<PAGE> 1
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
KEY ENERGY GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Maryland 04-2648081
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION
OF INCORPORATION OR ORGANIZATION) NUMBER)
TWO TOWER CENTER, 20TH FLOOR, EAST BRUNSWICK, NEW JERSEY 08816
(732) 247-4822
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
Francis D. John
Key Energy Group, Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
Jack D. Loftis, Jr. Samuel N. Allen
Key Energy Group, Inc. Porter & Hedges, L.L.P.
Two Tower Center, 20th Floor 700 Louisiana, Suite 3500
East Brunswick, New Jersey 08816 Houston, Texas 77002
(732) 247-4822 (713) 226-0600
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement, as
determined by the Selling Securityholders.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
reinvestment plans, please check the following box. [x]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Price Per Share Aggregate Offering Registration Fee
Price(1)
=================================================================================================================================
<S> <C> <C> <C> <C>
5% Convertible
Subordinated Notes due $216,000,000 100% $ 228,394,215(2) $67,376
2004
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.10 per share 365,000(3) $18.9375 $6,912,187.50 $2,039(4)
=================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Pursuant to Rule 457(i), the proposed offering price is calculated on the
basis of the offering price of the convertible debentures plus an
additional $12,394,215.00, which represents the aggregate offering price
of 654,480 shares of Common Stock, based on the average of the high and
low sales prices of the Common Stock on January 16, 1998 on the American
Stock Exchange of $18.9375, which may be issued to the holders of the 5%
Convertible Subordinated Notes due 2004 (the "Notes") as additional
consideration upon conversion of the Notes.
(3) An indeterminate number of shares of the Company's common stock, par
value $.10 per share (the "Common Stock") issuable upon conversion of
the Notes is also being registered hereby.
(4) Pursuant to Rule 457(c), the registration fee is calculated on the basis
of the high and low sale prices for the Common Stock on the American
Stock Exchange on January 16, 1998. Pursuant to Rule 457(i), no
registration fee is payable in connection with the Common Stock issuable
upon conversion of the Notes.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JANUARY 22, 1998
PROSPECTUS
KEY ENERGY GROUP, INC.
$216,000,000
5% CONVERTIBLE SUBORDINATED NOTES
1,019,480 SHARES OF COMMON STOCK
Certain selling securityholders of the Company (the "Selling
Securityholders") are hereby offering for resale up to $216,000,000 aggregate
principal amount of 5% Convertible Subordinated Notes due 2004 (the "Notes") of
Key Energy Group, Inc., a Maryland corporation (the "Company"), along with an
indeterminate number of shares of the common stock, par value $.10 per share,
of the Company ("Common Stock") issuable upon conversion of the Notes. In
addition, certain Selling Securityholders are offering for sale 100,000 shares
of Common Stock and an additional 265,000 shares of Common Stock issuable upon
exercise of a warrant held by such Selling Securityholders (the "Warrant"). The
Company will not receive any of the proceeds from the sale of the Notes or
Common Stock offered hereby.
The Common Stock is listed on the American Stock Exchange (the "AMEX")
under the symbol KEG. On January 16, 1998, the closing price of the Common
Stock, as reported on the AMEX, was $18.875 per share. The Notes are not
listed on any securities exchange, but are traded in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market of the
National Association of Securities Dealers, Inc.
The Notes and the Common Stock may be offered and sold from time to time
by the Selling Securityholders named under "Selling Securityholders" or named
in a Prospectus Supplement through underwriters, dealers or agents or directly
to one or more purchasers in fixed price offerings, in negotiated transactions,
at market prices prevailing at the time of sale or at prices related to such
market prices. The terms of the offering and sale of the Notes and the Common
Stock in respect of which this Prospectus is being delivered, including any
initial public offering price, any discounts, commissions or concessions
allowed, reallowed or paid to underwriters, dealers or agents, the purchase
price of the Notes and the Common Stock and the proceeds to the Selling
Securityholders, and any other material terms shall be as set forth in the
applicable Prospectus Supplement. See "Plan of Distribution" for
indemnification arrangements, including indemnification of agents, dealers and
underwriters.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 4.
------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is January , 1998.
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), are hereby incorporated in this Prospectus and specifically made a part
hereof by reference: (i) the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, as amended; (ii) the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997; (iii) the
Company's Proxy Statement dated November 28, 1997; (iv) the Company's Current
Reports on Form 8-K dated June 25, 1997, as amended, September 1, 1997, as
amended, September 25, 1997, as amended, October 1, 1997, as amended, and
October 9, 1997; and (v) the description of the Common Stock contained in the
Company's Form 8-A filed on May 21, 1981, as amended on January 27, 1986 and
October 19, 1989. All other documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and before the termination of the offering of the Common Stock
covered by this Prospectus shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the respective dates of
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein, or in any other subsequently filed document
that also is or is deemed to be incorporated herein by reference, modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any and all of the information that has been incorporated by
reference in this Prospectus (excluding exhibits unless such exhibits
are specifically incorporated by reference into the information that
this Prospectus incorporates). Requests for such copies should be made to
the Company at its principal executive offices, Two Tower Center, 20th Floor,
East Brunswick, New Jersey 08816, telephone number (732) 247-4822, Attn: Jack
D. Loftis.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus and the documents that are incorporated in this
Prospectus by reference contain certain statements that are "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Exchange Act. Those
statements include, among other things, the discussions of the Company's
business strategy and expectations concerning market position, future
operations, margins, profitability, liquidity and capital resources, and
statements concerning the integration of the operations acquired and
achievement of certain benefits in connection therewith. Forward Looking
Statements are included in the sections captioned "Risk Factors," "The
Company," and elsewhere in this Prospectus and in documents that are
incorporated in this Prospectus by reference. Although the Company believes
that the expectations reflected in such Forward Looking Statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Generally, these statements relate to business plans or strategies,
projected or anticipated benefits or other consequences of such plans or
strategies, projected or anticipated benefits from acquisitions made by or to
be made by the Company, or projections involving anticipated revenues,
expenses, earnings, levels of capital expenditures or other aspects of
operating results. The Company's operations are subject to uncertainties,
risks and other influences, many of which are outside of the Company's control
and any one of which, or a combination of which, could materially adversely
affect the results of the Company's operations and whether the Forward Looking
Statements prove to be accurate. Important factors that could cause actual
results to differ materially from the Company's expectations are disclosed in
"Risk Factors" and elsewhere in this Prospectus.
2
<PAGE> 4
THE COMPANY
Key Energy Group, Inc. (the "Company") operates approximately 795 well
service rigs, 623 fluid hauling and other trucks and 43 drilling rigs in the
Permian Basin, the Mid-Continent region, the Ark La Tex region, Michigan, the
Appalachian Basin, the Rocky Mountain region, the Four Corners area of the
Southwest and Argentina. The Company believes it operates the largest combined
fleet of active well service rigs and fluid hauling and other trucks onshore
the continental United States and the second largest fleet in Argentina. The
Company 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, the Company provides services that
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 oilfield fluid
and equipment 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, the Ark La
Tex region, the Four Corners area, Michigan and Argentina and owns and produces
oil and natural gas in the Permian Basin.
The Company believes it has a distinctive business strategy designed to
take advantage of growth opportunities within the fragmented but consolidating
well service industry. The strategy emphasizes a decentralized management
philosophy that encourages decision making at the local level. The strategy has
resulted in growth through the enhancement of services and strategic
acquisitions and control of overhead and operating expenses. The Company's
strategy also is designed to minimize the business risks associated with
unexpected downturns in one or more of its business segments. As a result, the
Company has become a leader in its domestic markets by establishing a
reputation for competitive and comprehensive services, including high quality
equipment and well-trained crews that operate within stringent safety
guidelines.
Enhancement of Services: The Company has implemented a strategy
to provide its customers with a single source of well services and
equipment. The Company's ability to provide an increasing array of
services, along with the Company's reputation for reliability and
safety, has enabled the Company to increase its market share in its
primary areas of operations.
Acquisition Strategy: The Company's acquisition strategy focuses
on companies or equipment that either expand the range of services that
the Company provides or present opportunities to expand its business
into new markets. The Company attempts to acquire businesses with strong
customer relationships, a history of superior customer service and the
potential to be assimilated efficiently into the Company's existing
regional management structure with a minimal increase in overhead costs.
In the last two years, the Company has acquired 32 well servicing
operations, several oil and gas properties and four drilling operations.
In addition, agreements for the acquisition of three well service
companies and two drilling companies are pending.
Decentralized Operations: The Company's decentralized management
philosophy is consistent with the regional nature of the well service
business. This structure allows the Company's senior management to
establish the Company's policies, and permits the Company's regional
managers to implement those policies in each of the Company's business
segments and markets. As a result, local managers are better able to
deal efficiently with local and time-sensitive issues, thereby allowing
them to be more responsive to customer needs.
Low Operating Costs: Because of its cost controls and low
corporate overhead, among other factors, the Company has one of the
lowest general and administrative costs to revenue ratios and one of the
highest EBITDA to revenue ratios in the well service industry.
The Company's principal offices are located at Two Tower Center, 20th
Floor, East Brunswick, New Jersey 08816, and its telephone number is (732)
247-4822.
3
<PAGE> 5
RISK FACTORS
The following should be considered carefully with the information
provided elsewhere in this Prospectus and the documents incorporated by
reference herein in reaching a decision regarding an investment in the Notes
and Common Stock offered hereby.
DEPENDENCE ON OIL AND GAS INDUSTRY; INDUSTRY CONDITIONS
The Company's business is substantially dependent upon conditions in the
oil and gas industry and, specifically, the production expenditures of oil and
gas companies. The demand for well servicing and workover activities is
directly influenced by oil and gas prices, expectations about future prices,
the cost of producing and delivering oil and gas, government regulation,
including environmental regulations, local and international political and
economic conditions, and governmental policies regarding exploration and
development of oil and gas reserves. The demand for well servicing and related
services in the United States was severely depressed for most of the last
decade due in large part to prolonged weakness and uncertainty of oil and gas
prices. As a consequence, diminished demand during that period led to lower day
rates and lower use of available equipment. Demand for well services has
stabilized over the last two years, and prices for such services have
stabilized or increased during that period. Nonetheless, there can be no
assurance that periods of diminished demand in the well service industry will
not occur.
RISKS ASSOCIATED WITH ACQUISITIONS
One of the Company's business strategies is to pursue acquisitions of
businesses that are complementary to those of the Company. In the last 20
months, the Company has acquired 29 well servicing operations, several oil and
gas properties and one drilling operation. Integrating the acquired businesses
and personnel requires significant management time and skill. Management of the
Company's growth will require continued expansion of the Company's operational
and financial control systems, which could place a significant strain on the
Company's resources. Acquisitions of companies involve financial, operational
and legal risks, including the difficulty of assimilating operations and
personnel of the acquired companies and of maintaining uniform standards,
controls, procedures and policies. There can be no assurance that the Company
will be successful in making additional acquisitions or be effective in
integrating such acquisitions. Any failure to effectively integrate future
acquisitions could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company
competes and will continue to compete with other buyers for acquisitions. As a
result, if the prices sellers seek were to rise, the Company could find fewer
acceptable acquisition opportunities.
POTENTIAL LABOR SHORTAGE
The Company's ability to maintain its productivity and profitability
depends on its ability to attract and retain skilled workers. Although the
Company's size has increased substantially over the last two years, the Company
historically has experienced a high employee turnover rate, and the Company
continues to need replacement and additional workers, and devotes significant
management time and effort to attracting and retaining workers. The Company
believes that many skilled or trainable workers reside in reasonable proximity
to its facilities; however, there can be no assurance that the Company will be
successful in recruiting and training such workers due to a variety of factors.
