_______________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to ________
Commission file number 1-8038
KEY ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 04-2648081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Tower Center, 20th Floor, East Brunswick, NJ 08816
Address of Principal executive offices) (ZIP Code)
Registrant's telephone number including area code: (732) 247-4822
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Common Shares outstanding at May 13, 1998 - 18,327,390
_______________________________________
<PAGE>
KEY ENERGY GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 1998 (unaudited) and June 30, 1997 3
Unaudited Consolidated Statements of Operations for the
Three months and nine months ended March 31,
1998 and 1997 4
Unaudited Consolidated Statements of Cash Flows for the
Three months and nine months ended March 31,
1998 and 1997 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
<PAGE>
KEY ENERGY GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
March 31, June 30,
1998 1997
---------- ---------
(Unaudited)
ASSETS
Current assets:
Cash $26,874 $41,704
Accounts receivable, net 85,629 45,230
Inventories 14,781 5,171
Prepaid expenses and other 4,140 1,228
-------- -------
Total current assets 131,424 93,333
Property and equipment, at cost:
Oilfield service equipment 376,666 186,895
Oilfield drilling equipment 47,591 6,319
Oil and gas properties, using the
successful efforts accounting method 31,890 23,622
Other property and equipment 32,908 10,419
-------- --------
489,055 227,255
Less accumulated depreciation and depletion 39,622 19,069
-------- --------
Property and equipment, net 449,433 208,186
-------- --------
Goodwill, net 43,024 16,387
Other assets 14,452 2,189
-------- --------
TOTAL ASSETS $638,333 $320,095
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $16,707 $15,339
Other accrued liabilities 23,583 12,507
Accrued interest 1,325 2,102
Accrued income taxes 326 1,664
Deferred taxes 98 126
Current portion of long-term debt 2,591 1,404
-------- --------
Total current liabilities 44,630 33,142
Long-term debt, net of current portion 356,043 172,763
Noncurrent accrued expenses 5,365 4,017
Deferred taxes 85,333 35,738
Minority interest - 1,256
Commitments and contingencies
Stockholders' Equity:
Common stock, $0.10 par value per share;
100,000,000 shares authorized,
18,724,056 and 12,297,752 shares issued at
March 31, 1998 and June 30, 1997,
respectively 1,872 1,230
Additional paid-in capital 118,489 55,031
Treasury stock, at cost; 416,666 shares
and zero shares at March 31, 1998 and June
June 30, 1997, respectivily (9,682) -
Retained earnings 36,283 16,918
-------- --------
Total Stockholders' Equity 146,962 73,179
-------- --------
$638,333 $320,095
======== ========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
3
<PAGE>
KEY ENERGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Three months ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
Revenues: --------------------- --------------------
Oilfield services $104,014 $38,308 $271,505 $97,327
Oilfield drilling 14,078 2,414 25,590 7,097
Oil and gas 1,730 2,250 5,422 5,863
Other, net 902 78 3,201 422
-------- -------- -------- --------
Total revenues 120,724 43,050 305,718 110,709
-------- -------- -------- --------
Costs and expenses:
Oilfield services 72,222 26,502 188,814 69,268
Oilfield drilling 10,434 2,061 19,287 5,905
Oil and gas 787 899 2,282 2,185
General and administrative 11,774 4,914 29,947 12,176
Depreciation, depletion
and amortization 9,215 3,250 22,101 7,687
Interest expense 5,063 1,861 12,380 4,507
-------- -------- -------- --------
Total costs and expenses 109,495 39,487 274,811 101,728
-------- -------- -------- --------
Income before income taxes and
minority interest 11,229 3,563 30,907 8,981
Income tax provision 4,147 1,207 11,542 3,020
Minority interest in income - (9) - (1)
-------- -------- -------- --------
Net income $7,082 $2,365 $19,365 $5,962
======== ======== ======== ========
Net income per share:
Basic $0.39 $0.20 $1.15 $0.54
Diluted $0.35 $0.17 $0.97 $0.46
Weighted average shares outstanding:
Basic 18,295 11,612 16,843 10,961
Diluted 25,449 18,162 23,725 17,251
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
4
<PAGE>
KEY ENERGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three months ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
------------------ ------------------
Cash flows from operating activities:
Net income $7,082 $2,365 $19,365 $5,962
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation, depletion
and amortization 9,215 3,250 22,101 7,687
Deferred income taxes (261) 1,207 3,809 3,020
Minority interest in
net income - (9) - (1)
Changes in assets and
liabilities, net of effects
from acquisitions:
Accounts receivable (2,062) (3,462) (6,396) (7,135)
Other current assets (4,104) (1,253) (4,446) (1,350)
Accounts payable and
accrued liabilities (7,483) (1,541) (17,121) (4,610)
Accrued interest (1,989) 1,158 (776) 875
Other assets and
liabilities 1,317 699 (3,400) (107)
------- -------- -------- --------
Net cash provided by
(used in) operating activities 1,715 2,414 13,136 4,341
------- -------- -------- --------
Cash flows from investing activities:
Property and equipment
additions related to:
Oilfield service operations (9,965) (3,108) (28,927) (9,057)
Oilfield drilling operations (1,593) (485) (4,966) (1,076)
Oil and gas operations (1,815) (1,623) (4,080) (2,639)
Acquisitions of:
Oilfield service operations,
net of cash acquired (24,654) (8,494) (159,314) (21,722)
Oilfield drilling operations,
net of cash acquired (15,216) - (37,082) -
Oil and gas operations,
net of cash acquired - - (600) (281)
Minority interest - - (3,426) -
------- ------- -------- --------
Net cash used in
investing activities (53,243) (13,710) (238,395) (34,775)
------- ------- -------- --------
Cash flows from financing activities:
Principal payments on debt (936) (200) (3,483) (1,253)
Repayment of long-term debt - (1,675) (216,337) (37,088)
Borrowings under line of credit 25,000 1,980 224,000 3,287
Purchase of treasury stock - - (9,682) -
Proceeds from convertible
subordinated debentures, net - - - 50,440
Proceeds from long-term
commercial paper debt, net - - 208,500 -
Procceds from other
long-term debt 568 15,000 2,267 25,500
Proceeds from exercise of
warrants - 375 4,222 375
Proceeds from exercise
stock options - - 942 58
-------- -------- -------- --------
Net cash provided by
financing activities 24,632 15,480 210,429 41,319
-------- -------- -------- ---------
Net increase (decrease)
in cash (26,896) 4,184 (14,830) 10,885
Cash, beginning of period 53,770 10,912 41,704 4,211
-------- -------- -------- --------
Cash, end of period $26,874 $15,096 $26,874 $15,096
======== ======== ======== ========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
5
<PAGE>
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Key Energy Group, Inc. (collectively
with its subsidiaries, the "Company" or "Key") and its wholly-owned subsidiaries
for the interim period as of March 31, 1998 and 1997, and for the three and nine
months ended March 31, 1998 and 1997 are unaudited. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in this Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. However, in the opinion of management, these
interim financial statements include all the necessary adjustments to fairly
present the results of the interim periods. The results of operations for the
three and nine months ended March 31, 1998 are not necessarily indicative of the
results of operations for the full fiscal year ended June 30, 1998. These
unaudited interim consolidated financial statements should be read in
conjunction with the audited financial statements for the fiscal year ended June
30, 1997 included in the Company's 1997 Annual Report on Form 10-K.
Earnings per Share
The Company implemented Statement of Financial Accounting Standards No. 128
("SFAS 128") - Earnings per Share, for the quarter ended December 31, 1997. SFAS
128 replaces the presentation of primary earnings per share ("EPS") with the
presentation of basic EPS, which excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. SFAS 128 has been applied retro-actively for
each period presented. In accordance with SFAS 128, the reconciliation of the
numerators and denominators for diluted EPS is presented below:
Three MonthsEnded Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
----------------- -----------------
Diluted EPS Computation:
Numerator-
Net Income $ 7,082 $ 2,365 $19,365 $ 5,962
Effect of Dilutive Securities,
Tax Effected:
Convertible debt 1,752 634 3,599 1,901
------ ------ ------ ------
$ 8,834 $ 2,999 $22,964 $7,863
------ ------ ------ ------
Denominator-
Weighted Average Common
Shares Outstanding 18,295 11,612 16,843 10,961
Warrants 74 411 199 309
Stock Options 997 806 1,357 648
7% Convertible Subordinated Debentures 472 5,333 1,497 5,333
5% Convertible Subordinated Notes 5,610 - 3,829 -
------ ------ ------ ------
25,449 18,162 23,725 17,251
------ ------ ------ ------
Diluted EPS $ 0.35 $ 0.17 $ 0.97 $ 0.46
<PAGE>
2. BUSINESS AND PROPERTY ACQUISITIONS
The Company
The Company conducts its domestic operations primarily through eight
wholly-owned subsidiaries: Yale E. Key, Inc., WellTech Eastern, Inc., WellTech
Mid-Continent, Inc., Brooks Well Servicing, Inc., Key Four Corners, Inc., Key
Rocky Mountain, Inc., Odessa Exploration Incorporated, and Key Energy Drilling,
Inc. The Company's Argentina operations are conducted through its wholly-owned
subsidiaries Servicios WellTech S.A. and Kenting Drilling (Argentina) S. A.
As of May 15, 1998, the Company owned a fleet of approximately 830 well service
rigs, 700 oilfield fluid, haul and other trucks, and 63 land drilling rigs,
including 16 well service rigs, 14 trucks and 6 drilling rigs in Argentina.
Acquisitions Completed During the Nine Months Ended March 31, 1998
The following acquisitions were completed during the nine months ended March 31,
1998. Except as otherwise noted, the results of operations from these
acquisitions are included in the Company's results of operations for the
applicable three months and nine months ended March 31, 1998. Each of the
acquisitions was accounted for using the purchase method of accounting. Unless
otherwise noted, the purchase prices specified below are based on cash paid and
the value of the Company's common stock, par value $0.10 (the "Common Stock"),
issued at the closing of the acquisitions (with the Common Stock being valued at
the closing price on the closing date), and do not include any post-closing
adjustments, if any, paid or to be paid based upon a re-calculation of the
working capital of the acquired company as of the closing date.
Edwards Transport, Inc.
On March 27, 1998, the Company completed the acquisition of Edwards Transport,
Inc. ("Edwards") for approximately $3.0 million in cash. Edwards operates
fifteen vacuum and pump trucks in West Texas. The operating results of Edwards
will be included in the Company's results of operations effective April 1, 1998.
Lundy Vacuum Service, Inc.
On March 3, 1998, the Company completed the acquisition of Lundy Vacuum Service,
Inc. ("Lundy") for approximately $1.4 million in cash. Lundy operates eight
vacuum trucks, other oilfield fluid hauling trucks and an oilfield construction
site buisiness in East Texas. The operating results of Lundy will be included in
the Company's results of operations effective March 3, 1998.
Lauffer Well Service, Inc.
On March 2, 1998, the Company completed the acquisition of the assets of Lauffer
Well Service, Inc. ("Lauffer") for approximately $400,000 in cash. Lauffer
operates four well service rigs in Kentucky. The operating results of Lauffer
will be included in the Company's results of operations effective March 2, 1998.
<PAGE>
Updike Brothers, Inc.
On February 6, 1998, the Company completed the acquisition of Updike Brothers,
Inc. ("Updike") for approximately for approximately $10.6 million in cash.
Updike operates 25 well service rigs in Wyoming. The operating results of Updike
are included in the Company's results of operations effective February 6, 1998.
Four Corners Drilling Company
On February 4, 1998, the Company completed the acquisition of Four Corners
Drilling Company ("Four Corners") for approximately $10.0 million in cash. Four
Corners owns 12 drilling rigs in the four corners region of the Southwestern
United States. The operating results of Four Corners are included in the
Company's results of operations effective February 4, 1998.
Kingsley Enterprises, Inc. d/b/a Legacy Drilling Co.
On January 30, 1998, the Company completed the acquisition of Legacy Drilling
Co. ("Legacy") for approximately $3.6 million in cash. Legacy operates four
drilling rigs in the Permian Basin region of West Texas. The operating results
of Legacy are included in the Company's results of operations effective February
1, 1998
Circle M Vacuum Services, Inc.
On January 30, 1998, the Company completed the acquisition of Circle M Vacuum
Services, Inc. ("Circle M") for approximately $800,000 in cash. Circle M
operates four vacuum trucks, trailers and a salt water disposal well in
Southeast Texas. The operating results of Circle M are included in the Company's
results of operations effective February 1, 1998
Hot Oil Plus, Inc.
On January 29, 1998, the Company completed the acquisition of Hot Oil Plus, Inc.
("Hot Oil Plus") for approximately $1.8 million in cash. Hot Oil Plus operates
eight hot oil trucks, a pump truck and a steam heater in Southeast Texas. The
operating results of Hot Oil Plus are included in the Company's results of
operations effective February 1, 1998.
J.W. Gibson Well Service Company
On January 8, 1998, the Company completed the acquisition of J.W. Gibson Well
Service Company ("Gibson") for approximately $25.5 million, consisting of $23.9
million in cash, 100,000 shares of Common Stock and warrants to acquire 265,000
shares of Common Stock at an exercise price of $18.00 per share, subject to
certain adjustments.
Gibson operates 74 well service rigs and related equipment in eight states. From
August 1, 1997 through the closing of the acquisition, the Company managed the
operations of Gibson pursuant to an interim operating agreement. Under the
operating agreement, the Company received a management fee equal to the
operating income from Gibson's operations less $25,000 per month and received a
one-time management fee of $300,000. The full operating results of Gibson are
included in the Company's consolidated results of operations effective January
8, 1998.
<PAGE>
Sitton Drilling Co.
On January 1, 1998, the Company completed the acquisition of Sitton Drilling Co.
("Sitton") for approximately $14.8 million, including $12.9 million in cash and
100,000 shares of Common Stock. Sitton operates five drilling rigs in the
Permian Basin region of West Texas. The operating results of Sitton are included
in the Company's results of operations effective January 1, 1998.
Wellcorps, L.L.C., White Rhino Drilling, Inc. and S&R Cable, Inc.
On December 2, 1997, the Company completed the acquisition of the assets of
Wellcorps, L.L.C., White Rhino Drilling, Inc. and S&R Cable, Inc. (collectively
the "Critchfield Assets") for approximately $8.5 million, consisting of $2.7
million in cash and 240,000 shares of Common Stock. The Critchfield Assets
consist of five land drilling rigs, five well service rigs and other related
equipment in Michigan. The operating results of Critchfield Assets are included
in the Company's results of operations effective December 2, 1997.
Win-Tex Drilling Co., Inc. and Win-Tex Trucking Corporation
On November 24, 1997, the Company completed the acquisition of Win-Tex Drilling
Co., Inc. and Win-Tex Trucking Corporation ("Win-Tex") for approximately $6.7
million in cash. Win-Tex operates six land drilling rigs, trucks, trailers and
related equipment in West Texas. The operating results of Win-Tex are included
in the Company's results of operations effective December 1, 1997.
Jeter Service Co.
On November 18, 1997, the Company completed the acquisition of Jeter Service Co.
("Jeter") for approximately $6.7 million in cash. Jeter operates 15 well service
rigs, an oilfield supply store and an oilfield location construction/maintenance
business with 15 trucks and other related equipment in Oklahoma. The operating
results of Jeter are included in the Company's results of operations effective
December 1, 1997.
GSI Trucking Company, Inc., Kahlden Production Services, Inc. and McCurdy Well
Service, Inc.
On October 3, 1997, the Company acquired certain assets of GSI Trucking Company,
Inc., Kahlden Production Services, Inc. and McCurdy Well Service, Inc. ("GSI,
Kahlden and McCurdy") for approximately $1.6 million in cash. GSI, Kahlden and
McCurdy operate 12 fluid and 5 equipment hauling trucks in Southeast Texas. The
operating results of GSI, Kahlden and McCurdy are included in the Company's
results of operations effective October 3, 1997.
Big A Well Service Co., Sunco Trucking Co. and Justis Supply Co., Inc.
On October 1, 1997, the Company completed the acquisition of substantially all
of the assets of Big A Well Service Co., Sunco Trucking Co. and Justis Supply
Co., Inc. (collectively "Big A/Sunco") for approximately $32.1 million,
consisting of $28 million in cash and 125,000 shares of Common Stock. Big
A/Sunco operates 25 well service rigs, four drilling rigs, 75 fluid hauling and
other trucks, related equipment and a machine shop/supply store in the Four
Corners region of the Southwestern United States. The operating results of Big
A/Sunco are included in the Company's results of operations effective October 1,
1997.
<PAGE>
Frontier Well Service, Inc.
On September 30, 1997, the Company completed the acquisition of Frontier Well
Service, Inc. ("Frontier") for approximately $3.5 million in cash. Frontier
operates 12 well service rigs and related equipment in Wyoming. The operating
results of Frontier are included in the Company's results of operations
effective October 1, 1997.
Dunbar Well Service, Inc.
On September 29, 1997, the Company completed the acquisition of Dunbar Well
Service, Inc. ("Dunbar") for approximately $11.8 million in cash. Dunbar
operates 38 well service rigs and related equipment in Wyoming. The operating
results of Dunbar are included in the Company's results of operations effective
October 1, 1997.
BRW Drilling, Inc.
On September 25, 1997, the Company completed the acquisition of BRW Drilling,
Inc. ("BRW") for approximately $14.6 million in cash. BRW operates seven
drilling rigs and related equipment in the Permian Basin region of West Texas
and Eastern New Mexico. The operating results of BRW are included in the
Company's results of operations effective October 1, 1997.
Landmark Fishing & Rental, Inc.
On September 16, 1997, the Company completed the acquisition of Landmark Fishing
& Rental, Inc. ("Landmark") for approximately $3.3 million in cash. Landmark
operates a rental tool business in Western Oklahoma and the Texas Panhandle. The
operating results of Landmark are included in the Company's results of
operations effective September 16, 1997.
Waco Oil & Gas Co., Inc.
On September 1, 1997, the Company completed the acquisition of certain assets of
Waco Oil & Gas Co., Inc. ("Waco") for approximately $7.0 million in cash. The
Waco assets included 12 well service rigs, three drilling rigs, 33 fluid hauling
trucks and other trucks operated in West Virginia. Following the consummation of
the acquisition, the three drilling rigs acquired from Waco were sold to an
independent third party for $2.3 million in cash. No gain or loss was recognized
in the sale of these rigs. The operating results of Waco are included in the
Company's results of operations effective September 23, 1997.
Ram Oil Well Service, Inc. and Rowland Trucking Co., Inc.
On September 1, 1997, the Company completed the acquisition of Ram Oil Well
Service, Inc. and Rowland Trucking Co., Inc. ("Ram/Rowland") for $21.5 million
in cash. Ram/Rowland operates 17 well service rigs, 93 fluid hauling and other
trucks, 290 frac tanks, three disposal and brine wells, and dirt construction
equipment in the Permian Basin region of West Texas and Southeastern New Mexico.
The operating results of Ram/Rowland are included in the Company's results of
operations effective September 1, 1997.
<PAGE>
Mosley Well Service, Inc.
On August 22, 1997, the Company completed the acquisition of Mosley Well
Service, Inc., ("Mosley"), which operates 36 well service rigs and related
equipment in East Texas, Northern Louisiana and Arkansas, for approximately
$16.2 million in cash. The operating results of Mosley are included in the
Company's results of operations effective August 22, 1997.
Kenting Holdings (Argentina) S.A.
On July 30, 1997, the Company completed the acquisition of Kenting Holdings
(Argentina) S.A. ("Kenting") for approximately $10.1 million in cash. Kenting is
the sole shareholder of Kenting Drilling (Argentina) S.A. which operates six
well service rigs, three drilling rigs and related equipment in Argentina. The
operating results of Kenting are included in the Company's results of operations
effective August 1, 1997.
Patrick Well Service, Inc.
On July 17, 1997, the Company completed the acquisition of Patrick Well Service,
Inc. ("Patrick") for approximately $7.0 million in cash. Patrick operates 29
well service rigs and related equipment in Southwest Kansas, Oklahoma and
Southeast Colorado. The operating results of Patrick are included in the
Company's results of operations effective August 1, 1997.
Servicios WellTech S.A.
On July 1, 1997, the Company purchased the remaining 37% minority interest in
Servicios WellTech S.A. ("Servicios") from two unrelated parties for
approximately $3.4 million in cash. As a result of the purchase, the Company now
owns 100% of Servicios. The operating results of Servicios are included in the
Company's results of operations effective July 17, 1997.
Acquisition Completed After March 31, 1998
The following acquisition was completed after March 31, 1998. The results of
operations from this acquisition are not included in the Company's results of
operations for the three and nine months ended March 31, 1998.
JPF Well Service, Inc. and JPF Lease Service, Inc.
On April 20, 1998, the Company completed the acquisition of JPF Well Service,
Inc. and JPF Lease Service, Inc. (collectively, "JPF") for approximately $6.2
million in cash. JPF operates nine well service rigs and oilfield construction
equipment in Southeast Texas.
3. LONG-TERM DEBT
At March 31, 1998, major components of the Company's long-term debt were as
follows:
PNC Credit Agreement
On June 6, 1997, the Company entered into an agreement (the "Initial Credit
Agreement") with PNC Bank, N.A. ("PNC"), as administrative agent, and a
syndication of other lenders pursuant to which the lenders provided a $255
million credit facility, consisting of a $120 million seven-year term loan and a
$135 million five-year revolver. The interest rate on the term loan was LIBOR
plus 2.75 percent. The interest rate on the revolver varied based on LIBOR and
the level of the Company's indebtedness. The Initial Credit Agreement contained
<PAGE>
certain restrictive covenants and required the Company to maintain certain
financial ratios. On September 25, 1997, the Company repaid the term loan and a
portion of the then outstanding amounts under the revolver by applying the
proceeds from the initial and second closings of the Company's private placement
of $216 million of 5% Convertible Subordinated Notes (discussed below).
Effective November 6, 1997, the Company entered into an Amended and Restated
Credit Agreement with PNC (the "Amended Credit Agreement"), as administrative
agent and lender, pursuant to which PNC agreed to make revolving credit loans of
up to a maximum loan commitment of $200 million. The maximum commitment
decreases to $175 million on November 6, 2000 and to $125 million on November 6,
2001. The loan commitment terminates on November 6, 2002. Borrowings under the
credit facility may be either (i) Eurodollar Loans with interest currently
payable quarterly at LIBOR plus 1.25% subject to adjustment based on certain
financial ratios, (ii) Base Rate Loans with interest payable quarterly at the
greater of PNC Prime Rate or the Federal Funds Effective Rate plus 1/2%, or
(iii) a combination thereof, at the Company's option. The Amended Credit
Agreement contains certain restrictive covenants and requires the Company to
maintain certain financial ratios. A change of control of the Company, as
defined in the Amended Credit Agreement, is an event of default. Borrowings
under the Amended Credit Agreement are secured by substantially all of the
assets of the Company and its domestic subsidiaries.
Effective December 3, 1997, PNC completed the syndication of the Amended Credit
Agreement. In connection therewith, PNC, as administrative agent, a syndication
of lenders and the Company entered into a First Amendment to the Amended and
Restated Credit Agreement providing for, among other things, an increase in the
maximum commitment to $250 million from $200 million.
At March 31, 1998, the principal balance of the Amended Credit Agreement, as
amended, was $132 million and the unused credit facility aggregated
approximately $118 million, with approximately $3 million reserved for existing
letters of credit.
7% Convertible Subordinated Debentures
In July 1996, the Company completed a $52,000,000 private offering of 7%
Convertible Subordinated Debentures due 2003 (the "Debentures") pursuant to Rule
144A under the Securities Act of 1933, as amended (the "Securities Act"). The
Debentures are subordinate to the Company's senior indebtedness, which as
defined in the indenture pursuant to which the Debentures were issued includes
the borrowings under the Amended Credit Agreement, as amended. Interest on the
Debentures is payable on January 1 and July 1 of each year.
The Debentures are convertible, at any time prior to maturity, at the holders'
option, into shares of Common Stock at a conversion price of $9.75 per share,
subject to certain adjustments. In addition, Debenture holders who convert prior
to July 1, 1999 will be entitled to receive a payment, in cash or Common Stock
(at the Company's option), generally equal to 50% of the interest otherwise
payable from the date of conversion through July 1, 1999.
The Debentures are redeemable, at the option of the Company, on or after July
15, 1999, at a redemption price of 104%, decreasing 1% per year on each
anniversary date thereafter. In the event of a change in control of the Company,
as defined in the indenture under which the Debentures were issued, each holder
of Debentures will have the right, at the holder's option, to require the
Company to repurchase all or any part of the holder's Debentures within 60 days
of such event at a price equal to 100% of the principal amount thereof, together
with accrued and unpaid interest thereon.
<PAGE>
As of March 31, 1998, $47,400,000 in principal amount of the Debentures had been
converted into 5,062,369 shares of Common Stock at the option of the holders.
The number of shares issued included 200,831 shares in excess of the number of
shares issuable at the conversion price of $9.75 per share. These additional
shares were issued by the Company to induce conversion. Such additional
consideration was accounted for as an increase to the Company's equity. In
addition, the proportional amount of debt issuance costs associated with the
converted Debentures was accounted for as a decrease to the Company's equity.
At March 31, 1998, $4,600,000 principal amount of the Debentures remained
outstanding.
5% Convertible Subordinated Notes
On September 25, 1997, the Company completed an initial closing of its private
placement of $200 million of 5% Convertible Subordinated Notes due 2004 (the
"Notes"). On October 7, 1997, the Company completed a second closing of its
private placement of an additional $16 million of Notes pursuant to the exercise
of the remaining portion of the over-allotment option granted to the initial
purchasers of the Notes. The placements were made as private offerings pursuant
to Rule 144A and Regulation S under the Securities Act. The Notes are
subordinate to the Company's senior indebtedness, which, as defined in the
indenture under which the Notes were issued, includes the borrowings under the
Amended Credit Agreement, as amended. Interest on the Notes is payable on March
15 and September 15 of each year. Interest of approximately $5.1 million was
paid on March 15, 1998.
The Notes are convertible, at the holder's option, into shares of Common Stock
at a conversion price of $38.50 per share, subject to certain adjustments.
The Notes are redeemable, at the Company's option, on or after September 15,
2000, in whole or part, together with accrued and unpaid interest. The initial
redemption price is 102.86% for the year beginning September 15, 2000 and
declines ratably thereafter on an annual basis.
In the event of a change in control of the Company, as defined in the indenture
under which the Notes were issued, 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, within 60 days of such event, at a price equal to 100% of the
principal amount thereof, together with accrued and unpaid interest thereon.
Proceeds from the placement of the Notes were used to repay balances under the
Company's credit facilities (see above). At March 31, 1998, $216,000,000
principal amount of the Notes was outstanding.
4. RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130 - Reporting Comprehensive
Income
Statement of Financial Accounting Standards No. 130 ("SFAS 130") - Reporting
Comprehensive Income, is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company will adopt SFAS 130 for the fiscal
year ended June 30, 1999. Management believes the adoption of SFAS 130 will not
have a material effect on its financial position or results of operations of the
Company.
<PAGE>
Statement of Financial Accounting Standards No. 131 - Disclosures about Segments
of an Enterprise and Related Information
Statement of Financial Accounting Standards No. 131 ("SFAS 131") - Disclosures
about Segments of an Enterprise and Related Information, is effective for
financial statements for periods beginning after December 15, 1997. SFAS 131
need not be applied to interim financial statements in the initial year of its
application. However, comparative information for interim periods in the initial
year of application is to be reported in the financial statements for interim
periods in the second year of application. The Company will adopt SFAS 131 for
the fiscal year ended June 30, 1999. Management believes the adoption of SFAS
131 will not have a material effect on its financial position or results of
operations of the Company.
5. COMMITMENTS AND CONTINGENCIES
Various suits and claims arising in the ordinary course of business are pending
against the Company. Management does not believe that the disposition of any of
these items will result in a material adverse impact to the consolidated
financial position of the Company.
