UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8038
KEY ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 04-2648081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
Two Tower Center, Tenth Floor, East Brunswick, NJ 08816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 247-4822
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.10 par value American Stock Exchange
7% Convertible Subordinated None
Debentures Due 2003
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Shares held by nonaffiliates of the
Registrant as of September 11, 1997 was approximately $366,091,543.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes X No
Common Shares outstanding at September 11, 1997: 16,459,894
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement with
respect to the Annual Meeting of Shareholders are incorporated by reference in
Part III of this report.
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Key Energy Group, Inc. and Subsidiaries
INDEX
PART I.
Item 1. Business 3
Item 2. Properties. 8
Item 3. Legal Proceedings. 9
Item 4. Submission of Matters to a Vote of Security Holders. 9
PART II.
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters. 10
Item 6. Selected Financial Data. 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation. 12
Item 8. Financial Statements and Supplementary Data. 19
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure. 52
PART III.
Item 10. Directors and Executive Officers of the Registrant. 52
Item 11. Executive Compensation. 52
Item 12. Security Ownership of Certain Beneficial Owners
and Management. 52
Item 13. Certain Relationships and Related Transactions. 52
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 53
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Key Energy Group, Inc. and Subsidiaries
PART I. ITEM 1. BUSINESS.
The Company
Key Energy Group, Inc. (the "Company" or "Key") is a leading provider of
well services in the United States and in Argentina. As of June 30, 1997,
the Company operated a fleet of 523 well service rigs, 437 fluid hauling and
other trucks, and nine drilling rigs (including 16 workover rigs, six
trucks, and 3 drilling rigs in Argentina). As of June 30, 1997, Key's well
service and workover rig fleet and fluid hauling and other truck fleet were
the second largest and largest fleets, respectively, onshore the continental
United States. The Company operates in Texas, New Mexico, Oklahoma,
Michigan, the Appalachian Basin and Argentina. The Company generally
provides a full range of maintenance and workover services to major and
independent oil and gas companies in all of its operating regions. In
addition to maintenance and workover services, Key also provides services
which 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 oil field fluid transportation, storage and disposal services, frac
tank rentals, fishing and rental tools, wireline services, air drilling and
hot oiling. In addition, the Company is engaged in contract drilling in West
Texas and Argentina and owns and produces oil and natural gas in the Permian
Basin.
The Company conducts operations through four wholly-owned subsidiaries:
Yale E. Key, Inc. ("Yale E. Key"); WellTech Eastern, Inc. ("WellTech
Eastern"); Odessa Exploration Incorporated ("Odessa Exploration"); and
Key Energy Drilling, Inc. d/b/a Clint Hurt Drilling ("Clint Hurt"). In
addition, Key operates in Argentina through its 63% ownership (wholly-
owned as of July 1, 1997) of 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, and Servicios owns
contract drilling rigs. Odessa Exploration is engaged in the production
of oil and natural gas and Clint Hurt provides contract oil and gas well
drilling services in the Permian Basin of West Texas.
Subsequent Events
Subsequent to June 30, 1997, the Company purchased the remaining 37%
interest in Servicios and completed the acquisition of four well servicing
companies which collectively operate 83 well service and workover rigs
(including six in Argentina), three drilling rigs in Argentina, and 75 fluid
hauling and other trucks. The Company has also announced, subsequent to June
30, 1997, five acquisitions of well service companies and one acquisition of
a drilling company which collectively operate 153 well service rigs, 11
drilling rigs, 91 fluid hauling and other trucks and a fishing and rental
tool business. These six announced acquisitions are currently pending and
assuming their completion, the Company will have expanded its operating
presence into markets it previously did not serve, including the Rocky
Mountains, the Four Corners area, the Hugoton Basin, Northern Louisiana and
Arkansas. Upon completion of these pending acquisitions, Key's operations
will include 764 well service and workover rigs, 603 fluid hauling and other
trucks, 23 drilling rigs and numerous ancillary operations. Following the
closing of these acquisitions, the Company believes that, based upon the
number of active well service rigs and fluid hauling and other trucks, that
it would operate at that time, it will be the largest well service provider
onshore the continental United States and the second largest well service
provider in Argentina.
Growth Strategy
The domestic well service rig and production service industry has
historically been highly fragmented, characterized by a large number of
smaller companies which have competed effectively on a local basis in
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terms of pricing and the quality of services offered. In recent years,
many major and independent oil and gas companies have placed increasing
emphasis upon not only pricing, but also on safety records and quality
management systems of, and the breadth of services offered by, their
vendors, including well servicing contractors. This market environment,
which requires significant expenditures by smaller companies to meet
these increasingly rigorous standards, has forced many smaller well
servicing companies to sell their operations to larger competitors. As
a result, the industry has seen high levels of consolidation among the
competing contractors.
Over the past eighteen months, Key has been a the leading consolidator
of this industry, completing twenty-three acquisitions of well
servicing operations (twenty-eight including pending transactions).
This consolidation has led to reduced fragmentation in the market and
has led to more predictable demand for well services for the Company
and its competitors. Key's management structure is decentralized, which
allows for rapid integration of acquisitions and the retention of
strong local identities of many of the acquired businesses. As a result
of these and other factors, the Company has developed a growth strategy
to: (i) identify, negotiate and consummate additional acquisitions of
complementary well servicing operations, including rigs, trucking and
other ancillary services; (ii) fully-integrate acquisitions into the
Company's decentralized organizational structure and thereby attempt to
maximize operating margins; (iii) expand business lines and services
offered by the Company in existing areas of operations; and (iv) extend
the geographic scope and operating environments for the Company's
operations.
Oil Field Services
The Company provides a full range of well service rig services, oil
field liquid services and other production services necessary to
maintain and workover producing oil and gas wells through its
wholly-owned subsidiaries, Yale E. Key and WellTech Eastern. These
services also include the completion of newly drilled wells, the
recompletion of existing wells (including horizontal recompletions) and
the plugging and abandonment of wells at the end of their useful lives.
Other services include oil field fluid transportation, storage and
disposal services, frac tank rentals, fishing and rental tools,
wireline services, air drilling and hot oiling. The Company has more
than 750 customers which are either major oil and gas companies or
independent producers seeking to optimize performance of oil and gas
wells. Although the mix of oil and gas wells serviced varies by
particular markets, approximately two-thirds of the Company's overall
business is attributable to oil wells. As of June 30, 1997, of the
Company's 523 well service and workover rigs, 273 operate in West Texas
and New Mexico, 161 in Oklahoma and East Texas, 79 in Michigan and the
Appalachian Basin, and ten in Argentina.
Well Service Rig Services. The Company utilizes its fleet to
perform four major categories of service to oil and gas
operators including:
Maintenance Services. Maintenance services are required on producing
oil and gas wells to ensure efficient and continuous operation. These
services consist of routine mechanical repairs necessary to maintain
production from the well, such as repairing parted sucker rods or
defective down-hole pumps in an oil well, or replacing defective tubing
in an oil or gas well. The Company provides the well service rigs,
equipment and crews for these maintenance services. Many of these well
service rigs also have pumps and tanks (a workover package) that can be
used for circulating fluids into and out of the well. Maintenance jobs
are often performed on a series of wells in proximity to each other and
typically take less than 48 hours per well.
Maintenance services are generally required throughout the life of a
well. The need for these services does not directly depend on the level
of drilling activity and is generally independent of short-term
fluctuations
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in oil and gas prices. Accordingly, maintenance services are generally the
most stable type of well service rig activity. The general level of
maintenance, however, is affected by changes in the total number of
producing oil and gas wells in the Company's geographic service areas.
Workover Services. In addition to periodic maintenance, producing oil and
gas wells occasionally require major repairs or modifications, called
"workovers." Workover services include extensions of existing wells to drain
new formations either through deepening well bores or through drilling of
horizontal laterals. In less extensive workovers, the Company's rigs are
used to seal off depleted zones in existing well bores and access previously
bypassed productive zones. The Company's workover rigs are also used to
convert producing wells to injection wells for enhanced recovery operations.
Workover services include major subsurface repairs such as casing repair or
replacement, recovery of tubing and removal of foreign objects in the well
bore. These extensive workover operations are normally performed by a well
service rig with a workover package , which may include rotary drilling
equipment, mud pumps, mud tanks and blowout preventers depending upon the
particular type of workover operation. Most of the Company's well service
rigs are designed for and can be equipped to perform complex workover
operations. A workover may last from a few days to several weeks.
The demand for workover services is more sensitive to expectations relating
to and changes in oil and gas prices than the demand for maintenance
services, but not as sensitive as the demand for completion services. When
oil and gas prices are low, there is little incentive to perform workovers
on wells to increase production and well operators tend to defer such
expenditures. As oil and gas prices increase, the level of workover activity
tends to increase as operators seek to increase production by enhancing the
efficiency of their wells.
Completion Services. Completion services prepare a newly drilled well for
production. The completion process may involve selectively perforating the
well casing to access producing zones, stimulating and testing these zones
and installing downhole equipment. The Company provides a well service and
workover package rig to assist in this completion process. Newly drilled
wells are frequently completed by a well service rig so that an operator can
minimize the use of a higher cost drilling rig. The completion process
typically requires a few days to several weeks, depending on the nature and
type of the completion, and generally requires additional auxiliary
equipment which the Company provides for an additional fee.
The demand for well completion services is directly related to drilling
activity levels, which are highly sensitive to expectations relating to and
changes in oil and gas prices. During periods of weak drilling demand,
drilling contractors frequently price well completion work competitively
compared to a well service rig so that the drilling rig stays on the job.
Thus, excess drilling capacity will serve to reduce the amount of completion
work available to the well servicing industry.
Plugging and Abandonment Services. Well service rigs and workover equipment
are also used in the plugging and abandonment of oil and gas wells no
longer capable of producing in economic quantities. The demand for oil and
gas does not significantly affect the demand for well plugging services.
Liquid Services. The Company provides vacuum truck services, frac tank
rentals and salt water disposal services which together provide an
integrated mix of liquid services to well site customers.
Other Production Services. The Company provides production services, which
include hot oiler unit services, pipeline installation and testing services,
slickline wire-line services and fishing and rental tool services.
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Shallow Contract Drilling Services
The Company, through Clint Hurt, owns and operates six drilling rigs
and provides contract drilling services for major and independent oil
companies, primarily in West Texas. On August 4, 1997, the Company
announced it had signed a letter of intent to acquire BRW Drilling,
Inc. ("BRW") for approximately $15.0 million in cash. BRW operates 7
drilling rigs and related equipment in the Permian Basin of West Texas.
The closing of the BRW acquisition is expected upon negotiation of a
definitive agreement, completion of the Company's standard due
diligence and receipt of regulatory clearances, if any are required.
Upon completion, the BRW acquisition will be combined with Clint Hurt's
drilling operations in the Permian Basin of West Texas to form a
thirteen rig shallow drilling operation. The Company entered the land
drilling business in March 1995 with the acquisition of four drilling
rigs from an independent third party and, as the result of the WellTech
merger, acquired two additional land drilling rigs. The rigs are
capable of drilling up to 10,000 feet.
Production
The Company is engaged in the production of oil and natural gas in the
Permian Basin area of West Texas through its wholly-owned subsidiary,
Odessa Exploration. Odessa Exploration acquires and manages interests
in producing oil and gas properties for its own account and for
drilling partnerships it sponsors. Odessa Exploration acquires
producing oil and gas wells and related properties from major and
independent producers and, subsequently, either reworks the acquired
wells to increase production or forms drilling ventures for additional
development wells. Odessa Exploration operates oil and gas wells on
behalf of over 250 working interest owners as well as for its own
account.
Foreign Operations
The Company provides oil field services in Argentina through its 63%
ownership (wholly-owned as of July 1, 1997) of Servicios. As of June
30, 1997, Servicios owned and operated ten well servicing rigs and
three drilling rigs in Argentina (which are currently idle and
undergoing refurbishment). On August 1, 1997, the Company completed the
acquisition of Kenting Holdings (Argentina) S.A. ("Kenting") for $10.1
million in cash. The Kenting assets included six oilwell service rigs,
three drilling rigs and related equipment in Argentina. The Kenting
assets are being operated by Servicios and are expected to more than
double the size of Servicios' operations based on revenues.
COMPETITION AND OTHER EXTERNAL FACTORS
Despite a significant amount of consolidation having occurred, the
domestic well service rig and production service industry is still
highly fragmented and includes a number of companies that are capable
of competing effectively in all or part of the Company's well servicing
markets. Nonetheless, the Company believes that it is competitive in
terms of pricing, performance, equipment, safety, availability of
equipment to meet customer needs and availability of experienced,
skilled personnel in those regions in which it operates.
In the well servicing market, an important competitive factor in
establishing and maintaining long-term customer relationships is having
an experienced, skilled and well trained work force. In recent years,
many of the Company's larger customers have placed emphasis not only on
pricing, but also on safety records and quality management systems of
contractors. The Company believes that such factors will be of
increased importance in the future. The Company has directed
substantial resources toward employee safety and training programs, as
well as its employee review process. While the Company's efforts in
these areas are not unique, many competitors, particularly small
contractors, have not undertaken similar training programs for their
employees. Management believes that the Company's safety record and
reputation for quality equipment and service are among the best in the
industry.
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The Company acquires oil and gas properties from independent and major oil
companies and competes with other independent and integrated oil companies
for the acquisition of these properties. The Company also competes with
other local oil and gas drilling contractors, as well as national oil and
gas drilling companies. As with oil field services, the need for drilling
oil and gas wells fluctuates, in part, based on the price of, and demand
for, oil and natural gas.
The Company serves over 750 customers in West Texas, East Texas, New Mexico,
Oklahoma, Michigan, the Appalachian Basin and Argentina with its two largest
customers providing 13% and 7%, of total Company revenue during fiscal 1997.
The need for oilfield services fluctuates, in part, in relation to the
demand for oil and natural gas. As demand for those commodities increases,
service and maintenance requirements increase as oil and natural gas
producers attempt to maximize the producing efficiency of their wells in a
higher priced environment.
EMPLOYEES
As of June 30, 1997, the Company employed 3,175 persons (3,047 in well
service operations, 12 in oil and gas production, 105 in contract drilling
operations and 11 in corporate). None of the Company's employees are
represented by a labor union or collective bargaining agent. The Company has
experienced no work stoppages associated with labor disputes or grievances
and considers its relations with its employees to be satisfactory.
REGULATIONS
The oilfield service operations and the oil and gas production and drilling
activities of the Company are subject to various local, state and federal
laws and regulations intended to protect the environment. The Company's
operations routinely involve the handling of waste materials, some of which
are classified as hazardous substances. Consequently, the regulations
applicable to the Company's operations include those with respect to
containment, disposal and controlling the discharge of any hazardous oil
field waste and other non-hazardous waste material into the environment,
requiring removal and cleanup under certain circumstances, or otherwise
relating to the protection of the environment. Laws and regulations
protecting the environment have become more stringent in recent years, and
may in certain circumstances impose "strict liability," rendering a party
liable for environmental damage without regard to negligence or fault on the
part of such party. Such laws and regulations may expose the Company to
liability for the conduct of, or conditions caused by, others, or for acts
of the Company which were in compliance with all applicable laws at the
times such acts were performed. Management of the Company believes that it
is in substantial compliance with all material federal, state and local
regulations as they relate to the environment. Although the Company has
incurred certain costs in complying with environmental laws and regulations,
such amounts have not been material to the Company's financial condition
during the three past fiscal years.
Management believes that the Company is in substantial compliance with all
known material local, state and federal safety guidelines and regulations.
In order to comply with such safety guidelines and regulations and increase
employee awareness of on-the-job safety, the Company employs eight safety
officers. The Company also has a safety training and education center which
is used by it for continued safety training and awareness.
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ITEM 2. PROPERTIES.
The Company's corporate offices are located in East Brunswick, New
Jersey where the Company leases office space from an independent third
party.
Oil Field Services
The following table sets forth the type, number and location of the
major equipment owned and operated by the Company's oil field service
subsidiaries as of June 30, 1997:
Well Service/ Fluid Hauling and
Company Workover Rigs Other Trucks
Domestic:
Yale E. Key (West Texas
and New Mexico) 273 82
Mid-Continent Division
of WellTech Eastern (Texas
and Oklahoma) 161 105
Eastern Division of
WellTech Eastern (Michigan
and Appalachian Basin) 79 244
International:
Servicios (Argentina) 10 6
----- -----
TOTAL 523 437
===== =====
Yale E. Key owns ten and leases six office and yard locations. The
Mid-Continent Division of WellTech Eastern owns seven and leases five
office and yard locations. The Eastern Division of WellTech Eastern
owns four and leases twelve office and yard locations. In Argentina,
Servicios leases two office and yard locations.
All operating facilities are metal one story office and/or shop
buildings. All buildings are occupied and considered to be in
satisfactory condition.
Production
Odessa Exploration's properties consist primarily of oil and gas
leases. At June 30, 1997, Odessa Exploration operated and/or owned
interests in 467 wells. Odessa Exploration's major proved producing
properties are located primarily in the Permian Basin area of West
Texas. Odessa Exploration leases office space in Odessa, Texas.
As of June 30, 1997, the Company had interests in 446 gross (127 net)
oil wells and 21 gross (10 net) gas wells. As of such date, the Company
owned 71,360 gross (19,980 net) acres of developed acreage and no
undeveloped acreage. The Company had working interests in 13 gross
(12.5 net) development wells as of the same date. During the fiscal
year ended June 30, 1997, the Company produced 178,121 bbls. of oil at
an average sales price of $22.19 per bbls., and 1.23 Mcf of gas at an
average sales price of $2.74 per Mcf. Average production (lifting)
costs were $7.89 per equivalent bbls. of oil.
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ITEM 3. LEGAL PROCEEDINGS AND OTHER ACTIONS.
See Item 7, Note 4 to the Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is traded on the American Stock Exchange,
under the symbol "KEG". As of June 30, 1997, there were 498 holders of
record of 12,297,752 shares of common stock.
The following table sets forth for the periods indicated the high and
low closing prices of the Company's common stock on the American Stock
Exchange, as derived from published sources.
High Low
Fiscal Year Ending 1997:
First Quarter $ 8 3/4 $ 7 1/2
Second Quarter 12 1/4 8 3/8
Third Quarter 14 7/8 11 3/8
Fourth Quarter 17 13/16 12 7/8
Fiscal Year Ending 1996:
First Quarter $ 4 3/4 $ 5 1/2
Second Quarter 4 15/16 6 7/16
Third Quarter 5 7/8 7 9/16
Fourth Quarter 7 1/16 8 1/2
There were no dividends paid on the Company's common stock during the fiscal
years ended June 30, 1997, 1996 or 1995. The Company does not intend, for
the foreseeable future, to pay dividends on its common stock.
Recent Sales of Unregistered Securities:
The Company effected the following unregistered sales of its securities
during the three months ended June 30, 1997. Each of the following issuances
by the Company of the securities sold in the transactions referred to below
were not registered under the Securities Act of 1933, as amended, pursuant
to the exemption provided under Section 4 (2) thereof for transactions not
involving a public offering:
Effective as of June 25, 1997, the Company issued 240,000 shares of the
Company's common stock to certain selling shareholders as partial
consideration for the acquisition of all of the capital stock of Well-Co Oil
Service, Inc.
The Company issued, pursuant to the Company's 1995 Employee Stock Option
Plan, various options to purchase shares of the Company's common stock.
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Item 6.
Selected Financial Data.
<TABLE>
<CAPTION>
Five
Fiscal Year Fiscal Year(1) Fiscal Year Fiscal Year Seven Months Months (2)
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, November 30,
(in thousands) 1997 1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
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Revenues $163,630 $66,478 $44,689 $34,621 $14,256 $10,433
Operating costs:
Direct costs 111,551 47,117 32,793 26,585 10,863 7,947
Depreciation, depletion and amortization 11,420 4,701 2,738 1,371 406 505
General and administrative 18,522 6,608 4,352 3,540 1,587 1,117
Interest 7,535 2,477 1,478 830 276 464
Income before income taxes, minority
interest, reorganization items and
extraordinary items 14,602 5,575 3,328 2,295 1,124 400
Net income 9,098 3,586 2,178 1,345 711 4,986
Income per common share:
Primary:
Net income $0.75 $0.45 $0.33 $0.26 $0.14 $0.28
Fully-diluted:
Net income $0.65 $0.44 $0.33 $0.25 $0.14 $0.03
Average common shares outstanding:
Primary 12,205 7,941 6,647 5,274 5,124 17,942
Assuming full dilution 17,963 8,114 6,647 5,288 5,138 176,508
Common shares outstanding at period end 12,298 10,414 6,914 5,274 5,124 17,942
Market price per common share at period end $17.81 $8.19 $5.06 $4.67 $3.67 n/a
Cash dividends paid on common shares $ - $ - $ - $ - $ - $ -
BALANCE SHEET DATA:
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Cash $41,704 $4,211 $1,275 $1,173 $623 *
Current assets 93,333 27,481 11,290 9,167 4,922 *
Property and equipment 227,255 96,127 36,336 18,935 10,093 *
Property and equipment, net 208,186 87,207 31,942 17,159 9,688 *
Total assets 320,095 121,722 45,243 28,095 15,906 *
Current liabilities 33,142 24,339 9,228 8,383 4,113 *
Long-term debt, including current portion 174,167 46,825 15,949 11,501 5,374 *
Stockholders' equity 73,179 41,624 20,111 9,263 7,280 *
OTHER DATA:
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EBITDA (3) 33,557 12,752 7,544 4,496 1,806 *
Net cash (used) provided by:
Operating activities 1,306 7,121 3,258 1,842 (123) *
Investing activities (82,062) (13,551) (7,154) (5,608) (1,284) *
Financing activities 118,249 9,366 3,998 4,316 (73) *
Working capital 60,191 3,142 2,062 784 809 *
Book value per common share (4) $5.95 $4.00 $2.91 $1.76 $1.42 *
Ratio of earnings to fixed charges (5) $2.61 $2.77 $2.54 $2.65 $2.91 *
</TABLE>
* - Not applicable due to the Company's 1992
Reorganization Plan.
(1) Financial data for the year ended June 30, 1996 includes the allocated
purchase price of WellTech Eastern and the results of their operations,
beginning March 26, 1996.
(2) Financial Data for the five months ended November 30, 1992 and prior
periods reflect the previous capital structure of Key Energy Group, Inc.
(previously "National Environmental Group, Inc.") before the Company's 1992
Reorganization Plan and are not always comparable to subsequent periods.
(3) Net income before interest exp., income taxes, depreciation, depletion and
amortization. EBITDA is presented because of its wide acceptance as a
financial indicators of a company's ability to service or incur debt.
EBITDA should not be considered as an alternative to operating net
income, as defined by generally accepted accounting principals, as
indicators of the Company's financial performance or to cash flow as a
measure of liquidity.
(4) Book value per common share are stockholders' equity at end of period
divided by the number of outstanding shares at period end.
(5) For purposes of computing the ratios of earnings to fixed charges, earnings
consist of income from continuing operations before income taxes and fixed
charges. Fixed charges consist of interest expenses, amortization of debt
issuance expenses and the portions of rentals and lease obligations
representative of the interest factor.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
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.
Overview
The Company experienced its most successful year during fiscal 1997. All
regions have increased equipment use because of higher oil and gas prices,
increased emphasis on horizontal drilling, lower production costs for major and
independent oil and gas producers, renewed focus on domestic production and the
effects of several new alliances the Company entered into with its customers.
Fluctuations in well servicing activity have had a strong correlation with
fluctuations in oil and gas prices. If oil and gas prices were to drop
significantly from current levels, the Company would expect a decrease in demand
for drilling and services which would negatively affect the Company's operating
performance. The Company seeks to minimize the effects of such fluctuations on
its operations and financial condition through diversification of services,
entry into new markets and customer alliances.
FISCAL YEAR ENDED JUNE 30, 1997 VERSUS FISCAL YEAR ENDED JUNE 30, 1996
Results of Operations
Operating Income
The Company
Revenues for the year ended June 30, 1997 increased $97,152,000, or 146%,
from $66,478,000 in fiscal 1996 to $163,630,000 in fiscal 1997, while net income
for fiscal 1997 increased $5,512,000, or 154% , from $3,586,000 in fiscal 1996
to $9,098,000 in fiscal 1997. The increase was primarily due to oilwell service
acquisitions throughout the year, increased oil and gas revenues from Odessa
Exploration, and increased oil and gas drilling revenues.
Oilfield Services
Oilfield service revenues for the year ended June 30, 1997 increased
$88,452,000, or 158%, from $55,933,000 for the year ended June 30, 1996 to
$144,385,000 for the year ended June 30, 1997. The increase is primarily
attributable to acquisitions throughout the year and higher equipment use
resulting from an increase in demand for oilfield services.
Oil and Natural Gas Exploration and Production
Revenues from oil and gas activities increased $4,005,000, or 96%, from
$4,175,000 during the year ended June 30, 1996 to $8,180,000 for the current
year. The increase was primarily the result of increased production of oil and
natural gas from several wells that were drilled and began production during
fiscal 1997, higher oil and natural gas prices for fiscal 1997, and the April
1996 purchase of $6.9 million of oil and gas properties from an unrelated third
party. Of the total $8,180,000 of revenues for the year ended June 30, 1997,
approximately $6,975,000 was from the sale of oil and gas and $1,205,000
represented primarily administrative fee income.
- 12 -
<PAGE>
Oil and Natural Gas Well Drilling
Revenues from oil and gas well drilling activities increased $3,768,000, or
61%, from $6,188,000 during the year ended June 30, 1996 to $9,956,000 for the
year ended June 30, 1997. The increase was primarily the result of increased
oilwell drilling activity and an increase in the Company's pricing structure.
Operating Expenses
Oilfield Services
Oilfield service expenses for the year ended June 30, 1997 increased
$59,629,000, or 146%, from $40,737,000 for the year ended June 30, 1996 to
$100,366,000 for the year ended June 30, 1997. The increase was due primarily to
acquisitions made throughout the fiscal year and the increased demand for
oilfield services. In addition, the Company has continued to expand its
services, offering fishing tools, blow-out preventers and oilwell frac
tanks.
Oil and Natural Gas Exploration and Production
Expenses related to oil and gas activities increased $1,680,000, or 124%,
from $1,350,000 for the year ended June 30, 1996 to $3,030,000 for the year
ended June 30, 1997. The increase was primarily the result costs associated with
several oil and natural gas wells that were drilled and began producting during
fiscal 1997 and the April 1996 purchase of $6.9 million in oil and gas
properties.
Oil and Natural Gas Well Drilling
Expenses related to oil and gas well drilling activities increased
$3,125,000, or 62%, from $5,030,000 for the year ended June 30, 1996 to
$8,155,000 for the year ended June 30, 1997. The increase was primarily the
result of increased revenues.
Depreciation and Depletion Expense
Depreciation, depletion and amortization expense increased $6,719,000, or
143%, from $4,701,000 for fiscal 1996 to $11,420,000 for fiscal 1997. 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 acquisitions completed throughout fiscal 1997.
In addition, depletion expense increased for the period due to the increase in
the production of oil and natural gas.
General and Administrative Expenses
General and administrative expenses increased $11,914,000, or 180%, from
$6,608,000 for the year ended June 30, 1996 to $18,522,000 for the year ended
June 30, 1997. The increase was primarily attributable to oilfield service
acquisitions throughout the fiscal year.
Interest Expense
Interest expense increased $5,058,000, or 204%, from $2,477,000 for fiscal
1996 to $7,535,000 in fiscal 1997. The increase was primarily the result of debt
incurred in connection with acquisitions completed throughout fiscal 1997.
- 13 -
<PAGE>
Income Taxes
Income tax expense increased $3,612,000, or 191%, from $1,888,000 in income
tax expense for fiscal 1996 to $5,500,000 for fiscal 1997. The increase in
income taxes is primarily due to the increase in operating income. However, the
Company does not expect to be required to remit a significant amount of the
$5,500,000 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 $4,965,000, or 70%,
from $7,121,000 during fiscal 1996 to $2,156,000 for fiscal 1997. The decrease
is attributable primarily to increases in accounts receivable, decreases in
accounts payable and accrued expenses, but was partially offset by increases in
depreciation and net income.
Net cash used in investing activities increased $68,511,000, or 506%, from
$13,551,000 for fiscal 1996 to $82,062,000 for fiscal 1997. The increase is
primarily the result of increased capital expenditures for oilwell service
operations and oilwell service acquisitions.
Net cash provided by financing activities was $117,399,000 for fiscal 1997
as compared to $9,366,000 for fiscal 1996, which represents an increase of
$108,033,000, or 1,153%. The increase, which is partially offset by repayments
of long-term debt, is primarily the result of proceeds from the existing
Debentures and commercial paper during the current fiscal year.
- 14 -
<PAGE>
FISCAL YEAR ENDED JUNE 30, 1996 VERSUS FISCAL YEAR ENDED JUNE 30, 1995
Operating Income
The Company
Revenues for the year ended June 30, 1996 increased $21,789,000, or 49%,
from $44,689,000 for the year ended June 30, 1995 to $66,478,000 for the year
ended June 30, 1996, while net income increased $1,408,000, or 65%, from
$2,178,000 in fiscal 1995 to $3,586,000 in fiscal 1996. The increase in revenues
was primarily due to the acquisition of Clint Hurt Drilling in March 1995, whose
operations were only included for one quarter in the 1995 year-end results,
increased oil and gas revenues from Odessa Exploration and increased oilwell
service equipment use and the acquisition of WellTech. The increase in fiscal
year 1996 net income over fiscal year 1995 net income was partially attributable
to the inclusion of Clint Hurt Drilling and the acquisition of WellTech Eastern,
but also was a result of an increase in oilwell service equipment use and a
decrease in total consolidated Company costs and expenses as a percentage of
total revenues.
Oilfield Services
Oilfield service revenues for the year ended June 30, 1996 increased
$15,828,000, or 40%, from $40,105,000 for the year ended June 30, 1995 to
$55,933,000 for the year ended June 30, 1996. The increase in revenues was
primarily attributable to higher equipment use resulting from an increase in
demand for oilfield services and the acquisition of WellTech Eastern, whose
operating results were included for the period of March 26, 1996 to June 30,
1996.
Oil and Natural Gas Exploration and Production
Revenues from oil and gas activities increased $1,841,000, or 79%, from
$2,334,000 during the year ended June 30, 1995 to $4,175,000 for the year ended
June 30, 1996. The increase in revenues was primarily the result of increased
production of oil and natural gas from several wells that were drilled during
1996, higher oil and natural gas prices during 1995 and the April 1996 purchase
of $6.9 million of oil and gas properties from an unrelated third party.
Of the total $4,175,000 of revenues for the year ended June 30, 1996,
approximately $3,554,000 was from the sale of oil and gas and the remaining
$621,000 was attributable primarily to administrative fee income and other
miscellaneous income.
Oil and Natural Gas Well Drilling
Oil and natural gas well drilling operations are performed by Clint Hurt
Drilling which was acquired in March 1995. Comparable numbers for the prior year
are, therefore, not available. Revenues for the year ended June 30, 1996 were
$6,188,000.
Operating Expenses
Oilfield Services
Oilfield service expenses for the year ended June 30, 1996 increased
$10,145,000, or 33%, from $30,592,000 for the year ended June 30, 1995 to
$40,737,000 for the year ended June 30, 1996. The increase was due primarily to
the acquisition of WellTech Eastern on March 26, 1996, and an increased demand
for oilfield services.
- 15 -
<PAGE>
Oil and Natural Gas Exploration and Production
Expenses related to oil and gas activities increased $593,000, or 78%, from
$757,000 for the year ended June 30, 1995 to $1,350,000 for the year ended June
30, 1996. The increase was primarily the result of increased production of oil
and natural gas from several wells that were drilled during fiscal 1996 and the
April 1996 purchase of $6.9 million in oil and gas properties.
Oil and Natural Gas Well Drilling
Clint Hurt Drilling was acquired in March 1995. Comparable numbers for the
prior year are, therefore, not available. Expenses for the year ended June 30,
1996 were $5,030,000.
Depreciation and Depletion Expense
Depreciation, depletion and amortization expense increased $1,963,000, or
72%, from $2,738,000 for fiscal 1995 to $4,701,000 for fiscal 1996. The increase
was primarily due to oilfield service depreciation expense, which resulted from
an increase in oilfield service capital expenditures for the 1996 period versus
the prior period and the acquisition of WellTech and Clint Hurt. In addition,
depletion expense increased for the period due to the increase in the production
of oil and natural gas.
General and Administrative Expenses
General and administrative expenses increased $2,256,000, or 52%, from
$4,352,000 for the year ended June 30, 1995 to $6,608,000 for the year ended
June 30, 1996. The increase was primarily attributable to the acquisition of
contract drilling assets, the subsequent inclusion of general and administrative
expenses related to contract drilling operations and the acquisition of WellTech
Eastern.
Interest Expense
Interest expense increased $999,000, or 68%, from $1,478,000 for fiscal
1995 to $2,477,000 for fiscal 1996. The increase was primarily the result of
acquisitions and the addition of certain oil and gas properties that were
financed with proceeds from borrowings.
Income Taxes
Income tax expense for fiscal 1996 increased $738,000, or 64%, from
$1,150,000 in fiscal 1995 to $1,888,000 in fiscal 1996. The increase was
primarily due to an increase in operating income. However, the Company was not
required to remit a significant amount of the $1,888,000 in total federal income
taxes for fiscal year 1996 because of the availability of net operating loss
carryforwards, accelerated depreciation and drilling tax credits.
Cash Flow
Net cash provided by operating activities increased $3,863,000, or 119%,
from $3,258,000 during fiscal 1995 to $7,121,000 for fiscal 1996. The increase
was attributable primarily to increases in net income.
Net cash used in investing activities increased $6,397,000, or 89%, from
$7,154,000 for fiscal 1995 to $13,551,000 for fiscal 1996. The increase was
primarily the result of increased capital expenditures for oil and gas
properties and costs associated with the acquisition of WellTech. This increase
was partially offset by a decrease in oilfield service capital expenditures.
- 16 -
<PAGE>
Net cash provided by financing activities increased $5,368,000, or 134%,
from $3,998,000 in fiscal 1995 to $9,366,000 in fiscal 1996. The increase is
primarily the result of increased principal payments during fiscal 1996. This
increase in principal payments was somewhat offset by an increase in proceeds
from long-term debt during fiscal 1996 as the result of the purchase of oil and
gas properties by Odessa Exploration and the acquisition of WellTech.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased by $37.5 million for the
year ended June 30, 1997 from $4.2 million as of June 30, 1996 to $41.7 million
as of June 30, 1997. This increase was primarily the result of proceeds from
the Bank Credit Agreement.
The Company has projected $20 million for oilfield service capital
expenditures for fiscal 1998 as compared to $15.1 million and $5.2 million in
fiscal 1997 and 1996, respectively. Odessa Exploration has projected outlays of
approximately $10 million in development costs for fiscal 1998, as compared to
$8.2 million and $9.8 million in fiscal 1997 and 1996, respectively. Clint Hurt
Drilling has forecast approximately $2 million for oil and gas drilling capital
expenditures for fiscal 1998, primarily for improvements to existing equipment
and machinery, as compared to $1.5 million for fiscal 1997 and $598,000 in
fiscal 1996. The Company expects to finance these capital expenditures and
development costs using cash flows from operations and available credit. The
Company believes that its cash flows and, to the extent required, borrowings
under the Bank Credit Agreement, will be sufficient to fund such
expenditures.
Debt
In June 1997, the Company entered into the Credit Agreement (the "Bank
Credit Agreement") with PNC Bank, N.A. ("PNC"), as administrative agent, Norwest
Bank Texas, N.A., as collateral agent, Lehman Commercial Paper, Inc., as
advisor, arranger and syndication agent and the lenders named therein pursuant
to which the lenders agreed to make available to the Compaany a five-year
revolving credit facilty in the amount of $135 million and a seven-year term
loan facility in the amount of $120 million. Up to $10 million of letters of
credit may be issued pursuant to the Bank Credit Agreement. The amount of
letters of credit outstanding from time to time reduces the amount of revolving
credit loans which may be outstanding.
Revolving credit loans incurred pursuant to the Bank Credit Agreement will
bear interest, at the Company's option, at PNC's base rate plus 1.00% or LIBOR
plus 2.25% and term loans will bear interest, at the Company's option, at PNC's
base rate plus 1.75% or LIBOR plus 2.75%. After September 30, 1997, the margin
applicable to revolving credit loans will fluctuate from time to time between
0.25% and 1.25% with respect to base rate loans and between 1.50% and 2.50% for
LIBOR based loans. Such fluctuations will be based on the Company's ratio of
consolidated total debt (net of cash in excess of $5 million) to a pro forma
calculation of consolidated earnings before interest expense, taxes and
depreciation, depletion and amortization.
The Company used the proceeds from the Bank Credit Agreement to: (i) repay
existing debt; (ii) make additional acquisitions and capital expenditures; and
(iii) provide working capital. Long-term debt that was repaid with proceeds from
the Bank Credit Agreement in June 1997 included all debt with CIT Group/Credit
Finance, Inc. of approximately $54.3 million and all bank debt associated with
Odessa Exploration, previously with Norwest Bank Texas, N.A., of approximately
$2.1 million.
- 17 -
<PAGE>
Impact of SFAS 121
As of July 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121 - Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). Consequently,
the Company reviews its long-lived assets to be held and used, including oil and
gas properties accounted for under the successful efforts method of accounting,
whenever events or circumstances indicate that the carrying value of those
assets 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 SFAS
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 income producing equipment and oil and gas properties and
compared such future cash flows to the carrying amount of the asset to determine
if the carrying amount was recoverable. Based on this process, no writedown in
the carrying amount of the Company's property was necessary at June 30, 1997.
Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board has recently issued the following
accounting standards which will be adopted by the Company in the future.
Statement of Financial Accounting Standards No. 128 ("SFAS 128") - Earnings
per Share, is effective for periods ending on or after December 15, 1997. FAS
128 replaces the presentation of primary earnings per share ("EPS") with the
presentation of basic EPS, which excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. SFAS 128 also requires dual presentation of
basic EPS and diluted EPS on the face of the income statement and requires a
reconciliation of the numerators and denominators of basic EPS and diluted
EPS.The Company will adopt SFAS 128 for the quarter ended December 31, 1997.
Statement of Financial Accounting Standards No. 130 ("SFAS 130") -
Reporting Comprehensive Income, is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company will adopt SFAS 130
for the fiscal year ended June 30, 1999.
Statement of Financial Accounting Standards No. 131 ("SFAS 131") -
Disclosures about Segments of an Enterprise and Related Information, is
effective for financial statements for periods beginning after December 15,
1997. SFAS 131 need not be applied to interim financial statements in the
initial year of its application. However, comparative information for interim
periods in the initial year of application is to be reported in the financial
statements for interim periods in the second year of application. The Company
will adopt SFAS 131 for the fiscal year ended June 30, 1999.
Management believes the adoption of SFAS 128, SFAS 130 and SFAS 131 will
not have a material effect on its financial position or results of operations of
the Company.
Impact of Inflation on Operations
Management is of the opinion that inflation has not had a significant
impact on the Company's business.
- 18 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Presented herein are the consolidated financial statements of Key Energy
Group, Inc. and Subsidiaries as of June 30, 1997 and 1996 and the years
ended June 30, 1997, 1996 and 1995.
Also, included is the report of KPMG Peat Marwick LLP, independent
certified public accountants, on such consolidated financial statements as
of June 30, 1997 and 1996 and for the years ended June 30, 1997, 1996 and
1995.
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets................................ 20
Consolidated Statements of Operations ..................... 21
Consolidated Statements of Cash Flows ..................... 22
Consolidated Statements of Stockholders' Equity ........... 23
Notes to Consolidated Financial Statements ................ 24
Independent Auditors' Report ................................ 51
- 19 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, June 30,
(Thousands, except share and per share data) 1997 1996
------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $41,704 $ 4,211
Accounts receivable, net of allowance for
doubtful accounts ($1,552 - 1997, $992 - 1996) 45,230 20,570
Inventories 5,171 1,957
Prepaid expenses and other current assets 1,228 743
------------------------------------------------------------------------------
Total Current Assets 93,333 27,481
------------------------------------------------------------------------------
Property and Equipment:
Oilfield service equipment 176,326 66,432
Oil and gas well drilling equipment 6,319 4,862
Motor vehicles 10,569 1,159
Oil and gas properties and other related
equipment, successful efforts method 23,622 17,663
Furniture and equipment 1,661 716
Buildings and land 8,758 5,295
------------------------------------------------------------------------------
227,255 96,127
Accumulated depreciation & depletion (19,069) (8,920)
------------------------------------------------------------------------------
Net Property and Equipment 208,186 87,207
------------------------------------------------------------------------------
Other Assets 18,576 7,034
------------------------------------------------------------------------------
Total Assets $320,095 $121,722
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $15,339 $11,086
Other accrued liabilities 12,507 11,002
Accrued interest 2,102 417
Accrued income taxes 1,664 53
Deferred tax liability 126 310
Current portion of long-term debt 1,404 1,471
- -------------------------------------------------------------------------------
Total Current Liabilities 33,142 24,339
- -------------------------------------------------------------------------------
Long-term debt, less current portion 172,763 45,354
Non-current accrued expenses 4,017 4,909
Deferred tax liability 35,738 4,244
Minority interest 1,256 1,252
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value; 25,000,000
shares authorized, 12,297,752 and 10,413,513
sharesissued and outstanding at June 30,
1997 and 1996, respectively 1,230 1,041
Additional paid-in capital 55,031 32,763
Retained earnings 16,918 7,820
- -------------------------------------------------------------------------------
Total Stockholders' Equity 73,179 41,624
- -------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $320,095 $121,722
===============================================================================
</TABLE>
See the accompanying notes which are an integral part of these
consolidated financial statements.
- 20 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
(Thousands, except per share data) June 30, 1997 June 30, 1996 June 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Oilfield services $144,385 $55,933 $40,105
Oil and gas 8,180 4,175 2,334
Oil and gas well drilling 9,956 6,188 1,932
Other, net 1,109 182 318
- ---------------------------------------------------------------------------------------------------------------------------------
163,630 66,478 44,689
- ---------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Oilfield services 100,366 40,737 30,592
Oil and gas 3,030 1,350 757
Oil and gas well drilling 8,155 5,030 1,444
Depreciation, depletion and amortization 11,420 4,701 2,738
General and administrative 18,522 6,608 4,352
Interest 7,535 2,477 1,478
- ---------------------------------------------------------------------------------------------------------------------------------
149,028 60,903 41,361
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 14,602 5,575 3,328
Income tax expense 5,500 1,888 1,150
Minority interest in net income 4 101 -
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $9,098 $3,586 $2,178
=================================================================================================================================
EARNINGS PER SHARE :
Primary:
Net income $0.75 $0.45 $0.33
Assuming full dilution:
Net income $0.65 $0.44 $0.33
=================================================================================================================================
WEIGHTED AVERAGE OUTSTANDING:
Primary 12,205 7,941 6,647
Assuming full dilution 17,963 8,114 6,647
=================================================================================================================================
</TABLE>
See the accompanying notes which are an integral part of these consolidated
financial statements.
- 21 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------
(Thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $9,098 $3,586 $2,178
Adjustments to reconcile income from operations to
net cash provided by operations:
Depreciation, depletion and amortization 11,420 4,701 2,738
Deferred income taxes 3,836 1,618 1,370
Minority interest in net income 4 101 -
Gain on sale of assets (235) (186) -
Other non-cash items - 6 (312)
Change in assets and liabilities net of effects
from the acquisitions:
Increase in accounts receivable (14,904) (2,180) (1,327)
Increase (decrease) in other current assets (2,811) 765 (940)
Decrease in accounts payable and
accrued expenses (5,565) (1,293) (154)
Other assets and liabilities 1,313 3 (295)
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,156 7,121 3,258
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - Oilwell service operations (15,084) (5,188) (2,839)
Capital expenditures - Oil and gas operations (8,188) (1,879) (2,823)
Capital expenditures - Oil and gas well drilling
operations (1,483) (598) (143)
Proceeds from sale of fixed assets 3,159 574 -
Cash received in acquisitions 2,342 1,168 -
Acquisitions - oil and gas operations - (7,895) (1,348)
Acquisitions - oilwell service operations, net of
cash acquired (62,808) - -
Redemption (purchase) of restricted
marketable securities - 267 (1)
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities (82,062) (13,551) (7,154)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (1,772) (2,601) (2,148)
Repayment of long-term debt (47,815) - -
Borrowings (payments) under line-of-credit - 1,100 (605)
Proceeds from stock options exercised 141 - -
Proceeds from warrants exercised 1,362 - -
Proceeds from convertible subordinated debentures
- net of debt issuance costs 49,590 - -
Proceeds from long-term commercial paper debt
- net of debt issuance costs 115,021 - -
Proceeds from other long-term debt 872 10,867 6,751
- --------------------------------------------------------------------------------------------------
Net cash provided by financing activities 117,399 9,366 3,998
- --------------------------------------------------------------------------------------------------
Net increase in cash 37,493 2,936 102
Cash at beginning of period 4,211 1,275 1,173
- --------------------------------------------------------------------------------------------------
Cash at end of period $41,704 $4,211 $1,275
==================================================================================================
</TABLE>
See the accompanying notes which are an integral part of these consolidated
financial statements.
- 22 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
--------------------------------
Number of Additional
Shares Amount Paid-in Retained
(Thousands) Outstanding at par Capital Earnings Total
- ------------------------------------------------------------------------------- --------------- ------------------ ------------
<S> <C> <C> <C> <C>
Balance at June 30, 1994 5,274 $527 $6,680 $2,056 $9,263
- -------------------------------------------------------------------------------- --------------- ------------------ ------------
Issuance of common stock for WellTech
West Texas assets 1,635 164 8,420 - 8,584
Issuance of warrants for WellTech
West Texas assets - - 63 - 63
Issuance of common stock for Clint Hurt
Drilling assets 5 - 23 - 23
Net income - - - 2,178 2,178
- -------------------------------------------------------------------------------- --------------- ------------------ ------------
Balance at June 30, 1995 6,914 $691 $15,186 $4,234 $20,111
- -------------------------------------------------------------------------------- --------------- ------------------ ------------
Issuance of common stock for WellTech
Merger 3,500 350 17,577 - 17,927
Net income - - - 3,586 3,586
- -------------------------------------------------------------------------------- --------------- ------------------ ------------
Balance at June 30, 1996 10,414 $1,041 $32,763 $7,820 $41,624
- -------------------------------------------------------------------------------- --------------- ------------------ ------------
Issuance of common stock for Brownlee
Well Service stock 61 6 665 - 671
Issuance of common stock for Woodward
Well Service stock 75 8 555 - 563
Issuance of common stock for Brooks
Well Service stock 918 92 11,033 - 11,125
Issuance of common stock for Enerair
Oilwell Service assets 4 - 48 - 48
Issuance of common stock for Cobra
Well Service stock 175 18 2,368 - 2,386
Issuance of common stock for Tri-State
Well Service assets 84 8 992 - 1,000
Issuance of common stock for Kal-Con
Well Service assets and stock 78 8 1,103 - 1,111
Issuance of common stock for Well-Co
Well Service stock 240 24 4,026 - 4,050
Exercise of warrants 221 22 1,340 - 1,362
Exercise of options 28 3 138 - 141
Net income - - - 9,098 9,098
- -------------------------------------------------------------------------------- --------------- ------------------ ------------
Balance at June 30, 1997 12,298 $1,230 $55,031 $16,918 $73,179
================================================================================ =============== ================== ============
</TABLE>
See the accompanying notes which are an integral part of these consolidated
financial statements.
- 23 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, 1996 and 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Key Energy Group, Inc. herein after referred to as the "Company" or "Key",
was organized in April 1977, and commenced operations in July 1978. Results of
operations for the twelve months ended June 30, 1997, 1996 and 1995 include the
Company's oilfield service operations conducted by its wholly-owned subsidiary,
Yale E. Key, Inc., ("Yale E. Key"), the Company's oil and gas exploration and
production wholly-owned subsidiary, Odessa Exploration Incorporated ("Odessa
Exploration"), and the Company's oil and gas well drilling operations conducted
by the Company's wholly-owned subsidiary, Key Energy Drilling, Inc. d/b/a Clint
Hurt Drilling ("Clint Hurt Drilling"). Clint Hurt Drilling was acquired in March
of 1995. Also included in the results of operations for the fiscal year ended
June 30, 1997 and approximately three months for the fiscal year ended June 30,
1996 are those operating results from the Company's wholly-owned subsidiary;
WellTech Eastern, Inc. ("WellTech Eastern") which currently holds the assets
acquired in the merger with WellTech, Inc. ("WellTech"), on March 26, 1996 (see
Note 2). WellTech Eastern operates through two divisions; the WellTech
Mid-Continent Division and the WellTech Eastern Division. In addition, as a
result of the Welltech acquisition, the Company acquired a 63% ownership in
Servicios WellTech, S.A. ("Servicios"), an Argentinean corporation. Servicios
conducts oilfield services operations in Argentina and is accounted for using
the consolidation with a minority interest method.
Basis of Presentation
The Company's consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant inter-company
transactions and balances have been eliminated. The accounting policies
presented below have been followed in preparing the accompanying consolidated
financial statements. The Company's ownership of less than 50% owned entities
are accounted for by the cost or equity methods, depending on the Company's
ownership percentage.
Estimates and Uncertainties
Preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventories
Inventories, which consist primarily of oilwell service parts and supplies,
are held for use in the operations of Key and are valued at the lower of average
cost or market.
Property and Equipment
The Company provides for depreciation and amortization of non-oil and gas
properties using the straight-line method over the following estimated useful
lives of the assets:
(table follows on next page)
- 24 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Description Years
---------------------------------------------------------------------
Oilfield service equipment 3 - 20
Oil and gas well drilling equipment 3 - 15
Motor vehicles 3 - 7
Furniture and equipment 3 - 10
Buildings and improvements 10 - 40
Gas processing facilities 10
---------------------------------------------------------------------
Upon disposition or retirement of property and equipment, the cost and
related accumulated depreciation are removed from the accounts and the gain or
loss thereon, if any, is included in the results of operations.
Odessa Exploration utilizes the successful efforts method of accounting for
its oil and gas properties. Under this method, all costs associated with
productive wells and nonproductive development wells are capitalized, while
nonproductive exploration costs and geological and geophysical costs (if any),
are expensed. Capitalized costs relating to proved properties are depleted using
the unit-of-production method. Upon disposition, the carrying amounts of
properties sold or otherwise disposed of and the related allowance for depletion
are eliminated from the accounts and any gain/loss is included in results of
operations.
Gas Balancing
Deferred income associated with gas balancing is accounted for on the
entitlements method and represents amounts received for gas sold under gas
balancing arrangements in excess of Odessa Exploration's interest in properties
covered by such agreements. Odessa Exploration had deferred income associated
with gas balancing of approximately $155,000, $198,000 and $253,000 as of June
30, 1997, 1996 and 1995, respectively.
Environmental
The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws, which are constantly changing, regulate the
discharge of materials into the environment and may require the Company to
remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites. Environmental expenditures
are expensed or capitalized depending on their future economic benefit.
Expenditures that relate to an existing condition caused by past operations and
that have no future economic benefits are expensed. Liabilities for expenditures
of a noncapital nature are recorded when environmental assessment and/or
remediation is probable, and the costs can be reasonably estimated.
Other Assets and Goodwill
At June 30, 1997, 1996 and 1995, other assets consisted primarily of
goodwill, capitalized debt issuance costs and security and escrow deposits from
Key's workers' compensation retrospective insurance program, in addition to an
interest, (approximately 13%), in an insurance company (the insurance company is
affiliated with Key's workers' compensation carrier).
- 25 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
At June 30, 1997, 1996 and 1995, the Company classified as goodwill the
cost in excess of fair value of the net tangible assets acquired in purchase
transactions. Goodwill is being amortized on a straight-line basis over ten to
twenty-five years. Management continually evaluates whether events or
circumstances have occurred that indicate the remaining useful life of goodwill
may warrant revision or the remaining balance of goodwill may not be
recoverable. Goodwill amortization expense totaled $622,000 for fiscal 1997 and
$100,000 for fiscal 1996 and $100,000 for fiscal 1995. Debt issuance cost
amortization expense totaled $344,000 for the year ended June 30, 1997 and is
amortized over the term of the applicable debt.
Earnings per Share
Primary earnings per common share are determined by dividing net earnings
applicable to common stock by the weighted average number of common shares
actually outstanding during the year and common equivalent shares resulting from
the assumed exercise of stock options and warrants (if any) using the treasury
stock method, except in periods with reported losses as the inclusion of common
stock equivalents would be antidilutive. Fully diluted earnings per common share
are based on the increased number of shares that would be outstanding assuming
conversion of dilutive outstanding convertible securities using the "as if
converted" method.
Income Taxes
The Company accounts for income taxes based upon Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in income in the
period that includes the enactment date. A valuation allowance for deferred tax
assets is recognized when it is "more likely than not" that the benefit of
deferred tax assets will not be realized.
The Company and its eligible subsidiaries file a consolidated U. S. federal
income tax return. Certain subsidiaries that are consolidated for financial
reporting purposes are not eligible to be included in the consolidated U. S.
federal income tax return and separate provisions for income taxes have been
determined for these entities or groups of entities.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of temporary cash investments
and trade receivables. The Company restricts investment of temporary cash
investments to financial institutions with high credit standing and by policy
limits the amount of credit exposure to any one financial institution. The
Company's customer base consists primarily of multi-national, foreign national
and independent oil and natural gas producers. See Note 12 for additional
information regarding customers which accounted for more than 10% of
consolidated revenues. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral on its trade receivables.
Such credit risk is considered by management to be limited due to the large
number of customers comprising the Company's customer base. The Company
maintains reserves for potential credit losses, and such losses have been within
management's expectations.
- 26 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Impact of SFAS 121
On July 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121 - Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Adoption of this Statement
did not have an impact on the Company's financial position, results of
operations, or liquidity.
Stock-based Compensation
The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"). Accordingly, the company
has only adopted the disclosure provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). See
Note 8 for the pro forma disclosures of compensation expense determined under
the fair-value provisions of SFAS 123.
Cash Flows
For cash flow purposes, the Company considers all unrestricted highly
liquid investments with less than a three month maturity when purchased as cash
equivalents.
Reclassifications
Certain reclassifications have been made to the fiscal 1996 and 1995
consolidated financial statements to conform to the fiscal 1997 presentation.
Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board has recently issued the following
accounting standards which will be adopted by the Company in the future.
Statement of Financial Accounting Standards No. 128 ("SFAS 128") - Earnings
per Share, is effective for periods ending on or after December 15, 1997. FAS
128 replaces the presentation of primary earnings per share ("EPS") with the
presentation of basic EPS, which excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. SFAS 128 also requires dual presentation of
basic EPS and diluted EPS on the face of the income statement and requires a
reconciliation of the numerators and denominators of basic EPS and diluted
EPS.The Company will adopt SFAS 128 for the quarter ended December 31, 1997.
Statement of Financial Accounting Standards No. 130 ("SFAS 130") -
Reporting Comprehensive Income, is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company will adopt SFAS 130
for the fiscal year ended June 30, 1999.
Statement of Financial Accounting Standards No. 131 ("SFAS 131") -
Disclosures about Segments of an Enterprise and Related Information, is
effective for financial statements for periods beginning after December 15,
1997. SFAS 131 need not be applied to interim financial statements in the
initial year of its application. However, comparative information for interim
periods in the initial year of application is to be reported in the financial
statements for interim periods in the second year of application. The Company
will adopt SFAS 131 for the fiscal year ended June 30, 1999.
- 27 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Management believes the adoption of SFAS 128, SFAS 130 and SFAS 131 will
not have a material effect on its financial position or results of operations of
the Company.
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.
2. BUSINESS AND PROPERTY ACQUISITIONS
The following described acquisitions have been completed during the current
year and are included in the Company's results of operations for the twelve
months ended June 30, 1997.
Well-Co Oil Service. Inc.
On June 26, 1997, the Company completed its acquisition of Well-Co Oil
Service, Inc. ("Well-Co") which operates 79 oilwell service rigs and related
equipment in west Texas. Well-Co was acquired for $17.5 million in cash and
240,000 shares of the Company's common stock. Well-Co will be operated by the
Company's west Texas subsidiary of Yale E. Key. The results of operations of
Well-Co are included in the Company's results of operations effective June 26,
1997. The acquisition was accounted for using the purchase method.
Phoenix Well Service, Inc.
On June 10, 1997, the Company completed its acquisition of Phoenix Well
Service, Inc. ("Phoenix") which operates 11 oilwell service rigs and related
equipment in west Texas. Phoenix was acquired for $2.3 million in cash. Phoenix
will be operated by the Company's west Texas subsidiary of Yale E. Key. The
results of operations of Phoenix are included in the Company's results of
operations effective June 26, 1997. The acquisition was accounted for using the
purchase method.
Southwest Oilfield Services, Inc.
On June 10, 1997, the Company completed its acquisition of Southwest
Oilfield Services, Inc. ("Southwest") which operates 3 oilwell service rigs and
related equipment in western Oklahoma. Southwest was acquired for $455,000 in
cash. Southwest will be operated by the WellTech Mid-Con Division of WellTech
Eastern, Inc. The results of operations of Southwest are included in the
Company's results of operations effective June 10, 1997. The acquisition was
accounted for using the purchase method.
Wireline and Excavation Assets
On May 1, 1997, the Company completed an acquisition of ten wireline units
and related equipment for approximately $600,000 in cash. These assets will be
operated in West Virginia by the WellTech Eastern Division of WellTech Eastern.
On May 5, 1997, the Company completed its acquisition of several dump trucks and
related excavation equipment for $410,000 in cash. These assets will be operated
in Michigan by the WellTech Eastern Division of WellTech Eastern. The results of
operations of these assets are included in the Company's results of operations
effective May 1, 1997. The acquisition was accounted for using the purchase
method.
Shreve's Well Service
On April 18, 1997, the Company completed its acquisition of the assets of
Shreve's Well Service, Inc. ("Shreve's") which operated in West Virginia.
Shreve's assets were acquired for $550,000 in cash and included five well
service rigs and related equipment. The Shreve's assets will be operated by the
WellTech Eastern Division of WellTech
- 28 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Eastern. The results of operations of Shreve's are included in the
Company's results of operations effective May 1, 1997. The acquisition was
accounted for using the purchase method.
Argentine Drilling Rigs
On April 16, 1997, the Company acquired three drilling rigs and related
equipment in Argentina from Drillers, Inc. for $1.5 million in cash. The
drilling rigs will be operated by WellTech Servicios, the Company's Argentine
subsidiary.
Diamond Well Service
On April 3, 1997, the Company completed the acquisition of the assets of
Diamond Well Service, Inc. ("Diamond") for $675,000 in cash. The Diamond assets
included four oilwell service rigs and related equipment in Oklahoma. The
Diamond assets will be operated by the WellTech Mid-Continent Division of
WellTech Eastern. The results of operations of Diamond are included in the
Company's results of operations effective April 1, 1997. The acquisition was
accounted for using the purchase method.
Kalkaska Construction Service, Inc. ,Kalkaska Oilfield Service, Inc. and
Elder Well Service, Inc.
On March 31, 1997, the Company completed the acquisition of the assets of
Kalkaska Construction Service, Inc., Kalkaska Oilfield Service, Inc. ("KalCon")
and Elder Well Service, Inc. ("Elder"), both based in Michigan. The KalCon
assets included 40 vacuum (fluid transport) trucks, 40 trucks used in oilfield
equipment hauling, seven saltwater disposal wells and other oilfield related
equipment, and were acquired for approximately $8.5 million in cash and 77,998
shares of the Company's common stock. The Elder assets included six oilwell
service rigs and related equipment and were acquired for $609,000 in cash. Both
the KalCon and Elder assets will be operated by the WellTech Eastern Division of
WellTech Eastern. The operating results of KalCon and Elder are included in the
Company's results of operations effective April 1, 1997. The acquisition was
accounted for using the purchase method.
T.S.T. Paraffin Service Co., Inc.
On March 27, 1997, the Company completed the acquisition of T.S.T. Paraffin
Service Co., Inc. ("TST") for $8.7 million in cash. TST operates approximately
61 trucks, 22 hot oil units and other related equipment in west Texas. TST will
be operated by the Company's west Texas subsidiary: Yale E. Key, Inc. The
operating results of TST are included in the Company's results of operations
effective April 1, 1997. The acquisition was accounted for using the purchase
method.
Tri-State Wellhead & Valve, Inc.
The Company completed its acquisition of the assets of Tri-State Wellhead &
Valve, Inc. ("Tri-State") on March 17, 1997 for $550,000 in cash and 83,770
shares of the Company's common stock. The Tri-State assets consisted of a
wellhead equipment rental business and five oilwell service rigs. These assets
will be operated by the WellTech Mid-Continent Division of WellTech Eastern. The
operating results from these assets are included in the Company's results of
operations effective April 1, 1997. The acquisition was accounted for using the
purchase method.
Cobra Industries, Inc.
Effective as of January 13, 1997, the Company completed the purchase of
Cobra Industries, Inc. ("Cobra") for $5 million in cash and 175,000 shares of
the Company's common stock. Cobra operates 26 oilwell service rigs in
southeastern New Mexico. The operating results from Cobra are included in the
Company's results of operations effective February 1, 1997. The acquisition was
accounted for using the purchase method.
- 29 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Talon Trucking Co.
Effective as of January 7, 1997, the Company completed the acquisition of
the assets of Talon Trucking Co. ("Talon") for $2.7 million in cash. Talon
operated three oilwell service rigs, 21 trucks and related fluid transportation
and disposal assets in Oklahoma, which assets are currently operated by the
WellTech Mid-Continent Division of WellTech Eastern. The operating results from
these assets are included in the Company's results of operations effective
January 7, 1997. 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 operating results from B&L are included in the
Company's results of operations effective January 1, 1997. The acquisition was
accounted for using the purchase method.
Brooks Well Servicing, Inc.
Effective as of December 1, 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 operating results from Brooks are included in the
Company's results of operations effective December 1, 1996. 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 operating results from Hitwell are included in the
Company's results of operations effective December 1, 1996. The acquisition was
accounted for using the purchase method.
Energy Air Drilling Services Co.
Effective as of November 1, 1996, the Company completed the acquisition of
certain assets of Energy Air Drilling Services Co. ("Energy Air") for $500,000
in cash and 4,386 shares of the Company's common stock. Energy Air operated four
air drilling packages in west Texas, which operations are currently conducted by
Yale E. Key. The acquisition was accounted for using the purchase method.
Brownlee Well Service Inc.
Effective as of October 24, 1996, the Company completed the purchase of
Brownlee Well Service, Inc. ("Brownlee") and Integrity Fishing and Rental Tools
Inc., ("Integrity"). Consideration for the acquisition was $6.5 million in cash
and 61,069 shares of the Company's common stock. Brownlee and Integrity operate
16 oilwell service rigs with ancillary equipment and a variety of oilfield
fishing tools in west Texas. The operating results from Brownlee are included in
the Company's results of operations effective November 1, 1996. The acquisition
was accounted for using the purchase method.
- 30 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Woodward Well Service, Inc
Effective as of October 1, 1996, the Company completed the acquisition of
Woodward Well Service, Inc. ("Woodward") for 75,000 shares of the Company's
common stock and approximately $100,000 in cash, most of which is payable over a
four-year period. Woodward operated five oilwell service units in Oklahoma,
which operations are currently conducted by the WellTech Mid-Continent Division
of Welltech Eastern. The operating results from Woodward are included in the
Company's results of operations effective October 1, 1996. The acquisition was
accounted for using the purchase method.
Acquisitions Completed Prior to June 30, 1996
Odessa Exploration Properties
In April of 1996, Odessa Exploration purchased approximately $6.9 million
in cash of oil and gas producing properties from an unrelated company using
proceeds from bank borrowings, which indebtedness was subsequently repaid (see
Note 5). The acquisition was accounted for using the purchase method.
WellTech, Inc.
On March 26, 1996, the Company completed the merger of WellTech, Inc.
("WellTech") into the Company. The net consideration for the merger was
3,500,000 shares of the Company's common stock and warrants to purchase 500,000
additional shares of Common Stock at an exercise price of $6.75 per share.
WellTech conducted oil and gas well servicing operations in the Mid-Continent
and Northeast areas of the United States and in Argentina. The acquisition was
accounted for using the purchase method.
Pro Forma Results of Operations--(unaudited)
The following unaudited pro forma results of operations have been prepared
as though WellTech Eastern, Well-Co, Cobra and T.S.T. had been acquired on July
1, 1995. Pro-forma amounts are not necessarily indicative of the results that
may be reported in the future.
Year Ended
(Thousands, except per share data) June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------
Revenues $ 198,088 $162,988
Net income 11,591 8,964
Earnings per share $ 0.92 $ 0.76
3. OTHER ASSETS
Other assets consist of the following:
June 30,
(Thousands) 1997 1996
---------------------------------------------------------------------------
Investment in insurance company - common stock * $ 368 $ 368
Workers compensation security premiums 1,817 1,117
Debt issuance costs (net of amortization; 1997 - $344) 7,045 -
Goodwill (net of amortization: 1997 - $822, 1996 - $200) 9,256 5,400
Other 90 149
---------------------------------------------------------------------------
$18,576 $ 7,034
===========================================================================
* - Represents approximately 13% ownership.
- 31 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
4. COMMITMENTS AND CONTINGENCIES
Various suits and claims arising in the ordinary course of business are
pending against the Company. Management does not believe that the disposition of
any of these items will result in a material adverse impact to the consolidated
financial position of the Company. As of June 30, 1997, the Company had reserved
$133,000 for potential suits and claims.
During 1995, the Company entered into employment agreements with certain of
its officers. These employment agreements generally run to June 30, 1997, but
will automatically be extended on a yearly basis unless terminated by the
Company or the applicable officer. In addition to providing a base salary for
each officer, the employment agreements provide for severance payments for each
officer varying from 12 to 24 months of the officers base salary. The current
annual base salaries for the officers covered under such employment agreements
total approximately $800,000.