Such factors include the potential inability or lack of desire by such workers
to commute to the Company's facilities and job sites or relocate to areas
closer to the Company's areas of operation, and competition for workers from
other industries. Although the Company believes that its wage rates are
competitive and that its relationship with its workforce is good, a significant
increase in the wages other employers pay could result in a reduction in the
Company's workforce, increases in the Company's wage rates, or both. If either
of these events occurs, the Company's profitability could be diminished and the
Company's growth potential could be impaired.
4
<PAGE> 6
OPERATING RISKS; INSURANCE
The Company's operations are subject to many hazards inherent in the
maintenance, workover, drilling and operation of oil and gas wells, the
occurrence of which could result in the suspension of operations, damage to or
destruction of equipment and injury or death to field personnel. These hazards
include explosions, blow-outs, reservoir damage, loss of well control,
cratering and fires. Damage to the environment also could result from the
Company's operations. The Company maintains insurance coverage in such amounts
and against such risks as it believes to be in accordance with normal industry
practice. Such insurance does not, however, provide coverage for all
liabilities (including liabilities for certain events involving pollution), and
there can be no assurance that such insurance will be adequate to cover all
losses or liabilities that the Company might incur in its operations. Moreover,
no assurance can be given that the Company will, in the future, be able to
maintain insurance at levels it deems adequate and at rates it considers
reasonable or that any particular types of coverage will be available.
The well service business also is subject to seasonal risks caused by
adverse weather conditions such as severe winter storms. In addition, the
Company's operations in Northern regions are subject to limitations on
transporting equipment during the spring thaw.
COMPETITION
Competition is intense in all of the Company's markets. The Company
competes on the basis of the quality of its equipment and service, its safety
record and pricing. While management believes that the Company's reputation for
quality of equipment and service and its safety record are among the best in
the industry, certain competitors have access to greater financial and other
resources than the Company, which could allow those companies to price their
services more aggressively than the Company.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws
and regulations including those relating to protection of the environment,
natural resources, health and safety, waste management, and transportation of
hydrocarbons and chemicals. Various operations conducted by the Company,
including waste disposal and the handling of materials which are classified as
wastes, pollutants or hazardous substances, may require permits or other
authorizations. Sanctions for noncompliance with these laws and regulations may
include administrative, civil and criminal penalties, as well as revocation of
permits, and corrective action orders. These laws may impose retroactive
liability and may render a party liable for environmental damage or threats to
human health or the environment without regard to that party's negligence or
fault. Consequently, the Company could be exposed to liability for the conduct
of, or conditions caused by, others, or for acts of the Company that were in
compliance with all applicable laws at the time such acts were performed. Laws
and regulations protecting the environment have been expanded, modified and
reinterpreted over the years, resulting in increasingly stringent requirements.
The application or interpretation of these regulations or the adoption of new
regulations could have a material adverse effect on the Company. In addition,
the modification or interpretation of existing laws or regulations or the
adoption of new laws or regulations curtailing exploratory or development
drilling for oil and gas for economic, environmental or other reasons could
have a material adverse effect on the Company's operations by limiting well
servicing opportunities.
DEPENDENCE ON KEY PERSONNEL
The Company's business is partially dependent upon the performance of
certain of its executive officers. The Company has entered into employment
agreements with these executive officers that contain non-compete provisions.
Notwithstanding such agreements, there can be no assurance that the Company
will be able to retain such officers or that it will be able to enforce the
non-compete provisions in the event of their departure. Although the Company
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<PAGE> 7
maintains key man life insurance on the lives of certain of such officers,
including its Chief Executive Officer, the existence of such insurance does not
mean that the death or disability of one or more of them would not have a
material adverse effect upon the Company.
INTERNATIONAL INVESTMENTS
The Company has investments and may make additional investments in
Argentina. The Company also may make investments in other foreign countries and
in companies located or with significant operations outside the United States.
Such investments are subject to risks and uncertainties relating to the
political, social and economic structures of those countries. Risks may include
fluctuations in currency valuation, expropriation, confiscatory taxation and
nationalization, currency conversion restrictions, increased regulation and
approval requirements and governmental policies limiting returns to foreign
investors.
SUBSTANTIAL LEVERAGE
The Company has substantial indebtedness and is highly leveraged. The
degree to which the Company is leveraged could adversely affect the Company's
ability to obtain additional financing for working capital, acquisitions or
other purposes and could make it more vulnerable to industry downturns and
competitive pressures. At January 16, 1998, the Company's outstanding long-
term debt totaled approximately $327.6 million, consisting of (i) $4.6 million
of outstanding 7% Convertible Subordinated Debentures due 2003 (the
"Debentures"), (ii) $216.0 of outstanding Notes and (iii) $107.0 million
borrowed under the Company's $250 million revolving credit facility (the
"Revolving Credit Facility"). At November 30, 1997, the Company's ratio of
total debt to total capitalization was approximately 69%. If the Company
borrows the entire amount available under the Revolving Credit Facility (and
assuming no conversion of the Debentures or the Notes), its total long-term
debt would be $481.8 and its ratio of total debt to total capitalization would
be approximately 78% (based on the Company's stockholders' equity at November
30, 1997).
In recent years, cash generated from the Company's operating activities
in conjunction with borrowings and proceeds from private equity issuances has
been sufficient to meet its debt service, acquisition and capital expenditure
requirements. There can be no assurance that cash generated from such sources
will be sufficient to meet its future debt service requirements and to make
anticipated acquisitions, investments and capital expenditures.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICES
As of January 16, 1998, the Company had a total of 18,707,390 shares of
Common Stock outstanding, including 400,000 recently purchased by the Company
which the Company is in the process of converting to treasury shares. As of
January 16, 1998, the Company held 16,666 shares of Common Stock in treasury.
Of the outstanding shares, approximately 1,459,211 are "restricted securities"
as that term is defined in Rule 144 under the Securities Act, and as such, are
subject to restrictions on resale in the public markets. However, all but
225,000 shares of such restricted securities are registered under registration
statements under the Securities Act or are subject to registration under
registration rights agreements. In addition, approximately 8,772,465 shares
of Common Stock are issuable upon the exercise of existing options and warrants
and the conversion of convertible securities, including 471,795 shares
currently issuable upon conversion of the Debentures and 5,610,390 shares
issuable upon conversion of the Notes. All of such shares will be issued in
registered transactions, or have been or will be registered for resale pursuant
to a registration rights agreement. Sales of a substantial number of any of
such shares in the public markets, or the perception that such sales could
occur, could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of its
equity securities.
6
<PAGE> 8
SELLING SECURITYHOLDERS
The following table sets forth information concerning the principal
amount of Notes and number of shares of Common Stock offered by the Selling
Securityholders (the "Shares").
<TABLE>
<CAPTION>
Beneficial Ownership
of Notes Before Beneficial Ownership
Offering(1) of Common Stock(1)
----------------------- ------------------------
Principal
Amount % of Number of % of
Name Owned Class Shares(2)(3) Class(3)
----- ----------- -------- -------------- ----------
<S> <C> <C> <C> <C>
The Bank of New York $14,850,000 6.4% 385 *
Bankers Trust Company $ 9,655,000 4.2% 250,779 1.3%
Bear, Stearns Securities $40,163,000 15.6% 1,043,194 5.2%
Corp.
Bank of America Personal $ 330,000 * 8,571 *
Trust
Boston Safe Deposit and $ 4,320,000 1.9% 112,207 *
Trust Company
Cantor, Fitzgerald & Co. $ 1,440,000 * 37,402 *
Chase Manhattan Bank $ 5,400,000 2.4% 140,259 *
Chase Manhattan $23,525,000 9.8% 611,038 3.1%
Bank/Chemical
Chase Manhattan Bank $ 1,000,000 * 25,974 *
Trust Co. of California
Citibank, N.A. $ 9,760,000 4.2% 253,506 1.3%
Corestates Bank, N.A. $ 955,000 * 24,805 *
Deutsche Morgan Grenfell $ 1,000,000 * 25,974 *
Inc.
Donaldson, Lufkin and $ 3,400,000 1.5% 88,311 *
Jenrette Securities Corp.
First Albany Corporation $ 105,000 * 2,727 *
Goldman Sachs $ 3,500,000 1.5% 90,909 *
International
Investors Bank & $10,300,000 4.5% 267,532 1.4%
Trust/M.F. Custody
Lehman Brothers, Inc. $ 4,910,000 2.2% 127,532 *
Lehman Brothers $ 3,250,000 1.4% 3,246 *
International (Europe) -
Prime Broker (LBI)
Mercantile Safe Deposit & $ 1,800,000 * 46,753 *
Trust
Merrill Lynch, Pierce $ 2,000,000 * 51,948 *
Fenner & Smith, Inc.
Merrill Lynch, Pierce $ 7,507,000 3.3% 194,987 1.0%
Fenner & Smith
Safekeeping
Merrill Lynch, Pierce, $ 10,000 * 2,597 *
Fenner & Smith, Inc. -
Debt Sec.
Morgan Stanley & Co. $ 3,650,000 1.6% 94,805 *
Incorporated
Natwest Securities $11,475,000 5.0% 298,051 1.5%
Corporation
</TABLE>
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<PAGE> 9
<TABLE>
<CAPTION>
Beneficial Ownership
of Notes Before Beneficial Ownership
Offering(1) of Common Stock(1)
------------------------------------------------
Principal
Amount % of Number of % of
Name Owned Class Shares(2)(3) Class(3)
----- ------------------------------------------------
<S> <C> <C> <C> <C>
Norwest Bank Minnesota $ 375,000 * 9,740 *
N.A.
Northern Trust Company $ 1,425,000 * 37,012 *
Paine Webber Incorporated $ 1,265,000 * 32,857 *
PNC Bank, National $ 860,000 * 22,337 *
Association
Prudential Securities 1,298 *
Incorporated Custodial $ 50,000 *
Account
Prudential Securities $ 100,000 * 2,597 *
Incorporated
Republic New York $ 500,000 * 12,987 *
Securities Corporation
Smith Barney Inc. $14,735,000 6.3% 382,727 2.0%
SSB - Custodian $27,925,000 11.4% 725,324 3.7%
Suntrust Bank, Atlanta $ 200,000 * 5,194 *
Texas Commerce Bank $ 60,000 * 1,558 *
National Association
UMB Bank, NA $ 1,250,000 * 32,467 *
Wachovia Bank of North $ 700,000 * 18,181 *
Carolina, N.A.
Fifth Third Bank $ 1,500,000 * 38,961 *
Chase Manhattan $ 750,000 * 19,480 *
Bank/Chemical
Nabors Industries, Inc. ---- ---- 365,000(4) 1.9%
</TABLE>
_____________________
* Less than one percent.
(1) No information is given with respect to beneficial ownership after the
Offering because the Company is unable to determine the number of shares
of Common Stock that will be sold in the Offering.
(2) Assumes a conversion price of Notes of $38.50 per share.
(3) Assumes conversion of all of the Notes and full exercise of the Warrant.
(4) Includes 265,000 shares of Common Stock issuable upon exercise of the
Warrant.
The information in the table with respect to Selling Securityholders who
are holders of Notes has been prepared based upon information furnished to the
Company by American Stock Transfer & Trust Company (the trustee under the
Indenture pursuant to which the Notes were issued), by the Depository Trust
Company and by or on behalf of the Selling Securityholders.
The per share conversion price and, therefore, the number of shares of
Common Stock issuable upon conversion of the Notes or exercise of the Warrant
is subject to adjustment under certain circumstances. Accordingly, the number
of shares of Common Stock issuable upon conversion of the Notes or exercise of
the Warrant may increase or decrease. As of the date of this Prospectus, the
aggregate principal amount of Notes outstanding is $216,000,000, which may be
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converted into 5,610,390 shares of Common Stock assuming a conversion rate of
$38.50 per share. In addition, the Company is registering the resale of an
additional 654,480 shares of Common Stock which it may issue to the holders of
the Notes to induce early conversion.