6. CASH FLOW DISCLOSURES
Supplemental cash flow disclosures (in thousands) for the three months and nine
months ended March 31, 1998 and 1997 follows:
Three months ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
----- ----- ----- -----
Interest paid $ 5,402 $703 $11,507 $3,632
Taxes paid 5,036 - 8,604 -
Supplemental non-cash investing and financing disclosures (in thousands) for the
three and nine months ended March 31, 1998 and 1997 follows:
Fair Value
of Issued Assumption Assumption Acquisition of
Common of of Property
Stock Debt Working Capital* and Equipment
Three months ended
March 31, 1998 $4,025 $1,697 $ 10,625 $ 63,165
====== ====== ======== =========
Nine months ended
March 31, 1998 $17,366 $7,595 $ 11,500 $ 213,633
======= ====== ======== =========
Three months ended
March 31, 1997 $ 4,496 $ 695 $ (3,023) $ 34,229
======= ====== ========= =========
Nine months ended
March 31, 1997 $ 16,905 $ 3,049 $(15,243) $ 71,679
======== ======= ========= =========
* - excluding current maturities of long-term debt.
<PAGE>
7. TREASURY STOCK
During the nine months ended March 31, 1998, the Company purchased 416,666
shares of Common Stock. All shares were purchased at the then prevailing market
prices. The purchased shares are accounted for as treasury stock on the
Company's balance sheet under the treasury stock method of accounting.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997.
Current and Subsequent Events
During the nine months ended March 31, 1998, the Company purchased the remaining
37% minority interest in Servicios and completed the acquisition of the
following well servicing, trucking, drilling and ancillary equipment companies:
Patrick Well Service, Inc.
Kenting Holdings (Argentina) S.A.
Mosley Well Service, Inc.
Ram Oil Well Service, Inc. and Rowland Trucking Co., Inc.
Waco Oil & Gas Co., Inc.
Landmark Fishing & Rental, Inc.
BRW Drilling, Inc.
Dunbar Well Service, Inc.
Frontier Well Service, Inc.
Big A Well Service Co., Sunco Trucking Co. and Justis Supply Co., Inc.
GSI Trucking Company, Inc.
Kahlden Production Services, Inc.
McCurdy Well Service, Inc.
Jeter Service Co.
Win-Tex Drilling Co., Inc. and Win-Tex Trucking Corporation
Wellcorps, L.L.C., White Rhino Drilling, Inc. and S&R Cable, Inc.
Sitton Drilling Co.
J.W. Gibson Well Service Company
Hot Oil Plus, Inc.
Kingsley Enterprises, Inc. d/b/a Legacy Drilling Co.
Circle M Vacuum Services, Inc.
Four Corners Drilling Company
Updike Brothers, Inc.
Lauffer Well Service, Inc.
Lundy Vacuum Service Inc.
Edwards Transport, Inc.
These acquisitions (which are more fully described in Note 2 to the unaudited
consolidated financial statements) included 295 well service rigs (including six
well service rigs in Argentina), 257 fluid hauling and other trucks and 49
drilling rigs (including three drilling rigs in Argentina). The total purchase
price of these acquisitions totaled approximately $220 million, comprised of
approximately $210 million in cash and 565,000 shares of Common Stock.
Subsequent to March 31, 1998 and through May 13, 1998, the Company completed the
acquisition of JPF Well Service, Inc. and JPF Lease Service, Inc., related
companies that operate nine well service rigs and engages in oilfield
construction. The purchase price of this subsequent acquisition was
approximately $6.2 million. This acquisition was financed through long-term debt
borrowings (see Note 3 to the unaudited consolidated financial statements).
<PAGE>
As of May 13, 1998, the Company owns approximately 830 oilfield servicing rigs,
700 oilfield fluid hauling and other trucks and 63 land drilling rigs.
Management currently believes that the Company's active well servicing and fluid
hauling fleet is the largest active onshore fleet in the continental United
States and is the second largest active fleet in Argentina. The Company operates
in most major onshore oil and gas producing regions of the continental United
States, with the exception of California, and provides a full range of drilling,
completion, maintenance, workover and plugging and abandonment services for the
oil and gas industry.
Impact of Lower Crude Oil Prices
During the six months ended March 31, 1998, the posted price of West Texas
intermediate crude oil (the "West Texas Crude Oil Price") fell from prices in
excess of $20 per barrel to prices of less than $15 per barrel. From March 31,
1998 through May 13, 1998, the West Texas Crude Oil Price has remained in the
range of $14.50 to $15.50 per barrel. This decline in prices is thought to be
caused primarily by an oversupply of crude oil inventory created, in part, by an
unusually warm winter in the United States and Europe, over production of crude
oil from OPEC and non-OPEC countries and a decline in demand from Asian markets.
As the result of lower crude oil prices, the Company has experienced a reduction
in well completion, workover and drilling activities. This reduction adversely
impacted the Company's revenues, net income and cash flows from operations for
the quarter ended March 31, 1998 and is expected to similarly impact the
Company's results of operations until crude oil prices increase to a level
substantially above the current prices and remain at such a price for an
extended period of time.
Growth Strategy
Historically, the domestic well servicing industry has been highly fragmented,
characterized by a large number of smaller companies which have competed
effectively on a local basis in terms of pricing and the quality of services
offered. In recent years, however, many major and independent oil and gas
companies have placed increasing emphasis not only on pricing, but also on the
safety records and quality management systems of, and the breadth of services
offered by, their vendors, including well servicing contractors. This market
environment, which requires significant expenditures by smaller companies to
meet these increasingly rigorous standards, has forced many smaller well
servicing companies to sell their operations to larger competitors. As a result,
the industry has seen high levels of consolidation among the competing
contractors.
Over the past twenty-one months, the Company has been the leading consolidator
of this industry, completing 45 acquisitions of well servicing and drilling
operations through March 31, 1998 and 46 such acquisitions through May 13, 1998.
This consolidation has led to reduced fragmentation in the market and a more
predictable demand for well services for the Company and its competitors. The
Company's management structure is decentralized, which allows for rapid
integration of acquisitions and the retention of strong local identities of many
of the acquired businesses.
<PAGE>
As a result of these and other factors, the Company has developed a growth
strategy to:
1. Identify, negotiate and consummate additional acquisitions of complementary
well servicing operations, including rigs, trucking and other ancillary
services;
2. Fully integrate acquisitions into the Company's decentralized
organizational structure and thereby attempt to maximize operating margins;
3. Expand business lines and services offered by the Company in existing areas
of operations; and,
4. Extend the geographic scope and operating environments for the Company's
operations.
If the current decline in the West Texas Crude Oil Price worsens or persists for
a protracted period, the Company may curtail or halt its growth strategy until
such time as oil prices reach more favorable ranges.
RESULTS OF OPERATIONS
The following discussion provides information to assist in the understanding of
the Company's financial condition and results of operations. It should be read
in conjunction with the consolidated financial statements and related notes
thereto appearing elsewhere in this report.
QUARTER ENDED MARCH 31, 1998 VERSUS QUARTER ENDED MARCH 31, 1997
Net Income
For the quarter ended March 31, 1998, the Company reported net income of
$7,082,000 ($.39 per share - basic) as compared to $2,365,000 ($.20 per share -
basic) for the quarter ended March 31, 1997, representing an increase of
$4,717,000, or 199% (95% increase in basic earnings per share). The increase in
net income is primarily attributable to the Company's acquisitions completed
between April 1, 1997 and March 31, 1998, increased service and drilling rig
utilization rates and price increases.
Revenues
The Company's total revenues for the quarter ended March 31, 1998 increased by
$77,674,000, or 180%, to $120,724,000 compared to $43,050,000 reported for the
quarter ended March 31, 1997. The increase is primarily attributable to the
Company's acquisitions of oilfield service and drilling rig companies (see Note
2 to the consolidated financial statements), increased demand for oilfield
service equipment and price increases for oilfield services. From October 1,
1996 through March 31, 1998, the Company added 490 well servicing rigs, 460
fluid hauling trucks and 52 drilling rigs to its fleet.
Oilfield service revenues for the current quarter increased by $65,706,000, or
172%, to $104,014,000 compared to $38,308,000 reported for the quarter ended
March 31, 1997. The increase is primarily attributable to recent acquisitions,
increased demand for oilfield service equipment and price increases for oilfield
services.
<PAGE>
Drilling revenues for the quarter ended March 31, 1998 increased by $11,664,000,
or 483%, to $14,078,000 compared to $2,414,000 reported for the quarter ended
March 31, 1997. The increase is primarily attributable to recent contract
drilling acquisitions, higher utilization and price increases.
Oil and gas revenues for the quarter ended March 31, 1998 decreased by $520,000,
or 23%, to $1,730,000 compared to $2,250,000 reported for the quarter ended
March 31, 1997. The decrease is primarily attributable to lower crude oil
prices.
Costs and Expenses and Operating Margins
The Company's total costs and expenses for the quarter ended March 31, 1998
increased by $70,008,000, or 177%, to $109,495,000 compared to $39,487,000
reported for the quarter ended March 31, 1997. The increase is directly
attributable to increased operating costs and expenses associated with the
Company's recent acquisitions.
Oilfield service expenses for the quarter ended March 31, 1998 increased by
$45,720,000, or 173%, to $72,222,000 compared to $26,502,000 reported for the
quarter ended March 31, 1997. Oilfield service margins (revenues less direct
costs and expenses) increased for the quarter ended March 31, 1998 by
$19,986,000, or 169%, to $31,792,000 compared to $11,806,000 for the quarter
ended March 31, 1997. Oilfield service margins as a percentage of oilfield
service revenue for the quarters ended March 31, 1998 and 1997 was 31% and 31%,
respectively. In addition, the Company has continued to expand its services,
offering higher margin ancillary services and equipment such as well fishing
tools, blow-out preventors and frac tanks.
The Company's contract drilling costs and expenses for the quarter ended March
31, 1998 increased by $8,373,000, or 406%, to $10,434,000 compared to $2,061,000
for the quarter ended March 31, 1997. Oilfield drilling margins for the
Company's drilling operations during the quarter ended March 31, 1998 increased
by $3,291,000, or 932%, to $3,644,000 compared to $353,000 for the quarter ended
March 31, 1997. Oilfield drilling margin as a percentage of oilfield drilling
revenue for the quarters ended March 31, 1998 and 1997 was 26% and 15%,
respectively. Such increases are attributable to the Company's recent
acquisitions of contract drilling companies, increased activity and operating
efficiencies.
There was no significant change in oil and gas production costs and expenses for
the quarter ended March 31, 1998.
General and administrative expenses for the quarter ended March 31, 1998
increased by $6,860,000, or 140%, to $11,774,000 compared to $4,914,000 for the
quarter ended March 31, 1997. The increase was primarily attributable to the
Company's recent acquisitions and expanded services. General and administrative
expenses as a percentage of total revenue decreased from 11% during the quarter
ended March 31, 1997 to 10% for the quarter ended March 31, 1998.
Depreciation, depletion and amortization expense for the quarter ended March 31,
1998 increased by $5,965,000, or 184%, to $9,215,000 compared to $3,250,000 for
the quarter ended March 31, 1997. The increase is directly related to the
increase in property and equipment, increased goodwill, and long-term debt
issuance cost incurred by the Company over the past eighteen months in
conjunction with its acquisitions.
Interest expense for the quarter ended March 31, 1998 increased by $3,202,000,
or 172%, to $5,063,000 compared to $1,861,000 for the quarter ended March 31,
1997. The increase was primarily the result of increased indebtedness as a
result of the Company's acquisition program.
<PAGE>
Income tax expense for the quarter ended March 31, 1998 increased by $2,940,000,
or 244%, to $4,147,000 compared to $1,207,000 for the quarter ended March 31,
1997. The Company does not expect to have to pay the full amount of the income
tax provision because of the availability of accelerated tax depreciation,
drilling tax credits, and tax loss carry-forwards.
Cash Flows
Net cash provided by operating activities for the quarter ended March 31, 1998
decreased by $699,000 or 29%, to $1,715,000 compared to the $2,414,000 used by
operating activities for the quarter ended March 31, 1997. The decrease is
primarily attributable to interest paid in the current quarter, an increase in
accounts receivable and a decrease in accounts payable, net of current quarter
acquisitions.
Net cash used in investing activities for the quarter ended March 31, 1998
increased by $39,533,000, or 288%, to $53,243,000 compared to $13,710,000 used
for the quarter ended March 31, 1997. This increase is primarily related to the
Company's recent acquisitions.
Net cash provided by financing activities for the quarter ended March 31, 1998
increased by $9,152,000 or 59%, to $24,632,000 compared to $15,480,000 provided
during the quarter ended March 31, 1997. The increase is primarily the result of
the proceeds from long-term debt (see Note 3 to consolidated financial
statements.
NINE MONTHS ENDED MARCH 31, 1998 VERSUS NINE MONTHS ENDED MARCH 31, 1997
Net Income
For the nine months ended March 31, 1998, the Company reported net income of
$19,365,000 ($1.15 per share - basic) as compared to $5,962,000 ($.54 per share
- - basic) for the nine months ended March 31, 1997, an increase of $13,403,000,
or 225%. The increase in net income is primarily attributable to the Company's
acquisitions completed between April 1, 1997 and March 31, 1998, increased
service and drilling rig utilization rates, increased operational efficiencies
and price increases.
Revenues
The Company's total revenues for the nine months ended March 31, 1998 increased
by $195,009,000 or 176%, to $305,718,000 compared to $110,709,000 for the nine
months ended March 31, 1997. The increase is attributable to the Company's
recent acquisitions of oilfield service and drilling rig companies, increased
utilization and higher prices for oilfield services.
Oilfield service revenues for the nine months ended March 31, 1998 increased by
$174,178,000, or 179%, to $271,505,000 compared to $97,327,000 reported for the
nine months ended March 31, 1997. The increase is primarily attributable to
recent acquisitions, higher demand for oilfield service equipment and, to a
lesser extent, from recent price increases for oilfield services.
Drilling revenues for the nine months ended March 31, 1998 increased by
$18,493,000, or 261%, to $25,590,000 compared to $7,097,000 reported for the
nine months ended March 31, 1997. The revenue increase is primarily attributable
to recent contract drilling acquisitions, higher rig utilization and price
increases.
<PAGE>
Oil and gas revenues for the nine months ended March 31, 1998 decreased by
$441,000, or 8%, to $5,422,000 compared to $5,863,000 for the nine months ended
March 31, 1997. The decrease is primarily attributable to lower crude oil
prices.
Costs and Expenses and Operating Margins
The Company's total costs and expenses for the nine months ended March 31, 1998
increased by $173,083,000, or 170%, to $274,811,000 compared to $101,728,000
reported for the nine months ended March 31, 1997. The increase is directly
attributable to increased operating costs and expenses associated with the
Company's recent acquisitions.
Oilfield service expenses for the nine months ended March 31, 1998 increased by
$119,546,000, or 173%, to $188,814,000 compared to $69,268,000 reported for the
nine months ended March 31, 1997. Oilfield service margins (revenues less direct
costs and expenses) for the nine months ended March 31, 1998 increased
$54,632,000, or 195%, to $82,691,000 compared to $28,059,000 for the nine months
ended March 31, 1997. Oilfield service margins as a percentage of oilfield
service revenues for the nine months ended March 31, 1998 and 1997 was 30% and
29%, respectively. The increases in oilfield services expenses and margins are
due primarily to acquisitions, increased demand for oilfield services, the
Company's expansion of its ancillary oilfield services and equipment, such as
well fishing tools, blowout preventers and frac tanks, and increased operating
efficiencies.
Drilling costs and expenses for the nine months ended March 31, 1998 increased
by $13,382,000, or 227%, to $19,287,000 compared to $5,905,000 for the nine
months ended March 31, 1997. Drilling margins during the nine months ended March
31, 1998 increased by $5,111,000, or 429%, to $6,303,000 compared to $1,192,000
for the nine months ended March 31, 1997. Oilfield drilling margin as a
percentage of oilfield drilling revenue for the nine months ended March 31, 1998
and 1997 was 25% and 17%, respectively. These increases are attributable to the
Company's recent acquisitions of contract drilling companies and increased
activity and operating efficiencies.
There was no significant change in oil and gas production costs and expenses for
nine months ended March 31, 1998 as compared to the nine months ended March 31,
1997.
General and administrative expenses for the nine months ended March 31, 1998
increased by $17,771,000, or 146%, to $29,947,000 compared to $12,176,000 for
nine months ended March 31, 1997. The increase was primarily attributable to the
Company's recent acquisitions and expanded services. General and administrative
expenses as a percentage of total revenues for the nine months ended March 31,
1998 and 1997 were 10% and 11%, respectively.
Depreciation, depletion and amortization expense for the nine months ended March
31, 1998 increased by $14,414,000, or 188%, to $22,101,000 compared to
$7,687,000 for the nine months ended March 31, 1997. The increase is directly
related to the increase in property and equipment, increased goodwill and
long-term debt issuance costs incurred by the Company over the past two years in
conjunction with its acquisitions.
Interest expense for the nine months ended March 31, 1998 increased by
$7,873,000, or 175%, to $12,380,000 compared to $4,507,000 for the nine months
ended March 31, 1997. The increase was primarily the result of increased
indebtedness as a result of the Company's acquisitions.
Income tax expense for the nine months ended March 31, 1998 increased by
$8,522,000, or 282%, to $11,542,000 compared to $3,020,000 for the nine months
ended March 31, 1997. The Company does not expect to have to pay the full amount
of the income tax provision because of the availability of accelerated tax
depreciation, drilling tax credits, and tax loss carryforwards.
<PAGE>
Cash Flows
Net cash provided by operating activities for the nine months ended March 31,
1998 increased by $8,795,000 or 203%, to $13,136,000 compared to $4,341,000 for
the nine months ended March 31, 1997. The increase is primarily attributable to
an increased service and drilling operating margin, increased service and
drilling utilization rates, increased operating efficiencies created by the
acquisitions and price increases for oilfield service and drilling.
Net cash used in investing activities for the nine months ended March 31, 1998
increased by $203,620,000, or 586%, to $238,395,000 compared to $34,775,000 used
for the nine months ended March 31, 1997. This increase is primarily related to
the Company's recent acquisitions.
Net cash provided by financing activities for the nine months ended March 31,
1998 increased by $169,110,000, or 409%, to $210,429,000 compared to $41,319,000
provided during the nine months ended March 31, 1997. The increase is primarily
the result of the proceeds from long-term debt (see Note 3 to consolidated
financial statements), partially offset by the repayment of debt.
LIQUIDITY, CAPITAL COMMITMENTS AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash of $26.9 million compared to $41.7
million at June 30, 1997 and $11.5 million at March 31, 1997. At March 31, 1998,
the Company had working capital of $86.8 million compared to $60.2 million at
June 30, 1997 and $22.0 million at March 31, 1997.
In addition to its on going acquisition program, for fiscal 1998, the Company
has projected $40 million of capital expenditures for improvements of existing
service and drilling rig machinery and equipment, an increase of $23.4 million
over the $16.6 million expended during fiscal 1997. The Company expects to
finance these capital expenditures through internally generated operating cash
flows. Capital expenditures for service and drilling rig improvements for the
nine months ended March 31, 1998 and 1997 were $11.6 million and $3.6 million,
respectively.
The Company has projected $10.2 million of capital expenditures for oil and gas
development for fiscal 1998 as compared to $8.2 million expended for fiscal
1997. Financing of these costs is expected to come from operations and available
credit facilities. For the nine months ended March 31, 1998 and 1997, the
Company expended $4.1 million and $2.6 million, respectively.
The Company's primary capital resources are net cash provided by operations and
proceeds from certain long-term debt facilities.
Long-Term Debt Facilities
On June 6, 1997, the Company entered into an agreement (the "Initial Credit
Agreement") with PNC Bank, N.A. ("PNC"), as administrative agent, and a
syndication of other lenders pursuant to which the lenders provided a $255
million credit facility, consisting of a $120 million seven-year term loan and a
$135 million five-year revolver. The interest rate on the term loan was LIBOR
plus 2.75 percent. The interest rate on the revolver varied based on LIBOR and
the level of the Company's indebtedness. The Initial Credit Agreement contained
certain restrictive covenants and required the Company to maintain certain
financial ratios. On September 25, 1997, the Company repaid the term loan and a
portion of the then outstanding amounts under the revolver by applying the
proceeds from the initial and second closings of the Company's private placement
of $216 million of 5% Convertible Subordinated Notes (discussed below).
<PAGE>
Effective November 6, 1997, the Company entered into an Amended and Restated
Credit Agreement with PNC (the "Amended Credit Agreement"), as administrative
agent and lender, pursuant to which PNC agreed to make revolving credit loans of
up to a maximum loan commitment of $200 million. The maximum commitment
decreases to $175 million on November 6, 2000 and to $125 million on November 6,
2001. The loan commitment terminates on November 6, 2002
Effective December 3, 1997, PNC completed the syndication of the Amended Credit
Agreement. In connection therewith, PNC, as administrative agent, a syndication
of lenders and the Company entered into a First Amendment to the Amended and
Restated Credit Agreement providing for, among other things, an increase in the
maximum commitment from $200 million to $250 million.
At March 31, 1998, the principal balance of the Amended Credit Agreement, as
amended, was $132 million and the unused credit facility aggregated
approximately $118 million, with approximately $3 million reserved for existing
letters of credit.
In July 1996, the Company completed a $52,000,000 private offering of 7%
Convertible Subordinated Debentures due 2003 (the "Debentures"), pursuant to
Rule 144A under the Securities Act of 1933, as amended (the "Securities Act").
The Debentures are subordinate to the Company's senior indebtedness, which, as
defined under the indenture pursuant to which the Debentures were issued,
includes the borrowings under the Amended Credit Agreement, as amended. Interest
on the Debentures is payable on January 1 and July 1 of each year.
As of March 31, 1998, $47,400,000 in principal amount of the Debentures had been
converted into 5,062,369 shares of Common Stock at the option of the holders.
The number of shares issued included 200,831 shares in excess of the number of
shares issuable at the conversion price of $9.75 per share. These additional
shares were issued by the Company to induce conversion. Such additional
consideration was accounted for as an increase to the Company's equity. In
addition, the proportional amount of debt issuance costs associated with the
converted Debentures was accounted for as a decrease to the Company's equity. At
March 31, 1998, $4,600,000 principal amount of the Debentures remained
outstanding.
On September 25, 1997, the Company completed an initial closing of its private
placement of $200 million of 5% Convertible Subordinated Notes due 2004 (the
"Notes"). On October 7, 1997, the Company completed a second closing of its
private placement of an additional $16 million of Notes pursuant to the exercise
of the remaining portion of the over-allotment option granted to the initial
purchasers of Notes. The placements were made as private offerings pursuant to
Rule 144A and Regulation S under the Securities Act. The Notes are subordinate
to the Company's senior indebtedness, which, as defined in the indenture under
which the Notes were issued, includes the borrowings under the Amended Credit
Agreement, as amended. Interest on the Notes is payable on March 15 and
September 15, commencing March 15, 1998. The Notes are convertible, at the
holder's option, into shares of Common Stock at a conversion price of $38.50 per
share, subject to certain adjustments.
Proceeds from the placement of the Notes were used to repay balances under the
Company's credit facilities (see above). At March 31, 1998, $216,000,000
principal amount of the Notes was outstanding.
<PAGE>
Year 2000 Issue
As a result of the acquisitions completed by the Company over the past
twenty-one months, the Company currently utilizes several management information
systems in connection with its business operations and financial reporting
process. The Company has made an assessment of its Year 2000 issues, and has
determined that many of these management information systems would be adversely
impacted by the arrival of the Year 2000.
For operational efficiency, the Company had previously determined to implement a
new integrated management information system to replace the systems currently
utilized by it. Since the new system will be designed to be year 2000 compliant,
management expects that a collateral benefit of it will be to prevent adverse
impacts that may result from the arrival of the year 2000. The implementation of
the new management information system began in May 1998 and is expected to be
completed by July 1999.
The Company does not expect the amounts required to be expensed for the new
integrated management information system over the next year to have a material
effect on its financial position or results of operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
(a) See the disclosure set forth in Item 4 below with respect to the amendment
to the Company's Amended and Restated Articles of Incorporation below,
which is incorporated herein by reference.
(c) Recent Sales of Unregistered Securities:
During the three months ended March 31, 1998, the Company effected the following
sales of unregistered securities:
Effective December 2, 1997, the Company agreed to issue 240,000 shares of Common
Stock in connection with the purchase by WellTech Eastern, Inc., a wholly-owned
subsidiary of the Company, of substantially all of the assets of White Rhino
Drilling, Inc. ("White Rhino"), S&R Cable, Inc. ("S&R Cable") and Wellcorps,
L.L.C. Of the 240,000 shares to be issued, 212,496 were issued to White Rhino
and its designees, 72,240 of which were issued on December 2, 1997 and 140,256
of which were issued on January 2, 1998. The remaining 27,504 shares were issued
to S&R Cable on January 2, 1998. The issuance of the Common Stock was exempt
from registration under Section 4(2) of the Securities Act as a sale of
securities not involving any public offering.
Effective January 5, 1998, the Company issued 100,000 shares of Common Stock as
partial consideration in connection with the purchase by Key Energy Drilling, a
wholly-owned subsidiary of the Company, of substantially all the capital stock
of Sitton Drilling Co. The issuance of the Common Stock was exempt from
registration under Section 4(2) of the Securities Act as a sale of securities
not involving any public offering.
Effective January 8, 1998, the Company issued 100,000 shares of Common Stock as
partial consideration in connection with the purchase by Key Rocky Mountain, a
wholly-owned subsidiary of the Company, of substantially all the capital stock
of J.W. Gibson Well Service Company. The issuance of the Common Stock was exempt
from registration under Section 4(2) of the Securities Act as a sale of
securities not involving any public offering.
Item 3. Defaults Upon Senior Securities.
None.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
On January 13, 1998, a meeting of the holders of Common Stock was held to elect
the Company's Board of Directors and to vote on certain other matters. Only the
holders of record as of the close of business on November 14, 1997 (the "Record
Date") were entitled to notice of and to vote at the meeting and at any
adjournment thereof. On the Record Date, the outstanding number of shares
entitled to vote consisted of 18,087,455 shares of Common Stock. The
shareholders took the following actions at the meeting:
1. Elected the following six Directors, with the votes indicated opposite each
director's name:
For Against Abstain
Francis D. John 17,265,527 397,505 0
Kevin P. Collins 17,253,927 409,105 0
William Manly 17,265,587 397,445 0
W. Phillip Marcum 17,253,927 409,105 0
David J. Breazzano 17,262,484 400,548 0
Morton Wolkowitz 17,265,593 397,439 0
2. Approved the amendment to the Company's Amended and Restated Articles of
Incorporation to increase the authorized shares of capital stock, par value
$0.10 per share, from 25,000,000 shares to 100,000,000 shares authorized to be
issued. The vote was 16,582,418 for and 719,218 against, with 177,321
abstentions and 184,075 broker non-votes.
3. Approved the adoption of the Key Energy Group, Inc. 1997 Incentive Plan. The
vote was 7,571,692 for and 6,086,129 against, with 175,142 abstentions and
3,830,069 broker non-votes.
Item 5. Other Information.
Pursuant to a Registration Statement on Form 8-A that became effective on March
31, 1998, shares of Common Stock were listed for trading on the New York Stock
Exchange ("NYSE"). Trading in the Common Stock on the NYSE commenced at the
opening of business on April 6, 1998. Concurrently therewith trading in the
Common Stock was suspended on the American Stock Exchange ("ASE"). The Company
has filed an application for withdrawal from listing of its Common Stock with
the ASE, which is currently pending.
This Quarterly Report on Form 10-Q may contain statements which constitute or
contain "forward-looking" statements as that term is defined in the Private
Securities Litigation Reform Act of 1995 (the "Act") or by the Securities and
Exchange Commission in its rules, regulations or releases. All statements other
<PAGE>
than statements of historical facts included in this report including, without
limitation, statements regarding the Company's business strategy, plans,
objectives, capital expenditures and beliefs of management for future operations
are forward-looking statements. Although the Company believes the expectations
and beliefs reflected in such forward looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct. The
Company cautions investors that any such forward-looking statements made by the
Company are not guarantees of future performance and that actual results may
differ materially from those in the forward-looking statements. Important
factors that could cause actual results to differ materially from the Company's
expectations are discussed in the Company's Registration Statement on Form S-3
under the Securities Act of 1933, File No. 333-44677 (filed with the Commission
on January 22, 1998), under the caption "Risk Factors."
