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1
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 December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8038
KEY ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 04-2648081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Tower Center, Tenth Floor, East Brunswick, NJ 08816
(Address of Principal executive offices) (ZIP Code)
Registrant's telephone number including area code: (908) 247-4822
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 February 13, 1997: 11,658,131
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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 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 20
Item 2. Changes in Securities. 20
Item 3. Defaults Upon Senior Securities. 20
Item 4. Submission of Matters to a Vote of Security Holders. 20
Item 6. Exhibits and Reports on Form 8-K. 20
Signatures. 23
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Key Energy Group, Inc. and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, June 30,
(Thousands, except share and per share data) 1996 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash ........................................................................ $ 9,283 $ 3,240
Restricted cash ............................................................. 1,629 971
Accounts receivable, net .................................................... 27,373 20,570
Inventories ................................................................. 1,942 1,957
Prepaid expenses and other current assets ................................... 928 743
-------- ---------
Total Current Assets .......................................................... 41,155 27,481
-------- ---------
Property and Equipment:
Oilfield service equipment .................................................. 104,450 66,432
Oil and gas well drilling equipment ......................................... 5,455 4,862
Motor vehicles .............................................................. 1,260 1,159
Oil and gas properties and other related equipment, successful efforts method 18,960 17,663
Furniture and equipment ..................................................... 921 716
Buildings and land .......................................................... 5,339 5,295
--------- ---------
136,385 96,127
Accumulated depreciation & depletion ............................................ (12,983) (8,920)
--------- ---------
Net Property and Equipment ...................................................... 123,402 87,207
--------- ---------
Other Assets .................................................................. 10,396 7,034
--------- ---------
Total Assets .................................................................. $ 174,953 $ 121,722
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................................ $ 13,318 $ 11,086
Other accrued liabilities ................................................... 8,830 11,002
Accrued interest ............................................................ 134 417
Accrued income taxes ........................................................ 118 53
Deferred tax liability ...................................................... 310 310
Current portion of long-term debt ........................................... 1,351 1,471
--------- ---------
Total Current Liabilities ..................................................... 24,061 24,339
--------- ---------
Long-term debt, less current portion .......................................... 75,452 45,354
Non-current accrued expenses .................................................. 4,909 4,909
Deferred income taxes ......................................................... 11,583 4,244
Minority interest ............................................................. 1,260 1,252
Stockholders' equity:
Common stock, $.10 par value; 25,000,000
shares authorized, 11,483,131 and 10,413,513 shares issued and
outstanding at December 31, 1996 and June 30, 1996, respectively ......... 1,148 1,041
Additional paid-in capital .................................................. 45,123 32,763
Retained earnings ........................................................... 11,417 7,820
-------- ---------
Total Stockholders' Equity .................................................... 57,688 41,624
-------- ---------
Total Liabilities and Stockholders' Equity .................................... $ 174,953 $ 121,722
======= =========
</TABLE>
See the accompanying notes which are an integral part of these consolidated
financial statements.
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Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
December 31, December 31,
(Thousands, except per share data) 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Oilfield services ............................. $ 31,708 $ 9,381 $ 59,019 $ 19,148
Oil and gas ................................... 2,088 911 3,613 1,727
Oil and gas well drilling ..................... 2,359 2,057 4,683 3,659
Other revenues, net ........................... 42 45 344 258
-------- -------- -------- --------
36,197 12,394 67,659 24,792
-------- -------- -------- --------
COSTS AND EXPENSES:
Oilfield services ............................. 23,066 6,889 42,766 14,153
Oil and gas ................................... 773 354 1,286 619
Oil and gas well drilling ..................... 1,963 1,388 3,844 2,735
Depreciation, depletion and amortization ...... 2,342 971 4,437 1,794
General and administrative .................... 3,735 1,198 7,262 2,390
Interest ...................................... 1,296 439 2,646 877
-------- -------- -------- --------
33,175 11,239 62,241 22,568
-------- -------- -------- --------
Income before income taxes and minority interest . 3,022 1,155 5,418 2,224
Income tax expense ............................... 1,029 387 1,813 730
Minority interest in net income .................. (50) - 8 -
-------- -------- -------- --------
NET INCOME ....................................... $ 2,043 $ 768 $ 3,597 $ 1,494
======== ======== ======== ========
EARNINGS PER SHARE:
Primary:
Income before income taxes and minority interest $ 0.26 $ 0.17 $ 0.48 $ 0.32
Net income ..................................... $ 0.18 $ 0.11 $ 0.32 $ 0.22
Assuming full dilution:
Income before income taxes and minority interest $ 0.24 $ 0.17 $ 0.44 $ 0.32
Net income ..................................... $ 0.16 $ 0.11 $ 0.29 $ 0.22
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary .......................................... 11,634 6,914 11,286 6,914
Assuming full dilution ........................... 17,027 6,914 16,813 6,914
</TABLE>
See the accompanying notes which are an integral part of these consolidated
financial statements.
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Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
December 31, December 31,
(Thousands) 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 2,043 $ 768 $ 3,597 $ 1,494
Adjustments to reconcile income from operations to
net cash provided (used) by operations:
Depreciation, depletion and amortization .................. 2,342 971 4,437 1,794
Deferred income taxes ..................................... 1,029 387 1,813 730
Minority interest in net income ........................... (50) - 8 -
Change in assets and liabilities net of effects from acquisitions:
(Increase) decrease in accounts receivable .............. (1,761) 279 (3,673) (219)
(Increase) decrease in other current assets ............. 352 (21) (97) 90
Decrease in accounts payable and accrued expenses ....... (3,922) (533) (3,069) (807)
Increase (decrease) in accrued interest ................. (947) 10 (283) 23
Other assets and liabilities ............................ (175) (50) (806) (59)
--------- --------- --------- --------
Net cash provided (used) by operating activities ......... (1,089) 1,811 1,927 3,046
--------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Oilwell service operations ......... (3,049) (841) (5,949) (1,727)
Capital expenditures - Oil and gas operations ............. (975) - (1,016) (7)
Capital expenditures - Oil and gas well drilling operations (268) (220) (591) (360)
Cash received in acquisitions ............................. 50 - 50 -
Acquisitions - oilwell service operations ................. (13,278) - (13,278) -
Expenditures for oil and gas properties ................... - (1,236) (281) (2,150)
--------- --------- --------- --------
Net cash used in investing activities ..................... (17,520) (2,297) (21,065) (4,244)
--------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt ................................ (154) (514) (1,053) (1,418)
Borrowings (payments) under line-of-credit ................ 368 38 1,307 (28)
Proceeds from exercised stock options ..................... - - 58 -
Proceeds from long-term debenture, net .................... - - 50,440 -
Repayment of long-term debt ............................... - - (35,413) -
Proceeds from long-term debt - other ...................... 10,500 1,019 10,500 2,324
--------- --------- --------- --------
Net cash provided by financing activities ................. 10,714 543 25,839 878
--------- --------- --------- --------
Net increase (decrease) in cash and restricted cash ....... (7,895) 57 6,701 (320)
Cash and restricted cash at beginning of period ........... 18,807 898 4,211 1,275
--------- --------- --------- --------
Cash and restricted cash at end of period ................. $ 10,912 $ 955 $ 10,912 $ 955
========= ========= ========= ========
Supplemental cash flow disclosures:
Interest paid ............................................. $ 2,243 $ 429 $ 2,929 $ 854
</TABLE>
See the accompanying notes which are an integral part of these consolidated
financial statements.
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6
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
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 February 13, 1997, the Company operates 392 well service and workover
rigs, which is the third largest fleet of well service and workover rigs in the
United States. The Company operates in Texas, Oklahoma, New Mexico, Michigan,
the Appalachian Basin and Argentina 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 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 engages in the production of oil and
natural gas and contract drilling in the Permian Basin of West Texas.
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.
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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 December 31, 1996, the statement of
cash flows for the three and six months ended December 31, 1996 and 1995, and
the results of operations for the three and six month periods then ended.
2. BUSINESS AND PROPERTY ACQUISITIONS
Since September 30, 1996, the Company has completed eight acquisitions of
unrelated oil and gas well service businesses.
Acquisitions Completed after December 31, 1996
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.
Oklahoma Trucking and Well Service Rigs.
Effective as of January 7, 1997, the Company completed the acquisition of
the assets of an Oklahoma trucking and well service company (the "Seller") for
$2.7 million in cash. The Seller 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.
Acquisitions Completed During the Three-Months Ended December 31, 1996
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 approxiately $100,000 in cash, most of which is payable over a
four-year period. Woodward operated five oilwell service units and a fishing
tool business 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.
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.
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.
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8
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.
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.
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.
Prior Acquisitions
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.
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 proceeds
from bank borrowings, which indebtedness was subsequently repaid (See Note 3).
The acquisition was accounted for using the purchase method.
3. LONG-TERM DEBT
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.
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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 guaranty 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.
Other Long-term Debt
In November 1996, the Company completed the renegotiation of its credit
facilities with CIT consisting of a line of credit and a 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) $40
million, or (ii) an amount subject to certain asset valuations determined by
CIT. Also, the renegoitiated term and credit facilities include an interest rate
at one-half percent above the stated prime rate, which was 8.25% at December 31,
1996, an extension of the maturity dates and a decrease in prepayment
penalties.
The CIT line of credit, as amended, ($11,058,000 approximate balance at December
31, 1996) requires monthly payments of interest and is collateralized by the
accounts receivable of Yale E. Key, Clint Hurt and WellTech Eastern. At December
31, 1996, there was no credit line availability.
The CIT note, as amended, ($10,500,000 approximate balance at December 31, 1996)
requires monthly payments of interest and is collateralized by all of the assets
of Yale E. Key, Clint Hurt and WellTech Eastern. At December 31, 1996, there was
approximately $8.9 million in unused term loan.
In addition to the CIT credit facilities, Odessa Exploration has funded its
operations and acquisitions in part through a credit facility with Norwest. All
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10
amounts previously owed by Odessa Exploration under the Norwest facility were
paid using a portion of the proceeds from the Offering. Effective as of January
31, 1997, Odessa Exploration completed the renegotiation of the Norwest credit
facility, which, among other things, increased its borrowing base to $18
million, none of which has been advanced as of February 13, 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 December 31, 1996.
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.
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11
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 1993, the Company has made a number of acquisitions, or is in the process
thereof, which have significantly expanded the Company's operations:
Acquisitions Completed after December 31, 1996
* 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.
* Oklahoma Trucking and Well Service Rigs.
Effective as of January 7, 1997, the Company completed the acquisition of
the assets of an Oklahoma trucking and well service company (the "Seller") for
$2.7 million in cash. The Seller 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.
Acquisitions Completed During the Three-Months Ended December 31, 1996
* 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 approxiately $100,000 in cash, most of which is payable over a
four-year period. Woodward operated five oilwell service units and a fishing
tool business 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.
* 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.
* 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.
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12
* 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.
* 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.
* 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.
Prior Acquisitions
* 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.
* 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 proceeds
from bank borrowings, which indebtedness was subsequently repaid (See Note 3).
The acquisition was accounted for using the purchase method.
Other Recent Developments
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. Net proceeds
from the Offering were used substantially to 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 to the
Financial Statements for a more detailed description, (including an increase in
the interest rate), of the Offering.
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13
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1996 VERSUS QUARTER ENDED DECEMBER 31, 1995
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 December 31, 1996 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 services 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 December 31, 1996 increased
$23,803,000 or 192% to $36,197,000 from $12,394,000 for the quarter ended
December 31, 1995, while net income of $2,043,000 represented an increase
$1,275,000, or 166%, from the 1995 quarter total of $768,000. The increase in
revenues was primarily due to the increased oil and gas revenues from Odessa
Exploration, increased oilwell service equipment utilization, the acquisition of
the WellTech Eastern operations from the date of acquisition of March 26, 1996
and the additional oilfield service acquisitions acquired (see Note 2 ). The
increase in quarterly 1996 net income over the quarterly 1995 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 and a decrease in total consolidated Company costs and expenses as a
percentage of total revenues.
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 $22,327,000, or 238%, from $9,381,000 for
the 1995 quarter to $31,708,000 for the 1996 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 1995 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.
- 13 -
<PAGE>
14
Oilfield service expenses increased $16,177,000, or 234%, from $6,889,000
for the 1995 quarter to $23,066,000 for the current 1996 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 its services, offering ancillary
services and equipment such as oilwell fishing tools, blow-out preventers and
oilwell frac tanks.
Oil and Natural Gas Exploration and Production
The Company's oil and natural gas exploration and production operations are
conducted by Odessa Exploration. Revenues from oil and gas activities increased
$1,177,000, or 129%, from $911,000 during the quarter ended December 31, 1995 to
$2,088,000 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 1996, higher oil and
natural gas prices for the current year, and the April 1996 purchase of $6.9
million of oil and gas properties from an unrelated third party, which almost
doubled the number of oil and gas wells owned and/or operated by Odessa
Exploration.
Of the total $2,088,000 of revenues for the quarter ended December 31, 1996,
approximately $1,773,000 was from the sale of oil and gas - 37,157 barrels of
oil at an average price of $25.03 per barrel and 272,283 MCF of natural gas at
an average price of $3.09 per MCF. The remaining $315,000 of revenues
represented primarily administrative fee income and other miscellaneous income.
Expenses related to oil and gas activities increased $419,000, or 118%, from
$354,000 for the 1995 quarter to $773,000 for current 1996 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
$302,000, or 15%, from $2,057,000 for the 1995 quarter to $2,359,000 for the
1996 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
$575,000, or 41%, from $1,388,000 for the 1995 quarter to $1,963,000 for current
1996 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 $857,000, or 195%, to $1,296,000 for the current
1996 quarter from $439,000 for the 1995 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
$2,537,000, or 212%, to $3,735,000 for the current 1996 quarter from $1,198,000
for the comparable 1995 quarter. The increase was primarily attributable to the
Company's recent acquisitions and expanded services.
- 14 -
<PAGE>
15
Depreciation, Depletion and Amortization Expense
Depreciation, depletion and amortization expense increased $1,371,000, or 141%,
to $2,342,000 for the current 1996 quarter from $971,000 for the comparable 1995
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 $1,029,000 for current 1996 quarter increased from
$387,000 in income tax expense for the comparable 1995 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
$1,029,000 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 used by operating activities was $1,089,000 compared to $1,811,000 in
net cash provided during the comparable 1995 quarter. The decrease is
attributable primarily to increases in accounts receivable and a decrease in
accounts payable and accrued expenses.
Net cash used in investing activities increased from $2,297,000 for the
comparable 1995 quarter to $17,520,000 for the current 1996 quarter. The
increase is primarily the result of increased capital expenditures for oilwell
service operations as well as the Company's recent acquisitions (see Note 2 to
the Financial Statements).
Net cash provided by financing activities was $10,714,000 for the current 1996
quarter as compared to $543,000 in net cash provided by financing activities for
the comparable 1995 quarter. The increase is primarily the result of the
proceeds from other long-term debt.
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<PAGE>
16
SIX MONTHS ENDED DECEMBER 31, 1996 VERSUS SIX MONTHS ENDED DECEMBER 31, 1995
The Company
Revenues of the Company for the six months ended December 31, 1996
increased $42,867,000, or 173%, to $67,659,000 from $24,792,000 for the six
months ended December 31, 1995, while net income of $3,597,000 represented an
increase of $2,103,000 or, 141%, from the 1995 total of $1,494,000. The increase
in revenues was primarily due to the increased oil and gas revenues from Odessa
Exploration, increased oilwell service equipment utilization, the acquisition of
the WellTech Eastern operations from the date of acquisition of March 26, 1996
and the additional oilfield service acquisitions acquired (see Note 2 ). The
increase in 1996 net income over the 1995 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 and a decrease in
total consolidated Company costs and expenses as a percentage of total revenues.
Oilfield Services
Oilfield service revenues increased $39,871,000, or 208%, from $19,148,000
for the 1995 period to $59,019,000 for the 1996 six 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 1995 period. In
addition, Yale E. Key diversified oilfield services into higher margin business
segments such as oilfield frac tanks, oilfield fishing tools and trucking
operations.
Oilfield service expenses increased $28,613,000, or 202%, from $14,153,000
for the 1995 six month period to $42,766,000 for the current 1996 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 its services,
offering ancillary services and equipment such as oilwell fishing tools,
blow-out preventers and oilwell frac tanks.
Oil and Natural Gas Exploration and Production
Revenues from oil and gas activities increased $1,886,000, or 109%, from
$1,727,000 during the six months ended December 31, 1995 to $3,613,000 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 1996, higher oil and natural gas prices for
the current year, and the April 1996 purchase of $6.9 million of oil and gas
properties from an unrelated third party.
Of the total $3,613,000 of revenues for the six months ended December 31,
1996, approximately $3,092,000 was from the sale of oil and gas - 66,980 barrels
of oil at an average price of $23.34 per barrel and 609,613 MCF of natural gas
at an average price of $2.51 per MCF. The remaining $521,000 of revenues
represented primarily administrative fee income and other miscellaneous income.
Expenses related to oil and gas activities increased $667,000 or 108% from
$619,000 for the 1995 six month period to $1,286,000 for current 1996 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 1996 and the April 1996 purchase of $6.9 million in oil and
gas properties.
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<PAGE>
17
Oil and Natural Gas Well Drilling
Oil and natural gas well drilling revenues increased $1,024,000, or 28%, from
$3,659,000 for the 1995 six month period to $4,683,000 for the 1996 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
$1,109,000, or 41%, from $2,735,000 for the 1995 six month period to $3,844,000
for current 1996 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 $1,769,000, or 202%, to $2,646,000 for the current
1996 six months from $877,000 for the 1995 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
$4,872,000, or 204%, to $7,262,000 for the current 1996 six month period from
$2,390,000 for the comparable 1995 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 $2,643,000, or 147%,
to $4,437,000 for the current 1996 six month period from $1,794,000 for the
comparable 1995 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 $1,813,000 for current 1996 six month period increased
from $730,000 in income tax expense for the comparable 1995 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
$1,813,000 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 $1,119,000 from $3,046,000
during the comparable 1995 six month period to $1,927,000 for the current 1996
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 $4,244,000 for the
comparable 1995 six month period to $21,065,000 for the current 1996 period. The
- 17 -
<PAGE>
18
increase is primarily the result of increased capital expenditures for oilwell
service operations 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.
Net cash provided by financing activities was $25,839,000 for the current 1996
six month period as compared to $878,000 in net cash provided by financing
activities for the comparable 1995 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 December 31, 1996, the Company had $9,283,000 in cash as compared to
$3,240,000 in cash at June 30, 1996.
The Company has projected $6.5 million for oilfield service capital expenditures
for fiscal 1997 as compared to $5.2 million for fiscal 1996. Oilfield service
capital expenditures for the six months ended December 31, 1996 of $5.9 million
are expected to significantly decrease through the remaining fiscal 1997 fiscal
year. Capital expenditures are expected to be primarily capitalized improvement
costs to existing equipment and machinery. The Company expects to finance these
capital expenditures utilizing the operating cash flows of the Company.
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
facility.
Clint Hurt Drilling has forecast approximately $500,000 for oil and gas drilling
capital expenditures for fiscal 1997 primarily for improvements to existing
equipment and machinery compared to $598,000 for fiscal 1996. Such outlays are
treated as capital costs. Financing is expected to come from existing cash flow.
Debt
In July 1996, the Company completed the offering of $52,000,000 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 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.
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<PAGE>
19
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 guaranty 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 November 1996, the Company completed the renegotiation of its credit
facilities with CIT consisting of a line of credit and a 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) $40
million, or (ii) an amount subject to certain asset valuations determined by
CIT. Also, the renegoitiated term and credit facilities include an interest rate
at one-half percent above the stated prime rate, which was 8.25% at December 31,
1996, an extension of the maturity dates and a decrease in prepayment
penalties.
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 as of January
31, 1997, Odessa Exploration completed the renegotiation of the Norwest credit
facility, which, among other things, increased its borrowing base to $18
million, none of which has been advanced as of February 13, 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>
20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities.
(c) Recent Sales of Unregistered Securities:
The Company effected the following unregistered sales of
its securities during the three months ended December 31,
1996. 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 October 1, 1996, the Company issued 75,000
shares of the Company's common stock to James McMurphy as
partial consideration for the merger of Woodward Well
Service, Inc., of which Mr. McMurphy was the sole
shareholder, into WellTech Eastern, Inc., a wholly-owned
subsidiary of the Company.
Effective as of October 24, 1996, the Company issued an
aggregate of 61,069 shares of the Company's common stock to
Elvin Brownlee, Jr., Reo Brownlee and Elvin Brownlee III
(collectively, the "Brownlees") as partial consideration for
the Company's purchase of all of the capital stock of
Brownlee Well Service, Inc. and Integrity Fishing & Rental
Tools, Inc., of which the Brownlees were the sole
shareholders.
Effecitive as of November 1, 1996, the Company issued 4,386
shares of the Company's common stock to Energy Air Drilling
Service Co. ("Energy Air") as partial consideration for the
Company's purchase of certain assets of Energy Air.
Effective as of November 15, 1996, the Company issued to
Jack D. Loftis, Jr., pursuant to the Company's 1995 Employee
Stock Option Plan, an option to purchase 25,000 shares of
the Company's common stock (the "Loftis Option") as partial
consideration for Mr. Loftis' entering into employment with
the Company. The exercise price of the Loftis Option is
$11.125 per share and is exercisable under the following
vesting schedule: 6,250 share on each of November 15, 1996,
1997, 1998 and 1999.
On November 22, 1996 (but effective as of September 15,
1996), the Company issued to The CIT Group/Credit Finance,
Inc. ("CIT") as partial consideration for CIT entering into
an amendment of the CIT's credit facilities for certain
subsidiaries of the Company, a Warrant entitling CIT to
purchase 125,000 shares of the Company's common stock at an
exercise price of $7.625 per share (the "CIT Warrant"). The
CIT Warrant is immediately exercisable.
On November 22, 1996, the Company, as partial consideration
for CIT entering into an amendment of the CIT's credit
facilities for certain subsidiaries of the Company, entered
into an amendment with CIT pursuant to which the expiration
date of previously issued Warrant entitling CIT to purchase
75,000 shares of the Company's common stock at an exercise
price of $5.00 per share was extended to September 5, 2003.
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<PAGE>
21
Effective as of December 4, 1996, the Company issued 917,500
shares of the Company's common stock to Hunt Oil Company
("Hunt") as the sole consideration for the merger of Brooks
Well Servicing, Inc., of which Hunt was the sole share-
holder, into WellTech Eastern, Inc., a wholly-owned
subsidiary of the Company.
Effective as of August 3, 1996, the Company issued to
Kenneth V. Huseman, pursuant to the Company's 1995 Employee
Stock Option Plan, an option to purchase 50,000 shares of
the Company's common stock (the "Huseman Option") as partial
consideration for Mr. Huseman's entering into a new employ-
ment agreement with the Company. The exercise price of the
Huseman Option is $8.375 per share and is exercisable under
the following vesting schedule: 16,667 shares on each of
August 3, 1997, 1998, and 16,666 shares on August 3, 1999.
Effective as of July 22, 1996, the Company issued to James
W. Dean, pursuant to the Company's 1995 Employee Stock
Option Plan, and option to purchase 25,000 shares of the
Company's common stock (the "Dean Option") as partial
consideration for Mr. Dean's entering into an employment
with the Company. The exercise price of the Dean Option is
$8.50 per share and is exercisable under the following
vesting schedule: 10,000 shares on July 22, 1996 and 5,000
shares on each of July 22, 1997, 1998 and 1999.
Item 4. Submission of Matters to a Vote of Security Holders.
None
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) Plan and Agreement of Merger among Key Energy Group, Inc.,
WellTech Eastern, Inc. and Woodward Well Service, Inc.
dated as of September 30, 1996
10(b) Stock Purchase Agreement among Key Energy Group, Inc., Reo
Brownlee, Elvin Brownlee, Jr. and Elvin Brownlee III dated
as of November 1, 1996
10(c) Asset Purchase Agreement among Yale E. Key, Inc., Key
Energy Group, Inc., Energy Air Drilling Service Co. and
Dale Rennels dated as of November 1, 1996
10(d) Stock Purchase Agreement among Key Energy Group, Inc., Ed
Hitt, Helen Hitt, Michael E. Thompson and Edward Monroe,
Jr. dated as of December 2, 1996.
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<PAGE>
22
10(e) Plan and Agreement of Merger among Key Energy Group, Inc.,
WellTech Eastern, Inc., Hunt Oil Company and Brooks Well
Servicing, Inc. dated as of November 22, 1996
10(f) Asset Purchase Agreement among WellTech Eastern, Inc., B&L
Hotshot, Inc., McDowell & Sons, Inc., 4 Star Trucking,
Inc., R.B.R., Inc., Royce D. Thomas, John F. McDowell and
John R. McDowell dated as of December 13, 1996
10(g) Asset Purchase Agreement among WellTech Eastern, Inc.,
Talon Trucking Company and Lomak Petroleum, Inc. dated as
of December 13, 1996
10(h) First Supplemental Indenture dated as of November 20, 1996
by and between Key Energy Group, Inc. and American Stock
Transfer & Trust Company as Trustee.
10(h) First Amendment to Third Amended and Restated Loan and
Security Agreement and Modification of Notes dated as of
November 22, 1996 among The CIT 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
December 31, 1996.
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<PAGE>
23
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: February 14, 1997 and Chief Financial Officer
By /s/ Danny R. Evatt
Dated: February 14, 1997 Vice President and Chief
Accounting Officer
- 23 -
PLAN AND AGREEMENT OF MERGER
AMONG
KEY ENERGY GROUP, INC.
WELLTECH EASTERN, INC.
AND
WOODWARD WELL SERVICE, INC.
Dated as of September 30, 1996
<PAGE>
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement") is entered into as
of September 30, 1996 by and among Key Energy Group, Inc., a Maryland
corporation ("Key"), WellTech Eastern, Inc., a Delaware corporation and a
wholly-owned subsidiary of Key ("WellTech" or the "Surviving Corporation"),
Woodward Well Service, Inc., an Oklahoma corporation ("Woodward"), and James
McMurphy (the "Shareholder"). WellTech and Woodward are sometimes collectively
referred to herein as the "Merging Corporations."
WITNESSETH :
WHEREAS, Key is a corporation duly organized and validly existing under
the laws of the State of Maryland, with its principal executive offices at Two
Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and
WHEREAS, WellTech is a corporation duly organized and validly existing
under the laws of the State of Delaware, with its principal executive offices at
Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and
WHEREAS, Woodward is a corporation duly organized and validly existing
under the laws of the State of Oklahoma, with its principal executive offices at
2824 34th Street, Woodward, Oklahoma 73801; and
WHEREAS, Key owns 100 shares of common stock, par value $.01 per share,
of WellTech ("WellTech Common Stock"), which constitutes all of the issued and
outstanding shares of capital stock of WellTech; and
WHEREAS, the Shareholder owns 25,000 shares of common stock, par value
$1.00 per share, of Woodward ("Woodward Common Stock"), which constitutes all of
the issued and outstanding shares of capital stock of Woodward; and
WHEREAS, (i) the board of directors of Key, (ii) Key (in its capacity
as WellTech's sole stockholder) and the board of directors of WellTech and (iii)
the Shareholder (in his capacity as the sole shareholder of Woodward) and the
board of directors of Woodward desire to merge Woodward with and into WellTech
in accordance with the provisions of Section 252 of the Delaware General
Corporation Law (the "DGCL") and Section 1082 of the Oklahoma General
Corporation Law (the "OGCL") pursuant to the terms and provisions of this
Agreement, and have approved such merger (the "Merger") and the other terms and
provisions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and to prescribe the terms and
conditions of the Merger contemplated hereby, the mode of carrying the same into
effect, the manner and basis of converting the presently outstanding shares of
Woodward Common Stock into the right to receive the Merger Consideration
1
<PAGE>
described in Section 1.10.1 hereof, and such other details and provisions as are
deemed necessary or proper, the parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. Surviving Corporation. WellTech and Woodward shall be, upon
the Effective Date, merged into a single surviving corporation, which
shall be WellTech, which shall continue its corporate existence and remain
a Delaware corporation governed by and subject to the laws of that State.
1.2. Effective Date. The Merger shall become effective upon (i) the
filing of the Certificate of Merger with the Secretary of State of Delaware
following its execution in accordance with Sections 252 and 103 of the DGCL and
(ii) the Certificate of Merger with the Secretary of State of Oklahoma following
its execution in accordance with Sections 1082 and 1007 of the OGCL. These
filings shall be made concurrently on the date hereof or as soon as practicable
thereafter, with the date on which such filings are made being referred to
elsewhere herein as the "Effective Date."
1.3. Name and Continued Corporate Existence of Surviving Corporation.
On the Effective Date, the identity, existence, purposes, powers, objects,
franchises, rights, and immunities of WellTech, the surviving corporation of the
Merger, shall continue unaffected and unimpaired by the Merger, and the
corporate identity, existence, purposes, powers, objects, franchises, rights,
and immunities of Woodward shall be wholly merged into WellTech, the surviving
corporation, and WellTech shall be fully vested therewith. Accordingly, on the
Effective Date, the separate existence of Woodward, except insofar as continued
by statute, shall cease.
1.4. Governing Law and Articles of Incorporation of Surviving
Corporation. The laws of Delaware shall continue to govern the Surviving
Corporation. On and after the Effective Date, the Certificate of Incorporation
of WellTech shall be the Certificate of Incorporation of the Surviving
Corporation until further amended in the manner provided by law.
1.5. Bylaws of Surviving Corporation. On the Effective Date, the Bylaws
of WellTech shall be the Bylaws of the Surviving Corporation until altered,
amended, or repealed, or until new bylaws shall be adopted in accordance with
the provisions of law, the Certificate of Incorporation of WellTech, and the
Bylaws of WellTech.
1.6. Directors of Surviving Corporation. The incumbent directors of
WellTech immediately prior to the Effective Date shall continue to constitute
the board of directors of the Surviving Corporation from and after the Effective
Date, and such persons shall remain directors of the Surviving Corporation until
their successors are duly elected and qualify in accordance with the Certificate
of Incorporation and the Bylaws of the Surviving Corporation.
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1.7. Officers of Surviving Corporation. The incumbent officers of
WellTech immediately prior to the Effective Date shall continue to hold their
respective offices of the Surviving Corporation from and after the Effective
Date and until their successors are duly elected and qualify in accordance with
the Certificate of Incorporation and the Bylaws of the Surviving Corporation.
1.8. Vacancies. If on or after the Effective Date, a vacancy shall for
any reason exist in the board of directors or in any of the offices of the
Surviving Corporation, such vacancy shall be filled in the manner provided in
the Certificate of Incorporation and Bylaws of the Surviving Corporation. 1.9.
Capital Stock of Surviving Corporation. The authorized number of shares of
capital stock of the Surviving Corporation, and the par value, designations,
preferences, rights, and limitations thereof, and the express terms thereof,
shall be as set forth in the Certificate of Incorporation of the Surviving
Corporation.
1.10. Conversion of Securities Upon Merger.
1.10.1. Conversion of Woodward Common Stock. On the Effective
Date, the 25,000 shares of Woodward Common Stock issued and
outstanding, on the date hereof, all of which is held by the
Shareholder (the "Woodward Shares"), without any action on the part of
the Shareholder, shall automatically become and be converted into the
right to receive the following consideration from Key (collectively,
the "Merger Consideration"): (i) 75,000 shares of common stock, par
value $.10 per share, of Key ("Key Common Stock") to be issued to the
Shareholder in accordance with Section 4.4 hereof (the "Key Shares"),
(ii) $100,000 to be paid to the Shareholder in five annual installments
of $20,000 on September 30 of each year beginning on the date hereof;
(iii) $15,736.03 paid to the Shareholder on the date hereof (the
"Excluded Bank Accounts Estimate"); (iv) cash payments in amounts equal
to the payments received by WellTech (a) under that certain promissory
note made payable by Slawson Exploration to Woodward (the "Slawson
Receivable") and (b) pursuant to certain accounts receivable arising in
connection with Woodward's provision of services involving burying
permanent anchors (known as "deadman anchors") to secure rigs (the
"Anchor Receivables"), to be paid to the Shareholder within 10 days
from the date of WellTech's receipt of such payments; and (v) the Cash
Adjustment Payment (as defined in Section 1.10.3 hereof), if any, to be
paid to the Shareholder in accordance with Section 1.10.3 hereof.
Notwithstanding the foregoing, the Merger Consideration to be paid to
the Shareholder shall be reduced by the sum of $6,852.10 (the "Attorney
Fee Estimate") and $6,825.10 as follows: (1) the number of Key Shares
to be issued in accordance with Section 4.4 hereof shall be reduced by
-0- shares (based on a price of $7.50 per share) and (2) the amount of
cash equivalent payments to be received by the Shareholder on the date
hereof shall be reduced by $18,825.10.
1.10.2. Surrender of Woodward Certificates. The Shareholder has
surrendered(and Key acknowledges its receipt of) all the certificates
representing the Woodward Shares (the
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"Woodward Certificates") along with executed stock powers in a form
satisfactory to Key. On the Effective Date, Key will cancel the
Woodward Certificates, and the Shareholder will become entitled to
receive the Merger Consideration.
1.10.3. Adjustment of Merger Consideration. The Shareholder
shall cause to be prepared and delivered to WellTech a balance sheet of
Woodward as of the date hereof (the "Final Balance Sheet") within
fifteen (15) days after the date hereof. The parties hereto acknowledge
and agree that the Final Balance Sheet will reflect (i) as receivables
all amounts due to Woodward for services rendered through the date
hereof and (ii) as payables all amounts owed by Woodward for
obligations arising through the date hereof. WellTech and Woodward
shall jointly review the Final Balance Sheet, endeavor in good faith to
resolve all disagreements regarding the entries thereon and reach a
final determination of the Final Balance Sheet. Within 10 days of
reaching such final determination of the Final Balance Sheet, the
following adjusting payments shall be made:
(1) If the Working Capital Deficit (as defined in
Schedule 1.10.3.1 hereto) is less than $239,083.31 by
more than $5,000, Key shall pay to the Shareholder
the amount by which such difference exceeds $5,000
(the "Cash Adjustment Payment").
(2) If the Working Capital Deficit exceeds $239,083.31 by
more than $5,000, the Shareholder shall pay to Key
the amount by which such excess exceeds $5,000.
(3) If the Seller's attorney's fees specified on the
Final Balance Sheet exceed the Attorney Fee Estimate,
the Shareholder shall pay to Key the amount of such
excess. If the Seller's attorney's fees specified on
the Final Balance Sheet are less than the Attorney
Fee Estimate, Key shall pay to the Shareholder the
amount of such difference.
(4) If the total amount of the Excluded Bank Accounts
(defined below) specified on the Final Balance Sheet
exceeds the Excluded Bank Accounts Estimate, Key
shall pay to the Shareholder the amount of such
excess. If the total amount of the Excluded Bank
Accounts specified on the Final Balance Sheet is less
than the Excluded Bank Accounts Estimate, the
Shareholder shall pay to the Key the amount of such
difference. The term "Excluded Bank Accounts" shall
mean those bank accounts identified on the 8/31
Balance Sheet and the Final Balance Sheet under the
line items "Cash on Hand", "Cash in Bank-Regular",
"Cash in Bank-Payroll" and "Cash in Bank-Anchors."