The information concerning the Selling Securityholders may change from
time to time and will be set forth in Supplements to this Prospectus. Other
than their ownership of the Company's securities, none of the Selling
Securityholders has had any material relationship with the Company within the
past three years, except that Nabors Industries, Inc. acquired its Company
securities in connection with the sale of all of the capital stock of J.W.
Gibson Well Service Company, a Delaware corporation, to the Company effective
January 8, 1998.
PLAN OF DISTRIBUTION
This Prospectus relates to the resale of (i) the Notes, (ii) the Common
Stock issuable upon conversion of Notes, (iii) up to 265,000 shares of Common
Stock issuable upon exercise of the Warrant and (iv) up to 100,000 shares of
Common Stock (the "Resale Shares") owned by one of the Company's shareholders.
The Notes were issued by the Company pursuant to a Purchase Agreement dated
September 18, 1997, and were acquired by the Selling Securityholders in resale
transactions pursuant to Rule 144A, Regulation S or Rule 501(a)(1), (2), (3) or
(7) under the Securities Act, or from other holders acquiring such Notes from
prior holders thereof. The Warrant and the Resale Shares were issued by the
Company in an unregistered transaction pursuant to the exemption provided by
Section 4(2) of the Securities Act. The Registration Statement of which this
Prospectus is a part does not cover the issuance of Common Stock upon (i)
conversion of the Notes into shares of Common Stock or (ii) exercise of the
Warrant.
The Company will not receive any of the proceeds from the sale of the
Notes and the shares of Common Stock offered hereby. The Company has been
advised by the Selling Securityholders that the Selling Securityholders may
sell all or a portion of the Notes and the shares of Common Stock beneficially
owned by them on any exchange or market on which the Notes or the Common Stock
are listed or quoted, as applicable, on terms to be determined at the times of
such sales. The Selling Securityholders also may make private sales directly
or through a broker. Alternatively, any of the Selling Securityholders may
from time to time offer the Notes or the Common Stock offered hereby through
underwriters, dealers or agents, who may receive compensation in the form of
underwriting discounts, commissions or concessions from the Selling
Securityholders.
To the extent not described herein and as otherwise required by law,
the specific amount of the Notes and Common Stock being offered or sold,
the names of the Selling Securityholders, the respective purchase prices
and public offering prices, the names of any agent, dealer or underwriter,
and any applicable commissions or discounts with respect to a particular offer
or sale will be set forth in an accompanying Prospectus Supplement or, if
appropriate, a post-effective amendment to the Registration Statement of which
this Prospectus is a part.
In order to comply with the securities laws of certain states, if
applicable, the Notes and the Common Stock offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Notes and the shares of Common Stock offered
hereby may not be sold unless they have been offered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and compliance therewith is effected.
The Selling Securityholders and any brokers, dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Notes and the Common Stock offered hereby may be deemed to
be "underwriters" within the meaning of the Securities Act, in which event any
commissions or discounts received by such brokers, dealers, agents or
underwriters and any profit on the resale of the Notes and the Common Stock
offered hereby and purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
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The Company and the Selling Securityholders have agreed to indemnify
each other against certain liabilities arising under the Securities Act. The
Company has agreed to pay all expenses incident to the offer and sale of the
Notes and Common Stock pursuant to this Prospectus other than selling
commissions and fees.
The Common Stock issuable upon conversion of the Notes have been
authorized for listing on the AMEX upon official notice of issuance. The Notes
are not listed on the AMEX and are not expected to be listed on any securities
exchange. The Notes are eligible for trading through the Portal Market.
DESCRIPTION OF COMMON STOCK
The Company is currently authorized to issue 100,000,000 shares of
Common Stock. Of the 100,000,000 shares currently authorized, an aggregate of
18,707,390 shares are outstanding as of January 16, 1998, including 400,000
shares recently purchased by the Company which the Company is in the process of
converting into treasury shares. As of January 16, 1998, the Company currently
holds 16,666 shares of Common Stock in treasury. All of the issued and
outstanding shares of Common Stock are fully paid and nonassessable. Each
share is entitled to one vote in the election of directors and other corporate
matters. The holders of Common Stock do not have cumulative voting rights,
which means that the holders of a majority of the votes entitled to be cast by
holders of the outstanding Common Stock are able to elect all of the Company's
directors. The Common Stock has no redemption provisions and the holders
thereof have no preemptive rights. The holders of Common Stock are entitled to
receive dividends in such amounts as may be declared by the Board of Directors,
as permitted by applicable law, and upon liquidation, dissolution, or winding
up of the Company subject to the rights of any preferred stock then
outstanding, the holders of Common Stock are entitled to share ratably in the
Company's assets, according to the number of shares they hold. The Common
Stock is listed on the AMEX. The transfer agent and registrar for the Common
Stock is American Stock Transfer & Trust Company, New York, New York.
The Board of Directors has the power under the Company's Amended and
Restated Articles of Incorporation, without the need of any stockholder action,
to redesignate all or any of the authorized and unissued shares of Common Stock
into one or more series of preferred or preference stock and to establish the
rights and preferences (including, without limitation, dividend and liquidity
preferences, voting rights and conversion provisions), except that the Company
charter provides that no such class or series of shares (i) may have more than
one vote per share, (ii) may be issued in connection with any shareholder
rights plan, "poison pill" or other anti-takeover measure, or (iii) may be
issued for less than fair consideration, as determined in good faith by the
Board of Directors.
DESCRIPTION OF NOTES
The Notes were issued under an indenture (the "Indenture") between the
Company and American Stock & Transfer Trust Company, as trustee (the
"Trustee"). The following summaries of certain provisions of the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to all of the provisions of the Indenture, the Debentures
and the Registration Rights Agreement dated as of September 25, 1997, among the
Company, Lehman Brothers Inc. and McMahan Securities Co. L.P. (the
"Registration Rights Agreement"), including the definition therein of certain
terms. Wherever particular sections or defined terms of the Indenture are
referred to, such sections or defined terms are incorporated herein by
reference. Copies of the Indenture and Registration Rights Agreement are
available from the Company.
GENERAL
The Notes are unsecured obligations of the Company, are limited to
$216.0 million in aggregate principal amount (including the Initial Purchasers'
over-allotment option) and mature on September 15, 2004. The Notes are
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subordinated in right of payment to certain other obligations of the Company.
See "-- Subordination." The Notes bear interest at a rate per annum of 5% from
the date of original issuance of Notes pursuant to the Indenture or from the
most recent Interest Payment Date to which interest has been paid or provided
for, payable semi-annually on March 15 and September 15 of each year,
commencing March 15, 1998 to the Person in whose name the Note (or any
predecessor Note) is registered at the close of business on the preceding March
1 or September 1, as the case may be. Interest on the Notes will be paid on the
basis of a 360-day year of twelve 30-day months.
Principal of, premium on, if any, and interest on, the Notes are payable
(i) in respect of Notes held of record by The Depository Trust Company ("DTC")
or its nominee in same day funds on or before the payment dates with respect to
such amounts and (ii) in respect of Notes held of record by holders other than
DTC or its nominee, at the office of the Trustee in New York, New York. The
Notes may be surrendered for transfer, exchange or conversion at the office of
the Trustee in New York, New York. In addition, with respect to Notes held of
record by holders other than DTC or its nominee, payment of interest may be
made, at the option of the Company, by check mailed to the addresses of the
persons entitled thereto as they appear in the register for the Notes on the
Regular Record Date for such interest.
The Notes have been issued only in registered form, without coupons and
in denominations of $1,000 or any integral multiple thereof. No service charge
will be made for any transfer or exchange of the Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge and any other expenses (including the fees and expenses of the Trustee)
payable in connection therewith. The Company is not required (i) to register
the transfer of or exchange any Notes for a period of 15 days before a
selection of Notes to be redeemed or (ii) to register the transfer of or
exchange any Note selected for redemption in whole or in part.
All monies paid by the Company to the Trustee or any Paying Agent for
the payment of principal of and premium and interest on any Note that remain
unclaimed for one year after such principal, premium or interest become due and
payable may be repaid to the Company. Thereafter, the Holder of such Note may,
as an unsecured general creditor, look only to the Company for payment thereof.
The Indenture does not contain any financial covenants or restrictions
on payment of dividends or any provisions that would provide protection to
Holders of the Notes against a sudden and dramatic decline in credit quality of
the Company resulting from any takeover, recapitalization or similar
restructuring, except as described below under "-- Certain Rights to Require
Repurchase of Notes."
CONVERSION RIGHTS
The Notes are convertible into shares of Common Stock at any time on and
after the earlier of the Registration Date and 270 days after the Issue Date
and before redemption or final maturity, initially at a conversion price equal
to $38.50 per share (equivalent to shares of Common Stock for each $1,000
principal amount of the Notes) subject to adjustment under certain conditions.
The right to convert Notes that have been called for redemption will
terminate at the close of business on the date fixed for redemption or the
second trading day preceding a Repurchase Date, as the case may be. See "--
Optional Redemption" below.
The conversion price are subject to adjustment upon the occurrence of
any of the following events: (i) the Company pays a dividend, or makes a
distribution, in shares of its Common Stock on its Common Stock; (ii) the
Company subdivides its outstanding Common Stock into a greater number of shares
or combines its Common Stock into a smaller number of shares; (iii) the Company
grants rights or warrants to all holders of Common Stock entitling them to
subscribe for or purchase Common Stock at a price less than the Current Market
Price per share; (iv) the Company distributes to all holders of its Common
Stock any shares of capital stock of the Company (other than Common Stock) or
evidences of its indebtedness or assets (excluding cash dividends or other
distributions to the extent
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paid from its retained earnings or current earnings) or rights or warrants to
subscribe for or purchase any of its securities (excluding those referred to in
(iii) above); (v) the Company, by dividend or otherwise, distributes to all
holders of its Common Stock cash in an aggregate amount that, combined together
with (A) the aggregate amount of any other distributions to all holders of its
Common Stock made exclusively in cash within the 12 months preceding the date
of payment of such distribution and in respect of which no adjustment pursuant
to this section (v) has been made and (B) the aggregate of any cash plus the
fair market value of consideration payable in respect of any tender offer by
the Company or its Subsidiaries for all or any portion of the Common Stock
concluded with the 12 months preceding the date of payment of such distribution
and in respect of which no adjustment pursuant to section (vi) has been made,
exceeds 10% of the Company's market capitalization (being the product of the
Current Market Price times the number of shares of Common Stock then
outstanding); and (vi) a tender offer made by the Company or any Subsidiary for
all or any portion of the Common Stock shall expire and such tender offer shall
require payment to stockholders of an aggregate consideration having a fair
market value that combined with (Y) the aggregate of the cash plus the fair
market value, as of the expiration of such tender offer of consideration
payable in respect of any other tender offer by the Company or any Subsidiary
for all or any portion of the Common Stock expiring within the 12 months
preceding the expiration of such tender offer and in respect of which no
adjustment to this section (vi) has been made and (Z) the aggregate amount of
any distributions to all holders of Common Stock made exclusively in cash
within 12 months preceding the expiration of such tender offer and in respect
of which no adjustment pursuant to section (v) has been made, exceeds 10% of
the product of the Current Market Price per share of the Common Stock as of the
last time tenders could have been made pursuant to such tender offer times the
number of shares of Common Stock outstanding (including tendered shares). No
adjustment of the conversion price will be required to be made unless such
adjustments amount to at least one percent of the conversion price, as last
adjusted. Any adjustment that would otherwise be required to be made shall be
carried forward and taken into account in any subsequent adjustment.