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of the Form 10-Q:
Number Description
3(a) Amendment to the Amended and Restated Articles of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K dated
February 2, 1998, File No. 000-22665, and incorporated here in by reference).
10(a) Asset Purchase Agreement among Brooks Well Servicing, Inc., Lundy
Vacuum Service, Inc. and Peyton E. Lundy effective March 3, 1998.
10(b) Asset Purchase Agreement among Yale E. Key, Inc., Edwards Transport,
Inc. and Tom Nations effective March 26, 1998.
10(c) Asset Purchase Agreement among Brooks Well Servicing, Inc. and JPF
Well Service Inc., effective April 20, 1998.
10(d) Asset Purchase Agreement among Brooks Well Servicing, Inc. and JPF
Lease Service Inc., effective April 20, 1998.
10(e) Employment Agreement dated December 5, 1997 by and between Stephen E.
McGregor and the Company.
27(a) Statement - Financial Data Schedule
99 Form 8-A of the Company for Registration of Certain Classes of
Securities Pursuant to Section 12(b) or (g) of the Securities Exchange Act of
1934, File No. 001-08038 incorporated by reference.
(b) The following report on Form 8-K was filed during the quarter ended March
31, 1998:
The Company's Current Report on Form 8-K dated February 2, 1998, File No.
001-08038. The Report on Form 8-K concerned the increase of authorized capital
stock from 25,000,000 to 100,000,000 shares of Common Stock, par value $.10 per
share.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY ENERGY GROUP, INC.
(Registrant)
By /s/ Francis D. John
Dated: May 15, 1998 President and Chief Executive Officer
By /s/ Stephen E. McGregor
Dated: May 15, 1998 Chief Financial Officer
By /s/ Danny R.Evatt
Dated: May 15, 1998 Chief Accounting Officer
<PAGE>
Asset Purchase Agreement
among
Brooks Well Servicing, Inc.
Lundy Vacuum Service, Inc.
and
Peyton E. Lundy
March 3, 1998
<PAGE>
Asset Purchase Agreement
This Asset Purchase Agreement (this "Agreement") is entered into as of March 3,
1998, among Brooks Well Servicing, Inc., a Delaware corporation ("Buyer"); Lundy
Vacuum Service, Inc., a Texas corporation ("Seller") and Peyton E. Lundy
("Lundy").
Article 1
Purchase and Sale of Assets
1.1. Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey,
transfer, assign and deliver to Buyer the operating Assets (defined below)
of the Seller, whether real, personal, tangible or intangible, including,
without limitation, the following assets of the Seller relating to or used
or useful in the operation of the Seller's vacuum service business (the
"Business"):
(a) all of the Seller's tangible personal property (such as machinery,
equipment, leasehold improvements, furniture and fixtures, and vehicles),
including, without limitation, that which is more fully described on
Schedule 1.1(a) hereto (collectively, the "Tangible Personal Property");
(b) all of the Seller's inventory relating to or used in the Business,
including without limitation, that which is more fully described on
Schedule 1.1(b) hereto (collectively, the "Inventory");
(c) all of the Seller's intangible assets relating to or used in the Business,
including without limitation, (i) all of the Seller's rights to the names
under which it is incorporated or under which it currently conducts its
Business, (ii) all of the Seller's rights to any patents, patent
applications, trademarks and service marks (including registrations and
applications therefor), trade names, and copyrights and written know-how,
trade secrets, licenses and sublicenses and all other similar proprietary
data and the goodwill associated therewith (collectively, the "Intellectual
Property") used or held in connection with the Business, including without
limitation, that which is more fully described on Schedule 1.1(c) hereto
(the "Seller's Intellectual Property") and (iii) the Seller's phone numbers
(other than 800-873-9175), sales and promotional literature, computer
software, books, records, files and data (including customer and supplier
lists), and all other records of the Seller relating to the Assets or the
Business (collectively, the "Intangibles");
(d) those leases, subleases, contracts, contract rights, and agreements of the
Seller relating to the Assets or the operation of the Business listed on
Schedule 1.1(d) hereto (collectively, the "Contracts");
(e) to the extent assignable under applicable law, all of the permits,
authorizations, certificates, approvals, registrations, variances, waivers,
exemptions, rights-of-way, franchises, ordinances, orders, licenses and
other rights of every kind and character, other than the permits listed on
Schedule 1.1(e), relating to the BMD Facility (defined below) and the HMD
Facility (defined below) (collectively, the "Permits") of the Seller
relating principally to all or any of the Assets or to the operation of the
Business, including, but not limited to, those that are more fully
described on Schedule 1.1(e) hereto (collectively, the "Seller's Permits");
(f) the goodwill and going concern values of the Seller relating to the
Business; and
(g) all other or additional privileges, rights, interests, properties and
assets of the Seller of every kind and description and wherever located
that are used in the Business or intended for use in the Business in
connection with, or that are necessary for the continued conduct of, the
Business.
The assets purchased and sold pursuant to this Agreement are collectively
referred to herein as the "Assets."
1.2. Payment of Purchase Price. As consideration for the sale of the Assets and
for the other covenants and agreements of Seller contained herein, Buyer
agrees to pay to Seller on the date hereof $1,500,000 (the "Purchase
Price"). The Purchase Price shall be adjusted (i) upward to the extent that
the Seller has purchased additional capital assets used in the Business
since July 31, 1997; (ii)downward to the extent that the Seller no longer
owns the assets it owned and used in the Business as of July 31, 1997;
(iii) upward to the extent that the inventory listed on Schedule 1.1(b)
hereto exceeds $40,000 in value; and (iv) downward to the extent that the
inventory listed on Schedule 1.1(b) hereto has a value of less than
$40,000. Payment of the Purchase Price shall be made by personal check of
the Company or one of its affiliates to the persons and in the amounts set
forth on Schedule 1.2.
1.3. No Assumption of Liabilities. Buyer shall not assume any liabilities and
obligations of the Seller.
1.4. Time and Place of Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall be on the date hereof at the offices
of Porter & Hedges, L.L.P. located at 700 Louisiana, Houston, Texas 77002
(the "Closing Date").
1.5. Closing Deliveries. At the Closing, in addition to the conveyance of the
Assets to the Buyer in exchange for the Purchase Price: (i) the Buyer and
CBBP, L.L.C., a Texas limited liability company ("BBC") will enter into a
lease in the form of Exhibit A hereto with respect to the Company's main
yard, mud mixing plant and storage facilities (the "Primary Lease"); (ii)
the Buyer and Seller shall enter into an assignment of leases in the form
of Exhibit B hereto with respect to the land on which the Company's Beasley
Mud Disposal facility (the "BMD Facility") and the Company's Humphrey Mud
Disposal Facility (the "HMD Facility") are located (the "Lease
Assignment"); (iii) the Buyer, Seller and D.B. Lundy, Jr., Rebecca Fitts
and Peyton E. Lundy will enter into a Purchase and Sale Agreement in the
form of Exhibit C hereto (the "Purchase Agreement"); (iv) the Company and
each of its shareholders will enter into noncompetition agreements in the
form of Exhibit D hereto (the "Noncompetition Agreements"); and (v) the
Buyer and Seller will deliver to one another the opinions of counsel
described below:
1.5.1. Opinion of Buyer's Counsel. The Seller shall have received a favorable
opinion, dated as of the Closing Date, from Porter & Hedges, L.L.P.,
counsel for Buyer, in form and substance satisfactory to the Seller, to the
effect that (i) Buyer has been duly incorporated and is validly existing as
a corporation in good standing under the laws of Delaware; (ii) all
corporate proceedings required to be taken by or on the part of the Buyer
to authorize the execution of this Agreement, the Lease, the Assignment and
the Purchase Agreement (collectively, the "Transaction Documents"), and the
implementation of the transactions contemplated hereby and thereby, have
been taken; and (iii) each of the Transaction Documents have been duly
executed and delivered by, and are the legal, valid and binding obligations
of Buyer and are enforceable against Buyer in accordance with their
respective terms, except as enforceability may be limited by (a) equitable
principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights
of creditors generally. In rendering such opinion, such counsel may rely
upon (i) certificates of public officials and of officers of Buyer as to
matters of fact and (ii) the opinion or opinions of other counsel, which
opinions shall be reasonably satisfactory to the Seller, as to matters
other than federal or Texas law.
1.5.2. Opinion of Seller's Counsel. The Buyer shall have received a favorable
opinion, dated as of the Closing Date, from Wesley & Herzog, P.C., counsel
to Seller, in form and substance satisfactory to Buyer, to the effect that
(i) the Seller and CBBP have been duly organized and are validly existing
in good standing under the laws of Texas; (ii) all corporate proceedings
required to be taken by or on the part of Seller and CBBP to authorize the
execution of the Transaction Documents to which they are a Party, and the
implementation of the transactions contemplated thereby have been taken;
(iii) to the best of such counsel's knowledge, the Company owns all of its
Assets free and clear of any Encumbrances other than those Encumbrances
listed on the Schedules to this Agreement; and (iv) each of the Transaction
Documents have been duly executed and delivered by, and are the legal,
valid and binding obligations of the parties thereto other than the Buyer,
and are enforceable against the parties thereto other than the Buyer, in
accordance with their respective terms, except as the enforceability may be
limited by (a) equitable principles of general applicability or (b)
bankruptcy, insolvency, reorganization, fraudulent conveyance or similar
laws affecting the rights of creditors generally. In rendering such
opinion, such counsel may rely upon (i) certificates of public officials
and of officers of the Seller and CBBP as to matters of fact and (ii) on
the opinion or opinions of other counsel, which opinions shall be
reasonably satisfactory to Buyer, as to matters other than federal or Texas
law.
Article 2
Representations and Warranties
2.1. Representations and Warranties of the Seller. Except as disclosed on
Schedule 2.1 (which shall identify the applicable Section reference of this
Agreement to which such disclosure relates), each of the Seller and Lundy,
represent and warrant to Buyer as follows:
2.1.1. Organization and Good Standing. Seller and CBBP are duly organized,
validly existing and in good standing under the laws of Texas, have full
requisite power and authority to carry on their respective businesses as
currently conducted, and to own and operate their respective properties
currently owned and operated by them, and are duly qualified or licensed to
do business and are in good standing and authorized to do business in all
jurisdictions in which the character of the properties owned or the nature
of the business conducted by them would make such qualification or
licensing necessary.
2.1.2. Agreements Authorized and their Effect on Other Obligations. The
execution and delivery of the Transaction Documents have been authorized by
all necessary corporate, shareholder and other action on the part of the
parties thereto other than the Buyer, and the Transaction Documents are the
valid and binding obligations of the parties thereto other than the Buyer,
enforceable against each of such parties in accordance with its terms. The
execution, delivery and performance of the Transaction Documents, and the
consummation of the transactions contemplated hereby and thereby, will not
conflict with or result in a violation or breach of any term or provision
of, nor constitute a default under (i) the charter or bylaws (or other
organizational documents) of the Seller or CBBP, (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to
which the parties thereto other than the Buyer or by which the parties
thereto other than the Buyer or their respective properties are bound; or
(iii) any provision of any law, rule, regulation, order, permit,
certificate, writ, judgment, injunction, decree, determination, award or
other decision of any court, arbitrator, or other governmental authority to
which the parties thereto other than the Buyer or any of their respective
properties are subject.
2.1.3. Subsidiaries. The Seller does not have any subsidiary corporations or any
interest in any other organization, incorporated or unincorporated,
partnership or any other entity of any type.
2.1.4. Liabilities. The Seller does not have any liabilities or obligations,
either accrued, absolute, contingent, or otherwise, and neither Seller nor
Lundy have any knowledge of any potential liabilities or obligations that
would materially and adversely affect the value and conduct of the Business
by the Buyer or the Assets, other than those (i) reflected or reserved
against in the July 31, 1997 unaudited balance sheet of the Seller or (ii)
incurred in the ordinary course of business since July 31, 1997.
2.1.5. Contracts. Schedule 1.1(d) hereto sets forth a true, complete and
accurate list of all Contracts of the Seller, including leases under which
the Seller is lessor or lessee, which relate to the Assets or the Business
and are to be performed in whole or in part after the date hereof. All of
the Contracts are in full force and effect, and constitute valid and
binding obligations of the Seller. The Seller is not, and no other party to
any of the Contracts is, in default thereunder, and no event has occurred
which (with or without notice, lapse of time, or the happening of any other
event) would constitute a default thereunder. No Contract has been entered
into on terms that could reasonably be expected to have an adverse effect
on the use of the Assets or the Business by Buyer. Neither the Seller or
Lundy has received any information that would cause either of such parties
to conclude that any customer of the Seller will (or is likely to) cease
doing business with Buyer (or its successors) as a result of the
consummation of the transactions contemplated hereby. All of the Contracts
set forth on Schedule 1.1(d), are assignable and have been validly assigned
to Buyer pursuant to this Agreement without the consent of any other party
thereto, other than consents that have been obtained and delivered to
Buyer.
2.1.6. Title to and Condition of Assets. The Seller has good and indefeasible
title to all of the Assets, free and clear of any Encumbrances (defined
below). All of the Assets are in a state of good operating condition and
repair, ordinary wear and tear excepted, and are free from any defects
except as may be repaired by routine maintenance and such minor defects as
to not substantially interfere with the continued use thereof in the
conduct of normal operations. All of the Assets conform to all applicable
laws governing their use. No notice of any violation of any law, statute,
ordinance, or regulation relating to any of the Assets has been received by
the Seller or Lundy, except such as have been disclosed in writing to Buyer
and fully complied with. For purposes of this Agreement, the term
"Encumbrances" means all liens, security interests, pledges, mortgages,
deeds of trust, claims, rights of first refusal, options, charges,
restrictions or conditions to transfer or assignment, liabilities,
obligations, privileges, equities, easements, rights of way, limitations,
reservations, restrictions, and other encumbrances of any kind or nature.
2.1.7. Licenses and Permits. Schedule 1.1(e) hereto sets forth a true, complete
and accurate list of all Permits material to the Business and the
operation, maintenance and use of the Assets in the manner in which they
are now being operated, maintained and used. Each of the Seller's Permits
and the Seller's rights with respect thereto is valid and subsisting, in
full force and effect, and enforceable by the Seller subject to
administrative powers of regulatory agencies having jurisdiction. The
Seller is in compliance in all respects with the terms of each of the
Seller's Permits. None of the Seller's Permits have been, or to the
knowledge of the Seller or Lundy, are threatened to be, revoked, canceled,
suspended or modified. All of the Seller's Permits, to the extent
assignable under applicable law, have been assigned to the Buyer pursuant
to this Agreement.
2.1.8. Intellectual Property. Schedule 1.1(c) hereto sets forth a true, complete
and accurate list of all Intellectual Property material to the continued
conduct of the Business. The Seller's Intellectual Property is owned or
licensed by the Seller free and clear of any Encumbrances. The Seller has
not granted to any other person any license to use any Seller's
Intellectual Property. All of the Seller's Intellectual Property has been
assigned to the Buyer pursuant to this Agreement. Neither the Seller nor
Lundy has received any notice of infringement, misappropriation, or
conflict with the intellectual property rights of others in connection with
the use by the Seller of the Seller's Intellectual Property.
2.1.9. Financial Statements. The Seller has delivered to Buyer copies of certain
unaudited financial statements of the Sellers, copies of which are attached
hereto as Schedule 2.1.9 (collectively, the "Sellers' Financial
Statements") as of and for the period ending July 31, 1997 (the "Balance
Sheet Date"). The Seller's Financial Statements are true, correct and
complete in all material respects and present fairly and fully the
financial condition of the Seller as of the dates and for the periods
indicated thereon. Each of the Seller's Financial Statements include all
adjustments that are necessary for a fair presentation of the Seller's
results for that period. The inventories of the Seller reflected in the
Seller's Financial Statements, or which have thereafter been acquired by
the Seller, consist of items of a quality and quantity salable in the
normal course of the Business. The values at which such inventories are
carried and are consistent with the normal inventory level and practices of
the Seller with respect to the Business.
2.1.10. Additional Information. Attached as Schedule 2.1.10.1 through and
including Schedule 2.1.10.7 are true, complete and correct lists of the
following items:
2.1.10.1. Real Estate. All real property and structures thereon relating to or
used in the Business currently owned or leased or subject to a contract of
purchase and sale, or lease commitment, by the Seller, with a description
of the nature and amount of any Encumbrance thereto;
2.1.10.2. Machinery and Equipment. All machinery, transportation equipment,
tools, equipment, furnishings and fixtures (excluding such items as did not
have a cost basis of $500 or more at their respective dates of acquisition
by the Seller) owned, leased or subject to a contract of purchase and sale,
or lease commitment, by the Seller, with a description of the nature and
amount of any Encumbrances thereon;
2.1.10.3. Inventory. All Inventory items or groups of Inventory items owned by
the Seller relating to or used in the Business, together with the amount of
any Encumbrances thereon;
2.1.10.4. Insurance. All insurance policies or bonds, including title insurance
policies, with respect to the Seller, including those covering its
properties (real or personal), buildings, machinery, equipment, fixtures,
employees and operations relating to or used in the Business;
2.1.10.5. Employee Compensation Plans. All bonus, incentive compensation,
deferred compensation, profit-sharing, retirement, pension, welfare, group
insurance, death benefit, or other fringe benefit plans, arrangements or
trust agreements of the Seller (collectively, the "Employee Plans");
2.1.10.6. Employee Agreements. Any collective bargaining agreements of the
Seller with employees, including amendments, supplements, and written or
oral understandings, and all employment, compensation or consulting
agreements, whether written or oral, of the Seller with any person;
2.1.10.7. Trade Names. All trade names and fictitious names used or held by the
Seller, whether and where such names are registered and where such names
are used;
2.1.11. Assets; Necessary Consents. The Assets constitute all of the assets
necessary to conduct the Business as historically conducted by the Seller.
The Seller has obtained and delivered to Buyer all consents to assignment
or waivers thereof required to be obtained from any governmental authority
or from any other third party to validly transfer the Assets hereunder,
including, without limitation, any consents required to assign the
Contracts and, to the extent assignable under applicable law, the Seller's
Permits.
2.1.12. Environmental Matters. None of the current or past operations of the
Business or any of the Assets is being or has been conducted or used in
such a manner as to constitute a violation of any Environmental Law
(defined below). Neither the Seller nor Lundy has received any notice
(whether formal or informal, written or oral) from any entity, governmental
agency or individual regarding any existing, pending or threatened
investigation or inquiry related to violations of any Environmental Law or
regarding any claims for remedial obligations or contribution for removal
costs or damages under any Environmental Law. There are no writs,
injunction decrees, orders or judgments outstanding, or lawsuits, claims,
proceedings or investigations pending or, to the knowledge of the Seller or
Lundy, threatened, relating to the ownership, use, maintenance or operation
of the Assets or the conduct of the Business, nor, to the knowledge of the
Seller or Lundy, is there any basis for any of the foregoing. Other than as
set forth on Schedule 2.1.12, Buyer will not be required to obtain any
permits, licenses or similar authorizations pursuant to any Environmental
Law after the Closing Date to operate and use any of the Assets for their
current or proposed purposes and uses. The Assets include all environmental
and pollution control equipment necessary for material compliance with
applicable Environmental Law. Except as disclosed on Schedule 2.1.12 (i) no
Hazardous Materials (defined below) have been or are currently being used
by any of the Seller in the operation of the Assets, (ii) except as set
forth on Schedule 2.1.12, no Hazardous Materials are or have ever been
situated on or under any of the Seller's properties, whether owned or
leased, or incorporated into any of the Assets, (iii) there are no, and
there have never been any, underground storage tanks (as defined under
Environmental Law) located under any of the Sellers' properties, whether
owned or leased, and (iv) there are no environmental conditions or
circumstances, including the presence or release of any Hazardous
Materials, on any property presently or previously owned or leased by any
of the Seller, or on any property on which Hazardous Materials generated by
the Seller's operations or the use of the Assets were disposed of. The term
"Environmental Law" means any and all laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, and other legally enforceable
requirements (including, without limitation, common law) of the United
States, or any state, regional, city, local, municipal or other
governmental authority or quasi-governmental authority, regulating,
relating to, or imposing environmental standards of conduct concerning
protection of the environment or human health, or employee health and
safety as from time to time has been or is now in effect. The term
"Hazardous Materials" means (x) asbestos, polychlorinated biphenyls, urea
formaldehyde, lead based paint, radon gas, petroleum, oil, solid waste,
pollutants and contaminants, and (y) any chemicals, materials, wastes or
substances that are defined, regulated, determined or identified as toxic
or hazardous in any Environmental Law.
2.1.13. Employee Benefit Plans; Labor Issues. Schedule 2.1.13 hereto sets forth
all of the Seller's Employee Plans and any other health, dental and life
insurance plans, bonus, deferred compensation, pension, profit sharing and
retirement plans and all other employee benefit plans, programs or
arrangements providing benefits for employees of the Seller (the "Benefit
Plans"). Each of the Benefit Plans has been administered and maintained in
material compliance with the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and, if applicable, the
Internal Revenue Code of 1986, as amended (the "Code"), and all other
applicable laws. There is no "accumulated funding deficiency" (as such term
is defined in Section 302 of ERISA or Section 412 of the Code) with respect
to a Benefit Plan that is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA), and there has been no application for waiver of the
minimum funding standards imposed by Code Section 412 with respect to any
such plan. There are no pending or, to the knowledge of any of the Seller
or Lundy, threatened claims by or on behalf of the Benefit Plans, the
United States Department of Labor, the Internal Revenue Service, or by any
current or former employee of the Seller or beneficiary of such current or
former employee alleging a breach of any fiduciary duties or a violation of
applicable state or federal law which could result in a material liability
on the part of any of the Sellers or a Benefit Plan under ERISA or any
other law (other than benefit claims and funding obligations in the
ordinary course of business). The Seller has not suffered or otherwise
caused a "complete withdrawal" or "partial withdrawal," as such terms are
respectively defined in Sections 4203 and 4205 of ERISA, from any
Multiemployer Pension Plan, as such term is defined in Section 3(37) of
ERISA. The Seller has not engaged in any unfair labor practices which could
reasonably be expected to result in an adverse effect on the Business or
the Assets. The Seller does not have any dispute with any of its existing
or former employees, and there are no labor disputes or, to the knowledge
of the Seller or Lundy, any disputes threatened by current or former
employees of the Seller.
2.1.14. Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Seller or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of the
Seller or Lundy, threatened, nor has any governmental entity indicated to
the Seller or Lundy an intention to conduct the same. There is no suit,
action, or legal, administrative, arbitration, or other proceeding or
governmental investigation pending to which the Seller or Lundy is a party
or, to the knowledge of the Seller or Lundy, might become a party.
2.1.15. Absence of Certain Businesses Practices. Neither the Seller nor Lundy,
nor any officer, employee or agent of any of the Seller, nor any other
person acting on behalf of any of the Seller or Lundy, has, directly or
indirectly, within the past five years, given or agreed to give any gift or
similar benefit to any customer, supplier, government employee or other
person who is or may be in a position to help or hinder the profitable
conduct of the Business or the profitable use of the Assets (or to assist
the Seller in connection with any actual or proposed transaction) that if
not given in the past, may more likely than not have had an adverse effect
on the profitable conduct of the Business or the profitable use of the
Assets, or if not continued in the future, may more likely than not
adversely affect the profitable conduct of the Business or the profitable
use of the Assets.
2.1.16. Solvency. The Seller is not presently insolvent, nor will the Seller be
rendered insolvent by the occurrence of the transactions contemplated by
this Agreement. The term "insolvent" means that the sum of the present fair
and saleable value of the Seller's assets does not and will not exceed its
debts and other probable liabilities, and the term "debts" includes any
legal liability whether matured or unmatured, liquidated or unliquidated,
absolute fixed or contingent, disputed or undisputed or secured or
unsecured.
2.1.17. Untrue Statements. None of the Transaction Documents contains any untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
2.1.18. Compliance with Other Laws. The Seller is not in violation of or in
default with respect to, or in alleged violation of or alleged default with
respect to the Occupational Safety and Health Act (29 U.S.C.ss651 et seq.,
as amended), or any applicable law or any applicable rule, regulation, or
any writ or decree of any court or any governmental commission, board,
bureau, agency, or instrumentality, or delinquent with respect to any
report required to be filed with any governmental commission, board,
bureau, agency or instrumentality.
2.1.19. Taxes. The federal income tax returns of the Seller for the years 1995
and 1996 have been provided to the Buyer before the date hereof. Proper and
accurate federal, state and local income, sales, use, franchise, gross
revenue, turnover, excise, payroll, property, employment, customs duties
and any and all other tax returns, reports, and estimates have been filed
with appropriate governmental agencies, domestic and foreign, by the Seller
for each period for which any returns, reports, or estimates were due. All
taxes shown by such returns to be payable have been paid. All sales taxes
have been properly collected and accounted for through the date hereof by
the Seller, and the Seller has made all required deposits of such taxes
with all taxing authorities. The tax provision reflected in the Seller's
financial statements as of July 31, 1997 is adequate to cover liabilities
of the Seller at the date thereof for all taxes of any character whatsoever
applicable to the Seller or its assets or business. No waiver of any
statute of limitations executed by the Seller with respect to federal or
state income or other tax is in effect for any period. No deficiencies for
any taxes have been proposed, asserted or assessed against the Seller, and
no requests or waivers of the time to assess any such tax are pending. The
federal income tax returns of the Seller has not been audited by the
Internal Revenue Service. No audit of any federal or state or other tax
return of the Seller is presently in process nor has an appointment for or
notice of any such audit been requested or given by any taxing authority.
2.1.20. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Seller and
Lundy and their respective counsel directly with Buyer and its counsel,
without the intervention of any other person in such manner as to give rise
to any valid claim against any of the parties hereto for a brokerage
commission, finder's fee or any similar payment.
2.2. Representations and Warranties of Buyer. Buyer represents and warrants to
each of the Seller and Lundy as follows:
2.2.1. Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the
properties currently owned and operated by it, and is duly qualified or
licensed to do business and is in good standing as a foreign corporation
authorized to do business in all jurisdictions in which the character of
the properties owned or the nature of the business conducted by it would
make such qualification or licensing necessary.
2.2.2. Agreements Authorized and its Effect on Other Obligations. The execution
and delivery of the Transaction Documents have been authorized by all
necessary corporate, shareholder and other action on the part of Buyer, and
the Transaction Documents are the valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their terms. The execution,
delivery and performance of the Transaction Documents, and the consummation
of the transactions contemplated hereby and thereby, will not conflict with
or result in a violation or breach of any term or provision of, nor
constitute a default under (i) the charter or bylaws (or other
organizational documents) of Buyer, (ii) any obligation, indenture,
mortgage, deed of trust, lease, contract or other agreement to which Buyer
is a party or by which Buyer or its properties are bound; or (iii) any
provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which Buyer or any of
its properties are subject.
Article 3
Additional Agreements
3.1. Employees. Schedule 6.1 hereto is a complete and accurate listing of all
employees of the Seller that devote their full time and effort in the
operation of the Assets and the conduct of the Business (the "Employees").
The Seller and Lundy will use their best efforts to make all of the
Employees available for hire by the Buyer or its affiliates, and the Buyer
agrees to hire all of such Employees, subject to such Employees meeting
Buyer's standard employment eligibility requirements and mutual agreement
between such Employees and Buyer as to their compensation levels. Buyer
shall have no liability or obligation with respect to any employee benefits
of any Employee except those benefits that accrue pursuant to such
Employees' employment with Buyer on or after the date hereof. The Seller
and Lundy shall cooperate with Buyer in connection with any offer of
employment from Buyer to the Employees and use their best efforts to cause
the acceptance of any and all such offers. All Employees hired by Buyer
shall be at-will employees of Buyer. All Employees hired by Buyer shall be
entitled to participate in the Buyer's benefit plans, including the Buyer's
medical plan, and shall receive full credit thereunder for all purposes for
the years of service at Seller. Notwithstanding any other provisions of
this Agreement, this Section 3.1 shall not be deemed to create any right or
claim for the benefit of, and shall not be enforceable by, any person which
is not a party to this Agreement.