1.11. Woodward's Transfer Books Closed. Upon the Effective Date, the
stock transfer books of Woodward shall be deemed closed, and no transfer of any
shares of capital stock of Woodward shall thereafter be made or consummated.
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1.12. Assets and Liabilities of Merging Corporations Become Those of
Surviving Corporation. On the Effective Date, all rights, privileges, powers,
and franchises of each of the Merging Corporations, and all property, real,
personal, and mixed, and all debts due on whatever account, as well as stock
subscriptions and all other things in action of or belonging to any of the
Merging Corporations, shall be taken by and deemed to be transferred to and
shall be vested in the Surviving Corporation without further act or deed, and
all such rights, privileges, powers, and franchises, property, debts, or things
in action, and all and every other interest of each of the Merging Corporations
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the respective Merging Corporations, and the title to any real
property, whether vested by deed or otherwise, in either of the Merging
Corporations, shall not revert or be in any way impaired by reason of the
Merger; provided however, that all rights of creditors and all liens upon any
properties of each of the Merging Corporations shall be preserved unimpaired,
and all debts, liabilities and duties of the Merging Corporations shall
thenceforth attach to the Surviving Corporation and may be enforced against and
by it to the same extent as if such debts, liabilities and duties had been
incurred or contracted by it. Any action or proceeding pending by or against
either of the Merging Corporations may be prosecuted to judgment as if the
Merger had not taken place, or the Surviving Corporation may be substituted in
place of either of the Merging Corporations.
1.13. Conveyances to Surviving Corporation. The Merging Corporations
hereby agree, respectively, that from time to time, as and when requested by the
Surviving Corporation, or by its successors and assigns, they will execute and
deliver or cause to be executed and delivered, all such deeds, conveyances,
assignments, and other instruments, and will take or cause to be taken such
further or other action as the Surviving Corporation, its successors or assigns,
may deem necessary or desirable to vest or perfect in or confirm to the
Surviving Corporation, its successors and assigns, title to and possession of
all the property, rights, privileges, powers, immunities, franchises, and
interests referred to in this Section 1.13 and otherwise carry out the intent
and purposes of this Agreement.
1.14. Accounting Treatment. The assets and liabilities of the Merging
Corporations shall be taken up on the books of the Surviving Corporation in
accordance with generally accepted accounting principles, and the capital
surplus and retained earnings accounts of the Surviving Corporation shall be
determined, in accordance with generally accepted accounting principles, by the
board of directors of the Surviving Corporation. Nothing herein shall prevent
the board of directors of the Surviving Corporation from making any future
changes in its accounts in accordance with law.
1.15. Federal Income Tax Treatment. The Merger is intended to qualify
as a forward triangular merger transaction described in ss. 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code").
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDER
2.1. Representations and Warranties of the Shareholder. The
Shareholder represents and warrants to Key and WellTech as follows:
2.1.1. Organization and Standing. Woodward is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Oklahoma, 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. The execution and delivery of this Agreement has been
authorized by the board of directors and all of the holders of capital
stock of Woodward, the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate
action on the part of Woodward, and this Agreement is a valid and
binding obligation of Woodward and the Shareholder enforceable against
Woodward and the Shareholder (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 and the consummation of the
Merger contemplated by this Agreement will not conflict with or result
in a violation or breach of any term or provision of, nor constitute a
default under (i) the Certificate of Incorporation or Bylaws of
Woodward or (ii) any obligation, indenture, mortgage, deed of trust,
lease, contract or other agreement to which Woodward or the Shareholder
is a party or by which Woodward or the Shareholder or their respective
properties are bound.
2.1.3. Capitalization. The authorized capitalization of
Woodward consists of 25,000 shares of Woodward Common Stock, of which,
as of the date hereof, 25,000 shares were issued and outstanding and
held beneficially and of record by the Shareholder. On the date hereof,
Woodward 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
Woodward Common Stock are validly issued, fully paid and non-assessable
and are not subject to preemptive rights. None of the outstanding
shares of Woodward Common Stock is subject to any voting trusts, voting
agreement or other
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agreement or understanding with respect to the voting thereof, nor is
any proxy in existence with respect thereto.
2.1.4. Ownership of Woodward Shares. The Shareholder holds
good and valid title to all of the Woodward Shares, free and clear of
all Encumbrances (as defined in Section 2.1.8.1 hereof). There are no
claims pending or, to the Shareholder's knowledge, threatened, against
Woodward or the Shareholder that concern or affect title to the
Woodward Shares, or that seek to compel the issuance of capital stock
or other securities of Woodward.
2.1.5. No Subsidiaries. There is no corporation, partnership,
joint venture, business trust or other legal entity in which Woodward,
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. Woodward has delivered to Key and
WellTech copies of Woodward's unaudited balance sheet attached hereto
as Schedule 2.1.6 (the "8/31 Balance Sheet") and related statements of
income (collectively, the "8/31 Financial Statements"), as at and for
the six months ended August 31, 1996 (the "Balance Sheet Date") and
will deliver the Final Balance Sheet in accordance with Section 1.10.3
hereof. The 8/31 Financial Statements are (and the Final Balance Sheet
will be) complete in all material respects. The 8/31 Financial
Statements present (and the Final Balance Sheet will present) fairly
the financial condition of Woodward as at the dates and for the periods
indicated. The 8/31 Financial Statements have been (and the Final
Balance Sheet will be) prepared in accordance with generally accepted
accounting principles applied on a consistent basis. The accounts
receivable reflected in the 8/31 Balance Sheet, or which have been
thereafter acquired by Woodward, have been collected or are collectible
at the aggregate recorded amounts thereof less applicable reserves,
which reserves are adequate. The inventories of Woodward reflected in
the 8/31 Balance Sheet, or which have thereafter been acquired by it,
consist of items of a quality usable and salable in the normal course
of Woodward's business, and the values at which inventories are carried
are at the lower of cost or market.
2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7
hereto, Woodward does not have any liabilities or obligations, either
accrued, absolute or contingent, nor does the Shareholder have any
knowledge of any potential liabilities or obligations, which would
materially adversely affect the value and conduct of the business of
Woodward, other than those (i) reflected or reserved against in the
8/31 Balance Sheet or (ii) incurred in the ordinary course of business
since the Balance Sheet Date.
2.1.8. Additional Woodward Information. Attached as
Schedule 2.1.8 hereto are true, complete and correct lists of the
following items:
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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 Woodward, with a
description of the nature and amount of any Encumbrances
thereon. The term "Encumbrances" means all liens, security
interests, pledges, mortgages, deed 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 Woodward with a description of the nature and
amount of any Encumbrances
thereon;
2.1.8.3. Inventory. All inventory items or groups
of inventory items owned by Woodward, excluding raw materials
and work in process, which raw materials and work in process
are valued on the 8/31 Balance Sheet, together with the amount
of any Encumbrances thereon;
2.1.8.4. Receivables. All accounts and notes
receivable of Woodward, 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 Woodward holds a security interest to
secure payment of the underlying indebtedness, and (iv) a
description of the nature and amount of any Encumbrances on
such accounts and notes receivable;
2.1.8.5. Payables. All accounts and notes payable
of Woodward, together with an appropriate aging schedule;
2.1.8.6. Insurance. All insurance policies or bonds
currently maintained by Woodward, including title insurance
policies, with respect to Woodward, including those covering
Woodward's properties, rigs, machinery, equipment, fixtures,
employees and operations, as well as a listing of any
premiums, audit adjustments or retroactive adjustments due or
pending on such policies or any predecessor policies;
2.1.8.7. Contracts. All contracts, including leases
under which Woodward is lessor or lessee, which are to be
performed in whole or in part after the date hereof;
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 Woodward, together with copies of the most
recent reports with respect to such plans, arrangements, or
trust agreements filed with any governmental agency and all
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Internal Revenue Service determination letters that have been
received with respect to such plans (collectively, "Employee
Plans");
2.1.8.9. Certain Salaries. The names and salary
rates of all present employees of Woodward, 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;
2.1.8.10. Bank Accounts. The name of each bank in
which Woodward has an account and the names of all persons
authorized to draw thereon;
2.1.8.11. Employee Agreements. Any collective
bargaining agreements of Woodward 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
Woodward;
2.1.8.12. Intellectual Property. All patents,
trademarks, copyrights and other intellectual property rights
owned, licensed, or used by Woodward;
2.1.8.13. Trade Names. All trade names, assumed
names and fictitious names used or held by Woodward, 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 Woodward relating thereto or with respect to collateral
securing the same;
2.1.8.15. Guaranties. All indebtedness, liabilities
and commitments of others and as to which Woodward is a
guarantor, endorser, co-maker, surety, or accommodation maker,
or is 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 8/31 Balance Sheet;
2.1.8.17. Leases. All leases to which Woodward is a
party; and
2.1.8.18. Environment. All environmental permits,
approvals, certifications, licenses, registrations, orders and
decrees applicable to current operations conducted by Woodward
and all environmental audits, assessments, investigations and
reviews conducted by Woodward within the last five years on
any property owned or used by Woodward.
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Schedule 2.1.8 hereto shall be true, complete and correct as of the
date hereof except for items contained in Section 2.1.8.3, 2.1.8.4, 2.1.8.5 and
2.1.8.16, which are true, complete and correct as of the Balance Sheet Date.
2.1.9. No Defaults. Except as is specified in Schedule 2.1.8
hereto, Woodward is not a party to, or bound by, any contract or
arrangement of any kind to be performed after the Effective Date, nor
is Woodward in default in any obligation or covenant on its part to be
performed under any obligation, lease, contract, order, plan or other
arrangement.
2.1.10. Absence of Certain Changes and Events. Except as set
forth in Schedule 2.1.10 hereto, other than as a result of the trans-
actions 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 Woodward;
2.1.10.2. Property Damage. Any material damage,
destruction, or loss to the business or properties of Woodward
(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 Woodward Common Stock, or any direct or
indirect redemption, purchase or any other acquisition by
Woodward 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
Woodward's authorized or outstanding capital stock as
described in Section 2.1.3 hereof;
2.1.10.5. Labor Disputes. Any labor dispute; or
2.1.10.6. Other Material Changes. Any other event
or condition known to the Shareholder particularly pertaining
to and adversely affecting the operations, assets or business
of Woodward 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 Woodward 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 Woodward; and the tax provision reflected in the 8/31
Balance Sheet is (and the tax provision reflected in the Final Balance
Sheet will be) adequate, in accordance with generally accepted
accounting
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principles, to cover liabilities of Woodward at the date thereof for
all taxes, including any assessed interest, assessed penalties and
additions to taxes of any character whatsoever applicable to Woodward
or its assets or business. No waiver of any statute of limitations
executed by Woodward with respect to any income or other tax is in
effect for any period. The income tax returns of Woodward 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
Woodward except for taxes not yet currently due.
2.1.12. Intellectual Property. Woodward 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 "Intellectual Property") that are either material to
the business of Woodward or that are necessary for the rendering of any
services rendered by Woodward and the use or sale of any equipment or
products used or sold by Woodward, including all such Intellectual
Property listed in Schedule 2.1.8 hereto. The Intellectual Property is
owned or licensed by Woodward free and clear of any Encumbrance.
Woodward has not granted to any other person any license to use any
Intellectual Property. Woodward has not received any notice of
infringement, misappropriation, or conflict with, the intellectual
property rights of others in connection with the use by Woodward of the
Intellectual Property or otherwise in connection with Woodward's
operation of its business.
2.1.13. Title to and Condition of Assets. Woodward has good,
indefeasible and marketable title to all its properties, interests in
properties and assets, real and personal, reflected in the 8/31 Balance
Sheet or in Schedule 2.1.8 hereto, free and clear of any Encumbrance of
any nature whatsoever, except (i) Encumbrances reflected in the 8/31
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
business operations. All leases pursuant to which Woodward 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 Woodward and in respect to which Woodward has not taken
adequate steps to prevent a default from occurring. The buildings and
premises of Woodward 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 Woodward 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. To the best of the Shareholder's knowledge, all
such assets conform to all applicable laws
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governing their use. No notice of any violation of any law, statute,
ordinance, or regulation relating to any such assets has been received
by Woodward or the Shareholder, except such as have been fully complied
with.
2.1.14. Contracts. All contracts, leases, plans or other
arrangements to which Woodward is a party, by which it is bound or to
which it or its assets are subject are in full force and effect, and
constitute valid and binding obligations of Woodward. Woodward is not,
and to the knowledge of the Shareholder, 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 default
thereunder. No contract has been entered into on terms which could
reasonably be expected to have an adverse effect on Woodward. The
Shareholder has not received any information which would cause the
Shareholder to conclude that any customer of Woodward will (or is
likely to) cease doing business with Woodward as a result of the
consummation of the transactions contemplated hereby.
2.1.15. Licenses and Permits. Woodward 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 Woodward 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
Woodward's rights with respect thereto is valid and subsisting, in full
force and effect, and enforceable by Woodward subject to administrative
powers of regulatory agencies having jurisdiction. Woodward 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 Shareholder,
are threatened to be, revoked, canceled, suspended or modified.
2.1.16. Litigation. There is no suit, action, or legal,
administrative, arbitration, or other proceeding or governmental
investigation pending to which Woodward is a party or, to the knowledge
of the Shareholder, might become a party or which particularly affects
Woodward, nor is any change in the zoning or building ordinances
directly affecting the real property or leasehold interests of
Woodward, pending or, to the knowledge of the Shareholder, threatened.
2.1.17. Environmental Compliance.
2.1.17.1. Environmental Conditions. 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
Woodward, or on any property to which hazardous substances or
waste generated by Woodward's operations or use of its assets
were disposed of, which would result in a material adverse
change in the business or business prospects of Woodward;
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2.1.17.2. Permits, etc. Woodward 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 the business or operations
of Woodward, and is operating in compliance thereunder;
2.1.17.3. Compliance. Woodward's operations and use
of its assets do not violate in any material 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, 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.), the Hazardous Materials Transporta-
tion Act (49 U.S.C. ss. 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 1609 et seq.),
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");
2.1.17.4. Past Compliance. None of the operations
or assets of Woodward has ever been conducted or used in such
a manner as to constitute violation of any of the Applicable
Environmental Laws, other than violations that in the
aggregate are not material to the business or operations of
Woodward;
2.1.17.5. Environmental Claims. No notice has been
served on Woodward or the Shareholder 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. The Shareholder knows of no
reason WellTech 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
Woodward's assets 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 Woodward, nor do
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polychlorinated biphenyls exist in concentrations of 50 parts
per million or more in electrical equipment owned or being
used by Woodward in its operations or on its properties.
2.1.18. Compliance with Other Laws. Woodward 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.ss.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.
2.1.19. No ERISA Plans or Labor Issues. Woodward 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"). Woodward has not engaged in
any unfair labor practices which could reasonably be expected to result
in a material adverse effect on its operations or assets. Woodward does
not have any dispute with any of its existing or former employees.
There are no labor disputes or, to the knowledge of the Shareholder,
any disputes threatened by current or former employees of Woodward.
2.1.20. Terminated Employees. Woodward has terminated those
employees listed on Schedule 2.1.20 hereof effective prior to the date
hereof (the "Terminated Employees") and has paid the Terminated
Employees all wages and other compensation owed them through the date
of termination.
2.1.21. Investigations; Litigation. No investigation or review
by any governmental entity with respect to Woodward or any of the
transactions contemplated by this Agreement is pending or, to the best
of the Shareholder's knowledge, threatened, nor has any governmental
entity indicated to Woodward an intention to conduct the same, and
there is no action, suit or proceeding pending or, to the best of the
Shareholder's knowledge, threatened against or affecting Woodward 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 any material adverse change in the financial
condition, properties or business of Woodward.
2.1.22. Absence of Certain Business Practices. Neither
Woodward nor any officer, employee or agent of Woodward, nor any other
person acting on its 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 business of Woodward (or to
assist Woodward in connection with any actual or proposed transaction)
which (i) might subject Woodward to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (ii) if not given in
the past,
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might have had a material adverse effect on the assets, business or
operations of Woodward as reflected in the 8/31 Financial Statements,
or (iii) if not continued in the future, might materially adversely
effect the assets, business operations or prospects of Woodward or
which might subject Woodward to suit or penalty in a private or
governmental litigation or proceeding.
2.1.23. Untrue Statements. Woodward and the Shareholder have
made available to Key and WellTech 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 Woodward's assets
and business, and such information covers all commitments and
liabilities of Woodward relating principally to its business or the
assets. This Agreement and the agreements and instruments to be entered
into 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.
2.1.24. Investment Representations. The Shareholder
acknowledges, represents and agrees that:
(a) the Key Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or
registered or qualified under any applicable state securities laws;
(b) 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;
(c) the Shareholder's acquisition of the Key Shares is solely
for his own account for investment, and the 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;
(d) the 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;
(e) the Shareholder has such knowledge and experience in
financial and business matters that he is capable of evaluating the
merits and risks of an investment in the Key Shares, and to make an
informed investment decision;
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(f) the Shareholder has received a copy of (i) Key's Private
Offering Memorandum dated June 28, 1996 relating to Key's recent
private placement of convertible debentures and (ii) Key's annual
report on Form 10-K for the year ended June 30, 1996 as filed with the
Securities and Exchange Commission. The Shareholder has had the
opportunity to ask questions of, and receive answers from Key's
officers and directors concerning the 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 the
Shareholder deemed necessary in connection with making an informed
investment decision;
(g) since the Key Shares have not been registered under the
Securities Act or applicable state securities laws, the Shareholder
must bear the economic risk of holding the Key Shares for an indefinite
period of time, and 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, 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 ("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.
2.1.25. 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 Woodward
and the Shareholder, is required to be made or obtained by Woodward or
the Shareholder in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
2.1.26. Finder's Fee. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on
by Woodward and the Shareholder and their counsel directly with Key and
WellTech 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 payments.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
KEY AND WELLTECH
3.1. Representations and Warranties of Key. Key represents and
warrants to the Shareholder 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 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.
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 and the consummation of the
Merger contemplated by this Agreement will not result in the breach of
any term or provision of or constitute a default under any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement
to which Key or any of its subsidiaries is a party.
3.1.3. Capitalization. The capitalization of Key consists of
25,000,000 shares of Key Common Stock, of which, as of June 27, 1996,
10,413,513 shares were issued and outstanding; provided, however, that
the board of directors of Key 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,
of which, as of the date hereof, no shares have been so designated or
issued.
3.1.4. 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 Woodward and 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.
3.2. Representations and Warranties of WellTech. WellTech
represents and warrants to the Shareholder as follows:
17
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3.2.1. Organization and Standing. WellTech 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.
3.2.2. Agreement Authorized and its Effect on Other
Obligations. The execution and delivery of this Agreement has been
authorized by the board of directors and all of the holders of capital
stock of WellTech, the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate
action on the part of WellTech, and this Agreement is a valid and
binding obligation of WellTech enforceable against WellTech (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 and the consummation of the Merger contemplated by this
Agreement will not conflict with or result in a violation or breach of
any term or provision of, nor constitute a default under (i) the
Certificate of Incorporation or Bylaws of WellTech or (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or
other agreement to which WellTech is a party or by which WellTech or
its respective properties are bound.
3.2.3. Capitalization. The authorized capital stock of Well-
Tech consists of 3,000 shares of WellTech Common Stock, of which at the
date hereof, 1,000 shares were issued and outstanding and held
beneficially and of record by Key.
3.2.4. Finder's Fee. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on
by WellTech and its counsel and Woodward and the Shareholder and their
counsel, without the intervention of any other person as the result of
any act of WellTech 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 4
ADDITIONAL AGREEMENTS
4.1. Noncompetition. Except as otherwise consented to or approved in
writing by WellTech and Key, the Shareholder agrees that for a period of 60
months following the Effective Date, he 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 5% of any
security of any class of any corporation or other business entity (i) engage in
any business providing well services, anchoring services or swabbing services in
those territories specified on Schedule 4.1 hereto;
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(ii) request any present customers or suppliers of Woodward to curtail or cancel
their business with WellTech or Key; (iii) disclose to any person, firm or
corporation any trade, technical or technological secrets of Woodward, WellTech
or Key or any details of their organization or business affairs or (iv) induce
or actively attempt to influence any employee of WellTech or Key to terminate
his employment. The Shareholder agrees that if either the length of time or
geographical area set forth in this Section 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 the Shareholder may have under
the laws of the State of Oklahoma 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. The Shareholder further agrees and
acknowledges that WellTech and Key do not have any adequate remedy at law for
the breach or threatened breach by the Shareholder of this covenant, and agree
that WellTech or Key may, in addition to the other remedies which may be
available to it hereunder, file a suit in equity to enjoin the Shareholder 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. The Shareholder acknowledges that the covenants set forth in
this Section 4.1 are being executed and delivered by the Shareholder in
consideration of the covenants of WellTech and Key contained in this Agreement,
and for other good and valuable consideration, receipt of which is hereby
acknowledged.
4.2. 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 register the resale of certain
shares of Key Common Stock issuable upon conversion of certain outstanding
convertible debentures of Key pursuant to the terms of the Registration Rights
Agreement. Key hereby agrees to include in the registration statement filed
pursuant to the Registration Rights Agreement (the "Shelf Registration
Statement") the resale of the Key Shares; provided, that (i) the Shareholder
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 Registration Statement, the Shareholder shall have no right to
participate in an underwritten offering of Key Common Stock by those persons
holding rights under the Registration Rights Agreement, if any, except to the
extent that the underwriters of such an offering agree and pursuant to any
underwriting arrangements in connection therewith.
4.3. Short Period Tax Reporting. WellTech shall cause to be filed for
Woodward federal and state income tax returns the periods beginning on March 1,
1996 and ending on the date hereof. Such returns shall be prepared by Jerry
Freck, certified public accountant, and reviewed and filed by WellTech or Key.
The expenses incurred in connection with the preparation and filing of these
returns shall be borne by WellTech. The Shareholder shall assist WellTech in the
preparation and filing of such returns as reasonably requested.
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4.4. Stock Certificate Issuance. On the Effective Date 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 a certificate representing the Key
Shares in the name of the Shareholder and deliver such certificate to the
Shareholder at the address specified in Section 6.4 hereof.
4.5. 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 effectuate the transactions contemplated hereby.
ARTICLE 5
INDEMNIFICATION
5.1. Indemnification by the Shareholder. In addition to any other
remedies available to Key and WellTech under this Agreement (including, without
limitation, those remedies specified in Section 5.5 hereof), or at law or in
equity, the Shareholder shall indemnify, defend and hold harmless each of Key
and WellTech, and their respective officers, directors, employees, agents and
stockholders, against and with respect to any and all claims, costs, damages,
losses, expenses, obliga tions, 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
the Shareholder to perform, his respective representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to WellTech or Key by the
Shareholder under this Agreement or (ii) Woodward's relationship with any
Terminated Employee.
5.2. Indemnification by Key and WellTech. In addition to any other
remedies available to the Shareholder under this Agreement, or at law or in
equity, WellTech and Key shall jointly and severally indemnify, defend and hold
harmless the Shareholder and his 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 WellTech 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 Woodward or the Shareholder by or on behalf of Key or WellTech
under this Agreement.
5.3. Indemnification Procedure. In the event that 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;
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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.
5.4. Offset. The parties hereto agree that if WellTech or Key shall
incur any Damages for which it is entitled to indemnification by the Shareholder
pursuant to the terms of this Agreement, Key shall have the right to offset any
payments due or to be due under the terms of this Agreement or any other
agreement executed in connection herewith, by the amount of the Damages. Such
right of offset shall not be considered an exclusive remedy, it being agreed
that Key shall also be entitled to exercise any other remedies available to it
at law or in equity, including, without limitation, the indemnification rights
set forth in this Article 5. In the event of an offset by Key as a result of any
account receivable of Woodward not being collected in breach of the
representation of the Shareholder in Section 2.1.6 hereof, upon any such offset,
Key shall assign to the Shareholder the account receivable subject to offset,
and the Shareholder shall thereafter have the right to take any reasonable
action to collect such account receivable. In the event of an offset by Key as a
result of
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any inventory of Woodward being unsalable in the normal course of business in
breach of the representations of Woodward and the Shareholder in Section 2.1.6
hereof, upon any such offset, Key shall convey and transfer to the Shareholder
title to such inventory subject to offset.
5.5. Self Insurance Agreement. Notwithstanding any provision of this
Article 5 or elsewhere herein to the contrary, and notwithstanding the accuracy
of the Shareholder's representation contained in Section 2.1.7, the Shareholder
shall indemnify, defend and hold harmless each of Key and WellTech, and their
respective officers, directors, employees, agents and stockholders against and
with respect to any and all Damages arising during the one-year period beginning
on the date hereof that such indemnitees shall incur or suffer, which arise or
result from or relate to WellTech's assumption of Woodward's obligations under
the self-insurance pooling agreement referred to in Schedule 2.1.7 hereto, but
only to the extent that such Damages (the "Self Insurance Damages") exceed
$25,000 in the aggregate during such one-year period. The Shareholder shall not
be liable for any Self Insurance Damages arising on or after September 30, 1997.
ARTICLE 6
MISCELLANEOUS
6.1. Survival of Representations, Warranties and Covenants. All
representations and warranties made by the parties hereto shall survive for a
period of 14 months from the date hereof, 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 14 months from the
date hereof despite any investigation made by any party hereto or on its behalf.
All covenants and agreements contained herein shall survive indefinitely without
limitation, except as otherwise provided herein.
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. 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.
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.
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If to Key or WellTech
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
Attn: Francis D. John Attention: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
If to the Shareholder
Addressed to: With a copy to:
James McMurphy Henry A. Meyer
2824 34th Street One Leadership Square
Woodward, Oklahoma 73801 211 North Robinson, Suite 1601
Facsimile: (405) 256-6220 Oklahoma City, Oklahoma 73102
Facsimile: (405) 236-0011
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. 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.
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
Oklahoma.
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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.
KEY ENERGY GROUP, INC.
By: \s\ Kenneth V. Huseman
Name: Kenneth V. Huseman
Title: Vice President
WELLTECH EASTERN, INC.
By: \s\ Kenneth V. Huseman
Name: Kenneth V. Huseman
Title: Vice President
WOODWARD WELL SERVICE, INC.
By: \s\ James McMurphy
Name: James McMurphy
Title: President
SHAREHOLDER
\s\ James McMurphy
James McMurphy
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SCHEDULE 1.10.3
WORKING CAPITAL DEFICIT DEFINITIONS
"Working Capital Deficit" means the dollar amount by which Eligible Liabilities
exceed Eligible Assets.
"Eligible Liabilities" means the dollar amount by which Total Liabilities
exceeds Attorney Fees Payable
"Eligible Assets" means the dollar amount of the sum of (a) Inventory, (b)
Prepaid Taxes, (c) Eligible Accounts Receivable, (d) Workers' Compensation
Receivable and (e) Insurance Claim Receivable
"Total Liabilities" means the dollar amount specified for the "Total Current
Liabilities" line item on the Final Balance Sheet.
"Attorney Fees Payable" means the dollar amount specified for the "Attorney Fees
Payable" line item on the Final Balance Sheet.
"Inventory" means the dollar amount specified for the "Inventory" line item on
the Final Balance Sheet.
"Prepaid Taxes" means the dollar amount specified for the "Prepaid Taxes" line
item on the Final Balance Sheet.
"Eligible Accounts Receivable" means the dollar amount specified for the
"Accounts Receivable - Reg" line item on the Final Balance Sheet
"Workers' Compensation Receivable" means the dollar amount specified for the
"Workers' Compensation Receivable" line item on the Final Balance Sheet.
"Insurance Claim Receivable" means the dollar amount specified for the
"Insurance Claim Receivable" line item on the Final Balance Sheet.
STOCK PURCHASE AGREEMENT
AMONG
KEY ENERGY GROUP, INC.,
REO BROWNLEE, ELVIN BROWNLEE, JR.
AND
ELVIN BROWNLEE, III.
Dated as of October 24, 1996
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
October 24, 1996 by and among Key Energy Group, Inc., a Maryland corporation
("Key"), Reo Brownlee ("Reo"), Elvin Brownlee, Jr. ("Elvin Jr.") and Elvin
Brownlee, III ("Elvin III"). Reo, Elvin Jr. and Elvin III are sometimes referred
to herein individually as a "Shareholder" and collectively as the
"Shareholders."
WITNESSETH :
WHEREAS, the Shareholders own 100,000 shares (the "Brownlee Shares") of
common stock, par value $1.00 per share ("Brownlee Common Stock"), of Brownlee
Well Service, Inc., a Texas corporation ("Brownlee"), which constitutes all of
the issued and outstanding shares of capital stock of Brownlee; and
WHEREAS, the Shareholders own 1,000 shares (the "Integrity Shares") of
common stock, no par value ("Integrity Common Stock"), of Integrity Fishing and
Rental Tools, Inc., a Texas corporation ("Integrity"), which constitutes all of
the issued and outstanding shares of capital stock of Integrity; 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 Brownlee and Integrity.
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
1.1. Purchase and Sale of Brownlee Shares and Integrity Shares. Subject
to the terms and conditions of this Agreement, on the date hereof, the
Shareholders agree to sell and convey to Key, free and clear of all Encumbrances
(as defined in Section 2.1.9.1 hereof), and Key agrees to purchase and accept
from the Shareholders, all of the Brownlee Shares and all of the Integrity
Shares. In consideration of the sale of the Brownlee Shares, Key shall pay to
the Shareholders an aggregate of $6,908,106, and in consideration of the sale of
the Integrity Shares, Key shall pay to the Shareholders an aggregate of $91,894,
for a total purchase price of $7,000,000, payable as follows: (i) $6,500,000 to
be paid to the Shareholders by means of a wire transfer of immediately available
funds to the account(s) designated in writing by the Shareholders and (ii)
61,069 shares (the "Key Shares") of common stock, par value $.10 per share, of
Key ("Key Common Stock") to be issued to the Shareholders in accordance with
Section 4.2 hereof.
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1.2. Delivery of Brownlee and Integrity Certificates. The Shareholders
have delivered to Key (and Key acknowledges receipt of) duly and validly issued
certificate(s) representing all of the Brownlee Shares and all of the Integrity
Shares, each such certificate having been duly endorsed in blank and in good
form for transfer or accompanied by stock powers duly executed in blank,
sufficient and in good form to properly transfer such shares to Key.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
2.1. Representations and Warranties of the Shareholder.
Each of the Shareholders jointly and severally represents and warrants to Key
as follows:
2.1.1. Organization and Standing. Each of Brownlee and
Integrity 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, 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. Each of the Shareholders is a resident of Texas, above the
age of 18 years, and has the legal capacity and requisite power and
authority to enter into, and perform his 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 either
Brownlee or Integrity or (ii) any obligation, indenture, mortgage, deed
of trust, lease, contract or other agreement to which Brownlee,
Integrity or any of the Shareholders is a party or by which Brownlee,
Integrity or any of the Shareholders or their respective properties are
bound.
2.1.3. Capitalization of Brownlee. The authorized capitalization of
Brownlee consists of 100,000 shares of Brownlee Common Stock, of which, as of
the date hereof, 100,000 shares were issued and outstanding and held
beneficially and of record by the Shareholders (the "Brownlee Shares"). On the
date hereof, Brownlee does not have any A:\91637V4.W61 2
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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 Brownlee Common Stock are validly
issued, fully paid and non-assessable and are not subject to preemptive
rights. None of the outstanding shares of Brownlee Common Stock is
subject to any voting trusts, 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. Capitalization of Integrity. The authorized
capitalization of Integrity consists of 1,000 shares of Integrity
Common Stock, of which, as of the date hereof, 1,000 shares were issued
and outstanding and held beneficially and of record by the Shareholders
(the "Integrity Shares"). On the date hereof, Integrity 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 Integrity Common
Stock are validly issued, fully paid and non-assessable and are not
subject to preemptive rights. None of the outstanding shares of
Integrity Common Stock is subject to any voting trusts, voting
agreement or other agreement or understanding with respect to the
voting thereof, nor is any proxy in existence with respect thereto.
2.1.5. Ownership of Brownlee Shares and Integrity Shares. The
Shareholders hold good and valid title to all of the Brownlee Shares
and all of the Integrity Shares, free and clear of all Encumbrances.
The Shareholders possess full authority and legal right to sell,
transfer and assign to Key the Brownlee Shares and the Integrity
Shares, free and clear of all Encumbrances. Upon transfer to Key by the
Shareholders of the Brownlee Shares and the Integrity Shares, Key will
own the Brownlee Shares and the Integrity Shares free and clear of all
Encumbrances. There are no claims pending or, to the knowledge of any
of the Shareholders, threatened, against Brownlee, Integrity or any of
the Shareholders that concern or affect title to either the Brownlee
Shares or the Integrity Shares, or that seek to compel the issuance of
capital stock or other securities of either Brownlee or Integrity.
2.1.6. No Subsidiaries. There is no corporation, partnership,
joint venture, business trust or other legal entity in which either
Brownlee or Integrity, 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.
2.1.7. Financial Statements. The Shareholders have delivered
to Key copies of the unaudited balance sheets attached hereto as
Schedule 2.1.7 (the "9/30 Balance Sheets") and related statements of
income of each of Brownlee and Integrity (collectively, the "9/30
Financial Statements"), as at and for the three months ended September
30, 1996 (the "Balance Sheet Date") for Brownlee and the nine months
ended September 30, 1996 for Integrity. The 9/30 Financial Statements
are complete in all material respects. The 9/30 Financial Statements
present fairly the financial condition of each of Brownlee and
Integrity as at the dates and for the periods indicated. The 9/30
Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent
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basis. The accounts receivable reflected in the 9/30 Balance Sheets, or
which have been thereafter acquired by either Brownlee or Integrity,
have been collected or are collectible at the aggregate recorded
amounts thereof less applicable reserves, which reserves are adequate.
The inventories of each of Brownlee and Integrity reflected in the 9/30
Balance Sheets, or which have thereafter been acquired by either
Brownlee or Integrity, consist of items of a quality usable and salable
in the normal course of their business, and the values at which
inventories are carried are at the lower of cost or market.
2.1.8. Liabilities. Except as disclosed on Schedule 2.1.8
hereto, neither Brownlee nor Integrity have any liabilities or
obligations, either accrued, absolute or contingent, nor does any 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 either Brownlee or Integrity, other than
those (i) reflected or reserved against in the 9/30 Balance Sheets or
(ii) incurred in the ordinary course of business since the Balance
Sheet Date.
2.1.9. Additional Information. Attached as Schedule 2.1.9
hereto are true, complete and correct lists of the following
items:
2.1.9.1. Real Estate. All real property and
structures thereon owned, leased or subject to a contract of
purchase and sale, or lease commitment, by each of Brownlee
and Integrity, with a description of the nature and amount of
any Encumbrances thereon. The term "Encumbrances" means all
liens, security interests, pledges, mortgages, deed 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;
2.1.9.2. 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 each of Brownlee and Integrity with a description of the nature
and amount of any Encumbrances thereon; 2.1.9.3. Inventory. All inventory items
or groups of inventory items owned by each of Brownlee and Integrity, excluding
raw materials and work in process, which raw materials and work in process are
valued on the 9/30 Balance Sheets, together with the amount of any Encumbrances
thereon; 2.1.9.4. Intellectual Property. All patents, trademarks, copyrights and
other intellectual property rights owned, licensed, or used by each of Brownlee
and Integrity; A:\91637V4.W61 4
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2.1.9.5. Trade Names. All trade names,
assumed names and fictitious names used or held by each of Brownlee and
Integrity, whether and where such names are registered and where used; 2.1.9.6.
