
Martha J. Elder
----------------------------------
Kenneth L. Ward
----------------------------------
Nona Faye Mugrauer
----------------------------------
Lela Gaye Biehl
----------------------------------
Johnny Ray Johnson
SCHEDULE 1.1(a)
SCHEDULE 1.1(b)
SCHEDULE 2.1.2
Complete Listing of Shareholders
Martha J. Elder - 80%
Kenneth L. Ward - 10%
Nona Faye Mugrauer
Lela Gaye Biehl 10%
Johnny Ray Johnson
SCHEDULE 2.1.3
Notice of Violation of Laws, Statutes, Ordinances or Regulations
None.
SCHEDULE 2.1.6
Disputes with Existing or Former Employees, etc.
None.
SCHEDULE 2.1.7
Elder Well Service, Inc. and its majority shareholder, Martha Elder, have been
involved in litigation with minority shareholders. The case against Elder Well
Service, Inc. and Martha Elder was dismissed on September 6, 1996. The minority
shareholders have filed a request for extension to file a brief for appeal with
the Civil Court of Appeals. The Court of Appeals has routinely ordered both
parties to try and mediate this matter. The date for mediation is set for March
31, 1997.
SCHEDULE 5.2
List of Employees
SCHEDULE 5.3
Allocation of Purchase Price
SCHEDULE 1.1(a) and 1.1(b)
All other personal property, including furniture and fixtures, in the State of
Michigan except for pick-ups and radio systems.
Asset Purchase Agreement #1
among
WellTech Eastern, Inc.
Key Energy Group, Inc.
Kalkaska Construction Service, Inc.
Dennis Hogerheide,
LaWenda Hogerheide,
David Hogerheide
and
Derek Hogerheide
March 31, 1997
Asset Purchase Agreement #1
This Asset Purchase Agreement (herein this "Agreement") is entered into as of
March 31, 1997, among WellTech Eastern, Inc., a Delaware corporation (herein
"Buyer"), Key Energy Group, Inc., a Maryland Corporation (herein "Key"), and
Kalkaska Construction Service, Inc., a Michigan Corporation, (herein the
"Seller"). Dennis Hogerheide, LaWenda Hogerheide, David Hogerheide and Derek
Hogerheide are referred to collectively herein as the "Shareholders" and
individually as a "Shareholder."
W I T N E S S E T H:
WHEREAS, the Seller desires to sell substantially all of its assets, and Buyer
desires to acquire such assets..
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
I. Purchase and Sale of Assets
A. Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer all of the assets of the Seller existing on the date
hereof other than the Excluded Assets (as defined in Section 1.2, hereof),
whether tangible or intangible, including, without limitation, the following
assets of the Seller relating to or used or useful in the operation of the
businesses as conducted by the Seller and those parties listed on Schedule 1.1
hereto (herein the "Affiliated Companies") on and before the date hereof (the
"Businesses") (all such assets being sold hereunder are referred to collectively
herein as the "Assets"):
(1) all tangible personal property of the Seller and all tangible personal
property used in the Businesses (such as machinery, equipment, leasehold
improvements, furniture and fixtures, and vehicles), including, without
limitation, that which is more fully described on Schedule 1.1(a) hereto
(collectively, the "Tangible Personal Property");
(1) all of the Seller's inventory and all inventory used in the Businesses
(collectively, the "Inventories"), subject to changes in the ordinary course of
business since the Balance Sheet Date (as defined in Section 2.1.8 hereof);
(1) all of the Seller's intangible assets and all intangible assets used in the
Businesses, including without limitation, (i) all of the Seller's rights to the
names under which it is incorporated or under which it currently does business,
(ii) all of the Seller's rights to any of its patents, patent applications,
trademarks and service marks (including registrations and
applications
therefor), trade names, and copyrights and written know-how, trade secrets,
licenses and sublicenses and all other similar proprietary data and the goodwill
associated therewith (collectively, the "Intellectual Property") used or held in
connection with the Businesses (the "Seller Intellectual Property") and (iii)
the Seller's phone numbers and all of its sales and promotional literature,
excluding account ledgers, books, records, files and data, corporate minute
books of the Seller and the Affiliated Companies, and all other records of the
Seller and the Affiliated Companies (collectively, the "Intangibles");
"Intangibles");
(1) those leases, subleases, contracts, contract rights, and agreements relating
to the Assets or the operation of the Businesses, specifically listed on
Schedule 1.1(d) hereto (collectively, the "Contracts");
(1) all of the permits, authorizations, certificates, approvals, registrations,
variances, waivers, exemptions, rights-of-way, franchises, ordinances, orders,
licenses and other rights of every kind and character (collectively, the
"Permits") relating principally to all or any of the Assets or to the operation
of the Businesses, including, but not limited to, that which is more fully
described on Schedule 1.1(e) hereto (collectively, the "Seller Permits");
(1) the goodwill and going concern value of the Businesses; and
(1) all other or additional privileges, rights, interests, properties and assets
of the Sellers or of the Affiliated Companies of every kind and description and
wherever located that are used in the Businesses or intended for use in the
Businesses in connection with, or that are necessary for the continued conduct
of, the Businesses;
A. Excluded Assets. The Assets shall not include the following (collectively,
the "Excluded Assets"): (i) all of the Seller's accounts receivable and all
other rights of the Seller to payment for services rendered by the Seller or the
Affiliated Companies before the date hereof; (ii) all cash accounts of the
Seller and all petty cash of the Seller kept on hand for use in the Businesses;
(iii) all right, title and interest of the Seller in and to all prepaid rentals,
other prepaid expenses, bonds, deposits and financial assurance requirements,
and other current assets relating to any of the Assets or the Businesses; (iv)
all assets in possession of the Seller but owned by third parties; (v) the
assets of the Seller listed in Schedule 1.2, hereof; (vi) the corporate charter,
related organizational documents and minute books of the Seller; and (vii) the
consideration paid or payable by Buyer to Seller pursuant to Section 1.3 hereof.
A. Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of the Seller and the
Shareholders contained herein:
(1) Buyer agrees on the date hereof to pay Seller and the below listed
Affiliated Companies in the form of a cashier's check or bank check or wire
transfer of immediately available funds to an account designated by the Seller
(the "Cash Consideration"), the following: Seller: $1,928,365.00
BMG: 110,000.00
W & J Enterprises, Inc.: 175,000.00
(1) Key, for the benefit of Buyer, agrees to issue in accordance with Section
5.5 hereof, ______ shares of common stock of Key, par value $0.10 per share
(herein "Key Shares").
(1) Buyer agrees to deliver to Seller on the date hereof the sum of Three
Hundred Thousand Dollars ($300,000.00) to be used by Seller to construct a
building for Buyer. This amount is subject to the provisions of Section 5.9.
A. Liabilities. Effective as of the date hereof, Buyer shall assume those, and
only those, liabilities and obligations of the Seller to perform the Contracts
to the extent that the Contracts have not been performed and are not in default
on the date hereof (the "Assumed Liabilities"). On and after the date hereof,
the Seller shall be responsible for all other liabilities and obligations of the
Seller other than the Assumed Liabilities, including, without limitation, any
obligations arising from the Seller's employment before the date hereof of those
employees of the Seller listed on Schedule 5.2 hereto (the "Retained
Liabilities").
I. Representations and Warranties
of the Sellers and the Shareholder
Representations and Warrantiesof the Sellers and the Shareholder Representations
and Warranties of the Seller and the Shareholders. The Seller and each of the
Shareholders jointly and severally represent and warrant to Buyer as follows:
1. Organization and Good Standing. Seller and each Affiliated Company is a
corporation duly organized, validly existing and in good standing under the laws
of its state of organization, has full requisite corporate power and authority
to carry on its business as it is currently conducted, and to own and operate
the properties currently owned and operated by it, and is duly qualified or
licensed to do business and is in good standing as a foreign corporation
authorized to do business in all jurisdictions in which the character of the
properties owned or the nature of the business conducted by it would make such
qualification or licensing necessary except where the failure to so qualify
would not have a material adverse effect on the business of Seller.
1. Agreements Authorized and their Effect on Other Obligations. The execution
and delivery of this Agreement have been authorized by all necessary corporate
and shareholder action on the part of the Seller and Affiliated Companies, and
this Agreement is the valid and binding obligation of the Seller and each of the
Shareholders enforceable (subject to normal equitable principals) against each
of such parties in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, will not conflict with or result in a violation or breach
of any term or provision of, nor constitute a default under (i) the charter or
bylaws (or other organizational documents) of the Seller or Affiliated
Companies, (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which the Seller, Affiliated Companies or the
Shareholders is a party or by which the Seller, Affiliated Companies or the
Shareholders or their respective properties are bound; or (iii) any provision of
any law, rule, regulation, order, permits, certificate, writ, judgment,
injunction, decree, determination, award or other decision of any court,
arbitrator, or other governmental authority to which the Seller, Affiliated
Companies or the Shareholders or any of their respective properties are subject.
Schedule 2.1.2. hereto contains a complete list of all shareholders of Seller as
of the Closing Date.
1. Contracts. Schedule 1.1(d) hereto sets forth a complete list of all
contracts, including leases under which the Seller is lessor or lessee, which
relate to the Assets and are to be performed in whole or in part after the date
hereof. All of the Contracts are in full force and effect, and constitute valid
and binding obligations of the Seller. The Seller is not, and no other party to
any of the Contracts is, in default thereunder, and no event has occurred which
(with or without notice, lapse of time, or the happening of any other event)
would constitute a default thereunder. No Contract has been entered into on
terms which could reasonably be expected to have a material adverse effect on
the use of the Assets by Buyer. Neither the Seller, any of the Affiliated
Companies nor any of the Shareholders have received any information which would
cause any of such parties to conclude that any customer of the Seller or any of
the Affiliated Companies will (or is likely to) cease doing business with Buyer,
as successor to the Businesses, as a result of the consummation of the
transactions contemplated hereby.
1. Title to and Condition of Assets. The Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). All of the Assets are in a state of good operating condition
and repair, ordinary wear and tear excepted, and are free from any known defects
except (i) as may be repaired by routine maintenance and such minor defects as
to not substantially interfere with the continued use thereof in the conduct of
normal operations, or (ii) as otherwise set forth in the Appraisal by Superior
Appraisals dated July 23, 1996, or (iii) as set forth in Schedule 2.1.4 (a). All
of the Assets conform to all applicable laws governing their use. Except as set
forth on Schedule 2.1.4 (b) hereto, no notice of any violation of any law,
statute, ordinance, or regulation relating to any of the Assets has been
received by the Seller, any of the Affiliated Companies or any of the
Shareholders, except such as have been fully complied with. The term
"Encumbrances" means all liens, security interests, pledges, mortgages, deeds of
trust, claims, rights of first refusal, options, charges, restrictions or
conditions to transfer or assignment, liabilities, obligations, privileges,
equities, easements, rights of way, limitations, reservations, restrictions, and
other encumbrances of any kind or nature.
2. Bulk Sales Act Not Applicable. Neither the Seller nor any of the Affiliated
Companies are, or were, in the business of selling merchandise from stock or
manufacturing what it sells.
1. Licenses and Permits. Schedule 1.1(e) hereto sets forth a complete list of
all Permits necessary under law or otherwise for the operation, maintenance and
use of the Assets in the manner in which they are now being operated, maintained
and used. Each of the Seller Permits and the Seller's rights with respect
thereto is valid and subsisting, in full force and effect, and enforceable by
the Seller subject to administrative powers of regulatory agencies having
jurisdiction. The Seller is in compliance in all material respects with the
terms of each of the Seller Permits. None of the Seller Permits have been, or to
the knowledge of the Seller, any of the Affiliated Companies or any of the
Shareholders, are threatened to be, revoked, canceled, suspended or modified.
Upon consummation of the transactions contemplated hereby, all of the Seller
Permits shall be assignable to Buyer and upon such assignment, each of the
Seller Permits and Buyer's rights with respect thereto will be valid and
subsisting in full force and effect, and enforceable by Buyer subject to
administrative powers of regulatory agencies having jurisdiction.
1. Intellectual Property. Section 1.1(c) sets forth a complete list of all
Intellectual Property material to or necessary for the continued conduct of the
Businesses. The Seller Intellectual Property is owned or licensed by the Seller
free and clear of any Encumbrances. Neither the Seller nor any of the Affiliated
Companies have granted to any other person any license to use any Seller
Intellectual Property. Use of the Seller Intellectual Property will not, and the
conduct of the Businesses did not, infringe, misappropriate or conflict with the
Intellectual Property rights of others. Neither the Seller nor any of the
Affiliated Companies nor any of the Shareholders have received any notice of
infringement, misappropriation, or conflict with the intellectual property
rights of others in connection with the use by the Seller or any of the
Affiliated Companies of the Seller Intellectual Property.
1. Financial Statements. The Seller has delivered to Buyer copies of Seller's
unaudited balance sheet, copies of which are attached hereto as Schedule 2.1.8 (
the "Balance Sheet") and related statements of income, retained earnings and
cash flows (collectively, the "Financial Statements") as at and for the period
ending November 30, 1996, (the "Balance Sheet Date"). The Financial Statements
are true, correct and complete in all material respects and present fairly and
fully the financial condition of the Seller as at the dates indicated, and have
been prepared in accordance with generally accepted accounting principles as
promulgated by the American Institute of Certified Public Accountants ("GAAP")
applied on a consistent basis, except as noted therein. Each of the Financial
Statements include all adjustments which are necessary for a fair presentation
of the Seller's results for that period. The inventories of the Seller reflected
in the Balance Sheet, or which have thereafter been acquired by Seller, consist
of items of a quality and quantity salable in the normal course of the
Businesses. The values at which such inventories are carried are in accordance
with GAAP applied on a consistent basis, and are consistent with the normal
inventory level and practices of Seller with respect to the Businesses.
1. Absence of Certain Changes and Events. Other than as a result of the
transactions contemplated by this Agreement and except as set forth in Schedule
2.1.9 hereto, since the Balance Sheet Date, there has not been:
(1) Financial Change. Any adverse change in the Assets, the Businesses or the
financial condition, operations, liabilities or prospects of the Seller;
(1) Property Damage. Any damage, destruction, or loss to any of the Assets or
the Businesses (whether or not covered by insurance);
(1) Waiver. Any waiver or release of a material right of or claim held by the
Seller;
(1) Change in Assets. Any acquisition, disposition, transfer, encumbrance,
mortgage, pledge or other encumbrance of any asset of the Seller other than in
the ordinary course of business;
(1) Labor Disputes. Any labor disputes between the Seller and its employees; or
(1) Other Changes. Any other event or condition known to the Seller or any of
the Shareholders that particularly pertains to and has or might have an adverse
effect on the Assets, the operations of the Businesses or the financial
condition or prospects of the Seller.
1. Necessary Consents. The Seller has obtained and delivered to Buyer all
consents to assignment or waivers thereof required to be obtained from any
governmental authority or from any other third party in order to validly
transfer the Assets hereunder.
1. Environmental Matters. None of the current or past operations of the
Businesses of the Seller or any of the Assets are being or have been conducted
or used in such a manner as to constitute a violation of any Applicable
Environmental Laws (defined below), except to the extent that the Seller caused
the environmental conditions as set forth in Schedule 2.1.11 (a). Neither the
Seller nor any of the Affiliated Companies nor any of the Shareholders have
received any notice (whether formal or informal, written or oral) from any
entity, governmental agency or individual regarding any existing, pending or
threatened investigation or inquiry related to violations of any Applicable
Environmental Laws or regarding any claims for remedial obligations or
contribution for removal costs or damages under any Applicable Environmental
Laws. There are no writs, injunction decrees, orders or judgments outstanding,
or lawsuits, claims, proceedings or investigations pending or, to the knowledge
of the Seller, any of the Affiliated Companies or any of the Shareholders,
threatened relating to the ownership, use, maintenance or operation of the
Assets or the conduct of the Businesses, nor, to the knowledge of the Seller,
any of the Affiliated Companies or any of the Shareholders, is there any basis
for any of the foregoing. Buyer is not required to obtain any permits, licenses
or similar authorizations pursuant to any Applicable Environmental Laws in
effect as of the date hereof to operate and use any of the Assets for their
current or proposed purposes and uses. To the knowledge of the Seller, any of
the Affiliated Companies or any of the Shareholders, the Assets include all
environmental and pollution control equipment necessary for compliance with all
Applicable Environmental Laws. Except as set forth in Schedule 2.1.11 (b)
hereto, no Hazardous Materials (defined below) have been or are currently being
used by the Seller or any of the Affiliated Companies in the operation of the
Assets. Except as set forth in Schedule 2.1.11 (b) hereto, no Hazardous
Materials are or have ever been situated on or under any of the properties of
Seller or any of the Affiliated Companies, whether owned or leased, or
incorporated into any of the Assets. Except as set forth in Schedule 2.1.11 (b)
hereto, to the knowledge of the Seller, any of the Affiliated Companies or any
of the Shareholders, there are no, and there have never been any, underground
storage tanks (as defined under Applicable Environmental Laws) located under any
of the properties of Seller or any of the Affiliated Companies, whether owned or
leased. The term "Applicable Environmental Laws" means any applicable federal,
state or local law, statute, ordinance, rule, regulation, order or notice
requirement pertaining to human health, the environment, or to the storage,
treatment, discharge, release or disposal of hazardous wastes or hazardous
substances, including, without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. ss.ss.9601 et seq.),
as amended from time to time, including, without limitation, as amended pursuant
to the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), and
regulations promulgated thereunder, (ii) the Resources Conservation and Recovery
Act of 1976 (42 U.S.C. ss.ss.6901 et seq.), as amended from time to time
("RCRA"), and regulations promulgated thereunder, (iii) the Federal Water
Pollution Control Act (U.S.C.A. ss.9601 et seq.), as amended, and regulations
promulgated thereunder, and (iv) any applicable state laws or regulations
relating to the environment. The term "Hazardous Materials" means (x) asbestos,
polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas,
petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals,
materials, wastes or substances that are defined, regulated, determined or
identified as toxic or hazardous in any Applicable Environmental Laws,
including, but not limited to, substances defined as "hazardous substances,"
"hazardous materials," or "hazardous waste" in CERCLA, RCRA, the Hazardous
Materials Transportation Act (49 U.S.C. ss. 1801, et seq.), or comparable state
and local statutes or in the regulations adopted and publications promulgated
pursuant to said statutes.
1. No ERISA Plans or Labor Issues. No employee benefit plan of the Seller or
Affiliated Companies, whether or not subject to any provisions of the Employee
Retirement Income Security Act of 1974, as amended, will by its terms or
applicable law, become binding upon or an obligation of Buyer. Neither the
Seller nor any of the Affiliated Companies have engaged in any unfair labor
practices which could reasonably be expected to result in a material adverse
effect on the Assets. Except as set forth in Schedule 2.1.12 hereto, neither the
Seller nor any of the Affiliated Companies have any dispute with any of its
existing or former employees and there are no labor disputes or, to the
knowledge of the Seller or any of the Affiliated Companies or any of the
Shareholders, any disputes threatened by current or former employees of the
Seller or any of the Affiliated Companies. Neither the Seller nor any of the
Affiliated Companies nor any of the Shareholders know of any claims or efforts
by any of its employees or by others to organize their employees into a union
and/or unions.
1. Investigations; Litigation. No investigation or review by any governmental
entity with respect to the Seller or any of the Affiliated Companies or any of
the transactions contemplated by this Agreement is pending or, to the knowledge
of the Seller, any of the Affiliated Companies or any of the Shareholders,
threatened, nor has any governmental entity indicated to the Seller, any of the
Affiliated Companies or any of the Shareholders an intention to conduct the
same. Except as set forth in Schedule 2.1.13 hereto, there is no suit, action,
or legal, administrative, arbitration, or other proceeding or governmental
investigation pending to which the Seller, any of the Affiliated Companies or
any of the Shareholders is a party or, to the knowledge of the Seller, any of
the Affiliated Companies or any of the Shareholders, might become a party or
which particularly affects the Assets. Neither Seller nor any of the Affiliated
Companies nor any of the Shareholders know of any claims that any of its
officers, employees or agents have violated any state or federal civil rights
law including the Michigan Elliott-Larsen Civil Rights Act.
1. Absence of Certain Business Practices. Neither Seller nor any of the
Affiliated Companies nor any officer, employee or agent of the Seller or any of
the Affiliated Companies, or any other person acting on behalf of the Seller or
any of the Affiliated Companies, have, directly or indirectly, within the past
five years, given or agreed to give any gift or similar benefit to any customer,
supplier, government employee or other person who is or may be in a position to
help or hinder the profitable conduct of the Businesses or the profitable use of
the Assets, (or to assist the Seller or any of the Affiliated Companies in
connection with any actual or proposed transaction) which if not given in the
past, might have had a material adverse effect on the profitable conduct of the
Businesses or the profitable use of the Assets, or if not continued in the
future, might materially adversely affect the profitable conduct of the
Businesses or the profitable use of the Assets.
1. Solvency. The Seller is not now insolvent, nor will the Seller be rendered
insolvent by the occurrence of the transactions contemplated by this Agreement.
The term "insolvent", with respect to the Seller, means that the sum of the
present fair and saleable value of Seller's assets does not and will not exceed
its debts and other probable liabilities, and the term "debts" includes any
legal liability whether matured or unmatured, liquidated or unliquidated,
absolute fixed or contingent, disputed or undisputed or secured or unsecured.
2. Untrue Statements. The Seller has made available to Buyer true, complete and
correct copies of all contracts, documents concerning all litigation and
administrative proceedings, licenses, permits, insurance policies, lists of
suppliers and customers, and records relating principally to the Businesses and
the Assets, and such information covers all commitments and liabilities of Buyer
relating principally to the Businesses and the Assets. This Agreement does not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made herein and therein not misleading in
any material respect.
1. Prior Owners of Assets. At closing all of the Assets will be conveyed by
Seller to Buyer. The name of each business entity (together with its Federal
I.D. #) affiliated with Seller or any of the Shareholders that during the past
six years owned any of the Assets to be conveyed to Buyer are:
Kalkaska Production, Inc. 38-2451482
Kalkaska Oilfield Services, Inc. 38-3083604
BMG 38-2916483
W & J Enterprises, Inc. 38-2836574
Kalkaska Consolidated Crane, Inc. 38-3228156
1. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Seller, the
Shareholders and their counsel directly with Buyer and its counsel, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or any similar payment.
1. Investment Representations of Seller. The Seller and each of the Shareholders
acknowledge, represent and agree that :
(a) Seller and/or each Shareholder in whose name the Key Shares are registered
pursuant to Section 5.5 hereof (the "Key Share Recipient") are an "accredited
investor" as such term is defined in Regulation D under the Securities Act of
1933, as amended (the "Securities Act").
(b) (i) Each Key Share Recipient, through its own operations, is knowledgeable
in operations of the type conducted by Key, (ii) Key has made available to each
Key Share Recipient extensive legal, financial, accounting and other business
records for examination by each Key Share Recipient, (iii) Key has made its
principal executive and operating personnel available for consultation with the
designated representatives of each Key Share Recipient, (iv) each Key Share
Recipient has made an extensive investigation of Key's assets and liabilities,
business and financial affairs, and operations, (v) each Key Share Recipient is
aware of the risks associated with ownership of the Key Shares, (vi) each Key
Share Recipient is capable of bearing the financial risks associated with such
ownership, and (vii) while
recognizing that it cannot effectively waive the
protections afforded to it under the Securities Act, each Key Share Recipient
regards itself as an entity of such financial capacity, sophistication, and
prudence that it does not require the protections afforded to it by the
Securities Act, and is relying upon its own investigation of Key in making its
decision to enter into this Agreement. enter into this Agreement.
(c) The Key Shares have not been registered under the Securities Act, or
registered or qualified under any applicable state securities laws;
(d) The Key Shares are being issued to each Key Share Recipient in reliance upon
exemptions from such registration or qualification requirements, and the
availability of such exemptions depends in part upon the bona fide investment
intent of Seller and the Shareholders with respect to the Key Shares;
(e) The acquisition of the Key Shares by each Key Share Recipient is solely for
its own account for investment, and each Key Share Recipient is not acquiring
the Key Shares for the account of any other person or with a view toward resale,
assignment, fractionalization, or distribution thereof other than resale
pursuant to the Shelf Registration defined in Section 5.6 hereof;
(f) Each Key Share Recipient shall not offer for sale, sell, transfer, pledge,
hypothecate or otherwise dispose of any of the Key Shares except in accordance
with the registration requirements of the Securities Act and applicable state
securities laws or upon delivery to Key of an opinion of legal counsel
reasonably satisfactory to Key that an exemption from registration is available;
(g) Since the Key Shares have not been registered under the Securities Act or
applicable state securities laws, each Key Share Recipient must bear the
economic risk of holding the Key Shares for an indefinite period of time, and
each Key Share Recipient is capable of bearing such risk; and
(h) In addition to any other legends required by law or the other agreements
entered into in connection herewith, the certificate evidencing the Key Shares
will bear a conspicuous restrictive legend substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS,
AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT
AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF
LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
I. Representations and Warranties of Buyer and
Key
A. Representations and Warranties of Buyer. Buyer represents and warrants to
Seller and the Shareholders as follows:
1. Organization and Standing. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware, has full requisite
corporate power and authority to carry on its business as it is currently
conducted, and to own and operate the properties currently owned and operated by
it, and is duly qualified or licensed to do business and is in good standing as
a foreign corporation authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business conducted by
it would make such qualification or licensing necessary except where the failure
to so qualify would not have a material adverse affect on the business of Buyer.
1. Agreement Authorized and its Effect on Other Obligations. The execution and
delivery of this Agreement have been authorized by all necessary corporate
action on the part of Buyer, and this Agreement is the valid and binding
obligation of Buyer, enforceable (subject to normal equitable principals)
against Buyer in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a violation or breach of
any term or provision of, nor constitute a default under (i) the charter or
bylaws of Buyer; (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which Buyer is a party or by which Buyer or its
properties are bound; or (iii) any provision of any law, rule, regulation,
order, permits, certificate, writ, judgment, injunction, decree, determination,
award or other decision of any court, arbitrator or other governmental authority
to which Buyer or any of its properties are subject.
1. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer and its counsel
directly with Seller, the Shareholders and their counsel, without the
intervention of any other person as the result of any act of Buyer in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payment.
A. Representations and Warranties of Key. Key represents and warrants to Seller
and each of the Shareholders as follows:
1. Organization and Standing. Key is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland, has full
requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary except
where the failure to so qualify would not have a material adverse affect on the
business of Buyer.
1. Agreement Authorized and its Effect on Other Obligations. The execution and
delivery of this have been authorized by all necessary corporate action on the
part of Key, and this Agreement is the valid and binding obligation of Key,
enforceable (subject to normal equitable principals) against Key in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, debtor relief or similar laws affecting the rights
of creditors generally. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict with or result in a violation or breach of any term or provision of,
nor constitute a default under (i) the charter or bylaws of Key; (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which Key is a party or by which Key or its properties are bound;
or (iii) any provision of any law, rule, regulation, order, permits,
certificate, writ, judgment, injunction, decree, determination, award or other
decision of any court, arbitrator or other governmental authority to which Key
or any of its properties is subject.
1. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Key and its counsel
directly with Seller, the Shareholders and their counsel, without the
intervention by any other person as the result of any act of Key in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payments.
I. Closing
A. Closing Date. Consummation of the sale and the purchase contemplated by this
Agreement shall take place on the date hereof at the offices of Brandt, Fisher,
Alward & Roy, P.C.
A. Duties of Seller and the Shareholders at Closing. Contemporaneously with the
performance by Buyer and Key of their obligations to be performed at the
Closing, Seller and each of the Shareholders agree to, and shall deliver to
Buyer at the Closing the following:
(1) Bills of Sale conveying all of the Assets to Buyer sufficient to convey,
transfer to, and vest in Buyer, good and marketable title to all rights in the
Assets, free and clear of any and all Encumbrances;
(1) Duly endorsed Certificates of Title conveying from Seller to Buyer all of
those Assets for which a Certificate of Title is issued or required by an
applicable governmental entity sufficient to convey, transfer to, and vest in
Buyer, good and marketable title to all rights in those Assets, free and clear
of any and all Encumbrances;
(1) Assignments conveying all of the Seller Permits to Buyer sufficient to
convey, transfer to, and vest in Buyer, good and marketable title to all rights
in the Seller Permits, free and clear of any and all Encumbrances;
(1) An Assignment of Contracts conveying all of the Contracts to Buyer
sufficient to convey, transfer to, and vest in Buyer, good and marketable title
to all rights in the Contracts, free and clear of any and all Encumbrances;
(1) A legal opinion from Seller's counsel in a form acceptable to Buyer; and
(1) Such other items that Buyer deems necessary or convenient to effect the
transactions contemplated hereby.
A. Duties of Buyer and Key at Closing. Contemporaneously with the performance by
Seller and each of the Shareholders of their obligations to be performed at the
Closing, Buyer and Key agree to, and shall deliver to Seller at the Closing the
following:
(1) The Cash Consideration;
(1) A copy of the Listing Application (as defined in Section 5.5 hereof);
(1) A legal opinion from Buyer's counsel in a form acceptable to Seller; and
(1) Such other items that Seller deems necessary or convenient to effect the
transactions contemplated hereby.
I. Additional Agreements
Additional Agreements Noncompetition. Except as otherwise consented to or
approved in writing by Buyer, the Seller and each of the Shareholders agree that
for a period of 60 months following the date hereof, such party will not,
directly or indirectly, acting alone or as a member of a partnership or a holder
of, or investor in as much as 5% of any security of any class of any corporation
or other business entity (i) engage in any business in competition with the
business or businesses conducted by Buyer (or Buyer's affiliates) or the Seller
(or any of the Affiliated Companies) on the date hereof or in any service
business the services of which are provided and marketed by Buyer (or Buyer's
affiliates) or the Seller (or any of the Affiliated Companies) on the date
hereof in any state of the United States, or in any foreign country in which
Buyer (or Buyer's affiliates) or the Seller or any of the Affiliated Companies
transact business on the date hereof; (ii) request any present customers or
suppliers of the Seller (or any of the Affiliated Companies) to curtail or
cancel their business with Buyer; (iii) disclose to any person, firm or
corporation any trade, technical or technological secrets of Buyer (or Buyer's
affiliates) or the Seller or any of the Affiliated Companies or any details of
their organization or business affairs or (iv) induce or actively attempt to
influence any employee of Buyer (or Buyer's affiliates) to terminate his
employment. The Seller and each of the Shareholders agree that if either the
length of time or geographical as set forth in this Section 5.1 is deemed too
restrictive in any court proceeding, the court may reduce such restrictions to
those which it deems reasonable under the circumstances. The obligations
expressed in this Section 5.1 are in addition to any other obligations that the
Seller and each of the Shareholders may have under the laws of any state
requiring an employee of a business or a shareholder who sells its assets in a
corporation to limit its activities so that the goodwill and business relations
of employer and of the corporation whose assets it has sold (and any successor
corporation) will not be materially impaired. The Seller and each of the
Shareholders further agree and acknowledge that Buyer does not have any adequate
remedy at law for the breach or threatened breach by the Seller or any of the
Shareholders of this covenant, and agree that Buyer may, in addition to the
other remedies which may be available to it hereunder, file a suit in equity to
enjoin the Seller or such Shareholder from such breach or threatened breach. If
any provisions of this Section 5.1 are held to be invalid or against public
policy, the remaining provisions shall not be affected thereby. The Seller and
each of the Shareholders acknowledge that the covenants set forth in this
Section 5.1 are being executed and delivered by such party in consideration of
the covenants of Buyer contained in this Agreement, and for other good and
valuable consideration, the receipt of which is hereby acknowledged.
Notwithstanding the foregoing provisions of this Section 5.1, the Seller and the
Shareholders shall be entitled to:
(1) Continue to retain their current level of ownership in Cold Springs Water
Company (a Michigan Corporation) (herein "Cold Springs") without being deemed to
have violated their covenants contained in clause (i) of the first sentence of
this Section 5.1 so long as Cold Springs (and/or its successors) only sell brine
and do not otherwise transport brine or otherwise violate the provisions of this
Section 5.1; and
(1) Continue to own their current level of ownership in Hague Equipment, Inc., a
Michigan Corporation, (herein "Hague Equipment") without being deemed to have
violated their covenants contained in clause (i) of the first sentence of this
Section 5.1 so long as Hague Equipment only sells or leases equipment and does
not otherwise violate the provisions of this Section 5.1.
A. Hiring Employees. Schedule 5.2 hereto is a complete and accurate listing of
all employees of the Seller that are involved in the operation of the Assets
(the "Employees"). Effective as of the date hereof, all of the Employees shall
be terminated by the Seller. Buyer agrees to hire all of the Employees effective
as of the date hereof, subject to such Employees meeting Buyer's standard
employment eligibility requirements. All such Employees hired by Buyer shall be
hired at the same hourly rates paid to them by Seller as of January 1, 1997,
provided that such rates are reasonable and competitive in light of the
position, duties and responsibilities of such Employees. In addition, such hired
Employees will become participants in Buyer's employee benefit plans, including
Buyer's medical plan, and shall receive credit for their seniority at Seller, to
the extent allowable under Buyer's current contracts. All Employees hired by
Buyer shall be at-will employees of Buyer and be bound by Buyer's personnel
policies. Buyer shall have no liability or obligation with respect to any
employee benefits of any Employee except those benefits that accrue pursuant to
such Employees' employment with Buyer on or after the date hereof. The Seller
and each of the Shareholders shall cooperate with Buyer in connection with any
offer of employment from Buyer to the employees and use its best efforts to
cause the acceptance of any and all such offers.
A. Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on Schedule
5.3 hereto, and shall report this transaction for federal income tax purposes in
accordance with the allocation so agreed upon. The parties hereto for themselves
and for their respective successors and assigns covenant and agree that they
will file coordinating Form 8594's in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
A. Name Change. The Seller and the Shareholders shall, within ten (10) days from
the date hereof, cause to be filed (i) with the secretary of state of Seller's
state of organization an amendment to the charter (or other applicable
organization document) of Seller changing the name of Seller from its current
name to a name that is not similar to such name, and (ii) with the appropriate
authorities of Seller's state of organization and any other states such
documents as are required to effect such name change, including without
limitation, amendments or withdrawals of certificates of authority to do
business and assumed name filings. The Seller and each of the Shareholders
shall, within five (5) days from the date of receipt of confirmation of such
filings from the applicable state authorities, cause to be delivered to Buyer
copies of all such confirmations.
A. Issuance of Key Shares. On the date hereof, Key shall file an additional
listing application with the American Stock Exchange requesting the listing of
the Key Shares (the "Listing Application"). On the date Key receives notice of
approval of such request, Key shall send written instructions to its transfer
agent and registrar to issue, countersign and register one or more certificates
representing the Key Shares in the name of Seller (or, if requested to do so in
writing, in the name of some or all of the Shareholders) and deliver such
certificate(s) to Seller at the address specified in Section 7.4 hereof. In the
event that the American Stock Exchange does not approve the listing application,
the parties hereto shall negotiate in good faith the appropriate consideration
to replace such shares.