5. LONG-TERM DEBT
On June 6, 1997, the Company entered into an agreement (the "Bank Credit
Agreement") with PNC Bank, N.A., as administrative agent, Norwest Bank Texas,
N.A., as collateral agent. Lehman Commercial Paper, Inc., as advisor, arranger
and syndication agent and the lenders named thereas pursuant to which the
lenders provided a $255 million credit facility, consisting of a $120 million
seven-year term loan and a $135 million five-year revolver. The interest rate,
on the term loan, is LIBOR plus 2.75 percent and the interest rate on the
revolver varies based on the LIBOR and the level of the Company's indebtedness
and is currently LIBOR plus 2.25 percent. The Company used the proceeds from the
facility to: (i) repay existing bank debt; (ii) make additional acquisitions and
capital expenditures; and (iii) provide working capital. In addition, the credit
facility provides, under certain conditions, for the repurchase of a portion of
the Company's outstanding common stock in the open market from time to time. In
connection with the credit facility, the company incurred and capitalized
$4,979,000 of debt issuance costs. These costs are being amortized over the life
of the credit facility. The credit facility contains certain restrictive
covenants and requires certain financial ratios.
Long-term debt which was repaid with proceeds from the Agreement in June
1997 included all debt with CIT Group/Credit Finance, Inc. ("CIT") of
approximately $54.3 million and all bank debt associated with Odessa
Exploration, previously with Norwest Bank Texas, N.A. ("Norwest") of
approximately $2.1 million.
In July 1996, the Company completed the offering of $52,000,000 7%
convertible subordinated debentures due 2003 (the "Debentures"). In August 1996,
the interest rate on the Debentures was increased to 7 1/2%. As the result of
the Company's purchase of the remaining 37% ownership in Servicios, the interest
rate was reduced to 7% in July of 1997. The offering was a private offering
pursuant to Rule 144A under the Securities Act of 1933. Proceeds from the
offering were used to substantially repay existing long-term debt (approximately
$35.2 million). In connection with the offering of the Debentures, the Company
capitalized and incurred $2,410,000 of debt issuance costs. These costs are
being amortized over the life of the Debentures. The Debenture contains certain
restrictive covenants and requires certain financial ratios.
The Debentures mature on July 1, 2003 and are convertible at any time after
November 1, 1996 and before maturity, unless previously redeemed, into shares of
the Company's common stock at a conversion price of $9 3/4 per share, subject to
adjustment in certain events. In addition, holders of the Debentures who convert
prior to July 1, 1999 will receive, in addition to the Company's common stock, a
payment generally equal to 50% of the interest otherwise payable on the
converted Debentures from the date of conversion through July 1, 1999, payable
in cash or common stock, at the Company's option. Interest on the Debentures is
payable semi-annually on January 1 and July 1 of each year, commencing January
1, 1997. In August, 1996, the interest rate was increased from 7% to 7 1/2% due
to certain modifications in the Debenture indenture involving a certain
subsidiary's
- 32 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
inability to guarantee the obligations under the indenture,
relating to the Debentures (the "Prospectus"), (specifically, Servicios). As the
result of the Company's purchase of the remaining 37% ownership in Servicios,
the interest rate was reduced to 7% in July of 1997.
The Debentures will not be redeemable by the Company before July 15, 1999.
Thereafter, the Debentures will be redeemable at the option of the Company in
whole or part, at the declining redemption prices set forth in the original
Prospectus, together with accrued and unpaid interest thereon.(see Note 17, for
further discussion.)
In January 1996, prior to the consummation of the Bank Credit Agreement and
offering described above, the Company, Yale E. Key, Clint Hurt and WellTech
entered into separate credit facilities with CIT totaling approximately $35
million (the combined maximum credit limit). The credit facilities were combined
into one facility after the consummation of the Welltech merger. As a result of
the separate credit facilities, the interest rate for Yale E. Key was lowered
from two and one-half to one and one-quarter percent over the stated prime rate
(8.25% at June 30, 1996). Each of the CIT term notes required principal and
interest payments, due the first day of each month beginning February 1, 1996,
plus a final payment of the unpaid balance of the note due December 31, 1998.
The expiration of each of the lines of credit was December 31, 1998.
The components of long-term debt are as follows:
June 30,
(Thousands) 1997 1996
Term Note (i) $120,000 $ -
Subordinated Debentures (ii) 52,000 -
Term Note(s) - CIT, interest and
principal payable monthly (iii) - 21,062
Revolving Line(s) of Credit - CIT,
interest payable monthly (iii) - 9,910
Revolver Note - Norwest, interest
payable monthly (iv) - 6,300
Term Note(s) - Norwest, interest and principal
payable monthly (v) - 7,000
Other notes payable 2,167 2,553
174,167 46,825
Less current portion 1,404 1,471
-----------------------------------------------------------------------
Long-term debt $172,763 $ 45,354
=======================================================================
(i). Under the Bank Credit Agreement, the term loan of $120 million
requires interest payments at the termination of the LIBOR interest period.
The term loan is seven years and the interest rate is LIBOR plus 2.75
percent. Principal payments are $500,000 at June 30, 1998, $125,000 at
the end of each quarter beginning September 30, 1998 through June 30,
2002, $8,750,000 at the end of each quarter beginning September 30,
2002 through June 30, 2003 and $20,625,000 beginning September 30, 2003
with a final payment of $20,625,000 on June 30, 2004.
The Company used the proceeds from the facility to: (i) repay existing bank
debt; (ii) make additional acquisitions and capital expenditures; and (iii)
provide working capital. In addition, the credit facility, of $135 million,
provides, under certain conditions, for the repurchase of a portion of the
Company's outstanding common stock in the open market from time to time. At
June 30, 1997, there was $135 million available on the credit facility.
Under the credit facility the Company may be obligated to pay certain fees
including a commitment fee which ranges from .25% to .375% based on the
unused portion of the credit facility.
- 33 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(ii). The Debentures mature on July 1, 2003 and are convertible at any time
after November 1, 1996 and before maturity, unless previously redeemed,
into shares of the Company's common stock at a conversion price of $9 3/4
per share, subject to adjustment in certain events. In addition, holders of
the Debentures who convert prior to July 1, 1999 will receive, in addition
to the Company's common stock, a payment generally equal to 50% of the
interest otherwise payable on the converted Debentures from the date of
conversion through July 1, 1999, payable in cash or common stock, at the
Company's option. Interest on the Debentures is payable semi-annually on
January 1 and July 1 of each year, commencing January 1, 1997. In August,
1996, the interest rate was increased from 7% to 7 1/2% due to certain
modifications in the Debenture indenture involving a certain subsidiary's
inability to guarantee the obligations under the indenture, relating to the
Debentures (the "Prospectus"), (specifically, Servicios). As the result of
the Company's purchase of the remaining 37% ownership in Servicios, the
interest rate was reduced to 7% in July of 1997.
(iii). The CIT term note, as amended, required principal payments of
approximately $275,000, plus interest, due the first day of each month plus
a final payment of the unpaid balance of the note due December 31, 1998.
The interest rate was one and one-quarter percent above the stated prime
rate of 8.25% at June 30, 1996. The note was collateralized by all of the
assets (including equipment and inventory) of Yale E. Key, Clint Hurt and
WellTech Eastern. The CIT line of credit, as amended, required monthly
payments of interest at one and one-quarter percent above the stated prime
rate of 8.25% at June 30, 1996. The line of credit was collateralized by
the accounts receivable of Yale E. Key, Clint Hurt and WellTech Eastern.
The agreement with CIT included certain restrictive covenants, the most
restrictive of which prohibited the Company from making distributions and
declaring dividends on its common stock.
(iv). Prior to the Agreement and Offering described above, Odessa
Exploration had a loan agreement, as amended, with Norwest. The loan
agreement provided for a $7.5 million revolving line of credit note
subject to a borrowing base limitation (approximately $6.3 million at June
30, 1996). The borrowing base was redetermined on at least a semi-annual
basis. The borrowing base was reduced by approximately $100,000 per month
through October 1997; the maturity of the note. The note's interest rate
was one-half of one percent over Norwest's prime rate of 8.25% at June 30,
1996. The note was secured by substantially all of the oil and gas
properties of Odessa Exploration.
The loan agreement had contained various restrictive covenants and
compliance requirements, which included (a) prohibits Odessa Exploration
from declaring or paying dividends on Odessa Exploration's common stock,
(b) limiting the incurrence of additional indebtedness by Odessa
Exploration, (c) the limitation on the disposition of assets and (d)
various financial covenants.
(v). In April, 1996, as the result of the acquisition of certain
properties by Odessa Exploration, but prior to the Offering described
above, Odessa Exploration entered into a loan agreement with Norwest. The
loan agreement provided for a term loan of $9.3 million to be reduced by
$2.4 million in principal amount after the consummation of the acquisition
of certain properties by Odessa Exploration. The note's interest rate was
one-half of one percent over Norwest's prime rate of 8.25% at June 30,
1996. The note required interest payments beginning June 1, 1996. The note
was secured by substantially all of the oil and gas properties of Odessa
Exploration.
Presented below is a schedule of the repayment requirements of long-term
debt for each of the next five years and thereafter as of June 30, 1997:
- 34 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands)
Fiscal year Principal
Ended Amount
---------------------------------------------------------
1998 $ 1,404
1999 1,392
2000 701
2001 637
2002 533
Thereafter 169,500
-------
$ 174,167
=========================================================
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses, other current assets and other current
liabilities approximates fair value because of the short maturity of these
instruments.
Based on the borrowing rates currently estimated to be available to the
Company for loans with similar terms, the fair value of long-term debt
approximates the carrying amount as of June 30, 1997 and 1996, except for the
subordinated convertible debentures which have a carrying value of $52 million
and a fair value of approximately $98.9 million at June 30, 1997.
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
June 30,
(Thousands) 1997 1996
---------------------------------------------------------------------------
Accrued payroll and taxes $ 6,674 $2,614
Group medical insurance 891 1,536
Workers compensation 1,683 1,067
State sales and use taxes 247 414
Gas imbalance - deferred income 155 198
Revenue distribution 145 437
Acquisition and reorganization accrual 838 3,720
Other 1,874 1,016
-----------------------
Total $ 12,507 $11,002
===========================================================================
8. STOCKHOLDERS' EQUITY
The 1995 Stock Option Plan
On March 26, 1996, a Stock Option Plan (the "1995 Plan") was approved by
the Company's stockholders. The Plan became effective July 1, 1995, and , unless
terminated earlier, will terminate July 1, 2005. The 1995 Plan is administered
by a committee (the "Committee") consisting of at least three directors of Key,
each of whom is a "disinterested person" within the meaning of rule 16b-3 under
the Exchange Act and an "outside director" within the meaning of Section 162(m)
of the Code.
- 35 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued
The total number of shares of the Company's common stock that may be
subject to options under the 1995 Plan may not exceed 1,800,000 in the
aggregate. The total amount of common stock with respect to which options
may be granted over the life of the 1995 Plan to any single employee shall
not exceed 500,000 shares in the aggregate. Options which are canceled,
forfeited or have expired or expire by their terms without being exercised
shall be available for future grants under the 1995 Plan. The Committee
may determine which key employees of the Company or any subsidiary or
other persons shall be granted options under the 1995 Plan, the terms of
the options and the number of shares which may be purchased under the
option.
The individuals eligible to receive options under the 1995 Plan consist of
key employees (including officers who may be members of the Board), directors
who are neither employees nor members of the Committee and other individuals who
render services of special importance to the management, operation or
development of Key or any subsidiary, and who have contributed or may be
expected to contribute materially to the success of Key or a subsidiary,
provided, however, that only key employees are eligible to receive options.
The price at which shares of common stock may be purchased upon exercise of
an option will be specified by the Committee at the time the option is granted,
but in the case of an individual stock option, except under certain conditions,
may not be less than the fair market value of the common stock on the date of
grant. The duration of any option is determined by the Committee in its
discretion and shall be specified in the option agreement. No individual stock
option may be exercisable after the expiration of ten years.
The 1995 Outside Directors Stock Option Plan
On March 26, 1996, an Outside Directors Stock Option Plan was approved by
the Company's Shareholder's (the "Directors Plan"). Individuals who are "Outside
Directors" are eligible to participate in the Directors Plan. An "Outside
Director" is defined as a member of the Board of Directors who is not an
employee of the Company or any of its subsidiaries. Under the Directors Plan,
Outside Directors are divided into three groups dependent upon certain dates and
length of service on the Board. Only nonqualified stock options ("NSO's") may be
granted under the Directors Plan. An NSO granted under the Directors Plan shall
expire ten years after the date of the grant. An NSO may not be granted under
the Directors Plan after July 1, 1998.
The Directors Plan provides for the issuance of an aggregate of 400,000
shares of common stock, which may be authorized but unissued shares, treasury
shares, or shares purchased on the open market. The exercise price of the NSO
shall be the fair market value on the date of the grant.
The following table summarizes the stock option activity related to the
Company's plans:
Price
Shares Per Share
-----------------------------------------------------------------------
Outstanding, July 1, 1995
Granted 1,075,000 $ 5.00
---------
Outstanding, June 30, 1996 1,075,000
---------
Granted 175,000 $ 7.50
175,000 $8.313
50,000 $8.375
25,000 $8.50
25,000 $11.125
535,000 $13.25
25,000 $14.50
- 36 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Price
Shares Per Share
50,000 $16.875
Canceled 26,668 $5.00
Exercised 28,332 $5.00
----------
Outstanding, June 30, 1997 2,080,000
==========
Exercisable, June 30, 1997 810,417
The Company applies APB 25 and related Interpretations in accounting for
its stock option awards. Accordingly, no compensation expense has been
recognized for its stock option awards. If compensation expense for the stock
option awards had been determined consistent with SFAS 123, the Company's net
income and net income per share, for the years ended June 30, 1997 and 1996
would have been adjusted to the following pro forma amounts:
(unaudited) Year Ended June 30,
1997 1996
---- ----
Net income (in thousands) $8,680 $2,945
Primary net income per share $ 0.71 $ 0.37
Fully-diluted net income per share $ 0.61 $ 0.35
The pro forma net income and pro forma net income per share amounts noted
above are not likely to be representative of the pro forma amounts to be
reported in future years. Pro forma adjustments in future years will include
compensation expense associated with the options granted in fiscal year 1996 and
1997 plus compensation expense associated with any options awarded in future
years. As a result, such pro forma compensation expense is likely to be higher
than the levels reflected for 1996 and 1997 if any options are awarded in future
years.
Under SFAS 123, the fair value of each stock option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grant in 1997 and 1996:
1997 1996
---- ----
Risk-free interest rate 6.59% 6.54%
Expected life 5 years 5 years
Expected volatility 28% 29%
Expected dividend yield 0% 0%
The total fair value of options granted at June 30, 1997 is $6,541,000.
- 37 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
9. INCOME TAXES
Components of income tax expense (benefit) are as follows:
Fiscal Year Ended June 30,
(Thousands) 1997 1996 1995
-----------------------------------------------------------------------
Federal and State:
Current $ 1,664 $ 270 $ (220)
Deferred 3,836 1,618 1,370
---------------------------------------
$ 5,500 $ 1,888 $1,150
======================================================================
Income tax expense (benefit) differs from amounts computed by applying the
statutory federal rate as follows:
Fiscal Year Ended June 30,
(Thousands) 1997 1996 1995
-----------------------------------------------------------------------
Income tax computed at
Statutory rate 35.0% 34.0% 34.0%
Amortization of goodwill disallowance 1.5 - -
Meals and entertainment disallowance 0.8 1.7 2.2
Accrual to return adjustments 0.3 (1.5) (1.0)
Other 0.1 (0.3) (0.7)
_______________________________________________________________________
37.7% 33.9% 34.5%
=======================================================================
Deferred tax assets (liabilities) are comprised of the following :
Fiscal Year Ended June 30,
(Thousands) 1997 1996 1995
-----------------------------------------------------------------------
Net operating loss carry-forwards $ 4,628 $ 6,293 $ 1,140
Property and equipment (40,410) (10,942) (3,437)
Other (82) 95 (25)
-----------------------------------------------------------------------
Net deferred tax liability $ (35,864) $ (4,554) $ (2,322)
=======================================================================
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Based on expectations
for the future, management has determined that taxable income of the Company
will more likely than not be sufficient to fully utilize available carryforwards
prior to their ultimate expiration.
The Company estimates that as of June 30, 1997, the Company will have
available approximately $148,414,060 of net operating loss carryforwards (which
begin to expire in 2001). The net operating loss carryforwards are subject to an
annual limitation of approximately $940,000, under Sections 382 and 383 of the
Internal Revenue Code.
- 38 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
10. LEASING ARRANGEMENTS
Among other leases, the Company (primarily its subsidiaries), lease certain
automotive equipment under non-cancelable operating leases which expire at
various dates through 2002. The term of the operating leases generally run from
36 to 60 months with varying payment dates throughout each month. In addition,
in the case of Yale E. Key, each lease includes an option to purchase the
equipment and an excess mileage charge as defined in the leases.
As of June 30, 1997, the future minimum lease payments under
non-cancelable operating leases, in thousands, are as follows:
Fiscal Year Lease
Ending June 30, Payments
1998 $ 4,348
1999 3,433
2000 2,044
2001 1,122
2002 391
---------
$11,338
=========
Operating lease expense was approximately $5,299,000, $2,897,000, and
$1,930,000, for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively.
11. EMPLOYEE BENEFIT PLANS
At June 30, 1997, as the result of the WellTech merger (Note 2), the
Company maintains two 401-(k) plans (the "Plans") for its employees. Employees
of WellTech Eastern are eligible for participation in one Plan (the "WellTech
401-(k) Plan"), while all other employees are eligible for participation in the
other Plan (the "Key 401-(k) Plan"). The Company intends to merge the two Plans
at January 1, 1998. The 401-(k) plans cover substantially all employees of the
Company. The Company matches employees' contributions up to 10% of the
employees' contribution to the Key 401-(k) Plan. These contributions totaled
approximately $35,000, $19,000 and $20,000 for the years ended June 30, 1997,
1996 and 1995, respectively. Additionally, the Company contributed $300,000 and
$37,000 into the WellTech 401-(k) Plan for the year ended June 30, 1997 and the
period of March 26, 1996 (the date of the WellTech merger) to June 30, 1996,
respectively . The Company agreed to match employee contributions up to 50% (to
a maximum of $1,000 per employee) of the employees' contributions to the
WellTech 401-(k) Plan.
12. MAJOR CUSTOMERS
Sales to customers representing 10% or more of consolidated revenues for
the years ended June 30, 1997, 1996 and 1995 were as follows:
Fiscal Year Ended June 30,
1997 1996 1995
Customer A 13% 20% 18%
Customer B 7% 11% 10%
- 39 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
13. TRANSACTIONS WITH RELATED PARTIES
WellTech Eastern paid $78,000 and $18,000 for the year ended June 30, 1997
and for the period March 26, 1996 (the date of the Welltech merger) to June 30,
1996, respectively, for office/yard rental expense in which an officer of the
Company and WellTech Eastern has an interest. In the opinion of the Board of
Directors of the Company, based on the Board's review of competitive bids, this
transaction was on terms at least as favorable to the Company as could have been
obtained from a third party.
In connection with the Odessa Exploration acquisition, (see Note 2) the
Company granted D. Kirk Edwards (President of Odessa Exploration) a percentage
reversionary working interest in five deep gas wells located in West Texas upon
repayment of $1,622,000 of the bank debt assumed by the Company in the
acquisition from the Company's earnings from the five wells. The percentage
reversionary working interest decreases based on the date of repayment of the
assumed bank debt and ranges from 20% of the earnings from the five wells if
repayment occurs on or prior to July 7, 1995, to 5% of the earnings from the
five wells if repayment occurs after July 7, 1996.
Key leases automotive equipment from an independent third party (see Note
10). The independent third party purchases the automotive equipment from an
automobile dealership in which a former officer owns a majority interest. Net
proceeds to the automobile dealership totaled $399,000 for the year ended June
30, 1995. The leases are considered operating leases. In the opinion of the
Board of Directors of the Company, the net proceeds from automotive equipment
were on terms at least as favorable to the Company as could have been obtained
from a third party. This opinion is based on information provided by a third
party leasing company, that is not affiliated with the former officer or the
Company, to the Board of Directors regarding purchase prices and equipment lease
rentals offered by third parties.
Space left blank intentionally
- 40 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
14. CONCENTRATIONS OF CREDIT RISK
The Company has a concentration of customers in the oil and gas industry.
Substantially all of the Company's customers are major integrated oil companies,
major independent producers of oil and gas and smaller independent producers.
This may affect the Company's overall exposure to credit risk either positively
or negatively, in as much as its customers are effected by economic conditions
in the oil and gas industry, which has historically been cyclical. However,
accounts receivable are well diversified among many customers and a significant
portion of the receivables are from major oil companies, which management
believes minimizes potential credit risk. Historically, credit losses have been
insignificant. Receivables are generally not collateralized, although the
Company may generally secure a receivable at any time by filing a mechanic's and
material-mans' lien on the well serviced.
15. BUSINESS SEGMENT INFORMATION
Information about the Company's operations by business segment is as
follows:
Year Ended June 30,
(Thousands) 1997 1996 1995
----------------------------------------------------------------------------
Revenues:
Oil and gas $ 8,180 $ 4,175 $ 2,334
Oilfield services 144,385 55,933 40,105
Oil and gas well drilling services 9,956 6,188 1,932
Other 1,109 182 318
----------------------------------------------------------------------------
$163,630 $ 66,478 $44,689
============================================================================
Income before minority interest and
and income taxes:
Oil and gas $ 3,719 $ 1,596 $ 941
Oilfield services 20,639 6,482 4,105
Oil and gas well drilling services 1,036 639 367
Interest expense (7,535) (2,477) (1,478)
General corporate (3,257) (665) (607)
----------------------------------------------------------------------------
$ 14,602 $ 5,575 $ 3,328
============================================================================
Identifiable assets:
Oil and gas $ 23,544 $18,170 $ 8,289
Oilfield services 242,001 94,962 33,516
Oil and gas well drilling services 8,365 5,583 3,160
General corporate 46,185 3,007 278
----------------------------------------------------------------------------
$320,095 $121,722 $45,243
============================================================================
- 41 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Year Ended June 30,
--------------------------
(Thousands) 1997 1996 1995
----------------------------------------------------------------------------
Capital expenditures (excluding acquisitions):
Oil and gas $ 8,188 $ 1,879 $ 2,823
Oilfield services 15,084 5,188 2,839
Oil and gas well drilling services 1,483 598 143
---------------------------------------------------------------------------
$ 24,755 $ 7,665 $ 5,805
===========================================================================
Depreciation, depletion and amortization:
Oil and gas $ 870 $ 618 $ 426
Oifield services 9,198 3,862 2,279
Oil and gas well drilling services 436 221 33
General corporate 916 - -
---------------------------------------------------------------------------
$ 11,420 $ 4,701 $ 2,738
===========================================================================
Key operates a variety of oilfield service equipment including workover
rigs, hot oil units, transports and various other oilfield servicing equipment.
In addition, Key performs a variety of other oilfield services including fishing
tools, frac tanks and blow-out preventers.
Oil and gas production is conducted by Odessa Exploration. Odessa
Exploration acquires and manages interests in producing oil and gas properties
for its own account and for its sponsored investors. Odessa Exploration is
engaged in the drilling and production of oil and natural gas in the United
States. Odessa Exploration acquires producing oil and gas properties from major
and independent producers. After acquisition, Odessa Exploration may either
rework the acquired wells to increase production and/or form drilling
partnerships for additional development wells.
Oil and gas well drilling services are conducted by Clint Hurt Drilling.
Clint Hurt Drilling operates six drilling rigs which drill for oil and gas in
the West Texas area.
16. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to manage
well-defined commodity price risks. The Company is exposed to credit losses in
the event of nonperformance by the counterparties to its commodity hedges. The
Company anticipates, however, that such counterparties will be able to fully
satisfy their obligations under the contracts. The Company does not obtain
collateral or other security to support financial instruments subject to credit
risk but monitors the credit standing of the counterparties.
The Company utilizes option contracts to hedge the effect of price changes
on future oil and gas production. If market prices of oil and gas exceed the
strike price of put options, the options will expire unexercised, therefore
reducing the effective price received for oil and gas sales by the cost of the
related option. As of June 30, 1996, Odessa Exploration had 6,000 Bbls of oil
per month hedged with a strike price of $19.50 per Bbl., from the period of July
1, 1996 through December 31, 1996.
Premiums paid for commodity options contracts are amortized to oil and gas
sales over the terms of the agreements. Unamortized premiums of $91,789 and $0
are included in other current assets in the consolidated balance sheet at June
30, 1996 and 1997, respectively. Amounts receivable, if any, under commodity
option contracts are accrued as an increase in oil and gas sales for the
applicable periods.
- 42 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
17. SUBSEQUENT EVENTS.
Acquisitions Announced but not yet Completed after June 30, 1997
The following described acquisitions that have been announced but not yet
completed after June 30, 1997 and are not included in the Company's results of
operations for the twelve months ended June 30, 1997.
BRW Drilling, Inc.
On August 4, 1997, the Company announced it had signed a letter of intent
to acquire BRW Drilling, Inc. ("BRW") for approximately $15.0 million in cash.
BRW operates 7 drilling rigs and related equipment in the Permian Basin of West
Texas. The closing of the BRW acquisition is expected upon negotiation of a
definitive agreement, completion of the Company's standard due diligence and
receipt of regulatory clearances, if any are required. Upon completion, the BRW
acquisition will be combined with Clint Hurt's drilling operations in the
Permian Basin of West Texas to form a thirteen rig shallow drilling operation.
Frontier Well Service, Inc.
On August 21, 1997, the Company announced a definitive agreement for the
acquisition of Frontier Well Service, Inc. ("Frontier") for approximately $3.5
million in cash. Frontier operates 12 oilwell service rigs and related equipment
in Wyoming. The closing of the Frontier acquisition is expected upon negotiation
of a definitive agreement, completion of the Company's standard due diligence
and receipt of regulatory clearances, if any are required.
Dunbar Well Service, Inc.
On August 4, 1997, the Company announced it had signed a letter of intent
to acquire Dunbar Well Service, Inc. ("Dunbar") for approximately $11.8 million
in cash. Dunbar operates 38 oilwell service rigs and related equipment in
Wyoming. The closing of the Dunbar acquisition is expected upon negotiation of a
definitive agreement, completion of the Company's standard due diligence and
receipt of regulatory clearances, if any are required.
J.W. Gibson Well Service Company
On August 4, 1997, the Company announced a definitive agreement for the
acquisition of J.W. Gibson Well Service Company ("Gibson") for cash, stock and
warrants with an estimated value of approximately $25.0 million. Gibson operates
74 oilwell service rigs and related equipment in eight western states. The
closing of the Gibson acquisition is expected in October 1997. The Company will
manage the operations of Gibson during the interim period. The acquired Rocky
Mountain operations of Gibson, together with the acquired Dunbar and Frontier
operations, will operate as a separate subsidiary of Key Energy.
Big A Well Service Co., Sunco Trucking Co. and Justis Supply Co.
On July 21, 1997, the Company announced it had signed a letter of intent to
acquire Big A Well Service Co., Sunco Trucking Co. and Justis Supply Co.
(collectively, "Big A/Sunco") for cash and stock with an estimated value of
approximately $31.0 million. Big A/Sunco operates 29 oilwell service rigs, four
drilling rigs, 75 fluid hauling and other trucks, a machine shop/supply store
and related equipment in the Four Corners region of the Southwestern United
States. The closing of the Big A/Sunco acquisition is expected upon negotiation
of a definitive agreement, completion of the Company's standard due diligence
and receipt of regulatory clearances, if any are required. The acquired Big
A/Sunco operations will operate as a separate subsidiary of Key Energy.
- 43 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Acquisitions Completed after June 30, 1997
The following described acquisitions were completed after June 30, 1997 and
are not included in the Company's results of operations for the twelve months
ended June 30, 1997.
Landmark Fishing & Rental, Inc.
On September 16, 1997, the Company closed the acquisition of Landmark
Fishing & Rental, Inc. ("Landmark") for approximately $3.3 million in cash.
Landmark operates a rental tool business in Western Oklahoma and the Texas
Panhandle. Landmark will be operated by WellTech Mid-Continent Division of
WellTech Eastern. The operating results of Landmark will be included in the
Company's results of operations effective September 16, 1997.
Ram Oil Well Service, Inc. and Rowland Trucking Co., Inc.
On September 1, 1997, the Company completed the acquisition of Ram Oil Well
Service, Inc. and Rowland Trucking Co., Inc. ("Ram/Rowland") for $21.5 million
in cash. Ram/Rowland operates approximately 17 oilwell service rigs, 93 fluid
hauling and other trucks, 290 frac tanks, three disposal and brine wells, and
dirt construction equipment in West Texas and Southeast New Mexico. Ram/Rowland
will be operated by the Company's west Texas subsidiary: Yale E. Key, Inc. The
operating results of Ram/Rowland will be included in the Company's results of
operations effective September 1, 1997.
Mosley Well Service, Inc.
On August 22, 1997, the Company completed the acquisition of Mosley Well
Service, Inc., ("Mosley") which operates in East Texas, Northern Louisiana and
Arkansas. Mosley was acquired for approximately $16.2 million in cash and
included thirty-six well service rigs and related equipment. Moseley will be
integrated with the Brooks Division of WellTech Eastern. The operating results
of Mosley will be included in the Company's results of operations effective
September 1, 1997.
Kenting Holdings (Argentina) S.A.
On July 30, 1997, the Company completed the acquisition of the assets of
Kenting Holdings (Argentina) S.A. ("Kenting") for $10.1 million in cash. The
Kenting assets included six oilwell service rigs, three drilling rigs and
related equipment in Argentina. The Kenting assets will be operated by
Servicios.
Patrick Well Service, Inc.
On July 17, 1997, the Company completed the acquisition of the assets of
Patrick Well Service, Inc. ("Patrick") for $7.0 million in cash. The Patrick
assets included 29 oilwell service rigs and related equipment located in
Southwest Kansas, Oklahoma and Southeast Colorado. The Patrick assets will be
operated by the WellTech Mid-Continent Division of WellTech Eastern.
- 44 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Servicios WellTech, S.A. Minority Interest
Effective July 1, 1997, the Company purchased the remaining 37% interest in
Servicios from two unrelated parties for $3.4 million in cash. As a result of
the purchase, the Company will now own 100% of Servicios.
Conversion of Convertible Subordinated Debentures
As of September 11, 1997, $33,245,000 in principal amount of the Company's
Debentures had converted into the Company's common stock. The conversion was at
the option of the holders. The Debentures converted into 3,552,539 shares of the
Company's common stock. The conversion included 188,488 shares, in addition to
the conversion of shares at $9.75 per share. Such additional consideration will
be accounted for as an increase to the Company's Equity. However, the
proportional amount of debt issuance costs associated with the converted
Debentures will be expensed as an extraordinary item in the period in which it
occurs.
18. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
Summarized quarterly financial data for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
(in thousands, except per share amounts) Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Revenues . . . . . . . . . . . . . . . . . . . . . $31,462 $36,197 $43,050 $52,921
Earnings from operations . . . . . . . . . . . . . 2,396 3,022 3,563 5,621
Net earnings . . . . . . . . . . . . . . . . . . . 1,554 2,043 2,365 3,136
Earnings per share . . . . . . . . . . . . . . . . .14 .18 .19 .24
Weighted average common shares
and equivalents outstanding. . . . . . . . . . . 10,894 11,634 12,572 13,294
1996
Revenues . . . . . . . . . . . . . . . . . . . . . $12,398 $12,394 $14,302 $27,384
Earnings from operations . . . . . . . . . . . . . 3,522 3,763 4,180 7,895
Net earnings . . . . . . . . . . . . . . . . . . . 726 768 827 1,265
Earnings per share . . . . . . . . . . . . . . . . .11 .11 .12 .16
Weighted average common shares
and equivalents outstanding. . . . . . . . . . . 6,914 6,914 6,981 7,941
</TABLE>
The fourth quarter of fiscal 1997 includes an adjustment of $2 million for
previously unrecorded inventory.
- 45 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
19. SUPPLEMENTAL INFORMATION ON OIL AND GAS ACTIVITIES (unaudited)
CAPITALIZED COSTS:
June 30,
(in thousands) 1997 1996
Oil and Gas Properties:
Proved properties $ 23,402 $ 17,290
Unproved properties - -
Less accumulated depletion (1,868) (1,364)
-------------------------------------------------------------------------
Net capitalized costs $ 21,534 $ 15,926
=========================================================================
COSTS INCURRED:
June 30,
(in thousands) 1997 1996 1995
-------------------------------------------------------------------------
Proved property acquisition costs $ - $ 7,786 $ 1,054
Development costs 8,188 1,848 2,581
-------------------------------------------------------------------------
Total costs incurred $ 8,188 $ 9,634 $ 3,635
=========================================================================
RESULTS OF OPERATIONS:
June 30,
(in thousands) 1997 1996 1995
-------------------------------------------------------------------------
Oil and gas sales $ 6,975 $ 3,555 $ 1,793
Production costs, including
production taxes (3,030) (1,350) (756)
Depletion (835) (598) (398)
Income taxes * (1,057) (546) (217)
-------------------------------------------------------------------------
Results of operations for oil and
gas producing activities ** $ 2,053 $ 1,061 $ 422
=========================================================================
* - computed at the statutory rate of 35%.
** - excludes corporate overhead and financing costs.
Oil and Gas Reserve Information
Estimates of Odessa Exploration's proved oil and gas reserves as of June
30, 1997, 1996 and 1995 were prepared by the Company and reviewed by an
independent petroleum reservoir engineering firm. Estimates were made in
accordance with guidelines established by the Securities and Exchange
Commission. Proved oil and gas reserves are the estimated quantities of crude
oil and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic conditions, i.e. prices and costs as of the date the
estimate is made. Prices utilized reflect consideration of changes in existing
prices provided by contractual arrangements, if any, but not of escalations
based upon future conditions. The reserve estimates are presented utilizing an
average oil price of $21.00 Bbl and an average natural gas price of $2.20 Mcf as
of June 30, 1997.
- 47 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing equipment and operating methods.
Proved undeveloped oil and gas reserves are proved reserves that are
expected to be recovered from new wells on undrilled acreage or from existing
wells where a relatively major expenditure is required for recompletion or
secondary or tertiary recovery. Reserves assigned to undrilled acreage are
limited to those drilling units that offset productive units reasonably certain
of production when drilled.
No major discovery or other favorable or adverse event has occurred since
July 1, 1997 which is believed to have caused a significant change in the
estimated proved oil and gas reserves of Odessa Exploration.
Odessa Exploration's estimate of reserves has not been filed with or
included in reports to any federal agency other than the Securities and Exchange
Commission.
Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revision of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of currently
producing oil and gas properties. Accordingly, these estimates are expected to
change as additional information becomes available in the future.
Oil and Gas Producing Activities:
Oil and Natural
Condensate Gas
(Bbls) (Mcf)
Total Proved Reserves:
Balance, June 30, 1994 114,908 6,785,661
------------------------------------------------------------------------
Revisions of previous estimates 92,080 1,945,659
Purchases of minerals-in-place 1,515,559 6,036,937
Production (40,330) (770,197)
Balance, June 30, 1995 1,682,217 13,998,060
------------------------------------------------------------------------
Revisions of previous estimates 438,142 6,313,118
Purchases of minerals-in-place 3,162,099 16,456,993
Production (97,130) (1,026,577)
Balance, June 30, 1996 5,185,328 35,741,594
========================================================================
(table continued next page)
- 47 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Oil and Natural
Condensate Gas
(Bbls) (Mcf)
Proved Developed Reserves:
June 30, 1995 750,604 11,203,232
========================================================================
June 30, 1996 2,727,967 24,517,362
========================================================================
Standardized Measure of Discounted Future Cash Flows
The following schedules present estimates of the standardized measure of
discounted future net cash flows from the Company's proved reserves as of June
30, 1996, and an analysis of the changes in these amounts for the years ended
June 30, 1996 and 1995. June 30, 1997 information is not included, as during the
current year oil and gas producing activities are no longer considered
significant in accordance with reporting requirements under FAS 14 - Financial
Reporting for Segments of a Business Enterprise. Estimated future cash flows are
determined using year-end prices adjusted only for fixed and determinable
increases for natural gas provided by contractual agreement (if any). Estimated
future production and development costs are based on economic conditions at
year-end. Future federal income taxes are computed by applying the statutory
federal income tax rate of 34% to the difference between the future pretax net
cash flows and the tax basis of proved oil and gas properties, after considering
investment tax credits and net operating loss carry-forwards (if any),
associated with these properties.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
(in thousands) June 30, 1996 June 30, 1995
Standardized Measure:
Future cash inflows $ 171,000 $ 51,830
Future production costs (61,521) (11,852)
Future development costs (15,495) (6,160)
Future income taxes (12,092) (10,477)
_______________________________________________________________________
Future after-tax net cash flows 81,892 23,341
10% annual discount (42,188) (8,183)
------------------------------------------------------------------------
Standardized Measure $ 39,704 $ 15,158
========================================================================
(table continued next page)
- 48 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Changes in Standardized Measure:
Standardized Measure, June 30, 1994 $ 4,739
Oil and gas sales, net of production costs (1,037)
Purchases of minerals in place 13,033
Net change in income taxes (5,881)
Accretion of discount 512
Revision of quantity estimates 1,745
Change in future development costs 1,227
Net change in sales prices 79
Changes in production rates (timing) and other 741
------------------------------------------------------------------
Standardized Measure, June 30, 1995 $ 15,158
Oil and gas sales, net of production costs (2,205)
Purchases of minerals in place 24,216
Net change in income taxes 75
Accretion of discount 2,142
Revision of quantity estimates 6,189
Change in future development costs (982)
Extensions and discoveries 2,952
Net change in sales prices 1,397
Changes in production rates (timing) and other (9,238)
------------------------------------------------------------------
Standardized Measure, June 30, 1996 $ 39,704
==================================================================
20. CASH FLOW DISCLOSURES
Supplemental cash flow disclosures for the years ended June 30, 1997, 1996
and 1995 are presented below:
Year Ended June 30,
(Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Interest paid $ 5,850 $ 2,205 $1,422
Taxes paid - 391 53
Supplemental schedule of non-cash investing and financing transactions for
the years ended June 30, 1996 and 1995 are presented below:
Year Ended June 30,
(Thousands) 1996 1995
- --------------------------------------------------------------------------------
Fair value of Common Stock issued for
Clint Hurt Drilling - 23
Fair value of Common Stock and
Warrants issued for
WellTech West Texas - 8,647
Capital lease obligation reduced for
purchase of asset - 275
(table continued next page)
- 49 -
<PAGE>
Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Proceeds on sale of assets
not received - 132
Property and equipment additions and
acquisition costs not paid as of June 30th - 1,015
Issuance of note payable in Clint Hurt
Drilling acquisition - 725
Fair value of Common Stock issued for
WellTech, Inc. 17,929 -
Assumption of Welltech, Inc.
Working capital deficit 1,734 -
Assumption of Welltech, Inc.
non-current liabilities and debt 27,570 -
Acquisition of WellTech, Inc.
property and equipment 47,455 -
Supplemental schedule of non-cash investing and financing transactions
for the year ended June 30, 1997 is presented below:
<TABLE>
<CAPTION>
Fair Value Acquisition
of Issued Assumption of Assumption of of Property
Acquisition Common Stock (1) Debt Liabilities and Equipment
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brownlee Well Service Inc. $ 672 $ 1,948 $ 3,558 $ 11,234
Woodward Well Service, Inc. 562 80 771 1,351
Brooks Well Servicing, Inc. 11,125 - 6,291 16,935
Hitwell Surveys, Inc. - 176 1,425 2,655
B&L Hotshot, Inc. - - 175 4,575
Energy Air Drilling Services Co. 50 150 - 700
Talon Trucking Co. - - - 2,700
Cobra Industries, Inc. 2,384 625 3,867 10,171
T.S.T Paraffin Service Co., Inc. - 70 3,599 10,035
Tri-State Wellhead & Valve, Inc. 1,000 - - 1,339
Kalkaska Construction Service, Inc. 1,112 - 1,187 10,711
Well-Co Oilwell Co. 4,048 599 11,337 28,463
Shreve's Well Service - - 50 600
Youngs Wireline - - 225 744
Phoenix Well Service - 410 1,761 3,897
Elder Well Service, Inc. - - 40 649
Diamond Well Service, Inc. - - - 675
Southwest Oilfield Services, Inc. - - - 455
Edco Well Service - - 50 460
</TABLE>
(1) - Fair value of issued common stock represents number of common
shares issued at the market value of Company's common stock at
acquisition date.
- 50 -
<PAGE>
Independent Auditors' Report
To The Board of Directors
and Stockholders Key Energy Group, Inc.
We have audited the accompanying consolidated balance sheets of Key Energy
Group, Inc. and Subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Key Energy Group, Inc. and Subsidiaries as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1997, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Midland, Texas
August 28, 1997
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
ITEMS 10 - 13.
Pursuant to Instruction G(3) to Form 10-K, the information required in
Items 10-13 is incorporated by reference from the Company's definitive proxy
statement, which will be filed with the Commission pursuant to Regulation 14A
within 120 days of June 30, 1997.
- 52 -
<PAGE>
PART IV.
ITEM 14. EXHIBITS FINANCIAL STATEMENTS AND REPORTS ON FORM 10-K.
(a) Index to Exhibits
The following documents are filed as part of this report:
(1) See Index to Financial Statements set forth in Item 8.
(2) Financial Statements Schedules: [None]
(3) Exhibits:
Exhibit 2.1 Agreement and Plan o f Merger dated as of November 18,
1995, between Key and WellTech, as amended. (Incorporated by
reference to the Company's Registration Statement Form S-4,
Registration No.333-369).
Exhibit 2.2 Joint Plan of Reorganization, dated as of October 20, 1992, of
the Company, ESKEY Inc.and YFC International Finance N.V. and
Order, dated December 4, 1992, of the United States
Bankruptcy Court for the District of New Jersey, approving the
Joint Plan of Reorganization (Incorporated by reference
to Exhibits 2 (a) and 28 (a) of the Company's Report on
Form 8-K dated December 14, 1992,File No. 1-8038).
Exhibit 2.3 Agreement and Plan of Merger dated as of July 20, 1993, by and
among the Company, OEI Acquisition Corp. and Odessa Exploration
Incorporated. (Incorporated by reference to Exhibit 2(a) of the
Company's Report on Form 8-K dated September 2, 1993, File No.
1-8038).
Exhibit 2.4 Asset Purchase Agreement dated as of December 10,1993 between
the Company and WellTech, Inc.(Incorporated by reference
to exhibit 2(a) of the Company's report on form 8-K dated
August 17, 1984,File No. 1-8038).
Exhibit 3.1 Amended and Restated Articles of Incorporation of the Company
(Incorporated by reference to the Company's Registration
Statement on Form S-4,Registration No. 333-369).
Exhibit 3.2 Amended and Restated By-Laws of the Company (Incorporated
by reference to the Company's Registration Statement on
Form S-4 dated March 8,1996, Registration No. 333-369).
Exhibit 4.1 7% Convertible Subordinated Debenture of the Company due
July 1, 2003. (Incorporated by reference to exhibit 4.1 of the
Company's Report on Form 10-K dated June 30, 1996, File No.
1-8038).
Exhibit 4.2 Indenture for the 7% Convertible Subordinated Debenture of
the Company due July 1, 2003.(Incorporated by reference
to exhibit 4.2 of the Company's Report on Form 10-K dated
June 30, 1996, File No. 1-8038).
Exhibit 4.3 Registration Rights Agreement among the Company, McMahan
Securities Co., L.P. and Rausher Pierce Refsnes, Inc., dated as
of July 3, 1996. (Incorporated by reference to exhibit 4.3 of the
Company's Report on Form 10-K dated June 30, 1996, File No.
1-8038).
Exhibit 4.4 Registration Rights Agreement between the Company and D. Kirk
Edwards, dated as of July 20, 1993.(Incorporated by reference to
Exhibit 10 ( c ) to the Company's Report on Form 8-K/A).
- 53 -
<PAGE>
Exhibit 4.5 Registration Rights Agreement dated as of March 2, 1996 among
the Company and certain of its stockholders. (Incorporated by
reference to the Company's Registration Statement on Form
S-4, Registration No. 353-369).
Exhibit 4.6 Registration Rights Agreement dated as of March 30, 1995 between
the Company, Clint Hurt and Associates, Inc. and Clint Hurt.
(Incorporated by reference to Exhibit 10 (d) of the Company's
Report on 10-KSB dated June 30, 1995, File No. 1-8038).
Exhibit 4.7 Form of Common Stock Purchase Warrant to Purchase Key Common
Stock issued in connection with the WellTech Merger.(Incorporated
by reference to the Company's Registration Statement on Form S-4,
Registration No. 353-369).
Exhibit 10.1 * Employment Agreement between the Company and D. Kirk Edwards,
dated as of July 1, 1996.
Exhibit 10.2 Asset Purchase Agreement dated as of March 30, 1995 between the
Company and Clint Hurt and Associates, Inc. (Incorporated by
reference to the Company's Report on Form 10-KSB dated June
30, 1995, File No.1-8038).
Exhibit 10.3 Non-Competition Agreement dated as of March 3, 1995 between the
Company, Clint Hurt and Associates,Inc. and Clint Hurt.
( Incorporated by reference to Exhibit 10(f) of the Company's
Report on Form 10-KSB dated June 30, 1995, File No. 1-8038).
Exhibit 10.4 Employment Agreement between WellTech Eastern, Inc. and Kenneth
Hill, dated as of March 29, 1996.(Incorporated by reference to
Exhibit 10.4 to the Company's Report on Form 10-K dated June 30,
1996, File No. 1-8038).
Exhibit 10.5 * Employment Agreement between the Company and Kenneth Huseman,
dated as of August 3, 1996.
Exhibit 10.6 Letter Agreement between Van Greenfield and the Company dated May
15, 1996. (Incorporated by reference to Exhibit 10.6 to the
Company's Report on Form 10-K dated June 30, 1996, File
No. 1-8038).
Exhibit 10.7 Amendment No. 2 to the Company's Employment Agreement between
Francis D. John and the Company, dated as of May 15, 1996.
( Incorporated by reference to Exhibit 10.7 to the Company's
Report on Form 10-K dated June 30, 1996, File No. 1-8038).
Exhibit 10.8 Letter Agreement between Morton Wolkowitz and the Company
dated June 3, 1996. (Incorporated by reference to Exhibit
10.8 to the Company's Report on Form 10-K dated June 30,
1996, File No. 1-8038).
Exhibit 10.9 Asset Purchase Agreement between Hardy Oil & Gas USA, Inc. and
Arch Petroleum, Inc. dated as of April 1996. (Incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form
10-K dated June 30, 1996, File No. 1-8038).
Exhibit 10.10 Asset Purchase Agreement between Arch Petroleum, Inc. and Odessa
Exploration, Inc. dated as of April 18, 1996. (Incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on Form
10-K dated June 30, 1996, File No. 1-8038).
Exhibit 10.11 General Conveyance by Arch Petroleum, Inc. to Odessa Exploration,
Inc. dated as of January 1, 1996.(Incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K dated
June 30,1996, File No. 1-8038).
- 54 -
<PAGE>
Exhibit 10.12 The Company's 1995 Stock Option Plan. ( Incorporated by reference
to the Company's Registration Statement on Form S-4, Registration
No. 353-369).
Exhibit 10.13 The Company's Outside Directors Stock Option Plan. (Incorporated
by reference to the Company's Registration Statement on Form S-4,
Registration No. 353-369).
Exhibit 10.14 Plan and Agreement of Merger among Key Energy Group, Inc.,
WellTech Eastern, Inc. and Woodward Well Service, Inc. dated as
of September 30, 1996. (Incorporated by reference to Exhibit 10
(a) to the Company's Quarterly Report on Form 10-Q dated December
31, 1996, File No. 1-8038).
Exhibit 10.15 Stock Purchase Agreement among Key Energy Group, Inc., Reo
Brownlee, Elvin Brownlee, Jr. And Elvin Brownlee III dated as
of October 24, 1996.(Incorporated by reference to Exhibit
10(b) to the Company's Quarterly Report on Form 10-Q
dated December 31, 1996, File No. 1-8038).
Exhibit 10.16 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. (Incorporated by reference to
Exhibit 10( c ) to the Company's Quarterly Report on Form 10-Q
dated December 31, 1996, File No. 1-8038).
Exhibit 10.17 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. (Incorporated by reference to Exhibit 10(d)
to the Company's Quarterly Report on Form 10-Q dated December 31
1996, File No. 1-8038).
Exhibit 10.18 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. (Incorporated by
reference to Exhibit 10(e) to the Company's Quarterly Report on
Form 10-Q dated December 31, 1996, File No. 1-8038).
Exhibit 10.19 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. (Incorporated by
reference to Exhibit 10(f) to the Company's Quarterly Report on
Form 10-Q dated December 31, 1996, File No. 1-8038).
Exhibit 10.20 Asset Purchase Agreement among WellTech Eastern, Inc., Talon
Trucking company and Lomak Petroleum, Inc.dated as of December
31, 1996. (Incorporated by reference to Exhibit 10(g) to the
Company's Quarterly Report on Form 10-Q dated December 31, 1996,
File No. 1-8038).
Exhibit 10.21 First Supplemental Indenture dated as of November 20, 1996 by and
between Key Energy Group, Inc. and American Stock Transfer &
Trust Company, as Trustee. (Incorporated by reference to Exhibit
10(i) to the Company's Quarterly Report on Form 10-Q dated
December 31, 1996, File No. 1-8038).
Exhibit 10.22 Stock Purchase Agreement among Key Energy Group, Inc.,
Michael and Georgia McDermett dated as of January 10, 1997.
(Incorporated by reference to Exhibit 10(a) to the Company's
Quarterly Report onForm 10-Q dated March 31, 1997, File No.
1-8038).
Exhibit 10.23 Asset Purchase Agreement among WellTech Eastern, Inc., Key Energy
Group, Inc. Tri State Wellhead & Valve,Inc. and John C. Bozeman
dated as of March 14, 1997. (Incorporated by reference to Exhibit
10(b) to the Company's Quarterly Report on Form 10-Q dated March
31, 1997, File No. 1-8038).
- 55 -
<PAGE>
Exhibit 10.24 Stock Purchase Agreement among Yale E. Key, Inc., Keith and
Leslie Neill as of March 24, 1997.(Incorporated by reference to
Exhibit 10( c ) to the Company's Quarterly Report on Form 10-Q
dated March 31, 1997, File No. 1-8038).
Exhibit 10.25 Asset Purchase Agreement among Key Energy Group, Inc., WellTech
Eastern, Inc., Elder Well Service, Inc., Martha Elder,
Kenneth L. Ward, Nona Faye Mugraur, Lela Gaye Biehl and Johnny
Ray Johnson dated as of March 28, 1997.(Incorporated by
reference to Exhibit 10(d) to the Company's Quarterly Report
on Form 10-Q dated March 31, 1997, File No. 1-8038).
Exhibit 10.26 Asset Purchase Agreement #1 among WellTech Eastern, Inc., Key
Energy Group, Inc., Kalkaska Construction Service, Inc., Dennis
Hogerheide, LaWenda Hogerheide, David Hogerheide and Derek
Hogerheide dated March 31, 1997. (Incorporated by reference to
Exhibit 10(e) to the Company's Quarterly Report on Form 10-Q
dated March 31,1997, File No. 1-8038).
Exhibit 10.27 Asset Purchase Agreement #2 among WellTech Eastern, Inc., Key
Energy Group, Inc., Kalkaska Construction Service, Inc., Dennis
Hogerheide,LaWenda Hogerheide, David Hogerheide and Derek
Hogerheide dated March 31, 1997. (Incorporated by reference to
Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q
dated March 31, 1997, File No. 1-8038).
Exhibit 10.28 Stock Purchase Agreement among WellTech Eastern, Inc., Dennis
Hogerheide and LaWenda Hogerheide dated as of March 31,
1997.(Incorporated by reference to Exhibit 10(g) to the
Company's Quarterly Report on Form 10-Q dated March 31, 1997,
File No. 1-8038).
Exhibit 10.29 Asset Purchase Agreement among WellTech Eastern, Inc.,
Diamond Well Service, Inc., John Scott and Dwayne Wardwell dated
as of April 3,1997. (Incorporated by reference to Exhibit
10(h) to the Company's Quarterly Report on Form 10-Q dated March
31, 1997, File No. 1-8038).
Exhibit 10.30 Asset Sale Agreement among WellTech Eastern, Inc. and Drillers,
Inc. dated as of April 14, 1997.(Incorporated by reference to
Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q
dated March 31, 1997, File No. 1-8038).
Exhibit 10.31 Asset Purchase Agreement among WellTech Eastern, Inc., Shreve's
Well Service, Inc. and William A. Shreve dated April 18, 1997.
(Incorporated by reference to Exhibit 10(j) to the Company's
Quarterly Report on Form 10-Q dated March 31, 1997, File No.
1-8038).
Exhibit 10.32 Asset Purchase Agreement among WellTech Eastern, Inc. and Petro
Equipment, Inc. and Donald E. Clark dated as of May 1, 1997.
(Incorporated by reference to Exhibit 10(k) to the Company's
Quarterly Report on Form 10-Q dated March 31, 1997, File No.
1-8038).
Exhibit10.33 * Asset Purchase Agreement among WellTech Eastern, Inc.,
Southwest Oilfield Services,Inc., David Wright and Roy Wofford
dated May 29,1997.
Exhibit 10.34 *Stock Purchase Agreement among Yale E. Key, Inc. and Raleigh K.
Turn and David Butts dated June 9, 1997.
Exhibit 10.35 Stock Purchase Agreement among Key Energy Group, Inc. and Mark
Duane Massingill and Claudia Lynn Massingill dated as of June 25,
1997. (Incorporated by reference to the Company's Report on Form
8-K dated July 9, 1997, File No. 1-8038).
- 56 -
<PAGE>
Exhibit 10.36 *Stock Purchase Agreement among WellTech Eastern, Inc. between
Monty D. Elmore dated as of July 17, 1997.(Incorporated by
reference to the Company's Report on Form 8-K dated July 9, 1997,
File No. 1-8038).
Exhibit 10.37 *Stock Purchase Agreement between WellTech Eastern, Inc. and
Kenting Energy Services, Inc. dated as of July 30, 1997.
Exhibit 10.38 *Stock Purchase Agreement between WellTech Eastern, Inc. and
Robert E. Mosley, Jr. et al dated as of August 22, 1997.
Exhibit 10.39 *Credit Agreement dated as of June 6, 1997 among Key Energy
Group, Inc., several banks and other financial institutions or
entities from time to time parties to the Agreement, PNC Bank,
N.A,Norwest Bank of Texas, N.A., and Lehman Commercial Paper Inc.
Exhibit 10.40 *Master Guarantee and Collateral Agreement made by Key Energy
Group, Inc. and certain of its Subsidiaries in favor of Norwest
Bank of Texas, N.A. dated as of June 6, 1997.
Exhibit 11(a) *Statement - Computation of per share earnings. (Filed herewith as
part of the Condensed Consolidated Financial Statements).
Exhibit 22 *Subsidiaries of the Registrant.
Exhibit 27(a) *Statement - Financial Data Schedule. (Filed herewith as part
of the Condensed Consolidated Financial Statements).
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the quarter
ended June 30, 1997.
------------------------------------
*Filed herewith.
- 57 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
KEY ENERGY GROUP, INC.
(Registrant)
By /s/ Francis D. John
Francis D. John
President, Chief Executive Officer
Dated: September 18, 1997 and Director
By /s/ Stephen E. McGregor
Stephen E. McGregor
Dated: September 18, 1997 Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By /s/ Francis D. John
Francis D. John
President, Chief Executive and Chief
Dated: September 18, 1997 Financial Officer and Director
By /s/ Morton Wolkowitz
Morton Wolkowitz
Dated: September 18, 1997 Chairman of the Board and Director
By /s/ Van Greenfield
Van Greenfield
Dated: September 18, 1997 Director
By /s/ William Manly
William Manly
Dated: September 18, 1997 Director
By /s/ Kevin P. Collins
Kevin P. Collins
Dated: September 18, 1997 Director
By /s/ W. Phillip Marcum
W. Phillip Marcum
Dated: September 18, 1997 Director
By /s/ Danny R. Evatt
Danny R. Evatt
Dated: September 18, 1997 Chief Accounting Officer
- 58 -
Key Energy Group, Inc.
Two Tower Center, 10th Floor
East Brunswick, New Jersey
July 1, 1996
Mr. D. Kirk Edwards
c/o Odessa Exploration Incorporated
6010 Highway 191, Suite 210
Odessa, Texas 79762
EMPLOYMENT AGREEMENT
(this "Agreement")
Dear Mr. Edwards:
Key Energy Group, Inc., a Maryland corporation (the "Company"), with its
principal offices at the address set forth above, and you, an individual with
your business address set forth above, agree as follows:
1. Employment; Term
(a) The Company agrees to employ you, and you accept employment by the
Company, as an Executive Vice President of the Company and the President and
Chief Executive Officer of Odessa Exploration Incorporated, a Delaware
corporation and wholly- owned subsidiary of the Company ("Odessa"). Your
employment will commence effective as of July 1, 1996 (the "Commencement Date")
and continue until the close of business on June 30, 1999, subject to extension
as provided in this Section 1(a), unless sooner terminated in accordance with
this Agreement (the "Initial Employment Period"). On each July 1, commencing
with July 1, 1999, the term of your employment will be automatically extended
for a period of twelve (12) months unless either you or the Company gives
written notice to the other, no later than thirty (30) days prior to the
relevant July 1, that such automatic extension shall not occur. The Initial
Employment Period, together with any extensions, until termination in accordance
herewith is referred to herein as the "Employment Period."
(b) You will have the usual duties of an Executive Vice President and those
duties of Vice President set forth in the Company's bylaws and will be
responsible, subject to the further direction of the President and Chief
Executive Officer of the Company and the Board of Directors of the Company (the
"Board"), for participating in the management and direction of the Company's
business and operations. You will, if
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elected, serve as a director of the Company and as an officer and/or
director of the Company and its subsidiaries and perform all duties incident to
such offices and such specific other tasks as may from time to time be assigned
to you by the President and Chief Executive Officer of the Company or the Board.
During the Employment Period, you will devote your full time and best efforts to
the business and affairs of the Company and its subsidiaries.
2. Salary; Bonuses; Expenses
(a) During the Employment Period, the Company will pay a salary to you at
the annual rate of One Hundred Sixty-Five Thousand Dollars ($165,000) per year
(the "Base Salary"), payable in substantially equal installments in accordance
with the Company's existing payroll practices, but no less frequently than
monthly.
(b) For each fiscal year of the Company commencing after June 30, 1996, you
shall be eligible to participate in an incentive plan for the Company's
executives, key employees and other persons involved in the business of Key and
its subsidiaries (the "Incentive Plan") and in the Key Energy Group, Inc. 1995
Stock Option Plan (the "1995 Stock Option Plan"). Under the Incentive Plan, you
shall be eligible to earn a cash bonus, payable within ninety (90) days after
each fiscal year end, of up to thirty percent (30%) of your Base Salary, such
amount to be determined by the Board based upon the level of achievement of
certain goals to be mutually established by you and the President of the Company
(subject to Board approval).
(c) You will be reimbursed by the Company for reasonable travel, lodging,
meal and other expenses incurred by you in connection with performing your
services hereunder in accordance with the Company's policies from time to time
in effect.
(d) Subject to the provisions of this Section 2(d), during the Employment
Period in the event that Odessa organizes a drilling program, you shall be
granted (i) a carried 4.5% net working interest after payout to investors in any
properties utilized by such program which you have been actively involved in
locating and (ii) a carried 4.5 % net working interest after payout to investors
in any workover (that you were actively involved in identifying) of an existing
well that was not previously producing that results in additional production
from a new zone located as a result of the workover activities. Such grants
shall be irrevocable notwithstanding your termination hereunder for any reason
(including termination for Cause) and shall be effective, with respect to a
specific well, as of the date on which the specific drilling program or workover
activity, as the case may be, involving such well has been approved in writing
by the Board or the President of the Company.
(e) You shall be granted, effective as of January 1, 1997, a 10% working
interest in the Acquired Wells (defined below), such grant to be irrevocable
notwithstanding your
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termination hereunder for any reason (including termination for Cause). The
term "Acquired Wells" means those five (5) deep gas wells located in West Texas
in which an approximately 50% working interest was acquired by the predecessor
of Odessa from Oryx Energy Company.
3. Stock Options. You have previously been granted options to acquire
shares of the Common Stock, par value $.10 per share, of the Company (the
"Common Stock") pursuant to the 1995 Stock Option Plan and subject to the terms
and provisions (including vesting provisions) of the those certain Stock Option
Agreements dated as of July 6, 1995 (the "Option Agreements") by and between you
and the Company, which agreements and plan shall remain in full force and effect
unaffected by the execution and delivery of this Agreement; provided, however,
that the Option Agreements have been amended by that certain letter agreement
executed and delivered in connection herewith, a copy of which is attached
hereto as Exhibit A.
4. Benefit Plans; Vacations. You will be entitled during the Employment
Period (and thereafter to the extent provided in Section 5(d) hereof) to the
following: (i) not less than twenty (20) vacation days, (ii) a Company owned or
leased automobile and payment of expenses associated therewith (such expenses,
including insurance and amortized over 36 months, not to exceed $1,000 per
month), (iii) payment by the Company of all costs (including all initiation and
membership fees and all annual or other periodic fees) associated with
maintaining a membership in one private country club, golf club, tennis club or
similar club or association for business use selected by you and approved by the
Board (such costs not to exceed $5,000 per year), (iv) a life insurance policy
providing for the payment of $500,000 to your designated beneficiary, and (v)
such other fringe benefits, including, without limitation, group medical and
dental, life, executive life, accident and disability insurance, retirement
plans and supplemental and excess retirement benefits as the Company may provide
from time to time for its senior management.
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5. Termination
(a) Termination upon Death; Termination by Company. If you should die
during the Employment Period, the Company shall have no further obligations to
your estate under this Agreement other than payment of the amounts, if any, owed
to you under Section 2(a) and 2(c) hereof through the date of death. The Company
shall have the right to terminate your employment under this Agreement for Cause
(defined below) at any time without obligation to make any further payments to
you hereunder (other than amounts owed under Section 2(a) and 2(c) hereunder
through the date of termination). The Company shall have the right to terminate
your employment for any reason other than for Cause (including for Disability as
provided in Section 5(b) hereof) with no further obligations hereunder except as
provided in Section 5(d) hereof. As used in this Agreement, the term"Cause"
shall mean the willful and continued failure by you to substantially perform
your duties hereunder (other than any such wilful or continued failure resulting
from your incapacity due to physical or mental illness or physical injury), or
the willful engaging by you in misconduct which is materially injurious to the
Company, monetarily or otherwise, or your conviction of a felony by a court of
competent jurisdiction.
(b) Termination by the Company or the Employee for Disability. If you
become totally and permanently disabled during the Employment Period so that you
are unable to perform your obligations hereunder by reasons involving physical
or mental illness or physical injury ("Disability"), then the term of your
employment hereunder may be terminated by either you or the Company; provided,
however, that in the event you elect to terminate your employment for Disability
pursuant to this Section 5(b), the Company may require, before becoming subject
to the obligations set forth in Section 5(d) hereof, that a physician mutually
agreed to by you and the Company (such agreement not to be unreasonably
withheld), based upon a physical and/or mental examination of you, concurs that
a Disability exists pursuant to the terms of this Agreement and delivers a
written opinion to the Company to such effect (such condition being referred to
elsewhere herein as the "Examination Condition").
(c) Termination by the Employee. You may terminate your employment for
Disability as provided in Section 5(b) hereof, in which event the Company shall
have no further obligations to you hereunder except as provided in Section 5(d)
hereof. Subject to the provisions of this Section 5(c), you may terminate your
employment for Good Reason (defined below) at any time during the Employment
Period by providing the Company with at least thirty (30) days' written notice,
in which event the Company shall have no further obligations to you hereunder
except as provided in Section 5(d) hereof. As used in this Agreement, the term
"Good Reason" shall mean (i) a material adverse change in your functions,
duties, authority and responsibilities as the President and Chief Executive
Officer of Odessa; (ii) a material breach by the Company of its obligations
under this Agreement, which breach has not been cured within fifteen (15)
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days following the Company's receipt of notice from you of such material
breach; or (iii) a change of control (as defined in the 1995 Stock Option Plan)
of the Company or Odessa (a "Change of Control"). Notwithstanding the foregoing
provisions of this Section 5(c), you may terminate your employment for Good
Reason pursuant to clause (iii) of the immediately preceding sentence only
during the period beginning on the 12-month anniversary of the effective date of
the Change of Control and ending on the 18-month anniversary of the effective
date of such Change of Control. You may terminate your employment for any reason
other than for Disability or Good Reason by providing the Company with at least
thirty (30) days' written notice, in which event the Company shall have no
further obligations to you under this Agreement other than payment of the
amounts, if any, owed to you under Section 2(a) and 2(c) hereof through the date
of termination.
(d) Severance Compensation. In the event your employment hereunder is
terminated (i) by you for Disability only if Examination Condition is met or
waived, (ii) by you for Good Reason, (iii) by the Company other than for Cause
or (iv) automatically as a result of the Company's providing notice to you that
automatic extension of the Employment Period shall not occur, you will be
entitled to:
(1) receive severance compensation at your Base Salary at the monthly rate
in effect on the termination date, payable in arrears, during the period
expiring twenty-four (24) months after the termination date, commencing at the
end of the calendar month in which the termination date occurs; and
(2) receive the benefits specified in Section 4 hereof during the period
expiring on the earlier of (i) twenty-four (24) months after the termination
date and (ii) the date on which you commence full-time employment with another
employer;
provided, however, that (A) in the event your employment should be
terminated by the Company other than for Cause following a Change of Control or
in anticipation of a Change of Control, the severance compensation referred to
in clause (1) above shall be paid in one lump sum on the date of such
termination, and (B) in the event your employment should be terminated by the
Company as a result of Disability in accordance with Section 5(b) above, then
the severance compensation referred to in clause (1) above shall be reduced by
the amount of any disability insurance proceeds actually paid to you or for your
benefit during the said time period.