In addition to the foregoing adjustments, the Company are permitted to
reduce the conversion price as it considers to be advisable in order that any
event treated for federal income tax purposes as a dividend of stock or stock
rights will not be taxable to the holders of the Common Stock or, if that is
not possible, to diminish any income taxes that are otherwise payable because
of such event or for any other reason. In the case of any consolidation or
merger of the Company with any other corporation (other than one in which no
change is made in the Common Stock), or any sale or transfer of all or
substantially all of the assets of the Company, the Holder of any Note then
outstanding will, with certain exceptions, have the right thereafter to convert
such Note only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock into which such Note might have been converted
immediately before such consolidation, merger, sale or transfer; and
adjustments will be provided for events subsequent thereto that are as nearly
equivalent as practical to the conversion price adjustments described above.
Fractional shares of Common Stock will not be issued upon conversion,
but, in lieu thereof, the Company will pay a cash adjustment based upon the
Closing Price (defined below) at the close of business on the day of
conversion. If any Notes are surrendered for conversion during the period from
the close of business on the record date for any Interest Payment Date to the
opening of business on such Interest Payment Date (except any such Notes called
for redemption), such Notes when surrendered for conversion must be accompanied
by payment in funds acceptable to the Company of an amount equal to the
interest otherwise payable on such Interest Payment Date on the principal
amount being converted. Except as described in the preceding sentence, no
interest will be payable by the Company on converted Notes with respect to any
Interest Payment Date after the date of conversion. No other payment or
adjustment for interest or dividends is to be made upon conversion.
As used herein, the term "Current Market Price" per share of Common
Stock on any date shall be (i) in the case of the conversion of such shares for
cash, the average of the daily Closing Prices for the five consecutive days
immediately preceding the date of conversion and (ii) in all other cases,
deemed to be the average of the daily Closing Prices for the five consecutive
trading days selected by the Company commencing not more than twenty trading
days before, and ending not later than, the earlier of the day in question and
the day before the "ex date" with respect to the
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issuance or distribution requiring such computation. The "Closing Price" for
each trading day shall be the reported last sale price regular way or, in case
no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the New York Stock
Exchange (if shares of the Common Stock are listed for trading on such
exchange), on the American Stock Exchange (if shares of the Common Stock are
listed for trading on such exchange) or, if the Common Stock is not listed or
admitted to trading on either such exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange,
on the National Association of Securities Dealers Automated Quotations Systems
("NASDAQ") National Market System ("NASDAQ/NMS") or, if not listed or admitted
to trading on NASDAQ/NMS, on NASDAQ, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or NASDAQ/NMS or quoted
on NASDAQ, the average of the closing bid and asked prices in the over-the-
counter market as furnished by the National Association of Securities Dealers,
Inc. member firm selected from time to time by the Company for that purpose.
For purposes of this paragraph, the term "ex date," when used with respect to
any issuance of distribution, shall mean the first date on which the Common
Stock trades regular way on such exchange or in such market without the right
to receive such issuance or distribution.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Notes is, to the extent set forth in the Indenture, subordinated in right of
payment to the prior payment in full of all Senior Indebtedness. If there is
any distribution (which may consist of cash, securities or other property) to
creditors in a liquidation, dissolution, or winding up, or in a bankruptcy,
reorganization, insolvency, receivership or similar proceedings of the Company,
the holders of Senior Indebtedness shall be entitled to receive payment in
full, in cash or in a manner satisfactory to the holders of such Senior
Indebtedness, of all Senior Indebtedness before Holders shall be entitled to
receive any payments of principal of or premium, if any, or interest on Notes,
and until the Senior Indebtedness is so paid, any distributions to which
Holders would have been entitled but for the subordination shall be made to
holders of Senior Indebtedness as their interests may appear, except that
Holders may receive securities that are subordinated to Senior Indebtedness to
at least the same extent as the Notes. In the event of the maturity of any
Senior Indebtedness, all principal thereof, premium, if any, and interest
thereon and any other amounts owing in respect thereof must be paid in full, or
provisions for such payment in cash or in a manner satisfactory to the holders
of such Senior Indebtedness, before the Holders of the Notes will be entitled
to receive any payment for the principal of or premium, if any, or interest on
the Notes. No payments on account of principal of or premium, if any, or
interest on the Notes or payments to acquire any of the Notes may be made if
there has occurred a default with respect to Senior Indebtedness, permitting
holders to accelerate the maturity thereof (and if the default is other than
default in payment of the principal of, premium, if any, or interest on or any
other amount owing in respect of such Senior Indebtedness, upon written notice
thereof given to the Company and the Trustee by the holders of the Senior
Indebtedness) unless such default has been cured or waived, or has ceased to
exist.
Senior Indebtedness is defined in the Indenture as (a) the principal or
interest (including, to the extent permitted by applicable law, interest on or
after the commencement of any bankruptcy proceeding whether or not representing
an allowed claim in such proceeding) and premium, if any, on and any other
amount owing with respect to (i) any indebtedness of the Company, now or
hereafter outstanding, in respect of borrowed money (other than the Notes and
the Existing Debentures), (ii) any indebtedness of the Company, now or
hereafter outstanding, evidenced by a bond, note, Note, capitalized lease,
letter of credit or other similar instruments, (iii) any other written
obligations of the Company, now or hereafter outstanding, to pay money issued
or assumed as all or part of the consideration for the acquisition of property,
assets or securities and (iv) any guarantee or endorsement (other than for
collection or deposit in the ordinary course of business) or discount with
recourse by the Company of, or other agreement by the Company (contingent or
otherwise) to purchase, repurchase or otherwise acquire, to supply or advance
funds or to become liable with respect to (directly or indirectly), any
indebtedness or obligation of any Person of the type referred to in the
preceding subclauses (i), (ii) and (iii) now or hereafter outstanding; and (b)
any refundings, renewals or extensions of any indebtedness or other obligation
described in clause (a).
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The Notes are obligations exclusively of the Company. A portion of the
operations of the Company are currently conducted through Subsidiaries, which
are separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Notes or to make any funds
available therefor, whether by dividends, loans or other payments. The capital
stock of all of the Company's Subsidiaries has been pledged to the lending
banks under the Bank Credit Agreement. In addition, the payment of dividends
and certain loans and advances to the Company by such Subsidiaries may be
subject to certain statutory or contractual restrictions, are contingent upon
the earnings of such Subsidiaries and are subject to various business
considerations.
The Notes are effectively subordinated to all Senior Indebtedness of the
Company's Subsidiaries. Any right of the Company to receive assets of any such
Subsidiary upon the liquidation or reorganization of any such Subsidiary (and
the consequent right of the Holders of the Notes to participate in those
assets) will be effectively subordinated to the claims of that Subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such Subsidiary, in which case the claims of the Company would
still be subordinate to any security interest in the assets of such Subsidiary
and any indebtedness of such Subsidiary senior to that held by the Company. The
Notes are pari passu Company's 7% Convertible Subordinated Debentures due 2003
(the "Debentures") in right of payment but the Debentures are guaranteed by the
Subsidiaries of the Company.
The Indenture does not limit or prohibit the incurrence of Senior
Indebtedness. The Company expects to incur Senior Indebtedness in connection
with the completion of its pending and any future acquisitions and for other
corporate purposes from time to time in the future.
OPTIONAL REDEMPTION
The Notes are redeemable, at the Company's option, in whole or from time
to time in part, at any time on or after September 15, 2000, upon not less than
15 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed
at its address appearing in the Security Register and before Maturity at the
following Redemption Prices (expressed as percentages of the principal amount)
plus accrued interest to the Redemption Date (subject to the right of Holders
of record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or before the Redemption Date).
If redeemed during the 12-month period beginning September 15, in the
year indicated, the redemption price shall be:
REDEMPTION
YEAR PRICE
---- -----
2000 102.86%
2001 102.14%
2002 101.43%
2003 100.71%
2004 100.00%
No sinking fund is provided for the Notes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, convey, transfer or
lease all or substantially all of its properties and assets to any Person
(other than a merger between the Company and any wholly-owned Subsidiary of the
Company), unless (a) the Company survives such merger or such Person is a
corporation, organized and validly existing under the laws of the United States
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or any state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations under the Notes and the
Indenture, (b) immediately after consummating such consolidation, merger,
transfer or lease, no Default or Event of Default will occur and be continuing,
(c) immediately after giving effect to such transaction, the consolidated net
worth of the resulting surviving corporation is not less than that of the
Company immediately before the transaction, and the Company has delivered to
the Trustee an Officer's Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, conveyance, transfer or lease and, if
applicable, such supplemental indenture complies with the provisions of the
Indenture.
CERTAIN RIGHTS TO REQUIRE REPURCHASE OF NOTES
In the event of any Change in Control occurring after the date of
issuance of the Notes and on or before Maturity, each Holder of Notes will have
the right, at the Holder's option, to require the Company to repurchase all or
any part of the Holder's Notes on the date (the "Repurchase Date") that is no
later than 60 days following the date of the Repurchase Event as described
below at a price (the "Repurchase Price") equal to 100% of the principal amount
thereof, together with accrued and unpaid interest to the Repurchase Date. On
or before the Repurchase Date, the Company shall deposit with the Trustee or a
Paying Agent an amount of money sufficient to pay the Repurchase Price of the
Notes which are to be repaid on or promptly following the Repurchase Date.
Failure by the Company to provide timely notice of a Change in Control,
as provided for below, or to repurchase the Notes when required under the
preceding paragraph will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture.
The Company is obligated to mail to all Holders of Notes, a notice no
less than 30 days nor more than 45 days before any Repurchase Date, of the
occurrence of such Change in Control, the Repurchase Date, the date by which
the repurchase right must be exercised, the Repurchase Price for Notes and the
procedures which the Holder must follow to exercise this right. To exercise the
repurchase right, the Holder of a Note must deliver, on or before the close of
business on the Repurchase Date, irrevocable written notice to the Company (or
an agent designated by the Company for such purpose) and to the Trustee of the
Holder's exercise of such right, together with the certificates evidencing the
Notes with respect to which the right is being exercised, duly endorsed for
transfer. Such written notice is irrevocable.
A "Change in Control" shall occur when: (i) all or substantially all of
the Company's assets are directly or indirectly leased, exchanged or otherwise
transferred or sold to any Person or related group of Persons; (ii) there shall
be consummated any consolidation or merger of the Company with the effect that
immediately after such transaction the stockholders of the Company hold less
than a majority of the combined voting power of the then outstanding voting
stock of the Person surviving such transaction; or (iii) any Person, or any
Persons acting together which would constitute a "group" for purposes of
Section 13(d) of the Exchange Act, together with any affiliates thereof, shall
beneficially own (as defined in Rule 13d-3 under the Exchange Act) at least 50%
of the total voting power of the then outstanding voting stock and warrants or
options to acquire such voting stock calculated on a fully-diluted basis, of
the Company.
The right to require the Company to repurchase Notes as a result of the
occurrence of a Change in Control could create an event of default under Senior
Indebtedness of the Company, as a result of which any repurchase could, absent
a waiver, be blocked by the subordination provisions of the Notes. See "--
Subordination." Failure by the Company to repurchase the Notes when required
will result in an Event of Default with respect to the Notes whether or not
such repurchase is permitted by the subordination provisions. The Company's
ability to pay cash to the Holders of Notes upon a Change in Control may be
limited by certain financial covenants contained in the Company's Senior
Indebtedness. In addition, there can be no assurance that the Company will have
the cash necessary to satisfy its repurchase obligation. See "Risk Factors --
Limitation on Repurchase of Notes Upon a Change in Control."