A. Registration Rights. Key has delivered to the Shareholders a copy of the
Registration Right Agreement among Key, McMahan Securities Co. L.P. and Rauscher
Pierce Refsnes, Inc. dated July 3, 1996 (the "Registration Rights Agreement")
pursuant to which Key has agreed to (i) file a registration statement (the
"Shelf Registration Statement") with the Securities and Exchange Commission (the
"SEC") on or before April 3, 1997 registering the resale of certain shares of
Key Common Stock issuable upon conversion of certain outstanding convertible
debentures of Key and (ii) use its best efforts to cause the Shelf Registration
Statement to be declared effective by the SEC on or before July 3, 1997. Key
hereby agrees to include the resale of the Key Shares in the Shelf Registration
Statement; provided, that (i) each of the Shareholders shall have all duties and
obligations of a "Holder" under the Registration Rights Agreement and (ii),
notwithstanding the inclusion of the resale of the Key Shares in the Shelf
Registration Statement, the Shareholders shall have no right to participate in
an underwritten offering of Key Common Stock by those debenture holders, if any,
exercising their rights under the Registration Rights Agreement. In the event
that the Shelf Registration Statement is not declared effective by the SEC by
July 3, 1997, Seller shall have the right (the "Put Right") to require Key to
purchase the Key Shares from Seller for an aggregate purchase price equal to the
aggregate market value of the Key Shares calculated using the per share closing
price on July 3, 1997 as reported by the American Stock Exchange. The Put Right
shall be exercised by delivery of written notice to Key on or before August 3,
1997, after which date the Put Right shall expire.
A. Possession of Tangible Personal Property and Inventories. Possession of the
Assets shall be deemed to have passed from Seller to Buyer on the date hereof.
All Tangible Personal Property and Inventories shall be delivered to Buyer on
the date hereof at Seller's sole cost and expense.
A. Proration of Expenses. The parties further agree that the following
obligations shall be prorated as follows:
(1) All utility charges incurred by Sellers in the Businesses prior to the date
of Closing shall be paid by Seller. The Buyer shall be responsible for the
utility charges incurred by the Assets and/or Businesses purchased by Buyer
after the date hereof.
(1) The Seller shall pay a prorata share of the personal property taxes for the
Assets sold by the Seller to Buyer for all years prior to the Closing and a
prorata share of all such taxes for 1997, prorated to the date hereof, in
accordance with the standards of practice in Kalkaska County, Michigan. If the
actual taxes for the current year are not known as of the date hereof, the
apportionment of taxes shall be upon the basis of taxes for the immediate
preceding year, provided that, if taxes for the current year are thereafter
determined to be more or less for the taxes for the preceding year (after any
appeal of the assessed valuation thereof is concluded), Seller and Buyer
promptly shall adjust the proration of such taxes and Seller and/or Buyer, as
the case may be, shall pay to the other any amount required as a result of such
adjustment and as a covenant shall survive the Closing.
(1) The Seller shall pay all taxes, whether federal, state or local, assessed
against the Assets or the Businesses for that period of time prior to the date
hereof, including any and all
sales taxes, use taxes, unemployment
compensation taxes or taxes arising out of the fact that Seller hired employees.
sales taxes, use taxes, unemployment compensation taxes or taxes arising out of
the fact that Seller hired employees.
(1) All other costs or expenses arising out of the Assets or the Businesses
prior to the date hereof.
A. Construction of Building. Subsequent to the Closing Date the Seller agrees to
construct a building for the Buyer on the property described on Schedule 5.9
according to plans that will hereafter be agreed upon by the Buyer and the
Seller. The Seller shall not be required to spend more than Three Hundred
Thousand Dollars ($300,000.00) for the construction of this building. After
closing the Buyer shall have thirty (30) days to cancel this obligation of the
Seller. In that event, the Seller shall forthwith refund Buyer Three Hundred
Thousand Dollars ($300,000.00). Unless otherwise agreed in writing by the Buyer,
this sum shall be paid in the form of a cashier's check, bank check or wire
transfer of immediately available funds.
A. Consultant Fees. The Buyer agrees that it shall be responsible for and save
the Seller and Shareholders harmless from those consultant fee charges set forth
in Schedule 5.10 hereof.
A. Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
I. Indemnification
Indemnification Indemnification by the Seller and the Shareholders. In addition
to any other remedies available to Buyer under this Agreement, or at law or in
equity, the Seller and each of the Shareholders shall, jointly and severally,
indemnify, defend and hold harmless Buyer and its officers, directors,
employees, agents and stockholders, against and with respect to any and all
claims, costs, damages, losses, expenses, obligations, liabilities, recoveries,
suits, causes of action and deficiencies, including interest, penalties and
reasonable attorneys' fees and expenses (collectively, the "Damages") that such
indemnitee shall incur or suffer, which arise, result from or relate to (i) any
breach of, or failure by the Seller, any of the Affiliated Companies or any of
the Shareholders to perform, their respective representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to Buyer by the Seller, the
Affiliated Companies or each of the Shareholders under this Agreement; and (ii)
the Retained Liabilities. Notwithstanding these provisions, the Buyer shall have
no claim against the Seller or the Shareholders for the first Ten Thousand
Dollars worth of Damages pursuant to this Section 8.1. In addition, the Seller
and the Shareholders' total liability for Damages pursuant to this Section 8.1
shall not exceed Eight Million Eight Hundred Thousand Dollars (herein
"Indemnification Cap"). In determining if the Indemnification Cap has been
reached, Seller and Shareholders shall be entitled to aggregate any
indemnification paid by Seller or Shareholders pursuant to (a) this Agreement,
(b) a separate Asset Purchase Agreement between Buyer and Kalkaska Construction
Service, Inc. dated March 31, 1997, and closed simultaneously with this
Agreement, and (c) a Stock Purchase Agreement between the Buyer and Shareholders
dated March 31, 1997, and closed simultaneously with this Agreement.
A. Indemnification by Buyer and Key. In addition to any other remedies available
to Seller under this Agreement, or at law or in equity, Buyer and Key shall,
jointly and severally, indemnify, defend and hold harmless each of the
Shareholders and the Seller and its officers, directors, employees and agents
against and with respect to any and all Damages that such indemnitees shall
incur or suffer, which arise, result from or relate to any breach of, or failure
by Buyer or Key to perform any of its representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished or delivered to Seller by or on behalf of Buyer or Key
under this Agreement.
A. Indemnification Procedure. If any party hereto discovers or otherwise becomes
aware of an indemnification claim arising under Section 6.1 or 6.2 of this
Agreement, such indemnified party shall give written notice to the indemnifying
party, specifying such claim, and may thereafter exercise any remedies available
to such party under this Agreement; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the indemnifying
party is not materially prejudiced thereby. Further, promptly after receipt by
an indemnified party hereunder of written notice of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Article 6, such indemnified party shall, if a claim in
respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
I. Miscellaneous
A. Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive without
limitation despite any investigation made by any party hereto or on its behalf.
A. Entirety. This Agreement embodies the entire agreement among the parties with
respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
A. Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
A. Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
If to Buyer
Addressed to: With a copy to:
WellTech Eastern, Inc. Key Energy Group, Inc.
Kenneth C. Hill Two Tower Center, Tenth Floor
5976 Venture Way East Brunswick, New Jersey 08816
Mt. Pleasant, Michigan 48858 Attn: General Counsel
Facsimile: (517) 773-0229
Facsimile: (908) 247-5148
and
Steven W. Martineau
Lynch, Gallagher, Lynch &
Martineau, P.L.L.C.
555 N. Main St., P.O. Box 446
Mt. Pleasant, Michigan 48804-0446
Facsimile: (517) 773-2107
If to a Seller or a Shareholder
Addressed to: With a copy to:
Kalkaska Construction, Inc. Donald Brandt
418 S. Maple Brandt, Fisher, Alward & Roy, P.C.
Kalkaska, Michigan 49646 401 Munson Avenue, P.O. Box 5817
Attn: Dennis Hogerheide Traverse City, Michigan 49696-5817
Facsimile: (616) 258-6113 Facsimile: (616) 941-9568
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
A. Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
A. Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
A. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
A. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Michigan.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
WELLTECH EASTERN, INC.
By:
Name:
Title:
KEY ENERGY GROUP, INC.
By:
Name:
Title:
KALKASKA CONSTRUCTION SERVICE, INC.
By:
Name:
Title:
THE SHAREHOLDERS:
----------------------------------
Dennis Hogerheide
----------------------------------
LaWenda Hogerheide
----------------------------------
David Hogerheide
----------------------------------
Derek Hogerheide
SCHEDULE 1.1
Affiliated Companies
Kalkaska Production, Inc.
BMG, Inc.
W & J Enterprises, Inc.
SCHEDULE 1.1(a)
Tangible Personal Property
All of those items of personal property listed in the Appraisal prepared by
Superior Appraisals dated July 23, 1996. All other items of tangible personal
property used in the Businesses not conveyed pursuant to an Asset Purchase
Agreement dated March 31, 1997, between the Buyer and Seller and completed
simultaneously with this transaction.
SCHEDULE 1.1(d)
Leases and Contracts
SCHEDULE 1.1(e)
Permits
Michigan Public Service Commission Permit No. 15918.
SCHEDULE 1.2
Excluded Assets
SCHEDULE 2.1.11(a)
Environmental Conditions
None except as set forth in Schedule 3.20 attached to a Stock Purchase Agreement
between the Buyer and the Shareholders, said Stock Purchase Agreement being
closed simultaneously with this Asset Purchase Agreement.
SCHEDULE 2.1.11(b)
Hazardous Materials Being Used by Seller
None except that the Seller hauls brine and other oilfield related substances
which may or may not contain Hazardous Materials.
SCHEDULE 2.1.12
Labor Disputes
None.
SCHEDULE 2.1.13
Investigations/Litigation
None.
SCHEDULE 2.1.2
List of Shareholders
Dennis Hogerheide, LaWenda Hogerheide, David Hogerheide and Derek Hogerheide
SCHEDULE 2.1.4(a)
Condition of Personal Property
Case 721 Loader - bad engine
Unit 11- being used for parts
Unit 94 - being used for parts
Pick-up #609 - destroyed
SCHEDULE 2.1.4(b)
Notice of Violation
None.
SCHEDULE 2.1.8
Financial Statements
SCHEDULE 2.1.9
Changes
None except as otherwise set forth in any Schedule to this Asset Purchase
Agreement.
SCHEDULE 5.10
Consultant Fees
Consultant fee costs for the following Environmental Site Assessments:
(1) Phase I and Phase II Environmental Site Assessment dated March
$_____________________ ___, 1997, prepared by Environmental Consultants and
Services, Inc., covering the Holdeman #1 site.
(2) Phase I and limited Phase II Environmental Site Assessment dated March 12,
1997, prepared by Soil and Materials Engineers, Inc., covering
$_____________________ the Kibler-Mather #1-27 site.
(3) Phase I and limited Phase II Environmental Site Assessment dated March 12,
1997, prepared by Soil and Materials Engineers, Inc., covering the
Barber-Kopicko #1-6 site. $_____________________
(4) Phase I and Phase II Environmental Site Assessment dated March 14, 1997,
prepared by Environmental Consultants and Services, Inc., covering the Simpson
#1-9 site. $_____________________
(5) Phase I and Phase II Environmental Site Assessment dated March 14, 1997,
prepared by Environmental Consultants and Services, Inc., covering the Miller
#23-41 site.
(6) Phase I and Phase II Environmental Site Assessment dated March
$_____________________ 14, 1997, prepared by Environmental Consultants and
Services, Inc., covering the Wedow #2-28 site.
(7) Phase I and Phase II Environmental Site Assessment dated March 14, 1997,
prepared by Environmental Consultants and Services, Inc., $_____________________
covering the State-Blair #5-21 site.
TOTAL:
$---------------------
$---------------------
SCHEDULE 5.2
List of Employees
SCHEDULE 5.3
Allocation of the Purchase Price
Tangible Personal Property _____________________
Inventory _____________________
Intellectual Property _____________________
Contracts _____________________
Covenant Not to Compete _____________________
TOTAL: $3,213,365
Asset Purchase Agreement #2
among
WellTech Eastern, Inc.,
Key Energy Group, Inc.
Kalkaska Construction Service, Inc.
Dennis Hogerheide,
LaWenda Hogerheide,
David Hogerheide
and
Derek Hogerheide
March 31, 1997
Asset Purchase Agreement #2
This Asset Purchase Agreement (herein this "Agreement") is entered into as of
March 31, 1997, among WellTech Eastern, Inc., a Delaware corporation (herein
"Buyer"), Key Energy Group, Inc., a Maryland Corporation (herein "Key"), and
Kalkaska Construction Service, Inc., a Michigan Corporation, (herein the
"Seller"). Dennis Hogerheide, LaWenda Hogerheide, David Hogerheide and Derek
Hogerheide are referred to collectively herein as the "Shareholders" and
individually as a "Shareholder."
W I T N E S S E T H:
WHEREAS, the Seller desires to sell substantially all of its assets, and Buyer
desires to acquire such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
I. Purchase and Sale of Assets
A. Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer all of the assets of the Seller and those parties
listed on Schedule 1.1(a) hereto, (herein "Affiliated Companies"), set forth
below (herein "Assets"): the tangible personal property set forth in Schedule
1.1(b) hereto.
A. Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of the Seller and the
Shareholders contained herein:
Buyer agrees to pay to Seller on the date hereof the sum of Two Million Dollars
($2,000,000.00) in the form of a cashier's check or bank check or wire transfer
of immediately available funds to an account designated by the Seller (the "Cash
Consideration").
A. Liabilities. On the date hereof, the Sellers shall be responsible for all
liabilities and obligations of the Seller, without limitation, with respect to
the Assets as of the date hereof.
I. Representations and Warranties
of the Sellers and the Shareholder
Representations and Warrantiesof the Sellers and the Shareholder Representations
and Warranties of the Seller and the Shareholders. The Seller and each of the
Shareholders jointly and severally represent and warrant to Buyer as follows:
1. Organization and Good Standing. Seller and each Affiliated Company is a
corporation duly organized, validly existing and in good standing under the laws
of its state of organization, has full requisite corporate power and authority
to carry on its business as it is currently conducted, and to own and operate
the properties currently owned and operated by it, and is duly qualified or
licensed to do business and is in good standing as a foreign corporation
authorized to do business in all jurisdictions in which the character of the
properties owned or the nature of the business conducted by it would make such
qualification or licensing necessary except where the failure to so qualify
would not have a material adverse effect on the business of Seller.
1. Agreements Authorized and their Effect on Other Obligations. The execution
and delivery of this Agreement have been authorized by all necessary corporate
and shareholder action on the part of the Seller and Affiliated Companies, and
this Agreement is the valid and binding obligation of the Seller and each of the
Shareholders enforceable (subject to normal equitable principals) against each
of such parties in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, will not conflict with or result in a violation or breach
of any term or provision of, nor constitute a default under (i) the charter or
bylaws (or other organizational documents) of the Seller or Affiliated
Companies, (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which the Seller, Affiliated Companies or the
Shareholders is a party or by which the Seller, Affiliated Companies or the
Shareholders or their respective properties are bound; or (iii) any provision of
any law, rule, regulation, order, permits, certificate, writ, judgment,
injunction, decree, determination, award or other decision of any court,
arbitrator, or other governmental authority to which the Seller, Affiliated
Companies or the Shareholders or any of their respective properties are subject.
Schedule 2.1.2. hereto contains a complete list of all shareholders of Seller as
of the Closing Date.
1. Title to and Condition of Assets. The Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). All of the Assets are in a state of good operating condition
and repair, ordinary wear and tear excepted, and are free from any known defects
except (i) as may be repaired by routine maintenance and such minor defects as
to not substantially interfere with the continued use thereof in the conduct of
normal operations, or (ii) as otherwise set forth in the Appraisal by Superior
Appraisals dated July 23, 1996, or (iii) if the Asset is not included in the
Appraisal by Superior Appraisals dated July 23, 1996, then such Asset is
acquired in an "as is" condition. All of the Assets conform to all applicable
laws governing their use. Except as set forth on Schedule 2.1.3 hereto, no
notice of any violation of any law, statute, ordinance, or regulation relating
to any of the Assets has been received by the Seller, any of the Affiliated
Companies or any of the Shareholders, except such as have been fully complied
with. The term "Encumbrances" means all liens, security interests, pledges,
mortgages, deeds of trust, claims, rights of first refusal, options, charges,
restrictions or conditions to transfer or assignment, liabilities, obligations,
privileges, equities, easements, rights of way, limitations, reservations,
restrictions, and other encumbrances of any kind or nature.
1. Bulk Sales Act Not Applicable. Neither the Seller nor any of the Affiliated
Companies are, or were, in the business of selling merchandise from stock or
manufacturing what it sells.
1. Absence of Certain Changes and Events. Other than as a result of the
transactions contemplated by this Agreement and except as set forth in Schedule
2.1.5 hereto, since the Balance Sheet Date, there has not been:
(1) Financial Change. Any adverse change in the Assets, the Businesses or the
financial condition, operations, liabilities or prospects of the Seller;
(1) Property Damage. Any damage, destruction, or loss to any of the Assets or
the Businesses (whether or not covered by insurance);
(1) Waiver. Any waiver or release of a material right of or claim held by the
Seller;
(1) Change in Assets. Any acquisition, disposition, transfer, encumbrance,
mortgage, pledge or other encumbrance of any asset of the Seller other than in
the ordinary course of business;
(1) Labor Disputes. Any labor disputes between the Seller and its employees; or
(1) Other Changes. Any other event or condition known to the Seller or any of
the Shareholders that particularly pertains to and has or might have an adverse
effect on the Assets, the operations of the Businesses or the financial
condition or prospects of the Seller.
1. Necessary Consents. The Seller has obtained and delivered to Buyer all
consents to assignment or waivers thereof required to be obtained from any
governmental authority or from any other third party in order to validly
transfer the Assets hereunder.
2. Environmental Matters. None of the current or past operations of the
Businesses of the Seller or any of the Assets are being or have been conducted
or used in such a manner as to constitute a violation of any Applicable
Environmental Laws (defined below), except to the extent that the Seller caused
the environmental conditions as set forth in Schedule 2.1.7 (a). Neither the
Seller nor any of the Affiliated Companies nor any of the Shareholders have
received any notice (whether formal or informal, written or oral) from any
entity, governmental agency or individual regarding any existing, pending or
threatened investigation or inquiry related to violations of any Applicable
Environmental Laws or regarding any claims for remedial obligations or
contribution for removal costs or damages under any Applicable Environmental
Laws. There are no writs, injunction decrees, orders or judgments outstanding,
or lawsuits, claims, proceedings or investigations pending or, to the knowledge
of the Seller, any of the Affiliated Companies or any of the Shareholders,
threatened relating to the ownership, use, maintenance or operation of the
Assets or the conduct of the Businesses, nor, to the knowledge of the Seller,
any of the Affiliated Companies or any of the Shareholders, is there any basis
for any of the foregoing. Buyer is not required to obtain any permits, licenses
or similar authorizations pursuant to any Applicable Environmental Laws in
effect as of the date hereof to operate and use any of the Assets for their
current or proposed purposes and uses. To the knowledge of the Seller, any of
the Affiliated Companies or any of the Shareholders, the Assets include all
environmental and pollution control equipment necessary for compliance with all
Applicable Environmental Laws. Except as set forth in Schedule 2.1.7 (b) hereto,
no Hazardous Materials (defined below) have been or are currently being used by
the Seller or any of the Affiliated Companies in the operation of the Assets.
Except as set forth in Schedule 2.1.7 (b) hereto, no Hazardous Materials are or
have ever been situated on or under any of the properties of Seller or any of
the Affiliated Companies, whether owned or leased, or incorporated into any of
the Assets. Except as set forth in Schedule 2.1.7 (b) hereto, to the knowledge
of the Seller, any of the Affiliated Companies or any of the Shareholders, there
are no, and there have never been any, underground storage tanks (as defined
under Applicable Environmental Laws) located under any of the properties of
Seller or any of the Affiliated Companies, whether owned or leased. The term
"Applicable Environmental Laws" means any applicable federal, state or local
law, statute, ordinance, rule, regulation, order or notice requirement
pertaining to human health, the environment, or to the storage, treatment,
discharge, release or disposal of hazardous wastes or hazardous substances,
including, without limitation (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. ss.ss.9601 et seq.), as
amended from time to time, including, without limitation, as amended pursuant to
the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), and
regulations promulgated thereunder, (ii) the Resources Conservation and Recovery
Act of 1976 (42 U.S.C. ss.ss.6901 et seq.), as amended from time to time
("RCRA"), and regulations promulgated thereunder, (iii) the Federal Water
Pollution Control Act (U.S.C.A. ss.9601 et seq.), as amended, and regulations
promulgated thereunder, and (iv) any applicable state laws or regulations
relating to the environment. The term "Hazardous Materials" means (x) asbestos,
polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas,
petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals,
materials, wastes or substances that are defined, regulated, determined or
identified as toxic or hazardous in any Applicable Environmental Laws,
including, but not limited to, substances defined as "hazardous substances,"
"hazardous materials," or "hazardous waste" in CERCLA, RCRA, the Hazardous
Materials Transportation Act (49 U.S.C. ss. 1801, et seq.), or comparable state
and local statutes or in the regulations adopted and publications promulgated
pursuant to said statutes.
1. Investigations; Litigation. No investigation or review by any governmental
entity with respect to the Seller or any of the Affiliated Companies or any of
the transactions contemplated by this Agreement is pending or, to the knowledge
of the Seller, any of the Affiliated Companies or any of the Shareholders,
threatened, nor has any governmental entity indicated to the Seller, any of the
Affiliated Companies or any of the Shareholders an intention to conduct the
same. Except as set forth in Schedule 2.1.8 hereto, there is no suit, action, or
legal, administrative, arbitration, or other proceeding or governmental
investigation pending to which the Seller, any of the Affiliated Companies or
any of the Shareholders is a party or, to the knowledge of the Seller, any of
the Affiliated Companies or any of the Shareholders, might become a party or
which particularly affects the Assets. Neither Seller nor any of the Affiliated
Companies nor any of the Shareholders know of any claims that any of its
officers, employees or agents have violated any state or federal civil rights
law including the Michigan Elliott-Larsen Civil Rights Act.
1. Absence of Certain Business Practices. Neither Seller nor any of the
Affiliated Companies nor any officer, employee or agent of the Seller or any of
the Affiliated Companies, or any other person acting on behalf of the Seller or
any of the Affiliated Companies, have, directly or indirectly, within the past
five years, given or agreed to give any gift or similar benefit to any customer,
supplier, government employee or other person who is or may be in a position to
help or hinder the profitable conduct of the Businesses or the profitable use of
the Assets, (or to assist the Seller or any of the Affiliated Companies in
connection with any actual or proposed transaction) which if not given in the
past, might have had a material adverse effect on the profitable conduct of the
Businesses or the profitable use of the Assets, or if not continued in the
future, might materially adversely affect the profitable conduct of the
Businesses or the profitable use of the Assets.
1. Solvency. The Seller is not now insolvent, nor will the Seller be rendered
insolvent by the occurrence of the transactions contemplated by this Agreement.
The term "insolvent", with respect to the Seller, means that the sum of the
present fair and saleable value of Seller's assets does not and will not exceed
its debts and other probable liabilities, and the term "debts" includes any
legal liability whether matured or unmatured, liquidated or unliquidated,
absolute fixed or contingent, disputed or undisputed or secured or unsecured.
1. Untrue Statements. The Seller has made available to Buyer true, complete and
correct copies of all contracts, documents concerning all litigation and
administrative proceedings, licenses, permits, insurance policies, lists of
suppliers and customers, and records relating principally to the Businesses and
the Assets, and such information covers all commitments and liabilities of Buyer
relating principally to the Businesses and the Assets. This Agreement does not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made herein and therein not misleading in
any material respect.
1. Prior Owners of Assets. At closing all of the Assets will be conveyed by
Seller to Buyer. The name of each business entity (together with its Federal
I.D. #) affiliated with Seller or any of the Shareholders that during the past
six years owned any of the Assets to be conveyed to Buyer are:
Kalkaska Production, Inc. 38-2451482
Kalkaska Oilfield Services, Inc. 38-3083604
BMG 38-2916483
W & J Enterprises, Inc. 38-2836574
Kalkaska Consolidated Crane, Inc. 38-3228156
1. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Seller, the
Shareholders and their counsel directly with Buyer and its counsel, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or any similar payment.
I. Representations and Warranties of Buyer and
Key
A. Representations and Warranties of Buyer. Buyer represents and warrants to
Seller and the Shareholders as follows:
1. Organization and Standing. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware, has full requisite
corporate power and authority to carry on its business as it is currently
conducted, and to own and operate the properties currently owned and operated by
it, and is duly qualified or licensed to do business and is in good standing as
a foreign corporation authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business conducted by
it would make such qualification or licensing necessary except where the failure
to so qualify would not have a material adverse affect on the business of Buyer.
1. Agreement Authorized and its Effect on Other Obligations. The execution and
delivery of this Agreement have been authorized by all necessary corporate
action on the part of Buyer, and this Agreement is the valid and binding
obligation of Buyer, enforceable (subject to normal equitable principals)
against Buyer in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a violation or breach of
any term or provision of, nor constitute a default under (i) the charter or
bylaws of Buyer; (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which Buyer is a party or by which Buyer or its
properties are bound; or (iii) any provision of any law, rule, regulation,
order, permits, certificate, writ, judgment, injunction, decree, determination,
award or other decision of any court, arbitrator or other governmental authority
to which Buyer or any of its properties are subject.
1. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer and its counsel
directly with Seller, the Shareholders and their counsel, without the
intervention of any other person as the result of any act of Buyer in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payment.
A. Representations and Warranties of Key. Key represents and warrants to Seller
and each of the Shareholders as follows:
1. Organization and Standing. Key is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland, has full
requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary except
where the failure to so qualify would not have a material adverse affect on the
business of Buyer.
1. Agreement Authorized and its Effect on Other Obligations. The execution and
delivery of this have been authorized by all necessary corporate action on the
part of Key, and this Agreement is the valid and binding obligation of Key,
enforceable (subject to normal equitable principals) against Key in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, debtor relief or similar laws affecting the rights
of creditors generally. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict with or result in a violation or breach of any term or provision of,
nor constitute a default under (i) the charter or bylaws of Key; (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which Key is a party or by which Key or its properties are bound;
or (iii) any provision of any law, rule, regulation, order, permits,
certificate, writ, judgment, injunction, decree, determination, award or other
decision of any court, arbitrator or other governmental authority to which Key
or any of its properties is subject.
1. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Key and its counsel
directly with Seller, the Shareholders and their counsel, without the
intervention by any other person as the result of any act of Key in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payments.
I. Closing
A. Closing Date. Consummation of the sale and the purchase contemplated by this
Agreement shall take place on the date hereof at the offices of Brandt, Fisher,
Alward & Roy, P.C.
A. Duties of Seller and the Shareholders at Closing. Contemporaneously with the
performance by Buyer and Key of their obligations to be performed at the
Closing, Seller and each of the Shareholders agree to, and shall deliver to
Buyer at the Closing the following:
(1) Bills of Sale conveying all of the Assets to Buyer sufficient to convey,
transfer to, and vest in Buyer, good and marketable title to all rights in the
Assets, free and clear of any and all Encumbrances;
(1) Duly endorsed Certificates of Title conveying from Seller to Buyer all of
those Assets for which a Certificate of Title is issued or required by an
applicable governmental entity sufficient to convey, transfer to, and vest in
Buyer, good and marketable title to all rights in those Assets, free and clear
of any and all Encumbrances;
(1) A legal opinion from Seller's counsel in a form acceptable to Buyer; and
(1) Such other items that Buyer deems necessary or convenient to effect the
transactions contemplated hereby.
A. Duties of Buyer and Key at Closing. Contemporaneously with the performance by
Seller and each of the Shareholders of their obligations to be performed at the
Closing, Buyer and Key agree to, and shall deliver to Seller at the Closing the
following:
(1) The Cash Consideration;
(1) A legal opinion from Buyer's counsel in a form acceptable to Seller; and
(1) Such other items that Seller deems necessary or convenient to effect the
transactions contemplated hereby.
I. Additional Agreements
Additional Agreements Allocation of Purchase Price. The parties hereto agree to
allocate the purchase price paid by Buyer for the Assets hereunder as set forth
on Schedule 5.1 hereto, and shall report this transaction for federal income tax
purposes in accordance with the allocation so agreed upon. The parties hereto
for themselves and for their respective successors and assigns covenant and
agree that they will file coordinating Form 8594's in accordance with Section
1060 of the Internal Revenue Code of 1986, as amended, with their respective
income tax returns for the taxable year that includes the date hereof.
A. Possession of Tangible Personal Property and Inventories. Possession of the
Assets shall be deemed to have passed from Seller to Buyer on the date hereof.
All Tangible Personal Property and Inventories shall be delivered on the date
hereof to Buyer at Seller's sole cost and expense.
A. Proration of Expenses. The parties further agree that the following
obligations shall be prorated as follows:
(1) All utility charges incurred by Sellers in the Businesses prior to the date
of Closing shall be paid by Seller. The Buyer shall be responsible for the
utility charges incurred by the Assets and/or Businesses purchased by Buyer
after the date hereof.
(1) The Seller shall pay a prorata share of the personal property taxes for the
Assets sold by the Seller to Buyer for all years prior to the Closing and a
prorata share of all such taxes for 1997, prorated to the date hereof, in
accordance with the standards of practice in Kalkaska County, Michigan. If the
actual taxes for the current year are not known as of the date hereof, the
apportionment of taxes shall be upon the basis of taxes for the immediate
preceding year, provided that, if taxes for the current year are thereafter
determined to be more or less for the taxes for the preceding year (after any
appeal of the assessed valuation thereof is concluded), Seller and Buyer
promptly shall adjust the proration of such taxes and Seller and/or Buyer, as
the case may be, shall pay to the other any amount required as a result of such
adjustment and as a covenant shall survive the Closing.
(1) The Seller shall pay all taxes, whether federal, state or local, assessed
against the Assets or the Businesses for that period of time prior to the date
hereof, including any and all sales taxes, use taxes, unemployment compensation
taxes or taxes arising out of the fact that Seller hired employees.
(1) All other costs or expenses arising out of the Assets or the Businesses
prior to the date hereof.
A. Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
I. Indemnification
Indemnification Indemnification by the Seller and the Shareholders. In addition
to any other remedies available to Buyer under this Agreement, or at law or in
equity, the Seller and each of the Shareholders shall, jointly and severally,
indemnify, defend and hold harmless Buyer and its officers, directors,
employees, agents and stockholders, against and with respect to any and all
claims, costs, damages, losses, expenses, obligations, liabilities, recoveries,
suits, causes of action and deficiencies, including interest, penalties and
reasonable attorneys' fees and expenses (collectively, the "Damages") that such
indemnitee shall incur or suffer, which arise, result from or relate to (i) any
breach of, or failure by the Seller, any of the Affiliated Companies or any of
the Shareholders to perform, their respective representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to Buyer by the Seller, the
Affiliated Companies or each of the Shareholders under this Agreement; and (ii)
the Retained Liabilities. Notwithstanding these provisions, the Buyer shall have
no claim against the Seller or the Shareholders for the first Ten Thousand
Dollars worth of Damages pursuant to this Section 8.1. In addition, the Seller
and the Shareholders' total liability for Damages pursuant to this Section 8.1
shall not exceed Eight Million Eight Hundred Thousand Dollars (herein
"Indemnification Cap"). In determining if the Indemnification Cap has been
reached, Seller and Shareholders shall be entitled to aggregate any
indemnification paid by Seller or Shareholders pursuant to (a) this Agreement,
(b) a separate Asset Purchase Agreement between Buyer and Kalkaska Construction
Service, Inc. dated March 31, 1997, and closed simultaneously with this
Agreement, and (c) a Stock Purchase Agreement between the Buyer and Shareholders
dated March 31, 1997, and closed simultaneously with this Agreement.
A. Indemnification by Buyer and Key. In addition to any other remedies available
to Seller under this Agreement, or at law or in equity, Buyer and Key shall,
jointly and severally, indemnify, defend and hold harmless each of the
Shareholders and the Seller and its officers, directors, employees and agents
against and with respect to any and all Damages that such indemnitees shall
incur or suffer, which arise, result from or relate to any breach of, or failure
by Buyer or Key to perform any of its representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished or delivered to Seller by or on behalf of Buyer or Key
under this Agreement.
A. Indemnification Procedure. If any party hereto discovers or otherwise becomes
aware of an indemnification claim arising under Section 6.1 or 6.2 of this
Agreement, such indemnified party shall give written notice to the indemnifying
party, specifying such claim, and may thereafter exercise any remedies available
to such party under this Agreement; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the indemnifying
party is not materially prejudiced thereby. Further, promptly after receipt by
an indemnified party hereunder of written notice of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Article 6, such indemnified party shall, if a claim in
respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
I. Miscellaneous
A. Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive without
limitation despite any investigation made by any party hereto or on its behalf.
A. Entirety. This Agreement embodies the entire agreement among the parties with
respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
A. Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
A. Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
If to Buyer
Addressed to: With a copy to:
WellTech Eastern, Inc. Key Energy Group, Inc.
Kenneth C. Hill Two Tower Center, Tenth Floor
5976 Venture Way East Brunswick, New Jersey 08816
Mt. Pleasant, Michigan 48858 Attn: General Counsel
Facsimile: (517) 773-0229 Facsimile: (908) 247-5148
and
Steven W. Martineau
Lynch, Gallagher, Lynch &
Martineau, P.L.L.C.
555 N. Main St., P.O. Box 446
Mt. Pleasant, Michigan 48804-0446
Facsimile: (517) 773-2107
If to a Seller or a Shareholder
Addressed to: With a copy to:
Kalkaska Construction, Inc. Donald Brandt
418 S. Maple Brandt, Fisher, Alward & Roy, P.C.
Kalkaska, Michigan 49646 401 Munson Avenue, P.O. Box 5817
Attn: Dennis Hogerheide Traverse City, Michigan 49696-5817
Facsimile: (616) 258-6113 Facsimile: (616) 941-9568
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
A. Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
A. Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
A. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
A. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Michigan.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
WELLTECH EASTERN, INC.
By:
Name:
Title:
KEY ENERGY GROUP, INC.
By:
Name:
Title:
KALKASKA CONSTRUCTION SERVICE, INC.
By:
Name:
Title:
THE SHAREHOLDERS:
----------------------------------
Dennis Hogerheide
----------------------------------
LaWenda Hogerheide
----------------------------------
David Hogerheide
----------------------------------
Derek Hogerheide
SCHEDULE 1.1(a)
Affiliated Companies
Kalkaska Production, Inc.
BMG, Inc.
W & J Enterprises, Inc.
SCHEDULE 1.1(b)
Assets
SCHEDULE 2.1.2
List of Shareholders
Dennis Hogerheide, LaWenda Hogerheide, David Hogerheide and Derek Hogerheide
SCHEDULE 2.1.3
Condition of Assets
None.
SCHEDULE 2.1.5
Changes
None except as otherwise set forth in any Schedule to this Asset Purchase
Agreement.
SCHEDULE 2.1.7(a)
Environmental Conditions
None except as set forth in Schedule 3.20 attached to a Stock Purchase Agreement
between the Buyer and the Shareholders, said Stock Purchase Agreement being
closed simultaneously with this Asset Purchase Agreement.