6. Limitation on Competition. During the Employment Period, and for such
period thereafter as you are entitled to receive severance compensation under
this Agreement (or if you are not entitled to receive severance compensation
under this Agreement, for a period of one year after your termination; or if you
are entitled to receive severance compensation in one lump sum payment, for a
period of two years after your termination), you shall not, directly or
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indirectly, without the prior written consent of the Company, participate
or engage in, whether as a director, officer, employee, advisor, consultant,
stockholder, partner, joint venturer, owner or in any other capacity, any
business engaged in the business of furnishing oilfield services (a "Competing
Enterprise"); provided, however, that you shall not be deemed to be
participating or engaging in any such business solely by virtue of your
ownership of not more than five percent of any class of stock or other
securities which is publicly traded on a national securities exchange or in a
recognized over-the-counter market; and, for that same period of time, you shall
not, directly or indirectly, solicit, raid, entice or otherwise induce any
employee of the Company or any of its subsidiaries to be employed by a Competing
Enterprise.
7. Termination of Prior Agreement. Effective as of the Commencement Date,
that certain Employment Agreement dated July 20, 1993 (the "Prior Agreement") by
and between you and the Company is terminated and of no further force or effect.
You also acknowledge and consent to the termination of the Company's Stock Grant
Plan adopted by the Board on September 27, 1993 (the "1993 Plan") and hereby
waive, release and relinquish all rights, if any, to receive shares of Common
Stock pursuant to the 1993 Plan.
If this Agreement correctly sets forth your understanding of the agreement
between the Company and you, please indicate your agreement hereto by signing
this Agreement in the space for that purpose below.
KEY ENERGY GROUP, INC.
By:
Francis D. John, President
ACCEPTED AND AGREED:
D. Kirk Edwards
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Key Energy Group, Inc.
Two Tower Center, 10th Floor
East Brunswick, New Jersey
August 3, 1996
Mr. Kenneth V. Huseman
c/o Key Energy Group, Inc.
Two Tower Center, 10th Floor
East Brunswick, New Jersey 08816
EMPLOYMENT AGREEMENT
(this "Agreement")
Dear Mr. Huseman:
Key Energy Group, Inc., a Maryland corporation (the "Company"), with its
principal offices at the address set forth above, and you, an individual with
your business address set forth above, agree as follows:
1. Employment; Term
(a) The Company agrees to employ you, and you accept employment by the
Company, as the Chief Operating Officer and an Executive Vice President of the
Company. Your employment will commence effective as of August 3, 1996 (the
"Commencement Date") and continue until the close of business on August 2, 1999,
subject to extension as provided in this Section 1(a), unless sooner terminated
in accordance with this Agreement (the "Initial Employment Period"). On each
August 3, commencing with August 3, 1999, the term of your employment will be
automatically extended for a period of twelve (12) months unless either you or
the Company gives written notice to the other, no later than thirty (30) days
prior to the relevant August 3, that such automatic extension shall not occur.
The Initial Employment Period, together with any extensions, until termination
in accordance herewith is referred to herein as the "Employment Period."
(b) You will have the usual duties of a Chief Operating Officer and an
Executive Vice President and those duties of Chief Operating Officer and Vice
President, if any, set forth in the Company's bylaws and will be responsible,
subject to the further direction of the President and Chief Executive Officer of
the Company and the Board of Directors of the Company (the "Board"), for
participating in the management and direction of the Company's business and
operations. You will, if elected, serve as a
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director of the Company and as an officer and/or director of the Company
and its subsidiaries and perform all duties incident to such offices and such
specific other tasks as may from time to time be assigned to you by the
President and Chief Executive Officer of the Company or the Board. During the
Employment Period, you will devote your full time and best efforts to the
business and affairs of the Company and its subsidiaries.
2. Salary; Bonuses; Expenses
(a) During the Employment Period, the Company will pay a salary to you at
the annual rate of Two Hundred Thousand Dollars ($200,000) per year (the "Base
Salary"), payable in substantially equal installments in accordance with the
Company's existing payroll practices, but no less frequently than monthly.
(b) For each fiscal year of the Company commencing after June 30, 1996, you
shall be eligible to participate in an incentive plan for the Company's
executives, key employees and other persons involved in the business of Key and
its subsidiaries (the "Incentive Plan") and in the Key Energy Group, Inc. 1995
Stock Option Plan (the "1995 Stock Option Plan"). Under the Incentive Plan, you
shall be eligible to earn a cash bonus, payable within ninety (90) days after
each fiscal year end, of up to fifty percent (50%) of your Base Salary, such
amount to be determined by the Board based upon the level of achievement of
certain goals to be mutually established by you and the President of the Company
(subject to Board approval).
(c) You will be reimbursed by the Company for reasonable travel, lodging,
meal and other expenses incurred by you in connection with performing your
services hereunder in accordance with the Company's policies from time to time
in effect.
(d) You will be entitled to a $50,000 loan from the Company to assist you
in your relocation to the New Jersey/Pennsylvania area, such loan to be
amortized and the debt represented thereby to be forgiven over the three-year
period beginning on the Commencement Date.
3. Stock Options. You have previously been granted options to acquire
100,000 shares of the Common Stock, par value $.10 per share, of the Company
(the "Common Stock") pursuant to the 1995 Stock Option Plan and subject to the
terms and provisions (including vesting provisions) of the those certain Stock
Option Agreements dated as of March 29, 1996 (the "Option Agreements") by and
between you and the Company, which agreements and plan shall remain in full
force and effect unaffected by the execution and delivery of this Agreement. In
addition , as performance-based incentive compensation to you in connection with
your services hereunder, there shall be granted to you options (the "Options")
to acquire Fifty Thousand (50,000) shares of Common Stock at an exercise price
per share equal to the fair market value (as defined in the 1995 Stock Option
Plan) of the Common Stock as of the
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date hereof, with such options to be granted pursuant to, and subject to
the terms and provisions (including vesting provisions) of the 1995 Stock Option
Plan and that certain Stock Option Agreement of even date herewith by and
between you and the Company.
4. Benefit Plans; Vacations. You will be entitled during the Employment
Period (and thereafter to the extent provided in Section 5(d) hereof) to the
following: (i) not less than twenty (20) vacation days, (ii) a Company owned or
leased automobile and payment of expenses associated therewith, and (iii) such
other fringe benefits, including, without limitation, group medical and dental,
life, executive life, accident and disability insurance, retirement plans and
supplemental and excess retirement benefits as the Company may provide from time
to time for its senior management.
5. Termination
(a) Termination upon Death; Termination by Company. If you should die
during the Employment Period, the Company shall have no further obligations to
your estate under this Agreement other than payment of the amounts, if any, owed
to you under Section 2(a) and 2(c) hereof through the date of death. The Company
shall have the right to terminate your employment under this Agreement for Cause
(defined below) at any time without obligation to make any further payments to
you hereunder (other than amounts owed under Section 2(a) and 2(c) hereunder
through the date of termination). The Company shall have the right to terminate
your employment for any reason other than for Cause (including for Disability as
provided in Section 5(b) hereof) with no further obligations hereunder except as
provided in Section 5(d) hereof. As used in this Agreement, the term "Cause"
shall mean the willful and continued failure by you to substantially perform
your duties hereunder (other than any such wilful or continued failure resulting
from your incapacity due to physical or mental illness or physical injury), or
the willful engaging by you in misconduct which is materially injurious to the
Company, monetarily or otherwise, or your conviction of a felony by a court of
competent jurisdiction.
(b) Termination by the Company or the Employee for Disability. If you
become totally and permanently disabled during the Employment Period so that you
are unable to perform your obligations hereunder by reasons involving physical
or mental illness or physical injury ("Disability"), then the term of your
employment hereunder may be terminated by either you or the Company; provided,
however, that in the event you elect to terminate your employment for Disability
pursuant to this Section 5(b), the Company may require, before becoming subject
to the obligations set forth in Section 5(d) hereof, that a physician mutually
agreed to by you and the Company (such agreement not to be unreasonably
withheld), based upon a physical and/or mental examination of you, concurs that
a Disability exists pursuant to the terms of this Agreement and delivers a
written opinion to the Company to such effect (such condition being referred to
elsewhere herein as the "Examination Condition").
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(c) Termination by the Employee. You may terminate your employment for
Disability as provided in Section 5(b) hereof, in which event the Company shall
have no further obligations to you hereunder except as provided in Section 5(d)
hereof. Subject to the provisions of this Section 5(c), you may terminate your
employment for Good Reason (defined below) at any time during the Employment
Period by providing the Company with at least thirty (30) days' written notice,
in which event the Company shall have no further obligations to you hereunder
except as provided in Section 5(d) hereof. As used in this Agreement, the term
"Good Reason" shall mean (i) a material adverse change in your functions,
duties, authority and responsibilities as the Chief Operating Officer and a Vice
President of the Company; or (ii) a material breach by the Company of its
obligations under this Agreement, which breach has not been cured within fifteen
(15) days following the Company's receipt of notice from you of such material
breach. You may terminate your employment for any reason other than for
Disability or Good Reason by providing the Company with at least thirty (30)
days' written notice, in which event the Company shall have no further
obligations to you under this Agreement other than payment of the amounts, if
any, owed to you under Section 2(a) and 2(c) hereof through the date of
termination.
(d) Severance Compensation. In the event your employment hereunder is
terminated (i) by you for Disability only if Examination Condition is met or
waived, (ii) by you for Good Reason, (iii) by the Company other than for Cause
or (iv) automatically as a result of the Company's providing notice to you that
automatic extension of the Employment Period shall not occur, you will be
entitled to:
(1) receive severance compensation at your Base Salary at the monthly rate
in effect on the termination date, payable in arrears, during the period
expiring twenty-four (24) months after the termination date, commencing at the
end of the calendar month in which the termination date occurs; and
(2) receive the benefits specified in Section 4 hereof during the period
expiring on the earlier of (i) twenty-four (24) months after the termination
date and (ii) the date on which you commence full-time employment with another
employer;
provided, however, that (A) in the event your employment should be
terminated by the Company other than for Cause following a Change of Control
(defined below) or in anticipation of a Change of Control, the severance
compensation referred to in clause (1) above shall be paid in one lump sum on
the date of such termination, and (B) in the event your employment should be
terminated by the Company as a result of Disability in accordance with Section
5(b) above, then the severance compensation referred to in clause (1) above
shall be reduced by the amount of any disability insurance proceeds actually
paid to you or for your benefit during the said time period. As used in this
Agreement, the term "Change of Control" shall have that meaning set forth in the
1995 Stock Option Plan.
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6. Limitation on Competition. During the Employment Period, and for such
period thereafter as you are entitled to receive severance compensation under
this Agreement (or if you are not entitled to receive severance compensation
under this Agreement, for a period of one year after your termination; or if you
are entitled to receive severance compensation in one lump sum payment, for a
period of two years after your termination), you shall not, directly or
indirectly, without the prior written consent of the Company, participate or
engage in, whether as a director, officer, employee, advisor, consultant,
stockholder, partner, joint venturer, owner or in any other capacity, any
business engaged in the business of furnishing oilfield services (a "Competing
Enterprise"); provided, however, that you shall not be deemed to be
participating or engaging in any such business solely by virtue of your
ownership of not more than five percent of any class of stock or other
securities which is publicly traded on a national securities exchange or in a
recognized over-the-counter market; and, for that same period of time, you shall
not, directly or indirectly, solicit, raid, entice or otherwise induce any
employee of the Company or any of its subsidiaries to be employed by a Competing
Enterprise.
7. Termination of Prior Agreement. Except as otherwise provided herein,
effective as of the Commencement Date, that certain Employment Agreement dated
March 29, 1996 (the "Prior Agreement") by and between you and WellTech Eastern,
Inc. is terminated and of no further force or effect.
If this Agreement correctly sets forth your understanding of the agreement
between the Company and you, please indicate your agreement hereto by signing
this Agreement in the space for that purpose below.
KEY ENERGY GROUP, INC.
By: Francis D. John, President
ACCEPTED AND AGREED:
Kenneth V. Huseman
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Asset Purchase Agreement
among
WellTech Eastern, Inc.,
Southwest Oilfield Service, Inc.,
David Wright and
Roy Wofford
May 29, 1997
<PAGE>
2
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of May
29, 1997 (the "Effective Date") among WellTech Eastern, Inc., a Delaware
corporation ("Buyer"), Southwest Oilfield Service, Inc., an Oklahoma corporation
("Seller"), David Wright and Roy Wofford, owners of all of the issued and
outstanding stock of the Seller (the "Shareholders").
WITNESSETH:
WHEREAS, Seller desires to sell substantially all of Seller's assets used
in or in connection with oilfield workover, completion. production maintenence
service (workover rig service) and Buyer desires to purchase such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
Article I
Purchase and Sale of Assets
1.1 Purchase and Sale of the Assets.. Subject to the terms and conditions
set forth in this Agreement, Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer, and Buyer hereby agrees to purchase from Seller,
substantially all of the assets of Seller used or useful in the Workover Rig
Service existing on the date hereof, whether personal, tangible, or intangible,
including the following assets of Seller relating to or used or useful in the
operation of the Workover Rig Service Business of Seller as conducted by Seller
on and before the date hereof (the "Business") (all such assets being sold
hereunder are referred to collectively herein as the "Assets"):
(a) the tangible personal property of Selle used or useful in performing
Workover Rig Sevicer (such as machinery, equipment, leasehold improvements,
furniture and fixtures, and vehicles) which is more fully described on Schedule
1.1(a) hereto (collectively, the "Tangible Personal Property");
<PAGE>
(b) certain of Seller's intangible assets (collectively, the
"Intangibles"), including (i) all of Seller's rights to any patents, copyrights,
trademarks, service marks, licenses or sublicenses, trade names, written
know-how, trade secrets and all other similar proprietary data and the goodwill
associated therewith (collectively, the "Intellectual Property") used or held in
connection with the Workover Rig Service, including those specifically listed on
Schedule 1.1(c) hereto (collectively, the "Seller Intellectual Property"), and
(ii) all of Seller's rights in its sales and promotional literature, computer
software, customer and supplier list in connection with Sellers Workover Rig
Service Business
(c) those leases, subleases, contracts, contract rights, and agreements,
(collectively, the "Contracts") relating to the operation of the Workover Rig
Service Business, specifically listed on Schedule 1.1(d) hereto (collectively,
the Transferred "Contracts");
(d) to the extent transferrable, all permits, authorizations, certificates,
approvals, registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, licenses and other rights of every kind and character
(collectively, the "Permits") of Seller obtained from governments and
governmental agencies relating to including, without limitation, that which is
more fully described on Schedule 1.1(e) hereto (collectively, the "Seller
Permits"); and,
(e) the goodwill and going concern value of the Workover Rig Service
Business.
The Assets shall not include the following (collectively, the "Excluded
Assets"); (I) all of Seller's accounts receivable and all other rights of Seller
to payment for services rendered by Seller prior to midnight of the date hereof
(the "Seller Receivables"); (ii) all cash accounts, cash equivalents or similar
investments of Seller and all petty cash of Seller kept on hand for use in the
Workover Rig Service Business; (iii) all right, title and interest of Seller in
and to all prepaid rentals, other prepaid expenses, prepaid taxes, bonds,
deposits and financial assurance requirements, and other current assets relating
to any of the Assets of the Business; (iv) the corporate charter, corporate
seal, organizational documents and minute books of Seller; (v) all assets in
possession of Seller but owned by third parties; (vi) all rights under the
Contracts of Seller not specifically assigned to Buyer hereunder; and (viii)
Seller's right, title and interest in and to this Agreement; (ix) the right to
prosecute and collect claims relating to Workover Rig Service business of Seller
prior to the date hereof.
1.2 Consideration for Assets. As consideration for the sale of the Assets
to Buyer and for the other covenants and agreements of Seller contained herein,
Buyer (I) agrees to pay to Seller, on the date hereof, the amount of $455,000 in
the form of a cashier's check or bank check or wire transfer of immediately
available funds to an account designated by Seller.
1.3 Assumed Liabilities. Buyer shall assume only those liabilities of
Seller associated with Buyer's assumption of the Transferred Contracts. Seller
shall be responsible for all other liabilities of Seller (collectively, the
"Retained Liabilities"), including, without limitation all obligations and
liabilities owed by Seller to the Employees (as defined in Section 2.1.10
hereof).
<PAGE>
Article II
Representations and Warranties
of Seller and the Shareholders
2.1 Representations and Warranties of Seller. Each of Seller and the
Shareholders jointly and severally represent and warrant to Buyer as follows:
2.1.1. Organization and Good Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its organization, has full requisite corporate power and authority to carry on
its business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to so qualify or be licensed would
not have a material adverse effect on the Assets or theWorkover Rig Service
Business.
2.1.2. Agreements Authorized and their Effect on Other Obligations. The
execution and delivery of this Agreement and all other agreements executed by
Seller or the Shareholders and delivered to Buyer in connection herewith (the
"Seller Agreements") have been authorized by all necessary corporate action on
the part of Seller, and this Agreement and the Seller Agreements are valid and
binding obligations of Seller and Shareholders, as applicable, enforceable
(subject to normal equitable principals) against such parties in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. The execution, delivery and performance of this Agreement and the
Seller Agreements and the consummation of the transaction contemplated hereby
and thereby, will not conflict with or result in a violation or breach of any
term or provision of, nor constitute a default under (I) the charter or bylaws
of Seller, (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which Seller or Shareholders is a party or by
which Seller or Shareholders or their respective properties are bound; or (iii)
any provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which Seller or
Shareholders or any of their respective properties are subject.
<PAGE>
2.1.3. Financial Statement; Absence of Certain Changes and Events. Seller
has delivered to Buyer copies of certain unaudited financial statements of
Seller. Such financial statements are attached hereto as Schedule 2.1.3
(collectively, the "Seller Financial Statements") and include Seller's Statement
of Revenue and Expenses dated December 31, 1996 and March 31, 1997. The Seller
Financial Statements present fairly and fully the financial condition of the
Seller as at the dates and for the periods indicated thereon, subject, in the
case of interim financial statements, to normal year end adjustments. Other than
as a result of the transactions contemplated by this Agreement, since March 31,
1997, there has not been (whether as a result of a single event or in the
aggregate): (a) Financial Change. Any material adverse change in the Assets, the
Business or the financial condition, operations, liabilities or prospects of
Seller; (b) Property Damage. Any material damage, destruction, or loss to any of
the Assets or the Business (whether or not covered by insurance); (c) Waiver.
Any waiver or release of a material right of or claim held by Seller; (d) Change
in Assets. Any acquisition, disposition, transfer, encumbrance, mortgage, pledge
or other encumbrance of any material asset of Seller other than in the ordinary
course of business; (e) Labor Disputes. Any labor disputes between Seller and
its employees; or (f) Other Changes. Any other event or condition known to
either Seller or Shareholders that particularly pertains to and has or is likely
to have a material adverse effect on the Assets, the operations and the Business
or the financial condition or prospects of Seller.
2.1.4. Transferred Contracts. All of the Transferred Contracts are in full
force and effect, and constitute valid and binding obligations of Seller. Seller
is not, and no other party to any Transferred Contract is, in default
thereunder, and no event has occurred which (with or without notice, lapse of
time, or the happening of any other event) would constitute a default
thereunder. No Transferred Contract has been entered into on terms which could
reasonably be expected to have a material adverse effect on the use of the
Assets by Buyer. Neither Seller nor the Shareholders has received any
information which would cause such party to conclude that any customer of Seller
will (or is likely to) cease doing business with Buyer, as successor the
Business, as a result of the consummation of the transactions contemplated
hereby.
2.1.5. Title to and Condition of Assets. Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). To the knowledge of either Seller or Shareholders, all of the
Assets conform to all applicable laws governing their use. No notice of any
violation of any law, statute, ordinance, or regulation relating to any of the
Assets has been received by Seller or Shareholders, except such as have been
fully complied with. The term "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.
<PAGE>
2.1.6. Licenses and Permits. Each of the Seller Permits and Seller's rights
with respect thereto is valid and subsisting, in full force and effect, and
enforceable by Seller subject to administrative powers of regulatory agencies
having jurisdiction. Seller is in compliance in all material respects with the
terms of each of the Seller Permits. None of the Seller Permits has been, or to
the knowledge of Seller or Shareholders, are threatened to be, revoked,
canceled, suspended or modified. Upon consummation of the transactions
contemplated hereby, each of the Seller Permits shall have been validly assigned
to Buyer, will be valid and subsisting in full force and effect, and will be
enforceable by Buyer subject to administrative powers of regulatory agencies
having jurisdiction.
2.1.7. Intellectual Property. The Seller Intellectual Property is owned or
licensed by Seller free and clear of any Encumbrances. Seller has not granted to
any other person any license to use any Seller Intellectual Property. Use of the
Seller Intellectual Property by Buyer will not, and the use of the Seller
Intellectual Property by Seller did not, infringe, misappropriate or conflict
with the intellectual property rights of others. Neither Seller nor the
Shareholders has received any notice of infringement, misappropriation, or
conflict with the intellectual property rights of others in connection with the
use by Seller of the Seller Intellectual Property.
2.1.8. Necessary Consents. Seller has obtained and delivered to Buyer all
consents to assignment or waivers thereof required to be obtained from any
governmental authority or from any other third party in order to validly
transfer the Assets hereunder, including the assignment of the Seller Permits
and the Transferred Contracts.
2.1.9. Employees. Schedule 2.1.10 hereto is a complete and accurate listing
of all employees of Seller that are involved in the ownership, operation,
maintenance or use of the Assets or the conduct of the Workover Rig Service
Business (the "Employees"). Seller does not currently sponsor, maintain or
contribute to, and has not at anytime sponsored, maintained or contributed to
any employee benefit plan which is or was subject to any provisions of the
Employee Retirement Income Security Act of 1974, as amended. No employee benefit
plan of Seller will, by its terms or applicable law, become binding upon or an
obligation of Buyer. Buyer has not engaged in any unfair labor practices which
could reasonably be expected to result in a material adverse effect on the
Assets or the Business. Seller does not have any dispute with any of its
existing or former employees. There are no labor disputes or to the knowledge of
Seller, any disputes threatened by current or former employees of Seller.
2.1.10. Investigations; Litigation. No investigation or review by any
governmental entity with respect to Seller or any of the transactions
contemplated by this Agreement or the Seller Agreements is pending or, to the
best of Seller's knowledge, threatened, nor has any governmental entity
indicated to Seller an intention to conduct the same. There is no suit, action,
or legal, administrative, arbitration, or other proceeding or governmental
investigation pending to which Seller is a party or, to the knowledge of Seller
or Shareholders, to which might become a party, and which particularly affects
the Assets or property being transferred to Seller.
<PAGE>
2.1.11. Absence of Certain Business Practices. Neither Seller, the
Shareholders nor any officer, employee or agent of Seller, nor any other person
acting on its or his behalf, has, directly or indirectly, within the past five
years, given or agreed to give any gift or similar benefit to any customer,
supplier, government employee or other person who is or may be in a position to
help or hinder the profitable use of the Assets or conduct of the Business (or
to assist Seller in connection with any actual or proposed transaction) which if
not given in the past, might have had a material adverse effect on the
profitable use of the Assets or conduct of the Business , or if not continued in
the future, might materially adversely effect the profitable use of the Assets
or conduct of the Business.
2.1.12. Solvency. Seller is not now insolvent, nor will Seller be rendered
insolvent by the occurrence of the transactions contemplated by this Agreement.
The term "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.
2.1.13. Untrue Statements. Seller has made available to Buyer true,
complete and correct copies of customers, and if required, Seller will make
available records relating principally to the Assets and the business, and such
information covers all commitments and liabilities of Seller relating
principally to the Assets. This Agreement, the Seller Agreements and the other
instruments executed by Seller or Shareholders and delivered to Buyer in
connection herewith do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made herein and
therein not misleading in any material respect.
2.1.14. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Seller, the
Shareholders and their counsel directly with Buyer and its counsel, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or any similar payment.
Article III
Representations and Warranties of Buyer
3.1 Representations and Warranties of Buyer. Buyer represents and warrants
to Seller and Shareholders as follows:
<PAGE>
3.1.1. Organization and Standing. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware, has full
requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary, except
where the failure to so qualify or be licensed would not have a material adverse
effect on the business of Buyer.
3.1.2. Agreement Authorized and its Effect on Other Obligations. The
execution and delivery of this Agreement and all other agreements executed by
Buyer and delivered to Seller or Shareholders in connection herewith (the "Buyer
Agreements") have been authorized by all necessary corporate action on the part
of Buyer, and this Agreement and the Buyer Agreements are valid and binding
obligations of Buyer, enforceable (subject to normal equitable principals)
against Buyer in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement and the Buyer Agreements and the consummation of
the transactions contemplated hereby and thereby will not conflict with or
result in a violation or breach of any term or provision of, nor constitute a
default under (I) the charter or bylaws of Buyer; (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Buyer is a party or by which Buyer or its properties are bound; or (iii) any
provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator or other governmental authority to which Buyer or any of its
properties is subject.
3.1.3. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer and its counsel
directly with Seller, the Shareholders and their counsel, without the
intervention of any other person as the result of any act of Buyer in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payment.
Article IV
Additional Agreements
<PAGE>
4.1 Noncompetition. Except as otherwise consented to or approved in writing
by Buyer, each of Seller and the Shareholders agree that for a period of sixty
(60) months following the Effective Date, they shall not, directly or
indirectly, acting alone or as a member of a partnership or a holder of, or
investor in as much as 5% of any security of any class of any corporation or
other business entity (I) engage in any business providing workover or well
services in Oklahoma (the "Territory"); (ii) request any present customers or
suppliers of Seller to curtail or cancel their business with Buyer; (iii)
disclose to any person, firm or corporation any trade, technical or
technological secrets of Seller or Buyer or any details of their organization or
business affairs or (iv) induce or actively attempt to influence any employee of
Buyer to terminate his employment. Notwithstanding the foregoing, Seller's and
Shareholders' non-competition obligations shall cease in the event that Buyer or
its successors in interest, no longer engages in like business in the Territory.
Seller agrees that if either the length of time or geographical area of the
Territory is deemed too restrictive in any court proceeding, the court may
reduce such restrictions to those which it deems reasonable under the
circumstances. The obligations expressed in this Section 4.1 are in addition to
any other obligations that Seller or the Shareholders may have under the laws of
any state requiring a corporation who sells its assets (and the Shareholders of
such corporation) to limit its activities so that the goodwill and business
relations being transferred with such assets will not be materially impaired.
Seller further agrees and acknowledge that Buyer does not have any adequate
remedy at law for the breach or threatened breach by Seller of this covenant,
and agree that Buyer may, in addition to the other remedies which may be
available to it hereunder, file a suit in equity to enjoin Seller from such
breach or threatened breach. If any provisions of this Section 4.1 are held to
be invalid or against public policy, the remaining provisions shall not be
affected thereby. Seller acknowledges that the covenants set forth in this
Section 4.1 are being executed and delivered by Seller in consideration of the
covenants of Buyer contained in this Agreement, and for other good and valuable
consideration, receipt of which is hereby acknowledged.
4.2 Hiring Employees. Effective as of the date hereof, all of the Employees
shall be terminated by Seller. Buyer may, but shall be under no obligation to,
hire any of the Employees effective as of the date hereof. Except as provided in
Section 1.4 hereof, Buyer shall have no liability or obligation with respect to
any employee benefits of any Employee except those benefits that accrue pursuant
to such Employees' employment with Buyer on or after the date hereof. Seller and
the Shareholders shall cooperate with Buyer in connection with any offer of
employment from Buyer to the Employees and use its best efforts to cause the
acceptance of any and all such offers. All Employees hired by Buyer shall be
at-will employees of Buyer.
4.3 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
4.6 hereto, and shall report this transaction for federal income tax purposes in
accordance with the allocation so agreed upon. The parties hereto for themselves
and for their respective successors and assigns covenant and agree that they
will file coordinating Form 8594's in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
<PAGE>
4.4 Collection of Receivables. Buyer shall cooperate with and assist Seller
in collecting the Seller Receivables, which cooperation and assistance shall
include promptly forwarding to Seller all payments received by Buyer that are
made in respect of the Seller Receivables. Seller shall cooperate with and
assist Buyer in collecting receivables of Buyer, which cooperation and
assistance shall include promptly forwarding to Buyer all payments received by
the Seller that are made in respect of Buyer's receivables.
4.5 Further Assurances. From time to time, as and when requested by any
party hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
4.6 Closing Costs. Each party will bear the cost and expenses of performing
the acts required of such party under this Agreement, including, without
limitation, attorneys' fees and disbursements incurred by the respective parties
in connection herewith; provided, however, the Buyer will pay all sales tax
imposed by any governmental authority as a result of the sale of Assets and will
prepare and file all sales tax reports and tax returns relating thereto.
4.7 Taxes. All federal, state and local taxes relating to the Property
which accrued prior to the date hereof will be paid by the Seller. All such
taxes incurred on or after the date hereof (including sales taxes arising from
the sale of the Property) will be paid by the Buyer and the Buyer agrees to
indemnify and hold the Seller and Shareholders harmless with respect thereto.
4.8 Insurance. All existing insurance policies maintained by the Seller
will be terminated on the date hereof and the Buyer will be responsible for
obtaining its own insurance subsequent thereto.
4.9 Possession; Risk of Loss. Possession of the Assets willpass from the
seller to the buyer at midnight on the date hereof and the risk of loss will
pass from the Seller to the Buyerat that time
4.10 Attorneys' Fees. If either party institutes an action or proceeding
against the other relating to the provisions of this Agreement or any default
hereunder, the prevailing party in such action or proceeding will be entitled to
receive a reasonable attorneys' fee as a part of its costs incurred therein.
<PAGE>
Article V
Indemnification
5.1 Indemnification by Seller and the Shareholders. In addition to any
other remedies available to Buyer under this Agreement, or at law or in equity,
each of Seller and Shareholders shall, jointly and severally, indemnify, defend
and hold harmless Buyer, and its respective officers, directors, employees,
agents and stockholders, against and with respect to any and all claims, costs,
damages, losses, expenses, obligations, liabilities, recoveries, suits, causes
of action and deficiencies, including interest, penalties and reasonable
attorneys' fees and expenses (collectively, the "Damages") that such indemnitee
shall incur or suffer, which arise, result from or relate to (I) any breach of,
or failure by Seller or Shareholders to perform, their respective
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to
Buyer by Seller or the Shareholders under this Agreement and (ii) the Retained
Liabilities.
5.2 Indemnification by Buyer. In addition to any other remedies available
to Seller or Shareholders under this Agreement, or at law or in equity, Buyer
shall, jointly and severally, indemnify, defend and hold harmless the
Shareholders, Seller and its officers, directors, employees and agents against
and with respect to any and all Damages that such indemnities shall incur or
suffer, which arise, result from or relate to any breach of, or failure by Buyer
to perform any of its representations, warranties, covenants or agreements in
this Agreement or in any schedule, certificate, exhibit or other instrument
furnished or delivered to Seller or the Shareholders by or on behalf of Buyer
under this Agreement.
<PAGE>
5.3 Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 5.1 or Section
5.2 of this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. Further, promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Article 5, such indemnified party shall, if a claim
in respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
Article VI
Miscellaneous
6.1 Survival of Representations, Warranties and Covenants. All
representations, warranties, covenants and agreements made by the parties hereto
shall survive indefinitely without limitation, notwithstanding any investigation
made by or on behalf of any of the parties hereto. All statements contained in
any certificate, schedule, exhibit or other instrument delivered pursuant to
this Agreement shall be deemed to have been representations and warranties by
the respective party or parties, as the case may be, and shall also survive
without limitation despite any investigation made by any party hereto or on its
behalf.
6.2 Entirety. This Agreement embodies the entire agreement among the
parties with respect to the subject matter hereof, and all prior agreements
between the parties with respect thereto are hereby superseded in their
entirety.
<PAGE>
6.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall deemed to be an original instrument, but all
of which together shall constitute one and the same instrument.
6.4 Notices and Waivers. Any notice or waiver to be given to any party
hereto shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
If to Buyer
Addressed to: With Copy to:
WellTech Eastern, Inc. William P. Parker, P. C.
c/o Key Energy Group, Inc. Attorney at Law
Two Tower Center, Tenth Floor 2212 N.W. 50th
East Brunswick, NJ 08816 Suite 163
Attn: General Counsel Oklahoma City, OK 73112
Facsimile: (908) 247-5148 Telephone: (405) 840-1288
If to Seller or Shareholders
Addressed to: With Copy to:
Southwest Oilfield Service, Inc. Gary Millspaugh
P.O. Box 1031 Attorney at Law
Elk City, OK 73648 P.O. Box 131
Weatherford, OK 73096
Mr. David Wright Telephone: (405) 772-1111
Rt 4 Box 256
Elk City, OK 73644
Mr. Roy Wofford
1924 Green Meadows
McAllister, OK 74501
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.
<PAGE>
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 Oklahoma.
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the
other parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all on this
3rd day of April, 1997 to be effective as of the Effective Date.
WELLTECH EASTERN, INC.
By:
Name: Bill Bixler
Title: Executive Vice-president
SOUTHWEST OILFIELD SERVICE, INC.
By:
Name:
Title:
<PAGE>
SHAREHOLDER:
David Wright
SHAREHOLDER:
Roy Wofford
<PAGE>
SCHEDULE 1.1(a) - TANGIBLE PERSONAL PROPERTY
<PAGE>
SCHEDULE 1.1(c) - SELLER INTELLECTUAL PROPERTY
(Patents, Copy Rights, Trademarks, Service Marks, Licenses
and all applicable customer lists of Seller)
Meridian - (Burlington Res.)
Crosstimbers
Bracken
K. Stewart
Nor. Am
Wwallace Oil And Gas
Crawley Petroleum
EXOK
Mulson Oil Company
Progressive Res.
DLB Energy
Triple D Douglas Diets and Daily
<PAGE>
SCHEDULE 1.1(d) - CONTRACTS
(Leases, Subleases, Contracts, Contract Rights and Agreements relating to
ownership, operation or maintenance or use of Tangible Personal Property)
NONE
<PAGE>
SCHEDULE 1.1(e) - SELLER PERMITS
(Permits, Authorizations, Certificates, Approvals, Registrations,
Variances, Waivers, Exemptions, Rights of Way, Franchises,
Ordinances, Licenses and Rights obtained from governmental agencies
relating to use, operation, maintenance or use of Tangible Personal Property)
Permit(s) issued by agencies requesting size, weight and dimension of over
the road transportation.
<PAGE>
SCHEDULE 2.1.3 - FINANCIAL STATEMENTS
<PAGE>
SCHEDULE 2.1.10 - EMPLOYEES
Employee Social Security No.
<PAGE>
Schedule 4.6 - ALLOCATION OF PURCHASE PRICE
Equipment $ 400,000
Goodwill $ 10,000
Covenant not to compete $ 45,000
Total $455,000
Stock Purchase Agreement
among
Yale e. Key, Inc.
and
RALEIGH K. TURN AND DAVID BUTTS
Dated as of June 9, 1997
<PAGE>
Stock Purchase Agreement
This Stock Purchase Agreement (this "Agreement") is entered into as of June
9 ,1997 by and among Yale E. Key, Inc., a Texas corporation ("Key"), and Raleigh
K. Turn ("Turn") and David Butts ("Butts") collectively as the "Shareholders".
WITNESSETH :
Whereas, Key is a corporation duly organized and validly existing under the
laws of the State of Texas, with its principal executive offices at Two Tower
Center, Tenth Floor, East Brunswick, New Jersey 08816; and
Whereas, Phoenix Well Service, Inc. ("Phoenix") is a corporation duly
organized and validly existing under the laws of the State of Texas, with its
principal executive offices at 1306 West County Road 114, Midland, Texas 79706;
(P.O. Box 108, Midland, Texas 79702); and
Whereas, Turn and Butts own 165 shares and 135 shares (the "Phoenix
Shares"), respectively, of common stock, par value $1.00 per share, of Phoenix
("Phoenix Common Stock"), which constitutes all of the issued and outstanding
shares of capital stock of Phoenix; 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
Phoenix.
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 Phoenix Shares. Subject to the terms and
conditions of this Agreement, on the date hereof, (a) Turn agrees to sell and
convey to Key 165 shares of Phoenix Common Stock and (b) Butts agrees to sell
and convey 135 shares of Phoenix Common Stock to Key, all of which shall be free
and clear of all Encumbrances (as defined in Section 2.1.8.1 hereof) (and which,
collectively, shall represent the Phoenix Shares), and Key agrees to purchase
and accept all of the Phoenix Shares from the Shareholders. Subject to the
provisions of Section 1.3 hereof, in consideration of the sale of the Phoenix
Shares, Key shall pay to Turn the sum of $1,265,000 and Butts the sum of
$1,035,000 (a total of $2,300,000), on the date hereof, by wire transfer of
immediately available funds.
1.2. Delivery of Phoenix Certificates. The Shareholders shall deliver to
Key, on the date hereof, duly and validly issued certificates representing all
of the Phoenix Shares, each such
i
<PAGE>
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.
1.3 Adjustment of Purchase Price. Key shall cause to be prepared and
delivered to the Shareholders (i) a balance sheet of Phoenix as of the date
hereof (the "Final Balance Sheet") within thirty (30) days after the date
hereof. Key and the Shareholders shall jointly review the Final Balance Sheet,
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:
(a) If the Final Net Current Value of Phoenix (as defined in Schedule 1.3
hereto) exceeds the 4/30 Net Current Value of Phoenix (as defined in Schedule
1.3 hereto), Key shall pay to the Shareholders the amount of such excess.
(b) If the Final Net Current Value of Phoenix is less than the 4/30 Net
Current Value of Phoenix, the Shareholders shall pay to Key the amount of such
difference.
ARTICLE 2
Representations and Warranties
2.1. General 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. Phoenix 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 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
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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 (a) the Articles of Incorporation or Bylaws of Phoenix or (b) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which Phoenix or any of the Shareholders is a party or by which
Phoenix or either of the Shareholders or their respective properties are bound.
2.1.3. Capitalization. The authorized capitalization of Phoenix consists of
25,000 shares of Phoenix Common Stock, of which, as of the date hereof, 300
shares are issued and outstanding and held beneficially and of record by the
Shareholders. On the date hereof, Phoenix 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 Phoenix Common Stock are validly issued, fully paid and non-
assessable and are not subject to preemptive rights. None of the outstanding
shares of Phoenix 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 Phoenix Shares. Turn and Butts hold good and valid
title to 165 shares and 135 shares, respectively, of the Phoenix Common Stock,
free and clear of all Encumbrances which, in the aggregate, constitutes the
Phoenix Shares. The Shareholders possess full authority and legal right to sell,
transfer and assign to Key the Phoenix Shares, free and clear of all
Encumbrances. Upon transfer to Key by the Shareholders of the Phoenix Shares,
Key will own the Phoenix Shares free and clear of all Encumbrances. There are no
claims pending or, to the knowledge of any of the Shareholders, threatened,
against Phoenix or either of the Shareholders that concern or affect title to
either the Phoenix Shares, or that seek to compel the issuance of capital stock
or other securities of Phoenix.
2.1.5. No Subsidiaries. There is no corporation, partnership, joint
venture, business trust or other legal entity in which Phoenix, either directly
or indirectly through one or more intermediaries, owns or holds beneficial or
record ownership of at least a majority of the outstanding voting securities.
2.1.6. Financial Statements. The Shareholders have delivered to Key copies
of Phoenix's unaudited balance sheet and related statements of income, retained
earnings and cash flows as at and for the 12 months ended December 31, 1996
(collectively the "12/31 Financial Statements") and copies of Phoenix's
unaudited balance sheet (the "4/30 Balance Sheet"), and related statements of
income, retained earnings and cash flows (collectively, the "4/30 Financial
Statements"), for the four months ended April 30, 1997 (the "Balance Sheet
Date"), copies of which are attached hereto as Schedule 2.1.6 The 12/31
Financial Statements and the 4/30 Financial Statements are complete in all
material respects. The 12/31 Financial Statements and the 4/30 Financial
Statements present fairly the financial condition of Phoenix as of the dates and
for the periods indicated. The 12/31 Financial
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Statements and the 4/30 Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis. The accounts receivable reflected in the 4/30 Balance Sheet, or which
have been thereafter acquired by Phoenix, have been collected or are collectible
at the aggregate recorded amounts thereof less applicable reserves, which
reserves are adequate. The inventories of Phoenix reflected in the 4/30 Balance
Sheet, or which have thereafter been acquired by it, consist of items of a
quality usable and salable in the normal course of Phoenix'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, Phoenix
does not have any liabilities or obligations, either accrued, absolute or
contingent, nor does either of the Shareholders have any knowledge of any
potential liabilities or obligations, which would materially adversely affect
the value and conduct of the business of Phoenix, other than those (a) reflected
or reserved against in the 4/30 Balance Sheet or (b) incurred in the ordinary
course of business since the Balance Sheet Date.
2.1.8. Additional Phoenix 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
Phoenix, 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 Phoenix 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 Phoenix, excluding raw materials and work in process, which raw materials and
work in process are valued on the 4/30 Balance Sheet, together with the amount
of any Encumbrances thereon;
2.1.8.4. Receivables. All accounts and notes receivable of Phoenix,
together with (a) aging schedules by invoice date and due date, (b) the amounts
provided for as an allowance for bad debts, (c) the identity and location of any
asset in which Phoenix holds a security interest to secure payment of the
underlying indebtedness,
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and (d) 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 Phoenix, together with
an appropriate aging schedule;
2.1.8.6. Insurance. All insurance policies or bonds currently maintained by
Phoenix, including title insurance policies, including those covering Phoenix'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 Phoenix 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 employee benefit or fringe benefit plans,
arrangements or trust agreements of Phoenix or any employee benefit plan
maintained by Phoenix, 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 and
other correspondence from governmental entities that have been received with
respect to such plans, arrangements or agreements (collectively, "Employee
Plans");
2.1.8.9. Certain Salaries. The names and salary rates of all present
employees of Phoenix, 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 Phoenix has an
account and the names of all persons authorized to draw thereon;
2.1.8.11. Employee Agreements. Any collective bargaining agreements of
Phoenix 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 Phoenix;
2.1.8.12. Intellectual Property. 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") used by Phoenix;
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2.1.8.13. Trade Names. All trade names, assumed names and fictitious names
used or held by Phoenix, 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 Phoenix 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 Phoenix 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 4/30 Balance Sheet;
2.1.8.17. Leases. All leases to which Phoenix is a party (as either lessor
or lessee); and
2.1.8.18. Environment. All environmental permits, approvals,
certifications, licenses, registrations, orders and decrees applicable to
current operations conducted by Phoenix and all environmental audits,
assessments, investigations and reviews conducted by Phoenix within the last
five years or otherwise within the possession of Phoenix on any property owned
or used by Phoenix, including, specifically, a Phase I Environmental Site
Assessment (which shall have been conducted in conformance with the scope and
limitations of the ASTM Standard E 1527 by an environmental consultant approved
by Key) of any real property leased by Phoenix, the cost of which shall have
been paid by the Shareholders and not by Phoenix. The Shareholders shall also
cause a Phase II Environmental Site Assessment to be conducted on such property
at their sole expense by an environmental consultant acceptable to Key, if
deemed warranted by Key.
2.1.9. No Defaults. Phoenix is not a party to, or bound by, any contract or
arrangement of any kind to be performed after the Effective Date, nor is Phoenix
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. 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 Phoenix;
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2.1.10.2. Property Damage. Any material damage, destruction, or loss to the
business or properties of Phoenix (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 Phoenix Common Stock, or any
direct or indirect redemption, purchase or any other acquisition by Phoenix 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 Phoenix's authorized or outstanding capital stock
as described in Section 2.1.3 hereof;
2.1.10.5. Labor Disputes. Any labor or employment dispute of whatever
nature; or
2.1.10.6. Other Material Changes. Any other event or condition known to
either of the Shareholders particularly pertaining to and adversely affecting
the operations, assets or business of Phoenix.
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
Phoenix 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 such returns are true and correct; Phoenix has only done business in the
State of Texas; 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 Phoenix); and the tax provision reflected in the 4/30 Balance Sheet is
adequate, in accordance with generally accepted accounting principles, to cover
liabilities of Phoenix at the date thereof for all taxes, including any assessed
interest, assessed penalties and additions to taxes of any character whatsoever
applicable to Phoenix or its assets or business. No waiver of any statute of
limitations executed by Phoenix with respect to any income or other tax is in
effect for any period. The income tax returns of Phoenix 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 Phoenix except for taxes
not yet currently due. Phoenix is not subject to any tax-sharing or allocation
agreement. Phoenix is not, nor has it ever attempted to become a Subchapter
S-Corporation under the Internal Revenue Code of 1986, as amended. Phoenix is
not and never has been, a member of a consolidated group subject to Treasury
Regulation 1.1502-6 or any similar provision.
2.1.12. Intellectual Property. Phoenix owns or possesses licenses to use
all Intellectual Property that is either material to the business of Phoenix or
that is necessary for the rendering of any services rendered by Phoenix and the
use or sale of any equipment or
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products used or sold by Phoenix (collectively, the "Phoenix Intellectual
Property"), including all such Intellectual Property listed in Schedule 2.1.8
hereto. The Phoenix Intellectual Property is owned or licensed by Phoenix free
and clear of any Encumbrance. Phoenix has not granted to any other person any
license to use any Phoenix Intellectual Property. Phoenix has not received any
notice of infringement, misappropriation, or conflict with, the intellectual
property rights of others in connection with the use by Phoenix of the Phoenix
Intellectual Property or otherwise in connection with Phoenix's operation of its
business.
2.1.13. Title to and Condition of Assets. Phoenix has good, indefeasible
and marketable title to all its properties, interests in properties and assets,
real and personal, reflected in the 4/30 Balance Sheet or in Schedule 2.1.8
hereto, free and clear of any Encumbrance of any nature whatsoever, except
(a) Encumbrances reflected in the 4/30 Balance Sheet or in Schedule 2.1.8
hereto, (b) liens for current taxes not yet due and payable, and (c) such
imperfections of title, easements and Encumbrances, if any, as are not
substantial in character, amount, or extent and do not and will not materially
detract from the value, or interfere with the present use, of the property
subject thereto or affected thereby, or otherwise materially impair the business
operations of Phoenix. All leases pursuant to which Phoenix 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 Phoenix and in respect to which
Phoenix has not taken adequate steps to prevent a default from occurring. The
buildings and premises of Phoenix 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 Phoenix 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 Phoenix or either of the
Shareholders, except such as have been fully complied with.
2.1.14. Contracts. All contracts, leases, plans or other arrangements to
which Phoenix 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 Phoenix. Phoenix is not, and to the knowledge of either of the
Shareholders, no other party to any such contract, lease, plan or other
arrangement is, in default thereunder, and no event has occurred which (with or
without notice, lapse of time, or the happening of any other event) would
constitute a default thereunder. No contract has been entered into on terms
which could reasonably be expected to have an adverse effect on Phoenix. Neither
of the Shareholder has received any information which would cause such
Shareholder to conclude that any customer of Phoenix
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will (or is likely to) cease doing business with Phoenix (or its
successors) as a result of the consummation of the transactions contemplated
hereby.
2.1.15. Licenses and Permits. Phoenix 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 Phoenix 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 (collectively, the
"Phoenix Permits") including all such Permits listed in Schedule 2.1.15 hereto.
Each of the Phoenix Permits and Phoenix's rights with respect thereto is valid
and subsisting, in full force and effect, and enforceable by Phoenix subject to
administrative powers of regulatory agencies having jurisdiction. Phoenix is in
compliance in all material respects with the terms of each of the Phoenix
Permits. None of the Phoenix Permits has been, or to the knowledge of any of the
Shareholders, is 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
Phoenix is a party or, to the knowledge of either of the Shareholders, might
become a party or which particularly affects Phoenix, nor is any change in the
zoning or building ordinances directly affecting the real property or leasehold
interests of Phoenix, pending or, to the knowledge of either of the
Shareholders, 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
Substance of Environmental Concern (defined below), on any property presently or
previously owned, leased or operated by Phoenix, or on any property to which
Substance of Environmental Concern or waste generated by Phoenix's operations or
use of its assets were disposed of, which would have a material adverse effect
on the business or business prospects of Phoenix. The term "Substance of
Environmental Concern" means (a) any gasoline, petroleum (including crude oil or
any fraction thereof), petroleum product, polychlorinated biphenyls,
urea-formaldehyde insulation, asbestos, pollutant, contaminant, radiation and
any other substance of any kind, whether or not any such substance is defined as
toxic or hazardous under any Environmental Law (defined below), that is
regulated pursuant to or could give rise to liability under any Environmental
Law;
2.1.17.2. Permits, etc. Phoenix has, and within the period of all
applicable statutes of limitations has had, in full force and effect all
environmental permits, licenses, approvals and other authorizations required to
conduct its operations and is,
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and within the period of all applicable statutes of limitations, has been
operating in compliance thereunder;
2.1.17.3. Compliance. Phoenix's operations and use of its assets are, and
within the period of all applicable statutes of limitations, have been in
compliance with applicable Environmental Law. "Environmental Law" as used herein
means any and all laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, and other legally enforceable requirements (including, without
limitation, common law) of the United States, or any State, local, municipal or
other governmental authority or quasi-governmental authority, regulating,
relating to, or imposing liability or standards of conduct concerning protection
of the environmental or of human health, or employee health and safety as from
time to time has been or is now in effect.
2.1.17.4. Environmental Claims. No notice has been received by Phoenix or
either of the Shareholders from any entity, governmental agency or individual
regarding any existing, pending or threatened investigation, inquiry,
enforcement action. litigation, or liability, including, without limitation any
claim for remedial obligations, response costs or contribution, relating to any
Environmental Law;
2.1.17.5. Enforcement. Phoenix, and to the Shareholders' knowledge, no
predecessor of Phoenix or other party acting on behalf of Phoenix, has entered
into or agreed to any consent, decree, order, settlement or other agreement, nor
is subject to any judgment, decree, order or other agreement, in any judicial,
administrative, arbitral, or other forum, relating to compliance with or
liability under any Environmental Law;
2.1.17.6. Liabilities. Phoenix has not assumed or retained, by contract or
operation of law, any liabilities of any kind, fixed or contingent, known or
unknown, under any Environmental Law;
2.1.17.7. Renewals. Neither of the Shareholders knows of any reason Phoenix
(or its successors) would not be able to renew without material expense any of
the permits, licenses, or other authorizations required pursuant to any of the
Environmental Law to conduct and use any of Phoenix's current or planned
operations; and
2.1.17.8. Asbestos and PCBs. No material amounts of friable asbestos
currently exist on any property owned or operated by Phoenix, nor do
polychlorinated biphenyls exist in concentrations of 50 parts per million or
more in electrical equipment owned or being used by Phoenix in its operations or
on its properties.
2.1.18. Compliance with Other Laws. Phoenix is not in violation of or in
default with respect to, or in alleged violation of or alleged default with
respect to, the Occupational
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Safety and Health Act (29 U.S.C. 651 et seq.) as amended, or any other
applicable law or any applicable rule, regulation, or any writ or decree of any
court or any governmental commission, board, bureau, agency, or instrumentality,
or delinquent with respect to any report required to be filed with any
governmental commission, board, bureau, agency or instrumentality.
2.1.19. No ERISA Plans or Labor Issues. Phoenix 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"). Phoenix does not maintain any plan, program, policy, contract or
other arrangement that provides retirement, medical, dental, disability, life
insurance or other benefits to any current or former employees of Phoenix,
including any retired employees, or their beneficiaries or dependents. Phoenix
is not obligated to pay any severance or benefits to any employee or former
employee of Phoenix as the result of any change in the ownership or control of
Phoenix ("Retained Employee Liabilities"). Phoenix shall be solely responsible
for all wages, benefits, vacation pay, sick or disability pay, taxes and other
compensation and payroll items, workers' compensation and other claims, damages,
obligations, commitments and assessments with respect to its employees, and
their dependents and beneficiaries, through the date of this Agreement. Phoenix
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. Phoenix does
not have any dispute with any of its existing or former employees. There are no
labor disputes or, to the knowledge of either of the Shareholders, any disputes
threatened by current or former employees of Phoenix.
2.1.20. Investigations; Litigation. No investigation or review by any
governmental entity with respect to Phoenix or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of either of the
Shareholders, threatened, nor has any governmental entity indicated to Phoenix
an intention to conduct the same, and there is no action, suit or proceeding
pending or, to the knowledge of either of the Shareholders, threatened against
or affecting Phoenix 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 Phoenix.
2.1.21. Absence of Certain Business Practices. Neither Phoenix nor any
officer, employee or agent of Phoenix, 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 Phoenix (or to assist Phoenix in connection with any actual or
proposed transaction) which (a) might subject Phoenix to any damage or penalty
in any civil, criminal or governmental litigation or proceeding, (b) if not
given in the past, might have had a material adverse effect on the assets,
business or operations of Phoenix as reflected in the
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12/31 Financial Statements and the 4/30 Financial Statements, or (c) if not
continued in the future, might materially adversely effect the assets, business
operations or prospects of Phoenix or which might subject Phoenix to suit or
penalty in a private or governmental litigation or proceeding.
2.1.22. No Untrue Statements. Phoenix 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 Phoenix's assets and business, and such information
covers all commitments and liabilities of Phoenix 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.
2.1.23. Consents and Approvals. No consent, approval or authorization of,
or filing or registration with, any governmental or regulatory authority, or any
other person or entity other than the Shareholders, is required to be made or
obtained by Phoenix or either of the Shareholders in connection with the
execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.
2.1.24. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Phoenix 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.
2.2. General Representations of Key. Key represents and warrants to each of
the Shareholders as follows
2.2.1. Organization and Good Standing. Key is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas, has
full requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it, 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.
2.2.2. 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
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and binding obligation of Key enforceable (subject to normal equitable
principles) in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement by Key will not conflict with or result in a
violation or breach of any term or provision of, or constitute a default under
(a) the Articles of Incorporation or Bylaws of Key or (b) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Key or any of its property is bound.
2.2.3. Consents and Approvals. No consent, approval or authorization of, or
filing of a registration with, any governmental or regulatory authority, or any
other person or entity is required to be made or obtained by Key in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
2.2.4. 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 Phoenix and the Shareholders and their counsel, without the
intervention by any other person as the result of any act of Key in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payments.
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
following the date of execution hereof, 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 (a) engage in competition with the business or businesses conducted by
Phoenix, Key or any affiliate of Key, or in any service business the services of
which are provided and marketed by Phoenix, Key or any affiliate of Key in the
states of Texas, Oklahoma or New Mexico; (b) request any present customers or
suppliers of Phoenix to curtail or cancel their business with Key or any
affiliate of Key; (c) disclose to any person, firm or corporation any trade,
technical or technological secrets of Phoenix, Key or any affiliate of Key or
any details of their organization or business affairs or (d) 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 any
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applicable laws 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. Employment Agreements. From the date hereof, Butts will be employed by
Phoenix at a salary of $7,500 per month for a period of twenty-four (24) months
following the date hereof, pursuant to an Employment Agreement executed and
delivered in connection herewith.
3.3. 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 Phoenix and Key and their
representatives, 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', experts'
and consultants' fees and expenses (collectively, the "Damages") that such
indemnitees shall incur or suffer, which arise, result from or relate to (i) any
breach by either of the Shareholders of (or the failure of either of the
Shareholders 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 Key by either of the
Shareholders under this Agreement or (ii) any Retained Employee Liabilities.
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 against and with
respect to any and all Damages that such
14
<PAGE>
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 Phoenix or
either of the Shareholders by or on behalf of Key under this Agreement.
4.3. Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Sections 4.1 4.2, 4.4 or
4.5 of this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. Further, promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Article 4, such indemnified party shall, if a claim
in respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld or delayed.
4.4. Litigation 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
15
<PAGE>
indemnify, defend and hold harmless Phoenix and Key and their respective
officers, directors, employees, agents and stockholders, against and with
respect to any Damages that such indemnitees shall incur or suffer, which arise,
result from or relate to or arise out of any matters arising out of or related
to the Shareholder's or Phoenix's relationship to or dealings with Southwest
Petroservices, Inc.
4.5. Indemnification of Turn and Butts by Key for Certain Phoenix
Obligations. In addition to other remedies available to the Shareholders under
this Agreement, or at law or in equity, Key shall indemnify, defend and hold
harmless the Shareholders against and with respect to any personal liability
they may incur as a result of having guaranteed the obligations of Phoenix
listed on Schedule 4.5 hereto.
ARTICLE 5
Miscellaneous
5.1. 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
indefinitely without limitation despite any investigation made by any party
hereto or on its behalf.
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:
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If to Key
Addressed to: With copies to:
Yale E. Key, Inc. Yale E. Key, Inc.
Two Tower Center, Tenth Floor P. O. Box 10627
East Brunswick, New Jersey 08816 Midland, Texas 79702
Attn: General Counsel Attn: President
Facsimile: (908) 247-5148 Facsimile: (915) 570-8990
Lynch, Chappell & Alsup
300 N. Marienfeld, Suite 700
Midland, Texas 79701
Attn: James M. Alsup
Facsimile: (915) 683-2587
If to either Shareholder
Addressed to: With a copy to:
Mr. David Butts McMahon, Tidwell, Hansen, Atkins
P. O. Box 108 & Peacock
Midland, Texas 79702 4001 E. 42nd, Suite 200
Facsimile: (915) __________ Odessa, Texas 79762
Attn: Michael G. Kelly
Mr. Raleigh K. Turn Facsimile: (915) 363-9121
2617 Andrews Court
Moore, Oklahoma 73160
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,
17
<PAGE>
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 Texas
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the
other parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
YALE E. KEY, INC.
By:
C. Ron Laidley, President
SHAREHOLDERS
Raleigh K. Turn
David Butts
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<PAGE>
SCHEDULE 1.3
PURCHASE PRICE ADJUSTMENT DEFINITIONS
Final Net Current Value of Phoenix
"Final Net Current Value of Phoenix" means the dollar amount by which the
Final Total Current Assets exceed the Final Total Liabilities.
"Final Total Current Assets" means the dollar amount specified for the
"Total Current Assets" line item on the Final Balance Sheet.
"Final Total Liabilities" means the dollar amount of the sum of (a) the
Final Total Current Liabilities plus (b) the Final Total Long Term Liabilities.
"Final Total Current Liabilities" means the dollar amount specified for the
"Total Current Liabilities" line item on the Final Balance Sheet.
"Final Total Long Term Liabilities" means the dollar amount specified for
the "Total Long Term Liabilities" line item on the Final Balance Sheet.
4/30 Net Current Value of Phoenix
"4/30 Net Current Value of Phoenix" means the dollar amount by which the
4/30 Total Current Assets exceed the 4/30 Total Liabilities.
"4/30 Total Current Assets" means the dollar amount specified for the
"Total Current Assets" line item on the 4/30 Balance Sheet.
"4/30 Total Liabilities" means the dollar amount of the sum of (a) the 4/30
Total Current Liabilities plus (b) the 4/30 Eligible Long Term Liabilities.
"4/30 Total Current Liabilities" means the dollar amount specified for the
"Total Current Liabilities" line item on the 4/30 Balance Sheet.
"4/30 Eligible Long Term Liabilities" means the dollar amount specified for
the "Total Long Term Liabilities" line item on the 4/30 Balance Sheet less the
dollar amount specified for the "Notes Payable Related Party" line item on the
4/30 Balance Sheet.
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C:\WELLTECH\STOCKPUR\PATRICK
Stock Purchase Agreement
among
WellTech Eastern, Inc.
between
Monty D. Elmore
Dated as of July 17, 1997
<PAGE>
C:\WELLTECH\STOCKPUR\PATRICK
26
Stock Purchase Agreement
This Stock Purchase Agreement (this "Agreement") is entered into as of July
17, 1997, by and among WellTech Eastern, Inc., a Delaware corporation ("Buyer"),
and Monty D. Elmore (the "Shareholder").
WITNESSETH:
Whereas, Buyer 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, Patrick Well Service, Inc. (the "Company") is a corporation duly
organized and validly existing under the laws of the State of Kansas, with its
principal executive offices at 2007 W. 7th Street, Liberal, Kansas; and
Whereas, the Shareholder owns 82 shares (the "Company Shares") of common
stock, par value $10 per share, of the Company (the "Company Common Stock"),
which constitutes all of the issued and outstanding shares of capital stock of
the Company; and
Whereas, the Shareholder desires to sell to Buyer, and Buyer desires to
purchase from the Shareholder all of the issued and outstanding capital stock of
the Company.
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 the Company Shares. Subject to the terms and
conditions of this Agreement, on the date hereof, the Shareholder agree to sell
and convey to Buyer, free and clear of all Encumbrances (as defined in Section
2.1.8.1 hereof), and Buyer agrees to purchase and accept from the Shareholder,
all of the Company Shares. In consideration of the sale of the Company Shares,
Buyer shall pay to the Shareholder $7,000,000 in cash by wire transfer of
immediately available funds, and the Cash Adjustment Payment (as defined in
Section 1.3 hereof), if any, in accordance with Section 1.3 hereof.
1.2. Delivery of the Company Certificates. The Shareholder shall deliver to
Buyer on the date hereof duly and validly issued certificate(s) representing all
of the Company 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 Buyer.
1.3. Adjustment of Purchase Price. Buyers shall cause to be prepared and
delivered to the Shareholder a balance sheet of the Company in accordance with
generally accepted accounting principles (except for use of accelerated
depreciation method) as of the date hereof (the "Final Balance Sheet") within
sixty (60) days after the date hereof . Buyer and the Shareholder 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 90 days from the date hereof. Within 10 days
of reaching such final determination, the following adjusting payments shall be
made:
(1) If the sum of (A) Final Net Current Value of the Company (defined
below) plus (B) (the "Capital Expenditure Allowance"), which is the amount of
approved capital equipment purchases since 3/31 shown on Schedule 2.1.3.,
exceeds the 3/31 Net Current Value of the Company (defined below) Buyer shall
pay to the Shareholder the amount of such excess (the "Cash Adjustment
Payment").
(2) If the sum of (A) the Final Net Current Value of the Company plus (B)
the Capital Expenditure Allowance, is less than the 3/31 Net Current Value of
the Company, the Shareholder shall pay to Buyer the amount of such difference.
The term "Final Net Current Value of the Company" means the dollar value of
the amount by which (i) the "Total Current Assets" plus the "Total Other Assets"
as recorded on the Final Balance Sheet exceeds (ii) the "Total Liabilities" as
recorded on the Final Balance Sheet. The term "3/31 Net Current Value of the
Company" means the dollar value of the amount by which (i) the "Total Current
Assets" plus the "Total Other Assets" as recorded on the 3/31 Balance Sheet (as
defined in Section 2.1.6 hereof) exceeds (ii) the "Total Liabilities" as
recorded on the 3/31 Balance Sheet.
ARTICLE 2
Representations and Warranties
2.1. Representations and Warranties of the Shareholder. The Shareholder
represents and warrants to Buyer as follows:
2.1.1. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Kansas, 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
Shareholder is a resident of Kansas, 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 the Shareholder enforceable against each of 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 by the Shareholder 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 the Company or (ii) any obligation, indenture, mortgage, deed of
trust, lease, contract or other agreement to which the Company or the
Shareholder is a party or by which the Company or any of the Shareholder or
their respective properties are bound.
2.1.3. Capitalization. The authorized capitalization of the Company
consists of 25,000 shares of Company Common Stock, of which, as of the date
hereof, 82 shares were issued and outstanding and held beneficially and of
record by the Shareholder. On the date hereof, the Company 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 Company Common Stock are validly issued, fully paid and
non-assessable and are not subject to preemptive rights. None of the outstanding
shares of Company 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 the Company Shares. The Shareholder holds good and
valid title to all of the Company Shares, free and clear of all Encumbrances.
The Shareholder possesses full authority and legal right to sell, transfer and
assign to Buyer the Company Shares, free and clear of all Encumbrances. Upon
transfer to Buyer by the Shareholder of the Company Shares, Buyer will own the
Company Shares free and clear of all Encumbrances. There are no claims pending
or, to the knowledge of the Shareholder, threatened, against the Company or any
of the Shareholder that concern or affect title to the Company Shares, or that
seek to compel the issuance of capital stock or other securities of the Company.
2.1.5. No Subsidiaries. There is no corporation, partnership, joint
venture, business trust or other legal entity in which the Company, either
directly or indirectly through one or more intermediaries, owns or holds
beneficial or record ownership of at least a majority of the outstanding voting
securities.
2.1.6. Financial Statements. The Company has delivered to Buyer copies of
the Company's unaudited balance sheet, a copy of which is attached hereto as
Schedule 2.1.6 (the "3/31 Balance Sheet"), and related statements of income,
retained earnings and cash flow (collectively, the "3/31 Financial Statements")
as at and for the 3 months ended March 31, 1997 (the "Balance Sheet Date"). The
3/31 Financial Statements are complete in all material respects. The 3/31
Financial Statements presents fairly the financial condition of the Company as
at the dates and for the periods indicated. The 3/31 Financial Statements have
been prepared in accordance with generally accepted accounting principles
(except for use of accelerated depreciation method) applied on a consistent
basis. The accounts receivable reflected in the 3/31 Balance Sheet, or which
have been thereafter acquired by the Company, have been collected or are
believed to be collectible.
2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7 hereto, the
Shareholder has no knowledge of any liabilities or obligations or potential
liabilities or obligations, other than those (i) reflected or reserved against
in the 3/31 Balance Sheet, or (ii)incurred in the ordinary course of business
since the Balance Sheet Date that would not materially adversely affect the
value and conduct of the business of the Company.