3.2. Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on
Schedule 3.2 hereto, and shall report this transaction for federal income
tax purposes in accordance with the allocation so agreed upon. The parties
hereto for themselves and for their respective successors and assigns
covenant and agree that they will file coordinating Form 8594's in
accordance with Section 1060 of the Internal Revenue Code of 1986, as
amended, with their respective income tax returns for the taxable year that
includes the date hereof.
3.3. Use of Lundy Name; Name Change. Notwithstanding any other provision of this
Agreement, the Buyer shall be entitled to use the name "Lundy Vacuum
Service, Inc." and all of trade names, trademarks and logos used in the
business for a period of six months from the date hereof, after which time
the Buyer will cease using the "Lundy" name for any purpose in the
operation of the Business. From and after the date hereof, Lundy shall not
use the name "Lundy Vacuum Service, Inc." or any derivative thereof for any
purpose with respect to any business or other enterprise. The Seller shall,
within ten days of a request in writing from Buyer, cause to be filed (i)
with the applicable agency of the Seller's state of organization an
amendment to its charter (or other applicable organization documents) of
the Seller changing the name of the Seller from its current name to a name
that is not similar to such names, and (ii) with the appropriate
authorities of the Seller's state of organization and any other states such
documents as are required to effect such name change. The Seller shall,
within five days from the date of its receipt of confirmation of such
filings from the applicable state authorities, cause to be delivered to
Buyer copies of all such confirmations.
3.4. Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or
cause to be taken, such further or other actions as may be reasonably
necessary to effect the transactions contemplated hereby. In that regard,
Buyer and Lundy agree to use their best efforts during the term of the
Primary Lease, the BMD Facility Lease and the HMD Facility Lease to keep
all of the Permits listed on Schedule 1.1(e) in full force and effect.
Article 4
Indemnification
4.1. Indemnification by the Sellers and Lundy. In addition to any other remedies
available to Buyer under this Agreement, or at law or in equity, each of
the Seller and Lundy shall, jointly and severally, indemnify, defend and
hold harmless Buyer and its officers, directors, employees, agents and
stockholders, against and with respect to any and all claims, costs,
damages, losses, expenses, obligations, liabilities, recoveries, suits,
causes of action and deficiencies, including interest, penalties and
reasonable attorneys' fees and expenses (collectively, the "Damages") that
such indemnitee shall incur or suffer, which arise, result from or relate
to any breach of, or failure by the Seller or Lundy to perform their
respective representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument
furnished or delivered to Buyer by the Seller under this Agreement.
4.2. Indemnification by Buyer. In addition to any other remedies available
to the Seller and Lundy under this Agreement, or at law or in equity,
Buyer shall indemnify, defend and hold harmless the Seller and Lundy
against and with respect to any and all Damages that such indemnitees
shall incur or suffer, which arise, result from or relate to (i) any
breach of, or failure by Buyer to perform, any of its representations,
warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or
delivered to Seller Lundy by or on behalf of Buyer under this
Agreement and (ii) the operation of the Assets and conducting of the
Business that arise out of actions of the Buyer or any of its
affiliates after the date hereof.
4.3. Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 4.1 or
4.2 of this Agreement, such indemnified party shall give written
notice to the indemnifying party, specifying such claim, and may
thereafter exercise any remedies available to such party under this
Agreement; provided, however, that the failure of any indemnified
party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. Further,
promptly after receipt by an indemnified party hereunder of written
notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Article
4, such indemnified party shall, if a claim in respect thereof is to
be made against any indemnifying party, give written notice to the
latter of the commencement of such action; provided, however, that the
failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of any obligations hereunder,
to the extent the indemnifying party is not materially prejudiced
thereby. In case any such action is brought against an indemnified
party, the indemnifying party shall be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying
party similarly notified, to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the latter in connection with the
defense thereof unless the indemnifying party has failed to assume the
defense of such claim and to employ counsel reasonably satisfactory to
such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and
expenses of more than one counsel in any single jurisdiction for all
parties indemnified by such indemnifying party with respect to such
claim or with respect to claims separate but similar or related in the
same jurisdiction arising out of the same general allegations.
Notwithstanding any of the foregoing to the contrary, the indemnified
party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party
fails to select counsel reasonably satisfactory to the indemnified
party, the expenses of such defense to be paid by the indemnifying
party. No indemnifying party shall consent to entry of any judgment or
enter into any settlement with respect to a claim without the consent
of the indemnified party, which consent shall not be unreasonably
withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability with respect to
such claim. No indemnified party shall consent to entry of any
judgment or enter into any settlement of any such action, the defense
of which has been assumed by an indemnifying party, without the
consent of such indemnifying party, which consent shall not be
unreasonably withheld or delayed.
Article 5
Miscellaneous
5.1. Survival of Representations, Warranties and Covenants. All
representations, warranties, covenants and agreements made by the
parties hereto shall survive until the second anniversary of the date
hereof, notwithstanding any investigation made by or on behalf of any
of the parties hereto. All statements contained in any certificate,
schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties
by the respective party or parties, as the case may be, and shall also
survive as provided as provided above despite any investigation made
by any party hereto or on its behalf.
5.2. Entirety. This Agreement embodies the entire agreement among the
parties with respect to the subject matter hereof, and all prior
agreements between the parties with respect thereto are hereby
superseded in their entirety.
5.3. Counterparts. Any number of counterparts of this Agreement may be
executed and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but
one instrument.
5.4. Notices and Waivers. Any notice or waiver to be given to any party
hereto shall be in writing and shall be delivered by courier, sent by
facsimile transmission or first class registered or certified mail,
postage prepaid, return receipt requested:
If to Buyer
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
Key Energy Group, Inc. Porter & Hedges, L.L.P.
Two Tower Center, 20th Floor 700 Louisiana
East Brunswick, New Jersey 08816 Houston, Texas 77210-4744
Attn: General Counsel Attn: Samuel N. Allen
Facsimile: (732) 247-5148 Facsimile: (713)
- --------------------------------------------------------------------------------
If to any of the Seller or Lundy
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Peyton E. Lundy Wesley & Herzog, P.C.
[ADDRESS TO COME] 25025 I-45 North, Suite 400
Facsimile: The Woodlands, Texas 77380
Attn: James Wesley
Facsimile: (281) 367-9044
- --------------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal businesses hours on
any business day.
5.5. Captions. The captions contained in this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any article, section, or paragraph hereof.
5.6. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the successors and
assigns of the parties hereto.
5.7. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the terms, provisions,
covenants and restrictions shall remain in full force and effect and
shall in no way be affected, impaired or invalidated. It is hereby
stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such which may be hereafter
declared invalid, void or unenforceable.
5.8. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
[SIGNATURE PAGE FOLLOWS]
Asset Purchase Agreement
among
Yale E. Key, Inc.,
Edwards Transport, Inc.
and
Tom Nations
March 26, 1998
<PAGE>
Asset Purchase Agreement
This Asset Purchase Agreement (this "Agreement") is entered into as of March 26,
1998 among Yale E. Key, Inc., a Texas corporation (the "Buyer"), Edwards
Transport, Inc., a Texas corporation (the "Seller") and Tom Nations (the
"Shareholder").
RECITATIONS
The Seller desires to sell substantially all of its assets, and Buyer desires to
acquire such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Purchase and Sale of Assets
1.1 Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer effective as of 12:01 A.M. Texas time on the date of
execution hereof (the "Closing Date"), all of the assets of the Seller existing
on the Closing Date other than the Excluded Assets (defined below), whether
real, personal, tangible or intangible, including, without limitation, the
following assets owned by the Seller relating to or used or useful in the
operation of the business as conducted by the Seller on and before the date
hereof (the "Business") (all such assets being sold hereunder are referred to
collectively herein as the "Assets"):
(a) all tangible personal property owned by Seller (such as machinery,
equipment, leasehold improvements, furniture and fixtures, and vehicles),
including, without limitation, that which is more fully described on
Schedule 1.1(a) hereto (collectively, the "Tangible Personal Property");
(b) all of the inventory owned by Seller, including without limitation, that
which is more fully described on Schedule 1.1(b) hereto (collectively, the
"Inventory");
(c) all of the Seller's intangible assets (the "Intangibles"), including
without limitation, (i) all of the Seller's rights to any patents, patent
applications, trademarks and service marks (including registrations and
applications therefor), trade names, and copyrights and written know-how,
trade secrets, licenses and sublicenses and all other similar proprietary
data and the goodwill associated therewith (collectively, the "Intellectual
Property") used or held in connection with the Business, (ii) the Seller's
telephone numbers, and (iii) the sales and promotional literature, computer
software, customer and supplier lists and all other records of the Seller
relating to the Assets or the Business, excluding the corporate minute
books, accounting records, files, tax returns and other financial data on
whatever media, relating to the Seller or the Shareholder or the Excluded
Assets (the "Retained Records");
(d) all leases, subleases, contracts, contract rights, and agreements relating
to the Assets or the operation of the Business, including, without
limitation those listed on Schedule 1.1(d) hereto (collectively, the
"Contracts");
(e) all of the permits, authorizations, certificates, approvals, registrations,
variances, waivers, exemptions, rights-of-way, franchises, ordinances,
orders, licenses and other rights of every kind and character
(collectively, the "Permits") relating principally to all or any of the
Assets or to the operation of the Business, including, but not limited to,
those that are more fully described on Schedule 1.1(e) hereto;
(f) the goodwill and going concern value of the Business; and
(h) all other or additional privileges, rights, interests, properties and
assets of the Seller of every kind and description and wherever located
that are used in the Business or intended for use in the Business in
connection with, or that are necessary for the continued conduct of, the
Business (other than the Excluded Assets).
1.2 Excluded Assets. The Assets shall not include the following (collectively,
the "Excluded Assets"): (i) all real property and buildings owned by Seller
(including, specifically, the land and building located on Highway 114,
Levelland, Texas, (ii) all of the Seller's accounts receivable and all other
rights of the Seller to payment for services rendered by the Seller before
Closing, it being understood that all of Seller's customers shall be billed on
the Closing Date for services or materials provided through that date and that
Buyer will forward any payment on such accounts received by it to Seller within
five (5) business day of receipt; (iii) all cash accounts of the Seller and all
petty cash of the Seller kept on hand for use in the Business; (iv) all other
receivables and prepaid expenses, including all right, title and interest of the
Seller in and to any prepaid expenses, bonds, deposits and other current assets
relating to any of the Assets or the Business; (v) the Retained Records; and
(vi) the cash consideration paid or payable by Buyer to Seller pursuant to
Section 1.3 hereof.
1.3 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of the Seller and the
Shareholder contained herein, Buyer agrees to pay on the Closing Date, the sum
of $2,700,000 by wire transfer of immediately available funds to an account
designated by the Seller or by delivery of immediately available funds. In
addition, within thirty (30) days following the Closing, Buyer will pay Seller
an additional amount equal to (a) the amounts paid by Seller for equipment
purchases made by Seller after March 5, 1998, and before the date hereof which
expand the capabilities of the Business and which have been approved by Buyer,
plus (b) such amounts, if any, actually paid by Seller after March 5, 1998 and
before the date hereof as registration or license fees on vehicles owned and
operated by Seller and which apply to the period from and after April 1, 1998.
1.4 Liabilities. Effective on the Closing Date, Buyer shall assume those, and
only those, liabilities and obligations of the Seller to perform the Contracts
described on Schedule 1.1(d) hereto to the extent such Contracts have not been
performed and are not in default on the date hereof (the "Assumed Liabilities").
On and after the date hereof, the Seller shall be responsible for any and all
liabilities and obligations of the Seller other than the Assumed Liabilities,
including, without limitation, (a) any obligations arising from the Seller's
employment of those employees of the Seller listed on Schedule 3.2 hereto; (b)
any liabilities arising from or relating to Seller's failure to be duly
qualified or licensed to do business and in good standing as a foreign
corporation authorized to do business in all jurisdictions in which the
character of the properties owned or the nature of the business conducted by
Seller would make such qualification or licensing necessary; (c) any failure to
pay any taxes owed by Seller which are applicable to the period ending with the
date hereof (including, specifically, all taxes applicable to any of the
Assets); (d) any liabilities resulting from or related to Seller's violation of
Environmental Laws (as hereinafter defined); and (e) any liabilities arising out
of any matters listed on Schedule 2.1.10 hereto (collectively, the "Retained
Liabilities").
1.5 Closing. The closing of the purchase and sale provided for hereunder (the
"Closing") shall take place on the date of execution hereof (the "Closing
Date"), at the offices of Seller.
1.6 Closing Deliveries. At the Closing, in addition to the conveyances of the
Assets to the Buyer in exchange for the Purchase Price: (i) the Seller and the
Shareholder shall each enter into an agreement not to compete (the
"Noncompetition Agreements") in the form of Exhibit A hereto, and (iii) Buyer
and Seller will deliver to one another the opinions of counsel described below:
1.6.1 Opinion of Buyer's Counsel. The Seller shall have received a favorable
opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, P.C.,
counsel for Buyer, in form and substance satisfactory to the Seller, to the
effect that (i) Buyer has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Texas; (ii) all
corporate proceedings required to be taken by or on the part of the Buyer to
authorize the execution of this Agreement, the Noncompetition Agreements and the
implementation of the transactions contemplated hereby and thereby, have been
taken; and (iii) this Agreement has been duly executed and delivered by, and is
the legal, valid and binding obligations of Buyer and is enforceable against
Buyer in accordance with its terms, except as enforceability may be limited by
(a) equitable principals of general applicability of (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights of
creditors generally. In rendering such opinion, such counsel may rely upon (x)
certificates of public officials and of officers or Buyer as to the matters of
fact and (y) the opinion or opinions of other counsel, which opinions shall be
reasonably satisfactory to the Seller, as to matters other than federal or Texas
law.
1.6.2 Opinion of Seller's Counsel. The Buyer shall have received a favorable
opinion, dated as of the Closing Date, from Larry Glazner, Esq., counsel to
Seller and the Shareholder, in form and substance satisfactory to Buyer, to the
effect that (i) Seller has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Texas; (ii) all
proceedings required to be taken by or on the part of the Seller and the
Shareholder to authorize the execution of this Agreement, the Noncompetition
Agreements and the Employment Agreement and the implementation of the
transactions contemplated hereby and thereby have been taken; (iii) the Seller
owns all of the Assets free and clear of any Encumbrances other than those
Encumbrances specifically listed and described on the Schedules to this
Agreement; and (iv) this Agreement, the Noncompetition Agreements and the
Employment Agreement have been duly executed and delivered by, and are the
legal, valid and binding obligations of the Seller and the Shareholder and are
enforceable against the Seller and the Shareholder in accordance with their
respective terms, in each case, except as the enforceability may be limited by
(a) equitable principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights of
creditors generally. In rendering such opinion, such counsel may rely upon (x)
certificates of public officials and of officers of the Seller as to the matters
of fact and (y) on the opinion or opinions of other counsel, which opinions
shall be reasonably satisfactory to Buyer, as to matters other than federal or
Texas law.
ARTICLE II
Representations and Warranties
2.1 Representations and Warranties of Seller and Shareholder. The Seller and the
Shareholder jointly and severally represent and warrant to Buyer as follows:
2.1.1 Organization and Good Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas, has
full requisite corporate power and authority to carry on its businesses as it is
currently conducted, and to own and operate the properties currently owned and
operated by it and does not do business in any state other than the State of
Texas. Shareholder owns all of the issued and outstanding capital stock of
Seller and has the right to vote the same.
2.1.2 Agreement Authorized and Effect on Other Obligations. The execution and
delivery of this Agreement and all instruments to be executed by Seller
hereunder have been authorized by all necessary corporate, shareholder and other
action on the part of the Seller and the Shareholder, and this Agreement and all
instruments to be executed by the Seller and the Shareholder hereunder are the
valid and binding obligations of the Seller and Shareholder enforceable (subject
to normal equitable principals) against each of such parties in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. The Seller and the Shareholder represent and warrant that the
execution, delivery and performance of this Agreement and all instruments to be
executed by the Seller hereunder and the consummation of the transactions
contemplated hereby and thereby, will not conflict with or result in a violation
or breach of any term or provision of, nor constitute a default under (i) the
Articles of Incorporation or Bylaws (or other organizational documents) of the
Seller, (ii) any obligation, indenture, mortgage, deed of trust, lease, contract
or other agreement to which the Seller or the Shareholder is a party or by which
the Seller or the Shareholder or their respective properties are bound; or (iii)
to the best of their knowledge, any provision of any law, rule, regulation,
order, permits, certificate, writ, judgment, injunction, decree, determination,
award or other decision of any court, arbitrator or other governmental authority
to which the Seller or the Shareholder or any of their respective properties are
subject.
2.1.3 Contracts. Schedule 1.1(d) hereto sets forth a complete list of all
contracts, including leases under which the Seller is lessor or lessee, which
relate to the Assets and are to be performed in whole or in part after the date
hereof. In addition, (a) all of the Contracts are in full force and effect, and
constitute valid and binding obligations of the Seller, (b) the Seller is not,
and no other party to any of the Contracts is, in default thereunder, and no
event has occurred which (with or without notice, lapse of time, or the
happening of any other event) would constitute a default thereunder, (c) no
Contract has been entered into on terms which could reasonably be expected to
have an adverse effect on the use of the Assets by Buyer, (d) neither the Seller
nor the Shareholder has received any information which would cause either of
such parties to conclude that any customer of the Seller will (or is likely to)
cease doing business with Buyer (or its successors) as a result of the
consummation of the transactions contemplated hereby.
2.1.4 Title to Assets. The Seller has good, indefeasible and marketable title to
all of the Assets, free and clear of any Encumbrances (defined below). The
Seller and the Shareholder represent and warrant that all of the Assets are (a)
in a state of good repair, ordinary wear and tear excepted, (b) are free from
any known defects except as may be repaired by routine maintenance and such
minor defects as do not substantially interfere with the continued use thereof
in the conduct of normal operations and (c) conform to all applicable laws
governing their use. The Seller and Shareholder represent that no notice of any
violation of any law, statute, ordinance, or regulation relating to any of the
Assets has been received by the Seller or the Shareholder, except such as have
been fully complied with. The term "Encumbrances" means all liens, security
interests, pledges, mortgages, deeds of trust, claims, rights of first refusal,
options, charges, restrictions or conditions to transfer or assignment,
liabilities, obligations, taxes, privileges, equities, easements, rights of way,
limitations, reservations, restrictions and other encumbrances of any kind or
nature.
2.1.5 Licenses and Permits. Schedule 1.1(e) hereto sets forth a complete list of
all Permits necessary under law or otherwise for the operation, maintenance and
use of the Assets in the manner in which they are now being operated, maintained
and used; each of the Permits and the Seller's rights with respect thereto is
valid and subsisting, in full force and effect, and enforceable by the Seller;
the Seller is in compliance in all material respects with the terms of each of
the Permits; none of the Permits have been, or to the knowledge of the Seller or
the Shareholder, are threatened to be, revoked, canceled, suspended or modified.
2.1.6 Intellectual Property. There is no Intellectual Property that is either
material or necessary for the continued use of the Assets and, to the best of
Seller's knowledge, the conduct of the Business by Seller did not infringe,
misappropriate or conflict with the intellectual property rights of others.
Neither the Seller nor the Shareholder has received any notice of infringement,
misappropriation or conflict with the intellectual property rights of others.
2.1.7 Financial Statements. The Seller has delivered to Buyer a copy of Seller's
unaudited Statement of Income for the nine (9) month period ended December 31,
1997, copy of which is attached hereto as Schedule 2.1.7 (the "Seller's
Statement of Income"); the Seller's Statement of Income is true, correct and
complete in all material respects and presents fairly and fully the income and
expenses of the Seller as at the date and for the period indicated thereon, and
has been prepared in accordance with generally accepted accounting principles as
promulgated by the American Institute of Certified Public Accountants ("GAAP")
applied on a consistent basis, except as noted therein; and the Seller's
Statement of Income includes all adjustments which are necessary for a fair
presentation of the Seller's income and expenses for the periods indicated.
2.1.8 Absence of Certain Changes and Events. Since December 31, 1997, there has
not been:
(g) Financial Change. Any adverse change in the Assets, the Business or the
financial condition, operations, liabilities or prospects of the Seller;
(h) Property Damage. Any damage, destruction, or loss to any of the Assets or
the Business (whether or not covered by insurance);
(i) Waiver. Any waiver or release of a material right of or claim held by the
Seller;
(j) Change in Assets. Any acquisition, disposition, transfer, encumbrance,
mortgage, pledge or other encumbrance of any asset of the Seller other than
in the ordinary course of business;
(k) Labor Disputes. Any labor disputes between the Seller and its employees; or
(l) Other Changes. Any other event or condition known to the Seller or the
Shareholder that particularly pertains to and has or might have an adverse
effect on the Assets, the operations of the Business or the financial
condition or prospects of the Seller.
2.1.9 Necessary Consents. The Seller has obtained and delivered to Buyer all
consents to assignment or waivers thereof required to be obtained from any
governmental authority or from any other third party in order to validly
transfer the Assets hereunder.
2.1.10 Environmental Matters. Except as described on Schedule 2.1.10 hereto,
none of the current or past operations of the Business or any of the Assets are
being or have been conducted or used in such a manner as to constitute a
violation of any Environmental Law (defined below); neither the Seller nor the
Shareholder has received any notice (whether formal or informal, written or
oral) from any entity, governmental agency or individual regarding any existing,
pending or threatened investigation or inquiry related to violations of any
Environmental Law or regarding any claims for remedial obligations or
contribution for removal costs or damages under any Environmental Law; there are
no writs, injunction decrees, orders or judgments outstanding, or lawsuits,
claims, proceedings or investigations pending or, to the knowledge of the Seller
or the Shareholder, threatened relating to the ownership, use, maintenance or
operation of the Assets or the conduct of the Business, nor, to the knowledge of
the Seller or the Shareholder, is there any basis for any of the foregoing;
Buyer is not required to obtain any permits, licenses or similar authorizations
pursuant to any Environmental Law in effect as of the date hereof to operate and
use any of the Assets for their current or proposed purposes and uses; to the
knowledge of the Seller or the Shareholder, the Assets include all environmental
and pollution control equipment necessary for compliance with applicable
Environmental Law; no Hazardous Materials (defined below) have been or are
currently being used by the Seller in the operation of the Assets; no Hazardous
Materials are or have ever been situated on or under any of the Seller's
properties, whether owned or leased, or incorporated into any of the Assets; to
the knowledge of the Seller or the Shareholder, there are no, there have never
been any, underground storage tanks (as defined under Environmental Law) located
under any of the Seller's properties, whether owned or leased; and there are no
environmental conditions or circumstances, including the presence or release of
any Hazardous Materials, on any property presently or previously owned or leased
by the Seller, or on any property on which Hazardous Materials generated by the
Seller's operations or the use of the Assets were disposed of, which would
result in an adverse change in the Business or business prospects of the Seller.
The term "Environmental Law" means any and all laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, and other legally enforceable requirements
(including, without limitation, common law) of the United states, or any state,
regional, city, local, municipal or other governmental authority or
quasi-governmental authority, regulating, relating to, or imposing environmental
standards of conduct concerning protection of the environment or human health,
or employee health and safety as from time to time has been or is now in effect.
The term "Hazardous Materials" means (x) asbestos, polychlorinated biphenyls,
urea formaldehyde, lead based paint, radon gas, petroleum, oil, solid waste,
pollutants and contaminants, and (y) any chemicals, materials, wastes or
substances that are defined, regulated, determined or identified as toxic or
hazardous in any Environmental Law.
2.1.11 No ERISA Plans or Labor Issues. No employee benefit plan of the Seller,
whether or not subject to any provisions of the Employee Retirement Income
Security Act of 1974, as amended, will by its terms or applicable law, become
binding upon or an obligation of Buyer; (b) the Seller has not engaged in any
unfair labor practices which could reasonably be expected to result in an
adverse effect on the Assets; (c) the Seller does not have any dispute with any
of its existing or former employees, and (d) there are no labor disputes or, to
the knowledge of the Seller or the Shareholder, any disputes threatened by
current or former employees of the Seller.
2.1.12 Investigations; Litigation. Except as set forth on Schedule 2.1.10
hereto, no investigation or review by any governmental entity with respect to
the Seller or any of the transactions contemplated by this Agreement is pending
or threatened, nor has any governmental entity indicated to the Seller or the
Shareholder an intention to conduct the same; and there is no suit, action, or
legal, administrative, arbitration or other proceeding or governmental
investigation pending to which the Seller or the Shareholder is a party or, to
the knowledge of the Seller or the Shareholder, might become a party or which
would adversely affect the Assets or the Buyer's future conduct of the Business.
2.1.13 Absence of Certain Businesses Practices. Neither the Seller, the
Shareholder, nor any officer, employee or agent of the Seller, or any other
person acting on behalf of the Seller or the Shareholder, has, directly or
indirectly, within the past five years, given or agreed to give any gift or
similar benefit to any customer, supplier, government employee or other person
who is or may be in a position to help or hinder the profitable conduct of the
Business or the profitable use of the Assets (or to assist the Seller in
connection with any actual or proposed transaction) which if not given in the
past, might have had an adverse effect on the profitable conduct of the Business
or the profitable use of the Assets, or if not continued in the future, might
adversely affect the profitable conduct of the Business or the profitable use of
the Assets.
2.1.14 Solvency. The Seller is not presently insolvent, nor will the Seller be
rendered insolvent by the occurrence of the transactions contemplated by this
Agreement. The term "insolvent" with respect to the Seller, means that the sum
of the present fair and saleable value of the Seller's assets does not and will
not exceed its debts and other probable liabilities, and the term "debts"
includes any legal liability whether matured or unmatured, liquidated or
unliquidated, absolute fixed or contingent, disputed or undisputed or secured or
unsecured.
2.1.15. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Seller, the
Shareholder and their counsel directly with Buyer and its counsel, without the
intervention of any other person in such a manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or any similar payment.
2.1.16 Taxes. All federal, state and local taxes assessed or assessable against
the Assets for periods prior to January 1, 1998 have been paid by Seller and the
Assets will be conveyed to Buyer free and clear of any such taxes or claims
therefor. All taxes assessed against the Assets for the period commencing
January 1, 1998 will be prorated through the Closing Date (based on 1997
assessed values) with Seller paying to Buyer at Closing an amount equal to the
portion of such taxes applicable to the period between January 1, 1998 and the
Closing Date.
2.2 Representations and Warranties of Buyer. Buyer represents and warrants to
the Seller and the Shareholder as follows:
2.2.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas, has
full requisite corporate power and authority to carry on its businesses as it is
currently conducted, and to own and operate the properties currently owned and
operated by it.
2.2.2 Agreement Authorized and its Effect on Other Obligations. The consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Buyer, and this Agreement is a
valid and binding obligation of Buyer enforceable (subject to normal equitable
principles) in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement by Buyer will not conflict with or result in a
violation or breach of any term or provision of, or constitute a default under
(a) the Articles of Incorporation or Bylaws of Buyer or (b) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Buyer or any of its property is bound.
2.2.3 Consents and Approvals. No consent, approval or authorization of, or
filing of a registration with, any governmental or regulatory authority, or any
other person or entity is required to be made or obtained by Buyer in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
2.2.4 Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer and its counsel
directly with the Seller and the Shareholder and their counsel, without the
intervention by any other person as the result of any act of Buyer in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payments.