SCHEDULE 2.1.7(b)
Hazardous Materials Being Used by Seller
None except that the Seller hauls brine and other oilfield related substances
which may or may not contain Hazardous Materials.
SCHEDULE 2.1.8
Investigations/Litigation
None.
SCHEDULE 5.1
Allocation of the Purchase Price
Stock Purchase Agreement
Between
WellTech Eastern, Inc.
Dennis Hogerheide
and
LaWenda Hogerheide
March 31, 1997
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made this 31st day of March, 1997, by and between WellTech
Eastern, Inc., a Delaware corporation (the "Buyer") and Dennis Hogerheide and
LaWenda Hogerheide (the "Sellers"), shareholders of Kalkaska Oilfield Services,
Inc., a Michigan corporation (the "Company").
Sellers, owner and holder of all of the issued and outstanding shares of the
capital stock of Company (the "Stock"), desire to sell all such shares of Stock
to Buyer, and Buyer wishes to purchase such Stock on the terms and subject to
the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of and in reliance upon the foregoing and each
of the covenants, agreements, representations, and warranties herein set forth,
Sellers and Buyer agree as follows:
1. PURCHASE OF COMPANY STOCK:
1.1 Agreement to Purchase and to Sell. Upon and subject to the terms and
conditions of this Agreement, and relying upon the covenants, agreements,
representations, and warranties of Buyer and Sellers herein contained and each
act done pursuant to and in reliance upon this Agreement, Buyer agrees to
purchase from Sellers, and Sellers agrees to sell to Buyer the Stock.
2. SALE OF STOCK AND PERSONAL PROPERTY:
2.1 Purchase Price. Upon the terms and subject to the conditions of this
Agreement, Buyer shall pay to Sellers an aggregate purchase price for the Stock
of Two Million Six Hundred Thousand Dollars and no cents ($2,600,000.00).
2.2 Payment of Purchase Price. On the Closing Date the Purchase Price shall be
paid in cash, money order or certified check payable to Sellers or by wire
transfer of immediately available funds to an account designated by Seller.
2.3 Delivery of Stock Certificate. Sellers shall deliver (or cause to be
delivered) to Buyer on the Closing Date, as hereinafter defined, all
certificates representing the Stock, duly endorsed in blank by the Sellers, or
accompanied by duly executed stock powers in blank with their signatures
guaranteed by a bank, trust company or member firm of the New York Stock
Exchange, all in such form as Buyer or Buyer's counsel may require. Any and all
requisite transfer stamps shall be attached thereto.
2.4 Time and Place of Closing. The sale contemplated by this Agreement shall
take place at the office of Brandt, Fisher, Alward & Roy, P.C., on the 31st day
of March, 1997, at 9:00 o'clock a.m., Eastern Standard time, or at such other
time and place as Sellers and Buyer may mutually agree (the "Closing Date").
3. SELLER'S REPRESENTATIONS AND WARRANTIES:
To induce Buyer to enter into this Agreement, Sellers represent and warrant to
Buyer that the representations set forth below are true, except as otherwise
provided by the specific terms of the representation.
3.1 Authorized and Outstanding Stock. The total authorized capital stock of the
Company consists of 50,000 shares of common stock, par value of $1.00 per share,
and the Company has no authority to issue any other shares. There are 5,000
shares of the common stock of the Company issued and outstanding, all of which
are owned of record by and are in possession of Sellers, and all of which have
been validly issued and are fully paid and nonassessable. There are no proxies,
irrevocable or otherwise, or voting trusts or agreements outstanding or held by
any person as to any share of the Stock. There are no outstanding subscriptions,
options, warrants, calls contracts, demands, commitments, convertible
securities, or other agreements or arrangements of any kind, pursuant to which
the Company is or may be obligated to issue any shares of common or preferred
stock or other securities of any kind representing an actual or contingent
ownership interest of the Company, including any right of conversion or exchange
under any outstanding security or other instrument, and no other shares of the
Company capital stock are reserved for any purpose. Sellers have, and upon
Sellers' delivery of the Stock as provided in Section 2.3 hereof, Buyer will
acquire good title to the Stock, free and clear of any and all liens, pledges,
options, warrants, charges, encumbrances, trusts, proxies, equities, security
interests, restrictions on transfer or registration, or claims (including
liability for or claims of any taxing authority, creditor, devisee, legatee, or
beneficiary). Sellers are authorized and empowered to enter into this Agreement
and to sell the Stock, and on demand Sellers will supply Buyer with proof of
Sellers' authority to transfer the Stock and with any other thing necessary to
obtain from the Company unrestricted transfer of each share of Stock into the
name of Buyer.
3.2 Sellers' Authority. (a) Sellers are the lawful owner and the holder of
record of the Stock of the Company, free and clear of all liens; (b) this
Agreement constitutes a valid and binding obligation as to the Sellers,
enforceable in accordance with its terms; and (c) delivery to the Buyer of
certificates representing the Stock of the Company pursuant to the provisions of
this Agreement will transfer to Buyer valid title thereto.
3.3 Execution. This Agreement has been duly executed and delivered by Sellers
and constitutes a valid and binding obligation of Sellers enforceable against
Sellers in accordance with its terms.
3.4 Corporate Qualification, Organization, Authorization, etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan, has full corporate power and authority to conduct its
business as it is now being conducted and to own the properties and assets it
now owns.
3.5 Subsidiaries and Certain Affiliates. The Company does not own, directly or
indirectly, any capital stock or investment in any limited partnership, joint
venture, or corporation.
3.6 Real Property, Title to Real Estate Schedule 3.6(a) sets forth the legal
description to those parcels of real property (collectively the "Real Property")
to which the Company is (or will be at Closing) the record title owner in fee
simple free and clear of all liens, mortgages, conditional sales or other
agreements, encumbrances or security interests (the "Encumbrances") and will
continue to be the record title owner in fee simple free and clear of all
Encumbrances as of the Closing Date, except as set forth in Schedule 3.6(b).
On the Closing Date, the Sellers shall pay all premiums for issuing an owner's
title insurance policy for each respective parcel of Real Property in the amount
set forth in Schedule 3.6(c) hereof.
3.7 Title to and Condition of Personal Property. Schedule 3.7(a) sets forth a
description of all of the Company's tangible personal property including but not
limited to all machinery, equipment, automobiles, trucks, and other vehicles
owned or leased by the Company, (collectively, the "Personal Property") which
will continue to be Personal Property on the Closing Date. The Company Personal
Property is free and clear of all Encumbrances except as set forth in Schedule
3.7(b). All Personal Property are in a state of good operating condition and
repair, ordinary wear and tear excepted, and are free from any known defects
except (i) as may be required by routine maintenance of such minor defects as to
not substantially interfere with the continued use thereof in the conduct of
normal operations, or (ii) as set forth in Schedule 3.7(c).
3.8 Inventories. Schedule 3.8(a) sets forth a description of the approximate
current level of the inventory (the "Inventory") of the Company which shall be
maintained at its approximate current level as of the Closing Date. The
Inventory is free and clear of all Encumbrances, except as set forth in Schedule
3.8(b).
3.9 Leasehold Interests. Schedule 3.9(a) sets forth the description of all
leasehold interests (the "Leasehold Interests") to which the Company is (or will
be at Closing) the record title owner. The Company will continue to own these
Leasehold Interests as of the Closing Date. The Company has good and marketable
title to the Leasehold Interests, free and clear of all Encumbrances except as
set forth in Schedule 3.9(b).
3.10 Tax Returns. Sellers has identified and furnished Buyer with the following
tax returns of the Company (collectively, the "Tax Returns"):
a) Federal Tax Returns of the Company dated December 31, 1995.
b) Federal Tax Returns of the Company dated December 31, 1996.
Sellers further warrant and represent, to the Sellers' best knowledge, the Tax
Returns have been prepared in accordance with the applicable Internal Revenue
Code and Regulations. At the Closing Date the Company will have no obligation or
debt to the Sellers or any related individual or entity, except as set forth in
Schedule 3.10.
3.11 Conduct of Business. Since December 31, 1996, Company's business has been
conducted only in the ordinary course, and except as set forth in Schedule 3.11
there has been no: (i) damages, theft, destruction, or loss (whether or not
covered by insurance) affecting Company's properties, assets, or business; (ii)
agreement, contract, or other arrangement entered into, obligating Company on
any debt, obligation, or liability (whether direct or indirect, contingent or
otherwise), incurred other than in the ordinary course of its business; (iii)
sale or other disposition of, or liquidating or other distribution or redemption
with respect to, the Stock, either authorized, declared, paid, or effected.
3.12 Employees. The Company has had no employees or employee benefit plans.
3.13 Licenses and Permits. The Company's franchises, licenses, certificates,
authorizations and permits (the "Permits") are listed as Schedule 3.13, attached
hereto, and are in full force and effect. No action or proceeding is pending or
to Seller's knowledge threatened looking toward revocation or limitation of any
of the Permits.
3.14 Banking Information. The Sellers have delivered to the Buyer lists attached
hereto as Schedule 3.14 setting forth the following:
(a) the names of all persons holding powers of attorney from the Company to act
on its behalf;
(b) the names of all banks in which the Company has any account or safe deposit
box.
3.15 Claims or Litigation. Except as set forth in Schedule 3.15, there is no
legal, administrative, arbitrative, or other suit, action, proceeding, claim or
dispute, currently pending or to Seller's knowledge threatened against, relating
to the Company, the Real Property, the Personal Property, the Inventory, the
Leasehold Interests and the Permits, (including any relating to violation of any
safety laws) or which questions the validity of this Agreement or any action
taken or to be taken pursuant thereto or in connection with the transactions
contemplated hereby; there has been no violation of any law by Company nor any
basis or grounds for any such suit, action, proceeding, charge, claim or
dispute, and there are no judicial or administrative injunctions, judgments,
order, or decrees outstanding against Company or any of its operations,
products, or services.
3.16 Tax Matters. Since the Company has had no employees, the Sellers are not
required to deliver the Buyer MESC Form 1027.
3.17 Authorization for Agreement. No corporate authorization or approval from
Company is necessary for Sellers to enter into this Agreement or consummate the
transactions contemplated hereby.
3.18 Agreements, Contracts, Leases, etc.
Schedule 3.18 contains a list of all agreements, leases, contracts to provide
services for customers of the Company and commitments to which Company is a
party or by which its properties are bound (for both real and personal
property), which would require a payment by either party during the life of the
agreement, lease, contract and/or commitment in excess of Ten Thousand Dollars
($10,000.00). Except for the documents so listed and described, or except as set
forth on other Schedules attached to this Agreement, Company is not bound to
any: (i) agreement that contains any severance pay liabilities or obligations;
(ii) agreement of guarantee or indemnification; (iii) loan or credit agreement
providing for any extension of credit to or by the Company except in the
ordinary course of business; (iv) employment contract; (vi) advertising
contract; (vii) any agreement or commitment containing a covenant limiting
Company's right to compete with any person or engage in an line of business.
3.19 Salt Water Disposal Wells. The Sellers represent that the Company has only
operated salt water disposal wells on those properties set forth on Schedule
3.19 (herein "Schedule 3.19 Real Property").
3.20 Environmental Matters. The Sellers represent that to the best of their
knowledge, information and belief the current or past operations of the Company
are being or have been conducted or used in such a manner so as not to
constitute a violation of any Applicable Environmental Laws (defined below),
except to the extent the Company caused the environmental conditions as set
forth on Schedule 3.20. Except as set forth in this section 3.20, the Sellers
are making no warranties (express or implied) with respect to environmental
matters and the Buyer is, with respect to environmental matters, accepting the
condition of the Real Property and the Schedule 3.19 Real Property in an "AS IS"
condition.
The term "Applicable Environmental Laws" means any applicable federal, state or
local law, statute, ordinance, rule, regulation, order or notice requirement
pertaining to human health, the environment, or to the storage, treatment,
discharge, release or disposal of hazardous wastes or hazardous substances,
including, without limitation (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. ss.ss.9601 et seq.), as
amended from time to time, including, without limitation, as amended pursuant to
the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), and
regulations promulgated thereunder, (ii) the Resources Conservation and Recovery
Act of 1976 (42 U.S.C. ss.ss.6901 et seq.), as amended from time to time
("RCRA"), and regulations promulgated thereunder, (iii) the Federal Water
Pollution Control Act (U.S.C.A. ss.9601 et seq.), as amended, and regulations
promulgated thereunder, and (iv) any applicable state laws or regulations
relating to the environment. The term "Hazardous Materials" means (x) asbestos,
polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas,
petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals,
materials, wastes or substances that are defined, regulated, determined or
identified as toxic or hazardous in any Applicable Environmental Laws,
including, but not limited to, substances defined as "hazardous substances,"
"hazardous materials," or "hazardous waste" in CERCLA, RCRA, the Hazardous
Materials Transportation Act (49 U.S.C. ss. 1801, et seq.), or comparable state
and local statutes or in the regulations adopted and publications promulgated
pursuant to said statutes.
3.21 Compliance with Laws. The Sellers represent that except as set forth in
Schedule 3.21 that to the best of their knowledge, information and belief the
current or past operations of the Company are being or have been conducted or
used in such a manner so as not to constitute a violation of any laws.
3.22 Statements True and Not Misleading. No schedule (or any document identified
thereby or attached thereto), no representation or warranty made by Sellers in
this Agreement, and no record, document, statement, schedule, instrument, or
certificate furnished or to be furnished to Buyer (its representatives, agents,
attorneys, or accountants) pursuant hereto, or in connection with the
transactions contemplated hereby, contain any knowingly untrue statement.
3.23 Conflicts of Interest. Except as set forth herein, no officer, director, or
shareholder of Company (nor any corporation, firm, association, or entity in
which any such officer, director, or shareholder is interested) is a party to or
have a material interest in any contract or transaction to which the Company
will be bound subsequent to the Closing Date.
3.24 Minute and Stock Books. The Company's minute books, stock certificate books
and stock record and transfer books have been made available to the Buyer for
inspection; the signatures therein are the true signatures of the persons
purporting to have signed them.
4. CONDITIONS TO BUYER'S OBLIGATIONS:
Each and every obligation of Buyer under this Agreement shall be subject to and
conditioned upon Buyer being satisfied, on or before and as of the Closing Date,
of the following:
4.1 Compliance with Agreement. Each and all terms, covenants, agreements, and
conditions of this Agreement to be complied with or performed by Sellers or
Company until, at, or prior to the Closing Date shall have been complied with or
performed; and Buyer shall not have rescinded or terminated this Agreement as
permitted by the terms of this Agreement.
4.2 Representations and Warranties True as of Closing Date. Sellers'
representations and warranties set forth in Section 3 shall be true and correct
when made and shall be deemed to be made again and shall be true and correct as
of the Closing Date. Sellers shall deliver to Buyer a certificate to such
effect, executed by Sellers. In addition, Sellers' remaining representations and
warranties contained within this Agreement, to the best of Sellers' knowledge,
shall be true and correct when made and, to the best of Sellers' knowledge,
shall be made again and shall be true and correct as of Closing Date.
4.3 No Governmental or Other Proceeding. Nothing shall restrain or prohibit the
transactions contemplated hereby, and no suit, action, investigation, inquiry,
or governmental or other proceeding, legal or administrative, shall have been
instituted or threatened questioning the validity, legality, or enforceability
of this Agreement, or the transactions contemplated hereby.
4.4 Approvals and Consents. All requisite approval of public authorities
(federal, state, or local, domestic or foreign), necessary for consummation of
the transactions contemplated hereby without any loss to Company or to prevent
termination or restriction of any right, privilege, license or agreement of, or
any loss or disadvantage to, Company shall have been obtained and copies thereof
delivered to Buyer.
4.5 Opinion of Sellers' Counsel. If requested before Closing Date, Sellers shall
deliver to Buyer a legal opinion from Sellers' counsel in a form acceptable to
Buyer.
4.6 Resignations of Officers and Directors. Buyer shall have received the
written resignation of each officer and member of Company's Board of Directors
in a form satisfactory to Buyer.
4.7 Charter Certificate. Buyer shall have acquired a current certificate of the
Secretary of State of the State of Michigan as to the good standing and
continuing existence of the Company, listing all charter documents thereof on
file in that office, and the Company's corporate seal, minute books, stock
records, and other books and records.
4.8 Tender of Shares and Closing Documents. Buyer shall have received from
Sellers a fully executed copy of this Agreement, and Sellers shall have
delivered (or caused to be delivered) the certificates of stock to Buyer as
provided for in Section 2.3; Sellers shall have delivered (or caused to be
delivered) to Buyer each and every financial statement, document, opinion,
certificate, or instrument required to be so delivered by this Agreement, and
Buyer shall have received from Company, and Sellers copies of such other
documents, instruments, and certificates as Buyer's counsel shall have
reasonably requested.
4.9 Real and Personal Property Taxes. Sellers shall provide Buyer on the Closing
Date proof that all real and personal property taxes and any special assessments
due and payable in 1996 and prior years are paid.
4.10 Condition of Real Property and Personal Property. All of the Real Property
and Personal Property is in a state of good operating condition and repair,
ordinary wear and tear excepted, and are free from non-defects, except (i) as
may be repaired by routine maintenance and such minor defects as to not
substantially interfere with the continued use thereof in the conductive normal
operations, or (ii) as set forth in Schedule 4.10.
5. BUYER'S REPRESENTATIONS AND WARRANTIES:
To induce Sellers to enter into and perform this Agreement, Buyer represents and
warrants to Sellers that the following are true:
5.1 Purchase for Investments. Buyer is acquiring the stock for its own account,
for investment, and without any view to the resale or distribution thereof.
5.2 Corporate Qualification, Organization, Authorization, etc. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has full corporate power and authority to conduct its
business as it is now being conducted and to own the properties and assets it
now owns, and is duly qualified to do business in the State of Michigan.
5.3. Authorization for Agreement. Neither execution of, nor delivery of, nor
performance of, or compliance with, or consummation of the transactions
contemplated by this Agreement will constitute or result in the breach of or
default under any term, condition or provision of (or constitute a default under
or result in the creation of any lien, charge, or encumbrance upon any property
or assets of the Buyer pursuant to) any articles or certificate or
incorporation, by-law, mortgage, lien, indenture, lease, agreement, commitment,
arrangement, or other instrument to which Buyer is a party or by or to which
Buyer is bound or subject, or violate any statue, law, regulation, judgment, or
order binding upon or applicable to Buyer.
5.4 Opinion of Buyer's Counsel. If requested before Closing Date, Buyer shall
furnish to Sellers an Opinion, dated the Closing Date, of Lynch, Gallagher,
Lynch & Martineau, P.L.L.C., counsel for Buyer, representing the following:
When executed and delivered, this Agreement and other documents delivered by
Buyer pursuant to the Agreement will constitute valid and binding obligations
enforceable in accordance with their terms.
6. CONDITIONS TO SELLERS' OBLIGATIONS:
Each and every obligation of Sellers under this Agreement shall be subject to
and conditioned upon satisfaction, on or before the Closing Date of the
following conditions:
6.1 Representations, Warranties, and Covenants. Buyer's representations and
warranties contained in Section 3 hereof shall be in all respects true and
correct when made and shall be deemed to be made again and shall be true and
correct as of the Closing Date, and Buyer shall have performed, or caused to be
performed, all obligations and complied with all covenants required by this
Agreement to be performed or complied with by Buyer prior to Closing.
6.2 Payment of Purchase Price. Buyer shall deliver the Purchase Price to Sellers
at Closing in accordance with Section 2.2.
7. ADDITIONAL AGREEMENTS:
7.1 Cash, Prepaid Expenses. In addition to the amounts to be paid by Buyer to
Sellers pursuant to Section 2.1, at the Closing Date the Buyer shall pay to the
Sellers in cash, money order or certified check or by wire transfer of
immediately available funds to an account designated by Seller, an amount equal
to: (a) the sum of all cash, certificates deposited in money and bank accounts
of the Company at the Closing Date; and
(b) an amount equal to all prepaid expenses as set forth in Schedule 7.1(b).
7.2 Liabilities as of Closing Date. The Sellers agree that they shall be
obligated for the following obligations of the Company:
(a) all expenses, liabilities and accounts payable of the Company incurred prior
to the Closing Date, including tax liabilities prorated to the Closing Date,
except (i) all liabilities, expenses and costs associated with environmental
damages, cleanup, or remediation relating to the Real Property or the Schedule
3.19 Real Property (unless Sellers knew of the environmental condition and
failed to disclose that as required pursuant to Section 3.20), and (ii) all
expenses relating to the mechanical integrity of the respective salt water
disposal wells;
(b) all wages and fringe benefits of company employees prior to the Closing
Date.
7.3 Save Harmless Agreement. The Buyer agrees to be responsible for and to save
the Sellers harmless from any and all cleanup costs or environmental remediation
costs (including costs for scientific surveys and the cost for preparation of
required reports) arising out of the environmental conditions set forth in
Schedule 3.20, except that the Buyer shall not be responsible for any fines or
penalties arising out of the failure to timely address these environmental
conditions for that period of time prior to the Closing Date. Buyer agrees to
cause Company to comply promptly with all environmental laws with respect to the
environmental conditions described in Schedule 3.20. This covenant is for the
sole benefit of the Sellers and not for the benefit of any third party.
7.4 Bonds. Following the Closing Date Buyer will promptly take those steps
necessary to release Sellers' personal guarantee and Certificate(s) of Deposit
with respect to EPA/DEQ required bonds. The personal guarantee and
Certificate(s) of Deposit total approximately $75,000.
7.5 Company Obligations to Sellers or Sellers' Affiliates. The Buyer agrees that
immediately after closing, the Buyer shall cause the Company to pay those
obligations set forth in Schedule 3.10. These payments shall be made in cash,
money order or certified check payable to the respective debtor of the Company,
or by wire transfer of immediately available funds to an account designated by
said debtor of the Company.
8. INDEMNIFICATION:
8.1 Indemnification by the Sellers. In addition to any other remedies available
to Buyer under this Agreement, or at law or in equity, the Sellers shall
indemnify, defend and hold harmless Buyer and its officers, directors,
employees, agents and stockholders, against and with respect to any and all
claims, costs, damages, losses, expenses, obligations, liabilities, recoveries,
suits, causes of action and deficiencies, including interest, penalties and
reasonable attorneys' fees and expenses (collectively, the "Damages") that such
indemnitee shall incur or suffer, which arise, result from or relate to any
breach of, or failure by the Sellers to perform their respective
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to
Buyer by the Sellers under this Agreement. Notwithstanding these provisions, the
Buyer shall have no claim against the Sellers for the first Ten Thousand Dollars
worth of Damages pursuant to this Section 8.1. In addition, the Sellers total
liability for Damages pursuant to this Section 8.1 shall not exceed Eight
Million Eight Hundred Thousand Dollars (herein "Indemnification Cap"). In
determining if the Indemnification Cap has been reached, Sellers shall be
entitled to aggregate any indemnification paid by Sellers or Kalkaska
Construction Service, Inc. pursuant to this Agreement or pursuant to two
separate Asset Purchase Agreements between Buyer and Kalkaska Construction
Service, Inc. dated March 31, 1997, and closed simultaneously with this
Agreement.
8.2 Indemnification by Buyer. In addition to any other remedies available to
Sellers under this Agreement, or at law or in equity, Buyer shall indemnify,
defend and hold harmless the Sellers against and with respect to any and all
Damages that such indemnities shall incur or suffer, which arise, result from or
relate to any breach of, or failure by Buyer to perform any of its
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to
Sellers by or on behalf of Buyer under this Agreement.
8.3. Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 8.1 or 8.2 of
this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. Further, promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Section 8, such indemnified party shall, if a claim
in respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.indemnifying party, which consent
shall not be unreasonably withheld.
9. MISCELLANEOUS:
9.1 Notices: All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given as follows:
(a) If to Sellers, when delivered by hand or mailed, certified or registered
mail with postage prepaid to:
copy to: Dennis Hogerheide and LaWenda Hogerheide
418 S. Maple
Kalkaska, MI
Facsimile: (616) 258-6113
with a copy to: Donald Brandt
Brandt, Fisher, Alward & Roy, P.C.
401 Munson Avenue, P.O. Box 5817
Traverse City, Michigan 49696-5817
Facsimile: (616) 941-9568
(b) If to Buyer, when delivered by hand or mailed, certified or registered mail
with postage prepaid, to:
copy to:
WellTech Eastern, Inc.
5976 Venture Way
Mt. Pleasant, Michigan 48858
Facsimile: (517) 773-0229
with a copy to: Mr. Steven W. Martineau
Lynch, Gallagher, Lynch & Martineau, P.L.L.C.
555 North Main Street
Mt. Pleasant, MI 48858
and
Key Energy Group, Inc.
Two Tower Center, Tenth Floor
East Brunswick, New Jersey 08816
Attn: General Counsel
Facsimile: (908) 247-5148
or to such other place or person as the party to be notified may have specified
in a prior written notice to the other parties.
9.2 Survival of Representations and Warranties. All representations and
warranties made by Sellers or Buyer, respectively, in this Agreement or made in
certificates delivered on the Closing Date, or on the Closing Date as required
hereunder, shall remain operative and in full force and effect, and shall
survive the Closing Date, but shall not survive the expiration of any applicable
statute of limitation in respect thereof, except for liability arising out of
fraud or fraudulent misrepresentation. However, if any claims based upon any
representation or warranties have been made the subject of a lawsuit brought
within applicable statute of limitations, then such warranties and
representations shall continue to be in force and effect until entry of a final
nonappealable judgment.
9.3 Assignment. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, but no party hereto shall assign his or its rights under
this Agreement without the prior, written consent of the other party.
9.4 Indemnity Concerning Brokers. Sellers represent and warrant that there is no
broker connected with this transaction retained by Sellers and Sellers hereby
agree to indemnify and hold Buyer harmless from and against any and all such
broker's, finder's, or consultant's fees in connection with this transaction.
Buyer represents and warrants that there is no broker connected with this
transaction retained by Buyer, and Buyer hereby agrees to indemnify and hold
Sellers harmless from and against any and all such brokers, finders, or
consultant's fees in connection with this transaction.brokers, finders, or
consultant's fees in connection with this transaction.
9.5 Expenses. Sellers shall pay all expenses of Sellers in connection with this
Agreement and the transactions contemplated hereby, including any and all of
Sellers' counsel, and Buyer shall pay its expenses in connection with this
Agreement and the transactions contemplated hereby, including any and all of
Buyer's counsel. The Company shall not assume, pay, or agree to pay any
obligations of the Sellers in connection with the expenses or fees hereby agreed
to be paid by Sellers.
9.6 Governing Law. This Agreement and the legal relationships between Buyer and
Sellers shall be governed by and construed in accordance with the laws of the
State of Michigan.
9.7 Headings. The headings of the Sections of this Agreement are inserted for
convenience only and shall not constitute a substantive part hereof.
9.8 Waiver and Modifications. By express notice to the other party, expressly
referring to this paragraph and captioned "Waiver," Sellers or Buyer may, as to
such other party receiving such notice, (i) waive or extend the time for
performance of any act other than performance required of the party or parties
giving notice, (ii) waive any inaccuracy in any representation or warranty made
by the notified party and contained in this Agreement or in any document
delivered by such party pursuant to this Agreement, covenant, condition,
representation, or warranty binding upon or made by the notified party;
provided, however, that no other act of Buyer or Sellers shall constitute such a
waiver.
9.9 Entire Agreement. This Agreement, including the Exhibits and other documents
referred to herein, which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein. There
are no restrictions, promises, representations, warranties, covenants, or
undertakings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
9.10 Severability. If any provisions in this Agreement shall for any reason be
determined to be invalid or unenforceable, the remaining provisions of this
Agreement shall nevertheless continue to be valid and enforceable as though the
invalid or unenforceable provision had not been a part hereof.
9.11 Further Assurances. Sellers agree to execute such further instruments or to
take such other actions as may be requested by counsel for Buyer and as
reasonably may be necessary or appropriate to the transactions contemplated by
this Agreement and to assure to Buyer the benefits intended by this Agreement.
9.12 Counterparts. This Agreement may be executed in any number of counterparts,
which shall constitute but one agreement.
IN WITNESS WHEREOF, Buyer and Sellers have duly executed this Agreement by
affixing thereto their signatures and seals as of the day, month and year first
above written. BUYER:
WELLTECH, INC.
By:
Its:
SELLERS:
Dennis Hogerheide
LaWenda Hogerheide
SCHEDULE 3.6(a)
Parcel 1 - Hogerheide #1-29
SCHEDULE 3.6(b)
Permitted Encumbrances for Real Property
Parcel 1 - Hogerheide #1-29
All Encumbrances and exceptions to title as set forth in Schedule B-II of Title
Insurance Commitment FA-5484 prepared by First American Title Insurance Company
dated January 31, 1997, except for Seller's obligations to fulfill Requirements
#2, 3 and 4 as set forth in Schedule B-I of said commitment.
Parcel 2 - Holdeman #1
All Encumbrances and exceptions to title as set forth in Schedule B-II of Title
Insurance Commitment 304497-11 prepared by Fidelity National Title Insurance
Company, dated March 5, 1997.
Parcel 3 - Simpson #1-9
All Encumbrances and exceptions to title as set forth in Title Insurance
Commitment CW-5506 prepared by Commonwealth Land Title Insurance Company, dated
February 12, 1997, except for Seller's obligation to fulfill/discharge
requirements in paragraphs 2, 7 and 8.
Parcel 4 - Miller #23-41
All documents of record through February 20, 1997. The Seller remains obligated
to deliver marketable title to the surface.
Parcel 5 - Wedow #2-28
All documents of record through March 17, 1999. The Seller remains obligated to
deliver marketable title from Northern Michigan Exploration Company.
Parcel 6 - 3 acres-Kalkaska
All Encumbrances and exceptions to title as set forth in Title Insurance
Commitment CW-5505 prepared by Commonwealth Land Title Insurance Company, dated
February 12, 1997, except for Seller's obligations to fulfill requirements in
paragraphs 1 and 2.
*Seller is obligated to pay all taxes and special assessments, if any, for 1996
and prior years with respect to each of Parcels 1-6.
SCHEDULE 3.6(c)
Title Insurance Premium Costs
Name of Well Valuation Costs
Parcel 1 - Hogerheide #1-29 $750,000 $2,325
Parcel 2 - Holdeman #1 $110,000 $ 585
Parcel 3 - Simpson #1-9 $200,000 $ 900
Parcel 4 - Miller #23-41 $200,000 $ 900
Parcel 5 - Wedow #2-28 $200,000 $ 900
Parcel 6 - 3 acres-Kalkaska $240,000 $1,020
Parcel 7 - Kibler-Mather #1-27 $400,000 $1,450
Parcel 8 - Barber-Kopicko #1-6 $400,000 $1,450
Parcel 9 - State-Blair #5-21 $100,000 $ 550
TOTAL: $2,600,000 $10,080
SCHEDULE 3.7(a)
Personal Property
All personal property located at and used in conjunction with the salt water
disposal wells listed on Schedule 3.19.
SCHEDULE 3.7(b)
Permitted Encumbrances - Personal Property
None.
SCHEDULE 3.7(c)
Exceptions to Condition
None.
SCHEDULE 3.8(a)
Inventory
None.
SCHEDULE 3.8(b)
Permitted Encumbrances - Inventory
None.
SCHEDULE 3.9(a)
Leasehold Interests
Parcel 7 - Kibler-Mather #1-27
Salt Water Disposal Lease dated November 20, 1981, between Lloyd L. Kibler and
Georgia M. Kibler, husband and wife, as Lessors, to Don Yohe Enterprises, Inc.
This Salt Water Disposal Lease was recorded in Liber 1242, Page 150 of the
Calhoun County Register of Deeds records. The Salt Water Disposal Lease has been
assigned to Kalkaska Construction Company and Kalkaska Construction Service,
Inc. The Salt Water Disposal Lease has been ratified by a Ratification of Salt
Water Disposal Lease dated March 19, 1997, executed by Henry L. Kibler.
Parcel 8 - Barber-Kopicko #1-6
An Agreement dated February 20, 1976, between Yvonne K. Barber and Patricia A.
Kopicko, as Lessors, and Cabot Corporation, as Lessee. This Agreement was
recorded in Liber 1177, Page 1094 of the Ingham County Register of Deeds
records. This Agreement was thereafter assigned to Dennis Hogerheide by an
Assignment and Bill of Sale dated April 23, 1985, and recorded in Liber 1511,
Page 851 of the Ingham County Register of Deeds records. A Lease Agreement dated
March 8, 1986, between Yvonne K. Barber and Patricia A. Kopicko, as Lessors, and
Dennis Hogerheide, as Lessee. This Lease Agreement is recorded in Liber 1556,
Page 977 of the Ingham County Register of Deeds records. This Lease Agreement
was thereafter assigned to Kalkaska Oilfield Services, Inc. by an Assignment of
Lessee's Interest in Barber-Kopicko #1-6 SWD Lease dated December 11, 1992, and
recorded in Liber 2183, Page 293 of the Ingham County Register of Deeds records.
Parcel 9 - State-Blair #5-21
The right to operate the State-Blair #5-21 well located in the Southeast 1/4 of
the Northeast 1/4 of Section 21, T26N, R11W, Blair Township, Grand Traverse
County, Michigan.
SCHEDULE 3.9(b)
Permitted Encumbrances - Leasehold Interests
Parcel 7 - Kibler-Mather #1-27
All instruments of record except that the Seller shall:
(1) record Ratification of Salt Water Disposal Lease signed by Henry L. Kiber;
(2) get an Assignment of the Salt Water Disposal Lease dated November 20, 1981,
and recorded in Liber 1242, Page 150 from Kalkaska Construction Company (a d/b/a
for Dennis Hogerheide) and Kalkaska Construction Service, Inc. to KOS;
(3) get an Affidavit from Dennis Hogerheide saying that he is Kalkaska
Construction Service; and
(4) acquire the Salt Water Disposal Lease located at Liber 1242, Page 147. Make
sure that that is also assigned to KOS, as stated above.
Parcel 8 - Barber-Kopicko #1-6
All instruments of record except that the Seller shall:
(1) acquire discharges of Mortgages/Financing Statements found at Liber 1514,
Page 61; Liber 1514, Page 65; and Liber 1514, Page 66 of the Ingham County
Register of Deeds records;
(2) acquire an Assignment from Dennis Hogerheide to Kalkaska Oilfield Services,
Inc. of all right, title and interest of Dennis Hogerheide as acquired by an
Assignment and Bill of Sale recorded in Liber 1511, Page 851 of the Ingham
County Register of Deeds records; and
(3) provide an Affidavit that all rental payments have been made pursuant to the
Lease Agreement recorded in Liber 1556, Page 977 of the Ingham County Register
of Deeds records.
Parcel 9 - State-Blair #5-21
(1) You need to acquire a document from the State of Michigan granting Kalkaska
Oilfield Services, Inc. the right to operate Blair #5-21 SWD. The document then
needs to be recorded with the Grand Traverse County Register of Deeds office. If
such a document has been executed by the State of Michigan granting some other
party the right to operate Blair #5-21 SWD, that party should execute an
Assignment assigning that right to Kalkaska Oilfield Services, Inc. That
Assignment must be approved by the State of Michigan.