2.1.8. Additional Company Information. Attached as Schedule 2.1.8 hereto
are true, complete and correct lists to the best of Shareholder's knowledge 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
the Company, 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, Equipment and Supplies. All rigs, carriers, rig
equipment, machinery, transportation equipment, supplies, tools, equipment,
furnishings, and fixtures owned, leased or subject to a contract of purchase and
sale, or lease commitment, by the Company with a description of the nature and
amount of any Encumbrances thereon;
2.1.8.3. Receivables. All accounts and notes receivable of the Company.
2.1.8.4. Payables. All accounts payable of the Company;
2.1.8.5. Insurance. All insurance policies or bonds currently maintained by
the Company, including title insurance policies, with respect to the Company,
including those covering the Company'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;
2.1.8.6. Contracts. All contracts which are to be performed in whole or in
part after the date hereof;
2.1.8.7. Employee Compensation Plans. All bonus, incentive compensation,
deferred compensation, profit-sharing, retirement, pension, welfare, group
insurance, death benefit, or other employee benefit or fringe benefit plans,
arrangements or trust agreements of the Company or any employee benefit plan
maintained by the Company (collectively, "Employee Plans"), together with copies
of the most recent reports with respect to such Employee Plans, arrangements, or
trust agreements filed with any governmental agency and all Internal Revenue
Service determination letters and other correspondence from governmental
entities that have been received with respect to such plans, arrangements or
agreements.
2.1.8.8. Employee Lists and Salaries. The names and salary rates of all
present employees of the Company, and, to the extent existing on the date of
this Agreement, all arrangements with respect to any bonuses to be paid to them
from and after the date of this Agreement;
2.1.8.9. Bank Accounts. The name of each bank in which The Company has an
account and the names of all persons authorized to draw thereon;
2.1.8.10. Employee Agreements. Any collective bargaining agreements of the
Company 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 the Company;
2.1.8.11. Intellectual Property. All patents, patent applications,
trademarks and service marks (including registrations and applications
therefor), copyrights and written know-how, trade secrets and all other similar
proprietary data and the goodwill associated therewith (collectively, the
"Intellectual Property") used by the Company;
2.1.8.12. Trade Names. All trade names, assumed names and fictitious names
used or held by the Company, whether and where such names are registered and
where used;
2.1.8.13. Licenses and Permits. All permits, authorizations, certificates,
approvals, registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, licenses and other rights of every kind and character
(collectively, the "Permits") of the Company under which it conducts its
business.
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 the Company 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 the Company is a guarantor, endorser, co-maker, surety,
or accommodation maker, or is contingently liable therefor (other than
indemnification provisions in master service agreements) 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 3/31 Balance Sheet;
2.1.8.17. Leases. All leases to which the Company is a party;
2.1.8.18. Environment. All environmental permits, approvals,
certifications, licenses, registrations, orders and decrees applicable to
current operations conducted by the Company and all environmental audits,
assessments, investigations and reviews conducted by the Company within the last
five years or otherwise in the Company's possession on any property owned,
leased or used by the Company.
2.1.9. No Defaults. The Company is not in default in any obligation or
covenant on its part to be performed under any obligation, lease, contract,
order, plan or other arrangement to the best of Shareholder's knowledge.
2.1.10. Absence of Certain Changes and Events. Other than as a result of
the transactions contemplated by this Agreement, since the Balance Sheet Date,
there has not been to Shareholder's knowledge:
2.1.10.1. Financial Change. Any material adverse change in the financial
condition, backlog, operations, assets, liabilities or business of the Company;
2.1.10.2. Property Damage. Any material damage, destruction, or loss to the
business or properties of the Company (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 Company Common Stock, or any
direct or indirect redemption, purchase or any other acquisition by the Company
of any such stock;
2.1.10.4. Capitalization Change. Any change in the capital stock or in the
number of shares or classes of the Company's authorized or outstanding capital
stock as described in Section 2.1.3 hereof;
2.1.10.5. Labor Disputes. Any labor or employment dispute of whatever
nature; or
2.1.10.6. Other Material Changes. Any other material event or condition
known to the Shareholder particularly pertaining to and adversely affecting the
operations, assets or business of the Company.
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 the
Company 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 such returns are true and correct; the Company has only done business in
Texas, Kansas, Oklahoma and Colorado; 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 the Company; and the tax provision reflected in
the 3/31 Balance Sheet is adequate, in accordance with generally accepted
accounting principles (except for use of accelerated depreciation method), to
cover liabilities of the Company at the date thereof for all taxes, including
any assessed interest, assessed penalties and additions to taxes of any
character whatsoever applicable to the Company or its assets or business. No
waiver of any statute of limitations executed by the Company with respect to any
income or other tax is in effect for any period. Other than as disclosed on
Schedule 2.1.11 hereto, the income tax returns of the Company have never been
examined by the Internal Revenue Service or the taxing authority of any other
jurisdiction. There are no tax liens on any assets of The Company except for
taxes not yet currently due. The Company is not subject to any tax-sharing or
allocation agreement. The Company is not, nor has it ever attempted to become a
Subchapter S-Corporation under the Internal Revenue Code of 1986, as amended.
The Company is not and never has been, a member of a consolidated group subject
to Treasury Regulation 1.1502-6 or any similar provision.
2.1.12. Intellectual Property. The Company owns or possesses licenses to
use all Intellectual Property that is either material to the business of the
Company or that is necessary for the rendering of any services rendered by the
Company and the use or sale of any equipment or products used or sold by the
Company, including all such Intellectual Property listed in Schedule 2.1.8
hereto (the "Required Intellectual Property"). The Required Intellectual
Property is owned or licensed by the Company free and clear of any Encumbrance.
The Company has not granted to any other person any license to use any Required
Intellectual Property. The Company has not received any notice of infringement,
misappropriation, or conflict with, the Intellectual Property rights of others
in connection with the use by the Company of the Required Intellectual Property
or otherwise in connection with the Company's operation of its business.
2.1.13. Title to and Condition of Assets. Except as disclosed on Schedule
2.1.13 hereto, the Company has good, indefeasible and marketable title to all
its properties, interests in properties and assets, real and personal, reflected
in the 3/31 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
3/31 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. To Shareholder's knowledge, all leases
pursuant to which the Company 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 the Company and in respect to which the Company has not
taken adequate steps to prevent a default from occurring. To Shareholder's
knowledge, the buildings and premises of the Company that are used in its
business are in good operating condition and repair, subject only to ordinary
wear and tear. To Shareholder's knowledge, all rigs, rig equipment, machinery,
transportation equipment, tools and other major items of equipment of the
Company 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 Shareholder's knowledge, all such assets conform to all
applicable laws governing their use. To Shareholder's knowledge, no notice of
any violation of any law, statute, ordinance, or regulation relating to any such
assets has been received by the Company or any of the Shareholder, except such
as have been fully complied with.
2.1.14. Contracts. To Shareholder's knowledge, all contracts, leases, plans
or other arrangements to which the Company 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 the Company. 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 Shareholder knows will have an adverse effect on the Company. The
Shareholder has no knowledge that any customer of the Company is going to cease
doing business with the Company (or its successors) as a result of the
consummation of the transactions contemplated hereby.
2.1.15. Licenses and Permits. To Shareholder's knowledge, the Company
possesses all Permits necessary under law or otherwise for the Company 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, including all such Permits listed in
Schedule 2.1.8 hereto (collectively, the "Required Permits"); each of the
Required Permits and the Company's rights with respect thereto is valid and
subsisting, in full force and effect, and enforceable by the Company subject to
administrative powers of regulatory agencies having jurisdiction; the Company is
in compliance in all respects with the terms of each of the Required Permits;
and none of the Required Permits have been, or to the knowledge the Shareholder,
is threatened to be, revoked, canceled, suspended or modified.
2.1.16. Litigation. To Shareholder's knowledge, except as set forth in
Schedule 2.1.16 hereto, there is no suit, action, or legal, administrative,
arbitration, or other proceeding or governmental investigation pending or
threatened to which the Company is a party which particularly affects the
Company or its assets, nor is any change in the zoning or building ordinances
directly affecting the real property or leasehold interests of the Company.
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
Substance of Environmental Concern, on any property presently or previously
owned, leased or operated by the Company, or on any property to which any
Substance of Environmental Concern or waste generated by the Company's
operations or use of its assets were disposed of, which would have a result a
material adverse effect on the business or business prospects of the Company.
The term "Substance of Environmental Concern" means (a) any gasoline, petroleum
(including crude oil or any fraction thereof), petroleum product,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutant,
contaminant, radiation and any other substance of any kind, whether or not any
such substance is defined as toxic or hazardous under any Environmental Law (as
defined in Section 2.1.17.3 hereof), that is regulated pursuant to or could give
rise to liability under any Environmental Law;
2.1.17.2. Permits, etc. The Company has, and within the period of all
applicable statute of limitations has had, in full force and effect all
environmental Permits required to conduct its operations, and is, within the
period of all applicable statutes of limitations has been, operating in
compliance thereunder;
2.1.17.3. Compliance. The Company's operations and use of its assets are,
and within the period of all applicable statutes of limitations, have been in
compliance with applicable Environmental Law. "Environmental Law" as used herein
means any and all laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, and other legally enforceable requirements (including, without
limitation, common law) of the United States, or any State, local, municipal or
other governmental authority or quasi-governmental authority, regulating,
relating to, or imposing liability or standards of conduct concerning protection
of the environmental or of human health, or employee health and safety as from
time to time has been or is now in effect.
2.1.17.4. Environmental Claims. No notice has been received by the Company
or the Shareholder from any entity, governmental agency or individual regarding
any existing, pending or threatened investigation, inquiry, enforcement action.
litigation, or liability, including, without limitation any claim for remedial
obligations, response costs or contribution, relating to any Environmental Law;
2.1.17.5. Enforcement. Neither the Company nor any predecessor of the
Company or other party acting on behalf of the Company, has entered into or
agreed to any consent, decree, order, settlement or other agreement, nor is
subject to any judgment, decree, order or other agreement, in any judicial,
administrative, arbitral, or other forum, relating to compliance with or
liability under any Environmental Law;
2.1.17.6. Liabilities. The Company has not assumed or retained, by contract
or operation of law, any liabilities of any kind, fixed or contingent, known or
unknown, under any Environmental Law, other than master service agreements,
leases, or other contracts made available to Buyer.
2.1.17.7. Renewals. The Shareholder does not know of any reason the Company
(or its successors) would not be able to renew without material expense any of
the permits, licenses, or other authorizations required pursuant to any of the
Environmental Law to conduct and use any of the Company's current or planned
operations; and
2.1.17.8. Asbestos and PCBs. To Shareholder's knowledge, no material
amounts of friable asbestos currently exist on any property owned or operated by
the Company, nor do polychlorinated biphenyls exist in concentrations of 50
parts per million or more in electrical equipment owned or being used by the
Company in its operations or on its properties.
2.1.18. Compliance with Other Laws. To Shareholder's knowledge, the Company
is not in violation of or in default with respect to, or in alleged violation of
or alleged default with respect to, the Occupational Safety and Health Act (29
U.S.C. 651 et seq.) as amended, or any other applicable law or any applicable
rule, regulation, or any writ or decree of any court or any governmental
commission, board, bureau, agency, or instrumentality, or delinquent with
respect to any report required to be filed with any governmental commission,
board, bureau, agency or instrumentality.
2.1.19. Employee Plans and Labor Issues. To Shareholder's knowledge, all
Employee Plans (as defined in Section 2.1.8.7) covering active, former or
retired employees of the Company are listed on Schedule 2.1.8.7. Solely for
purposes of the representations in this Section 2.1.19, the term "Company" means
Patrick Well Service, Inc., as well as any other entity which is considered one
employer with Patrick Well Service, Inc., under Sections 414(b), (c), (m) and
(o) of the Internal Revenue Code of 1986, as amended (the "Code"). The Company
has made available to Buyer a copy of each Employee Plan, any related trust
agreement and annuity or insurance contract, and each plan's most recent annual
report (Form 5500 series) filed with the Internal Revenue Service, if
applicable. The only Employee Plan that the Company maintains, or that the
Company or any predecessor thereto has ever maintained, that is intended to be
qualified under Section 401(a) of the Code is the Patrick Well Service, Inc.,
Profit Sharing Plan (the "Profit Sharing Plan") and, without limitation, no
pension plan or multiemployer plan subject to Title IV (Plan Termination
Insurance) of the Employee Retirement Income Security Act 1974, as amended
("ERISA") or the minimum funding requirements of Section 412 of the Code has
ever been maintained. Each Employee Plan has been maintained and administered,
in all material respects, in compliance with its terms and with the requirements
prescribed by any applicable statutes, orders, rules and regulations, including
the Code and ERISA, and (i) all required Forms 5500 for the Employee Plans have
been timely filed with the Internal Revenue Service or an extension of the
filing due date has been granted by the Internal Revenue Service; (ii) the
Profit Sharing Plan has received a current favorable determination letter from
the Internal Revenue Service to the effect that the Profit Sharing Plan is
qualified under Section 401(a) of the Code, and nothing has occurred since the
effective date of such determination letter to adversely affect, or cause the
appropriate governmental agency or authority to revoke, such qualification or
approval; (iii) there are no pending or anticipated claims against or otherwise
involving any of the Employee Plans, and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Employee Plan
activities) has been brought against or with respect to any Employee Plan; (iv)
all contributions, reserves or premium payments required to be made to the
Employee Plans have either been made or properly accrued on the Company's
financial statements; (v) the Company does not have any obligations for retiree
health and life benefits under any Employee Plan, (vi) there are no restrictions
on the rights of the Company to amend or terminate any Employee Plan without
incurring any liability thereunder; and (vii) none of the Employee Plans provide
for additional or accelerated payments or benefits to employees or shareholders
of the Company upon a change of control or ownership of the Company.
The Company is not obligated to pay any severance or benefits to any
employee or former employee of the Company as the result of any change in the
ownership or control of the Company. The Company has not engaged in any unfair
labor practices which could reasonably be expected to result in an adverse
effect on its operations or assets. The Company 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 Shareholder, any disputes threatened by current or
former employees of the Company. 2.1.20. Investigations; Litigation. To
Shareholder's knowledge, no investigation or review by any governmental entity
with respect to the Company or any of the transactions contemplated by this
Agreement is pending or threatened, nor has any governmental entity indicated to
the Company an intention to conduct the same, and there is no action, suit or
proceeding pending or, to the knowledge of the Shareholder, threatened against
or affecting the Company 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 the Company.
2.1.21. Absence of Certain Business Practices. To Shareholder's knowledge,
neither the Company nor any officer, employee or agent of the Company, 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 the Company (or to assist the Company in
connection with any actual or proposed transaction) which (i) might subject the
Company 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 the Company as
reflected in the 3/31 Financial Statements, or (iii) if not continued in the
future, might materially adversely effect the assets, business operations or
prospects of the Company or which might subject the Company to suit or penalty
in a private or governmental litigation or proceeding.
2.1.22. Copies of Documents - No Untrue Statements. The Shareholder has
made available to Buyer true, complete and correct copies of all contracts,
documents concerning all litigation and administrative proceedings, licenses,
permits, insurance policies, lists of suppliers and customers, and records
relating principally to the Company's assets and business, and such information
covers all commitments and liabilities of the Company relating 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 known material fact necessary to make the statements
made herein and therein not misleading in any material respect.
2.1.23. Consents and Approvals. No consent, approval or authorization of,
or filing or registration with, any governmental or regulatory authority, or any
other person or entity other than the Shareholder, is required to be made or
obtained by the Company or of the Shareholder in connection with the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.
2.1.24. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by 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
payments.
ARTICLE 3
Additional Agreements
3.1. Noncompetition. Except as otherwise consented to or approved in
writing by Buyer, the Shareholder agrees that for a period of 60 months from the
date hereof, 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 well servicing business or businesses conducted by the Company, on the date
hereof, or in any service business the services of which are provided and
marketed by the Company, on the date hereof in any area of the state of the
United States, or any foreign country in which the Company, transacts business
on the date hereof; (ii) request any present customers or suppliers of the
Company to curtail or cancel their business with Buyer or any affiliate of
Buyer; (iii) disclose to any person, firm or corporation any trade, technical or
technological secrets of the Company, Buyer or any affiliate of Buyer or any
details of their organization or business affairs or (iv) induce or actively
attempt to influence any employee of the Company, Buyer or any affiliate of
Buyer to terminate his employment; provided, however, that the Shareholder shall
be able to buy, sell, build and overhaul well servicing rigs, and to work on any
rig on Shareholder's own production. Shareholder 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
Shareholder may have under the laws of the states in which he does business
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 the Company,
Buyer 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 the
Company, Buyer or any affiliate of Buyer 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. The Shareholder 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 Buyer contained in this
Agreement, and for other good and valuable consideration, receipt of which is
hereby acknowledged.
3.2. Release of Shareholder from Guaranty. Within 30 days, Buyers shall
obtain a complete release of the personal guaranty of Shareholder and his wife
from NationsBank, Liberal, Kansas, and indemnify Shareholder and his wife during
that period of time should the guaranty be invoked by NationsBank.
3.3. 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 and Remedies Against the Shareholder. In addition
to any other remedies available to Buyer under this Agreement, or at law or in
equity, the Shareholder shall indemnify, defend and hold harmless the Company,
Buyer and their affiliates and their respective officers, directors, employees,
agents and stockholders (collectively, the "Buyer Indemnified Parties"), 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 fees and expenses of attorneys,
consultants and experts (collectively, the "Damages") in excess of $150,000 in
the aggregate that the Buyer Indemnified Parties shall incur or suffer, which
arise, result from or relate to any breach by the Shareholder of (or the failure
of 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 Buyer by the Shareholder
under this Agreement or provided, however, that the Shareholder shall not be
required to so indemnify, defend and hold harmless Buyer Indemnified Parties
against and with respect to any Damages incurred as a result of a breach by the
Shareholder of his representations and warranties in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to
Buyer by the Shareholder under this Agreement for which Buyer fails to provide
written notice of a claim for such Damages to the Shareholder 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 and Remedies Against Buyer. In addition to any
other remedies available to the Shareholder under this Agreement or at law or in
equity, Buyer shall indemnify and hold harmless the Shareholder, his wife,
children, agents, representatives, attorneys, successors, heirs, executors and
administrators (collectively the "Shareholder Indemnified Parties") from any
Damages that the Shareholder Indemnified Parties shall incur or suffer, which
arise, result from or relate to (i) any breach of or failure by Buyer to perform
any of its representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to the Shareholder by or on behalf of Buyer under this Agreement or
(ii) the conduct of the Company's business on or after the date hereof,
provided, however, that Buyer shall not be required to so indemnify, defend and
hold harmless the Shareholder Indemnified Parties as a result of a breach by
Buyer of any of its representations and warranties in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to the
Shareholder by Buyer under this Agreement for which the Shareholder fails to
provide written notice of the claim for such damages to Buyer 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 Procedure. In the event that any party hereto
discovers or otherwise becomes aware of an indemnification claim arising under
Section 4.1 or 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 Section 4.1 or 4.2 hereof, 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 or delayed.
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 as 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, 35th Floor
East Brunswick, New Jersey 08816 Houston, Texas 77210-4744
Attn: General Counsel Attn: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
<PAGE>
If to Shareholder
Addressed to: With a copy to:
Monty D. Elmore Gene H. Sharp, Esq.
2133 Sierra McQueen, McKinley, Dreiling, Morain & Tate, P.A.
Liberal, Kansas 67901 419 N. Kansas - P. O. Box 2619
Liberal, Kansas 67905-2619
Facsimile: (316) 624-9163
Rex A. Sharp, Esq.
Husch & Eppenberger
1200 Main Street, Suite 1700
Kansas City, Missouri 64105-2100
Facsimile: (816) 421-0596
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 Kansas.
<PAGE>
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:________________________________________
Name: Bill Bixler
Title: Vice President
SHAREHOLDER
____________________________________________
Monty D. Elmore
C:\DOCUMENT\KENTSTAG.07
EXECUTION COPY
Stock Purchase Agreement
Between
WellTech Eastern, Inc.
and
Kenting Energy Services Inc.
Dated as of July 30, 1997
<PAGE>
Stock Purchase Agreement
This Stock Purchase Agreement (this AAgreement@) is entered into as of July
30, 1997 by and between WellTech Eastern, Inc., a Delaware corporation
(ABuyer@), and Kenting Energy Services Inc., an Alberta corporation (the
AShareholder@).
- --------------------------------------------------------------------------------
WITNESSETH :
- --------------------------------------------------------------------------------
Whereas, Buyer 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, Kenting Holdings (Argentina) S.A. (the ACompany@) is a corporation
duly organized and validly existing under the laws of the republic of Argentina,
with its principal executive offices at Uruguay 1134-Piso 3, (1016) Buenos
Aires, Argentina; and
Whereas, Kenting Drilling (Argentina) S.A. (the ACompany Subsidiary@) is a
subsidiary of the Company and is a corporation duly organized and validly
existing under the laws of the republic of Argentina, with its principal
executive offices at Uruguay 1134-Piso 3, (1016) Buenos Aires, Argentina; and
Whereas, the Shareholder owns 15,300,000 shares (the ACompany Shares@) of
common stock, par value $1.00 per share, of the Company (ACompany Common
Stock@), which constitutes all of the issued and outstanding shares of capital
stock of the Company
Whereas, the Company owns 24,545,362 shares (the ACompany-Owned Subsidiary
Shares@) of common stock, par value $1.00 per share, of the Company Subsidiary
(ASubsidiary Common Stock@), and the Shareholder owns 37,386 shares (the
AShareholder-Owned Subsidiary Shares@) of Subsidiary Common Stock, which
constitutes all of the issued and outstanding shares of capital stock of the
Company Subsidiary; and
Whereas, the Shareholder desires to sell to Buyer, and Buyer desires to
purchase from the Shareholder all of the issued and outstanding capital stock of
the Company and all of the shares of capital stock of the Company Subsidiary
owned by the Shareholder.
Now, Therefore, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto hereby agree as
follows:
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
C:\DOCUMENT\KENTSTAG.07
ARTICLE 1
ARTICLE 1 Purchase and SalePurchase and Sale
1.1. Purchase and Sale of the Company Shares. Subject to the terms and
conditions of this Agreement, on the date hereof, the Shareholder agrees to sell
and convey to Buyer, free and clear of all Encumbrances (defined below) and
Buyer agrees to purchase and accept from the Shareholder, all of the Company
Shares and all of the Shareholder-Owned Subsidiary Shares. In consideration of
the sale of the Company Shares and the Shareholder-Owned Subsidiary Shares,
Buyer shall pay to the Shareholder $9,575,000 in cash by wire transfer of
immediately available funds, and the Cash Adjustment Payment (as defined in
Section 1.3 hereof), if any, in accordance with Section 1.3 hereof. In addition,
on the date hereof Buyer shall pay to the Shareholder $525,000 in satisfaction
of all debts remaining due to the Shareholder or irs affiliates on the date
hereof. The term AEncumbrances@ 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.
1.2. Recording the Transfer of Shares. The parties hereto acknowledge that
the Company Shares are currently held of record as follows: 15,299,988 shares
(the AKID Company Shares@) by Kenting Drilling International, Inc., a
predecessor (by amalgamation) to the Shareholder (AKID@) and 12 shares (the
AKESL Company Shares@) by Kenting Energy Services Ltd, a predecessor (by
amalgamation) to the Shareholder (AKESL@). The parties hereto acknowledge that
the Shareholder-Owned Subsidiary Shares are currently held of record by KID. The
Shareholder represents and warrants to Buyer that it has validly acquired the
KID Company Shares, the KESL Company Shares and the Shareholder-Owned Subsidiary
Shares by means of an amalgamation of various affiliated corporate entities and
a subsequent liquidation of the resulting entity without having such
acquisitions (the AShareholder Stock Acquisitions@) formally recorded in the
appropriate stock records of the Company and the Company Subsidiary. On the date
hereof, the Shareholder shall caused to be filed in the appropriate stock
records of the Company and the Company Subsidiary those transfer documents
necessary to properly record the Shareholder Stock Acquisitions in accordance
with Argentina law (the ADelinquent Filings@) and those transfer documents
necessary to properly record the transfer of the Company Shares and the
Shareholder-Owned Shares hereunder in accordance with Argentina law such that,
as a result of such filings, the Buyer (and its designees) will become the
record and beneficial owners of the Company Shares and the Shareholder-Owned
Subsidiary Shares.
1.3 Adjustment of Purchase Price. Buyer shall cause to be prepared and
delivered to the Shareholder a consolidated balance sheet of the Company as of
the date hereof (the AFinal Balance Sheet@) within sixty (60) days after the
date hereof, which balance sheet will be prepared in accordance with Canadian
generally accepted accounting principles, consistently applied in all respects
(which shall not include any reserve or accruals for employee termination
costs). Buyer and the Shareholder shall jointly review the Final Balance Sheet,
and endeavor in good faith to resolve all disagreements regarding the entries
thereon and reach a final determination thereof within 90 days from the date
hereof. In the event that the parties cannot agree on the entries to be placed
on the Final Balance Sheet, the dispute will be resolved by an independent
accounting firm mutually agreed to by the Shareholder and Buyer (such agreement
not to be unreasonably withheld or delayed) whose resolution shall be binding on
and enforceable against the parties hereto. Within 10 days of reaching such
final determination, the following adjusting payments shall be made:
(1) If the sum of (A) the Final Net Current Value of the Company (defined
below) plus (B) $100,056 (the ACapital Expenditure Amount@) exceeds the 4/30 Net
Current Value of the Company (defined below), Buyer shall pay to the Shareholder
the amount of such excess (the ACash Adjustment Payment@).
(2) If the sum of (A) the Final Net Current Value of the Company plus the
Capital Expenditure Amount is less than the 4/30 Net Current Value of the
Company, the Shareholder shall pay to Buyer the amount of such difference.
The term AFinal Net Current Value of the Company@ means the dollar value of
the amount by which (i) the ATotal Current Assets@ (excluding any prepaid job
costs relating to the assets referred to in Schedule 2.1.8 hereto (the AExcluded
Assets@) transferred from the Company to the Shareholder or an associated
company of the Shareholder in anticipation of the consummation of the
transactions contemplated hereby but including the book value of any
AInventories@ included in the Excluded Assets) plus the AOther Assets@ minus the
ADue from Kenting Group@ as recorded on the Final Balance Sheet exceeds (ii) the
ATotal Current Liabilities@ plus the A Term Debt@ plus the ADeferred Income
Taxes@ minus the ADue to Kenting Group@ as recorded on the Final Balance Sheet.
The term A4/30 Net Current Value of the Company@ means the dollar value of the
amount by which (i) the ATotal Current Assets@ (excluding any prepaid job costs
relating to the Excluded Assets but including the book value of any
AInventories@ included in the Excluded Assets) plus the AOther Assets@ minus the
ADue from Kenting Group@ as recorded on the 4/30 Balance Sheet (as defined in
Section 2.1.6 hereof) exceeds (ii) the ATotal Current Liabilities@ plus the
ATerm Debt@ plus the ADeferred Income Taxes@ minus the ADue to Kenting Group@ as
recorded on the 4/30 Balance Sheet.
ARTICLE 2
Representations and Warranties ARTICLE 2 Representations and Warranties
2.1. Representations and Warranties of the Shareholder.Representations and
Warranties of the Shareholder. The Shareholder represents and warrants to Buyer
as follows:
2.1.1. Organization and Standing.Organization and Standing. Each of the
Company, the Company Subsidiary and the Shareholder is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction 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 and is 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 an adverse effect on its financial condition, properties or
business.
2.1.2. Agreement Authorized and its Effect on Other Obligations.Agreement
Authorized and its Effect on Other Obligations. The execution and delivery of
this Agreement have been authorized by all of necessary corporate action on the
part of the Shareholder, and the Shareholder has the legal capacity and
requisite power and authority to enter into, and perform its obligations under
this Agreement. This Agreement is a valid and binding obligation of the
Shareholder enforceable against the Shareholder (subject to normal equitable
principles) in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting the rights of creditors generally. The execution,
delivery and performance of this Agreement by the Shareholder will not conflict
with or result in a violation or breach of any term or provision of, nor
constitute a default under (i) any of the organizational or other documents of
the Company or the Company Subsidiary or (ii) any obligation, indenture,
mortgage, deed of trust, lease, contract or other agreement to which the
Company, the Company Subsidiary or the Shareholder is a party or by which the
Company, the Company Subsidiary or the Shareholder or their respective
properties are bound.
2.1.3. Capitalization.Capitalization. The authorized capitalization of the
Company consists of 15,300,000 shares of Company Common Stock, of which, as of
the date hereof, 15,300,000 shares were issued and outstanding and, following
the recording of the Delinquent Filings, are held beneficially and of record by
the Shareholder. On the date hereof, the Company 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 Company Common Stock are validly issued, fully paid and non-assessable
and are not subject to preemptive rights. None of the outstanding shares of
Company 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. The authorized capitalization of the Company
Subsidiary consists of 24,582,748 shares of Subsidiary Common Stock, all of
which shares were issued and outstanding as of the date hereof, with 24,545,362
shares held beneficially and of record by the Company (following the recording
of the Delinquent Filings) and 37,386 shares held beneficially and of record by
the Shareholder (following the recording of the Delinquent Filings). On the date
hereof, the Company Subsidiary 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
Subsidiary Common Stock are validly issued, fully paid and non-assessable and
are not subject to preemptive rights. None of the outstanding shares of
Subsidiary 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 the Company Shares.Ownership of the Company Shares.
Following the recording of the Delinquent Filings, the Shareholder holds good
and valid title to all of the Company Shares and the Shareholder-Owned
Subsidiary Shares, free and clear of all Encumbrances. Following the recording
of the Delinquent Filings, the Shareholder possesses full authority and legal
right to sell, transfer and assign to Buyer the Company Shares and the
Shareholder-Owned Subsidiary Shares, free and clear of all Encumbrances. Upon
transfer to Buyer by the Shareholder of the Company Shares and the
Shareholder-Owned Subsidiary Shares, Buyer will own the Company Shares and the
Shareholder-Owned Subsidiary Shares free and clear of all Encumbrances. There
are no claims pending or, to the knowledge of the Shareholder, threatened,
against the Company or the Shareholder that concern or affect title to the
Company Shares or the Shareholder-Owned Subsidiary Shares, or that seek to
compel the issuance of capital stock or other securities of either the Company
or the Company Subsidiary.
2.1.5. No Subsidiaries2.1.5. No Subsidiaries. Other than the Company
Subsidiary, there is no corporation, partnership, joint venture, business trust
or other legal entity in which the Company, 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 Statements2.1.6.Financial Statements. The Company has
delivered to Buyer copies of the unaudited consolidated balance sheet of the
Company and the Company Subsidiary (the A4/30 Balance Sheet@) and related
consolidated statements of income, copies of which are attached hereto as
Schedule 2.1.6 (collectively, the A4/30 Financial Statements@), as at and for
the four months ended April 30, 1997 (the ABalance Sheet Date@). The 4/30
Financial Statements are complete in all material respects. The 4/30 Financial
Statements presents fairly in all material respects the consolidated financial
condition of the Company as at the dates and for the periods indicated. The 4/30
Financial Statements have been prepared in accordance with Canadian generally
accepted accounting principles applied on a consistent basis.
2.1.7. Liabilities2.1.7.Liabilities. Except as provided in Schedule 2.1.7
hereto, to the knowledge of any of (i) the directors and officers of the
Company, (ii) the directors and officers of the Company Subsidiary, (iii) Gary
Meier and (iv) Ricardo Lopez Olaciregui (collectively, the ACompany
Management@), neither the Company nor the Company Subsidiary has any liabilities
or obligations, either accrued, absolute or contingent, nor are any of the
foregoing persons aware of any potential liabilities or obligations (including,
without limitation, liabilities related to non-performance of contracts,
non-payment of taxes, infringement of the intellectual property rights of
others, violations of applicable laws, current or pending litigation,
environmental conditions or labor disputes) that could materially adversely
affect the value and conduct of the business of the Company and the Company
Subsidiary, taken as a whole, other than those required to be reflected or
properly reserved against in the 4/30 Balance Sheet and the Final Balance Sheet
(and which will be reflected in an accurate calculation of the 4/30 Net Current
Value of the Company and the Final Net Current Value of the Company). 2.1.8.
Absence of Certain Changes and Events2.1.8. Absence of Certain Changes and
Events. The Shareholder has caused the Company and the Company Subsidiary to
make those fixed asset transfers and those balance sheet adjustments referred to
in Schedule 2.1.8 hereto. To the knowledge of Company Management, other than the
transactions specified in Schedule 2.1.8 hereto, since the Balance Sheet Date,
there has not been any material reduction in the value of the fixed assets of
the Company or the Company Subsidiary or the occurrence of any other transaction
or event that could materially adversely affect the value and conduct of the
business of the Company and the Company Subsidiary, taken as a whole, other than
those that will be reflected in an accurate calculation of the Final Net Current
Value of the Company.
2.1.9. Title to and Condition of Assets2.1.9. Title to and Condition of
Assets. Except as disclosed on Schedule 2.1.9 hereto, the Company and the
Company Subsidiary have good title to all their assets reflected in the 4/30
Balance Sheet, including, without limitation, all of the Company-Owned
Subsidiary Shares, free and clear of any Encumbrance of any nature whatsoever,
except (i) Encumbrances reflected in the 4/30 Balance Sheet, (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.
2.1.10. Consents and Approvals. All consents, approvals and authorizations
required to be made or obtained by the Company, the Company Subsidiary or the
Shareholder in connection with the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby have been
obtained.
2.1.11. Finder=s Fee2.1.11. Finder=s Fee. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on by the
Shareholder and its 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 payments.
2.2. Representations and Warranties of Buyer2.2. Representations and
Warranties of Buyer. Buyer represents and warrants to the Shareholder as
follows:
2.2.1. Organization and Good Standing2.2.1. Organization and Good Standing.
Buyer is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, has full requisite corporate power and
authority to carry on its business as it is currently conducted, and to own and
operate the properties currently owned and operated by it, and is duly qualified
or licensed to do business and is in good standing as a foreign corporation
authorized to do business in all jurisdictions in which the character of the
properties owned or the nature of the business conducted by it would make such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not have an adverse effect on its financial
condition, properties or business. 2.2.2. Agreement Authorized and its Effect on
Other Obligations2.2.2. 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
Buyer, and this Agreement is a valid and binding obligation of Buyer enforceable
(subject to normal equitable principles) in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, debtor
relief or similar laws affecting the rights of creditors generally. The
execution, delivery and performance of this Agreement by Buyer will not conflict
with or result in a violation or breach of any term or provision of, or
constitute a default under (a) the Certificate of Incorporation or Bylaws of
Buyer or (b) any obligation, indenture, mortgage, deed of trust, lease, contract
or other agreement to which Buyer or any of its property is bound.
2.2.3. Consents and Approvals 2.2.3. Consents and Approvals. No consent,
approval or authorization of, or filing of a registration with, any governmental
or regulatory authority, or any other person or entity is required to be made or
obtained by Buyer in connection with the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby.
2.2.4. Finder=s Fee2.2.4. 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 Company, the Company Subsidiary and the
Shareholder and its counsel, without the intervention by 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 payments.
ARTICLE 3
Additional Agreements ARTICLE 3 Additional Agreements 3.1.
Noncompetition.Noncompetition. Except as otherwise consented to or approved in
writing by Buyer, the Shareholder agrees that for a period of 42 months from the
date hereof, it will not (and will cause its affiliates not to), 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 businesses involved in providing well servicing or
shallow/moderate depth drilling services within the country of Argentina; (ii)
request any present customers or suppliers of the Company or the Company
Subsidiary to curtail or cancel their business with the Company, the Company
Subsidiary, Buyer or any affiliate of Buyer; (iii) disclose to any person, firm
or corporation any trade, technical or technological secrets of the Company, the
Company Subsidiary, Buyer or any affiliate of Buyer or any details of their
organization or business affairs or (iv) induce or actively attempt to influence
any employee of the Company, the Company Subsidiary, Buyer or any affiliate of
Buyer to terminate his employment. The Shareholder 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
Shareholder may have under the laws of any jurisdiction in which they do
business 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 Shareholder further agrees and acknowledges
that the Company, the Company Subsidiary, Buyer and its affiliates do not have
any adequate remedy at law for the breach or threatened breach by the
Shareholder of this covenant, and agree that the Company, the Company
Subsidiary, Buyer or any affiliate of Buyer 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 3.1 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 3.1 are being executed and delivered by such
Shareholder in consideration of the covenants of Buyer contained in this
Agreement, and for other good and valuable consideration, receipt of which is
hereby acknowledged.
3.2. Employee Matters. From the date hereof, the Company and the Company
Subsidiary shall remain responsible for all costs associated with the
termination of any of their employees terminated after the date hereof;
provided, however, that the Shareholder shall be solely responsible for any and
all liabilities, costs and expenses associated with the termination of Gary
Meier by either the Company or the Company Subsidiary, regardless of whether he
is terminated before, on or after the date hereof (the AMeier Termination@).
3.3. 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. Without limiting the generality
of the foregoing, the Shareholder shall take those actions reasonably requested
by Buyer to (i) properly record the transfer of the Company Shares and the
Shareholder-Owned Subsidiary Shares in accordance with Section 1.2 hereof and
(ii) resolve the title exceptions described in Schedule 2.1.9 hereto.
ARTICLE 4
Indemnification ndemnification 4.1. Indemnification by the Shareholder4.1.
Indemnification by the Shareholder. In addition to any other remedies available
to Buyer under this Agreement, or at law or in equity, the Shareholder shall
indemnify, defend and hold harmless the Company, the Company Subsidiary, Buyer
and their affiliates and their respective officers, directors, employees, agents
and stockholders (collectively, the ABuyer Indemnified Parties@), 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 fees and expenses of attorneys,
consultants and experts (collectively, the ADamages@) that the Buyer Indemnified
Parties shall incur or suffer, which arise, result from or relate to (i) any
breach by the Shareholder of (or the failure of the Shareholder to perform) its
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 Shareholder under this Agreement or (ii) the Meier
Termination.
4.2. Indemnification by Buyer4.2. Indemnification by Buyer. In addition to
any other remedies available to the Shareholder under this Agreement, or at law
or in equity, Buyer shall indemnify, defend and hold harmless the Shareholder
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 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 Shareholder by or on behalf of Buyer
under this Agreement.
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 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 Section 4.1 or 4.2 hereof, 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 or delayed.
ARTICLE 5
ARTICLE 5 MiscellaneousMiscellaneous
5.1. Survival of Representations, Warranties and Covenants5.1. 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 indefinitely despite any
investigation made by any party hereto or on its behalf.
5.2. Entirety5.2. 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.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.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 -----------------------------------------------------------
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Addressed to: With a copy to:
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WellTech Eastern, 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 Attn: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
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If to any Shareholder
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Addressed to: With a copy to:
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Kenting Energy Services Inc. Howard Mackie
Suite 700, 112 - 4th Ave. S.W. 1000 Canterra Tower
Calgary, Alberta T2P0H3 400 Third Ave. S.W.
Attn: Chief Operating Officer Calgary, Alberta T2P0H3
Facsimile: (403) 264-0251 Attn: Brian Roberts
Facsimile: (403) 266-1395
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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.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.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.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.Applicable Law. While the parties hereto acknowledge
and agree that the transfer of the Company Shares and the Shareholder-Owned
Subsidiary Shares hereunder shall be effected and recorded in accordance with
Argentina law, this Agreement shall be governed by and construed and enforced in
accordance with the applicable laws of the Province of Alberta.
5.9. Fees, Expenses.Fees, Expenses. All legal and other fees and expenses
incurred by the parties hereto in connection with the negotiation of this
Agreement and the consummation of the transactions contemplated hereby shall be
borne solely by the party incurring such fee or expense. Without limiting the
generality of the foregoing, any fees and expenses incurred by the Shareholder=s
counsel in connection with updating the stock records of the Company and the
Company Subsidiary as required to properly record the transfer of the shares
hereunder shall not be the obligation of the Company or the Company Subsidiary.
All out-of-pocket expenses incurred by Buyer, the Company or the Company
Subsidiary in connection with resolving the title exceptions described in
Schedule 2.1.9 hereto shall be reimbursed by the Shareholder promptly upon
written request accompanied by written evidence of such expense.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the 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/ Francis D. John
Name: Francis D. John
Title: President
KENTING ENERGY SERVICES INC.
By: /s/A. E. Dumont
Name: A. E. Dumont
Title: President
<PAGE>
Schedule 2.1.6 - 4/30 Financial Statements
See the financial statements attached hereto
<PAGE>
Schedule 2.1.7 - Liabilities
See the listing attached hereto
<PAGE>
Schedule 2.1.8 - Material Pre-Closing Transactions
Excluded Assets:
Since the Balance Sheet date and in anticipation of the consummation of the
transactions contemplated by this Agreement, the Company Subsidiary has
transferred to P.D. Technical Services Inc. the following assets referred to in
the attached Bill of Sale (the AExcluded Assets@):
Balance Sheet Adjustments:
The amounts payable from the Company or the Company Subsidiary to the
Shareholder or its affiliates in excess of the amounts payable to the Company or
the Company Subsidiary from the Shareholder or its affiliates shall be satisfied
as follows:
$3,000,000 US will be canceled in consideration for the transfer of the
Excluded Assets with the remaining $525,000 US to be paid by the Buyer on the
date hereof.
<PAGE>
Schedule 2.1.9 - Title Exceptions
1. The Argentina real property records do not currently show that the
Company Subsidiary is the owner of the parcel of real property located in Las
Heres, Argentina and the two parcels of real property located in Comodoro
Rivadavia, Argentina (the ACompany Property@) that valid purchase documents in
the possession of the Company Subsidiary indicate it as owning. The Shareholder
represents and warrants that (i) the Company Subsidiary is the owner in fee
simple of the Company Property (with no material Encumbrances thereon), (ii) no
other party has claimed or can validly claim title to any portion of the Company
Property and (iii) it has (or will cause to be) delivered all documents
necessary to file in the appropriate real property records to reflect that the
Company Subsidiary owns the Company Property in fee simple, free from any
material Encumbrances.
2. Some of the certificates of title covering the thirty-seven (37)
automobiles and light pickup trucks owned by the Company Subsidiary (the
ACompany Vehicles@) either do not properly reflect the Company Subsidiary as the
owner thereof or indicate that such automobile is subject to a third part lien.
The Shareholder represents and warrants that Company Vehicles are owned outright
by the Company Subsidiary subject to no Encumbrances, (ii) no other party has
claimed or can validly claim title to any of the Company Vehicles and (iii) it
has (or will cause to be) delivered to Buyer all documents necessary to file
with the appropriate governmental agency to enable the Company Subsidiary to
obtain a clear certificate of title to each Company Vehicle.
Stock Purchase Agreement
among
WellTech Eastern, Inc.,
Robert E. Mosley, Jr.
Thelma Scoggin Mosley
Thomas A. Mosley
Nancy Evans Mosley
James R. Mosley
Dennis W. Mosley
and
Melanie Ostrum Mosley
Dated as of August 22, 1997
<PAGE>
TABLE OF CONTENTS
(continued)
Page
TABLE OF CONTENTS
Page
<PAGE>
ARTICLE 1Purchase and Sale
1.1. Purchase and Sale of the Company Shares. 1
1.2. Adjustment of Purchase Price. 1
1.3. Closing. 2
1.4. Closing Deliveries. 2
1.4.1. Opinion of Buyer's Counsel.2
1.4.2. Opinion of Shareholders' Counsel. 3
1.4.3. Lease of certain Real Estate. 3
1.4.4. Deed Without Warranty. 3
1.5. Resignations and Employment of Certain Persons. 3
1.6. Payment of Certain Indebtedness; Release of Guarantees 3
ARTICLE 2 Representations and Warranties
2.1. Representations and Warranties of the Shareholders. 4
2.1.1. Organization and Standing.4
2.1.2. Agreement Authorized and its Effect on Other Obligations. 4
2.1.3. Capitalization. 4
2.1.4. Ownership of the Company Shares. 4
2.1.5. No Subsidiaries 5
2.1.6. Financial Statements 5
2.1.7. Liabilities 5
2.1.8. Additional Company Information 5
2.1.9. No Defaults. 7
2.1.10. Absence of Certain Changes and Events 8
2.1.11. Taxes 8
2.1.12. Intellectual Property 9
2.1.13. Title to and Condition of Assets 9
2.1.14. Contracts. 9
2.1.15. Licenses and Permits. 9
2.1.16. Litigation 10
2.1.17. Environmental Compliance. 10
2.1.18. Compliance with Other Laws11
2.1.19. ERISA Plans and Labor Issues 11
2.1.20. Investigations; Litigation12
2.1.21. Absence of Certain Business Practices 12
2.1.22. No Untrue Statements. 12
2.1.23. Consents and Approvals. 13
2.1.24. Finder's Fee 13
2.2. Representations and Warranties of Buyer 13
2.2.1. Organization and Good Standing. 13
2.2.2. Agreement Authorized and its Effect on Other Obligations. 13
ARTICLE 3Additional Agreements
3.1. Noncompetition 13
3.2. Purchase and Sale of Certain Assets. 14
3.3. Further Assurances. 14
3.4. Public Announcements. 14
ARTICLE 4Indemnification
4.1. Indemnification by the Shareholders 15
4.2. Indemnification by Buyer 15
4.3. Indemnification Procedure 15
ARTICLE 5Miscellaneous
5.1. Survival of Representations, Warranties and Covenants 16
5.2. Entirety 16
5.3. Counterparts. 16
5.4. Notices and Waivers. 16
5.5. Table of Contents and Captions. 17
5.6. Successors and Assigns. 17
5.7. Severability. 17
5.8. Applicable Law. 17
<PAGE>
Stock Purchase Agreement
This Stock Purchase Agreement (this "Agreement") is entered into as of
August 22, 1997, by and among WellTech Eastern, Inc., a Delaware corporation
("Buyer"), and Robert E. Mosley, Jr., Thelma Scoggin Mosley, Thomas A. Mosley,
Nancy Evans Mosley, James R. Mosley, Dennis W. Mosley, and Melanie Ostrum Mosley
(collectively, the "Shareholders").
WITNESSETH :
Whereas, Buyer 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;
Whereas, Mosley Well Service, Inc. (the "Company") is a corporation duly
organized and validly existing under the laws of the State of Louisiana, with
its principal executive offices at 3000 Highway 80 East, Haughton, Louisiana
71037;
Whereas, the Shareholders own 20,500 shares (the "Company Shares") of
common stock, par value $1.00 per share, of the Company (the "Company Common
Stock"), which constitutes all of the issued and outstanding shares of capital
stock of the Company; and
Whereas, the Shareholders desire to sell to Buyer, and Buyer desires to
purchase from the Shareholders, all of the issued and outstanding capital stock
of the Company.
Now, Therefore, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto hereby agree as
follows:
I. ARTICLE
Purchase and Sale
A. Purchase and Sale of the Company Shares. Subject to the terms and
conditions of this Agreement, on the date hereof, the Shareholders agree to sell
and convey to Buyer, free and clear of all Encumbrances (as defined in Section
hereof), and Buyer agrees to purchase and accept from the Shareholders, all of
the Company Shares. In consideration of the sale of the Company Shares, Buyer
shall pay to the Shareholders a purchase price of $21,000,000 (the "Purchase
Price") in cash by wire transfer of immediately available funds, and the Cash
Adjustment Payment (as defined in Section hereof), if any, in accordance with
Section hereof.
A. Adjustment of Purchase Price. Buyer shall cause to be prepared and
delivered to the Shareholders a consolidated balance sheet of the Company as of
the date hereof (the "Final Balance Sheet") within 60 days after the date
hereof, which balance sheet will be prepared in accordance with generally
accepted accounting principles, consistently applied in all respects (which
shall not include any reserve or accruals for employee termination costs). Buyer
and the Shareholders shall jointly review the Final Balance Sheet, and endeavor
in good faith to resolve all disagreements regarding the entries thereon and
reach a final determination thereof within 90 days from the date hereof. In the
event that the parties cannot agree on the entries to be placed on the Final
Balance Sheet, the dispute will be resolved by an independent accounting firm
mutually agreed to by the Shareholders and Buyer (such agreement not to be
unreasonably withheld or delayed) whose resolution shall be binding on and
enforceable against the parties hereto. Within 10 days of reaching such final
determination, the following adjusting payments shall be made:
(1) If the Final Net Current Value of the Company (as defined below) (a)
exceeds $1,000,000, Buyer shall pay to the Shareholders the amount of such
excess (the "Cash Adjustment Payment") or (b) is less than $1,000,000, the
Shareholders shall pay, pro rata according to each Shareholder's percentage
ownership of the Company immediately prior to the Closing (as defined herein),
to Buyer the amount of such difference; and
(2) An amount equal to the capital expenditures made by the Company since
the Buyer's letter of intent dated July 17, 1997 (the "Letter") and approved by
the Buyer in its sole and absolute discretion (the "Approved Capital
Expenditures") shall be paid to the Shareholders.
The term "Final Net Current Value of the Company" means the dollar value of
the amount by which the "Total Current Assets" plus the "Total Other Assets,"
excluding "Land," as recorded on the Final Balance Sheet, exceeds the "Total
Liabilities," excluding "Income Taxes Payable," but including $___________,
representing the aggregate amount of the payment of debt of the Company made by
Buyer at the Closing, as recorded on the Final Balance Sheet. The parties
expressly agree that the Cash Adjustment Payment will not include any income tax
liability of the Company for 1997.
A. Closing. Consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Bank One, N.A. in Shreveport,
Louisiana on the date hereof (the "Closing Date"), unless another time, place or
date is agreed to by the Shareholders and the Buyer.
A. Closing Deliveries. At the Closing, (a) the Shareholders shall deliver
to Buyer duly and validly issued certificate(s) representing all shares of
Company Shares owned beneficially or of record by them, each such certificate to
be 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 Buyer, (b) the Shareholders and Buyer shall have delivered to one
another all other documents, instruments and agreements as required under this
Agreement, (c) Buyer shall deliver to the Shareholders the cash purchase price
payable at Closing as provided in Section by wire transfer of immediately
available funds, and (d) the Buyer and Shareholders will deliver to one another
the opinions of counsel, lease and deed without warranty as described below:
1. Opinion of Buyer's Counsel. The Buyer shall deliver a favorable opinion,
dated as of the Closing Date, from Porter & Hedges, L.L.P., counsel for the
Buyer, in form and substance satisfactory to the Shareholders, to the effect
that (i) the Buyer has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its state of organization;
(ii) all corporate proceedings required to be taken by or on the part of the
Buyer to authorize the execution of this Agreement and the implementation of the
transactions contemplated hereby have been taken; and (iii) this Agreement has
been duly executed and delivered by, and is the legal, valid and binding
obligation of the Buyer and is enforceable against Buyer 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. In
rendering such opinion, such counsel may rely upon (i) certificates of public
officials and of officers of the Buyer as to matters of fact and (ii) the
opinion or opinions of other counsel, which opinions shall be reasonably
satisfactory to the Shareholders, as to matters other than federal or Texas law.
1. Opinion of Shareholders' Counsel. The Shareholders shall deliver a
favorable opinion, dated the Closing Date, from Nelson, Hammond, & Self, P.C.,
counsel to the Shareholders, in form and substance satisfactory to Buyer, to the
effect that (i) the Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Louisiana and
is qualified to transact business in every jurisdiction in which the nature of
the Company's contacts require such qualification, (ii) all outstanding shares
of the Company Common Stock have been validly issued and are fully paid,
nonassessable and free of preemptive rights; (iii) all of the Company Shares are
owned beneficially and of record by the Shareholders free of any Encumbrances;
(iv) the Company owns all of its assets free and clear of any Encumbrances other
than those Encumbrances listed on the Balance Sheet or Schedules hereto, and
(v) this Agreement has been duly executed and delivered by, and is the legal,
valid and binding obligation of the Shareholders and is enforceable against the
Shareholders in accordance with its terms, except as the enforceability may be
limited by (a) equitable principles of general applicability or (b) bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws affecting the
rights of creditors generally. In rendering such opinion, such counsel may rely
upon (i) certificates of public officials and of officers of the Company or the
Shareholders as to matters of fact and (ii) on the opinion or opinions of other
counsel, which opinions shall be reasonably satisfactory to Buyer, as to matters
other than federal or Louisiana law.
1. Lease of certain Real Estate. Buyer and the Shareholders shall each
deliver leases regarding certain real estate to be owned after the Closing by
Robert E. Mosley, Jr., each of which is attached hereto in Exhibit 1.4.3.
1. Deed Without Warranty. Buyer shall deliver to Robert E. Mosley, Jr. or
an entity controlled by Robert E. Mosley, Jr. the deeds regarding certain real
estate owned prior to the Closing by the Company, each of which is attached
hereto as Exhibit 1.4.4.
A. Resignations and Employment of Certain Persons. At the Closing, each of
the officers and directors of the Company will resign, and Buyer will commence
employment of Thomas A. Mosley, James R. Mosley, and Dennis W. Mosley.
A. Payment of Certain Indebtedness; Release of Guarantees. At the Closing,
Buyer will pay or cause to be paid all the debt obligations set forth in
Schedule 1.6. Within 60 days of the Closing, Buyer will cause to be released all
personal guarantees of Robert E. Mosley, Jr. regarding indebtedness or other
obligations of the Company to parties other than Buyer or the Company.
I. ARTICLE
Representations and Warranties
A. Representations and Warranties of the Shareholders. Each of the
Shareholders jointly and severally represents and warrants to Buyer as follows:
1. Organization and Standing. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Louisiana,
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.
1. Agreement Authorized and its Effect on Other Obligations. Robert E.
Mosley, Jr., Thelma S. Mosley, Thomas A. Mosley, and Nancy E. Mosley are
residents of Louisiana, and James R. Mosley, Dennis W. Mosley, and Melanie O.
Mosley are residents of Texas. Each of the Shareholders is 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 in accordance with its terms. The execution, delivery
and performance of this Agreement by the Company and each of 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 the Company or (ii) any obligation, indenture,
mortgage, deed of trust, lease, contract or other agreement to which the Company
or either of the Shareholders is a party or by which the Company or either of
the Shareholders or their respective properties are bound.
1. Capitalization. The authorized capitalization of the Company consists of
25,000 shares of Company Common Stock, of which, as of the date hereof, 20,500
shares are issued and outstanding and held beneficially and of record by the
Shareholders. On the date hereof, the Company 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 Company Common Stock are validly issued, fully paid and non-assessable
and are not subject to preemptive rights. None of the outstanding shares of
Company 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.
1. Ownership of the Company Shares. The Shareholders hold good and valid
title to all of the Company Shares, free and clear of all Encumbrances. The
Shareholders possess full authority and legal right to sell, transfer and assign
the Company Shares to Buyer, free and clear of all Encumbrances. Upon transfer
to Buyer by the Shareholders of the Company Shares, Buyer will own the Company
Shares free and clear of all Encumbrances. There are no claims pending or, to
the knowledge of any of the Shareholders, threatened, against the Company or any
of the Shareholders that concern or affect title to the Company Shares, or that
seek to compel the issuance of capital stock or other securities of the Company.
1. No Subsidiaries. Except as specified in Schedule hereto, there is no
corporation, partnership, joint venture, business trust or other legal entity in
which the Company, either directly or indirectly through one or more
intermediaries, owns or holds beneficial or record ownership of the outstanding
voting securities.
1. Financial Statements. The Company has delivered to Buyer copies of the
Company's balance sheet as of December 31, 1996, a copy of which is attached
hereto as Schedule (a) (the "1996 Balance Sheet"), and related statements of
income (collectively, the "Financial Statements"), as at and for the year ended
as of December 31, 1996 (the "1996 Balance Sheet Date"). The Financial
Statements are complete in all material respects. The Financial Statements
present fairly the financial condition of the Company as of the dates and for
the periods indicated. The Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis. The
accounts receivable reflected in the 1996 Balance Sheet, or which have been
thereafter acquired by the Company, have been collected or are collectible at
the aggregate recorded amounts thereof less applicable reserves, which reserves
are adequate. The Company has also delivered to Buyer copies of the Company's
unaudited balance sheet as of June 30, 1997, a copy of which is attached hereto
as Schedule 2.1.6(b) (the "Interim Balance Sheet"). Except as set forth in
Schedule 2.1.6(b), the Interim Balance Sheet is complete in all material
respects and presents fairly the financial condition of the Company as of the
date indicated. Except as set forth in Schedule 2.1.6(b), the Interim Balance
Sheet has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis. The accounts receivable reflected in
the Interim Balance Sheet, or which have been thereafter acquired by the
Company, have been collected or are collectable at the aggregate recorded
amounts thereof less applicable reserves, which reserves are adequate.
1. Liabilities. Except as disclosed on Schedule hereto, the Company does
not have any liabilities or obligations, either accrued, absolute or contingent,
nor do any of the Shareholders have any knowledge of any potential liabilities
or obligations, other than those (i) reflected or reserved against in the
Interim Balance Sheet, (ii) described in Schedule 2.1.6(b) or (iii) incurred in
the ordinary course of business since the date of the Interim Balance Sheet that
would not materially adversely affect the value and conduct of the business of
the Company.
1. Additional Company Information. Attached as Schedule hereto are true,
complete and correct lists of the following items:
a) Real Estate. All real property and structures thereon owned, leased or
subject to a contract of purchase and sale, or lease commitment, by the Company,
with a description of the nature and amount of any Encumbrances thereon. The
term "Encumbrances" means all liens, security interests, pledges, mortgages,
deeds of trust, claims, rights of first refusal, options, charges, restrictions
or conditions to transfer or assignment, liabilities, obligations, privileges,
equities, easements, rights-of-way, limitations, reservations, restrictions and
other encumbrances of any kind or nature;
a) 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
the Company with a description of the nature and amount of any Encumbrances
thereon;
a) Inventory. All inventory items or groups of inventory items owned by the
Company, excluding raw materials and work in process;
a) Receivables. All accounts and notes receivable of the Company, 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 the Company 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;
a) Payables. All accounts and notes payable of the Company, together with
an appropriate aging schedule. The amounts owed represented by the line item
"Long Term Liabilities" on the Interim Balance Sheet still owed and outstanding
(including accrued and unpaid interest) as of the date hereof is $____________;
a) Insurance. All insurance policies or bonds currently maintained by the
Company, including title insurance policies, with respect to the Company,
including those covering the Company's properties, rigs, machinery, equipment,
fixtures, employees and operations, as well as a listing of any premiums,
deductibles, audit adjustments or retroactive adjustments due or pending on such
policies or any predecessor policies;
a) Contracts. All contracts, including leases under which the Company is
lessor or lessee, which are to be performed in whole or in part after the date
hereof;
a) Employee Compensation Plans. All bonus, incentive compensation, deferred
compensation, profit-sharing, retirement, pension, welfare, group insurance,
death benefit, or other employee benefit or fringe benefit plans, arrangements
or trust agreements of the Company or any employee benefit plan maintained by
the Company, 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 and other correspondence
from governmental entities that have been received with respect to such plans,
arrangements or agreements (collectively, "Employee Plans");
a) Salaries. The names and salary rates of all present employees of the
Company, 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;
a) Bank Accounts. The name of each bank in which the Company has an account
and the names of all persons authorized to draw thereon;
a) Employee Agreements. Any collective bargaining agreements of the Company
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 the Company;
a) Intellectual Property. 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") used by the Company;
a) Trade Names. All trade names, assumed names and fictitious names used or
held by the Company, whether and where such names are registered and where used;
a) Licenses and Permits. All permits, authorizations, certificates,
approvals, registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, licenses and other rights of every kind and character
(collectively, the "Permits") of the Company under which it conducts its
business;
a) Promissory Notes. All long-term and short-term promissory notes,
installment contracts, loan agreements, credit agreements, and any other
agreements of the Company relating thereto or with respect to collateral
securing the same;
a) Guaranties. All indebtedness, liabilities and commitments of others and
as to which the Company 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;
a) Reserves and Accruals. All accounting reserves and accruals maintained
in the Interim Balance Sheet and Schedule 2.1.6(b);
a) Leases. All leases to which the Company is a party; and
a) Environment. All environmental permits, approvals, certifications,
licenses, registrations, orders and decrees applicable to current operations
conducted by the Company and all environmental audits, assessments,
investigations and reviews conducted by the Company within the last five years
or otherwise in the Company's possession on any property owned, leased or used
by the Company.
1. No Defaults. The Company is not a party to, or bound by, any contract or
arrangement of any kind to be performed after the date hereof, nor is the
Company in default in any obligation or covenant on its part to be performed
under any obligation, lease, contract, order, plan or other arrangement.
1. Absence of Certain Changes and Events. Except as disclosed on Schedule
hereto and other than as a result of the transactions contemplated by this
Agreement, since June 30, 1997, there has not been:
a) Financial Change. Any adverse change in the financial condition,
backlog, operations, assets, liabilities or business of the Company;
a) Property Damage. Any material damage, destruction, or loss to the
business or properties of the Company (whether or not covered by insurance);
a) Dividends. Any declaration, setting aside, or payment of any dividend or
other distribution in respect of the Company Common Stock, or any direct or
indirect redemption, purchase or any other acquisition by the Company of any
such stock;
a) Capitalization Change. Any change in the capital stock or in the number
of shares or classes of the Company's authorized or outstanding capital stock as
described in Section hereof;
a) Labor Disputes. Any labor or employment dispute of whatever nature; or
a) 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 the Company.
1. 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 the
Company 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 such returns are true and correct; the Company has only done business in
Arkansas, Louisiana, Mississippi, and Texas and all taxes shown by such returns
to be payable and any other taxes due and payable have been paid. No waiver of
any statute of limitations executed by the Company with respect to any income or
other tax is in effect for any period. Except for the Company's 1995 income tax
return, the income tax returns of the Company 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 the Company except for taxes not yet
currently due. The Company is not subject to any tax-sharing or allocation
agreement. The Company is not, nor has it ever attempted to become a Subchapter
S-Corporation under the Internal Revenue Code of 1986, as amended. The Company
is not and never has been, a member of a consolidated group subject to Treasury
Regulation 1.1502-6 or any similar provision.
1. Intellectual Property. The Company owns or possesses licenses to use all
Intellectual Property that is either material to the business of the Company or
that is necessary for the rendering of any services rendered by the Company and
the use or sale of any equipment or products used or sold by the Company,
including all such Intellectual Property listed in Schedule hereto (the
"Required Intellectual Property"). The Required Intellectual Property is owned
or licensed by the Company free and clear of any Encumbrance. The Company has
not granted to any other person any license to use any Required Intellectual
Property. The Company has not infringed, misappropriated, or conflicted with,
the Intellectual Property rights of others in connection with the use by the
Company of the Required Intellectual Property or otherwise in connection with
the Company's operation of its business, nor has the Company has received any
notice of such infringement, misappropriation, or conflict such Intellectual
Property rights of others.
1. Title to and Condition of Assets. Except as disclosed on Schedule
hereto, the Company has good, indefeasible and marketable title to all its
properties, interests in properties and assets, real and personal, reflected in
the Interim Balance Sheet and Schedule 2.1.6(b) or in Schedule hereto, free and
clear of any Encumbrance of any nature whatsoever, except Encumbrances reflected
in the Interim Balance Sheet and Schedule 2.1.6(b) or in Schedule hereto. All
leases pursuant to which the Company 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 the Company and in respect to which the Company has not
taken adequate steps to prevent a default from occurring. The buildings and
premises of the Company 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 the Company are in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, and are free from any
known defects except as may be repaired by routine maintenance. All such assets
conform to all applicable laws governing their use. The Company has not violated
any law, statute, ordinance, or regulation relating to any such assets, nor has
any notice of such violation been received by the Company or any of the
Shareholders.
1. Contracts. All contracts, leases, plans or other arrangements to which
the Company 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 the Company. The Company is not, and to the knowledge of the
Company or 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 the
Company. Neither the Company nor any of the Shareholders has received any
information which would cause such the Company or such Shareholders to conclude
that any customer of the Company will (or is likely to) cease doing business
with the Company (or its successors) as a result of the consummation of the
transactions contemplated hereby.
1. Licenses and Permits. The Company possesses all Permits necessary under
law or otherwise for the Company 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, including
all such Permits listed in Schedule hereto (collectively, the "Required
Permits"). Each of the Required Permits and the Company's rights with respect
thereto is valid and subsisting, in full force and effect, and enforceable by
the Company subject to administrative powers of regulatory agencies having
jurisdiction, and will continue in full force and effect after the Closing Date.
The Company is in compliance in all respects with the terms of each of the
Required Permits. None of the Required Permits have been, or to the knowledge of
the Company or any of the Shareholders, is threatened to be, revoked, canceled,
suspended or modified.
1. Litigation. Except as set forth in Schedule hereto, there is no suit,
action, or legal, administrative, arbitration, or other proceeding or
governmental investigation pending to which the Company is a party or, to the
knowledge of any of the Company or the Shareholders, might become a party or
which particularly affects the Company or its assets, nor is any change in the
zoning or building ordinances directly affecting the real property or leasehold
interests of the Company, pending or, to the knowledge of any of the any of the
Shareholders, threatened.
1. Environmental Compliance.
a) Environmental Conditions. There are no environmental conditions or
circumstances, including, without limitation, the presence or release of any
Substance of Environmental Concern, on any property presently or previously
owned, leased or operated by the Company, or on any property to which any
Substance of Environmental Concern or waste generated by the Company's
operations or use of its assets were disposed of, which would have or result in
a material adverse effect on the business or business prospects of the Company.
The term "Substance of Environmental Concern" means (a) any gasoline, petroleum
(including crude oil or any fraction thereof), petroleum product,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutant,
contaminant, radiation and any other substance of any kind, whether or not any
such substance is defined as toxic or hazardous under any Environmental Law (as
defined in Section hereof), that is regulated pursuant to or could give rise to
liability under any Environmental Law;
a) Permits, etc. The Company has, and within the period of all applicable
statutes of limitations has had, in full force and effect all environmental
Permits required to conduct its operations, and is, within the period of all
applicable statutes of limitations has been, operating in compliance thereunder;
a) Compliance. The Company's operations and use of its assets are, and
within the period of all applicable statutes of limitations, have been in
compliance with applicable Environmental Law. "Environmental Law" as used herein
means any and all laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, and other legally enforceable requirements (including, without
limitation, common law) of the United States, or any state, local, municipal or
other governmental authority or quasi-governmental authority, regulating,
relating to, or imposing liability or standards of conduct concerning protection
of the environmental or of human health, or employee health and safety as from
time to time has been or is now in effect;
a) Environmental Claims. No notice has been received by the Company or any
of the Shareholders from any entity, governmental agency or individual regarding
any existing, pending or threatened investigation, inquiry, enforcement action.
litigation, or liability, including, without limitation any claim for remedial
obligations, response costs or contribution, relating to any Environmental Law;
a) Enforcement. The Company, and to the knowledge of any of the
Shareholders, no predecessor of the Company or other party acting on behalf of
the Company, has entered into or agreed to any consent, decree, order,
settlement or other agreement, nor is subject to any judgment, decree, order or
other agreement, in any judicial, administrative, arbitral, or other forum,
relating to compliance with or liability under any Environmental Law;
a) Liabilities. The Company has not assumed or retained, by contract or
operation of law, any liabilities of any kind, fixed or contingent, known or
unknown, under any Environmental Law;
a) Renewals. Neither the Company nor any of the Shareholders knows of any
reason the Company (or its successors) would not be able to renew without
material expense any of the permits, licenses, or other authorizations required
pursuant to any Environmental Law to conduct and use any of the Company's
current or planned operations; and
a) Asbestos and PCBs. No material amounts of friable asbestos currently
exist on any property owned or operated by the Company, nor do polychlorinated
biphenyls exist in concentrations of 50 parts per million or more in electrical
equipment owned or being used by the Company in its operations or on its
properties.