ARTICLE III
Additional Agreements
3.1 Noncompetition. Except as set forth below or as otherwise consented to or
approved in writing by Buyer, the Seller and the Shareholder each agree that for
a period of 60 months following the date hereof, such party will not, directly
or indirectly, acting alone or as a member of a partnership or a holder of, or
investor in as much as 5% of any security of any class of any corporation or
other business entity (a) engage in any business in competition with the
business or business conducted by the Seller on or before the date hereof or by
Buyer (or Buyer's affiliates) on or after the date hereof, or in any service
business the services of which were provided and marketed by the Seller on or
before the date hereof or by Buyer (or Buyer's affiliates) on or after the date
hereof in any state of the United States, or any foreign country in which the
Seller transacted business on or before the date hereof or in which Buyer (or
Buyer's affiliates) transact business on or after the date hereof; (b) request
any present customers or suppliers of the Seller or any customers of Buyer (or
Buyer's affiliates) to curtail or cancel their business with Buyer (or Buyer's
affiliates); (c) disclose to any person, firm or corporation any trade,
technical or technological secrets of Buyer (or Buyer's affiliates) or of the
Seller or any details of their organization or business affairs or (d) induce or
actively attempt to influence any employee of Buyer (or Buyer's affiliates) to
terminate his employment. The Seller and the Shareholder agree that if either
the length of time or geographical area as set forth in this Section 3.1 is
deemed too restrictive in any court proceeding, the court may reduce such
restrictions to those which it deems reasonable under the circumstances. The
obligations expressed in this Section 3.1 are in addition to any other
obligations that the Seller and the Shareholder may have under the laws of any
state requiring a corporation selling its assets (or a shareholder of such
corporation) to limit its activities so that the goodwill and business relations
being transferred with such assets will not be materially impaired. The Seller
and the Shareholder further agree and acknowledge that Buyer does not have any
adequate remedy at law for the breach or threatened breach by the Seller or the
Shareholder of the covenants contained in this Section 3.1, and agree that Buyer
may, in addition to the other remedies which may be available to it hereunder,
file a suit in equity to enjoin the Seller or the Shareholder from such breach
or threatened breach. If any provisions of this Section 3.1 are held to be
invalid or against public policy, the remaining provisions shall not be affected
thereby. The Seller and the Shareholder acknowledge that the covenants set forth
in this Section 3.1 are being executed and delivered by such party in
consideration of (i) the covenants of Buyer contained in this Agreement, (ii)
additional consideration in the amount of $300,000 payable by Buyer on the date
hereof by wire transfer of immediately available funds to the Seller and the
Shareholder, in those amounts and to those accounts specified in Schedule 3.1
hereto and (iii) for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged.
3.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing of
all employees of the Seller who devote their full time in the operation of the
Assets and the conduct of the Business (the "Employees"). Effective as of the
date of Closing, all of the Employees shall be offered employment by Buyer,
subject to such Employees meeting Buyer's standard employment eligibility
requirements. Buyer shall have no liability or obligation with respect to any
employee benefits of any Employee except those benefits that accrue pursuant to
such Employees' employment with Buyer on or after the date hereof. The Seller
and the Shareholder shall cooperate with Buyer in connection with any offer of
employment from Buyer to the Employees and use its best efforts to cause the
acceptance of any and all such offers.
3.3 Allocation of Purchase Price. The parties hereto agree to allocate the
Purchase Price payable by Buyer for the Assets hereunder as set forth on
Schedule 3.3 hereto, and shall report this transaction for federal income tax
purposes in accordance with the allocation so agreed upon. The parties hereto
for themselves and for their respective successors and assigns covenant and
agree that they will file coordinating Form 8594's in accordance with Section
1060 of the Internal Revenue Code of 1986, as amended, with their respective
income tax returns for the taxable year that includes the date hereof.
3.4 Employment of Shareholder. The Shareholder agrees to be Buyer's employee for
a period of at least one year at a total compensation of $61,000 per year, with
the terms and conditions of such employment to be pursuant to an Employment
Agreement to be executed by the Shareholder and the Buyer at Closing.
ARTICLE IV
Indemnification
4.1 Indemnification by the Seller and the Shareholder. In addition to any other
remedies available to Buyer under this Agreement, or at law or in equity, the
Seller and the Shareholder shall, jointly and severally, indemnify, defend and
hold harmless Buyer and its officers, directors, employees, agents and
stockholders , against and with respect to any and all claims, costs, damages,
losses, expenses, obligations, liabilities, recoveries, suits, causes of action
and deficiencies, including interest, penalties and reasonable attorneys' fees
and expenses (collectively, the "Damages") that such indemnitee shall incur or
suffer, which arise, result from or relate to (a) any material breach of, or
failure by the Seller or the Shareholder to perform, their respective
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to
Buyer by the Seller or the Shareholder under this Agreement; and (b) the
Retained Liabilities.
4.2 Indemnification by Buyer. In addition to any other remedies available to the
Seller or the Shareholder under this Agreement, or at law or in equity, Buyer
shall indemnify, defend and hold harmless the Seller and its officers,
directors, employees, agents and stockholders and the Shareholder against and
with respect to any and all Damages that such indemnitees shall incur or suffer,
which arise, result from or relate to (a) any material breach of, or failure by
Buyer to perform, any of its representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished or delivered to the Seller or the Shareholder by or on
behalf of Buyer under this Agreement and (b) the Assumed Liabilities.
4.3 Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 4.1 or 4.2 of
this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement; provided, however, that
the failure of an indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligation hereunder to the extent the
indemnifying party is not materially prejudiced thereby. Further, promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Article IV, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of an indemnified party to give notice as provided
herein shall not relieve the indemnifying party of any obligation hereunder to
the extent the indemnifying party is not materially prejudiced thereby. In case
any such action is brought against an indemnified party, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof unless the
indemnifying party has failed to assume the defense of such claim and to employ
counsel reasonably satisfactory to such indemnified person. An indemnifying
party who elects not to assume the defense of a claim shall not be liable for
the fees and expenses of more than one counsel in any single jurisdiction for
all parties indemnified by such indemnifying party with respect to such claim or
with respect to claims separate but similar or related in the same jurisdiction
arising out of the same general allegations. Notwithstanding any of the
foregoing to the contrary, the indemnified party will be entitled to select its
own counsel and assume the defense of any action brought against it if the
indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party, the expenses of such defense to be paid by the indemnifying
party. No indemnifying party shall consent to entry of any judgment or enter
into any settlement with respect to a claim without the consent of the
indemnified party, which consent shall not be unreasonably withheld, or unless
such judgment or settlement includes as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim. No indemnified party shall consent to
entry of any judgment or enter into any settlement of any such action, the
defense of which has been assumed by an indemnifying party, without the consent
of such indemnifying party, which consent shall not be unreasonably withheld or
delayed.
ARTICLE V
Miscellaneous
5.1 Survival of Representations, Warranties and Covenants. All representations
and warranties made by the parties hereto shall survive indefinitely without
limitation, notwithstanding any investigation made on the part of the parties
hereto. All statements contained in any certificate, schedule, exhibit or other
instrument delivered pursuant to this Agreement shall be deemed to have been
representations and warranties by the respective party or parties, as the case
may be, and shall also survive indefinitely without limitation, notwithstanding
any investigations made by any party hereto or on its behalf. All covenants and
agreements contained herein shall survive as provided herein.
5.2 Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
5.3 Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
5.4 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested:
If to Buyer
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Yale E. Key, Inc. Lynch, Chappell & Alsup, P.C.
Two Tower Center, 20th Floor 300 N. Marienfeld, Suite 700
East Brunswick, New Jersey 08816 Midland, Texas 79701
Attn: General Counsel Attn: James M. Alsup, Esq.
Facsimile: (908) 247-5148 Facsimile: (915) 683-2587
- --------------------------------------------------------------------------------
If to the Seller or the Shareholder
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mr. Tom Nations Larry Glazner, Esq.
Edwards Transport, Inc. 516 Avenue H
Route 3, Box 166 Levelland, Texas 79336
Levelland, Texas 79336 Facsimile: (806) 894-1543
- --------------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the fifth (5th) businesses day after so mailed, and if delivered by
courier or facsimile to such address, upon delivery during normal businesses
hours on any businesses day.
5.5 Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
5.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
5.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other
parties hereto have caused this Agreement to be executed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
BUYER:
YALE E. KEY, INC.
a Texas corporation
By:
C. Ron Laidley, President
SELLER:
EDWARDS TRANSPORT, INC.
a Texas corporation
By:
Tom Nations, President
SHAREHOLDER:
__________________________________________
Tom Nations
Asset Purchase Agreement
among
Brooks Well Servicing, Inc.,
JPF Lease Service, Inc.
and
JPF Well Service, Inc., R. D. Nettle,
Pete Schweikhardt and Rick Talbot
April 20, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 Purchase and Sale of Assets..........................................1
1.1 Purchase and Sale of the Assets.......................................1
1.2 Excluded Assets.......................................................2
1.3 Consideration for Assets..............................................2
1.4 Liabilities...........................................................3
1.5 Closing...............................................................3
1.6 Closing Deliveries....................................................3
1.6.1 Opinion of Buyer's Counsel............................................3
1.6.2 Opinion of Seller's Counsel...........................................4
ARTICLE II Representations and Warranties......................................4
2.1 Representations and Warranties of the Seller and the Shareholders.....4
2.1.1 Organization and Good Standing........................................4
2.1.2 Agreement Authorized and Effect on Other Obligations..................4
2.1.3 Contracts.............................................................5
2.1.4 Title to Assets.......................................................5
2.1.5 Licenses and Permits..................................................6
2.1.6 Intellectual Property.................................................6
2.1.7 Financial Statements..................................................6
2.1.8 Absence of Certain Changes and Events.................................6
(a) Financial Change.............................................6
(b) Property Damage..............................................6
(c) Waiver.......................................................6
(d) Change in Assets.............................................7
(e) Labor Disputes...............................................7
(f) Other Changes................................................7
2.1.9 Necessary Consents....................................................7
2.1.10 Environmental Matters.................................................7
2.1.11 No ERISA Plans or Labor Issues........................................8
2.1.12 Investigations; Litigation............................................8
2.1.13 Absence of Certain Businesses Practices...............................8
2.1.14 Solvency..............................................................8
2.1.15 Finder's Fee..........................................................9
2.1.16 Taxes.................................................................9
2.2 Representations and Warranties of Buyer...............................9
2.2.1 Organization and Good Standing........................................9
2.2.2 Agreement Authorized and its Effect on Other Obligations..............9
2.2.3 Consents and Approvals...............................................10
2.2.4 Finder's Fee.........................................................10
ARTICLE III Additional Agreements.............................................10
3.1 Noncompetition.......................................................10
3.2 Hiring Employees.....................................................11
3.3 Allocation of Purchase Price.........................................11
3.4 Name Change..........................................................11
3.5 Related Asset Purchase...............................................12
3.6 Real Estate Purchase.................................................12
ARTICLE IV Indemnification....................................................12
4.1 Indemnification by the Seller and the Shareholders...................12
4.2 Indemnification by Buyer.............................................12
4.3 Indemnification Procedure............................................13
ARTICLE V Miscellaneous.......................................................13
5.1 Survival of Representations, Warranties and Covenants................13
5.2 Entirety.............................................................14
5.3 Counterparts.........................................................14
5.4 Notices and Waivers..................................................14
5.5 Captions.............................................................15
5.6 Successors and Assigns...............................................15
5.7 Severability.........................................................15
5.8 Applicable Law.......................................................15
Asset Purchase Agreement
This Asset Purchase Agreement (this "Agreement") is entered into as of April 20,
1998 among Brooks Well Servicing, Inc., a Delaware corporation (the "Buyer"),
JPF Lease Service, Inc., a Texas corporation (the "Seller") and JPF Well
Service, Inc. (and Joe P. Freeman, its sole shareholder, to evidence his
agreement to be subject to the provisions of Section 3.1 hereof), R.D. Nettle,
Pete Schweikhardt and Rick Talbot (collectively, the "Shareholders").
RECITATIONS
The Seller desires to sell substantially all of its assets, and Buyer desires to
acquire such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Purchase and Sale of Assets
1.1 Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer effective as of 12:01 A.M. Texas time on the date of
execution hereof (the "Closing Date"), all of the assets of the Seller existing
on the Closing Date other than the Excluded Assets (defined below), whether
real, personal, tangible or intangible, including, without limitation, the
following assets owned by the Seller relating to or used or useful in the
operation of the business as conducted by the Seller on and before the date
hereof (the "Business") (all such assets being sold hereunder are referred to
collectively herein as the "Assets"):
(a) all tangible personal property owned by Seller (such as machinery,
equipment, leasehold improvements, furniture and fixtures, and vehicles),
including, without limitation, that which is more fully described on
Schedule 1.1(a) hereto (collectively, the "Tangible Personal Property");
(b) all of the inventory owned by Seller, including without limitation, that
which is more fully described on Schedule 1.1(b) hereto (collectively, the
"Inventory");
(c) all of the Seller's intangible assets (the "Intangibles"), including
without limitation, (i) all of the Seller's rights to the names under which
it is incorporated or under which they currently do business, (ii) all of
the Seller's rights to any patents, patent applications, trademarks and
service marks (including registrations and applications therefor), trade
names, and copyrights and written know-how, trade secrets, licenses and
sublicenses and all other similar proprietary data and the goodwill
associated therewith (collectively, the "Intellectual Property") used or
held in connection with the Business, including without limitation, that
which is more fully described on Schedule 1.1(c) hereto, (iii) the Selle's
telephone numbers, and (iv) the sales and promotional literature, computer
software, customer and supplier lists and all other records of the Seller
relating to the Assets or the Business, excluding the corporate minute
books, accounting records, files, tax returns and other financial data on
whatever media, relating to the Seller or the Shareholders or the Excluded
Assets (the"Retained Records");
(d) all leases, subleases, contracts, contract rights, and agreements relating
to the Assets or the operation of the Business, including, without
limitation those listed on Schedule 1.1(d) hereto (collectively, the
"Contracts");
(e) all of the permits, authorizations, certificates, approvals, registrations,
variances, waivers, exemptions, rights-of-way, franchises, ordinances,
orders, licenses and other rights of every kind and character
(collectively, the "Permits") relating principally to all or any of the
Assets or to the operation of the Business, including, but not limited to,
those that are more fully described on Schedule 1.1(e) hereto;
(f) the goodwill and going concern value of the Business; and
(g) all other or additional privileges, rights, interests, properties and
assets of the Seller of every kind and description and wherever located
that are used in the Business or intended for use in the Business in
connection with, or that are necessary for the continued conduct of, the
Business.
1.2 Excluded Assets. The Assets shall not include the following (collectively,
the "Excluded Assets"): (i) all of the Seller's accounts receivable and all
other rights of the Seller to payment for services rendered by the Seller before
Closing, it being understood that all of Seller's customers shall be billed on
the Closing Date for services or materials provided through that date and that
Buyer will forward any payment on such accounts received by it to Seller within
five (5) business day of receipt; (ii) all cash accounts of the Seller and all
petty cash of the Seller kept on hand for use in the Business; (iii) all other
receivables and prepaid expenses, including all right, title and interest of the
Seller in and to any prepaid expenses, bonds, deposits and other current assets
relating to any of the Assets or the Businesses; (i) the Retained Records; (v)
the cash consideration paid or payable by Buyer to Seller pursuant to Section
1.3 hereof; and (vi) any other assets described in Schedule 1.2 attached hereto.
1.3 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of the Seller and the
Shareholders contained herein, Buyer agrees to pay on the date of Closing, the
sum of $925,000.00 to Seller by wire transfer of immediately available funds to
an account designated by the Seller or by delivery of immediately available
funds. In addition, within thirty (30) days following the Closing, Buyer will
pay Seller an additional amount equal to the amounts paid by Seller for
equipment purchases made by Seller after January 1, 1998, and before the date
hereof which expand the capabilities of the Business and which are described on
Schedule 1.3 hereto.
1.4 Liabilities. Effective on the Closing Date, Buyer shall assume those, and
only those, liabilities and obligations of the Seller to perform the Contracts
described on Schedule 1.1(d) hereto to the extent that such Contracts have not
been performed and are not in default on the date hereof (the "Assumed
Liabilities"). On and after the date hereof, the Seller shall be responsible for
any and all liabilities and obligations of the Seller other than the Assumed
Liabilities, including, without limitation, (a) any obligations arising from the
Seller's employment of those employees of the Seller listed on Schedule 3.2
hereto; (b) any liabilities arising from or relating to Seller's failure to be
duly qualified or licensed to do business and in good standing as a foreign
corporation authorized to do business in all jurisdictions in which the
character of the properties owned or the nature of the business conducted by
Seller would make such qualification or licensing necessary; (c) any failure to
pay any taxes owed by Seller which are applicable to the period ending with the
date hereof; (d) any liabilities arising out of any matters listed on Schedule
2.1.12 hereto (collectively, the "Retained Liabilities"); and (e) any other
liabilities resulting from Seller's operation of the Assets or conduct of its
business before the date hereof.
1.5 Closing. The closing of the purchase and sale provided for hereunder (the
"Closing") shall take place on the date hereof (the "Closing Date"), at the
offices of Seller.
1.6 Closing Deliveries. At the Closing, in addition to the conveyances of the
Assets to the Buyer in exchange for the Purchase Price: (i) the Buyer and Seller
shall execute and deliver the Real Estate Purchase and Sale Agreement (the "Real
Estate Agreement") required under section 3.6 hereof and (ii) Buyer and Seller
will deliver to one another the opinions of counsel described below:
1.6.1 Opinion of Buyer's Counsel. The Seller shall have received a favorable
opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, P.C.,
counsel for Buyer, in form and substance satisfactory to the Seller, to the
effect that (i) Buyer has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware and is
qualified to do business in the State of Texas; (ii) all corporate proceedings
required to be taken by or on the part of the Buyer to authorize the execution
of this Agreement, the Real Estate Agreement and the implementation of the
transactions contemplated hereby and thereby, have been taken; and (iii) this
Agreement and the Real Estate Agreement have been duly executed and delivered
by, and are the legal, valid and binding obligations of Buyer and are
enforceable against Buyer in accordance with their terms, except as
enforceability may be limited by (a) equitable principals of general
applicability of (b) bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws affecting the rights of creditors generally. In
rendering such opinion, such counsel may rely upon (x) certificates of public
officials and of officers or Buyer as to the matters of fact and (y) the opinion
or opinions of other counsel, which opinions shall be reasonably satisfactory to
the Seller, as to matters other than federal or Texas law.
1.6.2 Opinion of Seller's Counsel. The Buyer shall have received a favorable
opinion, dated as of the Closing Date, from Duckett, Bouligny & Collins, L.L.P.,
counsel to Seller and the Shareholders, in form and substance satisfactory to
Buyer, to the effect that (i) Seller has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of Texas;
(ii) all proceedings required to be taken by or on the part of the Seller and
the Shareholders to authorize the execution of this Agreement and the Real
Estate Agreement and the implementation of the transactions contemplated hereby
and thereby have been taken; (iii) the Seller owns all of the Assets free and
clear of any Encumbrances other than those Encumbrances specifically listed and
described on the Schedules to this Agreement; and (iv) this Agreement and the
Real Estate Agreement have been duly executed and delivered by, and are the
legal, valid and binding obligations of the Seller and the Shareholders and are
enforceable against the Seller and the Shareholders in accordance with their
respective terms, in each case, except as the enforceability may be limited by
(a) equitable principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights of
creditors generally. In rendering such opinion, such counsel may rely upon (x)
certificates of public officials and of officers of the Seller as to the matters
of fact and (y) on the opinion or opinions of other counsel, which opinions
shall be reasonably satisfactory to Buyer, as to matters other than federal or
Texas law.
ARTICLE II
Representations and Warranties
2.1 Representations and Warranties of the Seller and the Shareholders. The
Seller and the Shareholders jointly and severally represent and warrant to Buyer
as follows:
2.1.1 Organization and Good Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas and
each Seller has full requisite corporate power and authority to carry on its
businesses as it is currently conducted, and to own and operate the properties
currently owned and operated by it. The nature and conduct of Seller's business
does not require the Seller to be qualified to do business in any state other
than Texas. The Shareholders own all of the issued and outstanding shares of the
Seller's capital stock and have the sole right to vote the same.
2.1.2 Agreement Authorized and Effect on Other Obligations. The execution and
delivery of this Agreement and all instruments to be executed by Seller
hereunder have been authorized by all necessary corporate, shareholder and other
action on the part of the Seller and the Shareholders, and this Agreement and
all instruments to be executed by the Seller and the Shareholders hereunder are
the valid and binding obligations of the Seller and the Shareholders enforceable
(subject to normal equitable principals) against each of such parties in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting
the rights of creditors generally. The Seller and the Shareholders represent and
warrant that the execution, delivery and performance of this Agreement and all
instruments to be executed by the Seller hereunder and the consummation of the
transactions contemplated hereby and thereby, will not conflict with or result
in a violation or breach of any term or provision of, nor constitute a default
under (i) the Articles of Incorporation or Bylaws (or other organizational
documents) of the Seller, (ii) any obligation, indenture, mortgage, deed of
trust, lease, contract or other agreement to which the Seller or the
Shareholders are a party or by which the Seller or the Shareholders or their
respective properties are bound; or (iii) to the best of their knowledge, any
provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator or other governmental authority to which the Seller or the
Shareholders or any of their respective properties are subject.
2.1.3 Contracts. Schedule 1.1(d) hereto sets forth a complete list of all
contracts, including leases under which the Seller is lessor or lessee, which
relate to the Assets and are to be performed in whole or in part after the date
hereof. In addition, (a) all of the Contracts are in full force and effect, and
constitute valid and binding obligations of the Seller, (b) the Seller is not,
and no other party to any of the Contracts is, in default thereunder, and no
event has occurred which (with or without notice, lapse of time, or the
happening of any other event) would constitute a default thereunder, (c) no
Contract has been entered into on terms which could reasonably be expected to
have an adverse effect on the use of the Assets by Buyer, (d) neither the Seller
nor the Shareholders have received any information which would cause any of such
parties to conclude that any customer of the Seller will (or is likely to) cease
doing business with Buyer (or its successors) as a result of the consummation of
the transactions contemplated hereby.
2.1.4 Title to Assets. The Seller has good, indefeasible and marketable title to
all of the Assets, free and clear of any Encumbrances (defined below). Except as
set forth in Schedule 2.1.4 hereto, the Seller and the Shareholders represent
and warrant that all of the Assets are (a) in a state of good repair, ordinary
wear and tear excepted, (b) are free from any known defects except as may be
repaired by routine maintenance and such minor defects as do not substantially
interfere with the continued use thereof in the conduct of normal operations and
(c) conform to all applicable laws governing their use. The Seller and
Shareholders represent that no notice of any violation of any law, statute,
ordinance or regulation relating to any of the Assets has been received by the
Seller or the Shareholders, except such as have been fully complied with. The
term "Encumbrances" means all liens, security interests, pledges, mortgages,
deeds of trust, claims, rights of first refusal, options, charges, restrictions
or conditions to transfer or assignment, liabilities, obligations, taxes,
privileges, equities, easements, rights of way, limitations, reservations,
restrictions and other encumbrances of any kind or nature.
2.1.5 Licenses and Permits. To the knowledge of the Seller or the Shareholders,
Schedule 1.1(e) hereto sets forth a complete list of all Permits necessary under
law or otherwise for the operation, maintenance and use of the Assets in the
manner in which they are now being operated, maintained and used; each of the
Permits and the Seller's rights with respect thereto is valid and subsisting, in
full force and effect, and enforceable by the Seller; the Seller is in
compliance in all material respects with the terms of each of the Permits; none
of the Permits have been, or to the knowledge of the Seller or the Shareholders,
are threatened to be, revoked, canceled, suspended or modified.
2.1.6 Intellectual Property. To the knowledge of the Seller or the Shareholders,
Schedule 1.1(c) hereto sets forth a complete list of all Intellectual Property
material or necessary for the continued use of the Assets; the Intellectual
Property is owned or licensed by the Seller free and clear of any Encumbrances;
the Seller has not granted to any other person any license to use any
Intellectual Property and, to the best of Seller's knowledge, use of the
Intellectual Property will not, and the conduct of the Business did not,
infringe, misappropriate or conflict with the intellectual property rights of
others. Neither the Seller nor any of the Shareholders has received any notice
of infringement, misappropriation or conflict with the intellectual property
rights of others in connection with the use by Seller of the Intellectual
Property.
2.1.7 Financial Statements. The Seller has delivered to Buyer a copy of Seller's
unaudited statement of income for the eleven (11) month period ended November
30, 1997, a copy of which is attached hereto as Schedule 2.1.7 (the "Seller's
Statement of Income"); the Seller's Statement of Income is true, correct and
complete in all material respects and presents fairly and fully the income and
expenses of the Seller as at the date and for the periods indicated thereon, and
has been prepared in accordance with generally accepted accounting principles as
promulgated by the American Institute of Certified Public Accountants ("GAAP")
applied on a consistent basis, except as described on Schedule 2.1.7 hereto; and
the Seller's Statement of Income includes all adjustments which are necessary
for a fair presentation of the Seller's income and expenses for the period
indicated.
2.1.8 Absence of Certain Changes and Events. Since November 30, 1997, there has
not been:
(a) Financial Change. Any adverse change in the Assets, the Business or the
financial condition, operations, liabilities or prospects of the Seller;
(b) Property Damage. Any damage, destruction, or loss to any of the Assets or
the Business (whether or not covered by insurance);
(c) Waiver. Any waiver or release of a material right of or claim held by the
Seller;
(d) Change in Assets. Any acquisition, disposition, transfer, encumbrance,
mortgage, pledge or other encumbrance of any asset of the Seller other than
in the ordinary course of business;
(e) Labor Disputes. Any labor disputes between the Seller and its employees; or
(f) Other Changes. Any other event or condition known to the Seller or the
Shareholders that particularly pertains to and has or might have an adverse
effect on the Assets, the operations of the Business or the financial
condition or prospects of the Seller.
2.1.9 Necessary Consents. The Seller has obtained and delivered to Buyer all
consents to assignment or waivers thereof required to be obtained from any
governmental authority or from any other third party in order to validly
transfer the Assets hereunder.
2.1.10 Environmental Matters. None of the current or past operations of the
Business or any of the Assets are being or have been conducted or used in such a
manner as to constitute a violation of any Environmental Law (defined below);
neither the Seller nor any of the Shareholders has received any notice (whether
formal or informal, written or oral) from any entity, governmental agency or
individual regarding any existing, pending or threatened investigation or
inquiry related to violations of any Environmental Law or regarding any claims
for remedial obligations or contribution for removal costs or damages under any
Environmental Law; there are no writs, injunction decrees, orders or judgments
outstanding, or lawsuits, claims, proceedings or investigations pending or, to
the knowledge of the Seller or the Shareholders, threatened relating to the
ownership, use, maintenance or operation of the Assets or the conduct of the
Business, nor, to the knowledge of the Seller or the Shareholders, is there any
basis for any of the foregoing; Buyer is not required to obtain any permits,
licenses or similar authorizations pursuant to any Environmental Law in effect
as of the date hereof to operate and use any of the Assets for their current or
proposed purposes and uses; to the knowledge of the Seller or the Shareholders,
the Assets include all environmental and pollution control equipment necessary
for compliance with applicable Environmental Law; except as described in
Schedule 2.1.10 hereto, no Hazardous Materials (defined below) have been or are
currently being used by the Seller in the operation of the Assets; no Hazardous
Materials are or have ever been situated on or under any of the Seller's
properties, whether owned or leased, or incorporated into any of the Assets; to
the knowledge of the Seller or the Shareholders, there are no, and there have
never been any, underground storage tanks (as defined under Environmental Law)
located under any of the Seller's properties, whether owned or leased; and there
are no environmental conditions or circumstances, including the presence or
release of any Hazardous Materials, on any property presently or previously
owned or leased by the Seller, or on any property on which Hazardous Materials
generated by the Seller's operations or the use of the Assets were disposed of,
which would result in an adverse change in the Business or business prospects of
the Seller. The term "Environmental Law" means any and all laws, rules, orders,
regulations, statutes, ordinances, codes, decrees, and other legally enforceable
requirements (including, without limitation, common law) of the United states,
or any state, regional, city, local, municipal or other governmental authority
or quasi-governmental authority, regulating, relating to, or imposing
environmental standards of conduct concerning protection of the environment or
human health, or employee health and safety as from time to time has been or is
now in effect. The term "Hazardous Materials" means (x) asbestos,
polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas,
petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals,
materials, wastes or substances that are defined, regulated, determined or
identified as toxic or hazardous in any Environmental Law.