(2) The original copy of an Assignment of S.W.D. State-Blair 5-21 and Related
Properties and Rights executed by Robert Raffaele, Inc., to the Empire National
Bank of Traverse City, must be acquired and recorded with the Grand Traverse
County Register of Deeds records.
(3) The original copy of an Assignment of S.W.D. State-Blair 5-21 and Related
Properties and Rights executed by Empire National Bank of Traverse City to
Dennis Hogerheide must be acquired and recorded with the Grand Traverse County
Register of Deeds.
(4) A Mortgage granted to the Empire National Bank and recorded in Liber 592,
Page 15 must be discharged.
(5) An Assignment of Production granted to the Empire National Bank and recorded
in Liber 592, Page 27 must be discharged.
(6) A Financing Statement granted to Empire National Bank and recorded in Liber
595, Page 511 and continued by instruments recorded in Liber 757, Page 446 and
448 must be discharged.
(7) The Michigan National Bank - Grand Traverse must reassign to Dennis
Hogerheide the interest it acquired in Liber 631, Page 554.
(8) The Michigan National Bank - Grand Traverse must discharge the Financing
Statement recorded in Liber 631, Page 558.
(9) The Affidavits and Executions filed by Kalkaska Fishing and Rental Tools,
Inc. as reflected in Liber 635, Page 444; Liber 635, Page 446; Liber 635, Page
448; and Liber 635, Page 450 must be discharged.
(10) The Michigan National Bank - Grand Traverse must reassign to Dennis
Hogerheide the interest it acquired in Liber 638, Page 448.
(11) The Financing Statements granted to Michigan National Bank - Grand Traverse
and found at Liber 638, Page 539 and Liber 638, Page 556 must be discharged.
(12) The interest asserted by J & J Exploration and recorded in Liber 654, Page
700 must be discharged.
(13) Dennis Hogerheide must convey his interest in this property to Kalkaska
Oilfield Services, Inc.
(14) Kalkaska Production, Inc. must convey its interest in this salt water
disposal well to Kalkaska Oilfield Services, Inc.
(15) You should acquire and review a copy of the Farmout Agreement by and
between North Michigan Exploration Company and Robert Raffaele, Inc. dated
August 6, 1981, as amended June 23, 1981. The document should be reviewed with
this office.
(16) You should acquire and review a copy of the Assignment and Agreement to
Jointly Operate Brine Disposal Facility dated September 30, 1982, by and between
Robert Raffaele, Inc. and Kalkaska Production, Inc. That document should be
reviewed by this office.
SCHEDULE 3.10
Obligations or Debts of Company to Sellers or
Any Related Individual or Entity to be Paid at Closing
(1) Promissory Note to David Hogerheide: $ 240,000
(2) Miscellaneous Sums Due Shareholders and Related Companies: $ 714,623
(3) Sums Due Mid-Michigan Disposal, Inc. pursuant to Asset Purchase Agreement: $
107,012
Robert Bowling - $ 75,000
W&J Enterprises, Inc. - $ 28,812
Dennis Hogerheide - $ 3,200
-------
$107,012
SCHEDULE 3.11
Change in Conduct of Business
None except that the annual payment for the Kibler-Mather #1-27 well is now
$1,000 per year instead of $500 per year.
SCHEDULE 3.13
Permits
(1) Environmental Protection Agency permits to operate the following salt water
disposal wells:
Hogerheide #1-29; Simpson #1-9; Kibler-Mather #1-27; Barber-Kopicko #1-6;
State-Blair #5-21.
(2) Michigan Department of Environmental Quality permits to operate the
following salt water disposal wells:
Hogerheide #1-29; Kibler-Mather #1-27; Barber-Kopicko #1-6; Simpson #1-9; Wedow
#2-28; State-Blair #5-21.
SCHEDULE 3.14
Powers of Attorney - Banking Relationships
(1) No persons hold powers of attorney for the corporation.
(2) First of America Bank: Account No. 0013299206.
SCHEDULE 3.15
Claims or Litigation
None.
SCHEDULE 3.18
Contracts in Excess of $10,000
None except for the lease with respect to the Kibler-Mather #1-27 well and the
Barber-Kopicko #1-6 well.
SCHEDULE 3.19
Salt Water Disposal Wells
Parcel 1 - Hogerheide #1-29
Parcel 2 - Holdeman #1
Parcel 3 - Simpson #1-9
Parcel 4 - Miller #23-41
Parcel 5 - Wedow #2-28
Parcel 7 - Kibler-Mather #1-27
Parcel 8 - Barber-Kopicko #1-6
Parcel 9 - State-Blair #5-21
SCHEDULE 3.20
Environmental Conditions
The environmental conditions disclosed by the following reports:
(1) Phase I and Phase II Environmental Site Assessment dated March 13, 1997,
prepared by Environmental Consultants and Services, Inc., covering the
Hogerheide #1-29 site.
(2) Phase I and Phase II Environmental Site Assessment dated March ___, 1997,
prepared by Environmental Consultants and Services, Inc., covering the Holdeman
#1 site.
(3) Phase I and limited Phase II Environmental Site Assessment dated March 12,
1997, prepared by Soil and Materials Engineers, Inc., covering the Kibler-Mather
#1-27 site.
(4) Phase I and limited Phase II Environmental Site Assessment dated March 12,
1997, prepared by Soil and Materials Engineers, Inc., covering the
Barber-Kopicko #1-6 site.
(5) Phase I and Phase II Environmental Site Assessment dated March 14, 1997,
prepared by Environmental Consultants and Services, Inc., covering the Simpson
#1-9 site.
(6) Phase I and Phase II Environmental Site Assessment dated March 14, 1997,
prepared by Environmental Consultants and Services, Inc., covering the Miller
#23-41 site.
(7) Phase I and Phase II Environmental Site Assessment dated March 14, 1997,
prepared by Environmental Consultants and Services, Inc., covering the Wedow
#2-28 site.
(8) Phase I and Phase II Environmental Site Assessment dated March 14, 1997,
prepared by Environmental Consultants and Services, Inc., covering the
State-Blair #5-21 site.
SCHEDULE 3.21
Exceptions to Compliance with Laws
None except as reflected in any other Schedule to this Stock Purchase Agreement
SCHEDULE 4.10
Exceptions to Conditions of Real Property and Personal Property
None except as reflected in any other Schedule to this Stock Purchase Agreement.
Asset Purchase Agreement
among
WellTech Eastern, Inc.,
Diamond Well Service, Inc.,
John Scott and
Dwayne Wardwell
April 3, 1997
1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this AAgreement@) is entered into as of April 3,
1997 (the AEffective Date@) among WellTech Eastern, Inc., a Delaware corporation
(ABuyer@), Diamond Well Service, Inc., an Oklahoma corporation (ASeller@), John
Scott and Dwayne Wardwell, owners of all of the issued and outstanding stock of
the Seller (the AShareholders@).
WITNESSETH:
WHEREAS, Seller desires to sell substantially all of its assets, and Buyer
desires to purchase such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
Article I
Purchase and Sale of Assets
1.1 Purchase and Sale of the Assets.. Subject to the terms and conditions set
forth in this Agreement, Seller hereby agrees to sell, convey, transfer, assign
and deliver to Buyer, and Buyer hereby agrees to purchase from Seller,
substantially all of the assets of Seller existing on the date hereof other than
the Excluded Assets (defined below), whether real, personal, tangible, or
intangible, including the following assets of Seller relating to or used or
useful in the operation of the business of Seller as conducted by Seller on and
before the date hereof (the ABusiness@) (all such assets being sold hereunder
are referred to collectively herein as the AAssets@):
(a) the tangible personal property of Seller (such as machinery, equipment,
leasehold improvements, furniture and fixtures, and vehicles) which is more
fully described on Schedule 1.1(a) hereto (collectively, the ATangible Personal
Property@);
(b) certain of Seller=s intangible assets (collectively, the AIntangibles@),
including (I) all of Seller=s rights to the names under which it is incorporated
or under which it currently does business, (ii) all of Seller=s rights to any
patents, copyrights, trademarks, service marks, licenses or sublicenses, trade
names, written know-how, trade secrets and all other similar proprietary data
and the goodwill associated therewith (collectively, the AIntellectual
Property@) used or held in connection with the business, including those
specifically listed on Schedule 1.1(c) hereto (collectively, the ASeller
Intellectual Property@), and (iii) all of Seller=s rights in its sales and
promotional literature, computer software, customer and supplier lists; (c)
those leases, subleases, contracts, contract rights, and agreements,
(collectively, the AContracts@) relating to the operation of the Business,
specifically listed on Schedule 1.1(d) hereto (collectively, the Transferred
AContracts@);
(d) to the extent transferrable, all permits, authorizations, certificates,
approvals, registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, licenses and other rights of every kind and character
(collectively, the APermits@) of Seller obtained from governments and
governmental agencies relating to including, without limitation, that which is
more fully described on Schedule 1.1(e) hereto (collectively, the ASeller
Permits@); and,
(e) the goodwill and going concern value of the Business.
The Assets shall not include the following (collectively, the AExcluded
Assets@); (I) all of Seller=s accounts receivable and all other rights of Seller
to payment for services rendered by Seller before the date hereof (the ASeller
Receivables@); (ii) all cash accounts, cash equivalents or similar investments
of Seller and all petty cash of Seller kept on hand for use in the Business;
(iii) all right, title and interest of Seller in and to all prepaid rentals,
other prepaid expenses, prepaid taxes, bonds, deposits and financial assurance
requirements, and other current assets relating to any of the Assets of the
Business; (iv) the corporate charter, corporate seal, organizational documents
and minute books of Seller; (v) all assets in possession of Seller but owned by
third parties; (vi) all rights under the Contracts of Seller not specifically
assigned to Buyer hereunder; and (viii) Seller=s right, title and interest in
and to this Agreement; (ix) the right to prosecute and collect claims relating
to business of Seller prior to the date hereof.
1.2 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of Seller contained herein,
Buyer (I) agrees to pay to Seller, on the date hereof, the amount of $675,000 in
the form of a cashier=s check or bank check or wire transfer of immediately
available funds to an account designated by Seller.
1.3 Assumed Liabilities. Buyer shall assume only those liabilities of Seller
associated with Buyer=s assumption of the Transferred Contracts. Seller shall be
responsible for all other liabilities of Seller (collectively, the ARetained
Liabilities@), including, without limitation all obligations and liabilities
owed by Seller to the Employees (as defined in Section 2.1.10 hereof).
Article II
Representations and Warranties
of Seller and the Shareholders
2.1 Representations and Warranties of Seller. Each of Seller and the
Shareholders jointly and severally represent and warrant to Buyer as follows:
2.1.1. Organization and Good Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
organization, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to so qualify or be licensed would
not have a material adverse effect on the Assets or the Business.
2.1.2. Agreements Authorized and their Effect on Other Obligations. The
execution and delivery of this Agreement and all other agreements executed by
Seller or the Shareholders and delivered to Buyer in connection herewith (the
ASeller Agreements@) have been authorized by all necessary corporate action on
the part of Seller, and this Agreement and the Seller Agreements are valid and
binding obligations of Seller and Shareholders, as applicable, enforceable
(subject to normal equitable principals) against such parties in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. The execution, delivery and performance of this Agreement and the
Seller Agreements and the consummation of the transaction contemplated hereby
and thereby, will not conflict with or result in a violation or breach of any
term or provision of, nor constitute a default under (I) the charter or bylaws
of Seller, (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which Seller or Shareholders is a party or by
which Seller or Shareholders or their respective properties are bound; or (iii)
any provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which Seller or
Shareholders or any of their respective properties are subject.
2.1.3. Financial Statement; Absence of Certain Changes and Events. Seller has
delivered to Buyer copies of certain unaudited financial statements of Seller.
Such financial statements are attached hereto as Schedule 2.1.3 (collectively,
the ASeller Financial Statements@) and include Seller=s balance sheet (the
AJanuary 31, Balance Sheet@) as at January 31, 1997 (the ABalance Sheet Date@).
The Seller Financial Statements present fairly and fully the financial condition
of the Seller as at the dates and for the periods indicated thereon, subject, in
the case of interim financial statements, to normal year end adjustments. Other
than as a result of the transactions contemplated by this Agreement, since the
Balance Sheet Date, there has not been (whether as a result of a single event or
in the aggregate): (a) Financial Change. Any material adverse change in the
Assets, the Business or the financial condition, operations, liabilities or
prospects of Seller; (b) Property Damage. Any material damage, destruction, or
loss to any of the Assets or the Business (whether or not covered by insurance);
(c) Waiver. Any waiver or release of a material right of or claim held by
Seller; (d) Change in Assets. Any acquisition, disposition, transfer,
encumbrance, mortgage, pledge or other encumbrance of any material asset of
Seller other than in the ordinary course of business; (e) Labor Disputes. Any
labor disputes between Seller and its employees; or (f) Other Changes. Any other
event or condition known to either Seller or Shareholders that particularly
pertains to and has or is likely to have a material adverse effect on the
Assets, the operations and the Business or the financial condition or prospects
of Seller.
2.1.4. Transferred Contracts. All of the Transferred Contracts are in full force
and effect, and constitute valid and binding obligations of Seller. Seller is
not, and no other party to any Transferred Contract is, in default thereunder,
and no event has occurred which (with or without notice, lapse of time, or the
happening of any other event) would constitute a default thereunder. No
Transferred Contract has been entered into on terms which could reasonably be
expected to have a material adverse effect on the use of the Assets by Buyer.
Neither Seller nor the Shareholders has received any information which would
cause such party to conclude that any customer of Seller will (or is likely to)
cease doing business with Buyer, as successor the Business, as a result of the
consummation of the transactions contemplated hereby.
2.1.5. Title to and Condition of Assets. Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). It is agreed and understood that the Assets are transferred to
Buyer in AS IS condition and neither Seller nor Shareholders make any warranty
of any kind, express or implied. To the knowledge of either Seller or
Shareholders, all of the Assets conform to all applicable laws governing their
use. No notice of any violation of any law, statute, ordinance, or regulation
relating to any of the Assets has been received by Seller or Shareholders,
except such as have been fully complied with. The term AEncumbrances@ means all
liens, security interests, pledges, mortgages, deeds of trust, claims, rights of
first refusal, options, charges, restrictions or conditions to transfer or
assignment, liabilities, obligations, privileges, equities, easements, rights of
way, limitations, reservations, restrictions, and other encumbrances of any kind
or nature.
2.1.6. Licenses and Permits. Each of the Seller Permits and Seller=s rights with
respect thereto is valid and subsisting, in full force and effect, and
enforceable by Seller subject to administrative powers of regulatory agencies
having jurisdiction. Seller is in compliance in all material respects with the
terms of each of the Seller Permits. None of the Seller Permits has been, or to
the knowledge of Seller or Shareholders, are threatened to be, revoked,
canceled, suspended or modified. Upon consummation of the transactions
contemplated hereby, each of the Seller Permits shall have been validly assigned
to Buyer, will be valid and subsisting in full force and effect, and will be
enforceable by Buyer subject to administrative powers of regulatory agencies
having jurisdiction.
2.1.7. Intellectual Property. The Seller Intellectual Property is owned or
licensed by Seller free and clear of any Encumbrances. Seller has not granted to
any other person any license to use any Seller Intellectual Property. Use of the
Seller Intellectual Property by Buyer will not, and the use of the Seller
Intellectual Property by Seller did not, infringe, misappropriate or conflict
with the intellectual property rights of others. Neither Seller nor the
Shareholders has received any notice of infringement, misappropriation, or
conflict with the intellectual property rights of others in connection with the
use by Seller of the Seller Intellectual Property.
2.1.8. Necessary Consents. Seller has obtained and delivered to Buyer all
consents to assignment or waivers thereof required to be obtained from any
governmental authority or from any other third party in order to validly
transfer the Assets hereunder, including the assignment of the Seller Permits
and the Transferred Contracts.
2.1.9. Employees. Schedule 2.1.10 hereto is a complete and accurate listing of
all employees of Seller that are involved in the ownership, operation,
maintenance or use of the Assets or the conduct of the Business (the
AEmployees@). Seller does not currently sponsor, maintain or contribute to, and
has not at anytime sponsored, maintained or contributed to any employee benefit
plan which is or was subject to any provisions of the Employee Retirement Income
Security Act of 1974, as amended. No employee benefit plan of Seller will, by
its terms or applicable law, become binding upon or an obligation of Buyer.
Buyer has not engaged in any unfair labor practices which could reasonably be
expected to result in a material adverse effect on the Assets or the Business.
Seller does not have any dispute with any of its existing or former employees.
There are no labor disputes or to the knowledge of Seller, any disputes
threatened by current or former employees of Seller.
2.1.10. Investigations; Litigation. No investigation or review by any
governmental entity with respect to Seller or any of the transactions
contemplated by this Agreement or the Seller Agreements is pending or, to the
best of Seller=s knowledge, threatened, nor has any governmental entity
indicated to Seller an intention to conduct the same. There is no suit, action,
or legal, administrative, arbitration, or other proceeding or governmental
investigation pending to which Seller is a party or, to the knowledge of Seller
or Shareholders, to which might become a party, and which particularly affects
the Assets or property being transferred to Seller.
2.1.11. Absence of Certain Business Practices. Neither Seller, the Shareholders
nor any officer, employee or agent of Seller, nor any other person acting on its
or his behalf, has, directly or indirectly, within the past five years, given or
agreed to give any gift or similar benefit to any customer, supplier, government
employee or other person who is or may be in a position to help or hinder the
profitable use of the Assets or conduct of the Business (or to assist Seller in
connection with any actual or proposed transaction) which if not given in the
past, might have had a material adverse effect on the profitable use of the
Assets or conduct of the Business , or if not continued in the future, might
materially adversely effect the profitable use of the Assets or conduct of the
Business.
2.1.12. Solvency. Seller is not now insolvent, nor will Seller be rendered
insolvent by the occurrence of the transactions contemplated by this Agreement.
The term Ainsolvent@ means that the sum of the present fair and saleable value
of Seller=s assets does not and will not exceed its debts and other probable
liabilities, and the term Adebts@ includes any legal liability whether matured
or unmatured, liquidated or unliquidated, absolute fixed or contingent, disputed
or undisputed or secured or unsecured.
2.1.13. Untrue Statements. Seller has made available to Buyer true, complete and
correct copies of customers, and if required, Seller will make available records
relating principally to the Assets and the business, and such information covers
all commitments and liabilities of Seller relating principally to the Assets.
This Agreement, the Seller Agreements and the other instruments executed by
Seller or Shareholders and delivered to Buyer in connection herewith do not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made herein and therein not misleading in
any material respect.
2.1.14. Finder=s Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Seller, the
Shareholders and their counsel directly with Buyer and its counsel, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder=s fee
or any similar payment.
Article III
Representations and Warranties of Buyer
3.1 Representations and Warranties of Buyer. Buyer represents and warrants to
Seller and Shareholders as follows:
3.1.1. Organization and Standing. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware, has full requisite
corporate power and authority to carry on its business as it is currently
conducted, and to own and operate the properties currently owned and operated by
it, and is duly qualified or licensed to do business and is in good standing as
a foreign corporation authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business conducted by
it would make such qualification or licensing necessary, except where the
failure to so qualify or be licensed would not have a material adverse effect on
the business of Buyer.
3.1.2. Agreement Authorized and its Effect on Other Obligations. The execution
and delivery of this Agreement and all other agreements executed by Buyer and
delivered to Seller or Shareholders in connection herewith (the ABuyer
Agreements@) have been authorized by all necessary corporate action on the part
of Buyer, and this Agreement and the Buyer Agreements are valid and binding
obligations of Buyer, enforceable (subject to normal equitable principals)
against Buyer in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement and the Buyer Agreements and the consummation of
the transactions contemplated hereby and thereby will not conflict with or
result in a violation or breach of any term or provision of, nor constitute a
default under (I) the charter or bylaws of Buyer; (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Buyer is a party or by which Buyer or its properties are bound; or (iii) any
provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator or other governmental authority to which Buyer or any of its
properties is subject.
3.1.3. Finder=s Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer and its counsel
directly with Seller, the Shareholders and their counsel, without the
intervention of any other person as the result of any act of Buyer in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder=s fee or any similar payment.
Article IV
Additional Agreements
4.1 Noncompetition. Except as otherwise consented to or approved in writing by
Buyer, each of Seller and the Shareholders agree that for a period of thirty-six
(36) months following the Effective Date, they shall not, directly or
indirectly, acting alone or as a member of a partnership or a holder of, or
investor in as much as 5% of any security of any class of any corporation or
other business entity (I) engage in any business providing workover or well
services, or providing any other oil field services previously provided by
Seller during the twenty-four (24) month period immediately preceding the
execution of this Agreement in Oklahoma (the ATerritory@); (ii) request any
present customers or suppliers of Seller to curtail or cancel their business
with Buyer; (iii) disclose to any person, firm or corporation any trade,
technical or technological secrets of Seller or Buyer or any details of their
organization or business affairs or (iv) induce or actively attempt to influence
any employee of Buyer to terminate his employment. Notwithstanding the
foregoing, Seller=s and Shareholders= non-competition obligations shall cease in
the event that Buyer or its successors in interest, no longer engages in like
business in the Territory. Seller agrees that if either the length of time or
geographical area of the Territory is deemed too restrictive in any court
proceeding, the court may reduce such restrictions to those which it deems
reasonable under the circumstances. The obligations expressed in this Section
4.1 are in addition to any other obligations that Seller or the Shareholders may
have under the laws of any state requiring a corporation who sells its assets
(and the Shareholders of such corporation) to limit its activities so that the
goodwill and business relations being transferred with such assets will not be
materially impaired. Seller further agrees and acknowledge that Buyer does not
have any adequate remedy at law for the breach or threatened breach by Seller of
this covenant, and agree that Buyer may, in addition to the other remedies which
may be available to it hereunder, file a suit in equity to enjoin Seller from
such breach or threatened breach. If any provisions of this Section 4.1 are held
to be invalid or against public policy, the remaining provisions shall not be
affected thereby. Seller acknowledges that the covenants set forth in this
Section 4.1 are being executed and delivered by Seller in consideration of the
covenants of Buyer contained in this Agreement, and for other good and valuable
consideration, receipt of which is hereby acknowledged.
4.2 Employment of the Shareholders. Buyer hereby agrees to simultaneously with
execution of this Agreement, enter into employment contracts with Shareholders
in the forms of Schedule ___ and ___ hereto.
4.3 Hiring Employees. Effective as of the date hereof, all of the Employees
shall be terminated by Seller. Buyer may, but shall be under no obligation to,
hire any of the Employees effective as of the date hereof. Except as provided in
Section 1.4 hereof, Buyer shall have no liability or obligation with respect to
any employee benefits of any Employee except those benefits that accrue pursuant
to such Employees= employment with Buyer on or after the date hereof. Seller and
the Shareholders shall cooperate with Buyer in connection with any offer of
employment from Buyer to the Employees and use its best efforts to cause the
acceptance of any and all such offers. All Employees hired by Buyer shall be
at-will employees of Buyer.
4.4 Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on Schedule
4.6 hereto, and shall report this transaction for federal income tax purposes in
accordance with the allocation so agreed upon. The parties hereto for themselves
and for their respective successors and assigns covenant and agree that they
will file coordinating Form 8594=s in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
4.5 Name Change. Seller shall retain the right to use the name DIAMOND WELL
SERVICE, INC., for the limited and exclusive purpose of (i) prosecuting and
collecting claims relating to causes of action based on facts occurring prior to
the date hereof.
4.6 Collection of Receivables. Buyer shall cooperate with and assist Seller in
collecting the Seller Receivables, which cooperation and assistance shall
include promptly forwarding to Seller all payments received by Buyer that are
made in respect of the Seller Receivables. Seller shall cooperate with and
assist Buyer in collecting receivables of Buyer, which cooperation and
assistance shall include promptly forwarding to Buyer all payments received by
the Seller that are made in respect of Buyer=s receivables.
4.7 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
4.8 Closing Costs. Each party will bear the cost and expenses of performing the
acts required of such party under this Agreement, including, without limitation,
attorneys= fees and disbursements incurred by the respective parties in
connection herewith; provided, however, the Buyer will pay all sales tax imposed
by any governmental authority as a result of the sale of Assets and will prepare
and file all sales tax reports and tax returns relating thereto.
4.9 Taxes. All federal, state and local taxes relating to the Property which
accrued prior to the date hereof will be paid by the Seller. All such taxes
incurred on or after the date hereof (including sales taxes arising from the
sale of the Property) will be paid by the Buyer and the Buyer agrees to
indemnify and hold the Seller and Shareholders harmless with respect thereto.
4.10 Insurance. All existing insurance policies maintained by the Seller will be
terminated on the date hereof and the Buyer will be responsible for obtaining
its own insurance subsequent thereto.
4.11 Possession; Risk of Loss. Possession of the Assets will be delivered to the
Buyer by the Seller on the date hereof and the risk of loss will pass from the
Seller to the Buyer on such delivery of possession.
4.12 Attorneys= Fees. If either party institutes an action or proceeding against
the other relating to the provisions of this Agreement or any default hereunder,
the prevailing party in such action or proceeding will be entitled to receive a
reasonable attorneys= fee as a part of its costs incurred therein.
Article V
Indemnification
5.1 Indemnification by Seller and the Shareholders. In addition to any other
remedies available to Buyer under this Agreement, or at law or in equity, each
of Seller and Shareholders shall, jointly and severally, indemnify, defend and
hold harmless Buyer, and its respective officers, directors, employees, agents
and stockholders, against and with respect to any and all claims, costs,
damages, losses, expenses, obligations, liabilities, recoveries, suits, causes
of action and deficiencies, including interest, penalties and reasonable
attorneys= fees and expenses (collectively, the ADamages@) that such indemnitee
shall incur or suffer, which arise, result from or relate to (I) any breach of,
or failure by Seller or Shareholders to perform, their respective
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to
Buyer by Seller or the Shareholders under this Agreement and (ii) the Retained
Liabilities.
5.2 Indemnification by Buyer. In addition to any other remedies available to
Seller or Shareholders under this Agreement, or at law or in equity, Buyer
shall, jointly and severally, indemnify, defend and hold harmless the
Shareholders, Seller and its officers, directors, employees and agents against
and with respect to any and all Damages that such indemnities shall incur or
suffer, which arise, result from or relate to any breach of, or failure by Buyer
to perform any of its representations, warranties, covenants or agreements in
this Agreement or in any schedule, certificate, exhibit or other instrument
furnished or delivered to Seller or the Shareholders by or on behalf of Buyer
under this Agreement.
5.3 Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 5.1 or Section
5.2 of this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. Further, promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Article 5, such indemnified party shall, if a claim
in respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
Article VI
Miscellaneous
6.1 Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive without
limitation despite any investigation made by any party hereto or on its behalf.
6.2 Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
6.3 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall deemed to be an original instrument, but all of which
together shall constitute one and the same instrument.
6.4 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
If to Buyer
Addressed to: With Copy to:
WellTech Eastern, Inc. William P. Parker, P. C.
c/o Key Energy Group, Inc. Attorney at Law
Two Tower Center, Tenth Floor 2212 N.W. 50th
East Brunswick, NJ 08816 Suite 163
Attn: General Counsel Oklahoma City, OK 73112
Facsimile: (908) 247-5148
If to Seller or Shareholders
Addressed to: With Copy to:
Diamond Well Service, Inc. Rebecca J. Sherwood, Esq.
1680 Southwest 86th Street Fellers, Snider, Blankenship,
Oklahoma City, OK 73159 Bailey & Tippens, P.C.
Bank One Tower
Mr. John Scott 101 N. Broadway, Suite 1700
12216 Lorien Way Oklahoma City, OK 73102
Oklahoma City, OK 73170 Telephone: (405) 232-0621
Mr. Dwayne Wardwell
P. O. Box 156
Paoli, OK 73074
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
6.5 Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
6.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
6.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
6.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all on this
3rd day of April, 1997 to be effective as of the Effective Date.
WELLTECH EASTERN, INC.
By:
Name:
Title:
DIAMOND WELL SERVICE, INC.
By:
Name:
Title:
SHAREHOLDER:
John Scott
SHAREHOLDER:
Dwayne Wardwell
SCHEDULE 1.1(a) - TANGIBLE PERSONAL PROPERTY
Property.
SCHEDULE 1.1(b) - INVENTORY
None.
SCHEDULE 1.1(c) - SELLER INTELLECTUAL PROPERTY
(Patents, Copy Rights, Trademarks, Service Marks, Licenses
and all applicable customer lists of Seller)
Ricks Exploration
Apache Corporation
KS Oil Co.
Huntington Energy
Chesapeake
Outback
Lance Ruffel
Triad
Shoney Oil & Gas
SND Energy
B. R. Polk
Post Oak
SCHEDULE 1.1(d) - CONTRACTS
(Leases, Subleases, Contracts, Contract Rights and Agreements relating to
ownership, operation or maintenance or use of Tangible Personal Property)
None.
SCHEDULE 1.1(e) - SELLER PERMITS
(Permits, Authorizations, Certificates, Approvals, Registrations,
Variances, Waivers, Exemptions, Rights of Way, Franchises,
Ordinances, Licenses and Rights obtained from governmental agencies
relating to use, operation, maintenance or use of Tangible Personal Property)
Certificate of Qualification of Specialized Mobilized Machinery Vehicle issued
by the Oklahoma Tax Commission No. 11041.
Size and Weight Permit issued by the Oklahoma Department of Public Safety No.
97006123.
SCHEDULE 2.1.3 - FINANCIAL STATEMENTS
SCHEDULE 2.1.10 - EMPLOYEES
Employee Social Security No.
Schedule 4.6 - ALLOCATION OF PURCHASE PRICE
Equipment $ 587,500
Goodwill $ 20,000
Covenant not to compete $ 67,500
Total $675,000
-1-
ASSET SALE AGREEMENT
This Asset Sale Agreement (this "Agreement") is made and entered into on April
14, 1997 by and between Drillers, Inc., a Texas corporation ("Seller"), and
WellTech Eastern, Inc. ("Buyer"), a wholly-owned subsidiary of Key Energy Group,
Inc.
R E C I T A L S:
1. Seller owns land drilling rigs 450, 459 and 472 (the "Rigs") and related
assets; and
2. Seller desires to sell to Buyer, and Buyer desires to acquire from Seller,
the Rigs and certain related assets in consideration of the payment by Buyer of
the purchase price provided for herein, all upon the terms and subject to the
conditions hereinafter set forth.
AGREEMENT
In consideration of the premises and of the agreements and covenants of the
parties contained herein, it is hereby agreed as follows:
I. Purchase and Sale of Assets.
1.1 Transfer of Assets. On the terms and subject to the conditions set forth in
this Agreement, at the Closing (as hereinafter defined), Seller shall sell,
convey, assign, transfer and deliver to Buyer, and Buyer shall purchase and
acquire from Seller all of the assets listed on Exhibit A hereto (the "Assets").
1.2 Excluded Assets. It is expressly understood and agreed that the Assets shall
not include the assets listed on Exhibit B hereto (the "Excluded Assets"), and
that all right, title and interest in the Excluded Assets shall remain with
Seller and that Buyer shall not make any claim to ownership of the Excluded
Assets.
1.3 Instruments of Conveyance and Transfer and Delivery of Assets. At the
Closing, Seller shall deliver or cause to be delivered to Buyer a Bill of Sale
and Assignment transferring all of Seller's right, title and interest in and to
the Assets, in the form attached hereto as Exhibit C (the "Bill of Sale") and
all other certificates of title and other documents in the possession of Seller
and required to convey to Buyer the legal and valid title to the Assets. At the
Closing, title to the Assets shall pass from Seller to Buyer upon confirmation
by Seller's bank of Buyer's deposit of the Balance in Seller's bank account in
immediately available funds. Buyer may take possession of the Assets as soon as
Seller has received the preceding confirmation from Seller's bank.
II. Execution and Closing. The closing (the "Closing") with respect to the
transactions provided for in this Agreement shall commence in Houston, Texas at
12:00 p.m. EST on Wednesday, April 16, 1997 and finish upon the completion of
the items provided in Section 1.3 hereof.
III. Purchase Price; Transaction.
3.1 Purchase Price. As consideration for the Assets, and subject to the terms
and conditions of this Agreement, Buyer shall deliver at the Closing to Seller
One Million Three Hundred and Fifty Thousand and NO/100 U.S. Dollars
(US$1,350,000.00) (the "Balance") through a wire transfer of immediately
available funds deposited to Seller's bank account in Houston, Texas, which sum
represents the purchase price of One Million Five Hundred Thousand and NO/100
U.S. Dollars (US$1,500,000.00) agreed to by the parties for the Assets (the
"Purchase Price"), less a One Hundred and Fifty Thousand and NO/100 U.S. Dollars
(US$150,000.00) advance payment made by Buyer to Seller on March 17, 1997 (the
"Advance Payment"). In the event that Buyer does not comply with the
Post-Closing Conditions (as hereinafter defined), Seller shall have no
obligation to return any part of the Purchase Price and Buyer's obligations
under Sections V and VI hereto shall remain in effect until Buyer fulfills the
Post-Closing Conditions.
3.2 Affiliate Transaction. In connection with the transactions contemplated
hereby, Seller shall cause its affiliate Drillers International, S.A. ("Drillers
International") to execute with, and deliver to, Servicios Welltech, S.A., a
partially-owned subsidiary of Buyer ("Welltech"), a separate asset sale
agreement in the form attached hereto as Exhibit D (the "Argentine Bill of
Sale") conveying title to Welltech of certain additional assets in Argentina
owned by Drillers International and listed in an exhibit to the Argentine Bill
of Sale (the "Affiliate Transaction"). Of the Purchase Price paid by Buyer, One
Hundred and Fifty Thousand and 00/100 Dollars (U.S. $150,000.00) shall be
allocated by the parties to the Affiliate Transaction.
3.3 Sales Taxes. The Buyer and Seller acknowledge that no Texas state sales tax
is due or owing in connection with the transfer of the Assets under Section
151.304 of the Texas Tax Code. To the extent sales or value-added taxes are
determined to be due and owing in connection with the Affiliate Transaction or
the execution, delivery or performance of this Agreement, either in the U.S. or
Argentina, Buyer shall be responsible for payment of any and all such taxes.
IV. Representations of Seller. Seller represents and warrants that the following
are true and correct as of this date and will be true and correct through the
date of the Closing as if made on that date:
4.1 Organization and Good Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas with
all requisite power and authority to carry on the business in which it is
engaged and to own the Assets.
4.2 Authorization and Validity. The execution, delivery and performance of this
Agreement and the other agreements contemplated hereby by Seller, and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by Seller. This Agreement and each other agreement contemplated
hereby have been or will be duly executed and delivered by Seller and constitute
or will constitute legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
4.3 No Violation. Neither the execution and performance of this Agreement or the
agreements contemplated hereby nor the consummation of the transactions
contemplated hereby or thereby will result in a violation or breach of the
Articles of Incorporation or Bylaws of Seller or, to Seller's knowledge, violate
or breach any agreement or other instrument under which Seller is bound or to
which any of the Assets are subject, or result in the creation or imposition of
any lien, charge or encumbrance upon any of such Assets.
4.4 Title to Assets. Seller owns the Assets free and clear of all liens,
security interests, claims and encumbrances.