The foregoing provisions would not necessarily afford Holders of the
Notes protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders. In addition, the
foregoing
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provisions may discourage open market purchases of the Common Stock or a non-
negotiated tender or exchange offer for such stock and, accordingly, may limit
a stockholder's ability to realize a premium over the market price of the
Common Stock in connection with any such transaction.
In the event a Change in Control occurs and the Holders exercise their
rights to require the Company to repurchase Notes, the Company intends to
comply with applicable tender offer rules under the Exchange Act, including
Rules 13e-4 and 14e-1, as then in effect, with respect to any such repurchase.
EVENTS OF DEFAULT AND ACCELERATION
The following are Events of Default under the Indenture with respect to
the Notes: (a) default in the payment of principal of or premium, if any, on
any Note when due; (b) default in the payment of any interest on any Note when
due, which default continues for more than 30 days; (c) default in the
performance, or breach, of any other covenant or warranty of the Company in the
Indenture continuing for 60 days after written notice by the Trustee or the
Holders of at least 25% in aggregate principal amount of the outstanding Notes;
(d) default on any other Indebtedness of the Company or any Subsidiary if such
Default results from the failure to pay principal of, premium, if any, or
interest on any such Indebtedness when due in excess of $25,000,000 or as a
result of such Default, the maturity of such Indebtedness has been accelerated,
without such Default and acceleration having been rescinded or annulled within
10 days, and the principal amount of any other such Indebtedness in Default, or
the maturity of which has been so accelerated, aggregate $25,000,000 or more;
(e) the entry by a court of a judgment or order against the Company or any
Subsidiary in an aggregate amount in excess of $25,000,000 that is not covered
by insurance written by third parties that has not been vacated, discharged,
satisfied or stayed pending approval within 60 days after the entry thereof;
and (f) certain events in bankruptcy, insolvency or reorganization of the
Company or any Subsidiary of the Company.
If an Event of Default with respect to the Notes shall occur and be
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the then outstanding Notes may declare the unpaid principal
of and any accrued interest on all such Notes to be due and payable immediately
by notice to the Company. However, the Holders of a majority in principal of
the then outstanding Notes may, by written notice to the Trustee, rescind an
acceleration and its consequences if such rescission would not conflict with
any judgment or decree and if all existing Events of Default (except nonpayment
of principal or interest that has become due solely because of the
acceleration) have been cured or waived. If an Event of Default shall occur as
a result of an event of bankruptcy, insolvency or reorganization of the Company
or any Subsidiary of the Company, such an amount shall become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Company is required to furnish to the Trustee
annually a statement as to the performance by the Company of certain of its
obligations under the Indenture and as to any default in such performance.
MODIFICATION, AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture and the Notes may be made
by the Company and the Trustee without the consent of the Holders to: (a) cure
any ambiguity, defect or inconsistency; (b) provide for any uncertificated
Notes in addition to certificated Notes; (c) make any change that does not
adversely affect the legal rights of any Holder under the Indenture; (d)
provide for assumption of obligations of the Company to Holders; and (e) comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
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Modifications and amendments of the Indenture and the Notes may be made
by the Company and the Trustee with the consent of the Holders of not less than
a majority in aggregate principal amount of the outstanding Notes. The Holders
of a majority in principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of the
Indenture or the Notes. However, without the consent of each Holder affected,
an amendment or waiver may not (with respect to any Notes held by a
nonconsenting Holder): (a) reduce the principal amount of Notes whose Holders
must consent to an amendment or waiver; (b) reduce the rate of interest or
change the time for payment of interest, including default interest, on any
Note; (c) reduce the principal of or change the maturity of any Note or alter
the redemption provisions or the price at which the Company shall offer to
purchase such Notes; (d) make any Note payable in money other than that stated
in the Note; (e) make any changes as regards provisions for the waiver of past
Defaults and the rights of Holders to receive payment, as contained in the
Indenture; or (f) waive a default in the payment of, premium or interest on, or
redemption payment with respect to, any Note.
BOOK-ENTRY, DELIVERY AND FORM
The Notes are represented by global notes in registered, global form
without interest coupons (collectively, the "Global Notes"). The Global Notes
were initially deposited with the Trustee as custodian for the Depository, in
New York, New York, and registered in the name of the Depository or its nominee,
in each case for credit to an account of a direct or indirect participant as
described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of the Depository or to a successor of
the Depository or its nominee. Beneficial interests in the Global Notes may not
be exchanged for Notes in certificated form except in the limited circumstances
described below. See "-- Exchange of Book-Entry Notes for Certificated Notes".
Transfer of beneficial interests in the Global Notes will be subject to
the applicable rules and procedures of the Depository and its direct or indirect
participants, which may change from time to time.
The Notes may be presented for registration of transfer and exchange at
the offices of the Registrar.
DEPOSITORY PROCEDURES
The Depository has advised the Company that the Depository is a limited-
purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the
clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of Participants.
The Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depository only through the Participants or Indirect Participants. The
ownership interest and transfer of ownership interest of each actual purchaser
of each security held by or on behalf of the Depository are recorded on the
records of the Participants and Indirect Participants.
The Depository has also advised the Company that pursuant to procedures
established by it, ownership of interests in the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depository (with respect to Participants) or by Participants
and the Indirect Participants (with respect to other owners of beneficial
interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through the Depository, if they are Participants in such system, or indirectly
through organizations that are Participants in such system.
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The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interest in the Global Notes to such persons may
be limited to that extent. Because the Depository can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having a beneficial interest in a Global Note to
pledge such interest to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such interests, may
be affected by the lack of physical certificate evidencing such interests. For
certain other restrictions on the transferability of the Notes see, "-- Exchange
of Book-Entry Notes for Certificated Notes" and.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL
NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium and Liquidated Damages,
if any, and interest on a Global Note registered in the name of the Depository
or its nominee will be payable by the Trustee to the Depository or its nominee
in its capacity as the registered Holder under the Indenture. Under the terms
of the Indenture, the Company and the Trustee will treat the persons in whose
names the Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Company, the Trustee nor any
agent of the Company or the Trustee has or will have any responsibility or
liability for (i) any aspect of the Depository's records or any Participant's
or Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Notes, or for maintaining,
supervising or reviewing any of the Depository's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes or (ii) any other matter relating to the actions
and practices of the Depository or any of its Participants or Indirect
Participants.
The Depository has advised the Company that its current practices, upon
receipt of any payment in respect of securities such as the Notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the relevant
security such as the Global Notes as shown on the records of the Depository.
Payments by Participants and the Indirect Participants to the beneficial owners
of Notes will be governed by standing instructions and customary practices and
will not be the responsibility of the Depository, the Trustee or the Company.
Neither the Company nor the Trustee will be liable for any delay by the
Depository or its Participants in identifying the beneficial owners of the
Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from the Depository or its nominee as the
registered owner of the Notes for all purposes.
Interests in the Global Notes will trade in the Depository's Same-Day
Funds Settlement System. Secondary market trading activity in such interests
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of the Depository and its participants.
Transfers between Participants in the Depository will be effected in
accordance with the Depository's procedures, and will be settled in same-day
funds.
The Depository has advised the Company that it will take any action
permitted to be taken by a Holder of Notes only at the direction of one or more
Participants to whose account the Depository interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Notes as to which such Participant or Participants has or have given
direction. However, if there is an Event of Default under the Notes, the
Depository reserves the right to exchange Global Notes for legended Notes in
certificated form, and to distribute such Notes to its Participants.
The information in this section concerning the Depository and its
book-entry systems has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof.
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Although the Depository has agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in the
Depository, it is under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company or the Trustee will have any responsibility for the performance by the
Depository or its respective participants or indirect participants of its
obligations under the rules and procedures governing its operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form if (i) the Depository (A) notifies the Company that it is
unwilling or unable to continue as depository for the Global Note and the
Company thereupon fails to appoint a successor depository or (B) has ceased to
be a clearing agency registered under the Exchange Act or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause issuance of
the Notes in certificated form. In all cases, certificated Notes delivered in
exchange for any Global Note or beneficial interest therein will be registered
in names, and issued in any approved denominations, requested by or on behalf
of the Depository (in accordance with its customary procedures) and will bear
restrictive legends, unless the Company determines otherwise in compliance with
applicable law.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to
certificated Notes, the Company will make all payments of principal, premium,
if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof
or, if no such account is specified, by mailing a check to each such Holder's
registered address. The Company expects that secondary trading in the
certificated Notes will also be settled in immediately available funds.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance
with the laws of the State of New York, without giving effect to such State's
conflicts of laws principles.
INFORMATION CONCERNING TRUSTEE
The Company and its subsidiaries have engaged the Trustee to provide
stock transfer and other services, including serving as (i) transfer agent and
registrar for the Notes, (ii) trustee, transfer agent and registrar for the
existing Debentures and transfer agent and (iii) registrar for the Common Stock.
ABSENCE OF PUBLIC MARKET
No assurance as to the liquidity of any markets that may develop in the
future for the Notes, the ability of the Holders to sell their Notes or at what
price Holders of the Notes will be able to sell their Notes. Future trading
prices of the Notes will depend upon many factors including, among other things,
prevailing interest rates, the Company's operating results, the trading price of
the Common Stock and the market for similar securities. The Notes are eligible
for trading in the PORTAL market; however, the Company does not intend to apply
for listing of the Notes on any securities exchange.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Notes. This discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings, and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations.
This discussion does not deal with all aspects of United States
federal income taxation that may be relevant to holders of the Notes or shares
of Common Stock issued in connection with the conversion thereof and does not
deal with tax consequences arising under the laws of any foreign, state or
local jurisdiction. This discussion is for general information only, and does
not purport to address all of the tax consequences that may be relevant to
particular purchasers in light of their particular circumstances (such as
holders subject to the alternative minimum tax or holders who acquire the Notes
at a premium), or to certain types of purchasers (such as certain financial
institutions, insurance companies, tax-exempt entities, foreign persons,
dealers in securities or persons who hold the Notes or Common Stock in
connection with a hedging transaction, straddle, or conversion transaction) who
may be subject to special rules. This discussion assumes that each holder
holds the Notes and the shares of Common Stock received in connection with the
conversion thereof as capital assets.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX
ADVICE. ACCORDINGLY, EACH PROSPECTIVE HOLDER OF THE NOTES SHOULD CONSULT HIS
OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OF THE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN INCOME
TAX LAWS, AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO UNITED STATES HOLDERS
The following applies to any person (a "United States Holder") who or
which is (i) a citizen or resident of the United States; (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state; (iii) any estate whose income is included in
gross income for United States federal income tax purposes regardless of its
source; and (iv) a trust which is subject to the supervision of a court within
the United States and the control of one or more United States fiduciaries as
described in Section 7701(a)(30) of the Code. A "Non-United States Holder" is
a holder other than a United States Holder.
OWNERSHIP OF THE NOTES
TAXATION OF STATED INTEREST. In general, interest paid on a Note will
be taxable to a United States Holder as ordinary interest income in accordance
with the United States Holder's method of tax accounting for tax purposes.
Certain events, which the Company does not anticipate occurring, will cause
liquidated damages to be payable to the holders of the Notes as described
under. The possibility that such liquidated damages may be paid does not
cause the Notes to have original issue discount. Any such liquidated damages
paid will be includible in income by the holders in accordance with applicable
law, for which the treatment is not entirely clear.
CONSTRUCTIVE DIVIDEND. The conversion price of the Notes is subject
to adjustment in certain circumstances. Under Section 305(C) of the Code,
adjustments that have the effect of increasing the proportionate interest of
holders of the Notes in the assets or earnings of the Company (for example, an
adjustment following a distribution of property by the Company to its
stockholders) may in some circumstances give rise to a deemed distribution to
holders of the Notes. Similarly, a failure to adjust the conversion price of
the Notes to reflect a stock dividend or other event increasing the
proportionate interest of holders of outstanding Common Stock can in some
circumstances give rise to a deemed distribution to holders of Common Stock.