2.1.11 No ERISA Plans or Labor Issues. No employee benefit plan of the Seller,
whether or not subject to any provisions of the Employee Retirement Income
Security Act of 1974, as amended, will by its terms or applicable law, become
binding upon or an obligation of Buyer; (b) the Seller has not engaged in any
unfair labor practices which could reasonably be expected to result in an
adverse effect on the Assets; (c) the Seller does not have any dispute with any
of its existing or former employees, and (d) there are no labor disputes or, to
the knowledge of the Seller or the Shareholders, any disputes threatened by
current or former employees of the Seller.
2.1.12 Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Seller or any of the transactions
contemplated by this Agreement is pending or threatened, nor has any
governmental entity indicated to the Seller or any of the Shareholders an
intention to conduct the same; and there is no suit, action, or legal,
administrative, arbitration or other proceeding or governmental investigation
pending to which the Seller or any of the Shareholders is a party or, to the
knowledge of the Seller or the Shareholders, might become a party or which would
adversely affect the Assets or the Buyer's future conduct of the Business,
except as set forth on the Schedule 2.1.12 hereto.
2.1.13 Absence of Certain Businesses Practices. Neither the Seller, the
Shareholders, nor any officer, employee or agent of the Seller, or any other
person acting on behalf of the Seller or the Shareholders, has, directly or
indirectly, within the past five years, given or agreed to give any gift or
similar benefit to any customer, supplier, government employee or other person
who is or may be in a position to help or hinder the profitable conduct of the
Business or the profitable use of the Assets (or to assist the Seller in
connection with any actual or proposed transaction) which if not given in the
past, might have had an adverse effect on the profitable conduct of the Business
or the profitable use of the Assets, or if not continued in the future, might
adversely affect the profitable conduct of the Business or the profitable use of
the Assets.
2.1.14 Solvency. The Seller is not presently insolvent, nor will the Seller be
rendered insolvent by the occurrence of the transactions contemplated by this
Agreement. The term "insolvent," with respect to the Seller, means that the sum
of the present fair and saleable value of the Seller's assets does not and will
not exceed its debts and other probable liabilities, and the term "debts"
includes any legal liability whether matured or unmatured, liquidated or
unliquidated, absolute fixed or contingent, disputed or undisputed or secured or
unsecured.
2.1.15 Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Seller, the
Shareholders and their counsel directly with Buyer and its counsel, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or any similar payment.
2.1.16 Taxes. All federal, state and local taxes assessed or assessable against
the Assets for periods prior to January 1, 1998 have been paid by Seller and the
Assets will be conveyed to Buyer free and clear of any such taxes or claims
therefor. All taxes assessed against the Assets for the period commencing
January 1, 1998 will be prorated through the Closing Date (based on 1997
assessed values) with Seller paying to Buyer at Closing an amount equal to the
portion of such taxes applicable to the period between January 1, 1998 and the
Closing Date. Buyer shall be responsible for the payment of any sales taxes due
as a result of the sale of the Assets by Seller to Buyer.
2.2 Representations and Warranties of Buyer. Buyer represents and warrants to
the Seller and the Shareholder as follows:
2.2.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has full requisite corporate power and authority to carry on its businesses as
it is currently conducted, and to own and operate the properties currently owned
and operated by it, and is duly qualified or licensed to do businesses and is in
good standing as a foreign corporation authorized to do business in the State of
Texas.
2.2.2 Agreement Authorized and its Effect on Other Obligations. The consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Buyer, and this Agreement is a
valid and binding obligation of Buyer enforceable (subject to normal equitable
principles) in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement by Buyer will not conflict with or result in a
violation or breach of any term or provision of, or constitute a default under
(a) the Certificate of Incorporation or Bylaws of Buyer or (b) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Buyer or any of its property is bound.
2.2.3 Consents and Approvals. No consent, approval or authorization of, or
filing of a registration with, any governmental or regulatory authority, or any
other person or entity is required to be made or obtained by Buyer in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
2.2.4 Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer and its counsel
directly with the Seller and the Shareholders and their counsel, without the
intervention by any other person as the result of any act of Buyer in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payments.
ARTICLE III
Additional Agreements
3.1 Noncompetition. Except as set forth below or as otherwise consented to or
approved in writing by Buyer, the Seller and each of the Shareholders (and Joe
P. Freeman, the sole shareholder of JPF Well Service, Inc.) agree that for a
period of 60 months following the date hereof, such party will not, directly or
indirectly, acting alone or as a member of a partnership or as an officer,
director, employee, consultant, representative, a holder of, or investor in as
much as 3% of any security of any class of any corporation or other business
entity (a) engage in any business in competition with the business or businesses
conducted by the Seller on or before the date hereof or by Buyer (or Buyer's
affiliates) on or after the date hereof, or in any service business the services
of which were provided and marketed by the Seller on or before the date hereof
or by Buyer (or Buyer's affiliates) on or after the date hereof in the following
counties in the state of Texas: Aransas, Austin, Bastrop, Bee Bell, Brazoria,
Brazos, Burleson, Caldwell, Calhoun, Colorado, DeWitt, Falls, Fayette, Fort
Bend, Goliad, Grimes, Guadalupe, Gonzales, Harris, Jackson, Karnes, Lavaca, Lee,
Leon, Limestone, Matagora, Madison, McLennan, Milam, Montgomery, Nueces,
Refugio, Robertson, San Patricio, Travis, Victoria, Walker, Waller, Washington,
Wharton, and Williamson, ; (b) request any present customers or suppliers of the
Seller or any customers of Buyer (or Buyer's affiliates) to curtail or cancel
their business with Buyer (or Buyer's affiliates); (c) disclose to any person,
firm or corporation any trade, technical or technological secrets of Buyer (or
Buyer's affiliates) or of the Seller or any details of their organization or
business affairs or (d) induce or actively attempt to influence any employee of
Buyer (or Buyer's affiliates) to terminate his or her employment. The Seller and
each of the Shareholders agree that if either the length of time or geographical
area as set forth in this Section 3.1 is deemed too restrictive in any court
proceeding, the court may reduce such restrictions to those which it deems
reasonable under the circumstances. The obligations expressed in this Section
3.1 are in addition to any other obligations that the Seller and the
Shareholders may have under the laws of any state requiring a corporation
selling its assets (or a shareholder of such corporation) to limit its
activities so that the goodwill and business relations being transferred with
such assets will not be materially impaired. The Seller and the Shareholders
further agree and acknowledge that Buyer does not have any adequate remedy at
law for the breach or threatened breach by the Seller or the Shareholders of the
covenants contained in this Section 3.1, and agree that Buyer may, in addition
to the other remedies which may be available to it hereunder, file a suit in
equity to enjoin the Seller or the Shareholders from such breach or threatened
breach. If any provisions of this Section 3.1 are held to be invalid or against
public policy, the remaining provisions shall not be affected thereby. The
Seller and the Shareholders acknowledge that the covenants set forth in this
Section 3.1 are being executed and delivered by such party in consideration of
(i) the covenants of Buyer contained in this Agreement, (ii) additional
consideration in the amount of $375,000 payable by Buyer on the date hereof by
wire transfer of immediately available funds to the Seller and the Shareholders,
in those amounts and to those accounts specified in Schedule 3.1 hereto and
(iii) for other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged.
Notwithstanding anything to the contrary stated in this Section 3.1, (i) the
conduct by the business entities listed in Schedule 3.1 hereto of the activities
set forth opposite such entities' names (the "Permitted Business") shall not be
a violation by Joe P. Freeman and the individual Shareholders of clause (a) of
this Section 3.1 and (ii) the solicitation by the business entities listed in
Schedule 3.1 hereto of any present customer or supplier of the Seller or any
customers of Buyer (or Buyer's Affiliates) in connection with the conduct of
their Permitted Business, but only their Permitted Business and not the business
sold hereunder, shall not be a violation by Joe P. Freeman and the individual
Shareholders of clause (b) of this Section 3.1.
3.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing of
all employees of the Seller who devote their full time in the operation of the
Assets and the conduct of the Business (the "Employees"). Effective as of the
date of Closing, substantially all of the Employees shall be offered employment
by Buyer, subject to such Employees meeting Buyer's standard employment
eligibility requirements. Buyer shall have no liability or obligation with
respect to any employee benefits of any Employee except those benefits that
accrue pursuant to such Employees' employment with Buyer on or after the date
hereof. The Seller and the Shareholders shall cooperate with Buyer in connection
with any offer of employment from Buyer to the Employees and use its best
efforts to cause the acceptance of any and all such offers.
3.3 Allocation of Purchase Price. The parties hereto agree to allocate the
Purchase Price payable by Buyer for the Assets hereunder as set forth on
Schedule 3.3 hereto, and shall report this transaction for federal income tax
purposes in accordance with the allocation so agreed upon. The parties hereto
for themselves and for their respective successors and assigns covenant and
agree that they will file coordinating Form 8594's in accordance with Section
1060 of the Internal Revenue Code of 1986, as amended, with their respective
income tax returns for the taxable year that includes the date hereof.
3.4 Name Change. The Seller and the Shareholders shall, within ten (10) days
from the date of Closing, cause to be filed with the Secretary of State of Texas
an amendment to the Articles of Incorporation of the Seller changing the names
of the Seller from its current name to a name that is not similar to such name.
The Seller and the Shareholders shall, within five (5) days from the date of its
receipt of confirmation of such filings from the Secretary of State of Texas,
cause to be delivered to Buyer a copy of such confirmation.
3.5 Related Asset Purchase. Concurrent with the execution and delivery hereof,
Buyer, JPF Well Service, Inc. and Joe P. Freeman shall have entered into (and
consummated the transactions contemplated by) a binding agreement pursuant to
which JPF Well Service, Inc. will have conveyed to Buyer substantially all of
its assets (the "JPF Well Service Transaction"). The consummation of the
transaction contemplated by this Agreement is expressly conditioned upon the
consummation of the JPF Well Service Transaction.
3.6 Real Estate Purchase. Concurrent with the execution and delivery hereof,
Seller shall have entered into (and consummated the transactions contemplated
by) a binding agreement pursuant to which Seller will have conveyed to Buyer the
real property described in Schedule 3.5 hereto (the "Real Estate Transaction").
The consummation of the transaction contemplated by this Agreement is expressly
conditioned upon the consummation of the Real Estate Transaction.
ARTICLE IV
Indemnification
4.1 Indemnification by the Seller and the Shareholders. In addition to any other
remedies available to Buyer under this Agreement, or at law or in equity, the
Seller and each of the Shareholders shall, jointly and severally, indemnify,
defend and hold harmless Buyer and its officers, directors, employees, agents
and stockholders, against and with respect to any and all claims, costs,
damages, losses, expenses, obligations, liabilities, recoveries, suits, causes
of action and deficiencies, including interest, penalties and reasonable
attorneys' fees and expenses (collectively, the "Damages") that such indemnitee
shall incur or suffer, which arise, result from or relate to (a) any material
breach of, or failure by the Seller or any of the Shareholders to perform, their
respective representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to Buyer by the Seller or the Shareholders under this Agreement;
and (b) the Retained Liabilities.
4.2 Indemnification by Buyer. In addition to any other remedies available to the
Seller or the Shareholders under this Agreement, or at law or in equity, Buyer
shall indemnify, defend and hold harmless the Seller and its officers,
directors, employees, agents and stockholders and each of the Shareholders
against and with respect to any and all Damages that such indemnitees shall
incur or suffer, which arise, result from or relate to (a) any material breach
of, or failure by Buyer to perform, any of its representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to the Seller or the
Shareholders by or on behalf of Buyer under this Agreement and (b) the Assumed
Liabilities.
4.3 Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 4.1 or 4.2 of
this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement; provided, however, that
the failure of an indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligation hereunder to the extent the
indemnifying party is not materially prejudiced thereby. Further, promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Article IV, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of an indemnified party to give notice as provided
herein shall not relieve the indemnifying party of any obligation hereunder to
the extent the indemnifying party is not materially prejudiced thereby. In case
any such action is brought against an indemnified party, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof unless the
indemnifying party has failed to assume the defense of such claim and to employ
counsel reasonably satisfactory to such indemnified person. An indemnifying
party who elects not to assume the defense of a claim shall not be liable for
the fees and expenses of more than one counsel in any single jurisdiction for
all parties indemnified by such indemnifying party with respect to such claim or
with respect to claims separate but similar or related in the same jurisdiction
arising out of the same general allegations. Notwithstanding any of the
foregoing to the contrary, the indemnified party will be entitled to select its
own counsel and assume the defense of any action brought against it if the
indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party, the expenses of such defense to be paid by the indemnifying
party. No indemnifying party shall consent to entry of any judgment or enter
into any settlement with respect to a claim without the consent of the
indemnified party, which consent shall not be unreasonably withheld, or unless
such judgment or settlement includes as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim. No indemnified party shall consent to
entry of any judgment or enter into any settlement of any such action, the
defense of which has been assumed by an indemnifying party, without the consent
of such indemnifying party, which consent shall not be unreasonably withheld or
delayed.
ARTICLE V
Miscellaneous
5.1 Survival of Representations, Warranties and Covenants. All representations
and warranties made by the parties hereto shall survive indefinitely without
limitation, notwithstanding any investigation made on the part of the parties
hereto. All statements contained in any certificate, schedule, exhibit or other
instrument delivered pursuant to this Agreement shall be deemed to have been
representations and warranties by the respective party or parties, as the case
may be, and shall also survive indefinitely without limitation, notwithstanding
any investigations made by any party hereto or on its behalf. All covenants and
agreements contained herein shall survive as provided herein.
5.2 Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
5.3 Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
5.4 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested:
If to Buyer
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Brooks Well Servicing, Inc. Lynch, Chappell & Alsup, P.C.
Two Tower Center, 20th Floor 300 N. Marienfeld, Suite 700
East Brunswick, New Jersey 08816 Midland, Texas 79701
Attn: General Counsel Attn: James M. Alsup, Esq.
Facsimile: (908) 247-5148 Facsimile: (915) 683-2587
- --------------------------------------------------------------------------------
If to the Seller or the Shareholders
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mr. Joe P. Freeman Duckett, Bouligny & Collins, L.L.P.
JPF Lease Service, Inc. 207 West Jackson
Highway 59 South P. O. Box 1567
El Campo, Texas 77435 El Campo, Texas 77437
Facsimile: (409) 543-8361 Attn: Randy M. Clapp, Esq.
Facsimile: (409) 543-9516
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the fifth (5th) businesses day after so mailed, and if delivered by
courier or facsimile to such address, upon delivery during normal businesses
hours on any businesses day.
5.5 Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
5.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
5.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other
parties hereto have caused this Agreement to be executed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
BUYER:
BROOKS WELL SERVICING, INC.
a Delaware corporation
By:
Jimmy Chasteen, President
SELLER:
JPF LEASE SERVICE, INC.
By:
Joe P. Freeman, President
SHAREHOLDERS:
JPF WELL SERVICE, INC.
By:__________________________________________
Joe P. Freeman, President
___________________________________________
R. D. Nettle
__________________________________________
Pete Schweikhardt
___________________________________________
Rick Talbot
______________________________________________________________
Joe P. Freeman (to evidence his agreement to be bound
by the provisions of Section 3.1 hereof)
Asset Purchase Agreement
among
Brooks Well Servicing, Inc.,
JPF Lease Service, Inc.
and
JPF Well Service, Inc., R. D. Nettle,
Pete Schweikhardt and Rick Talbot
April 20, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 Purchase and Sale of Assets..........................................1
1.1 Purchase and Sale of the Assets.......................................1
1.2 Excluded Assets.......................................................2
1.3 Consideration for Assets..............................................2
1.4 Liabilities...........................................................3
1.5 Closing...............................................................3
1.6 Closing Deliveries....................................................3
1.6.1 Opinion of Buyer's Counsel............................................3
1.6.2 Opinion of Seller's Counsel...........................................4
ARTICLE II Representations and Warranties......................................4
2.1 Representations and Warranties of the Seller and the Shareholders.....4
2.1.1 Organization and Good Standing........................................4
2.1.2 Agreement Authorized and Effect on Other Obligations..................4
2.1.3 Contracts.............................................................5
2.1.4 Title to Assets.......................................................5
2.1.5 Licenses and Permits..................................................6
2.1.6 Intellectual Property.................................................6
2.1.7 Financial Statements..................................................6
2.1.8 Absence of Certain Changes and Events.................................6
(a) Financial Change.............................................6
(b) Property Damage..............................................6
(c) Waiver.......................................................6
(d) Change in Assets.............................................7
(e) Labor Disputes...............................................7
(f) Other Changes................................................7
2.1.9 Necessary Consents....................................................7
2.1.10 Environmental Matters.................................................7
2.1.11 No ERISA Plans or Labor Issues........................................8
2.1.12 Investigations; Litigation............................................8
2.1.13 Absence of Certain Businesses Practices...............................8
2.1.14 Solvency..............................................................8
2.1.15 Finder's Fee..........................................................9
2.1.16 Taxes.................................................................9
2.2 Representations and Warranties of Buyer...............................9
2.2.1 Organization and Good Standing........................................9
2.2.2 Agreement Authorized and its Effect on Other Obligations..............9
2.2.3 Consents and Approvals...............................................10
2.2.4 Finder's Fee.........................................................10
ARTICLE III Additional Agreements.............................................10
3.1 Noncompetition.......................................................10
3.2 Hiring Employees.....................................................11
3.3 Allocation of Purchase Price.........................................11
3.4 Name Change..........................................................11
3.5 Related Asset Purchase...............................................12
3.6 Real Estate Purchase.................................................12
ARTICLE IV Indemnification....................................................12
4.1 Indemnification by the Seller and the Shareholders...................12
4.2 Indemnification by Buyer.............................................12
4.3 Indemnification Procedure............................................13
ARTICLE V Miscellaneous.......................................................13
5.1 Survival of Representations, Warranties and Covenants................13
5.2 Entirety.............................................................14
5.3 Counterparts.........................................................14
5.4 Notices and Waivers..................................................14
5.5 Captions.............................................................15
5.6 Successors and Assigns...............................................15
5.7 Severability.........................................................15
5.8 Applicable Law.......................................................15
<PAGE>
Asset Purchase Agreement
This Asset Purchase Agreement (this "Agreement") is entered into as of April 20,
1998 among Brooks Well Servicing, Inc., a Delaware corporation (the "Buyer"),
JPF Lease Service, Inc., a Texas corporation (the "Seller") and JPF Well
Service, Inc. (and Joe P. Freeman, its sole shareholder, to evidence his
agreement to be subject to the provisions of Section 3.1 hereof), R.D. Nettle,
Pete Schweikhardt and Rick Talbot (collectively, the "Shareholders").
RECITATIONS
The Seller desires to sell substantially all of its assets, and Buyer desires to
acquire such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Purchase and Sale of Assets
1.1 Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer effective as of 12:01 A.M. Texas time on the date of
execution hereof (the "Closing Date"), all of the assets of the Seller existing
on the Closing Date other than the Excluded Assets (defined below), whether
real, personal, tangible or intangible, including, without limitation, the
following assets owned by the Seller relating to or used or useful in the
operation of the business as conducted by the Seller on and before the date
hereof (the "Business") (all such assets being sold hereunder are referred to
collectively herein as the "Assets"):
(a) all tangible personal property owned by Seller (such as machinery,
equipment, leasehold improvements, furniture and fixtures, and vehicles),
including, without limitation, that which is more fully described on
Schedule 1.1(a) hereto (collectively, the "Tangible Personal Property");
(b) all of the inventory owned by Seller, including without limitation, that
which is more fully described on Schedule 1.1(b) hereto (collectively, the
"Inventory");
(c) all of the Seller's intangible assets (the "Intangibles"), including
without limitation, (i) all of the Seller's rights to the names under which
it is incorporated or under which they currently do business, (ii) all of
the Seller's rights to any patents, patent applications, trademarks and
service marks (including registrations and applications therefor), trade
names, and copyrights and written know-how, trade secrets, licenses and
sublicenses and all other similar proprietary data and the goodwill
associated therewith (collectively, the "Intellectual Property") used or
held in connection with the Business, including without limitation, that
which is more fully described on Schedule 1.1(c) hereto, (iii) the Seller's
telephone numbers, and (iv) the sales and promotional literature, computer
software, customer and supplier lists and all other records of the Seller
relating to the Assets or the Business, excluding the corporate minute
books, accounting records, files, tax returns and other financial data on
whatever media, relating to the Seller or the Shareholders or the Excluded
Assets (the "Retained Records");
(d) all leases, subleases, contracts, contract rights, and agreements relating
to the Assets or the operation of the Business, including, without
limitation those listed on Schedule 1.1(d) hereto (collectively, the
"Contracts");
(e) all of the permits, authorizations, certificates, approvals, registrations,
variances, waivers, exemptions, rights-of-way, franchises, ordinances,
orders, licenses and other rights of every kind and character
(collectively, the "Permits") relating principally to all or any of the
Assets or to the operation of the Business, including, but not limited to,
those that are more fully described on Schedule 1.1(e) hereto;
(f) the goodwill and going concern value of the Business; and
(g) all other or additional privileges, rights, interests, properties and
assets of the Seller of every kind and description and wherever located
that are used in the Business or intended for use in the Business in
connection with, or that are necessary for the continued conduct of, the
Business.
1.2 Excluded Assets. The Assets shall not include the following (collectively,
the "Excluded Assets"): (i) all of the Seller's accounts receivable and all
other rights of the Seller to payment for services rendered by the Seller before
Closing, it being understood that all of Seller's customers shall be billed on
the Closing Date for services or materials provided through that date and that
Buyer will forward any payment on such accounts received by it to Seller within
five (5) business day of receipt; (ii) all cash accounts of the Seller and all
petty cash of the Seller kept on hand for use in the Business; (iii) all other
receivables and prepaid expenses, including all right, title and interest of the
Seller in and to any prepaid expenses, bonds, deposits and other current assets
relating to any of the Assets or the Businesses; (i) the Retained Records; (v)
the cash consideration paid or payable by Buyer to Seller pursuant to Section
1.3 hereof; and (vi) any other assets described in Schedule 1.2 attached hereto.
1.3 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of the Seller and the
Shareholders contained herein, Buyer agrees to pay on the date of Closing, the
sum of $925,000.00 to Seller by wire transfer of immediately available funds to
an account designated by the Seller or by delivery of immediately available
funds. In addition, within thirty (30) days following the Closing, Buyer will
pay Seller an additional amount equal to the amounts paid by Seller for
equipment purchases made by Seller after January 1, 1998, and before the date
hereof which expand the capabilities of the Business and which are described on
Schedule 1.3 hereto.
1.4 Liabilities. Effective on the Closing Date, Buyer shall assume those, and
only those, liabilities and obligations of the Seller to perform the Contracts
described on Schedule 1.1(d) hereto to the extent that such Contracts have not
been performed and are not in default on the date hereof (the "Assumed
Liabilities"). On and after the date hereof, the Seller shall be responsible for
any and all liabilities and obligations of the Seller other than the Assumed
Liabilities, including, without limitation, (a) any obligations arising from the
Seller's employment of those employees of the Seller listed on Schedule 3.2
hereto; (b) any liabilities arising from or relating to Seller's failure to be
duly qualified or licensed to do business and in good standing as a foreign
corporation authorized to do business in all jurisdictions in which the
character of the properties owned or the nature of the business conducted by
Seller would make such qualification or licensing necessary; (c) any failure to
pay any taxes owed by Seller which are applicable to the period ending with the
date hereof; (d) any liabilities arising out of any matters listed on Schedule
2.1.12 hereto (collectively, the "Retained Liabilities"); and (e) any other
liabilities resulting from Seller's operation of the Assets or conduct of its
business before the date hereof.
1.5 Closing. The closing of the purchase and sale provided for hereunder (the
"Closing") shall take place on the date hereof (the "Closing Date"), at the
offices of Seller.
1.6 Closing Deliveries. At the Closing, in addition to the conveyances of the
Assets to the Buyer in exchange for the Purchase Price: (i) the Buyer and Seller
shall execute and deliver the Real Estate Purchase and Sale Agreement (the "Real
Estate Agreement") required under section 3.6 hereof and (ii) Buyer and Seller
will deliver to one another the opinions of counsel described below:
1.6.1 Opinion of Buyer's Counsel. The Seller shall have received a favorable
opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, P.C.,
counsel for Buyer, in form and substance satisfactory to the Seller, to the
effect that (i) Buyer has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware and is
qualified to do business in the State of Texas; (ii) all corporate proceedings
required to be taken by or on the part of the Buyer to authorize the execution
of this Agreement, the Real Estate Agreement and the implementation of the
transactions contemplated hereby and thereby, have been taken; and (iii) this
Agreement and the Real Estate Agreement have been duly executed and delivered
by, and are the legal, valid and binding obligations of Buyer and are
enforceable against Buyer in accordance with their terms, except as
enforceability may be limited by (a) equitable principals of general
applicability of (b) bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws affecting the rights of creditors generally. In
rendering such opinion, such counsel may rely upon (x) certificates of public
officials and of officers or Buyer as to the matters of fact and (y) the opinion
or opinions of other counsel, which opinions shall be reasonably satisfactory to
the Seller, as to matters other than federal or Texas law.
1.6.2 Opinion of Seller's Counsel. The Buyer shall have received a favorable
opinion, dated as of the Closing Date, from Duckett, Bouligny & Collins, L.L.P.,
counsel to Seller and the Shareholders, in form and substance satisfactory to
Buyer, to the effect that (i) Seller has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of Texas;
(ii) all proceedings required to be taken by or on the part of the Seller and
the Shareholders to authorize the execution of this Agreement and the Real
Estate Agreement and the implementation of the transactions contemplated hereby
and thereby have been taken; (iii) the Seller owns all of the Assets free and
clear of any Encumbrances other than those Encumbrances specifically listed and
described on the Schedules to this Agreement; and (iv) this Agreement and the
Real Estate Agreement have been duly executed and delivered by, and are the
legal, valid and binding obligations of the Seller and the Shareholders and are
enforceable against the Seller and the Shareholders in accordance with their
respective terms, in each case, except as the enforceability may be limited by
(a) equitable principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights of
creditors generally. In rendering such opinion, such counsel may rely upon (x)
certificates of public officials and of officers of the Seller as to the matters
of fact and (y) on the opinion or opinions of other counsel, which opinions
shall be reasonably satisfactory to Buyer, as to matters other than federal or
Texas law.
ARTICLE II
Representations and Warranties
2.1 Representations and Warranties of the Seller and the Shareholders. The
Seller and the Shareholders jointly and severally represent and warrant to Buyer
as follows:
2.1.1 Organization and Good Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas and
each Seller has full requisite corporate power and authority to carry on its
businesses as it is currently conducted, and to own and operate the properties
currently owned and operated by it. The nature and conduct of Seller's business
does not require the Seller to be qualified to do business in any state other
than Texas. The Shareholders own all of the issued and outstanding shares of the
Seller's capital stock and have the sole right to vote the same.
2.1.2 Agreement Authorized and Effect on Other Obligations. The execution and
delivery of this Agreement and all instruments to be executed by Seller
hereunder have been authorized by all necessary corporate, shareholder and other
action on the part of the Seller and the Shareholders, and this Agreement and
all instruments to be executed by the Seller and the Shareholders hereunder are
the valid and binding obligations of the Seller and the Shareholders enforceable
(subject to normal equitable principals) against each of such parties in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting
the rights of creditors generally. The Seller and the Shareholders represent and
warrant that the execution, delivery and performance of this Agreement and all
instruments to be executed by the Seller hereunder and the consummation of the
transactions contemplated hereby and thereby, will not conflict with or result
in a violation or breach of any term or provision of, nor constitute a default
under (i) the Articles of Incorporation or Bylaws (or other organizational
documents) of the Seller, (ii) any obligation, indenture, mortgage, deed of
trust, lease, contract or other agreement to which the Seller or the
Shareholders are a party or by which the Seller or the Shareholders or their
respective properties are bound; or (iii) to the best of their knowledge, any
provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator or other governmental authority to which the Seller or the
Shareholders or any of their respective properties are subject.