1. Compliance with Other Laws. The Company is not in violation of or in
default with respect to, or in alleged violation of or alleged default with
respect to, the Occupational Safety and Health Act (29 U.S.C. 651 et seq.) as
amended, or any other applicable law or any applicable rule, regulation, or any
writ or decree of any court or any governmental commission, board, bureau,
agency, or instrumentality, or delinquent with respect to any report required to
be filed with any governmental commission, board, bureau, agency or
instrumentality.
1. ERISA Plans and Labor Issues. Except for the Company's employee benefit
plans listed in Schedule 2.1.19 (the "Benefit Plans"), the Company does not
currently sponsor, maintain or contribute to and has not at any time sponsored,
maintained or contributed to any other employee benefit plan which is or was
subject to any provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). Except for the Benefit Plans, the Company does not
maintain any plan, program, policy, contract, agreement or other arrangement
that provides pension, retirement, medical, dental, disability, life insurance
or other benefits to any current or former employees of the Company, including
any retired employees, or their beneficiaries or dependents. The Company is not
obligated to pay any severance or benefits to any employee or former employee of
the Company as the result of any change in the ownership or control of the
Company. The Company has not engaged in any unfair labor practices which could
reasonably be expected to result in an adverse effect on its operations or
assets. The Company 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 the
Company. All the Benefit Plans have been maintained in full compliance with all
applicable requirements of ERISA and other applicable law, and there are no
claims under the Benefit Plans except routine claims for benefits.
1. Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Company or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of the Company or
any of the Shareholders, threatened, nor has any governmental entity indicated
to the Company or any of the Shareholders 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 the Company 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 the
Company.
1. Absence of Certain Business Practices. Neither the Company nor any
officer, employee or agent of the Company, 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 the Company (or to assist the Company in connection with any actual
or proposed transaction) which (i) might subject the Company 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 the Company as reflected in the Financial Statements,
or (iii) if not continued in the future, might materially adversely effect the
assets, business operations or prospects of the Company or which might subject
the Company to suit or penalty in a private or governmental litigation or
proceeding.
1. No Untrue Statements. The Company and each of the Shareholders have made
available to Buyer true, complete and correct copies of all contracts, employee
benefit plans, documents concerning all litigation and administrative
proceedings, licenses, permits, insurance policies, lists of suppliers and
customers, and records relating principally to the Company's assets and
business, and such information covers all commitments and liabilities of the
Company relating to its business or 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.
1. 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, is required to be made or obtained by the Company or any
of the Shareholders in connection with the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby.
1. Finder's Fee. Any and all brokerage commissions, finder's fees or any
similar payments made or incurred relative to this Agreement and the
transactions contemplated hereby shall be paid solely by the Shareholders.
Neither the Company nor the Buyer shall incur, or otherwise be liable for in any
way, any brokerage commission, finder's fee, or any similar payment relative to
this Agreement or the transactions contemplated hereby.
A. Representations and Warranties of Buyer. Buyer represents and warrants
to each of the Shareholders as follows
1. Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State 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.
1. 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 Buyer, and this
Agreement is a valid and binding obligation of Buyer enforceable in accordance
with its terms.
I. ARTICLE
Additional Agreements
A. Noncompetition. Except for the operation of the drilling rig referred to
in Section 3.2 and as otherwise consented to or approved in writing by Buyer,
each of the Shareholders agrees that for a period of 60 months from the date
hereof, 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 the Company, Buyer or any affiliate of
Buyer on the date hereof, or in any service business the services of which are
provided and marketed by the Company, Buyer or any affiliate of Buyer on the
date hereof in any state of the United States or any foreign country in which
the Company, Buyer or any affiliate of Buyer transacts business on the date
hereof; (ii) request any present customers or suppliers of the Company to
curtail or cancel their business with Buyer or any affiliate of Buyer;
(iii) disclose to any person, firm or corporation any trade, technical or
technological secrets of the Company, Buyer or any affiliate of Buyer or any
details of their organization or business affairs; or (iv) induce or actively
attempt to influence any employee of the Company, Buyer or any affiliate of
Buyer to terminate his employment. Each of the Shareholders 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 are in addition to any other obligations
that the Shareholders may have under the laws of the states in which they do
business 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 the Company, Buyer 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 the Company, Buyer
or any affiliate of Buyer 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 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 are being executed and delivered by such Shareholder in
consideration of the covenants of Buyer contained in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged.
A. Purchase and Sale of Certain Assets. All real estate owned in fee simple
by the Company will, at the Closing, be sold to Robert E. Mosley or an entity
controlled by Robert E. Mosley for $2,000,000 payable by wire transfer at the
Closing in immediately available funds. The Skytop-Brewster TR-800 drilling rig
known as Remco Rig 2 and related equipment, including a 10,000 foot drill
string, will, at Closing, be sold to Robert E. Mosley or an entity controlled by
Robert E. Mosley for $1,800,000 payable at Closing by wire transfer in
immediately available funds.
A. Further Assurances. From time to time, as and when requested by any
party hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby.
A. Public Announcements. Except as authorized in writing by Buyer, the
Shareholders nor any of their respective Affiliates or agents shall issue any
press release or public announcement regarding the execution of this Agreement
or the transactions contemplated thereby except as required by applicable law.
The Shareholders hereby consent to Buyer's issuance of a press release
announcing the completion of the transactions contemplated by this Agreement.
I. ARTICLE
Indemnification
A. Indemnification by the Shareholders. In addition to any other remedies
available to Buyer under this Agreement, or at law or in equity, each of the
Shareholders shall jointly and severally indemnify, defend and hold harmless the
Company, Buyer and their affiliates and their respective officers, directors,
employees, agents and stockholders (collectively, the "Buyer Indemnified
Parties"), 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 fees and expenses
of attorneys, consultants and experts (collectively, the "Damages") that the
Buyer Indemnified Parties shall incur or suffer, which arise, result from or
relate to 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 Buyer by any of the Shareholders
under this Agreement.
A. Indemnification by Buyer. In addition to any other remedies available to
the Shareholders under this Agreement, or at law or in equity, Buyer shall
indemnify, defend and hold harmless each of the Shareholders against and with
respect to any and all Damages that such indemnitees shall incur or suffer,
which arise, result from or relate to any breach of, or failure by Buyer to
perform, any of its representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to any of the Shareholders by or on behalf of Buyer under this
Agreement.
A. Indemnification Procedure. In the event that any party hereto discovers
or otherwise becomes aware of an indemnification claim arising under Article 4
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 Article 4 hereof, 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 or
delayed.
I. ARTICLE
Miscellaneous
A. Survival of Representations, Warranties and Covenants. All
representations, warranties, covenants and agreements made by the parties hereto
shall survive indefinitely without limitation, notwithstanding any investigation
made by or on behalf of any of the parties hereto. All statements contained in
any certificate, schedule, exhibit or other instrument delivered pursuant to
this Agreement shall be deemed to have been representations and warranties by
the respective party or parties, as the case may be, and shall also survive
indefinitely despite any investigation made by any party hereto or on its
behalf.
A. Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
A. Counterparts. Any number of counterparts of this Agreement may be
executed and each such counterpart shall be deemed to be an original instrument,
but all such counterparts together shall constitute but one instrument.
A. Notices and Waivers. Any notice or waiver to be given to any party
hereto shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested:
If to Buyer:
Addressed to: With a copy to:
WellTech Eastern, Inc. 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 Attn: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
If to Shareholders:
Addressed to: With a copy to:
Robert E. Mosley, Jr. Sydney B. Nelson
3000 Highway 80 East Nelson, Hammons & Self, P.C.
Haughton, Louisiana 71037 705 Milam Street
Facsimile: (318) 949-4107 Shreveport, Louisiana 71101
Facsimile: (318) 221-4762
Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, with return receipt requested, shall be deemed
to be received on the third business day after so mailed, and if delivered by
courier or facsimile to such address, upon delivery during normal business hours
on any business day.
A. 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.
A. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
A. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
A. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the
Buyer 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.
BUYER:
WELLTECH EASTERN, INC.
By:
Name:
Title:
SHAREHOLDERS:
Robert E. Mosley, Jr.
Thelma Scoggin Mosley
Thomas A. Mosley
Nancy Evans Mosley
James R. Mosley
Dennis W. Mosley
Melanie Ostrum Mosley
1
CREDIT AGREEMENT, dated as of June 6, 1997, among KEY ENERGY GROUP, INC., a
Maryland corporation (the "Borrower"), the several banks and other financial
institutions or entities from time to time parties to this Agreement (the
"Lenders"), PNC BANK, N.A., as Administrative Agent for the Lenders hereunder
(in such capacity, the "Administrative Agent"), NORWEST BANK OF TEXAS, N.A., as
Collateral Agent for the Lenders hereunder (in such capacity, the "Collateral
Agent") and LEHMAN COMMERCIAL PAPER INC., as advisor, arranger and syndication
agent with respect to the credit facilities contained herein (in such capacity,
the "Arranger").
W I T N E S S E T H :
WHEREAS, the Borrower has requested the Lenders to extend credit to it to
refinance certain existing indebtedness, to pay related fees and expenses and to
finance other general corporate purposes of the Borrower and its Subsidiaries;
and WHEREAS, the Lenders are willing to extend such credit on and subject to the
terms and conditions hereafter set forth:
NOW, THEREFORE, in consideration of
the premises and the mutual agreements hereafter set forth, the parties hereto
hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"Adjustment Date": each date on or after September 30, 1997 that is the
second Business Day following receipt by the Lenders of both (i) the financial
statements required to be delivered pursuant to Section 6.1(a) or 6.1(b), as
applicable, for the most recently completed fiscal period (which shall be June
30, 1997, in the case of the Adjustment Date occurring on September 30, 1997)
and (ii) the related compliance certificate required to be delivered pursuant to
Section 6.2(b) with respect to such fiscal period.
"Administrative Agent": as defined in the preamble hereto.
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors of such Person or (b)
direct or cause the direction of the management and policies of such Person,
whether by contract or otherwise. Notwithstanding the foregoing (i) no
Subsidiary of the Borrower shall be deemed to be an Affiliate of the Borrower
and (ii) no Affiliate of any investment company that controls the Borrower shall
be deemed to be an Affiliate of the Borrower solely because such investment
company Affiliate is in control of, is controlled by, or is under common control
with, such investment company.
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
<PAGE>
2
"Agents": the collective reference to the Arranger, the Collateral Agent
and the Administrative Agent.
"Aggregate Outstanding Revolving Extensions of Credit": as to any Revolving
Credit Lender at any time, an amount equal to the sum of (a) the aggregate
principal amount of all Revolving Credit Loans made by such Lender then
outstanding and (b) such Lender's Revolving Credit Percentage of the L/C
Obligations then outstanding.
"Agreement": this Credit Agreement, as amended, supplemented or otherwise
modified from time to time.
"Applicable Margin": (a) 1-3/4% for Term Loans which are Base Rate Loans,
(b) 2-3/4% for Term Loans which are Eurodollar Loans and, (c) during the period
from the Closing Date until the first Adjustment Date, 1.00% for Revolving
Credit Loans which are Base Rate Loans and 2.25% for Revolving Credit Loans
which are Eurodollar Loans. The Applicable Margin for Revolving Credit Loans
will be adjusted on each Adjustment Date to the applicable rate per annum set
forth under the heading "Applicable Margin for Revolving Credit Loans which are
Eurodollar Loans" or "Applicable Margin for Revolving Credit Loans which are
Base Rate Loans", as the case may be, on Annex I which corresponds to the
Consolidated Leverage Ratio as determined from the financial statements and
compliance certificate relating to the end of the fiscal period immediately
preceding such Adjustment Date; provided that in the event that the financial
statements required to be delivered pursuant to Section 6.1(a) or 6.1(b), as
applicable, and the related compliance certificate required to be delivered
pursuant to Section 6.2(b), are not delivered when due, then
(i if such financial statements and compliance certificate are delivered
after the date such financial statements and compliance certificate were
required to be delivered (without giving effect to any applicable cure period)
and the Applicable Margin increases from that previously in effect as a result
of the delivery of such financial statements, then the Applicable Margin in
respect of the Revolving Credit Loans during the period from the date upon which
such financial statements were required to be delivered (without giving effect
to any applicable cure period) until the date upon which they actually are
delivered shall, except as otherwise provided in clause (iii) below, be the
Applicable Margin as so increased;
(ii if such financial statements and compliance certificate are delivered
after the date such financial statements and compliance certificate were
required to be delivered and the Applicable Margin decreases from that
previously in effect as a result of the delivery of such financial statements,
then such decrease in the Applicable Margin shall not become applicable until
the date upon which the financial statements and certificate actually are
delivered; and
(iii if such financial statements and compliance certificate are not
delivered prior to the expiration of the applicable cure period, then, effective
upon such expiration, for the period from the date upon which such financial
statements and
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
<PAGE>
3
compliance certificate were required to be delivered (after the expiration
of the applicable cure period) until two Business Days following the date upon
which they actually are delivered, the Applicable Margin in respect of Revolving
Credit Loans shall be 1-1/4% per annum, in the case of Base Rate Loans, and
2-1/2% per annum, in the case of Eurodollar Loans (it being understood that the
foregoing shall not limit the rights of the Administrative Agent and the Lenders
set forth in Section 8).
"Application": an application, in such form as the Issuing Lender may
specify from time to time, requesting the Issuing Lender to issue a Letter of
Credit.
"Arranger": as defined in the preamble hereto.
"Asset Sale": any sale or other disposition by the Borrower or any of its
Subsidiaries of any property, business or assets of the Borrower or such
Subsidiary (excluding any sale and leaseback of assets and any mortgage of real
property); provided that any sale or other disposition expressly permitted by
clauses (a), (c) or (d) of Section 7.6 shall not constitute an "Asset Sale"
hereunder, and the Net Cash Proceeds from any such excluded sale or other
disposition shall not be subject to Section 2.9.
"Assignee": as defined in Section 10.6(c).
"Available Revolving Credit Commitment": as to any Lender at any time, an
amount equal to the excess, if any, of (a) such Lender's Revolving Credit
Commitment over (b) such Lender's Aggregate Outstanding Revolving Extensions of
Credit.
"Base Rate": for any day, a rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on
such day, and (b) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per
annum established from time to time by PNC Bank, N.A. as its prime rate in
effect at its principal office in Pittsburgh (the Prime Rate not being intended
to be the lowest rate of interest charged by PNC Bank, N.A. in connection with
extensions of credit to debtors); and "Federal Funds Effective Rate" shall mean,
for any day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by it. Any change in the Base Rate due
to a change in the Prime Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such change in
the Prime Rate or the Federal Funds Effective Rate, respectively.
"Base Rate Loans": Loans the rate of interest applicable to which is based
upon the Base Rate.
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"Board": the Board of Governors of the Federal Reserve System of the United
States (or any successor).
"Borrower": as defined in the preamble hereto.
"Borrowing Date": any Business Day specified in a notice pursuant to
Section 2.2 or 2.4 as a date on which the Borrower requests the Lenders to make
Loans hereunder.
"Business Day": (a) for all purposes other than as covered by clause (b)
below, a day other than a Saturday, Sunday or other day on which commercial
banks in New York City are authorized or required by law to close and (b) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (a) and which is also a day for trading by and between banks
in Dollar deposits in the interbank eurodollar market.
"Capital Expenditures": for any period, with respect to any Person, the
aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a Financing Lease) of fixed or capital
assets or additions to equipment (including replacements and improvements during
such period) which should be capitalized under GAAP on a consolidated balance
sheet of such Person and its Subsidiaries; provided that "Capital Expenditures"
shall not include (i) expenditures for Permitted Acquisitions or
(ii) expenditures by any Person prior to the time such Person was acquired by
the Borrower or any Subsidiary in a Permitted Acquisition.
"Capital Lease Obligations": as to any Person, the obligations of such
Person to pay rent or other amounts under any Financing Lease and, for the
purposes of this Agreement, the amount of such obligations at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP.
"Capital Stock": any and all shares of capital stock of a corporation, and
any and all equivalent ownership interests in a Person (other than a
corporation).
"Cash Equivalents": (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b) demand
deposits, certificates of deposit, time deposits, eurodollar time deposits or
overnight bank deposits having maturities of twelve months or less from the date
of acquisition issued by any Lender or by any commercial bank organized under
the laws of the United States or any state thereof having combined capital and
surplus of not less than $250,000,000; (c) commercial paper of (i) an issuer
rated at least A-1 by Standard & Poor's Ratings Services or P-1 by Moody's
Investors Service, Inc., or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies cease
publishing ratings of commercial paper issuers generally or (ii) the holding
company of any Lender, and, in either case, maturing within twelve months from
the date of acquisition; and
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5
(d) money market funds the assets of which consist primarily of obligations
of the types referred to in clauses (a) through (c) above.
"Change of Control": a "Change of Control" shall be deemed to occur if a
"Change of Control" (as defined in the Indenture or, if the Indenture shall have
been terminated, as defined in the Indenture immediately prior to such
termination) shall occur.
"Closing Date": the date on which the conditions precedent set forth in
Section 5.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended.
"Collateral": all assets of the Loan Parties, now owned or hereafter
acquired, upon which a Lien is purported to be created by any Security Document.
"Collateral Agent": as defined in the preamble hereto.
"Commercial Letter of Credit": as defined in Section 3.1(a).
"Commitment": as to any Lender, the sum of the Term Loan Commitment and the
Revolving Credit Commitment of such Lender.
"Commonly Controlled Entity": an entity, whether or not incorporated, which
is under common control with the Borrower within the meaning of Section 4001 of
ERISA or is part of a group which includes the Borrower and which is treated as
a single employer under Section 414 of the Code.
"Confidential Information Memorandum": the Confidential Information
Memorandum dated as of May, 1997 with respect to the Borrower and the credit
facilities provided for herein.
"Consolidated" or "consolidated": when used in respect of any Subsidiary or
any financial statements or financial term relating to the Borrower and its
Subsidiaries, refers to the Borrower and the Subsidiaries of the Borrower
(including Excluded Subsidiaries) whose accounts are consolidated with the
Borrower's accounts in accordance with GAAP.
"Consolidated Current Assets": at a particular date, all amounts (other
than cash and cash equivalents) which would, in conformity with GAAP, be set
forth opposite the caption "total current assets" (or any like caption) on a
consolidated balance sheet of the Borrower and its Subsidiaries at such date.
"Consolidated Current Liabilities": at a particular date, all amounts which
would, in conformity with GAAP, be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of the
Borrower and its Subsidiaries at such date.
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6
"Consolidated EBITDA": with respect to any Person for any period,
Consolidated Net Income of such Person for such period plus, without duplication
and to the extent reflected as a charge in the statement of such Consolidated
Net Income for such period, the sum of (a) total income tax expense, (b)
interest expense, (c) depreciation and amortization expense, (d) amortization of
intangibles (including, but not limited to, goodwill) and organization costs,
(e) any extraordinary expenses or losses (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated Net Income
for such period, losses on sales of assets outside of the ordinary course of
business), (f) any other noncash charges and (g) if applicable, restructuring
charges, write-off of goodwill and licensing agreements, and minus, to the
extent included in the statement of such Consolidated Net Income for such
period, the sum of (a) interest income, (b) any extraordinary income or gains
(including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, gains on the sales of
assets outside of the ordinary course of business) and (c) any other noncash
income (other than any income represented by a receivable that in the ordinary
course would be expected to be paid in cash), all as determined on a
consolidated basis.
"Consolidated Fixed Charge Coverage Ratio": for any period, the ratio of
(a) Consolidated EBITDA of the Borrower and its Subsidiaries for such period to
(b) the sum of (without duplication) (i) income tax expense actually paid in
cash during such period, (ii) Capital Expenditures actually paid in cash (and
not financed) during such period, (iii) Consolidated Interest Expense for such
period and (iv) scheduled payments required to have been made during such period
on account of principal of Indebtedness of the Borrower or any of its
Subsidiaries (including scheduled payments in respect of the Loans, but
excluding any portion of such scheduled payments made as a voluntary prepayment
pursuant to Section 2.8).
"Consolidated Interest Coverage Ratio": for any period, the ratio of
(a) Consolidated EBITDA of the Borrower and its Subsidiaries for such period to
(b) Consolidated Interest Expense for such period.
"Consolidated Interest Expense": for any period, total interest expense
(including that attributable to Capital Lease Obligations), both expensed and
capitalized, of the Borrower and its Subsidiaries for such period with respect
to all outstanding Indebtedness of the Borrower and its Subsidiaries (including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and net
costs under Interest Rate Protection Agreements to the extent such net costs are
allocable to such period in accordance with GAAP), determined on a consolidated
basis in accordance with GAAP, net of interest income of the Borrowers and its
Subsidiaries for such period (determined on a consolidated basis in accordance
with GAAP).
"Consolidated Lease Expense": for any period, the aggregate amount of fixed
and contingent rentals payable by the Borrower and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP, for such period with respect to
leases of real and personal property; provided that amounts payable under
Financing Leases and oil and gas leases shall be excluded from Consolidated
Lease Expense.
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7
"Consolidated Leverage Ratio": on the date of any determination thereof,
the ratio of (a) Consolidated Total Debt on such date, less the amount of cash
and Cash Equivalents in excess of $5,000,000 held by the Borrower and its
Subsidiaries on such date to (b) Consolidated EBITDA of the Borrower and its
Subsidiaries for the four full fiscal quarters ending on such date; provided
that for purposes of calculating Consolidated EBITDA of the Borrower and its
Subsidiaries for any period of four full fiscal quarters, the Consolidated
EBITDA of any Person acquired by the Borrower or its Subsidiaries during such
period shall be included on a pro forma basis for such period of four full
fiscal quarters (assuming the consummation of each such acquisition and the
incurrence or assumption of any Indebtedness in connection therewith occurred on
the first day of such period of four full fiscal quarters and assuming only such
cost reductions as are related to such acquisition and are realizable on or
before the date of calculation) if the consolidated balance sheet of such
acquired Person and its consolidated Subsidiaries as at the end of the period
preceding the acquisition of such Person and the related consolidated statements
of income and stockholders' equity and of cash flows for such period (i) have
been previously provided to the Administrative Agent and the Lenders and
(ii) either (A) have been reported on without a qualification arising out of the
scope of the audit (other than a "going concern" or like qualification or
exception) by independent certified public accountants of nationally recognized
standing or (B) have been found acceptable by the Administrative Agent.
"Consolidated Net Income": with respect to any Person for any period, the
consolidated net income (or loss) of such Person for such period, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Total Debt": at any date, the aggregate principal amount of
all Indebtedness of the Borrower and its Subsidiaries at such date, which on a
consolidated basis in accordance with GAAP would be required to be reflected on
a consolidated balance sheet of the Borrower and its Subsidiaries as a
liability.
"Consolidated Working Capital": the excess, if any, of Consolidated Current
Assets over Consolidated Current Liabilities.
"Contractual Obligation": as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.
"Convertible Subordinated Debentures": the 7% Convertible Subordinated
Debentures due 2003 issued by the Borrower pursuant to the Indenture.
"Default": any of the events specified in Section 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Dollars" and "$": dollars in lawful currency of the United States.
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
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"Domestic Subsidiary": any Subsidiary of the Borrower organized under the
laws of any jurisdiction within the United States.
"Environmental Consultant": as defined in Section 6.8(c).
"Environmental Laws": any and all laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, or other legally enforceable requirements
(including, without limitation, common law) of any foreign government, the
United States, or any state, local, municipal or other governmental authority,
regulating, relating to or imposing liability or standards of conduct concerning
protection of the environment or of human health, or employee health and safety,
as has been, is now, or at any time hereafter is, in effect.
"Environmental Permits": any and all permits, licenses, registrations,
approvals, notifications, exemptions and any other authorization required under
any Environmental Law.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar
Loan, the aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum of interest
determined on the basis of the rate for deposits in Dollars for a period equal
to such Interest Period commencing on the first day of such Interest Period
appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two
Business Days prior to the beginning of such Interest Period. In the event that
such rate does not appear on Page 3750 of the Telerate Service (or otherwise on
such service), the "Eurodollar Base Rate" for purposes of this definition shall
be determined by reference to such other comparable publicly available service
for displaying eurodollar rates as may be selected by the Administrative Agent
or, in the absence of such availability, by reference to the rate at which the
Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York
City time, two Business Days prior to the beginning of such Interest Period in
the interbank eurodollar market where its eurodollar and foreign currency and
exchange operations are then being conducted for delivery on the first day of
such Interest Period for the number of days comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to which is based
upon the Eurodollar Rate.
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"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate 1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans that are
Term Loans or Revolving Credit Loans, as the case may be, the then current
Interest Periods with respect to all of which begin on the same date and end on
the same later date (whether or not such Loans shall originally have been made
on the same day).
"Event of Default": any of the events specified in Section 8, provided that
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the excess of (a)
the sum, without duplication, of (i) Consolidated Net Income of the Borrower and
its Subsidiaries for such fiscal year, (ii) the net decrease, if any, in
Consolidated Working Capital during such fiscal year and (iii) to the extent
deducted in computing such Consolidated Net Income, (A) non-cash interest
expense, depreciation, depletion and amortization, (B) extraordinary non-cash
losses, (C) deferred income tax expense, (D) non-cash losses in connection with
asset dispositions whether or not constituting extraordinary losses, and (E)
non-cash ordinary losses over (b) the sum, without duplication, of (i) the
aggregate amount of permitted cash Capital Expenditures of the Borrower and its
Subsidiaries during such fiscal year, (ii) the net increase, if any, in
Consolidated Working Capital during such fiscal year, (iii) the aggregate amount
of payments of principal in respect of any Indebtedness not prohibited hereunder
during such fiscal year (other than (x) optional prepayments of Revolving Credit
Loans not accompanied by reductions of the Revolving Credit Commitments, (y)
mandatory prepayments pursuant to Section 2.9 and (z) payments in respect of
short-term Indebtedness) and (iv) to the extent added in computing such
Consolidated Net Income, (A) deferred income tax credit, (B) extraordinary
non-cash gains, (C) non-cash gains in connection with asset dispositions whether
or not constituting extraordinary gains and (D) non-cash ordinary gains.
"Excess Cash Flow Application Date": as defined in Section 2.9(d).
"Excluded Subsidiary" or "Excluded Subsidiaries": (a) Amidrill, Inc.,
Production Systems, Inc., WellTech, Inc. (California), WellTech, Inc. de
Venezuela, WellTech, Inc. de Mexico, WellTech, Inc. (Northeast), WellTech, Inc.,
WellTech Oilfield Services (Canada), Ltd., WellTech Oilfield Services Limited,
WellTech (Overseas) Limited, and Bronson Transport, Inc., (b) Thunderbird Tool
Company, (c) KEG Canal Properties, Inc., KEG Villa Ashley, Inc., KEG Pearl
Acres, Inc., KEG Anna Heights, Inc., KEG Orleans Place, Inc., and Pyramid Land
Corporation, and (d) any other entity which becomes a Subsidiary of Borrower
after the date of this Agreement if such entity has assets with a book value of
$1,000,000 or less and annual revenues of $1,000,000 or less; provided that all
entities deemed to be Excluded Subsidiaries
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10
under this subsection (d) may not have, in the aggregate, assets with a
book value exceeding $5,000,000 or annual revenues exceeding $5,000,000.
"Existing Credit Facilities": as defined in Section 4.16.
"Existing Letters of Credit": as defined in Section 3.1.
"Financing Lease": any lease (or other similar arrangement conveying the
right to use) of property, real or personal, the obligations of the lessee in
respect of which are required in accordance with GAAP to be capitalized on a
balance sheet of the lessee.
"Foreign Subsidiary": any Subsidiary of the Borrower organized under the
laws of any jurisdiction outside the United States.
"GAAP": generally accepted accounting principles in the United States in
effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"), any
obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
of any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
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11
guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined by the Borrower in good faith.
"Hedge Obligations": as defined in the Master Guarantee and Collateral
Agreement.
"Indebtedness": of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (other than trade
payables and accrued expenses incurred in the ordinary course of such Person's
business not more than 150 days past due or being contested in good faith), (c)
all obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person, (e) all Capital Lease Obligations of such Person, (f)
all obligations, contingent or otherwise, of such Person as an account party
under acceptance, letter of credit or similar facilities (other than obligations
in respect of undrawn letters of credit securing trade payables or performance
obligations incurred in the ordinary course of business not more than 150 days
past due or being contested in good faith), (g) all obligations of such Person
to purchase, redeem, retire or otherwise acquire for value any Capital Stock of
such Person, (h) all Guarantee Obligations of such Person in respect of
Indebtedness of others and (i) all obligations of the kind referred to in
clauses (a) through (h) above secured by any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person, whether
or not such Person has assumed or become liable for the payment of such
obligation (but if not so assumed, the amount of such obligation shall be deemed
not to exceed the fair market value of the property subject to the Lien).
"Indenture": the Indenture, dated as of July 3, 1996, between the Borrower
and American Stock Transfer & Trust Company, as trustee.
"Insolvency": with respect to any Multiemployer Plan, the condition that
such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Insurance Policies": (i) the insurance policies the Borrower is required
to maintain pursuant to Section 6.5 and (ii) the insurance policies the Borrower
is required to maintain pursuant to Section 5.3 of the Master Guarantee and
Collateral Agreement.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day of each
March, June, September and December to occur while such Loan is outstanding, (b)
as to any Eurodollar Loan having an Interest Period of three months or less, the
last day of such Interest Period, (c) as to any Eurodollar Loan having an
Interest Period longer than three months, each day which is three months, or a
whole multiple thereof, after the first day of such Interest Period and the last
day of such Interest Period.
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"Interest Period": as to any Eurodollar Loan, (a) initially, the period
commencing on the borrowing or conversion date, as the case may be, with respect
to such Eurodollar Loan and ending one, two, three or six months thereafter, as
selected by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three or six months thereafter, as
selected by the Borrower by irrevocable notice to the Administrative Agent not
less than three Business Days prior to the last day of the then current Interest
Period with respect thereto; provided that all of the foregoing provisions
relating to Interest Periods are subject to the following:
(i if any Interest Period would otherwise end on a day that is not a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period shall end
on the immediately preceding Business Day;
(ii any Interest Period that would otherwise extend beyond the Revolving
Credit Termination Date (in the case of Revolving Credit Loans) or beyond the
Term Loan Maturity Date (in the case of the Term Loans) shall end on the
Revolving Credit Termination Date or the Term Loan Maturity Date, as applicable;
(iii any Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Business Day of a calendar month; and
(iv the Borrower shall select Interest Periods so as not to require a
payment or prepayment of any Eurodollar Loan during an Interest Period for such
Loan.
"Interest Rate Protection Agreement": any interest rate protection
agreement, interest rate futures contract, interest rate option, interest rate
cap or other interest rate hedge arrangement, to or under which the Borrower or
any Subsidiary is a party or a beneficiary on the date hereof or becomes a party
or a beneficiary after the date hereof.
"Interest Rate Protection Agreement Obligation": in respect of any Loan
Party, the obligation of such Loan Party under an Interest Rate Protection
Agreement to make a payment to the counterparty thereto in the event of a
termination event or similar occurrence thereunder.
"Issuing Lender": (a) with respect to the Existing Letters of Credit,
Norwest Bank, and (b) with respect to any Letters of Credit issued after the
Closing Date, any Lender designated as "Issuing Lender" hereunder by the
Borrower with the consent of the Arranger, the Administrative Agent and such
Lender, in its capacity as issuer of any Letter of Credit.
"L/C Commitment": $10,000,000.
"L/C Fee Payment Date": the last day of each March, June, September and
December and the last day of the Revolving Credit Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Revolving Credit
Lenders other than the Issuing Lender.
"Lehman": Lehman Commercial Paper Inc.
"Lenders": as defined in the preamble hereto (which shall include the
Issuing Lender).
"Letters of Credit": as defined in Section 3.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing) and any filing
of or agreement to give any financing statement under the Uniform Commercial
Code (or equivalent statutes) of any jurisdiction.
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, the Notes, the Applications and the
Security Documents. "Loan Parties": the Borrower and each Domestic Subsidiary of
the Borrower which is, or is required by the terms hereof to be, a party to a
Loan Document.
"Master Guarantee and Collateral Agreement": the Master Guarantee and
Collateral Agreement to be executed and delivered by the Borrower and each of
its Domestic Subsidiaries, substantially in the form of Exhibit A, as the same
may be amended, supplemented or otherwise modified from time to time.
"Material Adverse Effect": a material adverse effect on (a) the business,
assets, property, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent, the Collateral Agent, the
Arranger or the Lenders hereunder or thereunder.
"Material Environmental Amount": an amount payable by the Borrower and/or
its Subsidiaries under any Environmental Law in excess of $2,500,000 for
remedial costs, compliance costs, compensatory damages, punitive damages, fines,
penalties or any combination thereof.
"Materials of Environmental Concern": any gasoline or petroleum (including
crude oil or any fraction thereof) or petroleum products, polychlorinated
biphenyls, urea-formaldehyde insulation, asbestos, pollutants, contaminants,
radioactive materials, and any other substances of any kind, whether or not any
such substance is defined as hazardous or toxic under any Environmental Law,
that is regulated pursuant to or could give rise to liability under any
Environmental Law.
"Mortgage": the mortgage or deed of trust to be made by the appropriate
Loan Party in favor of, or for the benefit of, the Collateral Agent for the
benefit of the Lenders, substantially in the form of Exhibit B (with such
changes thereto as shall be advisable under the law of the jurisdiction in which
such mortgage or deed of trust is to be recorded), as the same may be amended,
supplemented or otherwise modified from time to time.
"Mortgaged Property": the real property listed on Schedule 1.1B, as to
which the Collateral Agent for the benefit of the Lenders shall be granted a
Lien pursuant to the Mortgages and the real property as to which the Collateral
Agent for the benefit of the Lenders shall be granted a Lien in accordance with
Section 6.10.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery
Event, the proceeds thereof in the form of cash and Cash Equivalents (including
any such proceeds received by way of deferred payment of principal pursuant to a
note or installment receivable or purchase price adjustment receivable or
otherwise, but only as and when received) of such Asset Sale or Recovery Event,
net of attorneys' fees, accountants' fees, investment banking fees, brokers' and
underwriters' commissions paid to third parties, amounts required to be applied
to the repayment of Indebtedness secured by a Lien expressly permitted hereunder
on any asset which is the subject of such Asset Sale or Recovery Event (other
than any Lien in favor of the Collateral Agent for the benefit of the Lenders),
the aggregate amount of reserves required in the reasonable judgment of the
Borrower to pay contingent liabilities with respect to such Asset Sale (provided
that amounts deducted from aggregate proceeds pursuant to this clause and not
actually paid by the Borrower or any of its Subsidiaries in liquidation of such
contingent liabilities shall be deemed to be Net Cash Proceeds and shall be
applied in accordance with Section 2.9(c) at such time as the Borrower shall
reasonably determine that such amounts are not required to pay contingent
liabilities with respect to such Asset Sale) and other customary fees and
expenses actually incurred in connection therewith and net of taxes paid or
reasonably estimated to be payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing arrangements
with any Person other than the Borrower and its Subsidiaries) and (b) in
connection with any issuance or sale of Capital Stock or debt securities or
instruments or the incurrence of Indebtedness, the cash proceeds received from
such issuance or incurrence, net of attorneys' fees, investment banking fees,
accountants' fees, underwriting discounts and commissions and other customary
fees and expenses actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.18(a).
"Non-U.S. Lender": as defined in Section 2.18(b).
"Norwest Bank": Norwest Bank Texas, N.A.
"Notes": the collective reference to the Term Notes and the Revolving
Credit Notes.
"Obligations": the unpaid principal of and interest on (including, without
limitation, interest accruing after the maturity of the Loans and Reimbursement
Obligations and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Notes and all other
obligations and liabilities of the Borrower to the Arranger, the Administrative
Agent or to any Lender, whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred, which may arise under
this Agreement, any other Loan Document, the Letters of Credit, any Interest
Rate Protection Agreement entered into with any Lender or any other document
made, delivered or given in connection herewith or therewith, whether on account
of principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all fees, charges and disbursements of
counsel to the Arranger, the Administrative Agent and the Collateral Agent) or
otherwise.
"Oil and Gas Mortgages": mortgages in favor of the Collateral Agent for the
ratable benefit of the Lenders, in form and substance reasonably satisfactory to
the Collateral Agent, covering the Oil and Gas Properties. "Oil and Gas
Properties": the oil and gas properties described in Schedule 1.1C which are to
be mortgaged pursuant hereto and the oil and gas property as to which the
Collateral Agent for the benefit of the Lenders shall be granted a Lien in
accordance with Section 6.10.
"Participant": as defined in Section 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA (or any successor).
"Permitted Acquisitions": the acquisition by the Borrower and its
Subsidiaries of (a) rigs and other well service equipment (b) well service
companies (including the acquisition of the minority interests in Servicios for
an aggregate amount not to exceed $5,000,000) and (c) oil and gas properties and
related equipment, provided that (i), after giving effect to such acquisitions
and any borrowings hereunder in connection therewith, (x) the Consolidated
Leverage Ratio shall not be more than 3.75 to 1.00 and (y) the sum of (1) the
Borrower's cash and Cash Equivalents on hand and (2) the aggregate Available
Revolving Credit Commitments shall be at least $10,000,000 or (ii) after giving
effect to such acquisition the Consolidated Leverage Ratio is not increased and
such acquisition is funded solely with the Borrower's Capital Stock.
"Person": an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is covered by
ERISA and in respect of which the Borrower or a Commonly Controlled Entity is
(or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pledged Notes", "Pledged Securities" and "Pledged Stock": each as defined
in the Master Guarantee and Collateral Agreement.
"Pro Forma Balance Sheet": as defined in Section 4.1(a).
"Projections": as defined in Section 6.2(c).
"Properties": the collective reference to the real property owned, leased
or operated by the Borrower or any of its Subsidiaries (or with respect to
Sections 6.8 and 10.5, any of the Excluded Subsidiaries).
"Recovery Event": any settlement of or payment in respect of a property or
casualty insurance claim relating to any asset of the Borrower or any of its
Subsidiaries.
"Register": as defined in Section 10.6(e).
"Reimbursement Obligation": the obligation of the Borrower to reimburse the
Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of
Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment Event, the
aggregate Net Cash Proceeds received by the Borrower or any of its Subsidiaries
in connection therewith which are not applied to prepay the Revolving Credit
Loans or reduce the Revolving Credit Commitments pursuant to Section 2.9(c) as a
result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of which
the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible Officer
of the Borrower to the Administrative Agent within 60 days of an Asset Sale or
Recovery Event stating that no Default or Event of Default has occurred and is
continuing and that the Borrower (directly or indirectly through another
Subsidiary), in good faith, intends and expects to use all or a specified
portion of the Net Cash Proceeds of an Asset Sale or a Recovery Event to restore
or replace the assets in respect of which such Asset Sale or Recovery Event
occurred, to make Permitted Acquisitions, or to invest in the business of the
Borrower and its Subsidiaries, within six months from the date of receipt of
such Net Cash Proceeds and confirming that, if the affected assets constituted
Collateral, such restored or replacement assets shall also constitute
Collateral.
"Reinvestment Prepayment Amount": with respect to any Reinvestment Event,
the Reinvestment Deferred Amount relating thereto less any amount expended prior
to the relevant Reinvestment Prepayment Date to restore or replace the assets in
respect of which an Asset Sale or a Recovery Event has occurred.
"Reinvestment Prepayment Date": with respect to any Reinvestment Event, the
earliest of (a) the first date occurring after such Reinvestment Event on which
a Default or an Event of Default shall have occurred, (b) the date occurring six
months after such Reinvestment Event and (c) the date on which the Borrower
shall have determined not to, or shall have otherwise ceased to, restore or
replace the assets in respect of which a Reinvestment Event has occurred.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. 2615.
"Required Lenders": at any date shall mean the holders of more than 50% of,
(a) until the Closing Date, the Commitments and, (b) thereafter, the sum of (i)
the aggregate unpaid principal amount of the Term Loans and (ii) the aggregate
Revolving Credit Commitments, or, if the Revolving Credit Commitments have been
terminated, the Aggregate Outstanding Revolving Extensions of Credit of the
Revolving Credit Lenders.
"Requirement of Law": as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": the chief executive officer, president or chief
financial officer of the Borrower, but in any event, with respect to financial
matters, the chief financial officer of the Borrower.
"Revolving Credit Commitment": as to any Lender, the obligation of such
Lender, if any, to make Revolving Credit Loans to and/or issue or participate in
Letters of Credit issued on behalf of the Borrower hereunder in an aggregate
principal and/or face amount not to exceed the amount set forth under the
heading "Revolving Credit Commitment" opposite such Lender's name on Schedule
1.1A, as the same may be changed from time to time pursuant to the terms hereof
and as the same shall be reduced pursuant to Section 2.3(c).
"Revolving Credit Commitment Period": the period from and including the
Closing Date to but not including the Revolving Credit Termination Date, or such
earlier date on which the Revolving Credit Commitments shall have been
terminated.
"Revolving Credit Lender": each Lender which has a Revolving Credit
Commitment or which has made Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.3(a).
"Revolving Credit Note": as defined in Section 2.6(e).
"Revolving Credit Percentage": as to any Revolving Credit Lender at any
time, the percentage which such Lender's Revolving Credit Commitment then
constitutes of the aggregate Revolving Credit Commitments (or, at any time after
the Revolving Credit Commitments shall have expired or terminated, the
percentage which the aggregate principal amount of such Lender's Revolving
Credit Loans then outstanding constitutes of the aggregate principal amount of
the Revolving Credit Loans then outstanding).
"Revolving Credit Termination Date": June 30, 2002.
"Security Documents": the collective reference to each Mortgage, each Oil
and Gas Mortgage, the Master Guarantee and Collateral Agreement and all other
security documents hereafter delivered to the Collateral Agent granting a Lien
on any asset or assets of any Person to secure the obligations and liabilities
of the Borrower hereunder and/or under any of the other Loan Documents or to
secure any guarantee of any such obligations and liabilities.
"Seller Indebtedness": Indebtedness of the Borrower which is issued to the
seller in a Permitted Acquisition as all or a portion of the consideration for
such Permitted Acquisition.
"Servicios": Servicios WellTech, S.A., an Argentine corporation.
"Single Employer Plan": any Plan which is covered by Title IV of ERISA, but
which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of any date
of determination, (a) the amount of the "present fair saleable value" of the
assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y)
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.
"Standby Letter of Credit": as defined in Section 3.1(a).
"Subsidiary": as to any Person, a corporation, partnership or other entity
of which shares of stock or other ownership interests having ordinary voting
power (other than stock or such other ownership interests having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower, but such references shall not include any Excluded Subsidiary.
"Subsidiary Guarantor": each Subsidiary of the Borrower which is a party to
the Master Guarantee and Collateral Agreement.
"Term Loan Commitment": as to any Lender, the obligation of such Lender, if
any, to make a Term Loan to the Borrower hereunder in a principal amount not to
exceed the amount set forth under the heading "Term Loan Commitment" opposite
such Lender's name on Schedule 1.1A.
"Term Loan Lender": each Lender which has a Term Loan Commitment or which
has made a Term Loan.
"Term Loan Maturity Date": June 30, 2004.
"Term Loan Percentage": as to any Term Loan Lender at any time, the
percentage which such Lender's Term Loan Commitment then constitutes of the
aggregate Term Loan Commitments (or, at any time after the Closing Date, the
percentage which the aggregate principal amount of such Lender's Term Loan then
outstanding constitutes of the aggregate principal amount of the Term Loans then
outstanding).
"Term Loans": as defined in Section 2.1.
"Term Note": as defined in Section 2.6(e).
"Transferee": as defined in Section 10.6(g).
"Type": as to any Loan, its nature as a Base Rate Loan or a Eurodollar
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No.500, as the
same may be amended from time to time.
"United States": the United States of America.
"Vehicles": as defined in the Master Guarantee and Collateral Agreement.
"Wholly Owned Subsidiary": as to any Person, any other Person all of the
Capital Stock of which is owned by such Person directly and/or through other
Wholly Owned Subsidiaries.
1.2 Other Definitional Provisions. (a) Unless otherwise specified therein,
all terms defined in this Agreement shall have the defined meanings when used in
the other Loan Documents or any certificate or other document made or delivered
pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any certificate or
other document made or delivered pursuant hereto or thereto, accounting terms
relating to the Borrower and its Subsidiaries not defined in Section 1.1 and
accounting terms partly defined in Section 1.1, to the extent not defined, shall
have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Loans. Subject to the terms and conditions hereof, each Term Loan
Lender severally agrees to make a term loan (a "Term Loan") to the Borrower on
the Closing Date in an amount not to exceed the amount of the Term Loan
Commitment of such Lender. The Term Loans may from time to time be (a)
Eurodollar Loans, (b) Base Rate Loans or (c) a combination thereof, as
determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.2 and 2.10.
2.2 Procedure for Term Loan Borrowing. The Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., New York City time, one Business Day
prior to the anticipated Closing Date) requesting that the Term Loan Lenders
make Term Loans on the Closing Date and specifying (a) the amount to be borrowed
and (b) the Closing Date. Upon receipt of such notice, the Administrative Agent
shall promptly notify each Term Loan Lender thereof. Not later than 12:00 Noon,
New York City time, on the Closing Date, each Term Loan Lender shall make
available to the Administrative Agent at its office specified in Section 10.2 an
amount in immediately available funds equal to the Term Loan to be made by such
Lender. The Administrative Agent shall on such date by 2:00 P.M., New York City
time, make available to the Borrower, in accordance with the instructions of the
Borrower, in like funds as received by the Administrative Agent, all such
amounts made available to the Administrative Agent by the Term Loan Lenders.
2.3 Revolving Credit Commitments. (a) Subject to the terms and conditions
hereof, each Revolving Credit Lender severally agrees to make revolving credit
loans ("Revolving Credit Loans") to the Borrower from time to time during the
Revolving Credit Commitment Period in an aggregate principal amount at any one
time outstanding which, when added to such Lender's Revolving Credit Percentage
of the L/C Obligations then outstanding, does not exceed the amount of such
Lender's Revolving Credit Commitment. During the Revolving Credit Commitment
Period, the Borrower may use the Revolving Credit Commitments by borrowing,
prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all
in accordance with the terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the
Borrower and notified to the Administrative Agent in accordance with Sections
2.4 and 2.10, provided that no Revolving Credit Loan shall be made as a
Eurodollar Loan after the day that is one month prior to the Revolving Credit
Termination Date. (c) The Revolving Credit Commitments shall be reduced (and
each Revolving Credit Lender's Revolving Credit Commitment shall be ratably
reduced) on each anniversary of the Closing Date, commencing with the third such
anniversary, to the amount set forth opposite such anniversary below:
Anniversary Amount
Third $110,000,000
Fourth $ 80,000,000
Fifth $ 0
2.4 Procedure for Revolving Credit Borrowing. The Borrower may borrow under
the Revolving Credit Commitments during the Revolving Credit Commitment Period
on any Business Day, provided that the Borrower shall give the Administrative
Agent irrevocable notice (which notice must be received by the Administrative
Agent prior to 12:00 Noon, New York City time, (a) three Business Days prior to
the requested Borrowing Date, if all or any part of the requested Revolving
Credit Loans are to be Eurodollar Loans or (b) one Business Day prior to the
requested Borrowing Date, otherwise), specifying (i) the amount to be borrowed,
(ii) the requested Borrowing Date, (iii) whether the borrowing is to be of
Eurodollar Loans, Base Rate Loans, or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans, the respective
amounts of each such Type of Loan and the respective lengths of the initial
Interest Periods therefor. Each borrowing under the Revolving Credit Commitments
shall be in an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or
a whole multiple thereof (or, if the then Available Revolving Credit Commitments
are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar
Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon
receipt of any such notice from the Borrower, the Administrative Agent shall
promptly notify each Revolving Credit Lender thereof. Each Revolving Credit
Lender will make the amount of its pro rata share of each borrowing available to
the Administrative Agent for the account of the Borrower at the office of the
Administrative Agent specified in Section 10.2 prior to 11:00 A.M., New York
City time, on the Borrowing Date requested by the Borrower in funds immediately
available to the Administrative Agent. The aggregate of the amounts made
available to the Administrative Agent by the Revolving Credit Lenders will then
be made available to the Borrower by the Administrative Agent in accordance with
the instructions of the Borrower in like funds as received by the Administrative
Agent.
2.5 Commitment Fees, etc. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the Closing Date to the last
day of the Revolving Credit Commitment Period, computed at the rate per annum
set forth under the heading "Commitment Fee Rate" on Annex I on the average
daily amount of the Available Revolving Credit Commitment of such Lender during
the period for which payment is made, payable quarterly in arrears on the last
day of each March, June, September and December and on the last day of the
Revolving Credit Commitment Period, commencing on the first of such dates to
occur after the date hereof.
(b) The Borrower agrees to pay to the Arranger the fees and other
compensation in the amounts and on the dates previously agreed to in writing by
the Borrower and the Arranger.
(c) The Borrower agrees to pay to the Administrative Agent the fees in the
amounts and on the dates agreed to in writing from time to time by the Borrower
and the Administrative Agent.
(d) The Borrower agrees to pay to the Collateral Agent the fees in the
amount and on the dates agreed to in writing from time to time by the Borrower
and the Collateral Agent.
2.6 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
the appropriate Lender (i) the then unpaid principal amount of each Revolving
Credit Loan of such Revolving Credit Lender on the last day of the Revolving
Credit Commitment Period (or such earlier date on which the Revolving Credit
Loans become due and payable pursuant to Section 8) and (ii) the principal
amount of the Term Loans of such Term Loan Lender, in 25 consecutive quarterly
installments, each of which installments for each Lender shall be such Lender's
Term Loan Percentage of the amount for such installment payment date set forth
on the amortization schedule set forth on Schedule 2.6, commencing on June 30,
1998 and on the last day of each March, June, September and December thereafter
(or on such earlier date on which the then unpaid principal amount of the Term
Loans become due and payable pursuant to Section 8). The Borrower hereby further
agrees to pay interest on the unpaid principal amount of the Loans from time to
time outstanding from the date hereof until payment in full thereof at the rates
per annum, and on the dates, set forth in Section 2.12.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent, on behalf of the Borrower, shall maintain the
Register pursuant to Section 10.6(e) and a subaccount therein for each Lender,
in which shall be recorded (i) the amount of each Revolving Credit Loan and Term
Loan made hereunder, the Type thereof and each Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to each Lender hereunder and (iii) both
the amount of any sum received by the Administrative Agent hereunder from the
Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.6(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement. (e)
The Borrower agrees that, upon the request to the Administrative Agent by any
Lender, the Borrower will execute and deliver to such Lender (i) a promissory
note of the Borrower evidencing any Revolving Credit Loans of such Lender,
substantially in the form of Exhibit C-1 with appropriate insertions as to date
and principal amount (a "Revolving Credit Note"), and/or (ii) a promissory note
of the Borrower evidencing any Term Loan of such Lender, substantially in the
form of Exhibit C-2 with appropriate insertions as to date and principal amount
(a "Term Note"). A Note and the obligation evidenced thereby may be assigned or
otherwise transferred in whole or in part only by registration of such
assignment or transfer of such Note and the obligation evidenced thereby in the
Register (and each Note shall expressly so provide). Any assignment or transfer
of all or part of an obligation evidenced by a Note shall be registered in the
Register only upon surrender for registration of assignment or transfer of the
Note evidencing such obligation, accompanied by an Assignment and Acceptance
substantially in the form of Exhibit G duly executed by the Assignor thereof,
and thereupon one or more new Notes shall be issued to the designated Assignee
and the old Note shall be returned by the Administrative Agent to the Borrower
marked "cancelled". No assignment of a Note and the obligation evidenced thereby
shall be effective unless it shall have been recorded in the Register by the
Administrative Agent as provided in this Section 2.6(e).
2.7 Optional Termination or Reduction of Revolving Credit Commitments. The
Borrower shall have the right, upon not less than three Business Days' notice to
the Administrative Agent, to terminate the Revolving Credit Commitments or, from
time to time, to reduce the amount of the Revolving Credit Commitments; provided
that no such termination or reduction of Revolving Credit Commitments shall be
permitted if, after giving effect thereto and to any prepayments of the
Revolving Credit Loans made on the effective date thereof, the sum of the
Aggregate Outstanding Revolving Extensions of Credit of all Revolving Credit
Lenders would exceed the Revolving Credit Commitments then in effect. Any such
reduction shall be in an amount equal to $1,000,000, or a whole multiple
thereof, and shall reduce permanently the Revolving Credit Commitments then in
effect.
2.8 Optional Prepayments. The Borrower may at any time and from time to
time prepay the Loans, in whole or in part, without premium or penalty, upon at
least three Business Days' irrevocable notice to the Administrative Agent by the
Borrower, specifying the date and amount of prepayment and whether the
prepayment is of Eurodollar Loans, Base Rate Loans or a combination thereof,
and, if of a combination thereof, the amount allocable to each, provided that if
a Eurodollar Loan is prepaid on any day other than the last day of the Interest
Period applicable thereto the Borrower shall also pay any amounts owing pursuant
to Section 2.19. Upon receipt of any such notice, the Administrative Agent shall
promptly notify each Lender thereof. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified therein,
together with accrued interest to such date on the amount prepaid. Partial
prepayments of the Term Loans shall be applied to the remaining installments in
the direct order of the scheduled payment date thereof. Notwithstanding the
foregoing, so long as any Revolving Credit Loans are outstanding, each Term Loan
Lender shall have the right to refuse all or any portion of any prepayment
pursuant to this Section 2.8 allocable to such Lender's Term Loans, and the
amount so refused shall be applied to prepay the Revolving Credit Loans. Amounts
prepaid on account of the Term Loans may not be reborrowed. Partial prepayments
of Term Loans and Revolving Credit Loans shall be in an aggregate principal
amount of $1,000,000 or a whole multiple thereof.
2.9 Mandatory Prepayments and Commitment Reductions. (a) If any senior or
subordinated debt securities or instruments of the Borrower or any of its
Subsidiaries shall be issued or sold, or the Borrower or any of its Subsidiaries
shall incur any Indebtedness, after the Closing Date (except any debt securities
or instruments issued or sold or Indebtedness incurred pursuant to Section 7.2),
an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the
date of such issuance, sale or incurrence toward the prepayment of the Revolving
Credit Loans and, with respect to Net Cash Proceeds thereof received after the
third anniversary of the Closing Date only, the prepayment of the Loans and the
reduction of the Revolving Credit Commitments as set forth in paragraph (f) of
this Section 2.9. Nothing in this paragraph (a) shall be deemed to permit the
incurrence of Indebtedness not permitted by Section 7.2.
(b) If any Capital Stock of the Borrower or any of its Subsidiaries shall
be issued or sold after the Closing Date (except any Capital Stock issued as a
part of the consideration of and in connection with a Permitted Acquisition), an
amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the
date of such issuance or sale toward the prepayment of the Revolving Credit
Loans and, with respect to Net Cash Proceeds thereof received after the third
anniversary of the Closing Date only, the prepayment of the Loans and the
reduction of the Revolving Credit Commitments as set forth in paragraph (f) of
this Section 2.9; provided that, so long as no Default or Event of Default shall
have occurred and be continuing, the Borrower shall not be required to reduce
the Revolving Credit Commitments to less than $80,000,000 as a result of the
application of Net Cash Proceeds pursuant to this paragraph (b).
(c) If the Borrower or any of its Subsidiaries shall receive Net Cash
Proceeds from any Asset Sale or Recovery Event after the Closing Date, 100% of
the Net Cash Proceeds thereof shall be applied on the date such Net Cash
Proceeds are received toward the prepayment of the Loans and the reduction of
the Revolving Credit Commitments as set forth in paragraph (f) of this Section
2.9. Notwithstanding the foregoing sentence, (i) no prepayment and reduction of
Revolving Credit Commitments shall be required in respect of the first
$2,000,000 in Net Cash Proceeds received from Asset Sales and Recovery Events in
any fiscal year (excluding any Net Cash Proceeds described in clause (ii) of
this sentence) and (ii) if no Default or Event of Default shall have occurred
and be continuing and a Reinvestment Notice with respect to such Asset Sale or
Recovery Event has been delivered, to the extent that the Net Cash Proceeds from
any Asset Sale or Recovery Event are to be used to restore or replace the assets
in respect of which an Asset Sale or Recovery Event has occurred within six
months from the date of such Asset Sale or Recovery Event, as certified by a
Responsible Officer of the Borrower pursuant to such Reinvestment Notice, such
Net Cash Proceeds shall not be applied toward the prepayment of Loans and the
reduction of the Revolving Credit Commitments except as provided in the next two
succeeding sentences. If the Net Cash Proceeds from any Reinvestment Event
exceed $5,000,000, the Borrower shall deposit such Net Cash Proceeds in a cash
collateral account under the exclusive dominion and control of the
Administrative Agent as security for the Obligations in accordance with terms
and conditions reasonably satisfactory to the Administrative Agent pending the
reinvestment of such Net Cash Proceeds. On each Reinvestment Prepayment Date, an
amount equal to the Reinvestment Prepayment Amount with respect to the
applicable Reinvestment Event shall be applied toward the prepayment of the
Loans and the reduction of the Revolving Credit Commitments as set forth in
paragraph (f) of this Section 2.9.
(d) If, for any fiscal year of the Borrower ending on or after June 30,
2000, there shall be Excess Cash Flow, the Borrower shall, on the relevant
Excess Cash Flow Application Date, apply toward the prepayment of the Loans and
the reduction of the Revolving Credit Commitments as set forth in paragraph (f)
of this Section 2.9 an amount equal to (i) 50% of such Excess Cash Flow if the
Consolidated Leverage Ratio at the end of the relevant fiscal year shall be
greater than or equal to 3.00 to 1.00 or (ii) 25% of such Excess Cash Flow if
the Consolidated Leverage Ratio at the end of the relevant fiscal year shall be
less than 3.00 to 1.00. Each such prepayment and commitment reduction shall be
made on a date (an "Excess Cash Flow Application Date") no later than five
Business Days after the earlier of (i) the date on which the financial
statements of the Borrower referred to in Section 6.1(a) for the fiscal year
with respect to which such prepayment is made are required to be delivered to
the Lenders and (ii) the date such financial statements are actually delivered.
(e) If any Convertible Subordinated Debentures are outstanding on April 30,
2003, the Borrower shall prepay the Term Loans in full on such date, together
with all accrued interest thereon and all amounts payable pursuant to Section
2.19 in connection with such prepayment.
(f) Amounts to be applied in connection with prepayments of Loans and
Revolving Credit Commitment reductions made pursuant to this Section 2.9 shall
be applied, first, to prepay the Revolving Credit Loans and reduce permanently
the Revolving Credit Commitments, pro rata according to the outstanding amounts
of Revolving Credit Commitments, except for amounts to be applied prior to the
third anniversary of the Closing Date pursuant to paragraphs (a) and (b) of this
Section 2.9 which shall be applied only toward prepayment of the then
outstanding Revolving Credit Loans and not to reduce permanently the Revolving
Credit Commitments, and, second, after the Aggregate Outstanding Revolving
Extensions of Credit and the Revolving Credit Commitments have been reduced to
zero, to prepay the Term Loans pro rata according to the outstanding principal
amounts thereof. Any such reduction of the Revolving Credit Commitments shall be
accompanied by prepayment of the Revolving Credit Loans to the extent, if any,
that the sum of the Aggregate Outstanding Revolving Extensions of Credit of all
Revolving Credit Lenders exceeds the amount of the aggregate Revolving Credit
Commitments as so reduced, provided that if the aggregate principal amount of
Revolving Credit Loans then outstanding is less than the amount of such excess
(because L/C Obligations constitute a portion thereof), the Borrower shall, to
the extent of the balance of such excess, replace outstanding Letters of Credit
and/or deposit an amount in cash in a cash collateral account established with
the Administrative Agent for the benefit of the Lenders on terms and conditions
satisfactory to the Administrative Agent. Amounts on deposit in the cash
collateral account shall be invested as directed by the Borrower subject to the
approval of the Administrative Agent, which approval shall not be unreasonably
withheld. The application of any prepayment pursuant to this Section 2.9 shall
be made first to Base Rate Loans and second to Eurodollar Loans, provided that
at the request of the Borrower the application of any prepayment to any
Eurodollar Loan may be delayed until the end of an Interest Period (or Interest
Periods) so that such application does not result in the incurrence by any
Lender of any loss or expense under Section 2.19, and during such delay, the
Administrative Agent shall hold the amount of such prepayment in a cash
collateral account. Amounts prepaid in respect of the Term Loans shall be
applied to installments thereof pro rata according to the outstanding principal
amounts thereof. Amounts prepaid on account of the Term Loans may not be
reborrowed. Each prepayment of the Loans under this Section 2.9 shall be
accompanied by accrued interest to the date of such prepayment on the amount
prepaid.
2.10 Conversion and Continuation Options. (a) The Borrower may elect from
time to time to convert Eurodollar Loans to Base Rate Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert Base Rate Loans to Eurodollar Loans by
giving the Administrative Agent at least three Business Days' prior irrevocable
notice of such election. Any such notice of conversion to Eurodollar Loans shall
specify the length of the initial Interest Period therefor. Upon receipt of any
such notice, the Administrative Agent shall promptly notify each Lender thereof.
All or any part of outstanding Eurodollar Loans and Base Rate Loans may be
converted as provided herein, provided that (i) no Loan may be converted into a
Eurodollar Loan (A) when any Event of Default has occurred and is continuing and
the Administrative Agent has or the Required Lenders have determined in its or
their sole discretion not to permit such a conversion or (B) having an Interest
Period in excess of one month prior to the date which is 60 days after the
Closing Date and (ii) no Loan may be converted into a Eurodollar Loan after the
date that is one month prior to (y) the Revolving Credit Termination Date, with
respect to Revolving Credit Loans and (z) the Term Loan Maturity Date, with
respect to Term Loans.
(b) Any Eurodollar Loans may be continued as such upon the expiration of
the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan may be continued as such (i) when any Event of Default
has occurred and is continuing and the Administrative Agent has or the Required
Lenders have determined in its or their sole discretion not to permit such a
continuation or (ii) after the date that is one month prior to (A) the Revolving
Credit Termination Date, with respect to the Revolving Credit Loans or (B) the
Term Loan Maturity Date, with respect to Term Loans, and provided, further, that
if the Borrower shall fail to give any required notice as described above in
this paragraph or if such continuation is not permitted pursuant to the
preceding proviso such Loans shall be automatically converted to Base Rate Loans
on the last day of such then expiring Interest Period.
2.11 Minimum Amounts and Maximum Number of Eurodollar Tranches.
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Loans hereunder and all
selections of Interest Periods hereunder shall be in such amounts and be made
pursuant to such elections so that, (a) after giving effect thereto, the
aggregate principal amount of the Loans comprising each Eurodollar Tranche shall
be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof, (b)
no more than eight Eurodollar Tranches in respect of the Revolving Credit Loans
shall be outstanding at any one time and (c) no more than twelve Eurodollar
Tranches in respect of all Loans (including the Revolving Credit Loans) shall be
outstanding at any one time.
2.12 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear
interest for each day during each Interest Period with respect thereto at a rate
per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per annum equal to
the Base Rate plus the Applicable Margin.
(c) If all or a portion of any principal of any Loan or Reimbursement
Obligations shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such amounts shall bear interest at 2% above the
rate otherwise applicable thereto from the date of such non-payment until such
overdue principal is paid in full (as well after as before judgment). If all or
a portion of any interest shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such amounts shall bear interest at 2%
above the rate otherwise applicable to the Loans or Reimbursement Obligations on
which such interest accrued from the date of such non-payment until such overdue
principal is paid in full (as well after as before judgment). If all or a
portion of any commitment fee or any other amount payable hereunder shall not be
paid when due (whether at the stated maturity, by acceleration or otherwise),
such amounts shall bear interest at a rate which is 2% above the rate applicable
to Base Rate Loans which are Revolving Credit Loans, in each case from the date
of such non-payment until such overdue commitment fee or other amount is paid in
full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment Date,
provided that interest accruing pursuant to paragraph (c) of this Section 2.12
shall be payable from time to time on demand.
2.13 Computation of Interest and Fees. (a) Interest on Loans and
Reimbursement Obligations, commitment fees, letter of credit commissions and
interest on overdue interest, commitment fees and other amounts payable
hereunder shall be calculated on the basis of a 360-day year for the actual days
elapsed, except that, with respect to Base Rate Loans the rate of interest on
which is calculated on the basis of the Prime Rate, the interest thereon shall
be calculated on the basis of a 365- (or 366-, as the case may be) day year for
the actual days elapsed. The Administrative Agent shall as soon as practicable
notify the Borrower and the Lenders of each determination of a Eurodollar Rate.
Any change in the interest rate on a Loan resulting from a change in the Base
Rate or the Eurocurrency Reserve Requirements shall become effective as of the
opening of business on the day on which such change becomes effective. The
Administrative Agent shall as soon as practicable notify the Borrower and the
Lenders of the effective date and the amount of each such change in interest
rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Lenders in the absence of manifest error.