Such deemed distributions will be taxable as a dividend, return of capital, or
capital gain in accordance with the earnings and profits rules discussed under
"-Dividends on Shares of Common Stock."
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SALE, EXCHANGE OR REDEMPTION OF NOTES OR SHARES OF COMMON STOCK.
Except as provided under "-Conversion of Notes into Common Stock," a United
States Holder of a Note generally will recognize gain or loss upon the sale,
exchange, redemption, or other disposition of the Note measured by the
difference between the amount of cash and the fair market value of any property
received (except to the extent attributable to the payment of accrued interest)
and the United States Holder's tax basis in the Note. A United States Holder's
tax basis in a Note generally will equal the cost of the Note to the United
States Holder increased by the amount of [original issue discount] market
discount, if any, previously taken into income by the United States Holder or
decreased by any bond premium theretofore amortized by the United States Holder
with respect to the Note. For the basis and holding period of shares of Common
Stock, see "-Conversion of Notes into Common Stock." In general, each United
States United States Holder of Common Stock will recognize gain or loss upon
the sale, exchange, redemption, or other disposition of the Common Stock under
rules similar to those applicable to the Notes. Subject to the market discount
rules discussed below, the gain or loss on the disposition of the Notes or
shares of Common Stock will be capital gain or loss. Under recently enacted
legislation, capital gains of individuals derived in respect of capital assets
held for more than one year are eligible for reduced rates of taxation which
may vary depending upon the holding period of such capital assets. Prospective
investors should consult their own tax advisors with respect to the tax
consequences of the new legislation. The deductibility of capital losses is
subject to limitations.
CONVERSION OF NOTES INTO COMMON STOCK. A holder of a Note will not
recognize gain or loss on the conversion of the Note into shares of Common
Stock (except to the extent that the Common Stock issued upon the conversion is
attributable to accrued interest on the Note). The holder's aggregate tax
basis in the shares of Common Stock received in respect of the conversion of
the Note will be equal to the holder's aggregate basis in the Note exchanged
therefor (less any portion thereof allocable to cash received in lieu of a
fractional share. The holding period of the shares of Common Stock received by
the holder in connection with the conversion of the Note will include the
period during which the holder held the Note before the conversion, except to
the extent that such Common Stock is attributable to accrued interest on the
Note.
Cash received in lieu of a fractional share of Common Stock should be
treated as a payment in exchange for such fractional share. Gain or loss
recognized on the receipt of cash paid in lieu of such fractional shares
generally will equal the difference between the amount of cash received and the
amount of tax basis allocable to the fractional shares.
CONVERSION OF NOTES INTO CASH. In certain circumstances, the Company
may deliver cash in lieu of its Common Stock upon conversion of a Note. In
such cases, a holder of a Note will recognize gain or loss on the conversion of
the Note into cash. Gain or loss recognized generally will equal the
difference between the amount of cash received and the holder's tax basis in
the Notes surrendered. Such gain or loss will be capital gain or loss, except
to the extent attributable to interest.
MARKET DISCOUNT. The resale of a Note may be affected by the "market
discount" provisions of the Code. For this purpose, the market discount on a
Note will generally be equal to the amount, if any, by which the stated
redemption price at maturity of the Note immediately after its acquisition
exceeds the United States Holder's tax basis in the Note. Subject to a de
minimis exception, these provisions generally require a holder of a Note
acquired at a market discount to treat as ordinary income any gain recognized
on the disposition of such Note to the extent of the "accrued market discount"
on such Note at the time of disposition. In general, market discount on a Note
will be treated as accruing on a straight-line basis over the term of such
Note, or, at the election of the United States Holder, under a constant yield
method.
In addition, any United States Holder of a Note acquired at a market
discount may be required to defer the deduction of a portion of the interest on
any indebtedness incurred or maintained to purchase or carry the Note until the
Note is disposed of in a taxable transaction. The foregoing rule will not
apply if the United States Holder elects to include accrued market discount in
income currently.
If a United States Holder acquires a Note at a market discount and
receives Common Stock, if any, upon conversion of the Note, the amount of
accrued market discount with respect to the converted Note through the date of
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the conversion will be treated as ordinary income to the extent of any gain
recognized upon the conversion, and the balance of any accrued market discount
will be treated, under regulations to be issued, as ordinary income upon the
disposition of the Common Stock.
DIVIDENDS ON SHARES OF COMMON STOCK. Distributions on shares of
Common Stock will constitute dividends for United States federal income tax
purposes to the extent of current or accumulated earnings and profits of the
Company as determined under United States federal income tax principles.
Dividends paid to United States Holders that are corporations may qualify for
the dividends-received deduction. Individuals, partnerships, trusts, and
certain corporations, including certain foreign corporations, are not entitled
to the dividends-received deduction.
To the extent, if any, that a United States Holder receives a
distribution on shares of Common Stock that would otherwise constitute a
dividend for United States federal income tax purposes but that exceeds current
and accumulated earnings and profits of the Company, such distribution will be
treated first as a non-taxable return of capital reducing the holder's basis in
the shares of Common Stock. Any such distribution in excess of the United
States Holder's basis in the shares of Common Stock will be treated as a
capital gain.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information reporting will apply to payments of interest or
dividends on, or the proceeds of the sale or other disposition of, the Notes or
shares of Common Stock made by the Company to United States Holders other than
certain exempt recipients (such as corporations). Such United States Holders
generally will be subject to backup withholding at a rate of 31% unless the
recipient of such payment supplies a taxpayer identification number, certified
under penalties of perjury, as well as certain other information, or otherwise
establishes, in the manner prescribed by law, an exemption from backup
withholding. Any amount withheld under backup withholding is allowable as a
credit against the United States Holder's federal income tax, upon furnishing
the required information.
DEDUCTION OF INTEREST EXPENSE ON THE NOTES
Under Section 279 of the Code, deductions otherwise allowable to a
corporation for interest expense may be reduced or eliminated in the case of
"corporate acquisition indebtedness," which is defined generally to include
subordinated convertible debt issued to provide consideration for the
acquisition of stock or a substantial portion of the assets of another
corporation, where the acquiring corporation does not meet certain debt/equity
ratio and earnings coverage tests. The Company expects to use the proceeds of
the sale of the Notes in such a manner that its interest expense with respect
to the Notes will not be materially reduced under Section 279 of the Code.
Under newly enacted Section 163(1) of the Code, deductions for
interest and [original issue discount] are denied to corporations for
"disqualified debt instruments", defined generally as indebtedness of a
corporation which is payable in equity of the issuer or a related party.
Included in this definition are debt instruments convertible into stock of the
issuer at the holder's option where there is a substantial certainty that the
option will be exercised. Since the conversion price will exceed the market
price of the Company's Common Stock by 25% on the date issued, the Company
believes that there is presently no substantial certainty that the Notes will
be converted and consequently that its interest deductions will not be
materially reduced under Section 163(1) of the Code.
CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS
For purposes of the following discussion, interest income,
dividend income and gain on the sale, exchange or redemption of a Note or
shares of Common Stock will be "United States trade or business income" if such
income or gain is (i) effectively connected with a trade or business carried on
by the Non-United States Holder within the United States or (ii) if a tax
treaty applies, attributable to a permanent establishment (or in the case of an
individual, a fixed place of business) in the United States. United States
trade or business income will be taxed at regular United States federal income
tax rates. See, generally, "Certain United States Federal Income Tax
Considerations for United States Holders" above. In the case of a Non-United
States Holder that is a corporation, such United States trade or business
income may
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also be subject to the branch profits tax (which is generally imposed on a
foreign corporation on the actual or deemed repatriation from the United States
of earnings and profits attributable to United States trade or business income)
at a 30% rate. The branch profits tax may not apply (or may apply at a reduced
rate) if the recipient is a qualified resident of certain countries with which
the United States has an income tax treaty.
INTEREST. Payments of interest, to a Non-United States Holder that do
not qualify for the portfolio interest exception discussed below and which are
not United States trade or business income will be subject to withholding of
United States federal income tax at a rate of 30% unless a United States income
tax treaty applies to reduce the rate of withholding. To claim a treaty reduced
rate or an exemption from withholding because the interest is United States
trade or business income, the Non-United States Holder must provide a properly
executed IRS Form 1001 or Form 4224, respectively.
Interest that is paid to a Non-United States Holder on a Note that is
not United States trade or business income will not be subject to United States
tax if the interest qualifies as "portfolio interest." Generally, interest on
the Notes that is paid by the Company will qualify as portfolio interest if (i)
the Non-United States Holder does not own, actually or constructively, 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote within the meaning of section 871(h)(3) of the Code and the
regulations thereunder; (ii) the Non- United States Holder is not a controlled
foreign corporation that is related to the Company through stock ownership for
United States federal income tax purposes; (iii) the Non-United States Holder
is not a bank whose receipt of interest on a Note is described in Section
881(c)(3)(A) of the Code; and (iv) the Company, or its paying agent, receives a
properly executed certification as set forth in Section 871(h) and 881(C) of
the Code and the regulations thereunder, signed under penalties of perjury that
the beneficial owner is not a "United States person" for United States federal
income tax purposes and which provides the beneficial owner's name and address.
SALE, EXCHANGE OR REDEMPTION OF NOTE OR SHARES OF COMMON STOCK. Any
gain realized by a Non-United States Holder on the sale, exchange or redemption
of Notes, generally will not be subject to United States federal income tax
provided that (i) such gain is not United States trade or business income; (ii)
the Non-United States Holder is not an individual who is present in the United
States for 183 days or more in the taxable year of the disposition and meets
certain other requirements; and (iii) the Non-United States Holder is not
subject to tax pursuant to the provisions of United States tax law applicable
to certain United States expatriates.
FEDERAL ESTATE TAX. Notes held (or treated as held) by an individual
who is a Non-United States Holder at the time of his death (or theretofore
transferred subject to certain retained rights or powers) will not be subject
to United States federal estate tax provided that any interest thereon would be
exempt as portfolio interest if such interest were received by the Non-United
States Holder at the time of his death. Common Stock held (or treated as held)
by an individual who is a Non-United States Holder at the time of his death (or
theretofore transferred subject to certain retained rights or powers) will be
included in such individual's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise. Such
individual's estate may be subject to United States federal estate tax on the
property includable in the estate for United federal estate tax purposes.
DIVIDENDS. Payments of dividends to a Non-United States Holder which
are not United States trade or business income will be subject to withholding
of United States federal income tax at a rate of 30% unless a United States
income tax treaty applies to reduce the rate of withholding. To claim a treaty
reduced rate or an exemption from withholding because the dividends are United
States trade or business income, the Non-United States Holder must provide a
properly executed IRS Form 1001 or Form 4224, respectively.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX. The
Company generally must report annually on Form 1042-S to the IRS and to each
Non-United States Holder the amount of interest and dividends paid to, and the
tax withheld, if any, with respect to each Non-United States Holder. These
reporting requirements apply whether or not withholding is reduced or
eliminated by an applicable tax treaty. Copies of these information returns may
also be made available under the provisions of a specific treaty or agreement
to the tax authorities of the country in which the Non-United States Holder
resides.
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The United States backup withholding tax (in general, a tax imposed at
the rate of 31% on interest or dividend payments to persons that fail to
furnish the information required under the United States information reporting
requirements) will generally not apply to payments of interest that qualify as
portfolio interest as described above (provided that the Company has no actual
knowledge that the Holder is a United States person). Non-United States Holders
will be required to provide certification to the Company of qualification for
the portfolio interest or treaty exemption to avoid withholding.