2.1.3 Contracts. Schedule 1.1(d) hereto sets forth a complete list of all
contracts, including leases under which the Seller is lessor or lessee, which
relate to the Assets and are to be performed in whole or in part after the date
hereof. In addition, (a) all of the Contracts are in full force and effect, and
constitute valid and binding obligations of the Seller, (b) the Seller is not,
and no other party to any of the Contracts is, in default thereunder, and no
event has occurred which (with or without notice, lapse of time, or the
happening of any other event) would constitute a default thereunder, (c) no
Contract has been entered into on terms which could reasonably be expected to
have an adverse effect on the use of the Assets by Buyer, (d) neither the Seller
nor the Shareholders have received any information which would cause any of such
parties to conclude that any customer of the Seller will (or is likely to) cease
doing business with Buyer (or its successors) as a result of the consummation of
the transactions contemplated hereby.
2.1.4 Title to Assets. The Seller has good, indefeasible and marketable title to
all of the Assets, free and clear of any Encumbrances (defined below). Except as
set forth in Schedule 2.1.4 hereto, the Seller and the Shareholders represent
and warrant that all of the Assets are (a) in a state of good repair, ordinary
wear and tear excepted, (b) are free from any known defects except as may be
repaired by routine maintenance and such minor defects as do not substantially
interfere with the continued use thereof in the conduct of normal operations and
(c) conform to all applicable laws governing their use. The Seller and
Shareholders represent that no notice of any violation of any law, statute,
ordinance or regulation relating to any of the Assets has been received by the
Seller or the Shareholders, except such as have been fully complied with. The
term "Encumbrances" means all liens, security interests, pledges, mortgages,
deeds of trust, claims, rights of first refusal, options, charges, restrictions
or conditions to transfer or assignment, liabilities, obligations, taxes,
privileges, equities, easements, rights of way, limitations, reservations,
restrictions and other encumbrances of any kind or nature.
2.1.5 Licenses and Permits. To the knowledge of the Seller or the Shareholders,
Schedule 1.1(e) hereto sets forth a complete list of all Permits necessary under
law or otherwise for the operation, maintenance and use of the Assets in the
manner in which they are now being operated, maintained and used; each of the
Permits and the Seller's rights with respect thereto is valid and subsisting, in
full force and effect, and enforceable by the Seller; the Seller is in
compliance in all material respects with the terms of each of the Permits; none
of the Permits have been, or to the knowledge of the Seller or the Shareholders,
are threatened to be, revoked, canceled, suspended or modified.
2.1.6 Intellectual Property. To the knowledge of the Seller or the Shareholders,
Schedule 1.1(c) hereto sets forth a complete list of all Intellectual Property
material or necessary for the continued use of the Assets; the Intellectual
Property is owned or licensed by the Seller free and clear of any Encumbrances;
the Seller has not granted to any other person any license to use any
Intellectual Property and, to the best of Seller's knowledge, use of the
Intellectual Property will not, and the conduct of the Business did not,
infringe, misappropriate or conflict with the intellectual property rights of
others. Neither the Seller nor any of the Shareholders has received any notice
of infringement, misappropriation or conflict with the intellectual property
rights of others in connection with the use by Seller of the Intellectual
Property.
2.1.7 Financial Statements. The Seller has delivered to Buyer a copy of Seller's
unaudited statement of income for the eleven (11) month period ended November
30, 1997, a copy of which is attached hereto as Schedule 2.1.7 (the "Seller's
Statement of Income"); the Seller's Statement of Income is true, correct and
complete in all material respects and presents fairly and fully the income and
expenses of the Seller as at the date and for the periods indicated thereon, and
has been prepared in accordance with generally accepted accounting principles as
promulgated by the American Institute of Certified Public Accountants ("GAAP")
applied on a consistent basis, except as described on Schedule 2.1.7 hereto; and
the Seller's Statement of Income includes all adjustments which are necessary
for a fair presentation of the Seller's income and expenses for the period
indicated.
2.1.8 Absence of Certain Changes and Events. Since November 30, 1997, there has
not been:
(a) Financial Change. Any adverse change in the Assets, the Business or the
financial condition, operations, liabilities or prospects of the Seller;
(b) Property Damage. Any damage, destruction, or loss to any of the Assets or
the Business (whether or not covered by insurance);
(c) Waiver. Any waiver or release of a material right of or claim held by the
Seller;
(d) Change in Assets. Any acquisition, disposition, transfer, encumbrance,
mortgage, pledge or other encumbrance of any asset of the Seller other than
in the ordinary course of business;
(e) Labor Disputes. Any labor disputes between the Seller and its employees; or
(f) Other Changes. Any other event or condition known to the Seller or the
Shareholders that particularly pertains to and has or might have an adverse
effect on the Assets, the operations of the Business or the financial
condition or prospects of the Seller.
2.1.9 Necessary Consents. The Seller has obtained and delivered to Buyer all
consents to assignment or waivers thereof required to be obtained from any
governmental authority or from any other third party in order to validly
transfer the Assets hereunder.
2.1.10 Environmental Matters. None of the current or past operations of the
Business or any of the Assets are being or have been conducted or used in such a
manner as to constitute a violation of any Environmental Law (defined below);
neither the Seller nor any of the Shareholders has received any notice (whether
formal or informal, written or oral) from any entity, governmental agency or
individual regarding any existing, pending or threatened investigation or
inquiry related to violations of any Environmental Law or regarding any claims
for remedial obligations or contribution for removal costs or damages under any
Environmental Law; there are no writs, injunction decrees, orders or judgments
outstanding, or lawsuits, claims, proceedings or investigations pending or, to
the knowledge of the Seller or the Shareholders, threatened relating to the
ownership, use, maintenance or operation of the Assets or the conduct of the
Business, nor, to the knowledge of the Seller or the Shareholders, is there any
basis for any of the foregoing; Buyer is not required to obtain any permits,
licenses or similar authorizations pursuant to any Environmental Law in effect
as of the date hereof to operate and use any of the Assets for their current or
proposed purposes and uses; to the knowledge of the Seller or the Shareholders,
the Assets include all environmental and pollution control equipment necessary
for compliance with applicable Environmental Law; except as described in
Schedule 2.1.10 hereto, no Hazardous Materials (defined below) have been or are
currently being used by the Seller in the operation of the Assets; no Hazardous
Materials are or have ever been situated on or under any of the Seller's
properties, whether owned or leased, or incorporated into any of the Assets; to
the knowledge of the Seller or the Shareholders, there are no, and there have
never been any, underground storage tanks (as defined under Environmental Law)
located under any of the Seller's properties, whether owned or leased; and there
are no environmental conditions or circumstances, including the presence or
release of any Hazardous Materials, on any property presently or previously
owned or leased by the Seller, or on any property on which Hazardous Materials
generated by the Seller's operations or the use of the Assets were disposed of,
which would result in an adverse change in the Business or business prospects of
the Seller. The term "Environmental Law" means any and all laws, rules, orders,
regulations, statutes, ordinances, codes, decrees, and other legally enforceable
requirements (including, without limitation, common law) of the United states,
or any state, regional, city, local, municipal or other governmental authority
or quasi-governmental authority, regulating, relating to, or imposing
environmental standards of conduct concerning protection of the environment or
human health, or employee health and safety as from time to time has been or is
now in effect. The term "Hazardous Materials" means (x) asbestos,
polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas,
petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals,
materials, wastes or substances that are defined, regulated, determined or
identified as toxic or hazardous in any Environmental Law.
2.1.11 No ERISA Plans or Labor Issues. No employee benefit plan of the Seller,
whether or not subject to any provisions of the Employee Retirement Income
Security Act of 1974, as amended, will by its terms or applicable law, become
binding upon or an obligation of Buyer; (b) the Seller has not engaged in any
unfair labor practices which could reasonably be expected to result in an
adverse effect on the Assets; (c) the Seller does not have any dispute with any
of its existing or former employees, and (d) there are no labor disputes or, to
the knowledge of the Seller or the Shareholders, any disputes threatened by
current or former employees of the Seller.
2.1.12 Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Seller or any of the transactions
contemplated by this Agreement is pending or threatened, nor has any
governmental entity indicated to the Seller or any of the Shareholders an
intention to conduct the same; and there is no suit, action, or legal,
administrative, arbitration or other proceeding or governmental investigation
pending to which the Seller or any of the Shareholders is a party or, to the
knowledge of the Seller or the Shareholders, might become a party or which would
adversely affect the Assets or the Buyer's future conduct of the Business,
except as set forth on the Schedule 2.1.12 hereto.
2.1.13 Absence of Certain Businesses Practices. Neither the Seller, the
Shareholders, nor any officer, employee or agent of the Seller, or any other
person acting on behalf of the Seller or the Shareholders, has, directly or
indirectly, within the past five years, given or agreed to give any gift or
similar benefit to any customer, supplier, government employee or other person
who is or may be in a position to help or hinder the profitable conduct of the
Business or the profitable use of the Assets (or to assist the Seller in
connection with any actual or proposed transaction) which if not given in the
past, might have had an adverse effect on the profitable conduct of the Business
or the profitable use of the Assets, or if not continued in the future, might
adversely affect the profitable conduct of the Business or the profitable use of
the Assets.
2.1.14 Solvency. The Seller is not presently insolvent, nor will the Seller be
rendered insolvent by the occurrence of the transactions contemplated by this
Agreement. The term "insolvent," with respect to the Seller, means that the sum
of the present fair and saleable value of the Seller's assets does not and will
not exceed its debts and other probable liabilities, and the term "debts"
includes any legal liability whether matured or unmatured, liquidated or
unliquidated, absolute fixed or contingent, disputed or undisputed or secured or
unsecured.
2.1.15 Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Seller, the
Shareholders and their counsel directly with Buyer and its counsel, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or any similar payment.
2.1.16 Taxes. All federal, state and local taxes assessed or assessable against
the Assets for periods prior to January 1, 1998 have been paid by Seller and the
Assets will be conveyed to Buyer free and clear of any such taxes or claims
therefor. All taxes assessed against the Assets for the period commencing
January 1, 1998 will be prorated through the Closing Date (based on 1997
assessed values) with Seller paying to Buyer at Closing an amount equal to the
portion of such taxes applicable to the period between January 1, 1998 and the
Closing Date. Buyer shall be responsible for the payment of any sales taxes due
as a result of the sale of the Assets by Seller to Buyer.
2.2 Representations and Warranties of Buyer. Buyer represents and warrants to
the Seller and the Shareholder as follows:
2.2.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has full requisite corporate power and authority to carry on its businesses as
it is currently conducted, and to own and operate the properties currently owned
and operated by it, and is duly qualified or licensed to do businesses and is in
good standing as a foreign corporation authorized to do business in the State of
Texas.
2.2.2 Agreement Authorized and its Effect on Other Obligations. The consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Buyer, and this Agreement is a
valid and binding obligation of Buyer enforceable (subject to normal equitable
principles) in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement by Buyer will not conflict with or result in a
violation or breach of any term or provision of, or constitute a default under
(a) the Certificate of Incorporation or Bylaws of Buyer or (b) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Buyer or any of its property is bound.
2.2.3 Consents and Approvals. No consent, approval or authorization of, or
filing of a registration with, any governmental or regulatory authority, or any
other person or entity is required to be made or obtained by Buyer in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
2.2.4 Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer and its counsel
directly with the Seller and the Shareholders and their counsel, without the
intervention by any other person as the result of any act of Buyer in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finder's fee or any similar payments.
ARTICLE III
Additional Agreements
3.1 Noncompetition. Except as set forth below or as otherwise consented to or
approved in writing by Buyer, the Seller and each of the Shareholders (and Joe
P. Freeman, the sole shareholder of JPF Well Service, Inc.) agree that for a
period of 60 months following the date hereof, such party will not, directly or
indirectly, acting alone or as a member of a partnership or as an officer,
director, employee, consultant, representative, a holder of, or investor in as
much as 3% of any security of any class of any corporation or other business
entity (a) engage in any business in competition with the business or businesses
conducted by the Seller on or before the date hereof or by Buyer (or Buyer's
affiliates) on or after the date hereof, or in any service business the services
of which were provided and marketed by the Seller on or before the date hereof
or by Buyer (or Buyer'
s affiliates) on or after the date hereof in the following
counties in the state of Texas: Aransas, Austin, Bastrop, Bee Bell, Brazoria,
Brazos, Burleson, Caldwell, Calhoun, Colorado, DeWitt, Falls, Fayette, Fort
Bend, Goliad, Grimes, Guadalupe, Gonzales, Harris, Jackson, Karnes, Lavaca, Lee,
Leon, Limestone, Matagora, Madison, McLennan, Milam, Montgomery, Nueces,
Refugio, Robertson, San Patricio, Travis, Victoria, Walker, Waller, Washington,
Wharton, and Williamson, ; (b) request any present customers or suppliers of the
Seller or any customers of Buyer (or Buyer's affiliates) to curtail or cancel
their business with Buyer (or Buyer's affiliates); (c) disclose to any person,
firm or corporation any trade, technical or technological secrets of Buyer (or
Buyer's affiliates) or of the Seller or any details of their organization or
business affairs or (d) induce or actively attempt to influence any employee of
Buyer (or Buyer's affiliates) to terminate his or her employment. The Seller and
each of the Shareholders agree that if either the length of time or geographical
area as set forth in this Section 3.1 is deemed too restrictive in any court
proceeding, the court may reduce such restrictions to those which it deems
reasonable under the circumstances. The obligations expressed in this Section
3.1 are in addition to any other obligations that the Seller and the
Shareholders may have under the laws of any state requiring a corporation
selling its assets (or a shareholder of such corporation) to limit its
activities so that the goodwill and business relations being transferred with
such assets will not be materially impaired. The Seller and the Shareholders
further agree and acknowledge that Buyer does not have any adequate remedy at
law for the breach or threatened breach by the Seller or the Shareholders of the
covenants contained in this Section 3.1, and agree that Buyer may, in addition
to the other remedies which may be available to it hereunder, file a suit in
equity to enjoin the Seller or the Shareholders from such breach or threatened
breach. If any provisions of this Section 3.1 are held to be invalid or against
public policy, the remaining provisions shall not be affected thereby. The
Seller and the Shareholders acknowledge that the covenants set forth in this
Section 3.1 are being executed and delivered by such party in consideration of
(i) the covenants of Buyer contained in this Agreement, (ii) additional
consideration in the amount of $375,000 payable by Buyer on the date hereof by
wire transfer of immediately available funds to the Seller and the Shareholders,
in those amounts and to those accounts specified in Schedule 3.1 hereto and
(iii) for other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged.
Notwithstanding anything to the contrary stated in this Section 3.1, (i) the
conduct by the business entities listed in Schedule 3.1 hereto of the activities
set forth opposite such entities' names (the "Permitted Business") shall not be
a violation by Joe P. Freeman and the individual Shareholders of clause (a) of
this Section 3.1 and (ii) the solicitation by the business entities listed in
Schedule 3.1 hereto of any present customer or supplier of the Seller or any
customers of Buyer (or Buyer's Affiliates) in connection with the conduct of
their Permitted Business, but only their Permitted Business and not the business
sold hereunder, shall not be a violation by Joe P. Freeman and the individual
Shareholders of clause (b) of this Section 3.1.
3.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing of
all employees of the Seller who devote their full time in the operation of the
Assets and the conduct of the Business (the "Employees"). Effective as of the
date of Closing, substantially all of the Employees shall be offered employment
by Buyer, subject to such Employees meeting Buyer's standard employment
eligibility requirements. Buyer shall have no liability or obligation with
respect to any employee benefits of any Employee except those benefits that
accrue pursuant to such Employees' employment with Buyer on or after the date
hereof. The Seller and the Shareholders shall cooperate with Buyer in connection
with any offer of employment from Buyer to the Employees and use its best
efforts to cause the acceptance of any and all such offers.
3.3 Allocation of Purchase Price. The parties hereto agree to allocate the
Purchase Price payable by Buyer for the Assets hereunder as set forth on
Schedule 3.3 hereto, and shall report this transaction for federal income tax
purposes in accordance with the allocation so agreed upon. The parties hereto
for themselves and for their respective successors and assigns covenant and
agree that they will file coordinating Form 8594's in accordance with Section
1060 of the Internal Revenue Code of 1986, as amended, with their respective
income tax returns for the taxable year that includes the date hereof.
3.4 Name Change. The Seller and the Shareholders shall, within ten (10) days
from the date of Closing, cause to be filed with the Secretary of State of Texas
an amendment to the Articles of Incorporation of the Seller changing the names
of the Seller from its current name to a name that is not similar to such name.
The Seller and the Shareholders shall, within five (5) days from the date of its
receipt of confirmation of such filings from the Secretary of State of Texas,
cause to be delivered to Buyer a copy of such confirmation.
3.5 Related Asset Purchase. Concurrent with the execution and delivery hereof,
Buyer, JPF Well Service, Inc. and Joe P. Freeman shall have entered into (and
consummated the transactions contemplated by) a binding agreement pursuant to
which JPF Well Service, Inc. will have conveyed to Buyer substantially all of
its assets (the "JPF Well Service Transaction"). The consummation of the
transaction contemplated by this Agreement is expressly conditioned upon the
consummation of the JPF Well Service Transaction.
3.6 Real Estate Purchase. Concurrent with the execution and delivery hereof,
Seller shall have entered into (and consummated the transactions contemplated
by) a binding agreement pursuant to which Seller will have conveyed to Buyer the
real property described in Schedule 3.5 hereto (the "Real Estate Transaction").
The consummation of the transaction contemplated by this Agreement is expressly
conditioned upon the consummation of the Real Estate Transaction.
ARTICLE IV
Indemnification
4.1 Indemnification by the Seller and the Shareholders. In addition to any other
remedies available to Buyer under this Agreement, or at law or in equity, the
Seller and each of the Shareholders shall, jointly and severally, indemnify,
defend and hold harmless Buyer and its officers, directors, employees, agents
and stockholders, against and with respect to any and all claims, costs,
damages, losses, expenses, obligations, liabilities, recoveries, suits, causes
of action and deficiencies, including interest, penalties and reasonable
attorneys' fees and expenses (collectively, the "Damages") that such indemnitee
shall incur or suffer, which arise, result from or relate to (a) any material
breach of, or failure by the Seller or any of the Shareholders to perform, their
respective representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to Buyer by the Seller or the Shareholders under this Agreement;
and (b) the Retained Liabilities.
4.2 Indemnification by Buyer. In addition to any other remedies available to the
Seller or the Shareholders under this Agreement, or at law or in equity, Buyer
shall indemnify, defend and hold harmless the Seller and its officers,
directors, employees, agents and stockholders and each of the Shareholders
against and with respect to any and all Damages that such indemnitees shall
incur or suffer, which arise, result from or relate to (a) any material breach
of, or failure by Buyer to perform, any of its representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to the Seller or the
Shareholders by or on behalf of Buyer under this Agreement and (b) the Assumed
Liabilities.
4.3 Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 4.1 or 4.2 of
this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement; provided, however, that
the failure of an indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligation hereunder to the extent the
indemnifying party is not materially prejudiced thereby. Further, promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Article IV, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of an indemnified party to give notice as provided
herein shall not relieve the indemnifying party of any obligation hereunder to
the extent the indemnifying party is not materially prejudiced thereby. In case
any such action is brought against an indemnified party, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof unless the
indemnifying party has failed to assume the defense of such claim and to employ
counsel reasonably satisfactory to such indemnified person. An indemnifying
party who elects not to assume the defense of a claim shall not be liable for
the fees and expenses of more than one counsel in any single jurisdiction for
all parties indemnified by such indemnifying party with respect to such claim or
with respect to claims separate but similar or related in the same jurisdiction
arising out of the same general allegations. Notwithstanding any of the
foregoing to the contrary, the indemnified party will be entitled to select its
own counsel and assume the defense of any action brought against it if the
indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party, the expenses of such defense to be paid by the indemnifying
party. No indemnifying party shall consent to entry of any judgment or enter
into any settlement with respect to a claim without the consent of the
indemnified party, which consent shall not be unreasonably withheld, or unless
such judgment or settlement includes as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim. No indemnified party shall consent to
entry of any judgment or enter into any settlement of any such action, the
defense of which has been assumed by an indemnifying party, without the consent
of such indemnifying party, which consent shall not be unreasonably withheld or
delayed.
ARTICLE V
Miscellaneous
5.1 Survival of Representations, Warranties and Covenants. All representations
and warranties made by the parties hereto shall survive indefinitely without
limitation, notwithstanding any investigation made on the part of the parties
hereto. All statements contained in any certificate, schedule, exhibit or other
instrument delivered pursuant to this Agreement shall be deemed to have been
representations and warranties by the respective party or parties, as the case
may be, and shall also survive indefinitely without limitation, notwithstanding
any investigations made by any party hereto or on its behalf. All covenants and
agreements contained herein shall survive as provided herein.
5.2 Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
5.3 Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
5.4 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested:
If to Buyer
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Brooks Well Servicing, Inc. Lynch, Chappell & Alsup, P.C.
Two Tower Center, 20th Floor 300 N. Marienfeld, Suite 700
East Brunswick, New Jersey 08816 Midland, Texas 79701
Attn: General Counsel Attn: James M. Alsup, Esq.
Facsimile: (908) 247-5148 Facsimile: (915) 683-2587
- --------------------------------------------------------------------------------
If to the Seller or the Shareholders
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mr. Joe P. Freeman Duckett, Bouligny & Collins, L.L.P.
JPF Lease Service, Inc. 207 West Jackson
Highway 59 South P. O. Box 1567
El Campo, Texas 77435 El Campo, Texas 77437
Facsimile: (409) 543-8361 Attn: Randy M. Clapp, Esq.
Facsimile: (409) 543-9516
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the fifth (5th) businesses day after so mailed, and if delivered by
courier or facsimile to such address, upon delivery during normal businesses
hours on any businesses day.
5.5 Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
5.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
5.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other
parties hereto have caused this Agreement to be executed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
BUYER:
BROOKS WELL SERVICING, INC.
a Delaware corporation
By:
Jimmy Chasteen, President
SELLER:
JPF LEASE SERVICE, INC.
By:
Joe P. Freeman, President
SHAREHOLDERS:
JPF WELL SERVICE, INC.
By:__________________________________________
Joe P. Freeman, President
___________________________________________
R. D. Nettle
__________________________________________
Pete Schweikhardt
___________________________________________
Rick Talbot
______________________________________________________________
Joe P. Freeman (to evidence his agreement to be bound
by the provisions of Section 3.1 hereof)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (as from time to time amended in accordance with the
provisions hereof, this "Agreement"), is entered into this 5th day of December
1997 by and between Stephen E. McGregor, 3029 Woodland Drive, N.W., Washington,
D.C. (the "Executive"), and KEY ENERGY GROUP, INC., a Maryland corporation with
its principal offices at Two Tower Center, Tenth Floor, East Brunswick, New
Jersey 08816 (the "Company").
Recitals
A. The Company and the Executive have previously entered into that certain
Consulting Agreement dated as of July 15, 1997 (the "Consulting Agreement")
pursuant to which the Executive currently serves as an Executive Vice
President and the Chief Financial Officer of the Company.
B. The Company desires to terminate the Consulting Agreement and retain the
services of the Executive as an Executive Vice President and the Chief
Financial Officer of the Company pursuant to the terms and conditions
hereinafter set forth effective as of January 1, 1998 (the "Commencement
Date").
C. The Executive desires to terminate the Consulting Agreement and serve in
such capacities pursuant to the terms and conditions hereinafter set forth
effective as of the Commencement Date.
Agreement
NOW THEREFORE, in consideration of the covenants and agreements herein
contained, the Company and the Executive hereby agree as follows:
1. Termination of Consulting Agreement; Employment; Term.
(a) Effective as of the Commencement Date, the Consulting Agreement shall be
terminated and of no further force or effect except for the Company's
obligations to make any payments to the Executive under Section 2 thereof
for services rendered and expenses incurred prior to the Commencement Date.
The Company hereby agrees to employ the Executive, and the Executive hereby
accepts employment by the Company, as the Company's Executive Vice
President and Chief Financial Officer, such employment to commence as of
the Commencement Date, and to continue until the close of business on June
30, 2000, subject to extension as provided in this Section 1(a), unless
sooner terminated in accordance herewith (the "Initial Employment Period").
On each June 30, commencing with June 30, 2000, the term of the Executive's
employment hereunder shall be automatically extended for twelve (12) months
unless either he or the Company shall have given written notice to the
other that such automatic extension shall not occur, which notice shall
have been given no later than thirty (30) days prior to the relevant June
30th (the Initial Employment Period, together with any extensions, until
termination in accordance herewith, is referred to hereby as the
"Employment Period").
b) The Executive shall have the responsibilities, duties and authority
commensurate with his positions as the Executive Vice President and Chief
Financial Officer of the Company, including without limitation the general
supervision and control over, and responsibility for, the overall financial
and related activities and the international operations of the Company and
its Subsidiaries, subject, however, to the supervision of the Chief
Executive Officer and the Board insofar as such Board supervision is
required by applicable laws, regulations, and the Company. Such
responsibilities, duties and authority shall not be expanded or contracted
without the express consent of the Executive. The Executive will report
only to the Chief Executive Officer, and, as appropriate, the Board.
(c) The Executive will devote his full time and his best efforts to the
business and affairs of the Company; provided, however, that nothing
contained in this Section 1 shall be deemed to prevent or limit the
Executive's right to: (i) make investments in the securities of any
publicly-owned corporation; or (ii) make any other investments with respect
to which he is not obligated or required to, and to which he does not in
fact, devote substantial managerial efforts which materially interfere with
his fulfillment of his duties hereunder; or (iii) to serve on boards of
directors and to serve in such other positions with non-profit and
for-profit organizations as to which the Board may from time to time
consent, which consent shall not be unreasonably withheld or delayed.
(d) The principal location at which the Executive will substantially perform
his duties will be the Company's principal offices. In the event the
Company's principal offices are transferred, the Company will pay moving,
temporary living and other reasonable expenses in connection with the
Executive's relocation from his present primary residence to a location in
proximity to the Company's principal offices.
2. Salary; Bonuses; Expenses.
(a) During the Employment Period, the Company will pay base compensation to the
Executive at the annual rate of Two Hundred Forty Thousand Dollars
($240,000) per year (the "Base Salary"), payable in substantially equal
installments in accordance with the Company's existing payroll practices,
but no less frequently than monthly. The Company will review the
Executive's Base Salary on a yearly basis promptly following the end of
each fiscal year of the Company to determine if an increase is advisable,
and the Base Salary may be increased (but not decreased) at the discretion
of the Chief Executive Officer and the Board, taking into account, among
other factors, the Executive's performance and the performance of the
Company.
(b) The Executive shall be paid a cash bonus of $100,000 within 30 days of the
Company's annual earnings release for the fiscal year ended June 30, 1998
indicating an earnings per share level of at least $.85 per share (on a
fully diluted basis) for the 1998 fiscal year, and an additional cash bonus
of $150,000 within 30 days of the Company's annual earnings release for the
fiscal year ended June 30, 1998 indicating an earnings per share level of
at least $.95 per share (on a fully diluted basis) for the 1998 fiscal
year. Similar cash bonus arrangements of at least $250,000 for each of
fiscal years 1999 and 2000 shall be agreed to by the Executive and the
Chief Executive Officer and approved by the Board within the first 30 days
of each such fiscal year.
(c) In addition to the cash bonuses identified in Section 2(b), for each annual
period commencing July 1, 1997, the Executive shall be eligible to
participate in an incentive plan (the "Incentive Plan") for the Company's
executives providing for the payment of cash bonuses, which plan will
provide for the payment of bonuses based upon the achievement of goals set
forth in the Company's strategic plan as developed by the Executive, the
Chief Executive Officer, and the Board (the "Strategic Plan"), payable
within ninety (90) days after the end of each fiscal year. The performance
goals for the Incentive Plan will be based on objective criteria mutually
negotiated and agreed upon in good faith in advance by the Executive and
the Board. The Executive's aggregate annual bonus determined in accordance
with this Section 2(c) is referred to herein as the "Annual Bonus."
(d) The Executive shall be reimbursed by the Company for reasonable travel,
lodging, meal and other expenses incurred by him in connection with
performing his services hereunder in accordance with the Company's policies
from time to time in effect.