Promissory Notes. All long-term and short-term promissory notes, installment
contracts, loan agreements, credit agreements, and any other agreements of each
of Brownlee and Integrity relating thereto or with respect to collateral
securing the same; 2.1.9.7. Guaranties. All indebtedness, liabilities and
commitments of others and as to which either Brownlee or Integrity are
guarantors, endorsers, co-makers, sureties, or accommodation makers, or
contingently liable therefor and all letters of credit, whether stand-by or
documentary, issued by any third party; 2.1.9.8. Leases. All leases to which
either Brownlee or Integrity are parties; and
2.1.9.9. Environment. All environmental permits,
approvals, certifications, licenses, registrations, orders and
decrees applicable to current operations conducted by each of
Brownlee and Integrity and all environmental audits,
assessments, investigations and reviews conducted by each of
Brownlee and Integrity within the last five years on any
property owned or used by it.
2.1.10. No Defaults. Except as is specified in Schedule 2.1.10 hereto,
neither Brownlee nor Integrity are in default in any obligation or covenant on
its part to be performed under any obligation, lease, contract, order, plan or
other agreement or arrangement. 2.1.11. Absence of Certain Changes and Events.
Except as set forth in Schedule 2.1.11 hereto, other than as a result of the
transactions contemplated by this Agreement, since the Balance Sheet Date, there
has not been: 2.1.11.1. Financial Change. Any material adverse change in the
financial condition, backlog, operations, assets, liabilities or business of
either Brownlee or Integrity; 2.1.11.2. Property Damage. Any material damage,
destruction, or loss to the business or properties of either Brownlee or
Integrity (whether or not covered by insurance); 2.1.11.3. Dividends. Any
declaration, setting aside, or payment of any dividend or other distribution in
respect of either the Brownlee Common Stock or the Integrity Common Stock, or
any direct or indirect redemption, purchase or any other acquisition by either
Brownlee or Integrity of any such stock;
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2.1.11.4. Capitalization Change. Any change in the capital stock or in the
number of shares or classes of the authorized or outstanding capital stock of
either Brownlee or Integrity as described in Sections 2.1.3 and 2.1.4 hereof;
2.1.11.5. Labor Disputes. Any labor disputes involving either Brownlee or
Integrity; or 2.1.11.6. Other Material Changes. Any other event or condition
known to any of the Shareholders particularly pertaining to and adversely
affecting the operations, assets or business of either Brownlee or Integrity
which would constitute a material adverse change.
2.1.12. Taxes.
2.1.12.1. General Representations. 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 Brownlee, Integrity, and
each of the Shareholders (with respect to their distributive
share of Integrity income) 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 Brownlee, Integrity or any of the
Shareholders (to the extent of their distributive share of
Integrity income); and the tax provisions reflected in the
9/30 Balance Sheets are adequate, in accordance with generally
accepted accounting principles, to cover liabilities of each
of Brownlee and Integrity at the date thereof for all taxes,
including any assessed interest, assessed penalties and
additions to taxes of any character whatsoever applicable to
either Brownlee or Integrity or their assets or business. No
waiver of any statute of limitations executed by Brownlee,
Integrity or any of the Shareholders (to the extent of their
distributive share of Integrity income) with respect to any
income or other tax is in effect for any period. The income
tax returns of Brownlee, Integrity or any of the Shareholders
(with respect to their distributive share of Integrity income)
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 either Brownlee, Integrity or any
of the Shareholders (to the extent of their distributive share
of Integrity income) except for taxes not yet currently due.
2.1.12.2. S-Corp Representations. Integrity (i) made
an effective, valid and binding S election pursuant to Section
1362 of the Internal Revenue Code of 1986, as amended (the
"Code"), effective January 25, 1995, (ii) has since then
maintained its status as an S corporation pursuant to Section
1361 of the Code without lapse or interruption, and (iii) has
made and continuously maintained elections similar to the
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federal S election in each state or local jurisdiction where
Integrity does business or is required to file a tax return to
the extent such states or jurisdictions permit such elections.
Integrity neither is nor will or can be subject to the
built-in gains tax under Section 1374 of the Code or any
similar corporate level tax imposed on Integrity by any taxing
authority. Integrity (i) has not adopted or utilized LIFO as a
method of accounting for inventory, and (ii) has no other tax
item, election, agreement or adjustment which will accelerate
or trigger income or defer deductions of Integrity as a result
of termination of Integrity's status as an S corporation.
2.1.13. Intellectual Property. To the knowledge of the
Shareholders, each of Brownlee and Integrity own 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,
the "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,
including all such Intellectual Property listed in Schedule 2.1.9
hereto. The Intellectual Property so owned or possessed by each of
Brownlee and Integrity is owned or licensed free and clear of any
Encumbrance. Neither Brownlee nor Integrity have granted to any other
person any license to use any Intellectual Property. Neither Brownlee
nor Integrity have 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.
2.1.14. Title to and Condition of Assets. Each of Brownlee and
Integrity have good, indefeasible and marketable title to all its
properties, interests in properties and assets, real and personal,
reflected in the 9/30 Balance Sheets (except for those assets
transferred after the Balance Sheet Date as described in Schedule
2.1.11 hereto) or in Schedule 2.1.9 hereto, free and clear of any
Encumbrance of any nature whatsoever, except (i) Encumbrances reflected
in the 9/30 Balance Sheets or in Schedule 2.1.9 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 either Brownlee or
Integrity 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 either Brownlee or
Integrity and in respect to which either Brownlee or Integrity have not
taken adequate steps to prevent a default from occurring. The buildings
and premises of each of Brownlee and Integrity 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
each of Brownlee and Integrity are in good operating condition and in a
state of reasonable
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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. To the
knowledge of the Shareholders, all such assets conform 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 received by Brownlee, Integrity or any of the Shareholders, except
such as have been fully complied with.
2.1.15. Contracts. To the knowledge of the Shareholders, all
contracts, leases, plans or other arrangements to which either Brownlee
or Integrity is a party, by which either is bound or to which either
Brownlee or Integrity or the assets of either Brownlee or Integrity are
subject are in full force and effect, and constitute valid and binding
obligations of Brownlee or Integrity. Neither Brownlee, Integrity nor,
to the knowledge of the Shareholders, any 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 default
thereunder. No contract has been entered into on terms which could
reasonably be expected to have an adverse effect on either Brownlee or
Integrity. None of the Shareholders has received any information which
would cause the Shareholder to conclude that any customer of either
Brownlee or Integrity will (or is likely to) cease doing business with
Brownlee or Integrity (or any successors thereto) as a result of the
consummation of the transactions contemplated hereby.
2.1.16. Licenses and Permits. To the knowledge of the
Shareholders, each of Brownlee and Integrity 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
"Permits") 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. To the knowledge of the
Shareholders, each of such Permits and the rights of each of Brownlee
and Integrity with respect thereto is valid and subsisting, in full
force and effect, and enforceable by either Brownlee or Integrity
subject to administrative powers of regulatory agencies having
jurisdiction. Each of Brownlee and Integrity are 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.
2.1.17. Litigation. There is no suit, action, or legal,
administrative, arbitration, or other proceeding or governmental
investigation pending to which either Brownlee or Integrity are a party
or, to the knowledge of the Shareholders, might become a party or which
particularly affect either Brownlee or Integrity, nor is any change in
the zoning or building ordinances directly affecting the real property
or leasehold interests of either Brownlee or Integrity, pending or, to
the knowledge of the Shareholders, threatened.
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2.1.18. Environmental Compliance.
2.1.18.1. Environmental Conditions. 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
either Brownlee or Integrity, or on any property to which
hazardous substances or waste generated by the operations of
either Brownlee or Integrity or use of the assets of either
Brownlee or Integrity were disposed of, which would result in
a material adverse change in the business or business
prospects of either Brownlee or Integrity;
2.1.18.2. Permits, etc. Each of Brownlee and
Integrity 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
compliance thereunder;
2.1.18.3. Compliance. Neither the operations of each of Brownlee and
Integrity nor the use of the assets of each of Brownlee and Integrity violate in
any material 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, 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.), the Hazardous Materials
Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. ss. 1609 et seq.), 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"); 2.1.18.4. Past Compliance. None of the
operations or assets of either Brownlee or Integrity 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 either Brownlee or Integrity; 2.1.18.5.
Environmental Claims. No notice has been served on Brownlee, Integrity or any of
the Shareholders from any entity, governmental agency or
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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;
2.1.18.6. Renewals. None of the Shareholders knows of any reason Brownlee,
Integrity 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 either Brownlee or
Integrity for their current purposes and uses; and
2.1.18.7. Asbestos and PCBs. No material amounts of
friable asbestos currently exist on any property owned or
operated by either Brownlee or Integrity, nor do
polychlorinated biphenyls exist in concentrations of 50 parts
per million or more in electrical equipment owned or being
used by either Brownlee or Integrity in the operations or on
the properties of either Brownlee or Integrity.
2.1.19. Compliance with Other Laws. To the knowledge of the
Shareholders, neither Brownlee nor Integrity are 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.ss.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.
2.1.20. No ERISA Plans or Labor Issues. Neither Brownlee nor
Integrity currently sponsor, maintain or contribute to and neither
Brownlee nor Integrity has 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"). Neither Brownlee nor Integrity has engaged in any
unfair labor practices which could reasonably be expected to result in
a material adverse effect on the operations or assets of either
Brownlee or Integrity. Neither Brownlee nor Integrity has any dispute
with any of the existing or former employees of either Brownlee or
Integrity. There are no labor disputes or, to the knowledge of any of
the Shareholders, any disputes threatened by current or former
employees of either Brownlee or Integrity.
2.1.21. Investigations; Litigation. No investigation or review
by any governmental entity with respect to either Brownlee or Integrity
or any of the transactions contemplated by this Agreement is pending
or, to the knowledge of any of the Shareholders, threatened, nor has
any governmental entity indicated to either Brownlee or Integrity an
intention to conduct the same, and there is no action, suit or
proceeding pending or, to the knowledge of any of the Shareholders,
threatened against or affecting either Brownlee or Integrity at law or
in equity, or before any federal, state, municipal or other
governmental department, commission,
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board, bureau, agency or instrumentality, that either individually or
in the aggregate, does or is likely to result in an adverse change in
the financial condition, properties or business of either Brownlee or
Integrity.
2.1.22. Absence of Certain Business Practices. Neither
Brownlee, Integrity nor any officer of either Brownlee or Integrity,
nor, to the knowledge of any of the Shareholders, any employee or agent
of either Brownlee or Integrity or any other person acting on behalf of
either Brownlee or Integrity, 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 either Brownlee
or Integrity (or to assist either Brownlee or Integrity in connection
with any actual or proposed transaction) which (i) might subject either
Brownlee or Integrity to any damage or penalty in any civil, criminal
or governmental litigation or proceeding, (ii) if not given in the
past, might have had an adverse effect on the assets, business or
operations of either Brownlee or Integrity as reflected in the 9/30
Financial Statements, or (iii) if not continued in the future, might
adversely affect the assets, business operations or prospects of either
Brownlee or Integrity or which might subject either Brownlee or
Integrity to suit or penalty in a private or governmental litigation or
proceeding.
2.1.23. Untrue Statements. Brownlee, Integrity and the
Shareholders have made available to 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 business of each of Brownlee and Integrity, and such
information covers all commitments and liabilities of each of Brownlee
and Integrity relating principally to its business or its assets. This
Agreement and the agreements and instruments to be entered into 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.
2.1.24. Investment Representations. Each of the Shareholders
acknowledges, represents and agrees that:
(a) the Key Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or
registered or qualified under any applicable state securities laws;
(b) 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;
(c) such Shareholder's acquisition of the Key Shares is
solely for his own account for investment, and such Shareholder is not
acquiring the Key Shares for the account of any
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other person or with a view toward resale, assignment,
fractionalization, or distribution thereof;
(d) 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;
(e) such Shareholder has such knowledge and experience in
financial and business matters that he is capable of evaluating the
merits and risks of an investment in the Key Shares, and to make an
informed investment decision;
(f) such Shareholder has received a copy of Key's annual
report on Form 10-K for the year ended June 30, 1996 as filed with the
Securities and Exchange Commission (the "SEC"). 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;
(g) since the Key Shares have not been registered under the
Securities Act or applicable state securities laws, such Shareholder
must bear the economic risk of holding the Key Shares for an indefinite
period of time, and 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, 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 ("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.
2.1.25. 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
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other than the Shareholders, is required to be made or obtained by
Brownlee, Integrity or the Shareholders in connection with the
execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
2.1.26. 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 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.
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.
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 will not result in the
breach of any term or provision of or constitute a default under any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Key or any of its subsidiaries is a party.
3.3. Capitalization. The capitalization of Key consists of 25,000,000
shares of Key Common Stock, of which, as of September 30, 1996, 10,488,513
shares were issued and outstanding; provided, however, that the board of
directors of Key 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, of which, as of the date hereof, no
shares have been so designated or issued.
3.4. 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 the Shareholders and
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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 4
ADDITIONAL AGREEMENTS
4.1. Noncompetition. Except as otherwise consented to or approved in
writing by Key, each of the Shareholders agrees that for a period of 60 months
following the Effective Date, he 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 5% of any
security of any class of any corporation or other business entity (i) engage in
any business providing oil field pulling services, trucking services or fishing
and rental tool services in those territories specified on Schedule 4.1 hereto;
(ii) request any present customers or suppliers of either Brownlee or Integrity
to curtail or cancel their business with either Brownlee or Integrity; (iii)
disclose to any person, firm or corporation any trade, technical or
technological secrets of Brownlee, Integrity, or Key (or Key's affiliates) or
any details of their organization or business affairs or (iv) induce or actively
attempt to influence any employee of Brownlee, Integrity or Key (or Key's
affiliates) to terminate his employment. Each of the Shareholders agrees that if
either the length of time or geographical area set forth in this Section 4.1 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 4.1 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 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 Key does not have any adequate remedy at
law for the breach or threatened breach by the Shareholders of this covenant,
and agrees that Key may, in addition to the other remedies which may be
available to it hereunder, file a suit in equity to enjoin the Shareholders 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. Each of the Shareholders acknowledges that the covenants set
forth in this Section 4.1 are being executed and delivered by the Shareholders
in consideration of the covenants of Key contained in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged.
4.2. Stock Certificate Issuance. 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 names of the Shareholders in accordance with written instructions
signed by each of the
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Shareholders and deliver such certificate(s) to the Shareholders at the address
specified in Section 6.4 hereof.
4.3. Payment of Certain Debts. On or before November 8, 1996, Key shall
pay in full those liabilities listed on Schedule 4.3 hereto, whether by payment
of cash or by issuance of promissory notes by Key. In the event that such debts
are satisfied by the issuance of promissory notes by Key, the issuance of such
notes shall cause the personal guaranties related to such debts by the
Shareholders to be released.
4.4. 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 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, Key
shall purchase the Key Shares from the Shareholders for an aggregate purchase
price equal to the greater of (i) 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 and (ii) $500,000.
4.5. Right of First Refusal. If the Shareholders desire to sell more
than 12,000 Key Shares during any 30-day period, then the Shareholders, prior to
making such sale, shall first offer such excess shares (the "Excess Shares") for
sale to Key in accordance with the following provisions and on the terms and
conditions set forth in this Section 4.5. The Shareholders shall offer the
Excess Shares to Key by delivering a written notice (the "Offering Notice") to
Key indicating the number of Excess Shares and wiring instructions for payment
of the Purchase Price (defined below). If Key desires to accept such offer, Key
shall, within five (5) days from the date of receipt of the Offering Notice,
deliver a written notice (the "Acceptance Notice") to the Shareholders
indicating the number of Excess Shares which Key intends to purchase. If within
such 5-day period, Key shall have failed to deliver the Acceptance Notice, then
Key shall be deemed to have rejected such offer and the Shareholders may sell
the Excess Shares without restriction under this Section 4.5. The parties hereto
shall consummate the sale, if any, of the Excess Shares hereunder within ten
(10) days following the Shareholders' receipt of the Acceptance Notice, such
consummation to consist of (i) delivery by the Shareholders of stock
certificate(s) representing the Excess Shares accompanied by duly executed stock
powers and (ii) payment by Key of the Purchase Price to the Shareholders by
means of a wire transfer of immediately available funds in accordance with the
instructions contained
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in the Offering Notice. The term "Purchase Price" shall mean the aggregate
market value of the Excess Shares calculated using the per share closing price
on date of the Offering Notice as reported by the American Stock Exchange.
4.6. 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.
ARTICLE 5
INDEMNIFICATION
5.1. 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 respective officers, directors, employees, agents and stockholders,
against and with respect to any and all claims, costs, damages, losses,
expenses, obliga tions, 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 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.
5.2. Indemnification by Key. In addition to any other remedies
available to the Shareholders under this Agreement, or at law or in equity, Key
shall jointly and severally indemnify, defend and hold harmless each of the
Shareholders and his 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 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.
5.3. Indemnification Procedure. In the event that any party hereto
discovers or otherwise becomes aware of a claim for Damages arising under this
Article 5, 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 commence ment of any
action or proceeding with respect to which a claim for Damages arising under
this Article 5 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,
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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 mate rially 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.
5.4. Limitation on Indemnification. Notwithstanding any provisions
contained in this Article 5, neither Key nor any of the Shareholders (nor any of
their affiliates) shall be required to pay an indemnified party any amount with
respect to any claim for Damages arising under this Article 5 with respect to
the breach of any warranty or the inaccuracy of any representation contained in
this Agreement (the "Representation/Warranty Damages") until the
Representation/Warranty Damages which the indemnified party suffered under this
Agreement aggregate at least $50,000, at which time and in such event the
indemnified party shall be entitled to receive payment for all of the aggregate
Representation/Warranty Damages.
5.5. Indemnification Disputes. In the event a lawsuit is filed by an
indemnified party against an indemnifying party asserting a claim for
Representation/Warranty Damages and a court of competent jurisdiction renders a
summary judgment against the indemnified party with respect to such claim, which
judgment can no longer be appealed, the indemnified party shall be liable for
all reasonable attorneys fees and expenses incurred by indemnifying party in the
defense of such claim.
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ARTICLE 6
MISCELLANEOUS
6.1. 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 date hereof, notwithstanding any investigation made
by or on behalf of any of the parties hereto; provided, however, that the
representations and warranties contained in Section 2.1.12 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
date hereof despite any investigation made by any party hereto or on its behalf.
All covenants and agreements contained herein shall survive as provided herein.
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. 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.
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 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
Attn: Francis D. John Attention: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
If to any Shareholder:
Addressed to: With a copy to:
Reo Brownlee Dan A. Sullivan
2 Chapparal Circle 119 N.W. Avenue "A"
(or P.O. Box 1068) Andrews, Texas 79714
Andrews, Texas 79714 Facsimile: (915) 523-4496
Facsimile: (915) 523-6230
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. 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.
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.
[SIGNATURE PAGE FOLLOWS]
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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:
Name:
Title:
SHAREHOLDERS
Reo Brownlee
Elvin Brownlee, Jr.
Elvin Brownlee, III
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SCHEDULE 2.1.8
None
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SCHEDULE 2.1.10
None
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SCHEDULE 2.1.11
Since the Balance Sheet Date, Brownlee has transferred to third parties the
following assets (with associated book values) which appear on the 9/30 Balance
Sheet:
Suburban vehicle (reflected in the Autos
and Trucks line item) ................................ $ 33,990.00
1971 Oldsmobile (reflected in the Autos
and Trucks line item)................................. 5,500.00
Boats/golf carts/shed................................. 69,646.00
Del Rio property...................................... 35,000.00
Lubbock property...................................... 45,000.00
Stocks................................................ 25,000.00
Accounts Receivable - Officers........................ 326,737.38
Since the Balance Sheet Date, Brownlee has paid off the following liabilites
which appear on the 9/30 Balance Sheet:
Note - Bennie's Transports............................ $36,230.82
Note - Treasury Stock................................. 164,261.96
Since the Balance Sheet Date, Brownlee has incurred the following liability
which does not appear on the 9/30 Balance Sheet:
NBA Note #8600 $200,000.0
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SCHEDULE 4.1
The noncompetition territories shall be comprised of the state of Texas and the
state of New Mexico.
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Execution Copy
ASSET PURCHASE AGREEMENT
AMONG
YALE E. KEY, INC.,
KEY ENERGY GROUP, INC.,
ENERGY AIR DRILLING SERVICE CO.
AND
DALE RENNELS
November 1, 1996
C:\34ACTREP\EXFILES\EXHIBIT.2C
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into
effective as of November 1, 1996 (the "Effective Date") among Key Energy Group,
Inc., a Maryland corporation ("Key"), Yale E. Key, Inc., a Texas corporation and
a wholly-owned subsidiary of Key ("Buyer"), Energy Air Drilling Service Co., a
Colorado corporation ("Seller") and Dale Rennels, the sole shareholder of the
Seller (the "Shareholder").
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, the
following assets (the "Assets"):
(a) those items of tangible personal property listed on
Schedule 1.1(a) hereto
(collectively, the "Tangible Personal Property");
(b) Sellers' intangible assets required by Buyer to own,
operate, maintain and use the Tangible Personal Property, including (i)
all of Seller's rights to any patents, copyrights, trademarks, service
marks, licenses or sublicenses (collectively, the "Intellectual
Property") used or held in connection with the ownership, operation,
maintenance and use of the Tangible Personal Property, including those
specifically listed on Schedule 1.1(b) hereto (collectively, the
"Seller Intellectual Property"), and (iii) all applicable customer and
supplier lists of Seller (collectively, the "Intangibles");
(c) those leases, subleases, contracts, contract rights, and
agreements relating to the ownership, operation, maintenance or use of
the Tangible Personal Property, including those specifically listed on
Schedule 1.1(c) hereto (collectively, the "Contracts"); and
(d) all of the Seller's 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") obtained from
governments and governmental agencies relating to the ownership,
operation, maintenance or use of the Tangible Personal Property,
including that which is more fully described on Schedule 1.1(d)
attached hereto (collectively, the "Seller Permits").
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 agrees to pay to Seller, on the date of execution of this
Agreement, the amount of $500,000 in the form of a cashier's check or bank check
or wire transfer of immediately available funds to an account designated by
Seller. As additional consideration for the sale of the Assets to Buyer and for
the other covenants and agreements of Seller contained herein, Key, for the
benefit of Buyer, agrees to issue, in accordance
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with Section 4.2 hereof, 4,386 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 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 Effective Date; Additional Payments. This Agreement shall be
effective as of the Effective Date. All payments received by Seller for services
using the Tangible Personal Property rendered by Seller on or after the
Effective Date (including payments received by Seller prior to the date of
execution of this Agreement) are being purchased hereunder and shall be the
considered the property of Buyer. Promptly upon receipt by Seller of any such
payments (the "November Payments"), Seller shall either endorse and deliver the
check or draft representing the November Payment (with a copy of the applicable
invoice) to Buyer or remit payment to Buyer in an amount equal to the amount of
the November Payment. Buyer shall reimburse Seller for any payments made by
Seller to an Employee for services rendered to Seller in connection with the
operation or maintenance of the Tangible Personal Property on or after the
Effective Date.
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.
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, the Shareholder or Jerry Tufly ("Tufly")
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, the Shareholder and Tufly, as
applicable, enforceable (subject to normal equitable principals)
against such parties in accordance with their terms, except as
enforceability may be limited
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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, the
Shareholder or Tufly is a party or by which Seller, the Shareholder or
Tufly 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,
the Shareholder or Tufly or any of their respective properties are
subject.
2.1.3. Liabilities. Except as set forth on Schedule 2.1.3
hereto, Seller does not have any liabilities or obligations either
accrued, absent, contingent or otherwise, and neither Seller nor the
Shareholder has any knowledge of any potential liabilities or
obligations, that would adversely affect the value of the Assets.
2.1.4. Contracts. Schedule 1.1(c) hereto sets forth a complete
list of all contracts, agreements and other written arrangements
relating to the ownership, operation, maintenance or use of the
Tangible Personal Property. All of the Contracts are in full force and
effect, and constitute valid and binding obligations of Seller. Seller
is not, and no other party to any 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 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. Seller has not received any information which
would cause Seller to conclude that any customer of Seller will (or is
likely to) cease doing business with Seller 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). All of the Tangible 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 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 Seller's or the Shareholder's
knowledge, all of the Tangible Personal Property 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.
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2.1.6. Licenses and Permits. Schedule 1.1(d) hereto sets forth
a complete list of all Permits necessary under law or otherwise for the
ownership, operation, maintenance or use of the Tangible Personal
Property in the manner in which they are now being owned, operated,
maintained and used. 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 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(b) hereto sets
forth a complete list of all Intellectual Property used or held in
connection with the ownership, operation, maintenance and use of the
Tangible Personal 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 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. Except as provided in Schedule
2.1.8 hereto, 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 Contracts. To the extent any such consents have
not been obtained by Seller as of the date of the execution of this
Agreement, Seller covenants to use its best efforts to cause such
consents to be obtained following the date of the execution of this
Agreement.
2.1.9. Environmental Matters. None of the current or past
operations of the business of Seller as such business relates or
related to Seller's ownership, operation, maintenance or use 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 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,
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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 Effective Date 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. No Hazardous Materials (defined
below) have been or are currently being used by Seller in the operation
of the Assets. No Hazardous Materials are or have ever been situated on
or under Seller's properties, whether owned or leased, or incorporated
into any 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. 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 Tangible Personal
Property (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. Seller
does not have any dispute with any of its existing
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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, might become a party
or which particularly affects the Assets.
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 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 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 if not
continued in the future, might materially adversely effect the
profitable use of the Assets.
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 such information covers
all commitments and liabilities of Buyer relating principally to the
Assets. This Agreement, the Seller Agreements and the other instruments
executed by Seller, the Shareholder or Tufly 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.
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2.1.16. Investment Representations of Seller. Each
of Seller and the
Shareholder acknowledges, represents and agrees that :
(a) Each of Seller and 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) Seller and the Shareholder, through their own
operations, are 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) Seller and the Shareholder are aware of the risks
associated with ownership of the Key Shares, (vi) Seller 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, Seller 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.
(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 Seller in reliance upon
exemptions from such registration or qualification requirements, and
the availability of such exemptions depends in part upon Seller'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
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(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.
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
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, 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.
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, the Shareholder
or Tufly 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
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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.
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, the Shareholder or
Tufly 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
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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, Seller agrees that for a period of 60 months following
the Effective Date, it will not, except as expressly provided in that certain
Joint Alliance Agreement of even date herewith by and between Seller and Buyer,
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 drilling, workover
or well clean-out services utilizing air, foam, mist or aerated fluid
circulating systems (but specifically excluding the teaching of courses offered
by the University of Tulsa Continuing Education program) within (A) the entire
state of State of Texas excluding Dallam, Sherman, Hansford, Ochiltree,
Lipscomb, Hartley, Moore, Hutchinson, Roberts, Hemphill, Oldham, Potter, Carson,
Gray and Wheeler counties; and (B) and that portion of the State of New Mexico
located south of U.S. Interstate 40 (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 relating to Seller's ownership, operation,
maintenance or use of the Assets, 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 may have under the laws of any state requiring a corporation who sells
its assets to limit its activities so that the goodwill and business relations
associated with the assets being sold (and any successor corporation) 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 of execution of this Agreement,
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 Seller and deliver such
certificate(s) to Seller
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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 Hiring Employees. Effective as of the Effective Date, 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 Effective Date.
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 Effective Date. 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.
4.4 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 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") 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.
4.5 Possession of Tangible Personal Property. Possession of the
Tangible Personal Property shall be deemed to have passed from Seller to Buyer
on the Effective Date. All items of Tangible Personal Property located at the
yard of E. L. Farmer Transportation, 300 South Grants, Odessa, Texas, 79760 (the
"Farmer Facility") on the date of execution of this Agreement shall be moved by
Buyer on or before December 31, 1996 (the "Removal Deadline") at Buyer's sole
cost and expense. Until the Removal Deadline, Seller shall be responsible for
the costs and expenses, if any, associated with the storage of any Tangible
Personal Property at the Farmer Facility. All items of Tangible Personal
Property in use and not located at the Farmer Facility on the date of execution
of this Agreement shall, when such use is completed, be moved at the direction
and expense of Buyer. Buyer shall be responsible for all cost and expense
associated with the shipping of the "spare parts"
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comprising the Tangible Personal Property to Buyer, which shall occur on or
before December 31, 1996.
4.6 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 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, 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 under this Agreement, or at law or in equity, Buyer and Key
shall, jointly and severally, indem nify, defend and hold harmless 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, war ranties, 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.
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. 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. 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
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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.
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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: With a copy to:
Key Energy Group, Inc. Porter & Hedges, L.L.P.
Two Tower Center, Tenth Floor 700 Louisiana
East Brunswick, New Jersey 08816 Houston, Texas 77210-4744
Attn: Francis D. John Attn: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
If to Seller or the Shareholder
Addressed to: With a copy to:
Energy Air Drilling Service Co. Hoskin, Farina, Aldrich & Kampf, P.C.
2466 Industrial Boulevard 200 Grand Avenue, Suite 400
Grand Junction, Colorado 81505 Grand Junction, Colorado 81502
Attn: Dale Rennels Attn: Terry Farina
Facsimile: (303) 241-6808 Facsimile: (970) 241-3760
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.
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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
7th day of November, 1996 to be effective as of the Effective Date.
YALE E. KEY, INC.
By: \s\ C. Ron Laidley
Name: C. Ron Laidley
Title: President
KEY ENERGY GROUP, INC.
By: \s\ C. Ron Laidley
Name: C. Ron Laidley
Title: Vice President
ENERGY AIR DRILLING SERVICE CO.
By: \s\ Dale A. Rennels
Name: Dale A. Rennels
Title: President
THE SHAREHOLDER:
\s\ Dale A. Rennels
Dale Rennels
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Execution Copy
STOCK PURCHASE AGREEMENT
AMONG
KEY ENERGY GROUP, INC.,
ED HITT, HELEN HITT,
MICHAEL E. THOMPSON
AND
EDWARD MONROE, JR.
Dated as of December 2, 1996
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
December 2, 1996 by and among Key Energy Group, Inc., a Maryland corporation
("Key"), Ed Hitt ("Ed"), Helen Hitt ("Helen"), Michael E. Thompson ("Michael")
and Edward Monroe, Jr. ("Edward"). Ed, Helen, Michael and Edward are referred to
individually herein as a "Shareholder" and collectively herein as the
"Shareholders."
WITNESSETH :
WHEREAS, Key is a corporation duly organized and validly existing under
the laws of the State of Maryland, with its principal executive offices at Two
Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and
WHEREAS, Hitwell Surveys, Inc. ("Hitwell") is a corporation duly organized
and validly existing under the laws of the State of West Virginia, with its
principal executive offices at Burnthouse Road, Parkersburg, West Virginia
26102; and
WHEREAS, the Shareholders own 112 shares (the "Hitwell Shares") of
common stock, par value $1.00 per share, of Hitwell ("Hitwell Common Stock"),
which constitutes all of the issued and outstanding shares of capital stock of
Hitwell; 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 Hitwell.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto hereby agree as
follows:
ARTICLE 1
PURCHASE AND SALE
1.1. Purchase and Sale of Hitwell Shares. Subject to the terms and
conditions of this Agreement, on the date hereof, 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 Hitwell Shares. In consideration of the sale of the Hitwell Shares,
Key shall (i) execute and deliver to the Shareholders that certain promissory
note of even date herewith in the original principal amount of $1,300,000 made
by Key payable to the Shareholders (the "Key Note") and (ii) pay to the
Shareholders the Cash Adjustment Payment (as defined in Section 1.3 hereof), if
any, in accordance with Section 1.3 hereof.
1.2. Delivery of Hitwell Certificates. The Shareholders shall deliver to
Key on the date hereof duly and validly issued certificate(s) representing all
of the Hitwell Shares, each such certificate
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having been duly endorsed in blank and in good form for transfer or accompanied
by stock powers duly executed in blank, sufficient and in good form to properly
transfer such shares to Key.
1.3 Adjustment of Purchase Price. The Shareholders shall cause to be
prepared and delivered to Key (i) a balance sheet of Hitwell as of the date
hereof (the "Final Balance Sheet") within thirty (30) days after the date hereof
and (ii), to the extent requested by any party hereto, a supplemental written
report of the appraiser referred to in items (3) and (4) below. Key and the
Shareholders shall jointly review the Final Balance Sheet and such supplemental
report, endeavor in good faith to resolve all disagreements regarding the
entries thereon and reach a final determination thereof within 60 days from the
date hereof. Within 10 days of reaching such final determination, the following
adjusting payments shall be made:
(1) If the Final Net Current Asset Valuation (defined
below) exceeds $8,347, Key shall pay to the
Shareholders the amount of such excess (the "Cash
Adjustment Payment").
(2) If the Final Net Current Asset Valuation is less than
$8,347, the Shareholders
shall pay to Key the amount of such difference.
(3) If Hitwell transfers any items of operational
equipment (other than equipment sold to Key prior to
the date hereof) listed in that certain Superior
Auction Appraisal report dated August 6, 1996, a copy
of which is attached hereto as Schedule 1.3 (the
"Appraisal"), after the date thereof which have an
aggregate value as reported in the Appraisal of at
least $10,000, or if any items of operational
equipment (other than equipment sold to Key prior to
the date hereof) listed in the Appraisal in the
aggregate suffer deterioration (other than ordinary
wear and tear) after the date of the Appraisal which
reduces the value of such items by at least $10,000
as determined and reported in writing by the
appraiser that prepared the Appraisal, the
Shareholders shall pay to Key the amount of such
aggregate value.
(4) If Hitwell acquires any items of operational
equipment after the date of the Appraisal which have
an aggregate value of at least $10,000 as determined
and reported in writing by the appraiser that
prepared the Appraisal, or if Hitwell makes
improvements to any items of operational equipment
(other than equipment sold to Key prior to the date
hereof) listed in the Appraisal which increases the
aggregate value of such items by at least $10,000 as
determined and reported in writing by the appraiser
that prepared the Appraisal, Key shall pay to the
Shareholders the amount of such aggregate value.
The term "Final Net Current Asset Valuation" means the dollar value of
the amount by which the Current Assets (defined below) exceed the Total
Liabilities (defined below) on the Final Balance
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Sheet. The term "Current Assets" means the aggregate of the following line items
shown on the Final Balance Sheet: "cash", "accounts receivable", "employees
receivable", "prepaid insurance", "deposits-utilities" and "worker's comp"
(where such line item shall be that amount reported by the West Virginia
Worker's Compensation Commission as of September 30, 1996) and any other line
item properly classified as a current asset. The term "Total Liabilities" means
the following line items shown on the Final Balance Sheet: "total current
liabilities" and "note payable (net of current portion)" and any other line item
properly classified as a liability.