4.5 No Representation Regarding Condition of Assets. SELLER MAKES NO
REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE MAINTENANCE,
REPAIR, CONDITION, DESIGN OR MARKETABILITY OF THE ASSETS INCLUDING, BUT NOT
LIMITED TO, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, IT BEING THE EXPRESS AGREEMENT OF BUYER AND SELLER THAT,
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, BUYER WILL OBTAIN THE ASSETS IN
THEIR CONDITION AND STATE OF REPAIR AT THE CLOSING, "AS IS," AND "WHERE IS."
V. Post-Closing Matters. As soon after the Closing as practicable, but in no
event later than April 30, 1997, Buyer shall satisfy the following requirements
(the "Post-Closing Conditions"):
5.1 Confirmation by Buyer in writing from the Argentine customs authority, to
the reasonable satisfaction of the Seller, of the assignment and transfer of the
temporary importation permits and nationalization documents covering the Assets,
including, but not limited to, the presentation of the necessary underlying
contractual commitments by Buyer in Argentina to third parties to justify the
continued presence of the Rigs in Argentina;
5.2 Confirmation by Buyer in writing from the Argentine customs authority, to
the reasonable satisfaction of the Seller, of the presentation to, and
acceptance in writing by, the Argentine customs authority of sufficient bonds or
other financial guaranties by Buyer to cover the Assets and authorize the
release of any financial guaranties established by Seller or Drillers
International, or any of their affiliates, to authorize the presence of the Rigs
in Argentina; and
5.3 Confirmation by Buyer in writing from the Argentine customs authority, to
the reasonable satisfaction of the Seller, of the release by the Argentine
customs authority of the bonds or other financial guaranties currently in place
by Seller.
VI. Yard Rentals. Seller agrees that Buyer shall not assume any liability or
obligation from Seller's real property lease (the "Seller Lease") covering the
real property (the "Seller Real Property") on which the Assets and the Excluded
Assets are located on the date hereof, or any other liabilities other than as
provided herein. Following the Closing, Seller agrees to promptly provide notice
of the termination of the Seller Lease to its lessor thereunder, which Seller
represents (and Buyer acknowledges) shall cause the Seller Lease to terminate on
the sixtieth (60th) day following such lessor's receipt of the termination
notice (the "Seller Lease Termination Date"). From the date hereof until the
Seller Lease Termination Date, Buyer shall have the right to occupy (and store
the Assets on) the Seller Real Property. In return for such right, Buyer shall
reimburse Seller for its rental payments, and other occupancy costs, owed by
Seller pursuant to the Seller Lease (but excluding any termination penalties)
from the date that it removes the Excluded Assets from the Seller Real Property
until the Seller Lease Termination Date.
VII. Indemnification. Buyer hereby agrees to indemnify and hold Seller harmless
from and against all manner of action, causes of action, claims, counterclaims
or third party actions, controversies, agreements, promises, damages, expenses,
claims and demands whatsoever, in law, in equity or otherwise, arising as a
result of, or in connection with (a) the ownership, use or operation of the
Assets, or the use of Seller Real Property, after the Closing; (b) Buyer's
failure to fulfill its obligations under Section V above; or (c) Buyer's conduct
of its businesses on or after the Closing. Seller hereby agrees to indemnify and
hold Buyer harmless from and against all manner of action, causes of action,
claims, counterclaims or third party actions, controversies, agreements,
promises, damages, expenses, claims and demands whatsoever, in law, in equity or
otherwise, arising as a result of, or in connection with (a) any breach by
Seller of its representations, warranties, covenants or agreements set forth
herein or in any certificate, schedule, exhibit or other instrument delivered or
furnished to Buyer in connection herewith; (b) Seller's ownership, use or
operation of the Assets prior to the Closing; or (c) Seller's conduct of its
businesses on or after the Closing.
VIII. Notices. Any notice, consent, or other communication to be given under
this Agreement by any party to any other party shall be in writing and shall be
either (a) personally delivered, (b) mailed by registered or certified mail,
postage prepaid with return receipt requested, delivered by overnight express
delivery service or same-day local courier service, or (d) delivered by telex or
facsimile transmission to the address set forth beneath the signature of the
parties, or at such other address as may be designated by the parties from time
to time in accordance with this Section. Notices delivered personally, by
overnight express delivery service or by local courier service shall be deemed
given as of actual receipt. Mailed notices shall be deemed given three business
days after mailing. Notices delivered by telex or facsimile transmission shall
be deemed given upon receipt by the sender of the answerback (in the case of a
telex) or transmission confirmation (in the case of a facsimile transmission).
IX. Further Assurances. At the Closing, and at all times thereafter as may be
reasonably necessary, Seller shall execute and deliver to Buyer such other
instruments of transfer as shall be reasonably necessary or appropriate to vest
in Buyer good and indefeasible title to the Assets and to comply with the
purposes and intent of this Agreement, including, but not limited to, the
execution by Seller of those documents, certificates and assignments reasonably
requested by Buyer to facilitate the transfer of any customs documentation
allowing for the presence of the Assets in Argentina. At the Closing, and at all
times thereafter as may be necessary, Buyer shall execute and deliver to Seller
such other instruments as shall be reasonably necessary or appropriate to
evidence the assumption by Buyer of the responsibility for the Yard Rentals (as
defined in Article VI).
X. Governing Law. The parties hereto hereby agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Texas, notwithstanding its conflict or choice of law principles. The
parties hereto further acknowledge that, in the event that Texas' choice of laws
rules were to apply in connection with such choice of law, (I) Texas has a
substantial relationship to the parties hereto and the transactions contemplated
hereby, and (ii) there is a reasonable basis for the choice of law. If any
action is brought to enforce or interpret this Agreement, venue for such action
shall be in Harris County, Texas.
XI. Miscellaneous. This Agreement and the other documents contemplated herein
supersede all other agreements, oral or written, between or among the parties
hereto with respect to the subject matter hereof and contain all of the
covenants and agreements between the parties with respect thereto. Any amendment
or modification of this Agreement shall be valid only if in writing and signed
by both parties hereto. Each party to this Agreement shall perform any and all
further acts and execute and deliver any and all documents and instruments that
may be reasonably necessary to carry out the provisions of this Agreement. This
Agreement may be executed by facsimile signature and in counterparts, each of
which shall constitute an original, but all of which shall constitute one and
the same document. This Agreement and the rights, interests and obligations
hereunder shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, personal representatives, successors and
assigns. If any provision of this Agreement is held to be void, illegal or
unenforceable under present or future laws effective during the term hereof,
such provision shall be fully severable and this Agreement shall be construed
and enforced as if such void, illegal or unenforceable provision never comprised
a part hereof, and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected in any way by the void, illegal
or unenforceable provision or by its severance. Furthermore, in lieu of such
severed provision, there shall be added automatically as part of this Agreement
a provision as similar in its terms to such severed provision as may be possible
and be valid, legal and enforceable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
DRILLERS, INC.
By:
Name:
Title:
Address:
10370 Richmond Ave., Suite 600
Houston, Texas 77042
WELLTECH EASTERN, INC.
By:
Name:
Title:
Address:
Two Tower Center, Tenth Floor
East Brunswick, NJ 08816
-1-
Asset Purchase Agreement
among
WellTech Eastern, Inc.
Shreve's Well Service, Inc.
and
William A. Shreve
April 18, 1997
-1-
Asset Purchase Agreement
This Asset Purchase Agreement (this "Agreement") is entered into as of April 18,
1997 among WellTech Eastern, Inc., a Delaware corporation ("Buyer"), Shreve's
Well Service, Inc., a ___________ corporation (the "Seller"), and William A.
Shreve , the sole shareholder of the Seller (the "Shareholder").
W I T N E S S E T H:
WHEREAS, the Seller desires to sell certain of its assets, and Buyer desires to
acquire such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
Article I
Purchase and Sale of Assets
I.1 Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer all those assets of the Seller which were appraised
and listed on that certain appraisal of Superior Auction Company dated March 5,
1997, a copy of which is attached hereto as Exhibit I.1 and incorporated by
reference, and Seller's phone numbers, customer and supplier lists and the
goodwill associated with Seller's well service business (all such assets being
sold hereunder are referred to collectively herein as the "Assets"):
Seller shall execute and deliver to Buyer a Bill of Sale and Assignment
conveying all of Seller's right, title and interest in the Assets to Buyer and
shall execute and deliver such other documents of assignment and conveyance as
are necessary to transfer ownership of the Assets to Buyer.
I.2 Consideration for Assets. As consideration for the sale of the Assets to
Buyer, the execution of those certain non-competition agreements provided herein
and for the other covenants and agreements of the Seller and the Shareholder
contained herein, Buyer agrees to pay to the Seller and Shareholder, on the date
hereof, the total sum of $550,000 as allocated on Schedule 3.3 in the form of a
cashier's check or bank check or wire transfer of immediately available funds to
an account or accounts designated by the Seller.
I.3 Liabilities. Buyer shall not assume any obligations of Seller or Shareholder
and Seller shall be responsible for any and all of its obligations including
without limitation those liabilities and obligations (i) arising from Seller's
employment of those employees of Seller listed on Schedule 3.2 hereto and (ii)
any and all of Seller's environmental obligations (the "Seller Liabilities").
Article II
Representations and Warranties
of the Seller and the Shareholder
II.1 Representations and Warranties of the Seller and the Shareholder. Each of
the Seller and the Shareholder jointly and severally represents and warrants to
Buyer as follows:
II.1.1. Organization and Good Standing. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state of
organization, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary.
II.1.2. Agreements Authorized and their Effect on Other Obligations. The
execution and delivery of this Agreement have been authorized by all necessary
corporate and shareholder action on the part of the Seller and the Shareholder,
and this Agreement is the valid and binding obligation of the Seller and the
Shareholder enforceable (subject to normal equitable principles) against each of
such parties in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, will not conflict with or result in a violation or breach
of any term or provision of, nor constitute a default under (i) the charter or
bylaws (or other organizational documents) of the Seller or the Shareholder,
(ii) any obligation, indenture, mortgage, deed of trust, lease, contract or
other agreement to which the Seller or the Shareholder is a party or by which
the Seller or the Shareholder or their respective properties are bound; or (iii)
any provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which the Seller or the
Shareholder or any of their respective properties are subject.
II.1.3. Contracts. There are no contracts in effect which relate to the Assets
and Buyer shall have the right to own and operate the Assets free from any
contractual obligations entered into by Seller or Shareholder. To the best of
their knowledge, neither the Seller nor the Shareholder has received any
information which would cause either of such parties to conclude that any
customer of the Seller will (or is likely to) cease doing business with the
Seller
II.1.4. Title to and Condition of Assets. The Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). Buyer has had the opportunity to inspect the Assets and neither
Seller nor Shareholder makes any warranty concerning the condition of said
Assets, the sale hereunder being AS IS, WHERE IS with respect to the condition
of the Assets. All of the Assets conform to all applicable laws governing their
use. No notice of any violation of any law, statute, ordinance, or regulation
relating to any of the Assets has been received by the Seller or the
Shareholder, except such as have been fully complied with. The term
"Encumbrances" means all liens, security interests, pledges, mortgages, deeds of
trust, claims, rights of first refusal, options, charges, restrictions or
conditions to transfer or assignment, liabilities, obligations, privileges,
equities, easements, rights of way, limitations, reservations, restrictions, and
other encumbrances of any kind or nature.
II.1.5. Licenses and Permits. There are no licenses or permits necessary under
law or otherwise for the operation, maintenance and use of the Assets in the
manner in which they are now being operated, maintained and used.
II.1.6. Financial Statements. The Seller has delivered to Buyer copies of
certain unaudited financial statements of Seller, copies of which are attached
hereto as Schedule 2.1.7 (collectively, the "Seller Financial Statements") and
include an unaudited balance sheet (the Unaudited Balance Sheet") as of December
31, 1996 (the "Balance Sheet Date"). The Seller Financial Statements are true,
correct and complete in all material respects and present fairly and fully the
financial condition of the Seller as at the dates and for the periods indicated
thereon, and have been prepared in accordance with generally accepted accounting
principles as promulgated by the American Institute of Certified Public
Accountants ("GAAP") applied on a consistent basis, except as noted therein.
Each of the Seller Financial Statements include all adjustments which are
necessary for a fair presentation of the applicable Seller's results for that
period. The inventories of the Seller reflected in the Unaudited Balance Sheet,
or which have thereafter been acquired by the Seller, consist of items of a
quality and quantity salable in the normal course of the applicable Business.
The values at which such inventories are carried are in accordance with GAAP
applied on a consistent basis, and are consistent with the normal inventory
level and practices of the Seller with respect to the Business.
II.1.7. Absence of Certain Changes and Events. Other than as a result of the
transactions contemplated by this Agreement, since the Balance Sheet Date, there
has not been:
(a) Financial Change. Any adverse change in the Assets or the financial
condition, operations, liabilities or prospects of the Seller;
(b) Property Damage. Any damage, destruction, or loss to any of the Assets
(whether or not covered by insurance);
(c) Waiver. Any waiver or release of a material right of or claim held by the
Seller;
(d) Change in Assets. Any acquisition, disposition, transfer, encumbrance,
mortgage, pledge or other encumbrance of any asset of the Seller other than in
the ordinary course of business;
(e) Labor Disputes. Any labor disputes between the Seller and its employees; or
(f) Other Changes. Any other event or condition known to the Seller or the
Shareholder that particularly pertains to and has or might have an adverse
effect on the Assets or the financial condition or prospects of the Seller.
II.1.8. Necessary Consents. The Seller has obtained and delivered to Buyer all
consents to assignment or waivers thereof required to be obtained from any
governmental authority or from any other third party in order to validly
transfer the Assets hereunder, including, without limitation, any consents
required to assign the Contracts or the Seller Permits.
II.1.9. Environmental Matters. None of the current or past operations of the
Assets is being or has been conducted or used in such a manner as to constitute
a violation of any Applicable Environmental Laws (defined below). Neither the
Seller nor the Shareholder has received any notice (whether formal or informal,
written or oral) from any entity, governmental agency or individual regarding
any existing, pending or threatened investigation or inquiry related to
violations of any Applicable Environmental Laws or regarding any claims for
remedial obligations or contribution for removal costs or damages under any
Applicable Environmental Laws. There are no writs, injunction decrees, orders or
judgments outstanding, or lawsuits, claims, proceedings or investigations
pending or, to the knowledge of the Seller or the Shareholder, threatened
relating to the ownership, use, maintenance or operation of the Assets nor, to
the knowledge of the Seller or the Shareholder, is there any basis for any of
the foregoing. Buyer is not required to obtain any permits, licenses or similar
authorizations pursuant to any Applicable Environmental Laws in effect as of the
date hereof to operate and use any of the Assets for their current or proposed
purposes and uses. To the knowledge of either the Seller or the Shareholder, the
Assets include all environmental and pollution control equipment necessary for
compliance with all Applicable Environmental Laws. No Hazardous Materials
(defined below) have been or are currently being used by the Seller in the
operation of the Assets. No Hazardous Materials are or have ever been
incorporated into any of the Assets. The term "Applicable Environmental Laws"
means any applicable federal, state or local law, statute, ordinance, rule,
regulation, order or notice requirement pertaining to human health, the
environment, or to the storage, treatment, discharge, release or disposal of
hazardous wastes or hazardous substances, including, without limitation (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. ss.ss.9601 et seq.), as amended from time to time, including, without
limitation, as amended pursuant to the Superfund Amendments and Reauthorization
Act of 1986 ("CERCLA"), and regulations promulgated thereunder, (ii) the
Resources Conservation and Recovery Act of 1976 (42 U.S.C. ss.ss.6901 et seq.),
as amended from time to time ("RCRA"), and regulations promulgated thereunder,
(iii) the Federal Water Pollution Control Act (U.S.C.A. ss.9601 et seq.), as
amended, and regulations promulgated thereunder, and (iv) any applicable state
laws or regulations relating to the environment. The term "Hazardous Materials"
means (x) asbestos, polychlorinated biphenyls, urea formaldehyde, lead based
paint, radon gas, petroleum, oil, solid waste, pollutants and contaminants, and
(y) any chemicals, materials, wastes or substances that are defined, regulated,
determined or identified as toxic or hazardous in any Applicable Environmental
Laws, including, but not limited to, substances defined as "hazardous
substances," "hazardous materials," or "hazardous waste" in CERCLA, RCRA, the
Hazardous Materials Transportation Act (49 U.S.C. ss. 1801, et seq.), or
comparable state and local statutes or in the regulations adopted and
publications promulgated pursuant to said statutes.
II.1.10. No ERISA Plans or Labor Issues. No employee benefit plan of the Seller,
whether or not subject to any provisions of the Employee Retirement Income
Security Act of 1974, as amended, will by its terms or applicable law, become
binding upon or an obligation of Buyer. The Seller has not engaged in any unfair
labor practices which could reasonably be expected to result in a material
adverse effect on the Assets. The Seller does not have any dispute with any of
its existing or former employees, and there are no labor disputes or, to the
knowledge of the Seller or the Shareholder, any disputes threatened by current
or former employees of any of the Seller.
II.1.11. Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Seller or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of the Seller or
the Shareholder, threatened, nor has any governmental entity indicated to either
the Seller or the Shareholder an intention to conduct the same. There is no
suit, action, or legal, administrative, arbitration, or other proceeding or
governmental investigation pending to which either the Seller or the Shareholder
is a party or, to the knowledge of either the Seller or the Shareholder, might
become a party or which particularly affects the Assets.
II.1.12. Absence of Certain Business Practices. Neither the Seller, nor any
officer of the Seller, nor to the best of Seller's knowledge, employee or agent
of the Seller, or any other person acting on behalf of any of the Seller, have,
directly or indirectly, within the past five years, given or agreed to give any
gift or similar benefit to any customer, supplier, government employee or other
person who is or may be in a position to help or hinder the profitable use of
the Assets (or to assist the Seller in connection with any actual or proposed
transaction) which if not given in the past, might have had a material adverse
effect on the profitable use of the Assets, or if not continued in the future,
might materially adversely affect the profitable use of the Assets.
II.1.13. Solvency. The Seller is not presently insolvent, nor will the Seller be
rendered insolvent by the occurrence of the transactions contemplated by this
Agreement. The term "insolvent", with respect to a particular Seller, means that
the sum of the present fair and saleable value of such Seller's assets does not
and will not exceed its debts and other probable liabilities, and the term
"debts" includes any legal liability whether matured or unmatured, liquidated or
unliquidated, absolute fixed or contingent, disputed or undisputed or secured or
unsecured.
II.1.14. Untrue Statements. This Agreement and all other agreements executed by
the Seller or the Shareholder and delivered to Buyer does not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Seller has also
made available to Buyer true, complete and correct copies of all lists of
suppliers and customers, and records relating to the Assets, and such
information covers all commitments and liabilities of Buyer relating principally
to the Assets.
II.1.15. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Seller, the
Shareholder and their counsel directly with Buyer and its counsel, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or any similar payment.
Article III
Additional Agreements
III.1 Noncompetition. Except as otherwise consented to or approved in writing by
Buyer, each of the Seller and the Shareholder agree that for a period of 60
months following the date hereof, such party will not, directly or indirectly,
acting alone or as a member of a partnership or a holder of, or investor in as
much as 5% of any security of any class of any corporation or other business
entity (i) engage in any business in competition with the business or businesses
conducted by the Seller on the date hereof or by Buyer (or Buyer's affiliates)
on the date hereof, or in any service business the services of which are
provided and marketed by the Seller on the date hereof or by Buyer (or Buyer's
affiliates) on the date hereof in the following states: West Virginia, Virginia,
Kentucky, Ohio, Pennsylvania, New York, Maryland and Indiana (the
"Non-Competition Territory"); (ii) request any present customers or suppliers of
the Seller to curtail or cancel their business with Buyer; (iii) disclose to any
person, firm or corporation any trade, technical or technological secrets of
Buyer (or Buyer's affiliates) or of the Seller or any details of their
organization or business affairs or (iv) induce or actively attempt to influence
any employee of Buyer (or Buyer's affiliates) to terminate his employment. Buyer
acknowledges that Seller owns oil and gas wells and is engaged in the production
of oil and gas therefrom. Nothing contained herein shall be construed to
prohibit Seller or Shareholder from continuing to engage in said oil and gas
production within the Non-Competition Territory and from servicing only such oil
and gas wells owned by Seller or Shareholder; provided however that Seller and
Shareholder agree that any equipment acquired or leased by Seller or Shareholder
for the purpose of servicing Seller or Shareholder's oil and gas wells shall be
used exclusively for the purpose of servicing Seller or Shareholder's wells and
not for wells owned by others or for compensation. Each of the Seller and the
Shareholder agree that if either the length of time or geographical area as set
forth in this Section 3.1 is deemed too restrictive in any court proceeding, the
court may reduce such restrictions to those which it deems reasonable under the
circumstances. The obligations expressed in this Section 3.1 are in addition to
any other obligations that the Seller and the Shareholder may have under the
laws of any state requiring a corporation selling its assets (and the
shareholders of such corporation) to limit its activities so that the goodwill
and business relations being transferred with such assets will not be materially
impaired. Each of the Seller and the Shareholder further agree and acknowledge
that Buyer does not have any adequate remedy at law for the breach or threatened
breach by the Seller or the Shareholder of the covenants contained in this
Section 3.1, and agree that Buyer may, in addition to the other remedies which
may be available to it hereunder, file a suit in equity to enjoin the Seller or
the Shareholder from such breach or threatened breach. If any provisions of this
Section 3.1 are held to be invalid or against public policy, the remaining
provisions shall not be affected thereby. Each of the Seller and the Shareholder
acknowledges that the covenants set forth in this Section 3.1 are being executed
and delivered by such party in consideration of the covenants of Buyer contained
in this Agreement, and for other good and valuable consideration, the receipt of
which is hereby acknowledged.
III.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing
of all employees of the Seller that devote their full time and effort in the
operation of the Assets and the conduct of the Business (the "Employees").
Effective as of the date hereof, all of the Employees shall be terminated by the
Seller and, subject to such Employees meeting Buyer's standard employment
eligibility requirements, hired by Buyer. Buyer shall have no liability or
obligation with respect to any employee benefits of any Employee except those
benefits that accrue pursuant to such Employees' employment with Buyer on or
after the date hereof. Each of the Seller and the Shareholder shall cooperate
with Buyer in connection with any offer of employment from Buyer to the
employees and use its best efforts to cause the acceptance of any and all such
offers. All Employees hired by Buyer shall be at-will employees of Buyer.
III.3 Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on Schedule
3.3 hereto, and shall report this transaction for federal income tax purposes in
accordance with the allocation so agreed upon. The parties hereto for themselves
and for their respective successors and assigns covenant and agree that they
will file coordinating Form 8594's in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
III.4 Additional Non-Competition Agreements. The parties acknowledge that Seller
intends to give certain consideration to each of the following persons from the
consideration received from Buyer: Timothy Wilson, Thomas Wilson, William Shreve
II, Christopher Shreve and Kevin Shreve. Buyer's obligations hereunder are
expressly conditioned upon the execution of those certain Non-Competition
Agreements between Buyer and Timothy Wilson, Thomas Wilson, William Shreve II,
Christopher Shreve and Kevin Shreve and Seller and Shareholder agree that they
shall deliver to Buyer within 30 days hereof executed Non-Competition Agreements
between Buyer and each of the individuals named in this Section III.4.
III.5 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
Article IV
Indemnification
IV.1 Indemnification by the Seller and the Shareholder. In addition to any other
remedies available to Buyer under this Agreement, or at law or in equity, each
of the Seller and the Shareholder shall, jointly and severally, indemnify,
defend and hold harmless Buyer and its officers, directors, employees, agents
and stockholders, against and with respect to any and all claims, costs,
damages, losses, expenses, obligations, liabilities, recoveries, suits, causes
of action and deficiencies, including interest, penalties and reasonable
attorneys' fees and expenses (collectively, the "Damages") that such indemnitee
shall incur or suffer, which arise, result from or relate to (i) any breach of,
or failure by either the Seller or the Shareholder to perform, their respective
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to
Buyer by the Seller or the Shareholder under this Agreement; and (ii) the Seller
Liabilities.
IV.2 Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 4.1 of this
Agreement, such indemnified party shall give written notice to the indemnifying
party, specifying such claim, and may thereafter exercise any remedies available
to such party under this Agreement; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the indemnifying
party is not materially prejudiced thereby. Further, promptly after receipt by
an indemnified party hereunder of written notice of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Article 4, such indemnified party shall, if a claim in
respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
Article V
Miscellaneous
V.1 Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive without
limitation despite any investigation made by any party hereto or on its behalf.
V.2 Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
V.3 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
If to Buyer
Addressed to: With a copy to:
WellTech Eastern, Inc. Porter & Hedges, L.L.P.
Two Tower Center, Tenth Floor 700 Louisiana
East Brunswick, New Jersey 08816 Houston, Texas 77210-4744
Attn: General Counsel Attention: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
If to the Seller or the Shareholder
Addressed to:
William A. Shreve
Route 3, Box 164
Spencer, West Virginia 25276
Facsimile: (304) 927-2245
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
V.5 Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
V.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
V.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
V.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of West Virginia.
IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
BUYER:
WELLTECH EASTERN, INC.
By:
Name: Kenneth C. Hill
Title: Vice-President
SELLER:
SHREVE'S WELL SERVICE, INC.
By:
Name:
Title:
SHAREHOLDER:
---------------------------------
William A. Shreve
-1-
SCHEDULE 3.3
ALLOCATION OF PURCHASE PRICE
Equipment $300,000 - Shreve Well Service, Inc.
Covenant Not to Compete $250,000 - William A. Shreve
-1-
ASSET PURCHASE AGREEMENT
AMONG
WELLTECH EASTERN, INC.
PETRO-EQUIPMENT, INC.
AND
DONALD E. CLARK
May 1, 1997
-1-
Asset Purchase Agreement
This Asset Purchase Agreement (this "Agreement") is entered into as of May 1,
1997 among WellTech Eastern, Inc., a Delaware corporation ("Buyer"),
Petro-Equipment, Inc., a West Virginia corporation, and Donald E. Clark,
(collectively "Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers desire to sell certain assets to Buyer, and Buyer desires
to acquire certain assets from Sellers.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
Article I
Purchase and Sale of Assets
I.1 Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Sellers hereby agree to sell, convey, transfer,
assign and deliver to Buyer all of the assets more particularly described on
Schedule I.1 hereof (all such assets being sold hereunder are referred to
collectively herein as the "Assets"):
Sellers shall execute and deliver to Buyer Bills of Sale and Assignment
conveying all of Sellers' respective right, title and interest in the Assets to
Buyer and shall execute and deliver such other documents of assignment and
conveyance as are necessary to transfer ownership of the Assets to Buyer.
I.2 Consideration for Assets. As consideration for the sale of the Assets to
Buyer, the execution of those certain non-competition agreements provided herein
and for the other covenants and agreements of the Sellers contained herein,
Buyer agrees to pay to Sellers, on the date hereof, the total sum of $
500,000.00 in the form of a cashier's check or bank check or wire transfer of
immediately available funds to an account or accounts designated by the Sellers.
Sellers acknowledge and agree that the consideration paid hereunder shall be
allocated and paid as follows: Buyer shall pay Petro-Equipment, Inc. the sum of
$253,757.00 and Buyer shall pay Donald E. Clark the sum of $246,243.00. In
addition, in consideration for the sale of the Assets, Buyer agrees to pay J & D
Rentals the sum of $17,500.00, representing the accrued and unpaid rentals due J
& D Rentals from Young Wireline Service, Inc. The parties agree that all sums
paid hereunder totaling $517,500 shall be defined as and constitute the
"Purchase Price."
1.3 Closing. The Closing for the sale of the Assets and other transactions
contemplated herein shall occur on May 1, 1997 at 10:00 a.m. at the offices of
Goodwin & Goodwin, LLP, 1500 One Valley Square, Charleston, West Virginia or at
such other time and place as is mutually agreed to by the parties.
Article II
Representations and Warranties
of the Sellers
II.1 Representations and Warranties of the Sellers. Each of the Sellers jointly
and severally represents and warrants to Buyer as follows:
II.1.1. Organization and Good Standing. Petro-Equipment, Inc. is a corporation
duly organized, validly existing and in good standing under the laws of its
state of organization, has full requisite corporate power and authority to carry
on its business as it is currently conducted, and to own and operate the
properties currently owned and operated by it.
II.1.2. Agreements Authorized and their Effect on Other Obligations. The
execution and delivery of this Agreement have been authorized by all necessary
corporate and shareholder action on the part of the Sellers, and this Agreement
is the valid and binding obligation of the Sellers enforceable (subject to
normal equitable principles) against each of such parties in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, will not conflict with or
result in a violation or breach of any term or provision of, nor constitute a
default under (i) the charter or bylaws (or other organizational documents) of
the Sellers, (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which one or both of the Sellers may be a party
or by which the Sellers or their respective properties are bound; or (iii) any
provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which the Sellers or any
of their respective properties are subject.
II.1.3. Title to and Condition of Assets. The Sellers have good, indefeasible
and marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). Buyer has had the opportunity to inspect the Assets and Sellers
make no warranty concerning the condition of said Assets, the sale hereunder
being AS IS, WHERE IS with respect to the condition of the Assets. No notice of
any violation of any law, statute, ordinance, or regulation relating to any of
the Assets has been received by the Sellers, except such as have been fully
complied with. The term "Encumbrances" means all liens, security interests,
pledges, mortgages, deeds of trust, claims, rights of first refusal, options,
charges, restrictions or conditions to transfer or assignment, liabilities,
obligations, privileges, equities, easements, rights of way, limitations,
reservations, restrictions, and other encumbrances of any kind or nature.
II.1.4. Legal Right to Convey. The Sellers have acquired the Assets in
accordance with all applicable laws and have the legal right to convey the
Assets to Buyer and no other person or entity has or will have any claim to the
Assets nor has or will have the right to void the transfers and conveyances
hereunder for any reason including any proceeding commenced under the laws of
any state or the United States Bankruptcy Code. The transactions contemplated
hereby are not and will not become subject to any valid and enforceable claims
of any third party, including any claims of a bankruptcy trustee. Sellers have
not received notice of any pending or threatened claim by any person or entity
to the Assets. At Closing, Buyer shall have the absolute right to the quiet
possession and use of the Assets.
II.1.5. Necessary Consents. The Sellers have obtained and delivered to Buyer all
consents to assignment or waivers thereof required to be obtained from any
governmental authority or from any other third party in order to validly
transfer the Assets hereunder.
II.1.6. Investigations; Litigation. There is no suit, action, or legal,
administrative, arbitration, or other proceeding or governmental investigation
pending to which either of the Sellers is a party or, to the knowledge of either
the Sellers, might become a party or which particularly affects the Assets.
II.1.7. Solvency. Neither Seller is presently insolvent, nor will either Seller
be rendered insolvent by the occurrence of the transactions contemplated by this
Agreement. The term "insolvent", with respect to a particular Seller, means that
the sum of the present fair and saleable value of such Seller's assets does not
and will not exceed its debts and other probable liabilities, and the term
"debts" includes any legal liability whether matured or unmatured, liquidated or
unliquidated, absolute fixed or contingent, disputed or undisputed or secured or
unsecured.
II.1.8. Untrue Statements. To the best of Sellers' knowledge, this Agreement and
all other agreements executed by the Sellers and delivered to Buyer does not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that Sellers acknowledge and agree that their representations and
warranties in Sections II.1.3 and II.1.4 are absolute and unqualified. The
Sellers have also made available to Buyer true, complete and correct copies of
all contracts, documents concerning all litigation and administrative
proceedings, licenses, permits, insurance policies, and records relating
principally to the Assets, and such information covers all commitments and
liabilities of Buyer relating principally to the Assets.
II.1.9. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Sellers and their
counsel directly with Buyer and its counsel, without the intervention of any
other person in such manner as to give rise to any valid claim against any of
the parties hereto for a brokerage commission, finder's fee or any similar
payment.
II.2 Reliance. Sellers expressly agree and acknowledge that Buyer is relying
upon Sellers' representations and warranties contained herein, that said
representations and warranties are material and that absent such representations
and warranties that Buyer would not enter into this Asset Purchase Agreement and
the transactions contemplated herein.
Article III
Additional Agreements
III.1 Noncompetition. Except as otherwise consented to or approved in writing by
Buyer, each of the Sellers and William Patrick Burr agree that for a period of
60 months following the date hereof, such party will not, directly or
indirectly, acting alone or as a member of a partnership or a holder of, or
investor in as much as 5% of any security of any class of any corporation or
other business entity (i) engage in any business providing logging, perforating
or electric wireline services or own, operate or lease a complete service truck
for use in the well service or wireline service business in West Virginia,
Virginia, Kentucky, Ohio, Pennsylvania, New York, Maryland and Indiana (the
"Non-Competition Territory"); (ii) request any present customers or suppliers of
Young Wireline Services, Inc. or customers or suppliers of the Sellers to
curtail or cancel their business with Buyer; (iii) disclose to any person, firm
or corporation any trade, technical or technological secrets of Buyer (or
Buyer's affiliates) or of the Sellers or any details of their organization or
business affairs or (iv) induce or actively attempt to influence any employee of
Buyer (or Buyer's affiliates) to terminate his employment; provided, however,
that nothing contained herein shall be construed to prevent Sellers from owning
Superior Micro System and continuing to operate Superior Micro System in the
businesses in which it is operated as of the date hereof, nor shall Sellers be
prevented from leasing a complete full service truck to a competitor of Buyer
who has been in existence for at least five years prior to the date hereof for a
lease term not to exceed ninety (90) days, which lease term cannot be extended
or renewed, provided such business is not owned by any former employee of
Hitwell Surveys, Inc., Young Wireline Service, Inc., or Titan Surveys. Each of
the Sellers and William Patrick Burr agrees that if either the length of time or
geographical area as set forth in this Section III.1 is deemed too restrictive
in any court proceeding, the court may reduce such restrictions to those which
it deems reasonable under the circumstances. Each of the Sellers and William
Patrick Burr further agrees and acknowledges that Buyer does not have any
adequate remedy at law for the breach or threatened breach by the Sellers or
William Patrick Burr of the covenants contained in this Section III.1, and agree
that Buyer may, in addition to the other remedies which may be available to it
hereunder, file a suit in equity to enjoin the Sellers or William Patrick Burr
from such breach or threatened breach. If any provisions of this Section III.1
are held to be invalid or against public policy, the remaining provisions shall
not be affected thereby. Each of the Sellers and William Patrick Burr
acknowledges that the covenants set forth in this Section III.1 are being
executed and delivered by such party in consideration of the covenants of Buyer
contained in this Agreement, and for other good and valuable consideration, the
receipt of which is hereby acknowledged.
III.2 Lease of Shop. Sellers agree that they will cause J & D Rentals to extend
the lease between J & D Rentals and Young Wireline Services, Inc. for that
certain facility located at Old Rte 33 East, Buckhannon, West Virginia, for a
period of thirty days upon receipt of $1,500.00. During such extension J & D
Rentals shall grant Buyer the right to use such premises, to store any of the
Assets purchased hereunder and to conduct such environmental investigations or
assessment as Buyer deems necessary. If, in Buyer's sole discretion, such
environmental reports are satisfactory, then Buyer and J & D Rentals shall enter
into a lease for such premises in the form attached hereto as Exhibit III.2.