Payments of the proceeds of the sale of Notes or shares of Common
Stock to or through a foreign office of a "broker" (as defined in the pertinent
regulations) will not be subject to backup withholding (absent actual knowledge
that the payee is a United States person) but will be subject to information
reporting if the broker is a United States person, a controlled foreign
corporation for United States federal income tax purposes, or a foreign person
50% or more of whose gross income is from a United States trade or business for
a specified three-year period, unless the broker has in its records documentary
evidence that the Holder is not a United States person and certain conditions
are met (including that the broker has no actual knowledge that the Holder is a
United States person) or the Holder otherwise establishes an exemption. Payment
of the proceeds of a sale to or through the United States office of a broker is
subject to backup withholding and information reporting, unless the Holder
certifies that it is a Non-United States Holder under penalties of perjury or
otherwise establishes an exemption.
Any amount withheld under the backup withholding rules from a payment
to a Non-United States Holder will be allowed as a credit against, or refund
of, such Holder's regular federal income tax liability, provided that certain
information is provided by the Holder to the IRS.
The IRS has proposed regulations that, if issued as final regulations,
would require certain Non-United States Holders to provide additional
information in order to establish an exemption from, or reduced rate of,
withholding tax or backup withholding tax. In particular these rules would
require foreign partnerships and their partners to provide certain information
and comply with certain certification requirements not required under existing
law. These rules are proposed to apply generally to payments made after
December 31, 1998. It is not possible to predict whether, or in what form,
such proposed regulations ultimately will be adopted.
DESCRIPTION OF DEBENTURES
In July 1996, the Company issued $52 million principal amount of the
Debentures. The Debentures are convertible into shares of Common Stock at a
conversion price of $9.75 per share (subject to adjustment in certain events)
and, if such conversion occurs before July 1, 1999, holders of the Debentures
are entitled to a payment generally equal to 50% of the interest otherwise
payable on the Debentures converted from the date of conversion through July 1,
1999, payable in cash or Common Stock, at the Company's option. The Company's
obligation to repay principal and interest on the Debentures is guaranteed by
its principal subsidiaries. The Debentures are redeemable, at the Company's
option, on or after July 15, 1999 at a redemption price of 104% of principal
amount in the first 12 months, and 103%, 102% and 101% of principal amount in
the three years thereafter, respectively. Additionally, holders of the
Debentures have the right to require the Company to repurchase such Notes at
100% of the principal amount thereof, together with accrued interest, in the
event of a Change in Control (as defined in the Indenture relating to the
Debentures). As of January 16, 1998, $4,600,000 of Debentures remained
outstanding.
24
<PAGE> 26
LEGAL MATTERS
Certain legal matters relating to the validity of the Common Stock have
been passed upon by Porter & Hedges, L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of the Company and
subsidiaries as of June 30, 1997 and 1996, and for each of the years in the
three-year period ended June 30, 1997, have been incorporated by reference in
this Prospectus in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Well-Co Oil Service, Inc. as of June 25, 1997
and for the period from July 1, 1996 to June 25, 1997, have been incorporated by
reference into this Prospectus in reliance upon the report of Robinson Burdette
Martin & Cowan, L.L.P., independent certified public accountants, upon the
authority of said firm as experts in accounting and auditing.
The financial statements of Ram Oil Well Service, Inc. and Rowland
Trucking Co., Inc. as of December 31, 1996 and 1995, have been incorporated by
reference into this Prospectus in reliance upon the report of Johnson, Miller &
Co., independent certified public accountants, upon the authority of said firm
as experts in accounting and auditing.
The consolidated financial statements of Coleman Oil & Gas, Inc. and
Subsidiaries as of October 31, 1996 and 1995, have been incorporated by
reference into this Prospectus in reliance upon the report of Chandler &
Company LLP, independent certified public accountants, upon the authority of
said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a registration statement on Form S-3
(together with all exhibits, schedules and amendments thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which is a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement.
Statements in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
concerning the Company and the Common Stock, reference is made to the
Registration Statement. Copies of the Registration Statement may be obtained
from the Commission at its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the prescribed fee.
The Company is subject to the information requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. The Registration Statement, as well as such
reports, proxy statements and other information can be inspected and copied at
the Public Reference Facilities maintained by the Commission at its principal
offices at 450 Fifth Street, N.W., Washington, D.C. 20549, and its regional
offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Such information also may be obtained on the Internet through the Commission's
EDGAR database at http://www.sec.gov. Copies of such materials also can be
inspected at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006. With respect to each contract, agreement or other
document filed as an exhibit to the Registration Statement reference is made to
such exhibit for a more complete description of the matter involved and each
such statement shall be deemed qualified in all respects by such reference.
25
<PAGE> 27
===============================================================================
NO DEALER, SALES PERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SECURITYHOLDERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AND OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY, SINCE THE DATE HEREOF.
----------
CONTENTS
Page
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Disclosure Regarding Forward Looking
Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selling Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Description of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 10
Description of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Description of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . 24
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
================================================================================
================================================================================
KEY ENERGY
GROUP, INC.
$216,000,000
5% CONVERTIBLE SUBORDINATED
NOTES DUE 2004
1,091,480 SHARES
COMMON STOCK
$.10 PAR VALUE PER SHARE
----------
PROSPECTUS
----------
JANUARY , 1998
===============================================================================
<PAGE> 28
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses to
be incurred in connection with the issuance and distribution of the
Securities registered hereby, other than underwriting discounts and
commissions.
Registration Fee Under Securities Act . . . . . . $69,415
Legal Fees . . . . . . . . . . . . . . . . . . . 7,000
Accounting Fees . . . . . . . . . . . . . . . . . 12,000
Printing and Engraving . . . . . . . . . . . . . 2,000
Miscellaneous Fees . . . . . . . . . . . . . . . 585
--------
Total . . . . . . . . . . . . . . . . . . $91,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 2-418 of the Maryland General Corporation Law (the "MGCL")
provides that a corporation may indemnify any director made a party to any
proceeding against judgments, penalties, fines, settlements and reasonable
expenses, unless it is established that (i) the act or omission of the
director was material to the matter giving rise to the proceeding and was
committed in bad faith or was a result of deliberate dishonesty, (ii) the
director actually received an improper personal benefit or (iii) in a criminal
proceeding, the director had reasonable cause to believe the act or omission
was unlawful. A director may not be indemnified in any proceeding charging
improper personal benefit if the director was adjudged to be liable and, in a
derivative action, there shall not be indemnification if a director has been
adjudged liable to the corporation. A director or officer of a corporation who
has been successful in the defense of any proceeding shall be indemnified
against reasonable costs incurred in such defense. Indemnification may not
be made unless authorized pursuant to a determination that the director
has met the requisite standard of conduct.
Article Seventh of the Company's Amended and Restated Articles of
Incorporation, as amended (the "Charter"), provides that the Company shall
indemnify (i) its directors and officers, whether serving the Company or
at its request any other entity, to the full extent required or permitted by
the MGCL, including the advance of expenses under the procedures and to the
full extent permitted by law and (ii) other employees and agents to such extent
as shall be authorized by the Board of Directors or the Company's By-Laws and
be permitted by law. The foregoing rights of indemnification are exclusive of
any other rights to which those seeking indemnification may be entitled. The
Board of Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such by-laws, resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be
permitted by the MGCL. Furthermore, no director or officer of the Company
shall be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director or an officer,
except to the extent that exculpation from liability is not permitted under
the MGCL as in effect when such breach occurred. No amendment of the
Charter or repeal of any of its provisions shall limit or eliminate the
limitations on liability provided to directors and officers with respect to
acts or omissions occurring prior to such amendment or repeal.
II-1
<PAGE> 29
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT NO. DESCRIPTION
----------- -----------
4.1 Indenture dated as of July 3, 1996, among
Key Energy Group, Inc., Yale E. Key, Inc.,
WellTech Eastern, Inc., Odessa Exploration,
Inc., Key Energy Drilling, Inc., d/b/a Clint
Hurt Drilling, Servicios WellTech, S.A., and
American Stock Transfer & Trust Company, as
Trustee, relating to the Company's $52,000,000
7% Convertible Subordinated Debentures due
2003 (incorporated by reference to Exhibit 4.2 of
the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997).
4.2 Indenture dated as of September 25, 1997, among
Key Energy Group, Inc., and American Stock
Transfer & Trust Company, as Trustee, relating to
the Company's $216,000,000 5% Convertible
Subordinated Notes due 2004 (incorporated by
reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-3 (Reg. No.
333-43115)). 5.1 Opinion of Porter & Hedges,
L.L.P.
5.1 Opinion of Porter & Hedges, L.L.P.
23.1 Consent of Porter & Hedges, L.L.P. (included in
Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Robinson Burdette Martin & Cowan,
L.L.P.
23.4 Consent of Johnson, Miller & Co.
23.5 Consent of Chandler & Company LLP
24.1 Power of Attorney (included on signature page)
25.1 Form T-1 Statement of Eligibility and
Qualification under the Trust Indenture
Act of 1939 of American Stock Transfer and
Trust Company.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
registration statement or any material change to such information
in this registration statement; provided, however, that
subparagraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by
those paragraphs is contained in the periodic reports filed by
the Registrant pursuant to Section 13 or Section 15(d) of the
Securities and Exchange Act of 1934 that are incorporated by
reference in this registration statement.
(2) That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the Securities
offered herein, and the offering of such Securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 30
(3) To remove from registration by means of a post-effective
amendment any of the Securities being registered which remain unsold
at the termination of the offering.
The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange of 1934 that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the Securities offered herein, and the
offering of such Securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to officers, directors and controlling persons
of the Registrant pursuant to the provisions described under Item 15
of this registration statement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
Securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is public policy as expressed in such Act and will be governed by the
final adjudication of such issue.
II-3
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Key Energy Group, Inc. certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New Brunswick, State of New Jersey on
January 21, 1998.
KEY ENERGY GROUP, INC.
By: /s/ Francis D. John
----------------------------------
Francis D. John, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 has been signed below by the following
persons in the capacities and on the dates indicated; and each of the
undersigned officers and directors of Key Energy Group, Inc. hereby severally
constitutes and appoints Francis D. John and Jack D. Loftis, and each of them,
to sign for him, and in his name in the capacity indicated below, such
Registration Statement on Form S-3 and for the purpose of registering such
securities under the Securities Act of 1933, as amended, and any and all
amendments thereto, including without limitation any registration statements or
post-effective amendment thereof filed under and meeting the requirements of
Rule 462(b) under the Securities Act, hereby ratifying and confirming our
signatures as they may be signed by our attorneys to such Registration
Statement and any and all amendments thereto.
Signatures Title Date
/s/ Francis D. John President, January 21, 1998
---------------------------- Chief Executive
Francis D. John Officer, and Director
/s/ William S. Manley Director January 21, 1998
- -----------------------------
William S. Manley
/s/ Morton Wolkowitz Director January 21, 1998
----------------------------
Morton Wolkowitz
/s/ David J. Breazzano Director January 21, 1998
----------------------------
David J. Breazzano
/s/ Kevin P. Collins Director January 21, 1998
----------------------------
Kevin P. Collins
/s/ Phillip W. Marcum Director January 21, 1998
----------------------------
Phillip W. Marcum
/s/ Stephen E. McGregor Executive Vice President January 21, 1998
---------------------------- and Chief Financial
Stephen E. McGregor Officer
/s/ J.D. Faircloth Chief Accounting Officer January 21, 1998
---------------------------- and Treasurer
J.D. Faircloth
II-4
<PAGE> 32
EXHIBIT LIST
EXHIBIT NO. DESCRIPTION
---------- -----------
<TABLE>
<S> <C>
4.1 Indenture dated as of July 3, 1996, among Key Energy
Group, Inc., Yale E. Key, Inc., WellTech Eastern, Inc.,
Odessa Exploration, Inc., Key Energy Drilling, Inc.,
d/b/a Clint Hurt Drilling, Servicios WellTech, S.A.,
and American Stock Transfer & Trust Company, as
Trustee, relating to the Company's $52,000,000 7%
Convertible Subordinated Debentures due 2003
(incorporated by reference to Exhibit 4.2 of the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1997).