In the event that an account receivable was not included in the
calculation of the Current Assets but is later collected by Hitwell, Key shall
pay to the Shareholders the amount so collected within 10 days of its receipt.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDERS
2.1. Representations and Warranties of the Shareholders.
Each of the Shareholders jointly
and severally represents and warrants to Key as follows:
2.1.1. Organization and Standing. Hitwell is a corporation
duly organized, validly existing and in good standing under the laws of
the State of West Virginia, 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. Each of the Shareholders is a resident of West Virginia,
above the age of 18 years, and 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 or the terms and conditions hereof. 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
Certificate of Incorporation or Bylaws of Hitwell or (ii) any
obligation, indenture, mortgage,
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deed of trust, lease, contract or other agreement to which Hitwell or
any of the Shareholders is a party or by which Hitwell or any of the
Shareholders or their respective properties are bound.
2.1.3. Capitalization. The authorized capitalization of
Hitwell consists of 1,000 shares of Hitwell Common Stock, of which, as
of the date hereof, 112 shares were issued and outstanding and held
beneficially and of record by the Shareholders. On the date hereof,
Hitwell 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
Hitwell Common Stock are validly issued, fully paid and non-assessable
and are not subject to preemptive rights. None of the outstanding
shares of Hitwell Common Stock is subject to any voting trusts, 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 Hitwell Shares. The Shareholders hold good
and valid title to all of the Hitwell Shares, free and clear of all
Encumbrances. The Shareholders possess full authority and legal right
to sell, transfer and assign to Key the Hitwell Shares, free and clear
of all Encumbrances. Upon transfer to Key by the Shareholders of the
Hitwell Shares, Key will own the Hitwell Shares free and clear of all
Encumbrances. There are no claims pending or, to the knowledge of any
of the Shareholders, threatened, against Hitwell or any of the
Shareholders that concern or affect title to either the Hitwell Shares,
or that seek to compel the issuance of capital stock or other
securities of either Hitwell.
2.1.5. No Subsidiaries. There is no corporation, partnership,
joint venture, business trust or other legal entity in which Hitwell,
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. Hitwell has delivered to Key
copies of Hitwell's unaudited balance sheet, a copy of which is
attached hereto as Schedule 2.1.6 (the "6/30 Balance Sheet"), and
related statements of income (collectively, the "6/30 Financial
Statements"), as at and for the six months ended June 30, 1996 (the
"Balance Sheet Date") and will deliver the Final Balance Sheet in
accordance with Section 1.10.3 hereof. The 6/30 Financial Statements
are (and the Final Balance Sheet will be) complete in all material
respects. The 6/30 Financial Statements present (and the Final Balance
Sheet will present) fairly the financial condition of Hitwell as at the
dates and for the periods indicated. The 6/30 Financial Statements have
been (and the Final Balance Sheet will be) prepared in accordance with
generally accepted accounting principles applied on a consistent basis.
The accounts receivable reflected in the 6/30 Balance Sheet, or which
have been thereafter acquired by Hitwell, have been collected or are
collectible at the aggregate recorded amounts thereof less applicable
reserves, which reserves are adequate. The inventories of Hitwell
reflected in the 6/30 Balance Sheet, or which have thereafter been
acquired by it, consist of items of a quality
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usable and salable in the normal course of Hitwell's business, and the
values at which inventories are carried are at the lower of cost or
market.
2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7
hereto, Hitwell does not have any liabilities or obligations, either
accrued, absolute or contingent, nor does any 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
Hitwell, other than those (i) reflected or reserved against in the 6/30
Balance Sheet or (ii) incurred in the ordinary course of business since
the Balance Sheet Date.
2.1.8. Additional Hitwell 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 Hitwell, with a
description of the nature and amount of any Encumbrances
(defined below) thereon. The term "Encumbrances" means all
liens, security interests, pledges, mortgages, deed 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 Hitwell with a description of the nature and amount of any
Encumbrances thereon;
2.1.8.3. Inventory. All inventory items or groups of inventory items owned
by Hitwell, excluding raw materials and work in process, which raw materials and
work in process are valued on the 6/30 Balance Sheet, together with the amount
of any Encumbrances thereon;
2.1.8.4. Receivables. All accounts and notes
receivable of Hitwell, 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 Hitwell holds a security interest to secure
payment of the underlying indebtedness, and (iv) a description
of the nature and amount of any Encumbrances on such accounts
and notes receivable;
2.1.8.5. Payables. All accounts and notes payable
of Hitwell, together with
an appropriate aging schedule;
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2.1.8.6. Insurance. All insurance policies or bonds currently maintained by
Hitwell, including those covering Hitwell's properties, rigs, machinery,
equipment, fixtures, employees and operations, as well as a listing of any
premiums, audit adjustments or retroactive adjustments due or pending on such
policies or any predecessor policies;
2.1.8.7. Contracts. All contracts, including leases under which Hitwell is
lessor or lessee, which are to be performed in whole or in part after the date
hereof;
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 Hitwell, 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 (collectively, "Employee Plans");
2.1.8.9. Certain Salaries. The names and salary rates of all present
employees of Hitwell, 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;
2.1.8.10. Bank Accounts. The name of each bank in which Hitwell has an
account and the names of all persons authorized to draw thereon; 2.1.8.11.
Employee Agreements. Any collective bargaining agreements of Hitwell 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 Hitwell; 2.1.8.12. Intellectual Property.
All patents, trademarks, copyrights and other intellectual property rights
owned, licensed, or used by Hitwell; 2.1.8.13. Trade Names. All trade names,
assumed names and fictitious names used or held by Hitwell, 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 Hitwell relating
thereto or with respect to collateral securing the same; 2.1.8.15. Guaranties.
All indebtedness, liabilities and commitments of others and as to which Hitwell
is a guarantor, endorser, co-maker, surety, or accommodation
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maker, or is 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 6/30 Balance Sheet; 2.1.8.17. Leases. All leases to
which Hitwell is a party; and
2.1.8.18. Environment. All environmental permits,
approvals, certifications, licenses, registrations, orders and
decrees applicable to current operations conducted by Hitwell
and all environmental audits, assessments, investigations and
reviews conducted by Hitwell within the last five years on any
property owned or used by Hitwell.
2.1.9. No Defaults. Except as is specified in Schedule 2.1.8
hereto, Hitwell is not a party to, or bound by, any contract or
arrangement of any kind to be performed after the Effective Date, nor
is Hitwell in default in any obligation or covenant on its part to be
performed under any obligation, lease, contract, order, plan or other
arrangement.
2.1.10. Absence of Certain Changes and Events. Except as set forth in
Schedule 2.1.10 hereto, 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 Hitwell; 2.1.10.2.
Property Damage. Any material damage, destruction, or loss to the business or
properties of Hitwell (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 Hitwell Common Stock, or any direct or indirect
redemption, purchase or any other acquisition by Hitwell 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 Hitwell's authorized or outstanding capital stock
as described in Section 2.1.3 hereof; 2.1.10.5. Labor Disputes. Any labor
dispute; or 2.1.10.6. Other Material Changes. Any other event or condition known
to any of the Shareholders particularly pertaining to and adversely affecting
the
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operations, assets or business of Hitwell 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 Hitwell 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 Hitwell; and the tax provision reflected in the 6/30 Balance Sheet
is (and the tax provision reflected in the Final Balance Sheet will be)
adequate, in accordance with generally accepted accounting principles,
to cover liabilities of Hitwell at the date thereof for all taxes,
including any assessed interest, assessed penalties and additions to
taxes of any character whatsoever applicable to Hitwell or its assets
or business. No waiver of any statute of limitations executed by
Hitwell with respect to any income or other tax is in effect for any
period. The income tax returns of Hitwell 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 Hitwell except
for taxes not yet currently due.
2.1.12. Intellectual Property. Hitwell 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 "Intellectual Property") that are either material to
the business of Hitwell or that are necessary for the rendering of any
services rendered by Hitwell and the use or sale of any equipment or
products used or sold by Hitwell, including all such Intellectual
Property listed in Schedule 2.1.8 hereto. The Intellectual Property is
owned or licensed by Hitwell free and clear of any Encumbrance. Hitwell
has not granted to any other person any license to use any Intellectual
Property. Hitwell has not received any notice of infringement,
misappropriation, or conflict with, the intellectual property rights of
others in connection with the use by Hitwell of the Intellectual
Property or otherwise in connection with Hitwell's operation of its
business.
2.1.13. Title to and Condition of Assets. Except as disclosed on Schedule
2.1.13 hereto, Hitwell has good, indefeasible and marketable title to all its
properties, interests in properties and assets, real and personal, reflected in
the 6/30 Balance Sheet or in Schedule 2.1.8 hereto, free and clear of any
Encumbrance of any nature whatsoever, except (i) Encumbrances reflected in the
6/30 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
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leases pursuant to which Hitwell 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 Hitwell
and in respect to which Hitwell has not taken adequate steps to prevent
a default from occurring. The buildings and premises of Hitwell 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 Hitwell 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. To
the best of each Shareholder's knowledge, all such assets conform 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 received by Hitwell 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 Hitwell is a party, by which it is bound or to
which it or its assets are subject are in full force and effect, and
constitute valid and binding obligations of Hitwell. Hitwell is not,
and to the knowledge of any 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
default thereunder. No contract has been entered into on terms which
could reasonably be expected to have an adverse effect on Hitwell. None
of the Shareholder has received any information which would cause such
Shareholder to conclude that any customer of Hitwell will (or is likely
to) cease doing business with Hitwell as a result of the consummation
of the transactions contemplated hereby.
2.1.15. Licenses and Permits. Hitwell 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 Hitwell 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
Hitwell's rights with respect thereto is valid and subsisting, in full
force and effect, and enforceable by Hitwell subject to administrative
powers of regulatory agencies having jurisdiction. Hitwell is in
compliance in all material respects with the terms of such Permits.
None of such Permits have been, or to the knowledge of any of the
Shareholders, are threatened to be, revoked, canceled, suspended or
modified.
2.1.16. Litigation. There is no suit, action, or legal, administrative,
arbitration, or other proceeding or governmental investigation pending to which
Hitwell is a party or, to the knowledge of any of the Shareholders, might become
a party or which particularly
C:\34ACTREP\EXFILES\EXHIBIT.2D
9
<PAGE>
affects Hitwell, nor is any change in the zoning or building ordinances
directly affecting the real property or leasehold interests of Hitwell,
pending or, to the knowledge of any of the Shareholders, threatened.
2.1.17. Environmental Compliance.
2.1.17.1. Environmental Conditions. Except as
specified in the Phase I Environmental Site Audit Summary
Report prepared by Special Analytical Services, Inc. Included
in Item 2.1.8.18 of Schedule 2.1.8 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 by
Hitwell, or on any property to which hazardous substances or
waste generated by Hitwell's operations or use of its assets
were disposed of, which would result in a material adverse
change in the business or business prospects of Hitwell;
2.1.17.2. Permits, etc. Hitwell 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 the business or operations
of Hitwell, and is operating in compliance thereunder;
2.1.17.3. Compliance. Hitwell's operations and use of its assets do not
violate in any material 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, 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.), the Hazardous
Materials Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 1609 et seq.), 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"); 2.1.17.4. Past Compliance.
None of the operations or assets of Hitwell has ever been conducted or used in
such a manner as to constitute violation of any of the Applicable Environmental
Laws, other than violations that in the aggregate are not material to the
business or operations of Hitwell; C:\34ACTREP\EXFILES\EXHIBIT.2D 10
<PAGE>
2.1.17.5. Environmental Claims. No notice has been served on Hitwell or any 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. None
of the Shareholders knows of any reason Key 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 Hitwell's assets 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
Hitwell, nor do polychlorinated biphenyls exist in concentrations of 50 parts
per million or more in electrical equipment owned or being used by Hitwell in
its operations or on its properties. 2.1.18. Compliance with Other Laws. Hitwell
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.ss.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. 2.1.19. No ERISA Plans or
Labor Issues. Hitwell 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"). Hitwell has not engaged in any
unfair labor practices which could reasonably be expected to result in a
material adverse effect on its operations or assets. Hitwell does not have any
dispute with any of its existing or former employees. There are no labor
disputes or, to the knowledge of any of the Shareholders, any disputes
threatened by current or former employees of Hitwell. 2.1.20. Terminated
Employees. Hitwell has terminated all of its employees listed effective as of
the date hereof (the "Terminated Employees"), all of which will be hired by
WellTech Eastern, Inc., a wholly-owned subsidiary of Key. Hitwell has paid the
Terminated Employees all wages and other compensation owed them through the date
of termination and Hitwell has no further obligations with respect to any of the
Terminated Employees. 2.1.21. Investigations; Litigation. No investigation or
review by any governmental entity with respect to Hitwell or any of the
transactions contemplated by this Agreement is pending or, to the knowledge of
any of the Shareholders, threatened, nor has any C:\34ACTREP\EXFILES\EXHIBIT.2D
11
<PAGE>
governmental entity indicated to Hitwell an intention to conduct the
same, and there is no action, suit or proceeding pending or, to the knowledge of
any of the Shareholders, threatened against or affecting Hitwell 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 any material
adverse change in the financial condition, properties or business of Hitwell.
2.1.22. Absence of Certain Business Practices. Neither Hitwell nor any officer,
employee or agent of Hitwell, nor any other person acting on its 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 business of Hitwell
(or to assist Hitwell in connection with any actual or proposed transaction)
which (i) might subject Hitwell 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 material adverse effect on the assets, business or operations of
Hitwell as reflected in the 6/30 Financial Statements, or (iii) if not continued
in the future, might materially adversely effect the assets, business operations
or prospects of Hitwell or which might subject Hitwell to suit or penalty in a
private or governmental litigation or proceeding. 2.1.23. Untrue Statements.
Hitwell and each of the Shareholders have made available to 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 Hitwell's assets
and business, and such information covers all commitments and liabilities of
Hitwell relating principally to its business or the assets. This Agreement and
the agreements and instruments to be entered into 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. 2.1.24. 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 Hitwell and the
Shareholders, is required to be made or obtained by Hitwell or any of the
Shareholders in connection with the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby. 2.1.25.
Finder's Fee. All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by Hitwell and the Shareholders and
their counsel directly with Key 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
payments. C:\34ACTREP\EXFILES\EXHIBIT.2D 12
<PAGE>
ARTICLE 3 ADDITIONAL
AGREEMENTS 3.1. Noncompetition. Except as otherwise consented to or approved in
writing by Key, each of the Shareholders agrees that for a period of 60 months
the Effective 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 5% of any
security of any class of any corporation or other business entity (i) engage in
competition with the business or businesses conducted by Hitwell, Key or any
affiliate of Key at the Effective Date, or in any service business the services
of which are provided and marketed by Hitwell, Key or any affiliate of Key at
the Effective Date in any state of the United States, or any foreign country in
which Hitwell, Key or any affiliate of Key transacts business on the Effective
Date; (ii) request any present customers or suppliers of Hitwell to curtail or
cancel their business with Key or any affiliate of Key; (iii) disclose to any
person, firm or corporation any trade, technical or technological secrets of
Hitwell, 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
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 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 Shareholders may have under the laws of the State
of West Virginia 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 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
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 3.1 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 3.1 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.
3.2. Payment of Certain Debts. On or before February 27, 1996, Key shall pay all
amounts owed by Hitwell to Commercial Banking & Trust Company under that certain
promissory note dated March 18, 1994 in the original principal amount of
$310,000 (the "Hitwell Note"). Prior to such payoff, Key shall timely make all
monthly payments due under the Hitwell Note. 3.3. Restrictions on Additional
Shares. Until the Key Note is paid in full, Key shall not issue any additional
shares of Hitwell Common Stock. C:\34ACTREP\EXFILES\EXHIBIT.2D 13
<PAGE>
3.4.
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. ARTICLE 4 INDEMNIFICATION 4.1.
Indemnification by Shareholders. In addition to any other remedies available to
Key under this Agreement, or at law or in equity, each of the Shareholders shall
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") that such indemnitees
shall incur or suffer, which arise, result from or relate to (i) any breach by
any of the Shareholders of (or the failure of 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 Key by any of the Shareholders under this Agreement or
(ii) Hitwell's relationship with any Terminated Employees on or before the date
hereof; provided, however, that the Shareholders shall not be required to so
indemnify, defend and hold harmless Key and its officers, directors, employees,
agent 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 5.1 hereof) of the
specific representation or warranty alleged to have been breached. 4.2.
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 and his 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 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 Hitwell or any of the Shareholders by or on
behalf of Key under this Agreemen; 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 specified in Section 5.1
hereof) of the specific representation or warranty alleged to have been
breached. C:\34ACTREP\EXFILES\EXHIBIT.2D 14
<PAGE>
4.3. Indemnification
Procedure. In the event that any party hereto discovers or otherwise becomes
aware of an indemnification claim arising under Section 4.1 or Section 4.2 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. 4.4. Offset. The parties hereto
agree that if Key shall incur any Damages for which it is entitled to
indemnification by the Shareholders pursuant to the terms of this Agreement, Key
shall have the right to offset any payments due or to be due under the terms of
this Agreement or any other agreement executed in connection herewith, by the
amount of the Damages. Such right of offset shall not be considered an exclusive
remedy, it being agreed that Key shall also be entitled to exercise any other
remedies available to it at law or in equity, including, without limitation, the
indemnification rights set forth in this Article 4. In the event of an offset by
Key as a result of any C:\34ACTREP\EXFILES\EXHIBIT.2D 15
<PAGE>
account
receivable of Hitwell not being collected in breach of the representation of any
of the Shareholders in Section 2.1.6 hereof, upon any such offset, Key shall
assign to the Shareholders the account receivable subject to offset, and the
Shareholders shall thereafter have the right to take any reasonable action to
collect such account receivable. In the event of an offset by Key as a result of
any inventory of Hitwell being unsalable in the normal course of business in
breach of the representations of Hitwell and the Shareholders in Section 2.1.6
hereof, upon any such offset, Key shall convey and transfer to the Shareholders
title to such inventory subject to offset. ARTICLE 5 MISCELLANEOUS 5.1. 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 date hereof, 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 date hereof
despite any investigation made by any party hereto or on its behalf. All
covenants and agreements contained herein shall survive indefinitely without
limitation, except as otherwise provided herein. 5.2. 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. 5.3. 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. 5.4. 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. C:\34ACTREP\EXFILES\EXHIBIT.2D
16
<PAGE>
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 Attn: General Counsel
Attention: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
If to any Shareholder Addressed to: With a copy to: Ed Hitt Bowles Rice McDavid
Graff & Love P.O. Box 43 601 Avery Street Parkersburg, West Virginia 26102
Parkersburg, West Virginia 26102 Facsimile: (304) 464-5207 Attention: John S.
Bailey Facsimile: (304) 485-7973 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. 5.5. 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. 5.6. 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. 5.7.
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. 5.8. Applicable Law. This
Agreement shall be governed by and construed and enforced in accordance with the
applicable laws of the State of West Virginia. [SIGNATURE PAGE FOLLOWS]
C:\34ACTREP\EXFILES\EXHIBIT.2D 17
<PAGE>
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.
KEY ENERGY GROUP, INC. By: \s\ Kenneth C. Hill Name: Kenneth C. Hill Title: Vice
President SHAREHOLDERS \s\ Ed Hitt Ed Hitt \s\ Helen Hitt Helen Hitt \s\ Michael
E. Thompson Michael E. Thompson \s\ Edward Monroe, Jr. Edward Monroe, Jr.
C:\34ACTREP\EXFILES\EXHIBIT.2D i
PLAN AND AGREEMENT OF MERGER
AMONG
KEY ENERGY GROUP, INC.
WELLTECH EASTERN, INC.
HUNT OIL COMPANY
AND
BROOKS WELL SERVICING, INC.
Dated as of November 22, 1996
::ODMA\PCDOCS\DOCS\97107\2
<PAGE>
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement") is entered into as
of November 22, 1996 among Key Energy Group, Inc., a Maryland corporation
("Key"), WellTech Eastern, Inc., a Delaware corporation and a wholly-owned
subsidiary of Key ("WellTech" or the "Surviving Corporation"), Brooks Well
Servicing, Inc., a Texas corporation ("Brooks"), and Hunt Oil Company, a
Delaware corporation and the sole shareholder of Brooks (the "Shareholder").
WellTech and Brooks are sometimes collectively referred to herein as the
"Merging Corporations."
WITNESSETH :
WHEREAS, Key is a corporation duly organized and validly existing under
the laws of the State of Maryland, with its principal executive offices at Two
Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and
WHEREAS, the capitalization of Key consists of 25,000,000 shares of
common stock, par value $.10 per share ("Key Common Stock"), of which as of the
date hereof, 10,549,582 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 $52,000,000 7% Convertible Subordinated
Debentures due 2003 (the "Convertible Debentures"); and
WHEREAS, WellTech is a corporation duly organized and validly existing
under the laws of the State of Delaware, with its principal executive offices at
Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and
WHEREAS, Key owns 100 shares of common stock, par value $.01 per share,
of WellTech (the "WellTech Common Stock"), which constitutes all of the issued
and outstanding shares of capital stock of WellTech; and
WHEREAS, Brooks is a corporation duly organized and validly existing
under the laws of the State of Texas, with its principal executive offices at
2406 Highway 135 North, Kilgore, Texas 75662; and
WHEREAS, the authorized capital stock of Brooks consists of 1,002
shares of common stock, par value $1.00 per share (the "Brooks Common Stock"),
of which on the date hereof 167 shares are issued and outstanding, and 835
shares are held in treasury (the "Brooks Treasury Shares"); and
WHEREAS, the Shareholder is a corporation duly organized and validly
existing under the laws of the State of Delaware, with its principal executive
offices at 1445 Ross Avenue, Dallas, Texas 75202; and
WHEREAS, the Shareholder owns all 167 issued and outstanding shares of
Brooks Common
Stock; and
::ODMA\PCDOCS\DOCS\97107\2
i
<PAGE>
WHEREAS, (i) the board of directors of Key, (ii) Key (in its capacity
as WellTech's sole shareholder) and the board of directors of WellTech and (iii)
the Shareholder (in its capacity as the sole shareholder of Brooks) and the
board of directors of Brooks desire to merge Brooks with and into WellTech in
accordance with the provisions of Section 252 of the Delaware General
Corporation Law (the "DGCL") and Article 5.01 of the Texas Business Corporation
Act (the "TBCA") pursuant to the terms and provisions of this Agreement, and
have approved such merger (the "Merger") and the other terms and provisions of
this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and to prescribe the terms and
conditions of the Merger contemplated hereby, the mode of carrying the same into
effect, the manner and basis of converting the presently outstanding shares of
Brooks Common Stock into the right to receive the Merger Consideration described
in Section 1.11 hereof, and such other details and provisions as are deemed
necessary or proper, the parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. Surviving Corporation. Brooks shall be, upon the Effective Date
(defined below), merged with and into WellTech, with WellTech being the
surviving corporation (the "Surviving Corporation"), which shall continue its
corporate existence and remain a Delaware corporation governed by and subject to
the laws of that State.
1.2. Effective Date. The Merger shall become effective upon the last to
occur of (i) the filing of the Certificate of Merger with the Secretary of State
of Delaware following its execution in accordance with Sections 252 and 103 of
the DGCL and (ii) the filing of the Articles of Merger with the Secretary of
State of Texas following its execution in accordance with Article 5.04 of the
TBCA. The Merger, subject to the satisfaction of all of the terms and conditions
of this Agreement, shall take place on December 3, 1996, or as soon as
practicable thereafter. The date upon which the Merger becomes effective is
referred to in this Agreement as the "Effective Date."
1.3. Name and Continued Corporate Existence of Surviving Corporation.
On the Effective Date, the identity, existence, purposes, powers, objects,
franchises, rights, and immunities of WellTech shall continue unaffected and
unimpaired by the Merger, and the corporate identity, existence, purposes,
powers, objects, franchises, rights, and immunities of Brooks shall be wholly
merged into WellTech and WellTech shall be fully vested therewith. Accordingly,
on the Effective Date, the separate existence of Brooks, except insofar as
continued by statute, shall cease.
1.4. Governing Law and Articles of Incorporation of Surviving
Corporation. The laws of Delaware shall continue to govern the Surviving
Corporation. On and after the Effective Date, the Certificate of Incorporation
of WellTech shall be the Certificate of Incorporation of the Surviving
Corporation until further amended in the manner provided by law.
::ODMA\PCDOCS\DOCS\97107\2
2
<PAGE>
1.5. Bylaws of Surviving Corporation. On the Effective Date, the Bylaws
of WellTech shall be the Bylaws of the Surviving Corporation until altered,
amended, or repealed, or until new bylaws shall be adopted in accordance with
the provisions of law, the Certificate of Incorporation of WellTech, and the
Bylaws of WellTech.
1.6. Directors of Surviving Corporation. The incumbent directors of
WellTech immediately before the Effective Date shall continue to constitute the
board of directors of the Surviving Corporation from and after the Effective
Date, and such persons shall remain directors of the Surviving Corporation until
their successors are duly elected and qualify in accordance with the Certificate
of Incorporation and the Bylaws of the Surviving Corporation.
1.7. Officers of Surviving Corporation. The incumbent officers of
WellTech immediately before the Effective Date shall continue to hold their
respective offices of the Surviving Corporation from and after the Effective
Date and until their successors are duly elected and qualify in accordance with
the Certificate of Incorporation and the Bylaws of the Surviving Corporation.
1.8. Vacancies. If on or after the Effective Date, a vacancy shall for any
reason exist in the board of directors or in any of the offices of the Surviving
Corporation, such vacancy shall be filled in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation.
1.9. Capital Stock of Surviving Corporation. The authorized number of
shares of capital stock of the Surviving Corporation, and the par value,
designations, preferences, rights, limitations thereof, and the express terms,
shall be as set forth in the Certificate of Incorporation of the Surviving
Corporation.
1.10. Distributions. Before the Effective Date, the Shareholder shall
cause Brooks to apply or distribute all of its cash and cash equivalents held as
of the Allocation Date (as defined in Section 7.3) as follows: (i) first, to the
payment and discharge of the leases described in Schedule 1.10, (ii) second, to
the payment of any intercompany accounts or indebtedness owed by Brooks to the
Shareholder, and (iii) third, to the payment of a dividend to the Shareholder.
The amount of any intercompany accounts or indebtedness owed by Brooks to the
Shareholder not discharged pursuant to clause (ii) above (the "Excess Account")
shall be deemed paid and discharged in consideration of the amounts, if any, to
be received by the Shareholder pursuant to Section 7.3. In addition, before the
Effective Date, the Shareholder shall cause Brooks to declare a dividend payable
to the Shareholder (as the record holder of the Brooks Shares before the
Effective Date) in an amount equal to the Excess Receivables (as defined in
Section 7.3) remaining, if any, after the discharge of the Excess Account
pursuant to clause (ii) of this Section 1.10 and Section 7.3.
1.11. Conversion of Securities Upon Merger.
1.11.1. Conversion of Brooks Common Stock. On the Effective Date, the 167
issued and outstanding shares of Brooks Common Stock, all of which are held by
the Shareholder (the "Brooks Shares"), without any action on the part of the
Shareholder, shall automatically
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become and be converted into the right to receive from Key 1,000,000 shares
of Key Common Stock, or such greater or lesser number of shares of Key Common
Stock determined as provided in Section 1.11.2 (the "Merger Consideration"). The
Brooks Treasury Shares shall be canceled.
1.11.2.
1.11.2.1. Key Common Stock Closing Price Adjustments.
If the average closing price of the Key Common Stock on the
American Stock Exchange for the 10 trading days immediately
preceding the day before the Effective Date (the "Average
Closing Price") is less than $8.00, then the number of shares
of Key Common Stock to be issued in the Merger will be
adjusted to equal an amount determined by taking the product
of 100,000 shares multiplied times the percentage by which the
Average Closing Price is less than $8.00 but greater than or
equal to $6.00, and adding such product to 1,000,000 shares.
If the Average Closing Price is greater than $10.00, then the
number of shares of Key Common Stock to be issued in the
Merger will be adjusted to equal an amount determined by
taking the product of 100,000 shares multiplied times the
percentage by which the Average Closing Price is greater than
$10.00 but less than or equal to $12.00, and subtracting such
product from 1,000,000 shares. In any event, however, the
maximum adjustment to the purchase price shall not be greater
than 100,000 shares. A list showing the range of possible
adjustments is attached as Schedule 1.11.2.1.
1.11.2.2. Adjustments for Environmental Liabilities.
If as a result of the environmental assessments conducted by
Brooks pursuant to Section 5.2.7 Key reasonably determines
that restoration activities on any real property owned by
Brooks is required, then Brooks may, at its option, either
conduct appropriate restoration activities on such property at
its own expense or remove such property from those being
acquired by Key in the Merger. If any real property is removed
from the properties that otherwise would be acquired by Key in
the Merger, then the Merger Consideration will be adjusted by
an amount of Key Shares with a fair market value, based on the
Average Closing Price, as is equal to the fair market value of
such property, with such fair market value to be determined by
an independent appraiser mutually satisfactory to the
Shareholder and Key. The fees and expenses of such appraiser
shall be borne by the Shareholder.
1.11.2.3. No Fractional Shares. If any adjustment to the number of Key
Shares issuable pursuant to this Section 1.11.2. results in a fractional share,
then the number of Key Shares issuable as the Merger Consideration shall be
rounded up to the next whole share.
1.12. Surrender of Brooks Certificates. On the Effective Date, the
Shareholder will surrender all the certificates representing the Brooks Shares
(the "Brooks Certificates"). On the
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Effective Date, Key will cancel the Brooks Certificates, and the Shareholder
will receive the Merger Consideration.
1.13. Brooks' Transfer Books Closed. Upon the Effective Date, the stock
transfer books of Brooks shall be closed, and no transfer of any shares of
capital stock of Brooks shall thereafter be made or consummated.
1.14. Assets and Liabilities of Merging Corporations Become Those of
Surviving Corporation. On the Effective Date, all rights, privileges, powers,
and franchises of each of the Merging Corporations, and all property, real,
personal, and mixed, and all debts due on whatever account, as well as stock
subscriptions and all other things in action of or belonging to either of the
Merging Corporations, shall be taken by and deemed to be transferred to and
shall be vested in the Surviving Corporation without further act or deed, and
all such rights, privileges, powers, and franchises, property, debts, or things
in action, and all and every other interest of each of the Merging Corporations
shall be thereafter as effectively the property of the Surviving Corporation as
they were of the respective Merging Corporations, and the title to any real
property, whether vested by deed or otherwise, in either of the Merging
Corporations, shall not revert or be in any way impaired by reason of the
Merger; provided however, that all rights of creditors and all liens upon any
properties of each of the Merging Corporations shall be preserved unimpaired,
and all debts, liabilities and duties of the Merging Corporations shall
thenceforth attach to the Surviving Corporation and may be enforced against and
by it to the same extent as if such debts, liabilities and duties had been
incurred or contracted by it. Any action or proceeding pending by or against
either of the Merging Corporations may be prosecuted to judgment as if the
Merger had not taken place, or the Surviving Corporation may be substituted in
place of either of the Merging Corporations.
1.15. Federal Income Tax Treatment. The Merger is intended to qualify
as a tax-free reorganization described in ss.368(a)(1)(a) by virtue of ss.
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). The
parties hereto acknowledge that this Agreement constitutes a "plan of
reorganization" among the Shareholder, Brooks, Key and WellTech within the
meaning of Treas.Reg. ss. 1.368-2(g).
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDER AND BROOKS
2.1. Representations and Warranties of the Shareholder and Brooks.
The Shareholder
and Brooks each represent and warrant to Key and WellTech as follows:
2.1.1. Organization and Good Standing. Each of the Shareholder
and Brooks 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
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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 the respective businesses
or operations of the Shareholder or Brooks.
2.1.2. Agreement Authorized and its Effect on Other
Obligations. The execution and delivery of this Agreement has been
authorized by the board of directors of Brooks and by the Shareholder
in its capacity as the sole shareholder of Brooks, and has been
authorized by the board of directors of the Shareholder in its
individual capacity. The consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate
action on the part of Brooks and the Shareholder, and this Agreement is
a valid and binding obligation of Brooks and the Shareholder
enforceable against Brooks and the Shareholder in accordance with its
terms. The execution, delivery and performance of this Agreement and
the consummation of the Merger contemplated by this Agreement will not
conflict with or result in a violation or breach of any term or
provision of, nor constitute a default under (i) the Certificate or
Articles of Incorporation, as applicable, or Bylaws of Brooks or the
Shareholder, or (ii) any obligation, indenture, mortgage, deed of
trust, lease, contract or other agreement to which Brooks or the
Shareholder is a party or by which Brooks or the Shareholder or their
respective properties are bound, which in the case of either (i) or
(ii), would have a material adverse effect on the business or
operations of the Shareholder or Brooks.
2.1.3. Capitalization. The authorized capitalization of Brooks
consists of 1,002 shares of Brooks Common Stock, of which, as of the
date hereof 167 shares were issued and outstanding and held
beneficially and of record by the Shareholder and 835 of which are
Brooks Treasury Shares. On the date hereof, Brooks 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 Brooks Common Stock are validly
issued, fully paid and non-assessable and are not subject to preemptive
rights. None of the outstanding shares of Brooks 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 Brooks Shares. The Shareholder holds good
and valid title to all of the Brooks Shares, free and clear of all
Encumbrances. 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. There are no claims pending or, to
the Shareholder's knowledge, threatened, against Brooks or the
Shareholder that concern or affect title to the Brooks Shares, or that
seek to compel the issuance of capital stock or other securities of
Brooks.
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2.1.5. No Subsidiaries. There is no corporation, partnership,
joint venture, business trust or other legal entity in which Brooks,
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. Brooks has delivered to Key and
WellTech its unaudited balance sheet and related statements of income,
retained earnings and cash flows as of and for Brooks' fiscal year
ended December 31, 1995, and also has delivered to Key and WellTech
copies of its unaudited balance sheet (the "Unaudited Balance Sheet")
and related statements of income, retained earnings and cash flows as
of and for the nine months ended September 30, 1996. Such financial
statements are complete in all material respects (except for the
omission of notes and schedules), present fairly the financial
condition of Brooks 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 nine months ended September 30, 1996, though
unaudited, include all adjustments which Brooks considers necessary for
a fair presentation, in all material respects, of its results for that
period.
2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7,
Brooks does not have any liabilities or obligations, either accrued,
absolute or contingent, nor does the Shareholder have any knowledge of
any potential liabilities or obligations, which would be required to be
reflected on the Unaudited Balance Sheet prepared under generally
accepted accounting principles and that would materially adversely
affect the value and conduct of the business of Brooks, other than
those (i) reflected or reserved against in the Unaudited Balance Sheet
or (ii) incurred in the ordinary course of business since September 30,
1996.
2.1.8. Additional Information. Attached as Schedule 2.1.8
hereto are true, complete
and correct lists, as of October 28, 1996, 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
Brooks, with a description of the nature and amount of any Encumbrances thereon.