III.3 Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on Schedule
III.3 hereto, and shall report this transaction for federal income tax purposes
in accordance with the allocation so agreed upon. The parties hereto for
themselves and for their respective successors and assigns covenant and agree
that they will file coordinating Form 8594's in accordance with Section 1060 of
the Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
III.4 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby, including but not limited to
certificates of title to any of the Assets which were not delivered at Closing.
Article IV
Indemnification
IV.1 Indemnification by the Sellers. In addition to any other remedies available
to Buyer under this Agreement, or at law or in equity, each of the Sellers
shall, jointly and severally, indemnify, defend and hold harmless Buyer and its
officers, directors, employees, agents and stockholders, against and with
respect to any and all claims, costs, damages, losses, expenses, obligations,
liabilities, recoveries, suits, causes of action and deficiencies, including
interest, penalties and reasonable attorneys' fees and expenses (collectively,
the "Damages") that such indemnitee shall incur or suffer, which arise, result
from or relate to any breach of, or failure by either of the Sellers to perform,
their respective representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to Buyer by the Sellers under this Agreement; provided, however,
that such indemnity, including claims for breach of warranty of title to the
Assets, shall not exceed the Purchase Price. Donald E. Clark ("Clark") expressly
assumes and agrees to indemnify Buyer for any claim for Damages asserted by
Buyer hereunder against Clark or against Petro-Equipment, Inc.. Clark further
agrees that Buyer may assert any claim for indemnity against Petro-Equipment,
Inc. directly against Clark without first asserting or exhausting any remedies,
it may have against Petro-Equipment, Inc., provided that Clark's Indemnity,
including claims for breach of warranty of title to the Assets shall not exceed
the Purchase Price.
IV.2 Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section IV.1 of this
Agreement, such indemnified party shall give written notice to the indemnifying
party, specifying such claim, and may thereafter exercise any remedies available
to such party under this Agreement; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the indemnifying
party is not materially prejudiced thereby. Further, promptly after receipt by
an indemnified party hereunder of written notice of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Article IV, such indemnified party shall, if a claim in
respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
Article V
Miscellaneous
V.1 Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive without
limitation despite any investigation made by any party hereto or on its behalf.
V.2 Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
V.3 Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
V.4 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
If to Buyer
Addressed to: With a copy to:
WellTech Eastern, Inc. Porter & Hedges, L.L.P.
Two Tower Center, Tenth Floor 700 Louisiana
East Brunswick, New Jersey 08816 Houston, Texas 77210-4744
Attn: General Counsel Attention: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
If to the Sellers
Addressed to: With a copy to:
Donald E. Clark Robert J. Wallace, Esq.
P. O. Box 2010 Coleman & Wallace
Port Charlotte, FL 33949 11 North Kanawha St.
Facsimile: (941) 743-8873 Buckhannon, WV 26201
Facsimile: (304) 472-4704
Petro-Equipment, Inc.
P. O. Box 996
Buckhannon, WV 26201
William Patrick Burr
P. O. Box 123
Buckhannon, WV 26201
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
V.5 Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
V.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
V.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
V.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of West Virginia.
IN WITNESS WHEREOF, Donald E. Clark has executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
BUYER:
WELLTECH EASTERN, INC.
By:
Name:
Title:
SELLERS:
PETRO-EQUIPMENT, INC.
By:
Name: William Patrick Burr
Title: President
-----------------------------------
Donald Clark
IN WITNESS WHEREOF, William Patrick Burr has executed this Agreement, solely
with respect to the agreements contained in Section III.1, hereof, as of the day
and year first above written.
---------------------------------
William Patrick Burr
SECOND RESTATED LOAN AGREEMENT
THIS SECOND RESTATED LOAN AGREEMENT (this "Agreement") is entered into as of the
31st day of January 1997, by and between ODESSA EXPLORATION INCORPORATED, whose
address is 6010 Highway 191, Suite 210, Odessa, Texas 79762 (referred to herein
as the "Borrower"); and NORWEST BANK TEXAS, N.A., a national banking
association, formerly known as Norwest Bank Texas, Midland, N. A., whose address
is 500 West Texas Avenue, Midland, Texas 79701 (referred to herein as "Lender").
NOTICE IS TAKEN OF THE FOLLOWING:
A. Borrower, Lender, and Key Energy Group, Inc., a Maryland corporation and the
sole stockholder of Borrower (the "Guarantor") have previously entered into that
certain First Restated Loan Agreement, dated April 29, 1996 (the "First Restated
Loan Agreement"). Under the First Restated Loan Agreement, the parties thereto
amended and restated a Loan Agreement, dated March 30, 1995 (referred to herein
as the "Original Loan Agreement"), as amended under a First Amendment to Loan
Agreement, dated July 28, 1995 (referred to herein as the "First Amendment"); as
further amended under a Second Amendment to Loan Agreement dated September 25,
1995 (referred to herein as the "Second Amendment"); as further amended under a
Third Amendment to Loan Agreement, dated February 12, 1996 (referred to herein
as the "Third Amendment"); and as further amended under a Fourth Amendment to
Loan Agreement, dated April 18, 1996 (referred to herein as the "Fourth
Amendment")(the First Restated Loan Agreement and the Original Loan Agreement,
as amended under the First, Second, Third, and Fourth Amendments being
collectively referred to herein as the "Loan Agreement").
B. Under the terms of the Loan Agreement, Borrower has previously borrowed funds
for oil and gas acquisitions and drilling and development programs, and for
refinancing of prior indebtedness from NationsBank of Texas, N.A. ("Prior
Lender") to Borrower.
C. Borrower has requested that Lender provide Borrower with an increased loan
facility for purposes of the acquisition of oil and gas properties and the
execution and maintenance of oil and gas drilling and development programs, and
Lender is willing to provide such a facility to Borrower upon the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained and other good and valuable consideration, it is hereby agreed between
Lender and Borrower as follows:
ARTICLE I
DEFINITIONS
1.1 - Certain Defined Terms . For the purposes of this Agreement, the following
terms shall have the respective meanings assigned to them in this section or in
the section or recital referred to below:
"Advance" means any disbursement to or on behalf of Borrower under any of the
Loan Papers, including, without limitation, all amounts advanced under the Note.
"Agreement" is defined in the preamble.
"Applicable Margin" shall mean:
(a) For Base Rate Loans: 0.00 percentage points; and
(b) For LIBOR Rate Loans: 2.75 percentage points.
"Bank Liens" means Liens in favor of Lender, securing all or any portion of the
Obligation, including, without limitation, Rights in any of the Collateral
created in favor of Lender, whether by mortgage, pledge, hypothecation,
assignment, transfer or other granting or creation of Liens.
"Base Rate" means that rate of interest established from time to time, and
denominated as such, by Norwest Bank Texas, N. A. In this connection, Borrower
recognizes and acknowledges that Lender may, from time to time, extend credit to
its customers at rates of interest varying from, and having no relationship to,
its then established Base Rate.
"Base Rate Loan" shall mean a Loan that bears interest based upon the Base Rate.
"Borrower" is defined in the preamble.
"Borrowing Base" is defined in Section 3.1.
"Borrowing Base Reduction Amounts" shall mean that amount by which the Lender,
acting in its sole discretion but in accordance with the standards set forth in
Section 3.3 hereinbelow, reduces the Borrowing Base on a monthly basis.
"Business Day" means every day (other than Saturday or Sunday) on which Lender
is open to the public generally for the transaction of banking business.
"Collateral" is defined in Article V.
"Commitment" shall mean the lesser of the Borrowing Base, as determined from
time to time by Lender in accordance with terms hereof or the sum of Twenty
Million Dollars ($20,000,000.00).
"Debt" means, as to any person, all liabilities, obligations, and indebtedness
to any person, of any kind or nature, now or hereafter owing, arising, due or
payable, howsoever evidenced, created, incurred, acquired or owing, whether
primary, secondary, direct, contingent, fixed, or otherwise.
"Deed of Trust" means one or more mortgages, deeds of trust, assignments of
production and security agreements and financing statements, as amended from
time to time, in favor of Lender encumbering every interest of Borrower in every
oil and gas property now owned or hereafter acquired by Borrower and selected by
Lender to be encumbered as security for the Obligation, including, without
limitation, any such property consisting of royalty interests, overriding
royalty interests, working interests and/or reversionary rights relating to
either developed or undeveloped leasehold acreage, it being specifically
recognized that if any such interest selected is in a state where a mortgage,
deed of trust, assignment of production and security agreement or financing
statement is, or may be, ineffective, a document appropriate for use in that
state shall be required.
"Determination Date" is defined in paragraph (b) of Section 4.3 hereinbelow.
"ERISA" is defined in Section 8.10.
"Eurocurrency Liabilities" has the meaning specified in Regulation D of the
Board of Governors of the Federal Reserve System, as in effect from time to
time.
"Eurocurrency Reserve Percentage" shall mean, for any Interest Period, the
reserve percentage applicable two Business Days before the first day of such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental, or other marginal reserve requirement) for Lender with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities (or
with respect to any other category of liabilities that includes deposits by
reference to which the interest rate on LIBOR Rate Loans is determined) having a
term equal to such Interest Period.
"Event of Default" is defined in Section 10.1.
"First Amendment" is defined in the preamble.
"Fourth Amendment" is defined in the preamble.
"GAAP" refers to generally accepted accounting principles consistently applied.
"Guarantor" is defined in the preamble.
"Highest Lawful Rate" means the maximum nonusurious rate of interest (or, if the
context so requires, an amount calculated at such rate) that Lender is allowed
to contract for, charge, take, reserve or receive under applicable law after
taking into account, to the extent required by applicable law, any and all
relevant payments or charges under the Loan Papers.
"Initial Advance" shall mean the first Advance to be made by Lender to Borrower
pursuant to the terms of the Note and this Agreement.
"Interest Payment Date" means, with the respect to a LIBOR Rate Loan, the last
day of each Interest Period applicable to such Loan and, with respect to a Base
Rate Loan, the last day of each month; provided that, if any Interest Period for
a LIBOR Rate Loan exceeds three months, the date that falls three months after
the beginning of such Interest Period shall also be an Interest Payment Date.
"Interest Period" means, with respect to any LIBOR Rate Loan, the period
commencing on the Business Day the Loan is disbursed or continued or on the
Conversion Date on which the Loan is converted to the LIBOR Rate Loan and ending
on the date one, two, or three months thereafter, as selected by Borrower in its
Request for Advance or Notice of Conversion/Continuation; provided that:
(a) If any Interest Period would otherwise end on a day that is not a Business
Day, that Interest Period shall be extended to the next succeeding Business Day
unless the result of such extension would be carry such Interest Period into
another calendar month, in which event such Interest Period shall end on the
immediately preceding Business Day;
(b) Any Interest Period that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last Business Day of
the calendar month at the end of such Interest Period; and
(c) No Interest Period may be selected by Borrower that would extend beyond the
final maturity date under the Note.
"Investments" is defined in Section 9.4.
"Lender" is defined in the preamble.
"LIBOR Rate" shall mean, for any Interest Period, an interest rate per annum
(rounded up to the nearest one-sixteenth of one percent) equal to the rate per
annum obtained by dividing (i) the rate per annum at which deposits in United
States Dollars are offered by funding sources acceptable to Lender to lending
banks in the London interbank market at 11:00 A. M. (London time) two Business
Days before the first day of such Interest Period in an amount substantially
equal to the amounts of the applicable LIBOR Rate Loan and for a period equal to
such Interest Period by (ii) a percentage equal to 100 percent minus the
Eurodollar Reserve Percentage for such Interest Period. The LIBOR Rate for each
Interest Period shall be determined by Lender two Business Days before the first
day of such Interest Period.
"Lien" means any lien, mortgage, security interest, charge, or encumbrance of
any kind, including, without limitation, the Rights of a vendor, lessor, or
similar party under any conditional sales agreement or other title retention
agreement or lease substantially equivalent thereto, any production payment, any
other Right of, or arrangement with, any creditor to have his claim satisfied
out of any property or assets, or the proceeds therefrom, prior to the general
creditors of the owner thereof.
"Loan" is defined in Section 2.1.
"Loan Agreement" is defined in the preamble.
"Loan Papers" means (i) this Agreement, (ii) the Loan Agreement, (iii) any and
all notes, mortgages, deeds of trust, security agreements, financing statements,
and other agreements, documents, certificates, letters and instruments ever
delivered or executed pursuant to, or in connection with, this Agreement or the
Loan Agreement, as any of the same may hereafter be amended, supplemented or
restated (including, without limitation, the Prior Notes and the Note), and (iv)
any and all future renewals and extensions or restatements of, or amendments or
supplements to, all or any part of the foregoing.
"Material Adverse Change" means any set of circumstances or events which (i)
will or could reasonably be expected to have any significant adverse effect upon
the validity, performance, or enforceability of any Loan Paper, (ii) is or could
reasonably be expected to be material and adverse to the financial condition or
business operations of Borrower, (iii) will or could reasonably be expected to
impair the ability of Borrower to fulfill its obligations under the terms and
conditions of the Loan Papers, or (iv) will or could reasonably be expected to
cause an Event of Default.
"Material Agreement" of any person means any material written or oral agreement,
contract, commitment, or understanding to which such person is a party, by which
such person is directly or indirectly bound, or to which any assets of such
person may be subject, which is not cancelable by such person upon 30 days or
less notice without liability for further payment other than nominal penalty.
"Mineral Interests" means Rights, estates, titles, and interests in and to oil,
gas, sulphur, or other mineral (or any combination thereof) leases (and all
extensions, amendments, ratifications, and subleases thereof or thereunder) and
any mineral interests, royalty and overriding royalty interests, working
interests, production payment and net profits interests, mineral fee interests,
and Rights therein, including, without limitation, any reversionary or carried
interests relating to the foregoing, together with Rights, titles, and interests
created by or arising under the terms of any unitization, communitization, and
pooling agreements or arrangements, and all properties, Rights, and interests
covered thereby, whether arising by contract, by order, or by operation of law,
which now or hereafter include all or any part of the foregoing.
"Mortgaged Properties" shall mean those Mineral Interests covered by the Deed of
Trust.
"Net Revenue Interest" means the warranted interest of Borrower representing the
proportionate share of the production of oil, gas and other hydrocarbons
produced from the oil, gas and mineral lease or well as the case may be, to
which the Borrower is entitled after deduction of all royalties, overriding
royalty interests, production payments and other burdens on or payments out of
production.
"Note" is defined in Section 2.1 hereinbelow.
"Obligation" means all present and future indebtedness, obligations and
liabilities, and all renewals and extensions thereof, or any part thereof, now
or hereafter owed to Lender by Borrower, arising from, by virtue of, or pursuant
to any Loan Paper (including, without limitation, amounts owed to Lender by
Borrower on account of any letters of credit issued by Lender for the account of
Borrower), together with all interest accruing thereon and costs, expenses, and
attorneys' fees incurred in the enforcement or collection thereof, whether such
indebtedness, obligations, and liabilities are direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several or
were, prior to acquisition thereof by Lender, owed to some other person.
"Original Loan Agreement" is defined in the preamble.
"Overriding Royalty Interest" means the interest in the applicable hydrocarbons
produced, saved and sold from a particular oil, gas and mineral lease, well or
unit, as the case may be, which is afforded to Borrower by virtue of its
ownership of such expense-free interest in the oil, gas and mineral lease, well
or unit. "Prior Notes" means those notes evidencing the indebtedness from the
Borrower to the Prior Lender.
"Redetermination Fee" is defined in Section 2.9.
"Rights" means rights, remedies, powers, privileges and benefits.
"Second Amendment" is defined in the preamble.
"Subsidiary" means any corporation fifty percent (50%) or more of the Voting
Shares of which is owned, directly or indirectly, by the Borrower.
"Third Amendment" is defined in the preamble.
"Voting Shares" of any corporation shall mean outstanding shares of capital
stock of any class or classes (however designated) having ordinary voting power
for the election of at least a majority of the members of the Board of Directors
(or other governing body) of such corporation, other than shares having such
power only by reason of the happening of a contingency.
"Working Interest" shall mean the warranted interest of Borrower in a particular
oil, gas and mineral lease, well, or unit as the case may be, entitling the
Borrower to produce oil, gas and other hydrocarbons produced therefrom and being
equivalent to the proportionate part of the cost of exploration, development and
production of oil, gas and other minerals borne by the owners thereof with
respect to such oil and gas lease and/or well.
1.2 - Other Definitional Provisions .
(a) All terms defined in this Agreement shall have the above described meanings
when used in any other Loan Paper or in any certificate, report or other
document made or delivered pursuant to this Agreement, unless same shall
otherwise expressly require.
(b) Terms used herein in the singular shall import the plural and vice versa.
(c) Terms not specifically defined herein shall have the meanings accorded them
under generally accepted accounting principles, customary oil and gas industry
practices or the Texas Uniform Commercial Code, as appropriate.
(d) The words "hereof," "herein," "hereto," "hereunder" and similar terms when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provisions of this Agreement.
ARTICLE II
LOAN
2.1 - Loan . Subject to the terms and conditions of this Agreement, Lender
agrees to make Advances to Borrower from time to time during the period from the
date hereof through October 15, 2001, in an aggregate principal amount not to
exceed the lesser of the Borrowing Base, as determined from time to time by
Lender in accordance with the terms hereof, or the sum of Twenty Million Dollars
($20,000,000.00), said Advances collectively to constitute the Loan hereunder
(the "Loan") and to be evidenced by that certain Reducing Revolving Line of
Credit Note of even date herewith (the "Note"). Subject to the foregoing
limitations and the requirements set forth in this Agreement and in the Note,
Borrower may borrow, repay, and reborrow under the Loan. Notwithstanding the
principal amount of the Note as stated on the face thereof, the amount of
principal actually owing on the Note at any given time shall be the aggregate of
all Advances made to Borrower under the Note, less all payments of principal
theretofore actually received by Lender and applied to the Note. Borrower has
previously expressly agreed that the Note is given in renewal, extension, and
rearrangement, but not in extinguishment, of all amounts outstanding, if any,
under the Prior Notes and the indebtedness evidenced thereby.
2.2 - Request for Advance Under the Loan.
(a) Each Request for Advance under the Loan shall be irrevocable and shall be in
the form of Schedule 2.2 on or before 11:00 A.M. Midland, Texas time (i) three
Business Days immediately preceding the day such Advance is requested to be made
in case of LIBOR Rate Loans, and (ii) on the Business Day immediately preceding
the day such Advance is requested to be made in case of Base Rate Loans.
(b) Each Request for Advance shall specify:
(i) The amount of the requested Advance, which shall be in an aggregate minimum
principal amount of $100,000 or an integral multiple thereof for both LIBOR Rate
Loans and Base Rate Loans, or such lesser amount equal to the unadvanced portion
of the Loan;
(ii) The requested date of the Advance, which shall be a Business Day;
(iii) Whether the Advance is to consist of LIBOR Rate Loans or Base Rate Loans;
and
(iv) The duration of the Interest Period applicable to LIBOR Rate Loans included
in such notice. If the Request for Advance shall fail to specify the duration of
the Interest Period for any LIBOR Rate Loan, such Interest Period shall be three
months. (c) Unless Lender shall otherwise state in writing, during the existence
of an Event of Default, Borrower may not elect to have a Advance made as a LIBOR
Rate Loan.
(d) After giving effect to any LIBOR Rate Loan, there shall not be more than
four different Interest Periods in effect.
(e) Lender shall not be obligated to make any Advance to Borrower that would
result in the aggregate unpaid principal balance outstanding under the Note
exceeding the Commitment. In the absence of such an excess, if all conditions
precedent to such Advance have been met, Lender will on the date requested make
such Advance available to Borrower in immediately available funds at Lender's
office in Midland, Texas.
2.3 - Conversion and Continuation Elections.
(a) Upon irrevocable written notice to Lender, Borrower may:
(i) Elect to convert on any Business Day any Base Rate Loan (or any part
thereof) in an amount not less than $100,000 or an integral multiple thereof
into a LIBOR Rate Loan or;
(ii) Elect to convert on any Interest Payment Date any LIBOR Rate Loan maturing
on such Interest Payment Date (or any part thereof) in an amount not less than
$100,000 or an integral multiple thereof into a Base Rate Loan; or
(iii) Elect to renew on any Interest Payment Date any LIBOR Rate Loan maturing
on such Interest Payment Date (or any part thereof) in an amount not less than
$100,000 or an integral multiple thereof;
(b) Borrower shall deliver a Notice of Conversion/Continuation to be received by
Agent not later than 2:00 P. M. Midland, Texas time at least (x) three Business
Days in advance of the Conversion Date or continuation date, if a Loan is to be
converted into or continued as a LIBOR Rate Loan; and (y) the Business Day
immediately preceding the Conversion Date, if the Loan is to be converted into a
Base Rate Loan; specifying:
(i) The proposed Conversion Date or continuation date, which shall be a Business
Day;
(ii) The aggregate amount of the Loan to be converted or renewed;
(iii) The nature of the proposed conversion or continuation; and
(iv) The duration of the requested Interest Period, if applicable.
(c) If upon the expiration of any Interest Period applicable to any LIBOR Rate
Loan, Borrower has failed to select timely a new Interest Period to be
applicable to such LIBOR Rate Loan, or if any Event of Default shall then exist,
Borrower shall be deemed to have elected to convert such LIBOR Rate Loan into a
Base Rate Loan effective as of the expiration date of such current Interest
Period.
(d) Unless Lender shall otherwise state in writing, during the existence of an
Event of Default, Borrower may not elect to have a Loan converted into or
continued as a LIBOR Rate Loan.
(e) Notwithstanding any other provision contained in this Agreement, after
giving effect to any conversion or continuation of any LIBOR Rate Loans, there
shall not be more than five (5) different Interest Periods in effect.
2.4 - Scheduled Amortization of the Loan. On October 15, 2001, the commitment of
the Lender to make Advances shall terminate and the aggregate principal balance
outstanding on such date under the Loan shall be due and payable in their
entirety.
2.5 - Optional Payments. Borrower may make optional prepayments on the
outstanding principal balance of any Base Rate Loan without penalty or premium,
at any time, and from time to time, in integral multiples of $100,000 or such
lesser amount equal to the then outstanding balance, together with accrued and
unpaid interest on the principal amount so paid. LIBOR Rate Loans may not be
prepaid, except if it is necessary so that Borrower can be in compliance with
Section 3.4. Borrower shall give Lender one Business Day's notice in advance of
any optional payment on the Base Rate Loan, and three Business Day's notice in
advance of any prepayment on the LIBOR Rate Loan required pursuant to Section
3.4. Such notices shall specify what portion of the Loan is to be prepaid and
the date of prepayment. Such notices shall be irrevocable by Borrower. As of
October 15, 2001, all prepayments of principal thereafter received under this
section shall first be applied to the payment of principal indebtedness due on
any Base Rate Loan then outstanding and then to LIBOR Rate Loans with the
shortest Interest Periods remaining.
2.6 - The Loan Date. The Initial Advances and any subsequent Advances shall be
made on a date and at a time (the "Loan Date") selected by Borrower, but in no
event earlier than the time all conditions of lending described in Section 6.1
and 6.2 below, as applicable, have been satisfied or waived by the Lenders.
2.7 - Computation and Payment of Interest; Late Payment Rate.
(a) Each Loan shall bear interest on the outstanding principal amount thereof
from the date when made at a rate per annum equal to the LIBOR Rate or the Base
Rate, as specified in the applicable Request for Advance or Notice of
Conversion/Continuation, plus the Applicable Margin.
(b) Interest, computed on the unpaid balance of the Note shall be due and
payable as it accrues monthly, commencing on February 15, 1997 and on the same
day of each and every succeeding month thereafter during the term hereof, and at
maturity, October 15, 2001, when the entire amount of the Note, principal and
accrued, unpaid interest, shall be due and payable.
(c) Interest on the Loan shall accrue daily and shall be computed on the basis
of a year of 365 or 366 days, as appropriate, for Base Rate Loans, and a year of
360 days for LIBOR Rate Loans. Interest on the Loans shall be payable in arrears
on the Interest Payment Date.
(d) Notwithstanding anything to the contrary contained in this Agreement,
overdue principal, and (to the extent permitted under applicable law) overdue
interest, whether caused by acceleration of maturity or otherwise, shall bear
interest at a fluctuating rate, adjustable the day of any change in such rate,
equal to the Highest Lawful Rate, until paid, and shall be due and payable
immediately.
2.8 - Payments by Borrower. All payments of principal and interest hereunder
shall be made at Lender's office at 500 West Texas Avenue, Midland, Texas 79701
(or at such other place as Lender shall have designated to Borrower in writing
at least one Business Day prior to the due date or prepayment date, as the case
may be) in immediately available funds free and clear of any and all taxes and
without set-off or counterclaim or deduction of any kind. If any payment to be
made by Borrower hereunder or under the Note shall become due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day and such extension of time shall be included in computing any interest and
fees in respect of such payment, unless the result of such extension would be to
carry any Interest Period relating to a LIBOR Rate Loan into another calendar
month in which event such Interest Period shall end on the immediately preceding
Business Day.
2.9 - Origination Fee. Upon execution of this Agreement and the Note, Borrower
shall pay to Lender an origination fee in the amount of $15,000.00 (referred to
herein as the "Origination Fee").
2.10 - Redetermination Fee. In addition to the Origination Fee, at such time as
Borrower requests an increase in the Borrowing Base, Borrower shall pay to
Lender a redetermination fee in the amount of one-half of one percent (0.5%) of
the amount of the requested increase (referred to herein as the "Redetermination
Fee"). The parties specifically agree that the Borrower shall pay the
Redetermination Fee to Lender regardless of whether Lender agrees to the
increase in the Borrowing Base or whether the increase is actually funded.
ARTICLE III
BORROWING BASE
3.1 - Borrowing Base . The term "Borrowing Base" shall refer to an amount that
is the loan value attributable, at the time in question, by Lender (acting in
its sole discretion but determined in accordance with its usual and customary
practices and methods and economic assumptions and standards applied generally
to Lender's energy credits at the time the determination is made) to the
ownership interests of the Borrower in the Mortgaged Properties that are subject
to a first and prior Bank Lien and not subject to any other Liens except those
permitted under the Loan Agreement. The Borrowing Base under the Loan is set at
the sum of $18,000,000.00. The Borrowing Base shall reduce on a monthly basis by
the Borrowing Base Reduction Amount, which Lender initially sets at the amount
of $250,000.00. Borrower may request an increase in the Borrowing Base at any
time. Each request shall be subject to Lender's approval, said approval to be in
Lender's sole discretion and to be based upon Lender's satisfactory review of
approved engineering evaluations to be submitted by Borrower or commissioned by
Lender.
3.2 - Borrowing Base and Required Prepayments Under Note . As to the oil and gas
properties, Lender shall redetermine the Borrowing Base at least on a
semi-annual basis and may redetermine the Borrowing Base at any time in Lender's
sole discretion but in accordance with the standards set forth in Section 3.3
hereinbelow. Promptly following each redetermination of the Borrowing Base,
Lender shall notify Borrower of any change in the amount of the Borrowing Base
or in the amount of the Borrowing Base Reduction Amount.
3.3 - Standards for Redetermination . The Borrowing Base redetermination shall
be made by Lender in accordance with its usual and customary practices. In
redetermining the Borrowing Base, Lender shall determine the loan value which it
assigns to the oil and gas properties that are proven reserves, developed and
producing and that are covered by the Deeds of Trust. As to the oil and gas
properties, the loan value shall be based on Lender's engineering evaluation
which utilizes Lender's then current policy for oil and gas prices, discount
factors, coverage percentage and appropriate risk factors.
3.4 - Mandatory Increase in Collateral or Prepayment of Principal of the Note.
In the event that the unpaid principal balance of the Note shall, at the time of
notification of the Borrowing Base by Lender to Borrower, be in excess of the
Commitment, Lender, acting in its sole discretion, may require Borrower to
either, (i) within ten (10) business days thereafter, by instruments
satisfactory in form and substance to Lender, provide Lender with additional
Collateral with value in amounts satisfactory to Lender in order to increase the
Borrowing Base by an amount at least equal to such excess; (ii) within ten (10)
business days thereafter, prepay the principal of the Note (together with
accrued interest on the principal amount so prepaid) in an amount at least equal
to such excess; or (iii) amortize the overage by payments of six equal monthly
installments.
ARTICLE IV
YIELD PROTECTION AND ILLEGALITY
4.1 - Illegality.
(a) If Lender shall determine that the introduction of any law, rule or
regulations, or any change in any law, rule or regulation or in the
interpretation or administration thereof, has made it unlawful, or that any
central bank or other governmental authority has asserted that it is unlawful,
for Lender to make LIBOR Rate Loans, then, on notice thereof by Lender to
Borrower, the obligation of Lender to make LIBOR Rate Loans shall be suspended
until Lender shall have notified Borrower that the circumstances giving rise to
such determination no longer exist.
(b) If Lender shall determine that it is unlawful to maintain any LIBOR Rate
Loan, and, if any LIBOR Rate Loans are then outstanding, Lender shall give
notice thereof to Borrower, and within three Business Days after receipt of such
notice Borrower shall elect either (A) to prepay in full all LIBOR Rate Loans of
Lender then outstanding, together with interest accrued thereon, either on the
last day of the Interest Period thereof if Lender may lawfully continue to
maintain such LIBOR Rate Loans to such day, or immediately, if Lender may not
lawfully continue to maintain such LIBOR Rate Loans, together with any amounts
required to be paid in connection therewith pursuant to this Agreement, or (B)
to immediately convert such LIBOR Rate Loans to Base Rate Loans in accordance
with Article II of this Agreement.
(c) If the obligation of Lender to make or maintain LIBOR Rate Loans has been
terminated, Borrower may elect, by giving notice to Lender that all Loans which
would otherwise be made by Lender as LIBOR Rate Loans shall be instead Base Rate
Loans.
4.2 - Increased Costs and Reduction of Return.
(a) If Lender shall determine that, due to either (i) the introduction of or any
change (other than any change by way of imposition of or increase in reserve
requirements included in the calculation of the LIBOR Rate) in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline, or request from any central bank or other governmental authority
(whether or not having the force of law) issued after January 31, 1997, there
shall be any increase in the cost to Lender of agreeing to make or making,
funding or maintaining any LIBOR Rate Loans (other than changes in the rate of
taxes on the overall net income of Lender), then Lender shall give notice of
such determination to Borrower, and Borrower shall have the option either (iii)
to immediately convert all outstanding LIBOR Rate Loans to Base Rate Loans in
accordance with Article II or (iv) Borrower shall be liable for, and shall from
time to time, upon demand therefor by Lender, pay to Lender such additional
amounts as are sufficient to compensate Lender for such increased costs. If
Borrower elects to convert to Base Rate Loans, it shall nevertheless be liable
for any increased costs incurred by Lender regarding LIBOR Rate Loans accrued
prior to the date of conversion.
(b) If Lender shall have determined that (i) the introduction of any capital
adequacy regulation, (ii) any change in any capital adequacy regulation, (iii)
any change in the interpretation or administration of any capital adequacy
regulation by any central bank or other governmental authority charged with the
interpretation or administration thereof, or (iv) compliance by Lender or any
corporation controlling the Lender, with any capital adequacy regulation;
affects or would affect the amount of capital required or expected to be
maintained by Lender or any corporation controlling Lender and (taking into
consideration Lender's or such corporations' policies with respect to capital
adequacy and Lender's desired return on capital) determines that the amount of
such capital is increased as a consequence of its commitment to make the Loan,
credits or other obligations under this Agreement, then Lender shall give notice
of such determination to Borrower, and Borrower shall have the option either (v)
to immediately convert all outstanding LIBOR Rate Loans to Base Rate Loans in
accordance with Article II or (vi) to pay to Lender, from time to time as
specified by Lender, additional amounts sufficient to compensate Lender for such
increase.
4.3 - Funding Losses. Borrower agrees to reimburse Lender and to hold Lender
harmless from any loss or expense which Lender may sustain or incur as a
consequence of:
(a) The failure of Borrower to make any payment or mandatory prepayment of
principal of any LIBOR Rate Loan (including payments made after any acceleration
thereof);
(b) The failure of Borrower to borrow, continue or convert a Loan after Borrower
has given (or is deemed to have given) a Request for Advance or a Notice of
Conversion/Continuation;
(c) The failure of Borrower to make any prepayment after Borrower has given a
notice in accordance with Section 2.3;
(d) The prepayment (including pursuant to Section 2.3) of a LIBOR Rate Loan on a
day which is not the last day of the Interest Period with respect thereto; or
(e) The conversion pursuant to of any LIBOR Rate Loan to a Base Rate Loan on a
day that is not the last day of the respective Interest Period; including any
such loss or expense arising from the liquidation or reemployment of funds
obtained by it to maintain its LIBOR Rate Loans hereunder or from fees payable
to terminate the deposits from which such funds were obtained.
4.4 - Inability to Determine Rates. If Lender shall have determined that for any
reason adequate and reasonable means do not exist for ascertaining the LIBOR
Rate for any requested Interest Period with respect to a proposed LIBOR Rate
Loan or that the LIBOR Rate applicable for any requested Interest Period with
respect to a proposed LIBOR Rate Loan does not adequately and fairly reflect, in
Lender's reasonable judgment, the cost to Lender of funding such Loan, Lender
shall forthwith give notice of such determination to Borrower. Thereafter, the
obligation of Lender to make or maintain LIBOR Rate Loans, as the case may be,
hereunder shall be suspended until Lender revokes such notice in writing, unless
means exist for ascertaining the LIBOR Rate and Borrower agrees to pay such
amount as Lender determines in its sole and absolute discretion is necessary to
reflect the cost of Lender of funding such Loan. Upon receipt of such notice,
Borrower may revoke any Request for Advance or Notice of Conversion/Continuation
then submitted by it. If Borrower does not revoke such request or notice prior
to the time that such Loan is made, Lender shall make, convert or continue the
Loan, as proposed by Borrower in the amount specified in the applicable request
or notice submitted by Borrower, but such Loan shall be made, converted or
continued as Base Rate Loans instead of LIBOR Rate Loans.
4.5 - Certificate of Lender. If Lender claims reimbursement or compensation
pursuant to this Article IV, Lender shall deliver to Borrower a certificate
setting forth in reasonable detail the amount payable to Lender hereunder and
such certificate shall be binding on Borrower unless Borrower objects to the
contents of such certificate within five Business Days after receipt thereof. If
Borrower objects, Lender and Borrower shall attempt to resolve their differences
within 10 days, and if agreement is not reached within such period then all
LIBOR Rate Loans shall be immediately converted to Base Rate Loans.
4.6 - Survival. The agreements and obligations of Borrower in this Article IV
shall survive the payment of all other Obligations.