3. Stock Options.
(a) The Company has previously granted to the Executive pursuant to agreements
in the form attached hereto, as Exhibit A:
(i) Options (the "200 Options") to acquire two hundred thousand (200,000)
shares of the Company's common stock at an exercise price of $ 20.4375 per
share. One third (1/3) of the 200 Options shall vest on each of July 1,
1998, 1999 and 2000 and be exercisable at any time prior to July 1, 2008;
and
(ii) Options (the "50 Options") to acquire fifty thousand (50,000) shares of the
Company's common stock at an exercise price $20.4375 per share. The 50
Options shall vest, if at all, on the date during the three-year period
beginning on the date hereof on which the Closing Price (defined below) of
the Company's common stock is equal to or greater than $30.00 per share for
sixty (60) consecutive trading days and be exercisable for a period of ten
(10) years thereafter. The term "Closing Price" shall mean the closing
price as reported on the American Stock Exchange or such other national
exchange on which the Company's common stock is trading at the time of
determination.
(b) In addition to Section 3(a), for each annual period commencing July 1,
1997, the Executive shall be eligible to participate in a stock option plan
for the Company's executives providing for the granting of stock options
under the Company's 1995 Stock Option Plan, as amended from time to time
(the "1995 Stock Option Plan"). The performance goals for the grant of such
option will be based on objective criteria mutually negotiated and agreed
upon in good faith in advance by the Executive, the Chief Executive
Officer, and the Board. The Executive's aggregate annual bonus determined
in accordance with this Section 3(b) is referred to herein as the "Annual
Stock Option Grant."
(c) The Company agrees that it will use its best efforts to comply with the
requirements of Rule 16b-3 promulgated pursuant to the Securities Exchange
Act of 1934, as amended (the "1934 Act"), as such rule shall be in effect
from time to time, or with any successor provision to said rule ("Rule
16b-3") such that in the event the Executive shall become subject to
Section 16 (or a successor provision) of the 1934 Act with respect to
shares of the Company's capital stock, the Executive shall be afforded the
benefits of Rule 16b-3 with respect to such restricted stock or options,
including without limitation providing for the grant of restricted stock or
options pursuant to stock plans which comply with Rule 16b-3 and permit the
terms of options contemplated by this Agreement.
4. Benefit Plans; Vacations. In connection with the Executive's employment
hereunder, he shall be entitled during the Employment Period (and
thereafter to the extent provided in Section 5(f) hereof) to the following
additional benefits:
(a) At the Company's expense, such fringe benefits, including without
limitation group medical and dental, life, executive life, accident and
disability insurance and retirement plans and supplemental and excess
retirement benefits, as the Company may provide from time to time for its
senior management, but in any case, at least the benefits described on
Exhibit B hereto.
(b) The Executive shall be entitled to no less than the number of vacation days
in each calendar year determined in accordance with the Company's vacation
policy as in effect from time to time, but not less than fifteen (15) days
in any calendar year (prorated in any calendar year during which he is
employed hereunder for less than the entire year in accordance with the
number of days in such calendar year in which he is so employed). The
Executive shall also be entitled to all paid holidays and personal days
given by the Company to its executives.
(c) The Executive shall be entitled to receive an allowance of $1,000 per
month, to cover costs incurred by the Executive in connection with the use
of his automobile during the Employment Period.
(d) The Company shall pay the reasonable expenses not in excess of $2,500 of a
home office for the Executive.
(e) Nothing herein contained shall preclude the Executive, to the extent he is
otherwise eligible, from participation in all group insurance programs or
other fringe benefit plans which the Company may from time to time in its
sole and absolute discretion make available generally to its personnel, or
for personnel similarly situated, but the Company shall not be required to
establish or maintain any such program or plan except as may be otherwise
expressly provided herein.
(f) The Company shall pay all membership costs, including without limitation
all initiation and membership fees and expenses and all annual or other
periodic fees, dues and costs, for the Executive to become and remain a
member of one private country club, golf club, tennis club or similar club
or association for business use selected by the Executive and approved by
the Board, which approval shall not be unreasonably withheld or delayed.
5. Termination, Change of Control and Reassignment of Duties.
(a) Termination By Company. The Company shall have the right to terminate the
Executive's employment under this Agreement for Cause (as defined below) at
any time without obligation to make any further payments to the Executive
hereunder. The Company shall have the right to terminate the Executive's
employment for any reason other than for Cause only upon at least ninety
(90) days prior written notice to him, except as otherwise provided in
Section 5(b), which Section shall apply in the event the Executive becomes
unable to perform his obligations hereunder by reason of Disability (as
defined below). In the event the Company terminates the Executive's
employment hereunder for any reason other than for Cause or Disability,
then for the purpose of effecting a transition during the ninety (90) day
notice period of the Executive's management functions from the Executive to
another person or persons, during such period the Company may reassign the
Executive's duties hereunder to another person or other persons. Such
reassignment shall not reduce the Company's obligations hereunder to make
salary, bonus and other payments to the Executive and to provide other
benefits to him during the remainder of his employment and following the
termination of employment, including without limitation the use of his
office and secretarial services during the remainder of his employment.
As used in this Agreement, the term "Cause" shall mean (i) the willful and
continued failure by the Executive to substantially perform his duties hereunder
(other than (A) any such willful or continued failure resulting from this
incapacity due to physical or mental illness or physical injury or (B) any such
actual or anticipated failure after the issuance of a notice of termination by
the Executive for Good Reason (as defined below), after demand for substantial
performance is delivered by the Company to the Executive that specifically
identifies the manner in which the Company believes the Executive has not
substantially performed his duties); or (ii) the willful engaging by the
Executive in misconduct which is materially injurious to the Company, monetarily
or otherwise; or (iii) the conviction of a felony by a court of competent
jurisdiction. For purposes of this paragraph, no act, or failure to act on the
part of the Executive shall be considered "willful" unless done or omitted to be
done by him in bad faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
the Executive's employment shall not be deemed to have been terminated for Cause
unless (A) reasonable notice shall have been given to him setting forth in
detail the reasons for the Company's intention to terminate for Cause, and if
such termination is pursuant to clause (i) or (ii) above and any damage to the
Company is curable, only if Executive has been provided a period of ten (10)
business days from receipt of such notice to cease the actions or inactions, and
he has not done so; (B) an opportunity shall have been provided for the
Executive, together with his counsel, to be heard before the Board; and (C) if
such termination is pursuant to clause (i) or (ii) above, delivery shall have
been made to the Executive of a notice of termination from the Board finding
that in the good faith opinion of a majority of the Board (excluding the
Executive) he was guilty of conduct set forth in clause (i) or (ii) above, and
specifying the particulars thereof in detail.
(b) Termination upon Disability and Temporary Reassignment of Duties Due to
Disability.
(i) If the Executive becomes totally and permanently disabled during the
Employment Period so that he is unable to perform his obligations hereunder
by reasons involving physical or mental illness or physical injury (A) for
a period of ninety (90) consecutive days, or (B) for an aggregate of ninety
(90) days during any period of twelve (12) consecutive months
("Disability"), then the term of the Executive's employment hereunder may
be terminated by the Company within sixty (60) days after the expiration of
said ninety (90) day period (whether consecutive or in the aggregate, as
the case may be), said termination to be effective ten (10) days after
written notice to the Executive. In the event the Company shall give a
notice of termination under this Section 5(b)(i), then the Company may
reassign the Executive's duties hereunder to another person or other
persons. Such reassignment shall not reduce the Company's obligations
hereunder to make salary, bonus and other payments to the Executive and to
provide other benefits to him, during the remainder of his employment and
following the termination of employment.
(ii) During any period that the Executive is totally disabled such that he is
unable to perform his obligations hereunder by reason involving physical or
mental illness or physical injury, as determined by a physician chosen by
the Company and reasonably acceptable to the Executive (or his legal
representative), the Company may reassign the Executive's duties hereunder
to another person or other persons, provided if the Executive shall again
be able to perform his obligations hereunder, all such duties shall again
be the Executive's duties. The cost of any examination by such physician
shall be borne by the Company. Notwithstanding the foregoing, if the
Executive has been unable to perform his obligations hereunder by reasons
involving physical or mental illness or physical injury for a period of
ninety (90) consecutive days or an aggregate of ninety (90) days during any
period of twelve (12) consecutive months, then a determination by a
physician of disability will not be required prior to any such
reassignment. Any such reassignment shall not be a termination of
employment and in no event shall such reassignment reduce the Company's
obligation to make salary, bonus and other payments to the Executive and to
provide other benefits to him under this Agreement during his employment
or, if applicable, following a termination of employment.
(c) Termination by Executive. The Executive's employment may be terminated by
him by giving written notice, to the Company as follows: (i) at any time by
notice of at least thirty (30) days; (ii) at any time by notice for a Good
Reason, effective upon giving such notice; (iii) at any time, if his health
should become impaired, provided he has obtained a written statement from a
qualified doctor to such effect, effective upon giving such notice; or (iv)
at any time following but prior to the first anniversary of a Change of
Control (as defined below), effective upon giving such notice. In the event
of a termination by the Executive of his employment, the Company may
reassign the Executive's duties hereunder to another person or other
persons.
As used herein, a "Good Reason" shall mean any of the following:
(A) Failure of the Board to elect the Executive as Executive Vice President and
Chief Financial Officer of the Company, or removal from the office of
Executive Vice President and Chief Financial Officer of the Company
provided that such failure or removal is not in connection with a
termination of the Executive's employment hereunder for Cause in accordance
with Section 5(a) and provided further that any notice of termination
hereunder shall be given by the Executive within ninety (90) days of such
failure or removal.
(B) Material change by the Company in the Executive's authority, functions,
duties or responsibilities as Executive Vice President and Chief Financial
Officer of the Company (including without limitation material changes in
the control or structure of the Company) which would cause his position
with the Company to become of less responsibility, importance, scope or
dignity than his position as of the Commencement Date, provided that (I)
such material change is not in connection with a termination of Executive's
employment hereunder for Cause in accordance with Section 5(a), (II) such
material change is not made in accordance with Section 5(a) following a
termination of Executive's employment by the Company other than for Cause
or Disability, (III) such material change is not made in accordance with
Section 5(b) pertaining to disability, including without limitation the
time period restrictions applicable thereunder, and (IV) any notice of
termination hereunder shall be given by him within ninety (90) days of when
he becomes aware of such change; or
(C) Failure by the Company to comply with any provision of Section 1, 2, 3, 4
or 8 of this Agreement, which has not been cured within fifteen (15) days
after notice of such noncompliance has been given by the Executive to the
Company, provided any notice of termination hereunder shall be given by the
Executive within ninety (90) days after the end of such fifteen (15) day
period;
(D) Failure by the Company to obtain an assumption of this Agreement by a
successor in accordance with Section 14 unless payment or provision for
payment and provision for continuation of benefits under this Agreement
have been made in a manner permitted by Section 5; and
(E) Any purported termination by the Company of the Executive's employment
which is not effected in accordance with the terms of this Agreement,
including without limitation pursuant to a notice of termination not
satisfying the requirements set forth herein (and for purposes of this
Agreement no such purported termination by the Company shall be effective),
which has not been cured within ten (10) days after notice of such
non-conformance has been given by the Executive to the Company, provided
any notice of termination hereunder shall be given by the Executive within
thirty (30) days of receipt of notice of such purported termination.
As used herein, a "Change of Control" means that any of the following events has
occurred:
(I) Any person (as defined in Section 3(a)(9) of the 1934 Act (or any successor
provision), other than the Company, is the beneficial owner directly or
indirectly of more than twenty-five percent (25%) of the outstanding Common
Stock of the Company, determined in accordance with Rule 13d-3 under the
1934 Act (or any successor provision), or otherwise becomes entitled to
vote more than twenty-five percent (25%) of the voting power entitled to be
cast at elections for directors ("Voting Power") of the Company, or in any
event such lower percentage as may at any time be provided for in any
similar provision for any director or officer of the Company or of any
Subsidiary approved by the Board;
(II) If the Company is subject to the reporting requirements of Section 13 or
15(d) (or any successor provision) of the 1934 Act, any person (as defined
in Section 3(a)(9) of the 1934 Act), other than the Company, shall purchase
shares pursuant to a tender offer or exchange offer to acquire Common Stock
of the Company (or securities convertible into or exchangeable for or
exercisable for Common Stock) for cash, securities or any other
consideration, provided that after consummation of the offer, the person in
question is the beneficial owner, directly or indirectly, of more than
twenty-five percent (25%) of the outstanding Common Stock of the Company,
determined in accordance with Rule 13d-3 under the 1934 Act (or any
successor provision) or such lower percentage as may at any time be
provided for in any similar provision for any director or officer of the
Company or of any Subsidiary approved by the Board;
(III)The stockholders or the Board shall have approved any consolidation or
merger of the Company in which (1) the Company is not the continuing or
surviving corporation unless such merger is with a Subsidiary at least
eighty percent (80%) of the Voting Power of which is held by the Company or
(2) pursuant to which the holders of the Company's shares of Common Stock
immediately prior to such merger or consolidation would not be the holders
immediately after such merger or consolidation of at least a majority of
the Voting Power of the Company or such lower percentage as may at any time
be provided for in any similar provision for any director or officer of the
Company or of any Subsidiary approved by the Board.
(IV) The stockholders or the Board shall have approved any sale, lease, exchange
or other transfer (in one transaction or a series of transactions) of all
or substantially all of the assets of the Company; or
(V) Upon the election of one or more new directors of the Company, a majority
of the directors holding office, including the newly elected directors,
were not nominated as candidates by a majority of the directors in office
immediately before such election.
As used in this definition of Change of Control, "Common Stock" means the Common
Stock, or if changed, the capital stock of the Company as it shall be
constituted from time to time entitling the holders thereof to share generally
in the distribution of all assets available for distribution to the Company's
stockholders after the distribution to any holders of capital stock with
preferential rights.
(d) Severance Compensation.
(i) Termination for Good Reason or Other than for Cause. In the event the
Executive's employment hereunder is terminated (A) by the Executive for a
Good Reason or (B) the Company other than for Cause (including without
limitation in the event the Company elects at any time not to automatically
extend the Executive's employment hereunder pursuant to the second sentence
of Section 1(a) hereof), the Executive shall be entitled, in addition to
the other compensation and benefits herein provided for, to severance
compensation in an aggregate amount equal to the product of (I) two (2)
times (II) his Base Salary at the rate in effect on the termination date,
payable in twenty-four (24) substantially equal monthly installments
commencing at the end of the calendar month in which the termination date
occurs; provided, however, that if the Executive's employment is terminated
following a Change of Control or is terminated by the Company other than
for Cause in anticipation of a Change of Control, the severance
compensation referred to above shall be three (3) times the Base Salary at
the rate in effect on the termination date and shall be payable in one lump
sum on the date of such termination.
(ii) Termination following Disability. In the event the Executive's employment
should be terminated by the Company as a result of Disability in accordance
with Section 5(b) hereof, then the Executive shall be entitled, in addition
to the other compensation and benefits herein provided for, to severance
compensation in an aggregate amount equal to the product of (A) two (2)
times (B) his Base Salary at the rate in effect on the termination date,
payable in twenty-four (24) substantially equal monthly installments
commencing at the end of the calendar month in which the termination date
occurs, reduced by the amount of any disability insurance proceeds actually
paid to the Executive or for his benefit during the said time period.
(e) Effect of Termination or Change of Control upon Equity Compensation.
(i) In the event the Executive's employment hereunder is terminated by the
Company for any reason other than for Cause (including without limitation
an election by the Company not to automatically extend the Executive's
employment hereunder pursuant to the second sentence of Section 1(a)
hereof), or in the event the Executive should terminate his employment for
Good Reason, then, unless the provisions of Section 5(e)(iv) hereof shall
apply, effective upon the date such termination is effective, any
restricted stock or unexpired options (including without limitation the 200
Options and the 50 Options) held by the Executive entitling the Executive
to purchase securities of the Company not previously vested shall be
forfeited, unless there shall be a contrary provision in the agreement or
plan pursuant to which such restricted stock or options were granted.
(ii) In the event the Executive's employment hereunder is terminated by the
Company for Cause, then effective upon the date such termination is
effective, any restricted stock or options (including without limitation
the 200 Options and 50 Options) not previously vested shall be forfeited,
unless there shall be a contrary provision in the agreement or plan
pursuant to which such restricted stock or options were granted.
(iii)In the event of the Executive's death while employed or in the event that
the Executive's employment should terminate as a result of Disability,
then, unless the provisions of Section 5(e)(iv) hereof shall apply, any
restricted stock or unexpired options (including without limitation the 200
Options and the 50 Options) held by the Executive entitling the Executive
to purchase securities of the Company not previously vested shall vest
and/or be exercisable for an exercise period of at least twelve (12) months
following such termination date, unless there shall be a contrary provision
in the agreement or plan pursuant to which such restricted stock or options
were granted.
(iv) In the event of a Change of Control while the Executive is employed, then
as of the date immediately prior to the date such Change of Control shall
occur, any restricted stock or options (including without limitation the
200 Options and 50 Options) held by the Executive entitling the Executive
to purchase securities of the Company, which restricted stock or options
are subject to vesting, shall, notwithstanding any contrary provision in
the agreement or plan pursuant to which such restricted stock or options
were granted, become fully vested and any such options shall become
exercisable as of such date and shall remain exercisable during the
respective terms of such options, unless his employment shall sooner
terminate. In the event of any termination of his employment following the
date an option becomes fully exercisable in accordance with the terms of
this Section 5(e)(iv), then the applicable exercise period shall be at
least twelve (12) months following the date of termination or such longer
period as set forth in the pertinent option agreement.
(f) Continuation of Benefits, etc. (i) Subject to Section 5(f)(ii) hereof, in
the event that Executive's employment hereunder is terminated by the
Executive for a Good Reason or by the Company other than for Cause
(including without limitation in the event the Company elects not to
automatically extend the Executive's employment hereunder pursuant to the
second sentence of Section 1(a) hereof), the Executive shall continue to be
entitled to the benefits that the Executive was receiving or to which the
Executive was entitled as of the date immediately preceding the applicable
termination date pursuant to Section 4 hereof at the Company's expense for
a period of time following the termination date ending on the first to
occur of (I) the second anniversary of the termination date or (II) the
date on which the Executive commences full-time employment by another
employer, but only if and to the extent the Executive is eligible to
receive through such other employer benefits which are at least equivalent
on an aggregate basis to those benefits the Executive was receiving or to
which the Executive was entitled under Section 4 hereof as of immediately
preceding the applicable termination date. If because of limitations
required by third parties or imposed by law, the Executive cannot be
provided such benefits through the Company's plans, then the Company will
provide the Executive with substantially equivalent benefits, on an
aggregate basis, at the Company's expense. For purposes of the
determination of any benefits which require a particular period of
employment by the Company and/or the attainment of a particular age while
employed by the Company in order to be payable, the Executive shall be
treated as having continued in the employment of the Company during such
period of time as the Executive is entitled to receive benefits under this
Section 5(f). At such time as the Company is no longer required to provide
the Executive with life and/or disability insurance, as the case may be,
the Executive shall be entitled at the Executive's expense to convert such
life and disability insurance, as the case may be, except if and to the
extent such conversion is not available from the provider of such
insurance.
(ii) In the event the Executive's employment is terminated following a Change of
Control or is terminated by the Company other than for Cause in
anticipation of a Change of Control, the Company shall pay to the
Executive, in lieu of providing the benefits contemplated by Section
5(f)(i) above, an amount in cash equal to the aggregate reasonable expenses
that the Company would incur if it were to provide such benefits for a
period of time following the termination date ending on the third
anniversary of the termination date, which amount shall be paid in one lump
sum on the date of such termination.
(g) Accrued Compensation. In the event of any termination of the Executive's
employment for any reason, the Executive (or his estate) shall be paid such
portion of his Base Salary by virtue of his employment during the period
prior to termination and has not yet been paid, together with any amounts
for expense reimbursement and similar items which have been properly
incurred in accordance with the provisions hereof prior to termination and
have not yet been paid. Such amounts shall be paid within ten (10) days of
the termination date.
(h) Resignation. If the Executive's employment hereunder shall be terminated by
him or by the Company in accordance with the terms set forth herein, then
effective upon the date such termination is effective, he will be deemed to
have resigned from all positions as an officer and Director of the Company
and of any of its Subsidiaries, except as the parties (or with respect to
positions with a Subsidiary, the Executive and such Subsidiary) may
otherwise agree.
6. Limitation on Competition. During the Employment Period, and for such
period thereafter as the Executive is entitled to receive severance
compensation under this Agreement, in the event of termination of the
Executive's employment hereunder for any reason other than (a) following a
Change of Control, or (b) by the Executive for a Good Reason or (c) by the
Company other than for Cause (including without limitation in the event the
Company elects at any time not to automatically extend the Executive's
employment hereunder pursuant to the second sentence of Section 1(a)
hereof), (i) the Executive shall not, directly or indirectly, without prior
written consent of the Board, participate or engage in, whether as a
director, officer, employee, advisor, consultant, stockholder, partner,
joint venturer, owner or in any other capacity (other than as an outside
attorney or investment banker), any business engaged in the business of
furnishing oil field services or the drilling, production or sale of
natural gas or crude oil (a "Competing Enterprise"), provided, however,
that the Executive shall not be deemed to be participating or engaging in
any such business solely by virtue of his ownership of not more than five
percent of any class of stock or other securities which is publicly traded
on a national securities exchange or in a recognized over-the-counter
market; and (ii) the Executive shall not, directly or indirectly solicit,
raid, entice or otherwise induce any employee of the Company or any of its
Subsidiaries to be employed by a Competing Enterprise.
7. Enforceability. If any provision of this Agreement shall be deemed invalid
or unenforceable as written, this Agreement shall be construed, to the
greatest extent possible, or modified, to the extent allowable by law, in a
manner which shall render it valid and enforceable and any limitation on
the scope or duration of any such provision necessary to make it valid and
enforceable shall be deemed to be a part thereof. No invalidity or
unenforceability of any provision contained herein shall affect any other
portion of this Agreement unless the provision deemed to be so invalid or
unenforceable is a material element of this Agreement, taken as a whole.
8. Legal Expenses. The Company shall also pay the Executive's reasonable fees
for legal and other related expenses associated with any disputes arising
hereunder or under the stock option agreements referred to herein if either
a court of competent jurisdiction shall render a final judgement in favor
of the Executive on the issues in such dispute, from which there is no
further right of appeal. If it shall be determined in such judicial
adjudication or arbitration that the Executive is successful on some of the
issues in such dispute, but not all, then the Executive shall be entitled
to receive a portion of such legal fees and other expenses as shall be
appropriately prorated.
9. Notices. All notices which the Company is required or permitted to give to
the Executive shall be given by registered or certified mail or overnight
courier, with a receipt obtained, addressed to the Executive at the address
referred to above, or at such other place as the Executive may from time to
time designate in writing, or by personal delivery, and to counsel for the
Executive as may be requested in writing by the Executive from time to
time. All notices which the Executive is required or permitted to give to
the Company shall be given by registered or certified mail or overnight
courier, with a receipt obtained, addressed to the Company at the address
set forth above, or at such other address as the Company may from time to
time designate in writing, or by personal delivery, and to counsel for the
Company as may be requested in writing by the Company. A notice will be
deemed given upon the mailing thereof or delivery to an overnight courier
for delivery the next business day, except for a notice of change of
address, which will not be effective until receipt, and except as otherwise
provided in Section 5(a).
10. Waivers. No waiver by either party of any breach or nonperformance of any
provision or obligation of this Agreement shall be deemed to be a waiver of
any preceding or succeeding breach of the same or any other provision of
this Agreement.
11. Headings; Other Language. The headings contained in this Agreement are for
reference purposes only and shall in no way affect the meaning or
interpretation of this Agreement. In this Agreement, as the context may
require, the singular includes the plural and the singular, the masculine
gender includes both male and female reference, the word "or" is used in
the inclusive sense and the words "including", "includes", and "included"
shall not be limiting.
12. Counterparts. This Agreement may be executed in duplicate counterparts,
each of which shall be deemed to be an original and all of which, taken
together, shall constitute one agreement.
13. Agreement Complete; Amendments. Effective as of the Commencement Date, this
Agreement, together with the stock option agreements referred to herein and
the 1995 Stock Option Plan, is the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto. This Agreement may not be amended,
supplemented, canceled or discharged except by a written instrument
executed by both of the parties hereto, provided, however, that the
immediately foregoing provision shall not prohibit the termination of
rights and obligations under this Agreement which termination is made in
accordance with the terms of this Agreement.
14. benefit of the successors and permitted assigns of the respective parties
hereto. This Agreement and the rights and obligations hereunder are
personal to the Company and the Executive and are not assignable or
transferable to any other person, firm or corporation without the consent
of the other party, except as contemplated hereby; provided, however, in
the event of the merger or consolidation of the Company, whether or not the
Company is the surviving or resulting corporation, the transfer of all or
substantially all of the assets of the Company, or the voluntary or
involuntary dissolution of the Company, then the surviving or resulting
corporation or the transferee or transferees of the Company's assets shall
be bound by this Agreement and the Company shall take all actions necessary
to insure that such corporation, transferee or transferees are bound by the
provision of this Agreement, and provided, further, this Agreement shall
inure to the benefit of the Executive's estate, heirs, executors,
administrators, personal and legal representatives, distributees, devisees,
and legatees. Notwithstanding the foregoing provisions of this Section 15,
the Company shall not be required to take all actions necessary to insure
that a transferee or transferees of the Company's assets are bound by the
provisions of this Agreement and such transferee or transferees of the
Company's shall not be bound by the obligations of the Company under this
Agreement if the Company shall have (a) paid to the Executive or made
provision satisfactory to the Executive for payment to him of all amounts
which are or may become payable to him hereunder in accordance with the
terms hereof and (b) made provision satisfactory to the Executive for the
continuance of all benefits required to be provided to him in accordance
with the terms hereof.
15. Governing Law. This Agreement will be governed and construed in accordance
with the law of Maryland applicable to agreements made and to be performed
entirely within such state, without giving effect to the conflicts of laws
principles thereof.
16. Survival. The provisions of Sections 3, 5(d), (e), (f), (g) and (h), 6, 7,
and 8 hereof, and any restricted stock or stock option agreement entered
into pursuant to Section 3 hereof or during the Executive's employment
hereunder shall survive the termination of the Executive's employment as
continuing and separate agreements between the parties.
17. Subsidiaries. As used herein, the term "Subsidiaries" shall mean all
corporations a majority of the capital stock of which entitling the holder
thereof to vote is owned by the Company or a Subsidiary.
18. Interpretation. The Company and the Executive each acknowledge and agree
that this Agreement has been reviewed and negotiated by such party and its
or his counsel, who have contributed to its revision, and the normal rule
of construction, to the effect that any ambiguities are resolved against
the drafting party, shall not be employed in the interpretation of it.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
KEY ENERGY GROUP, INC.
By:________________________________
Francis D. John
President and Chief Executive Officer
____________________________________
STEPHEN E. MCGREGOR
<PAGE>
EXHIBIT B
Company Paid Coverages
1. Life Insurance 1,000,000 (with a physical exam), payable to beneficiary
designated by the Executive.
2. Long Term Disability Insurance Salary continuation benefit for total
disability. Benefit commences with ninetieth day of disability and
continues to a maximum of age sixty-five. Annual maximum benefit shall be
60% of the Base Salary.
4. Medical and Dental Plan Comprehensive medical and dental plans available to
the company's senior management
5. Director and Officer Liability Insurance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 26,874
<SECURITIES> 0
<RECEIVABLES> 85,629
<ALLOWANCES> 0
<INVENTORY> 14,781
<CURRENT-ASSETS> 131,424
<PP&E> 489,055
<DEPRECIATION> (39,622)
<TOTAL-ASSETS> 638,333
<CURRENT-LIABILITIES> 44,630
<BONDS> 0
<COMMON> 1,872
0
0
<OTHER-SE> 118,489
<TOTAL-LIABILITY-AND-EQUITY> 638,333
<SALES> 5,422
<TOTAL-REVENUES> 305,718
<CGS> 2,282
<TOTAL-COSTS> 274,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,380
<INCOME-PRETAX> 30,907
<INCOME-TAX> 11,542
<INCOME-CONTINUING> 19,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,365
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 0.97
</TABLE>