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 Brooks, with a description of the nature and amount of any
Encumbrances thereon;
2.1.8.3. Inventory. All inventory items or groups of inventory items owned
by Brooks that are valued on the Unaudited Balance Sheet, together with the
amount of any Encumbrances thereon;
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2.1.8.4. Insurance. All insurance policies or bonds
currently maintained by Brooks, including title insurance
policies, with respect to Brooks, including those covering
Brooks's properties, rigs, machinery, equipment, fixtures,
employees and operations, as well as a listing of any
premiums, audit adjustments or retroactive adjustments due or
pending on such policies or any predecessor policies;
2.1.8.5. Contracts. All well service contracts
(limited to contracts pursuant to which services currently are
being provided by Brooks and any "master agreements" to which
they relate), and all other contracts to which Brooks is a
party, including leases under which Brooks is lessor or
lessee, which are to be performed in whole or in part after
the date hereof;
2.1.8.6. 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 Brooks, 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;
2.1.8.7. Certain Salaries. The names and salary rates of all present
employees of Brooks 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;
2.1.8.8. Bank Accounts. The name of each bank in which Brooks has an
account, the account numbers of each account and the names of all persons
authorized to draw thereon;
2.1.8.9. Employee Agreements. Any collective
bargaining agreements of Brooks 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
Brooks;
2.1.8.10. Intellectual Property. All patents, trademarks, copyrights and
other intellectual property rights owned, licensed, or used by Brooks;
2.1.8.11.
Trade Names. All trade names, assumed names and fictitious names used or held by
Brooks, whether and where such names are registered and where used;
2.1.8.12.
Promissory Notes. All long-term and short-term promissory notes, installment
contracts, loan agreements, credit agreements, and any other agreements of
Brooks relating thereto or with respect to collateral securing the same;
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2.1.8.13. Guaranties. All indebtedness, liabilities and commitments of
others as to which Brooks is a guarantor, endorser, co-maker, surety, or
accommodation maker, or is contingently liable therefor and all letters of
credit, whether stand-by or documentary, issued by any third party;
2.1.8.14. Leases. All leases to which Brooks is a party; and
2.1.8.15. Environment. All environmental permits,
approvals, certifications, licenses, registrations, orders and
decrees applicable to current operations conducted by Brooks
and all environmental audits, assessments, investigations and
reviews conducted by Brooks within the last five years on any
property owned or used by Brooks.
2.1.9. No Defaults. Except as is specified in Schedule 2.1.8
(as such Schedule has been limited pursuant to Section 2.1.8.5), Brooks
is not a party to, or bound by, any contract or arrangement of any kind
to be performed after the Effective Date, nor is Brooks in default in
any material respect in any obligation or covenant on its part to be
performed under any obligation, lease, contract, order, plan or other
arrangement.
2.1.10. Absence of Certain Changes and Events. Except as set forth in
Schedule 2.1.10, other than as a result of the transactions contemplated by this
Agreement, since September 30, 1996, 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 Brooks;
2.1.10.2. Property Damage. Any material damage, destruction, or loss to the
business or properties of Brooks (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 Brooks Common Stock;
2.1.10.4. Capitalization Change. Any change in the capital stock or in the
number of shares or classes of Brooks's authorized or outstanding capital stock
as described in Section 2.1.3 hereof;
2.1.10.5. Labor Disputes. Any labor dispute; or
2.1.10.6. Other Material Changes. Any other event or condition known to
Brooks or the Shareholder particularly pertaining to and adversely affecting the
operations, assets or business of Brooks which would constitute a material
adverse change, as such term is defined in Section 4.1.6.
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2.1.11. Taxes.
2.1.11.1. Tax Returns. Except as provided on Schedule
2.1.11, 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 required to be filed
on or before the Effective Date have been filed with
appropriate governmental agencies, domestic and foreign, by
Brooks 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) or extensions to the filing of
such returns have been timely requested by Brooks to the
filing thereof and all taxes shown by such returns to be
payable have been paid other than those being contested in
good faith by Brooks, except for tax return filings or tax
payments the failure to file or pay, as the case may be, do
not have a material adverse effect on Brooks.
2.1.11.2. Statutes of Limitation. Except as provided
on Schedule 2.1.11, no waiver of any statute of limitations
executed by Brooks with respect to any income or other tax is
in effect for any period or extensions to the filing of such
returns have been timely requested by Brooks to the filing
thereof.
2.1.11.3. Audits. Except as provided on Schedule 2.1.11, the income tax
returns of Brooks are not being examined by the Internal Revenue Service or the
taxing authorities of any other jurisdiction and no proposed assessments of tax
are pending.
2.1.11.4. Tax Liens. There are no tax liens on any assets of Brooks except
for taxes not yet currently due.
2.1.11.5. Tax-Sharing Agreements. Except as provided on Schedule 2.1.11,
Brooks does not owe any amount under any tax-sharing or allocation
agreement.
2.1.11.6. Distributions. Except for regular normal
dividends and as provided in Section 1.10 and Section 7.3,
Brooks has not made any payments to dissenters or payments to
the Shareholder other than for expenses or repayment of
liability in the ordinary course of business, or other
redemptions or distributions to the Shareholder other than in
the ordinary course of business within the 12 months before
the Effective Date.
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representation, the Brooks Shares exchanged for cash or other
property, surrendered by dissenters or exchanged for cash in
lieu of fractional shares of Key Common Stock will be treated
as outstanding shares of Brooks on the date of the Merger.
Moreover, shares of Brooks and Key Common Stock held by the
Shareholder and otherwise sold, redeemed or disposed of before
or after the Merger will be considered in making this
representation.
2.1.11.8. Liabilities. The liabilities of Brooks assumed by WellTech and
the liabilities to which the transferred assets of Brooks are subject were
incurred by Brooks in the ordinary course of business.
2.1.11.9. Expenses. Except as provided in Section 7.3, Brooks and the
Shareholder will pay their respective expenses, if any, incurred in
connection with the Merger.
2.1.11.10. Bankruptcy. Brooks is not under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of
the Internal Revenue Code.
2.1.11.11. Investment Companies. Brooks is not an investment
company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Internal Revenue Code.
2.1.12. Intellectual Property. Brooks 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 "Intellectual Property") that are either material to
the business of Brooks or that are necessary for the rendering of any
services rendered by Brooks and the use or sale of any equipment or
products used or sold by Brooks, including all such Intellectual
Property listed in Schedule 2.1.8. The Intellectual Property is owned
or licensed by Brooks free and clear of any Encumbrance. Brooks has not
granted to any other person any license to use any Intellectual
Property. Brooks has not received any notice of infringement,
misappropriation, or conflict with the intellectual property rights of
others in connection with the use by Brooks of the Intellectual
Property or otherwise in connection with Brooks' operation of its
business.
2.1.13. Title to and Condition of Assets. Brooks 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, free and clear of any Encumbrance
of any nature whatsoever, except (i) Encumbrances reflected in the
Unaudited Balance Sheet or in Schedule 2.1.8, (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
Brooks' business operations. All leases pursuant to which Brooks leases
(whether as lessee or lessor) any substantial amount of real or
personal property are in good
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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 Brooks.
The buildings and premises of Brooks that are used in its business are
in good operating condition and repair, subject only to ordinary wear
and tear. Except as otherwise provided on Schedule 2.1.8, all rigs, rig
equipment, machinery, transportation equipment, tools and other major
items of equipment of Brooks 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 Brooks' 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 received by Brooks
or the Shareholder, except such as have been fully complied with.
2.1.14. Contracts. All material contracts, leases, plans or
other arrangements to which Brooks is a party, by which it is bound or
to which it or its assets are subject are in full force and effect, and
constitute valid and binding obligations of Brooks. Brooks is not, and
no other party to any such contract, lease, plan or other arrangement
is, in material 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.
2.1.15. Licenses and Permits. Brooks 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 Brooks 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. Each of such Permits and Brooks' rights with
respect thereto is valid and subsisting, in full force and effect, and
enforceable by Brooks subject to administrative powers of regulatory
agencies having jurisdiction. Brooks is in compliance in all material
respects with the terms of such Permits. None of such Permits have
been, or to the knowledge of Brooks or the Shareholder, 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 Brooks
is a party or, to the knowledge of the Shareholder, might become a
party or which particularly affects Brooks, nor is any change in the
zoning or building ordinances directly affecting the real property or
leasehold interests of Brooks pending or, to the knowledge of Brooks or
the Shareholder, threatened.
2.1.17. Environmental Compliance. The provisions of this Section
2.1.17 shall not be applicable to any environmental condition or issue
which is shown on Schedule 2.1.17.1. Notwithstanding anything
contained herein to the contrary, this Section 2.1.17 contains the
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exclusive representations and warranties of the Shareholder and
Brooks regarding environmental matters.
2.1.17.1. Environmental Conditions. 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
Brooks, or on any property to which hazardous substances or
waste generated by Brooks' operations or use of its assets
were disposed of, which would result in a material adverse
change in the business or business prospects of Brooks;
2.1.17.2. Permits, etc. Brooks 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 the business or operations
of Brooks, and is operating in compliance thereunder;
2.1.17.3. Compliance. Brooks's operations and use of its assets
do not, in any material respect, violate 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.),
the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 1609
et seq.), 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");
2.1.17.4. Past Compliance. None of the operations or
assets of Brooks 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 which have been
remedied or cured and which will not in the aggregate have a
material adverse effect on the future business or operations
of Brooks;
2.1.17.5. Environmental Claims. Except as set forth
on Schedule 2.1.17.5, during the five year period ended on the
date hereof, no notice has been served on Brooks or the
Shareholder 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
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Laws, or regarding any claims for remedial obligations,
response costs or contribution under any Applicable
Environmental Laws;
2.1.17.6. Renewals. The Shareholder and Brooks know of no reason
WellTech 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 Brooks' assets 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 Brooks, nor do polychlorinated biphenyls exist in
concentrations of 50 parts per million or more in electrical
equipment owned or being used by Brooks in its operations or
on its properties.
2.1.18. Compliance with Other Laws. Except as provided in
Sections 2.1.17 and 2.1.19, Brooks 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.ss.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 which
would have a material adverse effect upon its financial condition,
properties or business.
2.1.19. No ERISA Plans or Labor Issues.
2.1.19.1. Exclusive Representation. The provisions of
this Section 2.1.19 shall not be applicable to any issue
relating to the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") which is shown on
Schedule 2.1.19. Notwithstanding anything contained herein to
the contrary, this Section 2.1.19 contains the exclusive
representations and warranties of the Shareholder and Brooks
regarding ERISA matters.
2.1.19.2. Status of ERISA Plans and Labor Relations.
Except as set forth on Schedule 2.1.16, Brooks 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
ERISA. Brooks has not engaged in any unfair labor practices
which could reasonably be expected to result in a material
adverse effect on its operations or assets. Except as set
forth on Schedule 2.1.16, Brooks does not have any dispute
with any of its existing or former employees. There are no
labor disputes or, to the knowledge of Brooks or the
Shareholder, any disputes threatened by current or former
employees of Brooks.
2.1.20. Investigations; Litigation. Except as set forth on Schedule 2.1.20,
no investigation or review by any governmental entity with respect to Brooks or
any of the transactions contemplated by this Agreement is pending or, to the
best of Brooks' or the Shareholder's knowledge, threatened, nor has any
governmental entity indicated to Brooks
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or the Shareholder an intention to conduct the same, and there is no
action, suit or proceeding pending or, to the best of Brooks or the
Shareholder's knowledge, threatened against or affecting Brooks 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 any material adverse change in the financial
condition, properties or business of Brooks.
2.1.21. Absence of Certain Business Practices. Neither Brooks
nor any officer, employee or agent of Brooks, nor any other person
acting on its behalf (including the Shareholder or any officer,
employee or agent of the Shareholder), 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 Brooks
(or to assist Brooks in connection with any actual or proposed
transaction) which might subject Brooks to any material damage or
penalty in any civil, criminal or governmental litigation or
proceeding.
2.1.22. Consents and Approvals. Other than the filing of
Articles of Merger with the Secretary of State of the State of Texas,
no consent, approval or authorization of, or filing or registration
with, any governmental or regulatory authority, or any other person or
entity is required to be made or obtained by Brooks or the Shareholder
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. The Shareholder has engaged Howard,
Weil, Labouisse, Friedrichs Incorporated ("Howard Weil") as its
financial advisor in connection with the sale of Brooks. The fees and
expenses payable to Howard Weil will be paid by the Shareholder and not
out of the assets of Brooks. Other than engaging Howard Weil as its
financial advisor, all negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Brooks and the
Shareholder and their counsel directly with Key and WellTech 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.
2.2. Investment Representations of the Shareholder. The Shareholder
acknowledges, represents and agrees that:
2.2.1. Shareholder Investment Suitability and Related Matters.
(i) Key has made available to the Shareholder the information and
documents described in Section 3.1.4., (ii) the Shareholder is aware of
the risks associated with ownership of Key Common Stock, and (iii) the
Shareholder is capable of bearing the financial risks associated with
such ownership.
2.2.2. Key Shares Not Registered. The issuance of the Key Shares has not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or registered or qualified under any applicable state securities laws;
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2.2.3. Reliance on Representations. 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;
2.2.4. Investment Intent. The Shareholder's acquisition of the Key Shares
is solely for its own account for investment, and the 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. The 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. Restrictive Legend. 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.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
KEY AND WELLTECH
3.1. Representations and Warranties of Key. Key represents and warrants to
Brooks and the Shareholder 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 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
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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 the
business or operations of Key. Copies of the Certificate of
Incorporation and Bylaws of Key have heretofore been delivered to
Shareholder, and such copies are accurate and complete as of the date
hereof.
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 against Key in accordance with its terms.
The execution and delivery of this Agreement has been authorized by the
board of directors of WellTech and Key in its capacity as the sole
shareholder of WellTech, and has been authorized by the board of
directors of Key in its individual capacity. The execution, delivery
and performance of this Agreement and the consummation of the Merger
contemplated by this Agreement will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a
default under (i) the Certificate 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 subsidiaries is
a party or by which Key or its subsidiaries, or their respective
parties are bound, which in the case of either (i) or (ii), would have
a material adverse effect on the business or operations of Key.
3.1.3. Capitalization. The capitalization of Key consists of
25,000,000 shares of Key Common Stock, of which as of the date hereof,
10,549,582 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 Convertible
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 3.1.3., 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) except as set forth on Schedule 3.1.3, 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 Effective 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.
3.1.4. Reports and Financial Statements. Key has previously
furnished to the Shareholder true and complete copies of (i) Key's
annual report filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities and Exchange Act of 1934 (the
"Exchange Act") for Key's fiscal year ended June 30, 1996; (ii) Key's
quarterly
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and other reports filed with the Commission since Key's fiscal year
ended June 30, 1996; (iii) all definitive proxy solicitation materials
filed with the Commission since December 31, 1995; (iv) any
registration statements (other than those relating to employee benefit
plans) declared effective by the Commission since December 30, 1995;
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 3.1.4 (collectively, the "Key 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.
3.1.5.1. Financial Change. Any adverse change in the financial condition,
backlog, operations, assets, liabilities or business of Key, or
3.1.5.2. 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 Shareholder.
3.1.6. 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, 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.
3.1.7. Consents and Approvals. Except as set forth on Schedule
3.1.7, no consent, approval or authorization of, or filing 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.
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3.1.8. 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 Brooks and 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.
3.1.9. 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.
3.1.10. Retention of Brooks' Employees. On the Effective Date,
the Surviving Corporation will continue the employment of the Brooks
employees except for the Brooks employees listed on Schedule 3.1.10.
All such employees hired by the Surviving Corporation shall become
participants in Key's employee benefit plans, including Key's medical
plan, and shall receive full credit thereunder for all purposes for
their years of service at Brooks. With respect to any preexisting
condition, limitations or similar provisions contained in Key's medical
plan, service with Brooks shall be treated as service with Key, and for
the purpose of determining deductibles, copayments and out-of-pocket
maximums under Key's plans for 1996, such former Brooks employees shall
be given credit under Key's medical plan for any deductibles or
copayments made by a former Brooks employee or his or her dependents
with respect to coverage under the medical plan sponsored by
Shareholder during 1996.
3.2. Representations and Warranties of WellTech. WellTech represents and
warrants to Brooks and the Shareholder as follows:
3.2.1. Organization and Standing. WellTech 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 when the failure to be so qualified or licensed would
not have a material adverse effect on the business or operations of
WellTech.
3.2.2. Agreement Authorized and its Effect on Other Obligations. The
execution and delivery of this Agreement has been authorized by the board of
directors and the holder of all of the capital stock of WellTech, the
consummation of the transactions contemplated
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hereby have been duly and validly authorized by all necessary corporate
action on the part of WellTech, and this Agreement is a valid and
binding obligation of WellTech enforceable against WellTech in
accordance with its terms. The execution, delivery and performance of
this Agreement and the consummation of the Merger contemplated by this
Agreement will not conflict with or result in a violation or breach of
any term or provision of, nor constitute a default under (i) the
Certificate of Incorporation or Bylaws of WellTech or (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or
other agreement to which WellTech is a party or by which WellTech or
its respective properties are bound, which in the case of either (i) or
(ii), would have a material adverse effect on the business or
operations of WellTech.
3.2.3. Capitalization. The authorized capital stock of WellTech consists of
3,000 shares of WellTech Common Stock, of which at the date hereof, 100 shares
were issued and outstanding and held beneficially and of record by Key.
3.2.4. Consents and Approvals. Except for the filing of a
Certificate of Merger with the Secretary of State of Delaware, no
consent, approval or authorization of, or filing a registration with
any governmental or regulatory authority, or any person or entity is
required to be made or obtained by WellTech in connection with the
execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
3.2.5. Finder's Fee. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on
by WellTech and its counsel and Brooks and the Shareholder and their
counsel, without the intervention of any other person as the result of
any act of WellTech 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.
3.3. Other Representations and Warranties of Key and WellTech.
3.3.1. Control Prior to Merger. Prior to the Merger, Key will be in control
of WellTech within the meaning of Section 368(c) of the Internal Revenue Code.
3.3.2. Control Following Merger. Following the Merger, WellTech will not issue
additional shares of its stock that would result in Key losing control of
WellTech within the meaning of Section 368(c) of the Internal Revenue Code.
3.3.3. No Plan to Reacquire. Key has no plan or intention to reacquire any of
its stock issued in the Merger.
3.3.4. No Plan to Dispose. Key has no plan or intention to
liquidate WellTech; to merge WellTech with and into another
corporation; to sell or otherwise dispose of the stock of WellTech; or
to cause WellTech to sell or otherwise dispose of any of the assets of
Brooks acquired in the Merger, except for dispositions made in the
ordinary course of business or transfers described in Section
368(a)(2)(C) of the Internal Revenue Code.
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3.3.5. Expenses. Key and WellTech will pay their respective expenses, if
any, incurred in connection with the Merger.
3.3.6. Intercorporate Indebtedness.
There is no intercorporate indebtedness existing between Key and Brooks or
between WellTech and Brooks that was issued, acquired, or will be settled at a
discount.
3.3.7. Investment Companies. Key and WellTech are not investment
companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the Internal
Revenue Code.
3.3.8. WellTech Stock. No stock of WellTech will be issued in the
Merger.
ARTICLE 4
OBLIGATIONS PENDING EFFECTIVE DATE
4.1. Agreements of Key and Brooks. Except as contemplated by Section
1.10, each of Key and Brooks agrees that from the date hereof until the
Effective Date, it will (and unless otherwise indicated by the context, since
September 30, 1996, it has):
4.1.1. Maintenance of Present Business. Other than as
contemplated by this Agreement, 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; and
4.1.5. Inspection of Each Merging Corporation. Permit the
other party hereto, and their officers and 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
hereinabove made and the compliance with covenants contained in this
Agreement. Key, Brooks and the Shareholder each agrees that it and its
officers and representatives shall hold all data and information
obtained with respect to the other party hereto in confidence and each
further agrees that it
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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 such
party.
4.1.6. Notice of Material Developments. Each of Key and Brooks
will promptly notify the other party 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 such party, whether or not occurring
in the ordinary course of business. 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 Brooks, as the case may be, that the
benefits reasonably expected to be obtained by such party as a result
of the Merger contemplated by this Agreement would be jeopardized with
relative certainty. In no event shall a change in the trading price of
the Key Common Stock on the American Stock Exchange between the date
hereof and the Effective Date, in and of itself, constitute a material
adverse change. 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 insurance proceeds entitled to be received 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);
4.2. Additional Agreements of Brooks. Except as contemplated by Section
1.10, Brooks agrees that from September 30, 1996 it has not, and from the date
hereof to the Effective Date, it will:
4.2.1. Prohibition of Certain Employment
Contracts. Not 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. Not 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 agreed to in writing by Key;
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4.2.3. Prohibition of Certain Commitments. Not enter into
commitments of a capital expenditure nature or incur any contingent
liability 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 agreed to in writing by Key;
4.2.4. Disposal of Assets. Not sell, dispose of, or encumber, any property
or assets, except (i) in the usual and ordinary course of business or (ii) as
may be approved in writing by Key;
4.2.5. Maintenance of Insurance. Maintain the insurance set
forth on Schedule 2.1.8; provided, that if during the period from the
date hereof to and including the Effective Date any of its property or
assets are damaged or destroyed by fire or other casualty, the
obligations of Key, Brooks and the Shareholder under this Agreement
shall not be effected thereby, and upon the Effective 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 the Surviving
Corporation.
4.2.6. Acquisition Proposals. Not directly or indirectly (i)
solicit, initiate or encourage any inquiries or Acquisition Proposals
at any time before termination of this Agreement pursuant to Article 6
hereof 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 Brooks or for the
acquisition or purchase of any equity interest in, or a material
portion of the assets of, Brooks, other than the transactions with Key
and WellTech contemplated by this Agreement. Brooks 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. Except as
contemplated by this Agreement, not 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. Not 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 Brooks Common Stock, or subdivide or in any way
reclassify any shares of Brooks Common Stock, or acquire, or agree to
acquire, any shares of Brooks Common Stock;
4.2.9. Prohibition on Dividends. Except as set forth in Section 1.10, not
declare or pay any dividend on shares of Brooks Common Stock or make any other
distribution of assets to the holders thereof;
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4.2.10. Brooks' Employees. Brooks will use its reasonable best
efforts to make all of its employees, other than those listed on
Schedule 3.1.10, available for hire by Key as of the Effective Date.
4.3. Additional Agreements of Key. Key agrees it will:
4.3.1. Issuance of Key Common Stock. Take all action it deems
reasonably necessary to insure that the issuance of Key Common Stock to
the Shareholder in connection with the Merger will be made pursuant to
an exemption from registration under the Securities Act. Key also shall
take any action reasonably required to be taken under state blue sky or
securities laws in connection with the issuance of the Key Common Stock
pursuant to the Merger;
4.3.2. Listing of Key Stock. Take such steps as are required to accomplish,
as of the Effective Date, the listing on the American Stock Exchange of the
shares of Key Common Stock to be issued pursuant to this Agreement;
4.3.3. No
Amendment to Articles of Incorporation. Not amend its Articles of Incorporation
or merge into any other corporation or change in any manner the rights of the
Key Common Stock; and
4.3.4. Notice of Material Developments. Promptly furnish to
the Shareholder copies of all Key communications to its 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.
4.3.5. Employee Benefits Plans. Key understands that on or
before the Effective Date, the Shareholder will cause Brooks to
withdraw from any and all employee benefit plans sponsored by the
Shareholder in which Brooks participates. Key will cause the Surviving
Corporation to pay to the Fidelity Thrift Plan, within three business
days following receipt of notice from the Shareholder of the amount
due, all contributions to the Fidelity Thrift Plan due but not yet paid
as of the Effective Date with respect to Brooks employees and former
employees for employment with Brooks before the Effective Date. Key
also will cause the Surviving Corporation to satisfy all continuation
coverage obligations imposed pursuant to Sections 601 through 608 of
ERISA, and Section 4980B of the Internal Revenue Code of 1986, as
amended, with respect to any person in the employ of Brooks (and his or
her dependents) on or after the Effective Date.
4.3.6. Continuation of Historic Business of Brooks. WellTech
will continue the historic business of Brooks or use a significant
portion of Brook's business assets in a business for at least a period
of 12 months after the Effective Date of the Merger.
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ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. Conditions Precedent to Obligations of Brooks. The obligations of
Brooks to consummate and effect the Merger hereunder shall be subject to the
satisfaction of the following conditions, or to the waiver thereof by Brooks
before the Effective Date:
5.1.1. Representations and Warranties of Key and WellTech True
at Effective Date. The representations and warranties of Key and
WellTech herein contained shall be, in all material respects, true as
of and at the Effective Date with the same effect as though made at
such date, except as affected by transactions permitted or contemplated
by this Agreement; Key and WellTech shall have performed and complied,
in all material respects, with all covenants required by this Agreement
to be performed or complied with by Key and WellTech before the
Effective Date; and Key and WellTech shall have delivered to Brooks
certificates, dated the Effective Date and signed by their respective
presidents, and by their chief financial or accounting officers, and
their secretaries, to both such effects.
5.1.2. No Material Litigation. No suit, action, or other
proceeding shall be pending, or to Key's or WellTech'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
other relief in connection with this Agreement or the consummation of
the Merger 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. Brooks shall have received a
favorable opinion, dated as of the Effective Date, from Porter &
Hedges, L.L.P., counsel for Key and WellTech, in form and substance
satisfactory to Brooks, to the effect that (i) Key and WellTech have
been duly incorporated and are validly existing as corporations in good
standing under the laws of their states of organization; (ii) all
corporate proceedings required to be taken by or on the part of Key and
WellTech to authorize the execution of this Agreement and the
implementation of the Merger 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; and (iv) this
Agreement has duly executed and delivered by, and is the legal, valid
and binding obligation of Key and WellTech and is enforceable against
Key and WellTech 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 or on the provisions of Section 7.1. In
rendering such opinion, such counsel may rely upon (i) certificates of
public officials and of officers of Key and WellTech as to matters of
fact and (ii) the opinion or opinions of other counsel,
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which opinions shall be reasonably satisfactory to Brooks, as to
matters other than federal or Texas law.
5.1.4. Listing of Key Common Stock. The American Stock
Exchange shall have agreed that on the Effective Date it will list the
shares of Key Common Stock issuable at the Effective Date of this
Agreement.
5.1.5. Consent of Certain Parties in Privity With Key and
WellTech. The holders of any material indebtedness of Key or WellTech,
the lessors of any material property leased by Key or WellTech, and the
other parties to any other material agreements to which Key or WellTech
are a party shall, when and to the extent necessary in the reasonable
opinion of Brooks, have consented to the Merger contemplated hereby.
5.2. Conditions Precedent to Obligations of Key and WellTech. The
obligations of Key and WellTech to consummate and effect the Merger hereunder
shall be subject to the satisfaction of the following conditions, or to the
waiver thereof by Key and WellTech before the Effective Date.
5.2.1. Representations and Warranties of Brooks True at
Effective Date. The representations and warranties of Brooks and the
Shareholder herein contained shall be, in all material respects, true
as of and at the Effective Date with the same effect as though made at
such date, except as affected by transactions permitted or contemplated
by this Agreement; Brooks and the Shareholder 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 Effective
Date; and Brooks and the Shareholder shall have delivered to Key and
WellTech a certificate, dated the Effective Date and signed by their
respective chairman of the board or presidents, and by their respective
chief financial or accounting officers, and by their respective
secretaries, to both such effects.
5.2.2. No Material Litigation. No suit, action, or other
proceeding shall be pending, or to Brooks' or the Shareholder'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 other relief in connection with this Agreement or the
consummation of the merger contemplated hereby or which might result in
a material adverse change in the value of the assets and business of
Brooks.
5.2.3. Opinion of Counsel. Key shall have received a favorable
opinion, dated the Effective Date, from John R. Scott, General Counsel
to the Shareholder, in form and substance satisfactory to Key, to the
effect that (i) Brooks and the Shareholder each have been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its state of incorporation; (ii) all outstanding
shares of the Brooks Common Stock have been validly issued and are
fully paid and nonassessable; (iii) all corporate or other proceedings
required to be taken by or on the part of Brooks and the Shareholder to
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authorize the execution of this Agreement and the implementation of the
Merger contemplated hereby have been taken; and (iv) this Agreement has
been duly executed and delivered by, and is the legal, valid and
binding obligation of Brooks and the Shareholder and is enforceable
against Brooks and the Shareholder 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 or on the provisions of
Section 7.1. In rendering such opinion, such counsel may rely upon (i)
certificates of public officials and of officers of Brooks or the
Shareholder 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 Brooks or
the Shareholder. The holders of any material indebtedness of Brooks or
the Shareholder, the lessors of any material property leased by Brooks
or the Shareholder, and the other parties to any other material
agreements to which Brooks or the Shareholder is a party shall, when
and to the extent necessary in the reasonable opinion of Key, have
consented to the Merger contemplated hereby.
5.2.5. Termination of Certain Employees. Brooks shall have
terminated the employees listed on Schedule 3.1.10 (the "Terminated
Employees") effective before the Effective Date and shall have paid the
Terminated Employees all wages and other compensation owed them through
the date of termination.
5.2.6. Environmental Assessments. The Shareholder shall have
completed, Phase I environmental assessments with respect to the real
property listed on Schedule 2.1.8. In addition, at Key's request, no
later than 10 days before the Effective Date, the Shareholder also
shall have completed Phase II environmental assessments with respect to
any of such real property where Phase II assessments are reasonably
determined by Key to be appropriate. All of such Phase I and Phase II
environmental assessments shall be at the Shareholder's expense and not
out of the assets of Brooks. To the extent that such environmental
assessments indicate that liabilities exist for environmental cleanup
on a particular property, the Shareholder shall, no later than five
days before the Effective Date, indicate to Key whether the Shareholder
will conduct appropriate restoration activities at its expense on such
property or whether such property shall be removed from those being
acquired by Key pursuant to the Merger. To the extent the Shareholder
has determined to remove a property from those being acquired by Key,
then the Shareholder and Key shall have agreed to the adjustment to the
Merger Consideration to be delivered pursuant to Section 1.11.2 to
reflect the removal of such property from the assets of Brooks as of
the Effective Date.
ARTICLE 6
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TERMINATION AND ABANDONMENT
6.1. Termination. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Merger contemplated
hereby abandoned at any time before the Effective Date:
6.1.1. By Mutual Consent. By mutual consent of Key, WellTech, the
Shareholder and Brooks.
6.1.2. By Key or WellTech Because of Failure to Perform
Agreements or Conditions Precedent. By Key or WellTech, if Brooks or
the Shareholder has 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 Brooks or the Shareholder Because of Failure to
Perform Agreements or Conditions Precedent. By Brooks or the
Shareholder, if Key or WellTech 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 WellTech or by the Shareholder or Brooks,
Because of Legal Proceedings. By either Key or WellTech, or by the
Shareholder or Brooks, 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 Merger
contemplated hereby.
6.1.5. By Key or WellTech Because of a Material Adverse
Change. By Key or WellTech if there has been a material adverse change
in the financial condition or business of Brooks since the date of the
most recent financial statements referred to in Section 2.1.6.
6.1.6. By the Shareholder or Brooks Because of a Material Adverse Change.
By the Shareholder or Brooks 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 WellTech, or by the Shareholder or Brooks, if
Merger not Effective by December 31, 1996. By either Key or WellTech,
or by the Shareholder or Brooks, if the Merger shall not have become
effective on or before December 31, 1996; provided, however, that this
Agreement may not be terminated by any party hereto if the Merger has
not become effective on or before December 31, 1996, due to the breach
of any provision of this Agreement by the party desiring to terminate
the 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
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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 Merger contemplated hereby is 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. Noncompetition. Except as otherwise consented to or approved in
writing by WellTech and Key, the Shareholder agrees that for a period of 60
months following the Effective Date, it will not, directly or indirectly, acting
alone or as a member of a partnership or a holder of, or investor of any
security of any class of any corporation or other business entity (i) engage in
any business providing well services, anchoring services or swabbing services in
those territories specified on Schedule 7.1 hereto; (ii) request any present
customers or suppliers of Brooks to curtail or cancel their business with
WellTech or Key; (iii) disclose to any person, firm or corporation any trade,
technical or technological secrets of Brooks, WellTech or Key or any details of
their organization or business affairs or (iv) induce or actively attempt to
influence any employee of WellTech or Key to terminate his employment; provided,
however, that the provisions of this Section 7.1 shall not apply to (a) any
investment in any security of any class of a corporation or other business
entity where such investment is passive in nature, (b) the acquisition of well
service assets where such acquisition is ancillary to and not a material part of
the acquisition by the Shareholder (or any affiliate thereof) of another
business entity that is not primarily engaged in this well service business or
(c) the Shareholder's (or any affiliate thereof) investment in Nabors
Industries, Inc., provided that such investment shall not exceed ownership of
more than 10% of the voting stock of Nabors Industries, Inc. nor shall more than
one person associated with the Shareholder (or any affiliate thereof) serve on
the board of directors of Nabors Industries, Inc., and, provided further that
nothing in this Section 7.1 shall prohibit the Shareholder from altering its
current business relationship with Brooks. The Shareholder agrees that if either
the length of time or geographical area set forth in this Section 7.1 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 7.1 are in addition to any other obligations that the
Shareholder 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
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corporation) will not be materially impaired. The Shareholder further agrees and
acknowledges that WellTech and Key do not have any adequate remedy at law for
the breach or threatened breach by the Shareholder of this covenant, and agree
that WellTech or Key may, in addition to the other remedies which may be
available to them hereunder, file a suit in equity to enjoin the Shareholder
from such breach or threatened breach. If any provisions of this Section 7.1 are
held to be invalid or against public policy, the remaining provisions shall not
be affected thereby. The Shareholder acknowledges that the covenants set forth
in this Section 7.1 are being executed and delivered by the Shareholder in
consideration of the covenants of WellTech and Key contained in this Agreement,
and for other good and valuable consideration, receipt of which is hereby
acknowledged.
7.2. Registration Rights.
7.2.1. 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 Form S-1, a shelf registration
statement pursuant to Rule 415 of the Securities Act (the "Shelf
Registration Statement") covering the offer and resale by the
Shareholder of all the Key Shares and will use its best efforts to
cause the Shelf Registration Statement to be declared effective
promptly by the Commission. Key will not file a registration statement
with the Commission (other than on Form S-8) before Key files the Shelf
Registration Statement. The Shelf Registration Statement will not
relate to any shares of Key Common Stock other than the Key Shares.
7.2.2. 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 Effective 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 Shareholder
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 Effective 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 Form
S-1, as applicable, or by the Securities Act.
7.2.3. 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 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.
7.2.4. Registration Expenses. All expenses (except for any legal fees for
the Shareholder's counsel) relating to the registration of the Key Shares
pursuant to this
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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.
7.2.5. Preparation; Reasonable Investigation. In connection
with the preparation and filing of any Shelf Registration Statement
under the Securities Act pursuant to this Agreement, Key will give the
Shareholder the opportunity to participate in the preparation of such
Shelf Registration Statement, each prospectus included therein or filed
with the Commission, and each amendment thereof or supplement thereto,
and will give the Shareholder 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.
7.2.6. Rights Non-Transferable. The registration rights
provided by this Section 7.2 are for the sole benefit of the
Shareholder, are personal in nature, and shall not be available to any
subsequent holder of the Key Shares; provided, however, that such
registration rights are transferable to any affiliate of the
Shareholder to which the Key Shares may be transferred.