ARTICLE V
SECURITY AND ASSIGNMENT
5.1 - Collateralization. To secure full and complete payment and performance of
the Obligation, Borrower hereby grants and conveys to and creates in favor of
Lender Liens in, to and on all of the following items and types of property
(referred to collectively herein as the "Collateral"), all as more particularly
described in the Loan Papers:
(a) all present and future interests now owned or hereafter acquired by Borrower
in the Mortgaged Properties identified in the Deeds of Trust, as amended,
together with all proceeds of production therefrom;
(b) all present and future increases, profits, combinations, reclassifications,
improvements and products of, accessions, attachments, and other additions to,
and substitutes and replacements for, any of the Collateral;
(c) all cash and noncash proceeds and other Rights arising from or by virtue of,
or from the voluntary or involuntary sale, lease or other disposition of, or
collections with respect to, or insurance proceeds payable with respect to, or
proceeds payable by virtue of warranty or other claims against manufacturers of,
or claims against any other persons with respect to, any of the Collateral;
(d) all present and future security for the payment to Borrower for any of the
Collateral;
(e) all goods which gave or will give rise to any of the Collateral or are
evidenced, identified or represented therein or thereby; and
(f) all certificates of title, manufacturer's statements of origin, or other
documents, accounts and chattel paper arising from or related to any of the
Collateral.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 - Initial Advance. The obligation of Lender to make the Initial Advance
under the Loan shall be subject to satisfaction of each of the following
conditions precedent:
(a) Lender shall have received, duly executed, those instruments reflected on
Schedule 6.1, including, but not limited to, this Agreement, the Note and all
the other Loan Papers, as well as such other documents and instruments necessary
or advisable in connection with the Loan, all of which shall be in form and
substance satisfactory to the Lender and its counsel;
(b) All Deeds of Trust, financing statements, notices, and other documents and
instruments deemed by Lender and its counsel to be necessary or advisable in
connection with the Collateral shall have been recorded or filed in all
necessary places, or sent to or received by all necessary persons, as the case
may be;
(c) Lender shall have received satisfactory opinions from Borrower's in-house
counsel confirming Borrower's legal existence, its power and authority to
execute and perform under this Agreement and any other documents executed
simultaneously herewith (the "Closing Documents"), the enforceability of the
Closing Documents, and the perfection and priority of Lender's security
interests and liens; and
(d) Lender shall have received such other financial and other information as it
may reasonably require.
6.2 - All Advances. The obligation of Lender to make any Advance hereunder shall
be subject to satisfaction of each of the following conditions precedent:
(a) An authorized individual shall have requested such Advance in accordance
with the requirements hereof.
(b) No Event of Default shall have occurred that has not been waived in writing
by Lender, and there shall exist no condition or event that with the giving of
notice or lapse of time or both, would constitute an Event of Default.
(c) Borrower shall have observed, performed, and complied with all covenants,
agreements, duties, and obligations contained in the Loan Papers. Lender shall
be under no obligation in any event to make any Advance to a third party.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement, Borrower represents and
warrants to Lender as of the date hereof, which representations and warranties
shall survive the delivery of the Note, as follows:
7.1 - Existence and Authority . Borrower is a corporation duly organized,
legally existing, and in good standing under the laws of the State of Delaware.
Borrower is in good standing under the laws of the State of Texas.
7.2 - Powers . Borrower is duly authorized to execute and issue the Note, and
Borrower is authorized and empowered to execute and deliver this Agreement, the
other Loan Papers and all other instruments referred to or mentioned herein, and
all action (corporate or otherwise) on its part requisite for the due creation,
issuance and delivery of the Note and the due execution and delivery of the
other Loan Papers has been duly and effectively taken. This Agreement is, and
the other Loan Papers when duly executed and delivered will be legal, valid and
binding obligations of Borrower enforceable in accordance with their terms
(subject to any applicable bankruptcy, insolvency or other laws generally
affecting the enforcement of creditors' rights). The Loan Papers do not violate
any provisions of any agreement, law or regulation to which Borrower is subject,
and the same do not require the consent or approval of any regulatory authority
or governmental body of the United States or of any state.
7.3 - Financial Statements . The unaudited financial statements, dated September
30, 1996, most recently submitted by Borrower to the Lender, are complete and
correct, have been prepared by Borrower, and fairly present the financial
condition and results of the operations of Borrower as of the date and for the
period stated, subject to normal year-end adjustments. There have been no
Material Adverse Changes in the financial condition since September 30, 1996.
Borrower shall keep and maintain its books and records in accordance with GAAP.
7.4 - Liabilities . As of the date hereof, except for the indebtedness
established under the Note, liabilities incurred in the ordinary course of
business since September 30, 1996, and as set forth on Schedule 7.4, Borrower
has no liabilities, direct or contingent, other than those set forth in its
financial statement referred to in Section 7.3 hereof. Borrower knows of no
fact, circumstance, act, condition or development that will or is reasonably
likely to cause a Material Adverse Change.
7.5 - Litigation . Except for the litigation described on Schedule 7.5, Borrower
is neither involved in nor aware of the threat of, any litigation. Nor are there
any outstanding or unpaid judgments against Borrower, and none of the litigation
described on Schedule 7.5 could, collectively or individually, create a Material
Adverse Change if determined adversely against Borrower.
7.6 - Taxes . All tax returns required to be filed or on extension by Borrower
in all jurisdictions have been filed, and all taxes, assessments, fees and other
governmental charges upon Borrower or upon any of its property, income or
franchises, which are due and payable, have been paid, or adequate reserves
determined in conformity with GAAP have been provided for payment thereof.
7.7 - Purpose of Loan . The proceeds from any Advances from the Loan are to be
used for oil and gas acquisitions, drilling and development costs, general
working capital purposes, and the purchase of hedging contracts. The proceeds
from any Advances (a) are not and will not be used directly or indirectly for
the purpose of purchasing or carrying, or for the purpose of extending credit to
others for the purpose of purchasing or carrying, any "margin stock" as that
term is defined in Regulation U of the Board of Governors of the Federal Reserve
System, as amended; and (b) will be otherwise used for lawful purposes.
7.8 - Properties; Liens .
(a) Prior to the execution of this Agreement and the making of the Initial
Advance, with regard to the Mineral Interests included in the Deeds of Trust and
any other properties owned by Borrower, (i) Borrower shall hold good and
marketable title to all such Mineral Interests and other properties, free and
clear of all Liens except Liens permitted under Section 9.2 hereof, and shall
have full authority to create Bank Liens thereon; and (ii) all such Mineral
Interests and other properties shall be valid, subsisting and in full force and
effect, and all rentals, royalties and other amounts due and payable in respect
thereof shall have been duly paid.
(b) Except as may be limited or otherwise affected by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, upon
execution, delivery and recording, or filing, as appropriate, the Loan Papers
will be effective to create in favor of Lender a legal, valid and continuing
first Lien on the Collateral (real and personal, tangible and intangible)
described therein.
7.9 - Material Agreements . Except for the Loan Papers, the Material Agreements
on Schedule 7.9, agreements, documents and instruments giving rise to Mineral
Interests, farmout agreements, gas contracts, hedging contracts, Borrower's
office lease, and operating and joint operating agreements related to any
Mineral Interests, there are no Material Agreements of Borrower; Borrower is
not, nor will the execution, delivery and performance of and compliance with the
terms of the Loan Papers cause Borrower to be, in default (nor has any potential
default occurred) under any Material Agreement, any agreement, document or
instrument giving rise to Mineral Interests, farmout agreements, gas contracts
or any operating or joint operating, or unitization agreements related to
Mineral Interests, other than in each case such defaults or potential defaults
which could not, individually or collectively, cause a Material Adverse Change;
and a default by Borrower under any operating or joint operating agreement
related to any Mineral Interests it owns will not result in any loss or
diminution of any other Mineral Interests it owns.
7.10 - ERISA . Borrower has neither terminated a plan created pursuant to the
terms of the Employee Retirement Income Security Act of 1974, as amended, nor
accrued any funding deficiency for which Borrower would be liable under said
statute.
7.11 - Location of Records . The records of Borrower, including all records
concerning the Collateral, are kept at the following location: 6010 Highway 191,
Suite 210, Odessa, Texas 79716.
7.12 - Permits and Franchises, Etc. . To the best of its knowledge, Borrower has
all rights, licenses, permits, franchises, patents, patent rights, trademarks,
trademark rights and copyrights that are required in order for it to conduct its
business as now conducted without known conflict with the rights of others.
Borrower is unaware of any fact or condition that might cause any of such rights
not to be renewed in due course.
7.13 - Subsidiaries. Borrower is not a member of any general or limited
partnership, joint venture or association of any type whatsoever except those
listed in Schedule 7.13 and associations, joint ventures or other relationships
(a) that are established pursuant to a standard form operating agreement or
similar agreement or that are partnerships for purposes of federal income
taxation only, (b) that are not corporations or partnerships (or subject to the
Uniform Partnership Act) under applicable state law, and (c) whose businesses
are limited to the exploration, development and operation of oil, gas or mineral
properties and interests owned directly by the parties in such associations,
joint ventures or relationships.
7.14 - Hazardous Wastes and Substances . To the best knowledge of Borrower,
Borrower and its properties are in compliance with applicable state and federal
environmental laws and regulations and Borrower is not aware of and has not
received any notice of any violation of any applicable state or federal
environmental law or regulation and there has not heretofore been filed any
complaint, nor commenced any administrative procedure, against Borrower or any
of its predecessors, alleging a violation of any environmental law or
regulation. Currently and from time to time, Borrower, in the course of its
regular business (oil and gas exploration and production), may use or generate
on a portion of its properties materials which are Hazardous Materials, as
hereinafter defined. Borrower has and will make a good faith attempt to comply
with all applicable statutes and regulations in the use, generation and disposal
of such materials. To the best of its knowledge, Borrower has not otherwise
installed, used, generated, stored or disposed of any hazardous waste, toxic
substance, asbestos or related material ("Hazardous Materials") on their
properties. For the purposes of this Agreement, Hazardous Materials shall
include, but shall not be limited to, substances defined as "hazardous
substances" or "toxic substances" in the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss.9061, et seq.,
Hazardous Materials Transportation Act, 49 U.S.C. ss.1802, et seq., and the
Resource Conservation and Recovery Act, 42 U.S.C. ss.6901, et seq., or as
"hazardous substances," "hazardous waste" or "pollutant or contaminant" in any
other applicable federal, state or local environmental law or regulation. To the
knowledge of Borrower, there do not exist upon any property owned by Borrower
any underground storage tanks or facilities, and none of such property has ever
been used for the treatment, storage, recycling, or disposal of any Hazardous
Materials.
7.15 - General . To the best knowledge of Borrower, there are no significant
material facts or conditions relating to the Loan Papers, any of the Collateral,
or the financial condition or business of Borrower that could, collectively or
individually, cause a Material Adverse Change and that have not been related, in
writing, to Lender as an attachment to this Agreement; and all writings
heretofore or hereafter exhibited or delivered to Lender by or on behalf of
Borrower are and will be genuine and in all respects what they purport and
appear to be.
7.16 - Closing Compliance . Borrower represents to the Lender for all purposes
that as of the date of the execution of this Agreement, to the best of its
knowledge, it is in full and complete compliance with all applicable regulatory
requirements and all provisions of the Loan Papers.
ARTICLE VIII
AFFIRMATIVE COVENANTS
As an inducement to Lender to enter into this Agreement, Borrower and Guarantor
covenant and agree that from the date hereof and until termination of this
Agreement and payment in full of the Obligation (except as otherwise provided in
this Article), unless otherwise agreed to by Lender in writing:
8.1 - Borrower's Financial Statements and Other Information . Borrower will
promptly furnish to Lender copies of (i) such information regarding its business
and affairs and financial condition as Lender may reasonably request, and (ii)
without request, the following:
(a) as soon as available and in any event within ninety (90) days after the end
of each fiscal year of Borrower, fiscal year end, unaudited financial statements
of Borrower, including a balance sheet and income statement, said statements to
be accompanied by a certificate of compliance executed by the President or Chief
Financial Officer;
(b) as soon as available and in any event within forty-five (45) days after the
end of each quarter, unaudited financial statements on Borrower, including a
balance sheet and income statement, as of the end of each quarter and which
shall have been compiled by Borrower, said statements to be accompanied by a
certificate of compliance executed by the President or Chief Financial Officer;
(c) immediately upon becoming aware of the existence of, or any material change
in the status of, any litigation which could create a Material Adverse Change if
determined adversely against Borrower, a written communication to Lender of such
matter;
(d) immediately upon becoming aware of an Event of Default or the existence of
any condition or event that constitutes, or with notice or lapse of time, or
both, would constitute an Event of Default, a verbal notification to Lender
specifying the nature and period of existence thereof and what action Borrower
is taking or proposes to take with respect thereto and, immediately thereafter,
a written confirmation to Lender of such matters;
(e) immediately upon becoming aware that any person has given notice or taken
any other action with respect to a claimed default under any material indenture,
mortgage, deed of trust, promissory note, loan agreement, note agreement,
drilling contract, operating or joint venture agreement, or any other Material
Agreement or undertaking to which Borrower is a party which does or could result
in a claim, fine or judgment against Borrower in excess of $100,000.00 if not
paid or otherwise resolved, a verbal notification to Lender specifying the
notice given or action taken by such person and the nature of the claimed
default and what action Borrower is taking or proposes to take with respect
thereto and, immediately thereafter, a written communication to Lender of such
matters;
(f) immediately upon becoming aware of the commencement of any material action
or material proceeding against Borrower or any of their respective properties by
any governmental agency, including, without limitation, the Internal Revenue
Service, the Environmental Protection Agency, the New Mexico Oil Conservation
Division, the Texas Railroad Commission, the U.S. Department of Energy or the
Federal Energy Regulatory Commission which does or could result in a claim, fine
or judgment against Borrower in excess of $100,000.00 if not paid or otherwise
resolved, a written communication to Lender of such matter; and
(g) such other information as may be reasonably requested by Lender.
All financial statements, schedules and other financial information delivered
hereunder shall be prepared in conformity with GAAP and shall be certified as
true and correct by the President or Chief Financial Officer of Borrower by
signature and date thereon.
8.2 - Taxes . Borrower will pay and discharge or cause to be paid and discharged
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income and profits or upon any of its property, real, personal or
mixed, or upon any part thereof, before the same shall become in default, as
well as all lawful claims for labor, materials and supplies or otherwise, which,
if not paid, might become a Lien upon such properties or any part thereof;
provided that unless any governmental entity has threatened seizure or sale of
any Collateral of Borrower for failure to pay any such tax, assessment, charge,
levy, or claim, Borrower shall not be required to pay and discharge or cause to
be paid or discharged any such tax, assessment, charge, levy or claim contested
by it in good faith by appropriate proceedings. If, however, Borrower has
received notice of a threatened seizure or sale of any Collateral of Borrower
from any governmental entity, the preceding provision shall be inapplicable and
Borrower shall be required to tender payment under protest to that governmental
entity before such sale or seizure takes place.
8.3 - Discharge of Contractual Obligations . Borrower will do and perform every
act and discharge all of the obligations provided to be performed and discharged
under the Loan Papers, and any and all of the instruments or documents referred
to or mentioned herein at the time or times and in the manner required.
8.4 - Legal Status . Borrower will use its best efforts to do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its existences, rights, licenses, permits and franchises and comply with all
laws and regulations applicable to it, and, further, comply with all applicable
laws and regulations, whether now in effect or hereafter enacted or promulgated
by any governmental authority having jurisdiction over any of its assets or
properties, noncompliance with which would cause a Material Adverse Change.
8.5 - Maintenance and Evidence of Priority of Bank Liens . Borrower shall
perform such acts and duly authorize, execute, acknowledge, deliver, file, and
record such additional assignments, security agreements, deeds of trust,
mortgages and other agreements, documents, instruments and certificates as
Lender may reasonably deem necessary or appropriate in order to perfect and
maintain the Bank Liens as a first lien and preserve and protect the Rights of
Lender in respect of all present and future Collateral, and cause to be
furnished to Lender such opinions of counsel as Lender may request regarding the
priority of its title to, and the Bank Liens upon, its assets, all of which
opinions shall be prepared by such law firm or firms as may be acceptable to
Lender and which shall be prepared in the same format as those prepared in
accordance with Section 8.15 hereinbelow.
8.6 - Insurance . Borrower presently maintains and will continue to maintain
such policies of liability, hazard, damage, business interruption and workmen's
compensation insurance as are customarily carried by companies similarly
situated. If requested by Lender, any such policies of insurance shall show
Lender therein as loss payee. Upon request by Lender, Borrower will furnish
Lender with certificates and policies necessary to give Lender reasonable
assurance of the existence of such coverage. Borrower agrees to notify promptly
Lender of any termination or other material change in Borrower's insurance
coverage, and to provide Lender, upon request, with all information about the
renewal of each policy at least 15 days prior to the expiration thereof.
8.7 - Reimbursement of Fees and Expenses . Borrower agrees to pay all legal,
engineering, and environmental fees and expenses reasonably incurred by Lender
in connection with the investigation and negotiation of the financing, as well
as the preparation and execution of the Loan Papers; provided, however, that all
of such fees, costs, and expenses shall be credited against the Origination Fee.
If such fees and expenses exceed the amount of the Origination Fee, Lender shall
bear all such fees and expenses, not to include those costs described
hereinbelow. Borrower agrees to pay all costs of filing and recording the Loan
Papers, all legal, engineering, and environmental fees and expenses reasonably
incurred by Lender or its designated representatives in connection with any
renewal, extension, restatement, supplement or amendment of the Loan Papers, all
costs associated with enforcing any of Lender's Rights under the Loan Papers
(including, without limitation, costs of repossessing, storing, transporting,
preserving and insuring any of the Collateral), all court costs associated with
enforcing or defending any Rights against Borrower or any third party
challenging said Rights and any other cost or expense reasonably incurred by
Lender or its designated representatives in connection herewith or with the
other Loan Papers, together with interest at the Highest Lawful Rate per annum
on each such amount commencing 10 days after the date notice of such expenditure
is given to Borrower by Lender until the date it is repaid to Lender.
8.8 - Indemnification . Borrower agrees to indemnify Lender from and against any
and all liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, remedial actions, costs, expenses or disbursements
(collectively, "Claims") of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against Lender by any third party growing out of or
resulting from (i) a breach of the Loan Papers and the transactions and events
at any time associated therewith (including, without limitation, the enforcement
of the Loan Papers and the defense of Lender's actions and inactions in
connection with the Loan), except to the limited extent such Claims are
proximately caused by Lender's gross negligence or willful misconduct; (ii) the
presence of any Hazardous Materials on or under properties covered by the Deed
of Trust; or (iii) any activity carried on or undertaken on or off the
properties covered by the Deed of Trust, whether prior to or during the term
hereof and whether by Borrower or any third person, in connection with the
treatment, storage, recycling, removal, handling or disposal of Hazardous
Materials at any time located on or under the properties covered by the Deed of
Trust.
8.9 - Indemnification Procedure. In the event that Lender discovers or otherwise
becomes aware of an indemnification claim arising under Section 8.8 of this
Agreement, Lender shall give written notice to Borrower, specifying such claim,
and may thereafter exercise any remedies available to Lender under this
Agreement; provided, however, that the failure of Lender to give notice as
provided herein shall not relieve Borrower of any obligations hereunder, to the
extent Borrower is not materially prejudiced thereby. Further, promptly after
receipt by Lender of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to Section 8.8, Lender shall, if a claim in respect thereof is to be
made against Borrower, give written notice to Borrower of the commencement of
such action; provided however, that the failure of Lender to give notice as
provided herein shall not relieve Borrower of any obligations hereunder, to the
extent Borrower is not materially prejudiced thereby. In case any such action is
brought against Lender, Borrower shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party similarly
notified, to the extent that it may wish, with counsel reasonably satisfactory
to Lender, and after notice from Borrower to Lender of its election so to assume
the defense thereof, Borrower shall not be liable to Lender for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof unless Borrower has failed to assume the defense of such claim
and to employ counsel reasonably satisfactory to Lender. If Borrower elects not
to assume the defenses of a claim, Borrower shall not be liable for the fees and
expenses of more than one counsel in any single jurisdiction with respect to
such claim or with respect to claims separate but similar or related in the same
jurisdiction arising out of the same general allegations. Notwithstanding any of
the foregoing to the contrary, Lender will be entitled to select its own counsel
and assume defense of any action brought against it if Borrower fails to select
counsel reasonably satisfactory to Lender, the expenses of such defense to be
paid by Borrower. Borrower shall not consent to entry of any judgment or enter
into any settlement with respect to a claim without the consent of Lender, which
consent shall not be unreasonably withheld, or unless such judgment or
settlement includes as an unconditional term thereof a release of Lender by the
claimant or plaintiff from all liability with respect to such claim. Lender
shall not consent to entry of any judgment or enter into any settlement of any
such action, the defense of which has been assumed by Borrower, without the
consent of Borrower, which consent shall not be unreasonably withheld. In the
event that Lender becomes entitled to compensation from Borrower pursuant to the
provisions of Section 8.8, any such compensation shall bear interest at that
Highest Lawful Rate per annum from the date of Lender's payment of any claims
until paid by Borrower and shall be part of the Obligation secured by the Bank
Liens.
8.10 - Curing of Defects . Borrower will promptly cure any defects in the
execution and delivery of any of the Loan Papers, and in any other instrument or
document referred to or mentioned herein. Borrower will immediately execute and
deliver to Lender upon request, all such other and further instruments as may be
reasonably required or desired by Lender from time to time in compliance with or
accomplishment of the covenants and agreements of Borrower made in the Loan
Papers.
8.11 - Inspection and Visitation . Borrower will grant Lender access to all of
its books and records, as well as to all of the Collateral, and allow inspection
and copying of same by Lender or its designated representatives at any time
during normal business hours or such other time as Lender may reasonably
request; provided, however, that nothing in this Section 8.11 shall require
Borrower to provide access to Lender to any books, records, or other materials
covered by a confidentiality agreement that has been entered into as the result
of arms-length negotiations between Borrower and an unrelated third party.
8.12 - Notices . Borrower will give prompt written notice to Lender of any
proceedings instituted against it by or in any federal or state court or before
any commission or other regulatory body, federal, state or local, which, if
adversely determined, would cause a Material Adverse Change.
8.13 - Compliance . Borrower will observe and comply with:
(a) All laws, statutes, codes, acts, ordinances, rules, regulations, directions
and requirements of all federal, state, county, municipal and other governments,
departments, commissions, boards, courts, authorities, officials and officers,
domestic and foreign, including but not limited to all applicable regulatory
requirements promulgated by any governmental agency including OSHA, the EPA, the
Pension Benefit Guaranty Fund, ERISA, and any other applicable regulatory
agency, where the failure to observe or comply would cause a Material Adverse
Change;
(b) all orders, judgments, decrees, injunctions, certificates, franchises,
permits, licenses, and authorizations of all federal, state, county, municipal,
and other governments, departments, commissions, boards, courts, authorities,
officials, and officers, domestic and foreign, which the failure to observe or
comply would cause a Material Adverse Change and against which it shall maintain
such reserves as are appropriate under GAAP; and
(c) GAAP in all of its accounting procedures.
8.14 - Compliance With Environmental Laws . Borrower, to the best of its
knowledge, is in substantial compliance with all state and federal environmental
laws and regulations and will remain in substantial compliance with same and
will not place or permit to be placed any Hazardous Materials on any of its
properties in violation of applicable state and federal environmental laws. In
the event Borrower should discover any Hazardous Materials on any of their
properties which could result in a breach of the foregoing covenant, Borrower
shall notify Lender within three (3) days after such discovery. Borrower shall
dispose of all material amounts of Hazardous Materials generated by it only at
facilities and/or with carriers that Borrower reasonably believes maintain valid
governmental permits under the Resource Conservation and Recovery Act, 42 U.S.C.
ss.6901. In the event of any notice or filing of any procedure against Borrower
alleging a violation of any environmental law or regulation, Borrower shall give
notice to Lender within five (5) days after receiving notice of such notice or
filing.
8.15 - Post-Closing Title Review. Within sixty (60) days of the execution of
this Agreement, Lender shall obtain title reports covering Mortgaged Properties
that represent eighty percent (80%) or more of the net proven value of Lender's
most recent engineering evaluation. Such title reports shall be prepared by
legal counsel of Lender's choice. The cost of such title reports shall be
included in the Origination Fee. To the extent possible, the title reports will
be based upon prior title opinions obtained from Borrower's files and reports
prepared by landmen selected by Lender during the course of its due diligence
review. Within thirty (30) days of Lender's receipt of such title reports,
Borrower shall cure any title defects reported therein for which curative
activity is reasonably required by Lender, acting in its sole discretion.
ARTICLE IX
NEGATIVE COVENANTS
As an inducement to Lender to enter into this Agreement, Borrower hereby
covenants and agrees that, from the date hereof and until termination of this
Agreement and payment in full of the Obligation (except as otherwise provided in
this Article), unless otherwise agreed to by Lender in writing:
9.1 - Indebtedness . Except as may otherwise be permitted herein, Borrower will
not create, assume, incur or have outstanding, or in any manner become or be
liable directly or indirectly (whether by way of guaranty, contingent agreement
to purchase or otherwise) in respect of, any indebtedness for borrowed money or
the purchase price of any property (including direct, indirect and capitalized
leases), excluding, however, from the operation of this Section:
(a) The Note;
(b) Indebtedness, including contingent indebtedness, existing as of the date
hereof and identified on Schedule 9.1 hereto;
(c) Accounts payable for services furnished and for the purchase price of
materials and supplies acquired in the ordinary course of its business, not more
than one hundred and twenty (120) days from the date of invoice;
(d) Loans from the Guarantor to the Borrower; and
(e) Additional indebtedness not to exceed the sum of $100,000.00 during the
course of the term of the Agreement.
9.2 - Liens, Etc . Except as may otherwise be permitted herein Borrower will not
create, assume or suffer to exist any Lien upon any of its properties or assets
now owned or hereafter acquired securing any indebtedness other than the
Obligation or acquire or agree to acquire any property under any conditional
sale agreement or other title retention agreement, excluding, however, from the
operation of this section: (a) All of the indebtedness evidenced by the Note;
(b) Any indebtedness reflected on Schedule 9.1 hereto;
(c) Deposits or pledges to secure payments or workmen's compensation,
unemployment insurance, old age pensions or other social security;
(d) Deposits or pledges to secure performance of bids, tenders, contracts (other
than contracts for the payment of money), leases, public or statutory
obligations, surety or appeal bonds, or other deposits or pledges for purposes
of like general nature in the ordinary course of business;
(e) Liens for taxes, assessments or other governmental charges or levies that
are not delinquent or that are in good faith being contested or litigated;
provided, however, that nothing herein shall be construed to allow the
imposition of a Lien to the extent that such Lien has resulted in a threatened
seizure or sale of any property of Borrower;
(f) Mechanics', carriers', workmen's, repairmen's or other like Liens arising in
the ordinary course of business securing obligations less than ninety (90) days
from the date of invoice, and on which no suit to foreclose has been filed, or
which are in good faith being contested or litigated; or
(g) the Bank Liens.
9.3 - ERISA Compliance . Borrower will not at any time permit any plan subject
to ERISA that it maintains, if any, to:
(a) Engage in any "prohibited transaction" as such term is defined in Section
4975 of the Internal Revenue Code of 1986, as amended;
(b) Incur any "accumulated funding deficiency" as such term is defined in
Section 302 of ERISA; or
(c) Terminate any such plan in a manner which could result in the imposition of
a lien on its property pursuant to Section 4068 of ERISA.
9.4 - Investments, Etc. . Borrower will not make or commit to make, any advance,
loan, extension of credit or capital contribution to, or purchase of any stock,
bonds, notes, debentures or other securities of, or make any other investment in
any person, or accept any item in satisfaction of indebtedness (all of the
aforesaid transactions being herein called "Investments"), except:
(a) Investments in money market accounts and certificates of deposit issued by
Lender;
(b) Investments in accounts, contract rights and chattel paper (as defined in
the Uniform Commercial Code), hedging contracts, and notes receivable, arising
or acquired in the ordinary course of business; and
(c) Investments with maturities of not more than 180 days in direct obligations
of the United States of America, or obligations, the principal and interest of
which are unconditionally guaranteed by the United States of America.
9.5 - Lease Obligations . Borrower shall not incur any lease payment obligations
in excess of $100,000.00, except for those already existing as of the date of
this Agreement and for those existing with respect to oil and gas leases.
9.6 - Mergers, Consolidations . Borrower will not, without the consent of
Lender, amend or otherwise modify its manner of doing business or otherwise
change its business structure in manner that would cause a Material Adverse
Change. Borrower will not, without the consent of Lender, said consent not to be
unreasonably withheld, form any new subsidiary company, or consolidate with or
merge into, or acquire any party or permit any party to consolidate with or
merge into, or acquire them.
9.7 - Changes in Management . Without Lender's consent, Borrower shall not
effect a change in management.
9.8 - Dividends and Distributions . Borrower will not declare, pay or make any
loans, advances, dividends or distributions, of any kind to their stockholders,
or make any other distribution on account of, or purchase, acquire or redeem or
retire any stock or ownership interest in them.
9.9 - Accounting Methods and Fiscal Year . Borrower will not make any change in
its present accounting method nor change its present fiscal year unless such
changes are required for conformity with GAAP.
9.10 - Nature of Business . Borrower will not make any substantial change in the
nature of its business as now conducted.
9.11 - Disposition of Assets . Borrower will not, without Lender's consent,
sell, transfer, lease, exchange, alienate or otherwise dispose of any of its
property or assets having a fair market value in excess of $100,000.00 outside
the ordinary course of business.
ARTICLE X
DEFAULT AND REMEDIES
10.1 - Events of Default . If any one or more of the following shall occur and
shall not have been remedied in the period, if any, provided, an "Event of
Default" shall be deemed to have occurred hereunder and with respect to all of
the Obligation, unless waived in writing by Lender:
(a) Default shall occur in the payment of the outstanding principal of the
Obligation;
(b) default shall occur in the payment of any accrued interest upon the
Obligation, and such default shall continue for a period of ten (10) consecutive
days;
(c) any representations, warranty or statement made by Borrower herein, in any
of the other Loan Papers or in any certificate furnished to Lender hereunder or
by Guarantor in its Guaranty, any of the other Loan Papers or in any certificate
furnished to Lender shall be breached or shall prove to be untrue or misleading
in any material respect at the time when made;
(d) default shall occur in the performance or observance of any covenant,
agreement, duty or obligation of Borrower under this Agreement or in any of the
other Loan Papers or Guarantor under the Guaranty;
(e) Borrower or Guarantor shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of its or of all or a substantial part of its
assets; (ii) be unable, or admit in writing its inability, to pay its debts as
they become due; (iii) make a general assignment for the benefit of creditors;
(iv) be adjudicated a bankrupt or insolvent or file a voluntary petition in
bankruptcy; (v) file a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
law; (vi) file an answer admitting the material allegations of, or consent to,
or default in answering, a petition filed against it in any bankruptcy,
reorganization or insolvency proceedings; or (vii) take any action (corporate or
otherwise) for the purpose of effecting any of the foregoing;
(f) an order, judgment or decree shall be entered by any court of competent
jurisdiction approving a petition seeking reorganization of Borrower or
Guarantor or appointing a receiver, trustee or liquidator of Borrower or
Guarantor or of all or a substantial part of its assets, and such order,
judgment or decree shall continue unstayed in effect for any period of thirty
(30) consecutive days;
(g) any Lien for failure to pay income, payroll, FICA or similar taxes shall be
filed by the U.S. Government or any agent or instrumentality thereof against
Borrower or Guarantor to the extent that such Lien has resulted in a threatened
seizure or sale of any property of Borrower;
(h) there shall occur any acceleration, notice of default, filing of suit or
notice of breach by any other party to any Material Agreement to which Borrower
or Guarantor is a party wherein the amount involved or claimed exceeds
$100,000.00, following the passage of any grace period provided for thereunder,
unless contested by Borrower or Guarantor in good faith by appropriate
proceedings; (i) default shall occur in the payment of any indebtedness of
Borrower or Guarantor under any note, loan agreement or credit agreement and
such default shall continue for more than the period of grace, if any, specified
therein, or any such indebtedness shall become due before its stated maturity by
acceleration of the maturity thereof or shall become due by its terms and shall
not be promptly paid or extended;
(j) any final judgment or judgments for the payment of money in the amount of
$100,000.00 or more, in the aggregate, shall be rendered against Borrower or
Guarantor and shall not be satisfied or discharged at least thirty (30) days
prior to the date on which any of their assets could be lawfully sold to satisfy
such judgment or judgments, unless Borrower or Guarantor shall bring litigation
to stay same;
(k) any attachment, sequestration or similar proceeding against any of the
assets of Borrower or Guarantor having a fair market value of $100,000.00 or
more shall be commenced and shall not be terminated, discharged or stayed prior
to the earlier of (i) fifteen (15) days after the commencement thereof, or (ii)
thirty (30) days prior to the date on which any of such assets could be lawfully
sold;
(l) there shall occur any change in the ownership of Borrower;
(m) a Material Adverse Change has occurred with respect to Borrower or
Guarantor.
10.2 - Remedies . Upon the occurrence of any Event of Default, Lender's
obligation to make any further Advances shall automatically terminate and Lender
may declare all of the Obligation to be forthwith due and payable, whereupon the
same shall forthwith become due and payable without further presentment, demand,
protest, notice of acceleration or the intent to accelerate, or other notice of
any kind, all of which Borrower hereby expressly waives, anything contained
herein, in the Note or in any of the other Loan Papers to the contrary
notwithstanding; provided that any default under subsections (e) or (f) of
Section 10.1 shall result in all of the Obligation becoming immediately due and
payable in full without the necessity of any act by Lender. Further, Lender may,
in its discretion, but shall not be required to, exercise such Rights as are
provided it in any of the Loan Papers or at law or in equity. Nothing contained
in this Article shall be construed to limit or amend in any way the Events of
Default enumerated in the Loan Papers or any other document executed in
connection with the transactions contemplated herein. Further, in such event,
Lender shall have all other Rights afforded to it with respect to Borrower,
Guarantor, or any of the Collateral under any of the Loan Papers or under any
applicable law or in equity. Specifically, in such event, Lender shall have the
right to pursue any and all remedies provided under the Guarantor's Guaranty.
ARTICLE XI
MISCELLANEOUS
11.1 - Survival of Representations and Warranties . All representations and
warranties of Borrower herein, and all covenants, agreements, duties and
obligations of Borrower and not fully performed on or before the date of this
Agreement, shall survive such date.
11.2 - Communications . Unless specifically otherwise provided, whenever any
Loan Paper requires or permits any consent, approval, notice, request, or demand
from one party to another, such communication must be in writing to be effective
and shall be deemed to have been given on the day actually delivered or, if
mailed, on the third day (or if such third day is not a Business Day, then on
the next succeeding Business Day) after it is enclosed in an envelope, addressed
to the party to be notified at the address stated below, properly stamped,
sealed, and deposited in the appropriate official postal service. Until changed
by notice pursuant hereto, the address for each party for purposes hereof is as
follows:
BORROWER: Odessa Exploration Incorporated
6010 Highway 191, Suite 210
Odessa, Texas 79762
Attention: Mr. D. Kirk Edwards
With a copy to:
Key Energy Group, Inc.
Two Tower Center, Tenth Floor
East Brunswick, New Jersey 08816
Attention: General Counsel
LENDER: Norwest Bank Texas, N. A.
500 West Texas Avenue
Midland, Texas 79701
Attention: Mr. Mark D. McKinney
11.3 - Non-Waiver .
(a) The acceptance by Lender at any time and from time to time of part payment
on the Obligation shall not operate as a waiver of any Event of Default then
existing.