2.14 Inability to Determine Interest Rate. If prior to the first day of any
Interest Period:
(a) the Administrative Agent shall have determined (which determination
shall be conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate for such Interest Period, or
(b) the Administrative Agent shall have received notice from the Required
Lenders that the Eurodollar Rate determined or to be determined for such
Interest Period will not adequately and fairly reflect the cost to such Lenders
(as conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof
to the Borrower and the Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans requested to be made on the first day
of such Interest Period shall be made as Base Rate Loans, (y) any Loans that
were to have been converted on the first day of such Interest Period to
Eurodollar Loans shall be continued as Base Rate Loans and (z) any outstanding
Eurodollar Loans that were to be continued on the first day of such Interest
Period as Eurodollar Loans shall be converted, on the first day of such Interest
Period, to Base Rate Loans. Until such notice has been withdrawn by the
Administrative Agent, no further Eurodollar Loans shall be made or continued as
such, nor shall the Borrower have the right to convert Loans to Eurodollar
Loans.
2.15 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower
from the Lenders hereunder, each payment by the Borrower on account of any
commitment fee and any reduction of the Commitments of the Lenders shall be made
pro rata according to the respective Term Loan Percentages or Revolving Credit
Percentages, as the case may be, of the relevant Lenders. Except as provided in
Section 2.8, each payment (including each prepayment) by the Borrower on account
of principal of and interest on the Term Loans shall be made pro rata according
to the respective outstanding principal amounts of the Term Loans then held by
the Term Loan Lenders. Each payment (including each prepayment) by the Borrower
on account of principal of and interest on the Revolving Credit Loans shall be
made pro rata according to the respective outstanding principal amounts of the
Revolving Credit Loans then held by the Revolving Credit Lenders. Each payment
made at any time when any amount hereunder is due and payable shall be made pro
rata according to the respective amounts then due and payable to the Lenders.
All payments (including prepayments) to be made by the Borrower hereunder and
under the Notes, whether on account of principal, interest, fees or otherwise,
shall be made without setoff or counterclaim and shall be made prior to 12:00
Noon, New York City time, on the due date thereof to the Administrative Agent,
for the account of the Lenders, at the Administrative Agent's office specified
in Section 10.2, in Dollars and in immediately available funds. Payments
received by the Administrative Agent after such time shall be deemed to have
been received on the next Business Day. The Administrative Agent shall
distribute such payments to the Lenders promptly upon receipt in like funds as
received. If any payment hereunder (other than payments on the Eurodollar Loans)
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day. If any payment on a Eurodollar
Loan becomes due and payable on a day other than a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day unless the result
of such extension would be to extend such payment into another calendar month,
in which event such payment shall be made on the immediately preceding Business
Day. In the case of any extension of any payment of principal pursuant to the
preceding two sentences, interest thereon shall be payable at the then
applicable rate during such extension.
(b) Unless the Administrative Agent shall have been notified in writing by
any Lender prior to a borrowing that such Lender will not make the amount that
would constitute its share of such borrowing available to the Administrative
Agent, the Administrative Agent may assume that such Lender is making such
amount available to the Administrative Agent, and the Administrative Agent may,
in reliance upon such assumption, make available to the Borrower a corresponding
amount. If such amount is not made available to the Administrative Agent by the
required time on the Borrowing Date therefor, such Lender shall pay to the
Administrative Agent, on demand, such amount with interest thereon at a rate
equal to the daily average Federal Funds Effective Rate for the period until
such Lender makes such amount immediately available to the Administrative Agent.
A certificate of the Administrative Agent submitted to any Lender with respect
to any amounts owing under this Section 2.15(b) shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Base Rate Loans hereunder, on demand, from the Borrower (together with any
amounts due under Section 2.19, calculated as if such Lender's failure to fund
such amount were a failure of the Borrower to borrow such amount after having
given notice of such borrowing). Nothing herein shall be deemed to limit the
rights of the Borrower against any defaulting Lender.
(c) Unless the Administrative Agent shall have been notified in writing by
the Borrower prior to the date of any payment being made hereunder that the
Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.16 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Base Rate Loans to Eurodollar Loans shall forthwith be suspended and (b)
such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to Base Rate Loans on the respective last days of the
then current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to Section 2.19.
2.17 Requirements of Law. (a) If after the date hereof the adoption of or
any change in any Requirement of Law or in the interpretation or application
thereof or compliance by any Lender with any request or directive (whether or
not having the force of law) from any central bank or other Governmental
Authority made subsequent to the date hereof:
(i shall subject any Lender to any tax of any kind whatsoever with respect
to this Agreement, any Note, any Letter of Credit, any Application or any
Eurodollar Loan made by it, or change the basis of taxation of payments to such
Lender in respect thereof (except for taxes covered by Section 2.18 and changes
in the rate of tax (whether characterized as income, franchise or other tax) on
the overall net income of such Lender);
(ii shall impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other extensions of
credit by, or any other acquisition of funds by, any office of such Lender which
is not otherwise included in the determination of the Eurodollar Rate hereunder;
or
(iii shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such
Lender, by an amount which such Lender deems to be material, of making,
converting into, continuing or maintaining Eurodollar Loans or issuing or
participating in Letters of Credit, or to reduce any amount receivable hereunder
in respect thereof, then, in any such case, the Borrower shall promptly pay such
Lender, upon its demand, any additional amounts necessary to compensate such
Lender on an after-tax basis for such increased cost or reduced amount
receivable. If any Lender becomes entitled to claim any additional amounts
pursuant to this Section 2.17, it shall promptly notify the Borrower (with a
copy to the Administrative Agent) of the event by reason of which it has become
so entitled.
(b) If any Lender shall have determined that the adoption of or any change
in any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Lender or any corporation controlling
such Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof shall have the effect of reducing the rate of return on such
Lender's or such corporation's capital as a consequence of its obligations
hereunder or under or in respect of any Letter of Credit to a level below that
which such Lender or such corporation could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, after submission by such
Lender to the Borrower (with a copy to the Administrative Agent) of a written
request therefor, the Borrower shall pay to such Lender such additional amount
or amounts as will compensate such Lender on an after-tax basis for such
reduction.
(c) If any Lender becomes entitled to claim any additional amounts pursuant
to this subsection, it shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
A certificate as to any additional amounts payable pursuant to this Section
2.17, together with a calculation thereof in reasonable detail, shall be
submitted by the affected Lender to the Borrower (with a copy to the
Administrative Agent) and such certificate shall be conclusive in the absence of
manifest error. The obligations of the Borrower pursuant to this Section 2.17
shall survive the termination of this Agreement and the payment of the Notes and
all other amounts payable hereunder.
2.18 Taxes. (a) All payments made by the Borrower under this Agreement and
the Notes shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Administrative Agent or any Lender hereunder or under the Notes,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement and the Notes, provided, however, that the Borrower shall make
payments net of and after deduction for Non-Excluded Taxes and shall not be
required to increase any such amounts payable to any Non-U.S. Lender (as defined
below) that fails to comply with Section 2.18(b). Whenever any Non-Excluded
Taxes are payable by the Borrower, as promptly as possible thereafter the
Borrower shall send to the Administrative Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any Non-Excluded Taxes, incremental
taxes, interest or penalties that may become payable by the Administrative Agent
or any Lender as a result of any such failure. The agreements in this Section
2.18 shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder.
(b) Each Lender (or Transferee) that is not a corporation or partnership
created or organized in or under the laws of the United States, any estate that
is subject to federal income taxation regardless of the source of its income or
any trust which is subject to the supervision of a court within the United
States and the control of a United States fiduciary as described in section
7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver to the Borrower and
the Administrative Agent (or, in the case of a Participant, to the Lender from
which the related participation shall have been purchased) on or before the date
on which it becomes a party to this Agreement (or, in the case of a Participant,
on or before the date on which such Participant purchases the related
participation) either:
(A) (x) two duly completed and signed copies of either Internal Revenue
Service Form 1001 (relating to such Non-U.S. Lender and entitling it to a
complete exemption from withholding of U.S. Taxes on all amounts to be received
by such Non-U.S. Lender pursuant to this Agreement and the other Loan Documents)
or Form 4224 (relating to all amounts to be received by such Non-U.S. Lender
pursuant to this Agreement and the other Loan Documents), or successor and
related applicable forms, as the case may be, and (y) two duly completed and
signed copies of Internal Revenue Service Form W-8 or W-9, or successor and
related applicable forms, as the case may be; or
(B) in the case of a Non-U.S. Lender that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code and that does not comply with the
requirements of clause (A) hereof, (x) a statement in the form of Exhibit F (or
such other form of statement as shall be reasonably requested by the Borrower or
the Administrative Agent from time to time) to the effect that such Non-U.S.
Lender is eligible for a complete exemption from withholding of U.S. Taxes under
Code Section 871(h) or 881(c), and (y) two duly completed and signed copies of
Internal Revenue Service Form W-8 or successor and related applicable form.
Further, each Non-U.S. Lender agrees to deliver to the Borrower and the
Administrative Agent, and if applicable, the assigning Lender (or, in the case
of a Participant, to the Lender from which the related participation shall have
been purchased) two further duly completed and signed copies of such Forms 1001,
4224, W-8 or W-9, as the case may be, or successor and related applicable forms,
on or before the date that any such form expires or becomes obsolete and
promptly after the occurrence of any event requiring a change from the most
recent form(s) previously delivered by it to the Borrower or the Administrative
Agent (or, in the case of a Participant, to the Lender from which the related
participation shall have been purchased) in accordance with applicable United
States laws and regulations; unless, in any such case, any change in law or
regulation has occurred subsequent to the date such Lender became a party to
this Agreement (or in the case of a Participant, the date on which such
Participant purchased the related participation) which renders all such forms
inapplicable or which would prevent such Lender (or Participant) from properly
completing and executing any such form with respect to it and such Lender
promptly notifies the Borrower and the Administrative Agent (or, in the case of
a Participant, the Lender from which the related participation shall have been
purchased) if it is no longer able to deliver, or if it is required to withdraw
or cancel, any form or statement previously delivered by it pursuant to this
Section 2.18(b). A Non-U.S. Lender shall not be required to deliver any form or
statement pursuant to the immediately preceding sentences in this Section
2.18(b) that such Non-U.S. Lender is not legally able to deliver (it being
understood and agreed that the Borrower shall withhold or deduct such amounts
from any payments made to such Non-U.S. Lender that the Borrower reasonably
determines are required by law and that payments resulting from a failure to
comply with this paragraph (b) shall not be subject to payment or indemnity by
the Borrower pursuant to Section 2.18(a)).
2.19 Indemnity. The Borrower agrees to indemnify each Lender and to hold
each Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of (a)default by the Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Borrower has given
a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification shall not exceed the sum of (i) an amount equal to the excess,
if any, of (A) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, converted or continued, for the period from the
date of such prepayment or of such failure to borrow, convert or continue to the
last day of such Interest Period (or, in the case of a failure to borrow,
convert or continue, the Interest Period that would have commenced on the date
of such failure) in each case at the applicable rate of interest for such Loans
provided for herein (excluding, however, the Applicable Margin included therein,
if any) over (B) the amount of interest (as reasonably determined by such
Lender) which would have accrued to such Lender on such amount by placing such
amount on deposit for a comparable period with leading banks in the interbank
eurodollar market plus (ii) any transaction costs of such Lender in connection
with the related funding or redeployment of funds. A certificate as to any
amounts payable pursuant to this Section 2.19, together with a calculation
thereof in reasonable detail, shall be submitted to the Borrower by any affected
Lender and such certificate shall be conclusive in the absence of manifest
error. This covenant shall survive the termination of this Agreement and the
payment of the Notes and all other amounts payable hereunder.
2.20 Change of Lending Office. Each Lender agrees that, upon the occurrence
of any event giving rise to the operation of Section 2.16, 2.17(a) or 2.18 with
respect to such Lender, it will, if requested by the Borrower, use reasonable
efforts (subject to overall policy considerations of such Lender) to designate
another lending office for any Loans affected by such event with the object of
avoiding the consequences of such event; provided that such designation is made
on terms that, in the sole judgment of such Lender, cause such Lender and its
lending office(s) to suffer no material economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section 2.20 shall
affect or postpone any of the obligations of the Borrower or the rights of any
Lender pursuant to Section 2.16, 2.17(a) or 2.18.
2.21 Use of Proceeds. The Borrower shall use the proceeds of the Loans only
in the manner expressly contemplated by Section 4.16.
2.22 Replacement of Lenders. If no Event of Default then exists, the
Borrower may replace any Lender (the "Replaced Lender") if an event occurs
giving rise to the operation of Section 2.16 or Section 2.17, which results in
the Replaced Lender charging to Borrower increased costs in excess of those
being generally charged by the other Lenders and such Lender is not able to
eliminate the increased costs pursuant to Section 2.20. The Replaced Lender
shall be replaced with one or more banks, financial institutions, or other
entities which are reasonably acceptable to the Administrative Agent (each a
"Replacement Lender") under the terms set out in Section 10.6(c). Upon execution
of the Assignment and Acceptance referred to in Section 10.6(c), payment of
amounts referred to in Section 10.6(c), and delivery to the Replacement Lender
of the appropriate Note or Notes executed by Borrower, the Replacement Lender
shall become a Lender under this Agreement and the Replaced Lender shall no
longer be a Lender under this Agreement, except with respect to indemnification
provisions under this Agreement, which shall survive as to such Replaced Lender.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Prior to the date hereof, Norwest Bank has issued
the Letters of Credit listed on Schedule 3.1 (the "Existing Letters of Credit"),
and subject to the terms and conditions hereof, the Lender designated as Issuing
Lender hereunder, in reliance on the agreements of the other Revolving Credit
Lenders set forth in Section 3.4(a), agrees to issue letters of credit (together
with the Existing Letters of Credit, "Letters of Credit") for the account of the
Borrower, or for the joint and several account of the Borrower and any
Subsidiary, on any Business Day during the Revolving Credit Commitment Period in
such form as may be requested by the Borrower and approved from time to time by
the Issuing Lender; provided, that such approval may not be unreasonably
withheld, delayed or conditioned; and provided, further, that the Issuing Lender
shall have no obligation to issue any Letter of Credit if, after giving effect
to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or
(ii) the Aggregate Outstanding Revolving Extensions of Credit would exceed the
aggregate Revolving Credit Commitments. Each Letter of Credit shall (i) be
denominated in Dollars, (ii) be either (x) a standby letter of credit issued to
support (I) obligations of the Borrower or any of its Subsidiaries, contingent
or otherwise, which finance the working capital or business needs of the
Borrower or its Subsidiaries or (II) performance obligations of the Borrower and
its Subsidiaries, in each case, incurred in the ordinary course of business (a
"Standby Letter of Credit"), or (y) a commercial letter of credit in respect of
the purchase of goods or services by the Borrower or any of its Subsidiaries in
the ordinary course of business (a "Commercial Letter of Credit"), (iii) expire
no later than five Business Days prior to the Revolving Credit Termination Date
and (iv) expire no later than 365 days after its date of issuance, provided that
any Letter of Credit with a 365-day duration may provide for the renewal thereof
at the election of the Borrower (in accordance with procedures to be established
by the Issuing Lender) for additional 365-day periods (which shall not expire
later than five Business Days prior to the Revolving Credit Termination Date).
(b) Each Letter of Credit issued after the Closing Date shall be subject to the
Uniform Customs and, to the extent not inconsistent therewith, the laws of the
State of New York.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may from time
to time request that the Issuing Lender issue a Letter of Credit by delivering
to the Issuing Lender at its address for notices specified herein an Application
therefor, completed to the satisfaction of the Issuing Lender, and such other
certificates, documents and other papers and information as the Issuing Lender
may request. Upon receipt of any Application, the Issuing Lender will process
such Application and the certificates, documents and other papers and
information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Lenders, notice of the issuance of each Standby
Letter of Credit (including the amount thereof). On each L/C Fee Payment Date,
the Issuing Lender shall promptly furnish to the Administrative Agent, which
shall in turn promptly furnish to the Lenders, notice of the aggregate face
amount of the Commercial Letters of Credit outstanding on such date.
3.3 Fees, Commissions and Other Charges. (a) The Borrower agrees that it
will pay a commission on all outstanding Letters of Credit at a rate per annum
equal to 1/8 of 1% above the Applicable Margin then in effect with respect to
Revolving Credit Loans that are Eurodollar Loans of the face amount of each such
Letter of Credit, of which 1/8 of 1% per annum will be a fronting fee for the
account of the Issuing Lender, and the remainder will be shared ratably among
the Revolving Credit Lenders in accordance with their Revolving Credit
Percentages, payable quarterly in arrears on each L/C Fee Payment Date after the
issuance date.
(b) In addition to the foregoing fees and commissions, the Borrower agrees
that it shall pay or reimburse the Issuing Lender promptly upon demand for such
normal and customary costs and expenses as are incurred or charged by the
Issuing Lender in issuing, negotiating, effecting payment under, or amending any
Letter of Credit.
(c) The Administrative Agent shall, promptly following its receipt thereof,
distribute to the Issuing Lender and the L/C Participants all fees and
commissions received by the Administrative Agent for their respective accounts
pursuant to this Section.
3.4 L/C Participation. (a) Effective on the Closing Date in respect of the
Existing Letters of Credit, and effective on the date of issuance thereof in
respect of each Letter of Credit issued hereunder after the Closing Date, the
Issuing Lender in respect of each Letter of Credit irrevocably agrees to grant
and hereby grants to each L/C Participant, and, to induce such Issuing Lender to
issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to
accept and purchase and hereby accepts and purchases from such Issuing Lender,
on the terms and conditions hereinafter stated, for such L/C Participant's own
account and risk an undivided interest equal to such L/C Participant's Revolving
Credit Percentage in such Issuing Lender's obligations and rights under such
Letter of Credit and the amount of each draft paid by such Issuing Lender
thereunder. Each L/C Participant unconditionally and irrevocably agrees with
such Issuing Lender in respect of each Letter of Credit that, if a draft is paid
under any Letter of Credit issued by such Issuing Lender for which such Issuing
Lender is not reimbursed in full by the Borrower in accordance with the terms of
this Agreement, such L/C Participant shall pay to such Issuing Lender upon
demand at such Issuing Lender's address for notices specified herein an amount
equal to such L/C Participant's Revolving Credit Percentage of the amount of
such draft, or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to the Issuing
Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any
payment made by the Issuing Lender under any Letter of Credit is paid to the
Issuing Lender within three Business Days after the date such payment is due,
such L/C Participant shall pay to the Issuing Lender on demand an amount equal
to the product of (i) such amount, times (ii) the daily average Federal Funds
Effective Rate during the period from and including the date such payment is
required to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to Revolving Credit Loans that are Base Rate Loans hereunder. A
certificate of the Issuing Lender submitted to any L/C Participant with respect
to any amounts owing under this Section shall be conclusive in the absence of
manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment under
any Letter of Credit and has received from any L/C Participant its pro rata
share of such payment in accordance with Section 3.4(a), the Issuing Lender
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
provided that in the event that any such payment received by the Issuing Lender
shall be required to be returned by the Issuing Lender, such L/C Participant
shall return to the Issuing Lender the portion thereof previously distributed by
the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Lender for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment. Each such payment shall be made
to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall be
payable to the Issuing Lender on any and all amounts drawn under Letters of
Credit from the date of such drawing until the date three Business Days after
receipt by the Borrower from the Issuing Lender of notice of such drawing at the
rate set forth in Section 2.12(b) for Revolving Credit Loans, and thereafter
until payment in full at the rate set forth in Section 2.12(c).
3.6 Obligations Absolute. The Borrower's obligations under this Section 3
shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that, subject to Section 3.7, the Issuing Lender shall not be responsible
for, and the Borrower's Reimbursement Obligations under Section 3.5 shall not be
affected by, among other things, the validity or genuineness of documents or of
any endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or any dispute between or among the Borrower and
any beneficiary of any Letter of Credit or any other party to which such Letter
of Credit may be transferred or any claims whatsoever of the Borrower against
any beneficiary of such Letter of Credit or any such transferee. The Issuing
Lender shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Issuing Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for payment
under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be to determine whether the documents
(including each draft) delivered under such Letter of Credit in connection with
such presentment are substantially in conformity with such Letter of Credit.
3.8 Applications. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Arranger, the Administrative Agent, the Collateral Agent and
the Lenders to enter into this Agreement and to make the Loans and issue or
participate in the Letters of Credit, the Borrower hereby represents and
warrants to the Arranger, the Administrative Agent, the Collateral Agent and
each Lender that: 4.1 Financial Condition. (a) The unaudited pro forma
consolidated balance sheet of the Borrower as at December 31, 1996 (including
the notes thereto) (the "Pro Forma Balance Sheet"), copies of which have
heretofore been furnished to each Lender, has been prepared giving effect (as if
such events had occurred on such date) to the borrowings under this Agreement
contemplated to be made on the Closing Date and the use of proceeds thereof and
the payment of estimated fees and expenses in connection therewith. The Pro
Forma Balance Sheet has been prepared based on the best information available to
the Borrower as of the date of delivery thereof and presents fairly in all
material respects on a pro forma basis the estimated consolidated financial
position of the Borrower as of December 31, 1996, assuming that the events
specified in the preceding sentence had actually occurred at such date.
(b) The audited consolidated balance sheets of the Borrower as at June 30,
1996 and June 30, 1995 and the related audited consolidated statements of income
and of cash flows for the fiscal years ended on such dates, reported on by KPMG
Peat Marwick LLP, copies of which have heretofore been furnished to each Lender,
are complete and correct and present fairly in all material respects the
consolidated financial condition of the Borrower as at such dates, and the
consolidated results of operations and consolidated cash flows for the fiscal
years then ended. The unaudited consolidated balance sheet of the Borrower as at
March 31, 1997, and the related unaudited consolidated statements of income and
of cash flows for the nine-month period ended on such date, certified by a
Responsible Officer of the Borrower, copies of which have heretofore been
furnished to each Lender, are complete and correct and present fairly in all
material respects the consolidated financial condition of the Borrower as at
such date, and the consolidated results of operations and consolidated cash
flows for the nine-month period then ended (subject to normal year-end audit
adjustments).
All such financial statements described in this Section 4.1(b), including
the related schedules and notes thereto, have been prepared in accordance with
GAAP applied consistently throughout the periods involved (except as approved by
such accountants and as disclosed therein). Except for contingent obligations
incurred in the ordinary course of business, the Borrower had at the date of the
most recent audited balance sheet referred to above no material undisclosed
liabilities, Guarantee Obligations, contingent liability or liability for taxes,
nor any material long-term lease or unusual forward or long-term commitment,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction, which is not reflected in such balance sheet or in the
notes thereto. During the period from June 30, 1996 to and including the date
hereof there has been no sale, transfer or other disposition by the Borrower or
any of its Consolidated Subsidiaries of any material part of their business or
property.
4.2 No Change. (a) Since June 30, 1996, there has been no development or
event which has had or could reasonably be expected to have a Material Adverse
Effect, and (b) during the period from June 30, 1996 to and including the date
hereof no dividends or other distributions have been declared, paid or made upon
the Capital Stock of the Borrower nor has any of the Capital Stock of the
Borrower been redeemed, retired, purchased or otherwise acquired for value by
the Borrower.
4.3 Corporate Existence; Compliance with Law. Each Loan Party (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, except (in the case of any Subsidiary) where
the failure to do so could not reasonably be expected to have a Material Adverse
Effect, (b) has the power and authority, and the legal right, to own and operate
its property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect, (c) is duly
qualified and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification, except where the failure to be so qualified could
not reasonably be expected to have a Material Adverse Effect and (d) is in
compliance with all Requirements of Law except to the extent that the failure to
comply therewith could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan
Party has the power and authority, and the legal right, to make, deliver and
perform each Loan Document to which it is a party and, in the case of the
Borrower, to borrow hereunder. Each Loan Party has taken all necessary action to
authorize the execution, delivery and performance of the Loan Documents to which
it is a party and, in the case of the Borrower, to authorize the borrowings on
the terms and conditions of this Agreement and the Notes. No material consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
transactions contemplated hereby, the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement
or any of the Loan Documents, except for those obtained on or before the date of
this Agreement and listed in Schedule 4.4, and except the filings referred to in
Section 4.19. Each Loan Document has been duly executed and delivered on behalf
of each Loan Party thereto. This Agreement constitutes, and each other Loan
Document upon execution will constitute, a legal, valid and binding obligation
of each Loan Party thereto, enforceable against each such Loan Party in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this Agreement
and the other Loan Documents, the issuance of Letters of Credit, the borrowings
hereunder and the use of the proceeds thereof will not violate any Requirement
of Law or Contractual Obligation of any Loan Party and will not result in, or
require, the creation or imposition of any Lien on any of their respective
properties or revenues pursuant to any such Requirement of Law or Contractual
Obligation (other than the Liens created by the Security Documents).
4.6 No Material Litigation. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of its or their respective properties or revenues
(a) with respect to any of the Loan Documents or any of the transactions
contemplated hereby or thereby or (b) which could reasonably be expected to have
a Material Adverse Effect.
4.7 No Default. Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Borrower and its Domestic
Subsidiaries has title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold interest in, all its
other property, and none of such property is subject to any Lien except as
permitted by Section 7.3. The Borrower and its Subsidiaries (other than
Servicios) have no fee interests in any material real property other than the
Mortgaged Property, the Oil and Gas Properties and, as of the date hereof, the
real property described on Schedule 4.8.
4.9 Intellectual Property. The Borrower and each of its Subsidiaries owns,
or is licensed to use, all trademarks, tradenames, copyrights, technology,
know-how and processes necessary for the conduct of its business as currently
conducted, except for those the failure to own or license which could not
reasonably be expected to have a Material Adverse Effect (collectively, the
"Intellectual Property"). No material claim has been asserted and is pending by
any Person challenging or questioning the use of any Intellectual Property or
the validity or effectiveness of any Intellectual Property, nor does the
Borrower know of any valid basis for any such claim. To the Borrower's
knowledge, the use of Intellectual Property by the Borrower and its Subsidiaries
does not infringe on the rights of any Person where such infringement could
reasonably be expected to have a Material Adverse Effect.
4.10 No Burdensome Restrictions. No Requirement of Law or Contractual
Obligation of the Borrower or any of its Subsidiaries could reasonably be
expected to have a Material Adverse Effect.
4.11 Taxes. Each of the Borrower and its Domestic Subsidiaries, and to the
knowledge of the Borrower, Servicios has filed or caused to be filed all
material Federal, state and other tax returns which are required to be filed and
has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental Authority
(other than any the amount or validity of which are currently being contested in
good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the Borrower); no
material tax Lien has been filed; and, to the knowledge of the Borrower, no
claim is being asserted, with respect to any material tax, fee or other charge.
4.12 Federal Regulations. Except as otherwise provided by Sections 4.16 and
7.7, no part of the proceeds of any Loans will be used for "purchasing" or
"carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation G or Regulation U of the Board as now and from
time to time hereafter in effect. No part of the proceeds of any Loans will be
used for any purpose which violates the provisions of the Regulations of the
Board. If requested by any Lender or the Administrative Agent, the Borrower will
furnish to the Administrative Agent and each Lender a statement to the foregoing
effect in conformity with the requirements of FR Form G-3 or FR Form U-1
referred to in said Regulation G or Regulation U, as the case may be.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five- year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan
which has resulted or could reasonably be expected to result in a material
liability under ERISA, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any material liability under ERISA if the
Borrower or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. To the knowledge of the
Borrower and the Commonly Controlled Entities, no such Multiemployer Plan is in
Reorganization or Insolvent. The present value (determined using actuarial and
other assumptions which are reasonable in respect of the benefits provided and
the employees participating) of the liability of the Borrower and each Commonly
Controlled Entity for post retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all
such Plans allocable to such benefits by an amount in excess of $1,000,000.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended. No Loan Party is subject to regulation under any Federal or State
statute or regulation (other than Regulation X of the Board) which limits its
ability to incur Indebtedness.
4.15 Subsidiaries. As of the date hereof, the Subsidiaries listed on
Schedule 4.15 constitute all the direct or indirect Subsidiaries of the
Borrower, and Schedule 4.15 shows, as to each such Subsidiary, its jurisdiction
of its incorporation, its authorized capitalization and the ownership of Capital
Stock of such Subsidiary.
4.16 Purpose of Loans; Limitations on Use. The proceeds of the Loans shall
be used to refinance indebtedness of the Loan Parties under the existing credit
facilities described on Schedule 4.16 (the "Existing Credit Facilities") and to
pay related fees and expenses, to finance Permitted Acquisitions and capital
expenditures, to finance the repurchase from time to time the outstanding
Capital Stock of the Borrower to the extent permitted by subsection 7.7 and for
general corporate purposes of the Borrower and its Subsidiaries (including
Excluded Subsidiaries) in the ordinary course of business; provided, that the
amount of proceeds of the Loans which may be used for Permitted Acquisitions of
oil and gas properties shall be limited to an amount equal to the lesser of
(a) $25,000,000 and (b) 65% of the value of the oil and gas properties of Odessa
Exploration Incorporated (after giving effect to any such Permitted
Acquisition), which value shall be calculated as the present value discounted at
10% of future net revenue relating to all proved developed producing reserves
and proved undeveloped reserves from such properties. In addition, if at least
90% of the original outstanding principal amount of the Convertible Subordinated
Debentures shall have been converted into common stock of the Borrower, the
Borrower may use proceeds of the Loans to repurchase or redeem the remaining
outstanding Convertible Subordinated Debentures as permitted by Section 7.10.
4.17 Environmental Matters. Other than exceptions to any of the following
that could not, individually or in the aggregate, reasonably be expected to give
rise to a Material Adverse Effect:
(a) the Borrower and each of its Subsidiaries: (i) are, and to the
knowledge of the executive management of the Borrower within the period of all
applicable statutes of limitation have been, in compliance with all applicable
Environmental Laws; (ii) hold all Environmental Permits (each of which is in
full force and effect) required for any of their current operations or for any
property owned, leased, or otherwise operated by any of them; (iii) are, and to
the knowledge of the executive management of the Borrower within the period of
all applicable statutes of limitation have been, in compliance with all of their
Environmental Permits; and (iv) reasonably believe that: each of their
Environmental Permits required for their continued operations will be timely
renewed and complied with, without material expense; any additional
Environmental Permits that may be required of any of them will be timely
obtained and complied with, without material expense; and compliance with any
Environmental Law that is or is reasonably expected by the Borrower's executive
management to become applicable to any of them will be timely attained and
maintained, without material expense.
(b) To the knowledge of the executive management of the Borrower, Materials
of Environmental Concern are not present at, on, under, in, or about any real
property now or formerly owned, leased or operated by the Borrower or any of its
Subsidiaries or at any other location (including, without limitation, any
location to which Materials of Environmental Concern have been sent for re-use
or recycling or for treatment, storage, or disposal) which could reasonably be
expected to (i) give rise to liability of the Borrower or any of its
Subsidiaries under any applicable Environmental Law or otherwise result in costs
to the Borrower or any of its Subsidiaries, or (ii) interfere with the continued
operations of the Borrower or any of its Subsidiaries, or (iii) impair the fair
saleable value of any real property owned or leased by the Borrower or any of
its Subsidiaries.
(c) There is no judicial, administrative, or arbitral proceeding (including
any notice of violation or alleged violation) under or relating to any
Environmental Law to which the Borrower or any of its Subsidiaries is, or to the
knowledge of the executive management of the Borrower will be, named as a party
that is pending or, to the knowledge of the executive management of the
Borrower, threatened.
(d) Neither the Borrower nor any of its Subsidiaries has received any
written request for information, or been notified that it is a potentially
responsible party under or relating to the federal Comprehensive Environmental
Response, Compensation, and Liability Act or any similar Environmental Law.
(e) Neither the Borrower nor any of its Subsidiaries has entered into or
agreed to any consent decree, order, or settlement or other agreement, nor is
subject to any judgment, decree, or order or other agreement, in any judicial,
administrative, arbitral, or other forum, relating to compliance with or
liability under any Environmental Law.
(f) To the knowledge of the executive management of the Borrower, neither
the Borrower nor any of its Subsidiaries has assumed or retained, by contract or
operation of law, any liabilities of any kind, fixed or contingent, known or
unknown, under or relating to any Environmental Law.
For purposes of Section 8, each of the foregoing representations and
warranties contained in this Section 4.17 that is qualified by the knowledge of
the executive management of the Borrower shall be deemed not to be so qualified.
4.18 Accuracy of Information. No statement or information contained in this
Agreement, any other Loan Document, the Confidential Information Memorandum or
any other document, certificate or statement furnished to the Arranger, the
Administrative Agent or the Lenders, by or on behalf of any Loan Party for use
in connection with the transactions contemplated by this Agreement or the other
Loan Documents, contained as of the date such statement, information, document
or certificate was so furnished any untrue statement of a material fact or, with
all such statements and information being taken as a whole, omitted to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. It is understood that no representation or warranty is
made concerning the forecasts, estimates, pro forma information, projections and
statements as to anticipated future performance or conditions, and the
assumptions on which they were based contained in any such information, reports,
financial statements, exhibits or schedules, except that as of the date such
forecasts, estimates, pro forma information, projections and statements were
generated, such forecasts, estimates, pro forma information, projections and
statements were based upon good faith estimates and assumptions believed by
management of the Borrower and its Subsidiaries to be reasonable at such time.
There is no fact known to the executive management of the Borrower that could
reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Loan Documents, or in such other
documents, certificates and statements furnished to the Administrative Agent and
the Lenders for use in connection with the transactions contemplated hereby and
by the other Loan Documents.
4.19 Security Documents. (a) The Master Guarantee and Collateral Agreement
is effective to create in favor of the Collateral Agent, for the benefit of the
Lenders, a security interest which has attached (as that term is used in Section
9-203 of the New York UCC) in the Pledged Securities and other instruments,
negotiable documents, chattel paper and money described therein, to the extent
that the Loan Parties to the Master Guaranty and Collateral Agreement have
rights in such Collateral, and proceeds thereof and, when the Pledged Notes and
the stock certificates representing the Pledged Stock described therein and
other instruments, negotiable documents, chattel paper and money described
therein are delivered to the Collateral Agent, the Master Guarantee and
Collateral Agreement shall constitute a perfected first priority Lien on, and
security interest in, all right, title and interest of the relevant pledgor in
such Pledged Securities and other instruments, negotiable documents, chattel
paper and money and the proceeds thereof, as security for the Obligations (as
defined in the Master Guarantee and Collateral Agreement), in each case prior
and superior in right to any other Person, except for inchoate tax liens for
obligations to be paid in the ordinary course of business.
(b) The Master Guarantee and Collateral Agreement is effective to create in
favor of the Collateral Agent, for the benefit of the Lenders, a security
interest which has attached (as that term is used in Section 9-203 of the New
York UCC) in the Collateral described therein (other than the Collateral
described in Section 4.19(a)), to the extent that the Loan Parties to the Master
Guarantee and Collateral Agreement have rights in such Collateral, and proceeds
thereof, and when financing statements in appropriate form are properly filed
(with all required filing fees being paid) in the offices specified on
Schedule 4.19(b) and, with respect to vehicles included in the Collateral and
covered by certificates of title issued by any State, when the security interest
of the Collateral Agent has been noted on such certificate of title in
accordance with the certificate of title laws of such State, the Master
Guarantee and Collateral Agreement shall constitute a perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in
substantially all of such Collateral and the proceeds thereof, as security for
the Obligations (as defined in the Master Guarantee and Collateral Agreement),
in each case prior and superior in right to any other Person, other than with
respect to Liens expressly permitted by Section 7.3.
(c) Each Mortgage, when executed and delivered by the relevant Loan Party,
and properly filed and recorded (with all required filing and recording fees
being paid) in the office(s) specified on Schedule 4.19(c), shall constitute a
Lien on, and security interest in, all right, title and interest of the Loan
Parties in the Mortgaged Property properly described therein, as security for
the Obligations (as defined in the relevant Mortgage), in each case prior and
superior in right to any other Person, other than with respect to Liens
expressly permitted by Section 7.3.
(d) Each Oil and Gas Mortgage, when executed and delivered by the relevant
Loan Party, and properly filed and recorded (with all required filing and
recording fees being paid) in the office(s) specified on Schedule 4.19(d), shall
constitute a perfected Lien on, and security interest in, all right, title and
interest of the Loan Parties in the Oil and Gas Property properly described
therein, as security for the Obligations (as defined in the relevant Oil and Gas
Mortgage), in each case prior and superior in right to any other Person, other
than with respect to Liens expressly permitted by Section 7.3. 4.20 Solvency.
The Borrower and its Subsidiaries, taken as a whole, are, and after giving
effect to the incurrence of all Indebtedness and obligations being incurred in
connection herewith will be, Solvent.
4.21 Labor Matters. There are no strikes pending or, to the knowledge of
the Borrower, threatened against the Borrower or any of its Subsidiaries which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. The hours worked and payments made to employees of the
Borrower and each of its Subsidiaries have not been in violation of the Fair
Labor Standards Act or any other applicable Requirement of Law, except to the
extent such violations could not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect. All material payments due
from the Borrower or any of its Subsidiaries on account of wages and employee
health and welfare insurance and other benefits have been paid or accrued as a
liability on the books of the Borrower or such Subsidiary.
4.22 Indenture. All Indebtedness of the Borrower hereunder constitutes
"Senior Indebtedness" within the meaning of the Indenture.
4.23 Excluded Subsidiaries. As of the Closing Date the Borrower is in the
process of dissolving all Excluded Subsidiaries listed in clause (a) of the
definition of Excluded Subsidiaries in Section 1.1; and the Borrower expects to
dissolve the Excluded Subsidiaries listed in clause (c) of the definition of
Excluded Subsidiaries in Section 1.1 in the ordinary of business when the assets
of such corporations are disposed of.
4.24 Oil and Gas Properties. The Oil and Gas Properties described in
Schedule 1.1C constitute 80% of the value of the proved developed producing and
proved undeveloped reserves of Odessa Exploration Incorporated on the Closing
Date. For purposes of this Section, the value of such reserves shall be
calculated as the present value discounted at 10% of future revenue relating to
such reserves.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each Lender
to make the initial extension of credit requested to be made by it is subject to
the satisfaction, prior to or concurrently with the making of such extension of
credit on the Closing Date (which Closing Date shall occur on or before June 15,
1997), of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the Borrower,
with a counterpart or a conformed copy for each Lender and (ii) for the account
of any Lender requesting Notes in accordance with Section 2.6(e), Notes
conforming to the requirements hereof and executed and delivered by a duly
authorized officer of the Borrower. The Collateral Agent shall have received the
Master Guarantee and Collateral Agreement, executed and delivered by a duly
authorized officer of each party thereto, with a counterpart or a conformed copy
for each Lender. (b) Related Agreements. The Administrative Agent shall have
received (in a form reasonably satisfactory to the Arranger), with a copy for
each Lender, true and correct copies, certified as to authenticity by the
Borrower, of the Insurance Policies (or certificates evidencing the
effectiveness of such Insurance Policies and the material terms thereof) and
such other documents or instruments as may be reasonably requested by the
Arranger, including, without limitation, a copy of the Indenture and any other
debt instrument, security agreement or other material contract to which the Loan
Parties may be a party.
(c) Termination of Existing Credit Facilities. The Administrative Agent
shall have received evidence satisfactory to the Administrative Agent and the
Arranger that the Existing Credit Facilities shall be simultaneously terminated,
all amounts thereunder shall be simultaneously paid in full and arrangements
satisfactory to the Arranger and the Administrative Agent shall have been made
for the termination of Liens and security interests granted in connection
therewith.
(d) Fees. The Lenders, Arranger and the Administrative Agent shall have
received all fees required to be paid, and all expenses for which invoices have
been presented, on or before the Closing Date.
(e) Approvals. All governmental and third party approvals necessary or, in
the reasonable discretion of the Arranger, advisable in connection with the
financings contemplated hereby and the continuing operations of the Borrower and
its Domestic Subsidiaries shall have been obtained and be in full force and
effect, and all applicable waiting periods shall have expired without any action
being taken or threatened by any competent authority which would restrain,
prevent or otherwise impose adverse conditions on the continuing operations of
the Borrower.
(f) Financial Statements. The Lenders shall have received satisfactory
unaudited interim consolidated financial statements of the Borrower for the
fiscal quarterly period ended March 31, 1997 and such interim financial
statements shall not reflect any material adverse change in the consolidated
financial condition of the Borrower as reflected in the financial statements
previously delivered to the Lenders.
(g) Pro Forma Balance Sheet. The Lenders shall have received the Pro Forma
Balance Sheet, which Pro Forma Balance Sheet shall be in form and substance
reasonably satisfactory to the Lenders.
(h) Business Plan. The Lenders shall have received a satisfactory business
plan for fiscal years 1997-2004 and a satisfactory written analysis of the
business and prospects of the Borrower and its Subsidiaries for the period from
the Closing Date through the Revolving Credit Termination Date.
(i) Lien Searches. The Collateral Agent shall have received the results of
a recent lien search by a Person satisfactory to the Arranger, of the Uniform
Commercial Code, judgment and tax lien filings in each of the relevant
jurisdictions where assets of the Loan Parties are located, and such search
shall reveal no Liens on any of such assets except for Liens permitted by
Section 7.3 or Liens to be discharged as described in Section 5.1(c) pursuant to
documentation reasonably satisfactory to the Arranger.
(j) Solvency Analysis. The Lenders shall have received a reasonably
satisfactory solvency analysis certified by the chief financial officer of the
Borrower which shall document the solvency of the Borrower and its Subsidiaries
considered as a whole after giving effect to the transactions contemplated
hereby.
(k) Legal Opinions. The Administrative Agent shall have received, with a
counterpart for each Lender, (i) the executed legal opinion of Jack D. Loftis,
Jr., Esq., general counsel to the Loan Parties, substantially in the form of
Exhibit E-1 and (ii) the executed legal opinion of Porter & Hedges L.L.P.,
counsel to the Loan Parties, substantially in the form of Exhibit E-2. Each such
legal opinion shall be in form and substance reasonably satisfactory to the
Lenders and shall cover such matters incident to the transactions contemplated
by this Agreement as the Arranger may reasonably require.
(l) Closing Certificate. The Administrative Agent shall have received, with
a counterpart for each Lender, a certificate of each Loan Party, dated the
Closing Date, substantially in the form of Exhibit D, with appropriate
insertions and attachments, executed by the President or any Vice President and
the Secretary or any Assistant Secretary of such Loan Party.
(m) Corporate Proceedings of Loan Parties. The Administrative Agent shall
have received, with a counterpart for each Lender, a copy of the resolutions of
the Board of Directors of each Loan Party authorizing (i) the execution,
delivery and performance of the Loan Documents to which it is a party
(including, but not limited to, the granting of any Liens provided for therein),
and (ii) in the case of the Borrower, the borrowings contemplated hereunder.
(n) Pledged Securities; Stock Powers. The Collateral Agent shall have
received the Pledged Notes (duly indorsed to bearer) and the Pledged Stock
pledged pursuant to the Master Guarantee and Collateral Agreement (including,
without limitation, all of the shares of Odessa Exploration Incorporated),
together with an undated stock power for each such certificate executed in blank
by a duly authorized officer of the pledgor thereof.
(o) Filings, Registrations and Recordings. Each document (including,
without limitation, any Uniform Commercial Code financing statement)required by
the Security Documents or under law or reasonably requested by the Arranger to
be delivered to the Collateral Agent or to be filed, registered or recorded in
order to create in favor of the Collateral Agent, for the benefit of the
Lenders, a perfected Lien on substantially all of the Collateral described
therein, prior and superior in right to any other Person (other than with
respect to Liens expressly permitted by Section 7.3), shall be in proper form
for filing, registration or recordation in each jurisdiction in which the
filing, registration or recordation thereof is so required or requested, other
than those documents required to be filed, registered or recorded after the
Closing Date pursuant to Section 6.11.
(p) Forms U-1, G-3. To each Lender which has requested such form prior to
the Closing Date, a Form U-1 or G-3 confirming that none of the proceeds of the
Term Loans shall be used to purchase or carry margin stock.
5.2 Conditions to Each Extension of Credit. The agreement of each Lender to
make any extension of credit requested to be made by it on any date (including,
without limitation, its initial extension of credit) is subject to the
satisfaction of the following conditions precedent:
(a) Representations and Warranties. Except to the extent that they are made
as of a specific date, each of the representations and warranties made by any
Loan Party in or pursuant to the Loan Documents shall be true and correct in all
material respects on and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the extensions of credit
requested to be made on such date.
(c) Additional Matters. All proceedings, and all documents, instruments and
other legal matters in connection with the transactions contemplated by this
Agreement and the other Loan Documents shall be reasonably satisfactory in form
and substance to the Administrative Agent, and the Administrative Agent shall
have received such other documents and legal opinions in respect of any aspect
or consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
(d) Borrowing Notice. The Borrower shall have delivered to the
Administrative Agent the applicable borrowing notice in accordance with the
relevant subsection of Section 2.
Each borrowing by and issuance of a Letter of Credit on behalf of the
Borrower hereunder shall constitute a representation and warranty by the
Borrower as of the date of such extension of credit that the conditions
contained in this Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note or Letter of Credit remains outstanding and unpaid or any other
amount is owing to any Lender, the Arranger or the Administrative Agent
hereunder, the Borrower shall and, if applicable, shall cause each of its
Subsidiaries (and with respect to Section 6.8, each of the Excluded
Subsidiaries) to:
6.1 Financial Statements. Furnish to the Administrative Agent for
distribution to each Lender: (a) as soon as available, but in any event within
95 days after the end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
at the end of such year and the related audited consolidated statements of
income and retained earnings and of cash flows for such year, setting forth in
each case in comparative form the figures for the previous year, reported on
without a "going concern" or like qualification or exception, or qualification
arising out of the scope of the audit, by KPMG Peat Marwick LLP or other
independent certified public accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 50 days after the
end of each of the first three quarterly periods of each fiscal year of the
Borrower, the unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and retained earnings and of cash
flows of the Borrower and its Consolidated Subsidiaries for such quarter and the
portion of the fiscal year through the end of such quarter, setting forth in
each case in comparative form the figures for the previous year, certified by a
Responsible Officer of the Borrower as being fairly stated in all material
respects (subject to normal year-end audit adjustments); and
(c) as soon as available, but in any event not later than 40 days after the
end of each month occurring during each fiscal year of the Borrower (other than
the third, sixth, ninth and twelfth such month), the unaudited consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as at the end of
such month and the related unaudited consolidated statement of income of the
Borrower and its Consolidated Subsidiaries for such month and the portion of the
fiscal year through the end of such month, setting forth in each case in
comparative form the figures for the previous year, certified by a Responsible
Officer of the Borrower as being fairly stated in all material respects (subject
to normal year-end audit adjustments);
all such financial statements referred to in this Section 6.1(b) shall be
complete and correct in all material respects and shall be prepared in
reasonable detail and in accordance with GAAP applied consistently throughout
the periods reflected therein and with prior periods, subject to normal year-end
adjustments.
6.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements referred to
in Section 6.1(a), (i) a certificate of the independent certified public
accountants reporting on such financial statements stating that in making the
examination necessary therefor no knowledge was obtained of any Default or Event
of Default, except as specified in such certificate and (ii) copies of all
reports or written communications providing advice, recommendations or analysis
to the management of the Borrower from such independent certified public
accountants with regard to their audit of the financial statements referred to
in Section 6.1(a) or the internal financial controls and systems of the
Borrower;
12
(b) concurrently with the delivery of any financial statement pursuant to
Section 6.1, (x) a certificate of a Responsible Officer of the Borrower stating
that, to the best of each such Responsible Officer's knowledge, during such
period (i) no Subsidiary has been formed or acquired (or, if any such Subsidiary
has been formed or acquired, the Loan Parties have complied with the
requirements of Section 6.10 with respect thereto), (ii) neither the Borrower
nor any of its Subsidiaries has changed its name, its principal place of
business, its chief executive office, its principal place of business, the
location where records concerning the Collateral are kept or the location of any
material item of tangible Collateral without complying with the requirements of
this Agreement and the Security Documents with respect thereto and (iii) each
Loan Party has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Agreement and the other Loan
Documents to which it is a party to be observed, performed or satisfied by it,
and that such Responsible Officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate and (y) in the case of
quarterly or annual financial statements, a certificate containing all
information reasonably necessary for determining compliance by the Borrower and
its Subsidiaries with the provisions of this Agreement (including but not
limited to Sections 2.9 and 7.1) as of the last day of such fiscal quarter or
fiscal year of the Borrower;
(c) as soon as available, and in any event no later than the end of each
fiscal year of the Borrower, a projected consolidated balance sheet of the
Borrower as of the end of the following fiscal year, and the related
consolidated statements of projected cash flow, projected retained earnings and
projected income for the following fiscal year, together with an operating
budget with respect to the following fiscal year, and, as soon as available,
significant revisions, if any, of such projections with respect to such fiscal
year (collectively, the "Projections"), which Projections shall in each case be
accompanied by a certificate of a Responsible Officer of the Borrower stating
that such Projections are based on estimates, information and assumptions
believed by such Responsible Officer to be reasonable and that such Responsible
Officer has no reason to believe that such Projections are incorrect or
misleading in any material respect;
(d) within 50 days after the end of each fiscal quarter of each fiscal year
of the Borrower, a narrative discussion and analysis of the consolidated
financial condition and results of operations of the Borrower and its
Subsidiaries for such fiscal quarter and for the period from the beginning of
the then current fiscal year to the end of such fiscal quarter, as compared to
the portion of the Projections, as applicable, covering such periods and to the
comparable periods of the previous year;
(e) within five days after the same are filed, copies of all financial
statements and reports which the Borrower or any of its Subsidiaries may make
to, or file with, the Securities and Exchange Commission or any successor or
analogous Governmental Authority of the United States; and
(f) promptly, such additional financial and other information as any Lender
may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent or (in the case of trade
payables and obligations other than for borrowed money) within 150 days after
the due date, as the case may be, all its material obligations of whatever
nature, except where the amount or validity thereof is currently being contested
in good faith by appropriate proceedings and reserves in conformity with GAAP
with respect thereto have been provided on the books of the Borrower or its
Subsidiaries, as the case may be.
6.4 Conduct of Business and Maintenance of Existence, etc. (a) Continue to
engage in business of the same general type as now conducted by it, (b)
preserve, renew and keep in full force and effect its existence and (c) take all
commercially reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case in clauses (a), (b) and (c) above, as otherwise permitted pursuant to
Section 7.5 and except, in the case of clause (c) above, to the extent that
failure to do so could not reasonably be expected to have a Material Adverse
Effect; and (d) comply with all Contractual Obligations and Requirements of Law
except to the extent that failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all material property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted; (b) maintain with financially sound and
reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including in any event general
liability) as are usually insured against in the same general area by companies
engaged in the same or a similar business; and (c) furnish to each Lender, upon
written request, full information as to the insurance carried.
6.6 Inspection of Property; Books and Records; Discussions. Keep proper
books of records and account in which full, true and correct entries in
conformity with GAAP or, in the case of Foreign Subsidiaries, in conformity with
generally accepted accounting principles in effect in the jurisdiction where
such Foreign Subsidiary is located at such time and, in the case of the Borrower
and its Domestic Subsidiaries, all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities; and upon
reasonable notice permit representatives of any Lender to visit and inspect any
of its properties and examine and make abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired and to
discuss the business, operations, properties and financial and other condition
of the Borrower and its Subsidiaries with senior officers of the Borrower and
its Subsidiaries and with its independent certified public accountants.
6.7 Notices. Promptly give notice to the Administrative Agent of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual Obligation of
the Borrower or any of its Subsidiaries or (ii) litigation, investigation or
proceeding which may exist at any time between the Borrower or any of its
Subsidiaries and any Governmental Authority, which in either case, if not cured
or if adversely determined, as the case may be, could reasonably be expected to
have a Material Adverse Effect;
(c) the following events, as soon as possible and in any event within 30
days after the Borrower or any of its Subsidiaries knows or has reason to know
thereof: (i) the occurrence or expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution in a material
amount to a Plan, the creation of any Lien in a material amount in favor of the
PBGC or a Plan or any withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or
the taking of any other action by the PBGC or the Borrower or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the withdrawal from,
or the terminating, Reorganization or Insolvency of, any Plan;
(d) (i) any release or discharge by the Borrower or any Subsidiary of any
Materials of Environmental Concern required to be reported under Environmental
Laws to any Governmental Authority which could reasonably be expected to result
in the assessment or payment of a Material Environmental Amount; (ii) any
condition, circumstance, occurrence or event that could reasonably be expected
to result in the assessment or payment of a Material Environmental Amount, or
could result in the imposition of any Lien or other restriction on the title,
ownership or transferability of any Mortgaged Property; and (iii) any action to
be taken by the Borrower or any Subsidiary that could reasonably be expected to
subject the Borrower or any Subsidiary to the assessment or payment of a
Material Environmental Amount; and
(e) any development or event which could reasonably be expected to have a
Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a
statement of a Responsible Officer of the Borrower setting forth details of the
occurrence referred to therein and stating what action the Borrower or the
applicable Subsidiary proposes to take with respect thereto.
6.8 Environmental Laws.
(a)(i) Comply with all Environmental Laws applicable to it, and obtain,
comply with and maintain any and all Environmental Permits necessary for its
operations as conducted and as planned; and (ii) take all reasonable efforts to
ensure that all of its tenants, subtenants, contractors, subcontractors, and
invitees comply with all applicable Environmental Laws, and obtain, comply with
and maintain any and all Environmental Permits, applicable to any of them
insofar as any failure to so comply, obtain or maintain reasonably could be
expected to adversely affect the Borrower or any of its Subsidiaries. For
purposes of this 6.8(a), noncompliance by the Borrower with any applicable
Environmental Law or Environmental Permit shall be deemed not to constitute a
breach of this covenant provided that, upon learning of any actual or suspected
noncompliance, the Borrower shall undertake reasonable efforts to achieve
compliance, and provided further that, in any case, such non-
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compliance, and any other noncompliance with applicable Environmental Law,
individually or in the aggregate, could not reasonably be expected to give rise
to a Material Adverse Effect.
(b) Promptly comply in all material respects with all orders and directives
of all Governmental Authorities directed to the Borrower or any of its Domestic
Subsidiaries regarding Environmental Laws, other than such orders and directives
or parts thereof as are being contested in good faith and by appropriate
proceedings.
(c) Within six months after the Closing Date, complete the development of a
program to promote compliance with and to minimize prudently any liabilities or
potential liabilities under any Environmental Law that may affect Borrower or
any of its Domestic Subsidiaries (the "Environmental Program") and implement the
Environmental Program upon a reasonable schedule thereafter. The Environmental
Program shall be developed with the assistance of a reputable independent
environmental consulting firm reasonably acceptable to the Administrative Agent
(an "Environmental Consultant") or a qualified employee of the Borrower. Upon
the Administrative Agent's request, a reasonably detailed written description of
the Environmental Program shall be provided to the Administrative Agent, after
which, upon the Administrative Agent's request, Borrower shall confer with the
Administrative Agent concerning any questions the Administrative Agent may have
about the Environmental Program.
(d) Prior to acquiring any ownership or leasehold interest in real
property, or other interest in any real property which in the Borrower's
reasonable judgment could give rise to significant liability under any
Environmental Law, obtain a written environmental assessment report regarding
the environmental condition of such real property by a reputable independent
environmental consulting firm. Upon the request of the Administrative Agent, a
copy of each such environmental assessment report shall be delivered to the
Administrative Agent by the end of the calendar quarter in which the acquisition
closed, together with a list of all acquisitions of interests in real property
by the Borrower and the Subsidiaries in such quarter. Pursuant to this Section
6.8(d), the Administrative Agent shall have the right, but shall not have any
duty, to obtain, review or discuss any such report.
(e) Promptly upon the Administrative Agent's request if there has been an
Event of Default which has not been fully and timely cured, permit an
Environmental Consultant whom the Administrative Agent in its discretion
designates to perform an environmental assessment (including, without
limitation: reviewing documents; interviewing knowledgeable persons; and
sampling and analyzing soil, air, surface water, groundwater, and/or other media
in or about property owned or leased by the Borrower, or on which operations of
the Borrower otherwise take place). Such environmental assessment shall be in
form, scope, and substance reasonably satisfactory to the Administrative Agent.
The Borrower shall cooperate fully in the conduct of such environmental
assessment, and shall pay the costs of such environmental assessment immediately
upon written demand by the Administrative Agent. Pursuant to this section
6.8(e), the Administrative Agent shall have the right, but shall not have any
duty, to request and/or obtain such environmental assessment.
6.9 Further Assurances. Promptly perform or cause to be performed any and
all acts and execute or cause to be executed any and all documents (including,
without limitation, financing statements and continuation statements) for filing
under the provisions of the Uniform Commercial Code or any other Requirement of
Law which are necessary or advisable in the reasonable judgment of the
Collateral Agent to maintain in favor of the Collateral Agent, for the benefit
of the Lenders, Liens on the Collateral that are duly perfected in accordance
with all applicable Requirements of Law.
6.10 Additional Collateral. (a) With respect to any assets acquired after
the Closing Date by the Borrower or any of its Domestic Subsidiaries that are
intended to be subject to the Lien created by any of the Security Documents but
which are not so subject (other than any assets described in paragraph (b), (c),
(d) or (e) of this Section 6.10), promptly (and in any event within 30 days
after the acquisition or creation thereof): (i) execute and deliver to the
Collateral Agent such amendments to the Master Guarantee and Collateral
Agreement or such other documents as the Collateral Agent shall reasonably deem
necessary or advisable to grant to the Collateral Agent, for the benefit of the
Lenders, a Lien on such assets, (ii) take all actions reasonably necessary or
advisable to cause such Lien to be duly perfected in accordance with all
applicable Requirements of Law, including, without limitation, the filing of
Uniform Commercial Code financing statements in such jurisdictions as may be
reasonably requested by the Collateral Agent, and (iii) if requested by the
Collateral Agent, deliver to the Collateral Agent legal opinions relating to the
matters described in clauses (i) and (ii) immediately preceding, which opinions
shall be in form and substance and from counsel reasonably satisfactory to the
Collateral Agent.
(b) With respect to any Person that, subsequent to the Closing Date,
becomes a Domestic Subsidiary of the Borrower (including, without limitation,
any Person which had previously been an Excluded Subsidiary), promptly: (i)
execute and deliver to the Collateral Agent, for the benefit of the Lenders,
such amendments to the Master Guarantee and Collateral Agreement as the
Collateral Agent shall deem reasonably necessary or advisable to grant to the
Collateral Agent, for the benefit of the Lenders, a Lien on the Capital Stock of
such Subsidiary which is owned by the Borrower or any of its Subsidiaries, (ii)
deliver to the Collateral Agent the certificates representing such Capital
Stock, together with undated stock powers duly executed and delivered in blank,
(iii) cause such new Domestic Subsidiary (A)to become a party to the Master
Guarantee and Collateral Agreement, pursuant to documentation which is in form
and substance reasonably satisfactory to the Collateral Agent, and (B) to take
all actions necessary or advisable to cause the Lien created by such security
agreement to be duly perfected in accordance with all applicable Requirements of
Law, including, without limitation, the filing of Uniform Commercial Code
financing statements in such jurisdictions as may be reasonably requested by the
Collateral Agent, and (iv) if requested by the Collateral Agent, deliver to the
Collateral Agent legal opinions relating to the matters described in clauses
(i), (ii) and (iii) immediately preceding, which opinions shall be in form and
substance and from counsel reasonably satisfactory to the Collateral Agent.
(c) With respect to any fee interest in any real property acquired after
the Closing Date by the Borrower or any of its Domestic Subsidiaries having a
purchase price (or, if acquired through a merger or stock acquisition, a fair
market value) in excess of $1,000,000, promptly (i) execute and deliver a first
priority mortgage or deed of trust, as the case may be (subordinate only to such
mortgages or deeds of trust as are necessary to permit the Borrower or such
Domestic Subsidiary to purchase such real property but subject to such
easements, rights of way, restrictions and other similar encumbrances as such
property may be subject at the time of acquisition), in favor of the Collateral
Agent, for the benefit of the Lenders, covering such real property, in form and
substance reasonably satisfactory to the Collateral Agent, (ii) if requested by
the Collateral Agent, provide the Lenders with any consents or estoppels deemed
necessary or advisable by the Collateral Agent in connection with such mortgage
or deed of trust, each of the foregoing in form and substance reasonably
satisfactory to the Collateral Agent and (iii) if requested by the Collateral
Agent, deliver to the Collateral Agent legal opinions relating to the matters
described in the preceding clauses (i) and (ii), which opinions shall be in form
and substance and from counsel reasonably satisfactory to the Collateral Agent.
Notwithstanding the foregoing, compliance shall not be required with the
foregoing provision of this paragraph (c) in respect of any interest in real
property which, at the time of acquisition thereof by the Borrower or its
Subsidiary, is subject to a legal or contractual restriction that would prohibit
the granting of a mortgage thereon to the Collateral Agent; provided, that the
aggregate book value of real property owned by the Borrower and its Subsidiaries
so subject may not exceed $5,000,000 at any time.
(d) With respect to any Foreign Subsidiary created or acquired after the
Closing Date by the Borrower or any of its Domestic Subsidiaries, promptly (i)
execute and deliver to the Collateral Agent such amendments to the Master
Guarantee and Collateral Agreement (or comparable documentation) as the
Collateral Agent deems reasonably necessary or advisable in order to grant to
the Collateral Agent, for the benefit of the Lenders, a perfected first priority
security interest in the Capital Stock (except for Liens permitted under Section
7.3) of such new Foreign Subsidiary which is owned by the Borrower or any of its
Domestic Subsidiaries (provided that in no event shall more than 65% of the
Capital Stock of any such new Subsidiary be required to be so pledged), (ii)
deliver to the Collateral Agent the certificates representing such Capital
Stock, together with undated stock powers, in blank, executed and delivered by a
duly authorized officer of the Borrower or such Subsidiary, as the case may be,
and (iii) if requested by the Collateral Agent, deliver to the Collateral Agent
legal opinions relating to the matters described in the preceding clauses (i)
and (ii), which opinions shall be in form and substance and from counsel
reasonably satisfactory to the Collateral Agent.
(e) With respect to any oil and gas property acquired after the Closing
Date by the Borrower or any of its Domestic Subsidiaries having a purchase price
(or, if acquired through a merger or stock acquisition, a fair market value) in
excess of $1,000,000 and which, after giving effect to such acquisition and
assuming that a perfected first priority Lien thereon were not granted to the
Collateral Agent would result in the Collateral Agent having a perfected first
priority Lien on less than 80% in value (calculated as provided in Section 4.24)
of the reserves contained in all of the oil and gas properties of the Borrower
and its Domestic Subsidiaries, promptly (i) execute and deliver a first priority
oil and gas mortgage (subordinate only to such oil and gas mortgages as are
necessary to permit the Borrower or such Domestic Subsidiary to purchase such
property but subject to such restrictions and other similar encumbrances as such
property may be subject at the time of acquisition), in favor of the Collateral
Agent, for the benefit of the Lenders, covering such property, in form and
substance reasonably satisfactory to the Collateral Agent, and (ii) if requested
by the Collateral Agent, deliver to the Collateral Agent title opinions relating
to the matters described in the preceding clause reasonably satisfactory to the
Collateral Agent.
6.11 Post-Closing Matters.
(a) Mortgages and Oil and Gas Mortgages. Within 90 days after the Closing
Date, deliver to the Collateral Agent each Mortgage and each Oil and Gas
Mortgage, executed and delivered by a duly authorized officer of each party
thereto, with a copy for each Lender.
(b) Legal Opinions. Deliver to the Collateral Agent within 90 days after
the Closing Date, such legal opinions from local counsel in respect of the
Mortgages and the recording thereof as may be reasonably requested by the
Collateral Agent, with a counterpart for each Lender. Deliver to the Collateral
Agent as promptly as practicable, but in any event within 180 days after the
Closing Date, such title opinions in respect of the Oil and Gas Properties as
may be reasonably requested by the Collateral Agent. Such legal opinions shall
be in form and substance reasonably satisfactory to the Collateral Agent and
shall cover such matters incident to the transactions contemplated by this
Agreement as the Collateral Agent may reasonably require.
(c) Flood Insurance. Within 90 days after the Closing Date, deliver to the
Collateral Agent if requested by the Collateral Agent, (i) a policy of flood
insurance with respect to each parcel of real property subject to a Mortgage on
which there are improvements located in the 100-year flood plain, which (A) is
written in an amount not less than the outstanding principal amount of the
indebtedness secured by such Mortgage which is reasonably allocable to such real
property or the maximum limit of coverage made available with respect to the
particular type of property under the National Flood Insurance Act of 1968,
whichever is less and (B) has a term ending not earlier than the maturity of the
indebtedness secured by such Mortgage and (ii) confirmation that the Borrower
has received from the Collateral Agent the notice required pursuant to Section
208(e)(3) of Regulation H of the Board.
(d) Vehicles. Within 90 days after the Closing Date, deliver to the
Collateral Agent each document (including, without limitation, any certificates
of title) required by the Security Documents or under law or reasonably
requested by the Collateral Agent to be delivered to the Collateral Agent or to
be filed, registered or recorded in order to create in favor of the Collateral
Agent, for the benefit of the Lenders, a perfected Lien on all of the Vehicles
covered by a certificate of title, prior and superior in right to any other
Person (other than with respect to Liens expressly permitted by Section 7.3),
which documents shall be in proper form for filing, registration or recordation
in each jurisdiction in which the filing, registration or recordation thereof is
so required or requested.
(e) Environmental. Prior to or concurrently with the execution and delivery
of the Mortgages, deliver to the Collateral Agent and the Arranger environmental
reports in respect of each Mortgaged Property listed in Schedule 6.11(e), which
reports shall be reasonably satisfactory to the Collateral Agent. At any time
upon the request of the Required Lenders, deliver to the Collateral Agent and
the Arranger environmental reports in respect of the Mortgaged Properties not
covered by an environmental report delivered pursuant to the preceding sentence,
which reports shall be reasonably satisfactory to the Collateral Agent.