7.2.7. Undertaking to File Reports and Cooperate in Rule 144
and Rule 145 Transactions. For as long as the Shareholder is 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
Shareholder proposes to sell any Key Shares pursuant to Rule 144 and
145, Key shall cooperate with the Shareholder 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.
7.2.8. Additional Undertakings with Respect to Registration Rights. In
connection with its registration obligations under this Section 7.2, Key shall:
7.2.8.1. Delivery of Shelf Registration Statement and Prospectus. Furnish
to the Shareholder such number of copies of the Shelf Registration Statement,
each amendment and supplement thereto, the prospectus included in such Shelf
Registration Statement (including each preliminary prospectus), any documents
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incorporated by reference therein and such other documents as
the Shareholder may reasonably request in order to facilitate
the disposition of the Key Shares.
7.2.8.2. Notice to the Shareholder. Promptly notify
the Shareholder and (if requested by any such person) confirm
such notice in writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed and,
with respect to a Shelf Registration Statement or any
post-effective amendment, when the same has become effective,
(ii) of the issuance by any state securities or other
regulatory authority of any order suspending the qualification
or exemption from qualification of any of the Key Shares under
state securities or "blue sky" laws or the initiation of any
proceedings for that purpose, and (iii) of the happening of
any event which makes any statement made in a Shelf
Registration Statement or related prospectus untrue or which
requires the making of any changes in such Shelf Registration
Statement, prospectus or documents so that they will not
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and,
as promptly as practicable thereafter, prepare and file with
the Commission and furnish a supplement or amendment to such
prospectus so that, as thereafter deliverable to the
purchasers of such Key Shares, such prospectus will not
contain any untrue statement of a material fact or omit a
material fact necessary to make the statement therein, in
light of the circumstances under which they were made, not
misleading.
7.2.8.3. Incorporation of Information. If requested
by the Shareholder, promptly incorporate in a prospectus
supplement or post-effective amendment such information as the
Shareholder reasonably requests to be included therein,
including, without limitation, with respect to the Key Shares
being sold by the Shareholder, and promptly make all required
filings of such prospectus supplement or post-effective
amendment.
7.2.8.4. Delivery of Documents Incorporated by
Reference. As promptly as practicable after filing with the
Commission of any document which is incorporated by reference
into a Shelf Registration Statement (in the form in which it
was incorporated), deliver a copy of each such document to the
Shareholder.
7.2.8.5. Listing. Cause the Key Shares included in
any Shelf Registration Statement to be (i) listed on each
securities exchange, if any, on which similar securities
issued by Key are then listed, or (ii) authorized to be quoted
and/or listed (to the extent applicable) on the National
Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") or the NASDAQ National Market System if the Key
Shares so qualify.
7.2.8.6. Filing of Exchange Act Reports. During the
period when a prospectus is required to be delivered under the
Securities Act, promptly file all documents required to be
filed with the Commission pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act.
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7.2.8.7. Requests for Information by the Commission.
Notify the Shareholder promptly of any request by the
Commission for the amending or supplementing of such Shelf
Registration Statement or prospectus or for additional
information.
7.2.8.8. Notes of Stop Orders. Advise the Shareholder
of such Key Shares, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such Shelf
Registration Statement or the initiation or threatening of any
proceeding for such purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order
should be issued.
For purposes of this Section 7.2.8, the Shareholder shall include any affiliate
to which the Key Shares are transferred. Also for purposes of this Section
7.2.8., Key Shares shall refer to any capital stock of Key or its successors
into which Key shares may be exchanged or converted.
7.3. Settling of Accounts.
7.3.1. Allocation of Accounts. To the extent not otherwise
applied or distributed pursuant to Section 1.10, Key shall cause the
Surviving Corporation to pay to the Shareholder an amount equal to the
amount by which (i) Brooks' accounts receivable collected by the
Surviving Corporation that are attributable to work performed by Brooks
before the close of business as of the end of the month immediately
before the month in which the Effective Date occurs (the "Allocation
Date") exceed (ii) the amount of Brooks' trade payables accrued as of
the Allocation Date plus amounts paid by the Surviving Corporation
pursuant to the second sentence of Section 4.3.5 (the "Excess
Receivables"). Key shall cause the Surviving Corporation to use all
commercially reasonable efforts to collect such accounts receivable
within 90 days of the Effective Date. The amount of Excess Receivables
shall be applied (a) first, to the payment of the Excess Amount and (b)
second, as a dividend in respect of the Excess Dividend Amount. The
payment of any Excess Receivables under this Section 7.3 shall be made
90 days following the Effective Date. Before such payment date, Key
shall keep the Shareholder timely informed as to the amounts of all
accounts receivable collected by the Surviving Corporation and the
amounts of all trade payables. Within 30 days after such 90 day period,
Key shall cause the Surviving Corporation to have its controller
present to the Shareholder and Key an audit of the amounts payable to
the Shareholder under this Section 7.3. If there is disagreement among
the parties as to the correctness of such audit, an independent auditor
reasonably satisfactory to both Key and the Shareholder shall conduct a
separate audit, the fees and expenses of which shall be paid by the
Shareholder unless the amounts payable determined by the controller is
more than 5% greater than the amount determined by the independent
auditor, in which case such fees and expenses shall be paid by Key. Any
accounts receivable attributable to work performed before the
Allocation Date which remain outstanding after the audit performed by
the comptroller shall be assigned by the Surviving Corporation to the
Shareholder.
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7.3.2. Welfare Benefits; Long-Term Disability. The Shareholder
agrees that any claims for welfare benefits arising on or before the
Allocation Date with respect to any employees or former employees of
Brooks (or their covered dependents or beneficiaries) shall be the
responsibility of the Shareholder or insurers of the Shareholder's
welfare plans, and Key and WellTech agree that any claims for welfare
benefits and worker's compensation arising after the Allocation Date
with respect to any employees (or their covered dependents or
beneficiaries) shall be the responsibility of the Surviving Corporation
and the companies or the insurers of Key or WellTech's Welfare Plans.
Except as otherwise provided below, a claim is deemed to have arisen
when services relating to the condition that is the subject of the
claim were performed. In the case of an individual who is hospitalized
or on long-term disability on the Allocation Date, all claims relating
to such hospitalization (including, without limitation, hospital
charges and physician fees) shall be deemed to be claims arising on or
before the Allocation Date. With respect to worker's compensation
claims which are single - accident specific, a claim is deemed to have
arisen on the date of occurrence. With respect to all other worker's
compensation claims, a claim is deemed to have arisen on the date the
worker's compensation award is made. With respect to life insurance or
other death- related benefits, a claim is deemed to have arisen when
the death of the employee or covered dependent occurred.
7.4. Future Tax Returns.
7.4.1. Filing of Tax Returns. The Shareholder shall prepare
and file in a timely fashion the federal income tax return for the
consolidated group, including Brooks, for the period ending on the
Effective Date. The Shareholder shall prepare and file in a timely
fashion, any state, local, foreign or other tax returns of Brooks due
for any period that includes the Effective Date. The Shareholder shall
directly pay or discharge any and all income taxes, assessments,
interest, penalties or deficiencies reflected on such return, including
the tax liability of any member or former member of a consolidated
group of which Brooks was a member, however measured, for which Brooks
may be held liable. Such payment shall be made on or before the date
any such payment finally determined to be due and payable (including
any applicable extensions or tolling of such payment obligation pending
the final determination of any contested tax issue ; provided, however,
that any such payment shall not be due and payable until the later to
occur of (i) the last date for payment, including any applicable
extensions, or (ii) in the case of a potential payment with respect to
a contested issue, the date such payment is finally determined to be
due and payable by the administrative agency or highest court of
competent jurisdiction before which the Shareholder has contested the
matter following a final non-appealable determination that such payment
is due or the expiration of the time for prosecution or appeal of the
issue to the next highest level of administrative or judicial review
with respect to such matter.
7.4.2. Tax Controversies. Each of Key and the Shareholder shall provide to
the other on a timely basis information concerning the commencement and status
of any and all tax controversies involving Brooks or its business, as the case
may be as hereinafter provided. Except as otherwise provided in the last
sentence hereof, the Shareholder shall control the
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handling of all pre-Effective Date tax matters involving Brooks or its
business for which Key may be directly or indirectly liable by
operation of law or by the terms of this Agreement, subject to
providing Key with any relevant information concerning these matters;
provided, however, that the Shareholder shall not be required to
provide to Key any details (beyond the overall status) concerning any
administrative or judicial proceedings involving the consolidated group
(or other members thereof) if Brooks or its business is only involved
in and potentially liable for taxes, penalties and interest solely by
virtue of being a member of the consolidated group. Except as otherwise
provided in the last sentence hereof, Key shall control the handling of
all tax matters arising on or after the Effective Date involving the
business of Brooks, subject to providing the Shareholder with any and
all information regarding tax controversies or matters for which the
Shareholder may be or become directly or indirectly liable by operation
of law or by the terms of this Agreement. Notwithstanding, the
foregoing sentences of this Section 7.4.2, if any tax matter or
controversy arises with respect to any federal or state tax authority
that challenges the non-taxable status of the Merger or the other
transactions contemplated by this Agreement, Key or the Shareholder, as
the case may be, shall contest any challenge to the non-taxable status
of these transactions, shall keep each other informed as to the status
of any such matter or controversy, shall mutually agree upon outside
counsel to handle such matter or controversy on behalf of both Key and
the Shareholder (or failing such agreement, cause their respective
outside counsels to choose a third outside counsel to handle the matter
of controversy on behalf of Key and the Shareholder), and shall
coordinate the handling, settlement and resolution with one another of
such tax matter or controversy in a reasonable manner.
7.5. Continuation of Employment of Certain Brooks Personnel. The
Shareholder and Brooks shall use their reasonable best efforts to encourage the
employees of Brooks listed on Schedule 7.6 to have entered into employment
agreements with the Surviving Corporation in form and substance satisfactory to
Key.
7.6. 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.
ARTICLE 8
INDEMNIFICATION
8.1. Indemnification by the Shareholder. The Shareholder shall
indemnify, defend and hold harmless each of Key and WellTech, and their
respective officers, directors, employees, agents and stockholders, against and
with respect to any and all claims, costs, damages, losses, expenses, obliga
tions, 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 the Shareholder
to perform, its representations, warranties, covenants or agreements in this
Agreement or in any
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schedule, certificate, exhibit or other instrument furnished or delivered to
WellTech or Key by the Shareholder under this Agreement, (ii) Brooks's
relationship with any Terminated Employee, (iii)
any obligation of Key or Brooks to contribute to the payment of any taxes
determined on a consolidated, combined or unitary basis with respect to a group
of corporations that includes or included Brooks allocable to any period before
the Effective Date; and (iv) the Shareholder agrees to indemnify and hold
harmless WellTech and Key from any and all federal income tax liability
(including penalties and interest) that WellTech may incur or succeed to by
virtue of WellTech's receipt of the Brooks' business pursuant to the Merger
solely as a result of a final adjudicated determination that the Merger failed
to qualify as a tax-free reorganization under Section 368(a) of the Code by
virtue of a determination that the Shareholder failed to maintain the requisite
post- Merger continuity of shareholder interest; provided, however, that this
indemnity shall be ineffective if and of no further force and effect if the
Shareholder continues to hold 50% or more the Key Shares received in the Merger
for a period of time equal to 365 days from the Effective Date, irrespective
whether the tax-free nature of the Merger is challenged on the grounds that the
Merger failed the continuity of interest requirement. For purposes of this
provision, a "final adjudicated determination" shall mean a determination by the
highest court of competent jurisdiction to which the Shareholder could appeal,
or the determination of a lower court or the Internal Revenue Service, as the
case may be, if the Shareholder has not filed a suit in a court of appropriate
jurisdiction before the expiration of the applicable statute of limitations or
the date for filing an appeal of an adverse decision has expired.
8.2. Indemnification by Key. Key shall indemnify, defend and hold
harmless the Shareholder 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 (i) any breach of, or
failure by WellTech or Key to perform any of their representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to Brooks or the Shareholder
by or on behalf of Key or WellTech under this Agreement and (ii) any obligation
of the Shareholder or its consolidated group of corporations to contribute to
the payment of any taxes determined on a consolidated, combined or unitary basis
with respect to a group of corporations that includes or included the Surviving
Corporation or the business of Brooks allocable to any period on or after the
Effective Date. In addition, Key will indemnify, defend and hold harmless the
Shareholder and its officers, directors, employees and agents against any claims
to which the Shareholder 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
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 Shareholder and each such controlling person 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 Registration Statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity
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with written information furnished to Key, in an instrument duly executed by the
President or Senior Vice President of Finance of Shareholder specifically
stating that it is for use in the preparation thereof.
8.3. Indemnification Procedure. If any party hereto discovers or
otherwise becomes aware of an indemnification claim arising under Section 8.1 or
Section 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; , 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 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, 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 fees and 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. Notwith standing 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.
8.4. Limitation on Damages. Notwithstanding anything in this Agreement
to the contrary, the Shareholder shall not be liable to Key and the Surviving
Corporation or any of their respective officers, directors, employees, agents or
stockholders, their successors or assigns, for any Damages suffered or incurred
by Key or the Surviving Corporation in excess of the Liability Exception
(hereinafter defined); provided, however, that to the extent there are Damages
suffered or incurred
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by Key or the Surviving Corporation arising out of, or attributable to, a single
occurrence or event that are equal to the Liability Exception, then, in such
event, Key or WellTech shall be entitled to indemnification by the Shareholder
for the total amount of such Damages. The aggregate amount of any Damages owed
by the Shareholder to Key or WellTech shall not exceed the value of the shares
received by Shareholder under Section 1.11.2.1, which for this purpose shall be
the number of Key Shares received multiplied by the Average Closing Price.
8.5. Liability Exception. For purposes of this Section, the term "Liability
Exception" shall mean $250,000; provided however, that the Liability Exception
shall not include Damages pursuant to Section 2.1.11 relating to Taxes.
8.6. Exclusive Remedy. From and after the Effective Date, the
indemnification provided in Sections 8.1 and 8.2 shall be the exclusive remedy
that may be asserted under this Agreement or in connection with the transactions
contemplated herein. Notwithstanding any provision to the contrary contained
herein, each of the parties to this Agreement hereby waives any right to recover
special, punitive or exemplary damages for any claim asserted against the other.
ARTICLE 9
MISCELLANEOUS
9.1. 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 Effective 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, 3.3 and 4.3.6 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 Effective Date despite any investigation made by any party hereto or on
its behalf. All covenants and agreements contained herein shall survive
indefinitely without limitation, except as otherwise provided herein.
9.2. 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.
9.3. 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.
9.4. 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.
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If to Key or WellTech
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
Attn: Francis D. John Attention: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
If to the Shareholder
Addressed to: With a copy to:
Hunt Oil Company Hunt Oil Company
1445 Ross Avenue 1445 Ross Avenue
Dallas, Texas 75202 Dallas, Texas 75202
Attn: Gary T. Hurford Attn: Donald F. Robillard, Jr.
Facsimile: (214) 978-8671 Senior Vice President-Finance
Facsimile: (214) 978-8671
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.
9.5. 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.
9.6. 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.
9.7. 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.
9.8. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
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9.9. Public Announcements. The parties agree that before the Effective
Date they shall consult with each other before the making of any public
announcement regarding the existence of this Agreement, the contents hereof and
the transactions contemplated hereby, and to obtain the prior approval of the
other party as to the content of such announcement which approval shall not be
unreasonably withheld. However, the foregoing shall not apply to any
announcement or written statement which, upon written advice of counsel, is
required by law to be made.
9.10. Knowledge. As used in this Agreement, the words "to the knowledge
of " or other words of similar import shall mean (i) in the case of Key or
WellTech, to the actual knowledge of the directors and executive officers of Key
or WellTech, as the case may be, without regard to any investigation; (ii) in
the case of Brooks, to the actual knowledge of the directors and executive
officers of Brooks without regard to any investigation; and (iii) with respect
to the Shareholder, to the actual knowledge of the officers of the Shareholder
who serve as officers and directors of Brooks or have substantial responsibility
over the business operations of Brooks.
[SIGNATURE PAGE FOLLOWS]
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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.
KEY ENERGY GROUP, INC.
By: /s/ FRANCIS D. JOHN
Francis D. John, President
WELLTECH EASTERN, INC.
By: /s/ FRANCIS D. JOHN
Francis D. John, President
BROOKS WELL SERVICING, INC.
By: /s/ J.B. MCCRACKEN
J. B. McCracken, President
HUNT OIL COMPANY
By: /s/ GARY T. HURFORD
Gary T. Hurford, President
::ODMA\PCDOCS\DOCS\97107\2
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TABLE OF CONTENTS
ARTICLE 1
THE MERGER....................................................................2
1.1. Surviving Corporation................................................2
1.2. Effective Date.......................................................2
1.3. Name and Continued Corporate Existence of Surviving Corporation......2
1.4. Governing Law and Articles of Incorporation of Surviving Corporation.2
1.5. Bylaws of Surviving Corporation..................................... 3
1.6. Directors of Surviving Corporation...................................3
1.7. Officers of Surviving Corporation....................................3
1.8. Vacancies............................................................3
1.9. Capital Stock of Surviving Corporation...............................3
1.10. Distributions........................................................3
1.11. Conversion of Securities Upon Merger.................................4
1.11.1. Conversion of Brooks Common Stock..................4
1.11.2. Adjustments to Merger Consideration................4
1.11.2.1. Key Common Stock Closing Price Adjustments4
1.11.2.2. Adjustments for Environmental Liabilities.4
1.12. Surrender of Brooks Certificates.....................................5
1.13. Brooks' Transfer Books Closed........................................5
1.14. Assets and Liabilities of Merging Corporations Become Those of
Surviving Corporation.......................................5
1.15. Federal Income Tax Treatment.........................................5
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND BROOKS..................6
2.1. Representations and Warranties of the Shareholder and Brooks.........6
2.1.1. Organization and Good Standing..............................6
2.1.2. Agreement Authorized and its Effect on Other Obligations....6
2.1.3. Capitalization..............................................6
2.1.4. Ownership of Brooks Shares..................................7
2.1.5. No Subsidiaries.............................................7
2.1.6. Financial Statements........................................7
2.1.7. Liabilities.................................................7
2.1.8. Additional Information......................................8
2.1.8.1. Real Estate...............................8
2.1.8.2. Machinery and Equipment...................8
2.1.8.3. Inventory.................................8
2.1.8.4. Insurance.................................8
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2.1.8.5. Contracts.................................8
2.1.8.6. Employee Compensation Plans...............8
2.1.8.7. Certain Salaries..........................8
2.1.8.8. Bank Accounts.............................9
2.1.8.9. Employee Agreements.......................9
2.1.8.10. Intellectual Property.....................9
2.1.8.11. Trade Names...............................9
2.1.8.12. Promissory Notes..........................9
2.1.8.13. Guaranties................................9
2.1.8.14. Leases....................................9
2.1.8.15. Environment...............................9
2.1.9. No Defaults.................................................9
2.1.10. Absence of Certain Changes and Events.......................9
2.1.10.1. Financial Change.........................10
2.1.10.2. Property Damage..........................10
2.1.10.3. Dividends................................10
2.1.10.4. Capitalization Change....................10
2.1.10.5. Labor Disputes...........................10
2.1.10.6. Other Material Changes...................10
2.1.11. Taxes......................................................10
2.1.11.1. Tax Returns..............................10
2.1.11.2. Statutes of Limitation...................10
2.1.11.3. Audits...................................10
2.1.11.4. Tax Liens................................11
2.1.11.5. Tax-Sharing Agreements...................11
2.1.11.6. Distributions. ..........................11
2.1.11.7. No Plan To Dispose.......................11
2.1.11.8. Liabilities..............................11
2.1.11.9. Expenses.................................11
2.1.11.10. Bankruptcy...............................11
2.1.11.11. Investment Companies.....................12
2.1.12. Intellectual Property......................................12
2.1.13. Title to and Condition of Assets...........................12
2.1.14. Contracts..................................................12
2.1.15. Licenses and Permits.......................................13
2.1.16. Litigation.................................................13
2.1.17. Environmental Compliance...................................13
2.1.17.1. Environmental Conditions........................13
2.1.17.2. Permits, etc....................................13
2.1.17.3. Compliance......................................13
2.1.17.4. Past Compliance.................................14
2.1.17.5. Environmental Claims............................14
2.1.17.6. Renewals........................................14
2.1.17.7. Asbestos and PCBs...............................14
2.1.18. Compliance with Other Laws.................................14
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2.1.19. No ERISA Plans or Labor Issues.............................15
2.1.19.1. Exclusive Representation........................15
2.1.19.2. Status of ERISA Plans and Labor Relations.......15
2.1.20. Investigations; Litigation.................................15
2.1.21. Absence of Certain Business Practices......................15
2.1.22. Consents and Approvals.....................................16
2.1.23. Finder's Fee...............................................16
2.2. Investment Representations of the Shareholder..........................16
2.2.1. Shareholder Investment Suitability and Related Matters......16
2.2.2. Key Shares Not Registered...................................16
2.2.3. Reliance on Representations.................................16
2.2.4. Investment Intent...........................................16
2.2.5. Permitted Resale............................................17
2.2.6. Restrictive Legend..........................................17
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF KEY AND WELLTECH...........................17
3.1. Representations and Warranties of Key..................................17
3.1.1. Organization and Standing...................................17
3.1.2. Agreement Authorized and its Effect on Other Obligations....18
3.1.3. Capitalization..............................................18
3.1.4. Reports and Financial Statements............................18
3.1.5. Absence of Certain Changes and Events in Key................19
3.1.5.1. Financial Change.................................19
3.1.5.2. Other Material Changes...........................19
3.1.6. Key's Compliance with Other Laws............................19
3.1.7. Consents and Approvals......................................19
3.1.8. Finder's Fee................................................19
3.1.9. Investigations; Litigation..................................20
3.1.10. Retention of Brooks' Employees.............................20
3.2. Representations and Warranties of WellTech.............................20
3.2.1. Organization and Standing...................................20
3.2.2. Agreement Authorized and its Effect on Other Obligations....20
3.2.3. Capitalization..............................................21
3.2.4. Consents and Approvals......................................21
3.2.5. Finder's Fee................................................21
3.3. Other Representations and Warranties of Key and WellTech...............21
3.3.1. Control Prior to Merger.....................................21
3.3.2. Control Following Merger....................................21
3.3.3. No Plan to Reacquire........................................21
3.3.4. No Plan to Dispose..........................................21
3.3.5. Expenses....................................................22
3.3.6. Intercorporate Indebtedness.................................22
3.3.7. Investment Companies........................................22
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3.3.8. WellTech Stock..............................................22
ARTICLE 4
OBLIGATIONS PENDING EFFECTIVE DATE...........................................22
4.1. Agreements of Key and Brooks...........................................22
4.1.1. Maintenance of Present Business.............................22
4.1.2. Maintenance of Properties...................................22
4.1.3. Maintenance of Books and Records............................22
4.1.4. Compliance with Law.........................................22
4.1.5. Inspection of Each Merging Corporation......................22
4.1.6. Notice of Material Developments.............................23
4.2. Additional Agreements of Brooks........................................23
4.2.1. Prohibition of Certain Employment Contracts.................23
4.2.2. Prohibition of Certain Loans................................24
4.2.3. Prohibition of Certain Commitments..........................24
4.2.4. Disposal of Assets..........................................24
4.2.5. Maintenance of Insurance....................................24
4.2.6. Acquisition Proposals.......................................24
4.2.7. No Amendment to Articles of Incorporation...................24
4.2.8. No Issuance, Sale, or Purchase of Securities................24
4.2.9. Prohibition on Dividends....................................25
4.2.10. Brooks' Employees..........................................25
4.3. Additional Agreements of Key...........................................25
4.3.1. Issuance of Key Common Stock................................25
4.3.2. Listing of Key Stock........................................25
4.3.3. No Amendment to Articles of Incorporation...................25
4.3.4. Notice of Material Developments.............................25
4.3.5. Employee Benefits Plans.....................................25
4.3.6. Continuation of Historic Business of Brooks.................26
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS..........................................26
5.1. Conditions Precedent to Obligations of Brooks...........................26
5.1.1. Representations and Warranties of Key and WellTech True at
Effective Date..............................................26
5.1.2. No Material Litigation......................................26
5.1.3. Opinion of Key Counsel......................................26
5.1.4. Listing of Key Common Stock.................................27
5.1.5. Consent of Certain Parties in Privity With Key and WellTech.27
5.2. Conditions Precedent to Obligations of Key and WellTech................27
5.2.1. Representations and Warranties of Brooks True at Effective
Date........................................................27
5.2.2. No Material Litigation......................................27
5.2.3. Opinion of Counsel..........................................28
5.2.4. Consent of Certain Parties in Privity with Brooks or the
Shareholder.................................................28
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5.2.5. Termination of Certain Employees............................28
5.2.6. Environmental Assessments...................................28
ARTICLE 6
TERMINATION AND ABANDONMENT..................................................29
6.1. Termination............................................................29
6.1.1. By Mutual Consent...........................................29
6.1.2. By Key or WellTech Because of Failure to Perform Agreements or
Conditions Precedent........................................29
6.1.3. By Brooks or the Shareholder Because of Failure to Perform
Agreements or Conditions Precedent..........................29
6.1.4. By Key or WellTech or by the Shareholder or Brooks, Because of
Legal Proceedings.................................29
6.1.5. By Key or WellTech Because of a Material Adverse Change.....29
6.1.6. By the Shareholder or Brooks Because of a Material Adverse
Change......................................................29
6.1.7. By Key or WellTech, or by the Shareholder or Brooks, if Merger
not Effective December 31, 1996.............................30
6.2. Effect of Termination..................................................30
6.3. Waiver of Conditions...................................................30
6.4. Expense on Termination.................................................30
ARTICLE 7
ADDITIONAL AGREEMENTS .......................................................30
7.1. Noncompetition.........................................................30
7.2. Registration Rights....................................................31
7.2.1. Agreement to Register Resales...............................31
7.2.2. Effectiveness of Shelf Registration Statement...............31
7.2.3. Blue Sky Qualification......................................32
7.2.4. Registration Expenses.......................................32
7.2.5. Preparation; Reasonable Investigation.......................32
7.2.6. Rights Non-Transferable.....................................32
7.2.7. Undertaking to File Reports and Cooperate in Rule 144 and Rule
145 Transactions............................................32
7.2.8. Additional Undertakings with Respect to Registration Rights..........33
7.2.8.1. Delivery of Shelf Registration Statement and
Prospectus.....................................33
7.2.8.2. Notice to the Shareholder........................33
7.2.8.3. Incorporation of Information.....................33
7.2.8.4. Delivery of Documents Incorporated by Reference..34
7.2.8.5. Listing..........................................34
7.2.8.6. Filing of Exchange Act Reports...................34
7.2.8.7. Requests for Information by the Commission.......34
7.2.8.8. Notes of Stop Orders.............................34
7.3. Settling of Accounts................................................34
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7.3.1. Allocation of Accounts......................................34
7.3.2. Welfare Benefits; Long-Term Disability......................35
7.4. Future Tax Returns.....................................................35
7.4.1. Filing of Tax Returns.......................................35
7.4.2. Tax Controversies...........................................36
7.5. Continuation of Employment of Certain Brooks Personnel.................37
7.6. Further Assurances.....................................................37
ARTICLE 8
INDEMNIFICATION..............................................................37
8.1. Indemnification by the Shareholder.....................................37
8.2. Indemnification by Key.................................................38
8.3. Indemnification Procedure..............................................38
8.4. Limitation on Damages..................................................39
8.5. Liability Exception....................................................39
8.6. Exclusive Remedy.......................................................39
ARTICLE 9
MISCELLANEOUS................................................................40
9.1. Survival of Representations, Warranties and Covenants..................40
9.2. Entirety...............................................................40
9.3. Counterparts...........................................................40
9.4. Notices and Waivers....................................................40
9.5. Table of Contents and Captions.........................................41
9.6. Successors and Assigns.................................................41
9.7. Severability...........................................................41
9.8. Applicable Law.........................................................41
9.9. Public Announcements...................................................41
9.10. Knowledge...........................................................39
::ODMA\PCDOCS\DOCS\97107\2
vi
<PAGE>
Execution Copy
ASSET PURCHASE AGREEMENT
AMONG
WELLTECH EASTERN, INC.,
B&L HOTSHOT, INC.,
MCDOWELL & SONS, INC.,
4 STAR TRUCKING, INC.,
R.B.R., INC.,
ROYCE D. THOMAS,
JOHN F. MCDOWELL
AND
JOHN R. MCDOWELL
December 13, 1996
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
December 13, 1996 among WellTech Eastern, Inc., a Delaware corporation
("Buyer"), B&L Hotshot, Inc., a Michigan corporation ("B&L"), McDowell & Sons,
Inc., a Michigan corporation ("McDowell"), 4Star Trucking, Inc., a Michigan
corporation ("4Star"), R.B.R., Inc., a Michigan corporation ("RBR"), Royce D.
Thomas ("Royce"), John F. McDowell ("John F.") and John R. McDowell ("John R.").
B&L, McDowell, 4Star and RBR are referred to collectively herein as the
"Sellers" and individually as a "Seller." Royce, John F. and John R. 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 Sellers desire to sell substantially all of their 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
1.1 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 of the Sellers
existing on the date hereof other than the Excluded Assets (defined below),
whether real, personal, tangible or intangible, including, without limitation,
the following assets of the Sellers relating to or used or useful in the
operation of the businesses as conducted by the Sellers on and before the date
hereof (the "Businesses") (all such assets being sold hereunder are referred to
collectively herein as the "Assets"):
(a) all tangible personal property of the Sellers (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");
(b) all of the Sellers' inventory, 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 2.1.4 hereof);
(c) all of the Sellers' intangible assets, including without
limitation, (i) all of the Sellers' rights to the names under which
they are incorporated or under which they currently do business, (ii)
all of the Sellers' rights to any 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, including without limitation, that which is more fully
described on Schedule 1.1(c) hereto (the "Seller Intellectual
Property") and (iii) the Sellers' phone numbers and all of their
account ledgers, sales and promotional literature, computer software,
books, records, files and data (including customer and supplier lists),
and all other records of the Sellers relating to the Assets or the
Businesses, excluding the corporate minute books of the Sellers
(collectively, the "Intangibles");
(d) 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");
(e) 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");
(f) the goodwill and going concern value of the Businesses; and
(g) 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.
The Assets shall not include the following (collectively, the "Excluded
Assets"): (i) all of the Sellers' accounts receivable and all other rights of
the Sellers to payment for services rendered by the Sellers before the date
hereof; (ii) all cash accounts of the Sellers and all petty cash of the Sellers
kept on hand for use in the Businesses; (iii) all right, title and interest of
the Sellers 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
Sellers but owned by third parties; (v) the corporate charter, related
organizational documents and minute books of the Sellers; (vi) the capital stock
of 4Star, all of which is held by B&L; and (vii) the cash consideration paid or
payable by Buyer to Seller pursuant to Section 1.2 hereof.
1.2 Consideration for Assets. As consideration for the sale of the
Assets to Buyer and for the other covenants and agreements of the Sellers and
the Shareholders contained herein, Buyer agrees to pay to the Sellers, on the
date hereof, the amount of $4,643,400 in the form of a cashier's check or bank
check or wire transfer of immediately available funds to an account designated
by the Sellers.
1.3 Liabilities. Effective on the date hereof, Buyer shall assume
those, and only those, liabilities and obligations of the Sellers 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 Sellers shall be responsible for all other liabilities and
obligations of the Sellers other than the Assumed Liabilities, including,
without limitation, any obligations arising from (i) the labor dispute described
in Schedule 2.1.9 hereto, (ii) the litigation described in Schedule 2.1.13
hereto and (iii) the Sellers' employment of those employees of the Sellers
listed on Schedule 3.2 hereto before the date hereof (collectively, the
"Retained Liabilities").
<PAGE>
Article II
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS AND THE SHAREHOLDER
2.1 Representations and Warranties of the Sellers and the Shareholders.
Each of the Sellers and the Shareholders jointly and severally represents and
warrants to Buyer as follows:
2.1.1. Organization and Good Standing. Each of the Sellers 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.
2.1.2. 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 each of the Sellers, and this Agreement is the valid and
binding obligation of each of the Sellers and 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 transaction 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 any of the Sellers, (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement
to which any of the Sellers or the Shareholders is a party or by which
any of the Sellers 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 any of the Sellers or the
Shareholders or any of their respective properties are subject.
2.1.3. Contracts. Schedule 1.1(d) hereto sets forth a complete
list of all contracts, including leases under which any of the Sellers
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 Sellers. All of the Sellers' duties, obligations and rights under
each of the Contracts are assignable (and are hereby assigned) to Buyer
without the consent of any of parties thereto other than the Sellers.
None of the Sellers are, 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. None of the Sellers or the
Shareholders have received any information which would cause any of
such parties to conclude that any customer of the Sellers will (or is
likely to) cease doing business with the Sellers or Buyer as a result
of the consummation of the transactions contemplated hereby.
2.1.4. 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). 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 2.1.4 hereto, no notice of
any violation of any law, statute, ordinance, or regulation relating to
any of the Assets has been received by any of the Sellers or 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.
2.1.5. Bulk Sales Act Not Applicable. None of the Sellers are in the
business of selling merchandise from stock or manufacturing what it sells.
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
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 Sellers' rights with respect thereto is valid and
subsisting, in full force and effect, and enforceable by the Sellers
subject to administrative powers of regulatory agencies having
jurisdiction. Each of the Sellers 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 any of the Sellers or
the Shareholders, are threatened to be, revoked, canceled, suspended or
modified. Except for the Common Motor Carrier Certificate issued by the
Michigan Public Service Commission held by 4Star, all of the Seller
Permits are assignable (and are hereby assigned) to Buyer without the
consent of any regulatory agency. On and after the date hereof, 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 only to the administrative powers of regulatory agencies having
jurisdiction over the assigned Permit.
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 continued conduct of the Businesses. The Seller
Intellectual Property is owned or licensed by the Sellers free and
clear of any Encumbrances. None of the Sellers 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. None of the Sellers or the
Shareholders have received any notice of infringement,
misappropriation, or conflict with the intellectual property rights of
others in connection with the use by any Seller of the Seller
Intellectual Property.
2.1.8. Financial Statements. Each of the Sellers have
delivered to Buyer copies of such Seller's unaudited balance sheet
(collectively, the "10/31 Balance Sheets") and related statements of
income, retained earnings and cash flows (collectively, the "10/31
Financial Statements") as at and for the ten months (seven months for
B&L) ended October 31, 1996 (the "Balance Sheet Date"). The 10/31
Financial Statements, copies of which are attached hereto as Schedule
2.1.8, are true, correct and complete in all material respects and
present fairly and fully the financial condition of the applicable
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 10/31
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 each of the Sellers reflected in the applicable
10/31 Balance Sheet, or which have thereafter been acquired by such
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 Seller with respect to the applicable Business.