(b) No waiver by Lender of any Event of Default shall operate as a waiver of any
other then existing or subsequent Event of Default.
(c) No delay or omission by Lender in exercising any Right shall impair such
Right or operate as a waiver thereof, nor shall any single or partial exercise
of any such Right preclude other or further exercise thereof, or the exercise of
any other Right under the Loan Papers or otherwise.
(d) No notice or demand given by Lender in any case shall operate as a waiver of
Lender's right to take other action in the same, similar or other instances
without such notice or demand.
(e) No Advance hereunder shall operate as a waiver by Lender of (i) the
representations, warranties and covenants of Borrower under the Loan Papers;
(ii) any Event of Default; or (iii) any of the conditions to Lender's
obligation, if any, to make further Advances.
11.4 - Strict Compliance . If any action or failure to act by Borrower violates
any covenant of Borrower contained herein or in any other Loan Paper, then such
violation shall not be excused by the fact that such action or failure to act
would otherwise be required or permitted by any covenant (or exception to any
covenant) other than the covenant violated.
11.5 - Cumulative Rights . The Rights of Lender under the Loan Papers are in
addition to all other Rights provided by law, whether or not the Obligation is
due and payable and whether or not Lender has instituted any suit for collection
or other action in connection with the Loan Papers.
11.6 - Governing Laws . This Agreement has been prepared, is being executed and
delivered, and is intended to be performed, in the State of Texas. The
substantive laws of such state and the applicable federal laws of the United
States of America shall govern the validity, construction, enforcement and
interpretation of this Agreement and the other Loan Papers; provided, however,
that the rights provided in the Loan Papers with reference to properties
situated in other states may be governed by the laws of such other states.
11.7 - Choice of Forum; Consent to Service of Process and Jurisdiction. Any
suit, action or proceeding against Borrower arising out of or relating to any of
the Loan Papers or any judgment entered by any court in respect thereof, may be
brought or enforced in the courts of the State of Texas, County of Midland, or
in the United States District Court for the Western District of Texas, as Lender
in its sole discretion may elect, and Borrower hereby submits to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding. Borrower hereby irrevocably consents to service of process
in any suit, action or proceeding in any of said courts by the mailing thereof
by Lender by registered or certified mail, postage prepaid, to Borrower, at its
address as set forth herein. Borrower hereby irrevocable waives any objections
that they may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to any of the other Loan Papers brought
in any said courts and hereby further irrevocably waive any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum and any right granted by statute, rule or court or otherwise
to have such suit, action or proceeding tried by a jury.
11.8 - Enforceability . If one or more of the provisions contained in the Loan
Papers shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such validity, illegality, or unenforceability shall not affect any
other provision of the Loan Papers or any other instrument referred to herein.
11.9 - Binding Effect . The Loan Papers shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns;
provided, however, that Borrower may not assign any Rights, duties or
obligations under the Loan Papers without the prior written consent of Lender.
11.10 - No Third Party Beneficiary .
(a) The parties do not intend the benefit of the Loan Papers to inure to any
third party, nor shall the Loan Papers be construed to make or render Lender
liable to any third party, including, without limitation, any materialman,
supplier, contractor, subcontractor, purchaser, lessor or lessee having a claim
against Borrower. Notwithstanding anything contained in the Loan Papers, or any
conduct or course of conduct by any or all of the parties hereto, whether before
or after signing this Agreement or any other Loan Paper, no Loan Paper shall be
construed as creating any right, claim or cause of action against Lender in
favor of any third party, including, without limitation, any materialman,
supplier, contractor, subcontractor, purchaser, lessor or lessee having a claim
against Borrower.
(b) All conditions to the obligation of Lender to make Advances hereunder are
imposed solely and exclusively for the benefit of Lender, and no other person
shall have standing to require satisfaction of such conditions in accordance
with their terms or be entitled to assume that Lender will make or refuse to
make Advances in the absence of strict compliance therewith, and any or all of
such conditions may be freely waived in whole or in part by Lender at any time
if Lender, in its sole and absolute discretion, deems it advisable to do so.
11.11 - Delegation by Lender . Lender may perform any of its duties or exercise
any of its Rights by or through its officers, directors, employees, attorneys,
agents or other representatives.
11.12 - Setoff . Borrower hereby grants to Lender (and to each participant to
whom Lender has conveyed or may hereafter convey a participation in the Note)
the right of setoff (which right shall not be exercised prior to the occurrence
of an Event of Default) to secure payment of the obligation upon any and all
moneys, securities or other property of Borrower and the proceeds therefrom, now
or hereafter held or received by or in transit to, Lender or any such
participant or any agent of Lender or such participant, from or for the account
of Borrower, whether for safekeeping, custody, pledge, transmission, collection
or otherwise, and also upon any and all deposits (general or specific) and
credits of Borrower and any and all claims of Borrower against Lender or any
such participant at any time existing.
11.13 - Additional Documents . It is contemplated that there may be certain
supplementary and/or corrective mortgages, deeds of trust, security agreements
and similar items prepared by Lender to be executed by Borrower subsequent
hereto, as well as certain other corrective and additional documentation not
executed concurrently with this Agreement because of the unavailability of
information such as property and collateral descriptions at the time of the
execution hereof. Borrower agrees to cooperate with Lender and provide such
information in connection therewith as Lender may reasonably request, and to
execute and deliver such other and further documentation as Lender shall
reasonably request so as to provide Lender with a Bank Lien on the Collateral.
Further, upon Lender's reasonable request, Borrower shall provide such title
opinions and division orders as are necessary to establish Borrower's title to
the Mineral Interests.
11.14 - Counterparts . This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
11.15 - Amendments . Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by Borrower and Lender.
11.16 - Headings . All headings used herein are for convenience and reference
purposes only and shall not affect the substance of this Agreement.
11.17 - Conflicts . In the event that there exists any conflict or inconsistency
between the terms hereof and the terms of any other Loan Paper, the terms hereof
shall govern and control, provided that the fact that any representation,
warranty or covenant contained in any other Loan Paper is not contained herein
shall not be, or be deemed to be, a conflict or inconsistency.
11.18 - Entirety . This Agreement and the other Loan Papers embody the entire
agreement among the parties and supersede and supplant all prior agreements and
understandings with respect to the matters contained herein.
11.19 - Notice of Final Agreement . THIS AGREEMENT, THE PROMISSORY NOTE, AND ANY
CONTRACTS OR INSTRUMENTS RELATING THERETO, REPRESENT THE ENTIRE AGREEMENT
BETWEEN THE PARTIES, AND IT IS EXPRESSLY UNDERSTOOD THAT ALL PREVIOUSLY EXECUTED
LOAN PAPERS AND PRIOR CONVERSATIONS OR MEMORANDA BETWEEN THE PARTIES REGARDING
THE TERMS OF THIS AGREEMENT SHALL BE SUPERSEDED BY THIS AGREEMENT. ANY
AMENDMENT, APPROVAL, OR WAIVER BY LENDER OF THE TERMS OF THIS AGREEMENT, THE
PROMISSORY NOTE, AND ANY CONTRACTS OR INSTRUMENTS RELATING THERETO, MUST BE IN
WRITING OR CONFIRMED IN WRITING, AND SHALL BE EFFECTIVE ONLY TO THE EXTENT
SPECIFICALLY SET FORTH IN SUCH WRITING. THIS AGREEMENT, IN CONJUNCTION WITH THE
NOTE AND ANY CONTRACTS OR INSTRUMENTS RELATING THERETO SHALL SERVE TO EVIDENCE
THE TERMS OF THE ENTIRE AGREEMENT BETWEEN THE PARTIES. EXECUTED EFFECTIVE as of
the date first above written.
BORROWER:
ODESSA EXPLORATION INCORPORATED
------------------------------
D. Kirk Edwards, President
LENDER:
NORWEST BANK TEXAS, N.A.
By: _________________________
Mark D. McKinney, Vice President
SCHEDULE 2.2
REQUEST FOR ADVANCE UNDER THE
LOAN
Reference is made to that certain Second Restated Loan Agreement dated as of
January 31, 1997 (as from time to time amended, the "Loan Agreement"), among
Odessa Exploration Incorporated ("Borrower") and Norwest Bank Texas, N. A.
("Lender"). Capitalized terms not otherwise defined herein shall have the
meaning assigned to them in the Agreement. Pursuant to the terms of the
Agreement, Borrower hereby requests the Lender to make an Advance to Borrower
under the Agreement, as follows:
1. Date of Advance. The requested date of the proposed Advance is ___________,
19___, which is a Business Day.
2. Details of Advance.
(a) Amounts of Advance. The requested aggregate amount of the proposed Advance
is $______________.
(b) Type of Advance and Interest Period. The requested type of Loan and Interest
Period (if applicable) for the proposed Advance is (check (A) or (B) as
applicable):
[ ] (A) A LIBOR Rate Loan for an Interest Period of (check one, as applicable):
[ ] One month
[ ] Two months
[ ] Three months
[ ] (B) A Base Rate Loan
Borrower and the officer of Borrower signing this instrument hereby certify
that:
(a) Such officer is the duly elected, qualified and acting officer of Borrower
as indicated below such officer's signature hereto.
(b) The representations and warranties of Borrower set forth in Article VII of
the Loan Agreement and in the Security Documents are true and correct on and as
of the date hereof, with the same effect as though such representations and
warranties had been made on and as of the date hereof.
(c) Borrower has performed or observed all terms, agreements, conditions and
obligations in the Loan Agreement and under the Security Documents required to
be performed or observed by Borrower on or prior to the date hereof (except
those waived in writing by the Lender), and each of the conditions precedent to
Advances contained in the Loan Agreement remains satisfied in all respects.
(d) No Event of Default has occurred and is continuing, or would result from the
making of the requested Advance. Borrower will use the Advance hereby requested
in compliance with the Loan Agreement.
IN WITNESS WHEREOF, this instrument is executed as of _____________, 19__.
ODESSA EXPLORATION INCORPORATED
By: ____________________________________
Name: ____________________________
Title: ____________________________
SCHEDULE 2.3
NOTICE OF CONVERSION/CONTINUATION
To Norwest Bank Texas, N. A.:
This Notice of Conversion/Continuation is given pursuant to Section 2.3 of
that certain Second Restated Loan Agreement, dated as of January 31, 1997
(the "Loan Agreement"), between Odessa Exploration Incorporated
("Borrower") and Norwest Bank Texas, N. A.("Lender"). Terms defined in the
Loan Agreement are used herein with the same meanings.
The undersigned hereby gives Lender irrevocable notice that Borrower
requests an Advance under the Loan Agreement as follows:
1. Date of Conversion/Continuation. The requested date of the proposed
conversion/continuation of Loan is _______________, 19__, which is a
Business Day.
2. Details of Conversion/Continuation (check and complete (A), (B), or (C)
as applicable):
[ ] (A) Convert $_____________ in principal amount of Base Rate Loans to a
LIBOR Rate Loan; with an interest period of _____ months to expire on
_____________, 19____;
[ ] (B) Convert $______________ in principal amount of LIBOR Rate Loans
(with the Interest Period presently ending on _____________, 19____) to a
Base Rate Loan;
[ ] (C) Continue $____________ in principal amount of presently outstanding
LIBOR Rate Loans (with the Interest Period presently ending on
______________, 19____), as a LIBOR Rate Loan with an interest period of
____ months to expire on ______________, 19____.
Dated: ___________________, 19___.
ODESSA EXPLORATION
INCORPORATED
By: _______________________________
Name: ______________________
Title: ______________________
SCHEDULE 6.1
CLOSING DOCUMENTS
1. Second Restated Loan Agreement
2. Revolving Line of Credit Note in the amount of $20,000,000
3. Amendments to Deeds of Trust for the following counties:
a. Andrews County, Texas
b. Crane County, Texas
c. Dawson County, Texas
d. Glasscock County, Texas
e. Loving County, Texas
f. Martin County, Texas
g. Midland County, Texas
h. Pecos County, Texas
i. Reagan County, Texas
j. Reeves County, Texas
k. Upton County, Texas
l. Eddy County, New Mexico
4. UCC-3 Financing Statements
a. Texas
b. New Mexico
5. Guaranty Agreement of Key Energy Group, Inc.
6. Solvency Letter for Key Energy Group, Inc.
7. Certificate of Secretary for Odessa Exploration Incorporated
8. Certificate of Secretary for Key Energy Group, Inc.
SCHEDULE 7.4
Statement of Outstanding Liabilities
Owed by Borrower
Borrower's guaranty of Guarantor's obligations under that certain Indenture
dated as of July 3, 1996 (the "Indenture") among Guarantor; Borrower; Yale
E. Key, Inc., a Texas corporation; WellTech Eastern, Inc., a Delaware
corporation; Key Energy Drilling, Inc., a Delaware corporation, d/b/a Clint
Hurt Drilling; Servicios WellTech, S. A., an Argentina corporation; and
American Stock Transfer & Trust Company, a Delaware corporation, as
Trustee.
SCHEDULE 7.5
Statement of Pending Litigation
Litigation involving Action Pipe & Equipment, Inc., as the adverse party
SCHEDULE 7.9
Material Agreements
Borrower's guaranty of Guarantor's obligations under that certain Indenture
dated as of July 3, 1996 (the "Indenture") among Guarantor; Borrower; Yale
E. Key, Inc., a Texas corporation; WellTech Eastern, Inc., a Delaware
corporation; Key Energy Drilling, Inc., a Delaware corporation, d/b/a Clint
Hurt Drilling; Servicios WellTech, S. A., an Argentina corporation; and
American Stock Transfer & Trust Company, a Delaware corporation, as
Trustee.
SCHEDULE 7.13
Subsidiaries of Borrower
None
SCHEDULE 8.1
COMPLIANCE CERTIFICATES
Reference is made to that certain Second Restated Loan Agreement dated as
of January 31, 1997 between ODESSA EXPLORATION INCORPORATED ("Borrower")
and NORWEST BANK TEXAS, N. A. ("Lender") (the "Loan Agreement").
1. Pursuant to the provisions of the Loan Agreement, the undersigned hereby
certifies, represents and warrants to Lender that, to the best of their
knowledge, except as set forth below, (i) during the period covered by this
certificate, no Event of Default has occurred; (ii) there exists no
condition or event that, with the giving of notice or lapse of time or
both, would constitute an Event of Default; and (iii) during the period
covered by this certificate, Borrower has observed, performed and complied
in all material respects with all covenants, agreements, duties and
obligations contained in the Loan Papers.
Exceptions to the above certification: [State "none" or specify the nature
and period of existence thereof and the action that Borrower is taking or
proposed to take with respect thereto.]
4. To the best knowledge of the undersigned, the attached financial
statements are true and correct and correctly set forth the financial
position and results of operations at the date(s) and for the period(s)
stated. The attached financial statements include all contingent
liabilities and cash flow information of Borrower.
5. Period covered: [Year or Three months] ended ______________, 19___.
6. Capitalized terms used but not defined herein shall have the respective
meanings ascribed thereto in the Loan Agreement.
Dated: _________________, 19___
ODESSA EXPLORATION INCORPORATED
-----------------------------
D. Kirk Edwards, President
SCHEDULE 9.1
Outstanding Indebtedness
Borrower's guaranty of Guarantor's obligations under that certain Indenture
dated as of July 3, 1996 (the "Indenture") among Guarantor; Borrower; Yale
E. Key, Inc., a Texas corporation; WellTech Eastern, Inc., a Delaware
corporation; Key Energy Drilling, Inc., a Delaware corporation, d/b/a Clint
Hurt Drilling; Servicios WellTech, S. A., an Argentina corporation; and
American Stock Transfer & Trust Company, a Delaware corporation, as
Trustee.
SECOND AMENDMENT
TO THIRD AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
AND MODIFICATION OF NOTES
THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AND MODIFICATION OF NOTES (this "Amendment") is dated as of March 27, 1997, and
entered into by and between THE CIT GROUP/CREDIT FINANCE, INC. ("Lender") with
its office at 10 South LaSalle Street, Chicago, Illinois 60603, and YALE E. KEY,
INC. ("Yale"), KEY ENERGY DRILLING, INC. (d/b/a Clint Hurt Drilling) ("Hurt")
and WELLTECH EASTERN, INC. ("WellTech") (individually each a "Borrower" and
collectively the "Borrowers").
WHEREAS, Lender and Borrowers have entered into that certain Third Amended and
Restated Loan and Security Agreement dated as of May 21, 1996 as amended by the
First Amendment to Third Amended and Restated Loan and Security Agreement dated
November 22, 1996 (the "First Amendment") (as so amended, the "Agreement");
WHEREAS, in connection with the execution of the Agreement, Borrowers executed
and delivered to Lender the following promissory notes (collectively the
"Notes"):
(i) Amended and Restated Promissory Note dated May 21, 1996 executed by WellTech
payable to Lender in the original principal amount of $11,822,186.00 as amended
by the First Amendment (the "WellTech Note");
(ii) Amended and Restated Promissory Note dated May 21, 1996 executed by Yale
payable to Lender in the original principal amount of $10,004,082.00 as amended
by the First Amendment (the "Yale Note"); and
(iii) Amended and Restated Promissory Note dated May 21, 1996 executed by Hurt
payable to Lender in the original principal amount of $1,230,000.00 as amended
by the First Amendment (the "Hurt Note"); and
WHEREAS, on or about July 3, 1996 Key Energy Group, Inc. ("Key") issued and sold
$52,000,000 in the aggregate principal amount of its convertible subordinated
debentures due 2003 (the "Debentures") pursuant to a Private Offering Memorandum
dated June 28, 1996; and on July 3, 1996, Key, the Borrowers, and American Stock
Transfer and Trust Company, as Trustee, entered into that certain Indenture (the
"Indenture"); and
WHEREAS, part of the proceeds of the Debentures were used to repay the Notes;
and
WHEREAS, Borrowers requested the ability to reborrow part of the amounts repaid
under the Notes, all as more fully set forth in the First Amendment; and
WHEREAS, Borrowers have recently concluded several acquisitions with respect to
the stock or assets of other corporations and, accordingly, have requested an
increase in both the amount of the Maximum Credit and the Term Loan; and
WHEREAS, Lender has agreed to such increases and to the amendments set forth
herein subject to the terms and conditions provided for in this Amendment; and
WHEREAS, Lender and Borrowers desire to amend the Agreement and to modify the
Notes as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth in the Agreement and this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. Capitalized terms used in this Amendment, to the
extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
ARTICLE II
Amendments
Section 2.01. Amendment to Section 10.1 of the Agreement. Section 10.1 of the
Agreement is hereby amended in its entirety to read as follows:
"10.1 (a) Maximum Credit: $55,000,000
(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: $45,000,000.
(e) Sublimits:
(i) For Yale, $55,000,000 less all Obligations of Hurt and WellTech; (ii) For
Hurt, the lesser of (i) $2,000,000, and
(ii) $55,000,000 less all Obligations of Yale and WellTech; and
(iii) For WellTech, $55,000,000 less all Obligations of Hurt and Yale."
Section 2.02. Amendment to Section 10.2(a) of the Agreement. Section 10.2(a) of
the Agreement is hereby amended in its entirety to read as follows:
"(a) Term Loan:
(i) For Yale, up to but not to exceed $16,187,000 (the "Maximum Amount");
(ii) For Hurt, up to but not to exceed $1,540,000 (the "Maximum Amount"); and
(iii) For WellTech, up to but not to exceed $20,867,000 (the "Maximum Amount")."
Section 2.03. Amendment to Section 10.4 of the Agreement. Section 10.4 of the
Agreement is hereby amended in its entirety to read as follows:
"10.4 Fees:
(a) Interest Rate: Prime Rate plus .25% per annum
(b) Closing Fees: None
(c) Unused Line Fee Rate: .25% per annum payable on the first day of the
following month."
ARTICLE III
Modifications to Notes
Section 3.01. Amendments to Hurt Note. The first three (3) paragraphs of the
Hurt Note are hereby amended in their entirety to read as follows:
"FOR VALUE RECEIVED, KEY ENERGY DRILLING, INC., D/B/A CLINT HURT DRILLING, a
Delaware corporation, promises to pay to the order of THE CIT GROUP/CREDIT
FINANCE, INC. ("CIT"), at its offices at 10 South LaSalle Street, Chicago,
Illinois 60603 or such other place as the holder hereof may from time to time
designate in writing, in legal tender of the United States of America, the
principal sum of One Million Five Hundred Forty Thousand Dollars ($1,540,000) or
so much thereof as may be borrowed hereunder and reflected on Schedule "A"
attached hereto and made a part hereof, plus interest from the date hereof on
the unpaid principal balance as follows:
The principal amount available to be borrowed under this Note (the "Maximum
Amount") shall be repaid in monthly installments of $18,334.00 each on the first
day of each month beginning May 1, 1997, and at no time shall the outstanding
principal exceed the Maximum Amount. The principal sum hereof outstanding shall
be due and payable on the end of the "Term" as defined in the Loan Agreement
described herein.
Interest shall be earned at the rate (the "Annual Rate") of one-quarter of one
percent (.25%) per annum plus the "Prime Rate". 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). Such interest shall be payable monthly in arrears on
the first day of each and every month, commencing on the first day of the month
after an advance is made hereunder. Interest shall be computed on the unpaid
principal balance and shall be calculated on a year of 360 days for actual days
elapsed. Interest and principal not paid when due shall bear interest at a rate
equal to two percent (2%) per annum in excess of the Annual Rate." The remaining
provisions of the Hurt Note are unchanged.
Section 3.02. Amendments to WellTech Note. The first three (3) paragraphs of the
WellTech Note are hereby amended in their entirety to read as follows:
"FOR VALUE RECEIVED, WELLTECH EASTERN, INC., a Delaware corporation, promises to
pay to the order of THE CIT GROUP/CREDIT FINANCE, INC. ("CIT"), at its offices
at 10 South LaSalle Street, Chicago, Illinois 60603 or such other place as the
holder hereof may from time to time designate in writing, in legal tender of the
United States of America, the principal sum of Twenty Million Eight Hundred
Sixty-Seven Thousand and no/100 Dollars ($20,867,000) or so much thereof as may
be borrowed hereunder and reflected on Schedule "A" attached hereto and made a
part hereof, plus interest from the date hereof on the unpaid principal balance
as follows:
The principal amount available to be borrowed under this Note (the "Maximum
Amount") shall be repaid in monthly installments of $248,417.00 each on the
first day of each month beginning May 1, 1997, and at no time shall the
outstanding principal exceed the Maximum Amount. The principal sum hereof
outstanding shall be due and payable on the end of the "Term" as defined in the
Loan Agreement described herein.
Interest shall be earned at the rate (the "Annual Rate") of one-quarter of one
percent (.25%) per annum plus the "Prime Rate". 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). Such interest shall be payable monthly in arrears on
the first day of each and every month, commencing on the first day of the month
after an advance is made hereunder. Interest shall be computed on the unpaid
principal balance and shall be calculated on a year of 360 days for actual days
elapsed. Interest and principal not paid when due shall bear interest at a rate
equal to two percent (2%) per annum in excess of the Annual Rate." The remaining
provisions of the WellTech Note are unchanged.
Section 3.03. Amendments to Yale Note. The first three (3) paragraphs of the
Yale Note are hereby amended in their entirety to read as follows:
"FOR VALUE RECEIVED, YALE E. KEY, INC., a Texas corporation, promises to pay to
the order of THE CIT GROUP/CREDIT FINANCE, INC. ("CIT"), at its offices at 10
South LaSalle Street, Chicago, Illinois 60603 or such other place as the holder
hereof may from time to time designate in writing, in legal tender of the United
States of America, the principal sum of Sixteen Million One Hundred Eighty-Seven
Thousand Dollars ($16,187,000) or so much thereof as may be borrowed hereunder
and reflected on Schedule "A" attached hereto and made a part hereof, plus
interest from the date hereof on the unpaid principal balance as follows:
The principal amount available to be borrowed under this Note (the "Maximum
Amount") shall be repaid in monthly installments of $192,703.00 each on the
first day of each month beginning May 1, 1997, and at no time shall the
outstanding principal exceed the Maximum Amount. The principal sum hereof
outstanding shall be due and payable on the end of the "Term" as defined in the
Loan Agreement described herein.
Interest shall be earned at the rate (the "Annual Rate") of one-quarter of one
percent (.25%) per annum plus the "Prime Rate". 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). Such interest shall be payable monthly in arrears on
the first day of each and every month, commencing on the first day of the month
after an advance is made hereunder. Interest shall be computed on the unpaid
principal balance and shall be calculated on a year of 360 days for actual days
elapsed. Interest and principal not paid when due shall bear interest at a rate
equal to two percent (2%) per annum in excess of the Annual Rate." The remaining
provisions of the Yale Note are unchanged.
ARTICLE IV
Ratifications, Representations and Warranties
Section 4.01. Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and, except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement, including, without
limitation, all financial covenants contained therein, are ratified and
confirmed and shall continue in full force and effect. Lender and each Borrower
agree that the Agreement as amended hereby shall continue to be legal, valid,
binding and enforceable in accordance with its terms.
Section 4.02. Representations and Warranties. Each Borrower hereby represents
and warrants to Lender that the execution, delivery and performance of this
Amendment and all other loan, amendment or security documents to which such
Borrower is or is to be a party hereunder (hereinafter referred to collectively
as the "Loan Documents") executed and/or delivered in connection herewith, have
been authorized by all requisite corporate action on the part of such Borrower
and will not violate the Articles of Incorporation or Bylaws of such Borrower.
ARTICLE V
Conditions Precedent
Section 5.01. Conditions. The effectiveness of this Amendment is subject to the
satisfaction of the following conditions precedent (unless specifically waived
in writing by the Lender):
(a) Lender shall have received, in addition to this Amendment, all of the
following, each dated (unless otherwise indicated) as of the date of this
Amendment, in form and substance satisfactory to Lender in its sole discretion:
(i) Company Certificate. A certificate executed by the Secretary or Assistant
Secretary of each Borrower certifying (A) that Borrower's Board of Directors has
met and adopted, approved, consented to and ratified the resolutions attached
thereto which authorize the execution, delivery and performance by Borrower of
the Amendment and the Loan Documents, (B) the names of the officers of Borrower
authorized to sign this Amendment and each of the Loan Documents to which
Borrower is to be a party hereunder, (C) the specimen signatures of such
officers, and (D) that neither the Articles of Incorporation nor Bylaws of
Borrower have been amended since the date of the Agreement;
(ii) Evidence of Existence and Good Standing. Evidence of the existence and good
standing of each Borrower in such jurisdictions as Lender may require;
(iii) No Material Adverse Change. Since May 21, 1996, there shall have occurred
no material adverse change in the business, operations, financial condition,
profits or prospects of any Borrower, or in the Collateral, and the Lender shall
have received a certificate of each Borrower's chief executive officer to such
effect;
(iv) Other Documents. Each Borrower shall have executed and delivered such other
documents and instruments as well as required record searches as Lender may
require.
(b) All corporate proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other legal
matters incident thereto shall be satisfactory to Lender and its legal counsel,
Jenkens & Gilchrist, a Professional Corporation.
ARTICLE VI
Miscellaneous
Section 6.01. Survival of Representations and Warranties. All representations
and warranties made in the Agreement or any other document or documents relating
thereto, including, without limitation, any Loan Document furnished in
connection with this Amendment, shall survive the execution and delivery of this
Amendment and the other Loan Documents, and no investigation by Lender or any
closing shall affect the representations and warranties or the right of Lender
to rely thereon.
Section 6.02. Reference to Agreement. The Agreement, each of the Loan Documents,
and any and all other agreements, documents or instruments now or hereafter
executed and delivered pursuant to the terms hereof or pursuant to the terms of
the Agreement as amended hereby, are hereby amended so that any reference
therein to the Agreement shall mean a reference to the Agreement as amended
hereby.
Section 6.03. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 6.04. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN THE STATE OF ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS.
Section 6.05. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of Lender and each Borrower and their respective successors
and assigns; provided, however, that no Borrower may assign or transfer any of
its rights or obligations hereunder without the prior written consent of Lender.
Lender may assign any or all of its rights or obligations hereunder without the
prior consent of any Borrower.
Section 6.06. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
Section 6.07. Effect of Waiver. No consent or waiver, express or implied, by
Lender to or of any breach of or deviation from any covenant or condition of the
Agreement or duty shall be deemed a consent or waiver to or of any other breach
of or deviation from the same or any other covenant, condition or duty. No
failure on the part of Lender to exercise and no delay in exercising, and no
course of dealing with respect to, any right, power, or privilege under this
Amendment, the Agreement or any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power, or
privilege under this Amendment, the Agreement or any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege. The rights and remedies provided for in the
Agreement and the other Loan Documents are cumulative and not exclusive of any
rights and remedies provided by law. Section
6.08. Headings. The headings, captions and arrangements used in this Amendment
are for convenience only and shall not affect the interpretation of this
Amendment.
Section 6.09. Releases. As a material inducement to Lender to enter into this
Amendment, 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 Agreement or the other
Loan Documents. Each Borrower hereby releases, acquits, and forever discharges
Lender, and its successors, assigns, and predecessors in interest, their
parents, subsidiaries and affiliated organizations, and the officers, 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, which such Borrower 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 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 6.10. Expenses of Lender. Borrowers agree to pay on demand (i) all costs
and expenses reasonably incurred by Lender in connection with the preparation,
negotiation and execution of this Amendment and the other Loan Documents
executed pursuant hereto and any and all subsequent amendments, modifications,
and supplements hereto or thereto, including, without limitation, the costs and
fees of Lender's legal counsel and the allocated cost of staff counsel and (ii)
all costs and expenses reasonably incurred by Lender in connection with the
enforcement or preservation of any rights under the Agreement, this Amendment
and/or other Loan Documents, including, without limitation, the costs and fees
of Lender's legal counsel and the allocated cost of staff counsel.
Section 6.11. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN LENDER AND
BORROWERS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN LENDER AND BORROWERS.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to Third
Amended and Restated Loan and Security Agreement on the date first above
written.
SIGNATORY PAGES TO
SECOND AMENDMENT
TO THIRD AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
AND MODIFICATION OF NOTES
"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:
Title:
CONSENTS AND REAFFIRMATIONS
Key Energy Group, Inc. hereby acknowledges the execution of, and consents to,
the terms and conditions of that Second Amendment to Third Amended and Restated
Loan and Security Agreement dated as of March __, 1997, between Yale E. Key,
Inc., Key Energy Drilling, Inc. (d/b/a Clint Hurt Drilling), WellTech Eastern,
Inc. and The CIT Group/Credit Finance, Inc., ("Creditor") and reaffirms its
obligations under (i) that certain Guaranty (the "Guaranty") dated as of May 21,
1996 made by the undersigned in favor of the Creditor, and (ii) that certain
Amended and Restated Stock Pledge Agreement (the "Pledge") dated as of May 21,
1996 made by the undersigned in favor of the Creditor, and acknowledges and
agrees that the Guaranty and the Pledge and all other documents executed in
connection therewith remain in full force and effect and the Guaranty and the
Pledge and all such other documents are hereby ratified and confirmed.
Dated as of March __, 1997.
KEY ENERGY GROUP, INC.
By:
Name: Francis D. John
Title:
AMENDED 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.
7. Provided no Event of Default has occurred or would result from the making of
such distributions, each Borrower may distribute funds to Key in an amount
sufficient in the aggregate to make regularly scheduled payments of interest
under the Indenture.
8. Each of the Borrowers may guarantee the obligations of Parent under the
Indenture and the Debentures and may guarantee obligations of subsidiaries of
Parent incurred in the ordinary course of business.
EXHIBIT 11(a)
KEY ENERGY GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
-----------------------------------------------------------------
Fully- Fully-
(Thousands, except per share amounts) Primary Diluted Primary Diluted
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income and Adjusted Earnings:
Net Income before income taxes and
minority interest $3,563 $3,563 $1,244 $1,244
Effect of interest on debentures - 975 - -
------------ ----------- ------------ ------------
Adjusted net income before income taxes
and minority interest $3,563 $4,538 $1,244 $1,244
============ =========== ============ ============
Net Income $2,365 $2,365 $827 $827
Effect of interest on convertible
debentures, net of tax effect - 649 - -
============ =========== ============ ============
Adjusted net income $2,365 $3,014 $827 $827
============ =========== ============ ============
Weighted Average Shares and Share Equivalents Outstanding:
Weighted average shares outstanding (as reported) 11,612 11,612 6,981 6,981
Common Share equivalents issuable under
stock option plans 563 593 - -
Common share equivalents issuable on assumed
conversion of WellTech warrants 361 395 - 5
Common share equivalents issuable on assumed
conversion of convertible debentures - 5,333 - -
Common share equivalents issuable on assumed
conversion of CIT warrants 36 44
Weighted average shares and share
equivalents outstanding 12,572 17,977 6,981 6,986
Earning per Share:
Net income before income taxes
and minority interest $0.28 $0.25 $0.18 $0.18
Net income $0.19 $0.17 $0.12 $0.12
KEY ENERGY GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
Nine Months Ended Nine Months Ended
March 31, 1997 March 31, 1996
-----------------------------------------------------------------
Fully- Fully-
(Thousands, except per share amounts) Primary Diluted Primary Diluted
- ------------------------------------------------------------------------------------------------------------------------
Net Income and Adjusted Earnings:
Net Income before income taxes and
minority interest $8,981 $8,981 $3,468 $3,468
Effect of interest on debentures - 2,925 - -
------------ ----------- ------------ ------------
Adjusted net income before income taxes
and minority interest $ 8,981 $ 11,906 $ 3,468 $ 3,468
============ =========== ============ ============
Net Income $5,962 $5,962 $2,321 $2,321
Effect of interest on convertible
debentures, net of tax effect - 1,945 - -
============ =========== ============ ============
Adjusted net income $5,962 $7,907 $2,321 $2,321
============ =========== ============ ============
Weighted Average Shares and Share Equivalents Outstanding:
Weighted average shares outstanding (as reported) 10,961 10,961 6,981 6,981
Common Share equivalents issuable under
stock option plans 488 593 - -
Common share equivalents issuable on assumed
conversion of WellTech warrants 279 395 - 5
Common share equivalents issuable on assumed
conversion of convertible debentures - 5,333 - -
Common share equivalents issuable on assumed
conversion of CIT warrants 9 22
Weighted average shares and share
equivalents outstanding 11,737 17,304 6,981 6,986
Earning per Share:
Net income before income taxes
and minority interest $0.76 $0.69 $0.50 $0.50
Net income $0.51 $0.46 $0.33 $0.33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 15,096
<SECURITIES> 0
<RECEIVABLES> 32,073
<ALLOWANCES> 0
<INVENTORY> 2,004
<CURRENT-ASSETS> 51,393
<PP&E> 154,799
<DEPRECIATION> (16,120)
<TOTAL-ASSETS> 204,543
<CURRENT-LIABILITIES> 29,432
<BONDS> 0
0
0
<COMMON> 1,173
<OTHER-SE> 47,856
<TOTAL-LIABILITY-AND-EQUITY> 204,543
<SALES> 5,863
<TOTAL-REVENUES> 110,709
<CGS> 2,185
<TOTAL-COSTS> 101,728
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,507
<INCOME-PRETAX> 8,981
<INCOME-TAX> 3,020
<INCOME-CONTINUING> 5,962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,962
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.46
</TABLE>