6.12 Interest Rate Protection Agreements. Within 120 days after the Closing
Date, enter into Interest Rate Protection Agreements in respect of at least
$50,000,000 of the Term Loans, providing interest rate protection for such
period of time, and under such terms and conditions, as shall be reasonably
acceptable to the Arranger.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note or Letter of Credit remains outstanding and unpaid or any other
amount is owing to any Lender, the Arranger, the Collateral Agent or the
Administrative Agent hereunder, the Borrower shall not, and, if applicable,
shall not permit any of its Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio as
of any date set forth below to exceed the ratio set forth below opposite such
date:
Consolidated
Date Leverage Ratio
June 30, 1997 4.00 to 1.00
September 30, 1997 4.00 to 1.00
December 31, 1997 4.00 to 1.00
March 31, 1998 4.00 to 1.00
June 30, 1998 3.50 to 1.00
September 30, 1998 3.50 to 1.00
December 31, 1998 3.25 to 1.00
March 31, 1999 3.25 to 1.00
June 30, 1999 3.00 to 1.00
September 30, 1999 3.00 to 1.00
December 31, 1999 2.75 to 1.00
March 31, 2000 2.75 to 1.00
June 30, 2000 2.50 to 1.00
September 30, 2000 2.50 to 1.00
December 31, 2000 2.50 to 1.00
March 31, 2001 2.50 to 1.00
June 30, 2001 2.50 to 1.00
September 30, 2001 2.50 to 1.00
December 31, 2001 2.50 to 1.00
March 31, 2002 2.50 to 1.00
June 30, 2002 2.50 to 1.00
September 30, 2002 2.50 to 1.00
December 31, 2002 2.50 to 1.00
March 31, 2003 2.50 to 1.00
June 30, 2003 2.50 to 1.00
September 30, 2003 2.50 to 1.00
December 31, 2003 2.50 to 1.00
March 31, 2004 2.50 to 1.00
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest
Coverage Ratio for any period of four consecutive fiscal quarters of the
Borrower ending as of any date set forth below to be less than the ratio set
forth below opposite such date:
Consolidated
Interest
Date Coverage Ratio
June 30, 1997 2.50 to 1.00
September 30, 1997 2.50 to 1.00
December 31, 1997 2.50 to 1.00
March 31, 1998 2.50 to 1.00
June 30, 1998 2.75 to 1.00
September 30, 1998 2.75 to 1.00
December 31, 1998 3.00 to 1.00
March 31, 1999 3.00 to 1.00
June 30, 1999 3.25 to 1.00
September 30, 1999 3.25 to 1.00
December 31, 1999 3.50 to 1.00
March 31, 2000 3.50 to 1.00
June 30, 2000 3.50 to 1.00
September 30, 2000 3.50 to 1.00
December 31, 2000 3.50 to 1.00
March 31, 2001 3.50 to 1.00
June 30, 2001 3.50 to 1.00
September 30, 2001 3.50 to 1.00
December 31, 2001 3.50 to 1.00
March 31, 2002 3.50 to 1.00
June 30, 2002 3.50 to 1.00
September 30, 2002 3.50 to 1.00
December 31, 2002 3.50 to 1.00
March 31, 2003 3.50 to 1.00
June 30, 2003 3.50 to 1.00
September 30, 2003 3.50 to 1.00
December 31, 2003 3.50 to 1.00
March 31, 2004 3.50 to 1.00
(c) Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated Fixed
Charge Coverage Ratio for any period of four consecutive fiscal quarters of the
Borrower ending as of any date set forth below to be less than the ratio set
forth below opposite such date:
Consolidated
Fixed Charge
Date Coverage Ratio
June 30, 1997 1.05 to 1.00
September 30, 1997 1.05 to 1.00
December 31, 1997 1.05 to 1.00
March 31, 1998 1.05 to 1.00
June 30, 1998 1.05 to 1.00
September 30, 1998 1.05 to 1.00
December 31, 1998 1.05 to 1.00
March 31, 1999 1.10 to 1.00
June 30, 1999 1.10 to 1.00
September 30, 1999 1.10 to 1.00
December 31, 1999 1.10 to 1.00
March 31, 2000 1.10 to 1.00
June 30, 2000 1.10 to 1.00
September 30, 2000 1.10 to 1.00
December 31, 2000 1.10 to 1.00
March 31, 2001 1.10 to 1.00
June 30, 2001 1.10 to 1.00
September 30, 2001 1.10 to 1.00
December 31, 2001 1.10 to 1.00
March 31, 2002 1.10 to 1.00
June 30, 2002 1.10 to 1.00
September 30, 2002 1.10 to 1.00
December 31, 2002 1.10 to 1.00
March 31, 2003 1.10 to 1.00
June 30, 2003 1.10 to 1.00
September 30, 2003 1.10 to 1.00
December 31, 2003 1.10 to 1.00
March 31, 2004 1.10 to 1.00
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness of the Borrower under the Loan Documents;
(b) Indebtedness (i) of the Borrower to a Wholly Owned Subsidiary, (ii) of
a Domestic Wholly Owned Subsidiary to the Borrower or any other Subsidiary,
(iii) of Servicios to the Borrower or any Subsidiary in an aggregate principal
amount at any time outstanding not to exceed $5,000,000 in excess of the amount
of such Indebtedness outstanding on the date of this Agreement and (iv) of any
Foreign Subsidiary (other than Servicios) to the Borrower or any Subsidiary in
an aggregate principal amount at any time outstanding (with respect to all such
Foreign Subsidiaries of the Borrower) not to exceed $1,000,000, provided that
such Indebtedness referred to in clauses (iii) and (iv) hereof, if to the
Borrower or any Domestic Subsidiary, is evidenced by a promissory note or
promissory notes which has or have been pledged to the Collateral Agent on terms
and conditions reasonably satisfactory to the Administrative Agent;
(c) Indebtedness of the Borrower or any Subsidiary incurred to finance the
acquisition or construction of fixed or capital assets (whether pursuant to a
loan, a Financing Lease or otherwise) in an aggregate principal amount not
exceeding as to the Borrower and its Subsidiaries (i) $15,000,000 at any time
outstanding minus (ii) the amount of Indebtedness outstanding under clauses (f)
and (i) of this Section 7.2 and the amount of indebtedness attributable to sale
and leaseback transactions permitted pursuant to Section 7.12;
(d) Indebtedness of the Borrower and its Subsidiaries under the Convertible
Subordinated Debentures;
(e) Indebtedness outstanding on the date hereof, or incurred hereafter
pursuant to existing commitments or agreements, and, in each case, listed on
Schedule 7.2 and any refinancings, refundings, renewals or extensions thereof
not increasing the principal amount thereof;
(f) Indebtedness of a Person which becomes a Subsidiary after the date
hereof in an aggregate principal amount at any time outstanding not exceeding
(i) $15,000,000, minus (ii) the sum of (A) the amount of Indebtedness
outstanding under clauses (c) and (i) of this Section 7.2 and (B) the amount of
indebtedness attributable to sale and leaseback transactions permitted pursuant
to Section 7.12, provided that (x) such Indebtedness existed at the time such
corporation became a Subsidiary and was not created in anticipation thereof and
(y) immediately after giving effect to the acquisition of such corporation by
the Borrower no Default or Event of Default shall have occurred and be
continuing, and any refinancings, refundings, renewals or extensions thereof not
increasing the principal amount thereof.
(g) Indebtedness constituting deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds and performance bonds and other obligations of a like
nature that are incurred in the ordinary course of business, not to exceed
$5,000,000 in the aggregate at any time outstanding;
(h) Indebtedness under Interest Rate Protection Agreements and Hedge
Agreements entered into the ordinary course of business for hedging purposes and
not for speculative purposes;
(i) Seller Indebtedness in an aggregate principal amount at any time
outstanding not exceeding (i) $15,000,000 minus (ii) the sum of (A) the amount
of Indebtedness outstanding under clauses (c) and (f) of this Section 7.2, and
any refinancings, refundings, renewals or extensions thereof not increasing the
principal amount thereof and (B) the amount of indebtedness attributable to sale
and leaseback transactions permitted pursuant to Section 7.12;
(j) Indebtedness in the form of Guarantee Obligations permitted by Section
7.4; and
(k) Indebtedness not otherwise permitted by the foregoing clauses (a)
through (j) in an aggregate principal amount at any time outstanding of not to
exceed $5,000,000.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good faith
by appropriate proceedings, provided that adequate reserves with respect thereto
are maintained on the books of the Borrower or its Subsidiaries in conformity
with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
landlord's or other like Liens arising in the ordinary course of business which
are not overdue for a period of more than 180 days or which are being contested
in good faith by appropriate proceedings and which, in any case, do not encumber
a material amount of the assets of the Borrower and its Subsidiaries;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Borrower or any Subsidiary;
(f) Liens securing Indebtedness of the Borrower or any Subsidiary incurred
to finance the acquisition or construction of fixed or capital assets, provided
that (i) such Liens shall be created within 180 days after the acquisition or
construction of such fixed or capital assets, (ii) such Liens do not at any time
encumber any property other than the property financed by such Indebtedness and
the proceeds and products thereof, (iii) the principal amount of Indebtedness
secured thereby is not increased and (iv) the proceeds of the Indebtedness
secured by any such Lien shall at no time exceed 100% of the original purchase
price of such property;
(g) Liens created pursuant to the Security Documents;
(h) Liens in existence on the date hereof listed on Schedule 7.3 (i)
securing Indebtedness permitted by Section 7.2(e) provided that no such Lien is
spread to cover any additional property after the Closing Date and that the
principal amount of Indebtedness secured thereby is not increased or (ii)
securing Indebtedness which is being repaid on the Closing Date, provided that
such Liens shall be released promptly following the Closing Date;
(i) Liens on the property or assets of a corporation which becomes a
Subsidiary after the date hereof securing Indebtedness permitted by Section
7.2(f), provided that (i) such Liens existed at the time such corporation became
a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is
not spread to cover any property or assets of such corporation after the time
such corporation becomes a Subsidiary, and (iii) the principal amount of
Indebtedness secured thereby is not increased;
(j) Liens on assets acquired in a Permitted Acquisition securing Seller
Indebtedness incurred in connection with such Permitted Acquisition; and
(k) the Permitted Exceptions (as defined in the Mortgages).
7.4 Limitation on Guarantee Obligations. Create, incur, assume or suffer to
exist any Guarantee Obligation except:
(a) Guarantee Obligations made in the ordinary course of its business by
the Borrower or any Subsidiary in respect of Indebtedness and other obligations
of any of the Borrower or any of its Subsidiaries which Indebtedness or other
obligations are otherwise not prohibited under this Agreement;
(b) the Guarantee Obligations of the Loan Parties pursuant to the Master
Guarantee and Collateral Agreement;
(c) the Guarantee Obligations of the Subsidiaries of the Borrower under the
Indenture; and
(d) Guarantee Obligations (in respect of obligations not constituting
Indebtedness) arising under agreements entered into by the Borrower or any
Subsidiary in the ordinary course of business.
7.5 Limitation on Fundamental Changes. Enter into any merger, consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Subsidiary of the Borrower may be merged or combined with or into
the Borrower (provided that the Borrower shall be the continuing or surviving
corporation) or with or into any one or more Subsidiaries of the Borrower
provided that in the case of any such transaction involving a Wholly Owned
Subsidiary, such Wholly Owned Subsidiary shall be the continuing or surviving
corporation;
(b) any Subsidiary may be dissolved, liquidated or wound up or may sell,
lease, assign, transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to Borrower or any Domestic Wholly Owned
Subsidiary of the Borrower, and the Borrower may sell, lease, assign, transfer
or otherwise dispose of any or all of its assets to any wholly owned Subsidiary
of the Borrower which is a party to the Master Guarantee and Collateral
Agreement; and
(c) any Subsidiary may sell, lease, transfer or otherwise dispose of any or
all of its assets so long as (i) such transaction does not violate Section 7.6
and (ii) the Borrower complies with the provisions of Section 2.9(c) with
respect to such transaction.
7.6 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer or
otherwise dispose of any of its property, business or assets (including, without
limitation, receivables and leasehold interests), whether now owned or hereafter
acquired, or, in the case of any Subsidiary of the Borrower, issue or sell any
shares of such Subsidiary's Capital Stock to any Person other than the Borrower
or any Domestic Wholly Owned Subsidiary of the Borrower, except:
(a) the sale or other disposition of obsolete or worn out property in the
ordinary course of business having a fair market value not to exceed, in the
aggregate, $1,000,000 in any period of twelve consecutive months; (b) the sale
or other disposition of any property in the ordinary course of business,
including obsolete or worn out property not permitted to be disposed of pursuant
to clause (a) of this Section 7.6, provided that (other than inventory and light
vehicles) the aggregate book value of all assets so sold or disposed of in any
period of twelve consecutive months shall not exceed $5,000,000;
(c) the sale of inventory and light vehicles in the ordinary course of
business;
(d) as permitted by Section 7.5(b); and
(e) the sale of Servicios for consideration of which not less than 80% is
comprised of cash or assets located in the United States.
To the extent the Required Lenders waive the provisions of this Section 7.6
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 7.6, such Collateral in each case shall be sold free
and clear of the Liens in favor of the Collateral Agent created by the Security
Documents, and the Collateral Agent shall take such actions as it deems
appropriate in connection therewith or may be reasonably requested by the
Borrower to evidence such Lien release, in each case at the Borrower's expense.
7.7 Limitation on Restricted Payments. Declare or pay any dividend (other
than dividends payable solely in common stock of the Person making such
dividend) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital Stock
(including but not limited to in respect of any preferred Capital Stock
outstanding or dividends accumulated thereon on the Closing Date) of the
Borrower or any of its Subsidiaries or any warrants or options to purchase any
such Capital Stock or any of the Convertible Subordinated Debentures, whether
now or hereafter outstanding, or make any other distribution in respect thereof
or purchase any thereof, either directly or indirectly, whether in cash or
property or in obligations of the Borrower or any Subsidiary, except that the
Borrower (a) may make open market purchases of its outstanding common stock in
an aggregate amount during the term of this Agreement not to exceed (i)
$10,000,000, while the Consolidated Leverage Ratio is less than 3.75 to 1.0 but
greater than or equal to 2.50 to 1.0 and (ii) $25,000,000 (including any amounts
expended pursuant to clause (i)), while the Consolidated Leverage Ratio is less
than 2.50 to 1.0, (b) may (i) make scheduled payments of principal and interest
in respect of the Convertible Subordinated Debentures, and (ii) if permitted by
Section 7.10, redeem the Convertible Subordinated Debentures after at least 90%
of the Convertible Subordinated Debentures have been converted and (c) may make
cash payments required pursuant to Section 11.1 of the Indenture in connection
with conversions of the Convertible Subordinated Debentures. Notwithstanding the
foregoing, any Subsidiary of the Borrower may pay dividends and other
distributions to the Borrower and Servicios may pay dividends to its
shareholders.
7.8 Limitation on Capital Expenditures. Make or commit to make any Capital
Expenditure except for expenditures in the ordinary course of business not
exceeding, in the aggregate for the Borrower and its Subsidiaries during any of
the fiscal years of the Borrower set forth below, an amount equal to the sum of
(i) the amount set forth below opposite such fiscal year plus (ii) an additional
amount for any Person or business unit acquired by the Borrower in a Permitted
Acquisition since the Closing Date, such amount being calculated as 10% of the
net revenues, calculated in accordance with GAAP, of such Person or business
unit during such fiscal year (or, if such Person or business unit was acquired
after the beginning of such fiscal year, such revenues for the portion of such
fiscal year during which such Person or business unit was owned by the
Borrower):
Fiscal Year Ending Amount
1998 $30,000,000
1999 $31,500,000
2000 $33,075,000
2001 $34,728,750
2002 $36,465,188
2003 $38,288,447
2004 $40,202,869
Any amount permitted by the foregoing provision to be expended as Capital
Expenditures in any fiscal year and not so expended may be carried over for
expenditure in the immediately succeeding fiscal year.
7.9 Limitation on Investments, Loans and Advances. Make any advance, loan,
extension of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets constituting a business
unit of, or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Permitted Acquisitions;
(d) loans by the Borrower or any Subsidiary to Servicios in an aggregate
principal amount at any time outstanding not to exceed the amount thereof
outstanding on the date of this Agreement plus $5,000,000;
(e) as permitted by subsection 7.2(b)(iv);
(f) investments by the Borrower in a Domestic Wholly Owned Subsidiary and
investments by any Subsidiary in the Borrower and in one or more Domestic Wholly
Owned Subsidiaries;
(g) expense accounts for, and other expense advances to, its directors,
officers and employees in the ordinary course of business;
(h) loans and advances to its officers and employees in an aggregate amount
not to exceed $1,000,000 at any time outstanding; (i) the Borrower's purchase or
redemption of its own Capital Stock to the extent permitted by Section 7.7;
(j) current trade and customer accounts receivable that are for goods
furnished or services rendered in the ordinary course of business and that are
payable in accordance with Borrower's or any Subsidiary's customary trade terms;
(k) Interest Rate Protection Agreements to the extent permitted under this
Agreement, and Hedge Agreements entered into in the ordinary course of business
for hedging purposes and not for speculative purposes;
(l) the Borrower may repurchase its capital stock and/or options to
purchase such stock held by directors, officers and employees of the Borrower or
any Subsidiary upon the death, disability, retirement or termination of such
directors, officers or employees or the exercise of such options, or from the
shareholders of Borrower so long as the purpose is to acquire stock for
reissuance to new employees of Borrower and its Subsidiaries; provided, that the
amount expended for such purposes shall not exceed $1,000,000 in any fiscal year
or $2,500,000 while this Agreement is in effect;
(m) the Borrower and its Subsidiaries may acquire and own investments
(including Indebtedness and other obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement of
delinquent obligations of, and other disputes with, customers and suppliers
arising in the ordinary course of business;
(n) investments acquired by the Borrower and its Subsidiaries in connection
with Permitted Acquisitions; and
(o) the Borrower's current investment in the Argent Classic Convertible
Arbitrage Fund L.P., provided that such investment must be converted into cash
or a Cash Equivalent within 90 days after the Closing Date.
7.10 Limitation on Optional Payments and Modifications of Debt Instruments
and Organizational Documentation, etc. (a) Make any optional payment or
prepayment on or redemption or purchase of any material Indebtedness (other than
the Loans) or preferred Capital Stock including, without limitation, the
Convertible Subordinated Debentures, (b) amend, modify or change, or consent or
agree to any amendment, modification or change to any of the terms of any such
Indebtedness or preferred Capital Stock which would be materially adverse to
Lenders or (c) amend, modify or change in any material respect, or consent or
agree to any amendment, modification, or change in any material respect to the
terms of any of its capitalization or organizational documents (including but
not limited to in respect of any preferred Capital Stock of any Loan Party) or a
material contract, to the extent such amendment, modification or change could
reasonably be expected to have a Material Adverse Effect, except that, after 90%
of the original outstanding principal amount of Convertible Subordinated
Debentures have been converted into common stock of the Borrower, the Borrower
may, at any time when no Default or Event of Default has occurred and is
continuing, repurchase or redeem the remaining outstanding Convertible
Subordinated Debentures; provided that the Borrower may not repurchase or redeem
such Convertible Subordinated Debentures at any time when the Consolidated
Leverage Ratio is or, after giving effect to such repurchase or redemption,
would be, greater than 3.75.
7.11 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate (other
than the Borrower) unless such transaction (a) is otherwise permitted under this
Agreement, and (b) is upon fair and reasonable terms no less favorable to the
Borrower or such Subsidiary, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate;
provided, that any such transaction involving more than $5,000,000 must be
approved by a majority of the disinterested members of the Borrower's Board of
Directors.
7.12 Limitation on Sales and Leasebacks. Enter into any arrangement with
any Person providing for the leasing by the Borrower or any of its Subsidiaries
of real or personal property which has been or is to be sold or transferred by
the Borrower or such Subsidiary to such Person or to any other Person to whom
funds have been or are to be advanced by such Person on the security of such
property or rental obligations of the Borrower or such Subsidiary, if, after
giving effect thereto, the amount of all indebtedness attributable to
transactions consummated pursuant to this Section 7.12, plus the amount of
Indebtedness outstanding pursuant to clause (c), (f) and (i) of Section 7.2,
would exceed $15,000,000.
7.13 Limitation on Changes in Fiscal Year. Permit the fiscal year of the
Borrower to end on a day other than June 30.
7.14 Limitation on Negative Pledge Clauses. Enter into with any Person any
agreement, other than (a) this Agreement and the other Loan Documents and (b)
any industrial revenue bonds, purchase money Liens or Financing Leases permitted
by this Agreement (in which cases, any prohibition or limitation shall only be
effective against the assets financed thereby) which prohibits or limits the
ability of the Borrower or any of its Subsidiaries to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired.
7.15 Limitation on Lines of Business. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Borrower and its Subsidiaries are engaged on the date of this Agreement or which
are directly related thereto including any business in the oil and gas well
service industry.
7.16 Limitation on Consolidated Lease Expense. Permit Consolidated Lease
Expense for any fiscal year of the Borrower and its Subsidiaries to exceed
$20,000,000.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or the
Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation,
or any other amount payable hereunder or under any other Loan Document, within
three days after any such interest or other amount becomes due in accordance
with the terms hereof; or
(b) Any representation or warranty made or deemed made by the Borrower or
any other Loan Party herein or in any other Loan Document or which is contained
in any certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been incorrect in any material respect on or as of
the date made or deemed made; or
(c) The Borrower or any other Loan Party shall default in the observance or
performance of any agreement contained in Section 7; or
(d) The Borrower or any other Loan Party shall default in the observance or
performance of any other agreement contained in this Agreement or any other Loan
Document (other than as provided in paragraphs (a) through (c) of this Section
8), and such default shall continue unremedied for a period of 30 days; or
(e) The Borrower or any of its Subsidiaries shall (i) default in making any
payment of any principal of any Indebtedness (including, without limitation, any
Guarantee Obligation) or Interest Rate Protection Agreement Obligation on the
scheduled or original due date with respect thereto; or (ii) default in making
any payment of any interest on any such Indebtedness beyond the period of grace,
if any, provided in the instrument or agreement under which such Indebtedness or
Interest Rate Protection Agreement Obligation was created; or (iii) default in
the observance or performance of any other agreement or condition relating to
any such Indebtedness or Interest Rate Protection Agreement Obligation or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder
or beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or (in the case of any
such Indebtedness constituting a Guarantee Obligation or Interest Rate
Protection Agreement Obligation) to become payable; provided that a default,
event or condition described in clause (i), (ii) or (iii) of this paragraph (e)
shall not at any time constitute an Event of Default under this Agreement
unless, at such time, one or more defaults, events or conditions of the type
described in clauses (i), (ii) and (iii) of this paragraph (e) shall have
occurred and be continuing with respect to Indebtedness and/or Guarantee
Obligations and/or Interest Rate Protection Agreement Obligations of the
Borrower and its Subsidiaries the outstanding principal amount of which exceeds
in the aggregate $1,000,000; or
(f) (i) The Borrower or any of its Subsidiaries (other than Servicios)
shall commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or the Borrower or any of its Subsidiaries (other than Servicios) shall
make a general assignment for the benefit of its creditors; or (ii) there shall
be commenced against the Borrower or any of its Subsidiaries (other than
Servicios) any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against the
Borrower or any of its Subsidiaries (other than Servicios) any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv) the Borrower or any of its Subsidiaries (other than
Servicios) shall take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries (other than
Servicios) shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as defined
in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii)
any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in favor
of the PBGC or a Plan shall arise on the assets of any Loan Party or any
Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required Lenders, likely to result
in the termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v)any
Loan Party or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or
(vi) any other event or condition shall occur or exist with respect to a Plan;
and in each case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could, in the sole
judgment of the Required Lenders, reasonably be expected to have a Material
Adverse Effect; or (h) One or more judgments or decrees shall be entered against
the Borrower or any of its Subsidiaries (other than Servicios) involving in the
aggregate a liability (not paid or fully covered by insurance) of $2,000,000 or
more, and all such judgments or decrees shall not have been vacated, discharged,
stayed or bonded pending appeal within 60 days from the entry thereof; or
(i) Any of the Security Documents shall cease, for any reason, to be in
full force and effect, or any Loan Party or any Affiliate of any Loan Party
shall so assert, or any material Lien created by any of the Security Documents
shall cease to be enforceable and of the same effect and priority purported to
be created thereby; or
(j) Any Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of Default
specified in clause (i) or (ii) of paragraph (f) above with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the other Loan Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have presented the documents
required thereunder) shall immediately become due and payable, and (B) if such
event is any other Event of Default, either or both of the following actions may
be taken: (i) with the consent of the Required Lenders, the Administrative Agent
may, or upon the request of the Required Lenders, the Administrative Agent
shall, by notice to the Borrower declare the Commitments to be terminated
forthwith, whereupon the Commitments shall immediately terminate; and (ii) with
the consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by notice to
the Borrower, declare the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the other Loan Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) to be due and payable forthwith, whereupon
the same shall immediately become due and payable.
With respect to all Letters of Credit with respect to which presentment for
honor shall not have occurred at the time of an acceleration pursuant to this
paragraph, the Borrower shall at such time deposit in a cash collateral account
opened by the Administrative Agent an amount equal to the aggregate then undrawn
and unexpired amount of such Letters of Credit. Amounts held in such cash
collateral account shall be applied by the Administrative Agent to the payment
of drafts drawn under such Letters of Credit, and the unused portion thereof
after all such Letters of Credit shall have expired or been fully drawn upon, if
any, shall be applied to repay other obligations of the Borrower hereunder and
under the other Loan Documents. After all such Letters of Credit shall have
expired or been fully drawn upon, all Reimbursement Obligations shall have been
satisfied and all other obligations of the Borrower hereunder and under the
other Loan Documents shall have been paid in full, the balance, if any, in such
cash collateral account shall be returned to the Borrower (or such other Person
as may be lawfully entitled thereto). Except as expressly provided above in this
Section, presentment, demand, protest and all other notices of any kind are
hereby expressly waived.
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and appoints the
Agents as the agents of such Lender under this Agreement and the other Loan
Documents, and each Lender irrevocably authorizes each Agent, in such capacity,
to take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and to exercise such powers and perform such duties as are
expressly delegated to such Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, no Agent shall have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against any Agent.
9.2 Delegation of Duties. Each Agent may execute any of its duties under
this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither the Agents nor any of their officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or any other Loan Document (except to
the extent that any of the foregoing are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from its or such
Person's own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by any Loan Party or any officer thereof contained in this
Agreement or any other Loan Document or in any certificate, report, statement or
other document referred to or provided for in, or received by any Agent under or
in connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or the Notes or any other Loan Document or for any failure of any Loan
Party a party thereto to perform its obligations hereunder or thereunder. No
Agent shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of any Loan Party.
9.4 Reliance by Agents. Each Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, telecopy, telex or teletype message, statement,
order or other document or conversation believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without limitation, counsel
to the Borrower), independent accountants and other experts selected by such
Agent. The Agents may deem and treat the payee of any Note as the owner thereof
for all purposes unless a written notice of assignment, negotiation or transfer
thereof shall have been filed with the Administrative Agent. Each Agent shall be
fully justified in failing or refusing to take any action under this Agreement
or any other Loan Document unless it shall first receive such advice or
concurrence of the Required Lenders (or, if so specified by this Agreement, all
Lenders) as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action,
provided that in no event shall the Lenders be obligated to indemnify the Agents
for any amounts described in the proviso to Section 9.7. Each Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the
Required Lenders (or, if so specified by this Agreement, all Lenders), and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders and all future holders of the Notes.
9.5 Notice of Default. No Agent shall be deemed to have knowledge or notice
of the occurrence of any Default or Event of Default hereunder unless such Agent
has received written notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Administrative Agent
receives such a notice, the Administrative Agent shall give notice thereof to
the Lenders. The Administrative Agent and the Collateral Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders (or, if so specified by this Agreement, all
Lenders); provided that unless and until the Administrative Agent or the
Collateral Agent shall have received such directions, the Administrative Agent
or the Collateral Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
acknowledges that neither any Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agents hereafter taken, including any
review of the affairs of a Loan Party or any Affiliate of a Loan Party, shall be
deemed to constitute any representation or warranty by any Agent to any Lender.
Each Lender represents to each Agent that it has, independently and without
reliance upon any Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties and their Affiliates and made
its own decision to make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon any
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties and their Affiliates. Except
for notices, reports and other documents expressly required to be furnished to
the Lenders by the Administrative Agent hereunder, no Agent shall have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or any Affiliate of
a Loan Party which may come into the possession of such Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify each Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Commitments, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Notes) be imposed on,
incurred by or asserted against any Agent in any way relating to or arising out
of, the Commitments, this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by any Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
which are found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from such Agent's gross negligence or willful
misconduct. The agreements in this Section 9.7 shall survive the payment of the
Notes and all other amounts payable hereunder.
9.8 Agents in Their Individual Capacities. Each Agent and its Affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party as though such Agent were not an Agent hereunder
and under the other Loan Documents. With respect to its Loans made or renewed by
it and any Note issued to it and with respect to any Letter of Credit issued or
participated in by it, each Agent shall have the same rights and powers under
this Agreement and the other Loan Documents as any Lender and may exercise the
same as though it were not an Agent, respectively, and the terms "Lender" and
"Lenders" shall include each Agent in their individual capacities.
9.9 Successor Agents. The Administrative Agent or the Collateral Agent may
resign as Administrative Agent or Collateral Agent, as the case may be, upon 10
days' notice to the Lenders. If the Administrative Agent or the Collateral Agent
shall resign as Administrative Agent or Collateral Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent in such capacity, which successor agent, so long
as no Default or Event of Default shall have occurred and be continuing, shall
have been approved by the Borrower (which approval shall not be unreasonably
withheld or delayed), whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent or the Collateral Agent,
as the case may be, hereunder. Effective upon such appointment and approval, the
terms "Administrative Agent" and "Collateral Agent" shall mean such successor
agent, and the former Administrative Agent's or Collateral Agent's rights,
powers and duties as such shall be terminated, without any other or further act
or deed on the part of such former Administrative Agent or Collateral Agent or
any of the parties to this Agreement or any holders of the Notes. After any
retiring Agent's resignation as Agent, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement and the other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party which is party to the relevant Loan
Documents may, or, with the written consent of the Required Lenders, the
Administrative Agent, the Arranger and each Loan Party which is a party to the
relevant Loan Document may, from time to time, (a) enter into written
amendments, supplements or modifications hereto and to the other Loan Documents
for the purpose of adding any provisions to this Agreement or the other Loan
Documents or changing in any manner the rights of the Lenders or of the Loan
Parties hereunder or thereunder or (b) waive, on such terms and conditions as
the Required Lenders or the Administrative Agent and the Arranger, as the case
may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided that no such waiver and no such amendment, supplement or
modification shall (i) forgive the principal amount of any Loan or any L/C
Obligation, or extend the final scheduled date of maturity of any Loan, or
reduce the stated rate of any interest, fee or letter of credit commission
payable hereunder or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any Lender's Revolving
Credit Commitment, or waive any mandatory prepayment or make any change in the
application of any prepayment of the Loans specified in the first sentence of
Section 2.9(f) or in Section 2.15(a), or the right to refuse prepayments set
forth in the penultimate sentence of Section 2.8, in each case without the
consent of each Lender directly affected thereby, (ii) extend the scheduled date
or reduce the amount of any amortization payment in respect of the Term Loans
referred to in Section 2.6 without the consent of each Term Loan Lender directly
affected thereby, (iii) extend the scheduled date or reduce the amount of any
reduction of the Revolving Credit Commitments referred to in Section 2.3(c)
without the consent of each Revolving Credit Lender directly affected thereby,
(iv) amend, modify or waive any provision of this Section 10.1 or reduce any
percentage specified in the definition of Required Lenders, or consent to the
assignment or transfer by any Loan Party of any of its rights and obligations
under this Agreement and the other Loan Documents or release all or a
substantial portion of the Collateral (other than in connection with any sale or
other disposition of assets permitted by Section 7.6) or any guarantee of the
Obligations, in each case, without the written consent of all the Lenders, (v)
amend, modify or waive any provision of Section 9 without the written consent of
the Agents, or (vi) amend, modify or waive any provision of Section 3 without
the written consent of the Issuing Lender. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the Lenders
and shall be binding upon the Loan Parties, the Lenders, the Agents and all
future holders of the Notes. In the case of any waiver, the Loan Parties, the
Lenders and the Agents shall be restored to their former position and rights
hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered, or three Business Days after being deposited in
the mail, postage prepaid, or, in the case of telecopy notice, when received,
addressed as follows in the case of the Borrower, the Administrative Agent, the
Collateral Agent and the Arranger, and as set forth in Schedule 1.1A in the case
of the Lenders, or to such other address as may be hereafter notified by the
respective parties hereto and any future holders of the Notes:
The Borrower: Key Energy Group, Inc.
Two Tower Center, Tenth Floor
East Brunswick, New Jersey 08816
Attention: Mr. Francis D. John
Telecopy: (908) 659-1526
Telephone: (908) 247-5148
The Administrative
Agent: PNC Bank, N.A.
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: Mr. Thomas Grundman
Telecopy: (412) 762-2571
Telephone: (412) 762-3025
The Collateral
Agent: Norwest Bank Texas, N.A.
500 West Texas Avenue
Midland, Texas 79701
Attention: Mr. Mark McKinney
Telecopy: (915) 685-5441
Telephone: (915) 685-5149
The Arranger: Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
Attention: Michele Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
provided that any notice, request or demand to or upon the Administrative
Agent or the Lenders pursuant to Section 2.2, 2.4, 2.7, 2.8 or 2.10 shall not be
effective until received. Any notice or delivery to or from or consent required
of the Borrower hereunder or pursuant to any other Loan Document may be made to
or by the Borrower.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of any Agent or any Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
10.4 Survival. All representations and warranties made hereunder, in the
other Loan Documents and in any document, certificate or statement delivered
pursuant hereto or in connection herewith shall survive the execution and
delivery of this Agreement and the Notes and the making of the Loans hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Agents for all their reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel (including any local counsel) to the Agents, (b) to pay
or reimburse each Lender and each of the Agents for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents and any such other documents,
including, without limitation, the fees and disbursements of counsel (including
the allocated fees and expenses of in-house counsel) to each Lender and counsel
to the Agents, (c) to pay, indemnify, and hold each Lender and each Agent
harmless from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the other
Loan Documents and any such other documents, and (d) to pay, indemnify, and hold
each Lender and each Agent and their respective officers, directors, trustees,
employees, affiliates, agents and controlling persons (each, an "indemnitee")
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, the other Loan
Documents and any such other documents, including, without limitation, any of
the foregoing relating to the use of proceeds of the Loans or the violation of,
noncompliance with or liability under, any Environmental Law applicable to the
Borrower, any of its Subsidiaries, any of its Excluded Subsidiaries or any of
the Properties (all the foregoing in this clause (d), collectively, the
"indemnified liabilities"), provided that the Borrower shall have no obligation
hereunder to any indemnitee with respect to indemnified liabilities to the
extent such indemnified liabilities are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of such indemnitee. Without limiting the
foregoing, and to the extent permitted by applicable law, the Borrower agrees
not to assert, and hereby waives, and to cause each of its Subsidiaries not to
assert and to so waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any Indemnitee. The agreements in this Section 10.5 shall
survive repayment of the Notes and all other amounts payable hereunder and the
termination of the Commitments and, in the case of any Lender that may assign
any interest in its Commitments, Loans or Letter of Credit interest hereunder,
shall survive the making of such assignment, notwithstanding that such assigning
Lender may cease to be a "Lender" hereunder.
10.6 Successors and Assigns; Participation and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agents, all future holders of the Notes and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of each Lender.
(b) Any Lender may, without the consent of the Borrower, in the ordinary
course of its business and in accordance with applicable law, at any time sell
to one or more banks or other entities (each, a "Participant") participating
interests in any Loan owing to such Lender, any Note held by such Lender, any
Commitment of such Lender or any other interest of such Lender hereunder and
under the other Loan Documents. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Note for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Loan
Documents. In no event shall any Participant under any such participation have
any right to approve any amendment or waiver of any provision of any Loan
Document, or any consent to any departure by any Loan Party therefrom, except to
the extent that such amendment, waiver or consent would reduce the principal of,
or interest on, the Notes or any fees payable hereunder, postpone the date of
the final maturity of the Notes, consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement and the other
Loan Documents, release all or a substantial portion of the Collateral (other
than in connection with any sale or other disposition of assets permitted by
Section 7.6) or any guarantee of the Obligations, in each case to the extent
subject to such participation. The Borrower agrees that if amounts outstanding
under this Agreement and the Notes are due or unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall, to the maximum extent permitted by applicable
law, be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement and any Note to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement or any Note, provided that, in purchasing such
participating interest, such Participant shall be deemed to have agreed to share
with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as
if it were a Lender hereunder. The Borrower also agrees that each Participant
shall be entitled to the benefits of Sections 2.17, 2.18 and 2.19 with respect
to its participation in the Commitments and the Loans outstanding from time to
time as if it was a Lender; provided that, in the case of Section 2.18, such
Participant shall have complied with the requirements of said Section and
provided, further, that no Participant shall be entitled to receive any greater
amount pursuant to any such Section than the transferor Lender would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Lender to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time and from time to time assign to any
Lender or any affiliate thereof or any Person under common management with any
such Lender or, with the consent of the Borrower, the Administrative Agent, the
Arranger and, in the case of an assignment of Revolving Credit Commitments, the
Issuing Lender (which, in each case, shall not be unreasonably withheld, delayed
or conditioned) (provided that no such consent need be obtained by the Arranger
for a period of 120 days following the Closing Date), to an additional bank,
financial institution or other entity (an "Assignee") all or any part of its
rights and obligations under this Agreement, the Letters of Credit and the Notes
pursuant to an Assignment and Acceptance, substantially in the form of Exhibit
G, executed by such Assignee, such assigning Lender (and, in the case of an
Assignee that is not then a Lender or an affiliate thereof or a Person under
common management with such Lender, by the Borrower, the Administrative Agent,
the Arranger and, in the case of an assignment of Revolving Credit Commitments,
the Issuing Lender) and delivered to the Administrative Agent for its acceptance
and recording in the Register with a copy to the Arranger; provided that (except
with the consent of the Borrower, the Administrative Agent and the Arranger) (i)
no such assignment to an Assignee (other than any Lender or any affiliate
thereof or any Person under common management with such Lender) shall be in an
aggregate principal amount of less than $5,000,000 (other than in the case of an
assignment of all of a Lender's interests under this Agreement and the Notes)
and (ii) subsequent to any such assignment the assigning Lender shall not retain
an aggregate principal amount of less than $5,000,000 in Commitments and Loans.
Such assignment need not be ratable as among any Term Loan Commitments and/or
Term Loans and Revolving Credit Commitments and/or Revolving Credit Loans of the
assigning Lender. Upon such execution, delivery, acceptance and recording, from
and after the effective date determined pursuant to such Assignment and
Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder with a Commitment as set forth therein, and
(y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such assigning Lender shall cease to be a party hereto). Notwithstanding any
provision of this paragraph (c) and paragraph (e) of this Section 10.6, the
consent of the Borrower shall not be required for any assignment which occurs at
any time when any Event of Default shall have occurred and be continuing.
(d) A Note and the Obligation(s) evidenced thereby may be assigned or
otherwise transferred in whole or in part only by registration of such
assignment or transfer of such Note and the Obligation(s) evidenced thereby on
the Register (and each Note shall expressly so provide). Any assignment or
transfer of all or part of such Obligation(s) and the Note(s) evidencing the
same shall be registered on the Register only upon surrender for registration of
assignment or transfer of the Note(s) evidencing such Obligation(s), accompanied
by an Assignment and Acceptance duly executed by the holder of such Note(s), and
thereupon one or more new Note(s) in the same aggregate principal amount shall
be issued to the designated Assignee(s) and the old Notes(s) shall be returned
by the Administrative Agent to the Borrower marked "cancelled." No assignment of
a Note and the Obligation(s) evidenced thereby shall be effective unless it has
been recorded in the Register as provided in this Section 10.6(d).
(e) The Administrative Agent shall maintain at its address referred to in
Section 10.2 a copy of each Assignment and Acceptance delivered to it and a
register (the "Register") for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Loans owing to, each
Lender from time to time and the registered owners of the Obligation(s)
evidenced by the Note(s). The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower, the Administrative Agent and
the Lenders shall treat each Person whose name is recorded in the Register as
the owner of the Loan or the Obligation evidenced by a Note recorded therein for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof or a Person under common management with
such Lender, by the Borrower, the Administrative Agent, the Arranger and the
Issuing Lender) together with payment to the Administrative Agent of a
registration and processing fee of $2,000 (except that no such registration and
processing fee shall be payable (y) in connection with an assignment by Lehman
or (z) in the case of an Assignee which is already a Lender or is an affiliate
of a Lender or a Person under common management with a Lender), the
Administrative Agent shall (i) promptly accept such Assignment and Acceptance
and (ii) on the effective date determined pursuant thereto record the
information contained therein in the Register and give notice of such acceptance
and recordation to the Lenders and the Borrower. On or prior to such effective
date, the Borrower, at its own expense, upon request, shall execute and deliver
to the Administrative Agent (in exchange for the Revolving Credit Note and/or
Term Note, as the case may be, of the assigning Lender) a new Revolving Credit
Note and/or Term Note, as the case may be, to the order of such Assignee in an
amount equal to the Revolving Credit Commitment and/or Term Loan, as the case
may be, assumed by it pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained a Revolving Credit Commitment and/or Term Loan, as
the case may be, upon request, a new Revolving Credit Note and/or Term Note, as
the case may be, to the order of the assigning Lender in an amount equal to the
Revolving Credit Commitment and/or Term Loan, as the case may be, retained by it
hereunder. Such new Notes shall be dated the Closing Date and shall otherwise be
in the form of the Note replaced thereby.
(g) The Borrower authorizes each Lender to disclose to any Participant or
Assignee (each, a "Transferee") and any prospective Transferee any and all
financial information in such Lender's possession concerning the Borrower and
its Affiliates which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower in connection with such Lender's credit
evaluation of the Borrower and its Affiliates prior to becoming a party to this
Agreement. (h) Nothing herein shall prohibit or restrict any Lender from (i)
pledging or assigning any Note to any Federal Reserve Bank in accordance with
applicable law or (ii) with the prior consent of the Administrative Agent and
the Borrower (which, in each case, shall not be unreasonably withheld or delayed
or conditioned), pledging its rights in connection with any Loan or Note to any
other Person.
10.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted Lender") shall
at any time receive any payment of all or part of its Loans or the Reimbursement
Obligations owing to it, or interest thereon, or receive any collateral in
respect thereof then due and owing to such Lender (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 8(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans or the Reimbursement Obligations then due and owing
to such other Lender, or interest thereon, such Benefitted Lender shall purchase
for cash from the other Lenders a participating (or, at the option of such
Lender, a direct) interest in such portion of each such other Lender's Loan
and/or of the Reimbursement Obligations owing to each such other Lender, or
shall provide such other Lenders with the benefits of any such collateral, or
the proceeds thereof, as shall be necessary to cause such Benefitted Lender to
share the excess payment or benefits of such collateral or proceeds ratably with
each of the Lenders; provided that if all or any portion of such excess payment
or benefits is thereafter recovered from such Benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by law,
each Lender shall have the right, without prior notice to the Borrower, any such
notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder or under the Notes (whether at the stated maturity, by acceleration or
otherwise) to set off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower. Each Lender agrees
promptly to notify the Borrower and the Administrative Agent after any such
setoff and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. 10.10 Integration. This Agreement and the other Loan
Documents represent the agreement of the Borrower, the Administrative Agent, the
Arranger and the Lenders with respect to the subject matter hereof, and there
are no promises, undertakings, representations or warranties by the
Administrative Agent, the Arranger or any Lender relative to subject matter
hereof not expressly set forth or referred to herein or in the other Loan
Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably
and unconditionally:
(a) submits for itself and its property in any legal action or proceeding
relating to this Agreement and the other Loan Documents to which it is a party,
or for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York, the
courts of the United States for the Southern District of New York, and appellate
courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Borrower at its
address set forth in Section 10.2 or at such other address of which the
Administrative Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
Section 10.12 any special, exemplary, punitive or consequential damages.
10.13 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither any Agent nor any Lender has any fiduciary relationship with or
duty to the Borrower arising out of or in connection with this Agreement or any
of the other Loan Documents, and the relationship between the Agents and
Lenders, on one hand, and the Borrower, on the other hand, in connection
herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Lenders or among the Borrower and the Lenders.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE LENDERS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
10.15 Confidentiality. Each of the Agents and each Lender agrees to keep
confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent the Agents or any
Lender from disclosing any such information (a) to the Agents any other Lender
or any affiliate or investment advisor of any Lender, (b) to any Transferee or
prospective Transferee which agrees to comply with the provisions of this
Section 10.15, (c) to the employees, directors, agents, attorneys, accountants
and other professional advisors of such Lender or its affiliates, (d) upon the
request or demand of any Governmental Authority having jurisdiction over such
Agent or such Lender, (e) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (f) if requested or required to do so in connection with any
litigation or similar proceeding, (g) which has been publicly disclosed other
than in breach of this Section 10.15 or (h) in connection with the exercise of
any remedy hereunder or under any other Loan Document.
10.16 Enforceability; Usury. In no event shall any provision of this
Agreement, the Notes, or any other instrument evidencing or securing the
indebtedness of the Borrower hereunder ever obligate the Borrower to pay or
allow any Lender to collect interest on the Notes or any other indebtedness of
the Borrower hereunder at a rate greater than the maximum non-usurious rate
permitted by applicable law (herein referred to as the "Highest Lawful Rate"),
or obligate the Borrower to pay any taxes, assessments, charges, insurance
premiums or other amounts to the extent that such payments, when added to the
interest payable on the Notes, would be held to constitute the payment by the
Borrower of interest at a rate greater than the Highest Lawful Rate; and this
provision shall control over any provision to the contrary.
Without limiting the generality of the foregoing, in the event the maturity
of all or any part of the principal amount of the indebtedness of the Borrower
hereunder shall be accelerated for any reason, then such principal amount so
accelerated shall be credited with any interest theretofore paid thereon in
advance and remaining unearned at the time of such acceleration. If, pursuant to
the terms of this Agreement or the Notes, any funds are applied to the payment
of any part of the principal amount of the indebtedness of the Borrower
hereunder prior to the maturity thereof, then (a) any interest which would
otherwise thereafter accrue on the principal amount so paid by such application
shall be canceled, and (b) the indebtedness of the Borrower hereunder remaining
unpaid after such application shall be credited with the amount of all interest,
if any, theretofore collected on the principal amount so paid by such
application and remaining unearned at the date of said application; and if the
funds so applied shall be sufficient to pay in full all the indebtedness of the
Borrower hereunder, then the Lenders shall refund to the Borrower all interest
theretofore paid thereon in advance and remaining unearned at the time of such
acceleration. Regardless of any other provision in this Agreement, or in any of
the written evidences of the indebtedness of the Borrower hereunder, the
Borrower shall never be required to pay any unearned interest on such
indebtedness or any portion thereof, and shall never be required to pay interest
thereon at a rate in excess of the Highest Lawful Rate construed by courts
having competent jurisdiction thereof. 13
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
KEY ENERGY GROUP, INC..
By: _____________________________________
Name:
Title:
LEHMAN COMMERCIAL PAPER INC.,
as Arranger and as a Lender
By: _____________________________________
Name:
Title:
PNC BANK, N.A.
as Administrative Agent and as a Lender
By: _____________________________________
Name:
Title:
NORWEST BANK TEXAS, N.A.
as Collateral Agent and as a Lender
By: _____________________________________
Name:
Title:
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15
THE BANK OF NEW YORK
By: ____________________________________
Name: Daniel T. Gates Title: Vice President
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BHF-BANK AKTIENGESELLSCHAFT
By: ____________________________________
Name:
Title:
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MORGAN STANLEY SENIOR FUNDING, INC.
By: _____________________________________
Name:
Title:
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CREDIT LYONNAIS, New York Branch
By: _____________________________________
Name:
Title:
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19
PRIME INCOME TRUST
By: __________________________________________
Name: Rafael Scolari
Title:Vice President - Portfolio Manager
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20
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: ______________________________________
Name:
Title:
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1
<PAGE>
21
HIBERNIA NATIONAL BANK
By: _______________________________________
Name:
Title:
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2
<PAGE>
22
SENIOR HIGH INCOME PORTFOLIO, INC.
By: _________________________________________
Name:
Title:
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3
<PAGE>
23
DEBT STRATEGIES FUND, INC.
By: _________________________________________
Name:
Title:
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<PAGE>
24
ORIX USA CORPORATION
By: ________________________________________
Name: Hiroyuki Miyauchi
Title: Executive Vice President
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25
PILGRIM AMERICA PRIME RATE TRUST
By: ________________________________________
Name: Thomas C. Hunt
Title:
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<PAGE>
26
ROYALTON COMPANY BY PACIFIC INVESTMENT MANAGEMENT COMPANY, as its
Investment Advisor
By: _________________________________________
Name:
Title:
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<PAGE>
27
SKANDINAVISKA ENSKILDA BANKEN CORPORATION
By: _________________________________________
Name: Sverker Johansson
Title:
By: _________________________________________
Name: Paul Robin
Title:
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<PAGE>
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CRESCENT/MACH I PARTNERS, L.P. BY: TCW ASSET MANAGEMENT COMPANY Its
Investment Manager
By: _________________________________________
Name:
Title:
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<PAGE>
29 29
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
By: _________________________________________
Name: Jeffrey W. Maillet
Title: Senior Vice President and Director
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<PAGE>
1
Annex I
Pricing Grid
Applicable Margin Applicable Margin
for Revolving Credit for Revolving Credit
Consolidated Loans which are Loans which are Commitment
verage Ratio Eurodollar Loans Base Rate Loans Fee Rate
=3.5 to 1.0 but 2.50% 1.25% .375%
less than 4.0 to 1.0
=3.0 to 1.0 but 2.25% 1.00% .375%
less than 3.5 to 1.0
=2.50 to 1.0 but 1.75% .50% .25%
less than 3.0 to 1.0
2.50 to 1.0 1.50% .25 .25%
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1
Schedule 1.1A
Commitments; Lending Offices and Addresses
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1
Schedule 1.1B
Mortgaged Property
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1
Schedule 1.1C
Oil and Gas Properties to be Mortgaged
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<PAGE>
1
Schedule 1.1D
Rigs
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<PAGE>
1
Schedule 1.1E
Vehicles
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
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<PAGE>
1
Schedule 2.6
TERM LOAN AMORTIZATION
Date
Principal Amount
June 30, 1998 $ 500,000
September 30, 1998
$ 125,000
December 31, 1998
$ 125,000
March 31, 1999
$ 125,000
June 30, 1999
$ 125,000
September 30, 1999
$ 125,000
December 31, 1999
$ 125,000
March 31, 2000
$ 125,000
June 30, 2000
$ 125,000
September 30, 2000
$ 125,000
December 31, 2000
$ 125,000
March 31, 2001
$ 125,000
June 30, 2001
$ 125,000
September 30, 2001
$ 125,000
December 31, 2001
$ 125,000
March 31, 2002
$ 125,000
June 30, 2002
$ 125,000
September 30, 2002
$ 8,750,000
December 31, 2002
$ 8,750,000
March 31, 2003
$ 8,750,000
June 30, 2003
$ 8,750,000
September 30, 2003
$ 20,625,000
December 31, 2003
$ 20,625,000
March 31, 2004
$ 20,625,000
June 30, 2004
$ 20,625,000
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
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<PAGE>
1
Schedule 3.1
Existing Letters of Credit
Account Party Issuer Amount Number Beneficiary
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
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<PAGE>
2
Schedule 4.4
Consents
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<PAGE>
3
Schedule 4.8
Other Real Property Interests
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
20
<PAGE>
1
Schedule 4.15
Subsidiaries
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21
<PAGE>
1
Schedule 4.16
Existing Credit Facilities
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
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<PAGE>
1
Schedule 4.19(b)
UCC Filing Jurisdictions
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
23
<PAGE>
1
Schedule 4.19(c)
Mortgage Filing Jurisdictions
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
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<PAGE>
1
Schedule 4.19(d)
Oil and Gas Mortgage Filing Jurisdictions
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
25
<PAGE>
1
Schedule 6.11(e)
Mortgaged Properties to be Covered by Environmental Reports
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
26
<PAGE>
1
Schedule 7.2
Existing Indebtedness
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27
<PAGE>
1
Schedule 7.3
Existing Liens
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
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<PAGE>
EXECUTION COPY
$255,000,000
CREDIT AGREEMENT
among
KEY ENERGY GROUP, INC.
THE SEVERAL LENDERS
FROM TIME TO TIME PARTIES HERETO
PNC BANK, N.A.,
as Administrative Agent
NORWEST BANK TEXAS, N.A.,
as Collateral Agent
and
LEHMAN COMMERCIAL PAPER INC.,
as Advisor, Arranger and Syndication Agent
Dated as of June 6, 1997
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
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<PAGE>
Page
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS..................................................... 1
1.1 Defined Terms................................................. 1
1.2 Other Definitional Provisions................................. 20
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................. 21
2.1 Term Loans.................................................... 21
2.2 Procedure for Term Loan Borrowing............................. 21
2.3 Revolving Credit Commitments.................................. 21
2.4 Procedure for Revolving Credit Borrowing...................... 22
2.5 Commitment Fees, etc. ........................................ 22
2.6 Repayment of Loans; Evidence of Debt.......................... 23
2.7 Optional Termination or Reduction of Revolving Credit Commit.. 24
2.8 Optional Prepayments.......................................... 24
2.9 Mandatory Prepayments and Commitment Reductions............... 25
2.10 Conversion and Continuation Options.......................... 27
2.11 Minimum Amounts and Maximum Number of Eurodollar Tranches.... 27
2.12 Interest Rates and Payment Dates............................. 28
2.13 Computation of Interest and Fees............................. 28
2.14 Inability to Determine Interest Rate......................... 29
2.15 Pro Rata Treatment and Payments.............................. 29
2.16 Illegality................................................... 30
2.17 Requirements of Law.......................................... 31
2.18 Taxes........................................................ 32
2.19 Indemnity.................................................... 34
2.20 Change of Lending Office..................................... 34
2.21 Use of Proceeds.............................................. 35
2.22 Replacement of Lenders....................................... 35
SECTION 3. LETTERS OF CREDIT............................................... 35
3.1 L/C Commitment................................................ 35
3.2 Procedure for Issuance of Letter of Credit.................... 36
3.3 Fees, Commissions and Other Charges........................... 36
3.4 L/C Participation............................................. 36
3.5 Reimbursement Obligation of the Borrower...................... 37
3.6 Obligations Absolute.......................................... 38
3.7 Letter of Credit Payments..................................... 38
3.8 Applications.................................................. 38
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 38
4.1 Financial Condition........................................... 39
4.2 No Change................................................. ... 39
4.3 Corporate Existence; Compliance with Law...................... 40
4.4 Corporate Power; Authorization; Enforceable Obligations....... 40
4.5 No Legal Bar.................................................. 40
4.6 No Material Litigation........................................ 40
4.7 No Default.................................................... 41
4.8 Ownership of Property; Liens............................... .. 41
4.9 Intellectual Property......................................... 41
4.10 No Burdensome Restrictions................................... 41
4.11 Taxes........................................................ 41
4.12 Federal Regulations.......................................... 41
4.13 ERISA........................................................ 42
4.14 Investment Company Act; Other Regulations.................... 42
4.15 Subsidiaries................................................. 42
4.16 Purpose of Loans; Limitations on Use......................... 42
4.17 Environmental Matters........................................ 43
4.18 Accuracy of Information...................................... 44
4.19 Security Documents........................................... 45
4.20 Solvency..................................................... 46
4.21 Labor Matters................................................ 46
4.22 Indenture.................................................... 46
4.23 Excluded Subsidiaries........................................ 46
4.24 Oil and Gas Properties....................................... 46
SECTION 5. CONDITIONS PRECEDENT............................................ 46
5.1 Conditions to Initial Extension of Credit..................... 46
5.2 Conditions to Each Extension of Credit........................ 49
SECTION 6. AFFIRMATIVE COVENANTS........................................... 49
6.1 Financial Statements.......................................... 49
6.2 Certificates; Other Information............................... 50
6.3 Payment of Obligations........................................ 52
6.4 Conduct of Business and Maintenance of Existence, etc. ...... 52
6.5 Maintenance of Property; Insurance............................ 52
6.6 Inspection of Property; Books and Records; Discussions........ 52
6.7 Notices....................................................... 52
6.8 Environmental Laws............................................ 53
6.9 Further Assurances............................................ 55
6.10 Additional Collateral........................................ 55
6.11 Post-Closing Matters........................................ 57
6.12 Interest Rate Protection Agreements.......................... 58
SECTION 7. NEGATIVE COVENANTS.............................................. 58
7.1 Financial Condition Covenants................................. 58
7.2 Limitation on Indebtedness.................................... 61
7.3 Limitation on Liens........................................... 62
7.4 Limitation on Guarantee Obligations........................... 63
7.5 Limitation on Fundamental Changes............................. 64
7.6 Limitation on Sale of Assets.................................. 64
7.7 Limitation on Restricted Payments............................. 65
7.8 Limitation on Capital Expenditures............................ 65
7.9 Limitation on Investments, Loans and Advances................. 66
7.10 Limitation on Optional Payments and Modifications of Debt
Instruments and Organizational Documentation, etc. .... 67
7.11 Limitation on Transactions with Affiliates................... 68
7.12 Limitation on Sales and Leasebacks........................... 68
7.13 Limitation on Changes in Fiscal Year......................... 68
7.14 Limitation on Negative Pledge Clauses........................ 68
7.15 Limitation on Lines of Business.............................. 68
7.16 Limitation on Consolidated Lease Expense..................... 68
SECTION 8. EVENTS OF DEFAULT............................................... 69
SECTION 9. THE AGENTS...................................................... 72
9.1 Appointment................................................... 72
9.2 Delegation of Duties.......................................... 72
9.3 Exculpatory Provisions........................................ 72
9.4 Reliance by Agents............................................ 72
9.5 Notice of Default............................................. 73
9.6 Non-Reliance on Agents and Other Lenders...................... 73
9.7 Indemnification............................................... 74
9.8 Agents in Their Individual Capacities......................... 74
9.9 Successor Agents.............................................. 74
SECTION 10. MISCELLANEOUS.................................................. 75
10.1 Amendments and Waivers....................................... 75
10.2 Notices...................................................... 75
10.3 No Waiver; Cumulative Remedies............................... 76
10.4 Survival.....................................................77
10.5 Payment of Expenses and Taxes................................ 77
10.6 Successors and Assigns; Participation and Assignments........ 78
10.7 Adjustments; Set-off..........................................81
10.8 Counterparts................................................. 81
10.9 Severability................................................. 81
10.10 Integration..................................................82
10.11 GOVERNING LAW................................................82
10.12 Submission To Jurisdiction; Waivers..........................82
10.13 Acknowledgements............................................ 82
10.14 WAIVERS OF JURY TRIAL....................................... 83
10.15 Confidentiality............................................. 83
10.16 Enforceability; Usury....................................... 83
-i-
053113\0942\01675\9744AU7K.CRA 08/26/97 11:51am
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<PAGE>
ANNEXES:
I Pricing Grid
SCHEDULES:
1.1A Commitments; Lending Offices and Addresses
1.1B Real Property to be Mortgaged (Non-Oil and Gas Properties)
1.1C Oil and Gas Properties to be Mortgaged
2.6 Term Loan Amortization
3.1 Existing Letters of Credit
4.4 Consents
4.8 Other Real Property Interests
4.15 Subsidiaries
4.16 Existing Credit Facilities
4.19(b) UCC Filing Jurisdictions
4.19(c) Mortgage Filing Jurisdictions
4.19(d) Oil and Gas Mortgage Filing Jurisdictions
6.11(e) Mortgaged Properties to be Covered by Environmental Reports
7.2 Existing Indebtedness
7.3 Existing Liens
EXHIBITS:
A Form of Master Guarantee and Collateral Agreement
B Form of Mortgage
C-1 Form of Revolving Credit Note
C-2 Form of Term Note
D Form of Closing Certificate
E-1 Legal Opinion of Jack D. Loftis, Jr., Esq.
E-2 Form of Opinion of Porter & Hedges
F Form of Exemption Certificate
G Form of Assignment and Acceptance
-ii-
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<PAGE>
1
EXHIBIT C-1
FORM OF REVOLVING CREDIT NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED
EXCEPT IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT
REFERRED TO BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY
MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT
TO THE TERMS OF SUCH CREDIT AGREEMENT.
$____________ New York, New York
June 6, 1997
FOR VALUE RECEIVED, the undersigned, Key Energy Group, Inc., a Maryland
corporation (the "Borrower"), hereby unconditionally promises to pay to (the
"Lender") or its registered assigns at the office of PNC Bank, N.A. located at
249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707, in lawful money of the
United States and in immediately available funds, on the Revolving Credit
Termination Date the principal amount of (a) DOLLARS ($ ), or, if less, (b) the
aggregate unpaid principal amount of all Revolving Credit Loans made by the
Lender to the Borrower pursuant to Section 2.3 of the Credit Agreement, as
hereinafter defined. The Borrower further agrees to pay interest in like money
at such office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in Section 2.12 of such
Credit Agreement.
The holder of this Note is authorized to endorse on the schedules annexed
hereto and made a part hereof or on a continuation thereof which shall be
attached hereto and made a part hereof the date, Type and amount of each
Revolving Credit Loan made pursuant to the Credit Agreement and the date and
amount of each payment or prepayment of principal thereof, each continuation
thereof, each conversion of all or a portion thereof to another Type and, in the
case of Eurodollar Loans, the length of each Interest Period with respect
thereto. Each such endorsement shall constitute prima facie evidence of the
accuracy of the information endorsed. The failure to make any such endorsement
or any error in any such endorsement shall not affect the obligations of the
Borrower in respect of any Revolving Credit Loan.
This Note (a) is one of the Revolving Credit Notes referred to in the
Credit Agreement dated as of June 6, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the Borrower, the
Lender, the other banks and financial institutions or entities from time to time
parties thereto, PNC Bank, N.A., as Administrative Agent, Norwest Bank Texas,
N.A., as Collateral Agent, and Lehman Commercial Paper Inc., as Advisor,
Arranger and Syndication Agent, (b) is subject to the provisions of the Credit
Agreement and (c) is subject to optional and mandatory prepayment in whole or in
part as provided in the Credit Agreement. This Note is secured and guaranteed as
provided in the Loan Documents. Reference is hereby made to the Loan Documents
for a description of the properties and assets in which a security interest has
been granted, the nature and extent of the security and the guarantees, the
terms and conditions upon which the security interests and each guarantee were
granted and the rights of the holder of this Note in respect thereof.
053113\0942\01675\974GG3VX.NOT
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<PAGE>
2
Upon the occurrence of any one or more of the Events of Default, all
principal and all accrued interest then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable, all as provided
in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE CREDIT
AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN ACCORDANCE
WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 10.6 OF THE CREDIT
AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
KEY ENERGY GROUP, INC.
By: _______________________________
Name:
Title:
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<PAGE>
1
Schedule A
to Revolving Credit Note
LOANS, CONVERSIONS AND REPAYMENTS OF BASE RATE LOAN
Amount Amount of Base Rate Amount of Base Rate Converted to Amount of
Principal of Loans Converted to Unpaid Principal Balance Date Loans Base Rate
Loans Base Rate Loans Repaid Eurodollar Loans of Base Rate Loans Notation Made
By
================ ========================== ==========================
========================== ========================== ==========================
===================
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<PAGE>
1
Schedule B
to Revolving Credit Note
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
Interest Period and Amount of Principal of Amount of Eurodollar Unpaid
Principal Amount of Amount Converted Eurodollar Rate with Eurodollar Loans Loans
Converted to Balance of Eurodollar Notation Date Eurodollar Loans to Eurodollar
Loans Respect Thereto Repaid Base Rate Loans Loans Made By
============== ===================== =====================
======================= ======================= =======================
======================= ====================
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<PAGE>
1
EXHIBIT C-2
FORM OF TERM NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED
EXCEPT IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT
REFERRED TO BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY
MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT
TO THE TERMS OF SUCH CREDIT AGREEMENT.
$____________ New York, New York
June 6, 1997
FOR VALUE RECEIVED, the undersigned, Key Energy Group, Inc., a Maryland
corporation (the "Borrower"), hereby unconditionally promises to pay to (the
"Lender") or its registered assigns at the office of PNC Bank, N.A. located at
249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707, in lawful money of the
United States and in immediately available funds, the principal amount of (a)
DOLLARS ($ ), or, if less, (b) the unpaid principal amount of the Term Loan made
by the Lender pursuant to Section 2.1 of the Credit Agreement, as hereinafter
defined. The principal amount shall be paid in the amounts and on the dates
specified in Section 2.6 of the Credit Agreement. The Borrower further agrees to
pay interest in like money at such office on the unpaid principal amount hereof
from time to time outstanding at the rates and on the dates specified in Section
2.12 of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules annexed
hereto and made a part hereof or on a continuation thereof which shall be
attached hereto and made a part hereof the date, Type and amount of the Term
Loan and the date and amount of each payment or prepayment of principal with
respect thereto, each conversion of all or a portion thereof to another Type,
each continuation of all or a portion thereof as the same Type and, in the case
of Eurodollar Loans, the length of each Interest Period with respect thereto.
Each such endorsement shall constitute prima facie evidence of the accuracy of
the information endorsed. The failure to make any such endorsement or any error
in any such endorsement shall not affect the obligations of the Borrower in
respect of the Term Loan.
This Note (a) is one of the Term Notes referred to in the Credit Agreement
dated as of June 6, 1997 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among the Borrower, the Lender, the other
banks and financial institutions or entities from time to time parties thereto,
PNC Bank, N.A., as Administrative Agent, Norwest Bank Texas, N.A., as Collateral
Agent, and Lehman Commercial Paper Inc., as Advisor, Arranger and Syndication
Agent, (b) is subject to the provisions of the Credit Agreement and (c) is
subject to optional and mandatory prepayment in whole or in part as provided in
the Credit Agreement. This Note is secured and guaranteed as provided in the
Loan Documents. Reference is hereby made to the Loan Documents for a description
of the properties and assets in which a security interest has been granted, the
nature and extent of the security and the guarantees, the terms and conditions
upon which the security interests and each guarantee were granted and the rights
of the holder of this Note in respect thereof.