2.1.9. 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:
(a) Financial Change. Any adverse change in the Assets, the Businesses or
the financial condition, operations, liabilities or prospects of any of the
Sellers;
(b) Property Damage. Any damage, destruction, or loss to any of the
Assets or the Businesses (whether or not covered by insurance);
(c) Waiver. Any
waiver or release of a material right of or claim held by any of the Sellers;
(d) Change in Assets. Any acquisition, disposition, transfer, encumbrance,
mortgage, pledge or other encumbrance of any asset of any of the Sellers other
than in the ordinary course of business;
(e) Labor Disputes. Any labor disputes
between any of the Sellers and its employees; or
(f) Other Changes. Any other
event or condition known to any of the Sellers or 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 any
of the Sellers.
2.1.10. 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,
including any consents required to assign the Contracts and transfer
the Permits.
2.1.11. Environmental Matters. None of the current or past
operations of the Businesses of any of the Sellers or any 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). None of the Sellers or 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 any of the Sellers or
the Shareholders, threatened relating to the ownership, use,
maintenance or operation of the Assets or the conduct of the Businesses
of the Sellers, nor, to the knowledge of any of the Sellers or 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 any of the Sellers or
the Shareholders, the Assets include all environmental and pollution
control equipment necessary for compliance with all Applicable
Environmental Laws. There are no environmental conditions or
circumstances, including without limitation, the presence or release of
any Hazardous Materials, on any property presently or previously owned
by the Sellers, or on any property to which Hazardous Materials
generated by the Sellers' operations or the use of the Assets were
disposed of, which would result in a material adverse change in the
business or business prospects of the Sellers. 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. **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. **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. *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. * 1801, et seq.), or
comparable state and local statutes or in the regulations adopted and
publications promulgated pursuant to said statutes.
2.1.12. No ERISA Plans or Labor Issues. No employee benefit
plan of any of the Sellers, 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. None of the Sellers 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 2.1.9 hereto,
none of the Sellers have any dispute with any of its existing or former
employees and there are no labor disputes or, to the knowledge of any
of the Sellers or the Shareholders, any disputes threatened by current
or former employees of any of the Sellers.
2.1.13. Investigations; Litigation. No investigation or review
by any governmental entity with respect to any of the Sellers or any of
the transactions contemplated by this Agreement is pending or, to the
knowledge of any of the Sellers or the Shareholders, threatened, nor
has any governmental entity indicated to any of the Sellers or 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 any of the Sellers or the Shareholders
is a party or, to the knowledge of any of the Sellers or the
Shareholders, might become a party or which particularly affects the
Assets.
2.1.14. Absence of Certain Business Practices. None of the
Sellers, or any officer, employee or agent of any of the Sellers, or
any other person acting on behalf of any of the Sellers, 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 Sellers 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 effect the profitable conduct of the
Businesses or the profitable use of the Assets.
2.1.15. Solvency. None of the Sellers is now insolvent, nor
will the Sellers 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 Sellers'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.
2.1.16. Untrue Statements. The Sellers have 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.
2.1.17. Finder's Fee. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on
by the Sellers, 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
ADDITIONAL AGREEMENTS AND ACKNOWLEDGMENTS
3.1 Noncompetition. Except as otherwise consented to or approved in
writing by Buyer, and subject to Section 3.6 and Section 3.7 hereof, each of the
Sellers and 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 any of the Sellers at the Effective Date, or in any
service business the services of which are provided and marketed by Buyer (or
Buyer's affiliates) or any of the Sellers at the Effective Date in any state of
the United States, or any foreign country in which by Buyer (or Buyer's
affiliates) or any of the Sellers transact business on the Effective Date; (ii)
request any present customers or suppliers of any 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 any 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. Each of the Sellers
and the Shareholders agree that if either the length of time or geographical 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 Sellers and 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. Each of
the Sellers and the Shareholders further agree and acknowledge that Buyer does
not have any adequate remedy at law for the breach or threatened breach by any
of the Sellers or 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 such Seller or 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 Sellers and the Shareholders 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.
3.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate
listing of all employees of each of the Sellers 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 applicable Seller and 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
Sellers 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.
3.3 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.
3.4 Name Change. Each of the Sellers and the Shareholders shall, within
thirty (30) days from the date hereof, caused to be filed (i) with the secretary
of state of such Seller's state of organization an amendment to the charter (or
other applicable organization document) of such Seller changing the name of such
Seller from its current name to a name that is not similar to such name, and
(ii) with the appropriate authorities of such 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. Each of the Sellers and 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.
3.5 Environmental Reports. The parties hereto acknowledge that as a
condition of sale, a Phase I and Phase II Environmental Site Assessment was
conducted on the real property owned and operated by the Sellers, which real
property is being sold to Buyer in connection with the execution and delivery of
this Agreement. The parties hereto further acknowledge that the Phase I and
Phase II Environmental Assessment Report dated November 24, 1996 prepared by
Gosling Czubak Engineering Sciences, Inc. at the direction of the Sellers and
the Shareholders to validate their representations and warranties contained in
Section 2.1.11 hereof (the "Environmental Report") has been made available to
Buyer for inspection.
3.6 Limitation on Noncompetitioon. Irrespective of whether or not the
following entities compete with Buyer on the date hereof, the Shareholders may
remain employees of and retain their investment and ownership interest in the
following entities: (A) S&R Cable, Inc., a Michigan corporation, (B) Midwest Bit
Service, Inc., a Michigan corporation, and (C) Sindeco, L.L.C., an Indiana
limited liability company (referred to herein collectively with their successors
and assigns as the "Shareholder Companies") subject to the following terms and
conditions:
1. In the event that any of the Shareholder Companies expand their
business such that such Shareholder Company competes with the business of Buyer
or (Buyer's affiliates) as conducted on the date hereof, the covenants of the
Shareholders contained in clauses (i) and (ii) of the first sentence of Section
3.1 hereof shall not apply with respect to such new business of such Shareholder
Company if and only if (i) none of the Shareholders are employees or consultants
of such Sharehoolders Company or otherwise provide any services to such
Shareholder Company; (ii) the ownership interests of each of the Shareholders in
such Shareholder Company is not greater than their current ownership interest in
such Shareholder Company on the date hereof; and (iii) the Sale Condition (as
defined in Section 3.7 hereof) is met in accordance with the provisions of
Section 3.7 hereof. Notwithstanding the foregoing, clauses (iii) and (iv) of the
first sentence of Section 3.1 hereof shall apply without exception.
2. In the event that Buyer expands its business such that Buyer
competes with the business of any of the Shareholder Companies as conducted on
the date hereof, the covenants of the Shareholders contained in clauses (i) and
(ii) of the first sentence of Section 3.1 hereof shall not apply with respect to
such new business of Buyer (and clauses (iii) and (iv) of the first sentence of
Section 3.1 hereof will apply without exception).
3.7 Sale Condition . The Sale Condition shall be considered met if the
following conditions are met:
1. The Shareholder(s) owning an interest in the applicable Shareholder
Company (the "Offering Shareholder(s)") shall promptly notify Buyer
upon the occurrence of the business expansion of such Shareholder
Company and as to whether any shareholder, redemption, buy/sell or
similar agreements (the "Other Agreements") exist which affect the
offer and sale by the Offering Shareholder(s) pursuant to this Section
3.7.
2. If no Other Agreements exist, the Offering Shareholder(s) shall
cause an appraisal of the fair market value of the Offering
Shareholder(s)' entire ownership interest in such Shareholder Company
to be performed by Plant and Moran, certified public accountants, using
the asset appraisal prepared by Superior Auction. The Offering
Shareholder(s) shall promptly submit a written offer to sell such
ownership interest to Buyer at the fair market value determined by the
aforementioned appraisal process. Buyer shall have thirty (30) days to
accept such offer in writing. If such offer is accepted, the sale shall
be consummated within twenty (20) days following the Offering
Shareholder(s)' receipt of the written acceptance. If such offer is not
accepted within such 30-day period, the offer shall expire and the Sale
Condition shall be considered met.
3. If any Other Agreements exist, the offer and sale hereunder shall be
made in compliance with such Other Agreements; provided, however, that
if compliance with such Other Agreements does not result in a sale of
all of the Offering Shareholder(s)' ownership interest in such
Shareholder Company to one or more third parties, the entire unsold
ownership interest shall be offered (in accordance with the procedures
set forth in paragraph 2 above) to Buyer at a price equal to the lesser
of (i) the price at which the Offering Shareholder(s)' ownership
interest was offered or sold to such third parties and (ii) the fair
market value of the unsold ownership interest as determined by the
appraisal process described in paragraph 2 above (if such appraisal is
ordered by Buyer). If the entire ownership interest of the Offering
Shareholder(s) is sold to one or more third parties and/or Buyer, or if
Buyer does not accept the Offering Shareholder(s)' offer to sell the
unsold ownership interest in accordance with the procedures set forth
in paragraph 2 above, the Sale Condition shall be considered met.
3.8 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 one or more of the
Sellers entering into any sublease, subcontract or other agreement with Buyer as
is required to enable Buyer to enjoy the benefits of any Contract, Permit or
other Asset ineffectively transferred or assigned hereby.
Article IV
INDEMNIFICATION
4.1 Indemnification by the Sellers and the Shareholder. Subject to
Section 4.3 hereof, in addition to any other remedies available to Buyer under
this Agreement, or at law or in equity, each of the Sellers and 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 any of the Sellers or 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 Sellers or the
Shareholders under this Agreement; and (ii) the Retained Liabilities.
4.2 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 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.
4.3 Limitation on Indemnification. To the extent that Buyer suffers
Damages as result of the breach by any of the Sellers or the Shareholders of
their representations and warranties contained in Section 2.1.11 hereof, the
Sellers and the Shareholders shall be responsible for such Damages only to the
extent that such Damages in the aggregate exceed $25,000.
Article V
MISCELLANEOUS
5.1 Survival of Representations, Warranties and Covenants. All
representations and warranties made by the parties hereto shall survive for a
period of 36 months from the date hereof, 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
for a period of 12 months from the date hereof notwithstanding any review by
Buyer of the Environmental Report. 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, except as provided therein, survive
for a period of 36 months from the date hereof notwithstanding any investigation
made by any of the parties hereto. All covenants and agreements contained herein
shall survive indefinitely without limitation, except as otherwise provided
herein.
5.2 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.
5.3 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.
5.4 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 a Seller or a Shareholder
Addressed to: With a copy to:
B&L Hotshot, Inc. ger, Cotant, Menkes & Aardema, P.C.
415 Seeley Road 308 W. Main
Kalkaska, Michigan 49646 Gaylord, Michigan 49735
Attn: Royce Thomas Attn: Michael Menkes
Facsimile: (616) 258-8957 Facsimile: (517) 732-4922
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.
5.5 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.
5.6 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.
5.7 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.
5.8 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]
<PAGE>
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:
B&L HOTSHOT, INC.
By:
Name:
Title:
MCDOWELL & SONS, INC.
By:
Name:
Title:
4STAR TRUCKING, INC.
By:
Name:
Title:
R.B.R., INC.
By:
Name:
Title:
THE SHAREHOLDERS:
----------------------------------
Royce D. Thomas
---------------------------------
John F. McDowell
----------------------------------
John R. McDowell
Execution Copy
ASSET PURCHASE AGREEMENT
AMONG
WELLTECH EASTERN, INC.,
TALON TRUCKING COMPANY,
AND
LOMAK PETROLEUM, INC.
December 31, 1996
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into this
31st day of December, 1996 among WellTech Eastern, Inc., a Delaware corporation
("Buyer"), Talon Trucking Company, an Oklahoma corporation (the "Seller"), and
Lomak Petroleum, Inc., a Delaware corporation and the sole shareholder of the
Seller (the "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:
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, at the Closing (as defined in Section
1.4 hereof), the Seller hereby agrees to sell, convey, transfer, assign and
deliver to Buyer and Buyer agrees to purchase from the Seller all of the assets
of the Seller existing on the Closing Date (as defined in Section 1.4 hereof)
other than the Excluded Assets (defined below), whether real, personal, tangible
or intangible, including, without limitation, the following assets of the Seller
relating to or used or useful in the operation of the business as conducted by
the Seller on and before the Closing Date (the "Business") (all such assets
being sold hereunder are referred to collectively herein as the "Assets"):
(a) all tangible personal property of the Seller (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");
(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 2.1.7 hereof);
(c) all of the Seller's intangible assets, 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 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
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held in connection with the Business, including without limitation,
that which is more fully described on Schedule 1.1(c) hereto (the
"Seller Intellectual Property") and (iii) all of the 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 the
Seller relating to the Assets or the Business, excluding the corporate
minute books of the Seller (collectively, the "Intangibles");
(d) those leases, subleases, contracts, contract rights, and
agreements relating to the Assets or the operation of the Business
specifically listed on Schedule 1.1(d) hereto (collectively, the
"Contracts");
(e) to the extent assignable, 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 Business, including, but not limited to, that
which is more fully described on Schedule 1.1(e) hereto (collectively,
the "Seller Permits");
(f) the goodwill of the Business; and
(g) all other or additional privileges, rights, interests,
properties and assets of the 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 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 Closing
Date (the "Seller Receivables"); (ii) all cash accounts, cash equivalents or
similar investments of the Seller and all petty cash of the Seller kept on hand
for use in the Business; (iii) all right, title and interest of the 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 or the Business; (iv) all assets in possession of the
Seller but owned by third parties; (v) the corporate charter, corporate seal,
organizational documents and minute books of the Seller and all records
necessary for the preparation of returns and other reports by the Seller, the
Shareholder and their affiliates; (vi) the cash consideration paid or payable by
Buyer to Seller pursuant to Section 1.2 hereof; (vii) all Seller Permits
specified as not assignable in Schedule 1.1(e) hereto; and (viii) the Seller's
right, title and interest in and to this Agreement.
1.2 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
Shareholder contained herein, Buyer agrees to pay to the Seller at the Closing
the amount of $1,860,000 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.
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1.3 Liabilities. Effective as of the Closing, Buyer shall assume, pay,
perform, and discharge those, and only those, liabilities and obligations of the
Seller to perform under the Contracts and the Permits to the extent that the
Contracts and the Permits have been validly assigned to Buyer (the "Assumed
Liabilities"). On and after the Closing Date, the Seller shall be responsible
for any and all other liabilities and obligations of the Seller other than the
Assumed Liabilities, including, without limitation, those liabilities and
obligations specified in Section 6.3 hereof arising from the Seller's employment
of its former employees (collectively, the "Retained Liabilities").
1.4 Time and Place of Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall be at 10:00 a.m. on January
10, 1997 at such location as is mutually agreed to by the parties, or such other
time, place or date as is agreed to among the parties hereto. The date on which
the Closing occurs is referred to elsewhere herein as the "Closing Date."
Article II
REPRESENTATIONS AND WARRANTIES
OF THE SELLER, THE SHAREHOLDER AND BUYER
2.1 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:
2.1.1. 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. The Seller 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 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 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. Except as provided in
Schedule 2.1.2 hereto, 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 either the Seller or the
Shareholder, (ii) any obligation,
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indenture, mortgage, deed of trust, lease, contract or other agreement
to which either the Seller or the Shareholder is a party or by which
either the Seller or the Shareholder or their respective properties are
bound, except where such conflicts, violations and/or breaches, in the
aggregate, would not have a material adverse effect on the Assets or
the Business; 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 either the Seller or the
Shareholder or any of their respective properties are subject, except
where such conflicts, violations and/or breaches, in the aggregate,
would not have a material adverse effect on the Assets or the Business.
2.1.3. 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, to the knowledge of either the
Seller or the Shareholder, no other party to any of the Contracts is,
in default thereunder, and, to the knowledge of either the Seller or
the Shareholder, 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. None of the members of the management of
either the Seller or the Shareholder has received any information which
would cause such persons to conclude that any customer of the Seller
will (or is likely to) cease doing business with the Seller or Buyer as
a result of the consummation of the transactions contemplated hereby.
All of the Contracts are assignable to Buyer without the consent of any
other party thereto.
2.1.4. Title to and Condition of Assets. The Seller has good,
indefeasible, defensible and marketable title to all of the Assets
(other than the goodwill of the Business), free and clear of any
Encumbrances (defined below) other than Permitted 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
in all material respects to all applicable laws governing their use. No
written notice of any violation of any law, statute, ordinance, or
regulation relating to any of the Assets has been received by either
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. The term "Permitted Encumbrances" means
Encumbrances for current taxes and assessments not yet due and payable,
including nondelinquent ad valorem taxes or nondelinquent statutory
Encumbrances arising other than by reason of any default on the part of
the Seller.
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2.1.5. Licenses and Permits. Schedule 1.1(e) hereto sets forth
a complete list of all Permits necessary under law 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. The 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 either the Seller or the
Shareholder, is threatened to be, revoked, canceled, suspended or
modified. Except as shown on Schedule 1.1(e) hereto, upon consummation
of the transactions contemplated hereby, all of the Seller Permits
shall be assignable to Buyer without the consent of any regulatory
agency and without undue delay as to their transfer.
2.1.6. Intellectual Property. Schedule 1.1(c) hereto sets
forth a complete list of all Intellectual Property material to or
necessary for the continued conduct of the Business. The Seller
Intellectual Property is owned or licensed by the Seller free and clear
of any Encumbrances other than Permitted Encumbrances. The Seller has
not granted to any other person any license to use any Seller
Intellectual Property. To the knowledge of either the Seller or the
Shareholder, Buyer's use of the Seller Intellectual Property as used by
the Seller on or before the date hereof will not, and the conduct of
the Business did not, infringe, misappropriate or conflict with the
Intellectual Property rights of others. Neither the 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.
2.1.7. Financial Statements. The Seller has delivered to Buyer
copies of certain unaudited financial statements of Seller. Such
financial statements (collectively, the "Seller Financial Statements")
were included in the Descriptive Offering Memorandum (as defined in
Section 2.1.14 hereof) under the heading "Financial Review" and include
Seller's balance sheet (the "9/30 Balance Sheet") as at September 30,
1996 (the "Balance Sheet Date"). Other than the financial projections
covering periods beyond 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.
2.1.8. 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 (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 the
Seller;
(b) Property Damage. Any material damage, destruction, or loss to any of
the Assets or the Business (whether or not covered by insurance);
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(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 material 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 either the Seller or the Shareholder that particularly
pertains to and has or is likely to have a material adverse
effect on the Assets, the operations of the Business or the
financial condition or prospects of the Seller.
2.1.9. Necessary Consents. Except as provided in Schedule
2.1.9 hereto, 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, to
the extent assignable.
2.1.10. Environmental Matters. For so long as the Seller has
owned the Assets, neither the Seller nor the Shareholder has received
any citation or formal notice 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. To
the knowledge of either the Seller or the Shareholder, there are no
writs, injunction decrees, orders or judgments outstanding, or
lawsuits, claims, proceedings or investigations pending or threatened
relating to the ownership, use, maintenance or operation of the Assets
or the conduct of the Business, nor, to the knowledge of either the
Seller or the Shareholder, is there any reasonable basis for any of the
foregoing. To the knowledge of either the Seller or the Shareholder,
there are no environmental conditions or circumstances, including the
presence or release of any Hazardous Materials, on any property
presently owned or leased by the Seller, or on any property on which
Hazardous Materials generated by the Seller's operations or the use of
the Assets were disposed of, which would result in a material adverse
change in the Business or business prospects of the Seller. 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
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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.
2.1.11. 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 pending
or, to the knowledge of either the Seller or the Shareholder,
threatened by current or former employees of any of the Seller.
2.1.12. 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 either the Seller or the Shareholder, threatened, nor has
any governmental entity indicated in writing 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.
2.1.13. Absence of Certain Business Practices. Neither the
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 two years, given or agreed to give any gift or similar
benefit (other than normal sales promotions or similar practices) 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
Business 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, would likely have had a material adverse effect on
the profitable conduct of the Business or the profitable use of the
Assets, or if not continued in the future, would likely materially
adversely affect the profitable conduct of the Business or the
profitable use of the Assets.
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2.1.14. Descriptive Offering Memorandum; Untrue Statements.
The Shareholder has delivered to Buyer the Confidential Talon Trucking
Company Descriptive Offering Memorandum dated November 1996, a copy of
which is attached hereto as Schedule 2.1.14 (the "Descriptive Offering
Memorandum"). Except as disclosed to Buyer in writing, the Descriptive
Offering Memorandum 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
provided Buyer with access to all of its books and records, including
copies of all material contracts, documents concerning all litigation
and administrative proceedings, licenses, permits, insurance policies,
lists of suppliers and customers, and records relating principally to
the Business and the Assets.
2.1.15. 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.
2.2 Representations and Warranties of Buyer. Buyer represents and
warrants to the Seller and the Shareholder as follows:
2.2.1. Organization and Good Standing. Buyer 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.
Buyer 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.
2.2.2. 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 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 (or other
organizational documents) 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 any of its properties are bound,
except where such conflicts, violations and/or breaches, in the
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aggregate, would not have a material adverse effect on the business of
Buyer; 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, except where such conflicts, violations and/or breaches,
in the aggregate, would not have a material adverse effect on the
business of Buyer.
2.2.3. Investigations; Litigation. No investigation or review
by any governmental entity with respect to Buyer or any of the
transactions contemplated by this Agreement is pending or, to the
knowledge of Buyer, threatened, nor has any governmental entity
indicated to either the Seller or the Shareholder an intention to
conduct the same.
2.2.4. Inspections; Limitations of the Seller's Warranties.
Buyer is an informed sophisticated participant in the transactions
contemplated by this Agreement and has undertaken such investigation,
and has been provided with and has evaluated documents and information,
as Buyer and its advisors have deemed necessary to enable them to make
an informed and intelligent decision with respect to the execution and
delivery of this Agreement. Notwithstanding any contrary provision
herein, Buyer acknowledges that it is acquiring the Assets and the
Business without any representation or warranty, express or implied, by
either the Seller or the Shareholder other than representations and
warranties contained herein. Buyer further acknowledges that any
information regarding financial projections of the Business, whether or
not conatined in the Descriptive Offering Memorandum, were not relied
upon by Buyer in any way.
2.2.5. Financing. Buyer has available on hand, from its
working capital or currently available credit facilities, all of the
cash that Buyer will need to consummate the purchase of the Assets.
2.2.6. 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 the Seller and the Shareholder
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.
Article III
OBLIGATIONS PENDING CLOSING DATE
3.1 Agreements of the Seller and the Shareholder. Except as expressly
contemplated elsewhere in this Agreement, from the date hereof until the Closing
Date, the Seller shall, and the Shareholder shall cause the Seller to:
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3.1.1. Maintenance of Present Business. Operate the Business
and the Assets only in the ordinary course 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;
3.1.2. Maintenance of Properties. At its expense, maintain
the Assets in customary repair, order, and condition, reasonable wear
and tear excepted;
3.1.3. Maintenance of Books and Records. Maintain its books
of account and records in the usual, regular, and ordinary manner, in
accordance with its current accounting
policies applied on a consistent basis;
3.1.4. Compliance with Law. Duly comply in all material
respects with all laws
applicable to it and to the conduct of the Business;
3.1.5. Disposal of Assets. Not sell, dispose of, or
encumber, any of the Assets,
except (i) in the usual and ordinary course of business or (iii) as
may be approved in writing
by Buyer;
3.1.6. Maintenance of Insurance. Maintain the insurance
coverage set forth on
Schedule 3.1.6 hereto with respect to the Assets and the Business;
3.1.7. Acquisition Proposals. Not 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 Buyer 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 the Seller or for
the acquisition or purchase of any equity interest in, or a material
portion of the assets of, the Seller, other than the transactions with
Buyer and the Shareholder contemplated by this Agreement. Each of the
Seller and the Shareholder shall promptly communicate to Buyer 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; and
3.1.8. No Amendment to Articles of Incorporation. Not 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.
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3.2 Agreements of Buyer, the Seller and the Shareholder. Except as
expressly contemplated elsewhere in this Agreement, from the date hereof until
the Closing Date, each of the parties hereto shall:
3.2.1. Inspection. Permit the other parties and their
authorized representatives, during normal business hours, to inspect
their records and to consult with their 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 parties hereto
further agrees that, except as required by law, it will and will cause
its representatives to hold all data and information obtained with
respect to the other parties, 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 its own;
3.2.2. Notice of Material Developments. Promptly notify the
other parties in writing of any condition or circumstance, known to
such party, occurring from the date hereof through the Closing Date,
that would cause the respective representations and warranties of such
party contained herein to become untrue in any material respect; and
3.2.3. Reasonable Efforts to Satisfy Closing Conditions. Use
its reasonable efforts to cause the conditions precedent to the
obligations of the other parties hereto contained in Article IV hereof
to be satisfied to the extent that the satisfaction of such condition
is reasonably in control of such party.
Article IV
CONDITIONS PRECEDENT TO OBLIGATIONS
4.1 Conditions Precedent to Obligations of Buyer. The obligation of
Buyer to consummate and effect the transactions contemplated hereunder shall be
subject to the satisfaction of the following conditions, or to the waiver
thereof by Buyer before the Closing Date:
4.1.1. Representations and Warranties of the Seller and the
Shareholder True at Closing Date. The representations and warranties of
the Seller and the Shareholder 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 Seller and the
Shareholder shall have performed and complied in all material respects,
with all covenants required by this Agreement to be performed or
complied with by them on or before the Closing Date; and each of the
Seller and the Shareholder shall have delivered to Buyer a certificate,
dated the Closing Date and signed by a duly authorized officer of such
party, to such effects.
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4.1.2. No Material Litigation. No suit, action, or other
proceeding shall be pending, or to the knowledge of either the Seller
or the Shareholders, 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 would
likely result in a material adverse change in the value of the Assets
or Business of the Seller.
4.1.3. Opinion of Counsel. Buyer shall have received a
favorable opinion, dated the Closing Date, from Rubin, Baum, Levin
Constant & Friedman, counsel to the Seller and the Shareholder, in form
and substance reasonably satisfactory to Buyer, that the
representations and warranties made by the Seller and the Shareholder
in Sections 2.1.1 and 2.1.2 hereof are true as of the Closing Date. In
rendering such opinion, such counsel may rely upon certificates of
public officials and of officers of the Seller and the Shareholder as
to matters of fact; provided that such certificates are delivered to
Buyer with such opinion.
4.1.4. Consents Received. Buyer shall have received all
consents specified in
Schedule 2.1.9 hereto.
4.1.5. Real Estate Purchases. Buyer shall have purchased from
the Shareholder and the Shareholder shall have sold to Buyer those two
parcels of real estate described in Schedule 4.1.5 hereto
(collectively, the "Shareholder Real Property") and under such terms
and conditions as are reasonably acceptable to Buyer, which conditions
shall include (i) a total purchase price of $840,000; (ii) the
completion of Phase I environmental assessments of the Shareholder Real
Property; (iii) at Buyer's request, the completion of Phase II
environmental assessments of the Shareholder Real Property where Phase
II assessments are reasonably determined by Buyer to be appropriate;
and (iv) either a conclusion, pursuant to such environmental
assessments, that no liabilities exist for environmental cleanup on the
Shareholder Real Property or, to the extent that such environmental
assessments indicate that liabilities do exist for environmental
cleanup on the Shareholder Real Property, an agreement by the
Shareholder that it will conduct and bear all of the expenses in
connection with appropriate remediation and restoration activities on
such Shareholder Real Property and fully indemnify Buyer from all
liabilities and costs associated with such environmental condition.
4.1.6. Conveyance Documents. Buyer shall have received from
the Seller such assignment documents and other instruments of transfer
reasonably determined by Buyer as being required to effect and record
the transfer of the Assets hereunder, including the properly endorsed
certificates of title and an executed bill of sale in a form reasonably
satisfactory to Buyer.
4.2 Conditions Precedent to Obligations of the Seller and the
Shareholder. The obligations of the Seller and the Shareholder 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 Seller
and the Shareholder before the Closing Date:
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4.2.1. Representations and Warranties of Buyer True at Closing
Date. The representations and warranties of Buyer 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; Buyer shall
have performed and complied in all material respects, with all
covenants required by this Agreement to be performed or complied with
by it before the Closing Date; and Buyer shall have delivered to the
Seller and the Shareholder a certificate, dated the Closing Date and
signed by a duly authorized officer of Buyer, to such effects.
4.2.2. No Material Litigation. No suit, action, or other
proceeding shall be pending, or to the knowledge of Buyer, 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.
4.2.3. Opinion of Counsel. The Seller and the Shareholder
shall have received a favorable opinion, dated the Closing Date, from
Buyer's in-house counsel, in form and substance reasonably satisfactory
to the Seller and the Shareholder, that the representations and
warranties made by Buyer in Sections 2.2.1 and 2.2.2 hereof are true as
of the Closing Date. In rendering such opinion, such counsel may rely
upon certificates of public officials and of officers of Buyer as to
matters of fact; provided that such certificates are delivered to the
Seller and the Shareholder with such opinion.
4.2.4. Real Estate Purchases. Buyer shall have purchased from
the Shareholder and the Shareholder shall have sold to Buyer the
Shareholder Real Property and under such terms and conditions as are
reasonably acceptable to the Shareholder, which conditions shall
include a total purchase price of $840,000.
4.2.5. Assumption Documents. The Seller shall have received
from Buyer such
assumption agreements and other instruments reasonably determined by
the Seller as being
required to effect Buyer's assumption of the Assumed Liabilities.
Article V
TERMINATION AND ABANDONMENT
5.1 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:
5.1.1. By Mutual Consent. By mutual consent of Buyer, the
Seller and the Shareholder.
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5.1.2. By Buyer Because of Failure to Perform Agreements. By
Buyer, if either the Seller or the Shareholder has failed to perform
any of its covenants set forth in Sections 3.1 or 3.2 hereof,
including, without limitation, the provisions of Section 3.2.3 hereof.
5.1.3. By the Seller or the Shareholder Because of Failure to
Perform Agreements. By either the Seller or the Shareholder, if Buyer
has failed to perform any agreement set forth in Section 3.2 hereof,
including, without limitation, the provisions of Section 3.2.3 hereof.
5.1.4. By Buyer, the Seller or the Shareholders if No Closing
by January 15, 1997. By Buyer, the Seller or the Shareholder, if the
Closing shall not have been consummated on or before January 15, 1997
(the "Closing Deadline"); provided, however, that this Agreement may
not be terminated by any party hereto pursuant to this Section 5.1.5 if
the Closing has not occurred prior to the Closing Deadline due to the
breach of any provision of this Agreement by the party seeking such
termination, including the provisions of Section 3.2.3 hereof.
5.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to and in accordance with the provisions of Section 5.1
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 covenants under Section 3.2.3 hereof and the
second sentence of Section 3.2.1 hereof.
5.3 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.
5.4 Expenses on Termination. If this Agreement is terminated and the
transactions contemplated hereby abandoned pursuant to and in accordance with
the provisions of Section 5.1 hereof, all expenses will be paid by the party
incurring them.
Article VI
ADDITIONAL AGREEMENTS
6.1 Noncompetition. Except as otherwise consented to or approved in
writing by Buyer and subject to Section 6.2 hereof, each of the Seller and the
Shareholder agree that for a period of 36 months following the Closing Date,
such party will not, directly or indirectly, acting alone or as a member of a
partnership or a holder of, or investor in 5% or more of any class of voting
equity security of any corporation or other business entity (i) engage, in
Oklahoma, in any business conducted by the Seller on or before the Closing Date
(a "Competing Business"); (ii) request any
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current customer or supplier of the Seller to curtail or cancel their business
with Buyer; (iii) except as is required by law, 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 induce any employee of Buyer (or
Buyer's affiliates) to terminate his employment with Buyer (or such affiliate).
Each of the Seller and the Shareholder agree that if either the length of time
or geographical as set forth in this Section 6.1 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 6.1 are in addition to any other obligations that the Seller and the
Shareholder may have under the applicable 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 either the Seller
or the Shareholder of the covenants contained in this Section 6.1, 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 6.1 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 6.1 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.
6.2 Limitation on Noncompetition. Notwithstanding the covenants of the
Seller and the Shareholder contained in clause (i) of the first sentence of
Section 6.1 hereof, the Shareholder and its affiliates may perform any services
for themselves or for any of their affiliates. Notwithstanding the covenants of
the Seller and the Shareholder contained in clause (i) of the first sentence of
Section 6.1 hereof, the Shareholder may acquire all of the businesses and assets
of a third party (the "Acquired Company") that, as of the date such acquisition
is consummated, engages in a Competing Business in Oklahoma and operate such
businesses and assets following the consummation of such acquisition if and only
if the following conditions are met: (1) The Shareholder (whether directly or
through the Acquired Company) ceases engaging in the Competing Business, whether
by sale or otherwise, within six (6) months after the date the acquisition is
consummated; and (2) Prior to consummating any sale of the acquired Competing
Business to any third party, the Shareholder offers to sell such Competing
Business on the same terms and conditions as those offered by such third party,
which offer shall remain open for 15 days; provided, that if such offer is not
accepted in writing by Buyer within such time period, the Shareholder may
consummate the sale to such third party, but only on substantially the same
terms and conditions originally offered by such third party. Notwithstanding the
foregoing, in the event the Shareholder is unsuccessful in obtaining a
reasonably acceptable offer from a third party within such six-month period, the
Shareholder may make an offer (the "Put Offer") to sell to Buyer the Competing
Business on those same general terms and conditions under which the Shareholder
originally purchased the Competing Business except that the purchase price shall
be the fair market value of the Competing Business as determined by an
independent appraiser mutually agreed to by the Shareholder and Buyer. If Buyer
accepts the Put Offer within
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15 days after receiving written notice from the Shareholder specifying the
appraiser's determination of the purchase price and the general terms and
conditions of the sale, Buyer and the Shareholder shall endeavor in good faith
to consummate the purchase and sale on those terms and conditions within 30 days
of the Shareholder's receipt of Buyer's acceptance. If Buyer does not accept the
Put Offer within 15 days after receiving written notice from the Shareholder
specifying the appraiser's determination of the purchase price and the general
terms and conditions of the sale, the Shareholder shall be free to operate the
Competing Business and to sell such Competing Business to third parties without
restriction under this Section 6.2 and without being deemed to violate the
covenants of the Shareholder contained in clause (i) of the first sentence of
Section 6.1 hereof.
6.3 Hiring Employees. Schedule 6.3 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")
along with their current wages or salary. Except as provided in Schedule 6.3
hereto, effective as of the Closing Date, each of the Employees shall be
terminated by the Seller and offered a position of employment with Buyer,
subject to passing Buyer's standard drug test for its new employees, with the
same job duties and at the same wages as such Employee had with the Seller on
the date hereof and with such other benefits as are consistent with the current
policies and practices of Buyer (which benefits are substantially equal to those
benefits currently provided by the Seller); provided, however, that with respect
to each Employee who accepts employment with Buyer as of the Closing Date (the
"Hired Employees"), the benefits to which such Employee shall be entitled to
receive from Buyer as its employee shall be determined as if such Employee was
hired by Buyer as of the date on which such Employee began his current period of
employment with the Seller, except that the exclusivity period for coverage of
pre-existing conditions under Buyer's current medical insurance plan shall be
applicable to such Employee. Neither the Seller nor the Shareholder makes any
representations or warranties to Buyer as to whether any of the Employees will
accept employment with Buyer; provided, however, that each of the Seller and the
Shareholder shall cooperate with Buyer in connection with any offer of
employment from Buyer to the Employees. The Employee noted in Schedule 6.3
hereto as being currently disabled (the "Disabled Employee") will remain an
employee of the Seller after the Closing Date until the Disabled Employee is
able to return to work at which time the Disabled Employee shall be terminated
by the Seller and offered a position of employment with Buyer, subject to
passing Buyer's standard drug test for its new employees, with the same job
duties and at the same wages as the Disabled Employee had with the Seller
immediately prior to being disabled and will be otherwise treated as a Hired
Employee hereunder. Buyer shall be responsible for any and all obligations
arising as a result of the termination of any Hired Employees by Buyer after the
Closing Date, including, without limitation, any severance, accrued vacation
pay, COBRA obligations, notices or compensation required under the Worker
Adjustment and Restraining Act, employment discrimination complaints, unfair
labor practices, charges, grievances under any collective bargaining agreements,
breach of contract claims, and wrongful termination and related tort claims, but
only to the extent that such claims arise as a result of or in connection with
the Hired Employees' employment with Buyer and not as a result of or in
connection with the Hired Employees' employment with the Seller or their
termination by the Seller hereunder. The Seller shall be responsible and retain
liability for (and Buyer shall have no liability or obligation with respect to)
any employee benefits of any Employee that accrued pursuant to such
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Employee's employment with Buyer on or before the Closing Date. After the
Closing Date, the parties hereto shall, except as prohibited by law, each
provide the other parties with such information regarding the Employees as
reasonably requested by such other parties, such information to be provided on a
continuing basis and at no cost to the requesting party.