4.2 Indenture dated as of September 25, 1997, among Key
Energy Group, Inc., and American Stock Transfer & Trust
Company, as Trustee, relating to the Company's
$216,000,000 5% Convertible Subordinated Notes due 2004
(incorporated by reference to Exhibit 4.2 of the
Company's Registration Statement on Form S-3 (Reg. No.
333-43115)).
5.1 Opinion of Porter & Hedges, L.L.P.
23.1 Consent of Porter & Hedges, L.L.P. (included in Exhibit
5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Robinson Burdette Martin & Cowan, L.L.P.
23.4 Consent of Johnson, Miller & Co.
23.5 Consent of Chandler & Company LLP
24.1 Power of Attorney (included on signature page)
25.1 Form T-1 Statement of Eligibility and
Qualification under the Trust Indenture
Act of 1939 of American Stock Transfer and
Trust Company.
</TABLE>
II-5
<PAGE> 1
EXHIBIT 5.1
January 21, 1998
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Key Energy Group, Inc. - Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Key Energy Group, Inc., a Maryland corporation
(the "Company"), in connection with the registration on Form S-3 under the
Securities Act of 1933, as amended, of (i) $216,000,000 principal amount of the
Company's 5% Convertible Subordinated Notes due 2004 (the "Notes"), (ii) an
indeterminate number of shares (the "Conversion Shares") of the Company's
common stock, par value $.10 per share (the "Common Stock"), issuable upon
conversion of the Notes and (iii) 1,019,480 shares of the Company's Common
Stock, of which 365,000 shares (the "Resale Shares") are being offered by a
stockholder of the Company and 654,480 shares are being offered in connection
with the conversion of the Notes (the "Shares").
In rendering the opinions set forth below, we have examined the articles of
incorporation, bylaws and corporate proceedings of the Company, and based upon
such examination and having regard for applicable legal principals, we are of
the opinion that (i) the Notes are validly issued, fully paid and nonassessable
notes of the Company, (ii) the Conversion Shares, when issued in accordance with
the terms of the Notes, will be validly issued, fully paid and nonassessable
outstanding shares of the Company's Common Stock, (iii) the Resale Shares are
validly issued, fully paid and nonassessable outstanding shares of the Company's
Common Stock and (iv) the Shares, when issued by the Company, will be validly
issued, fully paid and nonassessable outstanding shares of the Company's Common
Stock.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the heading "Legal Matters" in
the Prospectus included as part of the Registration Statement.
Very truly yours,
/s/ Porter & Hedges, L.L.P.
PORTER & HEDGES, L.L.P.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF KMPG PEAT MARWICK LLP
The Board of Directors
Key Energy Group, Inc.:
We consent to the use of our report incorporated herein by reference and
to the reference to our firm under the heading "Experts" in the Prospectus.
/s/ KMPG Peat Marwick LLP
KMPG PEAT MARWICK LLP
Midland, Texas
January 21, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Key Energy Group, Inc. on Form S-3 of our report dated August 8, 1997, on our
audit of the financial statements of Well-Co Oil Service, Inc. as of June 25,
1997 and for the period from July 1, 1996 to June 25, 1997, which report
is included in Key Energy Group, Inc.'s current report on Form 8-K/A (Amendment
No. 2) dated June 25, 1997.
/s/ ROBINSON BURDETTE MARTIN & COWAN, L.L.P.
Robinson Burdette Martin & Cowan, L.L.P.
Lubbock, Texas
January 21, 1998
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'S CONSENT
We consent to the incorporation by reference in the registration statement
of Key Energy Group, Inc. on form S-3 of our reports dated January 23, 1997 and
February 7, 1997, on our audits of the financial statements of Ram Oil Well
Service, Inc. and Rowland Trucking Co., Inc., respectively, as of December 31,
1996 and 1995, which reports are included in Key Energy Group, Inc.'s current
report on Form 8-K/A (Amendment No. 1) dated September 1, 1997.
/s/ Johnson, Miller & Co.
Johnson, Miller & Co.
Hobbs, New Mexico
January 21, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF CHANDLER & COMPANY LLP
The Board of Directors
Key Energy Group, Inc.
We consent to the incorporation by reference in this registration statement of
Key Energy Group, Inc. on Form S-3 of our report dated July 25, 1997, on our
audits of the consolidated balance sheets of Coleman Oil & Gas, Inc. and
Subsidiaries as of October 31, 1996 and 1995, and the related statements of
earnings, stockholders' equity, and cash flows for the years then ended, and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ Chandler & Company LLP
Farmington, new Mexico
January 21, 1998
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
____________________________________
AMERICAN STOCK TRANSFER & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-3439945
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
40 Wall Street 10005
New York, New York (Zip Code)
(Address of trustee's
principal executive offices)
-----------------------------------
KEY ENERGY GROUP, INC.
(Exact name of obligor 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, 10th Floor
East Brunswick, New Jersey 08816
(Address of principal executive (Zip Code)
offices)
_____________________________________
5% CONVERTIBLE SUBORDINATED NOTES DUE 2004
(Title of the Indenture Securities)
<PAGE> 2
-2-
GENERAL
1. General Information.
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust
powers.
2. Affiliations with Obligor and Underwriters.
-------------------------------------------
If the obligor or any underwriter for the obligor is an
affiliate of the trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
---------------------------------
Furnish the following information as to each class of voting
securities of the trustee:
As of JANUARY 20, 1998
- ------------------------------------------------------------------
COL. A COL. B
- ------------------------------------------------------------------
Title of Class Amount Outstanding
- ------------------------------------------------------------------
Common Shares - par value $600 per share. 1,000 shares
4. Trusteeships under Other Indentures.
------------------------------------
American Stock Transfer & Trust Company is Trustee in respect of
certain 7% Convertible Subordinated Debentures due 2003 under an
Indenture dated as of July 3, 1996.
None.
5. Interlocking Directorates and Similar Relationships with the
------------------------------------------------------------
Obligor or Underwriters.
------------------------
None.
<PAGE> 3
-3-
6. Voting Securities of the Trustee Owned by the Obligor or its
------------------------------------------------------------
Officials.
----------
None.
7. Voting Securities of the Trustee Owned by Underwriters or
---------------------------------------------------------
their Officials.
----------------
None.
8. Securities of the Obligor Owned or Held by the Trustee.
-------------------------------------------------------
None.
9. Securities of Underwriters Owned or Held by the Trustee.
--------------------------------------------------------
None.
10. Ownership or Holdings by the Trustee of Voting Securities of
------------------------------------------------------------
Certain Affiliates or Security Holders of the Obligor.
------------------------------------------------------
None.
11. Ownership or Holdings by the Trustee of any Securities of
----------------------------------------------------------
a Person Owning 50 Percent or More of the Voting Securities
-----------------------------------------------------------
of the Obligor.
---------------
None.
12. Indebtedness of the Obligor to the Trustee.
-------------------------------------------
None.
13. Defaults by the Obligor.
-----------------------
None.
14. Affiliations with the Underwriters.
-----------------------------------
None.
15. Foreign Trustee.
---------------
Not applicable.
<PAGE> 4
-4-
16. List of Exhibits.
-----------------
T-1.1 - A copy of the Organization Certificate of American
Stock Transfer & Trust Company, as amended to date
including authority to commence business and
exercise trust powers was filed in connection with
the Registration Statement of Live Entertainment,
Inc., File No. 33-54654, and is incorporated herein
by reference.
T-1.4 - A copy of the By-Laws of American Stock Transfer
& Trust Company, as amended to date was filed in
connection with the Registration Statement of
Live Entertainment, Inc., File No. 33-54654, and is
incorporated herein by reference.
T-1.6 - The consent of the Trustee required by Section
312(b) of the Trust Indenture Act of 1939.
Exhibit A.
T-1.7 - A copy of the latest report of condition of the
Trustee published pursuant to law or the
requirements of its supervising or examining
authority. - Exhibit B.
_______________________________________
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
American Stock Transfer & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 20th day of January 1998.
AMERICAN STOCK TRANSFER
& TRUST COMPANY
Trustee
By:/s/Herbert J. Lemmer
--------------------
Vice President
<PAGE> 5
EXHIBIT A
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321 (b) of the Trust Indenture Act of
1939, and subject to the limitations therein contained, American Stock Transfer
& Trust Company hereby consents that reports of examinations of said
corporation by Federal, State, Territorial or District authorities may be
furnished by such authorities to you upon request therefor.
Very truly yours,
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By /s/ Herbert J. Lemmer
---------------------
Vice President
<PAGE> 6
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL ST.
NEW YORK, NY 10005
EXHIBIT B
CONSOLIDATED REPORT OF CONDITION AND INCOME FOR A BANK WITH
DOMESTIC OFFICES ONLY AND TOTAL ASSETS OF LESS THAN $100 MILLION
REPORT AT CLOSE OF BUSINESS ON JUNE 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
DOLLAR AMOUTS IN THOUSANDS
- -------------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions:
a. Noninterest-bearing balances and currency and coin 433
b. Interest-bearing balances
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)
b. Available-for-sale securities (from Schedule RC-B, column D) 3,537
3. Federal funds sold and securities purchased under agreements
to resell
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C)
b. LESS: Allowance for loan and lease losses
c. LESS: Allocated transfer risk reserve
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.b minus 4.b and 4.c
5. Trading assets
6. Premises and fixed assets (including capitalized leases) 3,641
7. Other real estate owned (from Schedule RC-M)
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M)
9. Customers' liability to this bank on acceptances outstanding
10. Intangible assets (from Schedule RC-M)
11. Other asssets (from Schedule RC-F) 6,678
12. a. Total assets (sum of items 1 through 11) 14,289
b. Losses deferred pursuant to 12 U.S.C. 1823 (j)
c. Total assets and losses deferred pursuant to 12 U.S.C.
1823 (j) (sum of items 12.a and 12.b) 14,289
<PAGE> 7
SCHEDULE RC - CONTINUED
DOLLAR AMOUNTS IN THOUSANDS
- -------------------------------------------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from
Schedule RC-E)
(1) Noninterest-bearing
(2) Interest-bearing
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased and securities sold under agreements to
repurchase
15. a. Demand notes issued to the U.S. Treasury
b. Trading liabilities
16. Other borrowed money (includes mortgage indebtedness and
obligations under capitalized leases):
a. With a remaining maturity of one year or less
b. With a remaining maturity of more than one year through
three years
c. With a remaining maturity of more than three years
17. Not applicable
18. Bank's liability on acceptances executed and outstanding
19. Subordinated notes and debentures
20. Other liabilities (from Schedule RC-G) 1,851
21. Total liabilities (sum of items 13 through 20) 1,851
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 600
24. Common stock
25. Surplus (exclude all surplus related to preferred stock) 9,289
26. a. Undivided profits and capital reserves 2,523
b. Net unrealized holding gains (losses) on
available-for-sale securities
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27) 12,438
b. Losses deferred pursuant to 12 U.S.C. 1823(j)
c. Total equity capital and losses deferred pursuant to
12 U.S.C. 1823(j) (sum of items 28.a and 28.b) 12,438
29. Total liabilities, equity capital, and losses deferred
pursuant to 12 U.S.C.. 1823 (j) (sum of items 21 and 28.c)