053113\0942\01675\974GGGKV.NOT
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<PAGE>
2
Upon the occurrence of any one or more of the Events of Default, all
principal and all accrued interest then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable, all as provided
in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE CREDIT
AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN ACCORDANCE
WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 10.6 OF THE CREDIT
AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
KEY ENERGY GROUP, INC.
By: _______________________________
Name:
Title:
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<PAGE>
1
Schedule A
to Term Note
LOANS, CONVERSIONS AND REPAYMENTS OF BASE RATE LOANS
Amount Amount of Base Rate Amount of Base Rate Converted to Amount of
Principal of Loans Converted to Unpaid Principal Balance Date Loans Base Rate
Loans Base Rate Loans Repaid Eurodollar Loans of Base Rate Loans Notation Made
By
================ ========================== ==========================
========================== ========================== ==========================
===================
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<PAGE>
1
Schedule B
to Term Note
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
Interest Period and Amount of Principal of Amount of Eurodollar Unpaid
Principal Amount of Amount Converted Eurodollar Rate with Eurodollar Loans Loans
Converted to Balance of Eurodollar Notation Date Eurodollar Loans to Eurodollar
Loans Respect Thereto Repaid Base Rate Loans Loans Made By
============== ===================== =====================
======================= ======================= =======================
======================= ====================
053113\0942\01675\974GGGKV.NOT
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<PAGE>
MASTER GUARANTEE AND COLLATERAL AGREEMENT, dated as of June 6, 1997, made
by each of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, the "Grantors"), in favor of NORWEST
BANK TEXAS, N.A., as Collateral Agent (in such capacity, the "Collateral Agent")
for the banks and other financial institutions (the "Lenders") from time to time
parties to the Credit Agreement, dated as of June 6, 1997 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among KEY ENERGY GROUP, INC. (the "Borrower"), the Lenders, PNC BANK, N.A., as
Administrative Agent (the "Administrative Agent") and the Collateral Agent.
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make extensions of credit to the Borrower upon the terms and subject
to the conditions set forth therein;
WHEREAS, the Borrower is a member of an affiliated group of companies that
includes each other Grantor;
WHEREAS, the proceeds of the extensions of credit under the Credit
Agreement will be used in part to enable the Borrower to make valuable transfers
to one or more of the other Grantors in connection with the operation of their
respective businesses;
WHEREAS, the Borrower and the other Grantors are engaged in related
businesses, and each Grantor will derive substantial direct and indirect benefit
from the making of the extensions of credit under the Credit Agreement; and
WHEREAS, it is a condition precedent to the obligation of the Lenders to
make their respective extensions of credit to the Borrower under the Credit
Agreement that the Grantors shall have executed and delivered this Agreement to
the Collateral Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the Lenders
to enter into the Credit Agreement and to make their respective extensions of
credit to the Borrower thereunder, each Grantor hereby agrees with the
Collateral Agent, for the ratable benefit of the Lenders, as follows:
SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement, and the following terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Farm Products,
Instruments and Inventory.
(b) The following terms shall have the following meanings:
053113\0942\02497\9764JKRJ.GUA 09/10/97 10:34AM
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<PAGE>
2
"Agreement": this Master Guarantee and Collateral Agreement, as the same
may be amended, supplemented or otherwise modified from time to time.
"Borrower Obligations": the collective reference to the unpaid principal of
and interest on the Loans and Reimbursement Obligations and all other
obligations and liabilities of the Borrower (including, without limitation,
interest accruing at the then applicable rate provided in the Credit Agreement
after the maturity of the Loans and Reimbursement Obligations and interest
accruing at the then applicable rate provided in the Credit Agreement after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post- filing or post-petition interest is allowed in such proceeding)
to the Administrative Agent, the Collateral Agent or any Lender (or, in the case
of any Hedge Agreement referred to below, any Affiliate of any Lender), whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, this Agreement, the other Loan Documents, any Letter
of Credit or any Hedge Agreement entered into by the Borrower with any Lender
(or, in the case of any Hedge Agreement, any Affiliate of any Lender) in each
case whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses or otherwise (including, without limitation, all
fees and disbursements of counsel to the Administrative Agent, the Collateral
Agent or to the Lenders that are required to be paid by the Borrower pursuant to
the terms of any of the foregoing agreements).
"Collateral": as defined in Section 3.
"Collateral Account": any collateral account established by the Collateral
Agent as provided in Section 6.1 or 6.4.
"Copyrights": (i) all copyrights arising under the laws of the United
States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, all registrations, recordings and
applications in the United States Copyright Office, and (ii) the right to obtain
all renewals thereof.
"Copyright Licenses": any written agreement naming any Grantor as licensor
or licensee, granting any right under any Copyright, including, without
limitation, the grant of rights to manufacture, distribute, exploit and sell
materials derived from any Copyright.
"Equipment": all "equipment" as such term is defined in Section 9-109 of
the Uniform Commercial Code in effect in the State of New York on the date
hereof, excluding any Vehicles and Excluded Vehicles covered by a certificate of
title issued by any State.
"Excluded Assets": any assets of the type specified in Sections 3(a)
through 3(l) now owned or hereafter acquired by any Grantor or in which any
Grantor has or at any time in the future may acquire any right, title or
interest and which is, but only so long as the same is, subject to any Lien (x)
in existence on the date hereof listed on Schedule 7.3 of the Credit Agreement,
(y) permitted under clauses (f), (i) and (j) of Section 7.3 of the Credit
053113\0942\02497\9764JKRJ.GUA 09/10/97 10:34AM
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<PAGE>
3
Agreement, which, in the case of either (x) or (y) prohibits the granting
of a Lien to the Collateral Agent (unless an appropriate consent of the
lienholder thereof has been obtained).
"Excluded Vehicles": all trucks, trailers, construction and earth moving
equipment, drilling rigs, well service rigs and workover rigs covered by a
certificate of title issued by any State and having a purchase price (or if
acquired for other than cash, a fair market value at the time of acquisition) of
less than $50,000.
"General Intangibles": all "general intangibles" as such term is defined in
Section 9-106 of the Uniform Commercial Code in effect in the State of New York
on the date hereof and, in any event, including, without limitation, with
respect to any Grantor, all contracts, agreements, instruments and indentures in
any form, and portions thereof, to which such Grantor is a party or under which
such Grantor has any right, title or interest or to which such Grantor or any
property of such Grantor is subject, as the same may from time to time be
amended, supplemented or otherwise modified, including, without limitation, (i)
all rights of such Grantor to receive moneys due and to become due to it
thereunder or in connection therewith, (ii) all rights of such Grantor to
damages arising thereunder and (iii) all rights of such Grantor to perform and
to exercise all remedies thereunder, in each case to the extent the grant by
such Grantor of a security interest pursuant to this Agreement in its right,
title and interest in such contract, agreement, instrument or indenture is not
prohibited by such contract, agreement, instrument or indenture without the
consent of any other party thereto, would not give any other party to such
contract, agreement, instrument or indenture the right to terminate its
obligations thereunder, or is permitted with consent if all necessary consents
to such grant of a security interest have been obtained from the other parties
thereto (it being understood that the foregoing shall not be deemed to obligate
such Grantor to obtain such consents); provided, that the foregoing limitation
shall not affect, limit, restrict or impair the grant by such Grantor of a
security interest pursuant to this Agreement in any Receivable or any money or
other amounts due or to become due under any such contract, agreement,
instrument or indenture.
"Guarantor Obligations": with respect to any Guarantor, the collective
reference to (i) the Borrower Obligations and (ii) all obligations and
liabilities of such Guarantor which may arise under or in connection with this
Agreement or any other Loan Document to which such Guarantor is a party, in each
case whether on account of guarantee obligations, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including, without limitation,
all fees and disbursements of counsel to the Administrative Agent, the
Collateral Agent or to the Lenders that are required to be paid by such
Guarantor pursuant to the terms of this Agreement or any other Loan Document).
"Guarantors": the collective reference to each Grantor other than the
Borrower.
"Hedge Agreements": as to any Person, all foreign exchange transactions,
and commodity, currency and interest rate swaps, caps or collar agreements or
similar arrangements entered into by such Person providing for protection
against fluctuations in hydrocarbon prices, interest rates or currency exchange
rates or the exchange of nominal interest obligations, either generally or under
specific contingencies.
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"Intellectual Property": the collective reference to all rights, priorities
and privileges relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including, without
limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent
Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at
law or in equity for any infringement or other impairment thereof, including the
right to receive all proceeds and damages therefrom.
"Intercompany Note": any promissory note evidencing loans made by any
Grantor to the Borrower or any of its Subsidiaries.
"Issuers": the collective reference to each issuer of a Pledged Security.
"New York UCC": the Uniform Commercial Code as from time to time in effect
in the State of New York.
"Obligations": (i) in the case of the Borrower, the Borrower Obligations,
and (ii) in the case of each Guarantor, its Guarantor Obligations.
"Patents": (i) all letters patent of the United States, any other country
or any political subdivision thereof, all reissues and extensions thereof and
all goodwill associated therewith, (ii) all applications for letters patent of
the United States or any other country and all divisions, continuations and
continuations-in-part thereof and (iii) all rights to obtain any reissues or
extensions of the foregoing.
"Patent License": all agreements, whether written or oral, providing for
the grant by or to any Grantor of any right to manufacture, use or sell any
invention covered in whole or in part by a Patent.
"Pledged Notes": all promissory notes listed on Schedule 2, all other
Intercompany Notes at any time issued to any Grantor and all other promissory
notes issued to or held by any Grantor in an amount in excess of $500,000 (other
than promissory notes issued in connection with extensions of trade credit by
any Grantor in the ordinary course of business).
"Pledged Securities": the collective reference to the Pledged Notes and the
Pledged Stock.
"Pledged Stock": the shares of Capital Stock listed on Schedule 2, together
with any other shares, stock certificates, options or rights of any nature
whatsoever in respect of the Capital Stock of any Person that may be issued or
granted to, or held by, any Grantor after the date of this Agreement and while
this Agreement is in effect which is required by the Credit Agreement to be
pledged hereunder.
"Proceeds": all "proceeds" as such term is defined in Section 9-306(1) of
the Uniform Commercial Code in effect in the State of New York on the date
hereof and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Securities, collections thereon or distributions
or payments with respect thereto.
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"Receivable": any right to payment for goods sold or leased or for services
rendered, whether or not such right is evidenced by an Instrument or Chattel
Paper and whether or not it has been earned by performance (including, without
limitation, any Account).
"Securities Act": the Securities Act of 1933, as amended.
"Trademarks": (i) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks,
logos and other source or business identifiers, and all goodwill associated
therewith, now existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, whether in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, and all common-law rights related thereto,
and (ii) the right to obtain all renewals thereof.
"Trademark License": any agreement, whether written or oral, providing for
the grant by or to any Grantor of any right to use any Trademark.
"Vehicles": (a) all trucks, trailers, construction and earth moving
equipment, drilling rigs, well service rigs, workover rigs and other vehicles
not covered by a certificate of title issued by any State, including without
limitation any of the foregoing listed on Schedule 8, (b) all trucks, trailers,
construction and earth moving equipment, drilling rigs, well service rigs,
workover rigs and other vehicles covered by a certificate of title issued by any
State and having a purchase price (or if acquired for other than cash, a fair
market value at the time of acquisition) in excess of $50,000, (c) without
duplication of the foregoing, all items listed on Schedule 8 and (d) all tires
and other appurtenances to any of the foregoing.
1.2 Other Definitional Provisions. (a) The words "hereof," "herein",
"hereto" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Section and Schedule references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the Collateral or any
part thereof, when used in relation to a Grantor, shall refer to such Grantor's
Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and severally,
unconditionally and irrevocably, guarantees to the Lenders, and to the
Collateral Agent, for the ratable benefit of the Lenders, and their respective
successors, indorsees, transferees and
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assigns, the prompt and complete payment and performance by the Borrower
when due (whether at the stated maturity, by acceleration or otherwise) of the
Borrower Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
(c) Each Guarantor agrees that the Borrower Obligations may at any time and
from time to time exceed the amount of the liability of such Guarantor hereunder
without impairing the guarantee contained in this Section 2 or affecting the
rights and remedies of the Collateral Agent or any Lender hereunder.
(d) Subject to the limitations in Section 2.1(b), the guarantee contained
in this Section 2 shall remain in full force and effect until all the Borrower
Obligations and the obligations of each Guarantor under the guarantee contained
in this Section 2 shall have been satisfied by payment in full, no Letter of
Credit shall be outstanding and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Borrower Obligations.
(e) No payment made by the Borrower, any of the Guarantors, any other
guarantor or any other Person or received or collected by the Administrative
Agent, the Collateral Agent or any Lender from the Borrower, any of the
Guarantors, any other guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Borrower Obligations shall be
deemed to modify, reduce, release or otherwise affect the liability of any
Guarantor hereunder which shall, notwithstanding any such payment (other than
any payment made by such Guarantor in respect of the Borrower Obligations or any
payment received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the Borrower Obligations are paid in
full, no Letter of Credit shall be outstanding and the Commitments are
terminated.
2.2 Right of Contribution. Each Guarantor hereby agrees that to the extent
that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 2.3. The provisions of
this Section 2.2 shall in no respect limit the obligations and liabilities of
any Guarantor to the Collateral Agent and the Lenders, and each Guarantor shall
remain liable to the Collateral Agent and the Lenders for the full amount
guaranteed by such Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any Guarantor
hereunder or any set-off or application of funds of any Guarantor by the
Administrative Agent, the Collateral Agent or any Lender, no Guarantor shall be
entitled to be subrogated to
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any of the rights of the Administrative Agent, the Collateral Agent or any
Lender against the Borrower or any other Guarantor or any collateral security or
guarantee or right of offset held by the Collateral Agent or any Lender for the
payment of the Borrower Obligations, nor shall any Guarantor seek or be entitled
to seek any contribution or reimbursement from the Borrower or any other
Guarantor in respect of payments made by such Guarantor hereunder, until all
amounts owing to the Administrative Agent, the Collateral Agent and the Lenders
by the Borrower on account of the Borrower Obligations are paid in full, no
Letter of Credit shall be outstanding and the Commitments are terminated. If any
amount shall be paid to any Guarantor on account of such subrogation rights at
any time when all of the Borrower Obligations shall not have been paid in full,
such amount shall be held by such Guarantor in trust for Administrative Agent,
the Collateral Agent and the Lenders, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over
to the Collateral Agent in the exact form received by such Guarantor (duly
indorsed by such Guarantor to the Collateral Agent, if required), to be applied
against the Borrower Obligations, whether matured or unmatured, in the order
specified in Section 6.5.
2.4 Amendments, etc. with respect to the Borrower Obligations. Each
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Borrower
Obligations made by the Administrative Agent, the Collateral Agent or any Lender
may be rescinded by the Administrative Agent, the Collateral Agent or such
Lender and any of the Borrower Obligations continued, and the Borrower
Obligations, or the liability of any other Person upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the Administrative Agent, the Collateral Agent or any Lender, and the Credit
Agreement and the other Loan Documents and any other documents executed and
delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as Administrative Agent, the Collateral Agent
(or the Required Lenders or all Lenders, as the case may be) may deem advisable
from time to time, and any collateral security, guarantee or right of offset at
any time held by the Collateral Agent or any Lender for the payment of the
Borrower Obligations may be sold, exchanged, waived, surrendered or released.
Neither the Collateral Agent nor any Lender shall have any obligation to
protect, secure, perfect or insure any Lien at any time held by it as security
for the Borrower Obligations or for the guarantee contained in this Section 2 or
any property subject thereto.
2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Borrower
Obligations and notice of or proof of reliance by the Administrative Agent, the
Collateral Agent or any Lender upon the guarantee contained in this Section 2 or
acceptance of the guarantee contained in this Section 2; the Borrower
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in this Section 2; and all dealings between the
Borrower and any of the Guarantors, on the one hand, and the Administrative
Agent, the Collateral Agent and the Lenders, on the other hand, likewise shall
be conclusively presumed to have been had or consummated in reliance upon the
guarantee contained in this Section 2.
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Each Guarantor waives diligence, presentment, protest, demand for payment
and notice of default or nonpayment to or upon the Borrower or any of the
Guarantors with respect to the Borrower Obligations. Each Guarantor understands
and agrees that subject to the limitations in Section 2.1(b) the guarantee
contained in this Section 2 shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Credit Agreement or any other Loan Document, any of the
Borrower Obligations or any other collateral security therefor or guarantee or
right of offset with respect thereto at any time or from time to time held by
the Administrative Agent, the Collateral Agent or any Lender, (b) any defense,
set-off or counterclaim (other than a defense of payment or performance) which
may at any time be available to or be asserted by the Borrower or any other
Person against the Administrative Agent, the Collateral Agent or any Lender, or
(c) any other circumstance whatsoever (with or without notice to or knowledge of
the Borrower or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the Borrower
Obligations, or of such Guarantor under the guarantee contained in this Section
2, in bankruptcy or in any other instance. When making any demand hereunder or
otherwise pursuing its rights and remedies hereunder against any Guarantor,
Administrative Agent, the Collateral Agent or any Lender may, but shall be under
no obligation to, make a similar demand on or otherwise pursue such rights and
remedies as it may have against the Borrower, any other Guarantor or any other
Person or against any collateral security or guarantee for the Borrower
Obligations or any right of offset with respect thereto, and any failure by the
Administrative Agent, the Collateral Agent or any Lender to make any such
demand, to pursue such other rights or remedies or to collect any payments from
the Borrower, any other Guarantor or any other Person or to realize upon any
such collateral security or guarantee or to exercise any such right of offset,
or any release of the Borrower, any other Guarantor or any other Person or any
such collateral security, guarantee or right of offset, shall not relieve any
Guarantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Administrative Agent, the Collateral Agent or any Lender
against any Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2 shall continue
to be effective, or be reinstated, as the case may be, if at any time payment,
or any part thereof, of any of the Borrower Obligations is rescinded or must
otherwise be restored or returned by the Administrative Agent, the Collateral
Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or any Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or any Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments hereunder will
be paid to the Collateral Agent without set-off or counterclaim (other than a
defense of payment and performance in full of the Borrower Obligations) in
Dollars at the office of the Collateral Agent located at 500 West Texas Avenue,
Midland, Texas 79701.
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SECTION 3. GRANT OF SECURITY INTEREST
Each Grantor hereby assigns and transfers to the Collateral Agent, and
hereby grants to the Collateral Agent, for the ratable benefit of the Lenders, a
security interest in, all of the following property now owned or at any time
hereafter acquired by such Grantor or in which such Grantor now has or at any
time in the future may acquire any right, title or interest, but expressly
excluding the Excluded Assets (collectively, the "Collateral"), as collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of such Grantor's
Obligations:
(a) all Accounts;
(b) all Chattel Paper;
(c) all Documents;
(d) all Equipment;
(e) all General Intangibles;
(f) all Instruments;
(g) all Intellectual Property;
(h) all Inventory;
(i) all Pledged Securities;
(j) all Vehicles;
(k) all books and records pertaining to the Collateral; and
(l) to the extent not otherwise included, all Proceeds and products of any
and all of the foregoing and all collateral security and guarantees given by any
Person with respect to any of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent, the Collateral Agent and the Lenders to
enter into the Credit Agreement and to induce the Lenders to make their
respective extensions of credit to the Borrower thereunder, each Grantor hereby
represents and warrants to the Administrative Agent, the Collateral Agent and
each Lender that:
4.1 Representations in Credit Agreement. The representations and warranties
of the Borrower set forth in Section 4 of the Credit Agreement which are
specifically made in respect of a particular Guarantor or in respect of the Loan
Documents to which such
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Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct in all material respects, and the Collateral
Agent and each Lender shall be entitled to rely on each of them as if they were
fully set forth herein, provided that each reference in each such representation
and warranty to the Borrower's knowledge shall, for the purposes of this Section
4.1, be deemed to be a reference to such Guarantor's knowledge.
4.2 Title; No Other Liens. Except for the security interest granted to the
Collateral Agent for the ratable benefit of the Lenders pursuant to this
Agreement and the other Liens permitted to exist on the Collateral by the Credit
Agreement, such Grantor owns each item of the Collateral free and clear of any
and all Liens or claims of others. No financing statement or other public notice
with respect to all or any part of the Collateral is on file or of record in any
public office, except (i) the financing statements that have been filed in favor
of the Collateral Agent, for the ratable benefit of the Lenders, pursuant to
this Agreement, (ii) the financing statements listed on Schedule 9 in respect of
the Existing Credit Facilities, duly executed termination statements in respect
of each of which are being delivered to the Collateral Agent on the Closing Date
and (iii) those filed with respect to Liens permitted by the Credit Agreement.
4.3 Perfected First Priority Liens. The security interests granted pursuant
to this Agreement (a) upon completion of the filings and other actions specified
on Schedule 3 will constitute valid perfected security interests in all of the
Collateral in favor of the Collateral Agent, for the ratable benefit of the
Lenders, as collateral security for such Grantor's Obligations, enforceable in
accordance with the terms hereof against all creditors of such Grantor and,
except as provided in Section 9-307 of the Uniform Commercial Code in effect in
the relevant jurisdiction, any Persons purporting to purchase any Collateral
from such Grantor and (b) are prior to all other Liens on the Collateral in
existence on the date hereof except for (i) unrecorded Liens permitted by the
Credit Agreement which have priority over the Liens on the Collateral by
operation of law, (ii) Liens described on Schedule 9, provided that upon the
repayment of the Indebtedness under the Existing Credit Facilities, all Liens
listed on Schedule 9 showing CIT or Norwest as the Secured Party or Assignee
shall be deemed deleted from such Schedule, and (iii) Liens permitted to be
incurred pursuant to clauses (f), (i) and (j) of Section 7.3 of the Credit
Agreement.
4.4 Chief Executive Office, Etc.. On the date hereof, such Grantor's
jurisdiction of organization and the location of such Grantor's chief executive
office, principal place of business and office where records concerning the
Accounts of such Grantor are kept, or its sole place of business, are specified
on Schedule 4.
4.5 Inventory and Equipment. On the date hereof, the Inventory and the
Equipment (other than mobile goods) are kept at the locations listed on Schedule
5.
4.6 Farm Products. None of the Collateral constitutes, or is the Proceeds
of, Farm Products.
4.7 Pledged Securities. (a) The shares of Pledged Stock pledged by such
Grantor hereunder constitute all the issued and outstanding shares of all
classes of the Capital
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Stock of each Issuer owned by such Grantor (except that not more than 65%
of the Capital Stock of any other Foreign Subsidiary is required to be pledged
hereunder).
(b) All the shares of the Pledged Stock have been duly and validly issued
and are fully paid and nonassessable (except that no such representation is made
as to the Capital Stock issued by Servicios).
(c) To the knowledge of the Borrower's executive management, each of the
Pledged Notes constitutes the legal, valid and binding obligation of the obligor
with respect thereto, enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
(d) Such Grantor is the record and beneficial owner of, and has good and
indefeasible title to, the Pledged Securities pledged by it hereunder, free of
any and all Liens or options in favor of, or claims of, any other Person, except
the security interest created by this Agreement and except as permitted by the
Credit Agreement.
4.8 Receivables. (a) No amount payable to such Grantor under or in
connection with any Receivable is evidenced by any Instrument or Chattel Paper
in an amount in excess of $500,000 (or in excess of $1,000,000 in the aggregate
for all such Instruments and Chattel Paper) which has not been delivered to the
Collateral Agent.
(b) Receivables in respect of which the obligor is a Governmental Authority
do not constitute more than 5% of the Receivables.
(c) The amounts represented by such Grantor to the Lenders from time to
time as owing to such Grantor in respect of the Receivables will at such times
be accurate to the best knowledge of such Grantor.
4.9 Intellectual Property. The Borrower and its Subsidiaries have no
material Intellectual Property on the date hereof.
4.10 Vehicles. Schedule 8 is a substantially complete and correct list of
all Vehicles with a fair market value in excess of $50,000 owned by such Grantor
on the date hereof.
SECTION 5. COVENANTS
Each Grantor covenants and agrees with the Collateral Agent and the Lenders
that, from and after the date of this Agreement until the Obligations shall have
been paid in full, no Letter of Credit shall be outstanding and the Commitments
shall have terminated:
5.1 Covenants in Credit Agreement. In the case of each Guarantor, such
Guarantor shall take, or shall refrain from taking, as the case may be, each
action that is
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necessary to be taken or not taken, as the case may be, so that no Default
or Event of Default is caused by the failure to take such action or to refrain
from taking such action by such Guarantor or any of its Subsidiaries.
5.2 Delivery of Instruments and Chattel Paper. If any amount payable under
or in connection with any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper in an amount in excess of $500,000 (or in excess of
$1,000,000 in the aggregate for all such Instruments and Chattel Paper), such
Instrument or Chattel Paper shall be immediately delivered to the Collateral
Agent, duly indorsed in a manner reasonably satisfactory to the Collateral
Agent, to be held as Collateral pursuant to this Agreement.
5.3 Maintenance of Insurance. (a) Such Grantor will maintain, with
financially sound and reputable companies, insurance policies (i) insuring the
Inventory, Equipment and Vehicles against loss by fire, explosion, theft and
such other casualties as may be customary in the business in which the Borrower
is engaged and (ii) insuring such Grantor, the Collateral Agent and the Lenders
against liability for personal injury and property damage relating to such
Inventory, Equipment and Vehicles, such policies to be in such form and amounts
and having such coverage as may be customary in the business in which the
Borrower is engaged.
(b) All such insurance shall (i) provide that no cancellation, material
reduction in amount or material change in coverage thereof shall be effective
until at least 30 days after receipt by the Collateral Agent of written notice
thereof, (ii) name the Collateral Agent as insured party or loss payee, (iii) if
reasonably requested by the Collateral Agent, include a breach of warranty
clause and (iv) be otherwise customary in the business in which the Borrower is
engaged.
(c) The Borrower shall deliver to the Collateral Agent and the Lenders a
report of a reputable insurance broker with respect to such insurance once in
each calendar year and such supplemental reports with respect thereto as the
Collateral Agent may from time to time reasonably request.
5.4 Payment of Obligations. Such Grantor will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon a material portion of the Collateral or in respect of income or profits
therefrom, as well as all claims of any kind (including, without limitation,
claims for labor, materials and supplies) against or with respect to a material
portion of the Collateral, except that no such charge need be paid if the amount
or validity thereof is currently being contested in good faith by appropriate
proceedings, reserves in conformity with GAAP with respect thereto have been
provided on the books of such Grantor and such proceedings could not reasonably
be expected to result in the sale, forfeiture or loss of any material portion of
the Collateral or any interest therein.
5.5 Maintenance of Perfected Security Interest; Further Documentation. (a)
Such Grantor shall take such steps as are reasonably requested by the Collateral
Agent to maintain the security interest created by this Agreement as a perfected
security interest having at least the priority described in Section 4.3.
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(b) Such Grantor will furnish to the Collateral Agent and the Lenders from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Collateral Agent may reasonably request, all in reasonable detail.
(c) At any time and from time to time, upon the written request of the
Collateral Agent, and at the sole expense of such Grantor, such Grantor will
promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Collateral Agent
may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby.
5.6 Changes in Locations, Name, etc. Such Grantor will not, except upon
written notice to the Collateral Agent and delivery (within 30 days thereafter)
to the Collateral Agent of (a) all additional executed financing statements and
other documents reasonably requested by the Collateral Agent to maintain the
validity, perfection and priority of the security interests provided for herein
and (b) if applicable, a written supplement to Schedule 5 showing any additional
location at which Inventory or Equipment shall be kept:
(i) permit any material portion of the Inventory or Equipment (other than
Inventory or Equipment covered by a certificate of title or constituting mobile
goods) to be kept at a location other than those listed on Schedule 5;
(ii) change the location of its chief executive office, principal place of
business or office where records concerning the Accounts are kept, or sole place
of business from that referred to in Section 4.4; or
(iii) change its name, identity or corporate structure to such an extent
that any financing statement filed by the Collateral Agent in connection with
this Agreement would become misleading.
5.7 Notices. Such Grantor will advise the Collateral Agent and the Lenders
promptly, in reasonable detail, of:
(a) any Lien (other than security interests created hereby or Liens
permitted under the Credit Agreement) on any of the Collateral which would
materially and adversely affect the ability of the Collateral Agent to exercise
any of its remedies hereunder; and
(b) of the occurrence of any other event which could reasonably be expected
to have a material adverse effect on the aggregate value of the Collateral or on
the security interests created hereby.
5.8 Pledged Securities. (a) If such Grantor shall become entitled to
receive or shall receive any stock certificate (including, without limitation,
any certificate representing a stock dividend or a distribution in connection
with any reclassification, increase or reduction
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of capital or any certificate issued in connection with any
reorganization), option or rights in respect of the Capital Stock of any Issuer,
whether in addition to, in substitution of, as a conversion of, or in exchange
for, any shares of the Pledged Stock, or otherwise in respect thereof, such
Grantor shall accept the same as the agent of the Administrative Agent, the
Collateral Agent and the Lenders, hold the same in trust for the Administrative
Agent, the Collateral Agent and the Lenders and deliver the same forthwith to
the Collateral Agent in the exact form received, duly indorsed by such Grantor
to the Collateral Agent, if required, together with an undated stock power
covering such certificate duly executed in blank by such Grantor and with, if
the Collateral Agent so requests, signature guaranteed, to be held by the
Collateral Agent, subject to the terms hereof, as additional collateral security
for the Obligations. Any sums paid upon or in respect of the Pledged Securities
upon the liquidation or dissolution of any Issuer (other than any amount which
the Borrower would not be required to apply to prepay the Loans pursuant to
Section 2.9(c) of the Credit Agreement if such liquidation or dissolution were
an Asset Sale) shall be paid over to the Collateral Agent to be held by it
hereunder as additional collateral security for the Obligations, and in case any
distribution of capital shall be made on or in respect of the Pledged Securities
or any property shall be distributed upon or with respect to the Pledged
Securities pursuant to the recapitalization or reclassification of the capital
of any Issuer or pursuant to the reorganization thereof, the property so
distributed shall, unless otherwise subject to a perfected security interest in
favor of the Collateral Agent, be delivered to the Collateral Agent to be held
by it hereunder as additional collateral security for the Obligations. If any
such sums of money or property so paid or distributed in respect of the Pledged
Securities shall be received by such Grantor, such Grantor shall, until such
money or property is paid or delivered to the Collateral Agent, hold such money
or property in trust for the Lenders, segregated from other funds of such
Grantor, as additional collateral security for the Obligations.
(b) Without the prior written consent of the Collateral Agent, such Grantor
will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant
any option with respect to, the Pledged Securities or Proceeds thereof (except
pursuant to a transaction permitted by the Credit Agreement), (ii) create, incur
or permit to exist any Lien or option in favor of, or any claim of any Person
with respect to, any of the Pledged Securities or Proceeds thereof, or any
interest therein, except for the security interests created by this Agreement or
permitted by the Credit Agreement or (iii) enter into any agreement or
undertaking restricting the right or ability of such Grantor or the Collateral
Agent to sell, assign or transfer any of the Pledged Securities or Proceeds
thereof.
(c) In the case of each Grantor which is an Issuer, such Issuer agrees that
(i) it will be bound by the terms of this Agreement relating to the Pledged
Securities issued by it and will comply with such terms insofar as such terms
are applicable to it, (ii) it will notify the Collateral Agent promptly in
writing of the occurrence of any of the events described in Section 5.8(a) with
respect to the Pledged Securities issued by it and (iii) the terms of Sections
6.3(c) and 6.7 shall apply to it, mutatis mutandis, with respect to all actions
that may be required of it pursuant to Section 6.3(c) or 6.7 with respect to the
Pledged Securities issued by it.
5.9 Receivables. (a) Other than in the ordinary course of business
consistent with its reasonable business practices, such Grantor will not (i)
grant any extension of the
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time of payment of any Receivable, (ii) compromise or settle any Receivable
for less than the full amount thereof, (iii) release, wholly or partially, any
Person liable for the payment of any Receivable, (iv) allow any credit or
discount whatsoever on any Receivable or (v) amend, supplement or modify any
Receivable in any manner that could adversely affect the value thereof.
(b) Such Grantor will deliver to the Collateral Agent a copy of each
material demand, notice or document received by it that questions or calls into
doubt the validity or enforceability of more than 10% of the aggregate amount of
the then outstanding Receivables of such Grantor.
5.10 Intellectual Property. (a) Except to the extent such Grantor, in the
exercise of its reasonable business judgment, may elect not to do so and where
its failure to do so will not have a Material Adverse Effect, such Grantor
(either itself or through licensees) will (i) use each material Trademark on
each and every trademark class of goods applicable to its current line as
reflected in its current catalogs, brochures and price lists in order to
maintain such material Trademark in full force free from any claim of
abandonment for non-use, (ii) maintain as in the past the quality of products
and services offered under such material Trademark, (iii) use such material
Trademark with the appropriate notice of registration and all other notices and
legends required by applicable Requirements of Law, (iv) not adopt or use any
mark which is confusingly similar or a colorable imitation of such material
Trademark unless the Collateral Agent, for the ratable benefit of the Lenders,
shall obtain a perfected security interest in such mark pursuant to this
Agreement, and (v) not (and not permit any licensee or sublicensee thereof to)
do any act or knowingly omit to do any act whereby such material Trademark may
become invalidated or impaired in any way.
(b) Except to the extent such Grantor, in the exercise of its reasonable
business judgment, may elect not to do so and where its failure to do so will
not have a Material Adverse Effect, such Grantor (either itself or through
licensees) will not do any act, or omit to do any act, whereby any material
Patent may become forfeited, abandoned or dedicated to the public.
(c) Except to the extent such Grantor, in the exercise of its reasonable
business judgment, may elect not to do so and where its failure to do so will
have a Material Adverse Effect, such Grantor (either itself or through
licensees) (i) will employ each material Copyright and (ii) will not (and will
not permit any licensee or sublicensee thereof to) do any act or knowingly omit
to do any act whereby any material portion of the Copyrights may become
invalidated or otherwise impaired. Such Grantor will not (either itself or
through licensees) do any act whereby any material portion of the Copyrights may
fall into the public domain.
(d) Except to the extent such Grantor, in the exercise of its reasonable
business judgment, may elect not to do so and where its failure to do so will
not have a Material Adverse Effect, such Grantor (either itself or through
licensees) will not do any act that knowingly uses any material Intellectual
Property to infringe the intellectual property rights of any other Person.
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(e) Except to the extent such Grantor, in the exercise of its reasonable
business judgment, may elect not to do so and where its failure to do so will
not have a Material Adverse Effect, such Grantor will notify the Collateral
Agent and the Lenders immediately if it knows, or has reason to know, that any
application or registration relating to any material Intellectual Property may
become forfeited, abandoned or dedicated to the public, or of any adverse
determination or development (including, without limitation, the institution of,
or any such determination or development in, any proceeding in the United States
Patent and Trademark Office, the United States Copyright Office or any court or
tribunal in any country) regarding such Grantor's ownership of, or the validity
of, any material Intellectual Property or such Grantor's right to register the
same or to own and maintain the same.
(f) Except to the extent such Grantor, in the exercise of its reasonable
business judgment, may elect not to do so and where its failure to do so will
not have a Material Adverse Effect, whenever such Grantor, either by itself or
through any agent, employee, licensee or designee, shall file an application for
the registration of any Intellectual Property with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency in any other country or any political subdivision thereof, such Grantor
shall report such filing to the Collateral Agent within five Business Days after
the last day of the fiscal quarter in which such filing occurs. Upon request of
the Collateral Agent, such Grantor shall execute and deliver, and have recorded,
any and all agreements, instruments, documents, and papers as the Collateral
Agent may request to evidence the Collateral Agent's and the Lenders' security
interest in any Copyright, Patent or Trademark and the goodwill and general
intangibles of such Grantor relating thereto or represented thereby.
(g) Except to the extent such Grantor, in the exercise of its reasonable
business judgment, may elect not to do so and where its failure to do so will
not have a Material Adverse Effect, such Grantor will take all reasonable and
necessary steps, including, without limitation, in any proceeding before the
United States Patent and Trademark Office, the United States Copyright Office or
any similar office or agency in any other country or any political subdivision
thereof, to maintain and pursue each application (and to obtain the relevant
registration) and to maintain each registration of the material Intellectual
Property, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.
(h) In the event that any material Intellectual Property is infringed,
misappropriated or diluted by a third party, such Grantor shall, except to the
extent such Grantor, in the exercise in its reasonable business judgment, may
elect not to do so and where its failure to do so will not have a Material
Adverse Effect, (i) take such actions as such Grantor shall reasonably deem
appropriate under the circumstances to protect such Intellectual Property and
(ii) if such Intellectual Property is of material economic value, promptly
notify the Collateral Agent after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and to
recover any and all damages for such infringement, misappropriation or dilution.
5.11 Vehicles. (a) If a Grantor removes a Vehicle covered by a certificate
of title from the State which has issued the certificate of title for such
Vehicle with the intent of
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permanently relocating that Vehicle in a different State, such Grantor
shall, within four months after such relocation, file all applications for
certificates of title indicating the Collateral Agent's first priority security
interest in such Vehicle and take all actions required to continue the perfected
security interest of the Collateral Agent in such Vehicle, unless otherwise
provided in the Credit Agreement.
(b) With respect to any Vehicles acquired by a Grantor subsequent to the
date hereof, within 90 days after the date of acquisition thereof, all
applications for certificates of title indicating the Collateral Agent's first
priority security interest in the Vehicle covered by such certificate, and any
other necessary documentation, shall be filed in each office in each
jurisdiction which the Collateral Agent shall deem advisable to perfect its
security interests in the Vehicles, except as otherwise provided in the Credit
Agreement.
SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) The Collateral Agent shall
have the right to make test verifications of the Receivables in any manner and
through any medium that it reasonably considers advisable, and each Grantor
shall furnish all such assistance and information as the Collateral Agent may
require in connection with such test verifications. At any time and from time to
time, upon the Collateral Agent's request and at the expense of the applicable
Grantor, such Grantor shall cause independent public accountants or others
satisfactory to the Collateral Agent to furnish to the Collateral Agent reports
showing reconciliations, aging and test verifications of, and trial balances
for, the Receivables.
(b) The Collateral Agent hereby authorizes each Grantor to collect such
Grantor's Receivables; provided, however, the Collateral Agent may curtail or
terminate said authority at any time after the occurrence and during the
continuance of an Event of Default. If required by the Collateral Agent at any
time after the occurrence and during the continuance of an Event of Default, any
payments of Receivables, when collected by any Grantor, (i) shall be forthwith
(and, in any event, within two Business Days) deposited by such Grantor in the
exact form received, duly indorsed by such Grantor to the Collateral Agent if
required, in a Collateral Account maintained under the sole dominion and control
of the Collateral Agent, subject to withdrawal by the Collateral Agent for the
account of the Lenders only as provided in Section 6.5, and (ii) until so turned
over, shall be held by such Grantor in trust for the Collateral Agent and the
Lenders, segregated from other funds of such Grantor. Each such deposit of
Proceeds of Receivables shall be accompanied by a report identifying in
reasonable detail the nature and source of the payments included in the deposit.
(c) At the Collateral Agent's request, at any time during the continuance
of an Event of Default, each Grantor shall deliver to the Collateral Agent all
original and other documents evidencing, and relating to, the agreements and
transactions which gave rise to the Receivables, including, without limitation,
all original orders, invoices and shipping receipts.
6.2 Communications with Obligors; Grantors Remain Liable. (a) The
Collateral Agent in its own name or in the name of others may at any time after
the
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occurrence and during the continuance of an Event of Default communicate
with obligors under the Receivables to verify with them to the Collateral
Agent's satisfaction the existence, amount and terms of any Receivables.
(b) Upon the request of the Collateral Agent at any time after the
occurrence and during the continuance of an Event of Default, each Grantor shall
notify obligors on the Receivables that the Receivables have been assigned to
the Collateral Agent for the ratable benefit of the Lenders and that payments in
respect thereof shall be made directly to the Collateral Agent.
(c) Anything herein to the contrary notwithstanding, each Grantor shall
remain liable under each of the Receivables to observe and perform all the
conditions and obligations to be observed and performed by it thereunder, all in
accordance with the terms of any agreement giving rise thereto. Neither the
Collateral Agent nor any Lender shall have any obligation or liability under any
Receivable (or any agreement giving rise thereto) by reason of or arising out of
this Agreement or the receipt by the Collateral Agent or any Lender of any
payment relating thereto, nor shall the Collateral Agent or any Lender be
obligated in any manner to perform any of the obligations of any Grantor under
or pursuant to any Receivable (or any agreement giving rise thereto), to make
any payment, to make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any party
thereunder, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
6.3 Pledged Stock. (a) Unless an Event of Default shall have occurred and
be continuing and the Collateral Agent shall have given notice to the applicable
Grantor of the Collateral Agent's intent to exercise its corresponding rights
pursuant to Section 6.3(b), each Grantor shall be permitted to receive all cash
dividends paid in respect of the Pledged Stock and all payments made in respect
of the Pledged Notes, in each case paid in the normal course of business of the
relevant Issuer and consistent with past practice and to exercise all voting and
corporate rights with respect to the Pledged Securities; provided, however, that
no vote shall be cast or corporate right exercised or other action taken which
would materially impair the Collateral or which would be inconsistent with or
result in any violation of any provision of the Credit Agreement, this Agreement
or any other Loan Document.
(b) If an Event of Default shall occur and be continuing and the Collateral
Agent shall give notice of its intent to exercise such rights to the applicable
Grantor or Grantors, (i) the Collateral Agent shall have the right to receive
any and all cash dividends, payments or other Proceeds paid in respect of the
Pledged Securities and make application thereof to the Obligations, and (ii) any
or all of the Pledged Securities shall be registered in the name of the
Collateral Agent or its nominee, and the Collateral Agent or its nominee may
thereafter exercise (x) all voting, corporate and other rights pertaining to
such Pledged Securities at any meeting of shareholders of the relevant Issuer or
Issuers or otherwise and (y) any and all rights of conversion, exchange and
subscription and any other rights, privileges or options pertaining to such
Pledged Securities as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Securities upon the merger, consolidation, reorganization, recapitalization or
other
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fundamental change in the corporate structure of any Issuer, or upon the
exercise by any Grantor or the Collateral Agent of any right, privilege or
option pertaining to such Pledged Securities, and in connection therewith, the
right to deposit and deliver any and all of the Pledged Securities with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as the Collateral Agent may determine), all without
liability except to account for property actually received by it, but the
Collateral Agent shall have no duty to any Grantor to exercise any such right,
privilege or option and shall not be responsible for any failure to do so or
delay in so doing.
(c) Each Grantor hereby authorizes and instructs each Issuer of any Pledged
Securities pledged by such Grantor hereunder to comply with any instruction
received by it from the Collateral Agent in writing that (x) states that an
Event of Default has occurred and is continuing and (y) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from such Grantor, and each Grantor agrees that each Issuer shall
be fully protected in so complying.
6.4 Proceeds to be Turned Over To Collateral Agent. In addition to the
rights of the Collateral Agent and the Lenders specified in Section 6.1 with
respect to payments of Receivables, if an Event of Default shall occur and be
continuing and the Collateral Agent shall have given notice to the applicable
Grantor, all Proceeds received by any Grantor consisting of cash, checks and
other near-cash items shall be held by such Grantor in trust for the Collateral
Agent and the Lenders, segregated from other funds of such Grantor, and shall,
forthwith upon receipt by such Grantor, be turned over to the Collateral Agent
in the exact form received by such Grantor (duly indorsed by such Grantor to the
Collateral Agent, if required). All Proceeds received by the Collateral Agent
hereunder shall be held by the Collateral Agent in a Collateral Account
maintained under its sole dominion and control. All Proceeds while held by the
Collateral Agent in a Collateral Account (or by such Grantor in trust for the
Collateral Agent and the Lenders) shall continue to be held as collateral
security for all the Obligations and shall not constitute payment thereof until
applied as provided in Section 6.5.
6.5 Application of Proceeds. At such intervals as may be agreed upon by the
Borrower and the Collateral Agent, or, if an Event of Default shall have
occurred and be continuing, at any time at the Collateral Agent's election, the
Collateral Agent may apply all or any part of Proceeds constituting Collateral,
whether or not held in any Collateral Account, and any proceeds of the guarantee
set forth in Section 2, in payment of the Obligations in the following order:
First, to pay incurred and unpaid fees and expenses of the Collateral Agent
and the Administrative Agent under the Loan Documents;
Second, to the Administrative Agent, for application by it towards payment
of amounts then due and owing and remaining unpaid in respect of the
Obligations, pro rata among the Lenders according to the amounts of the
Obligations then due and owing and remaining unpaid to the Lenders;
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Third, to the Administrative Agent, for application by it towards
prepayment of the Obligations, pro rata among the Lenders according to the
amounts of the Obligations then held by the Lenders; and
Fourth, any balance of such Proceeds remaining after the Obligations shall
have been paid in full, no Letters of Credit shall be outstanding and the
Commitments shall have terminated shall be paid over to the Borrower or to
whomsoever may be lawfully entitled to receive the same.
6.6 Code and Other Remedies. If an Event of Default shall occur and be
continuing, the Collateral Agent, on behalf of the Lenders, may exercise, in
addition to all other rights and remedies granted to them in this Agreement and
in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the New York UCC
or any other applicable law. Without limiting the generality of the foregoing,
the Collateral Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker's board or office of the Collateral Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Administrative Agent, the Collateral Agent or
any Lender shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption in any Grantor, which right or equity is hereby waived and released.
Each Grantor further agrees, at the Collateral Agent's request, to assemble the
Collateral and make it available to the Collateral Agent at places which the
Collateral Agent shall reasonably select, whether at such Grantor's premises or
elsewhere. The Collateral Agent shall apply the net proceeds of any action taken
by it pursuant to this Section 6.6, after deducting all reasonable costs and
expenses of every kind incurred in connection therewith or incidental to the
care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Collateral Agent and the Lenders hereunder,
including, without limitation, reasonable attorneys' fees and disbursements, to
the payment in whole or in part of the Obligations, in the order set forth in
Section 6.5, and only after such application and after the payment by the
Collateral Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the New York UCC, need the
Collateral Agent account for the surplus, if any, to any Grantor. To the extent
permitted by applicable law, each Grantor waives all claims, damages and demands
it may acquire against the Collateral Agent or any Lender arising out of the
exercise by them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition.
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6.7 Private Sales. (a) Each Grantor recognizes that the Collateral Agent
may be unable to effect a public sale of any or all the Pledged Stock, by reason
of certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Collateral
Agent shall be under no obligation to delay a sale of any of the Pledged Stock
for the period of time necessary to permit the Issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such Issuer would agree to do so.
(b) Each Grantor agrees to use its best efforts to do or cause to be done
all such other acts as may be necessary to make such sale or sales of all or any
portion of the Pledged Stock pursuant to this Section 6.7 valid and binding and
in compliance with any and all other applicable Requirements of Law. Each
Grantor further agrees that a breach of any of the covenants contained in this
Section 6.7 will cause irreparable injury to the Collateral Agent and the
Lenders, that the Collateral Agent and the Lenders have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 6.7 shall be specifically enforceable against
such Grantor, and such Grantor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for
a defense that no Event of Default has occurred and is continuing under the
Credit Agreement.
6.8 Waiver; Deficiency. Each Grantor waives and agrees not to assert any
rights or privileges which it may acquire under Section 9-112 of the New York
UCC. Each Grantor shall remain liable for any deficiency if the proceeds of any
sale or other disposition of the Collateral are insufficient to pay its
Obligations and the fees and disbursements of any attorneys employed by the
Collateral Agent or any Lender to collect such deficiency.
SECTION 7. THE COLLATERAL AGENT
7.1 Collateral Agent's Appointment as Attorney-in-Fact, etc. (a) Each
Grantor hereby irrevocably constitutes and appoints the Collateral Agent and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Grantor and in the name of such Grantor or in its own name,
for the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing, each Grantor hereby gives the
Collateral Agent the power and right, on behalf of such Grantor, without notice
to or assent by such Grantor, to do any or all of the following:
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(i) in the name of such Grantor or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under any Receivable or Contract
or with respect to any other Collateral and file any claim or take any other
action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Collateral Agent for the purpose of collecting any and all
such moneys due under any Receivable or Contract or with respect to any other
Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and deliver, and
have recorded, any and all agreements, instruments, documents and papers as the
Collateral Agent may request to evidence the Collateral Agent's and the Lenders'
security interest in such Intellectual Property and the goodwill and general
intangibles of such Grantor relating thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or threatened
against the Collateral, effect any repairs or any insurance called for by the
terms of this Agreement and pay all or any part of the premiums therefor and the
costs thereof;
(iv) execute, in connection with any sale provided for in Section 6.6 or
6.7, any indorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral; and
(v) (1) direct any party liable for any payment under any of the Collateral
to make payment of any and all moneys due or to become due thereunder directly
to the Collateral Agent or as the Collateral Agent shall direct; (2) ask or
demand for, collect, and receive payment of and receipt for, any and all moneys,
claims and other amounts due or to become due at any time in respect of or
arising out of any Collateral; (3) sign and indorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in connection
with any of the Collateral; (4) commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (5) defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (6) settle, compromise or
adjust any such suit, action or proceeding and, in connection therewith, give
such discharges or releases as the Collateral Agent may deem appropriate; (7)
assign any Copyright, Patent or Trademark (along with the goodwill of the
business to which any such Copyright, Patent or Trademark pertains), throughout
the world for such term or terms, on such conditions, and in such manner, as the
Collateral Agent shall in its sole discretion determine; and (8) generally,
sell, transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the Collateral
Agent were the absolute owner thereof for all purposes, and do, at the
Collateral Agent's option and such Grantor's expense, at any time, or from time
to time, all acts and things which the Collateral Agent deems necessary to
protect, preserve or realize upon the Collateral and the Collateral Agent's and
the Lenders' security interests therein and to effect the intent of this
Agreement, all as fully and effectively as such Grantor might do.
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Anything in this Section 7.1(a) to the contrary notwithstanding, the
Collateral Agent agrees that it will not exercise any rights under the power of
attorney provided for in this Section 7.1(a) unless an Event of Default shall
have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its agreements
contained herein, the Collateral Agent, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such agreement.
(c) The expenses of the Collateral Agent incurred in connection with
actions undertaken as provided in this Section 7.1, together with interest
thereon at a rate per annum equal to the rate per annum at which interest would
then be payable on past due Base Rate Loans that are Revolving Credit Loans
under the Credit Agreement, from the date of payment by the Collateral Agent to
the date reimbursed by the relevant Grantor, shall be payable by such Grantor to
the Collateral Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. All powers, authorizations and agencies
contained in this Agreement are coupled with an interest and are irrevocable
until this Agreement is terminated and the security interests created hereby are
released.
7.2 Duty of Collateral Agent. The Collateral Agent's sole duty with respect
to the custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the New York UCC or otherwise, shall be to
deal with it in the same manner as the Collateral Agent deals with similar
property for its own account. Neither the Collateral Agent, any Lender nor any
of their respective officers, directors, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of any Grantor or any other Person or to take
any other action whatsoever with regard to the Collateral or any part thereof.
The powers conferred on the Collateral Agent and the Lenders hereunder are
solely to protect the Collateral Agent's and the Lenders' interests in the
Collateral and shall not impose any duty upon the Collateral Agent or any Lender
to exercise any such powers. The Collateral Agent and the Lenders shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
7.3 Execution of Financing Statements. Pursuant to Section 9-402 of the New
York UCC and any other applicable law, each Grantor authorizes the Collateral
Agent to file or record financing statements and other filing or recording
documents or instruments with respect to the Collateral without the signature of
such Grantor in such form and in such offices as the Collateral Agent reasonably
determines appropriate to perfect the security interests of the Collateral Agent
under this Agreement. A photographic or other reproduction of this Agreement
shall be sufficient as a financing statement or other filing or recording
document or instrument for filing or recording in any jurisdiction.
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7.4 Authority of Collateral Agent. Each Grantor acknowledges that the
rights and responsibilities of the Collateral Agent under this Agreement with
respect to any action taken by the Collateral Agent or the exercise or
non-exercise by the Collateral Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Collateral Agent and the Lenders, be
governed by the Credit Agreement and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the
Collateral Agent and the Grantors, the Collateral Agent shall be conclusively
presumed to be acting as agent for the Lenders with full and valid authority so
to act or refrain from acting, and no Grantor shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 10.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands to or upon the Collateral
Agent or any Grantor hereunder shall be effected in the manner provided for in
Section 10.2 of the Credit Agreement; provided that any such notice, request or
demand to or upon any Guarantor shall be addressed to such Guarantor at its
notice address set forth on Schedule 1.
8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the
Collateral Agent nor any Lender shall by any act (except by a written instrument
pursuant to Section 8.1), delay, indulgence, omission or otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default. No failure to exercise, nor any delay in exercising, on the
part of the Collateral Agent or any Lender, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Collateral Agent or any Lender of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Collateral Agent or such Lender would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any other rights or remedies provided
by law.
8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor agrees to pay
or reimburse each Lender and the Collateral Agent for all its costs and expenses
incurred in collecting against such Guarantor under the guarantee contained in
Section 2 or otherwise enforcing or preserving any rights under this Agreement
and the other Loan Documents to which such Guarantor is a party, including,
without limitation, the fees and disbursements of counsel to each Lender and of
counsel to the Collateral Agent.
(b) Each Guarantor agrees to pay, and to save the Collateral Agent and the
Lenders harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to
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25
be payable with respect to any of the Collateral or in connection with any
of the transactions contemplated by this Agreement.
(c) Each Guarantor agrees to pay, and to save the Collateral Agent and the
Lenders harmless from, any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement to the extent the Borrower
would be required to do so pursuant to Section 10.5 of the Credit Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of the
Obligations and all other amounts payable under the Credit Agreement and the
other Loan Documents.
8.5 Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each Grantor and shall inure to the benefit of the
Administrative Agent, the Collateral Agent and the Lenders and their successors
and assigns; provided that no Grantor may assign, transfer or delegate any of
its rights or obligations under this Agreement without the prior written consent
of the Collateral Agent.
8.6 Set-Off. Each Grantor hereby irrevocably authorizes the Administrative
Agent, the Collateral Agent and each Lender at any time and from time to time
while an Event of Default pursuant to Section 8(a) of the Credit Agreement shall
have occurred and be continuing, without notice to such Grantor or any other
Grantor, any such notice being expressly waived by each Grantor, to set-off and
appropriate and apply any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the
Administrative Agent, the Collateral Agent or such Lender to or for the credit
or the account of such Grantor, or any part thereof in such amounts as the
Administrative Agent, the Collateral Agent or such Lender may elect, against and
on account of the obligations and liabilities of such Grantor to the
Administrative Agent, the Collateral Agent or such Lender hereunder and claims
of every nature and description of the Administrative Agent, the Collateral
Agent or such Lender against such Grantor, in any currency, whether arising
hereunder, under the Credit Agreement, any other Loan Document or otherwise, as
the Administrative Agent, the Collateral Agent or such Lender may elect, whether
or not the Collateral Agent or any Lender has made any demand for payment and
although such obligations, liabilities and claims may be contingent or
unmatured. The Collateral Agent and each Lender shall notify such Grantor
promptly of any such set-off and the application made by the Administrative
Agent, the Collateral Agent or such Lender of the proceeds thereof, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of the Administrative Agent, the Collateral
Agent and each Lender under this Section 8.6 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which the
Administrative Agent, the Collateral Agent or such Lender may have.
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26
8.7 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
8.8 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
8.9 Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
8.10 Integration. This Agreement and the other Loan Documents represent the
agreement of the Grantors, the Administrative Agent, the Collateral Agent and
the Lenders with respect to the subject matter hereof and thereof, and there are
no promises, undertakings, representations or warranties by the Administrative
Agent, the Collateral Agent or any Lender relative to subject matter hereof and
thereof not expressly set forth or referred to herein or in the other Loan
Documents.
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby irrevocably
and unconditionally:
(a) submits for itself and its property in any legal action or proceeding
relating to this Agreement and the other Loan Documents to which it is a party,
or for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such Grantor at its
address referred to in Section 8.2 or at such other address of which the
Collateral Agent shall have been notified pursuant thereto;
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27
(d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
Section any special, exemplary, punitive or consequential damages.
8.13 Acknowledgements. Each Grantor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents to which it is a party;
(b) neither the Administrative Agent, the Collateral Agent nor any Lender
has any fiduciary relationship with or duty to any Grantor arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between the Grantors, on the one hand, and the Administrative
Agent, the Collateral Agent and Lenders, on the other hand, in connection
herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Lenders or among the Grantors and the Lenders.
8.14 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
8.15 Additional Grantors. Each Subsidiary of the Borrower that is required
to become a party to this Agreement pursuant to Section 6.10 of the Credit
Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex 1 hereto.
8.16 Releases. (a) At such time as the Loans, the Reimbursement Obligations
and the other Obligations shall have been paid in full, the Commitments have
been terminated and no Letters of Credit shall be outstanding, the Collateral
shall be released from the Liens created hereby, and this Agreement and all
obligations (other than those expressly stated to survive such termination) of
the Collateral Agent and each Grantor hereunder shall terminate, all without
delivery of any instrument or performance of any act by any party, and all
rights to the Collateral shall revert to the Grantors. At the request and sole
expense of any Grantor following any such termination, the Collateral Agent
shall deliver to such Grantor any Collateral held by the Collateral Agent
hereunder, and execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Collateral Agent,
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28
at the request and sole expense of such Grantor, shall execute and deliver
to such Grantor all releases or other documents reasonably necessary or
desirable for the release of the Liens created hereby on such Collateral. At the
request and sole expense of the Borrower, a Subsidiary Guarantor shall be
released from its obligations hereunder in the event that all the Capital Stock
of such Subsidiary Guarantor shall be sold, transferred or otherwise disposed of
in a transaction permitted by the Credit Agreement; provided that the Borrower
shall have delivered to the Collateral Agent, at least five Business Days prior
to the date of the proposed release, a written request for release identifying
the applicable Subsidiary Guarantor and the terms of the sale or other
disposition in reasonable detail, including the price thereof and any expenses
in connection therewith, together with a certification by the Borrower stating
that such transaction is in compliance with the Credit Agreement and the other
Loan Documents.
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29
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
KEY ENERGY GROUP, INC.
By: _______________________________
Title:
YALE E. KEY, INC.
By: _______________________________
Title:
WELLTECH EASTERN, INC.
By: _______________________________
Title:
TST PARAFFIN SERVICE CO., INC.
By: _______________________________
Title:
KEY ENERGY DRILLING, INC.
d/b/a CLINT HURT DRILLING
By: _______________________________
Title:
KALKASKA OILFIELD SERVICES, INC.
By: _______________________________
Title:
ODESSA EXPLORATION INCORPORATED
By: _______________________________
Title:
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30
NORWEST BANK TEXAS, N.A.,
as Collateral Agent
By: _______________________________
Title:
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<PAGE>
EXECUTION COPY
MASTER GUARANTEE AND COLLATERAL AGREEMENT
made by
KEY ENERGY GROUP, INC.
and certain of its Subsidiaries
in favor of
NORWEST BANK TEXAS, N.A.,
as Collateral Agent
Dated as of June 6, 1997
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<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINED TERMS................................................... 1
1.1 Definitions................................................... 1
1.2 Other Definitional Provisions................................. 5
SECTION 2. GUARANTEE....................................................... 5
2.1 Guarantee..................................................... 5
2.2 Right of Contribution......................................... 6
2.3 No Subrogation................................................ 6
2.4 Amendments, etc. with respect to the Borrower Obligations..... 7
2.5 Guarantee Absolute and Unconditional.......................... 7
2.6 Reinstatement................................................. 8
2.7 Payments...................................................... 8
SECTION 3. GRANT OF SECURITY INTEREST...................................... 9
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 9
4.1 Representations in Credit Agreement........................... 9
4.2 Title; No Other Liens......................................... 10
4.3 Perfected First Priority Liens................................ 10
4.4 Chief Executive Office, Etc................................... 10
4.5 Inventory and Equipment....................................... 10
4.6 Farm Products................................................. 10
4.7 Pledged Securities............................................ 10
4.8 Receivables................................................... 11
4.9 Intellectual Property......................................... 11
4.10 Vehicles..................................................... 11
SECTION 5. COVENANTS....................................................... 11
5.1 Covenants in Credit Agreement................................. 11
5.2 Delivery of Instruments and Chattel Paper..................... 12
5.3 Maintenance of Insurance...................................... 12
5.4 Payment of Obligations........................................ 12
5.5 Maintenance of Perfected Security Interest; Further Doc....... 12
5.6 Changes in Locations, Name, etc............................... 13
5.7 Notices....................................................... 13
5.8 Pledged Securities............................................ 13
5.9 Receivables................................................... 14
5.10 Intellectual Property........................................ 15
5.11 Vehicles..................................................... 16
SECTION 6. REMEDIAL PROVISIONS............................................. 17
6.1 Certain Matters Relating to Receivables....................... 17
6.2 Communications with Obligors; Grantors Remain Liable.......... 17
i
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<PAGE>
Page
6.3 Pledged Stock................................................. 18
6.4 Proceeds to be Turned Over To Collateral Agent................ 19
6.5 Application of Proceeds....................................... 19
6.6 Code and Other Remedies....................................... 20
6.7 Private Sales................................................. 21
6.8 Waiver; Deficiency............................................ 21
SECTION 7. THE COLLATERAL AGENT............................................ 21
7.1 Collateral Agent's Appointment as Attorney-in-Fact, etc....... 21
7.2 Duty of Collateral Agent...................................... 23
7.3 Execution of Financing Statements............................. 23
7.4 Authority of Collateral Agent................................. 24
SECTION 8. MISCELLANEOUS................................................... 24
8.1 Amendments in Writing......................................... 24
8.2 Notices....................................................... 24
8.3 No Waiver by Course of Conduct; Cumulative Remedies........... 24
8.4 Enforcement Expenses; Indemnification......................... 24
8.5 Successors and Assigns........................................ 25
8.6 Set-Off....................................................... 25
8.7 Counterparts.................................................. 26
8.8 Severability.................................................. 26
8.9 Section Headings.............................................. 26
8.10 Integration.................................................. 26
8.11 GOVERNING LAW................................................ 26
8.12 Submission To Jurisdiction; Waivers.......................... 26
8.13 Acknowledgements............................................. 27
8.14 WAIVER OF JURY TRIAL......................................... 27
8.15 Additional Grantors.......................................... 27
8.16 Releases..................................................... 27
ii
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<PAGE>
SCHEDULES
1 Notice Addresses of Grantors
2 Description of Pledged Securities
3 Filings and Other Actions Required to Perfect Security Interests
4 Location of Jurisdiction of Organization and Chief Executive Office
5 Location of Inventory and Equipment
6 [Reserved]
7 [Reserved]
8 Vehicles
9 Existing Prior Liens
ANNEXES
1 Form of Assumption Agreement
iii
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<PAGE>
KEY ENERGY GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
----------------------- ------------------------
Fully- Fully-
(Thousands, except per share amounts) Primary Diluted Primary Diluted
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income and Adjusted Earnings:
Net Income before income taxes and
minority interest $14,602 $14,602 $5,575 $5,575
Effect of interest on debentures - 3,900 - -
------- ------- ------- -------
Adjusted net income before income taxes
and minority interest $14,602 $18,502 $5,575 $5,575
======= ======= ======= =======
Net Income $9,098 $9,098 $3,586 $3,586
Effect of interest on convertible
debentures, net of tax effect - 2,535 - -
------- ------- ------- -------
Adjusted net income $9,098 $11,633 $3,586 $3,586
======= ======= ======= =======
Weighted Average Shares and Share Equivalents Outstanding:
Weighted average shares
outstanding (as reported) 11,216 11,216 7,789 7,789
Common Share equivalents issuable under
stock option plans 712 1,001 152 292
Common share equivalents issuable on assumed
conversion of WellTech warrants 260 375 - 33
Common share equivalents issuable on assumed
conversion of convertible debentures - 5,333 - -
Common share equivalents issuable on assumed
conversion of CIT warrants 17 38 - -
------- ------- ------- -------
Weighted average shares and share
equivalents outstanding 12,205 17,963 7,941 8,114
======= ======= ======= =======
Earnings per Share:
Net income $0.75 $0.65 $0.45 $0.44
</TABLE>
Company EI Number
- ------------------------------------------------------
Yale E. Key 75-1074929
Phoenix Well Service, Inc. 75-2256225
T.S.T. Paraffin Service Company, Inc. 75-1898097
Well-Co Oil Service, Inc. 75-2513771
Key Energy Drilling, Inc. 22-3363468
Odessa Exploration, Inc. 06-1377021
Welltech Eastern, Inc. 38-3283245
Kalkaska Oilfield Services, Inc. 38-3083604
KEG AMA Heights, Inc. 72-1339784
KEG Canal Properties, Inc. 72-1339783
KEG Orleans Place, Inc. 72-1339787
KEG Pearl Acres, Inc. 72-1339785
KEG Villa Ashley, Inc. 72-1339782
Thunderbird Tool Company 74-1801530
Brownlee Well Service 75-1173934
Integrity Fishing and Rental 75-2572049
Hitwell Surveys 55-0623721
Cobra Industries 85-0283192
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> JUN-30-1997
<CASH> 41,704
<SECURITIES> 0
<RECEIVABLES> 46,782
<ALLOWANCES> 1,552
<INVENTORY> 5,171
<CURRENT-ASSETS> 93,333
<PP&E> 227,255
<DEPRECIATION> (19,069)
<TOTAL-ASSETS> 320,095
<CURRENT-LIABILITIES> 33,142
<BONDS> 52,000
0
0
<COMMON> 1,230
<OTHER-SE> 55,031
<TOTAL-LIABILITY-AND-EQUITY> 320,095
<SALES> 8,180
<TOTAL-REVENUES> 163,630
<CGS> 3,030
<TOTAL-COSTS> 149,028
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,535
<INCOME-PRETAX> 14,602
<INCOME-TAX> 5,500
<INCOME-CONTINUING> 9,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,098
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.65
</TABLE>