6.4 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 6.4 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 Closing Date.
6.5 Name Change. The Seller and the Shareholder shall, within thirty
(30) days from the Closing Date, caused to be filed (i) with the secretary of
state of the Seller's state of organization an amendment to the charter (or
other applicable organization document) of the Seller changing the name of the
Seller from its current name to a name that is not similar to such name or such
merger documents required to effect the merger of the Seller with and into
another entity so that the separate corporate existence of the Seller is
terminated, and (ii) with the appropriate authorities of the 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 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.
6.6 First Call. Subject to the provisions contained in the last three
sentences of this Section 6.6, for a period of one year from the Closing Date,
in the event that the Shareholder intends to retain the services of a third
party (that is not an affiliate of the Shareholder) to perform services anywhere
in the United States, which services are performed for third parties by Buyer
(or Buyer's affiliates), the Shareholder shall, prior to retaining such third
party, give Buyer (or Buyer's affiliate) the opportunity (the "Buyer First
Call") to offer to perform such services to the Shareholder. Should Buyer (or
Buyer's affiliate) offer to perform such services, which in the reasonable
opinion of Shareholder is of equal or better quality as those offered by such
third party based on the past performances of Buyer and such third party, on
terms and conditions (including, without limitation, price and timing) no less
advantageous, individually or in the aggregate, to the Shareholder than those
available from such third party, Buyer (or Buyer's affiliate) and the
Shareholder shall mutually agree on the specific terms, conditions and services
to be performed by Buyer. If Buyer (or Buyer's affiliate) cannot, promptly upon
the Shareholder's request, offer in good faith the services on the terms set
forth in the immediately preceding sentence, the Shareholder shall be free to
retain such third party to perform such services as it shall see fit. In the
event of a breach by the Shareholder of its obligations under this Section 6.6,
Buyer shall be entitled to recover any profits lost as a result of such breach
(in addition to all other available remedies). Notwithstanding the foregoing,
Buyer acknowledges that the Shareholder is currently obligated, pursuant to a
binding written contract with
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The Canton Oil & Gas Company ("Canton"), a copy of which is attached hereto as
Schedule 6.6 (the "Canton Agreement"), to engage Canton to provide services for
the Shareholder in certain territories within the United States and under
certain circumstances as specified in the Canton Agreement. Buyer agrees that
during the term of the Canton Agreement, the Buyer First Call shall be subject
to the rights of Canton under the Canton Agreement and that the Shareholder's
compliance with the terms and provisions of the Canton Agreement shall not be
deemed to be a breach of the provisions of this Section 6.6. The Shareholder
agrees not to consent to any amendment to the Canton Agreement that would
further adversely affect the Buyer First Call.
6.7 Collection of Receivables. Buyer shall cooperate with and assist
the Seller in collecting the Seller Receivables, which cooperation and
assistance shall include promptly forwarding to the Seller all payments received
by Buyer that are made in respect of the Seller Receivables. The 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.
6.8 Expenses, Fees and Taxes. Each of the parties hereto shall pay its
own fees and expenses incident to the negotiation and preparation of this
Agreement and the consummation of the transactions contemplated hereby. Buyer
shall be responsible for the costs of all fees for the recording of transfer
documents. Notwithstanding anything to the contrary herein, it is acknowledged
by the parties hereto that the purchase price being paid hereunder excludes any
sales taxes or other taxes in connection with the sale of the Assets. If a
determination is ever made that a sales taxes or other transfer taxes applies to
the transaction contemplated hereby, Buyer shall be liable for the entire amount
of such taxes.
6.9 Access to Records. Each of the parties hereto shall allow the other
parties reasonable access to those (but only those) business and corporate
records of such party reasonably required by the other parties in the
preparation and filing of their federal and state tax returns and reports to be
filed with the Securities and Exchange Commission or similar state agencies
6.10 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 VII
INDEMNIFICATION
7.1 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,
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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 Retained Liabilities; provided, however, that such indemnification is
subject to the following conditions: (A) the aggregate obligations of the Seller
and the Shareholder to indemnify Buyer and the other parties identified above
pursuant to Sections 7.1 and 7.2 hereof and the applicable provisions of any
other agreement or document executed and delivered in connection herewith,
including, without limitation, the purchase and sale agreement(s) pursuant to
which the Shareholder Real Property will be sold by the Shareholder to Buyer in
connection herewith, shall not exceed $2,700,000; and (B) with respect to the
Damages caused by the events specified in this Section 7.1, enforcement of the
indemnification obligations of the Seller and the Shareholder under this Section
7.1 shall be Buyer's sole and exclusive remedy.
7.2 Environmental Indemnification. Notwithstanding the limitations of
the representations and warranties of the Seller and the Shareholder contained
in Section 2. 1.10 hereof, 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 Damages that such indemnitee shall incur or suffer, which arise, result
from or relate to (i) any violation of any Applicable Environmental Laws by the
Seller, or (ii) the occurrence of any materially adverse environmental condition
or circumstance (including the presence or release of hazardous materials) on
(A) the Shareholder Real Property, whether or not such circumstance or condition
was caused by or known to the Seller or the Shareholder, or (B) any property,
whether or not owned or leased by the Seller, on which Hazardous Materials were
generated by the Seller's operation of the Assets or conduct of the Business;
provided, however, that such indemnification is subject to the following
conditions: (1) the foregoing indemnification applies only if the event from
which such Damages arose shall have occurred before the Closing Date; (2) the
aggregate obligations of the Seller and the Shareholder to indemnify Buyer and
the other parties identified above pursuant to Sections 7.1 and 7.2 hereof and
the applicable provisions of any other agreement or document executed and
delivered in connection herewith, including, without limitation, the purchase
and sale agreement(s) pursuant to which the Shareholder Real Property will be
sold by the Shareholder to Buyer in connection herewith, shall not exceed
$2,700,000; and (3) with respect to the Damages caused by the events specified
in this Section 7.2, enforcement of the indemnification obligations of the
Seller and the Shareholder under this Section 7.2 shall be Buyer's sole and
exclusive remedy.
7.3 Indemnification by Buyer. In addition to any other remedies
available to the Seller or the Shareholder under this Agreement, or at law or in
equity, Buyer shall indemnify, defend and hold harmless each of the Seller and
the Shareholder and their officers, directors, employees, agents and
stockholders, against and with respect to any and all Damages that such
indemnitee shall incur or suffer, which arise, result from or relate to (i) any
breach of, or failure by Buyer to perform, its re presentations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to the Seller or the
Shareholder by Buyer under this Agreement; and (ii) the Assumed Liabilities;
provided, however, that such indemnification is subject to the following
conditions: (A) the aggregate obligations of Buyer to indemnify the Seller, the
Shareholder and the other parties identified above pursuant to this Section 7.3
and 7.2 and the applicable provisions of any other agreement or document
executed and delivered in connection herewith, including, without limitation,
the purchase and sale agreement(s) pursuant to which the Shareholder Real
Property will be sold by the Shareholder to Buyer in connection herewith, shall
not exceed $2,700,000; and (B) with respect to the Damages caused by the events
specified in this Section 7.3, enforcement of the indemnification obligations of
Buyer under this Section 7. shall be the sole and exclusive remedy of the Seller
and the Shareholder.
7.4 Indemnification Procedure. If any party hereto discovers or
otherwise becomes aware of an event giving rise to indemnification claim under
this Article VII, such indemnified party shall promptly give written notice to
the indemnifying party, specifying such claim; provided, however, that the
failure of any indemnified party to give prompt written notice as provided
herein shall not relieve the indemnifying party of any obligations hereunder, to
the extent the indemnifying party is not mate rially 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 VII, 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 (or an indemnification claim under Section 7.2 hereof is made involving
remediation of the environmental condition in question), the indemnifying party
shall be entitled to participate in and to assume the defense thereof (or, in
the case of a claim for remediation, to participate in and assume responsibility
for such remediation), jointly with any other indemnifying party similarly
notified, to the extent that it may wish, with counsel (or, in the case of a
claim for remediation, any personnel or contractor) reasonably satisfactory to
such indemnified party, and after such notice from the indemnifying party to
such indemnified party of its election to so assume the defense (or, in the case
of a claim for remediation, to assume the responsibility for the remediation)
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 (or, in the case of a claim for remediation, the
remediation) thereof unless the indemnifying party has failed to assume the
defense of such claim (or, in the case of a claim for remediation, failed to
assume the responsibility for the remediation) and to employ counsel (or, in the
case of a claim for remediation, personnel or contractors) reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim (or, in the case of a claim for remediation, to
assume the responsibility for the remediation) shall not be liable for the fees
and expenses of more than one counsel in any single jurisdiction (or, in the
case of a claim for remediation, more than one contractor) 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
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allegations. Notwithstanding any of the foregoing to the contrary, in the case
of an action or proceeding, 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 and involves no equitable relief affecting
the indemnified party. 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 VIII
MISCELLANEOUS
8.1 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. 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 of the parties
hereto contained herein shall survive as provided herein.
8.2 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.
8.3 Counterparts. This Agreement may be executed by facsimile signature
and in one or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
8.4 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.
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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: With a copy to:
Lomak Petroleum, Inc. Rubin, Baum, Levin, Constant & Friedman
500 Thockmorton Street 30 Rockefeller Plaza
Fort Worth, Texas 76102 New York, New York 10112
Attn: Hardy Murchison Attn: Walter M. Epstein
Facsimile: (817) 870-2914 Facsimile: (212) 698-7825
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.
8.5 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.
8.6 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the successors and permitted
assigns of the parties hereto.
8.7 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.
8.8 Applicable Law. This Agreement shall be governed by and
construed and enforced
in accordance with the applicable laws of the State of Texas.
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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.
WELLTECH EASTERN, INC.
By: \s\ Kenneth V. Huseman
Name: Kenneth V. Huseman
Title: Vice President
TALON TRUCKING COMPANY
By: \s\ Chad L. Stephens
Name: Chad L. Stephens
Title: Vice President
LOMAK PETROLEUM, INC.
By: \s\ Chad L. Stephens
Name: Chad L. Stephens
Title: Vice President
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FIRST AMENDMENT
TO THIRD AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
AND MODIFICATION OF NOTES
THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT AND MODIFICATION OF NOTES (the "Amendment") is dated as of November
22, 1996, 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
("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 (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 (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 (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 August 29, 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 have requested certain amendments to the Agreement,
including the ability to reborrow part of the amounts repaid under the Notes,
all as more fully set forth herein; and
WHEREAS, Lender has agreed to the amendments set forth herein subject
to the terms and conditions provided for in this Amendment; and
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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.
Section 1.02. New Definitions. The following new definitions are
hereby added to the
Agreement:
"Hurt Note" means the Amended and Restated Promissory Note
dated May 21, 1996 executed by Hurt payable to Lender in the original
principal amount of $1,230,000 as amended and modified from time to
time.
"Indenture" means the Indenture entered into by Key Energy
Group, Inc., the
Borrowers, and American Stock Transfer and Trust Company, as Trustee,
dated August 29,
1996.
"Parent" means Key Energy Group, Inc., a Delaware corporation,
and owner and holder of 100% of the common stock of each Borrower.
"Parent Guaranty" means the Guaranty dated as of May 21, 1996
made by Parent in favor of Lender.
"WellTech Note" means the Amended and Restated Promissory Note
dated May 21, 1996 executed by WellTech payable to Lender in the
original principal amount of $11,822,186 as amended and modified from
time to time.
"Yale Note" means the Amended and Restated Promissory Note
dated May 21, 1996 executed by Yale payable to Lender in the original
principal amount of $10,004,082 as amended and modified from time to
time.
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ARTICLE II
Amendments
Section 2.01. Amendment to Section 6.4 of the Agreement.
Section 6.4 of the Agreement
is hereby amended in its entirety to read as follows:
"6.4 (a) Each Borrower's books and records concerning accounts
and its chief executive officer are and shall be maintained only at the
address set forth in Section 10.6(d). Each Borrower's only other places
of business and the only other locations of Collateral, if any, are and
shall be the addresses set forth in Section 10.6(e) hereof, except any
Borrower may change such locations in the ordinary course of business
or open a new place of business after thirty (30) days prior written
notice to Lender; provided, however, if such new place of business is
the result of an acquisition of the business or assets of another
entity and is located in a state other than a state where Lender has a
currently filed financing statement reflecting the acquiring Borrower
as "Debtor", then such notice period will be reduced to fifteen (15)
days. Prior to any change in location or opening of any new place of
business, each Borrower shall execute and deliver or cause to be
executed and delivered to Lender such financing statements, financing
documents, mortgages, and security and other agreements as Lender may
reasonably require, including, without limitation, those described in
Section 6.14. Without otherwise limiting the effect of the foregoing,
Borrower may change the location of its well servicing rigs and
drilling rigs without prior approval of Lender; provided, however, such
well servicing rigs and drilling rigs may not be removed from the state
where they are located as of the date hereof without notice to Lender
if such removal would cause Lender's security interest therein to
lapse, and Borrowers shall within five (5) days of Lender's request,
provide Lender with a listing of the current locations of all well
servicing rigs and drilling rigs.
(b) Notwithstanding the foregoing provisions of Section 6.4(a)
hereof, any Borrower may open a new place of business in connection
with the acquisition of the business and assets of another entity
without such prior notice and document execution and delivery if such
new place of business is located in a state where Lender has a
currently filed financing statement reflecting the acquiring Borrower
as "Debtor". Borrower shall, within five (5) days following the
consummation of such acquisition, give Lender notice thereof and shall
promptly thereafter execute and deliver such additional financing
statements, financing documents, mortgages, and security and other
agreements as Lender may reasonably require, including, without
limitation, those described in Section 6.14."
Sectioon 2.02. Amendment to Section 6.6 of the Agreement. Section 6.6
of the Agreement is hereby amended in its entirety to read as follows:
"6.6 No Borrower shall directly or indirectly: (a) sell,
lease, transfer, assign, abandon or otherwise dispose of any part of the
Collateral or any material
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portion of its other assets (other than sales of inventory to buyers in
the ordinary course of business) or (b) consolidate with or merge into
any other entity."
Section 2.03. Amendment to Section 6.12 of the Agreement. The last
sentence of Section 6.12 of the Agreement is hereby amended to read as follows:
"In addition, WellTech may make intercompany loans to WellTech's 63%
owned subsidiary, Servicios WellTech, S.A. ("Servicios") as long as (a)
all such intercompany loans are properly documented on WellTech's books
and records, (b) all such intercompany loans are memorialized by one or
more Intercompany Note and Security Agreements (the "Servicios Chattel
Paper"), (c) no such additional intercompany loans to Servicios after
January 19, 1996 would exceed the amount of $2,000,000 which is part of
the principal amount as set forth in the related Amended and Restated
Intercompany Note and Security Agreement executed by Servicios dated
November 22, 1996, and (d) Lender retains a properly perfected security
interest in the Servicios Chattel Paper at the time of such
intercompany loan."
The remaining provisions of Section 6.12 are unchanged.
Section 2.04. Amendment to Section 6.20 of the Agreement. Section
6.20 of the Agreement is hereby amended in its entirety to read as follows:
"6.20 RESERVED."
Section 2.05. Amendment to Section 7.1 of the Agreement. Section 7.1 of
the Agreement is hereby amended by the addition of a new "Event of Default"
subsection (m) which reads as follows:
"(m) The occurrence and continuance of an event of default under
the Indenture."
All remaining provisions of Section 7.1 are unchanged.
Section 2.06. Amendment to Section 9.1 of the Agreement. Section
9.1 of the Agreement
is hereby amended in its entirety to read as follows:
"9.1 Term. This Agreement shall only become effective upon the
execution and delivery of this Agreement by each Borrower and Lender
and shall continue in full force and effect until either December 31,
2001, or January 5, 2002, at Lender's option, and shall be deemed
automatically renewed for successive terms of two (2) years thereafter
unless terminated as of the end of the initial or any renewal term
(each a "Term") by the Lender or any Borrower giving the other parties
hereto written notice at least sixty (60) days prior to the end of the
then-current Term."
Section 2.07. Amendment to Section 9.2 of the Agreement.
Section 9.2 of the Agreement
is hereby amended in its entirety to read as follows:
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"9.2 In consideration of the issuance of a warrant to purchase 125,000
shares of the common stock of Parent, Lender agrees that any of the
Borrowers may also terminate this Agreement by giving Lender at least
thirty (30) days prior written notice at any time upon payment in full
of all of the Obligations as provided herein, including the applicable
early termination fee provided below. Lender shall also have the right
to terminate this Agreement at any time upon or after the occurrence of
an Event of Default. If Lender terminates this Agreement upon or after
the occurrence of an Event of Default, or if any of the Borrowers shall
terminate this Agreement as permitted herein effective prior to the end
of the then-current Term, in addition to all other Obligations, the
Borrowers collectively shall pay to Lender, upon the effective date of
termination, in view of the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as
to a reasonable calculation of Lender's lost profits, an early
termination fee equal to:
(a) $400,000 if the effective date of such termination
occurs on or before November 22, 1997;
(b) $300,000 if the effective date of such termination
occurs after November 22, 1997 but on or before November 22, 1998;
(c) $200,000 if the effective date of such termination occurs
after November 22, 1998 but on or before the end of the then current
Term.
If Borrowers terminate this Agreement and repay the
Obligations without having provided Lender with at least thirty (30)
days' prior written notice thereof, Borrowers will pay to Lender an
additional amount equal to thirty (30) days of interest at the
applicable Interest Rate, based on the average outstanding amount of
the Obligations for the six (6) month period preceding the date of
termination."
Section 2.08. Amendment to Section 9.3 of the Agreement. Section
9.3 of the Agreement is hereby amended in its entirety to read as
follows:
"9.3. Borrower may prepay, in whole or in part, the Term
Loans prior to the end of the then current Term without any premium or
penalty."
Section 2.09. 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: $40,000,000
(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.
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(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: $12,000,000.
(e) Sublimits:
(i) For Yale, $40,000,000 less all Obligations
of Hurt and WellTech;
(ii) For Hurt, the lesser of (i) $2,000,000, and
(ii) $40,000,000 less all
Obligations of Yale and WellTech; and
(iii) For WellTech, $40,000,000 less all
Obligations of Hurt and Yale."
Section 2.10. 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
$8,932,231.21 (the "Maximum
Amount");
(ii) For Hurt, up to but not to exceed
$1,091,239.41 (the "Maximum
Amount"); and
(iii) For WellTech, up to but not to exceed
$9,666,309.60 (the "Maximum
Amount")."
Section 2.11. 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 .50% per annum
(b) Closing Fees: None
(c) Unused Line Fee Rate: .25% per annum payable on the
first day of the following month."
Section 2.12. Amendment to Section 10.5 of the Agreement.
Section 10.5 of the Agreement
is hereby amended in its entirety to read as follows:
FINS2DAL:40474.4 18739-00020
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<PAGE>
"10.5 Financial Covenants: Unless indicated otherwise, all amounts
below shall be determined in accordance with generally accepted
accounting principles, in effect on the date hereof, consistently
applied:
(a) "Consolidated Debt Service (Fixed Charge) Coverage
Ratio" means the ratio of (a) the sum of net income
plus (i) depreciation and amortization expenses plus
(ii) increases in deferred taxes less (iii) decreases
in deferred taxes resulting from tax payments
actually made; divided by (b) the sum of payments on
long term indebtedness plus (i) capital lease
payments plus (ii) any unfunded capital expenditures;
(c) determined on a consolidated basis.
Testing of the following ratio will begin on March
31, 1996.
Parent and its Subsidiaries will maintain a
Consolidated Debt Service (Fixed Charge) Coverage
Ratio of not less than 1.50 to 1.00, such ratio to be
tested at the end of each calendar quarter (i.e. as
of March 31, June 30, September 30 and December 31)
based on the prior 12- month period.
(b) "Consolidated Tangible Net Worth" means the amount by which the
- ------------------------------- sum of (a) Shareholders' Equity plus
Subordinated Debt (non-current balance) exceeds (b) Intangible Assets,
determined on a consolidated basis for Parent and its Subsidiaries. For this
purpose: "Shareholders Equity" means shareholders' equity determined according
to GAAP; and "Intangible Assets" means (i) assets which are treated as
intangible pursuant to GAAP; (ii) obligations owing by any persons that are
officers, directors, shareholders, employees, subsidiaries or affiliates, or any
entity in which any such person owns any interest; and (iii) any asset which is
intangible or lacks intrinsic and marketable value or collectibility, including
without limitation goodwill, noncompetition agreements, patents, copyrights,
trademarks, franchises or organization or research and development costs,
prepaid expenses or investments in subsidiaries/affiliates; and (iv) any other
assets determined to be intangible by Lender in its reasonable credit judgment.
Parent and its Subsidiaries will maintain a
Consolidated Tangible Net Worth of not less than
$35,000,000, such net worth to be tested as of the
end of each calendar quarter (i.e. as of March 31,
June 30, September 30 and December 31).
(c) Total Senior Secured Liabilities (as defined by GAAP)
to Consolidated
Tangible Net Worth:
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Parent and its Subsidiaries will not allow the ratio
of Total Senior Secured Liabilities to Consolidated
Tangible Net Worth to be greater than .90 to 1.00,
such ratio to be tested as of the end of any calendar
quarter (i.e. as of March 31, June 30, September 30
and December 31).
(d) Total Current Assets (as defined by GAAP) to Total
Current Liabilities (as
defined by GAAP).
Parent and its Subsidiaries will maintain a ratio of
Total Current Assets to Total Current Liabilities of
not less than 1.15 to 1.0, such ratio to be tested as
of the end of any calendar quarter (i.e. as of March
31, June 30, September 30 and December 31)."
Section 2.13. Amendment to Schedule 6.12. Schedule 6.12 is hereby
amended in its entirety and replaced with "Amended Schedule 6.12" attached to
the First Amendment and incorporated and made a part of the Agreement by this
reference.
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 Ninety One Thousand Two Hundred Thirty Nine and 41/100 Dollars
($1,091,239.41) 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 automatically reduced by $14,642.86
each month, 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-half percent (.50%) 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
FINS2DAL:40474.4 18739-00020
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<PAGE>
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 Nine Million Six Hundred
Sixty-Six Thousand Three Hundred Nine and 60/100 Dollars
($9,666,309.60) 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 automatically reduced by $140,740.31
each month, 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-half percent (.50%) 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:
FINS2DAL:40474.4 18739-00020
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<PAGE>
"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 Eight Million Nine Hundred Thirty-Two Thousand Two
Hundred Thirty-One and 21/100 Dollars ($8,932,231.21) 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 automatically reduced by $119,096.21
each month, 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-half percent (.50%) 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
FINS2DAL:40474.4 18739-00020
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<PAGE>
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) Amendment Documents.
a. The Amended and Restated Intercompany
Note and Security Agreement executed by Servicios
payable to WellTech in the original principal amount
of up to $5,400,000 dated November 22, 1996.
b. The Deed of Trust executed by WellTech
dated November 22, 1996 for the benefit of Lender
covering certain property located in Woodward County,
Oklahoma.
c. The Amendment to Common Stock
Purchase Warrant.
FINS2DAL:40474.4 18739-00020
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<PAGE>
d. Warrant No. 2 - Common Stock Purchase Warrant executed by Parent in
favor of Lender for 125,000 shares of Parent's stock dated November 22, 1996..
e. Amended and Restated Registration Rights Agreement.
f. Certificates of title for certain motor vehicles with documentation
acceptable to Lender for recording Lender's liens thereon.
g. UCC-1 Financing Statements for each of Borrower's
locations reflecting Lender's security interest.
(v) 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.
(c) The Indenture shall have been amended to Lender's
satisfaction to reflect that Parent's obligations under the Parent
Guaranty constitute "Senior Indebtedness" under the Indenture.
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
FINS2DAL:40474.4 18739-00020
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<PAGE>
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
FINS2DAL:40474.4 18739-00020
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<PAGE>
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.
FINS2DAL:40474.4 18739-00020
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IN WITNESS WHEREOF, the parties have executed this First Amendment to
Third Amended and Restated Loan and Security Agreement on the date first above
written.
"BORROWERS"
YALE E. KEY, INC.
By:
Name: Francis D. John
Title: Executive Vice President
KEY ENERGY DRILLING, INC.
(d/b/a Clint Hurt Drilling)
By:
Name: Francis D. John
Title: Executive Vice President
WELLTECH EASTERN, INC.
By:
Name: Francis D. John
Title: President
"LENDER"
THE CIT GROUP/CREDIT FINANCE, INC.
By:
Name: Morris Horstmann
Title: Vice President
FINS2DAL:40474.4 18739-00020
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<PAGE>
CONSENTS AND REAFFIRMATIONS
Key Energy Group, Inc. hereby acknowledges the execution of, and
consents to, the terms and conditions of that First Amendment to Third Amended
and Restated Loan and Security Agreement dated as of November 22, 1996, 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 November 22, 1996.
KEY ENERGY GROUP, INC.
By:
Name: Francis D. John
Title:
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<PAGE>
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.
FINS2DAL:40474.4 18739-00020
FIRST SUPPLEMENTAL INDENTURE
KEY ENERGY GROUP, INC.
ISSUER
TO
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRUSTEE
Dated as of November 20, 1996
(First Amendment to the Indenture Dated as of July 3, 1996)
<PAGE>
-3-
C:\34ACTREP\EXFILES\EXHIBIT.10I
This SUPPLEMENTAL INDENTURE (this ASupplemental Indenture@) is entered
into as of the 20th day of November 1996 by and between Key Energy Group, Inc.,
a Maryland corporation having its principal offices in East Brunswick, New
Jersey (hereinafter called the ACompany@), and American Stock Transfer & Trust
Company, as trustee (hereinafter called the ATrustee@).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee that certain Indenture dated as of July 3, 1996 (hereinafter referred to
as the AOriginal Indenture@) pursuant to which 7% (presently 7.5%) Convertible
Subordinated Debentures Due 2003 (the ADebentures@) of the Company were issued;
and
WHEREAS, the Company desires to cure an ambiguity in the Original
Indenture by amending the Original Indenture (the AProposed Amendment@) in a way
that does not adversely affect the legal rights of the holders of the Debentures
(the AHolders@) by clarifying that the term ASenior Indebtedness@ as used in the
Original Indenture includes, among other things, any guaranty by the Company of
the indebtedness or obligations of any Subsidiary Guarantor (as defined in the
Original Indenture); and
WHEREAS, Section 9.1 of the Original Indenture provides that the
Company and the Trustee may amend the Original Indenture and the Debentures
without the consent of any Holder to, among other things, (i) cure any
ambiguity, defect or inconsistency and (ii) make any change that does not
adversely affect the rights of the Holders under the Original Indenture; and
WHEREAS, the Company desires and has requested the Trustee to join with
it in the execution and delivery of this Supplemental Indenture for the purpose
of amending the Original Indenture and the Indentures to effect the Proposed
Amendment; and
WHEREAS, the Company desires and has requested the Trustee to join with
it in the execution and delivery of this Supplemental Indenture; and
WHEREAS, the execution and delivery of this Supplemental Indenture have
been duly authorized and approved by a resolution of the Company=s Board of
Directors.
NOW, THEREFORE, in consideration of the foregoing premises, and for the
equal and proportionate benefit of all Holders of the Debentures, the Original
Indenture is hereby amended, effective upon execution hereof by the Trustee as
follows:
<PAGE>
ARTICLE I
AMENDMENT
The term ASenior Indebtedness@ contained in Section 12.2 of the
Original Indenture is hereby amended in its entirety to read as follows:
A "Senior Indebtedness" means:
(a) the principal of, interest (including, to the extent permitted by
applicable law, interest on or after the commencement of a proceeding
referred to in clauses (g) or (h) of Section 6.1 whether or not
representing an allowed claim in such proceeding) and premium, if any,
on and any other amounts owing with respect to (i) any indebtedness of
the Company, now or hereafter outstanding, in respect of borrowed money
(other than the Securities), whether incurred by the Company directly
or by virtue of any guaranty by the Company of any indebtedness or
obligation of a Subsidiary Guarantor, (ii) any indebtedness of the
Company, now or hereafter outstanding, evidenced by a bond, note,
debenture, capitalized lease, letter of credit or other similar
instrument, (iii) any other written obligation of the Company, now or
hereafter outstanding, to pay money issued or assumed as all or part of
the consideration for the acquisition of property, assets or
securities, including without limitation, hedging obligations with
respect to the purchase and sale of oil and gas, and (iv) any guaranty
or endorsement (other than for collection or deposit in the ordinary
course of business) or discount with recourse of, or other agreement
(contingent or otherwise) to purchase, repurchase or otherwise acquire,
to supply or advance funds or to become liable with respect to
(directly or indirectly), any indebtedness or obligation of any person
of the type referred to in the preceding subclauses (i), (ii) and (iii)
now or hereafter outstanding; and
(b)any refunds, refinancings, renewals or extensions of any
indebtedness or other obligation
described in clause (a) of this Section 12.2.
Notwithstanding the foregoing, if, by the terms of the instrument creating or
evidencing any indebtedness or obligation referred to in clauses (a) and (b)
above, it is expressly provided that such indebtedness or obligation is not
senior in right of payment to the Securities, such indebtedness or obligation
shall not be included as Senior Indebtedness. @
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.1. For all purposes of this Supplemental Indenture, except as
otherwise defined or unless the context otherwise requires, capitalized terms
used in this Supplemental Indenture and defined in the Original Indenture have
the meaning specified in the Original Indenture.
Section 2.2. Except as specifically amended and supplemented by this
Supplemental Indenture, the Original Indenture shall remain in full force and
effect and is hereby ratified and confirmed.
Section 2.3. This Supplemental Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflicts of law.
Section 2.4. All agreements of the Company in this Supplemental
Indenture shall bind its successors. All agreements of the Trustee in this
Supplemental Indenture shall bind its successors.
Section 2.5. The Trustee accepts the modification of the Indenture as
hereby effected but only upon the terms and conditions set forth in the Original
Indenture as amended and supplemented by this Supplemental Indenture.
Section 2.6. This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
KEY ENERGY GROUP, INC.
By: \s\ Francis D. John
Francis D. John, President
Attest:
\s\ Diane P. Mack
Secretary or Assistant Secretary
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Trustee
By: \s\ Herbert J. Lemmer
Name: Herbert J. Lemmer
Title: Vice President
Attest:
\s\ Susan Silber
Secretary or Assistant Secretary
<PAGE>
1
KEY ENERGY GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
December 31, 1996 December 31, 1995
---------------------------------------------
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 ................................... $ 3,022 $ 3,022 $ 1,155 $ 1,155
Effect of interest on debentures ......................... - 975 - -
------- ------- ------- -------
Adjusted net income before income taxes
and minority interest ............................... 3,022 3,997 1,155 1,155
======= ======= ======= =======
Net Income ............................................... $ 2,043 $ 2,043 $ 768 $ 768
Effect of interest on convertible
debentures, net of tax effect ....................... - 649 - -
------- ------- ------- -------
Adjusted net income ...................................... 2,043 2,692 768 768
======= ======= ======= =======
Weighted Average Shares and Share Equivalents Outstanding:
Weighted average shares outstanding (as reported) ........ 10,850 10,850 6,914 6,914
Common Share equivalents issuable under
stock option plans .................................. 497 525 - -
Common share equivalents issuable on assumed
conversion of WellTech warrants ..................... 287 319 - -
Common share equivalents issuable on assumed
conversion of convertible debentures ................ - 5,333 - -
Weighted average shares and share
equivalents outstanding ............................. 11,634 17,027 6,914 6,914
Earning per Share:
Net income before income taxes
and minority interest ............................... $ 0.26 $ 0.24 $ 0.17 $ 0.17
Net income ............................................... $ 0.18 $ 0.16 $ 0.11 $ 0.11
</TABLE>
<PAGE>
2
KEY ENERGY GROUP, INC
COMPUTATION OF PER SHARE EARNINGS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
December 31, 1996 December 31, 1995
----------------------------------------------
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 ................................... $ 5,418 $ 5,418 $ 2,224 $ 2,224
Effect of interest on debentures ......................... - 1,950 - -
------- ------- ------- -------
Adjusted net income before income taxes
and minority interest ............................... 5,418 7,368 2,224 2,224
======= ======= ======= =======
Net Income ............................................... $ 3,597 $ 3,597 $ 1,494 $ 1,494
Effect of interest on convertible
debentures, net of tax effect ....................... - 1,297 - -
------- ------- ------- -------
Adjusted net income ...................................... 3,597 4,894 1,494 1,494
======= ======= ======= =======
Weighted Average Shares and Share Equivalents Outstanding:
Weighted average shares outstanding (as reported) ........ 10,635 10,635 6,914 6,914
Common Share equivalents issuable under
stock option plans .................................. 433 525 - -
Common share equivalents issuable on assumed
conversion of WellTech warrants ..................... 218 320 - -
Common share equivalents issuable on assumed
conversion of convertible debentures ................ - 5,333 - -
Weighted average shares and share
equivalents outstanding ............................. 11,286 16,813 6,914 6,914
Earning per Share:
Net income before income taxes
and minority interest ............................... $ 0.48 $ 0.44 $ 0.32 $ 0.32
Net income ............................................... $ 0.32 $ 0.29 $ 0.22 $ 0.22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,912
<SECURITIES> 0
<RECEIVABLES> 27,373
<ALLOWANCES> 0
<INVENTORY> 1,942
<CURRENT-ASSETS> 41,155
<PP&E> 136,385
<DEPRECIATION> (12,983)
<TOTAL-ASSETS> 174,953
<CURRENT-LIABILITIES> 24,061
<BONDS> 0
0
0
<COMMON> 1,148
<OTHER-SE> 45,123
<TOTAL-LIABILITY-AND-EQUITY> 174,953
<SALES> 3,613
<TOTAL-REVENUES> 67,659
<CGS> 1,286
<TOTAL-COSTS> 62,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,646
<INCOME-PRETAX> 5,418
<INCOME-TAX> 1,813
<INCOME-CONTINUING> 3,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,597
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.29
</TABLE>
